FINANCE (No. 2) BILL

HC Deb 10 May 1965 vol 712 cc172-214

Question again proposed, That the Bill be now read a Second time.

Mr. Barnett

As I was saying, in referring to the intention to encourage retention, the former President of my Association put forward no argument, but simply made a statement without giving any examples to prove it. He and others may be right, but, to put it mildly, the case was presented both by him and by right hon. and hon. Gentlemen opposite in a most superficial way. I might add that on that occasion the President of my association was not speaking for at least one of his members.

It is important to understand that the effect of the Corporation Tax is not the same on all companies, and this is what I meant when I talked about the blanket criticism that is made, and which is so totally wrong and totally indiscriminatory. Let us consider first the small companies. The Leader of the Liberal Party said this afternoon that the Corporation Tax would affect the largest possible number of companies. This is untrue. The last available information, that for the year ending 31st March, 1962, shows that nearly 200,000 companies did not pay Profits Tax. That means that those companies had profits of less than £2,000, and clearly the Corporation Tax as such will have none or very little effect on that type of company. The only effect it will have is that tax will be chargeable at the rate of 8s. instead of the present Income Tax rate of 8s. 3d., or the previous one of 7s. 9d.

Now I come to the important close companies as defined in the Bill, and as formerly defined in Section 245 of the Income Tax Act, 1952. Most of the 200,000 companies to which I have referred would be classed as close companies, but I should like to refer to close companies with profits large enough to pay Profits Tax. Again, in the year to 31st March, 1962, there were about 73,800 companies which paid Profits Tax. Far and away the largest number of those companies were not public quoted companies, and would almost certainly have been close companies as defined by the Bill.

Under Clause 72(5), if a company shows that it is ploughing back, or if distribution could prejudice requirements, as the clause puts it, it will pay 40 per cent. Corporation Tax instead of the 56¼ per cent. Income Tax and Profits Fax which it was paying before, or would have paid under the old arrangement, a reduction of more than 25 per cent. in the tax liability of the company.

The greatest number of companies, although not the greatest in profits—I shall come to profits in a moment—will thus have a tremendous incentive, by way of reduction of tax, to plough back. This argument has never been stated by right hon. and hon. Gentlemen opposite. They do themselves an injustice by not undertaking some examination of this type of company.

I propose to consider now the companies making the bulk of profits. These are the smallest in number, but they make the bulk of the profits. My hon. Friend the Chief Secretary proved that the major part of capital for this type of company comes from retaining profits. These companies would be under intense pressure to maintain and increase dividends. In the first year after the Corporation Tax comes into force they will be likely to maintain dividends even without sufficient cover. This will reduce retentions, and will not achieve the objective of the Government. Later, this may be rectified. In later years, with higher profits, they may not increase dividends. But there is no clear evidence on the matter.

Hon. Members opposite are screaming before they are hurt; but equally the Government should not sit back complacently and delude themselves into believing that their objective has been achieved. They should keep an open mind and if changes need to be made they should not be afraid to make them.

But in respect of the majority of companies—the close companies—there is a tremendous encouragement to growth. These companies are often new, small companies, with young dynamic ownership and management. Hon. Members opposite have said that this type of company derives no encouragement from the Corporation Tax. I can only believe that they have been listening to the right hon. Member for Bexley (Mr. Heath), who has shown he really does not understand the workings of the Corporation Tax [HON. MEMBERS: "Really!"] Hon. Members opposite should have listened to the right hon. Gentleman's speech. However much growth may be desired, it can only be expressed in real terms either in increased mechanisation or an increase in or the full use of a company's labour force—or both.

In the short term this is the tough problem. The Machine Tool Traders' Association recently announced that there was a nine-months gap between order and delivery. With the best will in the world, expansion, through increased mechanisation, is therefore difficult in the short term—and it is in respect of the short term that we face our greatest battle. In war, when we were faced with a powerful enemy, we worked long hours without question and gained a great victory. We have a war on our hands now—a tough, economic war—and I would tell trade union leaders that their members will respond to the great challenge if it is put to them squarely that the time for greater leisure will come, but it is not now. First we have to defeat our economic enemy.

10.7 p.m.

Mr. John Harvey (Walthamstow, East)

I wish the right hon. Gentleman the Chancellor of the Exchequer no ill at all in expressing the hope that he will undertake to listen to the points which have been put to him by his own back benchers today. I have no doubt that it will be reported to him that from his own benches there has been only one speech in unstinted praise of his Finance Bill, and that was the speech of the hon. Member for Woolwich, West (Mr. Hamling).

From every other speaker opposite, let alone speakers from this side of the House, there has been a variety of criticisms and suggestions. If the Chancellor prefers to close his ears to those that have emanated from this side of the House, we could be reasonably satisfield—certainly we should be a great deal happier about the Bill—if he were at least to read what his hon. Friends the Member for Manchester, Cheetham (Mr. Harold Lever) and the hon. Member for Meriden (Mr. Rowland) in particular had to say.

In commending the speech of the hon. Member for Cheetham I will not follow him in the glowing tributes that he paid to the Chancellor. I am thinking of the meat in the middle of the sandwich —not the beginning, when he praised the Chancellor, or the end, when he castigated the Opposition. It is the middle part of his speech, which contained some valuable suggestions, I hope will commend itself to the Chancellor.

In a long debate it is natural that the House should concern itself mainly with the Corporation Tax. I am sure that hon. Members opposite will not object if I quote from the Economist. After all, it did recommend the British electorate to vote for the Labour Party last October. Last week the Economist had this to say: The awful truth is that the most complicated tax change in recent British fiscal history is being introduced under an air of half-expectation, even among some of its godfathers, that it may conceivably prove to be the most almighty clanger. In the same edition, having asked the Chancellor to reconsider the position even at this late stage, the Economist said: Immediately after the budget this newspaper said that Mr. Callaghan had imposed a higher prospective burden of business taxation for 1966–67 than was likely to be wise, and urged that the corporation tax itself was too high. Do we now contradict ourselves by saying that corporation tax should actually go up to 45 per cent. if necessary, if that is the price of bringing the rate of withholding tax down? Very well, then, we must say with Walt Whitman, we contradict ourselves: in the light of the evidence of tax oddities that has poured in on us since the budget"— it must have poured in on the Treasury too— no reasonably pragmatic analyst could do otherwise. It would be greatly in the national interest if Mr. Callaghan, who must have received the same weight of evidence and more, were now to contradict himself too. It may be too much to hope for such repentance, but if the right hon. Gentleman would listen to some of the constructive criticism from hon. Members on his own side, he could yet do a great dealt to improve this Finance Bill and much more to improve the economic prospects facing the Government in the vital 12 months ahead.

Again to quote the Economist just after the Budget: There was no shadow of an extra incentive for exports in this budget; that is one of the main criticisms to be levelled against it: And there was much less than any shadow of encouragement to keep up business investment in the crucial year of 1966. On the contrary, business taxation is then to be most unseasonably increased. It is this concern for exports and for our overseas trade which has dominated the debate and on that I should like to spend a few moments myself. It is, I think, very important to realise that overseas investment is complementary to aid, and a number of hon. Members have dwelt on the importance of the aid which we have to go on finding for the less fortunate countries of the world. It is complementary to aid and if we have less overseas investments there will be more calls on the central Government for aid. But investment in long-term projects is more valuable than sums given in aid by central Government, because investment of that type tends to multiply in value to a much greater extent than the original cost. A great deal of the investment is, of course, ploughed back in the country, to serve further to benefit the economy.

It must be borne in mind—this point has been mentioned by hon. Members on both sides of the House—that less overseas investment does not automatically mean that we shall get more investment at home. It does not automatically follow that we shall get more people investing at home because it has been made more difficult for them to invest overseas. It has been pointed out that one has increasingly to invest overseas today to keep some of one's own industries going in their private markets, to get under tariff barriers in one case, to meet with national considerations and interests in others, bearing in mind the developing countries and the problems with which they are faced. If, under duress of the Corporation Tax, our companies have to bow out of some of these markets, they will bow out to competitors only too ready to move in where we have been forced out.

It is relevant to consider, when we are considering the need, to the extent that it exists, to cut down on overseas investment, that the bulk of overseas investment—the bulk of overseas expenditure—tends to be still that of the central Government. The figures issued in Cmnd. Paper 2629 show that the combined official deficit of £551 million was almost as large as the visible deficit of £553 million and more than twice as large as the net private investment of £251 million. Put another way, the Government accounted for nearly three-quarters of the total deficit of £745 million in its overseas expenditure of this type. The Government, therefore, have to consider their own position as much as they are seeking in this way to force private investors to reconsider theirs.

We must also think about the effect which all this is likely to have on our invisible exports, on shipping, insurance and banking, all of which are adversely affected if the flow of trade derived from investment overseas is itself adversely affected. Then there is the fact that so much investment has the effect of stimulating the export of capital goods and, in the creation of further sources of raw material supplies, generating the food imports which we need. There is, therefore, a strategic effect which has to be considered when one is cutting back on foreign investment.

Not least is the fact that the party opposite, which has talked so much over the last year or two of the importance of Commonwealth links, is surely the party which has in decency today to think again about any steps which are likely to be damaging to the interests of the Commonwealth. It must be rather staggering for some hon. Gentlemen opposite to reflect that the effect of the Budget will be to make it more attractive to invest in South Africa, than in India. When one is thinking of social purpose, let the Government ask themselves whether this is really part of the intention of their policies.

I should like to turn for a moment to another aspect of what the Financial Secretary had to say, when he seemed to be suggesting that the oil industry could and should be more heavily taxed than it is now. He argued that it tends to pay very little tax, if any, in the United Kingdom. I have tried to inform myself a little more about B.P., our great national company in which I have no sort of personal interest to declare. It is worth thinking about that B.P. earns overseas about £100 million a year.

