Commons Sitting of 20 June 1966

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
PRIVATE BUSINESS
  PIER AND HARBOUR PROVISIONAL ORDERS (BLACKPOOL PIER AND GREAT YARMOUTH NEW BRITANNIA PIER)
  Bill to confirm certain Provisional Orders made by the Minister of Transport under the General Pier and Harbour Act, 1861 relating to Blackpool Pier and Great Yarmouth New Britannia Pier, presented by Mrs. Barbara Castle; read the First time; and referred to the Examiners of Petitions for Private Bills, and to be printed. [Bill 55.]
ORAL ANSWERS TO QUESTIONS
  PUBLIC BUILDING AND WORKS

    Disabled People (Access to Public Buildings)
    Mr. Hamlingasked the Minister of Public Building and Works what steps he is taking to make his Department's
    2
    advice on access to public buildings for the disabled more widely known among architects and those in local authorities responsible for public buildings.
    Mr. Winnickasked the Minister of Public Building and Works what action he is taking to ensure that in public buildings and centres under his control there are no avoidable obstacles for the disabled.
    The Parliamentary Secretary to the Ministry of Public Building and Works (Mr. James Boyden): A pamphlet containing advice has been circulated to local authorities and the technical Press has given publicity to the subject. Buildings erected by the Ministry will conform with its recommendations.
    Mr. Hamling: Is my right hon. Friend aware that much distress is caused to disabled people by the present arrangements in many public buildings?
    Mr. Boyden: Yes, Sir, and I hope that every opportunity will be taken to publicise this very simple but very important pamphlet, and that when new construction is done and alterations are made, full note will be taken of it.
    Mr. Winnick: Could yet another circular be sent to local authorities, because there are many complaints that buildings which are still being built by local authorities are causing great inconvenience to the disabled?
    Mr. Boyden: That is a matter for my right hon. Friend the Minister of Housing

    3
    and Local Government, but I will certainly draw his attention to it. We are most anxious to do everything possible to ensure that facilities are provided for the old, the disabled and the blind.
    Mr. Allason: Can the right hon. Gentleman say what can be done about the conversion of old buildings so that they may equally give access to the disabled?
    Mr. Boyden: Some of the things are quite simple, such as accessible car parks, ramps instead of stairs, rails, and letters standing out so that the blind can feel them. All this sort of thing can be done in existing buildings at very little cost.

    Sir Winston Churchill (Statue)
    Mr. Straussasked the Minister of Public Building and Works what progress has been made in the erection of a statue in the Palace of Westminster to commemorate Sir Winston Churchill; and if he will make a statement
    The Minister of Public Building and Works (Mr. R. E. Prentice): Mr. Oscar Nemon, the sculptor recommended by the Memorial Committee, has been commissioned. A one-third scale model in plaster should be ready by the autumn. If this is approved, the bronze statue should be completed within a further two years.

    Selective Employment Tax
    Mr. Channonasked the Minister of Public Building and Works what discussions he has had with the building and construction industry about the effect of the Selective Employment Tax.
    Mr. Carlisleasked the Minister of Public Building and Works what representations he has received from the building and construction industries in regard to the Selective Employment Tax.
    Mr. Chichester-Clarkasked the Minister of Public Building and Works what representations he has received from the building and construction industries in regard to long-term fixed-price contracts as affected by the Selective Employment Tax; and whether he will make a statement.
    Mr. John Hallasked the Minister of Public Building and Works what representations he has received from the National Federation of Building Trade Employers in regard to the Selective Employment Tax.
    Miss Harvie Andersonasked the Minister of Public Building and Works what representations he has received from the Royal Institution of Chartered Surveyors in regard to the Selective Employment Tax; and what replies he has sent.
    Mr. Prentice: Immediately after taking office, I arranged meetings with organisations representative of all sides of the construction industry. At many of these meetings the effect of the tax has been discussed.
    I have also replied to a number of written representations regarding the tax.
    Mr. Channon: Would the hon. Gentleman agree that the National Plan indicated that, if anything, the construction industry was too small? Why, therefore, do the Government think it necessary to penalise it for every man which it employs?
    Mr. Prentice: I think it would be generally agreed that another feature of the construction industry is that its efficiency varies greatly and that there is much scope for more effective use of labour, and I hope that the tax will have an effect in that direction.
    Mr. Carlisle: Has the hon. Gentleman's attention been drawn to the statement by the National Federation of Building Trade Employers, that the reasons why the housebuilding target of 400,000 will not be achieved are the widespread belief that there is deliberate Government discrimination against private house builders and the high cost of labour? Are not both these fears fully justified by the introduction of the tax?
    Mr. Prentice: I know what the views of the National Federation of Building Trade Employers are on this matter, and I can well understand that it, like anyone else affected by a new tax, would protest against it. I think, however, that it is being too pessimistic. We are entitled to tell private builders that they could be doing better and could be getting on with the housing programme better and

    5
    that they must not use the tax as an excuse for some of their shortcomings.
    Mr. Chichester-Clark: In view of the uncertainty and the rumours of the last few weeks, will the right hon. Gentleman say clearly whether local authorities are to be authorised to renegotiate long-term fixed price contracts or not? No one knows at the moment. Is not this another example of an ill-thought-out tax?
    Mr. Prentice: As the hon. Gentleman knows, the Government are considering this and I hope to be able to make an announcement very soon.
    Miss Harvie Anderson: Is the right hon. Gentleman aware that the Royal Institute of Chartered Surveyors is already over-pressed and will become more so with the imposition of Land Commission duties, and that, in the case of surveyors, the S.E.T. will not result in people moving to other industries but will simply mean an extra cost which can only be passed on?
    Mr. Prentice: I am aware of the problem. But I do not accept that surveyors or anyone else connected with the construction industry must necessarily pass on the full effect of the tax. I hope that all concerned will do their best to make economies and avoid passing the extra cost on to the consumer.
    Mr. Boyd-Carpenter: However that may be, surely the inevitable effect of the imposition of the S.E.T. on the building industry will be to increase the cost of housing. Is that the Government's policy?
    Mr. Prentice: There will be an increase in costs, which we estimate at about 2 per cent., from the S.E.T. on its own. But I remind the right hon. Gentleman that other provisions in the Budget relieve building costs in other respects. I hope the House will agree that we want to see this extra cost absorbed by higher efficiency as far as possible and not automatically passed on.
    Mr. R. W. Elliottasked the Minister of Public Building and Works if he will give an estimate of the increased cost of essential building in Newcastle-upon-Tyne caused by the effects of Selective Employment Tax.
    Mr. Prentice: I estimate that if none of the increase were absorbed by the contractors
    6
    or offset by higher productivity or otherwise the tax would cause an average increase in the cost of building of about 2 per cent. It is not possible to make any useful estimates in respect of particular localities.
    Mr. Elliott: Does the Minister realise that in cities where there is still a long waiting list for houses and a long housing programme for slum clearance and general purposes, the effects of this tax must eventually lead to a rise in rents'? Will he consider essential industrial building in development areas?
    Mr. Prentice: The second question is for my right hon. Friend the Chancellor of the Exchequer or my right hon. Friend the Minister of Labour and will be discussed in the next week or two. As for the first question; we have already had Questions about this and I repeat that I hope that hon. Members opposite will encourage the view that there could be a considerable increase in productivity in order to offset the extra costs of the tax.

    Ruddock and Meighan, Ltd. (Government Contracts)
    Mr. van Straubenzeeasked the Minister of Public Building and Works how many Government contracts there are at present in existence with Ruddock and Meighan Ltd., of Wealdstone, Middlesex.
    Mr. Boyden: Three, on all of which site works and financial settlements are virtually completed.
    Mr. van Straubenzee: In view of the evidence I put before the Minister of the underhand manner in which this firm dealt with my constituents at Burford Court, Wokingham, will the hon. Gentleman ensure that no fresh contracts are placed with this firm for Government work?
    Mr. Boyden: The receiver who was appointed hopes to make the firm viable. Of course, my Department would need to be assured of the renewed financial viability of the firm before any further Government contracts were allocated to it. I hope that that meets the point made by the hon. Gentleman.

    Royal Ordnance Factory, Woolwich
    Mr. Hamlingasked the Minister of Public Building and Works whether he will now make a statement on what buildings of historic or architectural interest in the Royal Ordnance Factory, Woolwich, he is recommending to be restored and maintained, following the closure of the factory.
    Mr. Prentice: After consultation with the Ministry of Housing and Local Government, the Crown Estate Commission and the Royal Fine Art Commission, my Ministry has made recommendations for preserving certain buildings and other features of the Royal Ordnance Factory, but as individual buildings are unlikely to be known to hon. Members I will, with permission, circulate the details in the OFFICIAL REPORT.
    Following are the details:
    1. Buildings and features recommended for preservation:

    (1) Quarters East of Dial Square (1719–96).

    (2) The Model Room and Annexe (1719).

    (3) Riverside Guardrooms (1814).

    (4) Pedimented building S.W. of Guardrooms (undated).

    (5) Grand Store (1806–13).

    (6) New Carriage Store (1728 with later additions).

    (7) West Central Pavilion, Gate, and Grilles (undated).

    (8) Armstrong Heavy Gun Factory, North facade (1856).

    (9) Statue of Duke of Wellington (1848).

    (10) Middlegate House (1810).

    (11) Main Gate (1829 with later additions).

    (12) Cadets' Quarters (1751–52). (These two blocks might have to be sacrificed in the event of road widening schemes proceeding.)

    (13) Main Guardroom (1788).

    (14) Royal Foundry (1716–17).

    (15) Officers' Quarters on North side of Dial Square (facades only) (1719–39).

    (16) Pavilion Entrances only of the Royal Laboratory (1696).

    (17) Verbruggen's House.

    (18) Sample of moated High Explosive Stores.

    2. Features recommended for preservation but not necessarily in situ:

    (1) Decorative ironwork frieze on laboratory.

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    (2) Lead cistern in internal court dated 1729 with Ordnance Arms.

    (3) Drinking fountain on S.W. corner of former Armstrong Factory—1865.

    Public Buildings (Cleaning)
    Mr. Whitakerasked the Minister of Public Building and Works what plans he has for cleaning of public buildings in London and elsewhere in Great Britain, in view of the recent cleaning done in Paris.
    Mr. Boyden: My right hon. Friend is interested in a new method of cleaning which was recently tried at the Custom House and at Admiralty House. The results appear to offer some improvement over traditional methods and are being considered.
    Mr. Whitaker: I thank my hon. Friend for that reply. In view of the magnificent success of the cleaning of St. Paul's, will he institute the cleaning of at least Whitehall and Trafalgar Square without further delay and, preferably, start an imaginative and far-reaching plan for the whole city, as has been done in Paris, whose cost would be repaid by tourists?
    Mr. Boyden: Paris has been at it for rather a long time and London dirt appears to be heavier than Paris dirt. I am fully in sympathy with the general idea, but we shall have to look at the question of cost.
    Mr. Robert Cooke: Will the hon. Gentleman think of cleaning the Foreign Office before he demolishes it?
    Sir Knox Cunningham: What will be the cost of cleaning Whitehall and the Houses of Parliament?
    Mr. Boyden: I cannot answer that without notice.

    Service Buildings, Devonport and Bickleigh
    Dame Joan Vickersasked the Minister of Public Buildings and Works, in view of the fact one of the firms working at the Royal Naval Hospital, Stonehouse, Devonport, and on new construction at the Royal Marine Camp, Bickleigh, Devon, has gone into liquidation, what action he is taking to see that work is carried out as the accommodation in both cases is needed urgently.
    Mr. Prentice: Some work is continuing on the latter project. Urgent discussions are being held with the liquidators about the completion of both.
    Dame Joan Vickers: Does not the right hon. Gentleman think it better to have more local organisation, giving more power to regional officers so that they could get on with these very urgent matters without having to keep so closely in touch with the Ministry?
    Mr. Prentice: There is already a great amount of delegation to the regions, but I will consider any detailed points that the hon. Lady wishes to put to me. We, too, are concerned with the urgency of getting on with these projects. Some delay is inevitable but we want to cut this as much as possible.

    Bricks
    Mr. Goodhartasked the Minister of Public Building and Works what estimate he has made of the number of bricks of all types likely to be produced in Great Britain in 1966.
    Mr. Boyden: It is not yet possible to make an estimate.
    Mr. Goodhart: Is the hon. Gentleman aware that brick production continues to fall at a time when, according to the National Plan, it should be increasing sharply? In view of the continuing slowdown in the number of houses being built and the continued high level of brick stockpiling, what plans has the hon. Gentleman for increasing production?
    Mr. Boyden: We are in close touch with the brick makers and have had a number of discussions with them. We are trying to do what we can regionally as well as nationally.
    Mr. Chichester-Clark: Is the hon. Gentleman aware that the 1965 brick production was down on the 1964 figure and that the same thing will happen this year? Is it not clear also that the present stocks will not be cleared by the end of this year? Is not this another blow at the industry's confidence?
    Mr. Boyden: We hope that the stocks will be cleared up by the end of this year.
    Mr. Cleggasked the Minister of Public Building and Works what representations
    10
    he has received from the Chairman of the National Coal Board regarding the stocks of bricks held in April, 1966.
    Mr. Boyden: None, Sir.
    Mr. Clegg: Is not the hon. Gentleman aware that in April the stocks of National Coal Board bricks stood at 80 million and that the Chairman of the National Coal Board estimated the increased cost per 1,000 bricks at 10s. per 100? Will not that put up the cost of housing?
    Mr. Boyden: Of course the Coal Board has large stocks of bricks, but the encouraging thing about this is that the Board is quite prepared to increase efficiency and investment and production of bricks, because it has obvious faith in the need for bricks in the house building side of the construction industry.
    Mr. John Hallasked the Minister of Public Building and Works what was the stock of bricks of all types in Great Britain at the latest convenient date; and how many traditional-type three-bed-roomed houses this stock represents.
    Mr. Boyden: 896 million. None, Sir; a brick stock does not represent houses.
    Mr. Hall: Is the hon. Gentleman ware that I can quite understand his unwillingness to relate the stock of bricks to the number of three-bedroomed houses? However, will he not agree that this is a tremendous indictment of the Government's mismanagement of the housing programme? In view of the fall in the rate of house building and the Minister's concentration on non-conventional building, will he not tell the brickmakers that they will be required to produce far fewer bricks in 1966 and 1967?
    Mr. Boyden: It does not do much good to say that stocks of bricks represent houses. That only confuses the issue. As the cost of the bricks is only about 10 per cent, of the cost of a house, the hon. Gentleman's statement does not help. The negotiations and discussions now going on between my right hon. Friend and the brickmakers are much more helpful in trying to get a solution to the problem.
    Mr. Martenasked the Minister Public Building and Works what estimate he has formed of the additional

    11
    cost to building material producers arising from overstocking of bricks in the last quarter of 1965 and in 1966.
    Mr. Boyden: Brickmakers' own estimates range from about 10s. to £1 per thousand bricks.
    Mr. Marten: What is the estimated wastage due to bad storage conditions for bricks? Can the hon. Gentlamen say what estimate there is of what capital is tied up in the storage of bricks?
    Mr. Boyden: I should need notice of both questions.
    Mr. Carlisleasked the Minister of Public Building and Works whether he will offer guidance to brickmakers as to the likely requirements of bricks in 1967.
    Mr. Boyden: My right hon. Friend and I have recently had meetings with the brickmakers to discuss their production problems.
    Mr. Carlisle: Is the hon. Gentleman's unwillingness at this stage to make any forecast due to the disastrous effects on the building industry of his predecessor's forecast in November, 1964?
    Mr. Boyden: There was a special emergency then and he acted quite rightly. Estimates of the load on the construction industry in 1967 are now being worked out between the Government and the industry in the economic development committees.
    Mr. John Hall: Does the hon. Gentleman forecast a reduction in the requirements for 1967?
    Mr. Boyden: I am not prepared to go further than what I have said.
    Mr. Chichester-Clark: May we be told who it was who acted quite rightly? Was it the Minister? Would not the hon. Gentleman agree that any forecast would be better than the previous forecast?

    House Prices
    Mr. Goodhartasked the Minister of Public Building and Works what representations he has received from representatives of the building industry regarding the control of the price of houses built by private builders; and what replies he has sent.
    Mr. Chichester-Clarkasked the Minister of Public Building and Works what information he has given to the building industry concerning the control of the prices of houses built by private builders.
    Mr. Prentice: I have had no correspondence or discussion with the industry on this subject.
    Mr. Goodhart: Does not the right hon. Gentleman agree that the imposition of price control would reduce still further the number of houses under construction?
    Mr. Prentice: I am not sure that that supplementary question arises from this Question. In any case, it is hypothetical.
    Mr. Chichester-Clark: But cannot the right hon. Gentleman tell us something about the extraordinary statement of the Parliamentary Secretary to the Ministry of Housing and Local Government, who stated that there might be something to be said for controlling house prices? Can we have a guarantee that the Government will not start that sort of control of prices, since they themselves are responsible for the rises in prices?
    Mr. Prentice: My hon. Friend the Parliamentary Secretary to the Ministry of Housing and Local Government was referring to what appeared to be a suggestion by the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter).

    Building Costs
    Mr. Channonasked the Minister of Public Building and Works what was the percentage rise in building costs in the last 12 months.
    Mr. Prentice: Between the first quarter of 1965 and the first quarter of 1966—the latest period for which figures are available—the index of new building costs rose by roughly 4·5 per cent.
    Mr. Channon: Was not the rise in the new house prices last year in percentage terms higher than in any period since records have been kept? Does not the right hon. Gentleman further agree that the Government, by imposing the Selective Employment Tax, will increase costs still further by 2 per cent., as he himself has admitted? What are the Government doing to get house prices down?
    Mr. Prentice: The hon. Gentleman's question related to building costs in general, which I have stated will go up by about 4·5 per cent. This figure, in fact, compares with an average in the last 10 years of about 3 per cent. Indeed, there have been years in which the rise has been higher than last year's figure. I have already answered a number of questions about the S.E.T. I hope that a large part of this extra cost will be absorbed by greater productivity.
    Mr. Boyd-Carpenter: Is the right hon. Gentleman aware that I suggested last week that the way to reduce house prices was to remove restrictions and taxation—not impose them?
    Mr. Prentice: That is a supplementary question to Question No. 11. When the right hon. Gentleman made that point last week my hon. Friend the Parliamentary Secretary to the Ministry of Housing and Local Government reacted by saying that the right hon. Gentleman was getting near to suggesting price control. My hon. Friend did not say that the Government were suggesting price control.
    Mr. Chichester-Clark: Will the right hon. Gentleman now pass the correct housing figures to the Parliamentary Secretary to the Ministry of Housing and Local Government?
    Mr. Prentice: I have no doubt that my hon. Friend gave the correct figures to the House.
    Mr. Eyreasked the Minister of Public Building and Works what estimate he has formed of the likely increase in building costs in the private sector over the next six months.
    Mr. Prentice: Up to 3 per cent., but the figure depends on the extent to which the cost of Selective Employment Tax and the forthcoming wage increase are absorbed by contractors or offset by higher productivity.
    Mr. Eyre: Is the right hon. Gentleman aware that last year house prices rose by a record 10 per cent, and that, as a consequence of Government policy, it looks as though that rise may be exceeded this year? Is he not further aware that this rise in house prices will cause severe hardship and resentment among young couples struggling to accumulate deposits to become house owners?
    Mr. Prentice: Any rise in house prices is of course serious and gives us concern. But I do not think that the hon. Gentleman need be as pessimistic as that. There is no immediate sign of a rise in the cost of materials. There is to be a wage increase of about 4·3 per cent, in November this year, under arrangements already agreed, but wages account for only about one-third of cost. There is the effect of the Selective Employment Tax, but, once again, I say that I hope that a good deal of the increase in both taxes and wages will be absorbed by higher productivity.
    Miss Harvie Anderson: Does the Minister deny the possibility of a further increase of as much as £150 for a Parker Morris house?
    Mr. Prentice: That is an excessively pessimistic view. While hon. Members opposite are entitled to attack us as much as they like, I do not think that they help the building industry or people waiting for homes by continually giving currency to the most pessimistic views which increase the pessimism of some people in the industry and may well do further harm by slowing down productivity. Let them join us in encouraging the industry to pull its socks up and do better.
    Mr. Frederic Harris: As the right hon. Gentleman keeps saying that he hopes that these higher costs, which are all of Government making, can be offset by higher productivity, can he say how higher productivity is to be obtained?
    Mr. Prentice: Not within the scope of what you would allow, Mr. Speaker. There has been some rise in productivity in the building industry in most recent years. There is scope for a further increase. I think that the hon. Gentleman will agree that there is a big variation between the most efficient and other firms in the industry and that many could increase their productivity very rapidly.
    Mr. Rippon: Will not the right hon. Gentleman agree that the construction industry in recent years has probably had the best productivity record of any industry? Would he not agree that all that is putting up costs is Government policy?
    Mr. Prentice: No, Sir. A number of factors enter into costs, the cost of

    15
    materials, the cost of wages and so on As the right hon. and learned Gentleman is aware, the best firms in the construction industry have had a very good record of increasing productivity in recent years. Others have not had such a good record and it is our task, through our Research and Development Group and in other ways, to try to get the best methods known and to see that we have a better increase in productivity than there has been in the past.
    Miss Harvie Andersonasked the Minister of Public Building and Works to what factors he attributes the increase in building costs over the last 12 months.
    Mr. Prentice: Material prices and wages.
    Miss Harvie Anderson: Would not the Minister agree that, with the addition of the Selective Employment Tax, the increases relating to prices and wages will make the financial restrictions imposed both on local authority building and on private building still more emphatic in the coming year?
    Mr. Prentice: No, Sir. That is similar to supplementary questions on an earlier Question. I repeat that we are entitled to ask for an increase in productivity to offset these costs.

    Industrialised Housing and Components (On-Site Manufacture)
    Mr. Robert Cookeasked the Minister of Public Building and Works what representations he has received from the building industry in regard to on-site manufacture or assembly of industrialised housing and components.
    Mr. Prentice: The effect of the Selective Employment Tax on site-manufacture of components was one of the points made to me by the Economic Development Committees for Building and Civil Engineering. This aspect of the tax is being examined by the Government.
    Mr. Cooke: Will the right hon. Gentleman try to get it right? Factory-made houses appear to get the rebate whereas those houses built on site appear to get none.
    Mr. Prentice: Clause 10 of the Selective Employment Payments Bill gives
    16
    discretion to treat parts of an establishment constructed in separate locations as separate establishments. The way in which this Clause will be used in relation to the problem the hon-Gentleman has raised is under consideration.

    Building Projects (Applications)
    Mr. Robert Cookeasked the Minister of Public Building and Works how many applications for authorisation of building projects have been refused in respect of shortage of materials and because of regional manpower difficulties.
    Mr. Kenneth Lewisasked the Minister of Public Building and Works how many applications for authorisation of private building projects are now outstanding with his Department.
    Mr. Eyreasked the Minister of Public Building and Works how many applications for authorisation of private building projects have been refused consent by his Department; and how many have been granted.
    Mr. Cleggasked the Minister of Public Building and Works whether, for the guidance of the industry, he will make a statement about the number, type and geographical situation of applications for authorisation of private building projects which have been granted, refused, and are under consideration, respectively.
    Mr. Boyden: 252 authorisations have been granted and 17 refused. 62 are under consideration With permission, I will circulate a statement giving details in the OFFICIAL REPORT.
    Mr. Cooke: Does the hon. Gentleman hope to have the force of law for the licensing procedure?
    Mr. Boyden: That is hardly a matter for me. We will act expeditiously when it comes up.
    Mr. Eyre: Because of the severe restriction on the output of the building industry, is it not the case that output of houses in 1966 is 5,000 down on the comparable period of 1965?
    Mr. Boyden: We will wait until the end of the year. The restriction is not severe. When the hon. Gentleman sees the figures, he will realise that a considerable amount has been licensed.
    Mr. Clegg: Does not the hon. Gentleman think, in view of the strictures by the right hon. Member for Leeds, West (Mr. C. Pannell) about the effects of the tax on the building industry, that the Government might as well withdraw the Building Control Bill altogether?
    Mr. Boyden: No, Sir—and that is another question anyway.

    BUILDING CONTROL BILL

    ANALYSES OF APPLICATIONS FOR AUTHORISATION

    (a) By types of building

    Category

    Authorised

    Refused

    Under consideration

    Total

    Number

    Value

    Number

    Value

    Number

    Value

    Number

    Value

    (£m.)

    (£m.)

    (£m.)

    (£m.)

    Offices

    …

    71

    24·2

    6

    1·2

    17

    4·4

    94

    29·8

    Shops

    …

    32

    9·7

    1

    0·4

    8

    2·2

    41

    12·3

    Education

    …

    21

    6·0

    —

    —

    3

    0·7

    24

    6·7

    Hotels

    …

    19

    5·9

    3

    1·6

    2

    0·3

    24

    7·8

    Hostels

    …

    14

    2·9

    —

    —

    1

    0·1

    15

    3·0

    Storage

    …

    44

    14·0

    1

    0·3

    5

    1·1

    50

    15·4

    Mixed development

    20

    11·4

    2

    0·4

    6

    10·5

    28

    22·3

    Miscellaneous

    …

    31

    9·7

    4

    1·2

    20

    9·8

    55

    20·7

    Totals

    …

    252

    83·8

    17

    5·1

    62

    29·1

    331

    118·0

    (b) By geographical situation

    North West

    …

    27

    8·8

    1

    0·2

    10

    6·3

    38

    15·3

    North East

    …

    26

    7·6

    4

    2·0

    2

    1·1

    32

    10·7

    Midland

    …

    44

    16·4

    1

    0·3

    12

    9·5

    57

    26·2

    East

    …

    36

    13·4

    1

    0·4

    5

    1·2

    42

    15·0

    South

    …

    30

    7·2

    1

    0·3

    6

    1·4

    37

    8·9

    South West

    …

    9

    2·9

    2

    0·3

    6

    4·0

    17

    7·2

    South East

    …

    16

    4·7

    3

    0·9

    5

    0·8

    24

    6·4

    London

    …

    49

    15·5

    2

    0·3

    15

    4·1

    66

    19·9

    Scotland

    …

    10

    5·7

    —

    —

    1

    0·7

    11

    6·4

    Wales

    …

    5

    1·6

    2

    0·4

    —

    —

    7

    2·0

    Totals

    …

    252

    83·8

    17

    5·1

    62

    29·1

    331

    118·0

    Polaris Base, Scotland (Building and Construction Workers)
    Mr. Emrys Hughesasked the Minister of Public Building and Works how many building workers, construction workers, electricians, plumbers and labourers were employed at the Polaris base in Scotland during the week ended 18th June, 1966.
    Mr. Boyden: The latest figures available are for the week ending 28th May. There were then 1,706 building and construction workers of whom 90 were electricians, 42 plumbers and 514 labourers.
    Mr. Hughes: Is my hon. Friend aware that this has had a disastrous effect on building costs in the rest of Scotland, that as a result of it labour has been diverted to this site and that costs in
    Mr. Rippon: The hon. Gentleman says we must wait until the end of the year for the final figures. But does not he agree that there is little likelihood of building 400,000 houses this year?
    Mr. Boyden: No, Sir. There is considerable likelihood.
    Following is the statement:
    Dunbartonshire are now the highest in Scotland? Will he not make representations to the Ministry of Defence to postpone this work until we have got further on with our advanced factories?
    Mr. Boyden: My hon. Friend will be pleased to know that the building force involved has nearly reached its peak, so that the situation will not get worse. If this work were not done, one might almost say that conditions for the Navy would be sub-standard.
    Miss Harvie Anderson: Will the hon. Gentleman accept from me that there are other costs in Dunbartonshire which contribute to the excessive cost of certain buildings there?
    Mr. Boyden: I note the hon. Lady's remarks.

    Building and Construction Industry (Sub-Contractors)
    Mr. Martenasked the Minister of Public Building and Works what estimate he has formed of the growth in the building and construction industry over the next 12 months of sub-contractors operating on a labour-only basis.
    Mr. Prentice: There is as yet no evidence on which to base any estimate.
    Mr. Marten: As the Selective Employment Tax is bound to increase the labour-only basis of work, is not the Minister aware that many of us on this side of the House are extremely worried about the effects of the tax on the safety of workers in the industry? Will he not call for a report from the Ministry of Labour on the effects of Government policy on the safety aspects?
    Mr. Prentice: I think that the hon. Gentleman would wish me to distinguish between labour-only sub-contracting in which there is a contract of employment between the workers and the contractor, and the rather bogus form of self-employment which has been growing and which may grow further as a result of the S.E.T. This is something which my right hon. Friend the Minister of Labour and I are watching very carefully. My right hon. Friend has had discussions with his National Joint Advisory Council and I discussed the matter with the unions at their conference at Skegness a few days ago. The unions and the employers have condemned, as we would all condemn, any attempt to pretend that people are self-employed in order that they can dodge such things as taxation, National Insurance contributions, redundancy payments, training levies and things of that sort.
    Mr. Urwin: Will my right hon. Friend take every possible precaution to ensure that builders do not avoid the Selective Employment Tax by relying on increased labour-only sub-contracting?
    Mr. Prentice: As I have said, we shall keep a close watch on this and so will my right hon. Friend the Minister of Labour. We are concerned about the dangers in the growth of this practice and we shall keep it very closely under review.

  PENSIONS AND NATIONAL INSURANCE

    Self-employed Persons
    Mr. R. C. Mitchellasked the Minister of Pensions and National Insurance if she will define what is meant by a self-employed person for the purpose of regulations under the National Insurance schemes.
    The Minister of Pensions and National Insurance (Miss Margaret Herbison): A self-employed person for the purposes of the National Insurance Act, 1965, may be broadly defined as one who is gainfully employed in employment in Great Britain which is not employment under a contract of service. Modifications have been made by regulation in a number of cases where the nature and circumstances of particular types of employment have made this desirable. I am sending my hon. Friend a copy of the relevant regulations.
    Mr. Mitchell: Is my right hon. Friend aware that there is a growing practice, particularly in the building and road haulage industries, of employers encouraging their employees—I use the word advisedly—to register as self-employed and so evade their responsibilities under P.A.Y.E. and all the rest? Can my right hon. Friend take any steps to stop this?
    Miss Herbison: Yes, Sir. The Government are aware of that and try wherever possible to take action against it. In reply to an earlier Question, my right hon. Friend the Minister of Public Building and Works showed that the Minister of Labour is also concerned in this matter.
    Sir S. McAdden: Do people who seek by these devices to avoid their responsibilities under the National Insurance scheme, and so on, deprive their employees of benefit under that scheme also?
    Miss Herbison: Yes, they suffer in certain ways. For their own good, it is much better if the full ordinary insurance is paid.

    Sickness Benefit
    Mr. Woodnuttasked the Minister of Pensions and National Insurance if she will amend the conditions for entitlement to sickness benefit under the National Insurance scheme to ensure that expatriate Britons are treated as favourably as immigrants.
    The Joint Parliamentary Secretary to the Ministry of Pensions and National Insurance (Mr. Norman Pentland): No, Sir. The National Insurance scheme makes no distinction between these two groups.
    Mr. Woodnutt: Surely the Minister must agree that a first entrant has to wait simply 26 weeks before he or she gets benefit and that this applies to immigrants, whereas an expatriate Briton coming back to this country must wait any length of time from 11 to 23 months before qualifying for benefit?
    Mr. Pentland: Yes, Sir; but, as the hon. Member is aware, there are special arrangements for new entrants for insurance. This special provision applies, however, to all new entrants for insurance, irrespective of whether they are recent school-leavers or people coming to this country for the first time. There is no question whatever of discrimination against expatriate Britons or in favour of immigrants coming to this country. They are all treated alike.

    Industrial Injury Benefits and Compensation
    Mr. Kenneth Lewisasked the Minister of Pensions and National Insurance whether she will initiate a review of industrial injury benefits and compensation.
    Miss Herbison: These benefits form part of the general social security scheme and will be included in the review on which we are engaged.
    Mr. Lewis: Will the Minister bear in mind when considering this matter in the review that some of the people who are disabled through accidents in industry gel: a very small return and are in great difficulty for the rest of their life, and that if one compares what they receive, with, for example, those involved in
    22
    motor car accidents, the comparison is not very good?
    Miss Herbison: All these points will be taken into account. The hon. Member will, of course, be aware of the machinery that is set up under the Industrial Injuries Act for the assessment of the disability.
    Mr. Dean: Can the Minister say when this reform is likely to be introduced and whether it will include the whole question of disability, whether industrial or not?
    Miss Herbison: I have not spoken about any reform. In answer to the Question, I said that the industrial injuries provisions were being considered under the general review.

    Widowed Mother's Allowance (Mrs. M. Tazzar)
    37 and 38. Mr. Rankinasked the Minister of Pensions and National Insurance (1) why Mrs. May Tazzar has not yet received her widowed mother's allowance, in view of the fact that her husband was killed last winter while working aboard the Sea Cow, a drilling rig, off the Yorkshire coast; and if she will expidite this case;
    (2) what length of time must elapse before a person is officially presumed dead by her Department; and when this presumption will apply in the case of Mr. Edward Tazzar, of 8 Glentyan Terrace, Prices Hill, Glasgow, who was killed last winter while working aboard the Sea Cow, a drilling rig, off Redcar on the coast of Yorkshire.
    Miss Herbison: Mrs. Tazzar has been receiving her benefit since 24th May. I have written to my hon. Friend about this case.
    Mr. Rankin: Is my right hon. Friend aware that I am indebted to her for the very full explanation of this unfortunate case which she has given me in writing? In her reply, however, my right hon. Friend states that, while she is not concerned with any legal question of presumption, nevertheless the date on which the claimant—[Interruption.]
    Mr. Speaker: Order. The hon. Member cannot quote in his supplementary question.
    Mr. Rankin: Might I say it, then, Mr. Speaker, without quoting—that the date of death of the claimant must be established. Was it not established in the Press almost the following day? Why was not that acted upon?
    Miss Herbison: I am grateful to my hon. Friend for raising this question on the Floor of the House. I regret very much the very long delay in this case, which I think was unwarrantable. I assure my hon. Friend that we are doing everything possible to ensure that such a delay does not take place again.

    Pensioners (Method of Identification)
    Mr. Bryant Godman Irvineasked the Minister of Pensions and National Insurance what method of identification is available to a pensioner drawing his retirement pension quarterly to enable him to obtain concessionary rates available to pensioners on production of their pension book or other similar document.
    Mr. Pentland: All such pensioners are given a notice of award of pension.
    Mr. Godman Irvine: Will not the hon. Gentleman have another look at this matter since a number of pensioners who are paid quarterly have no means of identifying themselves so that they can obtain concessions which are available to pensioners paid at other times?
    Mr. Pentland: It is quite correct that a pensioner who receives his pension quarterly does not possess an order book. I draw the hon. Member's attention, however, to the fact that such a pensioner will have received a notice of entitlement when his pension was first awarded. If that is presented to the operators of these concessions for old people, it functions in the same way as the order book.

    Social Security Benefits
    Mr. Deanasked the Minister of Pensions and National Insurance what sum of money will still be available under the National Plan for real improvements in social security benefits up to 1970 after the provisions of the Ministry of Social Security Bill are put into operation.
    Miss Herbison: Rather more than £280 million, in 1969–70, over and above anything needed for adjustments to meet price changes.
    Mr. Dean: Does the right hon. Lady agree that this is an exceedingly small sum in relation to the increased resources which have been made available for pensions and other benefits under previous Tory Administrations? Does she propose to ask the Chancellor of the Exchequer to make more resources available so that progress can be continued?
    Miss Herbison: I do not at all accept what the hon. Member has said. This sum of money is over and above the 12s. 6d. increase which was made last year, the very biggest increase ever given.
    Mr. Astor: Can the right hon. Lady give a firm assurance that these extra resources will be used to provide help for the chronically sick and severely disabled group of people who do not benefit under the Social Security Bill?
    Miss Herbison: I have told the hon. Member previously that those chronic sick who are not covered by the existing National Insurance provisions are among those whom we are considering in our review. I would add, however, that there were so many things left over for us to consider that it is not surprising that it is taking us time, but at least we are bringing each stage forward as we are ready.

  HOSPITALS

    Pay Beds
    Mr. Pavittasked the Minister of Health if he has received reports from all regional hospital boards on the review of pay beds requested in Circular, H.M.(66)26; and how many beds are proposed for transfer from section 5 arrangements.
    The Minister of Health (Mr. Kenneth Robinson): No. Sir; those received are being considered, but I have as yet taken no decisions on them.
    Mr. Pavitt: Whilst it is only 20 days since my right hon. Friend called for these reports, will he exert pressure to get either an interim result or a report by the Summer Recess?
    Mr. Robinson: I have sent a reminder to all boards which have not yet sent their reports.
    Mr. Frederic Harris: Why does the Minister encourage the view expressed by his back benchers that it is almost a crime to have these pay beds? Has he not given away enough in free prescriptions already?
    Mr. Robinson: The only stricture that I thought was implicit in my hon. Friend's supplementary question was the delay in submitting reports by the time they had been asked for.
    Mr. Dean: Does the Minister recognise that an increasing number of people of modest incomes are insuring themselves for hospital treatment? Will he give an assurance that he has no intention of penalising these people in our hospitals?
    Mr. Robinson: I should like to await the information for which I have asked the regional boards before making any further policy statement on this matter.

    Hospital Doctors (Representation)
    Mr. Pavittasked the Minister of Health if he will conduct all future negotiations concerning hospital doctors of all grades with the Central Consultants and Specialists Committee of the British Medical Association instead of with the Joint Consultants Committee.
    Mr. K. Robinson: No, Sir. The Joint Consultants Committee and the Staff Side of Committee B of the Medical and (Hospital) Dental Whitley Council represent the profession in negotiations on behalf of hospital doctors and I have no grounds for believing that a change is desired.
    Mr. Pavitt: Would my right hon. Friend look at that again, in view of the recent discontent of the junior hospital doctors with the Report of the Joint Consultants Committee, in order that we might get more adequate representation of the hospital side?
    Mr. Robinson: As my hon. Friend knows, it is for the profession and not for me to decide who should represent it in negotiations. In the current negotiations on implementing the Review Body's recommendations, the Joint Committee's representatives have included a representative of the junior staff.

  MINISTRY OF HEALTH

    Oral Contraceptives
    Sir Clive Bossomasked the Minister of Health whether he will now introduce legislation to make oral contraceptives available on the National Health Service on social as well as medical grounds, as it is becoming impossible for voluntary organisations such as the Family Planning Association to deal with this growing need.
    Mr. K. Robinson: As the hon. Member is aware, a Bill to extend the powers of local health authorities in relation to family planning has been introduced by my hon. Friend the Member for Bebington (Mr. Brooks).
    I would not, however, think it right that contraceptives supplied on social grounds should be provided without charge.
    Sir Clive Bossom: Cannot the Minister go a little further than that? On 19th May, at a national conference, he left the impression with delegates that he was more than sympathetic with this. In view of that, could he not take some action?
    Mr. Robinson: I do not know what the hon. Gentleman says that I was sympathetic about. I was certainly sympathetic with the aims and the objectives of the Family Planning Association, and the circular which I sent recently to local authorities encouraged them to extend their family planning advice services. That does not involve the supply of contraceptives free of charge.
    Dr. Summerskill: Would not my right hon. Friend discourage the use of all oral contraceptives on both medical and social grounds, because considerable uncertainty still exists as to their freedom from dangerous side-effects?
    Mr. Robinson: No, Sir. The recent statement made on behalf of the Dunlop Committee did not suggest that oral contraceptives should be withdrawn from the public.
    Mrs. Renée Short: Is my right hon. Friend aware that some general practitioners require the written consent of husbands before prescribing the oral contraceptive pill to women patients? Will

    27
    he issue a directive to general practitioners to stop that feudal practice?—[Interruption.]
    Mr. Robinson: I am not sure that that this is a matter for me. If my hon. Friend would like to put a Question on the Order Paper, I would be glad to consider it.
    Mr. Shinwell: Can my right hon. Friend give an assurance that this will not be regarded by our critics as a split in the party?

    Cigarette Advertising
    Mr. Coeasked the Minister of Health if he will now make a statement on Her Majesty's Government's policy towards cigarette advertising in media other than television.
    Mr. K. Robinson: An agreement has been reached between the principal United Kingdom manufacturers and the Government for the limitation of expenditure on the advertising of cigarettes through Press and posters during the six months from 1st June, and for advertising in cinemas and on radio to cease on the expiry of existing contracts. The manufacturers have also agreed to undertake a review, jointly with the Government, of future levels of advertising in these media and of expenditure on coupon schemes with the aim of making comprehensive arrangements for limitation to come into operation on the expiry of the current six months period. An understanding has also been reached to restrict the distribution of free samples.
    Mr. Coe: Whilst thanking my right hon. Friend for that Answer, may I ask whether he can estimate how far the agreed levels which he has announced today will compare with the previous level of cigarette advertising?
    Mr. Robinson: Without wishing to disclose the actual figures, I can assure my hon. Friend that it is at a rate considerably below the total advertising expenditure before the ban on advertisements on television.
    Mr. Hogg: As this matter is of very wide general interest, and all hon. Members would like to know them, is there no means of giving in outline a greater
    28
    degree of information about the nature of the arrangements than the right hon. Gentleman was able to do in his Answer? Will they not be published?
    Mr. Robinson: If the right hon. Gentleman would like further information, perhaps he would put down a Question on the Order Paper. He will appreciate that there are commercial considerations involved in this matter as between firm and firm.
    Dr. John Dunwoody: While welcoming the Minister's announcement, may I ask him to consider in the future completely banning advertisements for cigarettes, because the quite frightening death rate from cancer of the lung in this country is the largest public health problem that we are facing today?
    Mr. Robinson: I certainly agree with my hon. Friend that it is a very serious problem, but here we have been able to achieve a voluntary agreement by the manufacturers, and I would prefer to try to build on that for the present.
    Captain W. Elliot: Will the right hon. Gentleman in due course give the House the effect which the ban has had on sales of cigarettes?
    Mr. Robinson: I do not know to which ban the hon. Gentleman is referring.
    Miss Quennell: Would the right hon. Gentleman bear in mind that, while carcinogenic elements in cigarette smoke may be a largely contributory factor to the increase in lung cancer, so long as the country continues to pollute its atmosphere as freely as it does, we cannot expect a diminution in the number of deaths?
    Mr. Robinson: I think that that is another question. Whether or not the hon. Lady is right, it ought not to affect our efforts to reduce the consumption of cigarettes.

  MINISTRY OF LABOUR

    Part-time Workers
    Mr. Lomasasked the Minister of Labour if he is aware of the growing practice on the part of provident clothing and supply companies, check traders,

    29
    and other similar firms, of ending their present contract of employment with their part-time workers and treating these people as self-employed with the obvious intent of terminating their responsibilities under the National Insurance Act, the Redundancy Payments Act and the Contracts of Employment Act; and if he will take steps to stop this practice.
    The Parliamentary Secretary to the Ministry of Labour (Mrs. Shirley Williams): I have current information about one firm of this type which has proposed to its part-time agents a new contract under which they would be self-employed. I understand that the union concerned is in touch with my right hon. Friend the Minister of Pensions and National Insurance about the correct classification of these workers for national insurance purposes.
    The Contracts of Employment Act and the Redundancy Payments Act do not apply to part-time workers working less than 21 hours a week. It is open to workers who are covered by these Acts to pursue claims in respect of notice through the courts and in respect of redundancy payments, through the industrial tribunals.
    Mr. Lomas: While expressing my thanks for the investigations that have been made, may I ask whether my hon. Friend is aware that many of these firms which are indulging in this practice are escaping their liabilities under the Selective Employment Tax which will be coming into operation in October? Is she aware further that, surely, in the interests of the nation, of the employee and of the consumer, it is high time the practice was thoroughly investigated and a stop put to it?
    Mrs. Williams: My right hon. Friend and I very much deprecate the practice, but the hon. Gentleman will recognise that the case which he has in mind presents special circumstances, and it was to that case that my original Answer was referring.
    Mr. Lubbock: Is the hon. Lady aware that in answer to an early Question, the Minister of Pensions and National Insurance said that the Government would take steps to halt the spread of self-employment? Can she outline the steps that the Government have in mind?
    Mrs. Williams: This is a wider Question. In answer to it, I can say that it is very much under discussion at present. Perhaps the hon. Gentleman would care to put down a specific Question on it.

    Agriculture and Horticulture (Employees)
    Mr. Hazellasked the Minister of Labour if he will publish the figures for male and for female workers employed whole time in agriculture and horticulture in the south-west region in 1955 and 1965 in the following age groups, that is to say, under 18, 18 and 19, 20 to 24, 25 to 29, 30 to 34, 35 to 39, 40 to 44, 45 to 49, 50 to 54, 55 to 59, 60 to 64, and 65 years of age and over, respectively.
    Mrs. Shirley Williams: I regret that the information is not available in full. I will, with permission, publish in the OFFICIAL REPORT a table showing the estimated numbers of males and females under and over 18 employed in the industry in the years in question. The estimates do not distinguish between whole-time and part-time workers and part-time workers are accordingly included in the table.
    Mr. Hazell: I thank my hon. Friend for that reply, but, as the information sought has been published nationally in the Gazette, it must have been obtained on a county or regional basis to enable national figures to be published. As the information is required for regional planning councils, will she undertake to look into the matter again?
    Mrs. Williams: I am afraid that the analysis is based upon a 1 per cent, sample, and it is not possible to break it down in order to give an accurate figure for the regions.
    Following is the information:

    ESTIMATED NUMBERS OF EMPLOYEES IN EMPLOYMENT IN AGRICULTURE AND HORTICULTURE IN THE SOUTH-WEST REGION

    (thousands)

    Men

    Boys Women

    Girls

    Total

    Mid 1955

    60·6

    5·6

    7·0

    0·9

    74·1

    Mid 1965

    39·7

    3·9

    7·0

    0·7

    51·3

    Aerated Water Industry (Wages Award)
    Mr. Biffenasked the Minister of Labour by what percentage the recent Wages Council Order has increased rates

    31
    and earnings in the aerated water industry.
    Mrs. Shirley Williams: The recent Wages Regulation Order giving effect to proposals from the Aerated Waters Wages Council for England and Wales raised the statutory minimum rates for adult men and women workers by 10s. and 8s. 6d. per week respectively and provided for smaller increases for young workers. These cash increases represented increases in the statutory minima ranging from 4·7 per cent, to 6·7 per cent, according to grade, age and sex.
    I have no information about the effect on earnings.
    Mr. Biffen: Could the hon. Lady say whether, in view of the new responsibilities which the Ministry of Labour has for the prices and incomes policy, confirmation of these Wages Council Orders will be subject to the purported disciplines of the prices and incomes policy?
    Mrs. Williams: The hon. Gentleman will be aware, first, that there are no powers to alter the suggestions and proposals of the Wages Councils. There are only powers to send them back or to accept them. He will be aware further that, since the minimum wages in this industry now amount to £9 19s. per week for a man and £6 19s. per week for an adult woman, they are well below even the Wages Council average level.

    Wage and Salary Negotiations
    Mr. Biffenasked the Minister of Labour how many wage and salary negotiations have been concluded during the past 12 months at or below an increase of 3½ per cent.; how many similar negotiations have been concluded for increases above 3½ per cent.; and what are the numbers of employees involved, respectively.
    Mrs. Shirley Williams: I have knowledge of 319 settlements for pay increases and hours reductions covering 10·8 million workers in the last 12 months. Of these 50 settlements have been for 1·2 million salaried workers, and 269 for 9·6 million wage earners.
    It is not possible to give a precise answer to the hon. Gentleman's Question. These settlements are complicated and involve different increases for different
    32
    classes of workers, which may be related, for example, to skills, geographical areas and, in the case of salaries, to variations in and between scales.
    Mr. Biffen: If the hon. Lady cannot give an answer of the nature requested in the Question, does not it show the whole futility of the prices and incomes policy?
    Mrs. Williams: The hon. Gentleman may have forgotten that on 16th May an Answer was given to his hon. Friend the Member for Worthing (Mr. Higgins) in which the specific percentage figure was given for salary increases for the year ending October, 1965, and the hon. Gentleman will appreciate that it is too soon to give a similar figure for the current year.
    Mr. Emrys Hughes: Is my hon. Friend aware that landlords' incomes from farmers' rents have increased by 7 per cent? Are these increases included in these rises?
    Mrs. Williams: I appreciate my hon. Friend's interest, but he will recognise that this is not fully a question which I can answer at the present time since it falls within the responsibility of another Minister, but this is the kind of thing that we have in mind.

    Disabled and Retired Persons
    Mr. Maurice Macmillanasked the Minister of Labour whether he will cause to be maintained a register of those disabled and retired persons at present in full or part-time employment whose employment is terminated as a result of the Selective Employment Tax.
    Mrs. Shirley Williams: No, Sir. A careful watch will be kept on the Unemployed Register to see whether there is any marked change in the number of disabled persons and persons above retirement age previously employed in the service industries.
    Mr. Macmillan: Does the hon. Lady realise that there are, or may be, a large number of these people who cannot contribute enough to justify an employer paying the extra amount involved in the Selective Employment Tax? Will she considpr keeping a special register of these to see what the effects will be? I

    33
    am only talking about keeping a register to find out the facts.
    Mrs. Williams: My right hon. Friend and I are not unsympathetic to the hon. Gentleman's purpose, but he will appreciate that it is very difficult to establish precisely why employment is terminated, and therefore we are going to base our attempts to assess any effect that this may have on the monthly count of the unemployment register and reports from local offices. This is a question of method and not of principle.
    Mr. Boyd-Carpenter: What justification can the hon. Lady give for imposing this tax on the employment of disabled people?
    Mrs. Williams: The right hon. Gentleman will be aware that this tax is being imposed on employers, and that the disabled register is still in existence, and my Minister will make every effort to ensure that this group does not suffer.

    Disabled Workers (Government Training Centres)
    Mr. John Pageasked the Minister of Labour what is the average time which disabled male and female workers remain on the books of employment exchanges after the successful termination of training courses at Government training centres.
    Mrs. Shirley Williams: This information is not available, but in the 3 months ending 14th March, 1966, 80 per cent, of the disabled males completing courses at Government training centres, and all of the females completing courses, were placed immediately upon the termination of the courses.
    Mr. Page: I thank the hon. Lady for that satisfactory Answer, but may I ask her to pay particular attention to a case which I shall draw to her attention at a later stage, and may I also ask her to warn her right hon. Friend that the effective and dedicated work of Government training centres could have their whole object and success imperilled by the Selective Employment Tax if this is going to result in a large number of employers being even more hesitant to employ disabled people?
    Mr. Speaker: Order. We are glad that the hon. Member is better, but he must be brief.
    Mrs. Williams: I think that the House will agree that this proportion is a very fair one, and we will look with interest at the details of the case which the hon. Gentleman sends me.

  ADEN
  Mr. G. Campbellasked the Secretary of State for Foreign Affairs whether the United Nations Committee on the ending of Colonialism has applied to visit Aden, or to send a representative there.
  The Minister of State for Foreign Affairs (Mrs. Eirene White): Yes, Sir, on several occasions.
  Mr. Campbell: While I support the Foreign Secretary in his rejection of the Resolution on Aden which was passed by this Committee, may I ask the Minister now to repudiate the intemperate criticism which her party levelled at the Conservative Government for taking similar action concerning the United Nations and territories for which the United Kingdom is responsible?
  Mrs. White: We have resisted representations from this Committee on Aden, but the House will be glad to know that the Secretary-General of the United Nations has recently appointed a distinguished Sudanese, Mr. Omar Adeel, as his special representative to assist him in carrying out the responsibilities in relation to South Arabia entrusted to him by the General Assembly. We have told the Secretary-General that this is welcome.

  NORTH ATLANTIC TREATY ORGANISATION
  Lord Balnielasked the Secretary of State for Foreign Affairs whether he will make a statement about his discussions in Brussels on the future of the North Atlantic Treaty Organisation.
  The Chancellor of the Duchy of Lancaster (Mr. George Thomson): I have nothing to add to the Answer my right hon. Friend the Foreign Secretary gave on 14th June to a Question by my

  35
  hon. Friend the Member for Liverpool, Walton (Mr. Heffer).
  Lord Balniel: While welcoming the attempts by N.A.T.O. to take the initiative in improving the political.situation between East and West Europe, may I ask the Minister whether he agrees that the basic reaction to the challenge by France to N.A.T.O. must be to reinforce the integration of N.A.T.O., including integration with the United States, rather than to weaken it?
  Mr. Thomson: Our purpose at the Brussels meeting was not in any way to isolate France, but, in the face of the French decision, to strengthen N.A.T.O., and this we succeeded in doing in complete agreement with the 14 members of the alliance, apart from France. On the point about East-West exchanges, my right hon. Friend the Foreign Secretary put forward constructive proposals for a code of co-operation on East-West relations.
  Mr. Shinwell: Is my right hon. Friend aware that there is still some doubt about whether the French intend to remain in N.A.T.O, or become merely an associate of N.A.T.O. in some mysterious form? May we have a full statement to clarify the position?
  Mr. Thomson: I think that my right hon. Friend explained the situation very fully as it stands at the moment in his statement to the House on 14th June. The French Government have indicated that they wish to withdraw from the integrated organisation, but to remain a member of the Alliance. We are at present seeking the means to make it possible for France, in her own words, to remain the ally of an ally.

  SOUTH ARABIAN FEDERATION
  Lord Balnielasked the Secretary of Slate for Foreign Affairs whether he will make a statement about the discussions in London between the British Government and the South Arabian Federal Government.
  The Minister of State for Foreign Affairs (Mr. Walter Padley): I would refer the hon. Member to my written reply to a Question by the hon. Member
  36
  for Chigwell (Mr. Biggs-Davison) on 13th June.
  Lord Balniel: Although we appreciate that the Government repudiate their legal obligation to defend the South Arabian Federation after independence, will the Government make it clear that in their view they have a moral obligation on granting independence to this country to sustain it with defensive means?
  Mr. Padley: We have concluded the agreement with the Federal Ministers, to which I referred in my reply to the hon. Member for Chigwell on 13th June. Apart from that, I have nothing to add to what my right hon. Friends the Prime Minister and the Foreign Secretary have already said.

  VIETNAM (COMMONWEALTH MISSION)
  Mr. G. Campbellasked the Secretary of State for Foreign Affairs whether ex-President Nkrumah is still a member of the Commonwealth Mission on Vietnam; and whether there has been a replacement on the Mission for the ex-Prime Minister of Nigeria.
  Mr. Padley: The members of the Mission were originally appointed ex officio. But, as my right hon. Friend the Foreign Secretary explained to the hon. Member in his Answer of 13th June, any variation in the membership of the Mission is a matter for the Commonwealth Prime Ministers to decide collectively.
  Mr. Campbell: Is the Prime Minister of Trinidad still a member of this Mission? If he is not, it leaves only the Prime Minister of Britain as the sole survivor.
  Mr. Padley: As I said in my original reply, the members of the Committee were appointed ex officio.
  Mr. Eldon Griffiths: Can the hon. Gentleman explain what he means by ex officio in this case? A large number of those originally appointed are no longer alive, or no longer in office. Can the hon. Gentleman say whether the Mission still exists?
  Mr. Padley: As the House will realise, it is a tragic matter that one of its members is not still alive, but why hon. Gentlemen opposite should seek to poke fun at a joint exercise of the British Commonwealth to restore peace in Vietnam I do not know.
  Mr. Campbell: In view of the unsatisfactory nature of the reply to a Question seeking information, I beg to give notice that I shall raise the matter at the earliest possible opportunity.

