HC Deb 19 May 1965 vol 712 cc1461-95

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

3.47 p.m.

Mr. Edward Heath (Bexley)

I should like to move a Motion to report Progress, Dr. King. The matter which I wish to raise is of the utmost importance to the functioning of the Committee. Hon. Members will remember that when we dealt with the procedural Motion on Monday I pointed out the difficulties under which we were all labouring in taking the Committee stage of the Bill only seven days after the Second Reading debate.

Today, we are labouring under another difficulty. It is customary for the Notice Paper of Amendments to any Bill—to be discussed either in Committee upstairs or in Committee of the whole House—to be in the Vote Office at 7.30 in the morning and to be circulated to hon. Members so that they receive it at breakfast time. This morning the Notice Paper for the Amendments that we are dealing with today did not arrive.

Some hon. Members may have thought that this was due to the shortage of postage stamps provided by the Postmaster-General, but this is not the case. It was finally available in the Vote Office between 12.15 and 12.45 p.m. This is of the utmost inconvenience to all hon. Members who are trying to deal with the Notice Paper for today.

I am not suggesting in any way that this was your responsibility, Dr. King, or that of the staff of the House, or the printers. It seems to me to have been due to the fact that the Chancellor of the Exchequer, having put forward such a half-baked Bill, last night had to put in 72 Amendments, which appear on the Notice Paper today, although we have reached only Clause 3. The 72 Amendments concern the rest of the Bill. This has obviously prevented the Notice Paper's being printed in time to have it sent round to Members so that they can give it proper consideration. This is a gross disservice to the House. [Interruption.] There was a time when the hon. Member for South Ayrshire (Mr. Emrys Hughes) would have been the first to protest at this treatment.

If we are to continue to discuss the Bill—a Bill of the utmost complexity and difficulty—and are not to receive the Amendment Notice Paper until midday, I suggest that the Committee cannot continue to function. I have moved the Motion to report Progress so that we can resume our discussion of the Bill on another day, when we shall have had proper time to consider the Notice Paper.

The Chairman

I am not prepared to accept the Motion.

I suggest to the Committee that we have not made any progress to report at the moment, and that we might take the serious matter which the right hon. Gentleman made as a point of order, rather than a reason for reporting Progress.

Mr. Heath

I am not quite clear, Dr. King. I recognise that if the Motion were accepted we would not have made any progress. It is difficult for us to make any progress. If you would like me to raise this as a point of order, should I repeat the same speech, or will you take that as my view?

The Chairman

I will take the speech already made as raised as a point of order.

Mr. J. T. Price (Westhoughton)

Since the right hon. Member for Bexley (Mr. Heath) said in my hearing only the other day that he expected that we should still be discussing the Bill at Christmas next, is it not evident that he could not have any serious purpose in wishing to move to report Progress? By his own declaration he is convicted.

The Chancellor of the Exchequer (Mr. James Callaghan)

Further to that point of order. It is only within the last half hour that this matter has come to my notice. I understand that about 150 Amendments were put down last night, of which the Government were responsible for about 70, none of which affect today's business. Looking quickly through the Amendment Paper while the right hon. Gentleman spoke it was quite clear to me that the Paper as printed before is exactly the same as today, except for four Amendments, three of which were put down by the supporters of the right hon. Member for Bexley and one of which was put down by a Government supporter.

I would regard it as very unfortunate if the talents of the Opposition were so strained that they could not master the contents of those four new Amendments. [HON. MEMBERS: "Four?"] I was going up only to Clause 15. I was assuming that we would not go further than that today. If it is the intention of the Opposition that we should go further than Clause 15, they have a complaint, but until we get there I do not think that there will be much to complain about. I would only add that the sooner we get this leadership battle over, the better it will be for all of us.

Mr. Heath

Further to that point of order. I raise this in the interests of the House of Commons as a whole. If the Committee, in future, cannot get the Amendment paper at the proper time when there is a large number of Amendments put down with which we have to deal on that day, it will not be possible for the Committee to function. What I am complaining about is that, because of the number of Amendments put down, the printing of the Notice Paper was delayed. We cannot be sure that the Bill is not in such a mess that the Chancellor may not have to put in 70 Amendments every day and we shall find ourselves in this position. I noticed, also, that some of the Amendments starred are included in the Amendments which we shall consider today. This also may happen in the future. We should adhere to the normal proceedings of the Committee and receive the Amendment Notice Paper at the proper time.

Sir Kenneth Pickthorn (Carlton)

Further to that point of order. May I ask whether the Chancellor of the Exchequer does not intend to make any reference at all to the general question put to him, and whether we are to take it for granted that he will be content in future that these Papers should not be available to hon. Members until the afternoon? We have had no reply whatever to the general question and the point that these papers were nearly five hours abnormal. Surely that is a point which the Chancellor of the Exchequer should explain to the Committee.

Mr. Callaghan

I think that this is becoming a somewhat irregular debate. It is not my duty to reply to points of order, but I began to reply to the last point, so let me say that now that this has been brought to my notice—I had no notice of it, as I said, until half an hour ago—I shall certainly look into it. I hope that we do not have 70 Amendments from both Government and Opposition every day, or it will be Christmas, or something else will have to happen—[H0N. MEMBERS: "What?"] Something else will have to happen, obviously. I should like the opportunity of looking into this matter to see that the Notice Paper arrives, as far as possible, at the normal time. I hope that it will do so.

Sir Godfrey Nicholson (Farnham)

One point which you may have overlooked, Dr. King, is that the House met this morning at 10.30. Surely it is most unusual for a Paper setting out the business of the House not to arrive when the House has been sitting for some hours?

The Chairman

The hon. Gentleman has addressed his remarks to me. I have no responsibility whatever for the printing of Amendment Papers, or the time at which they arrive during the day. That is a matter for Mr. Speaker, who will obviously take note of the comments made today.

Sir G. Nicholson

I am sorry to go on with this, Dr. King. This is a serious point. It may not be of great significance today, but it is of some significance. Surely the Notice Paper should have been available before the House met today. I was addressing the point to you because I was under the impression that it was a point of order.

The Chairman

I am not in the least questioning the seriousness or the correctness of what the hon. Gentleman has said, but the responsibility for dealing with it does not come within the duties of the Chairman of Ways and Means. It is a matter for Mr. Speaker.

Sir G. Nicholson

Is not that a very good reason for accepting the Motion?

Mr. Geoffrey Lloyd (Sutton Coldfield)

May I draw attention to a point which has not been mentioned, the inconvenience to which the House of Commons and the country are subjected by the very late arrival of these Amendments. Already, people all over the country are suffering very much because of the complexity of the proposals in this Bill. We know that many important leaders of industry have been taken off their productive work to try to understand what the Government are proposing. We of the Opposition are doing our best to consult with interests all over the country as to the effect of the Bill. It is necessary for us to consult on the Amendments as they are produced. We have to telephone to leaders of industry and of the trade unions in various parts of the country to find out——

Mr. Emrys Hughes (South Ayrshire)

And the tax dodgers.

Mr. Lloyd

—the effect on important interests and important regions of Amendments which are put down. Very often, we have to do this in the morning so as to be ready.