From its resources overseas and its investments, B.P. imports oil which would cost us half as much again if we had to import it from foreign oil companies. B.P. buys equipment at a rate of about £10 million a year in Britain. For its overseas investment, it employs British contractors who, in turn, buy more equipment to service these investments. It has spent £17 million in the last 10 years in Britain's shipbuilding yards—and some hon. Members opposite should be interested in that. It has spent £20 million prospecting for oil in the United Kingdom. The vast bulk of its financial resources are held in this country.

It has in this country an elaborate machinery of research organisation which furthers technological understanding not only in the oil industry but also in allied industries. This research work could be penalised by the Corporation Tax because there is no virtue left to a company such as B.P. in carrying it on if financial criteria are the only criteria which the company is to use, for the simple reason that there is no way of offsetting this expenditure in terms of taxation.

B.P. has assets overseas worth £450 million. This is the catalogue of what B.P. is worth to the United Kingdom economy. It is not to be dismissed in the Financial Secretary's words this afternoon. The United States oil companies enjoy a better taxation position than will our own companies under the Corporation Tax.

Mr. Callaghan

Oil companies?

Mr. Harvey

Yes.

Sir Kenneth Pickthorn (Carlton)

On a point of order. Would it not be possible to persuade the Chancellor of the Exchequer either to talk less or to get up and talk audibly.

Mr. Deputy-Speaker (Dr. Horace King)

Order. From time to time I have asked hon. Members on both Front Benches to set an example to the House and, if they want to interrupt, to do so in a conventional manner.

Mr. Callaghan

Further to that point of order. I do not mind very much whether I offended the hon. Member for Carlton (Sir K. Pickthorn) whose good manners are well known, but if I offended the hon. Member for Walthamstow, East (Mr. John Harvey) I apologise. I thought that it was a quick exchange at which he took no offence, and I certainly intended none.

Mr. Harvey

American oil companies enjoy better terms of double taxation relief and depletion allowances than our own companies will enjoy in future. It has been estimated that our companies are likely to have to pay more than 60 per cent. in tax out of their taxable profits compared with under 50 per cent. in the case of American companies. Furthermore, the American shareholder is in a better position vis-à-vis the American oil industry or any other industry because the personal rates of tax are appreciably lower in the United States than in this country.

We must warn the Chancellor that there are American oil companies—we have seen this before in recent years—ready to move in only too quickly if British companies are unable to stay the pace. Recently we had an argument in the House about the effect of a Government economic decision on the British aircraft industry which, we said, was to the great benefit of the American aircraft industry. It would be a tragedy if a similar economic decision were to have a similar effect on a great British oil company to the benefit of the American oil industry. The Chancellor is charged to remember that the Government act as trustees to the British nation for their 51 per cent. share in B.P.

In making these points I urge the Chancellor to think again about the ill effects which this tax will have on existing investment unless he reconsiders the position.

It may be desirable, in present circumstances, to reconsider the position for new investments which will take place in the future. There is no excuse for penalising existing investments, particularly those in vital resources such as oil, minerals and rubber, which mean so much to our economy and to the economies of the producing countries.

B.P. will not find it easy to explain to the Middle Eastern host countries, with which it has only recently had major negotiations, as a result of which the company agreed to pay £10 million more in royalties, that having found that difficult to afford, it will now be able to find several more millions of pounds forced from it by the Government. This is likely to have the effect of bringing new demands from the host countries, to the detriment to this great industry. I appeal to the Chancellor to think again on this issue.

Although there were other points which I had intended to make, time is running out and I will merely remind hon. Members that Abraham Lincoln once said: You cannot bring about prosperity by discouraging thrift, You cannot strengthen the weak by weakening the strong, You can not help the poor by destroying the rich, You cannot establish sound security on borrowed money… I believe that the Chancellor knows that and that some of his colleagues on the Front Bench opposite understand it. Unfortunately, not all hon. Gentlemen opposite understand it.

In a report in the Economist on the Budget debate, referring to the point at which the Chancellor spoke of business expenses, it was stated: Nobody who sat in the House of Commons on Tuesday could doubt that these proposals on business expenses were intended solely to please Labour back benchers at a critical political point in the speech; and very horrid they looked as they yelled their exultation. Now we have this formula. No doubt it is all part of a deal in which the First Secretary is involved. I say to the Chancellor that if he must bring in this formula we will have to look at it carefully in Committee because, apart altogether from the question of overseas buyers, which is a somewhat narrow definition, let us think of all the delegations which come to this country, in many instances invited here by Her Majesty's Government. Has the Treasury spoken to the Central Office of Information about this? What about the requests that are made to British industry to entertain visiting Parliamentary delegations and visiting parties of journalists, remembering that all those people can be ambassadors of British trade when they go home?

The Chancellor will have to think about altering some of these things in the interests of exports alone, if he cannot be big enough to realise that this was a silly thing to introduce and that he should withdraw it and leave it to the normal workings of the Inland Revenue.

I suppose that it is too late to hope that the Chancellor will take the advice given to him last week by the Economist, which stated: It would, therefore, he much better not to bulldoze this rushed job of a Corporation Tax through to the statute book this year. It would be a sign of strength, not of weakness, for Mr. Callaghan to withdraw it even now; and the Opposition will be quite right to vote against it in the House. That very publication, which is of international repute, made the terrible mistake of advising the electors to vote for the right hon. Gentleman's party last October.

10.29 p.m.

Mr. William Clark (Nottingham, South)

We are coming to the end of the Second Reading of a very complicated Finance Bill—one of the longest on record and certainly the most expensive on record. I believe that it costs the taxpayer 14s. for 226 pages containing 90 Clauses and 19 Schedules.

Mr. Robert Maxwell (Buckingham)

Very good value, too.

Mr. Clark

It depends who is printing it. It is very complicated and long and, I suggest, sometimes incomprehensible. Some unkind critics say that it would be easier to understand in Hungarian than it is in the language in which it is printed.

We not only have to look at this Finance Bill. It is allied to the previous Finance Bill, and the Chancellor of the Exchequer has made it clear all the way through that one of his objects is to improve our balance of payments through improving our exports. I know that there are certain side effects to that, but I very much agree with my right hon. Friend the Member for Bexley (Mr. Heath), who earlier today asked whether if we are trying to show the world that they should have confidence in this country, it would not have been much better to have boasted of our overseas investments last November rather than to wait until a week or so ago.

I know that hon. Members opposite do not like to be continually reminded of that matter. The Prime Minister is pleased to boast of our £11,000 million investments abroad, but I think it fair to point out that not one penny of that huge investment was ever built up by any policy of a Socialist Government in this country. The Chancellor of the Exchequer and his right hon. Friends should take that to heart.

In this Finance Bill we have again, as my hon. Friend the Member for Horsham (Mr. Hordern) pointed out, the two whipping boys of taxation—beer and tobacco. I should like to quote a man of considerable experience in this connection who, on 7th May, 1964, said, referring to this increase in taxation on beer and tobacco: I should be wrong to say that this £100 million has no relevance to an incomes policy, because it puts up the cost of living by 1 per cent. and will stimulate a whole series of wage claims. But it has no other effect. The same person went on to say: As the Chancellor of the Exchequer has provided for £100 million exclusively from drink and tobacco, and as this provision has no relevance whatsoever to all the major issues, it is not surprising that his Budget is being called an irrelevant one, and it is not surprising, therefore, that the Finance Bill does very little to help the situation."—[OFFICIAL REPORT, 7th May, 1964; Vol. 694, c. 1477.] I wonder what the Chief Secretary thinks now of what he said a year ago about these two whipping boys?

Does he think it wrong for a Conservative Administration to use these two taxes with, of course, all the bad effects that will flow from them but that if a Socialist Government uses them they will not have the same effect? It will be interesting to know and perhaps the Chancellor of the Exchequer will tell us about these two taxes. I think he will be fair enough to admit that the effect of his swingeing tax on beer and spirits, particularly on spirits, has been partially alleviated by the operation of the Resale Prices Act, a Measure introduced by the last Administration. That, to a certain extent, has cushioned the effect, particularly of the huge increase in the whisky tax.

We have also to look at what might be termed the various minor points of this Finance Bill, but this Bill should be looked at with the previous one, in which the Government increased the petrol tax, put 6d. on Income Tax, gave us the surcharge and increased National Insurance contributions. Now we have the increase in vehicle duty. It is rather extraordinary to listen to the First Secretary saying on 7th April: The taxes that we have imposed do not hit industrial costs."—[OFFICIAL REPORT, 7th April, 1965; Vol. 710. c. 521.] He must be the only man in the country who really believes that, because all these things increase our industrial costs. As everyone save the First Secretary knows, one cannot increase taxation in this way without hitting industrial costs. And not only will it hit industrial costs, but it should not be forgotten that it will also hit agricultural and horticultural costs. This is something to which the Government should pay particular attention.

The Chancellor of the Exchequer, of course, in his Budget speech and in the Finance Bill, has brought forward his entertainment expenses bogy. Possibly there may be some abuse on entertaining —the hon. Member for Manchester, Cheetham (Mr. Harold Lever) made a very good point on this question—but the Revenue already has powers under Form P.11B. It is all right for the Financial Secretary to say this afternoon that the Revenue cannot really find out; all they need do is to make Form P.11B a little more stringent.

This tax on entertaining will hit the small man, not the tycoon. It will hit the commercial traveller and the semiprofessional man. It will affect the estate agent who employs five or six salesmen to sell houses. The agent has to pay for the entertaining that those salesmen incur. If the expense is disallowed for tax purposes it will not penalise the person enjoying a lunch but the owner of a business who pays at the highest rate. I beg the Chancellor to look at this proposal again because the small man will suffer under it.

We well remember the Chancellor's speech when he introduced this part of his Budget. He spoke of penthouses, grouse moors and yachts. Today my hon. Friend the Member for Abingdon (Mr. Neave) asked a Question of the Treasury about what percentage was allowed by the Inland Revenue for these grouse moors, yachts and so on. It is extraordinary that when the Government have placed such great emphasis on entertaining by such things as grouse moors, yachts arid so on that my hon. Friend should get such a dusty answer— I regret that this information is not available. How can the abolition of such allowance for expenses be justified if it is not known what expense is involved?