  DIEPPE (ARRESTED PERSONS)
  Sir W. Teelingasked the Secretary of State for Foreign Affairs what information he has concerning the seven boys from Brighton who were arrested after they had already paid their restaurant bill, though under protest, in Dieppe while on a day trip on 11th June; if he is aware that although some were released, David Siffleet, of 77 Rotherfield Crescent, Hollingbury, Brighton, is still detained, though he went voluntarily to the prison when his two friends were first arrested; and what representations he has made on his behalf.
  Mrs. White: I have received a full report of this case. I am glad to be able to say that all the boys have now returned home safely. Five were released immediately, two others, said to have assaulted the police, were arrested and charged. One was fined 250 francs and given a suspended sentence of one month. He returned home on 14th June. The other, under 18, had to await arraignment before a juvenile court in Rouen, but upon representations by our embassy was released on 17th June, arriving home the next day.
  Sir W. Teeling: Does the hon. Lady realise that some of these boys speak no French, that two of them remained for six days without anything being done at all by our consular service in Dieppe, except possibly that one official called in the middle of the week, that there were no interpreters for these boys, that they have lost quite a bit of money and had their watches and everything else taken from them? Does not the hon. Lady think that something ought to be done to protest a little against this attitude with
  38
  regard to people who go abroad on perfectly ordinary one-day trips?
  Mrs. White: I am afraid that the hon. Gentleman's information is at variance with ours. I shall discuss the details with him afterwards if he wishes, but our vice-consul in Dieppe was informed by the police on Monday of these events, which happened on Saturday night, and he took immediate action.
  Sir W. Teeling: In view of the unsatisfactory nature of that Reply, may I be allowed to raise this matter on the Adjournment?
  Mr. Speaker: Order. The hon. Gentleman must put his request in the conventional terms and say that he desires to give notice.

SEAMEN'S STRIKE
The Prime Minister (Mr. Harold Wilson): With permission, I should like to make a statement about the seamen's strike.
As the House will be aware, the first Report of the Court of Inquiry was rejected by the Executive Committee of the National Union of Seamen. In the days that followed, there were several meetings between the National Union of Seamen's Executive Committee and the Finance and General Purposes Committee of the Trades Union Congress and between representatives of the National Union of Seamen and the Government. There were also, of course, meetings between my right hon. Friend and myself and the Trades Union Congress Finance and General Purposes Committee.
Last week, as the House knows, my right hon. Friend and I had a series of meetings with nominated representatives of the union and the shipowners, and on Friday there was a joint meeting between the two sides at 10, Downing Street. When this failed to produce any move towards a settlement, my right hon. Friend and I met the full Executive Committee. After this, the Executive returned to their headquarters and resolved to continue the strike, while reaffirming their willingness to resume negotiations with the employers. In all the meetings, my right hon. Friend and I stressed that

39
the Government stood on the Report of the Court of Inquiry.
While apparently moving towards an acceptance of the two stages of implementation of the 40-hour week recommended in the Report, the seamen stood out for maintaining the present leave arrangements in respect of Sundays worked at sea, on average 51, instead of the 39 recommended by the Court. The position of the owners was that only with considerable difficulty could they be persuaded to accept the Pearson Report and that, if the strike continued, the effect on the industry might be such that even this could not be afforded. My right hon. Friend and I made repeatedly clear that, although we were not standing on every dot and comma of the Pearson Report, we should be opposed to a settlement which cost more than the Pearson recommendations. We were prepared to agree to a proposal that additional days' leave could be earned by their being taken in lieu of overtime, which would clearly have no effect on the cost.
We also said that, since the Report criticised the very high rate of overtime in British ships compared with their Continental competitors, and since the National Union of Seamen asserted that the ships could be adequately worked with less recourse to overtime, the union might well reserve its position on leave arrangements until the Court of Inquiry in the autumn had completed the second stage of its investigation, namely, the examination of all matters affecting productivity, including questions of manning, flexible use of crews and overtime working, as well as other aspects of seagoing employment.
If it was clear that, on any or all of these matters, there could be a guaranteed increase in productivity, then at that stage there could be further discussions on leave, but it must be clearly understood that the total cost of any additional leave or other arrangements must be fully met by increases in productivity, which must be more than pious aspirations or declarations of intent and must be firmly in the bag before any further concessions can be made.
Before I come to what I think are the main issues now facing the industry and the nation, I should like to say a word about the emergency powers. As
40
the House knows, both the Proclamation of the state of emergency and the Regulations made under the Emergency Powers Act expire in the middle of this week. It is the Government's intention to seek a new Proclamation and a renewal of the Regulations on Wednesday. These, of course, will require the assent of the House. When the House agreed to the Regulations, the Government made it clear that the special powers granted to us would be used only if the need arose.
In fact, the rate of build-up of the strike and the position in the individual ports has been such that it has so far not been necessary to use any of the powers. However, so long as the strike continues, with the situation in individual ports varying literally from day to day, the need could arise at any time and we shall not hesitate to use whatever powers are needed, as soon as they are needed. It would have been just as wrong to use these powers before the need arose as it would be to abstain from their use as and when the need becomes clear.
So far as the general level of supplies in the country as a whole are concerned, no serious problem has yet arisen. Some exports, particularly of the bulkier goods, including vehicles, have of course been affected and the effects may last longer than the strike itself, but the general effect on exports has been less than one might have expected. Exporters and shippers have shown great ingenuity, not least by the use of air transport, in maintaining shipments on time. But we are closely watching for individual difficulties to arise and we shall now be entering into discussions with industry to work out emergency plans to use Royal Air Force transport planes if this becomes necessary to deliver particular consignments of exports, obviously where their value is high in relation to their bulk, which it is especially important to deliver on time.
Apart from exports, the most pressing problems we face in the immediate future are the difficulties being experienced by the inhabitants of some of the outlying islands of the United Kingdom and also the maintenance of the parcel post service to and from Northern Ireland—and Northern Irish industry makes considerable use of this service for the shipment of its goods to the main part of the

41
United Kingdom. Although a service has been maintained to certain Scottish islands, the Government now propose to supplement this service by the regular use of naval vessels to make possible a greater movement of supplies. With regard to the Northern Irish parcel post, a considerable part of the backlog has been cleared over the last week and we are now ready to use Royal Air Force planes to clear the rest, if necessary.
I should like to indicate how the Government see the situation following last week's meetings. We Have made clear to the Executive of the union the serious damage which the strike is inflicting and is capable of further inflicting on our economic position, even if, so far, the damage has been far less than was hoped by some of those who saw in the strike a means of crippling the economy and securing a reversal of essential Government policies.
Secondly, we have made it clear that, while we have done everything in our power to secure a satisfactory and honourable settlement, if the strike continues the Government must react to it with every measure necessary to protect the interests of the nation. This they fully understand, as public statements have shown. It is not our desire to see this union smashed or weakened. If this were to occur it would result from actions not of Government but of those exercising their powers within and upon the union.
The Executive can now be in no doubt that, although they started the strike against a background of considerable public support for the seamen's case, public sympathy has been progressively alienated, first by their brusque rejection of the Pearson Report, secondly by their continuing refusal to follow the course urged upon them by the Trades Union Congress and the Government, and thirdly—and I said this in clear terms to the Executive—by the public reaction to television films and Press reports of the action of certain militant individuals in individual ports against seamen seeking freedom to express their own point of view.
The seamen's Executive are probably in little doubt that the strike will not succeed in forcing any settlement beyond that which is so widely regarded as
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reasonable. Any success they were to have in widening the area of the strike would succeed only in damaging the economy and ultimately damaging, if not destroying, the effectiveness of the union by putting still further strains on the minority of members who are bearing the sacrifice.
By the end of this week, seamen engaged in the cross-channel and other short sea trades will have lost on average out of their wages over £100, and in many cases far more than that, at this time of seasonal peak earnings. With a wage settlement estimated at providing a further £1 a week, it will take them nearly two years to get back what they and their families have already lost, and this period will extend by each day that the strike lasts. These men at least have pretty well already lost in hard cash more than they would have gained over the next year if their full demand had been conceded.
This union has had an unhappy history and, as I told the owners on Friday, the owners themselves bear a heavy responsibility for this by the cynical way in which for so many years they were content to transform the union into a creature of the companies. This led to a naturally democratic revolt, which is now giving way, in the name of militancy, to pressures which are anything but democratic. The Executive last Friday knew the score and yet the combined advice and appeals of Government and friendly trade union opinion was rejected as brusquely last Friday as the Pearson Report was rejected nine days earlier.
It has been apparent for some time— and I do not say this without having good reason for saying it—that since the Court of Inquiry's Report a few individuals have brought pressure to bear on a select few on the Executive Council of the National Union of Seamen, who in turn have been able to dominate the majority of that otherwise sturdy union.
It is difficult for us to appreciate the pressures which are being put on men I know to be realistic and reasonable, not only in their executive capacity but in the highly organised strike committees in the individual ports, by this tightly knit group of politically motivated men who, as the last General Election showed, utterly failed to secure acceptance of their

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views by the British electorate, but who are now determined to exercise backstage pressures, forcing great hardship on the members of the union and their families, and endangering the security of the industry and the economic welfare of the nation.
Mr. Heath: Is the Prime Minister aware that the whole House will regret that at the meetings at the end of last week he and his colleagues found themselves unable to persuade the Executive of the union to call off the strike? Is he also aware that we believe that it is right for the Government to ask for the Emergency Powers to be renewed in these circumstances?
At the same time, is it not rather late that only now the Government should be working out emergency plans with industry to deal with the problems which are arising? As the Government have agreed to use the Royal Air Force and the Navy in certain circumstances, will they now work out plans with industry to deal with the heavy exports which the right hon. Gentleman mentioned are being held back?
Thirdly, in view of the last part of the statement, could the right hon. Gentleman now ask the Minister of Labour to press the executive of the union immediately to organise a secret ballot which would enable those men who wish to go back to work to express their views in a constitutional manner within the union rules? We are aware of the difficulties of this, but in view of the position which the Prime Minister has described in such vivid language, I believe that the whole House would like him to use his influence with the executive committee of the union to do this.
The Prime Minister: I thank the right hon. Gentleman for saying that the whole House shares the regret that our efforts last week were not met by willingness to end the dispute, and also for what he said about the need for emergency powers.
With regard to the plan for helping with export movements, I think that we were right at that stage not to institute any new procedures. The right hon. Gentleman will realise—indeed, none better; he is a former President of the Board of Trade—the tremendous difficulty
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in this situation in doing anything about the movement of the heavier exports— buses, lorries, cars and so on. A couple of days ago I met a leading exporter to the United States who said that because of the strike they had been using air transport, which they had never previously considered using because they thought it would be too expensive, but they are so satisfied with it and with the cost of it that they are not going to return to shipping when the strike is over. There is a very serious warning here about the future of the industry.
As to a secret ballot, my right hon. Friend and I considered very strongly whether we should tell the union that, in our view, such a ballot should be instituted. There were moments when both of us felt that a secret ballot of the executive might be the right answer. I am sure that the right hon. Gentleman, when he ponders on this, will see some of the very grave difficulties and some of the dangers and the almost certain effect of delay which could result if the ballot were to be organised among not merely those who are at present on strike but among those who are on the high seas, many of whom have not been in touch with the situation at all. It might take a very long time to get results, and one can imagine the way in which the results might come through. If the ballot were in favour of continuing the dispute, it might be appealed to by those who felt it right to appeal to it for several weeks thereafter. The executive might feel unable to move in the light of a ballot of that kind.
Another problem is that of knowing who should be balloted—those on strike or all members. If it were the ordinary, nominal registered members, many of them have not been to sea for many years. So one can see difficulties about what is at first sight an attractive proposition. I hope that we shall see used a secret and democratic means of enabling members at individual branch meetings—which I hope they will attend in greater numbers—to express their views.
Mr. Grimond: Is the Prime Minister aware that his statement will be viewed by the public at large as an extremely serious one over a strike which now can do no one any good and is increasingly going to do a great deal of harm to

45
people who are wholly innocent in the dispute and many of whom are just as badly paid as seamen?
Perhaps I might ask the right hon. Gentleman one or two questions about the Emergency Regulations situation. He will be aware, as he indicated, that the situation in which it was envisaged that Emergency Regulations might have to be enforced is already in being on some of the islands. May I take it that when he speaks of the regular use of naval vessels, this is now official Government policy, and that the emergency committees in the islands should plan accordingly, because we can hardly go on not knowing from day to day how we shall get the essential supplies?
Does the right hon. Gentleman realise that it is not only in Northern Ireland that the parcel post has been disrupted, and if special efforts are to be made to maintain it to that area, will he ensure that for the islands equally effective measures are taken? Also, is he aware that some essential exports are already held up in the islands, and that coal is at a premium in Shetland?
The Prime Minister: With regard to the problems of the right hon. Gentleman's constituency, he has kept in very close touch with the Government Departments concerned, as we recognise, and I think that it will be possible to say a little more to him about the naval vessels so that those who are planning in the islands will know what they will be able to depend on in future. It will be recognised that some of the ports are not very suitable for some of the naval vessels that we should like to see on that run. We will look at the matter of the parcels post. If we can get more naval vessel journeys in, it will probably mean that we can deal with the parcel post.
The right hon. Gentleman said that the strike is now unlikely to do any good. I certainly agree with that. My right hon. Friend and I, although we did our best to stop the strike at the beginning, felt that it was impossible to stop it and that there was a desire on the part of the union, after its long and unhappy history, to assert its control, to assert the fact that it was a union and to establish the virility of the union. I believe that anything that they wanted to do in that direction has been achieved,
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and that if they now stay out it will endanger the union because of the very serious strain that there is between the short sea trade and the deep sea trade members. I believe that they should have accepted the Pearson Report when it was published, and I hope that they will now reconsider their attitude.
Mr. Sydney Silverman: Is my right hon. Friend aware that most ordinary people consider that the demands that the seamen made were just and equitable and that they have shown great patience and restraint over very many years? If that is so, is it not a little hard that they should now be expected to put up with the unfair and inequitable conditions for another twelve months by a reference to considerations which, however important, have no direct or specific bearing upon their own industry?
The Prime Minister: I agree that the seamen have shown very great patience and restraint for very many years when the union was not able, and received no encouragement from the owners, to negotiate fair and comparable conditions of employment and wages. It was because of this that there was the democratic revolution in the union which led to the later developments which I have described. However, my hon. Friend will recognise that last year the seamen got an increase of 14½ per cent. They got a substantial payment because they were committed to work on Saturdays and Sundays at sea. This was, I believe, abused by certain owners and masters. Now they have been given a substantial award which gives them all that they are asking in the matter of a 40-hour week twelve months from now instead of two years as proposed by the owners.
I would think that, in view of the successive improvements last year and what is now offered, they would feel that they have done everything to convince the public of their case. I certainly believe that they are now losing public sympathy by the fact that some of them at least are saying, and saying very blatantly, that they are more concerned now with harming the nation than with getting the justice that we all want to see. [HON. MEMBERS: "Oh".] I have seen on television leading members of the union saying just those very words. As my hon. Friend knows, after recognising the

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strength of the seamen's case, my right hon. Friend and I did everything in our power to deal with it. We set up a high-powered court of inquiry to examine all their problems, including the long-standing problem of the Merchant Shipping Act, 1894. There is no reason why that should not be settled quickly, and all their other frustrations and grievances. We have also announced that there is to be an inquiry into the future structure, organisation and efficiency of the industry. I was shocked to find that at a meeting of the owners last week, when I asked them to hold out some hope of a reduction of one hour a week in overtime, as in the case of other shipping companies overseas—that is, that productivity would be increased by 2 per cent, over the next year—they said that they could give no assurances owing to the structure of the industry that even this would happen.
Sir A. V. Harvey: Would the Prime Minister not agree that if this unfortunate strike continues for very much longer it may be difficult for the terms of the Court of Inquiry to be implemented? Would he not further agree that it would be wrong for these terms to be laid open for an indefinite period, terms which the right hon. Gentleman and everyone agrees are reasonably fair?
The Prime Minister: I am sure that the hon. and gallant Gentleman does not want to make the position even more difficult. It is the view of the owners that they would have difficulty in meeting this Report, and, of course, that it might become impossible if the industry were badly affected for a long period ahead. It is my view, and that of my right hon. Friend, that this is a fair settlement, and I believe that the owners really have a great deal which they could contribute by getting much greater efficiency in this industry, because the Report was quite critical on this matter compared with owners in other countries.
Mr. Whitaker: Would my right hon. Friend consider whether the best way to cure the mismanagement and the root causes of discontent over many years is not to take this industry into public ownership?
The Prime Minister: We are setting up this inquiry—this independent, impartial.
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high-powered inquiry—on the lines of the Plowden Report into the aircraft industry and the Geddes Report into the shipbuilding industry—[Interruption.]—so that we can get a really detailed examination of the structural and efficiency problems of the industry, but I had better not try to anticipate what such a committee might report.
Sir G. Nabarro: Does the Prime Minister recall that 48 hours ago Mr. Hogarth said that the strike would certainly last for another 14 days? If that is the case, can the right hon. Gentleman say whether measures are in hand to ration petrol, a step which would cause grave inconvenience to industry, trade, commerce and private individuals in this country within a fortnight?
The Prime Minister: I am aware of the statement made by Mr. Hogarth on Friday, but I am bound to say that I think that one of the points he had in mind was that if there were to be a ballot on the lines on which some members of the Executive were thinking, then it would take at least a fortnight to organise it and get the results in, particularly if it extended to members who are at present overseas. We are, of course, making all necessary plans for any situation which could arise if the strike lasts for a few days, for two weeks or longer. Certainly I think the hon. Gentleman—whom we are all glad to see has recovered after his unfortunate crash last week—is exaggerating the present dangers to our oil and petrol supplies by saying what he said.
Mr. Molloy: Is the Prime Minister aware that in circumstances like this there are bound to arise occasions when there will be the use of extravagant language; that opportunities will no doubt be taken by some extremists to exploit any given situation? Would my right hon. Friend not agree that to give the extremists the sort of highlighting that he has given this afternoon does not help the solid trade unionists, and that it might have been more in the interests of the seamen if he had stressed the desirability of negotiating to try to find a solution by quite a number of members of the Executive and the seamen themselves—rather than highlighting the attitude of the extremists?
The Prime Minister: There is, of course, always the problem of extremists on both sides of industry when there are these industrial difficulties. But I think that this goes beyond that. My right hon. Friend and I, both before the strike began and again last Friday—day after day and night after night last week—did everything in our power to get a negotiated and fair settlement. I am absolutely convinced, as is my right hon. Friend, that when the 48 members of the Executive left Downing Street on Friday afternoon most of them knew what the score was and that it would be better for the industry and the seamen to call off the strike. My doubt is—and this is not just a question of individual extremists—on the question of how far they are their own masters in taking decisions of this sort.
Mr. Sandys: While wishing the Prime Minister every success in his further efforts to end this damaging strike, will he say whether he is beginning to give some thought to what should be done when the strike is over? Does he agree that afterwards, while the problem is still alive in the public mind, no time should be lost in introducing legislation to restore the balance between the interests of the unions and the interests of the nation?
The Prime Minister: We are giving thought to what will happen after the strike is over, including the question of taking rapid action to build up stocks and supplies again where they have been run down, to help with exports and in other ways. As the right hon. Gentleman knows, matters of legislation which involve very deep and difficult questions are being studied by the Royal Commission. One thing became clear to me last week in that, however attractive, prima facie attractive, proposals for dealing with problems like this by legislation might be, I am absolutely certain that in the conditions of this strike they would have had no effect whatever.
Mr. Mendelson: Is it not evident, from the meetings that have been held this morning in the major ports, that the members of the union now attach as much importance to a cut in leave days as they do to any other subject under discussion? Is it not also clear that it is often the case that one does not get complete
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acceptance on every detail of a report of a court of inquiry? As Mr. Hogarth is on record as having said last week that if there could be some hope of new negotiations with the employers on the question of leave days, it might not get them everything they wanted but that there might be some improvement so that there might be some hope of a chance of finishing the strike, will my right hon. Friend get the two sides together to talk on this basis?
The Prime Minister: I recognised, from the moment of the first meeting with the union last week, that the question of leave days had replaced the 40-hour week as the main issue. I think that probably the union was prepared to accept the Pearson Report in respect of the 40-hour week, although it did not say so. The union did not say that, but I think that its attitude was to leave that and deal with leave, and we told them how this problem could be handled. We got them together at Downing Street with the employers. That was not easy. I would be happy to try to get them together again. But the differences are such that the union said that it was satisfied that it could guarantee improvements in productivity to pay for this without adding to the cost of the Pearson award. The employers, for reasons which I think were not altogether good reasons, said that they could not accept this because of the widely scattered ownership in the industry; because they could not speak for 400 owners. That was why I suggested that the Pearson Court itself, which could produce a report by the early autumn, should go into these productivity questions, and that if it found that it could be copper-bottomed and guaranteed, not just by pious aspirations, the whole leave question could be considered, and I should have thought that that was a reasonable suggestion which the union might have accepted.
Mr. Noble: Is the Prime Minister aware that the people of the West Coast of Scotland are extremely grateful for the limited but essential work which the Navy has in the past been doing? However, would he consider with his colleagues the possibility of dealing with the problems about which he has spoken and the difficulty of getting naval craft into certain ports? Would it not be

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more practical to use the three modern ships which the Secretary of State owns and which are designed for both tourists and freight to get moving again to the West Coast because on these islands the main cash crop is tourism? Is he aware that this is the centre of the tourist trade and that, if this trade were to die, the islands would suffer much more than most other areas of the country?
The Prime Minister: I certainly will ask my right hon. Friends who deal with the day-to-day emergency situation to look at the situation raised by the right hon. Member. I thank him for what he said about the limited but effective help given by the Royal Navy to these islands.
Mr. A. J. Irvine: My right hon. Friend mentioned the 1894 Merchant Shipping Act. Can he indicate how far advanced are preparations for draft amendments to that Act for consideration in future by this House?
The Prime Minister: Yes, Sir, the President of the Board of Trade and the Minister of State have been very active in trying to get this matter brought to a point where the House can look at it in discussion with both sides of the industry, but I am afraid that, roughly speaking, from, I think, November onwards when the present dispute became acute no further progress has been made. If it had been made we might have had a text of a Bill almost ready. In default of agreement between the two sides, of course, under the leadership of my right hon. Friend, the Pearson Committee is charged with the duty of producing a report and recommendations for improvements which are long overdue in this 70-year problem.
Mr. Stratton Mills: Will the Prime Minister arrange for a special report to be submitted in due course to the Attorney-General to deal with the methods of picketing, which in some cases have verged on violence and intimidation?
The Prime Minister: Questions about intimidation which go beyond the law are, of course, a matter for the local police in any area where this might happen. I think there have been some strong words used, but I have not been
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told of any incidents which would require the attention of the police. If there were any it would be a matter for the police. There have been a number of threats to particular individuals about what would happen when the strike is over. I make clear that so far as the Government are concerned we shall not stand for any victimisation of any individual by either side of the industry.
Mr. Heffer: In view of the fact that my right hon. Friend had it drawn to his attention prior to meeting the seamen that the question of leave was of vital importance, could he indicate why the Government have not put pressure on the employers to grant concessions in this direction? Is he aware that in the major ports the men are more determined and more solid than ever and we are creating greater probl in relation to the dispute and not solving them by the actions which the Government have taken?
The Prime Minister: When my hon. Friend drew to my attention last Wednesday afternoon that this matter was now the key issue, I think he will recall that I said that we were very well aware of it and were giving thought to the problem. When we met the union about an hour later this was confirmed by what the union said to us. We put forward a number of alternative propositions in a friendly and conciliatory way in order to get a solution to the problem by the union and the employers. Neither side seemed to be very ready to move. That was why we suggested that this matter should be referred to the Pearson Committee to make sure that the improvements in productivity necessary to pay for further arrangements on leave should be in the bag before the money was paid out.
Sir S. McAdden: Will the Prime Minister take the House into his confidence about the pressures which are being exerted, as he said, on individuals and groups of the National Executive of the National Union of Seamen and on officials? Why should these people be allowed to shelter behind a shield of anonymity? Will he say who they are?
The Prime Minister: I did not say that without being very clear about what is going on. It was not based on rumour or a secondhand account. I was

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absolutely certain about what I was saying, but I do not think it would help to give more details now. I am sure that when the Executive realises what is happening and when many members of the union know what is happening they will feel that it is time that they considered the whole matter again in the light of the suggestions which we put to them last Friday.
Mr. John Hynd: In view of the fact that the Prime Minister clearly and deliberately made statements which implied very serious, very sinister implications which undoubtedly will cause considerable disquiet among the public, can we be informed—since he must, as he said, have founded this not on rumour but facts—that at some stage the facts will be made available to the public?
The Prime Minister: Yes, Sir. At the right time that would be absolutely right, but I am sure that it would not be right at this time. My right hon. Friend and I will be discussing this matter, not only this matter but the whole matter, when we meet Mr. Hogarth at 5 o'clock.
Mr. Heath: May I pursue a little further the last two supplementary questions? The Prime Minister said that at his meetings the Executive of the Union knew the score but it seemed to him that they were not their own masters. He has since also spoken of intimidation of members. Is it not a very serious situation? How can the strike be brought to an end in these circumstances? How can he get publicity for the situation that the difficulty is over leave days which can be dealt with after the final report of the Pearson Committee? As he suggested that somehow there would be secret ballots at the ports which would show that the men wanted the strike to be brought to an end, may I suggest that the Trades Union Congress should make facilities available for secret ballots to be held,
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possibly through the help of the Proportional Representation Society? Otherwise, how does he visualise that the strike will be brought to an end?
The Prime Minister: Perhaps the right hon. Gentleman will allow me to correct one small rendering of something I said. I did not say the final report of the Pearson Court of Inquiry. The situation is in fact better than that. A second interim report will be ready, we are told, by the early autumn and can deal with the question of productivity and create a situation in which there could be further discussions about leave days. Certainly the situation relates not to the 40-hour week, despite some of the banners which we see being carried, but to consequential leave changes. I think this is well known in the industry—my hon. Friends from seaports have said that it is—and my right hon. Friend will have to consider what more can be done to bring that about. What I hope will be brought home is the suffering caused to individual families at this time, which will take two years to be put right in terms of the increases at present being discussed.
On the other question, it is better for the industry to make its own conclusions about the pressures and the way in which the strike has been misused by certain elements and other events which have taken place. In regard to a secret ballot, it would have been, I think, the intention for the union, if it decided to go into a country-wide secret ballot, to make use of some independent organisation to collect and count the votes, although there is still the problem of supplying to that organisation a correct and up-to-date representative list of whom the members really are.
Several Hon. Members Several Hon. Members rose——
Mr. Speaker: Order. This is a grave matter, but we must move on.

BILLS PRESENTED
  LOCAL GOVERNMENT (PROMOTION OF BILLS)
  Bill to repeal section 255 and Schedule 9 of the Local Government Act 1933 and section 7 of the London Government Act 1963 requiring the provisions of a private bill promoted by a council of a borough or urban district to be approved at a public meeting or at a poll, presented by Mr. Binns; supported by Mr. Gordon Oakes, Mr. Garrett, and Mr. Bernard Conlan; read the First time; to be read a Second time upon Friday 8th July and to be printed. [Bill 49.]
  SLAUGHTER OF POULTRY
  Bill to provide for the humane slaughter, for certain commercial purposes, of poultry, presented by Mr. Ensor; supported by Mr. Urwin, Mr. Bernard Conlan, Mr. Gordon A. T. Bagier, and Miss Quennell; read the First time; to be read a Second time upon Friday 8th July and to be printed. [Bill 54.]
ORDERS OF THE DAY

  FINANCE BILL
  Further considered in Committee [Progress, 16th June].
  [Sir ERIC FLETCHER in the Chair]

  FINANCE BILL

    Clause 16.—(CHARGE OF INCOME TAX FOR 1966–67.)
    4.9 p.m.
    Sir Gerald Nabarro: I beg to move Amendment No. 1: In page 19, line 33, to leave out "8s. 3d." and to insert "7s. 6d.".
    The Chairman: With this Amendment the Committee can discuss Amendment No. 164: In page 19, line 33, leave out "8s. 3d." and insert "8s.".
    Sir G. Nabarro: I am grateful to you, Sir Eric. I suppose that much of what I say on this Amendment might have been said on the Motion, "That the Clause stand part of the Bill," because when one is considering the annual Clause in a Finance Bill to determine the standard rate of Income Tax for the ensuing year it is of course indisputable that an amendment to the standard rate must embody much comment of what would normally be said on the Motion, "That the Clause stand part of the Bill". Income Tax makes a massive contribution to the revenue. In 1966–67 the total revenue from all taxes is £10,224 million. The estimated revenue from the Income Tax, after consideration and acceptance of the Budget proposals, is £3,600 million, or approximately 35 per cent., of the total revenue. The Income Tax is, therefore, even more than Customs and Excise revenues, the largest single contributor to the revenue.
    The standard rate of Income Tax, I shall aver, being 8s. 3d. in the £, is inflationary, is punitive to individual endeavour and enterprise, and ought seriously to be considered by the Committee in its proper context and perspective. It is about eleven times as important in a fiscal sense as the Selective Employment Tax. The Selective Employment Tax, if accepted in the form proposed, would yield £315 million in 1966–67. The Income Tax at 8s. 3d.

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    in the £ standard rate will yield more than eleven times that figure at £3,600 million.
    The rate is 8s. 3d. in the £ due to an increase of 6d. carried by the present Government in 1965. I want to say a few words in retrospection about standard rates of Income Tax. When the last Socialist Government but one, left office in 1951, the standard rate of Income Tax was 9s. 6d. in the £. In 13 years of fiscal propriety by the Tory Party the standard rate was reduced progressively from 9s. 6d. in the £ to 7s. 9d. in the £. In fact it had been reduced from 9s. 6d. in the £ to 7s. 9d. in the £ in eight short years by 1959. There it got stuck for the ensuing five years, I am sad to say, though I enjoined successive Conservative Chancellors of the Exchequer between 1959 and 1964 to reduce it further.
    But in those 13 years there was this important and—I stress it to the Committee—progressive reduction in the scale of Income Tax. When I use the word "scale" I say it in a generic sense, not only to embody the standard rate which came down from 9s. 6d. to 7s. 9d. in those 13 years, but also the tremendous increase in allowances for Income Tax, notably the child allowance, which in 1951 was £70 for all children in full-time education or below that age and which in 1964 had risen to a graduated scale of child allowances which went as high as £165 in a year for a child over 16 years in full-time education.
    The whole gamut of Income Tax showed, in those 13 years, a progressive reduction in its scales. That is eternally to the credit of the Tory Party, because throughout those 13 years I was from the Government benches, aided by a large number of my hon. Friends, expounding the fiscal theory, which I believe to be one of substantial propriety, that the levels and incidence of direct taxation on earnings should be brought down as low as possible and that, if compensatory measures were necessary, those measures should be directed to increase in taxes on sumptuary consumption and personal expenditure.
    4.15 p.m.
    It is on those lines that I wish to pursue my argument today, which is not a unique and individual fiscal philosophy. I believe that it is the fiscal philosophy
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    of the Tory Party, and that is why I am stating it in the Committee this afternoon. It is indissolubly associated with the Standard rate of Income Tax, which is the biggest and most onerous single burden on the shoulders of the 24 million taxpayers. I fervently believe that taxation emphasis should be upon personal expenditure, not on personal income. I fervently believe that taxation emphasis should be upon personal spending, not upon personal earning. I fervently believe that Income Tax is a tax on work, and any tax on work levied at the punitive scale of Income Tax today at 8s. 3d. in the £—and here as an aside I allude to the top level of Surtax as well, which is 10s. in the £, giving a total direct rate of taxation on incomes over £15,000 a year at 18s. 3d. in the £—does the very opposite of encouraging personal effort.
    Do I detect the Chancellor of the Exchequer shaking his head in dissent? Would he care to intervene? I repeat that the top level of direct taxation on an individual—the Chancellor of the Exchequer has indicated dissent; he will no doubt rise in due course and withdraw—is 8s. 3d. in the £ for Income Tax, plus 10s. for Surtax. The Chancellor is again shaking his head in dissent. That is the top level. I shall be proved right and the Chancellor will be proved wrong.
    Mr Harold Lever Mr Harold Lever (Manchester, Cheetham) rose——
    Sir G. Nabarro: No; I will not give way to the hon. Gentleman. I am at the moment directing my remarks to the Chancellor. As I pay the top rate of 18s. 3d. in the £, I might be allowed to know. Apparently the Chancellor will not withdraw. I shall press him in due course. However, that was an aside about Surtax. [Interruption.] Do not call me "Gerald" in Committee. It is most improper.
    Not only are these levels of taxation— I referred to the top scale only as an aside—derogatory to individual effort and endeavour, but they have a very serious effect on the level of personal savings. I shall return to the question of personal savings later, because I propose to equate the loss in revenue that acceptance of this Amendment would entail to the whole question of personal

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    savings and the importance that the Treasury attaches to that aspect of our financial affairs.
    I am not alone in adducing these opinions about the level of direct taxation. I select one recent quotation reported in the Financial Times of 6th June last, 14 days ago. It is from one of our captains of industry, often used in quasi-official capacities by the Government. I refer to Sir Donald Stokes, Managing Director and Deputy Chairman of Leylands, surely one of our most successful exporters and one of our most enterprising, forward-looking and progressive industrialists. He said this:
    "The Government must, urgently, put some incentive into the tax system: why not a sales tax instead of Income Tax, for a start?"
    There is this to be said for the Finance Act, 1965, and this year's Finance Bill. It has achieved a limited reformative advance—I give the Chancellor this point —in two senses. Last year the Corporation Tax, subject to the two caveats that it was badly conceived and wrongly drafted, in my opinion, achieved something very important. It dissociated the taxation of companies from personal taxation. It separated the two, whereas previously any alteration in the rate of Income Tax affected personal incomes as well as company taxation.
    That was an advance in tax reform. Associated with it this year is the broadening of the tax base with the Selective Employment Tax. I shall not talk about this yet, except to say that again it is badly conceived and extremely badly drafted, but I would always accept the principle that progress towards a payroll tax, as I said in a speech on the Budget Resolutions on 5th May, if it were linked to a direct reduction in personal rates of Income Tax and increased incentives for investment in industry, would be correct.
    But having said that, I would draw attention to the important advance of separating taxation of companies from taxation of individuals, which was achieved in the Finance Act, 1965, and this year embarking on a new venture of the taxation of services which, if it were properly drafted and, subject to the caveat that I have entered, I would find acceptable. I believe that this lays us
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    open to a broad advance, not only this year but in ensuing years, in the reduction of the level of taxation on the individual workers, and I include in that generic term every man subject to Income Tax from the shop floor level up to the most heavily taxed class, those earning more than £15,000 a year—they are all in this net—and it is that reduction of the level of direct taxation which is sought in this Amendment.
    The cost of this Amendment—9d. reduction in the standard rate of Income Tax—would be £240 million in a full year. I hope nobody on the Treasury Bench will contradict that figure. It is approximately correct. The Chancellor did not do his sums very well on Income Tax last year. In fact, he never does. The right hon. Gentlemban has indicated dissent twice, but I always do my homework before I talk about figures of this magnitude. Last year—I quote from the Chancellor's Financial Statement for 1966–67—he budgeted for proceeds from Income Tax of £3,592 million. He made an error of £86 million. That figure of £86 million was the extent of his Income Tax error last year. [Interruption.] I do not expect the Treasury to be more accurate than to estimate the yield of this important sector of taxation to closer than one half of one per cent. Actually, it made an error last year amounting to a lot more than that. It made an error in excess of 2 per cent, in its estimate of the yield of Income Tax.
    Therefore, I appeal to the Chancellor if he is going to reply—I do not know whether he or somebody else is going to reply—that when I say that the cost of this Amendment would be £240 million in a full year, the cost of this Amendment depends on the out-turn of Income Tax as a whole in this year. But I am near enough for all practical purposes in saying that it would cost £240 million. Sixpence was estimated to cost £160 million; 9d. might cost £240 million. But it is approximately correct for the purposes of my argument.
    Mr. Raymond Gower: I am grateful to my hon. Friend for giving way. I am a little confused. He quoted a statement by the Chancellor last year and then he has given figures showing what the cost of this Amendment would be. Can he help the Committee by saying whether, in his calculations and

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    in his original statement about the proportion of the total revenue which is contributed by Income Tax, he has taken account of the introduction of Corporation Tax? I for one am not clear about this.
    Sir G. Nabarro: I am always indebted to my hon. Friend for his constructive interventions, and that is a very good point, but perhaps he will be good enough to go to the Vote Office and get the Financial Statement for 1966–67. All the figures that I have quoted are in the Financial Statement. The yield of Income Tax in the current year is £3,600 million after Budget changes. This is on page 10 of the Financial Statement. The total yield of all taxation is £10,224 million. The one related to the other is 35 per cent. Perhaps my hon. Friend will get the document. All my figures are quoted from the Treasury documents issued at the time of the Budget.
    I want to go on to the important question of revenue. The Chancellor will spring to the defence of his Budget proposals this year, and will say that he cannot afford reduction of the standard rate of 8s. 3d. in the £ to 7s. 6d. He will say that he cannot afford a reduction in the revenue of £240 million. But the same Chancellor of the Exchequer and all his predecessors for years and years past have stumped the country saying "Give me National Savings and I will abate tax revenue by an equivalent sum." Every Chancellor, the present Chancellor included, makes dynamic speeches in support of personal savings and National Savings and says "If I can get an increase in National Savings it is as good to me as tax revenue."
    Let me examine the record of the Labour Government in National Savings, which is deplorable. In the last year of Tory Government in 1964 there was a surplus on National Savings of no less than £1951 million. That was in the year 1964–65.
    The Chairman: It is in order for the hon. Member to make a passing reference to National Savings on this Clause, but it is not in order to refer to it in great detail.
    Sir G. Nabarro: I am grateful to you, Sir Eric. If I might complete what was
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    intended to be a passing reference, in 1964–65 the surplus was £195T million. In the following year 1965–66, a year of Labour Government, there was a deficit on National Savings of £54 million. The two put together exactly equate themselves, the changeover from surplus to deficit producing a total of £245 million, in the context of National Savings, to the cost of this Amendment, a reduction of 9d. in the £ in standard rate of Income Tax.
    If it is true—and every Chancellor since Mr. Hugh Dalton in 1945 has told us this—that the tax revenue is the equivalent of National Savings revenue, the Chancellor ought, if he promoted National Savings on the scale that the Tories promoted them in the years up to 1964, to be able to afford this important reduction of 9d. in the £ in the standard rate of Income Tax.
    Now I pass to broader philosophical considerations in fiscal matters. I am not alone in these sentiments about a reduction in the level of direct taxation, notably Income Tax. I have powerful allies, of course. However, I do not want to do more than quote just a couple of them to indicate what is going through the minds of contemporaries of ours in the same sense, for I believe that all thinking people realise today that this punitive level of Income Tax, especially when added to Surtax on the present scale, is the gravest deterrent to increasing production in industry. It is the gravest deterrent on the shop floor. Every capable, skilled worker in industry today has worked out to a frazzle exactly at what point the full standard rate of 8s. 3d. in the £ applies to his income, and at that point his individual and personal effort begins to decline.
    4.30 p.m.
    The Prime Minister addressed the luncheon of the Parliamentary Press Gallery on 11th May, 1966. There is nothing like the journalists getting the first view of what lies under the corner of the carpet in the mind of the Prime Minister. Whatever I may think about him in a political sense, I readily recognise that in any sphere inside or outside the House he would be regarded as a great economist in his own right. He had this to say:
    "If it is right, that we should start to tax the cost of production (so far within the

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    services field) rather than industrial profits, might we not look forward to a situation in which this will develop over a wider field of industry, when we have been able to refine our present proposals. I do not yet foresee that this will lead to the abolition in the foreseeable future of income tax, but it may well be a means to a fundamental change of balance within our tax system, involving a shift to the benefit of personal incomes as against taxes on costs."
    That is exactly my case today. We are taxing earnings and work much too heavily. We are taxing sumptuary consumption and expenditure much too lightly. We shall never rid ourselves of the stagnation in industrial production, which has now lasted for more than 18 months, until, as Sir Donald Stokes said, greater incentives are given to all who work by hand or by brain, and that means a reduction in the standard rate of Income Tax.
    I believe that this is the purest of pure, true-blue, Tory fiscal philosophy. But the Prime Minister is coming over to my camp. He is saying the same thing—in more guarded terms, because he is the Prime Minister. My duty is to scout ahead of fiscal thought in this country and not tag behind the present Prime Minister.
    What more disgraceful analogy can I give the Committee this afternoon, than the fact that last week a lady won the jackpot at Ascot tax-free. Good luck to her. She put on a few shillings and won £63,114, tax-free. I should have to earn at Is. 9d. in the pound net, with my earnings taxed at 18s. 3d. in the pound—the Chancellor of the Exchequer should not giggle. It is disgraceful that I am taxed on that scale. I should have to earn approximately £700,000—earned and not dividends on investments—which is inconceivable. Nobody would pay a humble character of my sort that sum of money.
    Sir Arthur Vere Harvey: Ask the Coal Board.
    Sir G. Nabarro: I should have to earn approximately £700,000. This is not unearned income. I should have to earn approximately £700,000 in order to be left with a net sum, after Income Tax and Surtax, of £63,114, which is what this lady won with an investment of a few shillings, and her winnings were tax-free. Good luck to her.
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    I do not envy her, but we have the whole of our scale of fiscal and social values wrong when a person can invest a few shillings on football pools and win up to £300,000 largely tax-free, whereas the nation's best brains, all of the nation's inventiveness and genius, from not only the top level of industrial management but right down to the shop floor, are savagely taxed as an amalgam of an Income Tax and Surtax.
    It is for all those reasons, and because I wish to make good for the Revenue the £240 million loss which this Amendment would entail by a dynamic increase in National Savings and other forms of personal savings, which have flagged so badly since 1964, that I have put the proposition to the Committee. I hope that we shall have a full and satisfactory reply from the Chancellor, and that he will not continue to dissent when I tell him that the top rate of direct taxation is 18s. 3d. in the pound. I hope that I shall have his apology within 48 hours on that important matter, for I have stated it correctly. I ask all my hon. Friends to support me in this important Amendment.
    Mr. John Peyton: I am sure that the whole Committee was deeply impressed by the plea which my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) has just made. I am sure that the Committee was also impressed by the great nobility of his character which he revealed when he told us that he did not envy the lady who won £63,000 for a 5s. stake. I must confess that I—I do not know about you, Sir Eric—could not compete with my hon. Friend in such a matter. I envy that lady from the bottom of my heart and I am sorry that I did not make a similar investment.
    I regard the Amendment with the utmost seriousness, and I hope that it will not be argued against us that we are seeking to make an irresponsible and inflationary proposal. Although I should be out of order and should quite properly be rebuked by you, Sir Eric, if I went into detail, I must put the Amendment at least in the context of the new Clauses which have been put down in my name and those of my hon. Friends to abolish Purchase Tax and to replace both what would be lost to the Revenue now

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    as a result of this proposal and the yield from Purchase Tax with an across-the-board sales tax.
    Although I shall not go into any details here, I wish to make it absolutely clear that the Amendment, which would cost a considerable amount of money to the Revenue, is not put forward irresponsibly or lightly, or in any spirit of unwillingness to find the money which the Government need to finance their policies, no matter how much we may disagree with them.
    The Amendment is put forward with the intention of condemning direct taxation at its present penal level. We believe firmly that this is a bad thing, which has had, is having, and will continue to have, disastrous effects upon the country. Some hon. Members opposite see direct taxation not merely as a means of providing revenue but also as a means of levelling incomes. With this object of taxation my hon. and right hon. Friends and I emphatically disagree; we do not believe that it is right or proper for the Government to impose their dogmatic or social views in such a manner. Three major results follow from the imposition of direct taxation at its present level.
    First, as my hon. Friend has made clear, the edge is taken off all endeavour. Secondly, a great deal of effort, quite wrongly and improperly, is diverted to seeing how the tax bill can be put at its lowest level. Once taxation reaches penal and punitive levels—and it has existed at those levels now for too long—the inevitable consequence is that far too much effort goes into the business of avoiding it. I do not mean that it is dodged in an improper manner; tax liability is merely reduced to the minimum.
    Then there is the question of the brain drain. Who can doubt that many of our intelligent young men, on whom our future depends, feel deeply discouraged by the present level of direct taxation? There are also a few people who stand to benefit from a high level of taxation —those who become skilled and highly successful manipulators. I do not know whether the Chancellor recalls reading a recent article in the Financial Times regarding Corporation Tax, by Mr. Harold Wincolt, entitled, "Jim Helps Charlie." The point was that
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    some of the provisions concerning Corporation Tax were so designed as to give direct and quite uncalled for assistance to the take-over bidder.
    The third point to remember about the penal level of taxation is its effect upon savings. My hon. Friend the Member for Worcestershire, South has already mentioned this. To maintain direction taxation at its present level does monstrous and irreparable injury to the cause of savings. There can be little doubt that any Government who seek to maintain taxation at this level are merely blowing hot air when they talk of growth, purposiveness, planning, dynamism and all that sort of thing.
    I do not want to quote too much what the Prime Minister has said, but the targets which he and his Government have set themselves will be defeated without question if they adhere to this level of taxation. Nothing is to be gained by flying in the face of human nature. The Government have committed themselves —as has the Socialist Party for a long time—to the ghastly error of seeking to create a society in which neither hope nor anxiety has any place.
    To do that is to disregard the joker in the pack—human nature. There can be nothing wrong with people seeking to better themselves. There can be few things more foolish than for a Government to seek to remove the hopes of reward from those who are successful and, at the same time, to remove all anxiety from the community. By this we are extinguishing much-needed endeavour.
    We are all familiar with what the Socialist Party said before the 1964 General Election, namely, that there was no need for any general increase in taxation. Taxation has increased by over £1,000 million in 18 months. We believe that to the extent that that increase has been piled upon direct taxation it has been a double offence. If the edge of our country's endeavour is to be sharpened again it is no good preaching sermons or dousing the nation with pious exhortation from the television screen or political platform. We have to show the country that effort gets its reward and failure gets its penalty.
    I hope that the Chancellor and the Government will not regard this plea

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    as being put forward in any frivolous fashion simply because they disagree with it. Some of us believe that the granting of such relief as we ask for is fundamental to the recovery of our country.
    4.45 p.m.
    Mr. Harold Lever: I had not intended to intervene, but it is right that before the Chancellor gives his welcome to the hon. Member who moved the Amendment a back bencher on this side should say how much he appreciates the raising of this important subject, in his characteristic manner, by the hon. Member for Kidderminster—I am sorry, but I have not yet got used to his new constituency; perhaps his new constituency has not yet got used to him.
    Sir G. Nabarro: It is Worcestershire, South. My hon. Friend the Member for Kidderminster (Sir T. Brinton) is sitting at the back.
    Mr. Lever: The hon. Member for Worcestershire, South (Sir G. Nabarro) has raised a very important issue, and I want to comment briefly upon it.
    First, he and the hon. Member for Yeovil (Mr. Peyton) seemed to resent the aspect of direct taxation that takes into account the fact that some people are better off than others. It is not our desire to level that makes us feel that it is the better off who should bear the heavier burden of taxation, but our desire that the burden should be borne in proportion to the breadth of back of those who are to bear it.
    We still believe that that is right. It is not an act of class spite or any malign feelings on our part, or on the part of the Chancellor that makes us support the notion that the State's expenditure and fiscal needs should be satisfied having due regard to the financial strength of those who have to satisfy them. Although it is popular cant at present to say it, it is not enough to take the view that wherever we have savings we can reduce taxation. I do not say that this principle has not some relevance, but we must not overdo it and imply that as long as we replace the tax by savings we are dealing adequately with the situation.
    When we have a saving it represents a charge on the next generation, and it
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    is the Chancellor's duty in raising money to ensure that the present generation bears its fair share of taxation in proportion to its means. Although nobody is averse to the general concept, in modern society, of examining how we can fairly switch some of the burden of taxation from direct to indirect taxation, we must do so without prejudicing the very deeply felt principles of social justice which lie behind our present tax structure—principles which have been accepted by all parties.
    We must also bear in mind the fact that our taxation system was fixed in the days when a small number of rich people had to bear the cost of Income Tax and the idea of taxing expenditure would have been brutal, unjust and regressive. I am not sure that the same considerations apply to the same extent in a society in which there is mass purchasing power on the vast scale which, I am happy to say, exists in our present society. All this makes it right that the Chancellor should always examine—he has shown this in the most practical way in his introduction of the Selective Employment Tax—the possibility that, when burdens have to be borne, they may take the form of indirect taxation on a broader base than we have been accustomed to in the past.
    I have always wished to raise the unexplained paradox in the thought which lies behind our finance in this country. I refer to the question whether high taxation is inflationary or deflationary. As I understand it, the hon. Member for Worcestershire, South is anxious to deflate the economy further because, according to him, the present rate of taxation is inflationary and it is to be assumed that, if it is reduced, it would be deflationary. He is, therefore, calling for further deflation.
    I am not certain how this would work out because of the unexplained paradox in all this thinking. When the Chancellor imposes a high rate of Income Tax, for instance, in order to deflate the economy, if he succeeds he gets in less revenue than he expects. If he fails to deflate the economy, he always gets in more revenue than he expects. So one has the oddity, which has never been explained by any pundit to me, that a tax designed to deflate the economy produces more revenue if it fails in its object

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    and less if it succeeds. This seems to call for some explanation.
    Conversely, when we reduce taxation in order to inflate the economy, if our measures are not adequate we find that the reduction of taxation does not apply, but if we succeed, again conversely, the tax brings in more money, not less. This is one of the technical points which has always occupied my mind when we have these discussions, and perhaps it may provoke a passing word from the Chancellor when he replies.
    By and large, however, our taxation system must continue to be structured upon the well-established principle that the broader the back the greater the burden it may fairly bear. I have some sympathy with the hon. Member for Yeovil. I have never quite overcome my childhood experience in relation to the Income Tax some 40 years ago when my father first informed me that there existed such a tax. I learned of this fact with some horror, a horror which was not at all mitigated by the further fact that my father informed me that the gentlemen who collected it were the only licensed burglars permitted by the Government. I have partially recovered from that instruction, but never wholly.
    Mr. Geoffrey Hirst: Like my hon. Friends the Members for Worcestershire, South (Sir G. Nabarro) and for Yeovil (Mr. Peyton), I believe that nothing has so great or so widespread an effect on the health of our economy as the standard levels of direct taxation. I have no doubt whatever that these high rates are thoroughly bad for our industrial health, thoroughly bad for the competitive capacity of our trade, and thoroughly bad for the initiative of our people and for our reputation. Nothing discourages effort so much as high levels of direct taxation. I am absolutely at one with my hon. Friends in that.
    I have put down a slightly different Amendment, not because I disagree with my hon. Friends in any of their arguments but because I wanted to keep my point as far as possible—sometimes I find it difficult—within the context of the Chancellor's Budget this time. I also have done my figures. I cannot paint a broad canvas in the way that my hon. Friend the Member for Worcestershire,
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    South does, producing so many figures that there is hardly room for another one —though, no doubt, the Chancellor will try to bring some in in a few minutes —but I have done my figures and I have come to the conclusion that it would be very difficult, purely on the figures at least, not to put the argument as I see it.
    I have often had figures thrown at me. At times when I was sitting on the Government side, having the almost more difficult time of arguing with my own Government on Finance Bills, I have had figures thrown at me and had it said, "How could you possibly justify this in the light of the economy?" On this occasion, I am quite certain that what we propose can be justified, for the simple reason that we do not accept, as my hon. Friend the Member for Worcestershire, South pointed out, the present setting of the Selective Employment Tax. My right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) has made this clear. We do not accept it. We do not agree that there is any sense, real encouragement or purpose in this messing around with contributions in order to try to give an alleged bonus to people who will, in fact, get very little after they have paid their increased costs and their further taxation.
    It would be very much better to go about things by another method. What method is a matter of opinion. I want to be reasonable. I have taken part in many of these debates, and I like to keep my arguments on a reasonable level. Whether this would in the end be the most reasonable way instead of for instance, rejection of the Corporation Tax, is another question. I cannot anticipate it at this stage, but it is down for discussion and I hope that there may be an opportunity. One cannot debate everything now. One must be reasonable, but we are still entitled to advance our argument that we consider that there would be a very much better way of dealing with the economy, even in the mess and muddle which the present Government have got it into, than the way they themselves propose. My Amendment is more modest on that account.
    The hon. Member for Manchester, Cheetham (Mr. Harold Lever) has, quite rightly, said that broader backs should carry a greater burden of taxation. There

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    is no difference of opinion in the Committee on that account, and I do not think that there has ever been. We are not arguing from that premise at all. None of my hon. Friends has argued in that way. What we are arguing is that these rates of taxation are now so high and penal that they are discouraging effort. Inevitably, therefore, they minimise the capacity for growth in the economy, which is becoming thoroughly stagnant under the present policy. In fact, if we have the growth in the economy, we shall have the money to meet the bill. Gracious me, this has been the argument of right hon. Gentlemen opposite at the last two elections— that they would bring about a miracle through the growth of the economy. In fact, of course, they are now taking every step they can to prevent it.
    Mr. Harold Lever: My father spoke with even greater passion than the hon. Gentleman in regarding Income Tax at 4s. 6d. as being destructive of the incentive to work and to earn.
    Mr. Hirst: I am appalled by what has happened since. I am glad that my hon. Friend the Member for Worcestershire, South paid tribute to the record of the Tory Party when in office on this matter, which gives us the right to be very critical today. As soon as we could get over the grievous muddle left to us by a Labour Government—no doubt, we shall have a similar muddle left to us after the next election—we set about cutting down the levels of taxation, both the standard and the reduced rates, and also we improved the allowances. I cannot remember the country's economy suffering particularly. The fact is that people were encouraged quite a lot and we had quite reasonable growth. It was not all we wanted—no one will get all he wants—but it was a jolly sight better than we are getting now. We shall get nothing like the growth we want until the present situation is substantially reversed.
    I believe that to move over to some extent from a tax on income to a tax on expenditure is the right way to proceed. Everyone likes to feel that he has the spending of his own money. He likes to feel that what he earns is reasonably visible to him in his possession. In this way, he has an incentive, instead of, as
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    he has now, the thought that his extra effort will suddenly be taxed at the present high rates, which, as I have said, discourage the greater effort which we simply must have.
    I wholeheartedly support my hon. Friends in the move they are making. I hope that the Government will give a little better answer than we had when the Budget was introduced. The Chancellor is very busy talking about savings in preference to taxation, but we are little better off with that because, with the present taxation, there is no incentive to savings. Unless this situation is reversed and we get away from the system of penalising people for effort, there will be no encouragement in this country. We shall not be fit to take our part in any larger organisation in Europe. We shall not get the growth in the economy, not even the modest amount necessary to maintain the Government's face with their present or any other out-dated plans.
    5.0 p.m.
    Mr. John Lee: I believe that it is the practice that on the Government side hon. Members are expected to help the work of the Committee through as speedily as possible, and for that reason I shall not speak for more than a few minutes. There are, however, one or two things which ought to be said.
    I do not know whether the hon. Member for Yeovil (Mr. Peyton) had me in mind when he spoke, because there is a later Amendment on the Order Paper in the name of my hon. Friend the Member for Cambridge (Mr. Robert Davies) and myself which would have the effect of increasing Surtax. I am one of those who take the view that taxation should be used for social purposes and for bringing about equality or at least assisting in the process of bringing it about. I wish that it were within the power of backbench Members in Committee to increase taxation, but I have been told that that is not permitted.
    Something should be said in answer to the points raised by the hon. Member for Yeovil about incentives. He spoke about the brain drain. The principal problem here is that young people leave this country and begin a first career at

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    the end of a long period of training, and they do not return.
    Mr. Peyton: Does not the hon. Member agree that most people who leave this country go to other countries of their own choice in which the level of direct personal taxation is lower?
    Mr. Lee: That may be so. I shall come to that if the hon. Member will follow my argument. What is needed is not a lower standard rate but higher Income Tax allowances and, particularly, attention paid to the kind of allowance which improves the starting salary of persons entering their jobs. The first job is a job for life for many professional people. Once a man embarks on a particular career, he remains in that career. In many cases we lose these people when they have done their Ph.D. thesis. They then go abroad. The hon. Member is quite right to this extent: they go abroad because the level and character of taxation is such as to discourage people from staying here.
    But the right way to deal with that is not to reduce the standard rate of taxation. It is to increase the allowances lower down the scale. My dream Budget would be one in which the first £1,000 of every income was Income Tax free. I realise that this is futuristic. In order to permit that to be done, I should be prepared to see no incomes in excess of £5,000 a year. I have not checked the figures recently, but I understand that if we sliced off all incomes in excess of £5,000 it would bring in about £300 million to £400 million in extra revenue.
    Mr. Harold Lever: Does my hon. Friend mean £5,000 gross or net?
    Mr. Lee: I meant £5,000 gross. If there were no incomes in excess of that figure, the Revenue would be able to collect an extra £350 million in this way. This would make it easier to increase the allowances at the lower end and at the same time it would strike a blow for equality, which I should have thought we all want to see on this side of the Committee. I am sure that my hon. Friend the Member for Cheetham (Mr. Harold Lever) agrees with me.
    Mr. Gower Mr. Gower rose——
    Mr. Lee: I prefer not to give way again. I said that I would not speak
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    for long and that it is the duty of backbench Members on this side of the Committee to assist the business through.
    I do not agree with the Amendment and I hope that it will be rejected, but I agree with the hon. Member for Worcestershire, South (Sir G. Nabarro) and the hon. Member for Shipley (Mr. Hirst) in their plea for an expenditure tax. There are several reasons why we might eventually move over to this system of taxation. For one thing, in the race between the tax collector and the tax avoider we should start from scratch. It would make the task of the collector easier. Secondly, in so far as direct taxation is a disincentive to work, clearly an expenditure tax, which is more direct, would be less of a disincentive. Thirdly, it would provide a very good and efficient way of promoting savings, which hon. Members on both sides of the Committee wish to see.
    I end with this plea to the Chancellor. One day the Government will bring in the collectivist society which hon. Members on this side of the Committee were elected to promote. When we have a fully nationalised economy there will be no need for Income Tax. [Laughter.] I do not know why that should cause laughter. When the whole of the economy is nationalised the Chancellor can collect his revenue from the trading revenue of the whole economy and not from individuals.
    Dr. Reginald Bennett: I should like to commend to the Chancellor the appeal of the hon. Member for Reading (Mr. John Lee). I hope that they will find extensive regions of agreement in their attitude towards the economy and that the hon. Member for Reading will be able to produce some response out of the Front Bench in his demand for all-out nationalisation. I have an idea that he will not get very far. As for his idea of cutting off all incomes over £5,000 a year, that would give most senior people in industry an opportunity for a very well-earned holiday because they would not have to do any extra work.
    Mr. Gower Mr. Gower rose——
    Dr. Bennett: Members of the Government should be the first to set an example.

