SELECTIVE EMPLOYMENT PAYMENTS BILL

HC Deb 23 June 1966 vol 730 cc932-1054

Order for Second Reading read

4.13 p.m.

The Minister of Labour (Mr. R. J. Gunter)

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

I need hardly remind the House that this Bill forms the second stage in implementing the Government's proposals for the Selective Employment Tax. Clause 42 of the Finance Bill gives power to collect the tax. This Bill deals with the payment of premiums or refunds to those employers who are entitled to receive them.

The right hon. Gentleman the Leader of the Opposition asked at an earlier stage why it should be I who is to introduce this Bill and not my right hon. Friend the Chancellor of the Exchequer. I hoped that I detected a note of sympathy in that, but it is a fair question. Quite clearly, the Bill is primarily a financial Measure. But if hon. Members will turn to the Financial Memorandum accompanying the Bill they will see that by far the largest sums of money that are due to be paid out to employers by way of premiums and refunds will be handled by my Department. It is thus entirely appropriate that I should take the main responsibility for the Bill.

The point is of little practical importance, for my right hon. Friend and I will be sharing the work between us. He will be winding up tonight and answering questions raised during the debate; Treasury Ministers will also be playing a full part in the later stages.

The Bill gives effect to the proposals published in the White Paper presented to Parliament by my right hon. Friend on Budget day, and to the modifications subsequently announced. These proposals have already been extensively discussed in the House, both in the course of the debates on the Budget Resolutions and during the debate on the Second Reading of the Finance Bill. So much attention has been paid to points of detail that there is some danger of overlooking what it is that the Selective Employment Tax is designed to do.

The tax is intended to have both short and long-term effects. In the short term, its main purpose is to raise additional revenue in order to restrain consumer demand and thereby improve our balance of payments position; but to do this in a way that will help to redress the tax balance between the manufacturing and service sectors of the economy.

In the longer term it has the additional aim of making more manpower available for manufacturing industry by encouraging economy in the use of labour in the services. If this second purpose had been the only object of the tax there might have been something to be said on the side of those who have argued that it would have been better to wait until next year for a more refined Measure. But it was not its only purpose.

Right hon. and hon. Members opposite have generally not sought to argue that it was wrong to raise extra taxation this year, nor have they seriously questioned the amount which my right hon. Friend has seen fit to raise. The choice was thus not between this tax and no increase in taxation at all. It was between a new tax of this kind and increasing the rates of existing taxes. For example, raising the 25 per cent. rate of Purchase Tax to 33⅓ per cent. together with an increase of 6d. in the standard rate of Income Tax would have raised about the same revenue in a full year.

I am sure that if hon. Members opposite think that Income Tax or Purchase Tax should have been raised they will, in the debate, make this clear. We on this side have taken the view that it is preferable to introduce the new tax this year, accepting that its provisions will fall some way short of perfection—[Laughter.]—rather than to have increased the burden of taxation on manufacturing industries or to have raised the level of tax on incomes.

I think that it will be for the convenience of the House if I explain the provisions of the Bill in some detail. Invoking another laugh, at least I may say that the structure of the Bill is simple enough, however complicated the details that flow from it. Clause 1 deals with the payment of premiums, Clauses 2 to 6 with the payment of refunds to different kinds of employer, and the remaining Clauses with such matters as administra- tion, appeals, and the power to amend the Act.

Clause 1 follows the White Paper in restricting entitlement to premiums to establishments falling under the Minimum List Headings contained in Orders III to XVI of the Standard Industrial Classification. These are commonly referred to as the "manufacturing" Orders. It also follows the White Paper in providing that the heading under which an establishment falls will be determined by the activity on which the majority of its employees are engaged.

For the way in which the term "establishment" is to be interpreted I would refer the House to subsection (2) of Clause 10. As the right hon. Member for Enfield, West (Mr. Iain Macleod) has already pointed out, the working definition of establishment given in the Introduction to the Standard Industrial Classification is insufficiently precise for our purposes. The Bill therefore provides that premises occupied by a single employer will be regarded as constituting the site of a single establishment if access to all parts of the premises can be obtained without leaving them.

This is roughly equivalent to saying that all the activities conducted by an employer from a single address will be treated as a unit; and in the great majority of cases this will coincide with the way in which the business is, in fact, organised. Of course, there will be exceptions, and some will work to the advantage of the employer.

The next subsection of Clause 10 makes a concession which will help the employer who is carrying out two or more different kinds of activities in a single set of premises. Let us take the example of a firm running a shop and manufacturing leather goods. It will be open to an employer in such a case to apply to have the single set of premises regarded as forming the site of two establishments. Before agreeing to this I should need to be satisfied that the two sets of activities were different in kind, and the test that I would normally apply would be that if they had been carried out on different sets of premises they would have been classified under different Minimum List Headings in the Standard Industrial Classification. The employer would also have to show that the different activities were physically distinguishable and separately organised.

I would add that this concession works solely in favour of the employer and against the Exchequer. If, in the hypothetical case that I have quoted, the manufacturing activities predominate, I have no doubt that the employer will be very happy to receive premiums also in respect of the staff employed in the shop. It is only if the shop is the major activity that he will want to apply for the premises to be split in two, to enable him to claim premiums for those employed in the making of goods.

To qualify for premiums an establishment must be engaged wholly or partly on activities coming under a Minimum List Heading in the "manufacturing" Orders of the Standard Industrial Classification, and must have more than half its employees employed in connection with those activities. This is a little less complicated than it sounds, but it raises the issue whether premiums should be paid in respect of establishments predominately engaged not in manufacturing as such but in activities incidental to manufacturing such as office work, advertising, transport and sales.

It is no part of the Government's intention that they should. Of course, no company can run without an office, and office work must play an essential part in all manufacturing activities. One could go on to argue from that that manufactured goods are of no use unless they are sold, and that advertising, sales and distribution—the wholesaler, the agent and the retail shop—are all parts of a single chain. All this is true. It is, however, equally true that these sectors of the economy, including the offices, have in recent years been receiving a greater part of the additional manpower available in our economy and that only a small share has gone to the manufacturing sectors. The Bill is deliberately designed to discriminate between the manufacturing and service sectors of the economy.

Mr. William Baxter (West Stirlingshire)

I am interested in trying to follow my right hon. Friend's line of argument. It seems to me to be a very complicated one, and I find difficulty in following it. Let us take the position of a contractor who has in his workshop and office a staff of about 100, and who has 300, 400 or 500 out on the sites. How would he fall within the terms of the Bill?

Mr. Gunter

The point is—and it is one that all men engaged in industry have known for a long time—that offices and other ancillaries to manufacture have been attracting far more manpower than they should. The Bill therefore includes a provision to the effect that where more than half the employees of any establishment are engaged on office work, or in the transport of the employers' own goods, or in sales, the establishment as a whole will not qualify for premium—

Several Hon. Members rose——

Mr. Gunter

I am trying to put the main theme of the Bill before the House. The Leader of the Opposition has told us that we shall have a long, hot period when the Bill will be taken apart bit by bit, and I think that it will be better if I develop the main theme rather than be involved in details and in minute expositions of the way in which the legislation is to operate.

In the case of most manufacturing establishments the entitlement to premiums will be clear. Nothing like 50 per cent. of their employees will be engaged on non-qualifying activities, and no intricate head-counting exercises will arise. But I have seen it suggested that the provision relating to non-qualifying activities will discourage manufacturing firms from introducing greater mechanisation or automation.

Sir Harmar Nicholls (Peterborough)

The right hon. Gentleman has made it clear that the intention is that the service industries will release men to go into the manufacturing industries. If, as a result of these provisions, they do release men, will they have to pay redundancy payments? If so, this will be a discouragement.

Mr. Gunter

I have no doubt that redundancy payments will be involved.

If the Bill had provided that an establishment would not qualify for premiums if, say, 25 per cent. of its employees were engaged in non-qualifying activities, there might have been some danger of discouraging greater mechanisation, but we have deliberately kept the proportion as high as 50 per cent. in order to prevent it having this effect. What this provision can certainly be expected to do is to encourage a greater degree of mechanisation of office processes and an increased use of computers. I take it that no one will argue against that.

It has also been suggested that, as a result of the Bill, firms will take steps to move their offices into separate premises or, alternatively, into the same premises as a manufacturing establishment. No doubt this will happen in some cases, though I think that it is easy both to exaggerate the effect of the tax in this respect and to under-estimate the difficulties facing a firm contemplating taking such a step. But if a firm should decide to move its head office from London to the site of a factory in the provinces no one would be more pleased than I.

Clause 1 goes beyond the White Paper in making special provision for research establishments owned by a manufacturing undertaking. It also gives power for premiums to be paid in respect of other establishments certified by the Minister of Technology to be engaged on research related to manufacture. This will enable premiums to be paid to companies which, although not manufacturers themselves, specialise in research for manufacturing companies, as well as to research associations in the manufacturing industries. Research associations in other industries will qualify for premiums, as a special case, if they are engaged in research directed to the manufacture of improved equipment for the use of those industries.

I have dealt with Clause 1 at some length because it is clearly a key part of the Bill. I will deal with the remaining Clauses more briefly. Clause 2 provides for refunds of tax to be made to qualifying establishments in the private sector. For agriculture, horticulture and forestry, refunds will be made by the Minister of Agriculture in England and Wales, and by the Secretary of State in Scotland. In the other cases refunds will be made by my Department.

Among those entitled to refunds will be the establishments of bus companies, including bus undertakings run by local authorities. Clause 10 provides that employment for office purposes is not to be treated as a non-qualifying activity in the case of activities falling under sub- head 1 of Minimum List Heading 702. This sub-head relates to buses. To have treated office work as a non-qualifying activity in this case would have had the effect of excluding a number of bus companies altogether, and would thus have defeated the intentions of the Government that refunds should be paid to bus undertakings.

Clause 3 gives effect to our intention that the nationalised industries should be treated as neutral for purposes of the tax. Payments to offset the tax will be made by Ministers designated for that purpose by the Treasury. These will normally be the Ministers who answer for the industries to Parliament, though in the case of the Post Office—which is also dealt with under this Clause—the intention is that payments should be made by the Treasury.

Those parts of the nationalised industries which are engaged in manufacturing activities directly comparable to those undertaken in the private sector are listed in Part III of the First Schedule. These will attract premiums. Those parts which are engaged in service activities directly comparable to the private sector are listed in Part II of the First Schedule. These will not attract any refund.

Clause 4 relates to local authorities and similar bodies. The detailed application of its provisions will be discussed with the local authority associations.

Clause 5 provides for the payment of refunds to charities. Few difficulties arise in determining whether an organisation is a charity in England and Wales. A charity which is registered under the Charities Act will automatically qualify for a refund. A charity which is certified by the Charity Commissioners or the Secretary of State for Education and Science to be exempt from registration under the provisions of the Act will also qualify. Any organisation which is aggrieved at a decision not to grant it a certificate may apply to be registered and appeal to the High Court if its application is refused.

The position is more complicated in Scotland, where there is no Register of Charities and no controlling legislation. The Bill therefore follows rating precedent in defining charities by reference to the Income Tax Acts. Any organisation which is certified by the Secretary of State to be a charity within the meaning of the Income Tax Acts will qualify for refund. If an organisation is aggrieved at a decision not to certify it to be a charity it will have the right of appeal to the Court of Session.

Some of my hon. Friends have maintained that it is wrong that such institutions as public schools, which happen to be charities, should qualify for refunds of tax. I have every sympathy with those who hold that some charities are more worthy than others, and I have no doubt we would all have our own order of preference. But I am sure it would not be wise to give to a Chancellor of the Exchequer the job of deciding which charities are worthy of support and which are not. We have taken the view that, if it is right to give this relief to charities, then it is right to give it to them all.

The provisions of Clause 5 have been generally welcomed throughout the country and I imagine that a similar welcome will be given to Clause 6. In broad terms, it provides relief for individuals who employ nursing or domestic help in a household which includes someone who is old; or in one where there is an incapacitated person who needs such help; or where there is a child or children and the only parent goes out to work.

The payment of refunds will be made through the new Ministry of Social Security. Full details will be announced by my right hon. Friend the Minister of Pensions and National Insurance in due course.

Clauses 5 and 6 together will involve the expenditure of considerable sums viewed in relation to the total amount which it is intended to raise by means of the new tax. I know there will be disappointment that we have not felt able to propose any further special measures for employers of elderly or disabled employees. While I have every sympathy with those who have urged us to do so, I think that they have exaggerated the likely effects of the tax and that neither the economic nor the social case for special treatment is as strong as has been made out. I have no doubt that opportunities will arise in Committee for these issues to be examined in greater detail.

All I would say at this stage is that, if I had thought that the Bill would materially worsen the employment position of disabled people or older workers, I would not have been a party to it. We shall, of course, watch the position carefully during the first year. We shall do the same in relation to part-time workers. But, here again, it is possible to exaggerate the effects of the tax on these workers. Over 90 per cent. of part-time workers are women, which is one reason why the rate of tax for women has been fixed at only half the rate for men.

Clause 7 of the Bill deals with the registration of establishments, the payment of premiums or refunds, and the right of appeal. Employers with establishments which they think qualify for payments under Clauses 1 or 2 of the Bill will be required to register them. Registers for the industries for which I will be responsible will be kept at my Department's local offices. We shall endeavour to keep the registration procedure as simple as possible and we shall let employers know in good time what they have to do. The new tax becomes payable at the beginning of September, but this does not mean that employers must have registered by then.

The Bill gives me power to place establishments on the register from a date earlier than the date on which applications for registration are received, and I intend to make extensive use of this power in introducing the new arrangements. No employer need fear that, by delaying his application for registration until later in the year, he will prejudice his entitlement to premiums or refunds in any way. Our present plans—though these may be subject to modification—are to invite employers to register their establishments during October, November and December.

Repayments in respect of the first four months' tax will be made in the first quarter of the new year. We shall be discussing with the Confederation of British Industry the detailed arrangements for the registration of establishments, and for the payment of premiums and refunds.

An employer who is refused registration in respect of an establishment, or who disagrees with the assessment of the premium or refund which he is entitled to receive, will have the right to appeal to an industrial tribunal. These tribunals, which consist of a lawyer as chairman, and an employer and worker as members, were first established to hear appeals against levy assessments under the Industrial Training Act. Their rôle was extended under the Redundancy Payments Act to deal with cases arising under that Act, and certain cases under the Contracts of Employment Act. We feel that they will be well qualified to deal also with cases arising under the present Bill.

For agriculture, horticulture and forestry my right hon. Friends the Minister of Agriculture and the Secretary of State for Scotland will be operating similar arrangements, on which they have consulted the agricultural and other organisations concerned. In these industries, also, the procedure for registration and repayment of tax will be as simple as possible. In England and Wales, the registers will be kept at the Ministry's divisional offices, and in Scotland, at the headquarters in Edinburgh—

Sir John Hobson (Warwick and Leamington)

Would the right hon. Gentleman explain, on these Clause 3 industries—forestry, fishing and agriculture—whether "the establishment" includes everybody involved, or means that only the people left at the head office will qualify for registration?

Mr. Gunter

Everybody in the industry.

In these industries, as I have said, the procedure for registration and repayment of tax will be as simple as possible.

Clause 9 is the last to which I wish to draw special attention. This gives me power, with the consent of the Treasury, to make an order changing the categories of employments qualifying for premiums or refunds. Once the Bill has become law, in whatever form it commends itself to Parliament, we feel that it should be given a fair run. Any modifications will take effect from the second year.

I have endeavoured to outline, for the benefit of the House, the main provisions of the Bill, and where appropriate, the ways in which we propose to administer them. It has been said that the Standard Industrial Classification is an imperfect instrument for introducing a new tax of this kind. We are well aware that, in some points of detail, it may be open to criticism, but we are equally aware that these are greatly outweighed by its general merits. It would be impossible to find any instrument which could not be faulted in some way.

Hon. Members opposite have made great play, at an earlier stage, of the fact that manufacturers of pin-tables will receive a premium. It is only too easy to argue against any tax by drawing attention to the extremes that would flow from its application. It is the general purpose of the tax and the way this is achieved that matters. Here the basic intention is to tax services and to pay premiums to manufacturing industries; and this is what the Bill succeeds in doing.

The Bill has also been criticised on the grounds that it will create anomalies, in that firms whose circumstances are very nearly alike may be treated quite differently. We fully admit this. Borderlines must be drawn, and those who come on the wrong side of the border are bound to feel unfairly treated, while those who just manage to come on the right side have no complaints.

We shall, of course, be prepared, for next year to look at any cases of what appear to be unreasonable unfairness, thrown up in the administration of the scheme; though I should add that if we manage to eliminate them all we shall be doing what no other tax-makers have succeeded in doing.

The Government's policies form a unified whole and it is as a whole that they must be judged. They are designed to meet the economic objectives laid down by my right hon. Friend in his Budget speech. This Bill will make a significant contribution to the attainment of these objectives and it is on this account that I commend it to the House.

4.43 p.m.

Mr. Edward Heath (Bexley)

I gladly acknowledge at once to the Minister of Labour and, through him, to the Leader of the House, that the Government have kept their undertaking that we would have the Second Reading of this Measure before Clause 42 of the Finance Bill was reached.

It was, of course, an undertaking which would never have needed to be given had the Chancellor of the Exchequer and his fellow Ministers been in any way prepared for this matter. It could then have appeared in the Finance Bill. It is entirely due to the indolence and incompetence of the Chancellor that the Minister of Labour has had to move the Second Reading of this separate Bill today.

The Minister of Labour showed fairly clearly what he thinks about the Bill. The look on his face as he read, in a half-hearted and perfunctory fashion, the brief which the Treasury had cooked up for him could not disguise his disgust, even loathing, at having to present a Bill for which he is wrongly responsible. I have every sympathy with him as have all hon. Members, even his own back benchers.

The right hon. Gentleman said that this was a Bill the provisions of which fell short of perfection. That seems to be the biggest understatement since the Prime Minister half apologised to Julian Amery. In fact, the Minister of Labour admitted that there were anomalies, imperfections and ridiculous features in the Bill. He said that it was hoped that it would all come right in time. But the problem has been illthought out, the scheme ill-prepared and the legislation ill-digested.

Those are the main features of the scheme and the Bill. What is more, it affronts every canon of taxation, from Adam Smith to Hugh Dalton. No wonder that the Minister felt displeasure in introducing it. I assure him that tonight we shall table the first 50 Amendments to remove some of those imperfections.

Of course, the Minister is not really responsible for this. He said that he did not wish to confine himself to fiddling details, but deal with the broader issues, and that is what I will do. I am glad to see the Chancellor on the Front Bench opposite, because it is really his Bill. He is sitting at the centre of this small, tightly-knit financial group, to use current terminology, who are really manipulating the puppets of the Ministry of Labour, the Minister of Pensions and National Insurance, the Minister of Agriculture, Fisheries and Food—whom we do not see here today, although he has a junior puppet perhaps beneath him here—and the Minister of Technology, who has no representative here at all.