When he introduced the proposal, the Chancellor said that at least he would have the satisfaction of knowing that anyone who had a business luncheon would not be "heavily subsidised by the Exchequer." Why is this not applied to Government entertaining? That is not heavily but wholly subsidised by the taxpayer. I was interested when I listened to the right hon. Member for Easington (Mr. Shinwell), whose comment is reported in col. 599 of the OFFICIAL REPORT for 7th April. Regarding business expenses, he said that he would like the provision applied to Government hospitality. He went on to say that he had not been invited to some of this entertainment. I feel sure that if an Amendment is moved to include Government entertainment expenses we shall welcome him in the Lobby to vote against the Chancellor, unless he changes his mind.

The main part of the Bill, the Capital Gains Tax, is hailed as a great social measure, but will it achieve the object we are led to believe to be behind it? All my hon. Friends agree, as do some hon. Members opposite, that this will hit the small man. I accept that life insurance policies are exempt from the tax, but one has to look beyond an insurance policy to see how its value is made up. Premiums are received by an insurance company, which invests the money and receives dividends which eventually go to aid millions of policy holders. Any hon. Member who has had experience of investing knows that investments have to be switched. The Capital Gains Tax will be employed and the money going into the pool eventually to be distributed to the millions of policy holders will be reduced. Eventually this will affect the small man as it will in the case of unit and investment trusts.

It is all very well the Chancellor of the Exchequer saying that we could have a franked dividend voucher showing what Capital Gains Tax the investment trust and the unit trust will pay, but in fact they will be paying at the rate of 35 per cent. As one of my hon. Friends pointed out, a direct investor who makes a capital gain pays at the rate of 30 per cent. But take the case of the small man who has not got the income that will justify him paying 30 per cent. He can have the one-third exemption and the rest of it added to his income. Possibly he will be paying at the rate of 15 per cent. or 20 per cent., and in many cases he will not be paying anything. So what is the effect of this franked Capital Gains Tax on the small man who owns any unit trust shares? One could go on with many of the anomalies that this system throws up. One thing we should remember is that the Capital Gains Tax will be paid by anybody who owns a small business and retires. Why will not the Chancellor give some exemption?

Then there is the difficulty of valuation. I would remind the Chancellor—this is an example that, no doubt, has been brought to his attention already—that last week at Christies a set of plates was sold for £5,000. Apparently they were very special plates. A similar set was sold later in the same sale for £4,000. I am sure the hon. Member for Manchester, Cheetham will support me when I ask, how is it possible to get a straight valuation on 6th April this year when we have a variance of £5,000 and £4,000 for two identical sets of plates?

As many of my hon. Friends have pointed out, Capital Gains Tax is at the swingeing rate of 30 per cent. But if it is paid by a company it will be 35 per cent., whereas in America, which is constantly quoted, the maximum rate is 25 per cent. and the average rate paid is about 9 per cent.

Hon. Members opposite are great admirers of Sweden, that sort of Socialist paradise. Sweden also has a capital gains tax, and even in that country they have obviated the necessity to tax inflation. In Sweden, as I think the Chancellor knows, the rate of capital gains tax is tapered off so that eventually it becomes nil. Why is it right to tax at 30 per cent.? Surely there must be some tapering off in inflation.

One other matter—and this was brought out forcibly by my right hon. Friend the Member for Flint, West (Mr. Birch) in a previous debate and by my hon. Friend the Member for Horsham—is that of gilt-edged securities. The failure to keep faith with people who invested in gilt-edged below par could have a serious effect on the future workings of the gilt-edged market. The Chancellor must take this into consideration. He knows that he has got to find by borrowing £700 million this year. If the Government of the day are going to issue gilt-edged securities below par, as my hon. Friend the Member for Horsham pointed out, one does not just work out the rate of interest; one adds on the capital value of the redemption. If the Chancellor does not accept this, he has got to increase the rate payable for the £700 million that he has got to raise. Surely this is a short-sighted policy.

I do not suppose it would be right to let the Second Reading go without mentioning Corporation Tax. I would commend to the Chancellor—I hope he has read it—the debate in another place last week which the noble Lord, Lord Aldington, initiated on overseas investment. There one can get an overall and, if I may say so, a fairly non-party approach to this problem. [Laughter.] Hon. Members opposite may laugh, but the imposition of Corporation Tax is bound to affect our exports. There is not an industrialist or a financial journalist who will not say this, knowing that it is true. It is no good hon. Members opposite laughing when we say that it will affect exports. Of course it will affect them. If we want to get exports, there is no point in trying to discourage people from investing overseas.

There has been great argument on both sides today about whether exports flow from overseas investment. The recent Federation of British Industries study shows that there is a connection between exports from this country and overseas investment. Of course there is a connection. Last year, from our overseas investment—the £11,000 million—we got net, after the foreign tax had been paid, £860 million. To discourage this investment means that eventually that £860 million will diminish, and if it diminishes we must somehow replace it by actual exports.

As my hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow) said, many overseas companies must reduce their dividends because of the imposition of Corporation Tax. On 12th April, as reported at c. 969 of the OFFICIAL REPORT, the Chief Secretary to the Treasury pointed out the danger of paying low dividends. He said that when a company pays low dividends, there will be a depreciation in the value of the shares. That is obvious. The hon. Gentleman went on to say that such a company was ripe for take-over bids. This was precisely the point made by my hon. Friend the Member for Middleton and Prestwich concerning the rubber companies in Malaysia. That is not the only sort of company which is affected.

Insufficient importance has been attached to the effect that the Corporation Tax will have on insurance companies which insure overseas. On many occasions they have to invest their money overseas, because of statutory requirements, to pay claims. If the Government penalise insurance companies overseas by this Corporation Tax, we may lose a large invisible export that we enjoy and from which last year we got £60 million. These items are extremely relevant to our balance of payments.

The Chancellor accepts that there is hardship with the imposition of Corporation Tax. He must agree, otherwise he would not have introduced the transitional periods. Accepting that hardship will be caused, he has allowed the five years, the two years and then the tapering off. This is merely putting off the evil day. It is small comfort to these overseas companies to realise that they have five years' grace before the full effects of this tax hit them. We should certainly control new investment, but I do not see why, in the Bill, the Government should hit out blindly.

Many hon. Members opposite have said that the United States has cut down in its overseas investments. The United States, however, has been careful not to act to the detriment of its existing overseas investments. It is only in the case of new investments that it is taking action. We would agree with this, but we certainly would not agree with hitting out blindly and, to cut down investment this year, hitting all our existing investment. This is short-sighted policy.

The other thing on Corporation Tax is the question of the Neumark Committee's Report. Here again the Financial Secretary to the Treasury, on 8th April, 1965, really got himself into a slight jam and then got out of it—when it was pointed out to him that the German system on retained profits was 51 per cent. and on distributed profit 15 per cent.; the exact opposite of what we are doing—by saying: I said that this new tax would bring our tax system into closer approximation with theirs. That is true, but I was not talking about the rate of taxation but the system of taxation."—[OFFICIAL REPORT, 8th April, 1965; Vol. 710, c. 802.] We are talking about the rate of taxation. We say why, if in Germany they pay 51 per cent. on retained profits and 15 per cent. on distributed, are we in this country doing the complete reverse? This really is short-sighted policy and it shows quite illogical thinking. As my right hon. Friend the Member for Bexley quite rightly said, it is nonsense for the Government of the day to be saying on the one hand, "We will give you 1 per cent., 2 per cent. or 3 per cent., if you export", when at the same time they are taking away exports by the imposition of the Corporation Tax.

I hope that the Chancellor and his right hon. Friend are realising the folly of their actions, because the doubts about the Corporation Tax are not restricted to this side of the House. Most hon. Members opposite who spoke—and, with the greatest respect, those who spoke with any authority or experience—all agreed that there were many doubts on the imposition of the Corporation Tax and how it will hit the export trade.

I know the Chancellor has not yet closed his mind. I presume that he has not, because I think he will remember at a May Day rally a few days ago in Manchester he said that he would "listen to them." It seems to be the sort of thing to do. At one time it was the reviewing Government. Now we have got the listening Government. I hope that very soon we will be able to say the defeated Government.

At home the Corporation Tax is supposed to be a great measure, a clarion call to modernise, to do this and to do that, to put some dynamic force into our economy. What does it do? Because of the imposition of the Corporation Tax, and with the same amount of profit passed, every small investor in this country is going to have a decrease in his dividend of nearly 20 per cent. This is not going to please the 4,000,000-odd small investors in this country. This is the effect. It is all very well for the Chief Secretary to nod his head. He knows, as I do, that if one takes £100 of profit passed to dividend, one would have got a gross of £74 under the old system. Under the new system one will get a gross of £60 and the difference between £60 and £74, to my reckoning is 19.43 per cent. It is the small man who is going to be hit.

The 60 per cent. compulsory distribution is going to affect the closed company and the small company. At the moment, with a director-controlled company the Revenue insists on 20 per cent. to 40 per cent. distribution.

The Chancellor is saying that small companies must distribute 60 per cent. of their income after Corporation Tax has been paid. This is quite obviously hitting the small man. Many of our companies have been built up over the past 8, 10 or 15 years from small beginnings, and the people who started them ploughed back their profits and worked 24 hours a day. Now they will not be able to do this. This is crippling private enterprise and killing the small man. One could go through many classes of industry and show how they are going to be affected.

I know that the Chancellor is serious about this, even though some of his hon. Friends are not. I should like him to answer the question about the diminution of dividends to the small investor. I am sure he will agree that there must be a diminution.

I know that in some parts of his party the profit motive, or the dividend motive, is not entirely in tune with the party's philosophy. In fact, on 7th April of this year the right hon. Member for Easington (Mr. Shinwell) said that he was rather surprised that the Government were still paying homage to the profit motive. I should have thought that the profit motive had served this country, and many others, too, extremely well, and this nonsensical philosophy that there is something wrong with profit cannot do anything but damage to our standard of living. Everybody knows that. One could speak for a long time on this topic, but time is short.

