FINANCE BILL

HC Deb 28 July 1966 vol 732 cc1910-77

Order for Third Reading read.

3.55 p.m.

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

I beg to move, That the Bill be now read the Third time.

As I gather that we are to have a shortish debate, it is in accordance with precedent that the opening speech on this occasion should be short. Moreover, as we have already had an economic debate, covering two days, and as the major item in the Bill is the Selective Employment Tax, which we have fully discussed on another Bill, I hope that it will be for the convenience of the House if I myself make only a short introductory speech on Third Reading.

The Bill contains the usual number of minor provisions affecting old taxes, the tidying up of Income Tax, of Corporation Tax, of Capital Gains Tax, and, as usual, a provision in respect of antiavoidance—on this occasion that in relation to bond-washing on certain Stock Exchange transactions, involving additional powers of inspection by the Revenue.

There are also provisions in the Bill for new taxes, in particular the Betting and Gaming Duty, which I think we would all agree have been unusually well accepted for new taxes.

The major provisions in the Bill are those for strengthening the economy. First, there are in Part I a number of provisions facilitating international trade; and among those I would include in other parts of the Bill the double taxation agreements.

There are provisions for encouraging investment in the most direct way. The Bill paves the way for another Bill. The two Bills together provide for what I have just indicated. We must not forget that Corporation Tax, which is in the Bill and the rate for which is fixed for the first time, is one of the greatest incentives to investment that we have.

There has been some discussion about the rate of Corporation Tax. On one or two occasions I have been challenged as to the comparable burden of taxation arising out of Corporation Tax and out of the previous system. There are a number of factors which will tend to affect the yield of Corporation Tax for the first year. There are various transitional reliefs and there is the effect on the Schedule F yield of the forestalling of dividends which took place.

There is also the fact that, even apart from this, we shall not be collecting more than 11 months of Schedule F tax in the first year, 1966–67. I repeat that the best estimate we can make is that the amount of tax which will, with a Corporation Tax rate of 40 per cent., reach the Exchequer in 1966–67 will be less than it would have been under the old system. It is, therefore, quite clear that my right hon. Friend the Chancellor of the Exchequer cannot be said to have increased the burden of company taxation as a result of the change to the new system of Corporation Tax.

There have also been from time to time questions as to whether the Corporation Tax, which is an incentive to plough back profits and to increase investment capacity therefore out of the retained profits of a company, rather than by distributing dividends in the hope that they, in turn, will be reinvested, serves a useful purpose in this respect.

This has been confirmed in many ways and recent investigations, both here and in the United States, show that the individual investors on balance have spent on consumption the full amount of their dividend income and some fraction of their capital gains. As a group, they are net sellers of securities and not net buyers. The net acquisition of financial assets by the public—I am including securities of all kinds and not merely ordinary shares—is more than accounted for by increases of holdings by life assurance companies and pension funds.

In other words, security holders other than the institutions consistently sell some proportion of their total holdings. It follows, therefore, that the ultimate source of personal savings is the contributions of wage and salary earnings in the form of life assurance and pension funds, that individual shareholders do not provide the savings to finance investment, and that there is no evidence to show that any significant part of additional dividend payments would, in fact, be saved and reinvested rather than spent.

Corporation Tax, therefore, is even more relevant to our needs today than when it was produced a year ago.

Mr. Peter Tapsell (Horncastle)

But is not what the right hon. Gentleman has been saying the result of the taxation policy being pursued by the Government? Surely it is because taxation is so high that what he says is true. Should the Government, therefore, not seek to reverse this trend?

Mr. Diamond

I have already said that what I am saying is based on investigations here and in the United States into a pattern that is followed in both countries. One cannot be certain, of course, but I am sure that the hon. Gentleman would accept that the probable cause is that people are inclined to spend their income and to spend part of their capital gains, but are not inclined to spend their capital. This is borne out by the figures, If one increases dividends there is no likelihood, contrary to what has been suggested, of a reverse process whereby increased dividends would be saved and returned in the form of investments in new companies.

Corporation Tax, which provides tremendous encouragement to ploughing back, through the reduction in the tax borne by the company, is one of the best incentives that exists for the further investment that is so necessary for the development and growth of the economy.

The Bill also contains, in the provisions relating to the Selective Employment Tax, further encouragement to production and in particular to production for exports. In this connection, I do not think that I can do better than remind the House of what my right hon. Friend the Prime Minister said only yesterday: We cannot go on with a situation where only one in every 20 in the expansion of our labour force goes into manufacturing employment. He went on to refer to … the acute shortage of labour in our essential industries, particularly our export firms. and added: … the biggest impediment to an immediate increase in exports is a shortage of labour, both skilled and unskilled. … Government policies, all of which involve measures currently before the House—the Finance Bill, the Selective Employment provisions, the investment grants, and the Industrial Reorganisation Corporation—are all designed to secure a redeployment of resources in favour of manufacturing industry against services."—[OFFICIAL REPORT. 27th July, 1966; Vol. 732, c. 1745–6.] That is, indeed, the case and it is because there are so many provisions in this Bill which encourage investment, exports, international trade and mobility of labour—it includes a provision to relieve redundancy payments from taxation—that I feel sure the House will give the Bill a Third Reading today.

4.5 p.m.

Mrs. Margaret Thatcher (Finchley)

Seldom has the Chief Secretary to the Treasury made a speech with which I disagreed more. I shall follow him in one respect only, in that I shall be brief. He attempted to brush aside the Selective Employment Tax. In fact, never has a Finance Bill imposed such a heavy burden of taxation as this one. It extracts about £1,100 million a year in tax.

The Selective Employment Tax need never have come about if the Chancellor of the Exchequer had got his forecasts remotely right. It has caused, and will continue to cause, a great deal of worry to the older folk, the older employed part timers and the disabled, who have to pay out money long before any will be returned to them.

Dame Irene Ward (Tynemouth)

And charities.

Mrs. Thatcher

And charities.

Although represented as a tax on services, it is, in fact, a tax on all goods and services, because the cost of distribution is as much a part of the cost of the finished product as is the cost of manufacture and the attempt to distinguish between the two elements in cost has no basis in logic or in fact.

The tax involves the collection of £1,130 million and then handing back £890 million, less administrative costs. As a means of collecting about £240 million of revenue with no contribution to greater productivity this is an idiotic way of proceeding. Already, the protests we have had have been terrific, but they are only a fraction of what the protests will be when the tax bites in September. This is an unusual Bill, in that its taxation provisions do not bite until the Bill has passed all its stages in this House, so the average person has not yet felt the impact of its provisions and has, therefore, not yet made his particular protest.

The Bill is also a blow to savings, especially to small savings through friendly societies. These are savings which, by law, could not have exceeded £500 per person. I will quote an example. It concerns a firm near my constituency which employs many of my constituents and many represented by my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod).

The firm drew up a monthly premium savings plan for the hourly-paid workers. On the whole, therefore, it affected small savers. In March, it negotiated with the Registrar of Friendly Societies to draw up rules for an appropriate friendly society. By April, the scheme was announced to the hourly employees. On 2nd May, the rules were adopted and on 9th May the society was registered.

Then the Bill was published and it was found that this type of friendly society, although designed for small savings by hourly-paid employees, was caught badly by the provisions of the Bill. On 7th June, representations were made to the Inland Revenue. On 23rd June, the firm received a reply stating that the matter had been reported to Ministers, who had decided that the society could not be exempted.

That is a specific example where a company which was proposing a scheme to help its employees to make small savings has now had to withdraw the scheme because of the Bill. It is an example of where the more the taxation the less savings there are and is positive proof that the Government prefer taxation to savings.

This is the eighteenth Budget and Finance Bill since 1951. In analysing the additions to the tax burden imposed by each one, one finds that, for imposing higher taxation burdens Labour Governments have it every time. Of the Budgets between 1951 and 1966 that have imposed most taxation, that of Mr. Hugh Gaitskell, in 1951, led the field with a new tax burden of £388 million. The second in the higher taxation stakes goes to the present Chancellor, with this Bill, which, in a full year, imposes a burden of £265 million.

Mr. Joel Barnett (Heywood and Royton)

I am following the hon. Lady's argument very closely, but I am not clear whether she is arguing that in the present Finance Bill there is too much deflation, or whether she would not have had as much.

Mrs. Thatcher

I am pointing out that Labour Governments are those which impose high taxation. If the hon. Gentleman wants a comparison with an emergency Budget—and he has been present when I have spoken on this subject before—he will remember that Mr. Butler's emergency Budget of 1952, introduced in circumstances identical to those of last year's, did not impose extra taxation.

The Budget with the third highest taxation was the right hon. Gentleman's of 1965 and the fourth was the right hon. Gentleman's of 1964. Only then do we get to a Conservative Budget, the fifth highest, and it is that which was introduced in April, 1964, and it is noteworthy that that Budget, imposing the highest taxation of Conservative Budgets, was introduced in an election year. This Budget holds the second prize for introducing the highest taxation burden since 1951. Out of the eighteen, all of the nine which reduced taxation were introduced by Conservative Governments.

We face tremendous new taxes and we must consider this Finance Bill in the context of other statements. We know the crowd on the Treasury Bench fairly well by this time and that when they get their hands on extra money they tend to spend it. If the Chancellor is to spend the extra taxes which he is taking in, and not to use them to reduce the National Debt, the whole purpose of the extra taxation will be defeated. I should, therefore, like an assurance that the extra taxes which he is taking in this year will be used to reduce the National Debt and not to subsidise nationalised industries which cannot pay their way.

Mr. Speaker

If the right hon. Gentleman gave the hon. Lady the assurances for which she is asking, he would be out of order.

Mrs. Thatcher

Thank you very much, Mr. Speaker. Perhaps he can give them to me another time.

This Finance Bill embodies a disastrous Budget. It is a monument to financial misjudgment and administrative lunacy, and it is, therefore, a fitting monument to this incompetent Government.

4.12 p.m.

Mr. Sydney Silverman (Nelson and Colne)

Opposition to the Third Reading of the Finance Bill in my experience is rather rare. Objections to the Budget are usually raised at earlier stages. When we have reached the stage of the Third Reading, everybody knows that the money has to be provided and that the Bill cannot be amended at this stage and opposition to it is, therefore, purely mischievous and irresponsible even if it is carried with sincerity into the Division Lobby.

However, I appreciate that what the Opposition wish to do is not to defeat the Finance Bill, because that would be too absurd even for them, but to offer a challenge to the whole of the Government's management of the economy. It is a challenge which they have made repeatedly over past weeks. No one would deny that they have a perfect right to do so and that it is certainly within their rights and within Parliamentary tradition to take this further opportunity to offer the challenge. What I should like from them is a redefinition of what their challenge is.

In the course of the debate in the last two days, they have repeatedly told us not that the Government's immediate policy is wrong, not that they object to making hire purchase more difficult, not that they object to a wage freeze and not that they object to anything the Government are doing. They tell us that in their opinion what the Government are doing, although not wrong in itself, is too little and too late. I should like to know whether I have got the message correctly.

Mr. Iain Macleod (Enfield, West)

No relation to it.

Mr. Silverman

It bears no relation to it because it comes too late, because the Chancellor of the Exchequer gambled and should have taken what risks he was taking earlier and that what he is now doing is not only too little but too late? Have I got it right this time?

Mrs. Thatcher

The hon. Gentleman has got it quite wrong. I thought that I made it clear in my opening sentences and certainly my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) made it clear last night. When the Chancellor made his Budget statement, he said that the Selective Employment Tax was an alternative to increases in Purchase Tax and petrol tax and so on. We now have increased Purchase Tax and petrol tax. The point is that we need never have had the Selective Employment Tax if the Chancellor of the Exchequer had got his forecasts right.

Mr. Silverman

Do I take it that it is no longer the Opposition's argument that my right hon. Friend's measures are too little or too late?

Mr. Speaker

The only measures which we can discuss at the moment are those contained in the Finance Bill.

Mr. Silverman

I do not propose to discuss measures other than the Finance Bill. If I am wrong in thinking that the Opposition wish to challenge the Finance Bill at this stage because they wish to challenge the Government's whole economic policy, then I have nothing further to say. They can go on opposing these measures from now until doomsday and it will not make any difference to anybody and it will not give anybody any satisfaction of any kind.

The only usefulness of the debate is whether it gives a further opportunity to consider whether the general economic policy now being pursued by the Government is right or wrong in the opinion of the Opposition and in the opinion of supporters of the Government. If such a discussion is out of order, I confess that I am not interested in this discussion at all and certainly would not wish to waste the time of the House by spending another half minute on it.

I thought that what the Opposition were doing was to say that we were in a very serious economic position, that the Government were responsible for it, that the measures which the Government have taken to deal with it were not enough, and that such measures as the Government have taken of which the Opposition approve were taken too late. I should like to offer my own contribution to the discussion on the basis that that discussion would be in order. If it is not, I am not interested.

Mr. Speaker

The hon. Gentleman knows that he is out of order if on the Third Reading of the Bill he pursues matters except those which are in the Bill. This is the Third Reading of the Finance Bill, and the only Measure which can now be discussed is the Finance Bill and what is in it.

4.18 p.m.

Mr. Richard Wainwright (Colne Valley)

if I may presume to follow at any rate in the spirit of what was said by the hon. Member for Nelson and Colne (Mr. Sydney Silverman), one cannot help feeling a little sorry for the Chief Secretary and the Financial Secretary to the Treasury, who in recent weeks have been defending the Finance Bill while in the forefront of their minds has been the knowledge of the present situation which has been available to them as members of the Government. At times they must have felt like the Pharisees described by St. Matthew, dealing with mint and anise and cummin and omitting weightier matters. I have no doubt that as they prepared for today's debate they had in mind the words of Wystan Auden— And look behind you without a sound The woods have come up and are standing round In deadly crescent. The House will be aware that the poet's next verse goes on: Outside the window is the black remover's van. It is the intention of the Liberal Party to vote against the Bill this evening and it is our hope that it will never come into practical effect, particularly Clause 44 which is the Finance Bill portion of the Selective Employment Tax.

When I first came into the House, one of my early challenges from outside was an inquiry whether I was in favour of vivisection, and I hedged on that matter and kept the letter in my file, where it still is. But I am certainly against the kind of vivisection which Clause 44 will enforce. It has been admitted by the Government that the Selective Employment Tax is a vivisection measure. It is a try out, and it is only to be refined—that is the Government's hope—as time goes by. But in the time that goes by before we have the refinements many living businesses, indeed many people's means of livelihood, will be destroyed. That is why we describe it as a piece of fiscal vivisection.

One example from a very large postbag which I and my right hon. and hon. Friends have received in recent weeks is that of a firm of shipbrokers in Lerwick, Shetland, which wrote to my right hon. Friend the Leader of the Liberal Party on 20th July with regard to the Measure now before the House: The object of the Bill would apparently be to cut out part-time workers, but in this case we are forced by the union to employ casual dockers. An example of the difficulties that will arise: recently my firm employed 32 dockers for a vessel discharging on Monday only. This would mean that apart from having to pay each man's National Insurance stamp for the week, which we do at present, we would also have to pay £40 in tax for this one day's work. That is what I mean in referring to this experimental tax as a piece of vivisection.