Therefore, it is a very great inconvenience and this is a result of the size and complexity of the Finance Bill. One would think that, in those circumstances, the Chancellor would try to improve the prospects of the passage of the Bill through the House by refraining from taunts at my hon. and right hon. Friends, which we on this side very much resent.

Mr. R. H. Turton (Thirsk and Malton)

With very great respect to you, Dr. King, and following the points put by my hon. Friend the Member for Farnham (Sir G. Nicholson), we want to check the Chairman's selection of Amendments with the current Notice Paper. At 12 o'clock today, when we went into the Lobby to do so, we found your selection of Amendments, but there was no Notice Paper with which to compare it. In fact, the numbers of the Amendments in this Paper have been changed from the previous Notice Paper. It is a very great inconvenience to hon. Members who are working under very great pressure, if we do not get the new Amendment Paper till midday.

Mr. E. Shinwell (Easington)

Further to that point of order. Is it necessary to arrest the business of the Committee to enable right hon. and hon. Members on the other side to get their instructions from their friends outside?

The Chairman

Order. I think that we have pursued the serious point which has been raised, a point of great seriousness to the Committee, long enough. I hope that we can now come to the Clause.

Mr. David Price (Eastleigh)

I would remind the Committee that the purpose of the Clause is to renew the powers of the Treasury to increase or to reduce by up to 10 per cent. the rates of revenue for purposes of economic regulation. The parent section to which this Clause refers is Section 9 of the Finance Act, 1961. That defines the particular economic situation which these powers are designed to influence as being that in which … it appears to the Treasury that it is expedient, with a view to regulating the balance beween"— supply and demand. We presume that that is the continued purpose of the powers which the Chancellor is seeking under the Clause.

I think that it is clear, therefore, that the Clause raises the whole problem of our economic regulators. It also raises the attendant problem of how the Treasury keeps itself informed about the trends in supply and demand. I am sure that the whole Committee would agree that, in theory, the Chancellor of the day must so regulate the economy that supply and demand are not only kept in balance but are kept in balance at the highest possible rate of total economic activity. By pursuing a thoroughly deflationary policy, supply and demand can be kept in balance, but at a lower rate of economic activity than we should wish to see, either socially or economically.

4.0 p.m.

As in so many human activities, the ideal, I regret to say, is far removed from the reality, which is all-too-imperfect. The speed and precision of the information reaching the authorities as to the state of the economy is to my mind inadequate for that sensitive regulation of the economy which I think most hon. Members agree is so necessary.

When I spoke last week in Committee of Supply in the debate on prices and incomes, I said: … one of the first things we need to do is to get better and quicker figures on which the Chancellor of the day can get a better estimate of supply and demand."—[OFFICIAL REPORT, 11th May, 1965; Vol. 712, c. 347.] I went on to give some examples of particular areas of the economy in which I believed that the figures were too slow and too imprecise. Since then I have discussed this point with some of my colleagues on both sides of the Committee, who have added certain other fields in which they, too, think that the figures are slow and imprecise.

I believe that this deficiency is particularly pertinent in relation to the use of the surcharge on revenue duties embodied in the Clause. We all know that a special effort is made by the Treasury and the authorities to ensure that the Chancellor has the most relevant and up-to-date information when he is designing his Budget. Even there, I think that there could be improvements.

It is my view that between Budgets the information available to the Chancellor leaves much to be desired. I believe that when we are giving the Treasury these substantial powers—or, rather, renewing them—to alter taxation, we are entitled to know more about how the Treasury keeps up to date in its figures. I am not opposed in the least to giving the Treasury these powers. I have supported the Treasury in the past and in principle I shall undoubtedly support it again tonight, but I am entitled to hear from the Treasury Minister who replies to the debate—it may be the Chancellor himself—exactly how the Treasury intends to improve its methods of economic forecasting, how up to date is the information on which it works and how much of contemporary forecasting is done by straight statistical extrapolation. Although extrapolation is undoubtedly a useful statistical tool, it can all too easily become the soft option for the idle economist.

There are two other factors, which are not directly measurable, which have a very great influence on the course of the economy and, above all, on the development of the supply and demand equation. The first and most obvious, of which the Chancellor has certainly had a lot of experience since he has been in his high office, is the confidence factor. If we look at our recent economic history where we used taxes as regulators and not simply for their revenue-raising potential, what do we find? I think particularly of two occasions on which investment allowances were increased; they produced an upsurge in investment which bore statistically no relation to the effect which a modest increase in investment allowance might have been expected to produce. A non-economic decision arises at some stage. It is this factor of confidence which can cause an upward or downward spiral.

Secondly, I am sure that the Committee are prepared to accept that human beings do not always act in the way that the economists say that they ought to act. I have yet to meet an "economic man" as a flesh-and-blood creature. None the less, "economic man" is necessary as an economist's invention for the purpose of economic analysis. But we must always beware of the fact that human beings do not maximise their advantage the whole time on the margin which is the basis of most statistical approaches to the economic analysis.

I should like to hear from the Chancellor how he proposes to improve, on his tools of analysis. Both he and his predecessors at various times, in presenting Budgets or during the course of Finance Bills, have said to the House, "There comes a point at which it is my judgment." But I believe that in this day and age we must try to improve our tools of analysis even when we know that we shall never reach perfection—even though an element of personal judgment will always remain.

I turn to the economic regulators, of which the powers sought in the Clause form part of the armoury. Personally, I believe that we need extra regulators in the armoury of the Chancellor of the Exchequer and the authorities. In the debate on prices last week I made one or two suggestions. Needless to say, the President of the Board of Trade, in his winding-up speech, did not bother to comment on them. I was disappointed about that, because I had a feeling during the debate that they were regarded by the Committee as worth-while observations.

May I, therefore, repeat to the Chancellor what they were? I do not wish to detain the Committee, and I shall probably be going a little wide of the debate if I talk about long-term regulators of the economy, but it must be reoognised that there is no clear division between what is a short-term and what is a longterm regulator. One blends into the other.

If we look at the short-term regulators we find that there are the traditional monetary weapons; hire-purchase control; physical trade controls and exchange control; and the surcharge and revenue duties. These are the major weapons. Certain physical trade controls and exchange controls which are very relevant as short-term methods of dealing with the balance-of-payments problem do not affect the domestic supply and demand equation in the short term. If we reduce imports and do not reduce home demand, we put extra pressure on home supplies.

The Committee will see that in their recent actions the Government have put great reliance on the monetary weapon as a short-term regulator. Indeed, for some of us it looks rather silly in view of the previous condemnation by some right hon. and hon. Gentlemen opposite of the use of the monetary weapon. Some of them must be suffering from acute indigestion through a surfeit of eating their own words. After all they have said in the past, it astonishes me that they have not taken the opportunity of the Finance Bill, which the Chancellor presents to us and the country as being a new look at our taxation system, to make proposals for new and better economic regulators.

The Chairman

Order. The hon. Member, on this Question, may discuss only what is in the Clause. He can, therefore, discuss only the regulators which are being continued from Section 9 of the Finance Act, 1961.