The Secretary of State for Scotland and the Secretary of State for Wales are also being manipulated by the Chancellor in the interests of his own policy. The Chancellor still has a great deal to explain about this legislation and I ask him to do that when he replies tonight.

The origin, purpose and consequences of this tax and payments system are still shrouded, to a large extent, in mystery. After all, this is a major change in our fiscal legislation. It will have possibly very great effects on the economy. Nobody can really foresee whether the effects will be small or considerable. That being so, why did the Chancellor not announce this major change in fiscal policy in the "mini-Budget" which he put out on 1st March? Why not? Perhaps the right hon. Gentleman will explain that tonight.

The Chancellor told us about the betting tax—the details of the scheme, the rate, the revenue which would be produced—and even how helpful it would be for the new scheme for people who had large mortgages to get lower rates. We are getting the betting tax in the Finance Bill, but there is no sign of help for people who have large mortgages. Thus, there can be no question of the right hon. Gentleman not being able to anticipate Budget statements. There was no statement in the "mini-Budget" about this change in our fiscal arrangements or of the extent of it. The Chancellor did not tell us that the amount would be £315 million for the rest of this financial year.

Why was this not produced during all the Press conferences which the Chancellor held during the General Election period? There was no mention of it at that time. What about the Prime Minister's frank fireside talks to the nation? Perhaps the Chancellor will explain. Did the Chancellor set out to deceive the electorate at the election quite deliberately, or did he just not have the guts to tell them what he would do if he was returned to power? That is the first question to which we want an answer when the right hon. Gentleman replies tonight.

The fact is that he did not tell the country the truth about the amount of money he would have to raise or how he would do it, and he stands discredited for that. He thought that he could get away with it because the tax would not make an impact on people directly or at once but would act only indirectly. In fact, £315 million is being raised this year. This is a serious increase in taxation and belies what the Chancellor said on 1st March.

What is the real purpose of this tax and payments system? The Minister of Labour was at some pains to go over the grounds, which I would like to examine. It is interesting to note the way in which the arguments of right hon. Gentlemen opposite have changed recently and the contradictions there have been in the statements of the various Ministers concerned.

First, this was designed to redress the balance between the amounts paid in tax by the services and manufacturing industry. That was the first argument of the Chancellor in his Budget statement. It also appeared in the White Paper. I believe that it was a completely false and bogus argument—[HON. MEMBERS: "Oh."]—absolutely bogus. Services and manufacturing industry pay the same type of taxes throughout. Purchase Tax, of course, does not come into the cost of manufacturing industry. It affects the consumer but it is not part of the costs of industry.

What the Chancellor is doing by imposing this tax, and by paying it back to some and not to others, is to put the cost into the costs of services themselves. It is, therefore, completely bogus to say that this must be done to redress the balance of taxation between manufacturing industry and the services. That argument does not in any way hold water. It is typical of the bogus arguments on taxation that we had last year from the Chief Secretary, who is looking very pleased at having discovered another one.

If the Chancellor really wanted to balance Purchase Tax on manufactured goods and taxes on services for the consumer, there were many other ways in which he might have done it without it coming into the cost of the services themselves to those who produce them. He could have introduced a simple sales tax, or a tax of that kind. Then this would not have had all the implications which his present arrangement has. It is a bogus argument which does not hold water.

The right hon. Gentleman said that the purpose of the tax is deflationary and a means of restraining consumer demand and that this would be done without hitting those industries on which indirect taxation is concentrated. If he is to restrain consumer demand through this tax, it can be done only by putting up prices, and that is the one thing which the Chancellor has appealed to everyone not do do. Ministers have produced the most extraordinary figures to show that it will not raise prices at all. How then can it restrain consumer demand and have a deflationary effect?

Of course, it could be done by putting people in the service industries out of work. The Chancellor argues at Question Time and in speeches that no one must be put out of work. He is proud of the fact that unemployment is lower and the number of vacancies is far higher than the number of men available to fill them. He cannot have it both ways, argue that this will be deflationary but not put people out of work and not put up prices.

How will the deflationary effect come about? It will come about, I think, because of the direct effect it will have on industry, agriculture, forestry, horticulture, and all production and the services by the forced loan which they have to make to the State. This is not to the amount which the Chancellor says is the total balance for the year—not at all. It is the amount which has accumulated in the first five months and later will accumulate a quarter at a time.

This is the amount which will be taken direct from industry. This is the only way in which it can have a major deflationary effect. It will amount, I understand, to about £500 million by the end of the first five months before the repayments begin and at the end of each quarter to approximately £300 million, in round figures. The question I put to the Chancellor now is how is this money to be raised by the manufacturing industries and those to whom repayments are to be made in addition to the services which have to find the money in any case? I suppose that it can come from balances which industry and commerce hold. I should have thought the chances of the balances being able to produce this amount are small. Firms are not holding balances of this size.

It can be achieved by putting up prices. Industry could say, "We have to put up prices to bring in a comparable amount to what we have to pay in in the first three months." That is against the Chancellor's and the First Secretary's policy. I think it unlikely that firms will want to do this. Are they to do it by bank borrowing? This is where we want the Chancellor to state clearly what his intentions are. Is he giving authority to the banks to increase loan arrangements so that everyone involved in paying this tax can draw on them until they get the refund?

This is the critical point. It is particularly critical for agriculture, horticulture, and perhaps for forestry. In agriculture, it is quite obvious that the farmers have not the resources on which to draw until they get the refunds. Neither have the smaller firms in industry. Will the Chancellor answer a question specifically? Is he to give authority to the banks to increase their own loan arrangements so that there can be these borrowings? If not, firms will see their working capital run down. They will be forced to reduce their stocks still further. We have seen in the last year how stocks have been reduced very considerably, I should have thought much lower would be an undesirable level. Then industry would gradually grind down to a much lower level.

Industry will have to keep a pool of about £300 million to pay the tax, allow its resources to run out completely and then get the whole lot back again. This is the only way of getting the deflationary effect and it will be the wrong way because industry will grind down to a lower level which will affect exports as well as consumption. This is the fundamental weakness in the way in which the Chancellor is operating the scheme. Having run the industry down, there is to be a sudden injection of £300 million at the end of the quarter which the Ministry of Labour says will be paid as quickly as possible.

Is this to lead to a completely fresh cyclical arrangement in the purchase of goods, a sudden demand and then a holding off period and after the holding off period a sudden purchase and then another holding off period? This will affect buyers from all over the world. The Chancellor is a new quack. He first drains off the blood and then gives a shot in the arm; first the leech and then the hypodermic. All this is likely to lead to is three-monthly convulsions of the whole industry.

The third claim is that the tax will force labour out of the services into industry. The Minister of Labour repeated this because it was in the Treasury brief. It was also in the Chancellor's Budget speech, written by the Treasury. He said: I think it is more important to encourage the redeployment of labour and to give manufacturers a relative advantage in costs compared with the service sector."—[OFFICIAL REPORT, 3rd May, 1966; Vol. 727, c. 1457.] It is also in the White Paper, although the Chancellor seems to have forgotten it. The White Paper says: it will have a beneficial longer-term effect by encouraging economy in the use of labour in services and thereby making more labour available for the expansion of manufacturing industry". On 25th May, during the Second Reading debate on the Finance Bill, the Chancellor said: there has been a great deal of exaggeration by hon. Members opposite of the consequences on employment of this tax. I have never claimed it will have a large effect; I simply do not believe it will have a large effect."—[OFFICIAL REPORT, 25th May, 1966; Vol. 729, c. 657.] The second objective appears to have changed. First, the Government say that it would lead to the redeployment of labour and in the Budget speech the Chancellor said the same. On the Second Reading, he said that it would not and the Minister of Labour, with a Treasury brief today, said that it will. What a fantastic circle of argument by the Government. Let them make up their minds what they think they are doing by this tax. The fact is that it is the services which are short of labour today. It is industry which is hoarding it and it will be encouraged to do so still further by the 7s. 6d. a head, depending on the sort of balances in the structure of the firms themselves.

The services are that part of the economy, which naturally expands with growing affluence in our society. Merely to state the facts as the Minister of Labour did this afternoon, and then to say, "Look at the amount of labour going into the services", is no argument at all. In every developing society, in Scandinavia or the United States, more and more people are going into services. This is a natural consequence of the development of the economy and of society. There is not much of an argument for the Chancellor in that.

In many of the consumer services those who will be affected in employment and who will be stood off as undoubtedly some will be are the part-timers, the disabled and old-age pensioners. We shall table Amendments to deal with this, as well as Amendments to deal with the whole question of the payment of premiums to industry.

The consequences for some services will be very great. To take one small example, contract cleaning is a service which has grown up and which has now become very efficient—the Mrs. Mopps do the job very well—because it is centrally organised. The only result of the tax on the development of this specialisation of labour will be to make the costs so much greater that firms themselves will decide to do this cleaning—less efficiently.

Take the construction industry, a so-called service industry. All we shall see here is an increase in costs estimated officially by the Government at £60 for a £3,000 house and estimated by others at anything between £70 and £150 for a £3,000 house. No wonder the former Minister of Public Building and Works "blew his top" and said that he had never been consulted about it before he retired from office. I will not inquire into the explanation for that; there are a number of possible explanations.

The construction industry will be immediately affected by this tax. There is no logical argument whatever for saying that it ought to bear this tax to force labour out of construction into manufacturing. Indeed, every time the country has had an economic crisis in the postwar years it has been the construction industry which has fundamentally been short of labour, both skilled and unskilled. No one knows this better than the Minister of Labour himself. When I was Minister of Labour the right hon. Gentleman co-operated with me in trying to break through that vicious circle and get preliminary training for building workers so that we could get the labour necessary to keep the construction industry going, on which so much of the rest of the progress of the economy depended.

Now the Chancellor—the Minister of Labour is aiding and abetting him, as well as he can—is hitting the construction industry by putting this tax on it and making no refund.

Those who are stood off will not be able to go into productive industry. The Chancellor admits that. So what will be the advantage? Old-age pensioners out of work, disabled people out of work, consumers getting worse services—these are the consequences of the action that the Chancellor is taking.

There is a fourth claim. It was not mentioned by the Minister of Labour and it has never been publicly mentioned by the Chancellor. It has always been hinted at. This is all being done to help exports—this is the implicit claim. There is this sort of underlying theme. This argument does not hold water either, because the Bill discriminates against all our invisible exports. Those who are in insurance, in banking, in export houses, and those who are providing for the tourist industry—all the major industries which help us with our invisible exports must pay this tax without refund. So how can the Chancellor fairly claim that this is being done to help our exports.

Invisibles normally give us a credit balance. In many ways they are the easiest thing for the country to pursue. They are the things to which we ought primarily to pay most attention. It is suicidal to discriminate against the in-invisible exporting industries in this way. As to visible exports, it is now apparent that many of the great exporting companies will not benefit from this tax. Indeed, they may have an extra cost. I believe that I.C.I. has now, on mature consideration, come to this conclusion. So this tax discriminates against them, also.

If we look to the principles of this tax, which is what the Minister of Labour asked us to do, we find that it is trying to discriminate between various functions of the economy which do not bear discriminating against. It is the old Stalinist approach. Beneath that bland exterior, there is really an iron Stalinist streak running through the Chancellor. He "goes for" the heavy industries and the manufacturing industries and thinks that they are the things to be supported; anything else is against the doctrine and he thoroughly disapproves of it.

I want to deal with some of the details mentioned by the Minister of Labour. First, these questions are being settled in Whitehall and are being manipulated from Ministers' offices. This leads to several possibilities of log-rolling and delay, because it is being done through the industrial classification. It means that Whitehall will make its own decision as to which industry is apparently to be commended and which is not and in this way deliberately distorting the economy. This I believe to be wrong.

Secondly, appeals, apparently, are to be made only to administrative tribunals, so the Minister has confirmed—it seems a little odd to us that they should go to the ones set up under the Industrial Training Act—and there is no power to appeal to the courts. We shall want to look at this very carefully. This is the first time that a major tax has been operated within this country other than by the Inland Revenue or the Customs and Excise. This is a deplorable departure from our normal tax practice.

The next point I want to make about it in detail is that it makes nonsense of the Government's so-called development area policy. It was our policy as a Government to discriminate in favour of development areas, or districts as they were then. We thought that the Government were proclaiming the same doctrine. What the Government are, in fact, doing is discriminating, but discriminating against development areas and the regions which most need help. As I said in the remarks I made "off the cuff" immediately after the Chancellor concluded presenting his Budget, this will hit the Scottish Highlands, nearly 80 per cent. of those employed there being in the service industries. It will hit the Welsh. It will hit the West Country.

Figures have now been produced by the National Institute showing very clearly that those who will benefit are the rich and prosperous full-employment Midlands above everybody. The whole of the manufacturing area of the great conurbation of Birmingham—I hasten to assure my right hon. Friend for Sutton Coldfield (Mr. Geoffrey Lloyd) that I am in no disagreement with that great conurbation—will benefit most when the incidence of these payments is worked out. The people who will be hardest hit are those who most need help—the development areas. This exposes the Government's development area policy for the bogus camouflage it really is. We shall table Amendments about it.

Further, is the Chancellor certain that this is compatible with the G.A.T.T.? The right hon. Gentleman may very well say that what is compatible with the G.A.T.T. is what you can get away with. This in history has proved to be true. The Chancellor may be able to get away with it, but it is certain that it makes nonsense of the Government's European policy, because under the Treaty of Rome the Chancellor certainly would not get away with it. The Commission and the European Court of Human Rights are sitting there to see that he would not get away with it. Why, at a moment when the Government say that they are carrying out at least an exploration into moving into the Common Market, does the Chancellor pursue a tax policy which he would have to abandon if the Government were successful, which I very much doubt?

I come now to some of the provisions of the Bill and the major changes which have been made since the Chancellor's Budget speech. As usual, when it came to the point of preparing this it found the Chancellor in the usual state of un-preparedness to which we are now fully accustomed. The first case was agriculture: he said that the effect of the tax would be taken into account in the Price Review "as far as practicable"; or in forestry that "some account would be taken with the determination of grants"; or in horticulture in the development of horticultural policy.

Did the right hon. Gentleman really think that he would get away with that one, or was his real intention in giving these half-hearted assurances to get something out of agriculture by means of this tax? The Minister of Agriculture—I ask the Joint Parliamentary Secretary to note this—went along with it. He did not stand up for agriculture against the Chancellor. He went along with the Chancellor and let him try to squeeze something by the back door out of agriculture, horticulture and forestry. As a result of protests we made, these industries will now get payment direct and in full amount it will be returned.

But what is the reason for the discrimination between manufacturing productive industries and agricultural productive industries? This, surely, is the most difficult argument of all to understand.

The Chancellor of the Exchequer started by discriminating against mining and the extractive industries. What argument was there ever for doing that? In fact, as I sat and watched the faces of right hon. Members opposite during the debate on the Budget I realised that they themselves did not know that the extractive industries had been excluded from repayment. This shows the way in which the Measure was prepared. Now, again as a result of protests, they are to get the repayment.

Now, the question of charities. The Chancellor is very upset when accused of being a hard-hearted man and he says that he just wanted a little time to consider details of this sort, that it is rather complicated, as the Minister of Labour said today. But on 17th May, the Chancellor was asked the direct question, whether he would exempt organisations registered as charities under the Charities Act, 1960. The answer was quite specific: No. this would not be possible".—[OFFICIAL REPORT, 17th May, 1966; Vol. 728, c. 204.] It was an absolutely firm reply. Yet now we find something quite different in the Bill.

The Chancellor of the Exchequer (Mr. James Callaghan)

They are not exempted from paying the tax. There is a refund.

Mr. Heath

Is that the sort of excuse the right hon. Gentleman offers? [HON. MEMBERS: "Wriggle."] I understand the point, but I say seriously to the Chancellor that the Prime Minister has many characteristics, but this is not one which he should try to follow.

Mr. Callaghan

Time after time, the question I was asked was whether charities could be exempted from payment of the tax. I have been asked that about lots of groups The answer is "No," because the insurance stamp is being used. This is an entirely different matter from whether there can be repayment of the tax. [HON. MEMBERS: "Oh."] I dare say that, when hon. Members have had a little time to think about it, it will dawn even on them.

Mr. Heath

The Chancellor is not really helping his cause. Was it not possible to reply, "Exemption would not be possible, but I intend to refund it."? Of course it was. It was just as possible then as it is now to put it in the Bill. In fact, of course, the Chancellor did not care two hoots about charities when he introduced his scheme, but now, as a result of all the pressure upon him, he has given way, and rightly so.

We see the refund in respect of those who are employed to look after old people, children, the sick, or the incapacitated. The Chancellor has quite rightly made provision there, as, of course, he should, particularly after introducing a Budget and Finance Bill containing not one provision for the social improvement of the people.

I come now to some of the problems with which the right hon. Gentleman has not dealt. First, there is the education problem, which is concerning the independent schools which are not charities. Why is the Chancellor putting this tax on here? Is he aiding and abetting the Secretary of State for Education and Science in trying to get rid of the independent schools by the back way? What possible argument can there be for putting on this tax? Is it thought that these schools are wasteful of manpower and resources, that they do not bother how many people they employ, that fees are no question to them?

Mr. Roy Hattersley (Birmingham, Sparkbrook)

Would the right hon. Gentleman care to comment on the number of staff employed per pupil in public schools as opposed to the number of staff per pupil in schools run by local authorities? Is there not some inherent waste in few teachers being available for the public sector and many teachers being available for the private sector?

Mr. Heath

I am interested to hear that observation. The hon. Gentleman suggests that the number of teachers in the independent schools should be reduced so as to bring them down to the level of every other school. If that is the policy he is urging, he will not find much support for it from his own Front Bench, to judge by the blunt looks on right hon. Gentlemen's faces.

The Minister of Technology, within his limited capabilities, is trying to persuade industry to use computers and computer services, but the new computer service firms which are being set up to do this—I opened one myself the other day—must pay the tax, with no possibility of refund. How does this encourage the modernisation of industry? Another object of the Government's so-called policy is exposed as completely bogus.

What about the nationalised industries? They are to have an unfair advantage against private industry because of the treatment of those aspects of nationalised industry which compete with private industry, the sales organisations. It is the same with the local authorities. The direct building sections will be given an unfair advantage against the rest of the construction industry. These are not matters of small importance. They are matters of principle, and the Government have always said that nationalised industry ought not to have advantages over private industry where there is supposed to be competition. Let the right hon. Gentleman look at this again, as well.