The hon. Member for Finchley (Mrs. Thatcher) referred just now to the tax biting in September. I take leave to doubt how far it will bite in September, especially amongst traders who neither have the cash with which to buy the new stamps nor can get the necessary facilities from their bank with which to buy them. I hope that we shall be told during the debate just how the Government intend to make the tax bite in September, because it was my experience, going on audit to small businesses, that very often one of the first things I had to instruct my staff to do was to stamp the client's insurance cards—often for a long period in arrears.

Those who operate the high-value stamping procedure, are not, or were not when I last inquired, required to pay until the end of the quarter. It is well known that if a citizen presents himself at the post office and finds that he needs stamps which have gone out of circulation, because he is so much in arrear, he is told to produce the money, and the printed form of receipt is readily available to acknowledge that the cash handed over in lieu of stamps satisfies the obligation. I know that we shall be told—

Mr. Barnett

I do not want to impugn any of the hon. Gentleman's clients, but would he not agree—I am sure that he would not want to exaggerate the case, and I am sure that he is right in saying that this happens—that this happens only in the case of very small businesses, and that it hardly applies to medium and larger size companies?

Mr. Wainwright

Not at all. The high-value stamping to which I referred is specially designed, and is an admirable measure, to assist the larger businesses. The operation of the high-value stamping procedure is so complicated that only a large business with a considerable wage-office staff could hope to operate it. As I think I made clear, I was speaking not entirely with regard to arrears of stamping that have happened in the past, but with regard to the very much greater arrears of stamping which I apprehend will occur in the future, now that the stamp in some cases will cost as much as 56s. 1d.

The recent revelations of the economic situation which have been debated in the House this week have destroyed a great many of the arguments to which the House listened during earlier discussion of this Measure. I refer particularly to the effect which the tax set out in Clause 44 will have upon the employment of the elderly, the part-time and the disabled. When this matter was discussed on Second Reading, we received from the Chief Secretary the following attempt at reassurance with regard to the elderly, the part-time and the disabled: So long as the policy of full employment is maintained—and this the Government are determined to do—it does not seem that there can be an overall falling-off in the need for workers in these groups."—[OFFICIAL REPORT, 25th May, 1966; Vol. 729, c. 485.] That assurance is now largely worthless, and because this Measure, and especially Clause 44, will inflict a very great deal of personal hardship and encourage a great deal of commercial inefficiency, the Liberal Members will vote against it tonight.

4.26 p.m.

Mr. Harold Lever (Manchester, Cheetham)

When we look at a Bill on Third Reading, we are best advised to look at it in its totality and see whether we are justified in accepting it or rejecting it at this stage. We have had exhaustive debate on the details, and I shall make a brief speech merely upon whether we are justified in accepting the Bill in totality. When we consider this, it is necessary to have in mind the very grave economic situation of the country with which the Bill is intended to deal.

It is the Tories' view that a Tory Government are equivalent to an extra couple of a thousand million pounds in the reserves and that hence when they are in office one does not need to worry about financial difficulties of this kind. I hope that no one will accuse me of excessive partisanship when I say that this view is not universally shared, even by those who are normally political supporters of the Conservative Party.

We must take the general situation into account in deciding whether the sacrifices, burdens and difficulties that we all admit are imposed by the Bill are justified. The first major criticism made against the Bill, very often from hon. Members on this side of the House, is that the measures in the Bill are not those that the Government wants to take; they are the measures that international bankers insist that they take. If that were true, and this House were of that opinion, it would feel obliged to reject the Bill.

It is true in a superficial sense that the Government do not want to take measures that will be painful and cause suffering and difficulty to the citizens of the country. But it is equally true that they want these measures for the same reason that the international bankers want them, namely, that they want this country to pay its way in the world and be in a position to maintain the stability and strength of our currency and have a strong £, which is one of the central determinations of the present Government.

In assessing the complaint against the Bill that it is dictated by international bankers, it should be remembered that the only international bankers who matter in the modern world are the financial wings of foreign Governments. These are not irresponsible and rapacious tycoons of the 19th century seeking with their cheque books to enslave this proud and independent nation. They are the financial wings of friendly Governments seeking to co-operate with the British Government in the common interest of us all to provide that collective financial and economic security on which the prosperity of the Western world depends.

In so far as the Bill plays a vital part in the Government's policy of defending the £and ensuring that this country pays its way in the world, I support it, and even if there are sacrifices and burdens and some temporary anomalies I absolutely respect the courage of the Government in pursuing this course of insisting that the country pays its way in the world and preserves the value of its currency.

It is said that we need not worry about preserving the value of the currency, that sacrifices such as those exacted by the Finance Bill are unnecessary, and that all that is needed instead of a Measure of this kind is a once-for-all devaluation. My first comment is that, if we get into the habit of having once-for-all devaluations every 10 years or so, we are hardly likely to add to the wealth, prosperity and reputation of our land. We have heard this story of once-for-all devaluations before, and we are not impressed by the suggestion that it should be undertaken now.

I often think that those very sincere and knowledgeable people who put forward engaging arguments for devaluation of the £rather than approving the kind of financial measures we are now discussing mistake the assembly in which they are speaking. The House of Commons is a debating assembly. It is not a debating society. Our resolutions have consequences. Those of a debating society have not. If this debating assembly comes to the conclusion that we should support concepts like devaluation of the £, then, in my respectful submission, it will be a very sorry and lamentable conclusion with dire consequences for the people of this country and their reputation.

Mr. R. T. Paget (Northampton)

Is not this the first time in this century when we have gone as long as 10 years without a devaluation?

Mr. Lever

My hon. and learned Friend's recollection of modern financial history is, to say the least, a little inadequate. It is not true that this will be the first time we have gone for 10 years without devaluation.

In any event, we are discussing a Finance Bill to protect against devaluation, at a time when the world has perfected international monetary arrangements on a scale and of a value never seen before in our history. It is idle for my hon. and learned Friend to seek to justify rash acts which would demolish the whole arrangements developed to maintain international financial stability by reference to what has occurred in a different age and in different circumstances.

My hon. and learned Friend must bear in mind that people hold sterling today on the basis of different undertakings—

The Chancellor of the Exchequer (Mr. James Callaghan)

What has this to do with the Bill?

Mr. Lever

I take it to be a justification for the Bill. I am sorry that my right hon. Friend thinks otherwise. I regard the sacrifices under the Bill which we are asked to support as being part of the necessities rightly imposed upon us in honouring our obligations internationally in relation to our currency. This was the only point which I wished to make about the Bill, and I am sorry that it does not seem to have registered.

At a time when many people seem to think that the honouring of our obligations in relation to the £at home and abroad to friendly Governments and to trusting individuals is some kind of meglomaniac quirk, I want to go on record as entirely endorsing the Government's policy of supporting the £at its present parity and the international arrangements and obligations which go with it. I am willing readily to support them in a Budget designed to play a notable part in putting this country in a position to pay its way in the world and honour its obligations.

4.34 p.m.

Sir Cyril Osborne (Louth)

I shall make one point in following the observations of the hon. Member for Manchester, Cheetham (Mr. Harold Lever) on the question of devaluation, and I think that it will not be too unwelcome to the Chancellor. I want the Chancellor to make clear to the House and the country that devaluation is of itself no easy way out of our troubles. It would make our imports dearer and our exports earn less. [Interruption.] But this is following the argument used before with reference to the Finance Bill.

The Bill is already out of date. The most important factor in it is the Selec- tive Employment Tax, and there will be lots of Amendments moved to Bills of which we have no knowledge yet. This Bill is completely out of date, as a result of statements made by the Chancellor and the Prime Minister in the circumstances which have arisen since the Bill was first introduced some months ago.

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

indicated dissent.

Sir C. Osborne

We are talking about a dead horse. It is no good the Financial Secretary shaking his head. The real factors are not in this Bill. Other things have been superimposed, and the Chancellor knows full well that the position is totally different from that when he introduced the Bill so long ago.

I shall bring myself entirely within order now by directing attention to Clauses 17 and 18. I shall speak as a Surtax payer for Surtax payers. If the Chancellor cannot deal with the point I make this year, I hope that he will bear it in mind for another year. Clause 17 imposes a standard rate of Income Tax of 8s. 3d. in the £, and Clause 18 imposes Surtax to the limit of 10s., making a total of 18s. 3d. in the £. Thus, when the Bill was first introduced, the man on the top level with, say, over £15,000 a year, or thereabouts, was left with 1s. 9d. in the £.

Subsequently, the Chancellor has imposed a further 10 per cent., which means that the top rate Surtax payer will have 9d. in the £out of his last earnings. I know all the argument about average earnings, but when a man is asked to take greater responsibility or to take greater risks it is his marginal risk and effort which is taxed at this ridiculous rate.

I put it to the Chancellor—I am sure he will listen to this—that 19s. 3d. in the £is an absurd rate of direct taxation, especially when the right hon. Gentleman is himself pleading with industry for men to take greater risks and to make their businesses more efficient in order that the nation may survive. It is in these circumstances that he says to them, "Out of every 20s. you earn extra, you will get 9d.". This is financial madness. No one can be expected to work for 9d. in the £.

The history of the matter is that, over the years since Lloyd George's famous Budget of 1909, we have inherited the idea that the Finance Bill should be used as a measure for social justice, for the redistribution of the national wealth and income. As matters stood in David Lloyd George's time, there was a lot to be said for it. Now, however, we have swung to the other extreme. We all want social justice, but we also want economic efficiency. If the demand for social justice through a tax Bill like this weakens our economic efficiency, the whole is worse off.

A few days ago, the right hon. Member for Nuneaton (Mr. Cousins) said that he was not interested in a fairer distribution of the same sized national cake; he wanted a bigger cake. But this is not the way to make a bigger cake. The whole idea of taxation as embodied in the Bill and these two Clauses in particular is wrong. We ought to tax people's spending more and not tax their earnings so much. If we want men to work and take responsibility and risk, we must reward them.

Mr. Deputy Speaker (Mr. Sydney Irving)

Order. I am following what the hon. Gentleman says with interest, but he must not discuss the general economic situation on Third Reading. He must discuss what is in the Bill.

Sir C. Osborne

I am much obliged, Mr. Deputy Speaker, and I shall try to keep in order.

I am referring to Clauses 17 and 18 of the Bill. Clause 17 imposes Income Tax at a standard rate of 8s. 3d. in the £and Clause 18 imposes Surtax at 10s., making 18s. 3d. in all. But since then the Chancellor has imposed another 10 per cent.

Mr. Deputy Speaker

Order. Unfortunately, the 10 per cent. is not in the Bill and it is, therefore, out of order.

Sir C. Osborne

Then I shall stick to the 18s. 3d. The 18s. 3d. is a ridiculous rate to impose on top Surtax payers. [Laughter.] That is true. It is no good giggling. A responsible Member on the Government benches ought not to giggle in such a silly way.

The men who are already running businesses and taking risks with their health and wealth are being asked to work harder. It is responsibility which pulls men down quicker than manual labour. They are being asked to take on greater responsibilities and worries, and under the Bill they are being offered Is. 9d. in the £for every earned. It is absurd. I am asking the Chancellor to give a thought to this for another time. I remind him that at the moment our economy is a mixed one. About 80 per cent. is private and about 20 per cent. nationalised industry. If the economy is to work there has to be a mainspring, and the mainspring of the capitalist system is the profit motive.

If one taxes a man's earnings at the rate of 18s. 3d. in the £, one weakens the profit motive. Hon. Gentlemen opposite have often argued that the profit motive is bad, selfish and almost immoral, and should be abolished. The challenge that I put to the Chancellor is to ask him what he will put in the place of the profit motive. Will he tax it out of existence, or tax it so much that it will not operate properly and efficiently? What will he replace it with? In the Communist world force would be used. What will he do in the Socialist world?

I beg the right hon. Gentleman to bear this in mind for another occasion and to look at Clauses 17 and 18 to see whether really drastic reductions could not be made in Income Tax and Surtax on earned income. This is one of the greatest weaknesses in the handling of our economic affairs and until it is put right the efficiency asked for by the Chancellor will not be attained.

4.41 p.m.

Mr. Joel Barnett (Heywood and Royton)

The really important question on this Finance Bill is: does it have in it the right amount of deflation?

Mrs. Thatcher

No.

Mr. Barnett

The really important question about it, from my point of view, is whether it has the right amount of deflation, and that is what I propose to discuss, even if the hon. Lady the Member for Finchley (Mrs. Thatcher) does not wish to do so.

I want to see if it has the right amount of deflation in the context of the present circumstances. In asking that question one must also obviously ask: is it the right amount to deal with three different problems—the short-term economic position, the fundamental problems facing us, and the pressures on sterling?

It will be clear that there is nothing in the Bill which gets to the root of the faults of our economic situation. Neither if one takes both the economic package, which we cannot discuss today, and this Bill, can one believe that the measures are purely and simply for short-term economic reasons.

It is clear that the Bill and the general deflationary measures in it, but more particularly the other measures that we have had, have been taken because of the pressures on sterling, and it is in that context that one must ask whether the amount of deflation is right. In asking whether the Bill is right, it is necessary to ask whether one feels that it will be successful in its short-term aim of getting us over the interim period, leaving us free to deal with the fundamental problems facing us. In considering this one has to look at the general situation we are now in and see the effect so far of the measures taken and the other measures that we have debated.

It seems to be pretty clear from the effects so far seen that the measures, unfortunately, will be effective only if and when we have the 500,000 unemployed. As things are, people who are concerned with pressures on sterling—and I make no criticism here of those who deal in sterling for many quite legitimate reasons—are concerned with our general position. They will only be satisfied as and when the measures taken are effective and are seen to be effective in dealing with our basic balance of payments problem.

In looking at this one has also to consider whether it would have been better to have taken other steps. It was suggested in the House yesterday and the day before that we should have devalued the £. This, I believe, would be utterly wrong. The trouble is that many people see this as a cure-all. It is nothing of the kind. It no more deals with the short-term situation than do the deflationary measures in the Bill and the package. Only too often I have seen companies, given financial assistance, whether by way of increased overdrafts or debentures, suddenly finding themselves with an enormous amount of increased liquidity and going beserk, as it were, frittering away the money which is literally not theirs. Unfortunately, this could happen with devaluation, if it were seen as a long-term answer to our economic problems. There are many other arguments which one cannot deploy here, on Third Reading.

Mr. Deputy Speaker

No doubt the House is listening with interest to the remarks of the hon. Gentleman, but he is going too far. He is debating the economic situation, which is not in order on the Bill.

Mr. Barnett

I apologise Mr. Deputy Speaker. I was, I hope, relating it to the Bill and I was about to ask whether the measures in the Bill will get us over this period of uncertainty and whether the amount of deflation contained in the Bill and the package will give us this breathing space. I am not at all convinced that they will. For all its difficulties, I would have much preferred the certainty of import quotas, which, of course, I cannot discuss today, or even the measures suggested by the right hon. Gentleman the Member for Barnet (Mr. Maudling) yesterday by way of financial control on imports.