Mr. Price

I apologise, Dr. King. I had a feeling that I might be in danger of getting out of order when I made that point.

When we come to this regulator in the Clause, which by itself is inadequate, it is interesting to see that the Government are continuing the powers of Section 9 of the 1961 Act, as extended by Section 8 of the Finance Act, 1964, without amendment. The Committee will recall that Section 8 of the 1964 Act which we are here renewing divided the duties covered by the original Section 9 into five groups. Previously, in the 1961 arrangement, they had been lumped together. The object of my right hon. Friend the Member for Barnet (Mr. Maudling) was to make the regulator more flexible, and this appealed generally to the Committee, but the Opposition of the day thought that my right hon. Friend should have gone further and should not have contented himself with five groups but should have taken powers to use the regulator for individual duties within those groups.

So strongly did the Opposition feel that they divided the Committee on this point. Yet now that they have the power, the Labour Party stand firm on the very flexibility which last year they condemned as insufficient. We are entitled to ask why there has been no change, after last year's indignation. It was the present Chief Secretary to the Treasury, in pressing this point to a Division, who said to the then Chancellor, my right hon. Friend the Member for Barnet: We sympathise with him in his new rôle of a modest, retiring, withdrawn individual. We find it difficult to recognise him, but we sympathise with him in his new attitude. We do not know what occasioned it other than such things as public opinion polls."—[OFFICIAL REPORT, 2nd June, 1964, Vol. 695, c. 1025.] My final thought on the Clause is to remind the Committee of what the right hon. Gentleman the Prime Minister said about these powers which we are being asked to renew. In March, 1961, when they were first introduced and when the right hon. Gentleman was speaking as shadow Chancellor of the Exchequer, he said: In terms of surrendering this House's control over the taxing power in the interests of economic planning, the way in which the Chancellor is doing it is going too far. He added: I do not suggest that any John Hampden will rise in protest against what the Chancellor is doing, or that it is on a par with ship money, or anything of that kind. But it oversteps the margins of the relation between one Government and the House in the matter of taxing power."—[OFFICIAL REPORT, 4th May, 1961; Vol. 639, c. 1641.] Well, what a sea-change has taken place in the right hon. Gentleman since those ethereal days as shadow Chancellor. Nothing of him that doth fade, But doth suffer a sea-change, Into something rich and strange. I do not go so far as the right hon. Gentleman went in 1961, but his words do give me authority in requiring a reply from one of the Prime Minister's subordinate Ministers—one of his creatures, if not one of his familiars.

Sir Henry d'Avigdor-Goldsmid (Walsall, South)

I do not go so far as my hon. Friend the Member for Eastleigh (Mr. David Price) in his knowledge of economic science. Nor can I share his surprise that the Clause comes before us without amendment from the Government. I say this because it is perfectly clear that the six lines which it occupies in the Bill is an attempt to slip it in with the minimum of attention being attracted to it. I am, therefore, glad to see the right hon. Gentleman the Chancellor of the Exchequer in his place and I hope that he will reply to this discussion, because he owes an answer not so much to my hon. Friends as to his own colleagues.

After all, the General Election manifesto of his party—which had very great success in the country and which, I would say, influenced a great many undecided voters—made special reference to this matter. Indeed, referring to this party, the manifesto declared: The direct and crippling consequences of their free market policies are now well known … It went on to illustrate those direct and crippling consequences. It cited the second of them as follows: … it has necessitated a stop-go economic policy resulting in intermittent bursts of high unemployment. I should have thought that one could not condemn the stop-go policy in more direct language than that. Or is the abolition of stop-go to be won with lower mortgage rates and the other disappointed hopes of that manifesto? I do not know, and I am waiting to hear the Chancellor's reply, because it is perfectly clear that the Clause is the very instrument of stop-go. It is the implement by which stop-go could be enforced.

4.15 p.m.

Let us not think that because the Clause occupies only six lines in the Bill its effects on the economy might be small. Perhaps as we enter this great tropical jungle of the Finance Bill, and fight our way through its dark and nauseous passages we may think that the danger comes from those enormous monsters the Corporation Tax, with 42 Clauses, and the Capital Gains Tax, with 30 Clauses. But no. There is concealed in the undergrowth the adder and the adder's sting is as lethal as the danger of being trampled to death by some of those enormous monsters which we will be discussing later.

The effect of the regulator on the economy could make a difference of £700 million. It operates to a margin of 10 per cent. either way and, on the figures in this year's statement, of upward of £3,600 million, 10 per cent. either way would mean a difference of £700 million. That is the effect the Clause could have on the economy. We must remember, too, that its operation is brought about by order and that it does not need legislation.

We would be doing less than our duty in not giving it a clear airing and eliciting from the right hon. Gentleman the reason why he has kept to his hand an instrument which, in his party's election manifesto, hon. Gentlemen opposite condemned and whether office has caused him to change his mind on this and so many other subjects.

In supporting the remarks of my hon. Friend the Member for Eastleigh, who quoted some telling remarks made by hon. Gentlemen opposite, I must add that this is an instrument which was devised by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) and which I have consistently supported. I am glad, even at this late stage, to welcome the conversion of the Chancellor to the policies of my right hon. and learned Friend.

Mr. A. Woodburn (Clackmannan and East Stirlingshire)

I must, at the outset, comment on the remarks of the hon. Gentleman the Member for Eastleigh (Mr. David Price) about stop-go. The matter is quite clear. Driving a car successfully means that it must be driven under control. What was wrong with the stop-go policies of previous Governments was the violent application of the brakes, the action of which endangered the whole economy, or, alternatively, the pressing of the accelerator and nearly taking the car over the cliff. They nearly took it over the cliff before we came to office, which imposed on my right hon. Friend the Chancellor the duty of having to stop the car rather suddenly.

I support the Clause but is there not a danger that if we get a lack of self-discipline among some so-called responsible people in the community its provisions may be frustrated? I ask this because we have just had an example of the bankers using their policies for political purposes and allowing inflation——

The Chairman

Order. There is no mention of bankers or inflation in the Clause.

Mr. Woodburn

If the Clause is to be supported by all hon. Members, as I hope it will be, it should be pointed out that it could not become really effective—indeed, it could be undermined—if certain people do certain things.

My right hon. Friend may utilise the Clause to try to put on the brake, however lightly, on the spending power of the community. If the bankers suddenly flood the economy with loans without any sense of responsibility they wilt nullify the effect of the brake. The whole economy may be undermined if hire purchase money is poured out, as it was in 1959. The whole collapse of the economy may result. If my right hon. Friend finds it necessary to utilise the powers in the Clause is he able, by any means, if certain people do not exercise self-discipline and if the Tory bankers start using their policies for political purposes, to end such unprincipled behaviour?

Mr. Raymond Gower (Barry)

In discussing matters of this kind I would normally feel fully in accord with my hon. Friend the Member for Eastleigh (Mr. David Price) and my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid). I have always thought that this was an admirable regulator power for effecting a change in cases of sudden need, a regulator with great flexibility. In the context of Conservative Chancellors, who sought at all time to reduce taxation, they were able to use this power properly and to the benefit of the economy.