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    I should like to support the Amendment as an attempt to secure rectification of what we know is a deplorable intensification of a destructive tax. The tax at the present level is a penalty on energy and enterprise. I am sure that the Chancellor realises this and that he wishes that he were not in such a corner as to have to go on penalising people whom he must want to work more. Income Tax at this level can only lead to a national decline of effort and of achievement and I am sure that in his position he wants that no more than we want it on this side of the Committee.
    I believe that it is the duty of Governments to induce people by suitable incentives to forgo the leisure which is now beckoning on all sides in order that they may put in extra effort and energy and achievement, but do so voluntarily. It is inconceivable that they will do that with Income Tax at the present level. The tax in its present form is old-fashioned and retrograde. It is bound to tempt people to coast when they might otherwise be making the effort which we need. It will be very costly—but this is a costly Government. I suppose that what is behind this higher level of Income Tax is the race between the Government and the inflation which they are inevitably causing. The Chancellor is therefore bound to try every conceivable expedient to raise more money in tax to catch up with the money which he is so freely spending.
    The Labour Party themselves acknowledge that they are a high tax party. I hope that the country realises this. I am sure that their efforts while in office will produce a ready response in the electorate when it is seen just how they lead the electorate into distress. I support my hon. Friends wholeheartedly in this effort to secure a reduction in a tax which at present is iniquitous.
    Mr. Joel Barnett: I am tempted to support the Amendment if only to allow the hon. Member for Worcestershire, South (Sir G. Nabarro) to have to earn £100,000 a year less in order to have the same amount of money as the lady won at Ascot last week.
    Sir G. Nabarro: The hon. Gentleman has it all wrong.
    Mr. Barnett: If the hon. Gentleman wants to earn slightly more than £600,000 a year or a little less in order to achieve the same amount as the lady won, I do not mind. I was interested to note the agreement of the hon. Gentleman and of the hon. Member for Shipley (Mr. Hirst) with the Chancellor's adviser, Mr. Kaldor, about expenditure tax. It was particularly interesting in the light of the vicious and personal attacks on Mr. Kaldor last year. Suddenly, the whole basis of his ideas are being accepted by the hon. Members for Worcestershire, South and Shipley. As I understand it, Mr. Kaldor was one of the first in this country to suggest this sort of tax.
    Sir G. Nabarro: The hon. Gentleman will know from his own researches that, for about 10 years in this House, ever since the Millard Tucker Report, I have supported the principle of a Corporation Tax in order to separate the taxation of companies from personal taxation. Also, there is no objection to a payroll tax, so long as it is properly levied and connected to a reduction in Income Tax. That is my proposition.
    Mr. Barnett: It was not the point I was making. I enjoyed the hon. Gentleman's little intervention as much as I did his speech, which the Committee found most entertaining, brief, humble and interesting.
    Mr. Emrys Hughes: And modest.
    Mr. Barnett: Modest—yes.
    The serious argument for the Amendment is that it would bring justice and do something about the deterrent effect of the present standard rate of Income Tax. But, on the subject of justice, I found it a little difficult to follow the argument of the hon. Member for Worcestershire, South. That argument suggested, in effect, that it would be more just to give relief to those paying the standard rate than to deal with those who earn so little that they do not pay the standard rate or pay reduced rates or no tax at all. I find it a little difficult to follow such an argument.
    I am not against reducing the standard rate of tax or rates of taxation generally. I have stated before that I would like to see a reduction in direct taxation. But the case that the present rate has a

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    deterrent effect is very much overstated. I do not deny—no one with experience could—that, in factories, there are workers who work out carefully at what level they should or should not work overtime. But what hon. Members opposite do not really understand is that, in a progressive form of direct taxation of this kind, wherever the line is drawn, someone will work out precisely where it helps them or where it does not. My hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) spoke of the days of his father when it was 4s. 6d. in the £. This serves to illustrate the point.
    To suggest, as is suggested so often, that an executive earning, say, £2,000 a year, would work very much harder if he paid slightly under £50 a year less in tax is something that I do not believe. I believe that young executives in particular work hard for some very good" reasons and not primarily because, by doing so, they pay £25 or £30 or £50 a year more or less in direct taxation.
    Mr. Eric Lubbock: Many of the workers who calculate at what point they will pay tax at the standard rate do so without taking into account that they are still entitled to two-ninths earned income relief. Does not the hon. Gentleman agree that the psychological effect of having relief couched in such a way is harmful to additional effort in industry?
    Mr. Barnett: I agree that many workers who make these calculations do so for odd reasons. I know of one case where, if they worked on Saturday mornings, they would earn £3 and perhaps pay between 10s. and 15s. of that in tax. Nevertheless, for psychological or other reasons they decide not to work overtime.
    The point I make is that, in any direct taxation system, a line is inevitably drawn. One cannot have a foolproof system. Whatever the level, workers will always decide at what point they will or will not work overtime. Anyone with experience knows that the workers make these decisions for all sorts of reasons which are not necessarily connected with the particular level of taxation as it affects them individually. Indeed, in many cases they are not even aware of the level affecting them. The Amendment would be far from just, because if we are
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    to give tax relief then we should consider those paying at a reduced rate. Nor would it deal with the question of deterrence, for the reasons I have briefly stated. I therefore hope the Amendment will be defeated.
    5.15 p.m.
    Sir John Rodgers: Although I sponsored the Amendment I had not intended to intervene so that we might reach a rapid conclusion on a reduction in the standard rate of Income Tax. But I want to say something in answer to the point made by the hon. Member for Manchester, Cheetham (Mr. Harold Lever). My hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) adequately stated the case with his usual eloquence and facts and figures but the hon. Member for Manchester, Cheetham said that he and his hon. Friends believed that it was only fair to put the greatest burden of taxation on those most able to bear it—as though we on this side of the Committee do not believe the same.
    The hon. Member for Manchester, Cheetham, did not prove his case. The mere reduction of the standard rate of Income Tax and the change from a lower standard rate to a sales tax or an added value tax—from direct to indirect taxation—would not mean that the burden would thereafter fall wrongly on those least able to bear it. Those with more money left to spend would be likely to spend it and would be taxed more.
    Mr. Harold Lever: I said that I thought this principle was accepted by all parties in the Committee. I did not accuse hon. Members opposite of holding a contrary view. I did not say that it would be impossible to produce a shift to indirect taxation without having regard to social justice but that, in making that shift, we would still have to have regard to that principle—a principle which, I hope, is respected by all.
    Sir J. Rodgers: I find that the hon. Gentleman and I are of one mind on the operation of social justice.
    Unlike the hon. Member for Heywood and Royton (Mr. Barnett), I have some evidence that the present standard rate of Income Tax is a disincentive. It is one reason why young engineers, professional workers and others are leaving this

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    country to go to places like the United States, where direct taxation is lower and where there there is a discretionary element in each person's lift which amounts to more than there is here at the moment.
    In making a reduction in the standard rate of Income Tax, we would envisage replacing the money by a sales tax. We are not trying to deny the Chancellor of the Exchequer the sum of money involved. That would be irresponsible. He has his budget to meet. But there are ways of meeting it better than the present method. A move towards indirect taxation from direct taxation is urgent. People should be taxed not at the point at which they earn but at the point at which they spend.
    I am sure that such a system would be of enormous benefit to the young executive class who are, for example, starting families and trying to save for the future expansion of their families. There would be no greater incentive to them than to have a bigger discretionary amount left to spend. It would leave them enough to save now and forgo certain things until a later date if they wished. It is not possible for young people to do this under the present taxation method.
    I therefore hope that the Chancellor will look with sympathy, even though he does not necessarily agree with the Amendment, at the point which we are trying to make—that direct taxation is too high and should be reduced, that he should work out plans, if he has not already done so, to shift the burden of direct taxation more towards indirect taxation, so allowing a larger discretionary power to the person who earns the salary.
    Mr. Robert Sheldon: Like many other hon. Members opposite, the hon. Member for Sevenoaks (Sir J. Rodgers) has spoken about the disincentive effects of Income Tax. I am sure that he will admit, as will many others, the need at the same time to maintain the revenue. This highlights the two largely incompatible functions of Income Tax—the need to raise revenue, which is the historic reason for Income Tax, and at the same time the desire to reduce gross inequalities of income by using the only means, unfortunately, available at the present time.
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    Up to a point, both these aims may be realised, but there comes a situation in which the revenue needs to be so large that one runs into difficulties in covering both aims.
    One of the problems is that people work and may wish to work up to the limit of their capacity, but as they reach that limit their inclination to work long hours in difficult conditions naturally tends to fall off. We know that in the industrial scene overtime rates are pitched higher than standard rates just to account for that. There is an incentive effect just at the period when it is required, when a person is working beyond his normal limits of capacity.
    If Income Tax were directed to be in some sort of harmony with the requirements of the individual, the marginal effects of taxation would be to encourage people to work these longer periods, or in more strenuous conditions, and not the other way round. Taxation ought to work similarly to overtime payments, that is, it should give such work larger and not smaller assistance.
    But at the same time the Chancellor of the Exchequer has to be concerned with the reduction of the gross inequalities of income. Whenever he attempts that, at the same time he reduces the incentive. In pitching the level of Income Tax, he has therefore to decide how much to weigh fairness against incentive. What we require ideally is some form of incomes policy to take on the burden of sharing fairness and to remove such considerations from Income Tax; but those hopes are a long way off and meanwhile, before we consider reducing the level of taxation, there are more important inequalities about which we ought to be doing something.
    Income Tax as we have it today favours the self-employed as against the employed. Despite last year's Finance Act, it favours the speculator through the more favourable taxation of capital gains as against those who pay Income Tax. In particular, it favours those who pay Income Tax under Schedule D as against those who pay it under Schedule E. If there are to be concessions in Income Tax ideally it is those inequalities which call for our first attention. It appears to many hon. Members that too many advantages have accrued to those whose Income Tax is hardest to assess. At the same time,

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    whenever we try to remedy this, we run into the difficulties and anomalies of reducing the incentives available to a very important section of the community.
    In the short term, the answer to the problem is the broadening of our tax base. The imaginative proposals of the Selective Employment Tax are the first instalment towards such a broadening of the tax base and I assume that in principle, at least, many hon. Members who have spoken today will welcome it.
    Sir John Eden: I strongly support the Amendment. Hon. Members have not given full credit to the tremendous psychological impact which a reduction of direct Income Tax on the lines proposed would have. When the Chancellor first announced his Budget proposals and the Selective Employment Tax, there was a certain amount of relief in the country, because he had avoided a further increase of Income Tax. There was relief because an increase in direct taxation was the one thing which people wanted to be avoided.
    The hon. Member for Manchester, Cheetham (Mr. Harold Lever) felt that where the back was broad enough it was fairer that it should be called upon to carry a greater rate of taxation, but the views of some of my hon. Friends will bear further consideration. Even at the lower rates of direct taxation on lower incomes, Income Tax can be savagely high and can have a disincentive effect. It is commonly known how those at the top end of the scale earning the highest levels reach a point when they say that there is no point in adding to their total incomes because to do so means nothing to them as it all goes in taxation. I understand, and I have every sympathy with him, that that is the mood of my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro).
    Mr. Barnett: Is the hon. Gentleman suggesting that the hon. Member for Worcestershire, South would work harder if he got an extra 6d. off his Income Tax?
    Sir J. Eden: My hon. Friend could not possibly work harder than he does already and the hon. Member should bear witness to the denial of self-interest which my hon. Friend has exemplified by the mere fact that he sets an example to all by the vigour with which he is
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    prepared to work in spite of the penalties which that brings upon his own shoulders.
    I was saying that there are many for whom there comes a point when there is little further purpose in adding to their total gross earnings which their working capacity could achieve. But that applies not only to those on the highest scale. It is important to recognise that it also applies lower down the scale.
    The Chancellor of the Exchequer should give much more careful attention than he has already paid to the impact of direct taxation on those currently working on the shop floor. I could produce example after example, along the lines of those given by my hon. Friend the Member for Worcestershire, South, of men manning the productive machinery of industry who have concluded that there is no further point in their working that extra bit harder if, as a result, they are to be pushed into the higher Income Tax brackets. They do not like having to pay more taxation.
    In spite of the results of the last election, it was, none the less, my experience, going round a variety of constituencies, to come across many people, including active trade unionists, who were thoroughly fed up with the Labour Party and the Labour Government for the way in which they had directly increased taxation. Anybody who is even remotely engaged in industry must know how carefully the weekly wage packet is scrutinised and examined and what a damaging effect upon morale and the will to work the increasing amounts taken in taxation have.
    5.30 p.m.
    I have known people chuck up their jobs and leave employment on the factory floor to move to another position so as to avoid earning so much and to avoid paying so much Income Tax. It sounds an extraordinary thing to have to confess, but I believe that this is tied up with the malaise in this country. I believe that it has a great deal to do with it. I am certain that if we were to lift from the shoulders of the people the heavy burden of direct taxation, it would have a tremendous psychological effect which would redound substantially to the advantage of the Chancellor in increased productivity and increased earnings.
    It may be said that some of us who have supported the Amendment have not given full weight in our speeches to the need of the Government to find the money for their expenditure. I have given quite a lot of thought to this, even though I know that four Socialist Budgets have already added £1,000 million additional taxation. I have given careful thought to the total cost of this proposal, which, as my hon. Friend has suggested, would be in the region of £220-£240 million.
    The way in which I believe that the Chancellor could best act in the national interest—a phrase which he is so ready to use—is to pay for this reduction in direct taxation by reducing Government expenditure at home by, for example, stopping the unnecessary subsidy in the school meals bill or by changing the whole system of financing the social services. We could also save substantial money, which would assist in finding the necessary revenue for a reduction in taxation, or in finding the necessary savings to make increases in taxation unnecessary, by putting the nationalised industries on a much more efficient basis, by making them look to the market for their money, by striving through the activities of the Ministry of Transport, as inspired by Dr. Beeching, for example, to put British Railways on a more effective basis to make sure that they do not continue to be a running burden on the shoulders of the taxpayer.
    If none of those things commends itself to the Chancellor, and if he were concerned about our proposal to cut £240 million from his revenue, he has an easy solution at hand by not persisting with the grotesque folly of nationalising steel at a cost in compensation terms of well over £600 million.
    These things are all entirely relevant to a proposal to cut Income Tax. We are calling for a lower taxation burden upon the shoulders of the people, and we are calling for this by a reduction of Government expenditure, the two things combined promoting a great boost to the enterprise, endeavour and energy of the British people. This more than anything else would do good for the country and this more than anything else is something which all hon. Members, in all parts of the Committee, who wish to see the
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    country rise out of its economic difficulties should support. I hope that we get the strongest possible support for the Amendment from my own Front Bench and in the Lobby.
    Mr. A. H. Macdonald: It seems to me that the case for the Amendment rests upon two myths. The hon. Member for Worcestershire, South (Sir G. Nabarro), who moved the Amendment, suggested that it would involve a reduction of £240 million, but when he came to make suggestions about how this was to be made good he got a bit more difficult to follow. As I understood him, however, it was in part to be made good by increased savings. That is the first myth, that what is not taxed will be saved. Surely it must be obvious that if there is to be a reduction in taxation, people will treat themselves to a few more luxuries before they start to save.
    The hon. Member for Yeovil (Mr. Peyton) referred to human nature as being the joker in the pack. I certainly agree with him to the extent that it would be natural for human nature to take some advantage of any reduction in taxation and not necessarily to save the full amount so reduced.
    Mr. Norman St. John-Stevas: Was not my hon. Friend's proposition that what is taxed cannot be saved but that what has not been taxed gives an opportunity for saving?
    Mr. Macdonald: That is so, but the question is surely whether that opportunity would be accepted. If it be not accepted, the benefit which it is suggested would follow would not materialise, unless it is suggested that by an increase in interest rates we should encourage further additional savings to take up the amount of money which is not taxed. Interest rates, however, are already quite high and a further addition would be a deleterious burden upon industry and commerce which I would not like to see.
    The other myth is that somehow or other this level of taxation is a disincentive. I have always found it difficult to believe that it could be a positive incentive to industry to mess about with little alterations in the level of Income Tax. It was, I believe, Professor Galbraith who found a pack of business men howling collectively about the level of taxation, but

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    when he went round to ask them individually whether each one would or could work harder in the event of a reduction of tax, they all replied individually that in their case it was not so because they were already working as hard as they possibly could but that it would, no doubt, apply for everybody else.
    In the firm for which I worked before I came here an incentive scheme was in operation, but it did not apply to me because I worked in a side department and not in the main stream of the business. Nevertheless, there was an occasion when I worked late night after night on a certain matter. When it was done I sat back and asked why I had done it all and whether I had got anything extra as a result. I had no financial advantage, but I had the satisfaction of getting the contract done.
    It is the case that people work for that kind of satisfaction. We should take this into account instead of supposing that financial considerations are the only ones that apply. It would be ridiculous to suggest that hon. Members would work twice as hard if they got twice the amount of money. Surely, it is equally ridiculous to suggest that hon. Members would work harder if they had a reduction in Income Tax.
    Mr. Frederic Harris: The hon. Member is living in a fool's paradise. If he went to any major building site and questioned the men, he would find that many building labourers in particular and general workers work only a few days a week and then stop because they have to pay too much tax.
    Mr. Macdonald: As I understand it, the case made by the hon. Member for Worcestershire, South (Sir G. Nabarro) and the hon. Member for Yeovil (Mr. Peyton) was referring particularly to those whom I call the captains of industry.
    Sir G. Nabarro: When I moved the Amendment, I said over and over again that the disincentive power of a penal level of Income Tax applied from the productive worker on the shop floor up to the highest level of the man earning £15,000 a year or more and subject to an aggregation of Income Tax and Surtax at the rate of 18s. 3d. in the £. I said that at least half a dozen times. It
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    applies to everyone in productive industry.
    Mr. Macdonald: I am grateful for that correction, but I still insist that I know of no reason to suppose that these alterations have any effect on the people to whom I was referring. These little penny packets of alterations do not have the significant effect that they are supposed to, and I feel that the Amendment is one which should be resisted.
    Mr. St. John-Stevas: I am grateful to have an opportunity to intervene in this most important debate. I should like to congratulate my hon. Friend the Member for Yeovil (Mr. Peyton) on his extraordinarily effective speech, which, despite its apparent simplicity, had profound philosophical implications.
    I wish to support the Amendment equally simply for the extremely simple reason that the level of taxation is far too high.
    Mr. Harold Lever: Hear, hear.
    Mr. St. John-Stevas: In spite of that intervention, there is a wide difference between the parties on the issue. Again, that difference is basically a simple one. The Tory Party is the party of low taxation.
    Sir G. Nabarro: Hear, hear.
    Mr. St. John-Stevas: The Labour Party is the party of high taxation.
    Sir G. Nabarro: Hear, hear.
    Mr. St. John-Stevas: Deeds speak louder than words, and a comparison of our respective records bears out the truth of my analysis.
    I want to turn briefly to the Tory record. It has been mentioned before, but there is no harm in mentioning it again. In nine out of the 14 Conservative Budgets from 1951 to 1964, taxation was reduced and the proportion of the gross national product taken in taxation declined from 31 per cent, in 1951 to less than 25 per cent, in 1964.
    Mr. John Pardoe: How many of the nine Budgets when taxation was reduced happened just before elections?
    Mr. Hirst: Ask Mr. Gladstone.
    Mr. St. John-Stevas: I shall come to Mr. Gladstone later. I do not think that the intervention by the hon. Member for Cornwall, North (Mr. Pardoe) was very significant. After all, even if I had the figure immediately available, which I do not, all that it would prove would be the intense desire of the electorate for a reduction in taxation. That is something which the ordinary man and woman desires very strongly, and they will not get it as long as the present Government are in office. That is the point of the Amendment, and it is the point which we want to get over to the public.
    5.45 p.m.
    The reduction in the standard rate of Income Tax was mentioned by my hon. Friend the Member for Worcestershire, South. During the period of Tory rule, it came down from 9s. 6d. in the £ in 1951 to 7s. 9d. in 1964. That is a statistic worth repeating again and again. One can buttress it by other figures; for example, personal allowances. One allowance which has not been mentioned and which was increased in those years of Tory rule is the marriage allowance. That went up from £190 to £320 by the time we left office. The maximum earned income free of tax went up from £400 to £1,500. I would contrast that with the visionary scheme put forward by the hon. Member for Reading (Mr. John Lee), when he was talking about initial allowances of £1,000 a year. Undoubtedly, had the period of Conservative rule not been interrupted in an untimely fashion, the reduction in taxation would have gone on.
    The record of the present Government on the level of taxation is as bad as the Conservative record is good. In a period of under two years, general taxation has gone up by at least £1,000 million. Of that, a not insignificant part has been the increase in the standard rate of Income Tax, which has already reached 8s. 3d. in the £. The Committee should be in no doubt that that rise will continue in the future as long as the present Government remain in office.
    That will be so for a variety of reasons. Quite apart from the economic mismanagement which we associate with the present Government, the party opposite regards high taxation as good in itself. The hon. Member for Manchester,
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    Cheetham (Mr. Harold Lever) may shake his head. He may dissent from his party on the point, but he is out of the main stream of Socialist thought in that as in other respects.
    The moment of truth came earlier when the hon. Member for Reading said that a high rate of Income Tax would strike another blow for equality. We, on the contrary, do not want to get equality in that way. The aim of our financial policy is to get taxation itself down, and it is significant that in the course of the debate on the Amendment we have not had one speech from the Government side expressing the idea that by getting rid of tax burdens one has a highly efficacious way of creating national wealth.
    Mr. Hunt: I made one.
    Mr. St. John Stevas: My hon. Friend is not on the other side of the House. He will be, but I hope that I shall be with him when we are translated to our proper position.
    We on our side want a reduction in taxation for itself, first of all. We regard it as something which does not require any external justification. We also want it as a means of encouraging saving. We believe that savings should be carried out as much by the private individual as by the Government, and we trust the individual. If he is given the opportunity to save, he will save. If I may adopt the very striking phrase which was used some months ago by my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), we believe in a capital-owning democracy. If we are to get that, we must lower the present level of direct taxation. We believe that Income Tax in particular should be reduced, because this is the principal means of encouraging the young, the professionals, the scientists, the technologists, and all those innovators whose help we so desperately need in our present situation, and who are precisely the people who are most burdened by the present high level of Income Tax.
    The Official Opposition have been entirely consistent in their attitude to this Tax. We were consistent when we were in Government when we reduced it, and in Opposition we voted against the increase in Income Tax which was brought

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    about in 1964. I cannot say that of the third Party in this House, which, in regard to this matter of taxation—and I hope that I will be forgiven for saying this—behaved in its normal unprincipled way of voting for a rise in Income Tax in the Budget before last, so abandoning one of the few principles of historic liberalism which was left to it, that of fiscal rectitude, or, as my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) would say, fiscal propriety.
    Mr. Eric Lubbock: Does not the hon. Gentleman think that it was rather dishonest of the Conservative Party to vote against an increase in Income Tax at that time while not opposing the increase in retirement pensions that it was designed to pay for?
    Mr. St. John-Stevas: I do not think that that was dishonest in the least, because the increase in retirement pensions could have been paid for by other means. Had we had a Conservative Government, our emphasis would have been on an increase in general wealth, not on a reduction in economic activity brought about by an increase in taxation.
    Dr. David Owen: I have listened with great interest to the hon. Gentleman. Throughout his learned discussion there has been no mention of the £800 million deficit which we faced, which is extremely relevant to the issue of taxation.
    Mr. St. John-Stevas: I do not think that that will be a matter of general complaint in the Committee.
    Let me return to the Liberal Party and its lack of principle. It might be said that it was Mr. Gladstone who reintroduced Income Tax in 1853, thus reviving an impost which members of the Committee will recall was imposed when the country was in extremis, and attempting to get rid of the regicide régime in France. It disappeared under subsequent administrations, only to be revived halfway through the nineteenth century.
    The significant point about the Income Tax imposed then was that it was designed as a means of streamlining our system of taxation, and when Mr. Gladstone introduced it in that Budget a large number of duties were got rid of which were clogging the economic
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    effort of the nation. The difference between the present Government's situation and that one is that this increase in taxation was introduced in a Budget which at the same time made sweeping increases in indirect taxation of a very different character.
    There was an increase in petrol duty, the import surcharge was imposed, and in addition there was the increase in the rate of Income Tax. Within six months of these increases we had another sweeping series of tax increases on tobacco, spirits, wines, beer, and motor vehicle licences.
    The point which the Amendment highlights—and I hope that this will be appreciated by the country—is that there is no hope of any reduction in direct taxation as long as this Government remain in office. On the contrary, all that can be held out is the likelihood of increases. The Amendment symbolises the determination of the Tory Party to reduce direct taxation as soon as possible after our return to office, and by so doing liberate the moral and commercial energies of our people on which our past greatness has been founded.
    Mr. Pardoe: I should like briefly to state why, should it come to a Division, as I understand it may, my hon. Friends will not find themselves able to vote for the Amendment. It is not because we are not in sympathy with reducing taxation. I do not believe that there is any Member in the House, on either side, who is not in favour of reducing taxation. We are a low-taxation party, and I call Mr. Gladstone in evidence for this if evidence going back that far is needed, but of course it is typical of the Conservative Party that it has to go back that far.
    In this debate we are suffering under the delusion—and it started with the speech of the hon. Member for Worcestershire, South (Sir G. Nabarro)—that the standard rate of Income Tax for income from work is 8s. 3d. in the £. It is no such thing, and it would do a great service to the country if we stated clearly that the tax on work at the standard rate is 6s. 5d. in the £, after deducting two-ninths earned income relief. This does not sound anything like as emotive as 8s. 3d. in the £.
    Sir Douglas Glover: The hon. Gentleman's figures are accurate, but it does not alter the fact that the standard rate is 8s. 3d. and that the allowances were brought in by the Conservative Party when it was in power.
    Mr. Pardoe: I am not concerned with past records. I am concerned with the present Budget and the problems which face us, and I am glad that the hon. Gentleman has confirmed my figures.
    I do not agree with the hon. Member for Yeovil (Mr. Peyton) when he said that it was not legitimate for a Government to use the taxation system to foster certain political objectives. I believe that it is legitimate to do this, and one of the objectives of taxation—to me at any rate, and I am sure to many hon. Members— is the redistribution of income. I believe that it is legitimate for a Government to use the taxation system to achieve that.
    One of my criticisms of Income Tax and of our taxation system since the war, is that it has not redistributed income by as much as many of us would have liked. As Professor Titmuss has pointed out, an incorrect picture is arising out of the Inland Revenue figures because there are a large number of people at the upper end of the scale whose interest it is to reduce the amount of income on which their taxation is assessed.
    Mr. E. Rowlands: Is the Liberal Party in favour of redistributing wealth as well as income?
    Mr. Pardoe: It is. I mentioned the distribution of income first, only because it had been mentioned during the debate, and I merely said that the redistribution had not gone as far as I wanted. The Liberal Party wants to redistribute wealth, and we find that taxation policies since the war have not gone far enough. Private wealth is still concentrated in far too few hands.
    I am sympathetic to a tax on spending, but whenever one considers this, one comes up against the stumbling block that such a tax would draw more revenue from those who can least afford to pay it. If we impose a sales tax, the lower income groups are inevitably hit hardest. I am particularly concerned about this in my constituency, which is a low income region. But if somebody can devise an expenditure tax which will not hit the
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    lower income groups, I think that there will be a broad measure of support for it. I do not agree that heavy taxation is the major disincentive to initiative in British industry today.
    6.0 p.m.
    Some hon. Members have stated that people are going abroad in the "brain drain" because of heavy rates of taxation. This is a dangerous Tory myth. Doctors go abroad because they can earn substantially more money in Canada and America and elsewhere—not because rates of taxation are lower. Engineers can find far better equipment to work with in America and can often work on more exciting projects, and they go for these reasons. They go for personal satisfaction, and higher earnings. I do not think that they are driven away by heavy taxation.
    The essential point in considering whether to support or oppose the Amendment is the question of where the money will come from. We have had certain answers to this in the debate. The hon. Member for Worcestershire, South gave what I thought was the most plausible answer, that it would come from increased personal savings. This would be splendid, if it could be made to happen. But I do not accept that, just because one reduces taxation from 8s. 3d. in the £ to 7s. 6d., one automatically channels all that money into personal savings. If I believed that, I would consider this an excellent idea. But it would not happen.
    A large amount of that saving in tax would go on candy floss and gambling, which the hon. Member for Worcestershire, South has denounced on other occasions. We have been told that the £240 million could come from abolishing the premium of the Selective Employment Tax on all manufacturing industry. We on this bench do not take the view that this is the best way of dealing with the Selective Employment Tax. We should like to see a pay roll tax across the whole length and breadth of British industry, with no exception and no selectivity, but applied in proportion to earnings, as a percentage of a firm's wage and salary payment.
    We have been told by the hon. Member for Bournemouth, West (Sir J. Eden) that the rail deficit could be cut. I

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    would only ask him what he would do about his own branch lines. As has been said before, everyone is always in favour of cutting the railway deficit, so long as it does not mean cutting down the branch lines which his constituents happen to want kept open at this moment.
    Therefore, we cannot support the Amendment. A good deal of history has been raked over. We have had, from various hon. Members particularly from the Tory benches, a long history of the Conservative record in fiscal matters. A high proportion of the reduction in taxation which took place during those years was for party political motives. The greater part of this reduction was introduced just before General Elections. There were substantial increases on many occasions just afterwards. I have a final comment——
    Mr. Antony Kershaw: Would the hon. Member specify occasions when there have been increases just after elections?
    Mr. Pardoe: There were reductions in taxation certainly before the 1955 and 1959 elections——
    Mr. Kershaw Mr. Kershaw rose——
    Mr. Pardoe: No, I will not give way. I have answered the question.
    I have a final comment on all this nonsense——
    Hon. Members: Withdraw.
    Mr. Pardoe: I have no intention of withdrawing.
    I have a comment in the form of a letter from Conservative Central Office, which is in answer to some queries of mine about facts and figures about Conservative fiscal policy which they published on posters last year. I made the point that those figures were untrue, the answer which I received from Central Office was that, of course, if I took the base as being the year when the Tories came to power, 1951, I was quite right, but that it was most unfair to take this as the base and indeed any year in the first two years of the Conservative Government, because they were engaged then in clearing up the mess left by the Socialists and that I should not take figures in the first two years of any Government. I have this in writing in a letter from the Central Office.
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    This makes total nonsense of all the debate about what happened ten, 15 or 20 years ago. The important point is that we are discussing the future. We are deluding ourselves if we think that we can reduce any sort of taxation by fiddling around in increasing or reducing rates here and there. We can, in the long term, reduce taxation only if we are prepared to cut our commitments.
    Until we take the positive decision to opt out of these very expensive commitments, particularly in foreign affairs, until we make the decision to recast the whole of our social welfare services, it is totally dishonest to pretend that we shall be able to reduce taxation in any significant or substantial way.
    Mr. Gower: The Committee must have been indebted to my hon. Friends the Members for Worcestershire, South (Sir G. Nabarro) and Yeovil (Mr. Peyton) for the way in which they moved and seconded this important Amendment. Whatever view the hon. Member for Cornwall, North (Mr. Pardoe) may take of the merit of the Amendment, he must agree that it should be viewed in the total setting of our taxation. It is our view that the country has been and is being grossly overtaxed.
    My hon. Friend the Member for Worcestershire, South recalled to us those 13 years of glorious Conservative achievements, those years when not only did the standard of living improve more than ever before, but taxation was steadily and significantly decreasing, those years when the ownership of property was more widely distributed than ever before——
    Mr. William Price: Is not the hon. Member aware of the fact that, when the Conservative Government left office in 1964, more than 50 per cent. of the wealth of the country was still owned by less than 1 per cent, of its people? Would he not agree with me that—[Interruption.] Let him deny it. Is it not a fact that all we had at the end of 13 years of Conservative rule was a society of speculators, manipulators and fiddlers?
    Mr. Gower: In case the hon. Member did not hear me clearly, I repeat that these were 13 years of glorious Conservative achievements and the wider distribution of the ownership of property than ever before——
    Mr. Price: Deny the figure.
    Mr. Gower:—years of a greater general increase in the standard of living than in the previous half-century and a significant reduction in all kinds of taxation——
    Mr. Price: Deny the figure.
    Mr. Gower: My hon. Friend the Member for Worcestershire, South also pointed out that reduced taxation is in accordance with the basic Conservative philosophy. I should have thought that the hon. Member for Cornwall, North and his colleagues on the Liberal bench would have shared the view that this was in the broad classical tradition of Liberal thought as well. It was surely a Liberal who said that it was preferable that money should fructify in the pockets of the people. We still take that view. Of course, taxation must be levied to fulfil the essential requirements of the State, but we have very different views about some of the other objectives which have been described by hon. Members.
    It has been suggested from the other side of the Committee that the effect of a mere reduction of Income Tax might not be very great. I dissent from that view. The psychological effect would be considerable because it would be a declaration of intent by the Chancellor. About 10 years ago, under Conservative Government taxation was expected to be reduced in each Budget. People used to argue what might be the most likely subject for reduction of taxation in the coming Budget.
    Already today, most people are resigned to a long succession of tax increases. Therefore, a reduction of this kind would be doubly valuable. It would be a declaration of intent that it is the long-term objective to reduce taxation and particularly direct taxation which, as hon. Members on both sides of the Committee must admit, has important disincentive effects on all sections of the community who work. Surely we have all had evidence of this in speaking to our constituents. I certainly have. For these and the other reasons which have been adduced in the debate, I hope that the Committee will support the Amendment.
    Lieut.-Commander S. L. C. Maydon: I support the Amendment
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    because I have long thought that heavy direct taxation is a disincentive to enterprise, to effort and to saving. Although he is no longer with us, I want to dissect the argument deployed by the hon. Member for Heywood and Royton (Mr. Barnett).
    We were debating whether this partially graduated system of direct taxation which we have is a disincentive to people because they feel that if they earned more they would get into a higher tax bracket. He particularly stressed that this is not so with the young executive. Most of us admit that, because the young executive is on a salary which is fixed certainly for a period of a year, and these weekly fluctuations in earning do not occur for him. The way in which he is affected is that he may be induced to go overseas to another country where salaries are higher and taxation is lower.
    But where this form of taxation, and the very heavy weight of it which we have today, has an effect, is on the worker who is paid an hourly rate. His weekly earnings fluctuate according to the amount of overtime that he works. We have all met men and women who have said to us, "Is it worth our while? Our bosses ask us to work overtime, to do a little more to catch up with the weather, or to catch up with the next export order, but when we do so we get ourselves into a higher tax bracket. What good does it do us?"
    One frequently hears in the House of the more exotic forms of tax evasion and tax avoidance. But there is a common form of tax evasion by the person who is in regular income and who, after going home and having his tea, puts on his overalls again and does an odd job round the corner, for Tom, Dick or Harry.
    Sir G. Nabarro: Or Jim.
    Lieut.-Commander Maydon: It may be for Jim. The payment is by cash, which passes hand to hand, and the Income Tax inspector is never the wiser. This is not an extraordinary form of evasion and I am sure that the Chancellor is as aware of it as are most of us.
    Another aspect is not so much the brain drain as the skill drain. The people who catch the headlines in this respect are the high-powered executives or the

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    scientists who go to America and elsewhere and offer their services to people who are in competition with our own manufacturers. But there is a lower level which is equally important because it is of much greater volume. I refer to the plain skill drain of ordinary men and women of no great eminence but of considerable skill. I have met many of them who have said to me, "We are fed up with this country. There is a lack of go and of enterprise. We are packing up and taking our families with us. We are off to America, Australia or Canada". This happens frequently, and the sheer volume of it must be as significant and important to this country as the so-called brain drain.
    6.15 p.m.
    I agree with my hon. Friend the Member for Bournemouth, West (Sir J. Eden) that this very penal weight of direct taxation has a lot to do with the present unhealthy state of the economy and the unhealthy state of morals in the country. This free-and-easy outlook, this "I'm all right Jack" attitude, has quite a significant connection with the very high level of taxation, as have all the other slipping standards of this country in the middle 1960's. I do not blame the Labour Government for this. I blame them only because they are making it worse instead of better. We have all got the country into this state. Since the end of the last war the level of direct taxation has been far too high, and we shall never get back to the standards to which we were accustomed in the past, and to which we ought to be accustomed in the future, unless we reduce direct taxation.
    As was said by my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro), this is no Tory scheme to cut the Socialist spending spree. Later in the Amendments the Chancellor will see that we balance this proposal with a suggestion for an across-the-board sales tax which, if it were sensibly levied, would probably collect a great deal more than the £240 million which might have to be surrendered if the arithmetic of this concession on the standard rate of tax is correct.
    For those reasons I support the Amendment. Obviously the Chancellor will not accept it today, but I ask him to think seriously along these lines because
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    there is a great deal in the theory of reducing direct taxation in order to increase effort and incentive.
    Mr. Edward M. Taylor: It was like a breath of fresh air to listen to my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) and my hon. Friend the Member for Yeovil (Mr. Peyton) when they introduced the Amendment.
    The debate has been spoiled for me by only two things. One was the quite unfounded attack on our record by the hon. Member for Aberdeenshire, West who refused to give way, refused to withdraw and simply went ahead with his speech and tried to consolidate the popular front which seems to have been established between the radical and left-wing parties in the Committee. I suggest to him that this popular front which has been emerging more and more during the discussions will be extremely unpopular before a few months are out.
    Sir D. Glover: When we on this side of the Committee are insisting on accuracy, it is not inappropriate to remind my hon. Friend that the hon. Member of whom he is speaking is the hon. Member for Cornwall, North (Mr. Pardoe).
    Mr. Lubbock: It is about time that the hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor) knew the Scottish Members.
    Mr. Taylor: I am sorry and I withdraw unreservedly. I direct all my criticisms at the hon. Member for Cornwall, North (Mr. Pardoe). I am convinced that he was speaking for more than one Member of the Liberal Party, but their policies diverge from constituency to constituency.
    In the last Finance Bill I greatly enjoyed the contribution of the hon. Member for Manchester, Cheetham (Mr. Harold Lever), but on this occasion he seemed to be completely absorbed by the policy which has been pursued in the Bill by the Chancellor. He seemed to regard the various measures affecting the people of the country as he would regard battery hens: one increases taxation and something automatically happens; one reduces taxation and, again, something automatically happens. He has not taken into account, nor have the Government, many other factors, such as how

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    taxation affects confidence, enterprise, initiative and so on. Unless these factors are taken into account we cannot properly consider the matter in all its aspects.
    The only real criticism of the Amendment so far has been that if we do not raise taxation in the way proposed by the Government we would not be able to pay the nation's housekeeping bills. However, it is clear that taxation is not used solely as a means of raising revenue to pay these bills but as a means of trying to influence the economy, and the influences in the last few Budgets have been adverse.
    The Chancellor has been looking happy throughout our discussions on the Bill. He should be looking desperate, because all his measures, particularly his successive increases in taxation, have not worked in the way he hoped they would. All these measures have operated in the opposite direction to what the Chancellor declared he would like to achieve. Apart from the movements in the economy which have upset his plans, the Government are under an obligation here because of the promises they made at the General Election that their policies would not lead to increased taxation.
    In the short period in which hon. and right hon. Gentlemen opposite have been in power we have had dramatic rises in taxation and we can now see the effects of the various increases that have taken place. How have they affected production? We know that the only way to solve the difficulties we face—with wages going up faster than production—is to increase production. However, the effect of increased taxation in 1965 was that production did not go up but remained static.
    What has been the effect on wages? With prices being bound to effect the level of wages, wages have increased by 9 per cent, this year and this is acting against the position which the Chancellor wants to achieve. What has been the effect on savings? With prices and taxation rising, the incentive to save is not there. In 1964 savings went up by £232 million while, in 1965, they declined by £26 million. Prices have also been soaring. In the last two months we have
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    seen a sudden increase in the cost of living index and this trend seems like continuing.
    The effect of all this on our national wealth has been disastrous, because I regard our national wealth as more the people who work in Britain than it simply being a question of gold and dollar reserves. When we remember that more than 200,000 people left Britain last year and that more than half of them were under 27 years of age, we must consider the loss that is taking place in our national wealth. In these young people we as taxpayers invested a great deal of money. We must take measures to prevent them from wanting to leave these shores so that we get a return on our investment and so that the economy becomes viable.
    While the Chancellor is in danger of killing the goose that laid the golden eggs by his measures of high taxation, he is also in danger of scaring away the golden egg-heads on whom we must rely if our economy is to become viable. In other words, the right hon. Gentleman's policies are not working and the only answer he seems to have is to give us further doses of inflation and greater increases in taxation. I fear that, if we continue along these lines, effort will be less worth while and we will be less able to accelerate out of our difficulties, as we should be doing.
    The Amendment has had the support of all my hon. Friends who have spoken in the debate. Acceptance of it will enable us to get out of our economic difficulties and give a once-for-all boost to those people in our economy who alone can solve our problems. I hope, therefore, that it will receive the support of all my hon. Friends. After all, consider the record of the Conservative Party in the last few years. There were tax cuts in nine out of 14 Budgets, with successive reductions in Income Tax, Purchase Tax and so on. We see a clear division between the policies of the Conservative and Labour Parties. In every Labour Budget since they came to power in 1964 there has been great increases in taxation and these are making it more and more difficult for us to get out of our difficulties. My right hon. Friend the Leader of the Opposition said in a

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    television interview on 3rd November, 1965, when referring to taxes:
    "They are not only too high, they are lopsided."
    That, in a few words, summed up the philosophy of the Conservative Party.
    I was disturbed—and I hope that this will be refuted—to read in The Times that there was a possibility that the Amendment would not be supported by all my hon. Friends. It would be extremely unfortunate if we were to finish our deliberations on the Bill with it appearing that the only ideological difference between the two sides of the Committee concerned the question of who would tax Dr. Barnardo's Homes and who would tax backgammon and crown and anchor. The difference in philosophy and outlook between the two sides is far greater than that, and that is why I fully support the Amendment and hope that all my hon. Friends will do likewise.
    Mr. Lubbock: I have not read the article in The Times to which the hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor) referred, but I should be extremely surprised if the whole of the Conservative Party supported the Amendment. I have often heard the hon. Member for Louth (Sir C. Osborne) support the Government of the day in their tough economic policies and I should be surprised if there were not some hon. Members on the Opposition benches who would not agree that, so important is the need to get the economy straight, the Government must take certain measures, some unpalatable.
    That is the view of my party, as expressed by my hon. Friend the Member for Cornwall, North (Mr. Pardoe). I would not be intervening now had a certain amount of doubt not been expressed by some Members of the Conservative Party. While speaking, my hon. Friend said that the Tories had cut taxation immediately before the 1955 and 1959 General Elections but that, immediately after being re-elected to power, they had increased taxation. It was at that point that there were noises of dissent from some hon. Members of the Conservative Party. It might, therefore, be helpful if I gave the Committee a few figures, particularly since it is evident that some Conservative hon. Members have short
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    memories. The hon. Member for Cathcart rightly said that the Tories had cut taxation in nine out of 14 Budgets. If my arithmetic is right, that means that taxation must have been increased in five out of these 14 Budgets.
    Mr. Edward M. Taylor: No.
    Mr. Lubbock: Curiously enough, the Budgets in which the Tories increased taxation seem always to have been those which followed General Elections, whereas the Budgets in which taxation was reduced were introduced prior to General Elections. I am sure that the right hon. Member for Enfield, West (Mr. Iain Macleod) will support me when I remind the Committee that in April, 1955, there were tax cuts amounting to £156 million in the Conservative Budget of that time. After the General Election, in May of that year, there was another Budget, in October, in which tax increases amounted to £113 million. Then, in 1959, there were tax cuts of £360 million in April, then the General Election in October, and then in the following year we had the April Budget with tax increases amounting to £72 million. In a further Budget in July of that year there were further tax increases amounting to £210 million. My hon. Friend the Member for Cornwall, North therefore stated the true position and his remarks could not possibly have justified the noises of disbelief which were heard from Conservative hon. Members.
    6.30 p.m.
    There is only one other thing I want to say, because I think we have spent long enough on this topic. It is an important one, but I cannot see in the present state of the economy that it is possible for the Chancellor to grant a concession of this magnitude. I have heard the claim made many times that taxation discourages effort, but so far as I know no one has ever proved it. They have merely asserted it as an axiom of fiscal life. It has been pointed out that no one works harder than the hon. Member for Worcestershire, South (Sir G. Nabarro). It is quite impossible to think of him working harder if he did not pay so much in Income Tax. As the hon. Member for Chislehurst (Mr. Macdonald) pointed out, collectively people say that taxation discourages effort but when as

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    individuals they are asked whether they would work harder if taxation were lower they always say that it is quite impossible for them to do so.
    Building workers have been mentioned in one or two speeches. If it is true, as an Opposition Member said in an intervention, that building workers' rates are more today because of the penal effects of taxation, why has this not been proved by social scientists? It would be quite possible for them to go to building sites with a questionnaire to discover if this is the case. The point is put that there is no further incentive to work beyond a certain number of hours because, if so, one would be paying taxation at standard rate. I think there is too much overtime worked in this country already. We work very much longer hours than do our competitors overseas. The real need for the country is not to work more hours, but to work more effectively. That by far is the most crucial need for the economy.
    I want to consider whether it is likely that tax is discouraging additional effort. I underline the fact that additional effort does not equate with additional hours worked. As everyone who has worked in manufacturing industry knows, a particular form of restrictive practice is to spin out the work done in the normal week and then to work the maximum hours of overtime. I defy anyone to deny that this is how it works out.
    Let us take the number of hours worked in an industry and see if those people pay the standard rate now. In the Ministry of Labour Gazette for October, 1965, figures were given showing that in the construction industry average weekly earnings were £19 15s. and the average hours worked were 49·8. That is long enough for anyone to work. I very much doubt whether additional hours worked in that industry would lead to greater efficiency. I admit that the examples I have chosen are from industries which appear to have a record, going back for months and years, of very long hours. It should be our aim to reduce this as much as possible.
    Mr. Peyton: On a point of order. I wonder whether it is a matter for congratulation or censure that the hon. Mem-
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    ber for Orpington (Mr. Lubbock) has not mentioned the standard rate of Income Tax, which is the subject of the Amendment.
    The Chairman: That is not a point of order. I was listening to the hon. Member's speech and hoping that he would come to the subject of the Amendment shortly. If he does not do so, he will be out of order.
    Mr. Lubbock: I was about to say that workers in these industries working very long hours already are unlikely to have to pay at standard rate. When they come to the end of their 49·8 hours, it is suggested, they would say that they would work another couple of hours if it were not for the penal rate of tax. I think I am entitled to tell the Committee that the average weekly rate of pay in this industry is £19 15s. and they work long hours. In the mining and quarrying industry average weekly earnings are £19 1s. and the hours worked are 50·8 a week In transport and communications average earnings are £19 15s. and the average hours worked are 50·6 per week.
    If one looks at the table showing at what point people come on to the standard rate of Income Tax one finds that a man's earnings are exempt from rates exceeding 6s. in the £ if he is married and has one child under 11. The amount is £971. Very few on average earnings would be paying at standard rate. If he has two children he would not come on to standard rate until he was earning £1,119. Therefore, anyone on the average rate of earnings in the construction, in the mining and quarrying and the transport and communications industries would be paying at this rate after he worked the maximum hours approximating to 50 hours a week.
    I do not think there is much incentive to work longer hours because of the effect of the standard rate. Even if it were so, that is a poor argument because I think it will be generally agreed that to work for extremely long hours cannot be efficient. Earlier this afternoon everyone was "near-hearing" when the Prime Minister said that we were all agreed that we must try to bring down the amount of overtime worked. For all these reasons I cannot possibly support this Amendment.
    Mr. Tim Fortescue: As I am sure you, Sir Eric, will appreciate, new Members of this Committee receive a great deal of advice, most of which they ignore because one is advised to ignore it. One cannot help but remember some of it. One of the most vivid pieces of advice I was given was, "Whatever you do don't get yourself mixed up in supporting anything put forward by the hon. Member for Worcestershire, South (Sir G. Nabarro)". Nevertheless, this Amendment which was so eloquently moved by my hon. Friend this afternoon so exactly reflects my long held political philosophy that I find myself on the horns of a very significant and difficult dilemma.
    This political philosophy was partly reinforced by speeches at the Conservative Conference at Brighton, one of which in particular burned itself into my memory. It was stated by a very eloquent speaker that in his view there were three schools of thought about taxation. One held that taxation was too low, one held that it was about right and one held that taxation was too high. He went on to say that in the third group he took,his stand. This so affected me that I fought my entire General Election campaign on the basis of reducing the standard rate of Income Tax. I find it remarkably difficult to take the advice given to me such a short time ago about supporting matters raised by my hon. Friend the Member for Worcestershire, South.
    In trying to resolve my personal dilemma in this matter I wish to touch on a small point which was hinted at by my hon. Friend the Member for Chelmsford (Mr. St. John-Stevas) but which has not been entirely ventilated. That is the psychological effect on the taxpayer, not of the high rate of Income Tax but of the trend of the rate of Income Tax over the years. The taxpayer knows that when the Socialists are in power Income Tax is bound to rise year after year and when the Conservatives are in power it is bound to fall year after year. This has a very great psychological effect on the amount of work people do, on their enthusiasm for remaining in this country, and their attitude to their lives and work.
    If I may give a piece of gratuitous and entirely to be disregarded advice to the Chancellor of the Exchequer, it is that I
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    believe if he were to accept this Amendment the whole image of the Socialist Party in the eyes of many thousands, or millions, of people in this country would change and some who at present can see nothing but hopelessness in future so long as there is a Socialist Government in power would begin to have other views.
    The Chancellor of the Exchequer (Mr. James Callaghan): We have had a very interesting debate. I hope that the Committee will allow me to make some observations now. To take up the last point made by the hon. Member for Liverpool, Garston (Mr. Fortescue), it is probably true that the image of the Government would change if we were to accept the Amendment, but I am not sure quite in what way it would change or whether the repercussions would be good or bad, either for the standing of the Government or for the standing of the country. It is not just sufficient to be in favour of change, if I may say so to a Conservative. It is necessary to be in favour of directed and purposive change.
    The cost of the Amendment is not, I regret to say to the hon. Member for Worcestershire, South (Sir G. Nabarro), £240 million but £380 million. The reason for that is that automatically this reduction extends through to the reduced rates. The hon. Gentleman based his calculation only on the cost of reducing the standard rate, without taking into account the reduced rates. Even though the hon. Gentleman had thought that £240 million would have been acceptable to the Government, although I do not think he really did think so, I should have had to have said "No". I must therefore say, "No, no" to a cost of £380 million in a full year. I do not see how any member of the Committee in present circumstances can logically vote for a reduction in direct taxation of £380 million, despite the impassioned nature of the speeches which have been made this afternoon.
    We are all in favour of lower taxes. We all belong to low-tax parties. We have all been trying to prove it this afternoon. Everybody wants lower taxes. I myself take no particular pleasure in high taxes. All I would say as a Socialist is that, at whatever level taxes have to be fixed, they should be fair and progressive. If one could get away with a standard rate of 4s. in the £, as it was when I first

    107
    entered the Inland Revenue in 1929, and if it was progressively directed, I would feel that that was the very height of ambition.
    I see no virtue in having high taxation for its own sake, but if there has to be taxation, whether it be high or low, let it be progressive. This is a cardinal principle which should unite us all. Therefore, I am in favour of reducing taxation as fast as I can and as far as I can, but I have to take into account the circumstances that I have inherited. By saying that I am not making any party point, because everyone knows that there is a general level of services in the country which has been built up and which is now sustained, and I have to take into account the projected increases in expenditure that I am likely to get.
    I myself would much prefer to see the increases in expenditure that automatically take place year by year financed out of the growing product of British industry. This is what the National Plan is about. When we have overcome the balance of payments difficulties, then I trust we shall see a substantial increase in our rate of growth; but it is undoubtedly the balance of payments difficulties in which the country has been placed which are holding back growth at the present time or which at any rate are resulting in our not going ahead as fast as everybody on both sides of the Committee would like to see us go ahead, combined with our propensity for high imports, especially of manufactured goods, when activity in this country is high.
    I regret to say that the faster activity goes in this country the greater propensity to import manufactured goods. I know that this is a cardinal feature of modern industrial societies, but I wish that we were able to export manufactured goods of the same kind. The difference in the nature of our trade has become most marked over the past few years. However, I will not trespass on this point, because if I did so I might incur your displeasure, Sir Eric.
    6.45 p.m.
    I agreed very much with much that was said by the hon. Member for Cornwall, North (Mr. Pardoe). I think that we are masochistic about this matter.
    It is important that we should get into perspective what is the real burden on the individual as distinct from the standard rate of tax against which that burden is measured. Some of the feelings that the emigrants put to the hon. and gallant Member for Wells (Lt.-Commander Maydon) might have been less fervently held than they were if those concerned had realised what the burden of taxation on them actually was. The hon. Member for Orpington (Mr. Lubbock) referred to the average earnings in the construction industry being about £20 a week. At that rate a married man with two children is paying an effective rate of tax on every £ of his income of 1s. 2d. I have no doubt that on the last slice he pays a much higher rate, but what matters to him is the effective rate over every £.
    I do not say this in order to excuse any particular rate, but it is in the interest of all members of the Committee that we should ensure that it is properly understood in the country that the effective rate that people pay is very different from the standard rate, because none of us wants to see the kind of attitude which leads to people emigrating for the reasons given by the hon. and gallant Member for Wells if the thinking behind it is misplaced. It would be absurd that we should be so beating our breasts about the rate of taxation that we forgot to explain what it really is.
    Therefore, I should like to give the Committee two or three other equivalent effective rates. I have given it at £20 a week for a married couple with two children. At £1,500 a year, which is roughly £30 a week, the effective rate charged to such a taxpayer is 2s. 5d. in the £. At £2,000 a year the effective rate is 3s. 5d. in the £. At £5,000 a year the effective rate is 5s. 5d. in the £. As far as I can see there is nobody in the country, not even the hon. Member for Worcestershire, South, who is paying tax at 18s. 3d. in the £ effectively. He may pay it on the last slice of his income, but there is no one who is paying 18s. 3d. in the £ effectively.
    Sir G. Nabarro Sir G. Nabarro rose——
    Mr. Callaghan: I will come back to the hon. Member's personal circumstances later, because I should like to

    109
    discuss his personal Income Tax affairs with him, as he raised them. In fact, the highest effective rate in the country is, on an income of £100,000, 17s. 0½d. It may well be argued that 17s. 0½d. is too, high, but there is nobody who is paying any more than that, however that may be regarded. At levels of £15,000 a year the effective rate is not 18s. 3d. but 10s. 6d. It is important that people should understand that.
    The hon. Member for Shipley (Mr. Hirst) spoke this afternoon about the deplorable levels of taxation, but he did not refer to the Question he asked me on 24th May about comparative levels of taxation. The answer was so interesting—it interested me when I got the results—that it should be repeated to the Committee this afternoon. Again in the interests of not chastising ourselves unduly, it is a good thing to get the total burden of taxation across.
    The hon. Member for Shipley asked me if I would
    "give the comparative taxation expressed as a percentage of gross national product at factor cost."—[OFFICIAL REPORT, 24th May, 1966; Vol. 729, c. 66.]
    in a number of differing countries under various heads. I gave that information to the hon. Gentleman. It shows this very interesting fact—[Interruption.]—I am on the total now, because the direct taxes are also very interesting. The total taxes and contributions which the hon. Gentleman asked me about in the United Kingdom as a percentage of gross national product are 32·5 per cent. Ours is not the lowest. The United States is 29·7 per cent. We are the second lowest. Above us there are Belgium at 32·9 per cent., Italy at 35·8 per cent, Netherlands at 36·4 per cent., West Germany at 40·3 per cent., and France at 44·6 per cent.
    Anybody who is thinking of emigrating from here to France or Germany to escape the consequences of taxation had better think again, because this is split up in a number of different ways. It may be that in some of those countries he would pay less in direct taxation. In Belgium and in West Germany they would pay less in direct taxation. But they would pay much more in indirect taxation. Surely it is the total burden with which we must be concerned— [Interruption.]—I wish hon. Members opposite would wait till the end of my
    110
    sentences. It is the total burden with which emigrants must be concerned, as much as the burden of direct taxation. Not everybody who is going abroad will earn a substantial salary. Indeed, some of the workers who have recently gone to Germany have not earned substantial salaries, especially those who have gone from the Clyde.
    We cannot separate the two things completely. In terms of the total taxation burden, someone going to West Germany would find himself worse off. In terms of direct taxation he would be paying—I am quoting from the Answer I gave to the hon. Gentleman's Question —9·6 per cent, of his income as against 9·4 per cent, of his income in this country.
    I do not want to overstate the point, but I think we are being a little masochistic in this country in our belief that it is the most heavily overtaxed country in the world. I do not think international statistics reveal this. It is unfortunate if we get ourselves into such a psychological frenzy that we ourselves believe it, and I do not think it does us any good.
    This influenced me a little in my consideration of the Budget, and I hope that some of the speeches made from the benches opposite will be made on Thursday, because they all seemed to be pointing in my direction. Many hon. Members asked me to do what, in fact, I have already done, and that is to widen the tax base—not to increase direct taxation in this country or to increase Purchase tax or to do something of both, but to widen the tax base as an alternative. I hop that on Thursday the party opposite will not vote against the Second Reading of the Selective Employment Payments Bill. If they do they will be expressing themselves in opposition to a principle that has been supported widely in the discussions that have proceeded on the benches opposite this afternoon. I hope they will be able to reconcile even that irreconcilable proposition at 10 o'clock on Thursday night.
    Mr. Hirst: What has been said on these benches is not that we are opposed to the principle of the payroll tax, but I am strongly opposed, as I believe is my party, to the particular method that the right hon. Gentleman has adopted in the Selective Employment Tax. Certainly we shall vote very strongly against it.