I come back to the main theme of the Bill, which is balance of payments vis-à-vis exports. I was astounded, as I expect all hon. Members were, last week when the First Secretary, when talking about exports, said during the steel debate: … if the argument is that one does not export in the nation's interests but only when one makes money, one is doing a very unpatriotic thing."—[OFFICIAL REPORT, 6th May, 1965; Vol. 711, c. 1688.] Can we, as an international industrial nation, dependent as we are on exports for our standard of living, possibly subscribe to the theory that one can export without making money? Are we really going back to the 1945 days—to the will-o'-the-wisp of exports? Are we going back to unrequited exports? That, partially, was the reason why we had to borrow nearly £2,000 million from the Americans. We do not want to go back to that position. We want to progress.

The Chancellor and many Government spokesmen have pleaded that the purpose of the Corporation Tax is to simplify the tax system. I should have thought that it made it more complicated, and I could not understand why the Chief Secretary said this about the Corporation Tax: 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 reform." —[OFFICIAL REPORT, 12th April, 1964; Vol. 710, c. 972.] He and I are accountants, and I should have thought that one reason why accountants welcome the Bill is that it is an accountants' paradise. It is so complicated, and in many instances so incomprehensible, that it is an accountants' and lawyers' paradise. I am sure that the hon. Member for Heywood and Royton (Mr. Barnett) will agree that it is difficult to interpret the Bill.

Talking about interpretation, it took a Socialist Government to define a connected person. I should have thought that this was a little infantile, but there it is, boldly printed in Schedule 6, paragraph 21(2) on page 156, where it says: A person is connected with an individual if that person is the individual's husband or wife … I cannot think how, even in a Finance Bill of this magnitude, anyone could stoop to defining the connection between husband and wife.

During the debate hon. Gentlemen opposite have spoken about the Tory record. I do not think that they have been very kind about it, but the cold fact of the matter is that during 13 years of Tory Government the standard of living in this country went up by 40 per cent., and that is no mean achievement. From the benches opposite in those days the cry went up about a candy-floss economy. At least we had candy. We have no candy now. All we have is a floss economy.

The Bill shows antagonism towards the capitalist system. [HON MEMBERS: "Hear, hear."] Here we have the Left-wing of the Government, who are their Achilles heel. I hope that they will not become the Achilles heel of the economy. They think that capitalism does not work, but it has worked extremely well up to now.

Mr. Hamling

For you.

Mr. Clark

The hon. Member cannot say "For you," if he accepts the fact that the standard of living of everybody in this country rose by 40 per cent. It was not all for the benefit of my hon. and right hon. Friends; some of the hon. Member's hon. and right hon. Friends also benefited. This Socialist sophism is not the answer to our problem. The Government are not capable of solving any of our problems, and I recommend that they move out or move over and let somebody else take over who knows how to deal with these matters. I am convinced that my hon. and right hon. Friends, in the past 13 years, have proved that they can run the finances of this country, and it is because we have no confidence in the Government's handling of our finances that my hon. and right hon. Friends will divide the House this evening.

11.2 p.m.

The Chancellor of the Exchequer (Mr. James Callaghan)

I acknowledge the peroration of the hon. Member for Nottingham, South (Mr. William Clark), who spoke in his usual convincing and lucid way. I was not altogether surprised to hear him say that he did not have any particular confidence in this Government. I would have been surprised if he had. But he was hedging his bets a little unnecessarily; he need not have put the matter in the general way he did when he invited us to move over, to let someone take over. Someone! Does he have to hedge as much as that? [Interruption.] I agree that the level is now such that almost anybody would be better. I have seen the claims of the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) advanced in the Press, and in certain circumstances I would find myself very strongly behind him; there is a great deal to be said for his candidature. I do not want to provoke hon. Members, but they seemed to be hedging their bets a little too much.

It has been a very interesting debate. [Interruption.] The hon. Member for Torquay (Sir F. Bennett) has not been here earlier, but now comes to join in—

Sir Frederic Bennett (Torquay)

On the contrary.

Mr. Callaghan

If he does not want to join in perhaps he will kindly keep quiet.

It has been interesting to note the great depth of feeling that has been aroused on the one issue of overseas investment. I certainly take this issue very seriously, and shall attempt to answer the points made as fully and fairly as I can, although—and I hope that hon. Members will not shout their heads off—I have heard more exaggeration and inaccuracies on this subject tonight than I can remember hearing in the course of a single debate for a long time. I must try to demonstrate that later on; I merely ask hon. Members to accept that that is my view now.

The right hon. Member for Bexley (Mr. Heath) made the speech today that he should have made on the Budget Resolutions but did not, because the Opposition did not divide on them. He said a lot of things that rather hurt me. He asked me, in particular, why the special deposits have been called for only three weeks after the Budget and whether I had miscalculated the situation in the period between 6th April and 29th April when they were called for. If the right hon. Gentleman will remember, I said in my Budget speech that although I had made the best judgment which was possible in the situation at that time, if the situation should show any signs of needing action either way I was quite ready to take that action. I think the right hon. Gentleman will agree that when the April bank advances showed an increase of £98 million this was of a size which we could not ignore. Without rubbing salt into old wounds, there were, of course, two months last year when the increase in bank advances exceeded that level and when the right hon. Gentleman opposite held power. In my view, they should have taken action then. One of the reasons that we have to use the monetary machine in the way which we are doing now is that the right hon. Gentleman did not take action at that time. I think it is important that we should be ready to move on special deposits now that it looks as though bank advances are going ahead faster than the estimates on which I based my calculation in the Budget of April.

I said that I would take further measures if they were shown to be necessary. I took them. That is perhaps a new and prompt method of behaviour. It may be a little unusual after previous experience, but I hope that it will commend itself to the House. I shall not hesitate to move either way in this or other respects promptly and quickly in order to try to keep the economy on as even a keel as we can. There is a great deal of room for argument—we heard some in today's debate—between those who believe, as the right hon. Member for Bexley and his hon. Friend the Member for Nottingham, South seemed to believe, that the economy is now turning down, and those like the hon. Member for Horsham (Mr. Hordern), who, in the course of a very well informed speech, expressed the view that my principal trouble over the next few months is that the economy is overheated and is likely so to remain.

It is not for me to judge between his wisdom and that of the right hon. Member for Bexley. At least, it is for me to judge: it is my job, and that is why it is such a difficult job. I think that, in circumstances like these, which were described by Mr. Harold Macmillan as trying to run the economy by looking up last year's Bradshaw—we are now trying to ensure that the trains run on time—one must use the best judgment of which one is capable at any moment.

The right hon. Member for Bexley made great play with what he alleged to be the absence of any detailed analysis in my Budget speech to justify reducing home demand by £250 million at an annual rate. His hon. Friend thought that I should have done more, while the right hon. Gentleman, I assumed, thought that I should have done less. At any rate, he asked why I did not justify it. I made it clear in my statement that this is a very difficult judgment to make. I said then, and I repeat now, that this is a field in which there are many uncertainties and where there are risks on either side. If I take that view now, at least I find myself in good company, because the right hon. Member for Barnet (Mr. Maudling) said in his Budget statement in 1963: … we must regard all calculations to which I have referred as no more than pointers; the final decision must be an act of judgment."—[OFFICIAL REPORT, 3rd April, 1963; Vol. 675, c. 472.] He said much the same thing last year: My decision as to the size of the change I must make is clearly a matter of judgment, not of exact calculation."—[OFFICIAL REPORT, 14th April, 1964; Vol. 693, c. 267.] I think that the right hon. Member for Barnet sums it up perfectly fairly.

This is, I think the most difficult task which I have ever had to perform, and I can now understand the dilemma of some of my predecessors in these matters. Because it is a matter of judgment, one must be prepared to move quickly in this respect where one thinks that it is necessary. In a situation in which we expect bank advances to increase by 5 per cent. over the whole year—this was the sort of estimate on which we were working—and in fact they increased by £98 million in one month, it would have been irresponsible on my part not to have taken action as soon as the April figures showed that up.

The right hon. Member for Bexley asked me also whether I would not publish the detailed communications which had passed with the International Monetary Fund and the Group of Ten. I should like to repeat what I said when I intervened in his speech, for which I apologise. Those communications which have previously passed between Governments—like those between his Administration and the International Monetary Fund—are regarded as confidential between the members of the Fund. That would not prevent me from proposing an alteration; but I think, on balance, that it is best left that way. Unless the right hon. Gentleman has some arguments to advance, I should prefer to retain the normal practice which has existed certainly since 1959 in this way, that communications between Governments should be regarded as confidential. I therefore propose not to publish the details.

The right hon. Gentleman asked me about investment. In our opinion, there is as yet no evidence of a down-turn in investment. The Board of Trade survey of investment intentions still shows a high level of investment in 1965 and a substantial increase over 1964. Despite all the prophecies of woe, it looks as though industrialists are looking more to the future of their markets and less to the incidence of taxation upon their profits. This is a very interesting phenomenon, which goes part of the way to explain why they do not take as much notice of investment allowances as some of us thought they did. They measure their new investment by the capacity of the market to absorb it and that is probably the best test of all.

If there is a down-turn in investment next year—the right hon. Gentleman asked me particularly about this—we must deal with it as far in advance as we can see it coming, especially in the light of the very difficult task which I have in strengthening the reserves. I have explained the dilemma in the past, and I need not explain it again, because it is well known to anybody who has studied the matter. We have a difficult and delicate balance to strike.

In this connection, as the right hon. Gentleman truly said—I am sorry that he poured some scorn on it—the gradual progress which is being made towards an incomes policy is of the highest importance and significance. I repeat again that the judgment which I make must be partially based, if we are to avoid a serious down-turn in the economy, upon a relative measure of success in incomes policy. I do not expect it to be perfect. I imagine that nobody here does. But we must try to make this incomes policy successful, and the energies and devotion which my right hon. Friend the First Secretary has put into this cause are worthy of support from everybody in the House. I would only say to right hon. and hon. Gentlemen opposite who scoff at it that at least he has gone a good deal further along the way than previous Administrations have done.