This was a very interesting suggestion which, I hope, will be followed up, although I would prefer the other alternative I have referred to. The real point is that in the longer term we have a very much more difficult problem. Here I do not believe that the Bill gets to the root of this long-term problem. This does not mean that we should go on as we have been doing, exaggerating the case as has happened only too often, in the instance of the Selective Employment Tax and of our general economic position. The difficulties of our economic situation have been grossly exaggerated. We should repeat and repeat that we are not bankrupt and nowhere near it. The longer we go on creating this psychological state of affairs into which we are talking ourselves, then all the more will people who are in a position to exert pressure on the continue to do so. I therefore hope that we can stop talking as though we are in a state of bankruptcy.

The position is really nothing like as desperate as has been alleged in many quarters. If one takes the 14 years since 1952 the total net deficit on the balance of payments on current and capital account totalled about £1,796 million, or an average of £128 million a year. During the past year we spent in foreign exchange abroad £454 million, of which £293 million was in the foreign exchange element of military expenditure. It will be clear that the Bill, or any of the other measures we have had, is not dealing with the fundamental problems. One has only to consider the sort of figures to which I have referred to see that it is not anything like so serious a problem. The main deflationary new tax in the Bill is the Selective Employment Tax. But we are literally creating the problem for ourselves.

The main item in the Bill is, of course, the S.E.T. Despite the many words of very great exaggeration we have had from the other side and despite the fact that I would like to see some changes in the field of part timers, charities and the disabled, I believe that this is a broadly based good new tax measure and that it will be a better one as and when we are able to amend it, as I hope, in the very near future.

An aspect I would like briefly to discuss is its administration. Unfortunately, for the reasons we know, the tax has been sub-contracted to the Ministry of Pensions and National Insurance and the Ministry of Labour. I hope that it will not be felt that because it has been so sub-contracted, we should leave it with them for a fairly long time. I hope that the Revenue will take it back again very quickly, indeed, because there already exists a not too difficult procedure which could be adopted. We already have a tax deduction card which would need only one or two more columns added to enable a tax of this kind to be administered very much more simply than in the way proposed.

I believe that we should do this very quickly and I hope that when we do we shall take the opportunity to do away with the millions of pieces of paper, in the form of stamps, which are stuck on National Insurance cards every week. It would be a very simple task in the administration of this new tax to have additional columns entered on the P.A.Y.E. deduction card so that we can get away from the necessity of sticking on millions of stamps every week. In a modern society, it is quite ridiculous.

Mr. Raymond Gower (Barry)

The hon. Gentleman hopes that this may be amended very soon. I respect that point of view, but does it therefore leave him to regret that we have not taken fairly recent opportunities of achieving that?

Mr. Barnett

I agree with the broadly based new measures and it is not so long now till next April. I hope that it will then be possible to have the appropriate amendments. For example, I am not wedded to the idea of premiums to manufacturers, as I said on another occasion.

On the administrative aspect, I hope that Her Majesty's Government will look into this because it would seem to me that it need not take long to arrive at a decision and say, "This is what we will do. We will get away once and for all from the old idea of sticking millions of pieces of paper on cards each week. We are now to have a stamp which includes the Selective Employment Tax so that when we do away with the proposed method we can do away with the stamp altogether and have on the P.A.Y.E. card the figures, one for the employee showing the amount to be deducted under National Insurance."

This would not be difficult because already, on wage sheets, under many systems for deducting P.A.Y.E., which is referred to in the Bill—[Interruption.]

Mr. Deputy Speaker

It is entirely desirable to get rid of stamp licking, but the hon. Gentleman must refer to the tax in the Bill.

Mr. Barnett

I was, I hope, relating it to the Selective Employment Tax in Clause 44. I hope that the Government will consider this very seriously.

Finally, I hope that this will be the last major Finance Bill we shall be discussing. I hope that we can get away from this idea of a once-a-year major Finance Bill with its aura of crisis, and fear and expectation. I hope we can get away from this creation of an unnatural atmosphere. I feel that the petty jokes of the right hon. Gentleman the Member for Enfield (Mr. Iain Macleod), when he speaks of another mini-Budget or the five or six Budgets of my right hon. Friend, are unworthy of him.

I believe that we can do away with a major Budget once a year and have regular financial statements. Any businessman, company, or managing director who tried to run his business on the basis of one major decision a year would be rightly criticised.

I hope, therefore, that this will be the last major Finance Bill of its kind to be discussed in this House.

4.55 p.m.

Mr. John M. Temple (City of Chester)

I am hardly surprised that the speakers from the opposite benches have not been very favourably disposed to this Bill in detail. The hon. Member for Manchester, Cheetham (Mr. Harold Lever) started by saying that he wanted to refer to the totality of the Bill. With his great knowledge of the details, I am not surprised that he restrained himself and kept to the totality, because it is when one enters on the details that the snags arise. The hon. Member for Heywood and Royton (Mr. Barnett) asked whether the Bill would bring about the right amount of deflation. He need not have troubled to ask, because the Bill has been overtaken by another one. But the hon. Gentleman did not seem satisfied with that. He wanted more Finance Bills in a year. All I can say is that this House will soon be in continuous session on finance business under a Labour Government.

Frankly, I have found the Bill very depressing and extremely confusing. It is the second most confusing Finance Bill I have had to study; the most confusing was last year's. But I will stick to the detail of this Finance Bill and what it actually contains. There are still a number of aspects I would like cleared up by the right hon. Gentleman the Chancellor of the Exchequer. Three of the points I wish to put to him are contained within the provisions dealing with the Selective Employment Tax.

The Chancellor of the Exchequer will know that local authorities have to pay the Selective Employment Tax and then are to be reimbursed. The Chancellor of the Exchequer has over-all responsibility for the grants to local authorities. I would like him to state very clearly at this stage what will be the method of reimbursing through the grants system the impact of the Selective Employment Tax on local authorities.

The second point I would like to ask the Chancellor of the Exchequer is the mechanism for refunding the effects of the tax to the agricultural industry. I am aware that individual employees in agri- culture are to get the tax refunded, but there is something over and above the refunding of the individual amounts of tax. There is the additional amount of loans which will have to be raised in the agricultural industry which will have to be serviced. Are we to be told by the Chancellor of the Exchequer or his right hon. Friend the Prime Minister that this is no cause for a further Price Review, or of an interim Price Review, due to the increase in costs? I ask that because the Prime Minister has said that costs have to be contained. I would submit that a very severe increase in costs will be placed upon agriculture through the whole administrative and loan charges that will result from the effect of the Selective Employment Tax.

I come now to the third point, on which I have corresponded with Ministers, regarding the Selective Employment Tax. This concerns the treatment of "share fishermen". It has always been realised that the share fisherman comes into a very special category with regard to the Selective Employment Tax. For most purposes these fishermen are treated as being self-employed, and I would never have raised this matter at this late stage had this matter not still remained obscure after correspondence with Ministers. Around the coasts of Britain almost all inshore fishing is carried on by share fishermen. I believe the Chancellor of the Exchequer will know the methods under which they are reimbursed. For all practical purposes, they are self-employed. They very often go out on one day in the week and then there may be three, four or more days when they cannot go to sea because of weather conditions. Are these "share fishermen" to pay this Selective Employment Tax at all? That has not yet been made clear to me, and it is a matter of great importance, not only in England and Wales but in Scotland as well; because this particular method of sharing out money from the catch is the normal way in which these men are remunerated, and for all practical purposes they are taken to be self-employed.

I wish to comment on what the Chief Secretary said. In recommending the Third Reading of the Bill, he stated that the betting and gaming legislation had been well received. I cannot confirm that statement. I cannot think that the sensible way of taxing betting is by taxing stakes. The method which we recommend was different. It was rejected. The industry will calculate this tax in an entirely different manner. The hon. Member for Heywood and Royton drew attention to the administrative costs. This is a further administrative cost. Surely it is far better to collect a tax in the same way that it is to be administered throughout an industry.

I have spoken on many occasions recently about taxation mechanisms, grant mechanisms and the like, and I have said on every occasion that there will be added to this country's costs an enormous sum in administrative costs which will bring no recompense in productivity. This is one of the major reasons why productivity is not rising under the Government.

The gaming legislation in the Bill is based on a tax on rateable values. I criticised this tax an rateable values and suggested a method whereby the taxation of the gaming area of an establishment would be based on the area in which the gaming took place. That proposal was rejected. The gaming legislation proposed in the Bill is an encouragement to maximising the amount of gaming which takes place in any establishment. Only a few days ago I visited a country club in which there was a very small gaming room indeed. The taxation proposed in the Bill will be an encouragement to the proprietor of that club to use every room for gaming purposes. I should have thought that that was antisocial legislation such as the Chancellor of the Exchequer would not contemplate.

I regard the Bill as a most depressing Bill which increases taxation to an alarming extent. I have had instances only in the last few days of young and old people leaving this country—young people whom we can ill afford to lose and elderly people who would be paying full taxation if they remained here—they are leaving because of the tremendous weight particularly of direct taxation. I shall always be opposed to the Bill because of the disincentives in it and the great confusion caused by the lack of clarity of the measures proposed.

5.4 p.m.

Mr. Robert Sheldon (Ashton-under-Lyne)

The hon. Member for Colne Valley (Mr. Richard Wainwright) said that he was sorry for the members of the Treasury Bench. I am sorry for them, but for different reasons from those which the hon. Gentleman gave. I have been sorry for them during the course of the Bill because of the repetitious nature of some of the arguments to which they have had to listen and the tedious comments which have been frequently made. I am glad to say that today is proving to be something of an exception. Therefore, I hope that their tedium is somewhat diminished.

I did not come into Parliament as a member of the Opposition. Therefore, I have not been sufficiently aware of the frustrations which certain hon. Members opposite feel. Nevertheless, I must accept that their comments have been extremely testing to members of the Treasury Bench. It is a tribute to them that they have reacted so well and favourably during the long days of criticism from both sides.

The Bill—I have criticised and commented on it freely—contains the seeds, if not at this stage the final fruit, of very great reforms. I always think of myself as being interested, not so much in the details which the Finance Bill embodies, but in the opportunities it offers to control the economy in the way in which we wish to see it proceed. This Bill, added to the great measures in the last Finance Bill, has provided further powerful means of discriminating in many cases and of being able to follow certain desirable objectives in the years to come.

Up to the advent of the Labour Government, there were very few measures enabling us to control the economy in the way which we will now be able to do. We had the regulator, with its useful but limited control over consumer demand. By the introduction of the Capital Gains Tax last year and its improvement this year, we have been able to tax all increases in wealth as and when they arise. By the Corporation Tax we have been able to discriminate between the taxation of companies and of individuals. Further progress has been made in Clause 44 of the Bill dealing with the Selective Employment Tax whereby we are able to tax companies on the basis of the individuals employed by them. Naturally, we expect to see refinements of this tax in the years ahead.

Another method of discrimination has been the promotion of investment grants and the removal of investment allowances in Clause 35. This is a means of influencing the kind of investment which is thought to be desirable. Just in case there are some who feel that this change is not desirable—there have been comments in the last two days on this—I draw attention to the issue of Metalworking Production, which came out yesterday, showing that 63 per cent. of the machine tools of this country are over 10 years old. Those who feel that the investment allowances have been doing their job must question their view in the light of this recent report.

The measures in this Bill and in the Finance Bill of last year give some degree of control over certain aspects of the economy. We can now control in a limited way the flow of money in and out of industry. There is also some influence over investment by investment grants and some means of regulating the supply of money into the economy. These are measures which were notably lacking in the arsenal of previous Chancellors of the Exchequer. The combination and use of these various measures—the regulator, Capital Gains Tax, Corporation Tax, the Selective Employment Tax and the investment grants—will give the Chancellor of the Exchequer and his successors a great deal of control and influence over the economy which they will come to value greatly in the years ahead.

But the great weapon lacking in these measures is proper control over consumer demand. Although the regulator may be used to control the level of hire purchase from time to time, I hope that some of the Government's advisers will concentrate on a method of controlling the level of consumer demand much more accurately and immediately than we are now able to do. What we need here is a fine screw for continuous control of the level of consumer demand, in the same way as we control other aspects.

Under Clause 16, we have the use of the regulator, but it cannot be used in a wide enough range of industries, and there are difficulties in its being able to be used frequently enough. We require a measure which can be introduced more frequently over a much wider range of industries. Means to do this must be found to remove purchasing power as required and to take account of various changes in the economy. I hope that the Chancellor will make use of some of the brain-power in the Treasury to suggest such methods for the future.

Mr. Richard Hornby (Tonbridge)

Would the hon. Gentleman not agree that the regulator is a very flexible weapon, which can be used at varying rates? The problems are the administrative complications which follow from repricing and so on. Legislatively, the weapon is very flexible, which is what other hon. Gentlemen opposite have been asking for. They are asking for more flexibility and not less, which is just what the regulator gives.

Mr. Sheldon

The difficulty is that the range of industries covered by the regulator is limited. We have the industries which have always been subject to increases in Purchase Tax whenever demand has been too high, and they have been the greatest victims of the stop-go cycle. They have been quite unfairly victims of this because of the nature of the goods which they manufacture and the ease with which certain increases in Purchase Tax can be made. I am asking for a much wider measure which can be introduced more frequently than the regulator has been introduced since it was first created.

Whenever the introduction of new taxes has been undertaken, the Chancellor has been in great difficulty. At all times, an innovator is discomforted by the comments of those people who are hurt or who are asked to change their methods. Any Chancellor who undertakes great reforms must be even more severely the subject of such criticisms.

I feel that the dilemma of the Chancellor throughout the Finance Bills he has introduced has been this. Either he has been able to give advance notification of the introduction of a new tax in order to anticipate difficulties which are inevitably encountered and is thereby accused of uncertainty by the business community and others, or, alternatively, he gives no notification at all and he is accused of the inevitable errors which come to light when the Bill is announced.

Any Chancellor finds that dilemma hard to resolve. I would be in favour of a longer period of gestation of new taxes. That is not to say that we should postpone the introduction of new taxes for future years, but that the thinking about them should start immediately the last Finance Bill is over, so that one can have six months of rather more thorough thinking about new taxes.

I am not very much in favour of taxes being introduced to meet the circumstances of a particular time. In taxation, one needs to look further ahead than that. One needs to look at their impact over the next five or ten years rather than over the next particular year because of the economic circumstances in which the country happens to find itself. This long period of gestation, using the advice and ability within the Treasury, can be of great value in improving the taxation system of our country and effecting a more refined control over the working of the economy.

5.15 p.m.

Mr. Terence L. Higgins (Worthing)

I am sure that all of us who sat through the last two Finance Bills will agree with the hon. Member for Ashton-under-Lyne (Mr. Sheldon) that, if we could examine new taxes before they were introduced into the House, we might save everyone a great deal of trouble. However, I trust that he will forgive me if I do not pursue him into that particular realm.