    111
    Nothing has convinced me that it is not a greater nonsense than I first thought.
    Mr. Callaghan: That is the conventional defence of someone Whose intellectual integrity is being assailed. [HON. MEMBERS: "Oh."] Certainly I am assailing it, because the hon. Gentleman knows that it is the simplest thing in the world to say, "I agree with that in principle but I cannot support you because you are doing it the wrong way". That is the classic defence of opposition. I did it myself for 13 years, and I cannot be expected to be impressed by it now. I am too old in the tooth for that.
    The hon. Member for Orpington was quite right in pointing out that, whatever view is taken about taxation, it is a little rich for the Conservative Party to say that they reduced the standard rate from 9s. to 8s. 6d. as they did in 1955—mark the year—and reduced it again from 8s. 6d. to 7s. 9d. as they did in 1959. Is it not extraordinary? I know that it was done with the best of fiscal motives, but it so happens, as has been partially pointed out, that in the months immediately following those elections, hire-purchase deposits were raised, the credit squeeze was tightened and Purchase Tax was increased. [An HON. MEMBER: "What is the right hon. Gentleman doing?"] I did not go to the country pretending that by reducing taxation— [An HON. MEMBER: "The right hon. Gentleman did."] Hon. Members opposite interrupt a little too soon. I did not go to the country pretending that by reducing taxation it would be possible to hold it at that level after the election. That is what I did not do. I said I did not see the need for severe increases in taxation.
    What the two Conservative Governments did in 1955 and in 1959 was, for electoral or fiscal purposes, to reduce the standard rate of Income Tax immediately before the elections and then shortly after the elections they took it out again in the form of increased indirect taxes. They cannot expect me to be impressed by what the hon. Member for Worcestershire, South calls fiscal propriety. I would have another word for that kind of action.
    I come to the next point that was made by the hon. Member for Worcestershire, South about his own circumstances.
    112
    He stated the proposition in three different ways. It may have been more, but I counted three different ways during his speech. Once he got it right, on the last occasion. On the first occasion he did not get it right. He does not pay Surtax at 10s. on his income over £15,000 a year. This is what he said he did, but I can assure him that he does not. If he does, it is time he got a new accountant.
    Surtax of 10s. is reached at certain stages between £15,000 and £20,000 depending on the personal circumstances and the nature of a man's income. The hon. Member for Worcestershire, South has a wife and four children. Here may I say that I was sorry to read of the accident, and very much trust that his good lady will soon be better. Unless those four children have very large personal incomes, I can assure the hon. Gentleman that he ought not to be paying Surtax at 10s. in the £ until his income reaches £19,130. This was the only point of difference between the hon. Gentleman and myself on this matter. This is why I shook my head violently, knowing his domestic circumstances, when he told me that he was paying 10s. in the £ on £15,000.
    Sir G. Nabarro: I am grateful to the right hon. Gentleman, but he is being exceedingly disingenuous in his reply. I did not speak at any time during my speech about effective rates of taxes. What I said perfectly bluntly was—and this is utterly correct—that the top level of direct taxation in this country on £15,000 per annum of earned income leaves the recipient with an income of only 1s. 9d. in the £. That is strictly correct. At no time did I talk about effective rates.
    Mr. Callaghan: I am not talking about effective rates either. I think the hon. Gentleman knows this. I am not discussing effective rates in this connection. The hon. Gentleman has stated his proposition a fourth time, in a slightly different way from the other three. Each time he has got a little nearer the truth of the matter. I stick to his first proposition. I am not making a lot of it, except that I understand that he wanted an apology from me. I am not asking for an apology. I do not suppose I would get it if I asked for it. I can

    113
    promise the hon. Gentleman that in no case, and not even in the case of a single man if his income is earned, does he pay Surtax at 10s. on £15,000. Perhaps I can discuss this with the hon. Gentleman when we get out of the Chamber. It is nothing to do with effective rates. At £15,000 his effective rate is—let me make quite sure since I am discussing it with the hon. Gentleman—rather less than 10s. 6d. in the £. It is nothing like the figures he gave.
    I thought the hon. Member for Bournemouth, West (Sir J. Eden) came nearest to the point when he said that if we are to have lower rates of taxation we have got to have lower expenditure. I agree. I am not alone or unique or even the first to say it. It was the right hon. Member for Barnet (Mr. Maudling) who made clear to the House some years ago, in about 1963, what the position was. He made it clear in his White Paper on expenditure and in a number of speeches. He could see that the House, the Conservative Government at the time, the country, my own party and I dare say the Liberal Party also were all united on a substantial programme of increased public expenditure.
    7.0 p.m.
    "Public squalor and private affluence" was a phrase which became extremely popular at that time and the Conservative Government did their best to remedy it. The right hon. Member for Barnet warned the country in 1963, in his White Paper and again by speeches, that if we needed this increased expenditure we had either to have higher taxation or higher savings, or a combination of both. He was quite clear about that. The message perhaps became a little less clear as the General Election drew nearer, but he was the first to utter the bugle cry.
    This is still the case. The House of Commons and the country have embarked on substantial programmes of public expenditure in education, roads, housing, defence—although we have chopped the head of the growing monster of defence and are at least trying to hold expenditure where it was— and in a number of other ways.
    I say to the hon. Member for Bournemouth, West that, although he came closest to the point, I do not think that
    114
    the saving on school meals would go a long way although it might be a contribution. He also talked about cutting down on the nationalised industries. The railways' deficit was £115 million a year after 13 years of Conservative rule. It does not look very much better than that yet. [HON. MEMBERS: "Worse."] No, it is not worse but it is certainly not very much better. The programme of reorganisation is going on, but there are different factors concerned in that, and it would be out of order to try to argue that now. This is the kind of case where we have to get the deficit down, to the great benefit of the taxpayers. I must not go into transport policy, but this is why substantial discussions are taking place about it.
    It has been customary—the hon. Member for Worcestershire, South did it—to refer to the poor savings record in 1965. I should almost say that National Savings were not in the competition in 1965, because the certificate had become outdated. But I hope that the hon. Gentleman will rejoice with me in the great success which National Savings have had since the launching of the new certificate. The record over the first 11 weeks of this year has been substantially better. I still hope to finance all the deficit this year out of National Savings, and that would be the first occasion on which it had been done for a very long time.
    I take the question of public expenditure extremely seriously, and I hope that I do not need to stand in a white sheet in my attitude about this. I have tried with the aid of my hon. Friends—and some would say that we have been too successful—to curb the growth in public expenditure, to try to relate it to the increase in national production, and to ensure that it does not become too heavy.
    The country has a choice, and it must make up its mind. I believe that it is for the Conservative Party to say, as the hon. Member for Bournemouth, West said very honestly this afternoon, that not only do we want to take £380 million off taxation, but here are the details of the way in which we shall save that amount of expenditure. Then the country will be in a position to judge which way it wants to go.
    A great deal too much has been said about the disincentive effects of taxation.
    This is a pure matter of judgment and of speculation. I do not believe that it has the disincentive effect that a great many people think, but even to the extent which it has, we surely want the great programmes for modernising the infrastructure of the country to go ahead, and it behoves all of us to ensure that we do not misrepresent the position by quoting crude figures which are unrelated to the real burden which the individual taxpayer carries.
    We have had a good discussion, and I hope that the Committee will now be ready to proceed to a conclusion on this important Amendment, which I have made clear I cannot accept.
    Mr. Iain Macleod: The Chancellor has just said that he would like to move to a conclusion on this matter. I hope that he will remember that we have had no fewer than five speeches and a considerable number of interjections from his own side of the Committee. Although it is right that I should follow the Chancellor and give my attitude towards the Amendment, some of my hon. Friends may well wish to continue the debate after I sit down.
    We are discussing an Amendment, to reduce the standard rate of Income Tax by 9d., moved by my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro). I find myself in complete agreement with him, with my hon. Friends the Members for Yeovil (Mr. Peyton) and Shipley (Mr. Hirst), and indeed with all members of my party, on their approach to this problem.
    The contributions from the Liberal Benches were the kind which one expects from them. The hon. Member for Cornwall, North (Mr. Pardoe) became very excited about a letter which he received from Conservative Central Office, which argued that it was scarcely fair to blame the inflation of 1951 upon the Conservatives. Following that argument to its conclusion, if the Conservatives are responsible for the inflation of 1951, the Socialists are responsible for the balance of payments deficit in 1964. That ends that particular argument, and we can leave it conveniently there. They cannot have it both ways, as my hon. Friend the Member for Ormskirk (Sir D. Glover) said. This is a most interest-
    116
    ing line of defence, which we shall adopt in the future.
    The Chancellor said that we all belong to low-tax parties. If he believes that, then, like the- Duke of Wellington, he would believe anything. There is only one low-tax party in the House of Commons, and that is the Conservative Party.
    I am on record many times as saying —as for example, in my speech at Brighton to the Conservative Party Conference—that I believe in a capital-owning democracy. I accept what my hon. Friend the Member for Chelmsford (Mr. St. John-Stevas) said, and that must mean reductions in direct taxation.
    At Brighton, I quoted and endorsed a statement by my right hon. Friend the Member for Kinross and West Perthshire (Sir Alec Douglas-Home) that we had reduced direct taxation before and could do it again. But first I told the meeting that I made no apology to the Conservative Party that a number of its cherished commitments were not included in our programme on grounds of expense. Then I said:
    "The careful management of our economy and the repayment of debt must come first."
    If the General Election on 31st March had gone the other way and I had been entrusted by my right hon. Friend the Leader of the Opposition with the Treasury, I should have gone there with the clear determination to reduce personal direct taxation at the earliest possible moment, and also to reduce the percentage of our gross national product that is taken by public expenditure.
    I have never been convinced by the argument that it is not possible both to reduce taxation and to have an increase in true terms, in the social services, because this is what we did and what other countries succeeded in doing. We did it in this country in those "thirteen years" about which we have heard so much.
    It is quite true, as the Chancellor said, that in 1955 there was a reduction of 6d. in taxation. It is equally true that there was in that Budget the sort of miscalculation which he has made no fewer than three times in his Budgets since 1964. But the reduction which we made in 1953 was neither after a General Election nor with one in sight, and the benefits of

    117
    the other reductions in the years after 1955 stayed in all succeeding years after 1955 and after 1959. I do not agree with him or other hon. Members who have said that to reduce all levels of taxation, and especially the higher levels, would not be an incentive.
    I want to call somebody in witness here. I have not asked his permission to refer to him, so I will not give his name. All I will say is that he is one of the wealthiest and ablest men in the world. He told me in the autumn of last year that the reductions in the very highest level of taxation deliberately made by President Kennedy and President Johnson had an electrifying effect upon the American economy. Even at the highest levels of taxation it is my view that such an argument is valid for this country
    Mr. Harold Lever Mr. Harold Lever rose——
    Mr. Macleod: I hope that the hon. Member will forgive me for a moment. What we are considering now is whether the Conservative Party, in June 1966, should go on record as calling for a reduction of £380 million in the key index of taxation. I have made it clear that I would dearly like to see this, but I must also make it clear to my hon. Friends that if I found myself in the Chancellor's position—wherever the responsibility may lie for the inheritance that led to the last election—I could not possibly make a reduction of this magnitude in taxation this year.
    Mr. Lever Mr. Lever rose——
    Mr. Macleod: I am in the middle of a rather important argument, from my point of view. I shall be glad to give way to the hon. Member at any other time. I am sure he will understand.
    We must remember that there were 14 Budgets in the years of Tory Administration, and that in only three did we find it possible to reduce the level of direct taxation. I know that on five occasions we were able to increase the allowances and other benefits but the rate fell on only three occasions in 14. I had to ask myself, in all honesty, whether I regarded the situation in this year, and at this time of year, as coming into the category of the three occasions or the 11 occasions. Unhappily I have come to the conclusion
    118
    that I cannot advise the Conservative Party to vote for the Amendment. I know what is in the mind of my hon. Friend the Member for Worcestershire, South, and I have made it abundantly clear that I am wholeheartedly in sympathy with him, and that I hold the view that the Conservative Party believes both in the reduction of personal direct taxation and in taking a lower percentage of the gross national product for public expenditure.
    I also recognise not only the sincerity with which my hon. Friend put his case but the fact that in new Clause No. 1 and new Clause No. 2 he has put forward alternatives which are not before the Committee and which have not been worked out in detail. We must decide what to do in respect of the Amendment which is now before the Committee.
    I am all for switching to more taxes upon consumption, and for creating an increase in choice for the people. These are themes which I have tried to develop over many years. I know very well that if I had the substance instead of the shadow, however, I could not recommend, this year, any downward change of this magnitude in personal direct taxation. That being so it would not be honourable for me to do anything else than suggest that my hon. Friends should not vote for the Amendment.
    7.15 p.m.
    Sir D. Glover: I am very glad that my right hon. Friend finished his remarks on the note that he did. Although my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) and my hon. Friend the Member for Yeovil (Mr. Peyton) have done a valuable service in putting down the Amendment so that we could have an excellent debate, I am sure that in the present state of the economy— and we have no responsibility for that; it is almost two years since we were in power, during which time the Government have increased taxation by £1,000 million and have created a severe balance of payments problem—my right hon. Friend was correct, and presenting a picture of responsible opposition, in saying that he could not recommend the committee to agree to the Amendment.
    I should find it somewhat difficult to go into the Lobby in support of the Amendment, bearing in mind the conditions

    119
    facing the country now. That fact must be made clear at this stage. Perhaps the Chancellor is now not sorry that he allowed me to make a short speech.
    Despite what the Chancellor has said, the debate has made it clear that the bulk of his party thinks that there is some virtue in taxation. The hon. Member for Orpington (Mr. Lubbock)—who is no longer in his place—representing the Liberal Party, literally tried to argue that people liked high taxation and that it was good for them. If we carried his argument to its logical conclusion we should raise direct taxation to 100 per cent., when everybody would work a jolly sight harder. That was a most surprising argument to come from the Liberal Party, which up to this moment I thought stood for allowing the abilities of the individual to flower and develop to the advantage of himself and the nation.
    Mr. Pardoe Mr. Pardoe rose——
    Sir D. Glover: I am not going to give way to the hon. Member for Cornwall, North (Mr. Pardoe). He was very rude to my colleagues when they were speaking. The hon. Member for Orpington talked about the Conservative Party's reducing taxation or increasing benefits just before each election. The Conservative Party reduced taxation in nine Budgets, only three of which came immediately before an Election, so there must have been six in which we reduced taxation which had no connection with an election.
    I am sorry that I was not here to hear the speech of my hon. Friend the Member for Bournemouth, West (Sir J. Eden). What we must make clear is that the Conservative Party has a totally different philosophy from that of the party opposite and is determined as soon as it gets back into power to reduce taxation. We agree that certain implications have to be borne in mind, as mentioned by the Chancellor. We agree that our society needs to be reorganised to achieve this end. I accept implicitly that our society is altering fast. It is not the sort of
    society upon which so much of our thinking was based in the late 1940s. All parties can take credit for the fact that it is becoming much more of a middle class society than it was twenty years ago.
    The level of incomes has risen. The forecast has been made that by 1975 or 1980, at present-day values, the average income for the ordinary person would be between £1,400 and £1,500 a year. A reduction in direct taxation is one of the things that will be necessary if we are to achieve that aim. There is a fundamental truth in the argument that every human being is two people. The proportion of an individual's earnings which is taken off him acts in direct ratio as a disincentive. On the question of this disincentive the Chancellor was a little too jejune in saying that a person earning £20 a week pays only 1s. 2d. That may be so; the trouble is that he pays a little more on the twenty-first pound and a little more still on the twenty-fourth pound. This progression of taxation creates a disincentive to greater effort. Whether it be a man who usually earns £20 a week and, because of overtime, earns £22, whether it be a man who earns £1,500 a year who is offered a job at £2,000, or whether it be a man on £4,000 a year whose salary is to go up to £5,000, it is the rising incidence of taxation at those points which acts as a disincentive to the individual.
    If we are to overcome many of the problems confronting the country, we must have greater effort from the individual, and the only way to do that is to reduce the incidence of direct taxation upon him. This is why I say that my hon. Friends have done a valuable service by their Amendments in allowing this subject to be debated so ably today.
    The Treasurer of Her Majesty's Household (Mr. John Silkin)The Treasurer of Her Majesty's Household (Mr. John Silkin) rose in his place and claimed to move, That the Question be now put.
    Question put, That the Question be now put: —
    The Committee divided: Ayes 216, Noes 124.

    Division No. 28.]

    AYES

    [7.21 p.m.

    Allaun, Frank (Salford, E.)

    Atkins, Ronald (Preston, N.)

    Bessell, Peter

    Alldritt, Walter

    Barnett, Joel

    Bidwell, Sydney

    Archer, Peter

    Baxter, William

    Bishop, E. S.

    Armstrong, Ernest

    Benn, Rt. Hn. Anthony Wedgwood

    Blackburn, F.

    Ashley, Jack

    Bennett, James (G'gow, Bridgeton)

    Blenkinsop, Arthur

    Boardman, H.

    Hazel, Bert

    Neal, Harold

    Booth, Albert

    Henig, Stanley

    Newens, Stan

    Bowden, Rt. Hn. Herbert

    Herbison, Rt. Hn. Margaret

    Noel-Baker, Francis (Swindon)

    Boyden, James

    Hilton, W. S.

    Noel-Baker,Rt.Hn.Philip(Derby,S.)

    Braddock, Mrs. E. M.

    Hobden, Dennis (Brighton, K'town)

    Oakes, Gordon

    Bradley, Tom

    Hooley, Frank

    Ogden, Eric

    Brooks, Edwin

    Horner, John

    O'Malley, Brian

    Broughton, Dr. A. D. D.

    Howarth, Harry (Wellingborough)

    Orbach, Maurice

    Brown, Rt. Hn. George (Belper)

    Howarth, Robert (Bolton, E.)

    Oswald, Thomas

    Brown, Bob (N'c'tle-upon-Tyne, W.)

    Howell, Denis (Small Heath)

    Owen, Dr. David (Plymouth, S'tn)

    Brown, R. W. (Shoreditch & F'bury)

    Howie, W.

    Page, Derek (King's Lynn)

    Buchan, Norman

    Hoy, James

    Pardoe, J.

    Buchanan, Richard (G'gow, Sp'burn)

    Hughes, Rt. Hn. Cledwyn (Anglesey)

    Parker, John (Dagenham)

    Butler, Herbert (Hackney, C.)

    Hughes, Emrys (Ayrshire, S.)

    Parkyn, Brian (Bedford)

    Butler, Mrs. Joyce (Wood Green)

    Hughes, Roy (Newport)

    Pearson, Arthur (Pontypridd)

    Callaghan, Rt. Hn. James

    Hunter, Adam

    Peart, Rt. Hn. Fred

    Cant, R. B,

    Hynd, John

    Pentland, Norman

    Carmichael, Neil

    Irvine, A. J. (Edge Hill)

    Prentice, Rt. Hn. R. E.

    Carter-Jones, Lewis

    Jackson, Colin (B'h'se & Spenb'gh)

    Price, Christopher (Perry Barr)

    Castle, Rt. Hn. Barbara

    Jackson, Peter M. (High Peak)

    Price, J. T. (Westhoughton)

    Coe, Denis

    Janner, Sir Barnett

    Price, William (Rugby)

    Coleman, Donald

    Jeger, George (Goole)

    Rankin, John

    Corbet, Mrs. Freda

    Jeger,Mrs.Lena(H'b,n&St.P'cras,S.)

    Redhead, Edward

    Craddock, George (Bradford, S.)

    Johnson, Carol (Lewisham, S.)

    Rees, Merlyn

    C'ossman, Rt. Hn. Richard

    Johnson, James (K'ston-on-Hull, W.)

    Rhodes, Geoffrey

    Cullen, Mrs. Alice

    Jones, Dan (Burnley)

    Roberts, Albert (Normanton)

    Dalyell, Tam

    Jones, J. Idwal (Wrexham)

    Roberts, Goronwy (Caernarvon)

    Davidson, James(Aberdeenshire, W.)

    Judd, Frank

    Robinson, W. O. J. (Walth'stow, E.)

    Davies, Dr. Ernest (Stretford)

    Kenyon, Clifford

    Ross, Rt. Hn. William

    Davies, Harold (Leek)

    Kerr, Mrs. Anne (R'ter & Chatham)

    Rowlands, E. (Cardiff, N.)

    Davies, Robert (Cambridge)

    Kerr, Dr. David (W'worth, Central)

    Ryan, John

    Dell, Edmund

    Kerr, Russell (Feltham)

    Shaw, Arnold (Ilford, S.)

    Dempsey, James

    Lee, John (Reading)

    Sheldon, Robert

    Dewar, Donald

    Lever, Harold (Cheetham)

    Short, Rt. Hn.Edwarc (N'c'tle-u-Tyne)

    Diamond, Rt. Hn. John

    Lewis, Ron (Carlisle)

    Silkin, John (Deptford)

    Dickens, James

    Lomas, Kenneth

    Silkin, S. C. (Dulwich)

    Dobson, Ray

    Luard, Evan

    Silverman, Julius (Aston)

    Doig, Peter

    Lubbock, Eric

    Silverman, Sydney (Nelson)

    Dunnett, Jack

    Lyon, Alexander W. (York)

    Slater, Joseph

    Dunwoody, Mrs. Gwyneth (Exeter)

    Lyons, Edward (Bradford, E.)

    Small, William

    Eadie, Alex

    Mabon, Dr. J. Dickson

    Snow, Julian

    Edwards, Robert (Bilston)

    McBride, Neil

    Spriggs, Leslie

    Edwards, William (Merioneth)

    McCarnn, John

    Steele, Thomas (Dunbartonshire, W.)

    Ellis, John

    MacDermot, Niall

    Swain, Thomas

    English, Michael

    Macdonald, A. H.

    Symonds, J. B.

    Ennals, David

    Mackenzie, Alasdair(Ross&Crom'ty)

    Tinn, James

    Evans, Albert (Islington, S.W.)

    Mackenzie, Cregor (Rutherglen)

    Tomney, Frank

    Faulds, Andrew

    Mackintosh, John P.

    Tuck, Raphael

    Fernyhough, E.

    Maclennan, Robert

    Varley, Eric G.

    Fletcher, Raymond (Ilkeston)

    McMillan, Tom (Glasgow, C.)

    Walden, Brian (All Saints)

    Fletcher, Ted (Darlington)

    MacPherson, Malcolm

    Walker, Harold (Doncaster)

    Floud, Bernard

    Mahon, Peter (Preston, S.)

    Wallace, George

    Foley, Maurice

    Mahon, Simon (Bootle)

    Watkins, David (Consett)

    Forrester, John

    Manuel, Archie

    Wellbeloved, James

    Fowler, Gerry

    Mapp, Charles

    Wells, William (Waisall, N.)

    Fraser, John (Norwood)

    Marquand, David

    Williams, Alan (Swansea, W.)

    Fraser, Rt. Hn. Tom (Hamilton)

    Marsh, Rt. Hn. Richard

    Williams, Alan Lee (Hornchurch)

    Gardner, A. J.

    Mason, Roy

    Williams, Mrs. Shirley (Hitchin)

    Garrow, Alex

    Mellish, Robert

    Willis, George (Edinburgh, E.)

    Cinsburg, David

    Millan, Bruce

    Wilson, William (Coventry, S.)

    Gordon Walker, Rt. Hn. P. C.

    Miller, Dr. M. S.

    Winnick, David

    Cray, Dr. Hugh

    Mitchell, R. C. (S'th'pton, Test)

    Winterbottom, R. E.

    Griffiths, Rt. Hn. James (Llanclly)

    Morgan, Elystan (Cardiganshire)

    Woodburn, Rt. Hn. A.

    Hamilton, James (Bothwell)

    Morris, Alfred (Wythenshawe)

    Woof, Robert

    Hamilton, William (Fife, W.)

    Morris, Charles R. (Openshaw)

    Yates, Victor

    Hamling, William

    Moyle, Roland

    Hannan, William

    Mulley, Rt. Hon. Frederick

    TELLERS FOR THE AYES:

    Harper, Joseph

    Murray, Albert

    Mr. George Lawson and

    Mr. Alan Fitch.

    NOES

    Alison, Michael (Barkston Ash)

    Body, Richard

    Channon, H. P. G.

    Astor, John

    Boyd-Carpenter, Rt. Hn. John

    Chichester-Clark, R.

    Awdry, Daniel

    Boyle, Rt. Hn. Sir Edward

    Clegg, Walter

    Barber, Rt. Hn. Anthony

    Brinton, Sir Tatton

    Cooke, Robert

    Batsford, Brian

    Brown, Sir Edward (Bath)

    Cooper-Key, Sir Neill

    Bell, Ronald

    Buck, Antony (Colchester)

    Corfield, F. V.

    Bennett, Dr. Reginald (Cos. & Fhm)

    Bullus, Sir Eric

    Craddock, Sir Beresford (Spelthorne)

    Berry, Hn. Anthony

    Burden, F. A.

    Crowder, F. P.

    Biffen, John

    Campbell, Gordon

    Dean, Paul (Somerset, N.)

    Biggs-Davison, John

    Carlisle, Mark

    Deedes, Rt. Hn. W. F. (Ashford)

    Black, Sir Cyril

    Carr, Rt. Hn. Robert

    Doughty, Charles

    Blaker, Peter

    Cary, Sir Robert

    Eden, Sir John

    122

    123

    Elliot, Capt. Walter (Carshalton)

    Lloyd, Ian (P'tsm'th, Langstone)

    Prior, J. M. L.

    Elliott, R. W. (N'c'tle-upon-Tyne, N.)

    Longden, Gilbert

    Pym, Francis

    Errington, Sir Eric

    Loveya, W. H.

    Ramsden, Rt. Hn. James

    Eyre, Reginald

    MacArthur, Ian

    Renton, Rt. Hn. Sir David

    Farr, John

    Maclean, Sir Fitzroy

    Ridsdale, Julian

    Fletcher-Cooke, Charles

    Macleod, Rt. Hn. lain

    Roots, William

    Fortescue, Tim

    McMaster, Stanley

    Rossi, Hugh (Hornsey)

    Glover, Sir Douglas

    Maddan, Martin

    Scott, Nicholas

    Gower, Raymond

    Marten, Neil

    Sinciair, Sir George

    Griffiths, Eldon (Bury St. Edmunds)

    Mathew, Robert

    Stainton, Keith

    Hall-Davis, A. G. F.

    Maude, Angus

    Talbot, John E.

    Harris, Frederic (Croydon, N.W.)

    Maxwell-Hyslop, R. J.

    Tapsell, Peter

    Hawkins, Paul

    Maydon, Lt.-Cmdr. S. L. C.

    Taylor, Edward M.(G'gow,Cathcart)

    Heald, Rt. Hn. Sir Lionel

    Mills, Peter (Torrington)

    Teeling, Sir William

    Heath, Rt. Hn. Edward

    Mills, Stratton (Belfast, N.)

    Thatcher, Mrs. Margaret

    Heseitine, Michael

    Monro, Hector

    Turton, Rt. Hn. R. H.

    Higgins, Terence L.

    Morrison, Charles (Devizes)

    Van Straubenzee, W. R.

    Hill, J. E. B.

    Munro-Lucas-Tooth, Sir Hugh

    Ward, Dame Irene

    Hirst, Geoffrey

    Nabarro, Sir Gerald

    Weatherill, Bernard

    Hobson, Rt. Hn. Sir John

    Neave, Alrey

    Webster, David

    Holland, Philip

    Noble, Rt. Hn. Michael

    Wells, John (Maidstone)

    Hordern, Peter

    Nott, John

    Whitelaw, William

    Howell, David (Guildford)

    Onslow, Cranley

    Wills, Sir Gerald (Bridgwater)

    Hutchison, Michael Clark

    Osborn, John (Hallam)

    Wilson, Geoffrey (Truro)

    Jenkin, Patrick (Woodford)

    Page, Graham (Crosby)

    Wolrige-Gordon, Patrick

    Jennings, J. C. (Burton)

    Page, John (Harrow, W.)

    Younger, Hn. George

    Jopling, Michael

    Peel, John

    Kimball, Marcus

    Peyton, John

    TELLERS FOR THE NOES:

    Knight, Mrs. Jill

    Pounder, Rafton

    Mr. Jasper More and

    Langford-Holt, Sir John

    Powell, Rt. Hn. J. Enoch

    Mr. Anthony Grant.

    Lewis, Kenneth (Rutland)

    Price, David (Eastleigh)

    Question, That "8s. 3d." stand part of the Clause, put accordingly and agreed to.
    The Chairman: The Question is "That the Clause stand part of the Bill"——
    Sir G. Nabarro: On the Question, "That the Clause stand part of the Bill"——
    The Chairman: I am of opinion that the principle of the Clause and all the matters arising in connection with it have been adequately discussed on the Amendment.
    Sir G. Nabarro: On a point of order, Sir Eric. We have discussed adequately, and certainly on a very wide basis, all the implications of certain specific rates of Income Tax, but we have not discussed the principles. While I do not wish to extend the debate on Income Tax, you will do doubt recall that I rose at the conclusion of the earlier debate, but at that moment the Deputy Chief Whip opposite rose and claimed to move, "That the Question be now put" notwithstanding that certain hon. Members on his own side as well as on this side of the Committee were still endeavouring to speak. In those circumstances, would it not be equitable and reasonable that those hon. Members who were frustrated by the precipitate action of the Deputy Chief Whip —action which frustrated even the hon. Member for Nelson and Colne (Mr. Sydney Silverman), who had an important
    124
    contribution to make to our debates, and whom we are delighted to see return to the affairs of this Committee——
    The Chairman: Order. I cannot allow the hon. Member to proceed.
    Sir G. Nabarro Sir G. Nabarro rose——
    Mr. Sydney Silverman rose——
    The Chairman: Does the hon. Member for Nelson and Colne (Mr. Sydney Silverman) rise to a point of order?
    Mr. Silverman: I rise to the point of order raised by the hon. Member for Worcestershire, South (Sir G. Nabarro). I wanted to make it clear that the important contribution which the hon. Member says I was frustrated from making was about the Amendment which he deliberately chose not to leave to be decided by the Committee.
    Mr. Iain Macleod: On a point of order, Sir Eric. Might I put a point to you very briefly? I think you will agree that it is customary, and perhaps particularly so when there has been only one Amendment discussed on a Clause, that before the Chair rules—which, of course, it is entitled to do—that there has been full discussion on the Clause, this is said to the Committee, and I think that you omitted to do this before the words were actually put. I wonder whether, because he was not able to

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    speak, you will allow my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) alone to speak briefly— [HON: MEMBERS: "No."]—on the Question, "That the Clause stand part of the Bill", because I think that the way the Question was put to the Committee was unusual.
    The Chairman: The position is this. The Committee decided without a Division on the Amendment moved by the hon. Member for Worcestershire, South. I have ruled in my discretion that the principle of the Clause and all the matters arising in connection with the Clause have been adequately discussed on that Amendment. I deliberately allowed a very wide debate on the Amendment, and I am afraid that my Ruling cannot be challenged.
    Question put and agreed to.
    Clause ordered to stand part of the Bill.

    Clause 17.—(SURTAX RATES FOR 1965–66.)
    Mr. Hirst: I beg to move Amendment No. 166, in page 19, line 38, to leave out "£2,000" and to insert "£3,000".
    The Amendment is designed to provide an opportunity for discussing the question of Surtax on unearned income. The last time the subject was seriously discussed at any length was in June, 1961. We then had a long discussion on a series of seven or eight Amendments, but they were very limited in nature and were more or less specifically designed to cover the older ages in the population, people between 60 and 65.
    I feel compelled to say, because I must be absolutely honest in the matter, that I thought that the then Conservative Government were, to say the least, extremely mean in refusing to accept those very limited Amendments. It is not too much to say that I was, frankly, rather ashamed of them. I say that to be fair to the Committee, as I usually am in these matters. I was very much on the wrong side of the debate on that occasion.
    I say at once that for all too long there has been too large a difference, whatever argument there may be about what the difference should be, between the tax treatment of earned income and
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    so-called unearned income. My right hon. and learned Friend the Member for Wirral (Mr. Selywyn Lloyd) inevitably made that very regrettable difference —unwarranted to my mind— infinitely worse and more marked by the substantial changes in 1961, which were very welcome and helped our economy very much at the earned Surtax levels. At this juncture I would most strongly protest at the continued use of the term "unearned". If I use that term at the moment it is only because it has become so used that I feel that I must do so for the sake of clarity. There has been erroneous thinking over the years which no Government, including, I am afraid, Conservative Governments, have done anything much to alter. Very strong appeals were made in the course of the debates in 1961 to which I referred. Speaker after speaker then pressed for a change from the term "unearned" to "saving in investment income" or some other term as a sounder, better and more accurate one.
    It was not only in 1961 that we had such debates. I have taken part in such debates year after year. I remember this matter being pressed year after year by Mr. Geoffrey Stevens, when he was the hon. Member for Portsmouth, Lang-stone, in the course of his specially well-informed speeches, which some of us who took part in those debates miss in our discussions today.
    These savings of one generation or another have in very many cases been built up over the years by persons denying themselves for the future of themselves or their families, and I suggest that it is monstrous that such people should be penalised by this very marked difference which is enshrined in our tax laws. On Second Reading I touched briefly on this subject and mentioned that the distinction does not arise in the United States tax laws. They see no distinction or need to make one. On that same occasion, I said that we would not have real progress in healthy investment so long as we penalised that sort of incentive. If people feel that they will not be penalised if they save, that is a first-class incentive to savings.
    In the 1961 debates we put the case for circumstances whereby investments arising from savings could be encouraged to fructify to the benefit of all. Where

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    would big business be today had it not been for the past opportunities of private individuals, in partnership or alone, to save money and plough it back into their firms, which have been amalgamated and have grown into such great organisations?
    I remind the Committee that Surtax—it was called Supertax in those days—began in 1910 at the level of £3,000. It was and intended to be an imposition upon the rich. No one could deny that it had this effect in that it dealt with incomes of above £3,000. But circumstances have changed and in that context £2,000 today does not mean riches. There is a very different aspect altogether. I do not know the relative values offhand as between now and 1910, but certainly such a figure today is less than one-fifth of the value it held in those days. This fact makes the Amendment relatively modest. Indeed, it is so modest that I feel almost ashamed, but I want to keep a sense of proportion, as I did on the last Amendment.
    Another aspect is, inevitably, the Labour reaction. Hon. Members opposite are grotesquely bad economists. I do not know why, for they have many trained economists in their ranks. But the more economists they recruit the worse they are. This particularly applies when they import them from abroad. Yet the Labour Party remains more or less aware of the importance of savings and of personal investment. It cannot be overstressed that savings and investment are the cornerstone of the economy and of the real standard of living of the people.
    It is the small businesses which have prospered through this system and which have grown and developed under healthy and sound conditions, improving the standard of living of those working in them as well as the owners. But hon. Members opposite are inevitably in a dilemma. Yet it is of their own choice. They believe that a high level of savings contributes not only to the dignity of man but is also an answer to inflation. Despite this, they also believe in high taxation. They consider high taxation to be a weapon for levelling down. That is all their taxation does. It does not give people an incentive to level themselves up. It can only do that when it
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    is reduced. High taxation is the creed of hon. Members opposite and that creed is written into every page of the Bill.
    7.45 p.m.
    I wish that hon. Members opposite were logical in their belief about the consequences of their guilt but actions speak louder than words. We are returned to this Committee to do justice to people in all walks of life. Of course, we have to take first one section and then another. Some sections deserve our attention before it is given to others. That is what happened under the Conservatives time and time again, and this was right and proper. I humbly suggest and plead for a sense of justice for those who have retired and who have built up an income from their own labours for the future or who are able to have an income from others who saved for the future.
    As I have pointed out, many of these incomes were buildt up by people who have now retired. Through the appalling inflation of modern times, their savings have lost very much purchasing power. As Mr. Stevens said, there is a clear case in equity and on social grounds for savings. If the case was so clear in 1961, it is infinitely clearer and more urgent today.
    Then there is the question of the inheritance of wealth in itself. What is wrong in anyone trying to build up, through savings, an income for the future benefit of their families? It is a sound, social, wise and prudent way of life. There is nothing harmful in it. Estate Duty is there to take account of the social aspects of inherited money. But it should not be penalised as it is under the existing Surtax rules for this class of income.
    My first plea is to get away from the erroneous expression "unearned income". Many people whose position I have attempted to describe do not understand the expression. If we can only get away from that erroneous phrase we shall at least be starting along the road to a greater sense of justice for a large number of people who have, I regret to say, been by-passed by all Governments, year after year.
    I have already expressed my own sense of responsibility for what can or cannot be done in each financial year. No doubt

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    this is not a year in which the Government could accept this Amendment. I am conscious that, even if they accepted my case as a good one, they could not carry it out this year when, practically speaking, no further alleviation of taxation is to take place. Thus, I cannot press the Amendment but I am grateful to the Chair for calling it so that some voice can be raised for those who have been left out far too much.
    I move the Amendment in the hope that in the not too distant future the present Government will beat the future Conservative Government to it and bring some measure of justice to this aspect of taxation. It would be too much to expect that they should restore the lost value altogether but they should certainly carry out some amelioration of the injustice that these people have suffered.
    Mr. Harold Lever: I hope that it is not too much of a disappointment to the hon. Member for Shipley (Mr. Hirst) if the response of at any rate one hon. Member on this side of the Committee is not in accordance with the caricature which is constantly being painted by hon. Members opposite of the views of the Labour Party as being a high-taxing party and so on. I wish that hon. Members opposite would not constantly caricature the views of the Labour Party in this way. Some of my newer colleagues might take their Socialist instruction from hon. Members opposite and come to believe that it was truly party orthodoxy which was being preached by hon. Members opposite and vote accordingly, and that would be very distressing for me. I know that it was said in the last debate that I was not in the main stream of thought of my party on this question. I am not sure that that view is well justified. Certainly in the matter of disliking unnecessary taxation I think that the hearty majority of members of my party are as passionately keen to keep tax down as anyone else.
    I think that the hon. Gentleman underestimated my party in supposing that it was hostile to unearned income in the sense that he described it. I think that my hon. Friends recognise, as we must all recognise, that unearned income is very often simply earned income congealed, at any rate earned income which
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    has congealed with time, and we respect it in the proper hands in all circumstances according to the way it gets there. But the fact that we recognise that it was once earned income does not mean that we are not entitled reasonably to make a differentiation between earned and unearned income. It is a differentiation which has been made by Conservative Governments who, we are assured by hon. Members opposite, have a passion for low taxation and equity and all the good things in fiscal life. Surely the hon. Gentleman will appreciate that we can make a distinction for tax purposes between the two kinds of income without despising the one, even though we think that there are occasions when it must bear a higher burden than perhaps earned income has to bear when all circumstances are taken into account.
    For this purpose I cannot help relying on something said by the right hon. Member for Enfield, West (Mr. Iain Macleod) on the last Amendment when I wanted to make a brief intervention. I am somewhat mollified, not having been able to make that intervention, by the great integrity—one might almost say the accustomed integrity—which led the right hon. Gentleman to the conclusion which I would have reached and which was that one could not vote in favour of the last Amendment.
    In arguing that the high taxation of income had a seriously damaging effect on incentives—and this applies to Surtax as much as to Income Tax—the right hon. Gentleman said that leading American industrialists had told him— and I am sure that this is absolutely right —that when the Americans reduced taxation the incentive of doing so had an electrifying effect on the American economy. Of course it had an electrifying effect on the American economy, but that was not because of the incentive of paying less Income Tax, but because of the electrifying effect of the injection of so much new purchasing power into an under-employed economy. To attempt a similar electrifying effect in the present situation of the nation would be entirely unsatisfactory. The right hon. Gentleman would then have been in receipt of a confidence which would have told him of the electrocuting effect of a reduction of taxation.
    Mr. Douglas Dodds-Parker: Is the hon. Gentleman saying that the Government should slow down the economy by increasing taxation so that there should be no pressure on the economy at all?
    Mr. Lever: When there is a lack of demand and serious unemployment, as there was in America at the time to which the right hon. Gentleman was referring, a serious under-employment of resources, manpower and machinery, that is one thing, but anybody who believes that that is the case in our economy at the moment should have voted in favour of the last Amendment and in favour of significant reductions in taxation all round in order to stimulate the economy. But there can be very few hon. Members on either side of the Committee who have that view of the economy when the facts are so clearly in the opposite direction.
    Hon. Members opposite often confuse incentive and fair play. What matters is that a man's reaction to the taxation which is imposed upon him is not that he will not work because he has to pay 10s. or 12s. in the £. What can affect his desire to work is his sense of being unjustly used, unfairly treated, singled out for spitefulness, or unfairly chosen for a particular rate of tax. A sense of oppression has a serious disincentive effect.
    In different circumstances, there might be a very reasonable case for having another look at the Surtax arrangements. It was very fairly recognised by the hon. Member for Shipley that no such possibilities exists at present, but I should like to go on record as saying that the Government ought to have generally in mind that, by the erosion of currency and the higher rates of tax imposed on the lower levels of Surtax incomes, the original allowances are devalued and the rate of tax automatically raised without any statutory increase.
    We say that we are imposing the same rate of tax, but we are imposing not the same but a slightly higher rate, by reason of the erosion of the value of currency and the higher rate at which the lower un-Surtaxed slice of the income has been taxed. The Government should have that continually in mind. Everyone must recognise that the Government must look
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    at all the circumstances, but we should bear in mind that we are now operating Surtax on incomes which in pre-war buying power start at about £500 or £600 a year and I do not recall even the most enthusiastic Surtaxers of my younger days in the Labour Party urging that we should be keen to tax Surtax income at those levels.
    It is easy for those of us who are marching towards fogeydom and who are the middle-aged Members of the House of Commons who think in terms of prewar buying power and pre-war standards of income, but we must not lose sight of the fact that incomes are different and that standards are different and that the level at which we now enforce Surtax and thet level at which it begins to bite are probably out of date and should be reviewed as soon as the country's economic circumstances permit.
    Sir J. Eden: I am sure that the Committee is grateful to my hon. Friend the Member for Shipley (Mr. Hirst) for moving the Amendment, particularly since it gave rise to the most interesting contribution of the hon. Member for Manchester, Cheetham (Mr. Harold Lever). I very much hope that the Financial Secretary will be able to show considerable sympathy for the points of view which have been expressed, even though they were advanced with extreme and almost unusual modesty and calmness. None the less, they raised issues of considerable importance.
    A number of representations have been made to me about the differentiation in treatment between earned and unearned income for these purposes. If we could go some way towards indicating hope that shortly there would be a change of attitude and a change of approach, that would go a long way towards relieving some of the present distress.
    Many people feel that they are being unfairly singled out for special treatment which they do not deserve. Surely we all desire to encourage people to earn more so that they may put it away in greater savings. That is the background to much of our discussion of personal taxation matters. How can we encourage savings on the one hand and yet ultimately penalise those who successfully invest their savings? Surely what we want most to achieve is greater savings

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    in order to lead to greater investment. Without investment we cannot possibly get the industrial expansion which we must have to try to rescue the economy.
    Personally, I am a very keen supporter of any move to try to expand share ownership among people at all levels and in all income groups. I hope that we shall give every conceivable encouragement to the Wider Share Ownership and kindred movements. This is extremely important. I have spoken elsewhere advocating far greater dissemination of information by companies through their annual reports to shareholders and prospective shareholders of all kinds. This is part of the general subject which we are considering tonight of not discouraging those who save to invest, because that is an essential part of the capitalist system which all of us defend.
    8.0 p.m.
    I, therefore, hope that, in replying to this debate, the Financial Secretary, on behalf of the Government, will give a lead to encouraging a change of attitude and the simple point put forward by ray hon. Friend that we should stop talking about unearned income as though it was anti-social and to be avoided and despised. What the hon. and learned Gentleman can do in his speech by emphasising the importance which he attaches to this form of income through these savings and these investments would go a long way to easing the minds of people who are suffering under a sense of being most unfairly treated.
    The whole Committee, I am sure, wants people to produce more, to earn more, to own more and to save more. Before we can achieve these desirable objectives. we must tax less.
    The Financial Secretary to the Treasury (Mr. Niall MacDermot): In moving the Amendment on which we have had this short and amicable debate, the hon. Member for Shipley (Mr. Hirst) adduced mainly general economic arguments, some of which were dealt with at length in the preceding debate. I do not want to follow the hon. Member in seeking to reply to what my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) called the caricature of the attitude of the Government and our party towards taxation, nor do I propose to try to respond by replying to what I
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    regard as the equal caricature which has been presented of the attitude of the party opposite to taxation. The fact is that any Government is wrestling and grappling with the problem of how to raise the funds which are required for the level of public expenditure that we all vote and to do so with the lowest possible levels of taxation. These depend on the growth rate and the amount of savings that we achieve.
    The hon. Member for Shipley supported, by his hon. Friend the Member for Bournemouth, West (Sir J. Eden), urged that we should as soon as may be abolish the distinction which at present exists with Surtax as between investment income—I am quite content to call it that—and earned income. The hon. Member for Bournemouth, West in particular urged this as a necessary incentive towards saving. Speaking purely personally, I am not convinced by this argument.
    I entirely agree about the need for us to be more successful in inducing people to save, but I should have thought that the levels at which there is that greatest need is not among the Surtax-payers so much as among the ordinary Income Tax-payers and the ordinary wage-earners, many of them earning substantial wages. It is at those levels, where in the aggregate so much of the country's income is earned, that we would like to see the level of saving much higher. For my part, therefore, I feel that there is a good and sound principle underlying the distinction which was introduced by the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) in the Surtax treatment of investment income compared with earned income.
    If I may turn briefly to the Amendment and point out its implications, the proposal is to raise the starting point for Surtax from £2,000 to £3,000. I take it that the hon. Member for Shipley intends that the starting points for each slice would equally be raised by £1,000.
    Mr. Hirst: I instanced the tax in the United States of America, but the hon. and learned Gentleman has got me wrong or has misunderstood me. I was not being unreasonable in saying that the whole distinction should go like that, because that would be a major matter. I argued, and I was supported by the hon.

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    Member for Manchester, Cheetham (Mr. Harold Lever), that there is an injustice for the position having been left completely behind and that the difference between the two is too marked and unfair. I had it in mind that the Government might do something to close the gap a little. There is a distinct injustice that is has remained the same for the last 20 or 30 years.
    Mr. MacDermot: The distinction has not been the same for 20 or 30 years. Surely, the present levels of the distinction between the two were fixed by the right hon. and learned Member for Wirral in one of his Budgets.
    I remind the Committee that in recent years there have been two reforms which have improved the Surtax starting point over a wide field. Since 1957, the amount by which the total of the personal allowances due to an individual exceeds the single person's allowance has been deductible in computing his total income for Surtax. In addition, the special Surtax reliefs in respect of earned income have been allowable since 1961—that is, the earned income relief deduction and the special Surtax earnings allowance. The effect of all these is to raise the Surtax starting point for a single man for earned income to £5,001, and for married men and others entitled to more than the basic single person's allowance the starting points are somewhat higher.
    If the hon. Member's proposal were accepted, the starting point for Surtax would be raised to £3,000 with those allowances left unchanged. The result would be that not only earned income, but investment income, would to a substantial extent be free of Surtax. A single person could have earnings up to £6,126, with a higher figure for a man with dependants, or earnings of £5,000 and an investment income of £1,000 and still not be liable to Surtax. The cost of these changes would be substantial. In the first year in which they would operate, which would be 1966–67, the cost would be £43 million and in a full year it would be £62 million.
    Mr. Hirst: The hon. and learned Gentleman knows only too well the difficulties and limitations of putting down Amendments on the Committee stage of the Finance Bill. I recognise that my
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    Amendment would go right across the board. The hon. and learned Gentleman could tell from the whole tone of my speech, however, that I was inviting the Government to say how they could help the investment income as I call it, in a strict compartment of its own, without affecting the earned income, which is fairly satisfactorily guarded. For drafting reasons, I could not do all this in my Amendment.
    Mr. MacDermot: I appreciate the point made by the hon. Member and the way in which he moved his Amendment. I am not trying to take any false debating points, but it is only right that I should explain the implications of the Amendment.
    I conclude by saying, as, I think, the hon. Member tacitly acknowledged when moving his Amendment, that this is clearly a year in which my right hon. Friend the Chancellor of the Exchequer has found it necessary to raise a substanial additional sum in taxation. Obviously, therefore, it is not a year in which it would be realistic to propose a raising of the starting point in Surtax rates.
    The hon. Member has made his point. I have given my immediate personal reactions to the main point which he has argued. What the hon. Member has said will, of course, be borne carefully in mind if we reconsider this tax in a future year.
    Mrs. Margaret Thatcher: I would like to say a word in support of the Amendment moved by my hon. Friend the Member for Shipley (Mr. Hirst) and to thank the Financial Secretary for giving a fairly detailed reply. My support is in the spirit in which my hon. Friend moved his Amendment and the spirit in which the hon. Member for Manchester, Cheetham (Mr. Harold Lever) made his contribution.
    Equity does not stop at an investment income of £2,000 per annum. Sooner or later we must pay attention to raising this limit. I understand that this year is not the year to do it, but we hope that one year, possibly before the next General Election, the Chancellor will find that he has enough spare to do what my hon. Friend the Member for Shipley is asking.
    Mr. Hirst: I am grateful to the hon. and learned Gentleman for what he has

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    said, though he has not said all that I had hoped. I would like him to have added a little indication of what the cost would have been in the clear spirit of ray speech; that is, were the Government able to think up the necessary drafting to ensure that this alleviation would only be borne by the unearned or investment income people. I hope that he will give some thought to that aspect.
    I would never have dreamed of puting down the Amendment had I been of the opinion that I could press for a reduction of £44 million. The great bulk of that is going to those who already benefit by the 1961 arrangements. I wanted to benefit those people who were left out of the 1961 arrangements. I hope that I have made that point, and perhaps he will give some thought to that aspect. If a study can be made and if I can be informed of the sorts of sums that have been worked out, I shall be grateful.
    However, in view of what he has said, I beg leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Clause ordered to stand part of the Bill.