Having attempted to answer some, but not all, of the questions put to me by the right hon. Gentleman, I will turn more particularly to the Finance Bill. I do not quibble because great tax reforms such as these are queried in the first place, closely analysed, closely questioned and perhaps not immediately obvious to everybody who studies them. That is the purpose of the debates in the House. I think that as the unfolding of the argument becomes clear there will be more of a general acceptance on the other side of the House than there has been so far.

Indeed, their present attitude is rather a reversion, because they used to be in favour, and now they have ceased to be in favour, of these reforms. They are in favour of a Corporation Tax but not this one. They are in favour of a Capital Gains Tax but not this one. That is the traditional rôle of an Opposition. But certainly the new taxes which I have introduced are intended to promote healthy growth, and I think that I can show that they will do that. They are certainly based on fairness and equity. They will, I hope, cause taxation to cease to operate in a way which rewards the speculator more than productive industry.

Although hon. Members opposite do not believe this, they are simplifying the company taxation processes. There is no doubt about this. I do not want to go into lyrics of praise of Parliamentary Counsel but they have compressed into a mere 40 Clauses the whole of the taxation on companies, which is a remarkable achievement. There is no doubt about that. Perhaps hon. Members have not yet noticed that in Parts IV and V of Schedule 19, ten Schedules have been entirely repealed and 80 Sections. The whole of the new tax is compressed into a 40-Clause passage in the Bill. I ask hon. Members opposite to consider this seriously. It is quite an achievement, and whatever the pains of the transition—and there are bound to be difficulties in the transition period—there is little doubt that this is why the tax has attracted—at any rate the theory, if not the actual proposal—so much support; it is because it will result in simplification of effort in the long run.

I will return to the Corporation Tax later. On the Capital Gains Tax, I must point out that although some hon. Members think that the rate is high it is still lower than the tax rate on earnings. Earnings are taxed, at the standard rate, at 41¼ per cent. Capital gains will be taxed at 30 per cent., and because there is no retrospection in the legislation, for many years assets acquired before 6th April last are not likely to pay 30 per cent. I do not think that it can be claimed, at any rate in the initial years of this new tax, that the rate of 30 per cent. is high.

The right hon. Gentleman and others asked me whether there should not be an allowance for inflation in the taxation provisions. If we were to start doing that in our taxation system, it would lead to some very odd results in other fields apart from capital gains. In this case—unusually so—I can rely on the combined wisdom of both the majority and the minority Reports of the Royal Commission on Taxation. All signatories to the Royal Commission Report were of the opinion that no allowance should be made for the inflationary consequences of a country's policy. I therefore do not think that I can make that allowance. [Interruption.] I cannot hear the hon. Member for Shipley (Mr. Hirst), but if he cares to rise I will gladly give way to him.

Mr. Hirst

I appreciate the Chancellor's kindness in giving way. I was asking whether in his opinion the Royal Commission were in favour of a Capital Gains Tax.

Mr. Callaghan

No, they were not. The minority were and the majority were not. If the hon. Member had listened I said that whatever their views on the Capital Gains Tax, both the majority and the minority were against giving an allowance for inflation—in relation to other kinds of taxation. Hon. Gentlemen opposite will have plenty of time to read the Royal Commission's Report in the weeks and months ahead.

I come to the subject of the gilt-edged market. The flexibility of the gilt-edged market is an argument that is certainly seriously held by a number of people and would think that there will be perhaps a little less switching, at any rate immediately, than there has been in the past. But, whatever importance one attaches to this, I think that the degree of switching will undoubtedly increase again as people find opportunities for profitably doing so, especially the institutions. I think that the institutions will be quick to seize their opportunities.

When one considers the gilt-edged market and analyses the holdings in it, one sees that about £20,000 million, or a substantial percentage of the total stock, will not have their tax position changed by the Capital Gains Tax. This will be so for a number of technical reasons, into which I need not go now. I am sure that they are well known to many hon. Members. Thus, I do not think that the degree of flexibility, which many people seem to think is required, will be impaired to anything like the degree written about. Moreover, there are other ways in which the gilt-edged market acts, into which I need not go now. I would not myself regard this as a serious obstacle to the introduction of the Capital Gains Tax on gilt-edged securities.

Then it is suggested that we are making a breach of faith here. The right hon. Gentleman the Member for Flint, West (Mr. Birch) wrote one of his famous letters in The Times in which he said that the proposal to tax capital gains on gilt-edged made him feel sick. It is an astonishing phenomenon. The last time he felt sick was when he was talking to Mr. Harold Macmillan. He gets sick about the oddest things.

I do not follow that sort of argument and—[Interruption.]—in any case, it was a fairly cheap letter, to be truthful. I do not follow the argument that when a Government decide to change taxation arrangements they must except gilt-edged from their taxation changes. This argument has been used about nothing else. Of course we are entitled to change the taxation arrangements. Any Government are and many Governments have. There is simply nothing in the argument that this is a breach of faith. [Interruption.] I have expressed my point of view. Hon. Gentlemen opposite are entitled to hold a contrary view if they wish.

Mr. Stratton Mills (Belfast, North)

Does the Chancellor accept the argument that the inclusion of gilt-edged stock in the Capital Gains Tax will have the effect, at least marginally, of pushing up the cost of borrowing against the Government?

Mr. Callaghan

I have seen that argument, but I do not accept it for the long run.

My hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) asked why there should be double taxation in the Capital Gains Tax sphere. I was clear about this in my Budget Statement and I see no reason to depart from it. This arises from the separation of taxation—the separation of tax on the company from tax on the shareholder. Both in the Corporation Tax and in the Capital Gains Tax, there is this separation and, as far as I am concerned, I think that we should carry the logic of this separation the whole way through. Thus, if one is separating the taxation of one from the taxation of the other, I do not think that one can use the tax of one to offset the tax of the other.

I return briefly to the Corporation Tax. I now particularly address my hon. Friends, although I hope that hon. Gentlemen opposite will bear this in mind. One of the advantages of the Corporation Tax, apart from its simplicity and the fact that in my view it acts as an incentive to growth, is that it enables trade unions to take what I would regard as a rational view towards profitability.

Nobody likes to work for an unprofitable industry. That is why one can always get employees to work for, say, I.C.I. in preference to British Railways. [HON. MEMBERS: "Hear, hear."] They prefer to work for an industry in which profits are to be made. Since I carry hon. Gentlemen opposite with me so far, let us see if they will come with me on the next stage of the argument. It has always been the case that whenever we, former Labour Administrations or hon. Gentlemen opposite have asked the wage earner—the man who has nothing to sell but his skill and labour—to restrain what he gets from industry, he inevitably replies, "If I do that, those other chaps later on are going to get it all back in the shape of some kind of capital gain, capital distribution or whatever it may be, whereas I never get back pay". How often have the trade union shop stewards heard that argument advanced against having a rational policy on wages?

One of the important points in this connection—I am not saying that it is the only virtue of the Corporation Tax—is that it enables one to separate the tax on the company from the tax on the shareholder. This is a very important element in it. It means that one can, as I am proposing here, have a relatively low rate of tax on the profitability of the company, so encouraging it to plough back its retentions into new machinery and plant, whereas there will be a higher rate of tax on the shareholder. This is, in itself, a very substantial advance on the old system, for reasons which will be apparent to many people.

I was asked—remembering that the old system was full of anomalies—how much tax was being lost under the old system. I would remind him that the Public Accounts Committee—in its Fourth Report for 1963–64—had something to say which certainly influenced my thinking, in paragraphs 6 and 7, in relation to taxation which was not paid by companies although normal people might think it had been paid. The Committee took a specimen group and said: Some of the companies had paid the whole of their dividends to parent companies, and in these cases the Comptroller and Auditor General was able to establish that the gross dividends used by the parent companies for repayment claims exceeded by £32 million the total of profits on which the subsidiaries had paid tax. In these few examples— few examples— therefore, there had been repayment of tax of £32 million (equivalent to tax of £12 million at the current standard rate) which had not been received by the Revenue and which, the Department confirmed, never would be received. When we get in the tax system to that state where we "repay"—I put it in quotation marks—tax which has never been paid and which is then used to make dividends I say it is high time the system was changed. Everybody knows that through a variety of devices which we can go into in Committee a great deal of this sort of thing and other arrangements have been going on.

My hon. Friend the Financial Secretary put the argument on investment allowances and I shall not go into that again now as it is getting late, except to emphasise that from some of the exaggerated comments of hon. Members opposite one might think that investment allowances were being destroyed. Nothing of the sort. In fact, as my hon. Friend pointed out, they are costing something over £300 million a year and as a result of the introduction of Corporation Tax that cost will become roughly about £220 million which industry will still be getting.

I thought that the right hon. Gentleman's thinking was moving along very interesting lines, because he, like a great many other people, is now beginning to regard investment allowances not so much as a tax relief as a subsidy. That was the way he was framing it, as he will see if he reads his remarks, and I invite him to do so. If these things are being regarded more and more as subsidies rather than tax relief then it is the duty of the Government to consider whether this is the best method in which that additional relief between £220 million and £320 million should be given. That is what I propose to look into during this year.

The hon. Member for Nottingham, South and other hon. Members opposite have claimed that there will be uncertainty. But if we are to operate on that basis we shall never make any changes at all. I think companies are sufficiently well versed in investment allowances over many years as not to be affected by this consideration too much. In any case I must point out that one of the consequences, as my hon. Friend the Financial Secretary reminded the House, is that it places more free reserves in the hands of companies. Because there is a lower tax on profits, they have more free reserves which they devote to investment.