Now, however, my hon. Friends must have serious misgivings about renewing a power of this magnitude, a power which could result in increased taxation—and my hon. Friend the Member for Walsall, South gave some statistics—of millions of pounds. Giving such powers to a Chancellor who has already shown himself so adept at allowing enormous burdens of taxation to fall on the ordinary people must cause some misgivings.

The Finance Bill has been described as a sledgehammer with which to hit British industry. It may not have been unnoticed that, apart from the taxation which has been imposed on industry, the Chancellor has imposed an enormous burden of taxation upon ordinary people. He has imposed it in the form of direct taxation, Income Tax——

The Chairman

Order. That is very interesting, but the hon. Gentleman must link his remarks to the Clause.

Mr. Gower

In that setting and context my hon. Friends must have severe misgivings about renewing such terrific powers this year. Indeed, I should have thought that before parting with the Clause we would at least wish to ask the Chancellor for an assurance that he will use these powers only for an upward movement, with the greatest reluctance and only in the case of most dire need. In other words, his occupation from now on must surely be not to impose new burdens on the ordinary people. Nevertheless, the powers which are likely to be used if the Clause is employed must impose very large burdens on those very people. Like my hon. Friends, I deem these powers to be of great value, but I respectfully submit that my hon. Friends must have severe misgivings about their renewal in the context of the policies of the present Chancellor.

Mr. Nigel Birch (Flint, West)

I was interested in the speech of my hon. Friend the Member for Eastleigh (Mr. David Price) and his call for better statistics. Our statistics, obviously, should be as good as they can be, and they have been improved a good deal in recent years by former Governments. My hon. Friend will no doubt admit that, however good the statistics, an element of judgment must always be present and that there are many unknown and uncalculable factors in any proposition. It is for that reason that I am anxious, like my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) to know what is in the right hon. Gentleman's mind.

This is especially necessary in view of some of the remarks of the right hon. Member for East Stirlingshire (Mr. Woodburn). Although he spoke about stop-go, the important thing to remember about it is that sometimes one wants to go quickly and sometimes slowly. If one is having to slow down one must apply the brake sufficiently hard to slow down enough to get the situation in balance. The difficulty we have been up against from the treatment of this Government is that having first declared that there was no undue pressure on the economy they have been gradually dribbling out one measure after another. We had the surcharge, the first Budget, the credit squeeze, the second Budget, the second credit squeeze, special deposits, and so on. One after another they have been coming from this Government and, meanwhile, wages have been racing ahead.

The First Secretary gets up in the morning and pats himself on the back, saying that he is the first man to get a wages policy. He tells everybody that he is getting a wages policy, and when he is very tired his P.R.O.s say it for him. I should like the Chancellor to give his assessment of the present state of the economy. After both his Budget speeches he has had to take tougher measures than those which were forecast in the Budget, and this is a very serious thing for the country.

As everybody realises, the rise in the cost of living has not really started yet. The increased wages, except to a very small extent, have not seeped through into prices, and the shortening in hours element, with the equivalent of a 5 per cent. increase in wages, is spread over the rest of this year. Therefore, we shall get incomes rising rapidly and steadily throughout the year. The only way to deal with this is by taxation of consumption. But unless the right hon. Gentleman gets expenditure under control, this increase in taxation on top of a rapidly rising cost of living will inflict the most frightful hardships.

When the right hon. Gentleman replies to this debate I hope that he will address his mind to the way in which he sees the economy and what he thinks the prospects of using this regulator will be.

Mr. Julian Ridsdale (Harwich)

When my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) introduced the economic regulator, in 1961, he discussed the economy as a whole, and I must say that I agree very much with my hon. Friend the Member for Eastleigh (Mr. David Price) that in the context of discussing this regulator we must also discuss the laws of supply and demand.

My right hon. and learned Friend the Member for Wirral made the point that if there had not been any regulatory action by the Government, the swings in the economy would have been much more violent. Looking back to 1961 and the use of the brake by my right hon. and learned Friend, that action seems extremely mild compared to the action of the Socialist Government in the field of taxation today. Surely, the one difference between the action of my right hon. and learned Friend in the Budget when he introduced the regulator and the action of the present Government was that he did not attack savings which would have gone into productive investment as the Labour Government have done. Indeed, personal savings during the 13 years of Conservative rule increased from £100 million in 1951 to £2,000 million.

Surely the very object of arming the Government of the day with the economic regulator was to enable it to act against demand without hurting savings, particularly the savings that would have gone into productive investment. Surely this is why the banks have indicated disquiet at the Government's policy. The banks say frankly that they cannot cut back loans and overdrafts within the new directives laid down by the Government without undermining——

The Chairman

Order. All this may be perfectly true, but the hon. Member must keep to the subject of the regulators.

Mr. Ridsdale

My whole object in making this point was that one of the objectives of the economic regulator was to curb demand without hurting productive investment. I should like to see the economic regulators extended not only against consumer demand but against Government demand, which means Government spending as well.

The Chairman

Order. That would mean amending this Clause. It is too late for that now.

Mr. Ridsdale

I am sorry, Dr. King, that you are forbidding me to make the point because I have been too late in putting down an Amendment——

The Chairman

I am sorry, but I hope the hon. Gentleman does not think that I am treating him unfairly. We are debating the Question, "That the Clause stand part of the Bill", and all we can debate on that Question is the Clause itself.

Mr. Ridsdale

I will conclude by saying that I hope the Chancellor will realise that when my right hon. and learned Friend the Member for Wirral introduced the economic regulator he did so to encourage productive investment and not the kind of unproductive spending which is at present taking place.

4.30 p.m.

Mr. Terence L. Higgins (Worthing)

As has already been pointed out, we are concerned in this Clause with the economic regulator which gives the Chancellor power to vary indirect taxation plus or minus 10 per cent.

As behoves one speaking for the first time in a Committee of this House on the Finance Bill, I thought that I ought to do some little research into the debate which took place on the original introduction of the regulator by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd). The object of the regulator is, of course, to regulate the balance between the supply of goods in the economy and the demand for them.

It was noticeable in the first debate in 1961 that the right hon. Member for Battersea, North (Mr. Jay), now the President of the Board of Trade, put down an Amendment which paid particular regard to the need to maintain full employment in all parts of the United Kingdom. Indeed, hon. Members divided the Committee on the suggestion that this Amendment should be carried on the grounds that the Clause as it stood did not devote sufficient attention to the need to maintain full employment.

This is significant, I think, in view of the fact that the present Prime Minister and the present First Secretary, but not, I should add, the present Chancellor, divided in favour of this Amendment, and it is strange that we do not find a similar Amendment on the Notice Paper together with the Clause which is now before the Committee.

There is a grave danger at present, in view of the Government's economic policies, that we shall find them achieving what has not been achieved by any previous Government, namely, rapidly rising prices and a rise in unemployment at the same time. We should have grave doubts about the timing of the substantial measures which the Chancellor has been introducing since the present Labour Government came to power. It is right that we should look with some question at the proposal to take yet further powers or to continue the present measures with regard to the regulator.