    Clause 18.—(EXCLUSION FROM RELIEF OF INTEREST ON POST OFFICE INVESTMENT DEPOSITS.)
    Question proposed, That the Clause stand part of the Bill.
    Mr. Harold Lever: I am in a rather ambiguous position, having promised to cover my hon. and learned Friend, as his Parliamentary Private Secretary. However, I find that I am the only voice to speak on the Clause.
    I hope that my hon. and learned Friend will tell us why he thinks it necessary to exclude the investment deposits, as defined in Section 1 (2) of the Post Office Savings Bank Act, 1966. I have not looked at the point with the care which those of my absent hon. Friends who tabled the Amendment have. My recollection is that the Clause excludes the savings account deposits in a savings bank, and not the ordinary accounts. If that is so, I should like to know why that distinction has to be made.
    I shall now sit down and await eagerly a word or two from my hon. and learned Friend.
    Mrs. Thatcher: Before the Financial Secretary replies, perhaps I may be allowed to say a word about the Clause.
    It is now ten years since the first £15 of interest on Post Office savings was exempted from Income Tax, and I believe that that exemption extends both to a husband's and a wife's account in the Post Office. Jointly, it is quite an advantageous exemption from tax. As I understand it, the exemption cannot extend to the new accounts which are due to start on 20th June because it would be difficult to do it in respect of that one kind of saving only and hot extend it to savings which are similar in nature and to such things as the trustee savings bank.
    The same point applies about the ordinary Post Office savings exemption under this Clause as applied under the last Clause. It is ten years since the rate was fixed. Sooner or later, it will have to be raised. There will have to be a thorough review of all the effects of taxation measures on the level of savings in general and on specific savings.
    It would have been nice if the Post Office exemption could have extended to the new accounts. That would have been a start in the right direction and would have convinced us that the Chancellor is really out for savings. At the moment, it looks as if he preaches more savings and less tax, but practises more tax and less savings.
    I understand the reason for the Clause, but I hope that, sooner or later, the £15 limit will be raised and extended to other forms of savings.
    8.15 p.m.
    Mr. MacDermot: May I say, first, that it was made clear during the debates on the Post Office Savings Bank Bill that the distinction which my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) complains of would be drawn and that the tax exemption would not apply to the new type of investment deposit.
    The new type of investment deposit is, as it were, the equivalent of the special investment department of the trustee savings bank. The exemption of the first £15 of interest on deposits with the ordinary Post Office Savings Bank account is one which applies also to ordinary deposits in the trustee savings bank. But

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    it does not apply to the special investment department.
    There is a reason for the £15 exemption. It is often quoted by people who seek exemption from some particular form of savings or another. But it is in a unique position. To start with, the ordinary account at the Post Office Savings Bank is a form of investment which provides, in effect, an elementary form of banking facilities without charge. The deposits can be withdrawn on demand at any time, and, in consequence, the rate of interest, naturally, is a very low one of 2½ per cent. As there is only that low rate of 2½ per cent., since 1956 there has been this relief from Income Tax, but not from Surtax, on the first £15 of interest on ordinary accounts in the Post Office Savings Bank and the trustee savings bank.
    That is intended to encourage small savers to lend to those institutions, which lend the money deposited with them direct to the Government and pay only a low rate of interest. It would be quite illogical to extend that to these accounts which are offering a very much more attractive rate of interest. The rate of interest on investment accounts in the Post Office Savings Bank will be 5½ per cent.
    If the proposal were accepted to make an equivalent exemption for these accounts, for a person who was paying Income Tax at the standard rate the effect would be to pay a gross rate of interest of 9⅓ per cent, on the first £250 of Post Office Savings Bank investment deposits. That is taking into account the minimum holding which he would be required to have in his ordinary account before he was entitled to have an investment deposit account. The 9⅓ per cent, would compare with and be considerably higher than the effective return of 7¾ per cent, on the latest issue of National Savings Certificates which, I am glad to say, is proving a very successful and attractive savings medium. I do not think that anyone would expect that we should try immediately to better that to the tune of a 9⅓ per cent, return on the special investment deposits. As I say, there is a more particular argument for the ordinary accounts.
    The hon. Lady the Member for Finchley (Mrs. Thatcher) raised a
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    separate point, taking the occasion of the debate to invite the Government to look at the £15 figure as it applies to the ordinary accounts and see whether, with the passage of time—and, no doubt she would say, the decline in the value of money—that figure could not be raised. We have received representations to that effect. It is not something which my right hon. Friend is in a position to do at the moment, but we shall take those representations into account.
    Mr. Harold Lever: I rise to record briefly my total dissatisfaction with the logic of the Treasury. I do not shrink in horror at the notion that someone who has £250 in a special account with the Post Office should have 5 per cent, tax free on his money, even after the computation made by my hon. and learned Friend that that would amount, at 5 per cent, net, to an approximate 9 per cent, gross.
    I would point out to him that, to the more skilled and sophisticated investor, there is no difficulty in getting 5 per cent, free of Income Tax by way of income, very often on short-dated Government bonds. This raises a very important point, and I hope that my hon. and learned Friend will not brush this off, because it is of some importance.
    The Government are wrong in thinking that the man who invests at 2½ per cent, gets a bad rate of interest and is entitled to some consideration. When the rate of 2½ per cent, was fixed it was a fair rate. Over the years it became a totally inadequate rate, which amounted to little more than taking advantage of ignorant people who did not know much about banking and bank accounts, and were only capable of using the Post Office Savings Account. It is much to the discredit of all Governments, Conservative and Labour, that they did not trouble to put this matter right, but were content to get large sums of money from the least sophisticated section, and very often that means the poorest section, of the community at a totally unwarrantable low rate of interest.
    Now, when the Government, somewhat belatedly, are putting this right by offering, not a spectacular reward for the small saver, but a modest reward, still below the general rate of interest, at 5 per cent., still barely adequate, it seems that they

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    are showing a false meticulousness of logic to exclude them from this paltry concession on Income Tax, and I am not satisfied that the Government are wise in doing so.
    I hope that none of my hon. Friends, nor hon. Gentlemen opposite will be misguided enough to read this as an attack on the Government. What I am attacking is the characteristic Revenue view that all these concessions have to be wrung from them by force majeure, and when they are wrung from them, and we finally get this pitifully small contribution to equity on the small saver's account with the Post Office, we get a ridiculous exercise in logical acrobatics to deprive the small taxpayer of this modest tax-free rebate.
    I hope that my hon. and learned Friend will look at this again. Because there is no Amendment in my name, my hon. and learned Friend cannot quote what the total cost of the concession would be. I know that it would be trifling, but psychologically it would be reassuring to many of us if the Treasury were to overrule the pedantry which has led to this restriction.
    Mr. Gower: I find myself in almost complete agreement with the hon. Member for Manchester, Cheetham (Mr. Harold Lever). I do not always agree with the hon. Gentleman, but on this occasion I feel that the Treasury is not fully aware, or does not seem to be aware, of the change which has taken place in the investment climate in recent years, and which I think will show itself increasingly in the future.
    As the hon. Gentleman said, the Post Office has received investment not only from the less sophisticated of the investing public, but has received it because such investors in the past have had very little temptation or very little experience of looking elsewhere. If that day has not gone already, I think that it will soon depart, and unless the Treasury and the Post Office are more realistic in their assessment of what will be needed to sustain investment in the Post Office Savings Account, they will find that the traditional investing public will be a declining asset.
    Question put and agreed to.
    Clause ordered to stand part of the Bill.

    Clause 19.—(PERSONAL RELIEFS FOR NON-RESIDENTS.)
    Question proposed, That the Clause stand part of the Bill.
    Mrs. Thatcher: I find this a complicated Clause, and I hope that the Financial Secretary will read one of those expositions after which all becomes clear.
    This Clause, entitled "Personal reliefs for non-residents", is tied up with certain other Clauses in the Income Tax Act, and if the hon. and learned Gentleman would listen to me for a moment he might tutor me and tell me whether I have the meaning of the Clause right.
    As I understand it, certain nonresidents are entitled to personal reliefs on that part of their income which arises in the United Kingdom. The reliefs to which they are entitled are in the same proportion that the United Kingdom income bears to their total income, but there are certain difficulties in calculating the United Kingdom income and total income particularly where there is a double taxation agreement in force, and where that double taxation agreement provides for a low withholding tax on dividends.
    If I have it right, the recipient of the dividends cannot have both allowances and a low rate of withholding tax on the same portion of income. That is to say, the United Kingdom income will be calculated without reference to the dividends which go out, and therefore his personal allowances will follow the proportion which the United Kingdom income bears to the total income, but the dividends will be disregarded for calculating the personal reliefs.
    I hope that that is more or less right. If it is, I think that we can perhaps let the Clause go through fairly quickly.
    Mr. MacDermot: The hon. Lady is right, and so I am spared having to read a much lengthier and far less lucid exposition of the Clause.
    As I understand it—and I am putting it in my own words, and not in the learned words with which I have been supplied—the effect of the Clause is to separate the income which is subject to the limited rate under the double taxation agreement from the rest of the income. For the rest of the income the

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    overall rate of tax on the United Kingdom income is to be what it would have been in the absence of relief provided by the double taxation agreement, and for the rest of it, that which is subject to the double taxation agreement—and this is the only point that I really want to make—the taxpayer will have an election either to have the rate of taxation on those dividends which is provided for by the double taxation agreement, or the overall rate, whichever is the smaller, so there is an election on that point.
    Question put and agreed to.
    Clause ordered to stand part of the Bill.

    Clause 20.—(INDIA, PAKISTAN AND BURMA PENSIONS.)
    Question proposed, That the Clause stand part of the Bill.
    Mr. Peter Hordern: There are three points that I should like to raise on the Clause. The object of the Clause appears to be to bring the 1965 pension increases into line with those paid in 1959 and 1962, both of which were liable to Income Tax. It has been put to me that it was only after representations had been made to the Treasury that two specific classes of pensioners were included in the 1962 pension increases. The two classes to which I refer are the widows of men dealt with by the Indian Civil Service family pension funds and the superior services pension funds. I appreciate that it may be difficult for the Financial Secretary to give me an answer to this point immediately, but we on this side would like to press for an assurance that those two classes will not be left out.
    8.30 p.m.
    The second point is that the India, Pakistan and Burma Act of 1955 has never been properly implemented. It will be recalled that the object of the Act originally was to exempt from Income Tax all those from the United Kingdom, India, Burma and Pakistan who live abroad and outside those territories. In fact, in only one of those countries— India—has a suitable agreement been reached with the United Kingdom, although negotiations have been going
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    on between the Treasury and the Governments of Pakistan and Burma for nearly 20 years.
    It was on 1st April, 1948, that Sir Stafford Cripps gave an assurance that an arrangement was being made with Pakistan. I recall that my hon. Friend the Member for Cheltenham (Mr. Dodds-Parker) said that it would be in a matter of weeks that a similar arrangement would be made with Pakistan.
    The second point, therefore, is whether the Financial Secretary can give some indication as to whether progress has been made with the Governments of Pakistan and Burma, because pensioners from the Indian Civil Service who live abroad and outside those territories are better treated than the pensioners of Pakistan and Burma.
    The third point arises from a request of mine to the Financial Secretary for information about the effect of the recent Indian devaluation. He was kind enough to give me an assurance that it would have no effect at all on pensions granted by this Act. He went on to say, however —I trust that he will take the opportunity to reply to this point—that similar pensions awarded since 31st March, 1955, other than those contingent payments are paid by the Indian High Commission in London. Some are sterling pensions and some are rupee pensions. No reason was known why the sterling pensions should be affected by the devaluation, but the Financial Secretary said that he was not yet in a position to say whether the Indian Government would be prepared to make any special arrangement to protect the rupee pensioners.
    On this side of the Committee, although we know that it is difficult to give a precise answer, we think that we ought to have a general assurance that, whatever happens to the rupee pensioner paid by the Indian High Commissioner in this country, those pensioners will receive precisely the same rates as are paid in sterling by that same Indian High Commission.
    These are the three points which we should like to put to the Government and it may be that some of them are a little difficult to answer now. We should, however, be happy if the hon. and learned Gentleman could provide the answers on Report.
    Mr. MacDermot: The hon. Gentleman's questions are highly technical and without notice I cannot answer them. We have no further information to give with regard to the Indian pensions payable in rupees. I have nothing to add, in other words, to the letter which I sent him on these points. On the other two points, I will write to the hon. Member, and if he feels that there is anything in the reply to which it would be valuable to give greater publicity, we can no doubt find a way of raising the matter.
    Question put and agreed to.
    Clause ordered to stand part of the Bill.

    Clause 21.—(SURTAX ON INCOME UNDER CERTAIN SETTLEMENTS: EXCEPTIONS TO s. 415(1) OF ACT OF 1952. 1965 c. 25. 1952 c. 10.)
    Question proposed, That the Clause stand part of the Bill.
    Mrs. Thatcher: The Financial Secretary will remember that we had an extensive debate on partnership covenants last year and had a number of tries at getting the Clause right. We did not succeed and some of my hon. Friends warned the Chief Secretary that his Clause then was drawn too narrowly and would prevent the payments under certain partnership covenants from having relief for Surtax purposes. This Clause has been brought in in substitution for the provisions which applied last year. As a drafting point, I would say that we are grateful that this Clause substitutes for last year's and does not merely amend the one last year by reference. It makes it a good deal easier to consider it and will no doubt make it easier for those who later have to consult the Act.
    As this is our second try at this problem, it is important that we should get it right. I recognise that a majority of the Clause gives wider relief than was given last year. What we have to consider is whether that relief is sufficiently wide even now. A number of cases have been raised with me and I think that it will be easier to illustrate the point if I describe them to the right hon. Gentleman.
    One solicitor has put to me the case of two separate covenants, the first concerning a partner who retired well over 12 years ago and my correspondent dealt
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    with the inadequate provision under that partnership agreement for a pension.
    That agreement gave the retired partner only a right to certain partnership profits for two years after the end of the partnership. Two years passed and the majority of his income had gone. He had no further right by virtue of the partnership agreement. But I am sure that the Chief Secretary will agree that one cannot stand only upon legal obligations in these matters. People in this position are entitled to expect that the partners will honour their moral obligations, and naturally the partners drew up a covenant to benefit that other retired partner. Because the Clause last year was not retrospective, that covenant has continued to enjoy Surtax relief.
    It is now due for renewal, and I suspect that, as the Clause stands, payment made under a covenant drawn up now would not be a payment
    "under a liability incurred for full consideration."
    I suspect that that would fail because of the absence of consideration.
    Mr. Harold Lever: Why?
    Mrs. Thatcher: There would be no consideration given by the partner, who retired ten years ago, to the present partnership for the covenant.
    I am asking that where a covenant has been in existence and has been allowed and comes up for renewal, there should be provision in the Clause to provide that payments made under that covenant shall be allowed for Surtax purposes. In most cases where people retire in modern times adequate provision is made in the partnership agreement for some sort of income for the retired partner. This was not so many years ago, and people in this position will find themselves without an income or with a very much reduced income if this Clause goes through and such covenants are not allowed for Surtax purposes. Alternatively, the partners would still grant an income to the retired partner but it would cost them a great deal more, and possibly with their own obligations they could not give the same amount.
    The second point concerns the widow of another retired partner, and this covenant, too, is coming up for renewal. There was never a legal obligation in

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    this case on the partners to provide for the widow. In fact, they did it out of a sense of moral obligation. She has been enjoying the benefit for a number of years. The covenant is due for renewal. I refer hon. Members to subsection (1) and to the phrase that covenants will be allowed only if 1 "payments made under a liability incurred for full consideration".
    A number of legal commentators have got at this Clause and have pointed out that the phrase
    "liability incurred for full consideration"
    is nowhere defined. For example, if a partnership covenants with a retired partner that that partnership will make payments to the widow of the retired partner, is that a liability? The widow of the retired partner could not enforce it against the partnership. What is "full consideration"? Even if the covenant were made directly with the widow, it seems to me that there would be no consideration—not merely not full consideration but no consideration at all.
    We are very much concerned that this type of provision should continue to be allowed for Surtax purposes. If this point has not so far been raised with the Chief Secretary, I hope that he will think about it and, if the Clause is defective, will undertake to bring forward Amendments on Report.
    I understand that a number of dependants commute their right to the income in return for a capital sum by assigning their right under a covenant to a financial institution. As the Clause is drawn, if the dependant does this it may deprive the payer of Surtax relief even though he could not prevent the recipient from commuting his interest under the covenant. It would seem wrong that the payer should himself be deprived of a relief because of something over which he had no control.
    I hope that the Chief Secretary will consider these matters because it is important that this year we should get the provision right. We should try to make it as wide as possible to help those who do not stand on legal obligations but who are honouring their moral obligations as well.
    The Chief Secretary to the Treasury (Mr. John Diamond): I have listened
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    carefully to what the hon. Lady the Member for Finchley (Mrs. Thatcher) said and there is no need for me to explain the Clause because she and, I am sure, the rest of the Committee, fully understand it in its complete and utter simplicity. It is, as the hon. Lady rightly said, a relieving Clause to a provision which was brought in last year and which was, perhaps, too narrowly defined. The Clause was introduced last year to meet representations made at that time.
    The representations made on that occasion came from a number of professional bodies and were to the effect that annual payments made by individuals, paid under bona fide business arrangements not as a matter of pure bounty, should not count; in other words, should still attract relief for Surtax purposes. The essential condition was that they should arise from business arrangements and not as a matter of pure bounty.
    The two examples given by the hon. Member for Finchley would clearly fall in the latter category. It would not be for me, as a non-lawyer, to go too closely into the law on this matter, particularly in view of the hon. Lady's great knowledge of these affairs. However, the distinction is, to a layman, clear. As she pointed out, they were examples of what she called "moral obligations". We all know what a moral obligation is. It is something which one is not compelled to do but which one does out of one's good nature, sense of responsibility, good citizenship and the rest of it. However, it does not count as a transfer of income and is not allowable for Surtax purposes. It was not intended that it should be. Thus, the answer to the hon. Lady's first two questions is that she is right in assuming that they would not attract relief for Surtax purposes.
    In answer to her third point it would be easy to say "No, I do not think that they should count either". I can say that they would not. Although the hon. Lady was not asking that question, she did ask me to consider the matter and to see if we might extend the Clause to take that into account. I would not like to offer sympathetic consideration, although I am prepared to offer consideration. I do not want it to be understood from my words that the Government are under an obligation of any kind whatever

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    to introduce an Amendment on Report. I will look at the matter because it has not so far been put to us. However, it seems at first sight to be something which does not call for legislation or adjustment in the Clause, but it would be discourteous of me to give an offhand answer. Thus, I will look at it further, but I do not want it to be thought that I am undertaking on behalf of the Government to bring in an Amendment.
    Mrs. Thatcher: The Chief Secretary is sparse in his sympathy tonight, so sparse that I was not sure to which section of my representations he was allocating it.
    Mr. Diamond: To the third and last point which the hon. Lady raised, namely whether Surtax relief should continue to be given if the pensioner commutes his pension as opposed to disallowing it for an action not by the covenantor but by the covenantee.
    Mrs. Thatcher: I am sorry that the right hon. Gentleman did not have sympathy for the other covenants as well, because it is important that we should try to include them in the Clause. The right hon. Gentleman said that representations had been made to the effect that covenants should be allowed where they were made for bona fide business reasons. That is different from a liability being incurred for "full consideration". I should have thought that "bona fide business reasons" allowed far more covenants to get by than would appear from the phrase the right hon. Gentleman chose. One could probably successfully argue that where there were solicitors in partnership in a comparatively small town it would redound very badly against the business if it were known that the existing partners did not look after former partners and the widows of former partners. Certainly a company which did not look after its former employees would not expect to have the good will of the surrounding locality and it would of course be allowed, albeit under a different Schedule and a different computation.
    If the Chief Secretary is very unsympathetic we shall obviously have to return to the matter on Report. I am especially concerned, and ask him again, about covenants coming up this year for
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    renewal. I can get a little sympathy on that narrow point? We have a special obligation there because people are now damnified by the Treasury whereas last year they were perfectly all right. I hope that the right hon. Gentleman will have second thoughts. I can assure him that my second thoughts on this subject will be exactly the same as my first. It would save him time on Report if he had second thoughts now.
    Question put and agreed to.
    Clause ordered to stand part of the Bill.

    Clause 22.—(DIVIDEND INCREASES ETC. IN 1965–66: EXCLUSION OF SURTAX RELIEF UNDER S. 238 OF ACT OF 1952.)
    8.45 p.m.
    Mrs. Thatcher: I beg to move Amendment No. 194, in page 22, line 37, at the end to insert:
    (2) If on an application made by any individual for the purpose, before 6th April 1967 in respect of the year 1965–66, the applicant proves to the satisfaction of the General Commissioners—

    (a) that as respects any assets, in consequence of the operation of the provisions of this Act which require that any income which is chargeable with income tax by way of deduction shall be deemed to be the income of the year in which it is receivable, the income from those assets as estimated for the purpose of income tax for that year represents more than the income which would be attributable to a period of one full year if the income were deemed to have accrued from day to day; and

    (b) that in consequence, his income is above the limits within which he could otherwise have obtained relief under one or more of the following provisions:—

    (i) section 211(2) or (3) of the Income Tax Act 1952 (which refers to earned income and old age reliefs) as amended,

    (ii) section 13 of the Finance Act 1957 (which refers to relief for persons over 65 with small incomes) as amended,

    (iii) section 15(2) of the Finance Act 1952 (which refers to relief for small incomes) as amended,

    the General Commissioners shall adjust his liability to income tax for that year and the following year so as to give such relief as may be just having regard to all the circumstances and in particular to the amount of any liability which would have arisen if

    (i) the income from such assets were deemed to have accrued from day to day and to have been apportioned accordingly and

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    (ii) the income so deemed to have been apportioned had been treated as part of his total income for the purposes of income tax.

    When I spoke on Second Reading I referred to the possibility that we would put down an Amendment in these terms. The Amendment is designed to relieve those who but for extra dividends would have had relief under Section 211 of the Income Tax Act, which gives relief on unearned investment income where a taxpayer or his wife is over 65, or under Section 15(2) of the Finance Act, 1952, which gives similar relief for small incomes of under £450, or Section 13 of the 1957 Act, which gives age exemption relief for those of 65 and over when the income is £390 for a single person or £625 for a married couple. It is quite clear that if these people received a rather larger number of dividends before the turn of the year than was normal, the relief to which they would otherwise be entitled would be nullified by the extra dividends.
    The Chief Secretary is aware that, apart from this year, apparently if a similar situation arose for a Surtax payer he would apply to have a kind of averaging made under Section 238 of the 1952 Act. Under that Section the effect would be that his income would be averaged over the two years. The Commissioners could give such relief to the Surtax payer as they deemed just. We are asking for a similar averaging over last year and this year to apply to those who otherwise would have got special relief either because they are old or their incomes are very small.
    Perhaps this could be pleaded best in the terms of someone who otherwise would lose relief unless an Amendment of this kind is made. There was a letter in the Financial Times on 9th May, 1966. I hope that the fact it was written to the Financial Times will not damnify the writer in the eyes of the Chief Secretary. I am sure that he is a devoted reader of the Financial Times, albeit that that is not a newspaper to which those who are pleading poverty normally write.
    Mr. Harold Lever: The editor of the Financial Times can hardly stand in need of the warning which the hon. Lady is giving to my right hon. Friend.
    Mrs. Thatcher: I hope the fact that the letter was written to the Financial Times and not to the Daily Mirror will support the case I am making. The paragraph, after giving an example, was as follows:
    "The retired person entitled to age relief on an income of £900 fares worse. Not only is his age relief nullified for 1965–66, but his income for 1966–67 will be reduced to about £540, and his repayment claim for 1966–67 will also be drastically reduced.
    I hope Mr. Callaghan will see some very good reason to avoid penalising the old folk of receiving the unsolicited extra dividends of 1965–66."
    The Chief Secretary can probably see what the effect of the Amendment would be. Without the Amendment, a person who went just over the limits for age relief would be denied relief this year. With the Amendment, he may get relief this year and also get relief next year. I hope that the right hon. Gentleman will be prepared to be as generous as possible to those who, through no fault of their own, may be put in a rather bad position as a result of the limits imposed by these Clauses.
    Mr. Diamond: I am invited to consider the bad position—so the hon. Lady says—of certain individuals who have received a greater income than they had expected to receive because they have had a greater distribution of dividends from certain companies in which they are shareholders. I do not know that we can necessarily call this a bad position. I am perfectly prepared to look sympathetically at any position, but first we should get our adjectives right.
    All that is happening here is that the hon. Lady proposes that a new arrangement should apply for one particular year, in relation to three income limits, which has never applied before and which she does not propose should ever apply again. She proposes that it should apply just for this one particular year, although it has never been the case that in arriving at these reliefs one has done other than take account of the total income.
    The total income can vary for a whole host of reasons. One takes account of the total income. The total dividend income can vary -for a whole host of reasons. It can vary in the next year and in the year after that. It has never been the practice under Tory Governments or under this Government to take

    153
    account of variations in income when dealing with the calculation of these reliefs.
    Therefore, I am afraid that, for the good reasons I have already indicated, I cannot recommend to the Committee that we should depart from what has been the established practice. I do not know whether the hon. Lady wants me to deal with the Clause as a whole. Perhaps I can deal with it on the Question "That the Clause stand part of the Bill". On the proposal she makes, there is no reason to treat the matter as involving any special hardship. All that is happening is that people with small incomes have incomes which are slightly less small than they expected them to be and they are in no worse position but in a rather better position than they had expected to be in. All that is proposed in the Clause is that the law as it has always applied over the years should continue to apply.
    Mrs. Thatcher: The Chief Secretary seems a little perturbed that the Amendment extends only to dividends declared this last year. If it will make the right hon. Gentleman any happier, I will extend the Amendment indefinitely. If that would lead him to grant my request, I should be only too happy to do so. I thought that the chances of getting the Amendment accepted would be greater if I confined it to the special circumstances of last year.
    The right hon. Gentleman knows that this last year has been a special year. Indeed, he spent a long time last year laying down precise circumstances in which dividends should be allowed. I hope that he will not deny that this immediate past year has been a special year. It is true that some of these people may have a higher gross income, but because they were on the margins of relief and because relief is therefore withdrawn they might have a lower net income. So there is the ridiculous position that they have more dividends but if they are just above the marginal relief limit they might have a lower net income. Taking the two-year period, that may well be so. They could in fact over the two-year period have a lower net income taking one year with another.
    154
    I therefore hope that the Chief Secretary will consider their position sympathetically. There are special circumstances this year. A number of his professional colleagues have pointed out that no relief is to be given to those who hitherto have been on the margins for age relief. I hope that the Chief Secretary will further consider the Amendment.
    Mr. Harold Lever: I should like to intervene in the hope of persuading the hon. Lady the Member for Finchley (Mrs. Thatcher) that she is wrong.
    The Clause says that certain reliefs normally available to Surtax payers for averaging income shall be taken away this year because their dividend income was inflated to the advantage of the companies in which they are shareholders by very substantial concessions which were given by the Chancellor. Whether or not the Chancellor is right, whether because they got these advantages they should not have the advantage of the Surtax averaging normally available, we shall consider in a moment. He may be wrong. There may be no case for withdrawing the privilege from the Surtax payer, but there is certainly no case for giving an advantage to the particular sections of taxpayer whom the hon. Lady has in mind.
    The income that is given this year is partly to their advantage, but in every year they are denied the averaging provisions of the Surtax arrangements. In this particular year the reliefs which are granted, and granted only because their income is below a certain level, cannot apply simply because their income has gone above the level to which those reliefs apply. The fact that they did so by reason of the advantageous dividend encouraged by reliefs given by the Chancellor last year is surely no reason for giving them special treatment this year.
    I hope the hon. Lady will abandon the Amendment and turn to the more substantial point, which is whether the Chancellor is justified in withdrawing a relief from the Surtax payer, which is an interesting point, but it cannot be a case for giving special relief dependent upon a person's income in respect of dividends which are very much to his advantage in this year.
    Question put, That those words be there inserted: —
    The Committee divided: Ayes 125, Noes, 225.

    Division No. 29.]

    AYES

    [8.58 p.m

    Alison, Michael (Barkston Ash)

    Glover, Sir Douglas

    Miscampbell, Norman

    Astor, John

    Goodhew, Victor

    Monro, Hector

    Awdry, Daniel

    Gower, Raymond

    Munro-Lucas-Tooth, Sir Hugh

    Barber, Rt. Hn. Anthony

    Grant, Anthony

    Nabarro, Sir Gerald

    Batsford, Brian

    Griffiths, Eldon (Bury St. Edmunds)

    Neave, Airey

    Bell, Ronald

    Gurden, Harold

    Noble, Rt. Hn. Michael

    Bennett, Dr. Reginald (Cos. & Fhm)

    Hall-Davis, A. G. F.

    Nott, John

    Berry, Hn. Anthony

    Harris, Frederic (Croydon, N.W.)

    Onslow, Cranley

    Biffen, John

    Hawkins, Paul

    Osborn, John (Hallam)

    Black, Sir Cyril

    Heald, Rt. Hn. Sir Lionel

    Page, Graham (Crosby)

    Blaker, Peter

    Heath, Rt. Hn. Edward

    Page, John (Harrow, W.)

    Body, Richard

    Heseltine, Michael

    Peel, John

    Boyd-Carpenter, Rt. Hn. John

    Higgins, Terence L.

    Pounder, Rafton

    Boyle, Rt. Hn. Sir Edward

    Hill, J. E. B.

    Powell, Rt. Hn. J. Enoch

    Brinton, Sir Tatton

    Hirst, Geoffrey

    Price, David (Eastleigh)

    Brown, Sir Edward (Bath)

    Hooson, Rt. Hn. Sir John

    Prior, J. M. L.

    Buchanan-Smith, Alick (Angus, N&M)

    Hogg, Rt. Hn. Quintin

    Pym, Francis

    Buck, Antony (Colchester)

    Holland, Philip

    Ramsden, Rt. Hn. James

    Bullus, Sir Eric

    Hordern, Peter

    Renton, Rt. Hn. Sir David

    Burden, F. A.

    Hornby, Richard

    Roots, William

    Campbell, Gordon

    Howell, David (Guildford)

    Rossi, Hugh (Hornsey)

    Carlisle, Mark

    Hutchison, Michael Clark

    Scott, Nicholas

    Chichester-Clark, R.

    Jenkin, Patrick (Woodford)

    Sinclair, Sir George

    Clegg, Walter

    Jopling, Michael

    Stainton, Keith

    Cooke, Robert

    Kimball, Marcus

    Talbot, John E.

    Cooper-Key, Sir Neill

    Langford-Holt, Sir John

    Taylor, Edward M. (G'gow,Cathcart)

    Corfield, F. V.

    Legge-Bourke, Sir Harry

    Teeling, Sir William

    Craddock, Sir Beresford (Spelthorne)

    Lewis, Kenneth (Rutland)

    Temple, John M.

    Crouch, David

    Lloyd, Ian (P'tsm'th, Langstone)

    Thatcher, Mrs. Margaret

    Crowder, F. P.

    Longden, Gilbert

    Turton, Rt. Hn. R. H.

    Dalkeith, Earl of

    Loveys, W. H.

    Van Straubenzee, W. R.

    Dean, Paul (Somerset, N.)

    MacArthur, Ian

    Ward, Dame Irene

    Deedes, Rt. Hn. w. F. (Ashford)

    Maclean, Sir Fitzroy

    Weatherill, Bernard

    Dodds-Parker, Douglas

    Macleod, Rt. Hn. lain

    Webster, David

    Doughty, Charles

    McMaster, Stanley

    Wells, John (Maidstone)

    Eden, Sir John

    Maddan, Martin

    Whitelaw, William

    Elliot, Capt. Walter (Carshalton)

    Marten, Neil

    Wills, Sir Gerald (Bridgwater)

    Elliott, R.W.(N'c'tle-upon-Tyne,N.)

    Mathew, Robert

    Wilson, Geoffrey (Truro)

    Errington, Sir Eric

    Maude, Angus

    Wolrige-Gordon, Patrick

    Eyre, Reginald

    Maxwell-Hyslop, R. J.

    Farr, John

    Maydon, Lt.-Cmdr, S. L. C.

    TELLERS FOR THE AYES

    Fletcher-Cooke, Charles

    Mills, Peter (Terrington)

    Mr. Jasper More and

    Fortescue, Tim

    Mills, Stratton (Belfast, N.)

    Mr. George Younger.

    NOES

    Allaun, Frank (Salford, E.)

    Coe, Denis

    Fletcher, Raymond (Ilkeston)

    Alldritt, Walter

    Coleman, Donald

    Fletcher, Ted (Darlington)

    Allen, Scholefield

    Corbet, Mrs. Freda

    Floud, Bernard

    Archer, Peter

    Craddock, George (Bradford, S.)

    Foley, Maurice

    Armstrong, Ernest

    Cronin, John

    Forrester, John

    Ashley, Jack

    Crossman, Rt. Hn. Richard

    Fowler, Gerry

    Atkins, Ronald (Preston, N.)

    Cullen, Mrs. Alice

    Fraser, John (Norwood)

    Barnett, Joel

    Dalyell, Tarn

    Fraser, Rt. Hn. Tom (Hamilton)

    Baxter, William

    Davidson, James (Aberdeenshire, W.)

    Galpern, Sir Myer

    Benn, Rt. Hn. Anthony Wedgwood

    Davies, Dr. Ernest (Stretford)

    Gardner, A. J.

    Bennett, James (G'gow, Bridgeton)

    Davies, Harold (Leek)

    Garrow, Alex

    Bessell, Peter

    Davies, Robert (Cambridge)

    Ginsburg, David

    Bidwell, Sydney

    Dell, Edmund

    Gordon Walker, Rt. Hn. P. C.

    Blackburn, F.

    Dempsey, James

    Gourlay, Harry

    Blenkinsop, Arthur

    Dewar, Donald

    Gray, Dr. Hugh

    Boardman, H.

    Diamond, Rt. Hn. John

    Griffiths, Rt. Hn. James (Llanelly)

    Booth, Albert

    Dickens, James

    Grimond, Rt. Hn. J.

    Braddock, Mrs. E. M.

    Dobson, Ray

    Hamilton, James (Bothwell)

    Broughton, Dr. A. D. D.

    Doig, Peter

    Hamilton, William (Fife, W.)

    Brown, Rt. Hn. George (Belper)

    Dunnett, Jack

    Hamling, William

    Brown,Bob(N'c'tle-upon-Tyne,W)

    Dunwoody, Mrs. Gwyneth (Exeter)

    Hannan, William

    Brown, R. W. (Shoreditch & F'bury)

    Eadie, Alex

    Harper, Joseph

    Buchan, Norman

    Edwards, Robert (Bilston)

    Hazell, Bert

    Buchanan, Richard (G'gow, Sp'burn)

    Edwards, William (Merioneth)

    Henig, Stanley

    Butler, Herbert (Hackney, C.)

    Ellis, John

    Herbison, Rt. Hn. Margaret

    Butler, Mrs. Joyce (Wood Green)

    English, Michael

    Hilton, W. S.

    Cant, R. B.

    Ennals, David

    Hobden, Dennis (Brighton, K'town)

    Carmichael, Neil

    Evans, Albert (Islington, S.W.)

    Hooley, Frank

    Carter-Jones, Lewis

    Evans, loan L. (Birm'h'm, Yardley)

    Hooson, Emlyn

    Castle, Rt. Hn. Barbara

    Faulds, Andrew

    Horner, John

    Chapman, Donald

    Femyhough, E.

    Howarth, Harry (Wellingborough)

    Howarth, Robert (Bolton, E.)

    MacPherson, Malcolm

    Roberts, Albert (Normanton)

    Howie, W.

    Mahon, Peter (Preston, S.)

    Roberts, Goronwy (Caernarvon)

    Hoy, James

    Mahon, Simon (Bootle)

    Robinson, W. O. J. (Walth'stow, E.)

    Hughes, Rt, Hn. Cledwyn (Anglesey)

    Manuel, Archie

    Ross, Rt. Hn. William

    Hughes, Emrys (Ayrshire, S.)

    Mapp, Charles

    Rowland, Christopher (Meriden)

    Hughes, Roy (Newport)

    Marquand, David

    Rowlands, E. (Cardiff, N.)

    Hunter, Adam

    Marsh, Rt. Hn. Richard

    Ryan, John

    Hynd, John

    Mason, Roy

    Shaw, Arnold (Ilford, S.)

    Irvine, A. J. (Edge Hill)

    Mellish, Robert

    Sheldon, Robert

    Jackson, Colin (B'h'se & Spenb'gh)

    Mrllan, Bruce

    Short, Rt. Hn. Edward (N'c' tle-u-Tyne)

    Jackson, Peter M. (High Peak)

    Miller, Dr. M. S.

    Silkin, John (Deptford)

    Janner, Sir Barnett

    Mitchell, R. C. (S'th'pton, Test)

    Silkin, S. C. (Dulwich)

    Jeger, George (Goole)

    Morgan, Elystan (Cardiganshire)

    Silverman, Julius (Aston)

    Jeger,Mrs.Lena(H'b'n&St.P'cras,S.)

    Morris, Charles R. (Openshaw)

    Slater, Joseph

    Jenkins, Rt. Hn, Roy (Stechford)

    Moyle, Roland

    Small, William

    Johnson, Carol (Lewisham, S.)

    Mulley, Rt. Hn. Frederick

    Spriggs, Leslie

    Jonhson, James (K'ston-on-Hull, W.)

    Neal, Harold

    Steel, David (Roxburgh)

    Johnston, Russell (Inverness)

    Newens, Stan

    Steele, Thomas (Dunbartonshire, W.)

    Jones, Dan (Burnley)

    Noel-Baker, Francis (Swindon)

    Swain, Thomas

    Jones, Rt.Hn.Sir Elwyn(W.Ham,S.)

    Noel-Baker, Rt. Hn.Philip(Derby,S.)

    Symonds, J. B.

    Jones, J. Idwal (Wrexham)

    Oakes, Gordon

    Thorpe, Jeremy

    Judd, Frank

    Ogden, Eric

    Tinn, James

    Kenyon, Clifford

    O'Malley, Brian

    Tomney, Frank

    Kerr, Mrs. Anne (R'ter & Chatham)

    Orbach, Maurice

    Tuck, Raphael

    Kerr, Dr. David (W'worth, Central)

    Oswald, Thomas

    Urwin, T. W.

    Kerr, Russell (Feltham)

    Owen, Or. David (Plymouth, S'tn)

    Varley, Eric G.

    Lawson, George

    Padley, Walter

    Wainwright, Richard (Colne Valley)

    Lee, John (Reading)

    Page, Derek (King's Lynn)

    Walden, Brian (All Saints)

    Lever, Harold (Cheetham)

    Pardoe, J.

    Walker, Harold (Doncaster)

    Lewis, Ron (Carlisle)

    Parker, John (Dagenham)

    Wallace, George

    Lomas, Kenneth

    Parkyn, Brian (Bedford)

    Watkins, David (Consett)

    Luard, Evan

    Pavitt, Laurence

    Wellbeloved, James

    Lubbock, Eric

    Pearson, Arthur (Pontypridd)

    Wells, William (Walsall, N.)

    Lyon, Alexander W. (York)

    Peart, Rt. Hn. Fred

    Williams, Alan (Swansea, W.)

    Lyons, Edward (Bradford, E.)

    Pentland, Norman

    Williams, Alan Lee (Hornchurch)

    Mahon, Dr. J. Dickson

    Perry, George H. (Nottingham, S.)

    Willis, George (Edinburgh, E.)

    McBride, Neil

    Prentice, Rt. Hn. R. E.

    Wilson, William (Coventry, S.)

    McCann, John

    Price, Christopher (Perry Barr)

    Winnick, David

    MacDermot, Niall

    Price, Thomas (Westhoughton)

    Winterbottom, R. E.

    Macdonald, A. H.

    Price, William (Rugby)

    Woodburn, Rt. Hn. A.

    Mackenzie, Alasdair(Ross&Crom'ty)

    Randall, Harry

    Woof, Robert

    Mackenzie, Gregor (Rutherglen)

    Rankin, John

    Yates, Victor

    Mackintosh, John P.

    Redhead, Edward

    Maclennan, Robert

    Rees, Merlyn

    TELLERS FOR THE NOES:

    McMillan, Tom (Glasgow, C.)

    Rhodes, Geoffrey

    Mr. Alan Fitch and

    Mr. Edward Bishop.

    Question proposed, That the Clause stand part of the Bill.
    Mrs. Thatcher: We now come to the question of Surtax. Many small points arise on this, and I want to refer to one before coming to the main principle that lies behind the Clause. It acknowledges that ordinary preference dividends are outside its scope, but it makes no reference to participating preference dividends. A tricky logical position therefore arises. Although preference dividends are outside the scope of the Clause, participating preference dividends upon which no more than the basic amount of dividend has been paid are caught.
    This will obviously be seriously to the disadvantage of many people, among whom are those who have had participating preference shares for many years but have had no dividends from them for several years, when suddenly the company concerned found itself in a position to pay the arrears of dividends and paid the full arrears of the basic amount of
    158
    dividend last year. The whole amount is then caught by the Clause.
    The Chief Secretary recognises that ordinary preference dividends are outside the scope of the Clause, and I submit that participating preference dividends should be caught to the extent, and no more than to the extent, that the basic rate of dividend has been paid. Had the Amendment covering this point been selected I would have hoped that it would have been accepted, which would have made for a happy atmosphere for the rest of our debate on the Clause and, possibly, on the whole Bill.
    I turn now to the main features of the Clause itself. As the right hon. Gentleman knows, it is tied up with Section 83 of the Finance Act, 1965, which was the anti-forestalling provision to prevent companies from avoiding Schedule F by declaring more than a standard amount of dividend. For that purpose, the standard and the excess were minutely defined, and on 15 occasions the Treasury itself sought to amend its provisions.

    159
    The ordinary taxpayer, therefore, assumed that, in the end, the Section was right and that the consequences of declaring dividends would be in accordance with the law which Parliament so carefully laid down.
    The dividends to which the Clause applies were either within the limits laid down by Section 83 of the Finance Act so that there could be no possible justification for penalising the shareholder because Parliament said that those limits were all right, or, alternatively, if they were not within the limits, they became excess dividends and were deemed to be declared on the first day of the financial year this year and in consequence they have suffered, or will suffer, Schedule F tax. Thus, the Chancellor has got his pound of flesh if they were excess dividends. The position is, therefore, this: either the dividends were all right according to the law laid down by Parliament last year, or they were excess dividends, in which case they have been subject to the extra slice of tax under Schedule F.
    When Section 83 was going through Parliament, at no time that I can remember or can trace did the Chancellor, who is never short of warnings, threaten to suspend Section 238. Now we find that non-Surtax paying shareholders will benefit from these dividends. Examples are pension funds, trade union funds and the like. If someone draws a pension from a former employment, that is all right. If, on the other hand, he is self-employed, has to accumulate his own assets, and now has an annual income only twice as high as the average industrial earnings in manufacturing industry, he is made to suffer. It is only the Surtax payers who are being made to suffer through the increased dividends covered by this Clause. It seems that the Chancellor is using the fiscal system in this case against a certain class of taxpayer regardless of whether that taxpayer had any influence over the declaration of the dividend and regardless of whether that dividend was either the standard or the excess under Section 83.
    One of the principal objectionable features of the Clause is that it is retrospective in action though not in form. This is the first occasion on this Finance Bill when we have to discuss retrospection, although it will come up several
    160
    times because there are several retrospective Clauses in it.
    As the Chief Secretary knows, there are certain fundamental rules in our system of taxation. One is that there should be no taxation unless the liability is clearly imposed by Statute. This tenet was honoured for many years, but, as taxes became higher and the system more complicated, people within the scope of a tax managed to put themselves outside its strict legislative provisions. In the following year's Finance Bill, therefore, those people were brought within the scope by a new strictly defined provision, but always the new provision to close the loophole was strictly defined and usually it was not retrospective in effect. Usually, it did not need to be retrospective because, as we have Finance Bills every year, most of the cards are stacked high in the hands of the Treasury.
    Sometimes, the new provision did not succeed in closing the loophole completely. Once again an Amendment had to be made in the succeeding year. But then a new feature came. An attempt was made at what I shall call legislation by warning—the warning that if the new provision did not close the loophole, retrospective provision would be made. But even in those cases—and I dislike legislation by warning intensely—a clear warning was always given, and that warning related to precise circumstances.
    9.15 p.m.
    From my viewpoint, I should have preferred no retrospection even following a warning. It would have been far better if the House of Commons had arranged it so that if money was escaping through a certain tax loophole, we could have had either a small Finance Bill or some other way of getting at that escape straight away without having to wait for another Finance Bill. Then there would have been no need whatever for retrospection.
    However, all these fundamental rules, such as the rule about strict liability or strict warning, have been part of our system of taxation, and upon them respect for fiscal law has been founded. It is because we have been so careful to adhere to these principles that, on the whole, our taxpayer has respect for the law, a respect which is not always present in countries on the Continent. People have paid their taxes with comparatively

    161
    few grumbles believing that they were levied absolutely honestly and also believing that their liabilities could be calculated at any given moment.
    Now we have a completely new factor in retrospective legislation in this Clause. The best thing I can do is to quote from the British Tax Review of April, 1966 which says on page 74:
    "The suspension is clearly retrospective legislation, and means visiting the sins, if they can be so described, of companies on their Surtax-paying members. Hitherto, retrospective legislation has been reserved for cases where some adequate warning has been given; it is new for it to be imposed on actions which Parliament clearly authorised one year previously."
    I use the words of someone still practising at law rather than my own, because I no longer practise, hoping that the Chief Secretary will take them very seriously, indeed.
    Mr, Diamond: There are no other words which the hon. Lady could use which are half as persuasive as her own.
    Mrs. Thatcher: I hope, then, that the Chief Secretary will be more forthcoming in his sympathy on this Clause than he was on certain past Amendments.
    That was a very serious accusation, and it arises from very serious action taken by the Chancellor. I repeat that last sentence:
    "it is new for it to be imposed on actions which Parliament clearly authorised one year previously."
    If the Clause goes through, it will mean that no one can rely ever again on what we say this year, for it may well be disavowed retrospectively next year. This would introduce into our taxation system a completely new and bad element.
    Mr. Harold Lever: Before the hon. Lady enlarges on that point, would she assist me to understand why she says that the Clause penalises only a certain class of dividends authorised by Parliament? Does it not have the same effect on all dividends, whatever their origin?
    Mrs. Thatcher: Yes. I am sorry. If I said that, I misled the hon. Gentleman. I believe that I said that it penalises only those in receipt of dividends who are Surtax payers.
    Mr. Lever: The hon. Lady said that it penalised dividends which were specifically
    162
    authorised by the previous Finance Bill. I cannot read anything in the Clause which justifies that assertion.
    Mrs. Thatcher: It penalises dividends more than those authorised in the last Finance Bill. The reasons which the Chancellor gave in his Budget speech, as I understood it, were directed particularly to dividends which had arisen through Section 83 of the last Finance Act. Last month, referring to this provision in relation to Corporation Tax, the Chancellor said:
    "Many companies paid extra dividends last year for tax reasons, and I see no reason to give the recipients Surtax relief as well."— [OFFICIAL REPORT, 3rd May, 1966; Vol 727, c. 1434.]
    The Chancellor had previously related this proposal as one which arose out of Corporation Tax. It was, therefore, reasonable to assume that it was the extra dividends declared under Section 83 of the Finance Act, 1965, which gave rise to putting this Clause into the Bill. However, in so far as that is correct, then my argument is clearly also correct—that dividends clearly authorised one year previously in a section on which companies were entitled to rely are now being taxed to an extra extent in the hands of Surtax payer through this Clause. Many companies would have taken the law as it was at the time—which hitherto has been a reasonable thing to do—and so, if they were declaring extra dividends, then some of their shareholders would be entitled to rely on Section 238 of the Income Tax Act, 1952.
    One goes on to another particular point. This Clause will go far wider than the dividends declared under Section 83 of the Finance Act, 1965. It will catch dividends which were declared before the beginning of the year or agreed to before the beginning of last year but happened to be paid last year and had nothing to do with tax avoidance or were not declared for tax reasons at all. In so far as that goes, it seems to me that there is no case for these dividends being caught by the Clause. They should never be within it.
    Furthermore, in so far as dividends are given a clearance for tax purposes under Section 83(11) of the Finance Act, 1965, they clearly were not declared for tax reasons and should not be caught by the Clause. The Clause is retrospective

    163
    and very widely drawn because it catches dividends which were never declared for tax reasons and may have been declared even before the beginning of the year. In this way, the Government are destroying an excellent tax system which enables the Chancellor of the Exchequer to collect, as my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) said earlier, some £10,000 million a year without a good deal of trouble to taxpayers— and destroying that system for the sake of £3 million and a good deal of personal prejudice.
    The Clause should not be in the Bill. We should vote it out, first, because it is retrospective and, secondly, because it goes far wider than the dividends which were declared in order to reduce the tax liability of the particular company. I hope that the Chief Secretary will give this serious consideration.
    Mr. Diamond: We give most careful consideration to what the Opposition, and the hon. Lady on their behalf, say. The hon. Lady asked detailed points about fixed preference dividends, then challenged the justification of the Clause as a whole on merit and, finally, was most anxious about retrospective effect.
    First, I will deal with the dividends which are caught and which are not caught. As she rightly said, one is concerned here with ordinary dividends and dividends of that same category—that is to say, participating preference dividends. What are not caught are dividends which are not of that category—fixed preference dividends and, by the same logic, interest on debentures.
    The participating preference dividend, the hon. Lady goes on to argue, is a combination of a first slice of fixed dividend plus an additional slice of participating dividend. I cannot accept the hon. Lady's desired slicing, because the Statute itself, Section 238 of the Income Tax Act, 1952, refers to "the income" from those assets and not to part of the income from those assets. One has to take the whole of the income arising from a particular asset and there is therefore no question of attempting to divide the income from this asset in the notional sense of a fixed slice plus a participating slice.
    The hon. Lady talked about Surtax payers being "made to suffer". Let
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    us see the extent to that which they are being made to suffer. It is true that what the Clause proposes to do is to withdraw for one year the spreading relief of the dividends received in 1965–66. I repeat that what one is withdrawing is only the spreading relief in respect of the income from ordinary and participating preference dividends. One is dealing with 1965–66, because after that year companies are required to pay Schedule F Income Tax in respect of dividends being declared. So, for any dividend which might have been paid after the date but which in fact perfectly legally was paid before the date, the company is saved 8s. 3d. in the £.
    A company is owned by its shareholders jointly and the shareholders jointly therefore enjoy the benefit in the form of 8s. 3d. in the £ for every £'s worth of dividend which was declared in the year 1965–66 as opposed to the following year. In those cases where as a result of the additional dividend the marginal rate of Surtax goes up by 6d. or 1s.—and it may go up by 6d. and it may go up by 1s. and it is almost inconceivable that it could go up by more than that and the probability is that in the majority of cases it will be 6d. and in a number of cases it will be 1s.—in respect of action taken by the shareholders' company to save the company and its shareholders 8s. 3d. in the £, it is hardly correctly describing that to say that the Surtax payers are being "made to suffer", the hon. Lady's term.
    The shareholders of this company are benefiting to the extent of 8s. 3d. in the £ and the Chancellor sees no good reason why in addition they should get Surtax relief which, by the process which has been previously described, would reduce the top marginal rate of the figure which it will now be to a figure 6d. or 1s. in the £ less. They will still be left with a benefit, split between themselves and their company, of either 7s. 3d. or 7s. 9d. in the £ benefit as against the Exchequer —perfectly properly and nobody is complaining; we are not dealing with the aspect of whether the dividends declared were in excess of the provisions of the Act. We are assuming that the dividends declared were within the provisions of the Act, but, nevertheless, we are saying —not out of pique or anything else, but as a matter of equitable tax treatment

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    and, incidentally, as a matter of avoiding excessive administrative difficulties from a whole host of tiny claims arising—that there is no need both to agree to the benefits of 8s. 3d. in the £ and also to agree to the spreading of the benefit of perhaps another 6d. or another 1s.
    The Chancellor proposes to deal with the matter in this way for this one year, which is the only relevant year under consideration. I hope that the Committee will agree that this is reasonable and fair and not in any sense dictated by pique or any of the adjectives which have been used.
    Mr. Stratton Mills: Surely the basic flaw in the argument is that the benefit, if such it be, is owed to the company and all its shareholders, while this discriminatory provision applies only to certain shareholders who are in this range of tax.
    9.30 p.m.
    Mr. Diamond: I repeat, the company gets the benefit of 8s. 3d. in the £ for every £1 worth of dividend declared. The company is getting that benefit and every shareholder who shares in the reserves of the company is sharing in that benefit in a corporate sense.
    The only question is whether certain shareholders should, in addition, get the benefit of the spread. The Chancellor does not see why they should have it both ways. The extra dividend was declared by the company in the interests of the shareholders. They got their dividend, they have had the additional money, they have benefited. If they had all been asked to a shareholders' meeting and it was put to them whether they would rather have a larger dividend or a smaller dividend, one can conjecture that the answer would be that they would prefer the larger dividend. There is therefore, no question of anybody being prejudiced or damaged. The 6d. or the 1s., as the case may be, is something that the Chancellor does not think that they should get in addition.
    Perhaps I may now deal with the argument about retrospection. I hope that I may be forgiven for reverting to the last Clause for the sake only of illustrating the argument of what is and what is not retrospective legislation. As the hon. Lady the Member for Finchley
    166
    (Mrs. Thatcher) was good enough to point out, we have just repealed a Section in the Finance Act, 1965, and replaced it with another Section. Because we have repealed a Section of the 1965 Act in a relieving sense, we have—the Committee has just passed it—decided that the benefit should have retrospective effect to April, 1965. The benefit is a Surtax benefit in connection with covenanted payments. Within the last quarter of an hour, therefore, we have decided, as was appropriate, that there should be a Surtax benefit going back to 1965–66. Nobody commented on it. No person in the Committee, not even the hon. Lady, thought that this was being unjustly or excessively fair.
    Mrs. Thatcher: The right hon. Gentleman is putting an extremely facile and false argument. To say that because we confer a benefit retrospectively we are justified in conferring a retrospective liability is nonsense. I think the less of the right hon. Gentleman for putting that to me from his exalted position at the Dispatch Box.
    Mr. Diamond: Perhaps the hon. Lady will be good enough to listen to the argument which I was about to propose. [Interruption.] If the hon. Lady does not want to listen, she is not compelled to do so, but perhaps she will do me the justice of listening to the argument before criticising it. Once again, she has put into my mouth words that I was not proposing to use. Last time, it was words which I had not used. Now, perhaps, we can get down to what I was going on to say.
    I was drawing the attention of the Committee to the fact that we had altered a Surtax provision back to 1965–66. The reason for this is that 1965–66 Surtax is payable on 1st January, 1967. The relevant consideration is when the tax is payable. I am not making any kind of argument of the sort of which the hon. Lady thought I was making.
    We are looking forward—we are not looking back—to 1st January, 1967, when certain Surtax is payable. We have agreed to this within the last 20 minutes.
    Mr. Harold Lever: By his words "looking forward", my right hon. Friend is probably exaggerating in describing the feeling of those who are to pay.
    Mr. Diamond: My hon. Friend will forgive me: I was looking forward from the point of view of a Treasury Minister. Perhaps I ought instead to say "having in mind a future date" when the payment would become due. That is exactly what is happening in this case under the Clause. We are affecting the 1965–66 Surtax which becomes payable on 1st January, 1967. The Budget is the normal opportunity for fixing the Surtax rate for the year, and that has always been the case. Until this year's Budget, no Surtax payer could have anticipated with any reliable degree of accuracy what his or her Surtax liability would be on 1st January, 1967. We are in exactly the same position. There is no argument of retrospection to answer.
    Mr. Harold Lever: I venture to add a word to what my right hon. Friend has said. On the retrospection point, despite any learned comments to the contrary and despite the fact that I have ceased to practise at the Bar, I must say that I agree with my right hon. Friend. When the hon. Member for Finchley (Mrs. Thatcher) reflects on it, she will agree that the point which she thought he was making, which was, as she rightly believed, a bad point, he was not making at all; otherwise he would have stood corrected.
    There are other points of some importance which are worth discussing, apart from retrospection. It is asking a little too much of the Treasury, in the heat of battle of the kinds of debates that we had last year, to have foreseen in miscro-scopic detail all the possible consequences of Amendments favourable to the taxpayer. Though I suppose it would be a counsel of perfection that the Clause might have been incorporated in last year's Finance Bill, in my opinion it is dangerous folly to incite the taxpayer with the belief that he is the victim of retrospection. I venture to say, too, that we depend on a degree of co-operation from the taxpayer, and it is wrong that there should be put out from the Committee false notions of the reasons for our legislation.
    The idea that this arose from the Chancellor's personal prejudice is completely misconceived. It was not the Opposition who forced upon him an Amendment which he was unable to
    168
    resist. It was his own sense of fair play and justice to shareholders that made him make the concession in the first instance which has caused these dividends to be free of Income Tax.
    I want to say a word about the language which has been used when we have talked about penalising the people who have received the dividends. First of all, although the hon. Lady might think that I am being pedantic, she was wrong in the language which she used in saying that a particular dividend was penalised.
    It is no use praying in aid what the Chancellor said. Whatever their origin or motivation, all divdends are treated alike by the Clause. Whether they were paid by the concession given in the last Finance Bill or in the ordinary course of events, all dividends get exactly the same treatment. Whatever else is said, the dividends are not penalised. They are all treated alike.
    The hon. Lady is probably quite right that the motivation for the change in the law may be because of the concession made in the last Finance Bill, but that is different from saying that the dividends resulting from it are being penalised. They are not.
    Is the Chancellor justified in being motivated by the concession contained in the last Finance Bill to withdraw the Surtax relief? After careful consideration, I am convinced that he is. To show my reason, I will point out the bad argument that was made from the Opposition benches either by the hon. Lady or by the right hon. Member for Enfield, West (Mr. Iain Macleod) at some stage of the Finance Bill.
    The relief was contained in Section 238, which is being repealed. That is a Section which gives to the taxpayer the right to go before Special Commissioners and have such relief as they think just. It is a relief which depends upon the examination of the individual circumstances of the taxpayer. It is not a blanket relief.
    Either the right hon. Member for Enfield, West or the hon. Lady used the argument that this was the reason for not withdrawing this relief, but, as I hope to persuade the Committee, I hope not unfairly, this is the reason why the relief has to be withdrawn, because it is a