I come now to an item which, perhaps, concerns me personally. In London a month ago, we had a performance—they are not very frequent—of Mahler's Eighth Symphony, called the "Symphony of a Thousand". This is an illustration of what the effect of this tax will be on the arts. To have a performance now of Mahler's "Symphony of a Thousand" would cost another £843, using the large choir, half male and half female, necessary for the sung part. That is a very interesting and revealing figure. I sent telegrams to Wagner and Strauss saying, "Rewrite for smaller orchestra". But to Mahler I have had to send a telegram saying, "Sorry, the Eighth is now scratched. You just can't hope to do it".

That is, perhaps, a small example of the effect of this tax on the arts. Yet the Government are supposed to be encouraging the arts. They have a Minister to do it. [HON. MEMBERS: "Where is she?"] I suppose that she is with all the others who are not here. I welcome what the right hon. Lady has done, but this tax will act against her interests, and the Chancellor has done nothing to put it right.

The Bill is riddled with anomalies and they arise from the use of the industrial classification, the use of the establishment or "address" basis, as I think the Minister of Labour now calls it, and the "division by road". Quite what justification there can be for this, I do not understand. It will lead to people building bridges over or slinging rope ladders across, as I see one firm is trying to do. It creates borderline questions, difficulty and hardship.

There will also be the bad effects on the economy, because firms will now spend time working out what their balance of advantage will be. Last Friday, I visited one of our greatest firms with establishments in the Midlands and the North. It has a reconstruction scheme to bring the different parts of its factories and offices together to make them more economic and efficient. Now, of course, that firm is asking itself whether to carry on with that scheme and looking at what the resulting balance will be. Perhaps it would be better for it to remain less efficient so as to get the subsidy which the Chancellor proposes. This is the way the tax is distorting the economy. The Chancellor has only to read any of the financial journals, or talk to any industrialist, to know the point to which they are now directing attention.

There is the problem of bakeries, for example, arising out of the industrial classification. A bakery with a shop attached—or, perhaps, a shop with a bakery attached—would be entitled to the refund, but someone with a shop on one side of the road and the bakery on the other side would not get the refund; he would pay the tax. What a ridiculous arrangement the whole thing is.

When the time comes, we shall move Amendments to deal with many of these items. It will be noted that many affect food. The Labour Party is the first party since the repeal of the Corn Laws to be responsible for putting a tax on food.

Sir John Eden (Bournemouth, West)

I did not quite catch what my right hon. Friend said about bakeries. Is it not a fact that the shop with a small bakery attached is not eligible for refund and is penalised under these proposals, whereas a large bakery with equipment and machinery is classified as manufacturing industry?

Mr. Heath

I think that my hon. Friend is right. His point demonstrates the truth of what the Minister of Labour said about how complicated as well as ridiculous the Bill is.

I want the Chancellor to look again at the whole question of the cost. We have had a figure of £1¼ million for the Departmental cost. In addition, there is the cost to the firms of administering the tax. On top of that, there will be the cost of the forced loan which the Government will take from industry itself. This, surely, is an affront to any good tax. Whoever one takes as one's tax authority, it is always argued that one of the canons of taxation is that it should be simple to administer, which this certainly is not, clear and certain in its impact, which this certainly is not, and economical in administration and cost, which this certainly is not. On all those counts, the tax works against the canons of good taxation practice.

The Minister of Labour said nothing about the way in which he proposes to check these arrangements. What is to be asked of firms? What is required of them so that the Ministry's officials can check the situation before they make payments each time? It is important that we should be given details of this because it will affect the cost to the firms, the amount of labour they will have to employ and the time they will take.

The tax involves 25s. for a man and 12s. 6d. for a woman with repayment of premiums of 7s. 6d. It is interesting to recall what the party opposite said when my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) came forward with his tax of 4s. in 1962. The late Hugh Gaitskell said: It would be quite another thing to apply such a tax—and it must be applied nationally—in development areas where there was already unemployment."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 843.] Mr. Gaitskell was quite clear about it. So was the right hon. Member for Battersea, North (Mr. Jay), now the President of the Board of Trade, who saw nothing to be said for the tax. He said: … it really is an insane policy to apply this sort of tax indiscriminately in areas which are troubled and perplexed by surplus labour."—[OFFICIAL REPORT, 19th April, 1961; Vol. 638, c. 1291.] The right hon. Member for Belper (Mr. George Brown), now Secretary of State for Economic Affairs, and responsible for development policy, said: This is quite a frightening business for large areas of industry, for the development districts, for Scotland, and for Northern Ireland."—[OFFICIAL REPORT, 20th April, 1961; Vol. 638, c. 1507.] These comments were about a proposed tax of 4s. Now the Chancellor of the Exchequer wants to put 25s. on services. The right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), now the Home Secretary, who is something of an economist, said: Its main effect … will be a slight upward effect on prices—a slight inflationary effect throughout the economy."—[OFFICIAL REPORT, 18th April, 1961; Vol. 638, c. 1042.] The whole thing was summed up in another aspect by the present Prime Minister himself. He said: If the right hon. and learned Gentleman thinks that wages are too low to secure a real economy in the use of manpower the answer is obvious. He should press for higher wages …. Does not he feel that the workers will consider themselves to have been cheated when they think that employers can afford, or can be made to afford, to pay the labour tax to the Government—while, at the same time, those same employers are refusing to give them wage rises?"—[OFFICIAL REPORT, 18th April, 1961; Vol. 638, c. 986.] That is a fairly topical quotation. It was all done on 4s. Now the Chancellor asks for 25s. No wonder the hon. Member for Nelson and Colne (Mr. Sydney Silverman) asked the Prime Minister yesterday whether he was quite certain that the Cabinet was still its own master. The Chancellor has his problems and is always in the habit never of defending his own policies or answering questions or explaining what he is trying to do, but of asking the Conservative and Liberal parties, "What would you do?" We do not mind telling him what should be done, but it would be better for him to govern and behave like a Chancellor.

What we did was to remove the possibility of resale price maintenance. We got no support from the Labour Party. I know, because I had to fight the Act through. The Measure has helped to economise on the use of labour in the retail and wholesale trades. But it is doing it in the right way—without introducing a new element of discrimination into the economy which is decided in Whitehall and is not the result of any natural influences.

Mr. R. E. Winterbottom (Sheffield, Brightside)

Will the right hon. Gentleman explain how the resale price maintenance Measure has effected economies in manpower in distributive trades?

Mr. Heath

As a result of competition in wholesaling and retailing, people have had to use the most efficient means. They have been looking to the organisation of their labour. To help them, they also had investment allowances for mechanisation. But the Government, while urging wholesale and retail services to improve themselves, have removed investment allowances, which is a further contradiction in policy.

In this situation, the Government should have followed the scheme we put before the electorate plainly and frankly at the last General Election. This was to move some of the charges on the social services from the Treasury on to industry and to do it, as far as the economy was concerned, without discrimination, but, at the same time, being able to discriminate on an area basis if we had wanted to do so. That is a sound, sensible scheme which would not destroy the economy as between different elements of manufacturing or services, which very often are intertwined. It would avoid the taking of £1,300 million in order, at the end, to have a net revenue for the Treasury of £240 million in a full year.

The Chancellor always asks what should be done. We have told him. If he wants to use this method of dealing with the economy, we have told him a sound and permanent way of doing so. The Government's own scheme is ill-thought out and ill-designed for its purpose. It is embodied in ill-digested legislation. It discriminates against a large part of the economy and most regions in the country. It is riddled with anomalies and is harmful to many of the beneficial interests of the country and to many of the interests which help our exports.

These are the reasons why we shall oppose the Bill tonight.

5.25 p.m.

Mr. R. F. H. Dobson (Bristol, North-East)

I am glad to have the opportunity to make my maiden speech today. As far as I can judge, it is almost 10 years to the day since I first made a maiden speech from a political platform. I did so on behalf of a friend who was fighting a constituency in Cornwall. He was unsuccessful and I trust that his failure was not because of my help. I only hope that I achieve more success in my efforts here today.

I suspect that I share with other hon. Members a very high regard for our constituencies. Bristol, North-East is a relatively new constituency. Its boundaries were fixed in 1950, when extensive boundary changes came into effect. Since that time it has been held successively by Mr. William Coldrick, until 1959, and then until 1966 by my immediate predecessor, Mr. Alan Hopkins.

It is customary to pay tribute to one's predecessor, and that I gladly do. Mr. Hopkins and I fought each other twice and each has had the distinction of winning once. I hope that hon. Members will forgive me if I say that, if Mr. Hopkins is selected again for the seat, I hope that I shall win the rubber two to one. Whether I do or not, I can be sure of one thing: we shall have a good clean fight, always discussing politics and never personalities and always presenting our party policies to the electorate in as honest and fair a way as we are able. Our elections in Bristol, North-East have been a model of Parliamentary democracy and I hope that I have the pleasure of fighting a candidate to whom democracy means something real, as I know it does to Mr. Hopkins.

It is an honour to represent any constituency, but to me it is great honour to represent one in the noble and ancient City of Bristol, which has nearly 1,000 years of history behind it already and which has played its part in times gone by in most of the major events in England's history.

At one time, Bristol was the site of a Roman mint, at another a port from which voyages of exploration, discovery and trade were made. It became a centre, for almost a century, of world fashion and its citizens welcomed the preachings of John Wesley and John Whitfield. The first Methodist chapel was established there, as was the first theatre. It was the first to see a printed newspaper outside London and was the first city to receive a charter which, in 1373, granted it separate county status.

One thing is clear to any student of Bristol's history. It is that the port has been vital to its development. When, during the eighteenth century, the port was neglected, Bristol suffered, and when the pattern was repeated in the middle of the nineteenth century Bristol's trade and citizens suffered again. Therefore, hon. Members can appreciate my concern, shared with other Bristol Members, for the urgent need for the construction of the new port at Portbury. I hope that we shall have a satisfactory decision on Portbury very soon.

Between the wars, Bristol suffered in the country's economic depression and in my constituency is a reminder of those days. An artificial lake in Eastfield Park was on the list of public works which Ernest Bevin was pressing the city to build with the unemployed labour at that time. Since the war, Bristol has expanded its industrial strength. It has not committed the industrial error of having a few large industries only. Rather it has appreciated and embraced the need for industrial diversification and it has gone further than that in that it has hidden its industrial strength so cleverly that it remains not only a rich and active city industrially, but also very beautiful.

Perhaps Bristol's most significant contribution since the war has been its determination to look after those citizens who need care and attention. It has developed its social and welfare services very substantially. Bristol has proceeded apace with slum clearance and rebuilding schemes and the number waiting for houses is smaller than in any city of a comparable size, while homes for the aged, clubs for the young, hobbies, sports and recreational activities are thriving.

In short, a community spirit has been fostered which might well have been patterned on the days when the city's present 260,000 acres were a dozen separate villages. I never enter the City of Bristol without a feeling of pride for it and, coupled with that, a determination to do my best for it for as many years as I can.

Perhaps I can begin to try to do something today. There are three points about the Bill which I wish to make. I welcome the Bill generally and in one respect I am delighted that the Chancellor of the Exchequer has been able to meet the problems of church organisations and charities. On 25th May, my right hon. Friend said that there were about 100,000 charities in this country. I am not surprised—there are more than 500 of them in Bristol alone.

I visited one of them the other day, St. Christopher's School, which is unique in the range and age of the handicapped children which it accepts. It is a residential charity. It has 130 children aged between 7 and 17. It accepts children who, due to single or multiple disabilities together with general backwardness, are unable to find places in any other educational establishment. There is a long waiting list. With a staff of 80, St. Christopher's work would have been badly handicapped by the Selective Employment Tax. Other churches and charities would have been in a similar difficult financial position, so I very much welcome Clause 5.

I have two other points to make, one important, although comparatively minor, and the other rather more substantial. Order XXIII, the Miscellaneous Services group, lists sports and other recreations which must make payments under the Bill. Gloucestershire County Cricket Club ground is in my constituency and the club will be hard pressed by the new tax. Last season, the club suffered a loss of £7,500 and its total indebtness to the bank is more than £25,000. As the Bill now stands, the tax will add about £1,500 to that each year.

I should like my right hon. Friend to consider amending the Bill so that the club could avoid payment of the tax. After all, it can hardly serve as a reservoir of staff which could usefully be employed in manufacturing. It is a small employer. In addition, in the main, county cricket clubs are non-profit-making, as the figures I have just given probably show. I am sure that Gloucestershire will not be the only club to be seriously affected by the new tax.

I can add an emotional appeal as well. Gloucestershire is, of course, the club from which came three famous England cricketers—Grace, Jessop and Hammond. Dr. Grace lived in my constituency, in Downend, and the local authority there, Mangotsfield Urban District Council, is negotiating to purchase the house as a memorial or museum to his memory. I therefore ask my right hon. Friend to seek to allow the cricket clubs to avoid the tax which was designed for totally different purposes and which could end the rather famous game which we have been playing in this country for so long.

Finally, I ask whether Order XVII could be put into Clause 1 or into Clause 2. Order XVII covers the construction industry as a whole. Housing, roads, hospital buildings, are but three of the many types of buildings which will be directly affected by the tax. I understood that the Government had housing as their first priority. The tax is bound to affect that in price or in other ways. For instance, a manufacturer of concrete blocks gets the premium, but the builder, perhaps a small builder, who makes his own, pays the tax. Similarly, the builder who has his own joinery section pays the tax, while the joinery manufacturer is eligible for the premium.

There are many other examples, and I ask the Minister again to consider whether Order XVII could be included in either Clause 1 or Clause 2. It would be more logical to include building in manufacturing industries rather than to leave it classed broadly as a service industry.

5.37 p.m.

Sir John Vaughan-Morgan (Reigate)

It gives me the greatest pleasure to congratulate the hon. Member for Bristol, North-East (Mr. Dobson) on his maiden speech. He adhered to the three traditions which we have on these occasions. He was non-contentious; he referred in laudatory terms to his constituency; and he spoke with respect of his predecessor. Those are three traditions—two of them comparatively new—which he has honoured today, and which I regard as admirable.

First, it is a good thing to be non-contentious in a maiden speech. It is an alarming experience anyway without being contentious and having to see the frustrated hon. Members on the benches opposite who are unfairly inhibited from interrupting. Secondly, in so far as the hon. Member asked his own Chancellor of the Exchequer to make two major amendments to the Bill, I would consider that it was very non-contentious.

I also applaud the hon. Member's referring in such pleasant terms to his predecessor, Alan Hopkins, who was a friend of many of us on these benches. It is a good thing to remind ourselves occasionally that although we may have differences on the hustings and in the Chamber we shed them outside these four walls.

I congratulate the hon. Member very warmly on his speech. We shall look forward to hearing him again in this Parliament, and I hope that we shall hear Alan Hopkins in the next.

I am sorry that the Minister of Labour has now left us. I have seldom seen a Minister so unhappy after making an opening speech at the Box and I have never seen anyone so relieved and joyous when he had finished. Considering the nature of the occasion, this is a little surprising, because the Bill, which I deplore, is a prizegiving and we are discussing awarding the prizes, the premia, to various manufacturers. In other words, we are "dishing out the lolly" which, in another Bill, will be extracted from the wretched people who are employed in service industries.

I wholly deplore the principle behind the Bill, of dividing the industry and commerce of the country into manufacturing sheep and service goats, with a neutral zone of hybrids. At this stage, I ought to declare my own personal interest. I am a sheep and it is, therefore, with an even clearer conscience that I shall raise my voice and register my vote, against the Bill tonight.

The Chancellor and the Chief Secretary must be thoroughly dismayed at the bad Press which they have had, almost throughout, on this new tax and on the Bill. The only support I have noticed in the columns of the Press was the rather surprising support of Archbishop Lord Fisher of London for whom the experience of being canvassed for membership of the Playboy Club has clearly proved traumatic.

The Bill has had a terrific castigation from my right hon. Friend the Leader of the Opposition today. The trouble is that the right hon. Gentleman the Chancellor has taken a good tax, if such a thing exists, and spoiled it by making it selective. I was one of the few who welcomed the regulator, when introduced by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd), which, as my right hon. Friend the Leader of the Opposition reminded us, would have raised an identical sum. The Minister of Labour, in the most masterly understatement of this Session, said that the provisions of this Bill fell short of perfection.

I would have welcomed, under the present conditions, a payroll tax on the lines proposed by my right hon. and learned Friend the Member for Wirral, and I would have welcomed even more a true payroll tax on the total volume of salaries and wages payments. I would have welcomed even more the added value tax to which the Prime Minister is now turning his attention.

Of course, any new tax involves anomalies and injustices. We accept that. But if one makes a new tax selective as well, one piles anomaly upon anomaly and injustice upon injustice. The Chief Secretary said—I am paraphrasing him—that it must be a good tax because of the volume of protests.

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

The right hon. Gentleman is not quite correct, as he can imagine. He is referring to a newspaper report.

Sir J. Vaughan-Morgan

I am delighted to hear it, because it conjured up the most alarming vision of Budgets framed with protest as a yardstick of merit. I am delighted that such careless rhapsody cannot be laid at the right hon. Gentleman's door.

Whatever happens, the task of the Opposition, once this Bill has been given a Second Reading, and if we have not been successful in defeating it, is to do our best to iron out those anomalies and injustices, even at the cost of making the Bill more complicated and, goodness knows, it will be complicated enough. We remember, in the Parliament when my party was the Govern- ment, the sarcastic comments about "industry with its golden begging bowl". I think that that was a phrase used by one hon. Gentleman. We have now entered a new phase when the Chancellor fills the begging bowls with seven-and-six-pences and hands them round, in many cases to industries which have not asked for help.

It is all because of this jejune view of the economy, which divides the economy into those who make goods, who are good chaps, and those who serve, who are bad chaps. It entirely forgets that there is an enormous service element which can amount to 25 per cent. to 30 per cent. or more in many large manufacturing industries. There is not only the clerical and drawing staff; there is catering, transportation and other categories and there is now bound to be among all of these firms a new bias towards "do it yourself", an attitude not necessarily making for efficiency.

May I cite one example, namely, industrial catering. Many medium-sized firms do not have their own canteens, but employ an outside firm of caterers, which makes for greater efficiency. Now, the difference between running one's own canteen and employing an industrial caterer amounts, on the one hand, to a 7s. 6d. premium, and, on the other hand, to the 25s. a week Selective Employment Tax that the caterer will have to pay—a margin of 32s. 6d., which must make a considerable difference to the calculations of the manufacturers.

In my view, all such discrimination is wrong and muddle-headed. British industry is probably overmanned and now is to be rewarded for being so. There is too high a manpower content, and particularly an overtime content in the costs of British industry. The service industries, which contribute to indirect exports, banking, insurance, and so on, are probably more efficient, on the whole. If hoarding and poaching of manpower exists in industry it exists, above all, in places in the South-East and West Midlands, areas which are now to receive the maximum rewards under the Bill.