I think that it behoves hon. Gentlemen who, like myself, have been in the House for only a short time to take the advice and benefit from the experience of those who have been here longer. During Committee stage, when I had the privilege of initiating a debate which we had on the regulator powers, I listened to the Chancellor's reply with great interest, naturally. He offered the following advice: I am neither an economist nor a statistician; I do not have a trained mind. I merely dance to an old Hungarian tune. But I have been in politics for 21 years, and have survived. The lesson that I would offer to the hon. Member, if I may in all humility, is always to pay a proper respect to arithmetic and a proper disrespect for forecasts."—[OFFICIAL REPORT, 16th June 1966; Vol. 729, c. 1854.] Naturally, I took that advice to heart, though I cannot help feeling that, as we come to the Third Reading of the Finance Bill, the advice might have been better taken either in regard to the forecast by the right hon. Gentleman the First Secretary, in view of his statement last night, or in regard to the statement of the right hon. Gentleman the Chief Secretary in a debate which took place a few days after that, to which he referred in his opening speech today. That was the debate on the rate of the Corporation Tax. On 21st June, during the Committee stage, the Chief Secretary was further questioned by my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) about the Corporation Tax rate. My right hon. Friend pointed out that, in his endeavour to explain why the rate was 40 per cent. and not 35 per cent., the Chief Secretary had fallen into very grave error. My right hon. Friend went on: The right hon. Gentleman was talking about two quite different things. He said that because £50 million, the eleven-twelfths argument, is one-twentieth or 5 per cent. of £1,000, that alone explains the difference between the old figure and the new. That is quite untrue. It is a different 5 per cent., as anyone can see. The increase from 35 per cent. to 40 per cent. is an increase of one-seventh, or 14 per cent. What the Chief Secretary has done is to commit an error into which a primary schoolboy would not have fallen. He has taken the 5 per cent. of the £1,000 and equated that with a 14 per cent. increase from 35 to 40 per cent."—[OFFICIAL REPORT, 21st June, 1966; Vol. 730, c. 314.] That was a very severe indictment, and on that occasion we had no real answer from the Chief Secretary. Today he comes in and, admittedly in an admirably brief speech, again fails completely to explain why the Corporation Tax rate is at 40 per cent. It is surely right and proper that before we approve or disapprove the Third Reading of the Finance Bill, the House, the country and the business community are entitled to an explanation which is not based on an arithmetical fallacy as to why the rate increased from the anticipated 30 per cent. to a rate of 40 per cent.

I want now to deal with the old argument that the Corporation Tax will encourage investment. The Chief Secretary resorted to an argument, which has not been spelt out in detail before, to the effect that it is not true that people who receive dividends actually reinvest them rather than spend them, and therefore there is no reason why we should not have a Coroporation Tax which encourages people to plough the profits which are made on their investments back into the particular firms in which they are already investing.

It the Chief Secretary's argument is correct and people really do rely on the dividends which they receive to spend rather than to save and reinvest, the ploughing back of the profits in the way that the Corporation Tax is alleged to encourage will merely mean that people holding shares will sell some of them and spend whatever they realise instead. The argument is clearly founded on a fallacy. Even if that were not so, the fact is that what is relevant is not whether people are investing but whether they are investing in the right companies.

The trouble with Corporation Tax is that it encourages firms which already have capital to plough it back instead of putting it into the market where it can be reinvested in those companies which are likely to offer a higher rate of return, which in turn means that the community as a whole will benefit most. Therefore, I thought that the Chief Secretary's speech was extremely inadequate.

I turn now to the question of the regulator and the Budget judgment. It is surely the case that the judgment which the Chancellor made in his Budget speech has been completely invalidated, and therefore we are being asked to consider this Bill in a completely different context from that which was apparent to the Chancellor at the time of his Budget judgment. I hope that in the reply to this debate we shall have some real reappraisal of what the Chancellor's expectations are now, at the time when we are being asked to give this Bill a Third Reading, rather than at the time of his Budget speech, or the Second Reading of the Bill.

The extraordinary situation now arises that the measures introduced in the Budget, in particular the Betting and Gaming Tax and the Selective Employment Tax, will come into effect after the measures which have been introduced during the last few days. There has been an extraordinary cross-over in the implementation of the measures which have been announced in this House.

The relevant question—and I ask it in a spirit of genuine inquiry, because it may be puzzling many people in the House, and in the country as a whole—relates to the position with regard to Clause 16. As the House knows, this Clause refers to the regulator and it relates to the continuation of the regula- tor powers under Section 9 of the Finance Act, 1961. The powers given to the Government under the Finance Act of last year have been used, partially it is true, by the Chancellor during the last few days. The powers which we are continuing in this Bill presumably refer to the same powers. I would, therefore, be grateful if the Minister could clarify whether the powers which we are granting in this Bill are a continuation of the previous powers in which case, presumably, as far as the taxes which have been raised are concerned, the Chancellor cannot raise them again, though he could, presumably, lower them, or whether they are additional to the powers covered in the 1965 Act.

Mr. MacDermot

Assuming that this Bill is passed, there will be no need for any further Order to continue the effect of the Order which was laid before the House and passed last night.

Mr. Higgins

I am grateful to the hon. and learned Gentleman, but he has not quite taken my point. I shall gladly give way again if he wishes me to do so, or perhaps he can deal with it later.

If this Bill continues the powers which were given in the 1965 Act, for example, to raise the duty on petrol, then it merely enables the Chancellor to continue to raise the tax on petrol by 10 per cent. Or does it enable him to raise it a further 10 per cent. at some later stage? It is very important to get this clear, for reasons which I shall refer to now.

Clearly the situation with regard to taxes which have not been changed, for example tobacco taxes, would be unaffected, but the hon. and learned Gentleman will remember that when action was taken by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) to use the regulator, as soon as we came to the next Finance Bill it was incorporated into the Measure, and we went back to square one. It is not clear whether we are back to square one. I do not want to detain the House for much longer, but I want to follow on from what I have said and stress that we are entitled to a real appraisal of what the Chancellor's expectations are over the next year.

After the debate on the regulator, a number of papers, the Financial Times, for example, took up the point that while there was every case for demoting the Budget as an annual event, there was not a case for demoting the Budget speech, and they deplored the fact that the Chancellor gave less information about his real Budget judgment than any other Chancellor they could recall.

I hope that we shall have this reappraisal, because so many variables are being changed. For example, the impact on investment of, on the one hand, imposing the Selective Employment Tax, and on the other, having a prices and wages freeze, will be very grave, and clearly the effect of this on profits, and therefore on investable funds, will be substantial. Presumably, therefore, the Chancellor's expectations when he formulated this Bill have been altered. I do not want to go into a quarter-by-quarter appraisal of the sort that we had in Committee, but I hope that the Chancellor will give us some sort of appraisal over the period.

When we discussed the regulator in Commit tee, we emphasised that the S.E.T. would have an enormous deflationary impact between September and February, and that after February it would have a considerable reinflationary effect as the premiums and refunds were paid out. We asked the Chancellor why, if he foresaw a reasonably steady level of demand in the next year, he should take this terrific deflationary action in September and re-inflate again in the spring? I think that the situation between now and the autumn is all too apparent. It is very gloomy indeed, but we can see some sort of rationale to it, although we disagree with the right hon. Gentleman's approach and lament the fact that he could not foresee what was apparent to us all during the Committee stage of the Bill.

What action does the Chancellor propose to take when the time comes to pay out the refund and the premium? It is difficult to visualise any situation in the spring where the Chancellor will want to reinflate by that amount. This means that what he has to do is to collect the money twice to pay out the refund and premium, once through S.E.T., and again through some other Measure. If he is not to weaken foreign confidence by effectively building into the next few months a situation where a reinflationary action is positively proposed for the spring, it is essential that he should have the full regulator powers, and in Committee we suggested that he might need to use these in the spring to offset the reinflationary effect of the S.E.T. refund and premium. But, as I understand it, the regulator powers have been largely exhausted, and therefore it is very important that we should be clear whether the Chancellor proposes to take additional powers in this respect or not.

5.28 p.m.

Mr. Patrick Jenkin (Wanstead and Woodford)

It has been common ground on both sides of the House that as we approach the final rites of the Finance Bill we do so in an air of unreality, because they have been overtaken by events which, I hasten to add, it would be out of order to dwell on for long.

During the course of our discussions in Committee I detected among the Treasury spokesmen a marked likeness to the character of which Coleridge wrote in the Ancient Mariner, the traveller that on a lonesome road Doth walk in fear and dread, And having once turned round walks on, And turns no more his head; Because he knows, a frightful fiend Doth close behind him tread. The frightful fiend was exposed in all its fury on 20th July. It is this which has given this air of unreality and irrelevance to the proceedings on which we are engaged. Yet I venture to suggest to the House that this Bill is not irrelevant in the sense that it is not likely to have any effect on the economy of the country. On the contrary, it will have a largely pernicious effect.

We have only to examine a number of its more important provisions to realise how pernicious it will be. What we are trying to achieve in our economy is a state of vibrancy—to use the expression of my hon. Friend the Member for Guildford (Mr. David Howell)—a more resilient, thrusting and enterprising economy. What we find in the Bill is a series of measures which, to a greater or lesser extent, seem calculated to reduce incentives, depress investment and increase the rigidity of the economy. It is this that we complain about and criticise in the whole pattern of the Bill.

Let us consider some of its provisions. First, Clause 25 swipes at share options granted to managements of businesses as one form in which they might be encouraged to take a stake in the business and become more personally involved in its success and profit. Hitherto the law on this matter has been somewhat obscure, but it appears to have been on the basis that an option was taxed at the value of that option when it was first granted. Last year the Capital Gains Tax was introduced. It might be more just to maintain—although it would be economically unsound—that the option should be taxed when it is realised at the Capital Gains Tax rate, but that is not what the Clause does. It treats the gain made on the realisation of a stock option as a Schedule E emolument at the time when it is realised.

This cannot be in the interests of our economy. At a time when everyone is asking management at all levels to give more of its skill and energy to running business, to put more into business, and to improve the quality and skill of management, to deprive the enterprises which these people are managing of the chance of rewarding them in a way calculated to unify both the interests of the firm and those managers seems to be clean contrary to everything that the economy requires.

Let us next consider the rate of Corporation Tax, to which my hon. Friend the Member for Worthing (Mr. Higgins) has referred. It cannot now be doubted that to impose a rate of 40 per cent. Corporation Tax is substantially to increase the burden of taxation on industry. Is this the way to create a buoyant industry, which will be encouraged to invest and expand, or is it, on the contrary, merely saddling industry with an extra burden of taxation which is bound to make the whole process of our economic future more sluggish and depressed?

Let us consider the swipe which has been taken at the more recent and efficient form of friendly society. It may be a small matter, but it has its relevance to savings. The country depends upon the savings of the people being channelled through the institutions of the City to productive investment and also to investment in Government securities. The friendly societies in this new form, which have been hit by Clause 29, provided one means by which this could be achieved. But they offended the egalitarian theories of hon. and right hon. Gentlemen opposite. Therefore, whatever the consequences to the greater efficiency of the economy and the encouragement of savings and investment in industry, a swipe had to be taken at them.

Clause 30 withdraws relief for underlying tax on portfolio investment in the Commonwealth. In our debates last year it was frequently asked of the Government, "Granted that you want to discourage future overseas investment and to make it more discriminating, why did you have to introduce taxation changes which struck such a savage blow at all existing overseas investment?"

Last year the Government introduced a provision giving advance warning to investors in the Commonwealth that they would withdraw this relief. That warning had a very short life. Clause 30 withdraws that relief, pursuant to that warning, at the earliest possible opportunity—another hit at investment and enterprise on which the country depends.

One of the most serious measures is the withdrawal of the investment allowances and free depreciation. The hon. Member for Ashton-under-Lyne (Mr. Sheldon) said a few moments ago that this is being compensated for by the introduction, under the Industrial Development Bill, of a new system of investment grants. Hon. Members opposite are suffering from an astonishing amount of self-delusion if they seriously continue to believe that those new investment grants offer anything like comparable value with the investment allowances which the Bill removes.

Over and over again my hon. Friends have said that what industry wanted was free depreciation. The enormous upsurge of investment in the development districts following the introduction of free depreciation by my right hon. Friend the Member for Barnet (Mr. Maudling) in his 1963 Budget was ample testimony to that. Granted that the Chancellor would be unable to introduce complete free depreciation at one go, and that it might be unrealistic to expect him, in present circumstances, to take any further steps in that direction this year, to set his face wholly and blackly against any form of free depreciation, as the Bill appears to do, is the height of irresponsibility.

There is little doubt that this form of investment incentive gives the maximum encouragement to investment. It can be readily adapted to what is now the development area concept, and it is extraordinarily depressing that the Government should not be prepared even to countenance it.

Mr. Sheldon

If the system of investment allowances was so good, why is it that 63 per cent. of our machine tools are over 10 years old?

Mr. Jenkin

I will deal with that point. I believe the hon. Member has quoted a figure from a technical journal. I accept his figure as being correct. But it is common ground that one needs to increase the amount of investment and also its quality—which is another aspect that is not always remembered. It is common ground that it is among the users of machine tools in particular that the need to put in more modern plant is paramount. But that begs the question. Does the hon. Member believe that the incentives contained in the Industrial Development Bill are more valuable than the incentive withdrawn by the Bill.

Mr. Callaghan

Yes.

Mr. Jenkin

The Chancellor says, "Yes". I wonder whether he has studied the series of Answers given to me by the President of the Board of Trade on 1st July, in which he spelt out the response to a series of cases which I put to him of variations in the net present worth of the discounted cash flow of investments in a variety of different projects under a variety of different circumstances. If he did, he could not possibly say that he thinks the new system is more valuable.

What those figures show beyond peradventure—they were designed to take not the most extreme case in my favour but a neutral case—is that even for qualifying industrial plant, even if the whole of the investment qualifies for grant under the new system, the combination of the change in the taxation system and the change in the form of investment incentive has left firms substantially worse off.

Not only that, but they have narrowed the margin of advantage between the development areas and the rest of the coun- try. My right hon. Friend the Member for Argyll (Mr. Noble) was recently at an engineering firm in Glasgow. That firm had worked out its calculations on the net present worth of a discounted cash flow of the sort of investment it has put in and it found that the effect had been to halve the value of the investment grant compared with what had existed before—

Mr. Callaghan indicated dissent.

Mr. Jenkin

The right hon. Gentleman shakes his head. All I can tell him is that those in industry who do these calculations—more and more firms are engaging in this very sophisticated form of investment appraisal, as was recommended by the pamphlet of that name by the N.E.D.C.—have no doubt whatever where the advantage lies.

They know that the advantage lay with the old system which this Bill withdraws and that the new system which is introduced is, in the great majority of cases, even for those who qualify for the new grants, substantially less advantageous—

Mr. Callaghan indicated dissent.

Mr. Jenkin

The right hon. Gentleman goes on shaking his head. No doubt he will answer what I am saying when he replies to the debate.

I am prepared to concede that the new system is advantageous in three cases. One is that of the company which makes no profits. We have criticised that very fiercely; the advantage of the allowances should be subject to the test of profitability. The second is that of the company which was not in a development district but is now in a development area, that is to say, those areas which are of lesser importance. Finally there is the case of the company—of which there are some but relatively few—which was investing so fast that its investment incentives never caught up with its taxable profits—

Mr. Gower

Does my hon. Friend not also feel some anxiety about the wider field of discretion which is now the Treasury's?