    169
    relief which depends on the individual examination of each case.
    In former days the number of cases which had to be individually examined was relatively few and could be reasonably coped with by the tax machine, but, as a result of the substantial concession made in last year's Finance Bill, the number of cases could probably be multiplied literally by 100 or 200 compared with the number of cases which occur in normal times.
    Mr. Stratton Mills: This is a very interesting argument, but if the hon. Gentleman examines the Chancellor's speech he will find that this was not the argument used by the right hon. Gentleman who has invoked a form of penalty approach to get at the companies which forestalled the Budget.
    Mr. Lever: It is unfair when the Chancellor is on his feet in a general debate on the Finance Bill to take one passing reference to this matter as comprehending all the arguments which could be used to justify the action that he has taken. Secondly, even if those words were what the Chancellor wanted to say in his defence, and even if that was the only reason why he brought it in, which I do not believe because the amount it would cost the Revenue to make the concession is a trifle, but even if I were persuaded that that was the reason, I would say that he has done the right thing, even if for the wrong reason.
    Where relief depends on the individual examination of each case where it is to be granted by the Commissioners, I think that it would be unreasonable to perpetuate it in circumstances wholly dilferent from those when the relief was given. It would cast a burden on the tax machine which would be intolerable at the present time.
    I am rarely to be heard singing the praises of the Inland Revenue in the Committee.
    Mr. Diamond: Never.
    Mr. Lever: My right hon. Friend says "never". I would not have that belief widely held, especially if it were to reach the ears of my Income Tax inspector. The Revenue in this country in its operation of our tax laws is meticulously fair and stands favourable comparison with
    170
    any Revenue machine in the world. I often think—I know that this is heresy at the moment—that the talents, ability and integrity which the officials display, and the responsibility which they undertake, make them the most underpaid section of the community. I hope that this will not reach too many inspectors outside.
    I think that at this point to throw on a machine which by common knowledge is heavily overloaded with work the impossible task of assessing the innumerable cases which would fall to be discussed in this year would be wrong. This is not to say that next year, or the year after, when we get back to a normal number of such cases, these could not be adequately dealt with by the Revenue machine. I know that it sounds well on a soapbox to say let justice be done even if it brings the Revenue machine to a standstill. No man is entitled to strict and meticulous accuracy in his examination of the tax obligation where it would involve a hopelessly disproportionate amount of administrative time. I know that this is not an attractive argument to use, but it is a realistic one, and I beg hon. Gentlemen opposite not to go about propagating the notion that the Clause is being introduced out of some kind of spite, lack of sympathy, or a desire to penalise. That just is not so.
    The truth of the matter is that the Clause is forced on the Chancellor. He is obliged to bring it in, and he is right in saying that in seeing and assessing its effect on the people who have been the beneficiaries of the considerable relief outlined by my right hon. Friend, the fair and reasonable justice of the matter is, for this year at any rate, to withdraw a relief which would be so disproportionately expensive to continue.
    Mr. Fletcher-Cooke: The hon. Member for Manchester, Cheetham (Mr. Harold Lever) has put the case in a very frank way. He said that the reason for this is that the machine is likely to be so clogged that something must be done to prevent it breaking down, and that something must be at the expense of what is, after all, an acquired right.
    Mr. Lever: I hope that the hon. and learned Gentleman is not seriously attributing that argument to me. What I suggested was that the very nature of

    171
    the relief was such that it could be given only in a year in which the number of applicants for that relief was relatively limited. This is a totaly different argument.
    9.45 p.m.
    Mr. Fletcher-Cooke: I am prepared to accept that description of the motive, which seems to me identical to the one which I was giving. At any rate, I concede the words which the hon. Member has used and on that basis I think that we ought to consider whether that is a proper justification.
    The hon. Member was less than his usual convincing self when he supported his right hon. Friend in saying that this is not retrospective. In reality, of course, it is. In the sense that the events which could give rise to liability are past and cannot now be altered by a taxpayer wishing to rearrange his business, it is true, of course, that the actual tax does not become payable until a future date, but that is not in the least interesting. The only interesting question when one is assessing whether or not this is retrospective is whether, when all the effects giving rise to the liability have already taken place, are past and are unalterable, the law is subsequently changed, so that those who have control of the facts are no longer in a position to alter them, although they might otherwise have done so.
    Of course, in substance, it is retrospective, though in form it is not——
    Mr. Harold Lever: Is not the hon. and learned Gentleman aware that this is a common place of taxation? Where Income Tax rates are fixed for a fiscal year, they apply in that year, and even if the liability is computed by reference to unalterable past events such as the previous year's profits, that does not make the slightest difference. No one suggests that that is retrospective, because the year in question was the year governed by the Income Tax rate, even though irreversible facts are taken into account in computing that liability.
    Mr. Fletcher-Cooke: The rate is retrospective but the incidence of the liability is not made retrospective where a certain profit is chargeable to tax or where a certain escape clause is allowed
    172
    to apply. The hon. Member does not treat the Committee with his usual seriousness when he tries to pretend that this is not an alteration of acquired rights, retrospectively and subsequently. If it is not that, I do not know why he needs to go into all the justification which he did. If it is not retrospective, there is no need to do what he did—very well— which was to explain why, in this year, it is necessary to do what the Chancellor would otherwise be most loth to do.
    I think that the hon. Member gives away the point. Otherwise, he protests too much. I think that he is right. I believe that the reason why this is done is not out of spite but simply because the right that the Surtax payer has to apply for this relief would clog a machine which is already on the point of collapse. It does not seem to me that this is a good reason why we should support a state of affairs so lamentable as that. I hope that my hon. Friend will advise us to divide.
    Mr. John Biffen: I was intrigued by the arguments of the hon. Member for Manchester, Cheetham (Mr. Harold Lever), and I am very reluctant to enter into this controversy under his penetrating and perceptive eye, but if his concern is for the administrative convenience—I agree that that is a not inconsiderable point—I hope that at some future stage in our proceedings we may hear his views on the virtue of continuing the Capital Gains Tax with its consequent complications in the administration of our tax system.
    One thing which has emerged from the debate is the anxiety, particularly as exemplified by the hon. Member for Cheetham, to assure us that what we all thought the Chancellor meant when he referred in his Budget to the fact that Surtax payers should not be the beneficiaries of companies having taken certain action following last year's Finance Bill, was not what he meant at all. In other words, those few sentences of the Budget speech, which not only my hon. Friends but a great many commentators outside have seen as the author of this Clause, were misconceived.
    The least we should have from the Government Front Bench is some explanation of what the Chancellor did mean when he made those remarks. Speaking very much as a layman, it

    173
    looked to me as though last year's Finance Bill contained certain prosions which led to permissible forestalling which resulted in certain dividend payments, and these gave rise to this Clause. It is wholly unfair that the beneficiaries of those company decisions should suffer, most of all as a great deal of the philosophy behind the Corporation Tax provision was that of dividing the company from its shareholders for tax treatment. It may be said that the figure is only £3 million, but it could equally be said that £3 million will fall very heavily indeed on a limited number of people. The hon. Member for Cheetham says that this could lead to a large number of claims. That may be so, but it is relative to what would ordinarily be the number of claims, and my final request is for some idea from the Government of the number of people who will be affected.
    Mr. Stratton Mills: The Treasury Bench has not succeeded in convincing the Committee that the Clause should be accepted. The hon. Member for Manchester, Cheetham (Mr. Harold Lever) based his argument on the claim that the detailed burden which this would place on the Revenue would be so colossal that it would be impracticable to give this relief in the year 1965–66. As I pointed out— he partly answered my point in respect of the Chancellor—this was not the basis of the Government's argument. The Chief Secretary had an opportunity of giving this reason in his fairly detailed speech this evening, but he made no reference to this argument, for the reason, I suspect, given by my hon. Friend the Member for Oswestry (Mr. Biffen) that it could have been used against him on the Capital Gains Tax.
    Mr. Harold Lever: I was not trying to withdraw what the Chancellor said. I was giving the commonsense meaning of what he said. He was saying, "I have to take away a small relief from the Surtax payer because I gave him a big relief by way of Income Tax".
    Mr. Mills: That argument will not square with any of the arguments put forward by any of the Ministers who have spoken on the Clause. I looked up the figures for a number of investment trusts to seen the amount of money
    174
    which had been paid in addition, and it appeared that an extra 10 per cent, of dividend income had been received by these trusts as a result of payments in advance. In those cases the chairmen of the companies went on to stress that the dividend income in the year 1966–67 would be reduced by a comparable amount. The Government would have been much fairer if they had said that the words in the 1952 Income Tax Act "such relief as may be just" should be viewed in the light of the two years together—1965–66 and 1966–67. The arguments marshalled from the Government Front Bench this evening have been singularly unconvincing. The Chief Secretary completely failed to answer the arguments of my hon. Friend the Member for Finchley (Mrs. Thatcher) and I hope that we shall vote against the Clause.
    Mrs. Thatcher: The Chief Secretary's argument proceeded on an entirely different basis from that adduced by his hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever). The Chief Secretary proceeded on the basis that dividends paid out before the beginning of this financial year had saved on them 8s. 3d. in respect of each £. That is not necessarily true. If that is the right hon. Gentleman's argument, he must exclude from the operation of the Clause those dividends which will have Schedule F payable on them, although I saw no such willingness on his part in his reply.
    It is one thing to fix the rate of a tax in respect of a previous year. It is quite another—and the hon. Member for Manchester, Cheetham knows this—to change the rules by which the corpus which is liable to the tax are to be calculated, because the events which could be altered have already taken place; in other words, in certain companies dividends would perhaps not have been declared had they known at the time that this provision was to be withdrawn.
    The hon. Member for Cheetham proceeded on the basis of trying to make an honest man of the Chancellor in respect of the Clause. The hon. Gentleman attempted the impossible. He cited the difficulties of administration. Such difficulties have never prevented the present Government from imposing taxes on the subject. It is quite wrong, therefore,

    175
    that they should be cited for withdrawing a relief from the subject. I hope, therefore, that my hon. Friends will firmly vote against the Motion.
    Question put, That the Clause stand part of the Bill: —
    The Committee divided: Ayes, 218, Noes 144.

    Division No. 30.]

    AYES

    [9.58 p.m.

    Allaun, Frank (Salford, E.)

    Ginsburg, David

    Morgan, Elystan (Cardiganshire)

    Alldritt, Waiter

    Gordon Walker, Rt. Hn. P. C.

    Morris, Charles R. (Openshaw)

    Allen, Scholefield

    Gouriay, Harry

    Moyle, Roland

    Archer, Peter

    Gray, Dr. Hugh

    Mulley, Rt. Hn. Frederick

    Armstrong, Ernest

    Gregory, Arnold

    Neal, Harold

    Ashley, Jack

    Griffiths, David (Rother Valley)

    Newens, Stan

    Atkins, Ronald (Preston, N.)

    Hamilton, James (Bothwell)

    Noel-Baker, Francis (Swindon)

    Barnett, Joel

    Hamilton, William (Fife, W.)

    Noel-Baker,Rt.Hn.Philip(Derby,S.)

    Baxter, William

    Hamling, William

    Oakes, Gordon

    Benn, Rt. Hn. Anthony Wedgwood

    Hannan, William

    Ogden, Eric

    Bennett, James (G'gow, Bridgeton)

    Harper, Joseph

    O'Malley, Brian

    Bidwell, Sydney

    Hazell, Bert

    Orbach, Maurice

    Blackburn, F.

    Henig, Stanley

    Orme, Stanley

    Blenkinsop, Arthur

    Hilton, W. S.

    Oswald, Thomas

    Boardman, H.

    Hobden, Dennis (Brighton, K'town)

    Owen, Dr. David (Plymouth, S'tn)

    Booth, Albert

    Hooley, Frank

    Padley, Walter

    Braddock, Mrs. E. M.

    Horner, John

    Page, Derek (King's Lynn)

    Brooks, Edwin

    Howarth, Harry (Wellingborough)

    Park, Trevor

    Broughton, Dr. A. D. D.

    Howarth, Robert (Bolton, E.)

    Parker, John (Dagenham)

    Brown, Rt. Hn. George (Belper)

    Howell, Denis (Small Heath)

    Parkyn, Brian (Bedford)

    Brown, Bob(N'c'tle-upon-Tyne,W.)

    Howie, W.

    Pavitt, Laurence

    Brown, R. W. (Shoreditch & F'bury)

    Hoy, James

    Pearson, Arthur (Pontypridd)

    Buchan, Norman

    Hughes, Rt. Hn. Cledwyn (Anglesey)

    Perry, George H. (Nottingham, S.)

    Buchanan, Richard (G'gow, Sp'burn)

    Hughes, Emrys (Ayrshire, S.)

    Prentice, Rt. Hn. R. E.

    Butler, Herbert (Hackney, C.)

    Hughes, Roy (Newport)

    Price, Christopher (Perry Barr)

    Butler, Mrs. Joyce (Wood Green)

    Hunter, Adam

    Price, Thomas (Westhoughton)

    Cant, R. B.

    Hynd, John

    Price, William (Rugby)

    Carmichael, Neil

    Irvine, A. J. (Edge Hill)

    Randall, Harry

    Carter-Jones, Lewis

    Jackson, Colin (B'h'se & Spenb'gh)

    Rankin, John

    Chapman, Donald

    Jackson, Peter M. (High Peak)

    Redhead, Edward

    Coe, Denis

    Janner, Sir Barnett

    Rees, Merlyn

    Coleman, Donald

    Jeger, George (Goole)

    Rhodes, Geoffrey

    Corbet, Mrs. Freda

    Jeger, Mrs. Lena(H'b'n&St.P'cras,S.)

    Roberts, Albert (Nomanton)

    Craddock, George (Bradford, S.)

    Johnson, Carol (Lewisham, S.)

    Roberts, Goronwy (Caernarvon)

    Cronin, John

    Johnson, James (K'ston-on-Hull, W.)

    Robinson, W. O. J. (Walth'stow, E.)

    Grossman, Rt. Hn. Richard

    Jones, Dan (Burnley)

    Ross, Rt. Hn. William

    Cullen, Mrs. Alice

    Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)

    Rowland, Christopher (Meriden)

    Dalyell, Tam

    Jones, J. Idwal (Wrexham)

    Rowlands, E. (Cardiff, N.)

    Davies, Dr. Ernest (Stretford)

    Judd, Frank

    Ryan, John

    Davies, Harold (Leek)

    Kelley, Richard

    Shaw, Arnold (Ilford, S.)

    Davies, Robert (Cambridge)

    Kenyon, Clifford

    Sheldon, Robert

    Dell, Edmund

    Kerr, Mrs. Anne (R'ter & Chatham)

    Short, Rt. Hn.Edward(N'c'tle-u-Tyne)

    Dempsey, James

    Kerr, Dr. David (W'worth, Central)

    Short, Mrs. Renée (W'hampton,N.E.

    Dewar, Donald

    Kerr, Russell (Feltham)

    Silkin, John (Deptford)

    Diamond, Rt. Hn. John

    Lawson, George

    Silkin, S. C. (Dulwich)

    Dickens, James

    Lee, John (Reading)

    Silverman, Julius (Aston)

    Dobson, Ray

    Lever, Harold (Cheetham)

    Spriggs, Leslie

    Doig, Peter

    Lewis, Arthur (W. Ham, N.)

    Steele, Thomas (Dunbartonshire, W.)

    Dunn, James A.

    Lewis, Ron (Carlisle)

    Symonds, J. B.

    Dunnett, Jack

    Lomas, Kenneth

    Tinn, James

    Dunwoody, Mrs. Gwyneth (Exeter)

    Luard, Evan

    Tuck, Raphael

    Eadie, Alex

    Lyon, Alexander W. (York)

    Urwin, T. W.

    Edwards, Robert (Bilston)

    Lyons, Edward (Bradford, E.)

    Varley, Eric G.

    Edwards, Wil<ob/>am (Merioneth)

    Mahon, Dr. J. Dickson

    Walden, Brian (All Saints)

    Ellis, John

    McBride, Neil

    Walker, Harold (Doncaster)

    English, Michael

    McCann, John

    Wallace, George

    Ennale, David

    MacDermot, Niall

    Watkins, David (Consett)

    Ensor, David

    Macdonald, A. H.

    Wellbeloved, James

    Evans, Albert (Islington, S.W.)

    Mackenzie, Gregor (Rutherglen)

    Wells, William (Walsall, N.)

    Evans, loan L. (Birm'h'm, Yardley)

    Mackintosh, John P.

    White, Mrs. Eirene

    Faulds, Andrew

    Maclennan, Robert

    Whitlock, William

    Fernyhough, E.

    McMillan, Tom (Glasgow, C.)

    Williams, Alan (Swansea, W.)

    Fletcher, Raymond (Ilkeston)

    MacPherson, Malcolm

    Williams, Alan Lee (Hornchurch)

    Fletcher, Ted (Darlington)

    Mahon, Peter (Preston, S.)

    Willis, George (Edinburgh, E.)

    Floud, Bernard

    Mahon, Simon (Bootle)

    Wilson, William (Coventry, S.)

    Foley, Maurice

    Manuel, Archie

    Winnick, David

    Ford, Ben

    Mapp, Charles

    Winterbottom, R. E.

    Forrester, John

    Marquand, David

    Woodburn, Rt. Hn. A.

    Fowler, Gerry

    Marsh, Rt. Hn. Richard

    Woof, Robert

    Fraser, John (Norwood)

    Mason, Roy

    Yates, Victor

    Fraser, Rt. Hn. Tom (Hamilton)

    Mellish, Robert

    Galpern, Sir Myer

    Millan, Bruce

    TELLERS FOR THE AYES

    Gardner, A. J.

    Miller, Dr. M. S.

    Mr. Alan Fitch and

    Garrow, Alex

    Mitchell, R. C. (S'th'pton, Test)

    Mr. Edward Bishop

    NOES

    Alison, Michael (Barkston Ash)

    Fortescue, Tim

    Munro-Lucas-Tooth, Sir Hugh

    Astor, John

    Gilmour, Ian (Norfolk, C.)

    Nabarro, Sir Gerald

    Awdry, Daniel

    Glover, Sir Douglas

    Neave, Airey

    Batsford, Brian

    Grant, Anthony

    Nicholls, Sir Harmar

    Beamish, Col. Sir Tufton

    Griffiths, Eldon (Bury St. Edmunds)

    Noble, Rt. Hn. Michael

    Bell, Ronald

    Grimond, Rt. Hn. J.

    Nott, John

    Bennett, Dt. Reginald (Cos & Fhm)

    Curden, Harold

    Onslow, Cranley

    Berry, Hn. Anthony

    Hall-Davis, A. G. F.

    Osborn, John (Hallam)

    Biffen, John

    Harris, Frederic (Croydon, N.W.)

    Page, Graham (Crosby)

    Biggs-Davison, John

    Hawkins, Paul

    Page, John (Harrow, W.)

    Birch, Rt. Hn. Nigel

    Heald, Rt. Hn. Sir Lionel

    Pardoe, J.

    Black, Sir Cyril

    Heath, Rt. Hn. Edward

    Peel, John

    Blaker, Peter

    Heseltine, Michael

    Pounder, Rafton

    Body, Richard

    Higgins, Terence L,

    Powell, Rt. Hn. J. Enoch

    Boyd-Carpenter, Rt. Hn. John

    Hill, i. E. B.

    Prics, David (Eastleigh)

    Boyle, Rt. Hn. Sir Edward

    Hirst, Geoffrey

    Prior, J. M. L.

    Brewis, John

    Hobton, Rt. Hn. Sir John

    Ramsden, Rt. Hn. James

    Brinton, Sir Tatton

    Holland, Philip

    Renton, Rt. Hn. Sir David

    Brown, Sir Edward (Bath)

    Hooson, Emlyn

    Roots, William

    Buchanan-Smith, Alick (Angus, N&M)

    Hordern, Peter

    Rossi, Hugh (Hornsey)

    Buck, Anthony (Colchester)

    Hornby, Richard

    Scott, Nicholas

    Bullus, Sir Eric

    Howell, David (Guildford)

    Sinclair, Sir George

    Burden, F. A.

    Hutchison, Michael Clark

    Stainton, Keith

    Campbell, Gordon

    Jenkin, Patrick (Woodford)

    Steel, David (Roxburgh)

    Carlisle, Mark

    Johnston, Russell (Inverness)

    Talbot, John E.

    Carr, Rt. Hn. Robert

    Jopling, Michael

    Taylor, Sir Charles (Eastbourne)

    Chichester-Clark, R.

    Kimball, Marcus

    Taylor,Edward M.(G'gow,Cathcart)

    Clegg, Walter

    Langford-Holt, Sir John

    Taylor, Frank (Moss Side)

    Cooke, Robert

    Legge-Bourke, Sir Harry

    Teeling, Sir William

    Corfield, F. V.

    Lloyd, Ian (P'tsm'th, Langstone)

    Temple, John M.

    Craddock, Sir Beresford (Spelthorne)

    Longden, Gilbert

    Thatcher, Mrs. Margaret

    Crosthwaite-Eyre, Sir Oliver

    Loveys, W. H.

    Thorpe, Jeremy

    Crouch, David

    Lubbock, Eric

    Turton, Rt. Hn. R. H.

    Crowder, F. P.

    MacArthur, Ian

    Van Straubenzee, W. R.

    Cunningham, Sir Knox

    Mackenzie, Alasdair(Ross&Crom'ty)

    Wainwright, Richard (Colne Valley)

    Dalkeith, Earl of

    Maclean, Sir Fitzroy

    Walker, Peter (Worcester)

    Davidson,James(Aberdeenshire, W.)

    Macleod, Rt. Hn. lain

    Ward, Dame Irene

    Dean, Paul (Somerset, N.)

    McMaster, Stanley

    Weatherill, Bernard

    Deedes, Rt. Hn. W. F. (Ashford)

    Maddan, Martin

    Webster, David

    Dodds-Parker, Douglas

    Marten, Neil

    Wells, John (Maidstone)

    Doughty, Charles

    Mathew, Robert

    Whitelaw, William

    Eden, Sir John

    Maude, Angus

    Wills, Sir Gerald (Bridgwater)

    Elliot, Capt. Walter (Carshalton)

    Maxwett-Hyslop, R. J.

    Wilson, Geoffrey (Truro)

    Elliott, R.W.(N'c'tle-upon-Tyne, N.)

    Maydon, Lt.-Cmdr. S. L. C.

    Winstanley, Dr. M. P.

    Errington, Sir Eric

    Mills, Peter (Torrington)

    Wolrige-Gordon, Patrick

    Eyre, Reginald

    Mills, Stratton (Belfast, N.)

    Wood, Rt. Hn. Richard

    Farr, John

    Miscampbell Norman

    Fisher, Nigel

    Monro, Hector

    TELLERS FOR THE NOES:

    Fletcher-Cooke, Charles

    More, Jasper

    Mr. Francis Pym and

    Mr. George Younger.

    Clause ordered to stand part of the Bill.
    It being after Ten o'clock, The CHAIRMAN left the Chair to report Progress and ask leave to sit again.
    Committee report Progress.

    BUSINESS OF THE HOUSE
    Ordered,
    That the Proceedings of the Committee of Ways and Means may be entered upon and proceeded with at this day's Sitting at any hour, though opposed.—[Mr. Fitch.]

    FINANCE BILL
    Again considered in Committee.

    Clause 23.—(DIRECTORS AND EMPLOYEES OF COMPANIES GRANTED RIGHTS TO ACQUIRE SHARES.)
    Mr. Hordern: I beg to move Amendment No. 214, in page 23, line 3, after "right" to insert:
    178
    "granted or acquired after the said date".
    I understand that it will be convenient to the Committee if together with this Amendment we discuss Amendment No. 215, in line 7, at end insert:
    "which has accrued since the date aforesaid".
    Amendment No. 217, in page 24, leave out lines 29 to 38.
    Amendment No. 218, in Schedule 3, page 69, line 10, leave out subparagraph (2).
    The whole of this Clause is nasty, brutish and long. The effect of these Amendments is perfectly simple. It is to take the retrospective element out of the Clause. The Chief Secretary made a great deal of play about the fact that Clause 22 contained no retrospective element. We completely failed to agree with him in that argument. I do not believe that anyone can claim that the effect of this Clause is not retrospective.

    179
    The Chancellor said in his Budget Statement that
    "any increase in the value of"
    share options
    "which took place before today will be left out of account."—[OFFICIAL REPORT, 3rd May, 1966; Vol. 727, c. 1435.]
    I have no doubt that the purpose of that statement was to prove to the House of Commons that there was no retrospective element in this Clause. But there is. It depends on the definition of an option. The option can only exist at the time that the right to it is granted. It is nothing more nor less than a contractual right. It is a conditional reward given by a company to an employee or a director or an executive for past services or for future services rendered, and it is the value of that option granted at that time that is the value that can be taxed, and no other.
    Rule 1 of Schedule E taxes a person
    "exercising an office or employment of profit … in respect of all salaries, fees, wages, perquisites or profits whatsoever … for the year of assessment."
    There can be no doubt that that year of assessment can only apply to the year in which the option is granted. It cannot conceivably apply when the option is exercised because at that time there can be no right of exercise for the executive or employee unless it had been granted at a previous time. It is, therefore, only the grant itself which is capable of bearing taxation at all, and this fact has been borne out by a famous and most excellent judgment in the House of Lords in the case of Abbott v. Philbin. Indeed, to be eligible under Schedule E at all it would surely have to be shown that a profit——
    Mr. Barnett: Would the hon. Gentleman not agree that the case of Varty v. British South African Company rather confused the issue?
    Mr. Hordern: I do not think it confused the issue at all. I think the case which I cited was a finer example, had a great deal more legal merit, although I am no lawyer, and certainly more up-to-date merit than the case which the hon. Gentleman has specified.
    Besides that legal argument, it is surely the case that to be eligible under Schedule E it would have to be shown that a
    180
    profit when the option rights are exercised was incurred by a person exercising his office and, of course, nothing of the kind can be shown. When an option is granted, all that happens is that an employee or an executive is invited to engage upon the swings and roundabouts of outrageous fortune in the fortunes of the shares of his company. To suggest that the price of the shares increases because of the work of that particular individual and that that is the sole reason for the increase in the prices of the shares is a perfectly ludicrous understanding for anyone who knows anything about the movement of share prices. Indeed, the price of the shares which have been granted to the employee or executive could easily have gone up for a whole variety of reasons—for a cheap money policy advocated by the Government, because of the Corporation Tax which produces a scarcity of shares. All the outside influences with 101 different reasons for the movement of shares could operate.
    Nobody could use the argument that shares have appreciated in value entirely because of the office of employment of the employee or executive. But that is what would have to be argued if this liability to Schedule E tax were to be incurred. The value of the option, therefore, can only be the consideration given for the option when it is granted. If the option turns out to be profitable, that is almost entirely conditional and fortuitous, and is very little indeed to do with the work of the particular employee or executive to whom the rights are granted. Yet it is to be treated by Schedule E as if the profit were to be unconditional and uncertain. I suppose that any reasonable person would understand that it should be possible to offset losses against the same tax. That is what we shall attempt to do in a later Amendment.
    10.15 p.m.
    What is perfectly monstrous about the Clause is that it interferes retrospectively with a contract made between a company and its employees and executives at an earlier date. That is precisely what the Clause does, and that is why we oppose it and why the Amendments are framed in the way that they are.
    I do not know what arguments the Financial Secretary may bring to bear when he answers these points. We wish

    181
    to address ourselves entirely to the retrospective element in the Clause, and we shall listen with great interest to what he has to say. It is extremely unlikely that this will be in the least satisfactory, and it is highly likely that I shall have to advise my right hon. and hon. Friends to divide the Committee.
    Mr. MacDermot: The Amendments propose that Clause 23 should apply only to options granted or acquired after Budget Day. As the hon. Member for Horsham (Mr. Hordern), who moved the Amendment clearly and shortly, said, it is based on the principle that if it were to apply to options granted or acquired before Budget day, it would be retrospective legislation. I hope to satisfy the Committee that that is a complete fallacy.
    Retrospective legislation is legislation which involves an Amendment ex post facto of the law applicable to particular events which have already taken place. In some cases it is legitimate to do that, and we discussed the principles as to when it is legitimate at considerable length on the War Damage Act, 1965. We are not concerned with that here, because I hope to satisfy the Committee that this is not retrospective legislation.
    We are not legislating to set aside, for example, the decision in the case of Abbott v. Philbin to which the hon. Member for Horsham referred, or to set aside the right of people who, before Budget day, relying on the decision of the House of Lords in that case, had exercised options that had been granted. In taxation, retrospective legislation means the imposition of a liability on transactions which have already been completed and which were not taxable at the time when they were completed. All that the Clause does is to impose tax on a specific event, namely the taking up, assignment or release of a share option. It does that only when that event happens after Budget day.
    Therefore, on the simple test as to whether the events are complete to which the taxation applies, the answer is, "No", since in no circumstances can those events have been completed before Budget day for the Clause to operate as it is drafted.
    Another principle to which the hon. Gentleman referred, and on which, presumably, the supporters of the Amendment rely, is that if a person can be
    182
    shown to have contracted to do something on the footing that certain tax consequences would follow, and that he would suffer a loss if the tax consequences were altered while he remained bound by his contract, then it may be unfair to alter the law so as to impose that loss upon him.
    That is a principle which, for example, we have taken into account in the decision which we made in Clause 27, to which we shall come before very long, that single-premium bonds issued before Budget day should not be subject to that Clause.
    I argue that, certainly on this principle, it would not be retrospective legislation to have made it such. But it could be said in those cases, perhaps, that people had entered into contracts on the faith of the tax position as it then was. That does not apply here. Taxpayers with share options for which they pay only a nominal sum, if any, at the time when the option is granted are not under any kind of contractual liability in relation to their share options. They are quite free either to exercise them or not.
    What we are proposing in relation to these options is exactly comparable to what the Conservative Government did in the 1960 Finance Act in respect of provisions which are not very dissimilar in their subject matter from these. Section 32 of that Act imposed a tax on certain receipts received after a trade, profession or vocation had been discontinued, even though such receipts had been exempt in previous years, again due to a decision of the House of Lords which had reversed what had previously been thought to be the law. There is a comparable situation here with the case of Abbott v. Philbin. The liability was imposed on those receipts even though the contractual right to receive them had already arisen before Budget day that year.
    Another example is the "golden handshake" provision in the same Finance Act. That imposed a liability to tax on "golden handshakes", including the commutation of certain pensions. A director who had a right to commute his pension could exercise it at any time during the year 1959–60 without incurring any tax liability, but if he commuted it after 6th April, 1960 —Budget day—he became liable to tax

    183
    even though his right to the pension, and to commute it, had been fully established by contract before that Budget day.
    I suggest that that is a close analogy to what we are now discussing, and that it clearly establishes the principle for which I am contending. In any event, I suggest that it would be somewhat naive and artificial to say that people have been granted options or have accepted them during the period since the case, of Abbott v. Philbin in the expectation that the law in that case would not be altered. There has been widespread speculation in the Press on the question how long that decision would continue in force. I do not base my argument on that; I based it on the clear principles which I have stated. I
    184
    say that this is not retrospective legislation.
    If it were accepted the Amendment would produce some illogical and strange results. Often options are granted up to a ten-year period and it might therefore still come about in 1975 that a person could exercise an option and still be exempt from tax, because the exemption was granted before Budget day, whereas many people who had been granted options since Budget day and could exercise them much earlier than 1975—and did so—would be subject to tax. I rest my argument on the principles that I have stated. The simple answer to the hon. Member is that the charge that this is retrospective legislation is without foundation.
    Mr. John Nott: I happen to be the beneficiary of an option for 4,000 shares in the company with which I was previously working. I may therefore look at this matter from a somewhat subjective point of view. Nevertheless, I completely disagree with what the Financial Secretary has just said. I believe that a liability in respect of transactions already completed does arise, and that this Clause is retrospective, for reasons which I shall try to explain.
    In the case of options already granted to employees of a company, the following has already taken place. In the first place, the beneficiary of the option, the person granted it, has already been assessed for tax by the Inland Revenue on the value of the grant. The Revenue has already assessed the option as something which he has received as an emolument of his employment. In many cases the Income Tax which such an employee has paid has been quite considerable.
    In deciding whether or not to accept an option from his company, an employee had to decide whether the tax for which he was assessed outweighed the advantages he would gain from receiving a quite intangible benefit. To my knowledge, employees of many companies offered options have rejected them because they felt that the tax liabilty imposed on them at the time of the grant did not make it worth their while to accept the option.
    Worse still—this is the point which the Financial Secretary has not grasped, and, incidentally it applies in my case— many employees have agreed with the Revenue to accept their option at a striking price well above the market price of the shares at the time it was granted in consideration of their not being assessed for tax at the time of the grant. I have here a note which I made following a conversation which I had with the Revenue on this very matter. In 1965, the Revenue told me that, if the option was granted 15 per cent, above the market price on the day of the grant, there would be no tax problem and I— the same applies to others in a similar position—would not be assessed for Income Tax. If, on the other hand, the option price was granted 10 per cent, above the market price, there would have to be restrictions on the time when the option was exercised; in other words,
    186
    there would be a graduated period over which the option could be exercised.
    The point I emphasise is that I have given consideration for that option because I have forgone the right to take an option at the market price I have taken it at 15 per cent, above the market price in consideration that, and after agreeing with the Revenue that, I should not be assessed for tax.
    The situation is now being completely changed. There is a clear element of retrospection in what the Financial Secretary proposes. That is the point from the individual's angle. There is retrospection also from the point of view of the shareholders of the company who in general meeting agreed that these options should be granted. They agreed to forgo part of their proprietary rights over their shares, they agreed to have their equity in the company diluted at some future date, on the basis that employees of the company were being given something which now, because of what the Government propose, has become worthless. The shareholders agreed to give part of their proprietary rights away so that employees of the company might be given a benefit which would encourage them to work harder in the future, but now that the options which have been granted are to bear Income Tax, this makes them virtually worthless in the hands of those who have already received them.
    This is why I say that there is retrospection in the Clause, first, because many employees have already paid Income Tax at the time of the grant. Others have not paid Income Tax because they agreed with the Revenue not to have a striking price at the market but at 15 per cent, above the market at that date and exercise it in a graduated way over a period of years. That is the consideration which they gave for not being assessed for Income Tax at the time.
    Secondly, I consider it retrospective so far as the shareholders are concerned because they agreed to forgo future proprietary rights in the shares which belonged to them in consideration of the fact that the employees of the company were being granted something which had value, whereas now as a result of the Clause it will have no value at all.
    10.30 p.m.
    Mr. Harold Lever: This is a narrow but rather important point about retrospection. I am speaking only to the question of retrospection because I am anxious that when there is any harsh retrospective legislation the House and the Committee should react appropriately. Our protests in such circumstances would be weakened if by false logic we shouted retrospection on innumerable occasions when there was no retrospection.
    I would make clear to the Committee right away that I entirely agree with my hon. and learned Friend that there is no retrospection in this instance, and I hope to satisfy the Committee that that is so by one or two simple tests. I want hon. Members to keep their minds clear that what we are talking about now is retrospection only, not the merits or fairness of the substantive Clause itself.
    If I have an option on shares, as I have at the present moment, I have the expectation that if I exercise it no tax will fall upon me. I have paid good money to take the option under the law as it stands and as it will stand next year. If I exercise my option in the following year, no tax will arise for the reason of the exercise of the option. Would anybody say that if the Chancellor decided that when options are exercised tax shall be levied, of whatever kind, that will be retrospection if only applied to the exercise of options after the date of the Finance Bill? Of course not. If there was not a sense of unfairness for other reasons in the mind of the hon. Member for St. Ives (Mr. Nott), I feel sure that if he felt that the tax was fair in itself and was satisfied with its substantive merits, he would not have the feeling that it was retrospection.
    What the Chancellor is doing is not retrospeoting but disappointing expectations as to the future tax liabilities that people not unreasonably held. I deal with the two particular cases which the hon. Gentleman mentioned, from the point of view only of retrospection. First, he says that some people have already been taxed upon their option. Clearly, that is in respect of the value of the option itself. In those cases tax on the option has been inflicted upon the taxpayer. Suppose a new tax were made payable not upon the receipt of the
    188
    option but upon its exercise and the profits thereby gained. I will not discuss it now because I think it would be exceedingly unfair if a second tax were charged on the same profits. That is a good case for saying that the tax on the exercise of options should be mitigated or reduced by the amount of tax that has already been exacted. This has nothing to do with retrospection.
    The same thing applies to the other question, that what the hon. Gentleman agreed with the Inland Revenue, or someone else did, was that no tax should be payable in consideration of their accepting particular terms of the option. But the tax which it was agreed then should not be payable was the existing tax; that is, the tax upon the option. It was not the tax which is now to be imposed, which is the tax on profits achieved by acquiring a share below its market value. There are two distinct bodies of profit which are taxed: one under the old law, the' receipt of an option and its value, and the other under the new law, the future activities of the tax payer, namely, the exercise profitably of an option.
    Mr. Nott: Would not the hon. Gentleman agree that if the person in question had agreed to be taxed at the time of the grant and accepted the option at 5 per cent, above the market, he would be better off than he will be now as a result of the new Clause? That is my point, and that is the element of retrospection in the Clause.
    Mr. Lever: I am seeking to persuade the Committee that there is an element of possible unfairness in the Clause but not an element of retrospection. For example, in my own case, I paid good money for the suggested option because I believed that, if I exercised it, I would achieve the receipt of a capital asset substantially below market value. If the Chancellor decides to tax me upon the exercise of the option, I might think it unfair that he should suddenly reverse tax policy and make me pay tax in circumstances that have hitherto been tax free, but I could not accuse him of retrospection.
    The hon. Member has made out a case for saying that this tax might be unfair but not for saying that it might be retrospective. There is little doubt

    189
    that the Chancellor is within his rights from the retrospection point of view to operate this Clause. It is for the Committee to consider, on other Amendments and on the Clause itself, whether the Clause is desirable and just or whether it initiates cases of hardship which operate unfairly on some people, but we are considering now retrospection and there is no argument that this is a retrospective activity by the Chancellor.
    Mr. W. R. van Straubenzee: I am sure that, as always, the hon. Member for Manchester, Cheetham (Mr. Harold Lever) has convinced himself but he will forgive me when I say that some of his latter argument was of a very close kind and that it was not easy for all of us to see the difference he was drawing.
    There is an aspect of this transaction which closely links the grant and the taking up of the option, and it is on the grant as opposed to the taking up of the option that the Financial Secretary is resting so much of his case. Let us take an aspect which has not so far been discussed and in respect of which I have no personal interest. Indeed, I seem to be the only hon. Member present who does not have an option on something or other.
    There are perfectly proper, honourable and upright transactions when men who have worked exceedingly hard and have built up a business part with it in the general way of floating it or obtain capital from outside, the business having grown to a certain stage of needing outside help, and when part of the consideration is an option. I have an exact case in mind in respect of which, I repeat, I have no personal interest other than constituency, and I will not bore the Committee with details.
    At the time the option was made— it has not yet been taken up—it was a perfectly fair and proper transaction for, in this case, two men. Through their personal exertions, they built up a company and brought great prosperity to many people and to the neighbourhood. Now, however, the basis of the transaction is to be wholly altered. I suggest to the Financial Secretary that there is a strong retrospective element, because the taking up of an option is so closely linked with the situation of the grant of the option.
    190
    My two constituents parted with a substantial interest in the company and have a strong personal sense of resentment that the Government are to impose an element of retrospection on a perfectly proper and upright transaction. I cannot see the narrow distinction it is sought to draw. The gloomy forecast of my hon. Friend the Member for Horsham (Mr. Hordern) was justified.
    Mr. MacDermot: The hon. Member for St. Ives (Mr. Nott) has already been answered by my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever). He spoke about liability for tax at the time of the grant. I stress that this is a rare occurrence and that in the vast majority of cases share options are of nominal value at the time they are granted and it is, therefore, virtually impossible to establish any value at that time, but when there is substantial value the question is whether the terms of the tax which we propose to impose are fair, and we can discuss that when we come to debate the terms of the Clause in detail. Under paragraph 1(2) of the Third Schedule, where the pre-Budget day option such as the hon. Gentleman is talking about is exercised after Budget day, the amount, if any, assessed to tax under Schedule E at the time of the grant will be treated as if it were part of the price of the option, so that we have taken this into account in deciding what is fair when taxing the exercise of the option when that time comes.
    I cannot accept the argument that retrospective legislation is involved in the position of the shareholders any more than it would have been if they had agreed to a service contract, say, for the managing director of the company to last for several years ahead and the rates of tax on that income were later changed. I remind the hon. Member for Wokingham (Mr. van Straubenzee) of the example which I gave of the golden handshake. Surely the two situations are entirely parallel. A director or employee who had a contract under which he was entitled to a pension which he was entitled to commute in a way which would give him a large tax-free sum prior to 1960 and who entered into a contract with the company on the understanding that he was to have that benefit, when hon. Members opposite passed their Finance

    191
    Act, 1960, found himself in the position of having to pay tax on it.
    The only difference is that the two gentlemen to whom the hon. Gentleman referred had an expectation that they would receive what in effect was remuneration for their services at a future date tax-free, and now the law is being altered so that they will have to pay tax on it. But there is no retrospection in that.
    Mr. Hordern: I must advise my hon. Friends that the explanations which we have had from the Financial Secretary and the hon. Member for Manchester, Cheetham (Mr. Harold Lever) have been wholly unsatisfactory, as I forecast that they would be. The hon. Member for Cheetham said that the case put by my hon. Friend the Member for St. Ives (Mr. Nott) might be unfair, but was not retrospective. It was both unfair and retrospective. The Financial Secretary has completely failed to answer the point that the only taxable transaction is the grant of the option in the first place. It must be so. What happens is that a man is willing to part with his labour, in the words of Adam Smith, or part of his labour in return for the grant of an option which may become available to him in future. That is the only certain taxable thing which is given to him.
    Mr. Harold Lever: Would the hon. Gentleman deal with the point which I made about my own option? When I parted with money for this option it was in the expectation that I would get a tax-free transaction if I took up the option. Would he say whether the Chancellor would be retrospecting if he
    decided that all options taken up should be assessed for tax on the difference between the price paid for the option taken up and the market value of the shares?
    Mr. Hordern: In that case, there is no retrospective element, simply because this Clause specifically takes the value of the option to be the difference in value between the Budget date and the date at which it is exercised. That is what is called the value of the option. We deny the whole basis of that and say that the only value of an option is at the time granted.
    The second point which I must put again is that one cannot tell with any certainty what the reward will be when the option is exercised. It depends and is wholly conditional on a whole host of factors which certainly could not be in the minds of the company which originally granted the option.
    The Financial Secretary has referred to the case of a service contract and the golden handshake. The difference is that in both cases the reward is certain and fair. The difference with an option is that the time when it is exercised is the only time of any possibility of any kind of reward occurring, and we hold firmly to the view that the time at which the option was granted is the only time at which a tax can be levied and that only on the value of the grant itself.
    On that point and at this stage, I must ask my hon. Friends to join me in the Lobby against the Government.
    Question put, That those words be there inserted:—
    The Committee divided: Ayes 119, Noes 214.

    Division No. 31.]

    AYES

    [10.45 p.m.

    Alison, Michael (Barkston Ash)

    Buchanan-Smith, Alick(Angus,N&M)

    Deedes, Rt. Hn. w. F. (Ashford)

    Astor, John

    Buck, Antony (Colchetter)

    Dodds-Parker, Douglas

    Awdry, Daniel

    Campbell, Gordon

    Doughty, Charles

    Batsford, Brian

    Carlisle, Mark

    Eden, Sir John

    Bell, Ronald

    Carr, Rt. Hn. Robert

    Elliot, Capt. Walter (Carshalton)

    Bennett, Dr. Reginald (Gos. A Fhm)

    Castle, Rt. Hn. Barbara

    Elliott, R.W.(N'c'tle-upon-Tyne,N.)

    Berry, Hn. Anthony

    Chichester-Clark, R.

    Errington, Sir Eric

    Biffen, John

    Clegg, Walter

    Eyre, Reginald

    Biggs-Davison, John

    Cooke, Robert

    Farr, John

    Birch, Rt. Hn. Nigel

    Corfield, F. V.

    Fisher, Nigel

    Black, Sir Cyril

    Crosthwaite-Eyre, Sir Oliver

    Fletcher-Cooke, Charles

    Blaker, Peter

    Crouch, David

    Fortescue, Tim

    Body, Richard

    Crowder, F. P.

    Glover, Sir Douglas

    Boyd-Carpenter, Rt. Hn. John

    Cunningham, Sir Knox

    Griffiths, Eldon (Bury St. Ildmunds)

    Boyle, Rt. Hn. Sir Edward

    Dalkeith, Earl of

    Gurden, Harold

    Brewit, John

    Dance, James

    Hall-Davis, A. G. F.

    Brinton, Sir Tatton

    d'Avigdor-Goldsmid, Sir Henry

    Hawkins, Paul

    Brown, sir Edward (Bath)

    Dean, Paul (Somerset, N.)

    Heald, Rt. Hn. Sir Lionel

    Heath, Rt. Hn. Edward

    Maddan, Martin

    Rossi, Hugh (Homsey)

    Higgine, Terence L.

    Maude, Angus

    Scott, Nicholas

    Hill, J. E. B.

    Maxwell-Hyslop, R. J.

    Sinclair, Sir George

    Hirst, Geoffrey

    Maydon, Lt-Cmdr. S. L. C.

    Stainton, Keith

    Hobson, Rt. Hn. Sir John

    Mills, Peter (Torrington)

    Talbot, John E.

    Hogg, Rt. Hn. Quintin

    Mills, Stratton (Belfast, N.)

    Taylor, Sir Charles (Eastbourne)

    Holland, Philip

    Monro, Hector

    Taylor,Edward M.(G'gow,Cathcart)

    Hordern, Peter

    More, Jasper

    Taylor, Frank (Moss Side)

    Hornby, Richard

    Munro-Lucas-Tooth, Sir Hugh

    Teeling, Sir William

    Hutchison, Michael Clark

    Neave, Airey

    Temple, John M.

    Jenkin, Patrick (Woodford)

    Nicholls, Sir Harmar

    Thatcher, Mrs. Margaret

    Jopling, Michael

    Noble, Rt. Hn. Michael

    Turton, Rt. Hn. R. H.

    Kaberry, Sir Donald

    Nott, John

    van Straubenzee, W. R.

    Kimball, Marcus

    Osborn, John (Hallam)

    Ward, Dame Irene

    Knight, Mrs. Jill

    Page, Graham (Crosby)

    Weatherill, Bernard

    Langford-Holt, Sir John

    Peel, John

    Webster, David

    Legge-Bourke, Sir Harry

    Pounder, Rafton

    Wells, John (Maidstone)

    Longden, Gilbert

    Powell, Rt. Hn. J. Enoch

    Whitelaw, William

    Loveys, W. H.

    Price, David (Eastleigh)

    Wilson, Geoffrey (Truro)

    MacArthur, Ian

    Prior, J. M. L.

    Wolrlge-Gordon, Patrick

    Maclean, Sir Fitzroy

    Pym, Francis

    Macleod, Rt. Hn. Iain

    Renton, Rt. Hn. Sir David

    TELLERS FOR THE AYES:

    McMaster Stanley

    Roots, William

    Mr. George Younger and Mr. Anthony Grant.

    NOES

    Allaun, Frank (Salford, E.)

    Fernyhough, E.

    Lawson, George

    Alldritt, Walter

    Fletcher, Raymond (Ilkeston)

    Lee, John (Reading)

    Allen, Scholefleld

    Fletcher, Ted (Darlington)

    Lever, Harold (Cheetham)

    Archer, Peter

    Floud, Bernard

    Lewis, Arthur (W. Ham, N.)

    Armstrong, Ernest

    Foley, Maurice

    Lewis, Ron (Carlisle)

    Ashley, Jack

    Forrester, John

    Lomas, Kenneth

    Atkins, Ronald (Preston, N.)

    Fowler, Gerry

    Luard, Evan

    Atkinson Norman (Tottenham)

    Fraser, John (Norwood)

    Lubbock, Eric

    Barnett, Joel

    Fraser, Rt. Hn. Tom (Hamilton)

    Lyon, Alexander w. (York)

    Baxter, William

    Freeson, Reginald

    Lyons, Edward (Bradford, E.)

    Benn, Rt. Hn. Anthony Wedgwood

    Galpern, Sir Myer

    Mabon, Dr. J. Dickson

    Bennett, James (G'gow, Brdgeton)

    Gardner, A. J.

    McBride, Neil

    Bidwell, Sydney

    Garrow, Alex

    McCann, John

    Bishop, E. S.

    Ginsburg, David

    MacDermot, Niall

    Blackburn. F.

    Gordon Walker, Rt. Hn. P. C.

    Macdonald, A. H.

    Boardman, H.

    Gourlay, Harry

    Mackenzie, Alasdalr(Ross&Crom'ty)

    Booth, Albert

    Gray, Dr. Hugh

    Mackenzie, Gregor (Rutherglen)

    Braddock, Mrs. E. M.

    Gregory, Arnold

    Mackintosh, John P.

    Brown, Rt. Hn. George (Belper)

    Grlmond, Rt. Hn. J.

    Maclennan, Robert

    Brown,Bob(N'c'tle-upon-Tyne,W.)

    Hamilton, James (Bothwell)

    McMillan, Tom (Glasgow, C.)

    Brown, R. W. (Shoreditch & F'bury)

    Hamilton, William (Fife, W.)

    MacPherson, Malcolm

    Buchan, Norman

    Hamling, William

    Mahon, Peter (Preston, S.)

    Buchanan, Richard (G'gow, Sp'burn)

    Hannan, William

    Mahon, Simon (Bootle)

    Butler, Mrs. Joyce (Wood Green)

    Harper, Joseph

    Manuel, Archie

    Callaghan, Rt. Hn. James

    Hazell, Bert

    Mapp, Charles

    Cant, R. B.

    Henig, Stanley

    Marquand, David

    Carmichael, Neil

    Hilton, W. S.

    Marsh, Rt. Hn. Richard

    Carter-Jones, Lewis

    Hobden, Dennis (Brighton, K'town)

    Mason, Roy

    Chapman, Donald

    Hooley, Frank

    Millan, Bruce

    Coe, Denis

    Hooson, Emlyn

    Miller, Dr. M. S.

    Coleman, Donald

    Horner, John

    Mitchell, R. C. (S'th'pton, Test)

    Corbet, Mrs. Freda

    Howarth, Harry (Wellingborough)

    Morgan, Elystan (Cardiganshire)

    Craddock, George (Bradford, S.)

    Howarth, Robert (Bolton, E.)

    Morris, Charles R. (Openshaw)

    Cronin, John

    Howell, Denis (Small Heath)

    Moyle, Roland

    Cullen, Mrs. Alice

    Howie, W.

    Mulley, Rt. Hn. Frederick

    Dalyell, Tarn

    Hoy, James

    Neal, Harold

    Davidson,James(Aberdeenshire, W.)

    Hughes, Rt. Hn. Cledwyn (Anglesey)

    Newens, Stan

    Davies, Dr. Ernest (Stretford)

    Hughes, Emrys (Ayrshire, S.)

    Noel-Baker,Rt.Hn.Philip (Derby,S.)

    Davies, Harold (Leek)

    Hughes, Roy (Newport)

    Ogden, Erie

    Davies, Robert (Cambridge)

    Hunter, Adam

    O'Malley, Brian

    Dell, Edmund

    Hynd, John

    Orme, Stanley

    Dempsey, James

    Irvine, A. J. (Edge Hill)

    Oswald, Thomas

    Dewar, Donald

    Jackson, Colin (B'h'se & Spenb'gh)

    Padley, Walter

    Diamond, Rt. Hn. John

    Jackson, Peter M. (High Peak)

    Page, Derek (King's Lynn)

    Dickens, James

    Jeger, George (Goole)

    Pardoe, J.

    Dobson, Ray

    Jeger, Mrs. Lena(H'b'n&St.P'cras,S.)

    Park,Trevor

    Doig, Peter

    Johnson, Carol (Lewisham, S.)

    Parker, John (Dagenham)

    Dunn, James A.

    Johnson, James (K'ston-on-Hull, W.)

    Parkyn, Brian (Bedford)

    Dunnett, Jack

    Johnston, Russell (Inverness)

    Pavitt, Laurence

    Dunwoody, Mrs. Gwyneth (Exeter)

    Jones, Dan (Burnley)

    Perry, George H. (Nottingham, S.)

    Eadie, Alex

    Jones,Rt.Hn.SirElwyn(W.Ham,S.)

    Prentice, Rt. Hn. R. E.

    Edwards, William (Merioneth)

    Jones, J. Idwal (Wrexham)

    Price, Christopher (Perry Barr)

    Ellis, John

    Judd, Frank

    Price, Thomas (Westnoughton)

    English, Michael

    Kelley, Richard

    Price, William (Rugby)

    Ennals, David

    Kenyon, Clifford

    Randall, Harry

    Ensor, David

    Kerr, Mrs. Anne (R'ter & Chatham)

    Redhead, Edward

    Evans, Albert (Islington, S.W.)