I want to ask the Chancellor to consider the rather odd social consequences of the Bill. I am not talking about categories of employment, but about the industries being selected. First of all, we have had the case of the bake-houses raised. The Minister of Labour referred to shops where leather goods were manufactured. I hope that the Chancellor, or whoever is to wind up the debate, will get this matter of bakers with bakery shops quite clearly established. As I understand it, the provisions are that bakehouses attached to a baker's shop are specifically excluded from the premium and placed under the retail trade heading. I do not see how, without a major Amendment, which, I hope, will be moved by my hon. and right hon. Friends, they can be excluded. I have had at least two or three cases of the kind of men who seem to be men in need of support, but who will be very hard hit by this tax.

I want to refer to two major industries which seem to be rather startling objects for the charity of a Socialist Government. According to the Standard Industrial Classification Heading No. 231, brewing and malting employs 75,000 men and 19,000 women and I work out that it will receive a subsidy of £750,000 a year. I cannot feel that this is the Chancellor's intention. I believe that the right hon. Gentleman said that he would go down in history as the initiator of this tax. He is more likely to go down in history as the Chancellor who was good for Guinness.

Mr. Callaghan

What I really said was that long after I had been forgotten the tax would be serving a very useful purpose.

Sir J. Vaughan-Morgan

Guinness will still be grateful to the right hon. Gentleman for the tax advantages long after he has gone and is forgotten.

I want to raise an even more serious point. Heading No. 240—and here I shall not endear myself to the hon. Member for Bristol, North-East—relates to the tobacco industry, which employs 17,000 men and 22,000 women and will receive approximately £550,000 a year under the Bill.

I wonder what the Minister of Health, who is so busy trying to clip the wings of the tobacco manufacturers in other directions has to say? Let us remind ourselves that that figure compares with £1 million spent by the Medical Research Council on cancer research and is many times the amount spent by the Ministry of Health on health education. This seems an appropriate moment to remind the House that Socialism is the language of priorities. The whole of this discriminatory principle is nonsense and quite wrong.

I mentioned earlier that my firm stood to benefit from the Bill. We reckon that, subject to Corporation Tax, we shall receive a gift equivalent to a ½ per cent. increase in the ordinary dividend provided that it is not eroded by wage or cost increases and provided that—[Interruption.] Of course it will be eroded, but I wish to express gratitude while there is still gratitude in me.

There are other difficulties to be ironed out. There is always the question of the public highway which divides establishments. It has come as a revelation to discover how many industrial establishments are divided by highways. Their numbers seem to be extraordinary. I hope that the Chancellor of the Exchequer will be able to put us at our ease by saying that a footbridge or fire escape will qualify as making two establishments into one, or, even better, under the Minister of Labour's definition, that one postal address would do, because in that case I.C.I. could probably solve its problems by having all its letters addressed to a P.O. box number.

A Government spokesman said on an earlier occasion that there are bound to be a few borderline cases in which the tax could operate unfairly. The Minister repeated the same argument today. The Government talk as if this were a frontier dispute between two major powers which might involve a family or perhaps even a village being on the wrong side of the line. But it is not. This is an important new Bill which establishes a brand new principle. It is not a minor frontier dispute which can be resolved in that way. There are chunks of territory involving entire industries being subsidised and entire professions being penalised, and categories of employment, disabled and retired will be seriously affected as they are involved in this hasty and ill-thought-out scheme.

The Treasury Ministers—and the Minister of Labour has repeated it—speak as if this were a wonderful innovation which can be improved in subsequent years. But that may easily be too late, because distortion of the employment pattern could already have taken place. The Chancellor of the Exchequer is like a hangman who says to his victim, "I know that this is a crude method, but I will do better next time". It will be too late, and I think that it is too late even to think of making many refinements in the Bill.

Mr. Gladstone, when moving to reduce Income Tax to 9d.—oh, happy days—once described Income Tax as creating a tangled network of man-traps for consciences". We have had a succession of Budgets which have created networks of mantraps for consciences. Now we have yet another.

5.54 p.m.

Mr. John Ryan (Uxbridge)

I am grateful to you, Mr. Speaker, for giving me the opportunity to address the House for the first; time. It would be proper for me to continue a custom whose roots are very shallow in this Parliament and to make some mention of my predecessor. Mr. Charles Curran.

I cannot speak of Mr. Curran's behaviour in the House, but in the constituency of Uxbridge, which I represent, he is regarded with great respect because of the immense amount of constituency work which he did in the years between 1959 and 1964. He is a colourful and robust personality. Politically, I was practically diametrically opposed to all his judgments, but I am conscious of the great respect for him within the constituency because of the work which he did.

To many hon. Members, the General Election is something which is hidden in the past, but I should like to tell one story which is rather typical of Mr. Curran's undaunted and vigorous attitude. After the count, many people were very tired and went home to bed. Not so Mr. Curran. On the day after the election—in fact, only a few hours after the count—the Evening News carried a headline, "Why I lost to Mr. Fix-it. By Charles Curran". It was with some regret that I realised as I eagerly read the article that "Mr. Fix-it" was not myself, but the Prime Minister. Hon. Members on this side of the House, when they think of my constituency, remember the name of the noble Lord, Lord Beswick, who, as Frank Bes-wick, represented Uxbridge for 14 years. I am very sensitive of the extremely high standard of constituency representation in Uxbridge. It is a great source of pride to me that I can dedicate myself to trying to continue to some degree Lord Beswick's and Mr. Curran's standard of representation.

I wish to address the House on two aspects of the Bill. My constituency is not part of the amorphous urban sprawl of Greater London, although it is classified as part of Greater London for the purposes of local government administration. It is very much a community, or a series of communities. It is rich with charitable and voluntary organisations which play a very active part in the community and enrich its life by their endeavours.

It is not without coincidence that the reverend gentleman who, only a few days after the Budget, criticised on television the fact that charities were to be subject to the Selective Employment Tax is a vicar in my constituency. This indicates the fairly strong feeling which ran through my constituency about the suggestion that charitable and voluntary organisations should be subject to the tax. I express to the Minister the sincere gratitude of my constituents for the fact that charities are to be exempt from paying the tax. Many of us on this side of the House feel that we want to develop the community and State provision in the social services. Yet we recognise that there are unique areas of service in which voluntary organisations are particularly qualified to work.

I was one of the hon. Members on this side of the House who signed the Motion calling for a review of the Charities Act, 1960. It was a source of regret to me, when pressing for exemption for worthwhile charities, to know that, at the same time, we were arguing for the exemption of charities which, in our judgment, were less worth while, less community-orientated, less outward-looking and which did a less valuable job in community service. Nevertheless, I take the point made by the Minister of Labour today that this is a long-term project which must be considered when Parliamentary time is available and cannot be the subject of a debate on the Finance Bill.

One anxiety which I have about the Bill—and I feel that it is shared by many hon. Members—concerns the treatment of part-time workers. I wish that a system could be devised by which the tax could be levied pro rata on part-time workers. I know that the administrative costs would be constant and that it would not be possible to take the pro rata measurement to the ludicrous proportion of covering people who worked for only two or three hours a week. Nevertheless, there are many people—widows, pensioners, and mothers with young children—who cannot work full time, but who do a valuable job in industries which are starved of labour, particularly in the Greater London area, and whose employment will be seriously jeopardised if the tax is levied on the basis suggested, specially in retail distribution.

It is a known fact that in the Greater London area there are many shops whose proprietors employ three part-time workers—old-age pensioners, widows, and so on—to do the job of one person. The customers of those shops and the people involved will suffer in the way that the tax is proposed to be levied. I should be grateful if a method could be found of giving help to those people pro rata. I know the arguments, but it is impossible to suggest that such people are suitable for industrial retraining or that they could do other jobs. That is incorrect. They do the only job that they are capable of doing, and, if they find their employment jeopardised, there will be a serious social consequence. That is possibly the only feature of the Bill which causes me very great regret.

In my own area, we are absolutely starved of labour. Hon. Members representing London constituencies will know the problems faced in local government services, for example, which are about 30 per cent. short of establishment levels. We are short of labour, and we welcome any device which will bring more labour on to the market and relieve pressures, particularly on the local government function.

My area and its neighbours on the outskirts of London are subject to the London Government Act which was opposed by my party in the House and opposed by the Labour Party in the constituent areas of the borough. Nevertheless, we have to work the Act, with the transfer of functions involved, and that has accentuated the manpower difficulties which will be faced. We are grateful for any measure which will increase the labour supply and help the local authorities to do their job, which is so necessary to the community. If we could find some way, it would be met with gratitude in my constituency.

I welcome the Government's policy, and I hope that they will continue to cut our defence commitments overseas and thus ease the labour position, in the sense that it will help alleviate pressures at home. I welcome the Government's efforts, and I hope that they can continue in this direction. They will be met with gratitude throughout the country.

Like most hon. Members, I have been met with pleas from specialist groups about the tax. In all the noise and confusion, it is easy to forget that most of the people in the country support the tax and the Government's efforts. I assure the Minister of my support and that of my constituents for the forward-looking nature of the tax, which may help to solve some of our labour problems.

I thank the House for its courtesy.

6.3 p.m.

Mr. W. H. Loveys (Chichester)

It is always a pleasure to follow an hon. Member who has made his maiden speech, and it is a particular pleasure for me to congratulate the hon. Member for Uxbridge (Mr. Ryan). Many hon. Members in the House will be envious of the fluency with which he made his speech. I hope that I shall not be thought to be controversial if I say that that fluency almost ran away with itself when he said that he thought that most people were in favour of the tax.

However, I am glad to congratulate him on his speech. Most hon. Members remember his predecessor, Charles Curran, to whom he referred most amiably, with great affection. It is, naturally, with some reservation that I have to say that we hope to hear from the hon. Gentleman again frequently. He will obviously succeed Charles Curran in looking after his constituency extremely well.

The hon. Gentleman referred to the charity and community organisations in his constituency and the fact that they will be relieved by the exemption of charities from the tax. He expressed anxiety about part-time workers, and I hope that the Chancellor will deal sympathetically with his suggestion of treating part-time workers by some form of pro rata system.

I wish to join my right hon. Friend in deprecating the manner in which the Bill has been introduced as a Ministry of Labour Bill. I think that most of the House felt a certain amount of sympathy with the Minister of Labour when he introduced the Measure. Perhaps he sounded most convincing when he said that it was a financial Measure, when he said that the provisions will fall short of perfection, and when he said that he admits that many anomalies will be created.

I can understand why the Government are reluctant to allow the House to give full consideration to the Selective Employment Tax and have introduced it as a Ministry of Labour Measure. All hon. Members must be aware of the tremendous number of representations that have been received from many sectors of the community. Public concern about the tax is so strong that I should have thought that there were the best of reasons for allowing a full discussion, instead of leaving it merely for Amendments to the Finance Bill and for Amendments during the Committee stage of this Bill.

The Explanatory Memorandum makes it clear that the purpose is to implement the proposals in Command Paper 2986. Never before can there have been a Bill published which varied so very considerably from the original White Paper, which was to explain the Bill to be introduced. What a shock that original White Paper was to the House and to the country, and how it highlights the tremendous haste with which the Measure was introduced. The refunds to charities covered by Clause 5 of the Bill and the special refunds to certain households under Clause 6 are most welcome, because they remove some of the original injustices in the White Paper.

The more reasonable approach to agriculture, horticulture and forestry are also most welcome. I see the Parliamentary Secretary to the Ministry of Agriculture in his place. Perhaps he can explain why neither he nor his Minister made any representations, before the White Paper was published, about the extraordinary suggestion of the Chancellor of the Exchequer that, wherever practical, repayments would be made under the Price Review machinery. Anyone who knows about that machinery knows that it would be quite impossible to deal with it in that manner.

There are two points which I should like to make. The first is about the type of selection used in Clause 1 of the Bill, which deals with the payment of premiums to manufacturing industries. The second is about the anomalies existing by the exclusion from Clause 2 of certain industries which get a direct refund.

I say very little about the type of selection, and I do not intend to go into detail at all, but I should have thought that the criteria to be used in this type of Measure for industries qualifying for premium payment would be the extent to which those industries helped the economy, with special reference to those which helped the balance of payments position. The Bill makes it clear that the qualification for a premium is simply to be whether the industry is included in Orders 3 to 16 of the Standard Industrial Classification, added to which there are certain industries which are engaged in scientific research. That seems to be far too indiscriminate, or far too nonselective, and it includes too many manufacturing industries which are really of no value to the economy of the country.

Do we really want to encourage over-employment in those industries at the present time? We all are familiar with the term which has been bandied about so much of late, the "candyfloss society". One could mention many industries which do not need these premiums at all. I should have thought that the giving of such indiscriminate coverage to the premiums is sufficient reason to ask that the Bill be taken back and redrafted so as to give support by way of premiums only to those industries which are of real importance to the economy of the country.

It is the exclusion of many industries from Clause 2 which highlights many of the anomalies and injustices of the Bill. For example, is not the tourist industry, including the hotel and catering industry, the biggest dollar earner, and is not this industry at least worthy of being included in category 2?

We have heard a great deal about this industry during the Committee stage of the Finance Bill, and no doubt we shall hear a great deal more about it. I understand that at the moment the President of the Board of Trade is having discussions with the British Travel Association about the position of this industry in relation to the Bill. The Minister of Labour expressed concern about this industry this afternoon, but I wish that he had said something about how these talks are progressing. The Minister gave not the slightest sign of helping this great industry, and it is one which has suffered a great deal at the hands of the present Government.

People in the industry have lost their investment allowances. They have had to pay Purchase Tax on the tools of their trade, from which so many other industries are exempt, and now they will have to bear the full brunt of this tax. It is time that the Government acknowledged the simple fact that foreign currency spent in this country on the tourist industry, £ for £, has the same benefit as currency earned by exporting goods.

Another industry which is particularly hard hit is the building and construction industry, which is to pay the full tax. I have had more correspondence from people engaged in the building industry than from anyone else. Surely the building of homes for the workers is as important as the work undertaken by the workers themselves. Furthermore, what about the building of factories which are so important to our economic development? Is it right to discourage labour requirements in this industry? One would have thought that on housing alone the Government's failure to meet the housing targets would have given the lie to this.

Another anomaly in the Bill to which reference has been made by the hon. Member for Uxbridge, and others, is the question of the full tax which has to be paid in respect of part-time workers. I have already given my support to the hon. Gentleman on the possibility of introducing a pro rata system. Attempts have not been made to help this section of the community at all. I understand that during the Committee stage of the Finance Bill the Chancellor said that he hoped something might be done for part-time workers, but not this year.

This is not good enough. No doubt attempts will be made to remove this anomaly in the Finance Bill when it is further discussed in Committee, but, as the Measure before us is a Ministry of Labour Bill surely the Minister in charge must be aware of the effect which this Tax will have on the elderly and disabled, and also the fact that nothing has been done to help part-time workers? There are bound to be redundancies among these people, and surely encouragement should be given to the employment of this section of the community, not only on humanitarian grounds, which may be the best possible grounds, but also because they release ablebodied people for more vital work?

Why should employers be forced to pay what they refer to as a double tax? Many employers say that they have to employ two part-time workers, and they therefore have to pay two lots of tax instead of paying it only once as they would do if only one person were employed full time. They are, in effect, paying double tax.

Another anomaly has been brought to the attention of the House by my right hon. Friend the Leader of the Opposition who referred to those good ladies, the Mrs. Mopps. We have all had representations from contract cleaners about them. Apparently 90 per cent. of these ladies are part-time workers. Many are married women, and are able to work and help the economy. They do so on a part-time basis, and earn on average about £3 10s. a week. This tax will mean an 18 per cent. increase on the wage bill for these people.

Other anomalies which should be sorted out are the exclusion of some educational establishments which do not happen to be registered as charities, and private nursing homes. The position has not been made clear about how certain establishments can become registered as charities, or be accepted for a refund of this tax. We want a lot of clarification about this. Many private nursing homes do not know where they stand at the moment. In my constituency there is an establishment which does a magnificent job for a large number of severely handicapped children, but it is not registered as a charity. Does this mean that it will have to pay the full tax? It would appear that it will, because it is not in the schedule of qualifications for exemption.

I would not oppose every form of Selective Employment Tax Bill. The tax from which this Bill emanates at least introduces an element of simplification into the tax structure, and I welcome this. Year after year we have seen Chancellors come to the Dispatch Box and say that we must have a simplification of the tax structure, but they have not done much about it, and, in fact, have not been able to. The present Chancellor said much the same when he first came to the Dispatch Box and then immediately introduced the most complicated Finance Bill ever, bringing in Corporation Tax and Capital Gains Tax. This time he has done something to simplify the tax structure, but let the tax be selective in the right sectors or the objectives will never be achieved, and the anomalies will remain.

6.17 p.m.

Mr. Patrick Gordon Walker (Leyton)

I start by adding my congratulations to my hon. Friends the Members for Bristol, North-East (Mr. Dobson), and Uxbridge (Mr. Ryan), who made such admirably fluent and forceful maiden speeches. Listening to them made me rather ashamed of the time I made my maiden speech, more years ago than I like to remember. They put robust points to my right hon. Friend the Chancellor of the Exchequer, and I do not doubt that he will give very careful thought to them. I am sure that hon. Members on both sides of the House will want to hear from my two hon. Friends again.

The hon. Member for Chichester (Mr. Loveys) made a rather important and novel point, namely, that there should be a Selective Employment Tax which discriminated in favour of industries that helped the economy. This is an interest- ing point, but I cannot conceive how one would choose the industries, and I hope that when we discuss the Bill in Committee the hon. Gentleman will table Amendments which will enable us to find some machinery by which this can be done. He would have to trust, to an extent which I do not think he would like, the man in Whitehall, but if he can think of a way of dealing with this problem it will be interesting to hear it.

It seems to me that as far as a tax can be a good one the Selective Employment Tax is a good tax. I do not think that this is the occasion to discuss its merits as a levy. That aspect must be discussed on the Finance Bill, but one merit which emerges from the Bill before us is that it provides a subsidy, in effect, to our manufactured exports. It does this in a rough and ready way because it does not discriminate between export and non-export manufactures. But that is not the fault of the Bill. That is the fault, if this is the right way of putting it, of our international engagements, which do not allow us to discriminate between export and non-export manufactures. In fact, the Bill represents the only quick way of giving a subsidy to the 30 per cent. of our manufactures which are exported, in a way that is within our international agreements.

It is true, as the right hon. Gentleman, the Leader of the Opposition said, that the tax hits our invisible overseas earnings. Banking, financial and similar institutions are not qualified for refund under the Bill. I wish to make two observations about that. The first is that the impact of the tax upon these great institutions will form a very small part of their turnover. Secondly, and more important, the time has come when we have to get a better balance between finance on one side and industrial production on the other.