Mr. Jenkin

I entirely agree with my hon. Friend. As he sat in on part of the proceedings on the Industrial Development Bill, he knows that we attacked this fiercely. I was ignoring all those points which one could properly put against the Government. Taking even the Government's own case, the case of machinery, the whole of which qualifies for the new grants and comparing it with the allowances which they got under the old one—

Mr. Callaghan

I keep irritating the hon. Member by shaking my head because he is ignoring one or two important points. I agree that, on a discounted cash flow technique—all of which was examined—one could prove, by sheer arithmetic, that in some cases the grants are not as valuable as the tax credits. What he has not referred to, however, is that one is a grant and the other is a tax credit. That has a considerable effect on motivation. All the evidence on this is piling up, and, of course, the cash grant is to be paid earlier.

Mr. Jenkin

It is rather unfortunate that the Government by their policies should, in the first place, recognise that industry's techniques for appraising investments are defective but then, instead of attempting seriously to get down to correcting that, should devise their whole policies on the footing that industry should continue to perpetuate these errors—

Mr. Callaghan

No.

Mr. Jenkin

This is exactly what the Government have done—if the firms carry out an appraisal correctly—as the right hon. Gentleman has conceded, he said that, in some cases-I would have said in most cases—the old system can be shown to be more valuable than the new. It cannot lie with him to say that, nevertheless, the new system, if one did one's sums wrong, could be made to look more favourable than the old. That is what he is saying—

Mr. Callaghan

No.

Mr. Jenkin

Yes, indeed. This is the whole of our case against what we regard as a deplorable and regrettable change.

There are many other criticisms. The right hon. Gentleman can talk about arithmetic as he likes, but when one is doing a quantitative assessment of the profitability of an investment, it is the arithmetic which counts. If one chooses to ignore the arithmetic and proceed on other factors, one can be led into very grave error.

Another point which the right hon. Gentleman made in his short intervention was that the new grants are to be paid sooner. We will believe that when we see it. There is no timetable in the Bill for their introduction. The figures which I was quoting, given to me by the President of the Board of Trade in a Written Answer on 1st July, assumed a position midway between the 18 and the six-months' period which is intended eventually to apply.

A discounted cash flow technique takes into account exactly the period in which a payment or a tax relief becomes available. It is because it is sensitive to these factors that it is the most reliable way of appraising an investment—

Mr. Sheldon

I am sorry to interrupt the hon. Gentleman again, but he is making a great deal of figures which are based on six or seven assumptions. Each of these assumptions could have been made totally differently. If they had been made only slightly differently, all six or seven would have shown a massively wide range of different answers.

Mr. Jenkin

The hon. Gentleman is quite right. In a discounted cash flow calculation, one must, of course, make assumptions. One must make assumptions about the rate of profit and the profitability of the rest of the business—so as to set off the taxation allowances against the other profits in the early years—about the scrap value of the asset at the end of its life and about the rate of distribution.

All I am suggesting is that the assumptions which were written into those Parliamentary Answers were completely reasonable, particularly as they related to the rate of distribution, where they assumed the same overall rate of tax before and after the change. However, I will not labour the point. The figures are there for all to read.

I leave the Chancellor with this thought. Those who do these calculations in industry are finding increasingly that the Answers to those Questions of 1st July reflect their own experience and that right hon. and hon. Gentlemen opposite who say that the new system is more valuable than the old are deluding themselves and making a mockery of themselves in front of those who know the real answers.

I come finally to the Selective Employment Tax. Enough has been said about this to point the extent to which it will distort the pattern of the economy in small ways and large. Perhaps the most ludicrous feature of the whole matter and one which has been severely criticised both within and without the House is the provision which subsidises employers of labour by giving them an extra weekly sum of money for every man whom they employ.

How, in heaven's name, faced with the need to "shake out" or get redeployment or—to be more honest—to increase the level of unemployment, that sort of provision could still be defended absolutely passes my understanding.

I should like briefly to touch on three matters which seem to me to relate to a very important aspect of what I would call "revenue morality". They deal with Clause 24, the question of spreading the Surtax, Clause 28, dealing with dividends out of pre-Corporation Tax profits, and Clause 39, which deals with the very wide anti-avoidance provisions in Clause 28 of the 1960 Act.

These three measures are all unworthy of the Treasury and the Inland Revenue, in the face of the criticisms which have been advanced against them both within and without the House. My hon. Friend the Member for Finchley (Mrs. Thatcher) summed up the anti-Surtax-spreading provision and pointed out that the Government were suspending justice for a year. The relief under Section 228 of the Income Tax Act, the operation of which is being suspended, was designed to make such adjustments "as are just", but the Government, by this Clause, are depriving themselves of the opportunity of being just.

Clause 28 deals with the one-year and three-year surplus of dividends and we have yet to hear a word of apology to the business community, which was sadly misled by the provisions written into last year's Finance Act. The Chancellor has acknowledged that there was a mistake. He could not have done otherwise. But not a word of apology has he uttered for the problems and difficulties which that mistake caused to the business community. In many cases people laid out their affairs based on last year's Act, only to find that they had been misled and deluded. The least the right hon. Gentleman can now do is to apologise.

My only comment about Clause 39 is that the provisions of Section 28 of the 1960 Act have been fiercely criticised by those who must advise businesses and taxpayers on the arrangement of their affairs. I will not weary the House by requoting the words I quoted in our earlier debates. I am sure that the Chancellor has read those two contrasting quotations I gave on Report, one from a speech by the then Attorney-General in 1960, when he introduced Section 28, and the other, some words of Lord Justice Danckwerts in a recent case in the Court of Appeal. Those two quotations cannot stand side by side while, at the same time, the Revenue and the Treasury attempt to preserve their reputation for morality in these matters. Something must be done. Either the Clause must be amended next year or other measures taken, perhaps by an instruction being given to Inland Revenue inspectors about the way they should administer the Clause.

These three matters underline the overriding importance in the Treasury preserving the taxpayers' respect for it. That can be done only by its maintaining the highest possible standards of justice and fiscal integrity. I am sorry to say that all three of these Measures represent a falling off of those standards, standards which we are entitled to expect and which must inevitably, if they are reduced, lead to corresponding irritation and cynicism on the part of taxpayers. That cannot be in the best interests of the Revenue and it would be unwise to follow the recent precedents that have been set.

I have made a number of serious and important criticisms of the Bill. In view of these criticisms and others which many of my hon. Friends have made, it would be wrong if we were to allow this Measure to pass without expressing our disapproval of it by dividing the House against it.

5.53 p.m.

Mr. J. E. B. Hill (Norfolk, South)

To those of us who, at the last General Election, said, "Wait and see what a Labour Chancellor will do after 1st April", this Measure has come as a complete and grievously disappointing vindication. Its fault is that it is all penalty and burden and offers far too little encouragement.

If the Bill is the Labour Party's only alternative to devaluation, perhaps that is the best thing that can be said for it. I dislike hearing people use the word "devaluation" unless, at the same time, it is stressed that its supreme disadvantage, which has not been mentioned today, is that it would greatly add to the real burden of our debts and diminish our capacity to repay them.

That apart, the Bill has several great defects. I am particularly disappointed because—and this is partly due to the time given to it—it has not provided enough opportunity to remedy some of the anomalies which still remain from the Finance Act of the preceding year. Considering the trouble and uncertainty that has been caused to accountants and taxpayers, it is probable that we will need another Finance Bill at some stage, merely to make good the defects that continue. I would like to see the Treasury making a real effort to simplify some of the administration. We should have a better de nnnimis rule in working out some of the small tax liabilities which at present take up an amount of professional effort disproportionate to any tax yield.

Under the preceding Measure, as well as this one, practically every schoolboy and schoolgirl with a pass in G.C.E. in maths will be able to find remunerative employment, either in the files department of the Inland Revenue or in accountants' offices taking part in what has become a gigantic national imposition—the registration and recording of every Stock Exchange transaction, however small, to calculate whether or not—in respect of, say, a poor person, perhaps a widow with a few shares—there is some tax liability.

I have been checking up in my constituency and with some London accountants' firms. These firms say that they are absolutely clogged by the sheer weight of purely unproductive work. The costs of the imposing exceed any revenue that might accrue by way of taxation. This state of affairs must be plain nonsense at a time when we are short of labour and every type of trained skill.

Selective Employment Tax will bear harshly on my constituents as much as on those of any other hon. Member, particularly on disabled and part-time workers. Such alleged remedies that have recently been given to the hotel industry do not make up for the treatment meted out to it by S.E.T., particularly in view of the absence of any proper investment allowances. That is clearly borne out by a letter from Sir Geoffrey Crowther, a great expert in these matters, in The Times this morning. His firm has invested a great deal in a hotel in my constituency, an extremely worthwhile development which I am sure would not have been achieved had the Government's latest proposals been in force.

I am worried, too, because of the likely effect of S.E.T., now that it will have only small easements, on many businesses, particularly on some private schools which also provide homes for children whose parents are overseas. These children are often dependent on such schools for the care and attention of a home as well as tuition while their parents are necessarily abroad. Some of these schools rely very much on part-time help, domestic and teaching. Even to a small school this can make a tax difference almost equal to the livelihood of the people running the school. It could easily have the effect of taking. £1,000 away from a school which has only 50 or 70 pupils. This is a serious matter for that type of undertaking, just as it is for any small business, which may find itself penalised in what would otherwise be open competition with local authorities on, for example, contract work. Some businesses and farms that will have to find this tax are already pressed to the limit of their bank credit. The disadvantage of the tax is that for those who have to pay it there is very often no option. It is not merely a question of discharging people and in that way saving the tax. It may be that the payment of the tax makes a business no longer worth while carrying on. That is a very bad tendency to have in the countryside.

The Selective Employment Tax worries me, because from September onwards it will take out of the economy about £100 million a month until such time as repayments fall due when, as has been said by my hon. Friend the Member for Worthing (Mr. Higgins), we will have a period of sharp reflation. This tax, starting out on a fixed pattern, may well become a very serious factor which we cannot control. I may be at fault, but nowhere in this Bill, or in any of the other legislation dealing with this tax, can I find any provision, short of an Act of Parliament, for reducing the incidence of the tax, yet such a reduction might be highly desirable and very important. It seems to be a curiously inflexible tax to be brought in by a Government which say that manipulation of the economy is so important.

The big danger of this Finance Bill is its cumulative effect of deterrence, which may defeat the Government's own plans for maintaining and, if possible, increasing the level of production and the growth of productivity. It is much more likely that those who should be making important investment decisions, and making every extra effort to improve their businesses, will decide, in view of the economic storm and the dangers of taking on extra risks, just to batten down the hatches and weather the storm. That will produce the worst possible effect on our economy, but it is the most likely consequence of the Bill. Too many people in the next year or so will prefer extra leisure to extra effort, and that is not in the national interest.

6.3 p.m.

Captain Walter Elliot (Carshalton)

I only want to put a brief point to the Chancellor of the Exchequer which, with his serried ranks of Treasury experts, he should not find difficult to answer. With the passage of time, and the onset of events since the introduction of this Finance Bill, it is probably inevitable that this discussion should put the emphasis on the deflationary effect. That is true of this Bill and of subsequent Measures. When we first started to discuss this Bill, I remember the right hon. Gentleman, resisting certain Amendments, making the plea that all Chancellors of the Exchequer make, that the provision was essential as he had to raise revenue. I presume that this was to pay for all the Measures that have been introduced in the last two years. We have had a good deal of tough talk in that time, but, at the same time, quite a lot of expensive Measures have been brought in by the Government. I assume that this present Measure is one of the bills that has now been presented.

My hon. Friend the Member for Finchley (Mrs. Thatcher) has expressed the hope that some of the money being collected will be used to reduce the National Debt. I wish that were the case, but I very much doubt it. Not only are we not likely to reduce it, but, as we know, we are at present selling our assets in order to pay our way. It is a very serious state of affairs. What amount of the money resulting from this Finance Bill—and from the other packages, for that matter—will be used for revenue purposes, and what for debt reduction? That figure may have been produced somewhere, but as the ordinary Member is not always an expert in finance and is without the resources to keep a check on the large impositions of recent weeks, I have no idea what amount will go to revenue and what amount, if any, to reduce debts.

If the Government spend all this money, it will obviously have an inflationary effect. We will then be back in what I think of as the nightmare process of two years of the Government pumping money into the system and the Chancellor of the Exchequer fighting a losing battle to draw it back. I well recall the right hon. Gentleman remarking in the Budget debate that he sometimes feared that rising prices would always be with us. They always will be with us, of course, if we pump money into the system and only belatedly draw it out again.

I therefore hope that the Chancellor of the Exchequer will let us know what is being done with all this money. Is it being used for revenue purposes? Is it being used to redeem debts? That information will enable us to judge fairly what the right hon. Gentleman is aiming at. If I knew that it was being creamed back to redeem debt, it would in many ways greatly lessen my opposition to some of these Measures.

6.8 p.m.

Mr. Raymond Gower (Barry)

The Chancellor of the Exchequer will probably agree that from this side he has heard a series of pertinent, sometimes critical, but never unfair speeches. We recognise, as any responsible Opposition must, that dependent as we are on imports of raw materials and food, this is an extraordinarily difficult country to run and that it would be folly for any of us ever to suggest that it is easy to keep Britain's affairs always in balance. At the same time, the right hon. Gentleman will recognise that the anxieties and criticisms that have been expressed are valid in some cases.

For example, what is extraordinary to some of us is that while, doubtless, the right hon. Gentleman has had some real difficulties in the last two years, he has at the same time contrived to introduce such far-reaching successive changes in our taxation system, of which the latter portion of this Bill is part. One thinks at once of the problems of those engaged in the economy, and in industry, in particular. If these changes in taxation are far-reaching for the Treasury and for the Inland Revenue, they are also far-reaching and extraordinarily disturbing for those who have to administer some of our great productive companies. In the last 18 months they have had to cope with the introduction of a new system of company taxation, and now with such revolutionary changes as the Selective Employment Tax embodied in Part II of the Bill. It seems that possibly the Chancellor has added to his difficulties by rushing through these very big changes at such a speed that they cannot easily be digested either by the administration of the Inland Revenue or the administration of companies and their professional advisers.

In his remarks earlier in the debate, the hon. Member for Heywood and Royton (Mr. Barnett) asked pertinently, I thought almost plaintively, "Does this Finance Bill achieve the right degree of deflation?" If it does, it could not have done so when it was published. If it did achieve the right amount of deflation at the time when it was published, it must be too deflationary at present. That is the only conclusion we can reach. I would not press that too far, because I recognise that there have been changes since the publication of the Bill, not all of which could easily have been foreseen.

Nevertheless, it seems that the hon. Member for Ashton-under-Lyne (Mr. Sheldon), when referring to more taxes and new taxes, reflected a rather strange kind of thought which seems to be shared by a number of hon. Members on the benches opposite. It is perhaps not surprising that they seem to think in terms of new taxes and more taxes. While we on these benches share a general ambition to broaden the tax base, we want that to be associated in due course with reductions of taxation in other sectors.

I think I speak for a large majority of this side of the House in saying that it is no good achieving a widening of the tax base if at the same time we tend to increase taxation in every direction and every part of the taxation system. As has been said, taxation by this Bill alone has been increased very greatly indeed. It has been increased, of course, by the Income Tax, by the Surtax and by the Corporation Tax at 40 per cent. All this represents a very large increase in taxation. This is the culmination of previous increases in taxation which occurred in the last 15 months prior to the presentation of this Bill.