    Kerr, Dr. David (W'worth, Central)

    Rees, Merlyn

    Evans, loan L. (Birm'h'm, Yardley)

    Kerr, Russell (Feltham)

    Rhodes, Geoffrey

    194

    195

    Roberts, Albert (Normanton)

    Steele, Thomas (Dunbartonshire, W.)

    Williams, Alan (Swansea, w.)

    Roberts, Goronwy (Caernarvon)

    Summerskill, Hn. Dr. Shirley

    Williams, Alan Lee (Hornchurch)

    Robinson, W. O. J. (Walth'stow, E.)

    Symonds, J. B.

    Willis, George (Edinburgh, E.)

    Ross, Rt. Hn. William

    Thorpe, Jeremy

    Wilson, William (Coventry, S.)

    Rowland, Christopher (Meriden)

    Tuck, Raphael

    Winnick, David

    Rowlands, E. (Cardiff, N.)

    Urwin, T. W.

    Winstanley, Dr. M. P.

    Ryan, John

    Varley, Eric G.

    Shaw, Arnold (Ilford, S.)

    Wainwright, Richard (Colne Valley)

    Winterbottom, R. E.

    Sheldon, Robert

    Walden, Brian (All Saints)

    Woodburn, Rt. Hn. A.

    Short, Rt. Hn. Edward(N'c' tle-u-Tyne)

    Walker, Harold (Doncaster)

    Woof, Robert

    Short, Mrs.Renée (W'hampton,N.E.)

    Wallace, George

    Yates, Victor

    Silkin, John (Deptford)

    Watkins, David (Consett)

    Silkin, S. C. (Dulwich)

    Wellbeloved, James

    TELLERS FOR THE NOES:

    Silverman, Julius (Aston)

    Wells, William (Walsall, N.)

    Mr. William Whitlock and Mr. Alan Fitch.

    Steel, David (Roxburgh)

    White, Mrs. Eirene

    Mr. MacDermot: I beg to move, Amendment No. 233, in page 23, line 4, after "that", to insert "or any other".
    The Chairman: I think that it would be for the convenience of the Committee if that Amendment and Amendments Nos. 234 to 238 were taken together.
    Mr. MacDermot: I am grateful to you, Sir Eric. I think that that would be convenient, because they are all related to the same matter.
    These Amendments are designed to widen the scope of the Clause so as to include in the charge the grant of options in companies other than the company or group of companies by which the director or employee is employed. It will include the case where a director is employed in one of a group of companies. If the Committee decides to accept these Amendments, subsection (10) as drafted will become unnecessary, and indeed the last Amendment proposes to leave it out.
    Hon. Members may think that the likelihood of a person being granted an option in a company other than the one in which he is employed, and which does not belong to the same group of companies, is rather remote. Certainly we would not dispute that or disagree with it, but there has been some comment in the financial Press since the publication of the Finance Bill to the effect that we have not covered this eventuality.
    The suggestion was made, I think first in the Economist, that an option might be granted in an investment company which held shares in the employing company, and that that could well be given to a director without attracting liability under this Clause, provided that the investment company was not technically controlled by his employing company. I say at once that we have not come across any option scheme of this kind, but we agree that it would not be very difficult
    196
    for avoidance experts to contrive a device of that kind, and indeed there are other ways in which it could be done.
    Now that these possibilities have been referred to in the Press, I think that perhaps the Committee will agree that it is better to legislate to exclude them, and this is the sole object of these Amendments.
    Mr. Hordern: It is a little ingenuous of the Financial Secretary to tell the Committee that the Government's attention has been drawn by the Economist to a particular case at this stage. The financial Press has been full of a particular type of company operation for at least a month, and possibly a good deal longer. It is a type of operation which has come to be known as a Garda operation, and I presume that the purpose of these Amendments—and there are many of them—is to plug the loophole which existed under the terms of the original Clause which allowed a company to operate which could be called briefly a Garda-type scheme.
    I do not wish to bore hon. Gentlemen opposite with an exposition of what it means—I am sure that many of them know—but I should like to make clear our attitude to this scheme. It is that we have no objection in principle to a company giving an incentive by means of offering shares or options in another body corporate, whether an investment trust, a unit trust or anything else. Our objection to the Garda-type scheme comes solely from the point of view of concealment, that the shareholders of the company were not informed of this device in public meeting.
    11 p.m.
    There are also, of course, other objections—forcible ones—such as the granting of a debenture at beneath the current market rate in order to allow executives

    197
    the opportunity of receiving shares at a materially cheaper price than would otherwise be available. But even that case is offensive to us, because it has not been revealed to the shareholders and they were not called upon to approve it. We feel that the more suitable place for this kind of action is in a Companies Bill, which is why we feel so deeply about the absence of any legislation for companies in this Session. It was not even mentioned in the Queen's Speech.
    We do not think that this is a particularly good way of handling the Garda option, because it does not meet the main objection, that the shareholders were not informed. Nevertheless, we are not unsympathetic to the objectives of the Financial Secretary. We shall be coming to his points—there may well be many on Report——
    Mr. Harold Lever: Surely the hon. Gentleman is making heavy weather of this. The appropriate place to prevent a Garda-type operation, as he rightly said, is a Companies Bill. The appropriate place to deal with the tax consequences of a Garda-type operation is a Finance Bill, which is what we have here. So the Chancellor is in order.
    Mr. Hordern: If I could remind the hon. Member, it was not particularly the tax position of these investment trusts to which we are objecting. I want to say why.
    The first reason is that it is a sophisticated practice in the United States for an executive or an employee who has been granted options in his company, at the point of exercising the options to be able to convert the shares so exercised into a closed-end unit trust. This is not generally known, but it is the case, and they can do so without incurring a capital gains tax.
    I am sure that my hon. Friends would agree that this is a desirable long-term element which we should like to see introduced into the law. A great deal of the suspicion which at present surrounds shareholdings—I am talking about employees—is due to the fact that, having held shares in the company in which they have been for some years, they may find that the value of their shares goes down. This is particularly the case for employees who have long service with their company and feel that they would like a
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    broader spread and wider protection. It is just this movement, which comes from the shop floor, which will be effectively prevented by the Amendments.
    Of course, there was a movement from the other direction, that is to say, from the unit trust movement itself which was progressing on a wider share ownership basis not only through banks but on the shop floor, trying to induce workers to buy unit trust shares.
    The two forces were working together. It is more than unfortunate—I put it no higher—that the kind of wider share ownership to which all hon. Members pay lip service will be to some degree affected by the Amendments. We shall have more to say on the subject on the Question, "That the Clause, as amended, stand part of the Bill", but at this stage, in the absence of my hon. Friend wanting to say something, on the matter, I am content to remain where we are.
    Mr. Harold Lever: I want to demolish in a sentence or two such criticism as has been made of the Government in this instance. The Companies Act does not deal with the tax consequences of a scheme to give directors or employees share options in any company. Nor can it properly do so. As the hon. Member said, the only objectionable feature of that type of scheme is that it is not disclosed to shareholders. But the Chancellor wants to tax those options, whether they are disclosed to shareholders or not, and the only place to do that is in the Finance Bill—and he is right to do it.
    Mr. Hordern: The hon. Member has not done me his usual courtesy of listening to my remarks. I entirely agree with him. The objectionable part of the proposals is that they are not disclosed to the shareholders and that this should come out in the companies legislation. But we are not making that argument. We are merely saying that it has unfortunate effects if it is carried through, and I tried to give one or two examples. I do not say that it is altogether desirable but that we ought to bear in mind what the effects will be—and they are not altogether desirable.
    Amendment agreed to.
    Mr. Hordern: I beg to move Amendment No. 169, in page 23, line 5, to leave

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    out from "to" to the end of line 7 and to insert:
    "capital gains tax on the amount of any chargeable gain (or loss) computed under and in accordance with Part III of the Finance Act 1965 as amended by the provisions of this section."
    I understand that we may discuss at the same time the following Amendments:
    Amendment No. 219, in page 23, line 7, at the end to insert:
    "Such charge shall be spread over the years of assessment covering the period from the date of grant of the right to the date of its realisation, assignment or release:
    Provided that this clause shall not apply to—

    (a) the exercise of a right to acquire shares where the right was granted at the time a person was non-resident and the grant was in respect of an employment with a non-resident body corporate; and

    (b) the exercise of a right to acquire shares in a non-resident body corporate where that right was granted by a nonresident body corporate."

    Amendment No. 216, in page 23, line 31, at the end to insert:
    (3) Where a person is chargeable with income tax (including surtax) upon a gain which arises or accrues to him by virtue of an application of this section that person may require the tax so payable to be reduced so as not to exceed the total amount of income tax (including surtax) which would have been payable by him had that gain arisen in three equal annual amounts the first arising on the date on which it is taken so to arise.
    Amendment No. 172, in Schedule 3, page 69, line 5, to leave out sub-paragraph (1).
    Amendment No. 171, in Schedule 3, page 69, line 10, to leave out from the beginning to "tax".
    Amendment No. 170, in Schedule 3, page 69, line 12, to leave out from "1966" to "shall" in line 13.
    The Temporary Chairman (Mr. Grant Ferris): If that meets the convenience of the Committee.
    Mr. Hordern: The purpose of Amendment No. 169 is to make such gain or loss liable to Capital Gains Tax when the options are exercised. Both sides of the Committee give a great deal of lip-service to the ideals of wider share ownership and especially to the spread of employee share holdings, and it will be within the knowledge of the Committee that such schemes have had great
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    popularity and have been increasingly widespread during the last few years. One need not point out that many of our greatest companies now operate such schemes for their employees—such companies as I.C.I., Metal Box and, I believe, Rolls Royce. These schemes will be commended on all sides of the Committee. It is therefore quite ironic that the effect of the Clause is to tax an employee shareholder—one who works on the shop floor—at a far higher rate than an ordinary outside shareholder will be taxed.
    Consider, for example, a rights issue. A company can make a rights issue to its shareholders at a price slightly below the market price. It generally makes such shares available to its employee shareholders at the same price. The effect of the Clause is that the gain on the shares by the employee shareholders will be taxable as to Schedule E but a gain of the same amount to outside shareholders will not be taxed to Schedule E but will be taxed to Capital Gains Tax in the ordinary course of events. It is a remarkable state of affairs, and I never thought that I would live to see the day when a Socialist Government could be seen to soak the worker in order that the capitalist would have full use of his rights.
    What was intended was different. It was the intention to soak the directors and the executives and not the employees in the company. It is time to weigh up some of the consequences of this action.
    The Chancellor has rightly been consistently and constantly critical of management, and my hon. Friends and I believe that there is a good deal in what he has said. We are united in our view that we require more competition and higher rewards in industry; more of the stick and more of the carrot. And although options may not be a tangible rewards when granted, they are, nevertheless, a form of prospective compensation which can make a significant difference to an executive or other employee.
    I will illustrate what I have said. In the United States option schemes have flourished for many years. According to a survey conducted by McKinsey & Co., no less than 60 per cent, of all the companies quoted on Wall Street have option

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    schemes for their executives. The survey went on to show that the company with the highest paid top executive group in each industry earned a 50 per cent, greater return on investment than its average competitor and double the rate of return of its lowest paid competitor. I am not disposed to argue that high rewards necessarily go with efficiency, but there is certainly a connection between the two.
    It so happens that at present stock option schemes are not particularly popular in the United States, but that is entirely because the top rate of tax has come down in the last two years from 90 per cent, to 70 per cent.—while the top rate of tax in this country is now 91½ per cent. However, it is not necessary to refer to those on the top level of Surtax. The Chancellor made some remarks this afternoon about comparisons of people on various levels of income. I will put forward some examples to show the case in another direction.
    The Times had two interesting articles earlier this year, on 17th and 18th February, which compared executives' pay in the United Kingdom with executives' pay in the Netherlands, Belgium, West Germany, Sweden, Italy, France and the United States. A comparison was drawn between an executive earning £5,000 a year, married, with two children aged 11 and 16. Although £5,000 may sound a lot of money, it is not for the kind of executives about whom we are talking; the sort of people hon. Members on both sides of the Committee have said we must encourage. One can see from the figures that while a person earns £5,000 in this country, his counterpart in other countries earns, before tax, at least 20 per cent, more and, after tax— with the sole exception of the United States—very much more. And in the United States he earns 90 per cent. more. The higher the income the more this discrepancy is exaggerated.
    I put this to the Committee because the Chancellor tried to show earlier that we should not be too discouraged by any comparisons drawn between our remunerations and those of other countries. I have shown that the class of person about whom we are talking now, the £5,000 a year man, does not come out at all well in this country when making such comparisons.
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    One must observe the effect of this in our international dealings. There are many international companies operating in this country and they are increasing in number and scope. But the fact is, according to several reports, that it is now practically impossible to persuade men to come here if it means a drop in salary. Some of the largest international companies have reported that to persuade executives to come to work in this country they must be offered as much as three times the pay their counterparts would ordinarily get here. This is a factor which one must take into account when considering what would happen if share options were to be discontinued altogether.
    11.15 p.m.
    The rapid increase in sales is generally accompanied by a rapid increase in salaries. This is another finding of the McKinsey company. But the managing director's salary, whether for a company of £10 million or £100 million a year, is smaller in this country than in the others I have mentioned. We look with considerable alarm at the proposals which the Government have to wipe out share option schemes altogether. There is very little incentive for those not on the highest rate of income but in the £5,000 a year class. They cannot help but observe conditions in other countries. As travel becomes easier and their knowledge of conditions in other countries widens, there are natural tendencies for them to seek opportunities in other countries.
    We have put down in another Amendment what we think the ameliorative effect on options might be if it were spread over three years. We think it wrong in any case to levy the tax in the year of exercising the option. It is not the common experience where share options have existed for many years for those in receipt of them to sell them when they have been exercised. I understand that in America 70 per cent, of those who have share options and are entitled to them retain them. The Government have not made clear in the Bill whether tax can be incurred even if the options are not exercised at all because of some notional figure of the value of the rights at the time.
    What the Clause does not do is to allow any time to be taken into account between the time when the shares were originally granted and the time when they were exercised. The effect of the Clause is to tax the whole of the gain from the time of the grant of the option in one year. This cannot be defended on any reasonable basis. There are plenty of precedents for our proposal. I understand that in patent law it is a common practice to spread earnings over a number of years, and I believe the same is true of authors.
    Before the Question is put, "That the Clause stand part of the Bill", we shall discuss a number of Amendments. I have mentioned the effect in relation to Amendment No. 169. There is plenty of scope here for criticism. The Clause is an extremely important one to oppose.
    Mr. Harold Lever: If the hon. Member for Horsham (Mr. Hordern) seeks to convince me that tax on unearned income is excessively high in this country he has a willing ear. If he seeks to convince me that companies under pre-existing law have sought to mitigate the effect of high tax by the issue of options to directors and employees and are perfectly right to do so, he again has an assenting ear. But, if he seeks to show that the Chancellor has not a case for amending the law, the hon. Member has failed to make his case.
    First, I must deal with what I object to in what I regard, however well-intentioned, as an excessive criticism of the Chancellor's motives. I wish that hon. Members opposite would give a little thought before they assert a malign intention and assume spite where none exists.
    Mr. Hordern: The only other alternative is to accuse him of ignorance, and I am sure the hon. Gentleman would not want that.
    Mr. Lever: That is right. Let us see whether this is so. The Chancellor says that when a person gets a benefit, whether in kind or cash, he shall be treated exactly the same. I am not going through a series of pedantic quibbles. The fact is that an employee or director who receives shares worth £100,000 for £10,000 is receiving a wage of £90,000.
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    That is the reality of it. He is getting benefit of £90,000 by reason of his working for the company. If he had received that wage in the form of cash, he would be liable to tax and Surtax.
    I have already conceded that I regard the tax and Surtax rates as very seriously excessive in this country. But the fact remains that that is the law. If one wants to remedy that injustice, the right way is not to leave open certain loopholes that can be reasonably and honourably taken advantage of as long as those loopholes exist. But nobody can criticise the Chancellor for closing them. A fair criticism would be to say that when loopholes of this kind are closed, one ought to look at the rates of tax on unearned income which are excessive.
    Can we make out a case that when directors and employees receive something in money's worth which is of substantial value, they shall not pay Income Tax or Surtax upon it? If an employee or a director gets a suit for half its market price, he pays tax on the difference. If by reason of his employment he gets a share for half its market price, the Chancellor is saying that he shall pay Income Tax and Surtax on the difference. If the result is harsh, it is another way of saying that there is an excessive rate of Income Tax and Surtax and the situation ought to be remedied.
    One should not try to document a case against the Chancellor for his perfectly reasonable proposition by an irrelevant and unjustified allegation of bad faith and by adding to these unproved assertions and statements relating to I.C.I, and the Metal Box Co. All that I.C.I, and the Metal Box Co. do— I am speaking without any notice that this matter would be raised—is to issue to their shareholders shares either for nothing or below the market price, and the difference between the price that the employee pays and the value of the shares is an assessable taxable item. So much for the story that the issue of shares, if they are not taxable, is not affected by the Clause. The Clause does not deal with the issue of shares per se. The mere issue of shares by I.C.I, to its employees is not affected by this Clause.
    It is wrong to suggest that the Chancellor is tampering with these excellent schemes whereby I.C.I, offers its shareholders shares at low prices, by way of

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    gift or issue. Under the general law, the difference between what an employee gets and the price he pays is an earning of his trade.
    The suggestion has been made that in some way or other the Chancellor is treating the employee worse than an existing shareholder, because under this Clause if a shareholder gets a right to subscribe a share below market price and a similar chance is given to an employee, the shareholder will not pay Income Tax under the Clause but the employee will. That is right. There is no unfairness involved.
    The difference is this. When the shareholder receives a right to an issue below market price, he is merely conferring a benefit upon himself because every shareholder owns his proportionate share of the company. When the company issues its shares below market price to its own shareholders the shareholder is getting no gift. He is watering the capital of his own company. Therefore, he has not got anything that is taxable in the slightest degree. If the Chancellor were to tax him, I should rise in loud and long protest against the unfairness of it.
    Mr. Hordent: Will the hon. Member address himself to the point that the issue of rights is the same issue as divided between the shareholders and the employees, and that the effect on the employees is more onerous than on the outside shareholders?
    Mr. Lever: I was coming to this point. A shareholder who gets a share issue is getting no gift but is merely getting his own property in an adjusted form. It has been said over and over again that there is nothing to tax when a shareholder receives rights in his own company because pro tanto and in proportion he is watering the capital of his own company. That is why these issues rightly escape taxation.
    When a shareholder gets a bonus issue of a one-for-one share, for nothing, there is often a scream from some of my hon. Friends, and then we hear a patronising explanation from hon. Members opposite that the shareholder has not really had anything from the company. They are quite right, because he has merely received a denomination of his own asset
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    in a different form, and there is no change in his total property rights. When he gets the share below market price, there is nothing to tax, and the Chancellor would be wrong in taxing it.
    But the situation is otherwise in the case of an employee who is not a shareholder. To the extent to which he is a shareholder, he will not be affected by the Clause. The employee who gets a share below market price, unlike the shareholder who receives nothing but his own asset in another form, is receiving a "perk", an emolument of his trade. It is that which the Chancellor is seeking to tax.
    I am sure that the hon. Member for Horsham did not mean to misrepresent the position, but he got on to a false point in error. However, it is wrong to suggest that the Government are penalising workpeople, as compared with the generous treatment which they give to shareholders in this situation.
    This must be wrong, and for the same reason I am not impressed by the argument that what should be charged upon the directors' options is Capital Gains Tax. If it is right to treat what the director receives in the ultimate as an earning of his employment, as I believe that it broadly is, the common sense of our citizens will regard it as reasonable that it must be treated as the amount to be taxed.
    If that is reasonable, the appropriate taxes are Income Tax and Surtax. One hon. Member asked me if my views about Capital Gains Tax were the same this year as they were last year. This is not strictly relevant, but I can assure him that I hold the same unfavourable view of Capital Gains Tax as I did last year, and experience has done nothing to diminish my criticisms.
    Capital Gains Tax would not be the right tax to apply to a man's earnings, which should be taxed by Income Tax and Surtax. Why should one seek to tax by Capital Gains Tax a particular form that his earnings take? There is no logic, rhyme or reason in attempting to do so. It is, in general, a tax on realised capital gains, and here the whole point is that the tax is imposed on acquisition of the share and not on realisation.
    Of course, in some cases Capital Gains Tax would be applicable, and the man

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    would pay this in addition to Income Tax and, perhaps, Surtax. But this would be only in appropriate cases and on appropriate areas of profit. To the extent that he later develops a capital gain and realises it he will pay Capital Gains Tax on that segment.
    I can give a simple illustration. Let us imagine that a man gets an option to take up shares for £1 each, and that they are worth £5 when he exercises his option. He pays Income Tax and Surtax on the difference, namely £4. He holds the shares until he realises a capital gain of a further £5. He will then pay Capital Gains Tax on them, because it is a capital gain and not earnings. He will not pay Income Tax or Surtax. The Chancellor is right. He will apply Capital Gains Tax to capital gains profit and Income Tax and Surtax to the earnings of a trade or profession.
    11.30 p.m.
    Mr. Hirst: The hon. Member for Manchester, Cheetham (Mr. Harold Lever) is a marvellous chap at addressing himself to his own argument and then arguing even more brilliantly why it is a bad argument. It is a great enjoyment to listen to him, and a great intellectual exercise. I admire his skill very much, but it does not convince me in relation to the case which my hon. Friend has put forward. I am convinced that the Government, at heart, do not like option schemes.
    I take a very different view. I ask myself, "What is necessary?" I come to the conclusion that we must find some way of rewarding and encouraging people in higher management. I do not belong to the hierarchy of management, but if this is the situation, and our top hierarchy says that it is, the Committee must accept it. We should not be pedantic about it and say, "Option schemes are wrong, and since everybody cannot have one nobody shall"—the usual Socialist argument, which is so tedious—and then decide what we can do to kill them.
    Mr. Robert Sheldon: Does not the hon. Member agree that this provision will not kill any option scheme? Any option scheme will still stand. Only Income Tax and, where applicable, Surtax, will be paid on it.
    Mr. Hirst: Certainly. That is what I am objecting to. I say that there should be some loophole—using that word because it seems the most popular—or legitimate method of ensuring that these rewards can be given. I am all out for an advantage being legitimately given.
    What I agree 100 per cent, about is that it is utterly wrong to conceal this from the shareholders. I share my hon. Friend's view entirely that there is no reason why shareholders should not be told about schemes of this sort. They will accept them. It is wrong not to disclose such schemes to shareholders. Nobody would dispute that. Shareholders are only too willing to ensure that a specific company official shall be properly rewarded for what he does.
    We must get above this junior way of thinking and realise what goes on in the world. We must realise that if we are to go ahead and not lose our top management we must ensure that it is given opportunities for reward—and we must put the matter in the hands of the shareholders. This should be part of company law. I am in favour of a scheme being produced to ensure that companies can reward top management by methods which will produce a financial advantage. I am glad that I have made myself clear. I never like to be anything else, but I cannot always be sure that I have made myself clear.
    One difficulty is that we cannot always do what we like in Parliament. I should like to scrap the whole Clause and bring in a totally different provision, but it would not be in order to pursue that point. One is up against the familiar difficulty of having to do the best one can with the bad job the Government have done. All Governments produce bad jobs in Finance Bills, and we have got to do our best to put them right. Governments are far too much in the hands of advisers who, very often, have not the least idea how industry ticks, and the result is that we have nonsensical provisions such as these. We have to do our best with them, and that is what my right hon. Friends and I are trying to do.
    My Amendment No. 219 is being discussed at the same time. I am not particularly keen about it. It is not very bright or clever, but it is the best I

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    can do to make clear another aspect of this matter. I should like to rewrite the whole Clause. I regard it as dreadful, as I have already said. But there is a strong feeling that, as the Bill stands, there will be an assessment on the whole profit arising from the grant in the year of realisation. I do not know whether that is the Government's intention. Perhaps they really want to do all they can to damp down initiative. If that is their intention, I can only say again that it is contrary to what the country's economy requires.
    The rights we are discussing are a common way of giving incentive to higher executives. Therefore, of course, they should provide the maximum benefit possible. That should be the object, the maximum benefit possible. It should not be our object to try to minimise the benefit to the greatest extent. The spread proposed in my Amendment, rotten as it is, with a rotten Clause in a rotten Bill, would go some way towards achieving that object. Unless right hon. Gentlemen opposite give us something like it, their sincerity in this matter will be in grave doubt.
    Mr. Maurice Macmillan: I hope that the hon. Member for Cheet-ham (Mr. Harold Lever) will forgive me if I return to a theme which, in one way or another, has underlain a great many contributions which we have both made from time to time on successive Finance Bills, the theme of the spread of wealth and responsibility, the spread by all manner of means of share ownership, and the creation of what is called a capital-owning democracy.
    My hon. Friend the Member for Horsham (Mr. Hordern) pointed out that the arguments in favour of wider share ownership, social, economic and managerial, are as widely accepted in principle as, alas, they are frequently rejected by Governments in practice. I shall not say that this is so because the ideas or even the practices are repugnant to politicians in successive Governments, but they seem somehow to have become intolerable to the Governmental machine. It is no good the Financial Secretary quoting what Tory Governments in the past have done. I have objected with equal force when these ideas and arguments similar to those he puts forward
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    tonight have come from Conservative Chancellors and Financial Secretaries.
    We find the same rather melancholy story in this Clause, the determination to prevent what one might call the reward of the industrious apprentice, to penalise the employee of the company who becomes a part owner of that company because of his general value as a worker, by assuming that he alone is causing the increase in the value of his shareholding. There is a discrimination against the employee acquiring ownership in a company by this method as compared with the outside shareholder.
    The hon. Member for Cheetham said that he made a gain because of his work. It is more accurate to describe an option as the chance to make a gain from the success of a company for which a person is working and from which he is receiving a salary on which he is paying Income Tax and, possibly, Surtax. It is no more logical to penalise a senior employee, manager or executive of a company who is given a stake in the future success rather than in the past success of the company by this method than it is to penalise an employee in one of the many employee-shareholding schemes which successful companies run and which extend ownership to the factory floor. The workpeople are responsible in their degree for any increase in the value of the company. Yet nobody suggests that because their shares are acquired by reason of their work they should be taxed on the value in the same way. The real reason——
    Mr. Harold Lever: It is a fact that employees' shares are taxed in precisely the same way at every point as any directors' shares. No distinction is made by the Bill.
    Mr. Macmillan: If the shareholding is acquired in the way employees' shares are normally acquired, there is no discrimination. It applies to all employees, whatever their standing in the company, who acquire shares by this method. I was saying that it would be as foolish to penalise shareholdings as usually acquired under an employee shareholding scheme as to do what the Government are proposing to do.
    One of the reasons behind this form of acquiring ownership in a company is not only that it suits the needs of

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    senior executives and top managers but also that it is a method which gives them an incentive to put their best into the company and realise the reward to them of the value which they, among others, contribute to the company. It gives them a stake in the future success of the company. It is presumably because of abuse and the possibility of abuse that the Government are willing to abandon this valuable incentive.
    I think that it was the hon. Member for Cheetham who said in the debates on last year's Finance Bill, unhappily unheard by me on that occasion, that whereas Jehovah was willing to spare the cities of the plain for four just men, the Government were prepared to destroy the City of London in order to catch four tax dodgers. It is not the City of London that the Government are damaging in this Clause. They are damaging the capacity of the United Kingdom to compete with the United States and other countries in offering rewards to management. Quite apart from the social and economic aspects of the Clause and the damage that can be caused by it, there is this point, which has already been well covered and which I need not linger on.
    However, I should like to say a few words about the wider social aspects of the damage which can be done by the Clause. One of the main points of the wider share ownership movement is that the modern affluent society tends to concentrate its chief benefits on owners of property of one sort or another, and at the same time it limits the capacity of more people to become owners through the tax structure and in other ways. Hence, the campaign to turn earners into owners, not excluding either the more highly paid earners who sometimes find it just as difficult as those who earn less to become the owners or part owners of the companies in which they work. Because their standard of living is so closely attached to their salary and other conditions of work, they lack both freedom of action within the company and freedom of movement, which the ownership of capital can help to give, between then company and other companies where they may be needed more. It is totally illogical to accept the principle and deny this particular application of it.
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    As the hon. Gentleman said, we are not arguing about a gift of shares, nor are we arguing that the profit made in exercising a stock option should escape tax altogether. We ae simply asking that it should be taxed as any other category is taxed. I am not convinced by the ingenious and elegant arguments of the hon. Member for Cheetham. It is ridiculous to treat this type of capital gain in a different way because the man who benefits has helped in some form or other to cause that gain. The form of option in which it comes is wholly beneficial to the company which exercises it and to the economy.
    11.45 p.m.
    There is a special benefit in that it enables a United Kingdom company to compete in rewards with companies overseas and it is of immense benefit in helping smaller companies, particularly, to acquire the talent which they need to compete successfully and which they perhaps cannot, in the early stage of development, afford to pay for in the form of large salaries, especially with the heavy incidence of Income Tax and Surtax. It enables them to acquire talent easily and to compete more successfully.
    I have argued in general terms for the Amendment and for the value of stock options in general. An aspect which disturbs me very much is the fundamentalist attitude of the Government in considering the dogma of taxation security regardless of the economic consequences or of economic common sense. I fear that, in this as in other matters, the damage that can be done by this sort of Pharisaical insistence on the letter of the law can do great harm to the country and the spirit of the taxpayer, and I beg the Government to consider the Amendment sympathetically.
    Mr. Stratton Mills: I join my hon. Friend the Member for Farnham (Mr. Maurice Macmillan) in his thesis of the harm that the Clause will do and wish to deal with a particular unfairness pinpointed by the Amendment. As I understand it, the Capital Gains Tax at present applies to an increase in the value of a share option between Budget Day, 1965, and the date on which it is exercised. The Bill will apply the top rates of Income Tax and Surtax for a

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    single year to that gain. The Amendment seeks to put share options back in the position they enjoy at present.
    I take as an example two employees of I.C.I. One can buy some I.C.I. shares on the market, being able either to pay cash or borrow from the bank to do so. If those shares increase in value over a period and he sells them, he pays Capital Gains Tax. But the other employee has no capital and is unable or unwilling to borrow the cash from the bank. He is, however, given a share option which he exercises. He is then caught by the top rate of Income Tax and Surtax. This is discrimination against that sort of person.
    We should be endeavouring to help extend the range of capital ownership. The Clause hits in particular those junior employees managements wish to encourage to remain with their firms—and this particularly applies to smaller firms—and creates many anomalies. I fear that the Clause will, in effect, stop stock options in future and that will be a direct hindrance to the spread of wealth. As such, it is to be condemned.
    Mr. Nott: I was astonished when I first heard of this Clause, because it seemed to go completely contrary to what all members of the Government had been saying, both privately and publicly, for many years. I recall hundreds of occasions when the Prime Minister and the Chancellor of the Exchequer have spoken of the encouragement of ability in this country and of trying to bring fresh blood into British industry. In effect, what is happening by this Clause is that every advantage will be given to the person who has capital to build up his business and taken away from the person who has only his ability. That is what is so offensive about the Clause.
    If the Government are not protagonists of old-fashioned capitalism, and I do not think that any of my hon. Friends would charge them with that crime against humanity, it is inconceivable that they should take away or e of the most efficient means still existing vhereby the capitalist can transfer some of his assets to the manager. It seems inconceivable that they should remove one of the most efficient methods whereby the shareholders of a company can willingly, in general meeting, agree to dilute their equity in order that the managers of the business can build it up on their behalf.
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    In an effort to understand the reasoning behind the Clause, I have been able to find only one answer. It is that the Revenue must still be smarting from the defeat which it met in Abbott v. Philbin. Throughout, the hon. Member for Cheet-ham has referred to options as remuneration which an employee receives, but the House of Lords and the Court of Appeal considered that an option was something different.
    Mr. Harold Lever: The hon. Gentleman has got me quite wrong and I suspect that he has got the Chancellor quite wrong. What the Chancellor is saying is that it is not the option, but the receipt of money's worth on the exercise of the option which is the reward, namely, the difference between the price paid for the share and the actual market value.
    Mr. Nott: I take that point, but this was considered in Abbott and Philbin and the Court of Appeal and the House of Lords both decided that this transaction was in the nature of a transfer of proprietary rights from the shareholders to the employees. That is what they decided and the hon. Gentleman has only Lord Denning and his dissenting judgment on his side.
    Mr. Lever: They decided that that was what it was in law, and it is precisely that law which is being corrected.
    Mr. Nott: I will pass from that to one or two other comments on the Clause. As my hon. Friend the Member for Farnham (Mr. Maurice Macmillan) has said, in this country we must be concerned with the present international competition for executive talent. The market for executive talent becomes more and more international and more and more competitive every day. Every person of quality who comes to seek a job in this country probably already has two or three offers in his pocket from an American company.
    Under our taxation system, in many respects we have far fewer advantages to offer than have American companies. American companies have a system of executive options and I consider that many British executives will take the opportunity of transferring their loyalties and allegiance to American companies which can provide them with this benefit.

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    Young men enter business to make money. Young men may enter the Treasury for the pleasure of discussing classical iambics over a plate of cottage pie at the Reform, but they enter business to make money. This possibility is also being taken away from them by the Clause, because these options will become worthless as a result of what is being proposed.
    Young people have a loyalty to the country, but they have an even greater loyalty to provide security for their families and to build up their savings as much as they can. Therefore, I do not hesitate to say that many of these people will now go abroad and work for our competitors overseas, who can provide them with precisely the benefit which is now being taken away from them. When the economic survival of the country depends upon management —a phrase which, since I have been a Member of the House, I have heard often from the benches opposite—how is it possible that an advantage of this nature, which management requires and can get elsewhere, is now being taken away so that young executives will be encouraged to go abroad and sell American exports to this country?
    Over the last few months, I have seen options granted by a number of industrial companies to their executives. Of the 30 or 40 employees involved, in no case can I remember this right being abused. In practically every case those executives had no capital. This situation was not abused by granting options to those who already had capital.
    I therefore summarise and follow what my hon. Friend the Member for Farn-ham has said by making these three points. First, there is no evidence that the system of executive options has been abused.
    Mr. Harold Lever: Nobody said that.
    Mr. Nott: I know. I am saying it for the first time. It is an important point, and one is trying to understand why the Chancellor has included the Clause.
    Secondly, the Clause diminishes the ability of British business to recruit the talent which it so badly needs. The market for executive talent is becoming more and more international, and we now
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    have less reason to hold British people in this country. We have less reason to attract German and American executives to come here. It should be a two-way business. Thirdly, the Clause will not gain anything for the Revenue, because, in effect, it is abolishing the system of executive options and it will merely lose the revenue which it would otherwise have received from Capital Gains Tax.
    Mr. MacDermot: The hon. Member for St. Ives (Mr. Nott) said that as a result of the Clause, we would find it more difficult to recruit German executives. I take it that he was referring to West Germany. That country's scheme for taxing share options is almost identical with what we propose in the Clause.
    We are discussing three sets of Amendments. Amendments Nos. 169 to 172 propose that the Schedule E charge should remain on the granting of options but that the gain on the exercise of the option should be chargeable to Capital Gains Tax. I will not comment further about Schedule E on the granting of options, because I commented on it in the last debate. It is largely ineffective, because usually options are granted for a nominal sum and it is rarely possible to establish more than a nominal value at that stage. The real issue is whether, assuming that we are to tax share options at the time the options are exercised, they should be subject to Income Tax or to Capital Gains Tax.
    The arguments used in the debate have been riddled with error. To start with, it is suggested that we are trying to destroy option schemes. We have nothing against option schemes. All that we are asking is that they should be fairly and properly taxed.
    12 p.m.
    Listening to the arguments, one would think that the present system of taxing option schemes was something introduced by hon. Members opposite when they were in office in order to provide a special tax benefit and incentive to dynamic young executives in industry. It is nothing of the sort. What we are seeking to do is to restore the law to what it was always thought to be and the way in which it was practised up to the decision of the House of Lords in the case which has been referred to of Abbott v. Philbin.

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    For nine of the 13 years that hon. Members opposite were in office, they operated and continued to operate the taxation of share options exactly in the way in which we are proposing in the Clause.
    Mr. Maurice Macmillan: I should like it on record that some hon. Gentlemen opposite put down an Amendment seeking to remove it.
    Mr. MacDermot: And the hon. Member for Farnham (Mr. Maurice Macmillan) was himself one of my predecessors as a Treasury Minister and was a member of a Government which did not make the change.
    Secondly, we have heard a lot of arguments directed to the position of the man on the shop floor, as though in the Clause we were in some way penalising the worker on the shop floor. Last year, I had occasion to say, being a suspicious man, that when I heard hon. Members opposite arguing the special case of the poor widow, I was sometimes inclined to look for the Surtax payer who was hiding behind the widow's skirts.
    The arguments which we are concerned with, as the hon. Member for Shipley (Mr. Hirst) faced fairly and squarely, are directed to whether there should be some special tax advantage in favour of one narrow and particular class of taxpayers whom we are all agreed play a very important and vital part in the prosperity of the country; namely, the executives in our industries. Is it right that they should get the special treatment which is being argued for? That is the general issue on the Clause as a whole.
    The particular issue on these Amendments is whether, if we tax them, that tax should be in the form of a capital gains tax, which would still leave them a special advantage, or whether they should be taxed in the ordinary way in which people are taxed when they get a benefit which forms part of the remuneration of their employment.
    The real issue which we have to decide is, is the share option a device—and I use that term in no derogatory sense and with no particular overtones—or a mechanism to reward a director or employee for his service, in which case it is properly chargeable as income; or is it the granting of a capital asset which later appreciates?
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    We think that it is a mechanism to reward a director or employee for his service. That, surely, is the attitude of those who argue so strongly in favour of share options. It is argued that, to the young executive of ability whom a company wishes to recruit into management in industry, it is an incentive to take such employment. It is certainly regarded by the company as being a reward for his services.
    No one on this side of the Committee is arguing that, when the holder of an option exercises it, it is suggested that the benefit which he gets is in some way directly the result of his services. It is not. But that does not stop it being what it is and is regarded by him as being, namely, a reward for the services which he has rendered in his employment or in his capacity as a director of the company.
    The true parallel at which we should look is the case where shares or other assets are allotted to a director or employee at less than their market value. When this happens the difference between the market price and the price paid, if any, has always been taxable as part of the income from that employment or from that office as a director, and this is the usual case of a distibution or an issue of shares to employees in companies which believe in shareholding by their employees. That has always been taxed.
    The share option scheme is an attempt to get away from that and to escape that perfectly proper liability to tax by making the grant in the form of an option which is then exercised at a later date, and exactly the same benefit is conferred when the option is exercised. The hon. Member for Farnham says that this is not the actual grant of that gain; that it is only the grant of the chance of making a gain. So be it.
    Supposing an employer were to say to his employees, "We are going to give £100 bonus this Christmas to one person in the shop. You can draw numbers if you choose, and whoever draws the lucky number will get the £100 which we are presenting as a Christmas bonus". That would be a chance of making a gain, but it certainly would be a remuneration which the person was getting in the course of his employment, and would be liable to tax. This is a different element

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    of chance, but I am dealing with the element of chance argument.
    The point is that if the shares do not appreciate the option will not be exercised. If there is no gain, then cadit quaestio, and there is nothing to tax. But if there is an increase in value and the option is exercised and the benefit is gained, it is the same benefit as a person gets when he is allotted shares in the first place, and it would be illogical to make special exceptions in the case where the benefit is conferred by this device of the share option.
    Equally, surely, it would be illogical, unless one accepts the argument of the hon. Member for Shipley, to single out this particular class of highly paid person, the executives in industry, and say that in our tax laws we are going to confer a special advantage to them, when there are many people who are making an equally valuable contribution to the prosperity and life of this country, and who are earning similar incomes but who cannot obtain any similar tax advantage.
    The professors who train these admirable, highly skilled, and highly intelligent management executives cannot get the benefit of this, and hon. Gentlemen will know, and certainly hon. Gentlemen who have been in Government will know, that for many years one of the cardinal principles of our tax system has been that all forms of income, whatever their source, should be taxed according to the same principles, unless one accepts the argument of the hon. Member for Shipley who said—and the hon. Gentleman is nothing if not honest—that he was arguing for special treatment for this class of people.
    Sir Harmar Nicholls: Would the hon. and learned Gentleman include the chap who taught the professor?
    Mr. MacDermot: Certainly I would. Let us go back as far as we like.
    Finally let me deal with the suggestion that this gain really is a capital gain which ought to be taxed in accordance with the Capital Gains Tax. There is no comparison with the type of gain at which the Capital Gains Tax is directed. Until the person who holds the option acquires the shares, he has not put any funds of
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    his own—apart from any nominal amount at the time of the grant of the option— into the transaction, and indeed he has not committed himself to acquire the shares at all.
    This is the difference between the position of the two I.C.I. employees to which the hon. Member for Belfast, North (Mr. Stratton Mills) referred, so the suggestion that it should be charged to Capital Gains Tax is misconceived, and this, I suggest, is also the answer to the hon. Member for Shipley, who I thought was unduly modest about his proposal. I think that if one wanted to single out and make a special concession to this class, there is a lot of attraction in the form that he proposed. I am urging the Committee that it would be wrong in principle to do so. The director or employee has no real interest in the shares until he exercises the option.
    Mr. Harold Lever: I follow with great sympathy the principle of my hon. and learned Friend's argument. He has said that we want to tax these share profits before realisation, because they are benefit in kind in the nature of an earning. But would he consider, if these earnings have been made over a period of years, that they could appropriately be spread over the period of years in which they have been earned? I should like to hear him deal in some detail with this point. If we tax them on the principle that they may represent, when this option is exercised, an earning over a period of years, I should like him to deal with the point that they should be taxed over the same period.
    Mr. MacDermot: My simple answer to that would be to repeat the case which my hon. Friend himself raised so often—that of the person granted an allotment of shares at less than their market value. This may well be a remuneration in consideration of, and to reward a person for, many long years of service, but it is taxable in the year in which the benefit is received—
    Mr. Lever: I am sorry to press my hon. and learned Friend on this point, but it is worth following up. When shares are issued below value to a shareholder, they are normally a reward for that year's services and the amount involved is properly taxed in that year.

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    For example, when I.C.I. gives out its shares, it gives them from year to year to the shareholders in the employ of the company in that year, but if the principle is—I think that it is right— that when a man exercises this option he may not be a member of the company or an employee by this time, clearly the principle for taxing him was that he earned it when an employee, although in the year when he exercised it he was working there no longer.
    Mr. MacDermot: My hon. Friend's argument reminds me of the argument between Ruskin and Whistler about the value of a picture painted in an hour and the value of the skill which went into the painting. I have two answers to my hon. Friend. One is that the person granted this option may have given ten or twelve years' valuable service to the company before he is given the option, but one does not spread it over that period. The second and more practical answer is that most options are granted in a form in which it is not necessary for the holder to take them up in the same year. Many take them up in parcels and in that way are able to spread their tax liability in the way which my hon. Friend is anxious to achieve and which is also proposed in Amendment 216.
    That is that argument. Instead of its being spread back in the way preferred by the hon. Member for Shipley, it should be spread forward for a three-year period. I have given the general arguments why the options should be taxed in the year in which they are exercised. I must emphasise that it usually lies within the power of the option holder himself to spread it if he wants to and no doubt this is a practice which may increase.
    We have heard the arguments about the comparison with America. I would remind the Committee that the American system, which has similarities with that proposed in the main Amendment, though not quite the same, is a compromise between the more favourable treatment which used to be given before 1964 to share options and the attempt by the United States administration to tax them at full income tax rates, which is in effect our proposal in this Clause.
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    I would quote two passages from President Kennedy's tax message to Congress in 1963, because they summarise our arguments very well. He said:
    "Stock options represent compensation for services. Taxpayers are generally required to pay ordinary income tax on their compensation. To the extent that the stock option provisions allow highly-paid executives to pay tax at capital gains rates or to escape all tax, on part of their compensation, they are not consonant with accepted principles of tax fairness."
    He went on to say that the advantages claimed for them
    "… do not appear to substantiated by experience. Option benefits are haphazardly distributed. The rewards they confer on highly paid executives have been related not so much to their efforts in improving company profits as to changes in investor outlook and stock prices…. The use of stock options frequently tends to impede rather than to improve executive mobility. The available evidence suggests that options are used almost entirely to reward present management rather than to attract new executives. The conditions of their exercise are usually calculated to tie executives to their present jobs …"
    For these reasons and others which I have put before the Committee, I ask hon. Members to reject the Amendments.
    12.15 a.m.
    Mr. Hordern: The hon. and learned Member appreciates from the arguments which he has heard from my hon. Friends that we do not agree with him in any respect. On our side, too, we have the powerful legal arguments adduced in Abbott v. Philbin—what we regard as a most excellent judgment. If hon. Members opposite feel that they have a case in law I urge them to remind themselves of that case once again.
    We shall certainly never agree with them on what constitutes a taxable part of an option. In our view, the taxable part of an option is when it is granted; it cannot be "at any time" because of the uncertainty. The only part of an option which can be liable to tax is that at the time it is granted, for the fact that the shares have risen is entirely due to the accident of the market and not at all to do with the efforts of the employees involved.
    The hon. and learned Member completely failed to meet my hon. Friend's arguments about the three years' spread. He turned his face against that reasonable

    223
    proposal although it is common knowledge that this kind of spread exists in patent legislation and other types of legislation and could be applied in this case.
    It is remarkable that he cited the United States as a country acting against share options. In the United States taxation has been reduced in two years from the highest rate of 91 per cent, to 70 per cent, whereas, following increases in taxation by the Labour Government, the rate in this country stands at 91¼ per cent. It is against that background that we must view the proposals in the Clause.
    One of the main reasons for the existence of options is the present high general rate of taxation. But options also serve the purpose of assisting the development of very small companies. I have one such company in mind. Four years ago the profits of the company after tax were £5,000. They ran at £350,000 in the financial year just ended. They are made from a simple process—I do not want to go into it now—and 80 per cent, of the production is exported. Four years ago, when the company was earning £5,000, shares were introduced to assist the executives in what was then a very small company.
    Those executives are naturally thrilled with the company, and it is fair to suppose that those executives could not have been persuaded to stay with the company had they not been convinced not only of the merit of the production in which they were engaged but also of the future expectation of some possible gain by the grant of the option. That is what the Clause will disturb—the ability of a small company to engage the attention of highly qualified executives.
    If the Government are serious in their determination to enter the Common Market they must have a serious look at the comparative scales of remuneration among executives in Common Market countries. If options are to be abolished, as I think they will be, one or two things will happen. Either some other way of rewarding executives will have to be
    found or otherwise these executives will go somewhere where they will earn higher rewards. It is often said that the reason why so many professional people leave these shores today, why the brain drain exists, has nothing to do with monetary rewards but with conditions of work. What really induces them to leave is that it is considered anti-social in Britain at present to earn a high salary, no matter how expert or unique one's contribution. The reason why people are leaving in such numbers may not be because of the high material rewards offered elsewhere, although that is bound to be partly the reason, but because their skills are at least recognised in other countries. The Government must recognise that, whatever they may wish to happen in Britain— however many self-denying ordinances they may issue—the fact is that the rewards for those who possess skill and enterprise are increasing all the time, not least in the Communist countries.
    All that Her Majesty's Government Government have succeeded in creating in Britain so far is a little Lilliput cast away from the main stream of events. They do not seem to realise that this situation can only rapidly get worse with the advance of science, electronics and automation. It is the same state of mind which turns its face away from the idea of higher rewards for executives, which refuses to acknowledge that there is overmanning in industry, which refuses to introduce competition in industry, which refused to recognise that there is anything wrong with the trade unions and which combines to take a posture in international affairs worthy of the United States or the Soviet Union and a posture on internal affairs worthy of Iceland.
    For these reasons, and in view of the cogent arguments adduced by my hon. Friends in support of the Amendment, I urge my hon. Friends to divide the Committee.
    Question put, That the words proposed to be left out stand part of the Clause: —
    The Committee divided: Ayes 188, Noes 106.

    Division No. 32.]

    AYES

    [12.22 a.m

    Allaun, Frank (Salford, E.)

    Atkins, Ronald (Preston, N.)

    Boardman H.

    Alldritt, Walter

    Atkinson, Norman (Tottenham)

    Booth, Albert

    Allen, Scholefield

    Baxter, William

    Braddock, Mrs. E. M.

    Archer, Peter

    Bennett, James (G'gow, Bridgeton)

    Brown, Rt. Hn. George (Belper)

    Armstrong, Ernest

    Bishop, E. S.

    Brown, Bob(N'c'tle-upon-Tyne,W)

    Ashley, Jack

    Blackburn, F.

    Brown, R. W. (Shoreditch & F'bury)

    Buchan, Norman

    Hilton, W. S.

    Newens, Stan

    Buchanan, Richard (G'gow, Sp'burn)

    Hobden, Dennis (Brighton, K'town)

    Noel-Baker, Rt. Hn.Philip(Derby,S.)

    Butler, Mrs. Joyce (Wood Green)

    Hooley, Frank

    Ogden, Eric

    Callaghan, Rt. Hn. James

    Hooson, Emlyn

    O'Malley, Brian

    Carmichael, Nell

    Horner, John

    Orme, Stanley

    Carter-Jones, Lewie

    Howarth, Harry (Wellingborough)

    Oswald, Thomas

    Coleman, Donald

    Howarth, Robert (Bolton, E.)

    Page, Derek (King's Lynn)

    Craddock, George (Bradford, S.)

    Howell, Denis (Small Heath)

    Pardoe, J.

    Cronin, John

    Howie, W.

    Parker, John (Dagenham)

    Cullen, Mrs. Alice

    Hoy, James

    Parkyn, Brian (Bedford)

    Dalyell, Tarn

    Hughes, Rt. Hn. Cledwyn (Anglesey)

    Pavitt, Laurence

    Davidson, James(Aberdeenshire, W.)

    Hughes, Emrys (Ayrshire, S.)

    Perry, George H. (Nottingham, S.)

    Davies, Harold (Leek)

    Hughes, Roy (Newport)

    Prentice, Rt. Hn. R. E.

    Davies, Robert (Cambridge)

    Hunter, Adam

    Price, Christopher (Perry Barr)

    Dell, Edmund

    Hynd, John

    Price, Thomas (Westhoughton)

    Dernpsey, James

    Jackson, Colin (B'h'se & Spenb'gh)

    Price, William (Rugby)

    Dewar, Donald

    Jackson, Peter M. (High Peak)

    Redhead, Edward

    Diamond, Rt. Hn. John

    Jeger, George (Goole)

    Rees, Merlyn

    Dickens, James

    Jeger,Mrs.Lena(H'b,n&St.P'cras,S.)

    Rhodes, Geoffrey

    Dobson, Ray

    Johnson, Carol (Lewisham, S.)

    Roberts, Albert (Normanton)

    Doig, Peter

    Johnson, James (K'ston-on-Hull,W.)

    Roberts, Coronwy (Caernarvon)

    Dunn, James A.

    Johnston, Russell (Inverness)

    Robinson, W. O. J. (Walth'stow, E.)

    Dunnett, Jack

    Judd, Frank

    Ross, Rt. Hn. William

    Dunwoody, Mrs. Gwyneth (Exeter)

    Kelley, Richard

    Rowland, Christopher (Meriden)

    Eadie, Alex

    Kenyon, Clifford

    Rowlands, E. (Cardiff, N.)

    Edwards, William (Merioneth)

    Kerr, Mrs. Anne (R'ter & Chatham)

    Ryan, John

    Ellis, John

    Kerr, Dr. David (W'worth, Central)

    Shaw, Arnold (Ilford, S.)

    English, Michael

    Kerr, Russell (Feltham)

    Short,Rt.Hn.Edward(N'c'tle-u-Tyne)

    Ennals, David

    Lawson, George

    Silkin, John (Deptford)

    Ensor, David

    Lever, Harold (Cheetham)

    Silkin, S. C. (Dulwich)

    Evans, Albert (Islington, S. W.)

    Lewis, Arthur (W. Ham, N.)

    Silverman, Julius (Aston)

    Evans, loan L. (Birm'h'm, Yardley)

    Lewis, Ron (Carlisle)

    Steel, David (Roxburgh)

    Fernyhough, E.

    Lomas, Kenneth

    Steele, Thomas (Dunbartonshire, W.)

    Fitch, Alan (Wigan)

    Luard, Evan

    Summerskill, Hn. Dr. Shirley

    Fletcher, Raymond (Ilkeston)

    Lubbock, Eric

    Thorpe, Jeremy

    Fletcher, Ted (Darlington)

    Lyon, Alexander W. (York)

    Urwin, T. W.

    Floud, Bernard

    Lyons, Edward (Bradford, E.)

    Varley, Eric G.

    Foley, Maurice

    Mabon, Dr. J. Dickson

    Wainwright, Richard (Colne Valley)

    Forrester, John

    McCann, John

    Walden, Brian (All Saints)

    Fowler, Gerry

    MacDermot, Niall

    Walker, Harold (Doncaster)

    Fraser, John (Norwood)

    Macdonald, A. H.

    Wallace, George

    Fraser, Rt. Hn. Tom (Hamilton)

    Mackenzie, Alasdair(Ross&Cromarty)

    Watkins, David (Consett)

    Freeson, Reginald

    Mackenzie, Gregor (Rutherglen)

    Wellbeloved, James

    Galpern, Sir Myer

    Mackintosh, John P.

    Wells, William (Walsall, N.)

    Gardner, A. J.

    Maclennan, Robert

    White, Mrs. Eirene

    Garrow, Alex

    McMillan, Tom (Glasgow, C.)

    Whitlock, William

    Ginsburg, David

    MacPherson, Malcolm

    Williams, Alan (Swansea, W.)

    Gordon Walker, Rt. Hn. P. C.

    Mahon, Peter (Preston, S.)

    Williams, Alan Lee (Hornchurch)

    Gourlay, Harry

    Mahon, Simon (Bootle)

    Willis, George (Edinburgh, E.)

    Gray, Dr. Hugh

    Manuel, Archie

    Winstanley, Dr. M. P.

    Gregory, Arnold

    Marquand, David

    Winterbottom, R. E.

    Grimond, Rt. Hn. J.

    Millan, Bruce

    Woodburn, Rt. Hn. A.

    Hamilton, James (Bothwell)

    Miller, Mr. M. S.

    Woof, Robert

    Hamilton, William (Fife, W.)

    Mitchell, R. C (S'th'pton, Test)

    Yates, Victor

    Hamling, William

    Morgan, Elystan (Cardiganshire)

    Hannan, William

    Morris, Charles R. (Openshaw)

    TELLERS FOR THE AYES:

    Hazell, Bert

    Moyle, Roland

    Mr. Joseph Harper and Mr. Neil McBride.

    Henig, Stanley

    Neal, Harold

    NOES

    Alison, Michael (Barkston Ash)

    Corfield, F. V.

    Hall-Davis, A. G. F.

    Astor, John

    Crosthwaite-Eyre, Sir Oliver

    Hawkins, Paul

    Awdry, Daniel.

    Crouch, David

    Higgins, Terence L.

    Batsford, Brian

    Crowder, F. P.

    Hill, J. E. B.

    Bennett, Dr. Reginald (Gos. & Fhm)

    Cunningham, Sir Knox

    Hirst, Geoffrey

    Berry, Hn. Anthony

    Dalkeith, Earl of

    Hobson, Rt. Hn. Sir John

    Biffen, John

    Dance, James

    Hogg, Rt. Hn. Quintin

    Biggs-Davison, John

    d'Avigdor-Goldsmid, Sir Henry

    Holland, Philip

    Blank, Sir Cyril

    Dean, Paul (Somerset, N.)