We have for too long, particularly under the Government of hon. Members opposite, acted on the dogma that what is good for the City must be good for Britain. This is not a proposition that one can accept without argument or qualification. It is clear that the City makes very great contributions to our exports, and that we must pay attention to these, but not to the extent that we allow the interests of the City to harm our industrial production.

The Bill helps to achieve a rather healthier balance between production, the making of things, on the one hand and finance, including invisible earnings, on the other.

Mr. J. Bruce-Gardyne (South Angus)

I am following the right hon. Gentleman's argument carefully, but is he not really saying that the purpose of the Bill is to clobber invisible exports and thereby somehow to help visible exports? Can he explain how this can be done?

Mr. Gordon Walker

I would not agree that the purpose of the Bill is to clobber anything. Its purpose is to give some advantage to manufacturing industry and in doing so it discriminates somewhat against the invisible activities and earnings and so on.

I was saying that for too long the balance has been the other way and that it is right and proper that we should redress the balance and that I am glad that we have a Government that thinks seriously about manufacturing industry, production, and not automatically about the interests of the city at the expense of manufacturing industry. I am not against the City, which makes very great contributions to our economy and our exports, but the balance has been wrong and it is now somewhat better. As various people have said during the debate——

Sir Tatton Brinton (Kidderminster)

I am very grateful to the right hon. Gentleman for giving way. I apologise for interrupting him again so soon. As I understood him, he said that the balance of taxation was wrong as between manufacturing and service industries. I should like him to explain why.

Mr. Gordon Walker

I did not say the balance of taxation; I said the balance of general policy. I said that the balance of policies was based too much on the doctrine that the City must always be listened to. This is a taxation Measure and it helps to redress the balance.

Many hon. Members have said in the debate that any new tax must have inequities and must need refinements and adjustments. Some are in the Bill, and my right hon. Friend the Minister of Labour has said that further ones will be made as we go along. But the Government should resist pressure for too many changes and alterations to the principle of the Bill. Those who attack the Bill and ask for particular concessions and considerations should compare it with the effects that would have resulted from any alternative tax. Neither the Leader of the Opposition nor anyone else has said that it was wrong to raise this sort of amount of revenue. The question, therefore, is which tax one uses to do it. If one says that this is a bad tax, and that it has this and that effect, one must compare it with the impact on industry of, say, an equivalent increase of Purchase Tax.

Mr. Winterbottom

Is my right hon. Friend not assuming that existing taxes are the only alternatives? There may be other alternatives.

Mr. Gordon Walker

Certainly there are some, and I shall come to some in due course. Something had to be done now to raise this sort of revenue and this is a simple tax to raise. It had that great merit, although it is not quite so simple to pay back. Therefore, it would be wrong of the Chancellor to allow the tax to be too far eroded.

However, the case of Reuters merits very careful consideration. The tax would have a crippling effect upon Reuters, which plays a unique and indispensable part in advancing British views, knowledge and information all round the world. It is one of the most important links of Commonwealth. Reuters is today very hard put to hold its own not only against the large American agencies, but even more against the heavily subsidised foreign news agencies.

It would be a shortsighted economy and a shortsighted raising of Revenue to hamper and disadvantage Reuters at a time when it is very important for us to play our part in the world by expanding our influence and finding instruments for doing that. I do not think that Reuters should get a premium. It would be very wrong if Reuters were subsidised. A great deal of its standing in the world is due to its independence. But there is a very strong case for putting Reuters into the category of the neutral ones, the mules, the ones who get back as much as they pay out.

I now come back to the main principle of the Bill. As I see it, this is part of a radical and overdue reform of our fiscal system, and a reform which will be carried further year by year under this Government, I am sure. As part of the further reforms which are to be made, I should like to see the introduction of a value added tax. This would broaden the tax base a great deal, as the Selective Employment Tax does, and it is desirable in itself to get away from the rather narrow base of taxation which we have had in the past.

It would enable us to direct precisely to exports the rebate of the tax. It would also be a tax on the model of Common Market taxation. It would allow a valuable simplification of the Selective Employment Tax. If we had a value added tax that enabled us to make the rebate to exporters, which we can also make under this Bill, but to do it more precisely, more directly and with complete clarity, there would then be—I do not think that there is now—a case for turning the Selective Employment Tax into a flat payroll Tax.

Apart from special exemptions for charities, and so on, one would not need the elaborate machinery for paying back in general, and for paying premiums, and so on. A payroll tax would bring general pressure to bear on our whole economy to save wasted labour. There is a wasteful use of labour in very many parts of the economy, including, as we all know, parts of manufacturing industries, too.

I know very well the arguments against the proposition I am making, and they are very powerful. One is—and this is one of the basic arguments underlying the whole Bill—that manufacturing industry makes all the labour-saving devices, including those used by the service and distributive industries, and that, therefore, it should be given an advantage. It is from the manufacturing industries that the labour-saving devices come that are used by the industries which the Bill is designed to press upon, in particular, the service industries.

This overlooks the fact that manufacturing industry is also often guilty of wasteful use of labour. It is important that the pressure to save labour should be brought to bear on the whole economy. If we made this change the Selective Employment Tax, converted into a pay- roll tax, could operate at a much lower level than it now has to with all these repayments and premiums to pay. Labour is our most scarce and precious resource, and it is important that the Government should do everything to see that it is not wasted.

There is also force in the argument that a flat payroll tax would be ineffective because it would put up the cost of labour equally all round and therefore would be in a sense self-cancelling, and that it would not have an effect upon one part of industry as against another, and would not lead to a saving of labour because everybody would be bearing an equal burden.

But that is an over-simple argument. If we had a flat payroll tax its impact would vary according to the relative productivity of labour. The tax, if imposed at a flat rate, would form a smaller percentage of the wages of a highly productive worker than it would of the wages of a less productive worker.

Mr. Winterbottom

It would be exactly the same.

Mr. Gordon Walker

No—the percentage would be less. If it is a flat-rate tax a man who produced, say, £100 worth of goods a week would cost his employer less than someone who produced £5 worth of goods a week. It would be a flat-rate tax, but the weight of it must vary with the productivity of labour. Any firm that used labour inefficiently would pay an effectively higher rate of tax than would a concern which used labour efficiently. The payroll tax would, therefore, provide a highly effective stimulus, throughout our economy, to the introduction of labour saving machinery, which is the purpose of the Bill.

Our policy of full-employment means that as long as we maintain it—as we are all determined to do—we will have a permanent shortage of labour. That is what full employment means. We must therefore find ways of using our labour, year by year and decade by decade, more efficiently and effectively. In present circumstances, when we had to raise this money quickly, and we did not want to impose an increase within the very narrow basis of present taxation, this tax, which has a good many of the effects of a payroll tax, was a good one to introduce. It has many merits, and I stoutly defend it, but I look forward to the further evolution of our taxation system in which the kind of changes that I have been outlining will come about.

6.33 p.m.

Sir Charles Mott-Radclyffe (Windsor)

I have listened with great interest to the right hon. Member for Leyton (Mr. Gordon Walker). I followed his arguments very closely and I thought that he made out a good case for putting Reuters into the "neutral" category. As he said, Reuters provides a very good service. It is very well known. But it has to compete with comparable news agencies of other nations, some of which are subsidised.

That is a strong argument, but precisely the same argument can be applied—and in my opinion with even greater strength—to British insurance companies. The right hon. Member should know better than anybody, as a former Foreign Secretary, that these insurance companies provide an immense revenue in foreign exchange. But they also have to be competitive. They do not have an absolutely free run. It is a question whether the terms and rates of premium that they offer are competitive with those of foreign insurance companies.

The Selective Employment Tax will bite very hard upon insurance, banking and other competitive services, and they may well find themselves at a considerable disadvantage.

Mr. Gordon Walker

Reuters is a nonprofit-making concern, run by the newspapers, and is in a different case from the great firms which manage to make profits and for whom this tax will represent only a very small additional expense.

Sir C. Mott-Radclyffe

I am not concerned whether or not these organisations make profits. It is no crime for insurance companies or banks to make profits. I do not know what good is done to sterling by making losses. My point is that they must be competitive to survive.

I very much doubt whether the House has ever debated a Measure more ill-conceived, more hastily thought out and more impracticable than this one. At least, if ever it has it must have been a long time ago. We all know the origins of the Bill. The Inland Revenue was on its knees. It could not cope with the complexities of the Capital Gains Tax and the Corporation Tax in the last Finance Act. Its officials had more or less to be bribed to carry on. They threatened to go on strike. They said, "Pay us more to work this Capital Gains Tax, or else …"—and the Government had to give way.

The Inland Revenue officials were so overburdened with the tax tangle that they did not understand any more than the Treasury Ministers who brought in the Finance Act of 1965. So this delightful S.E.T. was devised. It did not place any additional burden on the already overburdened Inland Revenue officials. The impracticabilities, anomalies and absurdities were patently obvious from the beginning to almost everybody except the Ministers. They stuck out a mile in the Second Reading debate on the Finance Bill.

The Chancellor had to give way on agriculture, horticulture and forestry. He could not do otherwise. He had second thoughts. What a pity he did not have some thoughts beforehand. Anybody who knew anything about agriculture, horticulture or forestry knew that this tax, propagated by the Chancellor, was a nonsense, and that agriculture could not conceivably recoup from the Price Review what it would have to pay as a result of this tax. Everybody except the Chancellor knew that horticulture and forestry did not have a Price Review. He had to give way on those, too.

Similarly, he had to give way on charities. He could not do anything else. How, in logic, could the Chancellor have defended a fiscal system which gave a premium to the manufacturers of tobacco, pin-tables and flick knives, not to mention "purple hearts", but penalised the Society for Cancer Relief, the Red Cross and all charities in that category, and pretty well every church organisation? How could anybody, in logic, defend that kind of taxation principle? The Chancellor could not, and he had to give way.

We are still in an almost incredible tangle over the tax. The Chancellor has made certain very proper concessions but he is not yet out of the wood. We shall want a lot of convincing that there is a clear-cut dividing line, in the Bill or anywhere else, between the process of manufacturing something and the process of distributing or servicing it. This line is incredibly blurred, and in many respects the Bill makes the position even more complicated.

Let us suppose that X hundred men are employed in factory A, making Bovril or brilliantine, Y hundred men are employed in factory B, next door or slightly separated from factory A, making the bottles in which to put the Bovril or brilliantine, and Z hundred men employed in another part of the factory or in another factory a few miles away, all belonging to the same firm, making the tops for the bottles. It is no good having a bottle without a top. All those are in the first category and would get the premium. They are manufacturing something. Also in this category would be the wages of the man who drives the lorry from A to B with the bottles to be completed with tops. I suppose that he is all right, as would be the lorry driver who finally collects the finished article in a bottle with a top on it.

But directly another lorry driver takes the bottles to a shop in the High Street where they can be sold—it is no good manufacturing brilliantine or Bovril unless it can be sold—this becomes distribution. I do not understand the sense of this. Perhaps the right hon. Gentleman can enlighten us. I do not understand how this rigid dividing line can be drawn between manufacturing and services.

I also wonder whether it is true that it is in the manufacturing industries that there is a shortage of labour and in the service industries that there is overmanning. That principle could not apply to the profession of valuers or chartered accountants. The Government very wisely and promptly excluded the Civil Service.

I am certain that this tax will hit very hard precisely those whom it ought not to hit. It will hit at just that category of people who are least able to bear the extra strain—the old, the infirm, the sick and the lonely. There are many hostels in this country which cater for the crippled, the lonely and the old, as well as small nursing homes and hospitals for the incurable. Many old people who have fallen on evil days, partially crippled, living on a small fixed income supple- mented by a pension, need someone to look after them. We all know such cases, not only among our own acquaintances but in our constituencies, wherever we sit in the House.

It is true that some, though not all, in this category are included in Clause 6. However, the people concerned, whether a group of trustees managing a hostel or a man or woman living by themselves and needing someone to look after them because of their disability, have to pay out each week 25s. or 12s. 6d. for each employee. This is a considerable extra burden. Where will the money come from?

I know that they can recoup it later in several months, but I suspect that the machinery for recoupment will be singularly complicated. Many old people living by themselves will find it difficult to get the money back after they have paid it. They find it difficult enough to fill in their ordinary Income Tax returns. It will hit these people very hard, and I am not impressed by the argument that they will get the money back. They will have to wait four or five months after having paid it before they recoup the money. This is where hardship will come in.

Secondly, the tax will fall on a large number of old employees in all walks of life who, perhaps, are within two or three years of retirement, and who are kept on not because they are economic in the literal sense, but because the employer feels that he could not possibly dismiss them within two or three years of their retirement. However, with a bill for an extra 25s. a week for each such employee, what is marginally feasible in terms of economics now will be quite impossible. Many of these people will, therefore, be discharged, but where do the Government suppose they will go? Do they think that they will get a job in the British Motor Corporation? This is cloud-cuckoo-land and not a sensible fiscal policy.

Thirdly, the Selective Employment Tax will cripple many sports clubs, it will certainly cripple, if not bankrupt, some of the county cricket clubs, it will be a severe blow to many independent schools, it will increase the cost of housing, it will increase the cost to every motorist who has his car serviced, and it will put up the prices in every hotel and restaurant.

I hope that the right hon. Gentleman will say something about the administrative cost and the machinery for repayment. My right hon. Friend the Leader of the Opposition mentioned this point in his able speech. What about farmers? A farmer employing four men will have to pay an extra £5 a week. However, if he is overdrawn and the bank says that, because of the credit squeeze, it cannot increase his overdraft, how will he find that extra money which will be recouped later on by some rather complicated machinery? What will all this cost in terms of administration?

Millions of man-hours will be worked by hundreds of thousands of men, some very able indeed, in the Inland Revenue and among chartered accountants, who should be devoting their abilities to increasing the nation's wealth, which is the really important objective. In collecting and paying out, they will all spend millions of hours locked up trying to weave their way through this tangle of incomprehensible taxation. This is not creating fresh wealth. What about the credit squeeze and the banks giving fresh advances to farmers? What provisions have the Government made? This is something which they did not consider.

The Chancellor rightly talks about Britain's image abroad and the need to bolster sterling, and says that the economy is overheated. The Bill is supposed to be a very slick method of taking the net sum of £300 million this year out of an overheated economy. Shortly, a Bill will be introduced to nationalise the steel industry, which will inject another £600 million into an overheated economy.

I do not understand what sort of image of sterling, or competence, or confidence, the Chancellor is trying to create. I do not believe that he understands either. For that reason, I shall willingly vote against the Bill.

6.49 p.m.

Mr. R. E. Winterbottom (Sheffield, Brightside)

I have one regret, that the Minister of Labour and the Leader of the Opposition, who is an ex-Minister of Labour, are not present. What I have to say concerns the Ministry of Labour's relationship with the Selective Employment Tax, and I believe that both right hon. Gentlemen would have been in- terested. I should have liked to hear from the Leader of the Opposition something about the policy of the Conservative Party. There was a time when the Conservative Party was tinkering with the idea of a payroll tax. I wonder what happened to it.

I would have preferred a payroll tax to the Selective Employment Tax. I hear my hon. Friends behind me muttering, but I assure them that if one analyses the subject and makes a mathematical computation one sees that a flat rate payroll tax would have great advantages over S.E.T. as we have it, particularly when one takes into account what is happening in the distributive trades. It is obvious that an employer who must pay 25s. a week for a man who is managing a shop taking £1,000 a week will be hit harder than an employer who must also pay 25s. a week for a man who is managing a shop taking £2,000 a week.

We have been told that S.E.T. is designed to raise revenue as well as to do various other things. I would have preferred an alternative means of raising money—alternative to the accepted methods—although, if it came to it, I would consider a rise in the price of beer, tobacco and the rest of it. I hope to show, however, that there are alternatives which might have been used in place of the laborious S.E.T., which is nothing but an anomaly-creating tax.

Let us consider S.E.T. in its broader aspects. Its administration, and rebates and so on, will cost £850 million. Thus, the Treasury will have to raise between £900 million and £1,000 million if it is to get its estimated £85 million in revenue out of the tax. Is this not a large outlay for such a poor return?

Sir Keith Joseph (Leeds, North-East)

Would the hon. Gentleman repeat those figures?

Mr. Winterbottom

I do not wish to detain the House. The right hon. Gentleman will find the figures in the Bill.

If my right hon. Friend the Chancellor loses his job as a Minister, because of the operation or inefficiency of S.E.T., I assure him that he will not get another job in commercial circles. S.E.T. is anything but a business proposition. The revenue it will take out of the economy represents three-quarters of 1 per cent.

of the estimated total retail sales of the distributive trade for 1970, that estimate being £12 million. The Government have not taken into account what happens in other commercial spheres, such as banking and the professions. I would not have objected to S.E.T. had the line of demarcation been differently drawn, remembering that the professions swallow up more manpower than any other industry. That has been the trend in recent years. I will not give details. Hon. Members know where to find the figures.

One of my main criticisms of the Bill is that, having strongly supported the Government's prices, incomes and productivity policy from the beginning, the policy as defined so far does not go as far as I would like. I would like to see more consideration given to job evaluation. However, such as it is, I support the policy because, if it is worked properly, it will ensure that the lowest wage earners benefit and that the gap between the lowest paid and the highest paid is at least slightly narrowed. I still believe that the policy will do that.

Having said that, I must make it plain that an employer in the distributive trades is bound to use S.E.T. as an excuse for avoiding granting reasonable wage demands. He will rightly argue that the tax has bitten deeply into his already narrow gross profit margins, so much so that wage increases are out of the question.

From a practical point of view, the Bill is useless. How can Sainsbury's or, frankly, the Co-op pay S.E.T., 25s. for every employee, and, taking into account the narrow profit margin in the distributive trades, also pay an increased living wage? If I were an employer in distribution I would argue that the Government had indicated their wish that my workers should be driven from distribution into other trades. I would go on to argue that S.E.T., combined with other Government action, prevented me from giving increased wages. I therefore warn the Chancellor and the Minister of Labour not to blame me if S.E.T. creates strikes in distribution. We are not far off that already.

Most S.E.T. will be extracted from the distributive industry and, in the end, that money is bound to be passed on in extra prices to the consumer. In an industry in which one cannot have proper overtime rates, in which such rates obviously cannot be plussed-up, and in which the basic rates of pay for skilled people are in some cases well below average earnings in the rest of the country, this is bound to be a disastrous tax.

If the Government create conditions whereby the ordinary wage-fixing machinery and the process of arbitration cannot satisfy modest wage demands, there will be industrial disputes, and one cannot get away from that reasoning. I have been hoping that the Prices and Incomes Board would help to narrow the gap in earnings between those employed in distribution and those employed in production. I am dismayed to think that the Government's policy may be the means of promoting industrial strife. I warn the Government that my fears are well founded and that there will be one hon. Member in the House whose voice against their industrial policy will be most bitter and penetrating if that happens. If this tax had not the anomalies I have mentioned and had within it something constructive to help in the reorganisation of the distributive trades, I would be satisfied, but that is not so. It deals with the wrong side of distribution in terms of penal taxation.