Before I come to one important point that I want to raise I should like to mention in the debate in which the regulator was first introduced the right hon. Member for Battersea, North chided one Conservative Member for saying that if a tax had not been increased for 30 years that was a good reason for putting it up. It would seem that the present Government take the view that if any tax has been lowered in the last 13 years that is a good reason for putting it up.

On the whole, the regulator is a good measure for the reasons advanced by my right hon. and learned Friend the Member for Wirral when he introduced it. In particular it gives the Government power to vary the level of demand and supply during the course of the year and, therefore, it gets away from the rigid idea of an annual Budget or, as seems to be the case nowadays, a twice-a-year Budget. This is a good thing. But there is one main objection to it, and that is that there is reason to suppose that the use of the regulator may result in gains or losses on tax-paid stocks. The regulator enables the Chancellor to alter the level of the taxes by 10 per cent. and this means that people with tax-paid stocks may make a considerable capital gain or a capital loss which results directly from the action which the Chancellor has taken.

I therefore ask the Chancellor to tell the Committee whether he proposes to make any special arrangement whereby any tax on such capital gains or capital losses will be included in the proposals for a capital gains tax. He will be aware that a committee sat to consider the question of gains and losses on stocks when tax changes took place some time ago, and the committee suggested that the best way of avoiding this was in not making frequent changes in taxation. Taxes have certainly changed frequently under this Government.

Mr. Joel Barnett (Heywood and Royton)

Is the hon. Gentleman aware that there are occasions when stocks go up and when there are profits made, too?

Mr. Higgins

My point is not concerned with whether stocks go up; I was referring to stocks of actual physical goods. There might be a change in their value as a result of the use of the regulator by the Chancellor. This is so whether he puts it up or down. We want to know where people in this position will stand if the Chancellor uses the regulator. This is an important point which needs to be made.

I think it reasonable to ask the Chancellor, in view of the recent measures which he has taken with regard to the banks, how much purchasing power he expects to take out of the economy as a result, compared to the use of the regulator. Although certain hon. Members have had trouble in staying in order on the question of the recent bank squeeze, I do not think that it is irrelevant to ask whether this is not being used to some extent instead of the regulator, and I would be inclined to argue that the regulator would be a better weapon to use at present rather than go to the banks and carry out the kind of squeeze which is now taking place.

A number of people have felt that the advice which has been given by the "Old Lady of Threadneedle Street" is, perhaps, a little threadbare. We ought, therefore, to ask the Chancellor what is the relevant amount of purchasing power which is likely to be taken out by the bank squeeze, as against the purchasing power he could have taken out by using the regulator which in this Clause he is now asking the House to continue.

Mr. Robert Sheldon (Ashton-under-Lyne)

One of the main burdens of any Chancellor of the Exchequer in framing his annual Budget is to make sure that the economy is fully engaged over a period of 12 months in advance. The decision that he has to take, the balancing of the pressure of demand against the need to maintain a very high economy, is one of the great decisions which a Chancellor has to take during every year of office. If the regulator is doing its job properly, this is one of the decisions that the Chancellor does not need to take in quite so acute a form.

If the regulator is doing its job of maintaining continuous control over the the economy, all the Chancellor needs to concern himself with is to get the broad general picture right and use the regulator for controlling the economy during the succeeding years. But, in fact, we know that the regulator is not doing its job. It is not providing the continuous control that any balanced regulator should provide. What we need is not this very poor weapon, but a fine weapon—an upward screw—to maintain control over the economy and to maintain this broad economic control. What we need is not so much a regulator but something that has three characteristics—something that is capable of immediate effect, capable of small changes and capable of frequent use.

The regulator does not really qualify for any of those needed characteristics. The alternative might be the use of investment grant——

The Chairman

Order. The hon. Gentleman must not discuss alternatives.

Mr. Sheldon

I was trying to say that variable short-term savings might be preferable to the use of the regulator. If we can get savings out of the economy, this might be a rather better way than using the regulator to control the day-to-day working of the economy. Whatever is necessary, I think that one thing we want from the Chancellor is more thought to be given to alternative uses. We hope that over the next year we shall get some further suggestions as to how we might be able to regulate the economy rather more finely than by the coarse method of the regulator itself.

Sir Douglas Glover (Ormskirk)

Dr. King, your Ruling did at least show that under this Clause there are the means of combating inflation because as the result of your Ruling the length of speeches in this debate has been cut down. It is significant however, that on the one Clause in the Bill that I am able to support there is only one speaker from the other side of the Committee, and he was opposing it. It shows how little support the Government have.

Mr. Sheldon

I was trying to say this is not the ideal method, but, clearly, the Chancellor cannot afford to throw any weapon away at this stage. What he needs is the time to perfect new and better ones.

Sir D. Glover

I cannot understand why hon. Members on the other side of the Committee always talk about weapons. I thought that it was peace that we were trying to build, in a peacetime economy. But all their talk is about battles and weapons. All I can say is that if the hon. Member thinks that his speech will read in HANSARD as a powerful supporter of the Government he will get a very bitter shock when he reads it tomorrow morning.

I support this Clause because I supported it when my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) brought it in, but I must say I share the views of my hon. Friend the Member for Barry (Mr. Raymond Gower), who said that he was frightened at giving such additional powers to the right hon. Gentleman the Chancellor of the Exchequer. The Chancellor has already swinged £600 million out of the taxpayers' money, believing that he can do overnight with a Clause to increase taxation by £350 million by a wave of the hand. That means increasing taxation in one year by £1,000 million.

I understand that the Chancellor wants to go in history as a famous Chancellor. If he does that he will certainly go down in history and he will also go down in politics, because he will lose his seat at the next election. I think that the way the present Government are running the economy this Clause is an essential part of the right hon. Gentleman's armoury. We have the right hon. Gentleman in a very misguided way, but I think with sincerity, trying to get our economy under control.

But he has the Secretary of State for Economic Affairs, the right hon. Gentleman the Member for Belper (Mr. G. Brown), mounted on his horse and galloping in exactly the opposite direction. The body politic will be torn apart if these two opposing policies are allowed to continue for very much longer. I am sure that the right hon. Gentleman will need to use this Clause to stop inflation before the end of the year. His right hon. Friend is creating inflation at the other end of the pipeline, with uncontrolled wage settlements and his other activities. This Clause will be very necessary.

I am glad that the right hon. Gentleman has the wisdom to keep this regulator, which is flexible and was brought in, despite criticism, by my right hon. and learned Friend the Member for Wirral. I believe that this was the most flexible piece of machinery that Chancellors have invented in recent years for keeping the economy in the happy state any Chancellor wants to keep it, where one can put it up or down as the case may be quickly.

Turning to the question of loss on stocks it might be thought that, as a person who has lost a great deal of money from time to time on changes of Purchase Tax, that I would support it. Actually, in the case of the regulator, I do not think that there is much loss on stocks because of the change in taxation under the regulator unless there is a very big change in the stock between it coming up and going down. If one has £100,000 of stock and the Purchase Tax rate is 10 per cent and is increased by 10 per cent. of 10 per cent. by the regulator that is, of course, paid on the £100,000 worth of stock. But as one is continuously trading, in six months, or nine or 12 months the economy is under control and when the taxation is 10 per cent. one has still got probably £14,000 worth of stock. And that money is returned again.