    Hordern, Peter

    Body, Richard

    Dodds-Parker, Douglas

    Hornby, Richard

    Boyd-Carpenter, Rt. Hn. John

    Doughty, Charles

    Hutchison, Michael Clark

    Boyle, Rt. Hn. Sir Edward

    Eden, Sir John

    Jenkin, Patrick (Woodford)

    Brewis, John

    Elliot, Capt. Walter (Carshalton)

    Kaberry, Sir Donald

    Brinton, Sir Tatton

    Elliott,R.W.(N'c'tle-uponTyne,N.)

    Kimball, Marcus

    Brown, Sir Edward (Bath)

    Eyre, Reginald

    Knight, Mrs. Jill

    Buchanan-Smith, Alick(Angus,N&M)

    Farr, John

    Langford-Holt, Sir John

    Buck, Antony (Colchester)

    Fisher, Nigel

    Legge-Bourke, Sir Harry

    Campbell, Cordon

    Fletcher-Cooke, Charles

    Longden, Gilbert

    Carlisle, Mark

    Fortescue, Tim

    Loveys, W. H.

    Carr, Rt. Hn. Robert

    Glover, Sir Douglas

    MacArthur, Ian

    Chichester-Clark, R.

    Grant, Anthony

    Maclean, Sir Fitzroy

    Clegg, Walter

    Griffiths, Eldon (Bury St. Edmunds)

    Macleod, Rt. Hn. Iain

    Cooke, Robert

    Gurden, Harold

    Maddan, Martin

    226

    227

    Maude, Angus

    Peel, John

    Temple, John M.

    Maxwell-Hyslop, R. J.

    Powell, Rt. Hn. J. Enoch

    Thatcher, Mrs. Margaret

    Maydon, Lt.-Cmdr. S. L. C.

    Price, David (Eastleigh)

    Van Straubenzee, W. R.

    Mills, Peter (Torrington)

    Prior, J. M. L,

    Ward, Dame Irene

    Mills, Stratton (Belfast, N.)

    Pym, Francis

    Webster, David

    Monro, Hector

    Renton, Rt. Hn. Sir David

    Wells, John (Maidstone)

    More, Jasper

    Roots, William

    Whitelaw, William

    Munro-Lucas-Tooth, Sir Hugh

    Rossi, Hugh (Hornsey)

    Wilson, Geoffrey (Truro)

    Neave, Airey

    Scott, Nicholas

    Wolrige-Gordon, Patrick

    Nicholls, Sir Harmar

    Sinclair, Sir George

    Noble, Rt. Hn. Michael

    Stainton, Keith

    TELLERS FOR THE NOES:

    Nott, John

    Taylor, Sir Charles (Eastbourne)

    Mr. George Younger and Mr. Peter Blaker.

    Osborn, John (Hallam)

    Taylor,Edward M.(G'gow,Cathcart)

    Page, Graham (Crosby)

    Taylor, Frank (Moss Side)

    Amendments made: No. 234, in page 24, line 6, after first "that", insert "or any other".
    No. 235, in line 18, after "that", insert "or any other".
    No. 236, in line 39, leave out "in a body corporate".
    No. 237, in line 41, leave out "that" and insert "a".
    No. 238, in page 25, line 5, leave out subsection (10).—[Mr. MacDermot.]
    Mr. David Steel: I beg to move Amendment No. 3, in page 25, line 31, at the end to add:
    (13) This section shall not have effect as respects any right to acquire shares conferred pursuant to any scheme approved by a company in general meeting and having as its object the giving to all employees on completion of three years' continuous service with that company opportunity to acquire voting shares in that company pro rata to each employee's remuneration.
    At this late hour I am sure that neither the Chair nor the Committee wish to hear long speeches, but the Treasury Bench should note that the debate on this Amendment will be shorter in proportion to their acceptance of the proposal contained therein. They will have noted that we on the Liberal Bench have just supported them in a Division for the good reason that we accept that they are right to plug the general loophole in the law and we do not accept the argument adduced, for example, by the hon. Member for Shipley (Mr. Hirst) in support of the general case. But in speaking to the Amendment which we have just been discussing, one or two Conservative Members raised the case which we seek to have exempted in this Amendment.
    We are concerned that companies which introduce co-ownership schemes on the lines which we have defined should be allowed to take advantage of a
    228
    minor loophole in the law to encourage such schemes. If this is not done we shall have another disincentive to the spread of partnership schemes in industry.
    As part of the Liberal Party's general programme for sharing wealth and power it is a long-held principle that co-ownership schemes should be encouraged throughout industry. These involve the sharing of wealth—a financial stake in a company—and a share in representation, in decision making and company policy. In the Amendment we are concerned with the profit-sharing or share-owning aspect.
    As industry becomes larger and more impersonal, and as relations between employer and employed, by the very nature of modern complex industry, become more remote and jobs become more monotonous in modern assembly plants, it is most important that we should introduce into our industrial life a new ingredient of responsibility and of interest in the life of a company on the part of every person participating in it.
    Yet Governments, of whatever party, have for some years been content to conduct industrial relations in the language of the battlefield. We use the phrase "both sides of industry" when there should be only one. In the last few weeks we have heard of concessions, defeats or victories for one side or the other, and we even talk about peace negotiations. So long as we are prepared to conduct our industrial relations as we would conduct a war, we shall continue to have a permanent state of cold war which is liable to break out at any time and at any point in industry.
    It has been said by those who do not subscribe to the Liberal Party's viewpoint that this is a well-meaning policy which has been part of the Liberal platform for a number of years but that the

    229
    Liberals are not putting forward constructive ideas that can be of real use in discussing the nation's economic plight. This can no longer be held to be true.
    We should be prepared to take examples from some of our competitors who have shown that by Governments' encouraging the concept of partnership in industry they have been able to make a significant contribution to the economic growth of their country.
    An outstanding example is West Germany. Under its Works Constitution of 1952 every employer of more than five people is required to take employees into consultation in the running of the firm. Possibly the most striking example of the success of the concept of partnership is to be found in the Volkswagen motor car works, which provides a strong contrast to our own recent history of car production.
    In the Volkswagen firm two out of every three employees own shares in the company, and last year, in addition to paying a record dividend to all the shareholders, including those employees who are shareholders, 8 per cent, of the profits were distributed to employees. The top authority in the firm is a supervisory board, one-third of which is elected by the employees. West Germany has a strike record ten times better than ours, with a working population very much the same as ours. When we consider such aims as ending demarcation disputes and restrictive practices, and bringing about productivity agreements, we see that they are best dealt with in an atmosphere of partnership and industrial harmony.
    The Chairman: Order. I hope that the hon. Gentleman will relate his observations to the rather narrow terms of the Amendment, which relates to schemes approved in general meeting.
    Mr. Steel: I was about to do that, Sir Eric, when you correctly called me to order. I say that it is the duty of a Government to make sure that some positive step is taken to encourage schemes of this kind. The Amendment offers one such positive suggestion.
    In the last year we have had a small breakthrough in Government thinking, in the reconstruction of Fairfield's, with a coming together of the trade unions
    230
    involved and the owners, and with new capital being put in and representation on a new board of directors. We submit that the only thing wrong with that scheme is that it had to wait until the firm went bankrupt and jobs were at stake before the principles of the Liberal Party were put into practice. I hope that the Government will consider the Amendment sympathetically. If they accept it, it will be a major step forward in our industrial relations.
    Mr. MacDermot: The hon. Member for Roxburgh, Selkirk and Peebles (Mr. David Steel) has made it clear—as has already been demonstrated during the voting on the last Amendment—that in general the Liberal Party supports our approach on the question of the taxation of share options. But his Party is urging that we should make an exception to the general principle in the case of schemes which have been approved by the shareholders in general meeting and whose object is to give all employees with an average of three years' service a right to acquire voting shares in their companies, the right being in proportion to their remuneration.
    The Revenue has no knowledge of any such scheme being operated by any company. The general practice is that share options are granted to a fairly small number of people—usually directors and senior employees. The question to which we are asked to direct our minds is whether we should lend encouragement to a certain type of copartnership by granting a special tax concession for a scheme of this kind.
    I do not want to be drawn into arguing the merits or otherwise of copartnership schemes. All I urge is that it is not right to try to devise a scheme and grant a special tax benefit for it in advance of anyone's working such a scheme in practice. In any event, this would be open to the same objection, in principle, as that which we raised in connection with the Amendment which we have just been discussing. Our belief is that where shares are granted to employees or directors connected with a company, as part of their remuneration, they should be taxed as such, whether they be granted in the form of an option or in the form of the allotment of shares. If that principle be right, it would be

    231
    right also in the case of a co-partnership scheme of the type which has been outlined.
    We do not believe it would be fair to discriminate in favour of employees of companies in this way when there are countless other taxpayers earning similar incomes who would not be able to benefit from such a scheme who would justifiably complain that we were departing from the basic principle of taxation that all forms of income should be liable to the same incidence of tax, whatever their source. For these reasons, I advise the Committee to reject the Amendment.
    12.45 a.m.
    Mr. Emlyn Hooson: The Financial Secretary's reaction to the Amendment is extremely discouraging and is in no way justified. The aim of the Amendment is to remove the discouragement which otherwise the Clause will have against co-ownership or copartnership schemes. The hon. and learned Gentleman ignores the whole American experience in this matter. Since 1954, the American Federal tax laws have made special provision for employee restricted stock options. No Income Tax is paid on them either when the option is given or when the shares are transferred; it applies only when they are disposed of. In this way, the Americans seek to encourage the spread of wealth and power within their industry. Many young British executives go to the United States because they are attracted by the idea that they can acquire capital.
    One of the most discouraging features of life in Britain is that, whatever our fiscal reforms, we tend to entrench wealth where it is found. It is a continuing process. The Financial Secretary knows that members of our profession earn lucrative livings by advising on tax avoidance. The more complicated the law becomes, those who are already entrenched in their wealth go to the top people to get advice in these matters. The truth is that no Government have yet succeeded in bringing forward a scheme which encourages the better distribution of wealth in the form of capital.
    This country needs to follow the example of countries which have done so well economically and by their production have put us to shame over the
    232
    last 20 or 30 years. My hon. Friend the Member for Roxburgh, Selkirk and Peebles (Mr. David Steel) mentioned West Germany, but there is also the example of the United States. Unless we can encourage the distribution of power and capital within our private enterprise system, we shall end by choosing between State ownership and nationalised industry, on the one hand, and the very large corporation owned or controlled mainly by large shareholders, on the other, with the ordinary worker or young executive having little chance to have a share in the ownership of the industry in which he works.
    I have here an extract from a report to the House of Representatives in the United States by one of its Committees. Discussing this matter in 1964, the House Committee said, under the heading "General Explanation":
    "Under the present law, no income tax is imposed in the case of employee restricted stock options, either when the option is granted or at the time it is exercised. Instead, tax generally is imposed at the time the stock involved is sold by the employee. In the case of those stock options where the option price is at least 95 per cent, of the market price of the stock at the time the option is granted"—
    Mr. Keith Stainton Mr. Keith Stainton (Sudbury and Woodbridge) rose——
    Mr. Hooson: May I continue? I am in the middle of a quotation.
    Mr. Stainton: It is an important point. The schemes are different.
    Mr. Hooson: The House Committee goes on:
    "… where the option price is at least 95 per cent, of the market price of the stock at the time the option is granted, the entire amount of any gain realised by the employee at the time he sells the stock is treated as capital gain."
    Later, the Committee says:
    "Your committee, however, decided to continue the stock option provision because it believes that it is good for the economy for management of various businesses to have a stake in their successful operation."
    I understand the point that the hon. Member for Sudbury and Woodbridge (Mr. Stainton) is trying to make, that the stock option scheme is somewhat different from the scheme proposed in our Amendment. But the principle is exactly the same, that it is in the interests of the country to enable more

    233
    and more people to have a stake in the industry in which they work. That is what the Amendment is designed to achieve. I hope and believe that my colleagues will oppose the whole Clause unless the Amendment or something similar to it is accepted.
    Mr. Hordern: The Financial Secretary will not expect me to deal with his arguments, which we have already done exhaustively on the last Amendment.
    I am surprised that the Liberals were not able to join us in the Lobby on our Amendment on the last occasion. They
    are producing precisely the same arguments as we did on the last Amendment, though less well put than my hon. Friends were able to put them. But we bear no grudge that they are putting forward their own Amendment. We agree with the sense of it and have the greatest possible pleasure in supporting them.
    Question put, That those words be there added:—
    The Committee divided: Ayes 112, Noes 171.

    Division No. 33.]

    AYES

    [12.51 a.m.

    Alison, Michael (Barkston Ash)

    Eyre, Reginald

    Mills, Peter (Torrington)

    Astor, John

    Farr, John

    Mills, Stratton (Belfast, N.)

    Batsford, Brian

    Fisher, Nigel

    Monro, Hector

    Bennett, Dr. Reginald (Gos & Fhm)

    Fletcher-Cooke, Charles

    More, Jasper

    Berry, Hn. Anthony

    Fortescue, Tim

    Munro-Lucas-Tooth, Sir Hugh

    Biffen, John

    Glover, Sir Douglas

    Neave, Airey

    Biggs-Davison, John

    Grant, Anthony

    Nicholls, Sir Harmar

    Black, Sir Cyril

    Griffiths, Eldon (Bury St. Edmunds)

    Noble, Rt. Hn. Michael

    Blaker, Peter

    Grimond, Rt. Hn. J.

    Nott, John

    Body, Richard

    Gurden, Harold

    Osborn, John (Hallam)

    Boyd-Carpenter, Rt. Hn. John

    Hall-Davis, A. G. F.

    Page, Graham (Crosby)

    Boyle, Rt. Hn. Sir Edward

    Hawkins, Paul

    Pardoe, J.

    Brewis, John

    Higgins, Terence L.

    Peel, John

    Brinton, Sir Tatton

    Hill, J. E. B.

    Powell, Rt. Hn. J. Enoch

    Brown, Sir Edward (Bath)

    Hirst, Geoffrey

    Price, David (Eastleigh)

    Buchanan-Smith, Alick(Angus, N&M)

    Hobson, Rt. Hn. Sir John

    Prior, J. M. L.

    Buck, Antony (Colchester)

    Hogg, Rt. Hn. Quintin

    Pym, Francis

    Campbell, Gordon

    Holland, Philip

    Roots, William

    Carlisle, Mark

    Hooson, Emlyn

    Rossi, Hugh (Hornsey)

    Carr, Rt. Hn. Robert

    Hornby, Richard

    Scott, Nicholas

    Chichester-Clark, R.

    Hutchison, Michael Clark

    Sinclair, Sir George

    Clegg, Walter

    Jenkin, Patrick (Woodford)

    Taylor, Sir Charles (Eastbourne)

    Cooke, Robert

    Johnston, Russell (Inverness)

    Taylor,Edward M.(G'gow,Cathcart)

    Corfield, F. V.

    Kaberry, Sir Donald

    Thatcher, Mrs. Margaret

    Crosthwaite-Eyre, Sir Oliver

    Kimball, Marcus

    Thorpe, Jeremy

    Crouch, David

    Knight, Mrs. Jill

    Van Straubenzee, W. R.

    Crowder, F. P.

    Langford-Holt, Sir John

    Wainwright, Richard (Colne Valley)

    Cunningham, Sir Knox

    Legge-Bourke, Sir Harry

    Ward, Dame Irene

    Dalkeith, Earl of

    Longden, Gilbert

    Webster, David

    Dance, James

    Loveys, W. H.

    Wells, John (Maidstone)

    Davidson, James(Aberdeenshire, W.)

    MacArthur, Ian

    Whitelaw, William

    d'Avigdor-Coldsmid, Sir Henry

    Mackenzie, Alaedair(Ross&Crom'ty)

    Wilson, Geoffrey (Truro)

    Dean, Paul (Somerset, N.)

    Maclean, Sir Fitzroy

    Winstanley, Dr. M. P.

    Dodds-Parker, Douglas

    Macleod, Rt. Hn. Iain

    Wolrige-Gordon, Patrick

    Doughty, Charles

    Maddan, Martin

    Younger, Hn. George

    Eden, Sir John

    Maude, Angus

    Elliot, Capt. Walter (Carshalton)

    Maxwell-Hyslop, R. J.

    TELLERS FOR THE AYES:

    Elliott, R.W.(N'c'tle-upon-Tyne,N.)

    Maydon, Lt.-Cmdr. S. L. C.

    Mr. Eric Lubbock and Mr. David Steel.

    NOES

    Allaun, Frank (Salford, E.)

    Butler, Mrs. Joyce (Wood Green)

    Dunwoody, Mrs. Gwyneth (Exeter)

    Alldritt, Walter

    Callaghan, Rt. Hn. James

    Eadie, Alex

    Allen, Scholefield

    Carmichael, Neil

    Edwards, William (Merioneth)

    Archer, Pater

    Carter-Jones, Lewis

    Ellis, John

    Armstrong, Ernest

    Coleman, Donald

    English, Michael

    Ashley, Jack

    Craddock, George (Bradford, S.)

    Ennals, David

    Atkins, Ronald (Preston, N.)

    Cullen, Mrs. Alice

    Ensor, David

    Atkinson, Norman (Tottenham)

    Dalyell, Tarn

    Evans, Albert (Islington, S.W.)

    Baxter, William

    Davies, Harold (Leek)

    Evans, loan L. (Birm'h'm, Yardley)

    Bennett, James (G'gow, Bridgeton)

    Davies, Robert (Cambridge)

    Fernyhough, E.

    Bishop, E. S.

    Dell, Edmund

    Fitch, Alan (Wigan)

    Blackburn, F.

    Dempsey, James

    Fletcher, Raymond (Ilkeston)

    Boardman, H.

    Dewar, Donald

    Fletcher, Ted (Darlington)

    Booth, Albert

    Diamond, Rt. Hon. John

    Floud, Bernard

    Braddock, Mrs. E. M.

    Dickens, James

    Foley, Maurice

    Brown, Bob (N'c'tle-upon-Tyne.W.)

    Dobson, Ray

    Forrester, John

    Brown, R. W. (Shoreditch & F'bury)

    Doig, Peter

    Fowler, Gerry

    Buchan, Norman

    Dunn, James A.

    Fraser, John (Norwood)

    Buchanan, Richard (G'gow, Sp'burn)

    Dunnett, Jack

    Fraser, Rt. Hn. Tom (Hamilton)

    Freeson, Reginald

    Kerr, Dr. David (W'worth, Central)

    Perry, George H. (Nottingham, S.)

    Galpern, Sir Myer

    Kerr, Russell (Feltham)

    Prentice, Rt. Hn. R. E

    Gardner, A. J.

    Lawson, George

    Price, Christopher (Perry Barr)

    Garrow, Alex

    Lever, Harold (Cheetham)

    Price, Thomas (Westhoughton)

    Ginsburg, David

    Lewis, Arthur (W. Ham, N.)

    Price, William (Rugby)

    Gordon Walker, Rt. Hn. P. C.

    Lewis, Ron (Carlisle)

    Rees, Merlyn

    Gourlay, Harry

    Lomas, Kenneth

    Rhodes, Geoffrey

    Cray, Or. Hugh

    Luard, Evan

    Roberts, Albert (Normanton)

    Gregory, Arnold

    Lyon, Alexander W. (York)

    Roberts, Goronwy (Caernarvon)

    Hamilton, James (Bothwell)

    Lyons, Edward (Bradford, E.)

    Robinson, W. O. J. (Walth'stow, E.)

    Hamilton, William (Fife, W.)

    Mabon, Dr. J. Dickson

    Ross, Rt. Hn. William

    Hamling, William

    McBride, Neil

    Rowland, Christopher (Meriden)

    Hannan, William

    McCann, John

    Rowlands, E. (Cardiff, N.)

    Hazell, Bert

    MacDermot, Niall

    Ryan, John

    Henig, Stanley

    Macdonald, A. H.

    Shaw, Arnold (Ilford, S.)

    Hilton, W. S.

    Mackenzie, Gregor (Rutherglen)

    Short,Rt.Hn.Edward(N'c'tle-u-Tyne)

    Hobden, Dennis (Brighton, K'town)

    Mackintosh, John p.

    Silkin, John (Deptford)

    Hooley, Frank

    Maclennan, Robert

    Silkin, S. C. (Dulwich)

    Horner, John

    McMillan, Tom (Glasgow, C.)

    Silverman, Julius (Aston)

    Howarth, Harry (Wellingborough)

    MacPherson, Malcolm

    Steele, Thomas (Dunbartonshire, W.)

    Howarth, Robert (Bolton, E.)

    Mahon, Peter (Preston, S.)

    Summerskill, Hn. Dr. Shirley

    Howell, Denis (Small Heath)

    Mahon, Simon (Bootle)

    Urwin, T. W.

    Howle, W.

    Manuel, Archie

    Varley, Eric G.

    Hoy, James

    Marquartd, David

    Walden, Brian (All Saints)

    Hughes, Rt. Hn. Cledwyn (Anglesey)

    Millan, Bruce

    Walker, Harold (Doncaster)

    Hughes, Emrys (Ayrshire, S.)

    Miller, Dr. M. S.

    Wallace, George

    Hughes, Roy (Newport)

    Mitchell, R. C. (S'th'pton, Test)

    Watkins, David (Consett)

    Hunter, Adam

    Morgan, Elystan (Cardiganshire)

    Wellbeloved, James

    Hynd, John

    Moyle, Roland

    White, Mrs. Eirene

    Jackson, Colin (B'h'se & Spenb'gh)

    Neal, Harold

    Whitlock, William

    Jackson, Peter M. (High Peak)

    Newens, Stan

    Williams, Alan Lee (Hornchurch)

    Jeger, George (Goole)

    Noel-Baker, Rt. Hn. Philip (Derby.S.)

    Willis, George (Edinburgh, E.)

    Jeger,Mrs.Lena(H'b'n&St.P'cras,S.)

    Ogden, Eric

    Winterbottom, R. E.

    Johnson, Carol (Lewisham, S.)

    O'Malley, Brian

    Woodburn, Rt. Hn. A.

    Johnson, James (K'ston-on-Hull, W.)

    Orme, Stanley

    Woof, Robert

    Judd, Frank

    Oswald, Thomas

    Yates, Victor

    Kelley, Richard

    Page, Derek (King's Lynn)

    TELLERS FOR THE NOES:

    Kenyon, Clifford

    Parkyn, Brian (Bedford)

    Mr. Charles R. Morris and Mr. Joseph Harper.

    Kerr, Mrs. Anne (R'ter & Chatham)

    Pavitt, Laurence

    Question put, That the Clause, as amended, stand part of the Bill:—
    The Committee divided: Ayes 171, Noes 113.

    Division No. 34.]

    AYES

    [1.00 a.m.

    Allaun, Frank (Salford, E.)

    Dunwoody, Mrs. Gwyneth (Exeter)

    Howarth, Harry (Wellingborough)

    Alldritt, Walter

    Eadie, Alex

    Howarth, Robert (Bolton, E.)

    Allen, Scholefield

    Edwards, William (Merioneth)

    Howell, Denis (Small Heath)

    Archer, Peter

    Ellis, John

    Howie, W.

    Armstrong, Ernest

    English, Michael

    Hoy, James

    Ashley, Jack

    Ennals, David

    Hughes, Rt. Hn. Cledwyn (Anglesey)

    Atkins, Ronald (Preston, N.)

    Ensor, David

    Hughes, Emrys (Ayrshire, S.)

    Atkinson, Norman (Tottenham)

    Evans, Albert (Islington, S.W.)

    Hughes, Roy (Newport)

    Baxter, William

    Evans, loan L. (Birm'ham, Yardley)

    Hunter, Adam

    Bennett, James (G'gow, Bridgeton)

    Fernyhough, E.

    Hynd, John

    Bishop, E. S.

    Fletcher, Raymond (Ilkeston)

    Jackson, Colin (B'h'se & Spenb'gh)

    Blackburn, F.

    Fletcher, Ted (Darlington)

    Jackson, Peter M. (High Peak)

    Boardman, H.

    Floud, Bernard

    Jeger, George (Goole)

    Booth, Albert

    Foley, Maurice

    Jeger,Mrs.Lena(H'b'n&St.P'cras,S.)

    Braddock, Mrs. E. M.

    Forrester, John

    Johnson, Carol (Lewisham, S.)

    Brown, Bob(N'ctle-upon-Tyne,W.)

    Fowler, Gerry

    Johnson, James (K'ston-on-Hull, W.)

    Brown, W. R. (Shoreditch & F'bury)

    Fraser, John (Norwood)

    Judd, Frank

    Buchan, Norman

    Fraser, Rt. Hn. Tom (Hamilton)

    Kenyon, Clifford

    Buchanan, Richard (G'gow, Sp'burn)

    Freeson, Reginald

    Kerr, Mrs. Anne (R'ter & Chatham)

    Butler, Mrs. Joyce (Wood Green)

    Galpern, Sir Myer

    Kerr, Dr. David (W'worth, Central)

    Callaghan, Rt. Hn. James

    Gardner, A. J.

    Kerr, Russell (Feltham)

    Carmichael, Neil

    Garrow, Alex

    Lawson, George

    Carter-Jones, Lewis

    Ginsburg, David

    Lever, Harold (Cheetham)

    Coleman, Donald

    Gordon Walker, Rt. Hn. P. C.

    Lewis, Arthur (W. Ham, N.)

    Craddock, George (Bradford, S.)

    Gourlay, Harry

    Lewis, Ron (Carlisle)

    Cullen, Mrs. Alice

    Gray, Dr. Hugh

    Lomas, Kenneth

    Dalyell, Tam

    Gregory, Arnold

    Luard, Evan

    Davies, Harold (Leek)

    Hamilton, James (Bothwell)

    Lyon, Alexander W. (York)

    Davies, Robert (Cambridge)

    Hamilton, William (Fife, W.)

    Lyons, Edward (Bradford, E.)

    Dell, Edmund

    Hamling, William

    Mabon, Dr. J. Dickson

    Dempsey, James

    Hannan, William

    McBride, Neil

    Dewar, Donald

    Harper, Joseph

    McCann, John

    Diamond, Rt. Hn. John

    Hazell, Bert

    MacDermot, Niall

    Dickens, James

    Henig, Stanley

    Macdonald, A. H.

    Dobson, Ray

    Hilton, W. S.

    Mackenzie, Gregor (Rutherglen)

    Doig, Peter

    Hobden, Dennis (Brighton, K'town)

    Mackintosh, John P.

    Dunn, James A.

    Hooley, Frank

    Maclennan, Robert

    Dunnett, Jack

    Horner, John

    McMillan, Tom (Clasgow, C.)

    MacPherson, Malcolm

    Pavitt, Laurence

    Summerskill, Hn. Dr. Shirley

    Mahon, Peter (Preston, S.)

    Perry, George H. (Nottingham, S.)

    Urwin, T. W.

    Mahon, Simon (Bootle)

    Prentice, Rt. Hn. R. E.

    Varley, Eric G.

    Manuel, Archie

    Price, Christopher (Perry Barr)

    Walden, Brian (All Saints)

    Marquand, David

    Price, Thomas (Westhoughton)

    Walker, Harold (Doncaster)

    Millan, Bruce

    Price, William (Rugby)

    Wallace, George

    Miller, Dr. M. S.

    Rees, Merlyn

    Watkins, David (Consett)

    Mitchell, R. C. (S'th'pton, Test)

    Rhodes, Geoffrey

    Wellbeloved, James

    Morgan, Elystan (Cardiganshire)

    Roberts, Albert (Normanton)

    Wells, William (Walsall, N.)

    Morris, Charles R. (Openshaw)

    Roberts, Goronwy (Caernarvon)

    White, Mrs. Eirene

    Moyle, Roland

    Robinson, W. O. J. (Walth'stow, E.)

    Whitlock, William

    Neal, Harold

    Ross, Rt. Hn. William

    Williams, Alan Lee (Hornchurch)

    Newens, Stan

    Rowland, Christopher (Meriden)

    Willis, Ceorge (Edinburgh, E.)

    Noel-Baker, Rt. Hn.Philip(Derby,S.)

    Rowlands, E. (Cardiff, N.)

    Winterbottom, R. E.

    Ogden, Eric

    Ryan, John

    Woodburn, Rt. Hn. A.

    O'Malley, Brian

    Shaw, Arnold (Ilford, S.)

    Woof, Robert

    Orme, Stanley

    Short,Rt.Hn.Edward(N'c'tle-u-Tyne)

    Yates, Victor

    Oswald, Thomas

    Silkin, S. C. (Dulwich)

    Page, Derek (King's Lynn)

    Silverman, Julius (Aston)

    TELLERS FOR THE AYES:

    Parkyn, Brian (Bedford)

    Steele, Thomas (Dunbartonshire, W.)

    Mr. John Silkin and Mr. Alan Fitch

    NOES

    Alison, Michael (Barkston Ash)

    Fisher, Nigel

    Mills, Stratton (Belfast, N.)

    Aster, John

    Fletcher-Cooke, Charles

    Monro, Hector

    Batsford, Brian

    Fortescue, Tim

    Munro-Lucas-Tooth, Sir Hugh

    Bennett, Dr. Reginald (Gos. & Fhm)

    Glover, Sir Douglas

    Neave, Airey

    Berry, Hn. Anthony

    Grant, Anthony

    Nicholls, Sir Harmar

    Biffen, John

    Griffiths, Eldon (Bury St. Edmunds)

    Noble, Rt. Hn. Michael

    Biggs-Davisor, John

    Grimond, Rt. Hn. J.

    Nott, John

    Black, Sir Cyril

    Gurden, Harold

    Osborn, John (Hallam)

    Blaker, Peter

    Hall-Davis, A. G. F.

    Page, Graham (Crosby)

    Boyd-Carpenter, Rt. Hn. John

    Hawkins, Paul

    Pardoe, J.

    Boyle, Rt. Hn. Sir Edward

    Higgins, Terence L.

    Peel, John

    Brewis, John

    Hill, J. E. B.

    Powell, Rt. Hn. J. Enoch

    Brinton, Sir Tatton

    Hirst, Geoffrey

    Price, David (Eastleigh)

    Brown, Sir Edward (Bath)

    Hobson, Rt. Hn. Sir John

    Prior, J. M. L.

    Buchanan-Smith, Alick(Angus, N&M)

    Hogg, Rt. Hn. Quintin

    Roots, William

    Buck, Antony (Colchester)

    Holland, Philip

    Rossi, Hugh (Hornsey)

    Campbell, Gordon

    Hooson, Emlyn

    Scott, Nicholas

    Carlisle, Mark

    Hordem, Peter

    Sinclair, Sir George

    Carr, Rt. Hn. Robert

    Hornby, Richard

    Stainton, Keith

    Chichester-Clark, R.

    Hutchison, Michael Clark

    Steel, David (Roxburgh)

    Clegg, Walter

    Jenkin, Patrick (Woodford)

    Taylor, Sir Charles (Eastbourne)

    Cooke, Robert

    Johnston, Russell (Inverness)

    Taylor, Edward M. (G'gow,Cathcart)

    Corfield, F. V.

    Kaberry, Sir Donald

    Taylor, Frank (Moss Side)

    Crosthwaite-Eyre, Sir Oliver

    Kimball, Marcus

    Thatcher, Mrs. Margaret

    Crouch, David

    Knight, Mrs. Jill

    Thorpe, Jeremy

    Crowder, F. P.

    Langford-Holt, Sir John

    van Straubenzee, W. R.

    Cunningham, Sir Knox

    Legge-Bourke, Sir Harry

    Wainwright, Richard (Colne valley)

    Dalkeith, Earl of

    Longden, Gilbert

    Ward, Dame Irene

    Dance, James

    Loveye, W. H.

    Webster, David

    Davidson, James(Aberdeenshire, W.)

    Lubbock, Eric

    Wells, John (Maidstone)

    d'Avigclor-Coldsmid, Sir Henry

    MacArthur, Ian

    Whitelaw, William

    Dean, Paul (Somerset, N.)

    Mackenzie, Alasdair(Ross & Crom'ty)

    Wilson, Geoffrey (Truro)

    Dodds-Parker, Douglas

    Maclean, Sir Fitzroy

    Winstanley, Dr. M. P.

    Doughty, Charles

    Macleod, Rt. Hn. Iain

    Wolrige-Gordon, Patrick

    Eden, Sir John

    Maddan, Martin

    Younger, Hn, George

    Elliot, Capt. Walter (Carshalton)

    Maude, Angus

    Elliott, R.W.(N'c'tle-upon-Tyne,N.)

    Maxwell-Hyslop, R. J.

    TELLERS FOR THE NOES:

    Eyre, Reginald

    Maydon, Lt.-Cmdr. S. L. C.

    Mr. Francis Pym and Mr. Jasper More.

    Farr, John

    Mills, Peter (Torrington)

    Schedule 3 agreed to.
    To report Progress and ask leave to sit again.—[Mr. Callaghan.]
    Committee report Progress; to sit again this day.

    WAYS AND MEANS
    Considered in Committee.
    [Mr. GRANT-FERRIS in the Chair]

    INCOME TAX, CAPITAL GAINS TAX AND CORPORATION TAX (REORGANISATION OF COMPANY'S SHARE CAPITAL, ETC.)
    Motion made, and Question proposed,
    That charges to income tax under Case VII of Schedule D and to tax in respect of chargeable gains, including charges in respect of past acquisitions or disposals of assets, may be imposed by provisions relating to the apportionment of the cost of acquisition of any asset, including any new holding of shares or securities resulting from a reorganisation or reduction of a company's share capital or a conversion or exchange of securities.—[Mr. Callaghan.]
    1.10 a.m.
    Mr. Iain Macleod: At any other time I would ask the Chancellor for something more than that uninformative nod. If I did tonight, I am not sure that I should get a lucid answer.
    To save my having to explain his own Motion to him, would he agree that it has had to be put on the Order Paper because the Government have had second and wiser thoughts and that, otherwise, we should be discussing some Amendments that are out of date? If that is so, we have no objection and welcome the Motion.
    The Financial Secretary to the Treasury (Mr. Niall MacDermot): The purpose of it is to lay the foundation for some official Amendments and meet a point to which some Opposition Amendments are directed, dealing with the simplification of the Capital Gains Tax code in consequence of the reconstruction or reorganisation of a company's share capital. The Amendments cover the law in respect of both the Capital Gains Tax and also Case VII of Schedule D, in the case of short-term capital gains.
    Question put and agreed to.
    Resolution to be reported.
    Report to be received this day; Committee to sit again this day.

    LOCAL GOVERNMENT (SCOTLAND) BILL
    Order for Second Reading read.
    Motion made, and Question put (pursuant to Standing Order No. 62 (Public Bills relating exclusively to Scotland)), That the Bill be committed to the Scottish Standing Committee.—[Mr. Ross.]
    Question agreed to.
    Bill (deemed to have been read a Second time) committed to the Scottish Standing Committee.

    LOCAL GOVERNMENT (SCOTLAND) [MONEY]
    [Queen's Recommendation signified]
    Considered in Committee under Standing Order No. 88 (Money Committees).
    [Mr. GRANT-FERRIS in the Chair]
    Motion made, and Question proposed,
    That, for the purposes of any Act of the present Session to make further provision, in relation to Scotland, with respect to the payment of grants to local authorities, valuation and rating, local authority expenditure and the classification and lighting of highways, and for other purposes, it is expedient to authorise the payment out of moneys provided by Parliament of:—

    (1) an increase in respect of the year 1966–67 (not exceeding £700,000) in the aggregate amount of general grants payable to local authorities under the Local Government and Miscellaneous Financial Provisions (Scotland) Act 1958;

    (2) grants to local authorities, for the year 1967–68 and each subsequent year, of an amount equal to the aggregate amount which the Secretary of State determines is to be available for that year for the payment of grants (other than housing subsidies) to local authorities out of such moneys, reduced by such portion of that aggregate amount as the Secretary of State estimates will be allocated to grants in respect of such services provided by local authorities as he may determine;

    (3) the expenses of the Secretary of State incurred under the said Act in paying:—

    (a) grants to local authorities in connection with the development or redevelopment of land, the use of land as a public open space or the reclamation or improvement of derelict, neglected or unsightly land;

    241

    (b) grants to local authorities in respect of expenditure on staff which is attributable to the presence in their areas of immigrants from the Commonwealth,

    not exceeding in the case of grants mentioned in paragraph (a) above, one-half of the amount which, under the provisions of the said Act or under section 89(4) of the Town and Country Planning (Scotland) Act 1947, is or is treated as, or as costs incurred on account of, expenditure in respect of which the grants may be paid;

    (4) any expenses incurred under the said Act by the Secretary of State in connection with his power as highway authority to provide lighting for the purposes of any road or proposed road;

    (5) any administrative expenses incurred under the said Act by the Secretary of State; and

    (6) any increase attributable to the provisions of the said Act in the sums payable out of such moneys under any other Act.—[Mr. MacDermot.]

    1.14 a.m.
    Mr. Gordon Campbell: As I see the Secretary of State for Scotland in his place, and knowing his great interest in the drafting of Money Resolutions and the explanation of them, I should like to put a short question to him on this one.
    Paragraphs (1) to (4) appear to cover almost everything that can give rise to expenditure under the Bill. Then, in paragraph (5), we find that there is an additional provision, and "the said Act" there referred to must be the 1958 Act. Paragraph (5) is to cover
    "any administrative expenses incurred under the said Act by the Secretary of State".
    That would appear to cover anything that can arise under the Bill.
    I should like to ask him whether he foresees any administrative expenses arising, as provided for in paragraph (5), or whether it is simply playing for safety.
    Then we come to paragraph (6), and here provision is made for
    "any increase attributable to the provisions of the said Act in the sums payable out of such moneys under any other Act."
    It is this which I find difficult to follow, because if there is an increase attributable to the 1958 Act, it is to be payable under the terms of any other Act. Can the right hon. Gentleman say what this is intended to cover, and can he give any examples of the kind of situation which could arise and which could cause expenditure under this paragraph?
    1.16 a.m.
    The Under-Secretary of State for Scotland (Dr. J. Dickson Mahon): These questions are all related to road lighting, and the hon. Member for Moray and Nairn (Mr. G. Campbell) has referred to paragraphs 5 and 6. As the hon. Gentleman knows, the Bill seeks to give the Secretary of State power which he has not had up to now to provide lighting on trunk roads and to spend money for this purpose. The amount is to be £100,000 in the financial year 1967–68, and the administrative expenses are not likely to be substantial.
    The hon. Gentleman will remember that Part III seeks to classify roads in a different way.
    Mr. G. Campbell: I think that the hon. Gentleman has misunderstood me. Paragraph 4 deals with road lighting, while paragraphs 5 and 6 seem to be general to cover any other subjects which might arise under the Bill.
    Dr. Mabon: To some extent that is true, but one of the principal matters arising here is in Part III in relation to road lighting and the reclassification of roads. There are bound to be administrative expenses—although I am assured that they will not be substantial—in the work of reclassifying Class 1 roads and perhaps even Class 2 roads as principal roads, and, conversely, reclassifying some Class 1 roads as Class 2 roads.
    Some extra work will result from the introduction of new grants.
    With regard to the actual increase in grant under other Acts, paragraph 6 provides that
    "any increase attributable to the provisions of the said Act in the sums payable out of such monies under any other Act."
    Although this relates largely to additional highways grant for which Part III of the Bill provides, this is becoming payable because Clause 23 (5) brings road lighting within the scope of the Development and Road Improvement Funds Act, 1909, under which highway grants are payable. The new capital grant for lighting may amount to £100,000 in 1967–68, and it does not count against the aggregate Exchequer assistance determined under Clause 1. I hope that that satisfies the

    243
    hon. Gentleman that the Financial Resolution is worthy of his support.
    Question put and agreed to.
    Resolution to be reported.
    Report to be received this day.

    RAILWAYS (ABERYSTWYTH- CARMARTHEN LINE)
    Motion made, and Question proposed,
    That this House do now adjourn.—[Mr. Lawson.]
    1.19 a.m.
    Mr. Elystan Morgan: I am glad of this opportunity to draw the attention of the House, albeit at a late hour, to issues arising from the closure of the Aberystwyth to Carmarthen railway. I am also grateful to my hon. Friend the Joint Parliamentary Secretary for attending to reply to the debate. The hon. Gentleman and I have argued about many diverse subjects since early boyhood and that without obvious damage to either of us I am also indebted to him for his warm and courteous understanding in connection with the issue with which we are concerned tonight.
    The railway line in question is one which traverses parts of Cardiganshire and Carmarthenshire. It was closed to passenger services by the then Conservative Minister of Transport, the right hon. Member for Wallasey (Mr. Marples) in September 1964, one month before the General Election of that year. The closure was subject to the provision of a through bus service between the two terminals. Freight services had already been withdrawn between Lampeter and Aberystwyth save for the transport of liquid milk and milk products from the two creameries at Felinfach and Pont Llanio, respectively.
    This closure, like so many others, was sponsored by the Beeching Report. When that plan was published in 1963 the people of Cardigan realised the full significance to them of its provisions. With the exception of the line from Shrewsbury to Aberystwyth and the spur running up along the Cambrian coast, the whole of central Wales was to be a railway vacuum.
    244
    This is a region which has suffered decline for nearly a century. It is, in the words of a recent Government report:
    "… the most extensive area in England and Wales showing rural depopulation."
    In 1962, the Welsh Advisory Council, reporting on the matter of rural transport in Wales, compared the population trends of the five mid-Wales counties with five comparable counties in England —namely Cornwall, Hereford, Huntingdon, Rutland and Westmorland.
    It was found that, during the past 100 years, the five Welsh counties had all suffered very substantial losses in population. The worst-hit was Montgomeryshire, which had suffered the loss of 34·6 per cent, of its people during that period. In the case of the English counties, three of them showed substantial increases. Whilst Westmorland had lost only a fraction of one per cent, of its population and Cornwall had lost 7½ per cent.
    On the question of the possible withdrawal of railway services from mid-Wales, that report said:
    "The council are deeply concerned about the ultimate and indirect effects of whittling away the rural railway system. There seems to be a danger that too narrow a view might be taken of the public interest in this matter and that while attention has been concentrated on the financial implications from the standpoint of the railway operators, the 'invisible earnings' of the railway system in such forms as industrial, agricultural and tourist development, and general rural welfare, may be overlooked,"
    That statement anticipated words spoken a year later in the House in reference to the Beeching Report:
    "… it is totally wrong to base a decision on a narrow obsession with railway accountancy. One has to take account of the wider effects for the country as a whole."—[OFFICIAL REPORT, 30th April, 1963; Vol. 676, c. 911.]
    The words are those of the Prime Minister, then of course Leader of the Opposition.
    Naturally, these words gave heart to the people of my constituency, for they endorsed their deepest aspirations. Even after the closure of passenger services on that line had been ordered, they still cherished some hope of reprieve, for the then Labour Minister of Transport, my right hon. Friend the Member for Hamilton (Mr. Tom Fraser) had, on 4th November, assured the House that all

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    closure proposals and orders would be reviewed against the background of future economic and population trends. He said that he would seek power from the House to introduce legislation if this were necessary in any individual case. I assume that this also represents the policy of the right hon. Lady the present Minister of Transport.
    The quarrel of the people of my constituency lies not with the declared policies of the Government—which they believe to be just—but with their application in this particular instance. My constituents maintain—and I join them in this—that no proper case has been made for the closure of this railway. They contend that if there is a real determination to undo the harm of the Beeching Plan, if there is a will to carry out the statements that have so clearly been made by the Labour Party, then here is a classic case where such plans and such motives can be brought into execution.
    The arguments in favour of such a proposal fall under three heads. First, there is the financial aspect of the railway authority's case—the cold, calculating monetary considerations. It appears that at no stage was evidence adduced that there was an actual net loss in operating both freight and passenger services. The special milk services, already mentioned, which are now operated, are stated to afford an annual revenue of £185,000 to the railway authorities. This figure has never been denied. It is possible—indeed, it is probable— that if this revenue is offset against the passenger service deficit, it may well be that no net loss would be incurred. It may be argued that freight is not within the purview of the Minister of Transport, but that is not the fault of my constituents but rather of the part of the Transport Act, 1962 which so ordains. I doubt whether fair-minded laymen can accept such delicate, nice sophisticated distinctions, any more than they could understand the fate of a stretch of road being decided without consideration being given to the extent to which it was used by goods vehicles.
    But even if there be a net loss for freight and passenger services—and that is certainly not conceded—I would point out that the latest figures—those published in 1964—show British Railways in the Western Region making an operating
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    profit of £240,000 a week. In such circumstances is it not reasonable to suggest that a cross-subsidy could be paid in order to enable this railway and other railways in a similar plight to be kept open?
    In this context I believe that it is proper for me to point out that the two bus operators on the route between Aberystwyth and Carmarthen are companies in which the majority holding is State owned, and I do not think it is denied that a substantial subsidy is paid indirectly out of public funds for the maintenance of that service.
    If this line be re-opened it could be operated only as a streamlined service and this would make any estimate of the deficit which had been suffered by the hitherto antiquated system completely irrelevant. I draw the attention of the House to the case of the Llanelly— Craven Arms line for, before streamlining, that railway lost £175,000 per annum, and after streamlining that deficit was reduced to £30,000 per annum. It may well be that if the same were applied to this railway, the deficit would be very substantially diminished, if not wholly eradicated.
    There is the question of the effect of the closure on the county and community of Cardiganshire. Time does not permit me to give more than a brief outline of some of these factors. The through bus service from Aberystwyth to Carmarthen Town, which was a condition precedent to closure, is a wholly inadequate form of transport on account of the narrowness of the roads. The Beeching Report stated on page 20:
    "Road improvement or road construction may be necessary before adequate road services can be provided as full alternatives to the rail service."
    Such improvements have not been carried out to the narrow and tortuous roads which serve as alternatives to this railway line. In this respect, those who were responsible in the first place for the closure have sought "to out-Beeching Beeching". As a result of the discontinuance of the general freight service between Lampeter and Aberystwyth, I have figures in my possession from which I calculate that no less than 80,000 additional tons of freight is annually being brought on to these roads as a result of closure. It is probable that this represents upwards of 10,000 additional lorry

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    loads a year going on to these roads, a heavy additional burden to be carried on our already inadequate network. If the line is not to be reopened—and I sincerely hope that reopening is still possible—here is a pressing case for substantial improvements of the roads concerned.
    I doubt very much, with the greatest respect, whether the authorities concerned have attached adequate weight to the question of the holiday population of the county, which depends heavily on tourism for a flourishing economy. The permanent population is about 53,500. Studies made by the Cardiganshire County Council show how the normal population during the summer holiday season becomes considerably swollen—how Aberystwyth's population increases by 200 per cent., Aberaeron's by 75 per cent. and Borth's by 500 per cent. There is no question but that the railway has played a vital rôle in the augmentation of the population of these areas.
    There is also the important factor of the rapid growth of the University College of Wales at Aberystwyth, the growth of St. David's College at Lampeter and the building of a large new hospital at Aberystwyth, which is shortly to be completed. All these are real and adequate sources of custom for the railway if there was initiative and determination to gain such custom.
    There are many aspects of hardship which I could mention. I will confine myself merely to drawing attention to coal supplies. There is no doubt but that there is a great deal of hardship on account of the price of coal it now having to be re-routed through Shrewsbury —being increased by 20s. to 25s. a ton. That is in addition to the consideration, of frequent delays of up to two to three weeks occurring from the time of ordering, compared with a wait of from one to three days prior to the closure.
    Another matter should be considered under this heading. A month ago there was set up the Clayton Survey to study traffic conditions in west Cardiganshire. A week ago the Secretary of State for Wales designated two towns in Cardiganshire, Aberystwyth and Lampeter, as growth points.
    I sincerely trust that the future of this railway line will be kept an open matter until the report of that survey is available
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    and until the plans for the development of Aberystwyth and Lampeter have been launched. To do otherwise, to give final and irrevocable judgment on this matter, would surely be to submit to the judicial procedures in "Alice in Wonderland "—sentence first, verdict afterwards.
    Thirdly, there is the significance of this railway to Mid-Wales. The attitude of the Ministry seems to be that here is a railway which traverses an area of rather thin population and which runs between two towns of 10,000 and 12,000 population. I suggest that that is a narrow view. Here is a vital link between North-West and South-West Wales. There is here a service which has a potential of serving many scores of thousands of people. To the land and nation of Wales there are many divisive forces and factors. Mountain ranges divide us and communications divide us. Some people would even argue that language divides us. Here is a factor which can unite a large part of North, Central and South Wales.
    There is a deep and growing feeling in the hearts of many people in Mid-Wales that the closure of this line is the symbol of an inevitable fate. Economic and social decline is the way of life for many hundreds of villages in the Mid-Wales area. There is an instinctive feeling of helplessness which creates a psychology and a malaise. I do not accept this view, but I know this psychology to be a most potent and sometimes damning factor in relation to possible development in that area. Cardiganshire as a community has reached the point of a crucial decision. Either we surrender to this malaise or we challenge it in a bold and determined manner. The reopening of this line could be the forerunner of such a challenge.
    I trust that the Parliamentary Secretary will agree to defer final judgment on this railway line in order to examine the deep and underlying factors I have sought to describe. If he does not do so it is probable that few would lay heavy blame on him for failing at this late stage to reverse a savage and destructive act of a Tory Government. But here is an opportunity to indulge in a bold social, and Socialist experiment. If he submits the whole matter to inspired reappraisal he will have earned, and properly earned, the gratitude and the admiration of his native country.
    1.38 a.m.
    The Joint Parliamentary Secretary to the Ministry of Transport (Mr. John Morris): In the short time that my hon. Friend the Member for Cardigan (Mr. Elystan Morgan) has been in this House he has fought like a tiger for Ministerial attention to this railway and, as we heard in his speech tonight, towards the whole of the transport problems of his constituency.
    I know full well that the closure of a particular railway line poses many problems. I have lived almost all my life in my hon. Friend's constituency and I also have very close associations with the County of Carmarthen. I think I can claim close knowledge of the rôle of a railway line of this type running through this important area. It is not only the question of a railway line but of the whole transport services of my hon. Friend's constituency which is important. In the first 25 years of my life, which I spent in his county, there was, in my village, only one morning bus and one evening bus and an extra one on the two shopping days of Monday and Friday.
    The facts are that this line is 56 miles long and the average number of passengers each way on weekdays in July, 1963, was 110. The savings to be effected by closure would be £114,200, less the bus subsidy. My hon. Friend has raised the issue of freight in a number of aspects, and in particular as regards milk. Freight is entirely a matter for the Railways Board and it would not do for me to comment on that aspect, but I would say that even if my hon. Friend's figure of £185,000 as coming from milk revenue is right, that is revenue and not profit. The greater proportion of this would be offset against the cost of transporting the milk, and whatever net profit remained at the end of the day would have to be apportioned not only as to the stub-end of the line running between the counties of Cardigan and Carmarthen but to the whole of the distance that the milk is transported through many parts of the country.
    Therefore, my hon. Friend will have to bear in mind that these are not realistic issues to put one against the other. Indeed, this revenue would never come anywhere near meeting the total additional costs of running a passenger railway service
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    on this line. I was glad that he pointed out, so that there is no ambiguity, that this line was closed by a decision of the last Conservative Minister of Transport—a decision taken on 10th September, 1964. The line was actually closed in the following February, although some part of it had been closed earlier because of flood damage.
    Under existing legislation neither my right hon. Friend the Member for Hamilton (Mr. Tom Fraser) nor the present Minister has the power to reverse that decision. The decision once made, is conveyed to the Railways Board which proceeds to carry it out and, having once been given ministerial authority, the Board proceeds to carry out any necessary contractual arrangements with third parties.
    Mr. Jeremy Thorpe Mr. Jeremy Thorpe (Devon, North) rose——
    Mr. Morris: I am sorry, but I have only a short time in which to speak.
    This is the situation that the Labour Minister found on taking office. The Railways Board then applied to dispose of the track between Pont Llanio and Aberystwyth. Since insufficient time had elapsed to enable the effect of the closure to be judged, the Minister deferred a decision for six months. He did so in a letter written to the Board on 13th May, stating that his reason was
    "to see that the alternative services provided following closures were working satisfactorily."
    On 10th June that year the British Railways Board, Western Region, informed the county council, and subsequently on 18th June the county council wrote to the Ministry for confirmation of this. This confirmation was given on 9th July.
    In the meantime, my right hon. Friend the Member for Hamilton sought the advice of the Welsh Office, and their advice, given in the autumn of that year, was that in the light of the summer's experience they did not wish to object to the sale of the track and the formation. British Railways were informed on 18th November, 1965, that the disposal of the track and the formation was authorised.
    This was the situation when I came to the Ministry of Transport earlier this year. I knew that there was a certain amount of feeling in the two counties, and I did two things. First, I got the Board

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    to agree that the formation and essential features should be retained for the time being—this despite the fact that the Board had been given Ministerial authority to proceed with the disposal. Secondly, on 23rd February I caused a letter to be written to the local authorities suggesting that in view of my Minister's anxiety to ensure that alternative services were adequate to meet essential needs, I was prepared to make an on-the-spot personal investigation and was prepared to meet the local authorities to discuss the adequacy of the transport services in the area.
    That same letter spelt out that there was no prospect of this line becoming economic and, secondly, so clear was it that the line had no part to play in the future transport system of the area that the previous Minister had, in consultation with the Welsh Office, agreed to the sale of the track and formation. This was the situation and this was the meeting that was called. I went down to investigate the matter. It was obvious to anyone reading that letter what the meeting was about.
    I was surprised to be asked whether I saw any possibility of the line being reopened. I said that I was afraid that I could see no such possibility. I suppose I could have avoided giving a straight answer to a straight question, and then for the rest of the meeting we would have been engaged in a game of pretence, and arguing not about the reality of the transport problems but about the reopening of the line. I felt that there could be only one answer, and if I disappointed some of my hon. Friends I hope that they preferred my honesty and frankness to any transquillisers that I could have administered.
    I agreed at the meeting, first, to inform the Welsh Office just what had been said about the adequacy of the roads in the area. This is being done. Secondly, I asked the Welsh Economic Council to look again into the future needs of the area and to reconsider whether the formation should be disposed of. This is being done. I also informed the meeting that the Welsh Economic Council had asked a team from the University College of Wales, under Professor Clayton, to make a study of the transport problems roughly west of a line between Aberystwyth
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    and Carmarthen. I am sure that the Welsh Economic Council will take account of the fact that Professor Clayton is undertaking the survey at its request in the kind of advice it will give my Ministry about the disposal of the formation. I also invited local authorities to cooperate with Professor Clayton's team, I said I was sure they would and I understand that they are doing so.
    There is the real problem of the provision of public transport in rural areas. The growth of the motor car has caused immense problems. In 1952 there were 85 cars per 1,000 people in Cardiganshire; in 1965 there are at least 240 vehicles. I am sorry that I have not the breakdown between cars and other vehicles. This is some indication of the growth of the motor car which has created this great problem for both the railways and the buses.
    The remedy of the Tory Party—and I see no representative of that party here tonight, which shows its interest in the problems of Cardigan and Carmarthen— was the philosophy contained in the Act of 1962, for which the Liberal Party voted, namely, commercialism, which would have meant the butchering of the railway system in this country until, in the end, we would have had a railway system of a mere 8,000 miles.
    I hope that in a short time we shall be publishing our White Paper, which will set out clearly our thinking on the future transport needs of this country. I do not hope to have complete answers to all the problems, but what my Minister and I are concerned about is that we shall have an adequate system of public transport in the kind of area to which my hon. Friend has referred. One of the conditions of this closure was that there should be the provision of limited-stop buses. I understand that they take two hours and 35 minutes to complete the journey, as opposed to the average train time of two hours and thirty minutes.
    I shall bear in mind all that my hon. Friend has said, and I hope that in the end he will be content with what I have said, namely, that we have looked closely at some of the real problems that he posed.
    Question put and agreed to.
    Adjourned accordingly at eleven minutes to Two o'clock.