Sir T. Brinton

I should like to ask the Chancellor to answer this question which the Financial Secretary dodged: why, when he has argued so cogently for the Corporation Tax that it would encourage investment in public companies, he should deliberately introduce a Clause insisting that close companies should pay at 60 per cent. on the total available for distribution?

Mr. Callaghan

I hope that the hon. Member will not say that my hon. Friend dodged the question. He gave way a number of times and did not give way to the hon. Member, and that was the reason I gave way to him. [HON. MEMBERS: "He did give way."] The hon. Member then tried to get up again and failed. I will come to close companies. Indeed I will come to that straightaway. Am I going on too long? [HON. MEMBERS: "No."] I have a lot of candid friends. I will deal with close companies and the question of overseas investment, and then, perhaps, we can move to a vote.

My hon. Friend the Member for Heywood and Royton (Mr. Barnett) made the classic case, to which, unfortunately, the hon. Member for Nottingham, South did not listen. I must therefore repeat it. There are provisions in the existing law to deal with avoidance of Surtax through the retention of the profits of very closely controlled companies. As explained in my Budget speech, the temptation there is to withhold profits from distribution unnecessarily will be far greater under the new system because Income Tax as well as Surtax would be avoided. Having paid Corporation Tax at a rate to be fixed, those in control of the company could accumulate their savings free of all personal tax until they needed them.

The need to prevent avoidance in this way leads to provisions that may seem at variance with the general objective of encouraging retentions. But the same problem existed when distributed profits were taxed at a rate higher than undistributed profits; and all parties have always accepted that whatever might be suitable for the public company had to be modified in its application to the private company. I am surprised, nevertheless, that we have not been given any credit for the substantial change we have made in the law about closely controlled companies.

Under the present law, if a company does not make a reasonable distribution, all of its profits can be made liable to Surtax. This provision was long criticised as too severe. Under my provision, only 60 per cent. of its net trading profits have to be distributed, and it is open to the company to show that it could not make a distribution up to that standard without prejudice to the requirements of its business. If hon. Members will look at paragraph 10 of Schedule 17 they will find that this requirement has been defined in a way that links it up with the existing law.

The position is that we are proposing to repeal the existing provision, and the new language is supposed to have, and, I trust, will have, exactly the same effect. I think that 60 per cent. of net trading profits to be distributed is not a severe test. It amounts to 39 per cent. of the gross profit under Corporation Tax at 35 per cent., and 36 per cent. under Corporation Tax at 40 per cent. This is below the general level of distributions for public companies. It is no use the hon. Member for Kidderminster (Sir T. Brinton) shaking his head—

Sir T. Brinton rose—

Hon. Members

Sit down.

Mr. Callaghan

Having set this very reasonable standard, it is not unreasonable to expect the company to show that it ought not to distribute even that modest amount. If these companies are ploughing back their profits into new equipment and plant, nobody will require them to distribute them; it is where they are just sitting on them that we act. [Interruption.] Let us see how its gets written into the Bill. Hon. Gentlemen will know that what is said at this Dispatch Box cannot be translated into law; the Finance Bill will translate broadly what I say into Statute in due time.

I turn finally to overseas investment. This will go on. Listening to some of the Jeremiahs on the other side, one would think that overseas investment was to come to a full stop. It will go on at a very substantial pace. The United States has had this system of taxation for years. Overseas investment by the United States has gone up by leaps and bounds. In the last 12 years from 1951 to 1963 there has been 40,000 million dollars of private direct investment by the United States in other countries. If they have managed to do that under this system that I am now proposing to introduce, why is it suggested that overseas investment by British companies will wilt and die?

It will only wilt and die if the investment itself is unprofitable—that will be the test—and there is a certain amount of investment at the margin today which is relatively unprofitable, and only kept alive by very favourable tax treatment. Those who talk about dynamic investment will not claim that we should go on propping up that kind of institution which, in some cases, is not even marginally profitable at the present time but will surely agree that the capital in it could be better employed.

I should like to explain the position. I have to explain it to myself twice a day, and I will put it as I understand it. There has been a lot of exaggeration, so I will try once again to get it over.

Today a company in this country gets relief from Income Tax and Profits Tax for all the overseas tax it pays. It gets relief up to, but not beyond, its full United Kingdom liability. Shareholders are regarded as satisfying their Income Tax liability even though the company has been relieved of all its Income Tax payments. Let us turn to the future. This is an odd position which certainly is not shared by other countries. Companies will continue to get relief from Corporation Tax on overseas tax on direct investment. There will be no change in that up to Corporation Tax rate, but there will be no relief beyond the Corporation Tax rate. Where the rub comes is that Corporation Tax will be lower than the United Kingdom Income Tax and Profit Tax rate.

There will be a larger chunk not set off than there is at present, although even today there are chunks which are not set off. There will be a larger chunk which will arise in those countries where indigenous rates of tax are astonishingly high. Although we hear that we are over-taxed in this country, it is astonishing to hear of countries where the rate is higher than it is here. I leave that on one side. Should the shareholder get the benefit of the tax which is not set off by having it set off against tax on his dividend? The principle of the Corporation Tax is that United Kingdom tax on a United Kingdom company will not be regarded in future as discharging the liability of the shareholder.

The same logic must apply to the overseas company. We cannot expect that tax which is paid by the company to an overseas country should be regarded as discharging the United Kingdom liability of the shareholder. It would make a monstrosity of the system to do so. Because they have had what undoubtedly is almost uniquely favourable treatment throughout the world—I do not swear that there are not one or two countries which have something like this—this would cause a certain amount of hardship. Therefore I have proposed this transitional relief for a period of five years, in the first two years of which the shareholder will be compensated.

Some of my hon. Friends may think that I am being too generous in this respect. The shareholder will be very fully compensated for the first two years, but then the relief will tail off in the following three years.

Sir D. Glover

Would the Chancellor accept that the hon. Member for Meriden (Mr. Rowland) was right in his very interesting speech when he clearly showed that the difference was that under the present system the amount is 55 per cent., going up to 69½ per cent.?

Mr. Callaghan

I shall come back to that in Committee if the hon. Member will allow me to do so.

Mr. Selwyn Lloyd

This is a very serious point. In India the rate of taxation is about 60 per cent. That leaves 40 per cent. Under the arrangements the right hon. Gentleman proposes, if shareholders in this country are to be given the same yield on their investment, the amount left for development in India will be reduced from 20 per cent. to, say, 6 per cent. If the right hon. Gentleman puts it the other way round, there will be a savage cut in income here. Which is the choice?

Mr. Callaghan

The choice is for the company to make. That is the only way to do this. If the system is being altered, the company must choose either to plough back or to maintain dividends. There is nothing sacrosanct about the present level of dividends. I shall come back to the question of developing countries. These companies have five years in which to make a choice. If they are growing at a normal rate, many will find that they are not even faced with a cut in dividend.

I turn to the position of B.P. I will disregard Shell and deal with B.P. as time is going on. Looking at the B.P. balance sheet for the last 10 years the simple truth is that the tax which that company has paid to the United Kingdom has gone down year by year. Whereas in 1958 the company was paying £10 million of tax to this country, it has now reached the stage where it is paying just under £500,000 in taxation. Its dividends have practically doubled in the same period, from £17.7 million to £31.3 million. It has appropriated to general reserve a very great deal more every year, and the inter- esting thing is that in the case of the large oil companies, whether it be Shell or B.P.—I will not go into the figures now—the shareholder as a means of supplying capital is really as redundant as the rhinoceros.

These companies have raised all their capital from their retentions, except to the extent of 1 or 2 per cent. In the case of Shell, out of a total investment of £3,300 million, the shareholder in eight or 10 years has provided about £100 million, but his dividend has gone up by three times in the same period. He is not providing the capital. The company is providing it out of its own retentions. If, neglecting my transitional arrangements, Shell were to say, "We are going to bear all of this on the dividends as from now and we shall go ahead with our retention", it would mean that the dividend would he at the same level now as it was in 1960.

Mr. George Y. Mackie (Caithness and Sutherland) rose—

Mr. Callaghan

I think I had better get on. We shall have plenty of time in Committee. I promise the hon. Gentleman that we shall deal with this in Committee.

I wish to say two further things, one on developing countries. I must point out that the level of private investment in the developing countries has regrettably been declining year by year. In 1960 it was as much as £90 million a year. By 1964 it had gone down to £45 million a year. Part of it is a reflection of the high rates of taxation. That again we must pursue later.

One final point on exports. I am told that it is necessary to invest large sums of capital overseas to get exports. I do not deny the connection. There is a connection, but a great deal too much has been made of this point. I will quote six figures to the House and hon. Members can consider them between now and Committee. Our exports in the last five years have gone up by less than 30 per cent. The Germans have increased their exports by about 60 per cent. The Japanese exports have gone up by about 90 per cent.

As regards overseas investment of capital, the Japanese have invested overseas in the same period £160 million; the Germans have invested overseas in the same period £230 million, and Britain has invested in the same period overseas £1,270 million. Of course, there is a connection between exports and overseas capital, but if Germany and Japan can push up their exports like that with miniscule amounts of capital investment overseas, surely it is ridiculous to suggest that we have to go on pouring out overseas capital chat we can ill afford in order to achieve a result that is nothing like as good.

Whatever may have been the reception on the benches opposite, there is no doubt that in the country this Budget, and the Finance Bill generally, has had a good reception. It marks a new stage in the progress of this country and as such it is accepted by our people.

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

The House divided: Ayes 299, Noes 296.