I use an illustration. There is a firm in this country—I shall not mention its name because that would not be fair—which is making cosmetic preparations. They are expensive, they are good, and they are sold by charming ladies selected from every locality because of their beauty—[HON. MEMBERS: "Hear, hear."]—I agree wholeheartedly. These ladies sell the products in the homes of people. The products are not sold in shops. The contract between the firm and the saleswomen indicates that they are self-employed. They pay no Income Tax.

If the Chancellor wants to know where to find £85 million, I could tell him where it could be found from distribution without this tax. If I were inclined towards monetary gain I could offer to the Chancellor at the rate of ½ per cent. commission for every pound I made, and gain a fortune in 12 months. In this cosmetic firm they pay no Income Tax, no insurance stamps, and they will pay no Selective Employment Tax. They are making goods and will be paid the rebate for doing so.

Then there is Littlewoods, a mail order firm, of which there are thousands in this country. How will the Chancellor deal with the woman who receives a catalogue, calls in her neighbours, and selects a dress or piece of hardware for which she pays so much for 20 or 38 weeks in a club? Are they to be brought within the terms of this tax? Not on your life.

How are we to deal with the man who is as near as possible to the sands at Blackpool, Brighton or Southsea with a shop selling rock to destroy the teeth of our children? In the premises behind the shop he is making the rock. He can get recoupment because he is a manufacturing agent. These are facts and I am afraid the Chancellor has something to answer for. If he wants to know where to get his revenue from distribution, I can tell him.

I have in my possession now a circular which shows that in the world of distribution what I have said about a cosmetics firm has spread to the distribution of milk and coal. The Chancellor can have this circular. The old days of the farmer going round with his milk float have gone. The milk now comes to a central dep6t where it is pasteurised and it is then delivered in bottles. The roundsman is paid a wage and sometimes commission, but now that dairy firms will have to pay the Selective Employment Tax, they have decided to deliver milk on the basis of individual contract with these people who will be self-employed. And they will avoid the tax.

The Chancellor will lose more in terms of Income Tax than he will ever gain in terms of Selective Employment Tax. These things have to be faced. Unfortunately, no member of the professions, no member of the Civil Service can be expected to know the complications and intricacies of the distributive trades. Anyone who knows a great deal about the distributive trades knows very well that, before this Selective Employment Tax has got under way, the Chancellor will have found that he has been kidded all the way.

The Chancellor is not touching the major sections in distribution. These are facts which the Chancellor has got to know. There are 577,000 retail distributive outlets according to the census of 1961. There are 40,153 hairdressers and about 38,000 of them have individual shops controlled by self-employed men. Those 38,000 will get away scot-free from Selective Employment Tax and the remaining 2,000 will have to pay. There are independent establishments, usually family concerns, comprising 83.4 per cent. of the retail distributive outlets. In most cases those will not pay the tax. Most of the £83 million that will be the net profit to the Exchequer as a result of the tax will come out of the bigger units in distribution—units which are doing a first-class job in terms of service—in place of those who will not pay the tax. Is that fair?

This situation lends itself to quite a lot of things which should not be repeated in this House. If I could repeat them I would lead hon. Members into the complicated muddle we have got into in distribution which now will be even more complicated. In the National Plan we were told that we must rationalise distribution and we must encourage part-timers to take the place of full-timers who can then go into productive work. That is reasonable and sensible, but if the Government want to do that they are going about it in a funny way. This is a subject which should claim a high priority when we are studying the manpower of the country so that the advantages of the manufacturing industries and our export possibilities shall not be frittered away by weaknesses of distrition.

This brings me to the question of part-time workers about which there have been several appeals made today and I add my appeal to the others. At the moment the Chancellor may be adamant, but I want to add my appeal from the point of view of the job which must be done by part-timers in distribution. If anything should happen to prevent the employment of part-timers in distribution the distributive system will collapse to the spivs and drones who are prevalent; and the Government will be responsible. I am a member of a union which has known this for along time. The union does not like part-timers working in shops, because it is difficult to negotiate wages for them, but it has recognised that it must countenance part-timers if it is to play its part in building up our economy again. The union has accepted part-time workers as it accepted work study and the rationalisation of distribution. Is this to be thrown away for an idea which should never get off the ground? Most distributive establishments are already under-staffed. Now most of them will have to lose their part-timers.

It would be ironical if the tax on part-timers became the major cause of the retail distributive trade failing to meet the requirements of the National Plan. Some day someone who is more than an economist, and who perhaps has a human touch, will realise that production and distribution are two wings of something which must fly together in balance. When organising our productive capacity we must also organise our distributive capacity. The Government must deal with the shops. The time has come when the Government, instead of tinkering with the problem of distribution so as to divert manpower from distribution to production, will have to rationalise distribution by securing that the number of shop; in relation to the population of any area is far less than it is today. That will be a tremendous task. If this tax brings to the fore the need to pursue a policy of understanding, of examination, and of rationalisation of the distributive trades along the lines I have suggested, or perhaps along other lines, it will be the only thing I can say in favour of the tax.

7.14 p.m.

Mr. Harold Gurden (Birmingham, Selly Oak)

Let it be noted that not one speaker so far has expressed unqualified approval of the Bill, except that it may be claimed that the Minister of Labour did so. However, I believe that an examination of his speech will convince us that he was not in favour of the Bill. He fully admitted its imperfections, as he called them. The word "imperfections" is a very mild word to describe the mischief of the Bill. The presence of Clause 9 seems to be a recognition that mistakes and anomalies will occur.

I warmly congratulate the hon. Member for Sheffield, Brightside (Mr. Winter-bottom) on his excellent speech. We on this side congratulate him on his honesty.

The opinion is widely held that the Chancellor, having decided on this form of tax and having heard all the criticisms of it, must have wished to withdraw the Bill. It is a tragedy that he did not have the courage to do so. I cannot believe that the Government really wish to proceed with the tax now that they realise all the tragedies which could occur. In the past few months we have heard much, especially at the General Election, about the need for change and modernisation. The Bill is a reminder that change can be good, but it can also be bad. This change in our taxation system will not be satisfactory and will not work in the long term. I doubt the accuracy of the Chancellor's forecast that we shall live to thank him. I agree with the right hon. Member for Leyton (Mr. Gordon Walker) that, if we had to have such a tax, it would have been far better to have had an added value tax.

My right hon. Friend the Leader of the Opposition spoke of a forced loan. Many small traders—farmers and others—will have great difficulty in raising this loan to make to the Government. Where is the money to come from? Will the banks be free to lend money to people who are now on the red line, people who cannot ask the bank manager for the money with which to make this interest-free loan to the Government?

Those who borrow money to make this loan will have to bear the very formidable interest charges which are no longer 3 per cent. or 4 per cent. I doubt very much whether anyone would be lucky enough to borrow money at double that rate today.

The need to take surplus labour out of both industry and services has been mentioned. It is claimed that one of the results of the Bill will be to attract labour into the manufacturing industries. But what sort of example have the Government set the nation to stop labour hoarding and wastage, when they themselves have, I understand, added 10,000 civil servants to the list in one year?

I turn now to the inequalities which will occur under the Bill. There is no need to stress the effect on part-time workers. It has been suggested from the benches opposite that there should be pro rata adjustments in the rate of tax for part-time workers, and I very much agree, because the effect of the Bill otherwise will be to put a great penalty on part-time workers who, if the choice is left to the employer, must be laid off.

I have received letters from representatives of many different industries and trades, as others have, and I am particularly impressed by what is said by those which have a high labour factor. They will suffer enormously. Laundry and shoe repairing are two outstanding examples. These may seem infinitesimal items in the context of a Bill of this magnitude, but they are none the less of great importance. One thinks also of the cleaning services to which my right hon. Friend referred, not to mention building, sport and the arts. But such trades as laundering and shoe repairing, with something over 50 per cent. of turnover represented by the labour charge, will be very hard hit.

The Government argue that the Bill will not greatly raise the cost of living. They should look at some of the figures which the different trades and industries have produced. I cannot envisage anything less than about a 20 per cent. increase in the cost of services to the buyer. It must be at least 20 per cent. because of the high labour factor in businesses of this kind.

There have already been references to the inequalities in competition. I shall not elaborate on this now. My right hon. Friend spoke of the inequalities in the bakery trade, and the hon. Member for Brightside, of course, brought the point out with dramatic clarity. One has only to study his speech to appreciate what tremendous inequalities there will be.

I endorse what has been said about the effect on the private schools. Whether we agree with private education or not, and whatever our ideology on the subject, this nation at present does not, and cannot, send all its children to State schools. We have the present system, whether we like it or not. In due time, of course—who knows?—the party opposite, if in power long enough, may be able to change the situation, but at present we have the private school system as well as State education.

Whether we like it or not, there are many people who send their children to private schools—sometimes not through choice but because they have to send their children to boarding school—and they are paying twice already for education. They are meeting their own school bills and they are also paying their full taxation to the nation. Now, however, they will have to meet a third tax. They will have to pay three times over for their children's education. While we have the present system, this is most unfair. I should like to have seen some form of tax rebate for those who save the country so much money by paying for private education. But, if that cannot be, at least we should not tax them three times over.

Now, the local authorities. There is a widespread opinion that the Bill will not affect the rates. This is a crazy notion. One has only to study the speeches made on the subject already to understand that the local authorities will be affected. To what extent we do not know. This is one of the troubles with the Bill. We do not know, and the Government themselves do not know, what the full effect will be. But, plainly, it will put a charge on local authorities. They are big buyers of services quite outside what they do with the labour they provide for themselves. To this extent, the rates will inevitably have to be increased. We have a Local Government Bill going through the House, the idea being to give relief of rates. Admittedly, it is a very small relief, but there is something. Yet we are now asked to approve a Bill the direct and, presumably, intended consequence of which must be to put a charge on the rates. These is no way out of that.

Let those charities, churches and other institutions which think for the moment, because of what has been said by the Government, that they are free from the charge realise that they most certainly are not. If they buy any of the services which bear the tax, and nearly all of them do, it will cost them extra money. For what purpose? At the end of the day, they will realise that part of the money is not for taxation but is for a subsidy to manufacturers of inessential goods. Gambling machines have been mentioned in this context. That is the purpose, to subsidise such things as that.

Quite rightly, this is called a Selective Employment Tax. But how selective is it? I hope that Ministers will examine those words in the light of the speeches which have been made. What kind of selection is envisaged? As others have said, it would have been better to have a sales tax.

It has been said that Birmingham will benefit from the tax because we have so much manufacturing industry there and probably a large proportion of the people are employed in manufacturing. But I have yet to receive a single letter or suggestion from Birmingham that it favours this tax. Birmingham people know that it will add to the cost of living enormously.

Is it the Government's intention that the subsidy which is to go to manufacturers shall be paid out to meet extra wage claims to keep up with the cost of living and so satisfy the workers? Is it the idea that wages will be free to rise because there will be a subsidy to manufacturers so that they can pay up and satisfy the unions? One suspects that ideas of that sort may be in their minds.

We are supposed to have a Government who aim to have a full employment economy. In fact, they are going the right way, and fast, to reverse that principle. I am reminded of the man who said that he was glad he had married because his wife helped him tremendously to solve the difficulties which he would never have had if he had not married her. The Government are presenting a Bill to solve problems they would not have if they did not introduce it.

7.30 p.m.

Mr. Roy Hattersley (Birmingham, Sparkbrook)

I am glad to have the opportunity to follow the hon. Member for Birmingham, Selly Oak (Mr. Gurden), particularly as he quoted the suggestion that the Bill would favour Birmingham and the West Midlands. I wish that he had been more explicit about who had said that. The latest authority to make the prediction was the right hon. Gentleman the Leader of the Opposition this afternoon. As I understood it, when the right hon. Gentleman spoke about the favourable treatment that the Birmingham area would receive from the Bill his comments were tinged with regret, to say the least.

I am sure that the constituents of the hon. Member for Selly Oak and the people of Birmingham in general will wish to know if he supports that point of view. According to The Guardian index number, Birmingham's two largest firms will probably benefit more than any other industrial firms in the country and Birmingham and the West Midlands stand to gain more from the Bill than any other region.

Mr. Garden

My constituents are not a bit satisfied with the Government. I have not had a single communication in favour of this proposal but many against. They are afraid of the increase in the cost of living.

Mr. Hattersley

The hon. Gentleman must tell the House his record, over the last 10 or 15 years, in receiving letters congratulatory of Government policy. My understanding of the psychology of constituents—and I do not blame them—is that when they complain they write and when they seek to congratulate they do not write. It is also my experience that the sort of people who feel that they are being badly treated by this proposal and who have written to me—butchers, shoe repairers and hairdressers, for example—are the sort who, by nature and psychology, are particularly likely to write to their Member of Parliament.

According to The Guardian, Lucas's and B.M.C. are likely to benefit more than any other firms, but it is not to be expected that firms of that sort and size will immediately write to us to say how delighted they are by the Bill. Whether they are or not, I am, and I rise to support not only the Bill but the tax innovation of which it is an essential part—essential because the proposals for the repayment of the tax, contain a specific selective and, if the House prefers it, discriminatory element. I applaud entirely the decision to break with previous taxation policy and to begin to discriminate between one taxpayer and another. The Leader of the Opposition talked about the tax having broken every canon of good taxation from Adam Smith to Hugh Dalton. I agree that it breaks some canons but I hope that the right hon. Gentleman understands that that is not something that many hon. Members on this side of the House consider an unmitigated disaster. Many of us feel that some canons need to be broken and my support for the Bill and its principle arises from the belief that some of the more unsatisfactory canons have been shattered.

When discussing the selective element, it is important to remember that it is only the second or third objective of the Bill. As my right hon. Friends the Chancellor of the Exchequer and the Minister of Labour have said, the first objective is to raise revenue, to decrease purchasing power, to mop up effective demand which, in present conditions, the country cannot afford.

That is why I was astounded when, at an earlier stage, the right hon. Member for Leeds, North-East (Sir K. Joseph) cried out that the tax would put up prices—just as if he had just discovered the fact which the Government had been keeping from the people. Of course, part of the effect of the tax will be to put up retail prices. It is absurd of hon. Members opposite to pretend that prices will go up and that that is a bad thing, just as it would be equally absurd if we said that prices will not go up and that that is a good thing. The truth is that some prices will go up and that is a good thing indeed and one of the purposes of the tax. Indeed, it is the principal virtue of such a tax.

We are facing an inflationary situation and it becomes our obligation to reduce purchasing power by one fiscal means or another. The means chosen by the Government has the overriding virtue of spreading the increase throughout the community without the general and unfortunate—and in some areas totally disastrous—effects of the Purchase Tax levied on specific commodities made by specific firms in specific areas. That must be and is the principal purpose of the tax and what we are discussing—the distributive or discriminatory elements—must be and is the second or third object.

I support this innovation in taxation policy. I congratulate my right hon. Friend the Chancellor of the Exchequer on devising it. The word "innovation" does not fill me with dread as it does so many hon. Members opposite. For the first time we have devised an economic weapon which does not solve our short-term difficulties while at the same time creating additional long-term problems. One of its virtues is that, while helping to do something about inflation and the balance of payments, it is not at the same time so cutting back industrial activity so savagely that productive power is impaired for the next five or ten years. It is a remarkable achievement to reconcile short-term and long-term aims and is one of the chief grounds for congratulation to the Chancellor.

In his Budget statements the Chancellor said that the second aim was to promote long-term structural change in industry. The tax is an instrument for moving labour from where it should not be to where it should be. Of course, it is crude and arbitrary. I wonder whether the hon. Member for Selly Oak, shares the remarkably optimistic view of one of his colleagues who has talked about the tax distorting the natural employment pattern which has stood us in good stead for the last 20 years. If he does not share it but admits that the pattern needs to be changed or improved, what are his methods of improving it? How would the Opposition do their job and yet remain within the terms of G.A.T.T.? How would they do it without opening themselves to the charge of interfering unwarrantably in the affairs of specific firms and industries?

I make no apology for saying that, if I had my way, I might well choose a tax which was levied on and repaid to firms only after individual scrutiny had been made of their export and production potential and labour usage by a Ministry. But if such a system came into operation hon. Members opposite would be the first to complain. We would hear all the hackneyed phrases about the "man in Whitehall knowing best" and about an intolerable apparatus of controls and snoopers.

When that part of the Bill is implemented in which the Ministry of Technology decides what are genuine research establishments and what are not, even setting aside the psychotic attitude of some hon. Members opposite towards the Minister himself, I am certain that there will be enormous complaints about the Ministry discriminating in favour of the wrong firms. The main objection to any sort of more precise form of interference or assistance would come from hon. Members opposite, none of whom have made any real attempt to offer an alternative system of taxation which would even attempt to do what this tax does. I believe that the hon. Member for Blackpool, South (Mr. Blaker) wishes to interrupt.

Mr. Peter Blaker (Blackpool, South) indicated dissent.

Mr. Hattersley

I know that the hon. Member started to rise before I talked about what this provision would do. I did not realise that the hon. Gentleman was simply anxious to say that hon. Members opposite had invented other new taxes but not this one. I concede his point willingly. The only point I am making is that this particular piece of ingenuity, this particular innovation, seems to have escaped them.

Having said that in many ways this is a crude and arbitrary instrument, I go along entirely with the decision which implies that if it has to be, as it has, as crude and as arbitrary as this, the division between services and manufacturing is probably as good a division as can possibly be brought about. In the House today, there has been repeated the old, well-worn and in my view entirely fallacious doctrine that it is the mark of an advanced society that it spends a lot of its time, energy and wealth on service trades. In my view, it is the mark of an advanced society that the service trades are very expensive.

It is not to our credit that our shoe mending and our milk distribution and laundering are among the cheapest in the world. It may be to the credit of those industries, but not to the credit of Great Britain as an industrial society. They are very much more expensive in the United States of America, Sweden and Germany because in those countries much more effort and much more determination and much more concentration go into actual production, and the service industries get what energy and enthusiasm is left over rather than have a primary place in the economy as they have in Great Britain.

Mr. Heath

Extraordinary statement!

Mr. Hattersley

A perfectly sensible statement. I am not sure whether the right hon. Gentleman was saying "extraordinary statement" out loud, or privately, but if he wants to say it out loud, I will give way to him.

Mr. Heath

I will repeat it out loud. It is an extraordinary statement if he is saying that in the Swedish system the services are expensive because they are what is left over from the production system.

Mr. Hattersley

I am saying that in their advanced industrial societies the cost of services such as laundering, hairdressing, shoe repairing and the distributive trades is relatively far more expensive than in Great Britain and that it is so much more expensive because the labour which is available for the purpose is in much more short supply than it is in Great Britain and I am saying that in properly organised industrial societies——

Mr. Blaker

Will the hon. Gentleman give way this time? He is saying that labour is in much more short supply in the United States. That is complete nonsense. The percentage of unemployment in the United States is three times as high as it is here.