The hon. Member for Ashton-under-Lyne also, I think, betrayed a kind of thinking which is all too prevalent among some of his colleagues when he suggested that investment grants were preferable to investment allowances because they would enable the Treasury to control the economy always in desirable directions. This is a relic of the old saying attributed, perhaps wrongly, to the present President of the Board of Trade, that "The gentleman in Whitehall knows best." I fear that there is much thought opposite that the Treasury knows best, that the Government know best, and that they can decide more effectively than anyone else the best future trends for our economy.

Mr. Barnett

Surely the hon. Member has seen the figures in various reports relating to the increase, or lack of increase, in investment related to the position when investment allowances applied?

Mr. Gower

Yes, but the hon. Member for Ashton-under-Lyne went much further. I am sorry that he is not present at the moment. I could not warn him at such short notice that I would refer to what he said. He suggested that it would be better that the Government should decide which particular company should receive an investment grant, in other words that the Treasury and the Government should decide what was best for the country. If that had applied in Japan immediately after the war, how many would have decided that transistor radios would be one of the best things which Japan could introduce? Similarly, how many in Italy could have foreseen that production of beachwear and shoes would provide one of the most automatic means of helping their economy?

Businessmen can make serious mistakes, but, by golly, Governments can make much more serious mistakes—much more serious in their consequences. That is why I am deeply anxious, not only for the reasons stated clearly by my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin), whose views I share about investment allowances being preferable to investment grants, but for the extra reason that I do not like this discretion. We should have heard more about how it would be exercised. I do not like the wide discretion to be given to the Treasury in the giving of this new form of grants.

This Bill in its present form does not achieve many of the things which we on this side of the House believe most desirable for our country. It does not in its present form provide any sort of stimulus, except the granting of premiums in the Selective Employment Tax arrangements. This is the only form of stimulus in the Bill. Enough has been said about that to make it appear that there are severe grounds for criticism. Very few, if any, proposals in the Bill appear to make for greater industrial efficiency. There is certainly nothing in the Bill as it stands to promote savings, nothing to encourage private investment, and nothing to provide one of the most important things, namely wider diffusion of ownership of industry among the people.

Many of my hon. Friends have criticised the Selective Employment Tax as presented in this Bill. I share their deep anxieties about it. The tax as in the Bill at present will be collected from all parts of the country. It will be collected from urban and rural areas alike, from the prosperous and the less prosperous parts, from the development areas and the rich manufacturing areas. It will be collected from the farming areas and the holiday resorts. It will be collected from factories employing disabled persons, factories employing elderly persons and factories employing part-timers.

We read on the front page of the Bill: "As amended in Committee and on Report". We can only deeply regret that it was amended so slightly in Committee and that no improvements were made, particularly in this part of the Bill. In its effect it will permit the Government under their present proposals to pay out the premiums to all kinds of productive industry, the good and not so good, the vital and the not so vital—

Mr. Deputy Speaker (Mr. Sydney Irving)

Order. The hon. Member must know that the pay-out is in another Bill and that it is out of order to refer to it in discussion of this Bill.

Mr. Gower

Certainly other hon. Members referred to it, Mr. Deputy-Speaker. I was led astray. I share the views of the hon. Member for Heywood and Royton on this point. He admitted that there is need for a substantial amendment of this part of the Bill.

Mr. Barnett

I was referring to the premiums, which, of course, are in another Bill.

Mr. Gower

That is one of the reasons why I was led astray. As several of my hon. Friends have said, the Bill has taken us a stage further along a course of ever-increasing taxation in the last 18 months—burdensome to industry, excessive in the case of the individual, and not contributing to stimulating either investment or effort. We can only express the deepest anxiety about it. I hope that the Chancellor will heed the criticisms and anxieties which have been expressed.

6.20 p.m.

Mr. Ian Lloyd (Portsmouth, Langstone)

My hon. Friend the Member for Barry (Mr. Gower) referred in the most interesting terms to the extreme difficulties of prediction in economic affairs, whether it be prediction in terms of technology or in terms of the requirements of the market. My hon. Friend mentioned transistor radios from Japan. One of the things which astonished me most on my last visit to Japan was the extraordinarily high number of what are known as fruit machines which the Japanese people seem to enjoy employing in their leisure time.

I make this point deliberately, because we are today—the Bill certainly registers this point of view—growing dangerously near the position where, having decided what is to be taken by the public sector and what is to be taken by the private sector, we then, in a secondary phase of our judgment, heavily criticise how the private sector deploys its resources. It is very dangerous to allow this to happen, because, having made our decision through all the collective pressures of political discussion and decision, we must surely allow the private sector to deploy its resources in whatever manner it sees fit.

It may be amusing if I refer to something said quite a long time ago by a man who was regarded as a prophet and, indeed, as an authority. I refer to Maynard Keynes. In 1925 Maynard Keynes, referring in one of his great essays on the economic possibilities for his grandchildren to the sick man of Europe at that time—France—and to the devaluation of the French franc and its relationship to the £, said this: One blames politicians, not for inconsistency, but for obstinacy. They are the interpreters, not the masters, of our fate. It is their job, in short, to register the fait accompli. Perhaps we are registering this evening on this Bill a fait accompli.

I draw the attention of the Chancellor to one other form of registration to which we should pay particular attention. That is the registration of this vexed question of employment and unemployment. The Selective Employment Tax, which is a considerable part of the Bill, will tempt the Chancellor and other Ministers to refer repeatedly to the index of unemployment.

This is one of the most dangerous criteria which we in the House of Commons can consider as being important today, for these reasons. It is not that we want to maximise the employment figure as it stands and to minimise the unemployment figure—this very crude index. What we want to maximise is employment in the sectors of highest productivity. We want to bring the facilities for retraining and redeployment into balance with the rate of technological change. We want to deal with the maximum of humanity and understanding with the unemployable, the inefficient, the incompetent, the lazy, and the unfortunate.

Mr. Deputy Speaker

The hon. Gentleman is going far too wide on Third Reading of the Bill. I hope that he will return to the contents of the Bill.

Mr. Lloyd

Certainly, Mr. Deputy-Speaker. In the half a minute remaining to me I will return to the contents of the Bill and conclude by again quoting a prophet whom the House will surely accept as being a far greater prophet than I can ever hope to be. This perfection which I think lies behind the thinking of the Government in this Finance Bill and in many other of their measures is a philosophy of idealism. This is what Keynes said: For at least a hundred years we must pretend to ourselves and to everyone that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight.

6.25 p.m.

Mr. Iain Macleod (Enfield, West)

When the Chief Secretary to the Treasury moved the Third Reading of the Bill and delivered a short panegyric about the benefits it would undoubtedly bring to the country and as to the excellence of its drafting, I wondered whether for the last two and a half months he and I had been discussing the same Measure in the House. I came to the conclusion that we had not and that that accounted for some of the answers which we received from the Treasury Bench during the course of these debates.

To put it mildly, the circumstances are unusual. As the hon. Member for Colne Valley (Mr. Richard Wainwright) said, the basic assumptions which were made at the time of the Budget are no longer tenable after the statement made by the Prime Minister last week. The assumptions of full employment, which was the answer given over and over again to the problems of the disabled, the part-time and others affected by the Bill, are no longer answers which could have been given today, although they were given a week or two ago.

The Bill is the child of the Budget speech. The truth is that it has been strangled by its father, who is about to join in the wake in a few minutes. We are debating for a short time something quite unreal and unrelated to the Budget speech which was made on 3rd May.

It is traditional on these occasions for the Chancellor of the Exchequer and the Shadow Chancellor to have a sort of brief prize giving. I gladly and willingly follow that custom. I have found it a great pleasure once more to be the opponent of the Chancellor on a major Bill. I have always been grateful to him since the years when I was Colonial Secretary and he was my shadow. I do not forget the help he then gave me.

Throughout the Bill, with the exception of Clauses 42 and 44, for reasons which the Chancellor understands very well, we have always known exactly where we were going to get to, even though it sometimes took us a little longer than usual. This knowledge was for the convenience of the House always.

The Chancellor has been courteous to me at ad times. I am extremely grateful to him. We have managed the timing this evening correctly. As long as the Chancellor manages to remember to sit down at one minute to seven, we shall then be able, with good luck, to conclude the proceedings.

I saw in the paper that the Chancellor had retired to his cottage exhausted by his labours in carrying through the Finance Bill. I cannot believe that this is true, because we have not seen a great deal of him during these long days and nights. He has left the work to his chief lieutenants.

The Financial Secretary to the Treasury, I thought, was always cool and courteous. If we did not like his answers, that is not unusual in an Opposition. We had a real respect for him. That respect grew as the weeks went by.

I wish that I could be as complimentary to the Chief Secretary, but I cannot be. I do not think that he was happy in his handling of the S.E.T. Clauses in the Bill, simply because we did not think he cared enough about a problem which is essentially a deep human problem. Whenever hovercraft were mentioned, the Chief Secretary went berserk. I could only conclude that he had been bitten by a rural bus at one stage. However, I am feeling in a generous mood. I will simply say that I think that the Chief Secretary took a year's sabbatical leave of his senses.

Turning now to my own side of the House, the House will understand if I pay a warm and sincere tribute to my hon. Friend the Member for Finchley (Mrs. Thatcher). She has been efficient and tireless as we have gone through the Bill. Her performance has been very much admired on both sides of the House and outside the House.

I will lump together all my remaining assistants. I was baffled, as always—and I think that the Chancellor was sometimes—by their erudition, and I am grateful to them for the very hard work they have put in. I should not like to forget words of thanks to the Chair, both in the House and in Committee. The fact that at one time we were in dispute with the Chair in Committee has nothing to do with the sincerity of our gratitude to its occupants, which I also extend to the staff of the House.

First, I want to say something about the betting and gaming taxes. The betting tax is, of course, wholly supported. We think that it is being done the wrong way round, but I shall not argue the case again now. I believe that the right hon. Gentleman is not taking enough out of the gaming industry, and I hope that he will look at this again. We were in an odd position here in that we were trying to get the Chancellor to take more, but he refused to do so. It was curious for a Chancellor, but that was his attitude both towards our gaming proposals and when we tried to stop him paying out £133 million in premiums. The Treasury was determined to collect as little as it reasonably could, however, and to spend as much as it possibly could. It seems an odd way to run the Treasury.

I do not know how many right hon. and hon. Gentlemen know this, but perhaps they will take it from me. The gaming going on in London is not only much higher than anywhere else in the world but probably higher than it has ever been in any previously recorded time. I shall not give the figures because I do not believe that people would accept the figures I gave. They would find them almost unbelievable.

The Chancellor must look at this again. It is a very dangerous position. I have expressed my own view—there is no party line in this. I am not for trying to stamp gaming out—that would be a fundamentally foolish approach—but I believe that it is right to soak it good and hard, and I think the right hon. Gentleman should turn to this again next year.

I shall say little about the Selective Employment Tax. My hon. Friend the Member for Finchley rightly pointed out that the collection, which starts on 5th September at the annual rate of £1,100 million, is the highest impost, as far as I know, that has ever been put in any Finance Bill upon the people of Britain. We debated the dangers of this yesterday and have referred to them on a number of occasions during the progress of the Bill.

The level of Corporation Tax has been fixed at 40 per cent. My hon. Friend the Member for Worthing (Mr. Higgins) went into this in some detail, which enables me to be all the briefer about it. I very much hope that the Government spokesman in another place will give rather more justification for it than the Chief Secretary felt able to do today. The Chancellor will recall what happened on 21st June, and it is very odd that a mistake of this nature could be made by someone who is Chief Secretary and has been an accountant all his working life and who presumably was reinforced by a Treasury brief.

The Chief Secretary explained the point about the eleven month collection of Schedule F, calculated it at £52 million—which is something like 5 per cent. of £1,000 million, the gross figure looked for in Corporation Tax—and said: Of course, 36 per cent. and 5 per cent. makes 41 per cent."—[OFFICIAL REPORT, 21st June. 1966; Vol. 730, c. 309.] There is no "of course" about it. I think the right hon. Gentleman recognises that that simply is not so. If one increases 5 per cent. to 10 per cent. one doubles it, adding 100 per cent. Therefore, no reason has been given why this extremely high rate of 40 per cent. should be taken. The Chancellor may not feel that he has time to deal with this tonight—and I shall quite understand if that is so—but I hope that the Government spokesman in another place will spell it out because the business community is entitled to know.

The hon. Member for Heywood and Royton (Mr. Barnett) asked what the view of this side was about the amount of deflation, forgetting the timing, and whether we thought it about right. The answer is in two parts. First, this is now, as are so many others, a wholly irrelevant question after last week's statement. Secondly, I have never disputed—and the Chancellor acknowledged this at the time—that about £240 million in a full year may well have been about the right judgment. That is not in dispute.

What was in dispute—and we debated this at some length yesterday—was the timing of the Chancellor, but the right hon. Gentleman has told us that he was at fault there. The position is that if he had seen the danger earlier—and at least we can claim that we saw it—either we would not have Clause 44 of the Bill or last week's Budget. The failure of the Chancellor is simply that as a result of an error in timing we have got both. That was part of the burden of our complaint.

The Bill is irrelevant both to the Budget of 3rd May and, in a sense, to the measures of last week. The Chancellor has been blown off course—to use the nautical metaphors with which we have been inundated—and it has all been done by a group of tightly knit, politically motivated men which means the Cabinet, although it is not as tightly knit as all that.

Still, the Recess is only a few days away, and how the Chancellor must be longing to get away if only he can get through the mess which still lies ahead. The Government have tried to hustle and curtail debate on the Bill and on others. We have wasted ten weeks of discussion. We have been here night after night watching the dawn come in through those windows or the others—depending on which way one is facing—[Interruption.] I do not know what one sees from the tearoom. I have seen it from this Chamber. As I was saying, we have had all these weeks of discussion and the assumptions on which we were debating have now proved completely unfounded.

I draw the Chancellor's attention to one comment which did a great deal of harm. It was made by the Chief Secretary on 29th June when we were discussing on Clause 4 the problems of the part-time workers. The hon. Member for Bristol, Central (Mr. Palmer) said that, as a whole, the Committee was having the better of the argument with the Government, and this was true. My hon. Friend the Member for Barry (Mr. Gower) then said, … but there has been no argument … because both sides of the Committee had agreed. The Chief Secretary then replied to my hon. Friend: Surely the hon. Gentleman has not been absent from every Division."—[OFFICIAL REPORT, 29th June, 1966; Vol. 730. c. 1892.] The Chief Secretary was saying that argument did not matter—that it did not matter how good a case might be—because there were enough people sitting outside ready to come in at a moment's notice and support the Government against all the arguments and the whole of the case poured on the Treasury Bench from both sides of the Committee.

If the Chancellor likes to look back on our proceedings he will realise that it was from that moment of admission that the Chief Secretary did not care about the arguments or show an interest in what we were saying that some of the difficulties and troubles came. However, the House of Commons is a strange place and I was slightly mollified by the Chancellor of the Exchequer.