Division No. 104.]	AYES	[11.45 p.m.
Abse, Leo	Dodds, Norman	Houghton, Rt. Hn. Douglas
Albu, Austen	Doig, Peter	Howarth, Harry (Wellingborough)
Allaun, Frank (Salford, E.)	Donnelly, Desmond	Howarth, Robert L. (Bolton, E.)
Alldritt, Walter	Driberg, Tom	Howell, Denis (Small Heath)
Armstrong, Ernest	Duffy, Dr. A. E. P.	Howie, W.
Atkinson, Norman	Dunn, James A.	Hoy, James
Bacon, Miss Alice	Dunnett, Jack	Hughes, Cledwyn (Anglesey)
Barnett, Joel	Edelman, Maurice	Hughes, Emrys (S. Ayrshire)
Baxter, William	Edwards, Rt. Hn. Ness (Caerphilly)	Hughes, Hector (Aberdeen, N.)
Beaney, Alan	Edwards, Robert (Bilston)	Hunter, Adam (Dunfermline)
Bellenger, Rt. Hn. F. J.	English, Michael	Hunter, A. E. (Feltham)
Bence, Cyril	Ennals, David	Hynd, H. (Accrington)
Benn, Rt. Hn. Anthony Wedgwood	Ensor, David	Hynd, John (Attercliffe)
Bennett, J. (Glasgow, Bridgeton)	Evans, Albert (Islington, S.W.)	Irvine, A. J. (Edge Hill)
Binns, John	Evans, Ioan (Birmingham, Yardley)	Jackson, Colin
Bishop, E. S.	Fernyhough, E.	Janner, Sir Barnett
Blackburn, F.	Finch, Harold (Bedwellty)	Jay, Rt. Hn. Douglas
Blenkinsop, Arthur	Fitch, Alan (Wigan)	Jeger, George (Goole)
Boardman, H.	Fletcher, Sir Eric (Islington, E.)	Jeger,Mrs.Lena(H'b'n&St.P'cras,S.)
Boston, T. G.	Fletcher, Ted (Darlington)	Jenkins, Hugh (Putney)
Bottomley, Rt. Hn. Arthur	Fletcher, Raymond (Ilkeston)	Jenkins, Rt. Hn. Roy (Stechford)
Bowden, Rt. Hn. H. W. (Leics S.W.)	Floud, Bernard	Johnson, Carol (Lewisham, s.)
Boyden, James	Foley, Maurice	Johnson,James(K'ston-on-Hull,W.)
Braddock, Mrs. E. M.	Foot, Sir Dingle (Ipswich)	Jones, Dan (Burnley)
Bradley, Tom	Foot, Michael (Ebbw Vale)	Jones,Rt.Hn.Sir Elwyn(W.Ham,s.)
Bray, Dr. Jeremy	Ford, Ben	Jones, J. Idwal (Wrexham)
Broughton, Dr. A. D. D.	Fraser, Rt. Hn. Tom (Hamilton)	Jones, T. w. (Merioneth)
Brown, Rt. Hn. George (Belper)	Freeson, Reginald	Kelley, Richard
Brown, Hugh D. (Glasgow, Provan)	Galpern, Sir Myer	Kenyon, Clifford
Brown, R. W. (Shoreditch & Fbury)	Garrett, W. E.	Kerr, Mrs. Anne (R'ter & Chatham)
Buchan, Norman (Renfrewshire, W.)	Garrow, A.	Kerr, Dr. David (W'worth, Central)
Buchanan, Richard	George, Lady Megan Lloyd	Lawson, George
Butler, Herbert (Hackney, C.)	Ginsburg, David	Leadbitter, Ted
Butler, Mrs. Joyce (Wood Green)	Gourlay, Harry	Ledger, Ron
Callaghan, Rt. Hn. James	Greenwood, Rt. Hn. Anthony	Lee, Rt Hn. Frederick (Newton)
Carmichael, Neil	Gregory, Arnold	Lee, Miss Jennie (Cannock)
Carter-Jones, Lewis	Grey, Charles	Lever, Harold (Cheetham)
Chapman, Donald	Griffiths, David (Rother Valley)	Lever, L. M. (Ardwick)
Coleman, Donald	Griffiths, Rt. Hn. James (Llanelly)	Lewis, Arthur (West Ham, N.)
Conlan, Bernard	Griffiths, Will (M'chester, Exchange)	Lewis, Ron (Carlisle)
Corbet, Mrs. Freda	Gunter, Rt. Hn. R. J.	Lipton, Marcus
Cousins, Rt. Hn. Frank	Hale, Leslie	Lomas, Kenneth
Craddock, George (Bradford, S.)	Hamilton, James (Bothwell)	Loughlin, Charles
Crawshaw, Richard	Hamilton, William (West Fife)	Mabon, Dr. J. Dickson
Cronin, John	Hamling, William (Woolwich, W.)	McBride, Neil
Crosland, Anthony	Hannan, William	McCann, J.
Grossman, Rt. Hn. R. H. S.	Harper, Joseph	MacColl, James
Cullen, Mrs Alice	Harrison, Walter (Wakefield)	MacDermot, Niall
Dalyell, Tam	Hart, Mrs. Judith	McGuire, Michael
Darling, George	Hattersley, Roy	Mclnnes, James
Davies, G. Elfed (Rhondda, E.)	Hazell, Bert	McKay, Mrs. Margaret
Davies, Harold (Leek)	Healey, Rt. Hn. Denis	Mackenzie, Gregor (Rutherglen)
Davies, Ifor (Gower)	Heffer, Eric S.	Mackie, John (Enfield, E.)
Davies, S. O. (Merthyr)	Henderson, Rt. Hn. Arthur	McLeavy, Frank
de Fre[...]tas, Sir Geoffrey	Herbison, Rt. Hn. Margaret	MacMillan, Malcolm
Delargy, Hugh	Hill, J. (Midlothian)	MacPherson, Malcolm
Dell, Edmund	Hobden, Dennis (Brighton, K'town)	Mahon, Peter (Preston, S.)
Dempsey, James	Holman, Percy	Mahon, Simon (Bootle)
Diamond, John	Horner, John	Mallalieu, E. L. (Brigg)
Mallalieu, J.P.W.(Huddersfield,E.)	Peart, Rt. Hn. Fred	Swingler, Stephen
Manuel, Archie	Pentland, Norman	Symonds, J. B.
Mapp, Charles	Perry, Ernest G.	Taverne, Dick
Marsh, Richard	Popplewell, Ernest	Taylor, Bernard (Mansfield)
Mason, Roy	Prentice, R. E,	Thomas, George (Cardiff, W.)
Maxwell, Robert	Price, J. T. (Westhoughton)	Thomas, Iorwerth (Rhondda, W.)
Mayhew, Christopher	Probert, Arthur	Thornton, Ernest
Mellish, Robert	Pursey, Cmdr. Harry	Tinn, James
Mendelson, J. J.	Rankin, John	Tomney, Frank
Mikardo, Ian	Redhead, Edward	Tuck, Raphael
Millan, Bruce	Rees, Merlyn	Urwin, T. W.
Miller, Dr. M. S.	Reynolds, G. W.	Varley, Eric G.
Milne, Edward (Blyth)	Rhodes, Geoffrey	Wainwright, Edwin
Molloy, William	Richard, Ivor	Walden, Brian (All Saints)
Monslow, Walter	Roberts, Albert (Normanton)	Walker, Harold (Doncaster)
Morris, Charles (Openshaw)	Roberts, Goronwy (Caernarvon)	Wallace, George
Morris, John (Aberavon)	Robertson, John (Paisley)	Warbey, William
Mulley,Rt.Hn.Frederick(SheffieldPk)	Rodgers, William (Stockton)	Watkins, Tudor
Murray, Albert	Rose, Paul B.	Weitzman, David
Neal, Harold	Ross, Rt. Hn. William	wells, William (Walsall, N.)
Newens, Stan	Rowland, Christopher	White, Mrs. Eirene
Noel-Baker,Rt.Hn.Philip(Derby,S.)	Sheldon, Robert	Whitlock, William
Norwood, Christopher	Shinwell, Rt. Hn. E.	Wigg, Rt. Hn. George
Oakes, Gordon	Shore, Peter (Stepney)	Wilkins, W. A.
Ogden, Eric	Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)	Willey, Rt. Hn. Frederick
O'Malley, Brian	Short, Mrs. Renée(W'hampton,N.E.)	Williams, Alan (Swansea, W.)
Oram, Albert E. (E. Ham, S.)	Silkin, John (Deptford)	Williams, Albert (Abertillery)
Orbach, Maurice	Silverman, Julius (Aston)	Williams, Mrs. Shirley (Hitchin)
Orme, Stanley	Silverman, Sydney (Nelson)	Williams, W. T. (Warrington)
Oswald, Thomas	Skeffington, Arthur	Willis, George (Edinburgh, E.)
Owen, Will	Slater, Mrs. Harriet (Stoke, N.)	Wilson, Rt. Hn. Harold (Huyton)
Padley, Walter	Small, William	Wilson, William (Coventry, S.)
Page, Derek (King's Lynn)	Smith, Ellis (Stoke, S.)	Winterbottom, R. E.
Paget, R. T.	Snow, Julian	Woodburn, Rt. Hn. A.
Palmer, Arthur	Solomons, Henry	Woof, Robert
Pannell, Rt. Hn. Charles	Soskice, Rt. Hn. Sir Frank	Wyatt, Woodrow
Pargiter, G. A.	Steele, Thomas (Dunbartonshire, W.)	Yates, Victor (Ladywood)
Park, Trevor (Derbyshire, S.E.)	Stonehouse, John	Zilliacus, K.
Parker, John	Stones, William
Parkin, B. T.	Strauss, Rt. Hn. G. R. (Vauxhall)	TELLERS FOR THE AYES:
Pavitt, Laurence	Summerskill, Dr. Shirley	Mr. Sydney Irving and
Pearson, Arthur (Pontypridd)	Swain, Thomas	Mr. George Rogers.
NOES
Agnew, Commander Sir Peter	Buck, Antony	Drayson, G. B.
Alison, Michael (Barkston Ash)	Bullus, Sir Eric	du Cann, Rt. Hn. Edward
Allan, Robert (Paddington, S.)	Burden, F. A.	Eden, Sir John
Allason, James (Hemel Hempstead)	Butcher, Sir Herbert	Elliot, Capt. Walter (Carshalton)
Amery, Rt. Hn. Julian	Buxton, Ronald	Emery, Peter
Anstruther-Gray, Rt. Hn. Sir W.	Campbell, Gordon	Errington, Sir Eric
Astor, John	Carlisle, Mark	Eyre, Reginald
Atkins, Humphrey	Carr, Rt. Hn. Robert	Farr, John
Awdry, Daniel	Cary, Sir Robert	Fell, Anthony
Baker, W. H. K.	Channon, H. P. G.	Fisher, Nigel
Balniel, Lord	Chichester-Clark, R.	Fletcher-Cooke, Charles (Darwen)
Barber, Rt. Hn. Anthony	Clark, Henry (Antrim, N.)	Fletcher-Cooke, Sir John (S'pton)
Barlow, Sir John	Clark, William (Nottingham, S.)	Foster, Sir John
Batsford, Brian	Clarke, Brig, Terence (Portsmth, W.)	Fraser,Rt.Hn.Hugh(St'fford & Stone)
Beamish, Col. Sir Tufton	Cole, Norman	Fraser, Ian (Plymouth, Sutton)
Bell, Ronald	Cooke, Robert	Galbraith, Hn. T. G. D.
Bennett, Sir Frederic (Torquay)	Cooper, A. E.	Gammans, Lady
Bennett, Dr. Reginald (Gos & Fhm)	Cooper-Key, Sir Neill	Gardner, Edward
Berkeley, Humphry	Cordle, John	Gibson-Watt, David
Berry, Hn. Anthony	Corfield, F. V.	Giles, Rear-Admiral Morgan
Bessell, Peter	Costain, A. P.	Gilmour, Ian (Norfolk, Central)
Biggs-Davison, John	Courtney, Cdr. Anthony	Gilmour, Sir John (East Fife)
Birch, Rt. Hn. Nigel	Craddock, Sir Beresford (Spelthorne)	Glover, Sir Douglas
Black, Sir Cyril	Crawley, Aidan	Glyn, Sir Richard
Blaker, Peter	Crosthwaite-Eyre, Col. Sir Oliver	Godber, Rt. Hn. J. B.
Bossom, Hn. Clive	Crowder, F. P.	Goodhart, Philip
Bowen, Roderic (Cardigan)	Cunningham, Sir Knox	Goodhew, Victor
Box, Donald	Curran, Charles	Gower, Raymond
Boyd-Carpenter, Rt. Hn. J.	Dalkeith, Earl of	Grant, Anthony
Boyle, Rt. Hn. Sir Edward	Dance, James	Grant-Ferris, R.
Brewis, John	Davies, Dr. Wyndham (Perry Barr)	Gresham-Cooke, R.
Brinton, Sir Tatton	d'Avigdor-Goldsmid, Sir Henry	Grieve, Percy
Bromley-Davenport,Lt-Col-Sir Walter	Dean, Paul	Griffiths, Eldon (Bury St. Edmunds)
Brooke, Rt. Hn. Henry	Deedes, Rt. Hn. W. F.	Griffiths, Peter (Smethwick)
Brown, Sir Edward (Bath)	Digby, Simon Wingfield	Grimond, Rt. Hn. J.
Bruce-Gardyne, J.	Dodds-Parker, Douglas	Gurden, Harold
Bryan, Paul	Doughty, Charles	Hall, John (Wycombe)
Buchanan-Smith, Alick	Douglas-Home, Rt. Hn. Sir Alec	Hall-Davis, A. G. F.