Mr. Hattersley

The hon. Gentleman is now doing what he began to do before—taking the point when it is half made.

Mr. Blaker

It is not even half made.

Mr. Hattersley

What I am saying and what I repeat is that in the industrial areas of the United States services are so expensive because labour is so expensive, and labour is so expensive because of an emphasis on production which does not exist in Great Britain. I am saying that it would be an entirely healthy thing for the British economy to have a demand for more and more labour resources from the services into manufacturing.

The other extraordinary chestnut which has been drawn across the House this afternoon is the pretence that a strange dichotomy——

Mr. Bruce-Gardyne

Is the hon. Gentleman suggesting that labour in manufacturing industry can be made more expensive by persuading labour to move from the service industries into manufacturing industry, thereby increasing recruitment of labour into manufacturing industry?

Mr. Hattersley

I am not only not suggesting that, but I give the hon. Gentleman credit for knowing that I am not suggesting that.

What I am now saying is that some hon. and right hon. Members have tried to draw a totally false distinction between industries with a high capital content and industries which are in great need of labour. There has been a sort of implication that those industries which are most capitalised and which have most productive capacity in terms of plant and machinery are not those which are in desperate need of labour, because of their ability to innovate and because of their willingness to put down new plant so that they can somehow solve their own labour problem.

This may be true of some parts of the country, but it is certainly not true of the West Midlands. It is not true of those automated in part and mechanised in total, great manufacturing industries which are crying out for labour every day. Certainly it is not true that a man will not give up his job in one service or another to move into productive engineering because he is not sufficiently skilled. The great production lines of motor manufacture and other mechanical industries in the Midlands are particularly suited to the man without a specific skill and without apprentice training who can easily move from unskilled service industries into more valuable and more productive engineering organisations.

I am therefore saying that though this tax is arbitrary and crude in many ways—and I have already repeated that twice and will no doubt repeat it again—this is the best division which it is possible to devise, because for once we have abandone the old obsession that ensuring equity was above all other things the requirement of taxation policy. Other countries have accepted that on occasion there has to be a little less equity and a little more efficiency. Sometimes two firms in terms of fairness—a word repeatedly used by the hon. Member for Selly Oak—equally qualify for Government assistance, or at least absence of Government penalisation. But they are not equal in terms of assistance to the economy in promoting exports and in terms of making us a more prosperous society.

In conclusion, I say with what delight I saw that that particular canon of taxation, from Adam Smith to Hugh Dalton, which implied that there had to be this great and crude concept of equity, of spreading taxation evenly over individuals and firms, whether the industrial commerial and economic merits were identical, has gone, I hope for ever.

Mr. Heath

Is the right hon. Gentleman proclaiming that it is his doctrine that the prosperous society of Birmingham ought to be helped, but that the Highlands, which depend on services for their very existence, ought to be damaged? Is he saying that that is the new canon of taxation?

Mr. Hattersley

I am advocating the doctrine that the country cannot be divided in this arbitrary and artificial way. I am convinced that if Birmingham is able to export more and become more prosperous, not only Birmingham but the Highlands will benefit. If the right hon. Gentleman is somehow dividing the country into those totally artificial categories and implying that there must be equity of investment, production and prosperity throughout, he is advancing an artificial concept of what Great Britain stands to be.

7.48 p.m.

Dr. M. P. Winstanley (Cheadle)

I have listened with great interest, but no surprise, to the criticisms which have been heaped on the Bill from both sides of the House, and not least from the Minister of Labour himself. I am bound to say that my right hon. Friend, my hon. Friends and I agree with the vast majority of those criticisms. They have been heard many times. They were made on the Finance Bill and they will no doubt be made again, but they have become no less compelling on the fourth, fifth, or even sixth hearing. I am glad that they have been repeated to such an extent, because by now they must be indelibly imprinted on the minds of Ministers.

I will endeavour to avoid the tedious repetition which the Standing Order so rightly prohibits, but it will be necessary for me to go over some of the points again merely to reveal my party's attitude to them. As far as I can, I will deal with new issues or special points which the Liberal Party would like to make. To explain our general attitude to the Bill and to the tax which it is designed to serve, we can do no better than subscribe to the description of the Bill by the right hon. Member for Leeds, West (Mr. C. Pannell) as bereft of reasons … as about insensitive as it is daft."—[OFFICIAL REPORT, 19th May, 1966; Vol. 728. c. 1624.1 I am bound to say that as a Lancastrian I am perfectly willing to regard a Yorkshireman as an authority on what is and what is not daft.

The tax, according to the White Paper has two main objectives. First, according to the White Paper, it is designed to improve the structure of the taxation system and, secondly, it is designed to encourage the economy in the use of labour. It is obviously implicit that it has a third objective, which is to raise revenue.

If I may, I will take the third of these, the implicit objective of raising revenue, and say that we in the Liberal Party fully accept the need to raise this money, whether it be the £315 million which is to be raised in the first year, or the £240 million which the tax will ultimately realise in an average year. We concede at once, and it has now been conceded by hon. and right hon. Gentlemen in the Tory Party, that there is a need to raise this money.

What we do not accept is the way in which it is intended to raise the money. We entirely agree with the Chancellor when he said in his Budget speech that he felt that direct taxation had, in many ways, reached saturation point. Our hopes rose when we listened to him elaborating this argument and say that he did not intend to increase direct taxation. Our hopes very soon sunk again when we heard the details of the tax which the Chancellor had devised.

It is a tax which raises £240 million in an average year, but it is a tax which seems, in terms of actual contributions per head of population, to raise very much more from the individuals in the poorer areas of the country than it raises from those in the richer areas of the country. In other words, it takes from the areas without industry more per head of population than it takes from those areas with industry, per head of population. If we compare Scotland with the area of Yorkshire and Humberside, Scotland will provide net, as a result of this new tax, £35 million. Yorkshire and Humberside, an area which, in terms of its economy and industry, has greater prosperity, will provide £29 million; in other words, £6 million less. We cannot accept that it is logical to devise a new tax which clearly takes more by way of contribution from areas which have less, and takes less from areas which have more.

Next, we must say that here is a tax which fails to take cognisance of the relative importance of the different people upon whom the tax is levied. This point was made very fully in the debate on the Finance Bill by my hon. Friend the Member for Colne Valley (Mr. Richard Wainwright), when he explained that the tax will take exactly the same amount of money from the bank doorkeeper as it will take from the high-powered economist at the bank. If there is an incentive to get rid of anyone it will be the doorkeeper who will be got rid of, which would not make any major contribution to manufacturing industries. It would not be the economists who would be got rid of, although that might make a major contribution.

Mr. R. B. Cant (Stoke-on-Trent, Central)

May I ask the hon. Gentleman whether he really thinks that it would make a better contribution to efficiency to get rid of the professionals, the economists, rather than the doorkeeper?

Dr. Winstanley

It depends upon what the professionals are doing. If one wants to transfer resources from service industries, so-called, to manufacturing industries, it is clearly important to move the people who likely make the greatest contribution to manufacturing—that is if one accepts the concept behind this Bill.

This is a tax which discriminates against part-time workers at a time when we are desperately short of labour and when we need everyone we can get, whether part-time or full-time. It discourages people of pensionable age from continuing to work once they have reached that age, again at a time of desperate labour shortage. It places obstacles in the way of the employment of disabled persons. It also makes it difficult for the married woman, particularly the professional woman, to return to occupations such as teaching, nursing and medicine, and so on, at a time when we so much want them to return to work.

In our view, it will inevitably result in firms focusing their energy and resources on all sorts of internal rearrangements, not designed to improve their industrial efficiency, but merely designed to rearrange themselves so as to attract the minimum tax. This cannot be the sort of thing which the Treasury wants to see industry doing. One does not want to see our industry, at a time when it is desperately important that it should be concentrating on the job in hand, deliberately dropping important things and turning to its internal administrative arrangements, deciding how best matters can be arranged so as to protect a firm and make it liable for the minimum amount of tax. This is exactly what will happen. This must happen and we cannot escape the conclusion that it will damage the economy rather than help it.

We have already heard about the troubles and the difficulties which will arise from this tax because of certain of its definitions, and the way in which it is to be applied. We know that it is very much related to employees employed in the same establishment. "Establishment" is a word dear to the Ministry of Labour, which has been made responsible under the Bill for the tax. The Ministry of Labour is used to dealing with establishments, not with firms, or corporations or enterprises, but with establishments in terms of geographical areas, and areas of operation. This is the way in which the Ministry operates, but the difficulties which will arise from this kind of concept being applied in relation to the tax are legion.

Examples have been given and I will give one from a firm in my own constituency, a very well known toy manufacturing firm which has within it a retail business selling toys. It has also, very wisely, a very large restaurant, since it is situated out of the main stream of the city, so that women and their children can go along to the restaurant and buy at the retail shop. There is no doubt that this firm will escape this tax, and that it is proper that it should. It will escape the tax because numerically the majority of its employees are engaged in manufacturing rather than serving.

If it had happened that the retail section and the restaurant were across the road—and there happens to be a road, and the firm has land across that road—then, suddenly, the firm would be in the difficulty that part of the premises attracted the tax, while another part did not. Immediately, the firm would have to decide how to shuffle people about, taking some people from "there, putting others here, and others from here to there, so that its tax system in relation to the Selective Employment Tax was changed.

This is not the sort of activity that we want people to be embarking upon in our industries, but it is undoubtedly the sort of activity which they will set about, as a result of the need to rearrange their affairs. It is bound to create disturbance and difficulties. It seems quite astonishing that at this stage, when searching for a new tax, the Chancellor should come forward with a tax by which he achieves an additional income of £240 million a year, once it has got off the ground, and we have got through the first year, by collecting £1,240 million a year and then giving £1,000 million a year back again. Even the bank charges involved in an operation of this kind, quite apart from the costs of the administrative staff, are bound to be very considerable. I have heard varying estimates. I am sure that the Chief Secretary has heard varying estimates. I am sure, too, that his estimates are causing him considerable concern.

Having devised this curious new tax, what does the Chancellor do with it? He hands to the Ministry of Labour, which never in its history has been called upon to act as a taxing agency. It is not staffed or equipped to act as a taxing agency. Throughout the years it has built up a relationship with industry based on a totally different rôle. Its attitude towards industry and its contacts with industry are not the same sort of contacts as a taxing Ministry would have. It will immediately find itself in difficulties additional to those which it will have because of its lack of resources to carry out these new tasks.

The second objective of the tax is to encourage economy in the use of labour. We entirely accept the need for this. But we have grave doubts whether discrimination in terms of the use of labour in service industries as against manufacturing industries is right. We agree that in this country there is great waste of labour here and there. We agree that certain people are in full employment and are under-employed. We are prepared to say even that if every person in this country who was fully employed in the sense that he had a job was employed effectively our balance of payment problems would be at an end.

But is there such a difference between service industries and manufacturing industries? My hon. Friends and I are inclined to say that if there is a marginal difference, it is the service industries which take the lead. If hon. Members have any doubt about that, I suggest that they spend three weeks in the catering industry. They will be glad to creep off into the steel industry for a rest.

Many examples occur to hon. Members, but the common example which is quoted very often is steel. Published figures show that it takes two and a half men in this country to produce a ton of steel in the time that it takes one man in the United States. It is not just the labour. It is capital and capitalisation and organisation. Many hon. Members will have seen the article in the Sunday Times in which our relative figures were quoted at some length and which showed that our manufacturing industries are far from making effective use of their labour.

An excellent example is the newspaper business, which is being treated as a manufacturing industry. It wondered whether it could believe its luck, but the Chief Secretary made it perfectly clear, in answer to a Question, that it will be treated as a manufacturing industry. Let us consider the situation in the newspaper business, which was illustrated quite clearly by the Royal Commission on the Press in 1962 and by the Report of the Prices and Incomes Board on the Newspaper industry in 1965. This is an industry which is not making economic use of labour. It has been suggested that it is under-using its labour by about 40 per cent.

There is in the newspaper business something virtually bordering on a conspiracy—not an arranged conspiracy but perhaps an implied conspiracy—between ownership and labour whereby too many people are employed, it is an arrangement with which the big newspapers are satis- fied and the small newspapers gradually get swallowed up one after another. What is the remedy of the Chancellor of the Exchequer for this situation? It is to make an enormous hand-out to newspapers and say, "This is to encourage you to do better in future".

Our doubt and worry is that if the Chancellor of the Exchequer has this money to give to industry—and he is giving it money—can he not make better use of it than to give it in such a way as to encourage people not to make fuller use of their labour force, but to retain too many people? There are many ways in which we could do this. Our economic future depends, as the Chief Secretary well knows, not only on the economic use of labour, but on the economic use of machines. In future, it will surely be machines which do the overtime and not men. Would it not have been better to use all this money, if the Chancellor has it to dispose of, to increase investment allowances or investment grants and to encourage manufacturing industry to put its house in order? Whether it would be or not is a matter of opinion, but that is most certainly the Liberal Party's view.

We believe that an opportunity has been thrown away. We do not think that the tax will achieve its objective either in terms of the redeployment of labour or in creating a more sensible tax structure as outlined in the White Paper. There may be a marginal difference, but I do not believe—and the speeches which we have heard show that other hon. Members do not believe—that the salvation of the aircraft industry in this country lies in a massive influx of displaced hairdressers.

Mr. J. J. Mendelson (Penistone)

Why must the hon. Gentleman, in this very serious speech, sink to the "pub" level of making feeble jokes? The Chancellor of the Exchequer, when he introduced the Selective Employment Tax, made it clear that he did not expect a dramatic change from one type of employment to another. He thought that, on balance, in the longer run, it would encourage people not to add new labour to the service industries but that some of the new employment would go into manufacturing industries. Why does not the hon. Gentleman address himself to a serious case instead of talking nonsense?

Dr. Winstanley

It is an immensely expensive way of achieving what the Minister has described as a very small change. There are people who have argued that we must get people out of service industries and into manufacturing. I am merely saying that they will not go. They do not want to go. There is no reason why they should go and even if they do go, they will not make the major contribution which we need.

We have heard about anomalies in terms of establishments—whether the road runs through them or outside them. We have heard of the anomaly concerning confectioners and bakers. We have heard about the extraordinary anomaly in the wastepaper and shoddy cloth business—the people who collect together and supply the wastepaper which constitutes the only indigenous raw material in our paper manufacturing business who are in a most extraordinary position. This trade comes under the heading of XX.832/26, which is a service. But for rating the same trade has been specially treated as manufacturing and derated accordingly.

I mention that not for its own sake but merely as one example of the many anomalies which the Chief Secretary knows will occur. Anomalies are cropping up in this, that and the other place. We have heard about many of them today. We shall hear more as the evening wears on. All these anomalies will have to be looked into. Resources will have to be used to look into them. They will cause trouble and will dislocate the wheels of industry and of the administrative set-up which the Government needs so urgently for other purposes.

There is the anomaly of the situation as between the public sector of industry and the private sector. I am not necessarily in favour of giving assistance to the private sector of industry or of discouraging the public sector. I am anxious to give the public sector every possible help. But there is a problem when the public sector of industry is in direct competition with the private sector, as it is in direct building schemes, and as it is even in certain minor matters like nursery schools, where the privately owned nursery school is on a totally different tax basis. Those are things into which the Chancellor will have to look at over and over again.

At a very early stage, when talking to The Guardian, the Prime Minister referred to the tax as crude and clumsy in its implications", but he added that it could be refined later. It takes a long time to do the refining, and it has taken a long time to do that which has already been done in terms of agriculture and charities. It will go on and on because the tax was a mess and a muddle from the start.

Speaking for the Liberal Party, one has a duty to put forward alternative proposals. The Minister of Labour invited hon. Members to put alternative proposals if they criticised the tax, and I hasten to accept his invitation.

I am delighted to know how many right hon. and hon. Gentlemen in various parts of the House appear to believe, as we do, that a much more sensible measure to have introduced would have been a percentage payroll tax. That would achieve the Chancellor's aims. First, it is a flexible instrument which can be varied for areas of under-employment or for areas of over-employment. It can be varied to assist export industries, in spite of the provisions of G.A.T.T. and so on. It can be varied to discourage industries which are non-contributory from the point of view of the country's economic position.

It is a tax which could easily be remitted for charities, part-time workers, the disabled, employees working overseas, apprentices and other people undergoing training, and for all the difficult situations which have been referred to frequently by hon. Gentlemen during the debate. It could be done. If it was done, we would have a continuing flexible instrument available for the use of the Government in furthering their economic aims.

In the end, we in the Liberal Party would like to see such a tax replace totally the present stamp and all the National Insurance benefits; but that is another matter. For the moment, we believe that there are many possibilities even in introducing such a tax on a limited basis.

A payroll tax could be introduced immediately in the following terms to raise the £240 million per year which the Chief Secretary is so anxious to acquire. First, the West Midlands and the South-East would pay 7s. per employee per week. Secondly, Yorkshire, Humberside, the North-West, the East Midlands and East Anglia would pay 3s. per employee per week. Thirdly, the Northern Region, in terms of the Department of Economic Affairs, the South-West, all Scotland and all Wales would pay no tax.

The rates would be 7s., 3s. and no shillings, and it would realise precisely the £240 million which the Chancellor is so anxious to get with none of the troubles, arguments and special inquiries about who is to count because of these arrangements in industry, who does and who does not count, will it apply this side or the other side of the road, and so on. It would work immediately.

If the Chancellor were to announce such a tax, what a relief it would be to the British people, British industry, the vast army of people who have to collect or are otherwise concerned with our taxes and, most of all, a profound relief to the Chancellor's right hon. Friend the Minister of Labour.

8.15 p.m.

Mr. Geoffrey Rhodes (Newcastle-upon-Tyne, East)

I hope that the hon. Member for Cheadle (Dr. Winstanley) will forgive me if I do not comment on his interesting speech in detail, except to say that in view of what he said about Yorkshire, he will be pleased to be followed by one who comes from that part of the world.

On his last point about regional economic planning, I was in sympathy with what he had to say, and I would hope that his tax, with its distinctions, might be used for some form of economic planning in the future. Those of us who attended the Press Gallery luncheon shortly after the Budget was announced heard the Prime Minister make some reference to the tax.

I want to refer first to the speech of my hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley), who I regret to see is not in his place at the moment. I agree with what he said about the tax in principle. There are formidable arguments for taxing employment. It is an important method of economic planning and control. I would also accept the argument for taxing services, because it is true that taxes inevitably tend to follow the consumer, and there is an increasing proportion of consumer expenditure being made on services.