Mr. Higgins

The point I was trying to make on stocks was that this will be all the more important because a capital gains tax is to be introduced as well. It may be that the gain or loss will fall on one side of the tax year or the other. A person might, therefore, make a loss to offset against capital gains tax or a gain to be added to existing capital gains. For this reason, I was worried about the two measures, the capital gains tax and the regulator taken together.

Sir D. Glover

I thank my hon. Friend for the very lucid explanation and I hope that the Chancellor listened to it, because I think that there is a very real fear on the capital gains side although I do not think there is on the Purchase Tax side.

So, for the first time since the present Government took office, I find myself making a speech supporting something they are doing. It will not last very long, because it is the only Clause I can see in the Bill which I can support with my heart and mind. On this one, however, I will give the Chancellor my support and I hope that the Clause will be used before the end of the year.

4.45 p.m.

Mr. F. A. Burden (Gillingham)

The Government have already made sweeping tax changes in the Budget. As my hon. Friend pointed out, they have imposed a swingeing tax of about £600 million already. I look upon the revision of this Clause by the Chancellor of the Exchequer, in view of the steps he has already taken, as an indication of the complete uncertainty with which he is regarding the future and the Government's complete lack of ability to grasp the economic situation. After having imposed taxes amounting to some £600 million the Chancellor is at the same time saying that he wants to insert in the Finance Bill the regulator that will enable him overnight to impose further taxes of some £300 million. But it seems——

Mr. Callaghan

Or lower.

Mr. Burden

I am glad to have this assurance from the Chancellor.

Will he consider this, because it was something for which I was going to ask for an assurance. The position as a result of the threat that the regulator might be used is that there will be concern by many companies about the effect of it and how it might be used. The indications we have so far had are not that the Government intend to reduce taxation. On the other hand, every step they have taken has been one that has increased taxation. I hope that when winding up the Chancellor will be able to give us an undertaking that the regulator will certainly not be used for increasing taxation but rather for reducing it.

Mr. Callaghan

I am not giving an indication one way or the other, when I wind up. The Clause does not only permit increases in taxation, which was the point on which he was basing his whole argument. It can be moved either way, up or down, and I said so in my Budget speech.

Mr. Burden

I hope that the Chancellor will perhaps go a little further than that and have such confidence in the steps he has already taken and say that the implication will be much stronger that the regulator will be used to reduce taxation rather than that there will be any likelihood of further increases of taxation during the year.

Sir D. Glover

Is not my hon. Friend forgetting the First Secretary?

Mr. Burden

The First Secretary is too often with us for us to be able to forget him. Although we may not see him in this Chamber as often as heretofore we are at least made aware too frequently of the consequences of his policy, but I should be moving right outside the Clause if I were to go into that.

The Chancellor of the Exchequer stated on 11th March last year that increases in taxation inevitably meant increases in prices. As I understand it, the use of the regulator to increase taxation is so as to mop up purchasing power. The taxes which have also been increased so far, to which the regulator is an ancillary, have been imposed largely to mop up excess purchasing power. But the fact is that this part of the exercise has [...] been completely unproductive, because with every increase in taxation and every likely resulting increase in prices there have been vast wage concessions which in the months ahead will mean that purchasing power will be maintained, in short, wages will have risen to compensate, and even more, for rising prices.

The likelihood, therefore, is that the Chancellor will be forced, in the months ahead, to increase taxation still further, and to use the regulator to mop up the money coming through in the pipeline from the wage increases recently announced and others which will certainly follow as a result of the Government's fiscal policy so far. We are thus faced with the fact that there is little likelihood that the Chancellor will be able to use the regulator to cut Purchase Tax and reduce prices and ease particularly the lot of those who live on small fixed incomes and pensions.

On the contrary, it is most likely that as a result of what is going on, largely because of the activities of his right hon. Friend the First Secretary, the Chancellor will be forced to use the regulator to increase taxation. This will mean that prices to the general public will rise still further. This is an extremely dangerous weapon to leave in the hands of a Government who so far have shown so little knowledge of commercial activities and of the effect of the measures of taxation which they have already introduced and the general economic policy which they have been following.

Mr. Barnett

During the course of the debate hon. and right hon. Gentlemen opposite have complained from time to time that there have not been many hon. Members on this side of the Committee listening to them. We all know this somewhat mock indignation for the sham that it is, but I believe that they and the wider public outside are entitled to know why some of my hon. Friends have not been listening. [Interruption.] I can speak for myself and I intend to do so. There are many others like me. [An HON. MEMBER: "Eleven."] We are not prepared to listen to some of the silly humbug that we have heard from hon. and right hon. Members opposite.

The Chairman

Order. I would be grateful if the hon. Gentleman would come to the Clause.

Mr. Barnett

I would have hoped that hon. Members opposite would have liked to listen, but some of us would prefer to do some serious reading and research which would help us and our constituents better than listening to the sort of stuff that we have heard from the other side of the Committee.

I should like now to come to the Clause, which is very important and serious, though one would not think so from listening to some of the speeches already made. We are discussing the serious matter of whether we shall continue until August, 1966, with this economic regulator whereby Purchase Tax can be increased or decreased over a whole range of goods by 10 per cent.

There are some hon. Members opposite who would believe and have us believe that we should allow our economic destiny to have free play, but I believe that there are more on the other side of the Committee who would believe with their right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) that we need some kind of regulator. I think that it is widely accepted in all parts of the Committee that we need some kind of regulator for the economy other than the ritualistic paraphernalia of a Budget once a year and sometimes twice a year.

All Chancellors have other weapons and other instruments and regulators at their disposal, such as the Bank Rate, special deposits, the credit squeeze and hire-purchase, but I think most would agree that all these weapons are somewhat heavy-handed in their effect on the economy generally. We need a regulator which will help us to regulate the economy. We are entitled to ask whether the extension of the 1961 Purchase Tax regulator is a suitable source of control.

We need the sort of regulator which will enable us to have a continuous and steady rate of growth. I do not believe that this type of weapon will help us to achieve this. The Chancellor is right, in present circumstances, to continue with the instrument which he has at his hand until August, 1966, but I would hope that in the coming year he will look again at the possibility of finding some better type of control of the economy.

The hon. Member for Eastleigh (Mr. D. Price) was right in much of what he said. We need better and up-to-date statistics regularly. Equally, having those, we need instruments to enable us to control the economy, because there is little point in having the statistics if we are not able to do anything with them. I believe that there is a possibility of finding a better regulator than the one which we are now being asked to extend. Whilst I would not wish to see a pay-roll tax, which was the other regulator brought in at the same time as the Purchase Tax regulator by the right hon. and learned Member for Wirral, we might try to find a substitute along that line but one which we would be able to apply only temporarily and then withdraw, perhaps returning the money on the P.A.Y.E. card.

The Chairman

Order. The hon. Gentleman is beginning to explore alternatives. He must find another opportunity of doing that.

Mr. Barnett

Thank you, Dr. King. I agree with our extending the Purchase Tax regulator this year, but I hope that on another occasion we might have the opportunity of finding something better.