Mr. J. T. Price (Westhoughton)

The right hon. Gentleman is in a very amiable mood. It is rather disturbing when one is at the receiving end of Parliamentary operations. For 13 years we were in opposition and were often in the position of having an unanswerable case and finding the Conservative legions coming into the Lobby against us. It is something we all go through, so please do not let the right hon. Gentleman complain too much.

Mr. Macleod

I am not complaining. If the Government go on as they are we shall be back on those benches in a very short time. I was saying that I was mollified to some extent by the frank, open and honest apology that the Chancellor made at the beginning of our two day debate earlier this week, when he said, in effect, "I was wrong, I am sorry, I apologise."

From that moment the Third Reading of this Bill really became irrelevant to the Budget and to all the debates we have had since, so I shall not spend more hours on the Bill—I have an arrangement with the Chancellor to sit down now—which has been so badly handled, which was conceived in entirely different circumstances and which has been based on entirely wrong premises. But we can give it one final blast of contempt with our vote against Third Reading and that we propose to do.

6.40 p.m.

The Chancellor of the Exchequer (Mr. James Callaghan)

I should like at the outset to acknowledge—not merely as a normal courtesy, but because I mean it—the co-operation which I have had, and which the Chief Secretary and the Financial Secretary have had, from the Opposition Front Bench in the conduct of the debates on the Bill. With our procedures, it certainly makes it easier if, with the general consent of the House or the Committee, it is possible for us to consult and to know where we will get and how we are to conduct the business. Having had some experience of Finance Bills, I can say that it has been done better this year than I have known it for a number of years, and I thank the right hon. Member for Enfield, West (Mr. Iain Macleod).

As for his team of 13, not only was I baffled by the erudition of its members, but I never knew where they were going to turn up. They seemed to be like the Argentinians and to play all over the field. Sometimes I saw them in one place and sometimes in another, but they were always putting points which betrayed that they had mastered the two Clauses each which they had been given and that they were determined to ensure that the House knew that they had mastered them. I can only say that from the Treasury Bench we felt as though they were popping up all over the place and we had a very formidable team against us. If only half the number is playing next year, we shall be obliged to the right hon. Gentleman, and we shall be able to get used to one style of bowling and know what we have to deal with.

I should like to thank my right hon. Friend the Chief Secretary for his patience and thoroughness throughout the whole of the debates. Some harsh words have been uttered, but I should like him to know that he has the full confidence of everyone on this side of the House and, I believe, of very many hon. Members opposite. As for the Financial Secretary; if I may be allowed to echo the words of the right hon. Gentleman, my hon. and learned Friend's coolness and courtesy in debate and his mastery of betting legislation have been to me a revelation of a new feature of his character. He has instructed me in many things and now he has in betting and gaming.

There is no difference between the right hon. Gentleman and myself about betting and gaming in the sense that I feel, whether through puritanical upbringing or whatever it may be, that there is far too much going on nowadays. I think that that view is widely shared throughout the country. I have framed legislation on the advice of those who have studied and know about this matter and who feel that some of the people with whom we are dealing, although not everybody, would take advantage of rates of tax which were fixed too high to evade the provisions. Thereby the rot might spread throughout the system. I think that it is better to start moderately and to ensure as far as possible that the provisions are observed than to fix a high rate knowing that there will be considerable evasion.

I cannot agree with the right hon. Gentleman that debate was hustled. To take as an example Clause 44, in Committee when it was Clause 42, we spent on it a whole week of normal Parliamentary time, taking it from 3.30 to 10 at night. That may have been right and I do not complain about it, but it is not proper to say that debate on that issue was hustled.

The right hon. Gentleman said that the Finance Bill had been made irrelevant by the events of last week. I should like to relate that to the question put to me by the hon. and gallant Member for Carshalton (Captain W. Elliot) about the size of the revenue and how it is to be spent, because against that background the right hon. Gentleman will see that he is wrong when he says that the Finance Bill is irrelevant. The answer to the hon. and gallant Gentleman is that the revenue to be raised under the Budgetary proposals amounts to rather more than £10,000 million. How can that be irrelevant when a margin—and it can be only a margin—of £350 million is to be added—not additional revenue but an additional lessening of the pressure on demand as a result of the measures of last week? The additional revenue is much less than that and the right hon. Gentleman is vastly overstating the case when he says that a Budget of £10,000 million is irrelevant because a further £350 million is being added, which in another connection can be said to be about £160 million or £170 million. Of course it is not irrelevant.

To return to the hon. and gallant Gentleman's question; total expenditure at about £9,100 million is £1,047 million less than revenue. That is a very large surplus, which is probably a record, although I have not had time to check that since I was asked. The hon. and gallant Gentleman will understand that that is before last week's measures. That £1,040 million surplus in the Budget is hypothecated to the redemption of the National Debt, but then is immediately recovered in order to give assistance to industry of various sorts, including the nationalised industries—and by "assistance" I mean funds for capital investment, the programmes being undertaken in the electricity and gas industries and so on, accounting for £760 million—and to meet other expenditure of which the largest item is the provision of various local authority services—I am referring to capital expenditure—such as housing programmes accounting for £570 million.

Taken together, assistance to industry and local authorities and others, there is a total of £1,330 million, which means that the Government have to borrow about £287 million this year over and above the collection of taxes. What I am certainly expecting is that the largest part of that borrowing will not be through the banking system, but will be raised by genuine borrowing through the National Savings movement and in other ways. In that sense I claim that the Budget is financially and fiscally realistic in that it raises a large surplus—we could argue about the theory of whether we ought to do it this way, but I do not have the time to do that now—"above the line" and that surplus is used to finance the capital needs of the services which l have mentioned. The amount left for borrowing is very small indeed and I think that I can claim a great deal of support from the hon. and gallant Gentleman in this connection.

The hon. Lady the Member for Finchley (Mrs. Thatcher) referred to the way in which we discourage savings, as she thought. I should like to join in the appreciation of the way in which she has put her argument over a long series of weeks. I am not sure that I have identified the case to which she referred, because she did not name it; but if I have identified it, then it is not true that the employer company was providing any benefits for its hourly-paid workers. What it was doing was to sponsor a commercially inspired friendly society—and there is nothing wrong in that—which was originally set up to do the sort of business at which Clause 29 is aimed. That cannot be distinguished from the better known friendly societies of the same kind. It has not been prevented from doing business. What it has been stopped from doing is business free of tax. Perhaps I do not have the right organisation in mind, but I think that I have, because I remember seeing this case.

The hon. Member for the City of Chester (Mr. Temple) asked me three questions to two of which it would, I think, be out of order for me to reply. The third was about share fishermen, groups of fishermen who own shares in fishing boats, a practice to be found particularly in Scotland. I understand that the normal procedure is that the owner pays the National Insurance contributions for the group of fishermen and would therefore pay the Selective Employment Tax for that group. He would then be able to claim refund in the normal way for the fishermen. Being share fishermen, they may decide to do it in some other way among themselves. There are a great many arrangements made. But I understand that that would be the normal way in which it would be done.

The hon. Member for Worthing (Mr. Higgins) asked about the use of the regulator. He asked whether the Clause to which we shall now give a Third Reading would be additional to the powers recently exercised. The answer is, "No". Clause 16 continues the powers to apply a surcharge of up to 10 per cent. on certain Customs and Excise duties and the Purchase Tax. It does not increase them, and is in no way additional to them. We have not used two out of the five groups for reasons that I think are known to the hon. Gentleman. I would not expect to use them normally. In any case I could not once again increase the 10 per cent. as a result of the passage of this Bill.

The hon. Member for Colne Valley (Mr. Richard Wainwright) raised the question of employers being in arrears with their contributions of National Insurance. It is an offence not to pay National Insurance contributions at the proper time. I hope that the hon. Member will direct his staff to this effect when they are doing their audit work. He should tell his staff that an employer who does not pay at the proper time risks prosecution. The proper time is weekly or monthly depending on when wages are paid. When the employer makes the contributions he will have to pay the tax, because it goes on the same stamp.

The tax is already beginning to have an effect in the sense that a number of firms and companies are looking ahead to the liquid financial arrangements they will have to make when they begin to pay the tax in September, so that I would not wholly agree that the tax has no effect until then.

I come now to the questions on the Selective Employment Tax raised by my hon. Friend the Member for Heywood and Royton (Mr. Barnett) and a number of other hon. Members. From the very outset, my right hon. and hon. Friends and I have made clear that there is scope for changes in the tax in the future. The possibilities can be broadly divided into two categories.

First, there are improvements to the existing structure. No tax is ever perfect, no matter how long it lasts. I have undertaken to keep under review the effect of the tax on employers with groups of employees in particular categories such as part-timers, the disabled and the elderly. In addition, we shall need to watch those matters which can be judged only in the light of practical experience. I do not believe, and I do not think that many hon. Members believe, that the tax will result in the discharge by employers of a large number of disabled or elderly workers. We shall need to watch these matters in the light of experience, and other matters such as the operation of the Standard Industrial Classification and the difficult borderline cases that are bound to come up in particular industries or groups of industries.

I have followed up some of these cases. There was one which achieved a great deal of prominence in the national Press. I asked the company concerned to come to see my officials in the Treasury. I do not blame the company for not having understood the Bill. I am sure that very few of us can understand any Bill at first reading. But when Treasury officials went into the matter with this very large company they found that it was entirely different in its impact from what the company itself—it was quite honest about it—had in good faith assumed. We shall have to watch to see how these borderline cases operate. But I believe that when the tax is in operation we shall find far fewer troubles than people now think.

Secondly, in addition to improving the existing structure, it will be possible to introduce changes to adapt the tax to the changing needs of the economy. This will be for the long term, because we cannot make alterations of substance until the tax is properly launched. Because it is selective, we shall be able to look at the possiblity of varying the impact of the tax between different regions as well as between different sectors of the economy. Over and above the two main ways in which we might want to refine the tax, there will be the possibility of varying the rates of tax and the rates of premium, both absolutely and relatively as the circumstances require.

All in all, and whatever imperfections the tax may be launched with, I am certain that it is an economic instrument of very considerable significance and capability. It is significant that the critics of the new tax have divided themselves into those who think that it is too selective and those who think that it is not selective enough. For the moment, within the limits of the administrative possibilities, I believe that we have about the right amount of selectivity, and that over the years it will be an instrument capable of a number of variations. In my view—I am not claiming any particular credit for this—it will be an important instrument in the armoury of any future Chancellor.

Hon. Members on both sides of the House have expressed very considerable concern about the effects of the tax on the employment of disabled persons. In the debates on the Bill, both my right hon. and hon. Friends and I have explained why we do not think that it should work particularly to the disadvantage of disabled persons. About two-thirds of the disabled in employment work in establishments that will qualify for the premium or refund. There will clearly, therefore, be no incentive to discharge anyone in those establishments.

The remainder, some 200,000, have the protection of the quota and the designated employment scheme. We have said—and my hon. Friend the Parliamentary Secretary to the Ministry of Labour made this clear in another debate—that we shall watch very closely for any signs that the tax is having an adverse effect on the employment of the disabled, and, if necessary, it will be possible to take action accordingly.

I must conclude. There is a number of other points that should be dealt with, but we have rather done the Bill to death at the moment. I understand that the Opposition—and, apparently, the Liberals—are about to vote on the Bill. When they do so they will have reached the nadir of financial irresponsibility.—[Interruption.] Let us see, in the last minute left to me: they will be voting against the betting tax, which the right hon. Gentleman says should be higher; against the casino tax, which he thinks should be increased; against the tax on one-armed bandits, thus saying that they do not believe in a tax on them; against the tax relief given to redundancy payments for those who are put out of a job; against the charge to Income Tax; against the charge to Surtax; against the Corporation Tax; and against the reliefs given for social security benefits to those in need.

There are half a dozen other things they will be voting against. If they had their way—they know that they will not get it—the result of their vote tonight would leave the country without the financial resources with which to carry on its government. I knew that they were irresponsible. I never knew that they were as bad as all that.

Question put:

The House divided: Ayes 315, Noes 237.