Hamilton, Marquess or (Fermanagh)	McAdden, Sir Stephen	Roots, William
Hamilton, M. (Salisbury)	Mackenzie, Alasdair(Ross&Cromarty)	Russell, Sir Ronald
Harris, Frederic (Croydon, N.W.)	Mackie, George Y. (C'ness & S'land)	St. John-Stevas, Norman
Harris, Reader (Heston)	Maclean, Sir Fitzroy	Sandys, Rt. Hn. D.
Harrison, Brian (Maldon)	Macleod, Rt. Hn. Iain	Scott-Hopkins, James
Harrison, Col. Sir Harwood (Eye)	McMaster, Stanley	Sharples, Richard
Harvey, Sir Arthur Vere (Maccles'd)	McNair-Wilson, Patrick	Shepherd, William
Harvey, John (Walthamstow, E.)	Maitland, Sir John	Sinclair, Sir George
Harvie Anderson, Miss	Marples, Rt. Hn. Ernest	Smith, Dudley(Br'ntf'rd & Chiswick)
Hastings, Stephen	Marten, Neil	Smyth, Rt. Hn. Brig. Sir John
Hawkins, Paul	Mathew, Robert	Soames, Rt. Hn. Christopher
Hay, John	Maude, Angus	Spearman, Sir Alexander
Heald, Rt. Hn. Sir Lionel	Maudling, Rt. Hn. Reginald	Speir, Sir Rupert
Heath, Rt. Hn. Edward	Mawby, Ray	Stainton, Keith
Hendry, Forbes	Maxwell-Hyslop, R. J.	Stanley, Hn. Richard
Higgins, Terence L.	Maydon, Lt.-Cmdr. S. L. C.	Steel, David (Roxburgh)
Hiley, Joseph	Meyer, Sir Anthony	Stodart, Anthony
Hill, J. E. B. (S. Norfolk)	Mills, Peter (Torrington)	Stoddart-Scott, Col. Sir Malcolm
Hirst, Geoffrey	Mills, Stratton (Belfast, N.)	Studholme, Sir Henry
Hobson, Rt. Hn. Sir John	Mlscampbell, Norman	Summers, Sir Spencer
Hogg, Rt. Hn. Quintin	Mitchell, David	Talbot, John E.
Hooson, H, E.	Monro, Hector	Taylor, Sir Charles (Eastbourne)
Hopkins, Alan	More, Jasper	Taylor, Edward M.(G'gow, Cathcart)
Hordern, Peter	Morgan, W. G.	Taylor, Frank (Moss Side)
Hornby, Richard	Morrison, Charles (Devizes)	Temple, John M.
Hornsby-Smith, Rt. Hn. Dame P.	Mott-Radclyffe, Sir Charles	Thatcher, Mrs. Margaret
Howard, Hn. G. R. (St. Ives)	Munro-Lucas-Tooth, Sir Hugh	Thomas, Sir Leslie (Canterbury)
Howe, Geoffrey (Bebington)	Murton, Oscar	Thomas, Rt. Hn. Peter (Conway)
Hunt, John (Bromley)	Neave, Airey	Thompson, Sir Richard (Croydon,S.)
Hutchison, Michael Clark	Nicholls, Sir Harmar	Thorneycroft, Rt. Hn. Peter
Iremonger, T. L.	Nicholson, Sir Godfrey	Thorpe, Jeremy
Irvine, Bryant Godman (Rye)	Noble, Rt. Hn. Michael	Tiley, Arthur (Bradford, W.)
Jenkin, Patrick (Woodford)	Nugent, Rt. Hn. Sir Richard	Tilney, John (Wavertree)
Jennings, J. C.	Onslow, Cranley	Turton, Rt. Hn. R. H.
Johnson Smith, G. (East Grinstead)	Orr, Capt. L. P. S.	Tweedsmuir, Lady
Jones, Arthur (Northants, S.)	Orr-Ewing, Sir Ian	van Straubenzee, W. R.
Jopling, Michael	Osborn, John (Hallam)	Vaughan-Morgan, Rt. Hn. Sir John
Joseph, Rt Hn. Sir Keith	Osborne, Sir Cyril (Louth)	Vickers, Dame Joan
Kaberry, Sir Donald	Page, John (Harrow, W.)	Walder, David (High Peak)
Kerby, Capt. Henry	Page, R. Graham (Crosby)	Walker, Peter (Worcester)
Kerr, Sir Hamilton (Cambridge)	Pearson, Sir Frank (Clitheroe)	Walker-Smith, Rt. Hn. Sir Derek
Kershaw, Anthony	Peel, John	Walters, Dennis
Kilfedder, James A.	Percival, Ian	Ward, Dame Irene
Kimball, Marcus	Peyton, John	Weatherill, Bernard
King, Evelyn (Dorset, S.)	Pickthorn, Rt. Hn. Sir Kenneth	Webster, David
Kirk, Peter	Pike, Miss Mervyn	Wells, Jonn (Maidstone)
Kitson, Timothy	Pitt, Dame Edith	Whitelaw, William
Lagden, Godfrey	Pounder, Rafton	Williams, Sir Rolf Dudley (Exeter)
Lambton, Viscount	Powell, Rt. Hn. J. Enoch	Wills, Sir Gerald (Bridgwater)
Lancaster, Col. C. G.	Price, David (Eastleigh)	Wilson, Geoffrey (Truro)
Langford-Holt, Sir John	Prior, J. M. L.	Wise, A. R.
Legge-Bourke, Sir Harry	Pym, Francis	Wolrige-Gordon, Patrick
Lewis, Kenneth (Rutland)	Quennell, Miss J. M.	Wood, Rt. Hn. Richard
Litchfield, Capt. John	Ramsden, Rt. Hn. James	Woodhouse, Hn. Christopher
Lloyd, Rt. Hn. Geoffrey(Sut'nC'dfield)	Rawlinson, Rt. Hn. Sir Peter	Woodnutt, Mark
Lloyd, Ian (P'tsm'th, Langstone)	Redmayne, Rt. Hn. Sir Martin	Wylie, N. R.
Lloyd, Rt. Hn. Selwyn (Wirral)	Rees-Davies, W. R.	Yates, William (The Wrekin)
Longbottom, Charles	Renton, Rt. Hn. Sir David	Younger, Hn. George
Longden, Gilbert	Ridsdale, Julian
Loveys, Walter H.	Roberts, Sir Peter (Heeley)	TELLERS FOR THE NOES:
Lubbock, Eric	Robson Brown, Sir William	Mr. Martin McLaren and
Lucas, Sir Jocelyn	Rodgers, Sir John (Sevenoaks)	Mr. Ian MacArthur.

Bill accordingly read a Second time and committed to a Committee of the whole House.

Committee Tomorrow.