Mr. Callaghan

This has been a useful and interesting debate, the tone of which was set in the speech made by the hon. Member for Eastleigh (Mr. David Price) with which I found very little to quarrel. I hope that that does not embarrass the hon. Member. Certainly, anybody who is trying to do this job feels that the absence of reliable statistics and, therefore, the need to fall back upon fallible human judgment is a great burden to carry. There are statistics which are reliable and up to date and one uses them, but there are others to which I attach very little credence.

There are statistics upon which one can rely as being pretty accurate. The number of car registrations, for instance—a not unimportant statistic—is some measure of how the economy is going, and one knows that the figures are pretty well accurate. One knows that the unemployment figures are pretty well accurate. Such things as the figures of exports and imports and bank advances are the kind of statistics upon which one can rely, whatever conclusions one draws from them, as being tangible and reliable.

One knows what they are and draws such conclusions as one thinks appropriate. Beyond that, however, there is not the same reliability by any means. I am thinking of some of the indices with which I have to deal. I remember an occasion when the production index was adjusted by several points from one month to another because it was based on incomplete information.

At this sort of level, we tend to wander off into difficult and misty realms. This is a problem to which I have started to pay attention, in conjunction with my colleagues in the Government. I cannot say that we have yet got very far, but, spurred on by the debate today, I shall certainly hope to make further progress on it.

Mr. David Price

We particularly have in mind the figure for exports. As the Chancellor knows, the export figures produced by the Board of Trade are based on the value of the volume of physical goods being exported from the ports and airports of this country in a particular month, but what is more relevant, particularly to the job the Chancellor has to do, is the figure of orders booked in a month or quarter, and these, of course, are not reflected in the statistics we at present have. There can be a very long time-lag here, and it is most relevant, from the point of view of getting the sensitive adjustments we need, to have better figures of this sort.

Mr. Callaghan

I am much obliged. I shall see that that point is taken into account. Another matter on which I feel particularly in the dark is investment intentions. Surveys of them are made quite regularly but——

Mr. R. J. Maxwell-Hyslop (Tiverton)

On a point of order, Mr. Hynd. Could we have at least 40 Members present—[HON. MEMBERS: "Oh."]—to hear what the Chancellor is saying?

The Temporary Chairman (Mr. Hynd)

Order. I have not heard any particular interruption.

Mr. Callaghan

The scale of industrial and commercial investment we already know something about, but the next review takes place in the summer and, meanwhile, I am extrapolating from the past and from certain unofficial inquiries which are taking place. I do not think that I had better pursue this too far or I shall be out of order, as the hon. Gentleman himself was. I just acknowledge the point which he made and accept that there is a great deal in it.

The right hon. Member for Flint, West (Mr. Birch) asked me, broadly, about how I saw the economy moving in the second half of 1965. I find it very difficult to add much to what I said in my Budget speech. I then made such judgments as I could, based on the information which was available. I should certainly say that demand is likely to increase rather more slowly over the next few months than it has done so far. 5 p.m.

If it does not, I shall be very surprised, in view of the measures which I took in my April Budget, which are bound to exercise a check on the growth of consumption. I think that this may well he intensified by the new credit restriction, especially if personal loans are restricted and if hire-purchase terms are stiffened, to which I have heard some reference.

There are factors working in the opposite direction. Import prices are tending to fall. This reduces the pressure on consumers to limit their spending. At the same time, money incomes are growing fast. The average earnings of weekly paid workers were over 9 per cent. higher in March than a year ago. This is a factor which is bound to affect developments in the second half of 1965. It is likely to stimulate personal consumption, not merely because rising costs take quite a long time to work through into prices, but because 40 per cent. or more of the components which make up the costs of consumer goods and services will not be affected by the change in wage rates.

I regard this as a serious factor, and it is right in the front of my mind at present. This is why I think that it would be imprudent to give the explicit assurances for which I was asked—I am not sure how far I was really expected to give them—about use of the regulator. It shows the need for the existence of the regulator and, as I have said—I think that the Committee should have this in mind—I ought to be ready to move either way, whichever seems to be right, to try to keep the economy moving at as great a pace as is possible.

I expect to see public investment still moving ahead, at a rate of, perhaps, 7 per cent. per annum, or something like that, which is quite considerable. Perhaps I might say a word, in passing, without going out of order—there have been passing references to it—about bank advances. What the bankers have been asked to do is to keep the increase within a limit of 5 per cent. Public expenditure, of course, is also under control. I have already told the House that it is my intention—I think that this will be the first time for many years—to try to keep the increase in public expenditure under control.

I come back to the point which has been made by the right hon. Member for Bexley (Mr. Heath) and by myself more than once, that one cannot reduce public expenditure unless one changes policy. Therefore, those who advocate cuts in public expenditure are in honour bound to tell us what parts of public expenditure they wish to cut out. I have my own views about that, but I should be out of order if I were to develop them now because I must stick to the regulator.

Mr. Peter Hordern (Horsham)

Does not the Chancellor agree that public expenditure in this current financial year stands to grow by just under 10 per cent., yet the day before yesterday he gave the figure of, I think, 4½ per cent. as the average for the next 5 years? The Committee would be grateful to have his assurance that public expenditure is not to grow by 10 per cent.

Mr. Callaghan

I had better not go into it too far, Mr. Hynd, because the Chair did stop other hon. Members who tried to trench on this ground.

When I put the Estimates forward this year, I did not find it possible to reorganise the priorities which I inherited at that time. I had had only four months in office. In fact, the Estimates were pretty well ready by the time we assumed office, and it is not possible to do it within that period of time. I do not believe that right hon. Members opposite would seek to deny that we inherited a great volume of expenditure and, whether we had been there or not, the increase in the Estimates would have been roughly of the same order.

What I am trying to do, and what, I suggest, both sides of the Committee ought to try to do, is to ensure that, for future years, if we are to have a five-year plan, we limit the increase of public expenditure to something like 44 per cent, per annum at constant prices. I think it is possible to keep it within those limits provided that we make certain modifications of policy. I had better not trench further on that ground lest I go out of order. I hope that what I have said answers, within the limits possible, the points made by the right hon. Member for Flint, West.

I do not know that I need say very much more, except to comment in passing on the gibes which were made by several hon. Members opposite. The hon. Member for Harwich (Mr. Ridsdale) made a particularly strong personal attack. It is true that the taxation measures I have imposed are as severe, if not more severe, than those imposed by the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd), but, of course, I inherited a balance of payments deficit nearly twice as big.

Although the hon. Gentleman does not like to admit this and Conservative propagandists in the country will do their best to deny it, the simple fact remains that, if one is trying to get the balance of payments under control and the deficit is twice as large as it was in 1961, the measure of adjustments which must be made is correspondingly more severe. I can assure the hon. Gentleman, if it is any comfort to him, that no one will rejoice more than I myself when I can come to the House and say that, at long last, I have shrugged off the Conservative inheritance and can begin to reduce taxes. [Interruption.] I do not expect hon. Members opposite to like it, but it is a fact and they know it as well as I do. [HON. MEMBERS: "Nonsense."]