Division No. 148.]	AYES	[6.59 p.m.
Abse, Leo	Dobson, Ray	Johnson, Carol (Lewisham, S.)
Albu, Austen	Doig, Peter	Johnson, James (K'ston-on-Hull, W.)
Allaun, Frank (Salford, E.)	Donnelly, Desmond	Jones, Dan (Burnley)
Alldritt, Walter	Driberg, Tom	Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)
Allen, Scholefield	Dunn, James A.	Jones, J. Idwal (Wrexham)
Anderson, Donald	Dunnett, Jack	Judd, Frank
Archer, Peter	Dunwoody, Mrs. Gwyneth (Exeter)	Kelley, Richard
Armstrong, Ernest	Eadie, Alex	Kenyon, Clifford
Ashley, Jack	Edwards, Robert (Bilston)	Kerr, Mrs. Anne (R'ter & Chatham)
Atkins, Ronald (Preston, N.)	Edwards, William (Merioneth)	Kerr, Russell (Feltham)
Atkinson, Norman (Tottenham)	English, Michael	Leadbitter, Ted
Bacon, Rt. Hn. Alice	Ennals, David	Ledger, Ron
Bagier, Gordon A. T.	Evans, Albert (Islington, S.W.)	Lee, Rt. Hn. Frederick (Newton)
Barnes, Michael	Evans, Ioan L. (Birm'h'm, Yardley)	Lee, Rt. Hn. Jennie (Cannock)
Barnett Joel	Faulds, Andrew	Lee, John (Reading)
Baxter, William	Fernyhough, E.	Lestor, Miss Joan
Heaney, Alan	Finch, Harold	Lever, Harold (Cheetham)
Belienger, Rt. Hn. F. J.	Fitch, Alan (Wigan)	Lever, L. M. (Ardwick)
Bence, Cyril	Fletcher, Raymond (Ilkeston)	Lewis, Ron (Carlisle)
Henn, Rt. Hn. Anthony Wedgwood	Fletcher, Ted (Darlington)	Lipton, Marcus
Bennett, James (G'gow, Bridgeton)	Floud, Bernard	Lomas, Kenneth
Bidwell, Sydney	Foley, Maurice	Loughlin, Charles
Binns, John	Foot, Sir Dingle (Ipswich)	Luard, Evan
Bishop, E. S.	Foot, Michael (Ebbw Vale)	Lyon, Alexander W. (York)
Blackburn, F.	Ford, Ben	Lyons, Edward (Bradford, E.)
Blenkinsop, Arthur	Forrester, John	Mahon, Dr. J. Dickson
Boardman, H.	Fowler, Gerry	McBride, Neil
Booth, Albert	Fraser, John (Norwood)	McCann, John
Boston, Terence	Fraser, Rt. Hn. Tom (Hamilton)	MacColl, James
Bottomley, Rt. Hn. Arthur	Gardner, A. J.	MacDermot, Niall
Bowden, Rt. Hn. Herbert	Garrett, W. E.	McGuire, Michael
Boyden, James	Garrow, Alex	McKay, Mrs. Margaret
Braddock, Mrs. E. M.	Ginsburg, David	Mackenzie, Gregor (Rutherglen)
Bradley, Tom	Gordon Walker, Rt. Hn. P. C.	Mackintosh, John P.
Bray, Dr. Jeremy	Gourley, Harry	Maclennan, Robert
Brooks, Edwin	Gray, Dr. Hugh (Yarmouth)	McMillan, Tom (Glasgow, C.)
Broughton, Dr. A. D. D.	Greenwood, Rt. Hn. Anthony	McNamara, J. Kevin
Brown, Hugh D. (G'gow, Provan)	Gregory, Arnold	MacPherson, Malcolm
Brown, Bob (N'c'tle-upon-Tyne, W.)	Griffiths, David (Rother Valley)	Mallalieu, E. L. (Bragg)
Brown, R. (Shoreditch & F'bury)	Griffiths, Rt. Hn. James (Llanelly)	Mallalieu, J.P.W.(Huddersfield, E.)
Buchan, Norman	Griffiths, Will (Exchange)	Manuel, Archie
Buchanan, Richard (G'gow Sp'burn)	Hamilton, James (Bothwell)	Mapp, Charles
Butler, Herbert (Hackney C.)	Hamilton, William (Fife, W.)	Marquand, David
Butler, Mrs. Joyce (Wood Green)	Hamling, William	Marsh, Rt. Hn. Richard
Callaghan, Rt. Hn. James	Hannan, Wiliam	Mason, Roy
Cant, R. B.	Harper, Joseph	Mayhew, Christopher
Carmichael, Neil	Harrison, Walter (Wakefield)	Mellish, Robert
Carter-Jones, Lewis	Hart, Mrs. Judith	Mendelson, J. J.
Castle Rt. Hn. Barbara	Haseldine, Norman	Mikardo, Ian
Chapman, Donald	Hattersley, Roy	Millan, Bruce
Coe, Denis	Hazell, Bert	Miller, Dr. M. S.
Coleman, Donald	Henig, Stanley	Mitchell, R. C. (S'th'pton, Test)
Concannon, J. D.	Herbison, Rt. Hn. Margaret	Molloy, William
Conlan, Bernard	Hilton, W. S.	Morgan, Elystan (Cardiganshire)
Corbet, Mrs. Freda	Hooley, Frank	Morris Charles R. (Openshaw)
Craddock, George (Bradford, S.)	Horner, John	Morris, John (Aberavon)
Crawshaw, Richard	Houghton, Rt. Hn. Douglas	Moyle, Roland
Cronin, John	Howarth, Harry (Wellingborough)	Mulley, Rt. Hn. Frederick
Crosland, Rt. Hn. Anthony	Howarth, Robert (Bolton, E.)	Murray, Albert
Cullers, Mrs. Alice	Howell, Denis (Small Heath)	Neal, Harold
Dalyell, Tam	Howie, W.	Newens, Stan
Darling, Rt. Hn. George	Hoy, James	Noel-Baker, Francis (Swindon)
Davidson, Arthur (Accrington)	Hughes, Rt. Hn. Cledwyn (Anglesey)	Norwood, Christopher
Davies, Dr. Ernest (Stretford)	Hughes, Emrys (Ayrshire, S.)	Oakes, Gordon
Davies, G. Elfed (Rhondda, E.)	Hughes, Hector (Aberdeen, N.)	Ogden, Eric
Davies, Ednyfed Hudson (Conway)	Hughes, Roy (Newport)	O'Malley, Brian
Davies, Harold (Leek)	Hunter, Adam	Oram, Albert E.
Davies, Ifor (Gower)	Hynd, John	Orbach, Maurice
Davies, Robert (Cambridge)	Irvine, A. J. (Edge Hill)	Orme, Stanley
de Freitas, Sir Geoffrey	Jackson, Colin (B'h'se & Spenb'gh)	Oswald, Thomas
Delargy, Hugh	Jackson, Peter M. (High Peak)	Owen, Dr. David (Plymouth, S'ton)
Dell, Edmund	Janner, Sir Barnett	Owen, Will (Morpeth)
Dempsey, James	Jay, Rt. Hn. Douglas	Padley, Walter
Dewar, Donald	Jeger, George (Goole)	Page, Derek (King's Lynn)
Diamond, Rt. Hn. John	Jeger, Mrs. Lena (H'b'n & St. P'cras, S.)	Paget, R. T.
Dickens, James	Jenkins, Hugh (Putney)
Palmer, Arthur	Rowlands, E. (Cardiff, N.)	Tuck, Raphael
Pannell, Rt. Hn. Charles	Ryan, John	Urwin, T. W.
Park, Trevor	Shaw, Arnold (Ilford, S.)	Varley, Eric G.
Parker, John (Dagenham)	Sheldon, Robert	Wainwright, Edwin (Dearne Valley)
Parkyn, Brian (Bedford)	Shinwell, Rt. Hn. E.	Walden, Brian (All Saints)
Pearson, Arthur (Pontypridd)	Shore, Peter (Stepney)	Walker, Harold (Doncaster)
Peart, Rt. Hn. Fred	Short, Rt. Hn. Edward (N'c'tle-u-Tyne)	Wallace, George
Pentland, Norman	Short, Mrs. Renée (Whampton, N.E.)	Watkins, David (Consett)
Perry, Ernest G. (Battersea, S.)	Silkin, Rt. Hn. John (Deptford)	Weitzman, David
Prentice, Rt. Hn. R. E.	Silkin, S. C. (Dulwich)	Wellbeloved, James
Price, Christopher (Perry Bar)	Silverman, Julius (Aston)	Wells, William (Walsall, N.)
Price, Thomas (Westhoughton)	Silverman, Sydney (Nelson)	Whitaker, Ben
Probert, Arthur	Skeffington, Arthur	White, Mrs. Eirene
Pursey, Cmdr. Harry	Slater, Joseph	Whitlock, William
Rankin, John	Small, William	Wigg, Rt. Hn. George
Redhead, Edward	Snow, Julian	Willey, Rt. Hn. Frederick
Rees, Merlyn	Spriggs, Leslie	Williams, Alan (Swansea, W.)
Reynolds, G. W.	Steele, Thomas (Dunbartonshire, W.)	Williams, Alan Lee (Hornchurch)
Rhodes, Geoffrey	Stewart, Rt. Hn. Michael	Williams, Clifford (Abertillery)
Richard, Ivor	Stonehouse, John	Williams, Mrs. Shirley (Hitchin)
Roberts, Goronwy (Caernarvon)	Strauss, Rt. Hn. G. R.	Williams, W. T. (Warrington)
Roberts, Gwilym (Bedfordshire. S.)	Swain, Thomas	Wilson, William (Coventry, S.)
Robertson, John (Paisley)	Swingler, Stephen	Winnick, David
Robinson, Rt. Hn. Kenneth (St. P'c'as)	Symonds, J. B.	Winterbottom, R. E.
Robinson, W. O. J. (Walth'stow, E.)	Taverne, Dick	Woodburn, Rt. Hn. A.
Rodgers, William (Stockton)	Thomas, George (Cardiff, W.)	Woof, Robert
Roebuck, Roy	Thomas, Iorwerth (Rhondda, W.)	Wyatt, Woodrow
Rose, Paul	Thornton, Ernest	Yates, Victor
Ross, Rt. Hn. William	Tinn, James
Rowland, Christopher (Meriden)	Tomney, Frank	TELLERS FOR THE AYES:
		Mr. Lawson and Mr. Grey.
NOES
Alison, Michael (Barkston Ash)	Dean, Paul (Somerset, N.)	Holland, Philip
Allason, James (Hemel Hempstead)	Deedes, Rt. Hn. W. F. (Ashford)	Hooson, Emlyn
Astor, John	Dodds-Parker, Douglas	Hordern, Peter
Atkins, Humphrey (M't'n & M'd'n)	Doughty, Charles	Hornby, Richard
Awdry, Daniel	Douglas-Home, Rt. Hn. Sir Alec	Howell, David (Guildford)
Baker, W. H. K.	Drayson, G. B.	Hutchison, Michael Clark
Batsford, Brian	du Cann, Rt. Hn. Edward	Iremonger, T. L.
Beamish, Col. Sir Tufton	Eden, Sir John	Irvine, Bryant Godman (Rye)
Bell, Ronald	Elliot, Capt. Waiter (Carshalton)	Jenkin, Patrick (Woodford)
Bennett, Sir Frederick (Torquay)	Errington, Sir Eric	Jennings, J. C. (Burton)
Berry, Hn. Anthony	Eyre, Reginald	Johnson Smith, G. (E. Grinstead)
Bessell, Peter	Farr, John	Johnston, Russell (Inverness)
Biffen, John	Fisher, Nigel	Jones, Arthur (Northants, S.)
Birch, Rt. Hn. Nigel	Fletcher-Cooke, Charles	Jopling, Michael
Black, Sir Cyril	Fortescue, Tim	Joseph, Rt. Hn. Sir Keith
Blaker, Peter	Foster, Sir John	Kaberry, Sir Donald
Body, Richard	Fraser, Rt. Hn. Hugh (St'fford & Stone)	Kerby, Capt. Henry
Bossom, Sir Clive	Galbraith, Hn. T. G.	Kershaw, Anthony
Boyd-Carpenter, Rt. Hn. John	Gibson-Watt, David	Kimball, Marcus
Boyle, Rt. Hn. Sir Edward	Giles, Rear-Adm. Morgan	King, Evelyn (Dorset, S.)
Brains, Bernard	Glover, Sir Douglas	Kirk, Peter
Brewis, John	Glyn, Sir Richard	Kitson, Timothy
Brinton, Sir Tatton	Godber, Rt. Hn. J. B.	Knight, Mrs. Jill
Bromley-Davenport, Lt. Col, Sir Walter	Goodhart, Philip	Lamhton, Viscount
Brown, Sir Edward (Bath)	Gower, Raymond	Lancaster, Col. C. G.
Bruce-Gardyne, J.	Grant, Anthony	Langford-Holt, Sir John
Bryan, Paul	Grant-Ferris, R.	Legge-Bourke, Sir Harry
Buchanan-Smith, Alick(Angus, N & M)	Gresham Cooke, R.	Lewis, Kenneth (Rutland)
Buck, Antony (Colchester)	Griffiths, Eldon (Bury St. Edmunds)	Lloyd, Rt. Hn. Geoffrey (Sut'nC'dfield)
Bullus, Sir Eric	Grimond, Rt. Hn.[...]	Lloyd, Ian (P'tsm'th, Langstone)
Campbell, Gordon	Gurden, Harold	Lloyd, Rt. Hn. Selwyn (Wirral)
Carr, Rt. Hn. Robert	Hall, John (Wycombe)	Longden, Gilbert
Cary, Sir Robert	Hall-Davis, A. G. F.	Loveys, W. H.
Channon, H. P. G.	Hamilton, Michael (Salisbury)	Lubbock, Eric
Chichester-Clark, R.	Harris, Frederic (Croydon, N.W.)	MacArthur, Ian
Clark, Henry	Harris, Reader (Heston)	Mackenzie, Alasdair (Ross & Crom'ty)
Clegg Walter	Harrison, Brian (Maldon)	Maclean, Sir Fitzroy
Cooper-Key, Sir Neill	Harrison, Col. Sir Harwood (Eye)	Macleod, Rt. Hn. Iain
Cordle, John	Harvey, Sir Arthur Vere	McMaster, Stanley
Corfield, F. V.	Harvie Anderson, Miss	Macmillan, Maurice (Farnham)
Contain, A. P.	Hastings, Stephen	Maddan, Martin
Craddock, Sir Beresford (Spelthorne)	Hawkins, Paul	Maginnis, John E.
Crawley Aidan	Hay, John	Marples, Rt. Hn. Ernest
Crouch, David	Heald, Rt. Hn. Sir Lionel	Marten, Neil
Crowder, F. P.	Heath, Rt. Hn. Edward	Maude, Angus
Cunningham, Sir Knox	Heseltine, Michael	Mawhy, Ray
Currie, G. B. H.	Higgins, Terence L.	Maxwell-Hyslop, R. J.
Dalfreith, Earl of	Riley, Joseph	Maydon, Lt.-Cmdr. S. L. C.
Dance, James	Hill, J. E. B.	Mills, Peter (Torrington)
d'Avigdor-Goldsmid, Sir Henry	Hobson, Rt. Hn. Sir John	Mills, Stratton (Belfast, N.)

Miscampbell, Norman	Quennell, Miss J. M.	Temple, John M.
Mitchell, David (Basingstoke)	Rawlinson, Rt. Hn. Sir Peter	Thatcher, Mrs. Margaret
Monro, Hector	Rees-Davies, W. R.	Thorpe, Jeremy
More, Jasper	Renton, Rt. Hn. Sir David	Tilney, John
Morgan, W. G. (Denbigh)	Ridley, Hn. Nicholas	Turton, Rt. Hn. R. H.
Morrison, Charles (Devizes)	Ridsdale, Julian	Vaughan-Morgan, Rt. Hn. Sir John
Mott-Radclyffe, Sir Charles	Rippon, Rt. Hn. Geoffrey	Vickers, Dame Joan
Munro-Lucas-Tooth, Sir Hugh	Robson Brown, Sir William	Wainwright, Richard (Come Valley)
Murton, Oscar	Rodgers, Sir John (Sevenoaks)	Walker, Peter (Worcester)
Nabarro, Sir Gerald	Roots, William	Walker-Smith, Rt. Hn. Sir Derek
Neave, Airey	Rossi, Hugh (Hornaey)	Wall, Patrick
Nicholls, Sir Harmar	Royle, Anthony	Walters, Dennis
Noble, Rt. Hn. Michael	Russell, Sir Ronald	Ward, Dame Irene
Nott, John	St. John-Stevas, Norman	Weatherill, Bernard
Onslow, Cranley	Sandys, Rt. Hn. D.	Webster, David
Orr, Capt. L. P. S.	Scott, Nicholas	Wells, John (Maidstone)
Orr-Ewing, Sir Ian	Sharpies, Richard	Whitelaw, William
Osborn, John (Hallam)	Shaw, Michael (Sc'b'gh & Whitby)	Wills, Sir Gerald (Bridgwater)
Osborne, Sir Cyril (Louth)	Sinclair, Sir George	Wilson, Geoffrey (Truro)
Page, Graham (Crosby)	Smith, John	Winstanley, Dr. M. P.
Page, John (Harrow, W.)	Stainton, Keith	Wolrige-Gordon, Patrick
Pearson, Sir Frank (Clitheroe)	Steel, David (Roxburgh)	Wood, Rt. Hn. Richard
Peel, John	Stodart, Anthony	Woodnutt, Mark
Percival, Ian	Summers, Sir Spencer	Worsley, Maurice
Pike, Miss Mervyn	Talbot, John E.	Wylie, N. R.
Pink, R. Bonner	Tepsell, Peter	Younger, Hn. George
Pounder, Ration	Taylor, Sir Charles (Eastbourne)
Powell, Rt. Hn. J. Enoch	Taylor, Edward M. (G'gow, Cathcart)	TELLERS FOR THE NOES:
Price, David (Eastleigh)	Taylor, Frank (Moss Side)	Mr. Pym and Mr. R. W. Elliott.
Prior, J. M. L.	Teeling, Sir William

Bill accordingly read the Third time and passed