If they do not believe it to be so, why did they not vote against the increases in tax proposed in the Budget resolutions? They did not vote against any of them. None of the increases I put forward in the Budget have been voted on and I assume that the Opposition did not vote against them because they thought them necessary to contain demand. I can think of no other reason.

That being so, I shall not press the point further now. It is well known, however it may be denied for party purposes, that this must be done and everyone really recognises it. I must, therefore, say to the Committee that the future use of the regulator will depend upon the economic situation at the time.

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

On a point of order, Mr. Hynd, it will be within the recollection of the Committee that on Monday, on Amendments put for- ward from this side of the Committee, I endeavoured to adduce arguments such as those the Chancellor is now putting forward. I was consistently ruled out of order over a period of half an hour. If I was ruled out of order for these very same arguments, why is it possible for the right hon. Gentleman to adduce them now without incurring the Chair's indignation?

The Temporary Chairman

When the Chancellor gets out of order the Chair will be suitably indignant.

Mr. Callaghan

I leave that point immediately, Mr. Hynd. I think that the Committee understands. I was only trying to reply to remarks made, quite in order, by the hon. Member for Harwich.

Mr. Burden

The Chancellor has said that he inherited the economic situation. If, in fact, there was such an inheritance, surely he should have been able to square it up by now. Yet he says that he wishes to retain the regulator so as to be in a position to increase taxation by a further £300 million this year if necessary.

Mr. Callaghan

The hon. Member makes the same point made by the hon. Member for Harwich. The regulator operates both ways. It can go either way; and I intend to use it either way as the economy demands. At present, I would not like to make any forecast about the future use of the regulator. It would be imprudent to do so.

Mr. Ridsdale

I would be ruled out of order if I tried to make a direct reply to the Chancellor's remarks but may I draw his attention to the excellent article in the Financial Times about the cause of the economic crisis?

Mr. Callaghan

I am obliged to the hon. Gentleman. I am sure that I read the Financial Times as regularly as he does.

There is little need for us to delay much longer on this Clause. On both sides of the Committee we are in agreement, although with various shades of difference as to whose hands the regulator can be most safely put into. But perhaps I may say, in conclusion, that, when we were in opposition, we proposed a greater flexibility in the regulator and the number of categories was then increased from four to five on an Amendment moved by me.

I assure the hon. Member for Worthing (Mr. Higgins) that we had better leave the aspects he referred to until we get to the Clauses dealing with the Capital Gains Tax. The tax involved in this Clause applies to consumer goods and people selling them will be charging, presumably, higher prices. It might yield higher profits which would be there for the purpose of tax but not, I would have thought, for Capital Gains Tax. But perhaps we can return to that later.

5.15 p.m.

Mr. Heath

This has been a very interesting and useful debate in which hon. Members from both sides of the Committee have taken part, contributing valuable views. The Chancellor has given us some interesting information in response to the questions. We were interested to hear that obviously he finds no great hurry about the Bill. From his concluding remarks about the trade deficit, it is obvious that he wants to provoke this side of the Committee. The more he does that the longer we are likely to go on discussing this matter. Perhaps he will let us know when he wants to end these provocative remarks and then perhaps we can make progress.

Mr. Michael Foot (Ebbw Vale)

The Chancellor gave the facts.

Mr. Heath

The right hon. Gentleman is allowed to give facts, but so far he has not given them. He has not referred to the White Paper of 26th October, published by the First Secretary of State—presumably the Chancellor was allowed to see it beforehand—which said firmly and categorically that there was no undue pressure on resources calling for action. That was issued after the Government had taken power and after they had examined the situation. Therefore, all the measures that the Chancellor has had to take he has taken on his own responsibility, and, as he himself has stated, his action was far more severe than that taken by his predecessors.

At the same time, also in the White Paper, the Government said that they rejected any return to so-called "stop-go" economics. Yet the right hon. Gentleman admits that the action he has taken through two Budgets, a 7 per cent. Bank Rate, two credit squeezes and two letters to the Bank of England is far more severe than we have had before.

The right hon. Gentleman is perfectly aware, when he talks of a deficit of £800 million in the calendar year 1964, that ten months of that year were already gone when he came to office and that the deficit which had developed had already been handled by my right hon. Friend the Member for Barnet (Mr. Maudling). [Laughter.] Indeed, yes. It just shows the extraordinary ignorance of hon. Members opposite of the figures of the trade deficit that they can laugh at the fact that ten months of the year were already past and that that amount of the deficit had been handled already.

As the White Paper prophesied, and as the right hon. Gentleman himself said in his Budget speech, 1965 was already known to be a period of much better conditions, as had been forecast by my right hon. Friend the Member for Barnet. I do not accept the right hon. Gentleman's statement that what he has said are the facts. They are not. I am happy to go on arguing about that every day on the Committee stage so long as he insists on introducing this element into his statements.

My right hon. Friend the Member for Flint, West (Mr. Birch) asked what was in the Chancellor's mind about the use of the regulator. The right hon. Gentleman was right in saying that greater flexibility was introduced into the regulator last year, but it was not quite in the form he suggested. After a debate in which the right hon. Gentleman took part, my right hon. Friend the Member for Barnet took power to deal with groups of items and different percentages for those groups. The right hon. Gentleman has not used it so far but has not really explained why. He has chosen other methods—budgetary methods, Bank Rate, credit squeeze, letters of requests to the banks and so on.

The Chancellor has told us that he is prepared to use it if necessary in future in order to get stability into the economy. What was most striking about the few remarks that he made was his brave forecast of the future. In particular, he said that money incomes are growing very fast and that prices are increasing fast. At the same time he thinks that the credit squeeze is going to bite. This may lead, as my hon. Friend the Member for Worthing (Mr. Higgins) said quite rightly, to the extraordinary situation in which incomes and prices rise faster than ever and at the same time unemployment appears in the economy. That will be the total result of the Chancellor's policies.

I hope that the right hon. Gentleman will convey this forecast to the First Secretary of State so that the First Secretary will perhaps recognise at last, when he is declaring that he has an incomes policy and that it is a practical thing in effect now, that, as the Chancellor says, quite rightly, it is having no effect at all.

Mr. Callaghan indicated dissent.

Mr. Heath

The implication is certainly there. I do not wish to misrepresent the Chancellor, but surely he said that the incomes policy was having no effect because of the increase of 9 per cent. registered in March as compared with March, 1964. If he is not pleased with that, there is also the 2.1 per cent. increase in the price level in one month which, as the Minister of Labour has rightly said, is mainly attributable to the Budget and for the rest to the increase in rates. That situation is fairly and squarely the responsibility of the Government. Not even the hon. Member for Ebbw Vale (Mr. Michael Foot) can get out of that one.

We are grateful to the Chancellor for telling us how he sees the situation. It is one more statement on the record about the situation. We have no objections to the right hon. Gentleman taking the regulator, although my hon. Friend the Member for Barry (Mr. Gower) had some faint doubts about the wisdom of trusting the Chancellor with it. However, I ask my hon. Friend to be generous. It may well be that the Chancellor needs such a weapon because of his present inability to control the economy.

Question put and agreed to.

Clause ordered to stand part of the Bill.