I support measures of this kind if, as I accept is the reality today, we have as an alternative the traditional increases in taxes on commodities and incomes. In principle, I would go a long way with the Government in relation to the tax, but I would go the whole way and agree with my hon. Friend as to the theory behind it. However, where he is wrong and where the Government are wrong is simply that the selection made is vital if the objectives of the Selective Employment Tax are to be carried out.

Under the Bill, the criteria which will determine whether an employer pays the tax without refund, is repaid in full or receives a premium in addition depend not on the economic or social merits of the service being performed but on the place which it happens to occupy in the Standard Industrial Classification.

My hon. Friend makes a distinction between manufacturing, distribution and services, which is a difficult distinction to make in some cases. But even the Standard Industrial Classification formula does not make the distinction in many instances that I intend to outline. The Standard Industrial Classification is not an economic or social priority yardstick. The purpose of that classification is as a means of comparability and the tabulation of official statistics in the United Kingdom.

My hon. Friend the Member for Bilston (Mr. Robert Edwards) put a Question to the Parliamentary Secretary to the Ministry of Labour on that very point on 13th June. She replied: This classification does not attempt to distinguish between industrial groups on the basis of their importance to the national economy."—[OFFICIAL REPORT, 13th June, 1966; Vol. 729, c. 220–1.] If it does not make that distinction and we use it as the major instrument of classification under the Bill, it cannot carry out effectively the economic and social purposes behind the Selective Employment Tax, because it is not related in its classification to economic priorities.

Under the Bill, assuming that subsidies are to be paid to employers engaged in activities falling within Orders Nos. 3 to 16 of the Standard Industrial Classification, in food production, for example, some very odd anomalies arise. A small example which is typical is the production, pasteurisation and bottling of milk. When it leaves a farm, milk is not a finished commodity ready for distribution. It is not in a fit state to be sold to the public, and it would be illegal to do so in that form.

Milk does not come within Order No. 3, however. It has to be pasteurised and bottled before distribution, but in the nature of this index milk is placed under Order No. 20 in the distributive trades. In answer to a Question on 13th June the Parliamentary Secretary to the Ministry of Labour said that the Government regarded the pasteurisation of milk as part of the distributive process. Why? What logic is there about this? Milk is not ready for distribution until this part of the manufacturing process has been completed. It is therefore wrong—and there are many examples of this kind, which I would elaborate if time were not running out—to require employers to pay tax on workers in this industry.

The reason why no one has bothered to dispute the inclusion of milk processing in the distributive section of the Standard Industrial Classification is that in the past it was a statistical exercise which had significance at all, certainly not in financial terms. It has assumed significance only because of the introduction of the Selective Employment Tax, and unless there is a change of policy in regard to the classification under this Bill we will have the farcical situation under which people engaged in what I call the manufacturing process of milk, the pasteurisation and bottling process of a basic commodity, will haxe a tax placed on their labour, while manufacturers of pet foods will qualify for a subsidy because they come under some other Order of the S.I.C. It is indeed an odd system of priorities which puts a tax on food consumed by humans, and at the same time subsidises food consumed by animals. This is the kind of anomaly which is bad for the image of any new form of taxation.

My hon. Friend the Member for Spark-brook also mentioned footwear. The manufacture of footwear is within Order No. 12 of the S.I.C. and it will qualify for a subsidy. But footwear wears out. In general the poorer sections of the community cannot afford frequent purchases of brand new shoes, and therefore have to resort to having their footwear repaired. Footwear repairs come under Order No. 23, miscellaneous services, under which employers must pay the tax without refund. This will, inevitably, lead to an increase in the cost of repairs, which are already high enough, and it will be mainly the poorer families who will have to meet the brunt of it. This is the kind of anomaly, and the complete lack of any social priority, or even economic priority, which will arise under the Bill.

The position with regard to transport is very interesting. The tax will be refunded, but without premium, to transport. There is, however, a special exclusion from the refund of one category within Order No. 19, namely, miscellaneous transport services and storage. This means that employers who operate their own transport will be treated according to the definition of the relevant establishment.

This means that drivers employed at factories, at manufacturing establishments, will be covered by the premium and will be subsidised, but those employed at depôts or warehouses, in the essentially distributive parts of the industry, will pay the tax, and yet they will be doing the same kind of work, the transporting of goods.

Some organisations are trying to rationalise their transport services. They are trying to improve their efficiency as distributors by developing centralised warehousing systems, and centralised transport systems. The Co-operative movement and the Co-operative Wholesale Society are notable in this respect. This is the way in which the Co-operative movement is trying to make itself more efficient. The Bill will severely handicap this process, because the more efficient, the more centralised, and the more concentrated the distribution points are, and the more the warehouses and transport depôts are centralised, the more will they become subject to tax, whereas if the transport services and the warehouses are pushed back to the factories in a number of inefficient units, they will not be subject to the tax, because in relation to these services they will be attached to a manufacturing unit. The Co-operative movement will be penalised because in the interests of the national economy it is taking steps to make itself more efficient. How does this square with the economic policy announced in the Budget?

There is also the anomaly that publicly-owned coal depôts which distribute coal will not get the benefit of a rebate or a premium where they are in competition in their distributive outlets with cooperative and private enterprises, but the gas and electricity boards, which compete with co-operative and private distributors of domestic appliances, will be subsidised in their competition with these other enterprises. These two nationalised concerns have already been criticised for their extravagant advertising and wasteful competition, and here again there is an inconsistency between the way this Measure works out, and the worthy objects behind it.

The unit which is to be used under this tax is not a firm or a company, but is based on an establishment, and the premises or parts of premises occupied for the purpose of the business of one occupier are treated as a single establishment only if there is access to all parts of the area comprised in those premises. Presumably if two parts of a plant are separated by a road they will be treated as two establishments, but if they are connected by a bridge or a tunnel they may constitute one establishment.

This definition will have great financial significance, because the Bill lays down that if more than half the persons employed in an establishment are engaged in activities which qualify for refund of premium they will all qualify, but if more that half are employed in non-qualifying activities, such as clerical work, or transport, or selling, none of them will receive any refund at all. In these circumstances, a shrewd employer, well-advised, will begin shifting staff from building to building to avoid the incidence of this tax, not because to do so is economically efficient for the firm, but because of the anomalies which the method of operation of the tax will bring about.

My right hon. Friend the Minister of Labour referred to the establishment being based on the postal address. I hope that this issue will be clarified when the Minister replies, because if, as one hon. Gentleman opposite said, firms are classi-field on the basis of postal addresses, all that I have been saying for the last two minutes does not make any sense. It is not valid, and if that is what it means, the Bill does not make sense either.

A productive process may either qualify for the premium or pay the tax without refund, according to the establishment at which it is carried on. This brings me back to my hon. Friend the Member for Sparkbrook, who mentioned this general broad classification into services and manufacturing. The Bill does not solve this problem, certainly not in its entirety, because a bread and flour factory attracts the premium and is subsidised, but production at bakehouses attached to bakers' shops is excluded, so that the particular activity is right, from the tax point of view, in one situation but wrong in another, where it happens to be taxed as being at a distributive outlet.

Similarly, the curing of bacon and ham, and the making of sausages and meat pies, attracts a subsidy, but not if the production is carried out at a distributive establishment. The making of condensed milk, and dried milk attracts the premium, but not the pasteurisation of milk. What kind of economic logic is there in that kind of classification?

I believe that I am correct in saying that large companies which are now beginning to centralise their computer services will have the problem that the establishments housing the new services—services that would make them more efficient—will become subject to the tax. With this new form of taxation, companies will be inclined to continue with inefficient methods of calculating on the factory sites. What is the point of making one's computation more efficient in one centre if it then becomes subject to a tax, when one could leave it where it has been for a century or more as a relatively small part of an establishment of a manufacturing unit?

If any hon. Member says that although these are interesting points they are Committee points, my reply is that the Bill is riddled with this type of point. It requires very little imagination to foresee the disputes that will arise under the legislation, to say nothing of the redeployment of labour—not carried out by any economic yardstick, but because employers will be obliged to consider how to place themselves in the most favourable position in relation to the tax.

Has there ever been in the history of British taxation a system under which a citizen is liable to be taxed in his work if he is on one side of an arbitrary line and is even entitled to a subsidy if he is on the other side of the line, in respect of the same kind of work? This is quite unique. If we make this distinction of principle between services and manufacturing, we must make sure that we devise a tax that gets down to the job and that we are not left with a Bill that is riddled with inconsistencies. Vast sums of public money are involved in the premium and refunds—some £859 million.

For the sake of elementary justice and economic efficiency—and for the sake of carrying out the objects which were set out in the White Paper behind the Bill and the Budget—an attempt must be made—and quickly—to remove some of the glaring anomalies. My right hon. Friend the Minister of Labour said in his opening remarks that it is very easy to quote a number of extreme examples, but examples of the kind that I have been quoting are typical. If it were not 8.30 p.m., I should continue on the same theme with a much bigger list of similar cases.

The Bill has been described as a very rough and ready Measure. It is true that there has not been sufficient time for a really refined Measure to be presented, but we have to face the fact, and be blunt and forthright about it, that our economy and fiscal system will suffer if we have for very long to use a carving knife for a delicate surgical operation. We are asked to use the Standard Industrial Classification as a major instrument for classifying industry when that Classification was devised for a completely different purpose. This is why we have the anomalies.

It is inevitable, if we are to get the Selective Employment Tax off the ground—and I do not object to the principle behind it—that we must have the Second Reading of the Bill tonight and see it passed, but I hope that the Bill will be amended before very long. We are told that, as it evolves and time passes, there may be changes to remove some of the injustices and anomalies. But an injustice is still an injustice even if it exists for months rather than years.

Before I sit down, I declare an interest. It is well known that those 18 hon. Members on this side of the House who are members of the Co-operative Parliamentary group have expressed the strongest reservations about the effects of the Bill on their own co-operative societies. I have been trying to point out this evening that on the basis of our business experience in distribution we have discovered anomalies that run right through the Bill and affect every sector of the distributive services and manufacturing trades.

An hon. Friend of mine—not an hon. Member opposite—said the other evening, "It is all right for you chaps, who have a vested interest". I would remind the House that a vested interest of 13 million ordinary working men and women in a non-profit-making organisation designed to develop many social ends should be given sympathetic consideration by the Government. Their trading and business experience should be heeded by the Government before the Bill proceeds much further.

8.35 p.m.

Mr. Peter Blaker (Blackpool, South)

In opening the debate the Minister of Labour accused the critics of the Bill of having paid so much attention to detail that they were losing sight of the broad lines. It is interesting to note the way in which the debate has disproved that accusation. The speech of the hon. Member for Newcastle-upon-Tyne, East (Mr. Rhodes) is a confirmation of that. His criticisms went to the root of the matter. The Bill is wrong in its broad lines, and is wrong in the broadest possible way. It is wrong in making a discrimination between manufacturing and service industries. So long as we try to make that sort of discrimination in a Bill of this kind we are bound to get anomalies of the kind to which the hon. Member referred.

Not only shall we produce anomalies, but this discrimination, apart from being unfair, will in the long run—and perhaps in the short run, too—do serious damage to the economy. Assuming that we need to raise the sums of money to which the Chancellor has referred—and I do not believe it would have been necessary to raise them if we had had a Conservative Government—it is right that the use of a Selective Employment Tax should be considered. But that tax should be applied across all forms of business and industrial activity, without discrimination. I would be prepared to consider regional discrimination of the kind referred to by the hon. Member for Cheadle (Dr. Win-stanley), and it would be right to exempt charities, but as between various classes of manufacturing or commercial business the tax should be applied without discrimination.

The discrimination which the Government are proposing to use is wrong for a fundamental reason. The service industries should be expanding. They are expanding in modern economies. One of the Government's arguments is that in the past five years 80 per cent. of the increase in the available labour force has gone into the service industries and only 10 per cent. into manufacturing. It is interesting to study the experience of the United States. Although the hon. Member for Birmingham, Sparkbrook, (Mr. Hattersley)—who, unfortunately, is not now in the Chamber—referred to this, I thought that his remarks were totally incomprehensible.

I want to quote from a letter in The Times of 21st June, written by Professor Jewkes, Professor of Economic Organisation at Oxford. I do not know the professor or what his political views are. I want to quote the facts that he cites and if the Government dispute them perhaps the Chancellor will say so when he winds up. The Professor says: The figures show that, between 1950 and 1963 in the United States, the number of 'production' workers"— corresponding broadly to the manufacturing categories in this country— remained constant at 12,500,000. The number of 'non-production' workers increased by 64 per cent…. Perhaps even more significant, the proportions of 'non-production' workers were higher in 1963 and rose more rapidly between 1950 and 1963 in machinery, electrical equipment. transportation equipment and chemicals than in manufacturing generally. If we are to discriminate between the manufacturing and service industries—I say that we should not—there is a strong case for applying the dicrimination in the opposite way and discriminating against manufacturing and in favour of the services. Manufacturing processes can be mechanised, but one cannot mechanise a waiter.

This brings me to one of the major industries which will be adversely affected—the holiday industry. It has already been harmed by recent Government measures: first, the limit of £100,000 on new building; and secondly, the abolition of investment allowances. I know already of cases in the holiday business of building projects having been abandoned or at least re-examined with a very critical eye because of these two changes. Now the Government come along with this third and most savage blow of all at the holiday business.

What they appear to have forgotten is that everything spent by an overseas visitor to this country is a British export and everything spent by a British visitor overseas is a British import. I read the other day a report of a speech by the Chairman of the N.E.D.C, Mr. Cather-wood, which makes it quite clear that he has not understood this point. If he has not understood it, as one of the Government's principal advisers, perhaps it is not surprising that the Government have not understood it, either.

In justifying discrimination of the kind which the Government propose, he said: You can export a manufactured article, but you cannot export a haircut. We can export a haircut; we exported 1½ million dollars' worth of haircuts last year and with no raw material cost in them at all. I hope that the Government will take this point.

There was a time when I thought that the Chancellor understood this point, because at the International Boat Show, early this year, he called for British people to spend their holidays in this country—rightly—and the holiday industry raised a small but hopeful cheer. However, in a week he had brought in his proposals for the abolition of investment allowances for the British holiday industry.

The earnings from foreign visitors made by the holiday industry are well known. Last year, £320 million-worth of foreign currency was earned. The industry is the fourth largest earner of foreign currency and its earnings are rising at the rate of 13 per cent. a year. But there is the other side of the picture, the question of saving in foreign currency, which is equally important. There, the picture already, before the latest proposals of the Government is depressing. I speak from the point of view of the national economy.

The number of British people going overseas for their holidays has been rising faster than the earnings which we have been making from overseas visitors to Britain. In fact, the number of British people going overseas for their holidays has doubled in the last five years.

The Government's policies will encourage British people to go abroad and discourage overseas visitors from coming to this country. The British holiday industry is able to compete, both in bringing people here and in encouraging our people to stay here, by a few important factors. We cannot rely on climate, so we must rely on price and quality. The main thing is price. Already one can take a package coach tour to the Rhineland for about the same price as a package coach tour from the South of England to the Lake District. If we get much more expensive the consequences will be serious because this is a very price-sensitive business.

If the Chief Secretary wants confirmation of this he need only look at the figures for France, which used to be one of the most popular holiday countries in the world. France's net earnings—that is, after setting off expenditure by French people holidaymaking abroad—in 1956 were 186 million dollars. Only two years ago they were 23 million dollars. Instead of going up, as they should have done, they have plunged and soon the French will be spending more on going abroad than they will be getting from foreigners going to France. There was a time, a few years ago, when people began to say that holidays in France were too expensive. The French have priced themselves out of the market.

We in this country must provide proper facilities for our own holidaymakers and visitors from abroad. It is an indisputable fact that the facilities and resources of our holiday industry are out of date and need modernising. If the num- ber of foreigners coming to this country continues to increase—which I fear it will not do because of the new policies—at the same rate as it has in the last few years, there will, by 1970, be a shortage of 30,000 beds in our hotels; and there are already instances of Americans not coming here because there is not sufficient hotel accommodation of a suitable kind for them.

The Government have advanced three reasons for their policy. The first is that only 10 per cent. of the earnings of the hotel industry are in foreign currency whereas 25 per cent. of manufactured goods are exported. This is a wholly misleading argument, because it looks only at the hotel business instead of looking at the holiday business as a whole. Hotels are the anchor of the holiday trade. If the hotels are not up to scratch, or are not offering the accommodation people want, visitors will not come here and our own people will not want to stay here for their holidays. Every foreign visitor needs at least one thing, and that is a place to sleep.

The second reason the Government advance in favour of their policy is that they are giving £2 million a year to the British Travel Association. I believe that the Association does an excellent job, but it is no good promoting tourism to Britain abroad, a task which the Association is doing well, unless the product it is promoting is good.

The third argument advanced by the Government—and this is, perhaps, the most misleading of all; unfortunately, it has been accepted by many people—is that the service industries are lightly taxed compared with manufacturing industry. My right hon. Friend the Leader of the Opposition dealt with that argument earlier and showed how it is wholly fallacious. The service industries do not have the advantage of industrial building allowances. They are also being deprived of investment grants and they pay tax on the tools of their trade. This is particularly true of the holiday business. Hotels and restaurants, unlike manufacturing industries, pay Purchase Tax on the vast majority of the raw materials which they need to do their business.

I hope that we shall get answers to these points from the Government at the end of the debate. Discrimination against the service industries must be changed, because it will do serious damage to the economy. I hope that it will be changed sooner rather than later.

8.50 p.m.

Dr. David Owen (Plymouth, Sutton)

Time is short and I wish to make clear from the start that I support the broad outline of this tax. I shall have to spend most of my time examining what I think is an acute deficiency in the tax in its present form. The Minister is given power by the Bill to vary the tax in many ways and I hope that he will do so over the years for the debate has shown that there are many problems and difficulties which have to be ironed out.

The hon. Member for Cheadle (Dr. Winstanley) drew attention to regional discrimination under the tax. It is important to understand that the tax has been introduced with two motives, one long term and one short term. The short-term motive means that the Chancellor cannot give large-scale concessions. Sometimes when listening to the debate it has been painfully apparent that hon. Members do not yet realise the severity of the economic situation of the country. I am not urging the Chancellor to give concessions now. I realise that he has already given significant and very well worth-while concessions particularly to charities and to households containing old or disabled people. I welcome these.

What I ask from the Ministers is some indication that they will look again at the proposal for building into the tax regional flexibility. We know from articles in The Guardian and the studies of E. M. Rawstron and C. R. Lewis that the Selective Employment Tax will fall most heavily on those regions which are least able to pay it. The area next hardest hit to the south-east Region, which contains London's high concentration of service industries, is the south-west region, and parts of Wales and Scotland are also hard hit. These are the very areas for which this Government's regional policies are doing a very great deal. It would be ironic if we had the Department of Economic Affairs introducing its regional and very relevant economic policies and for them to be then adversely affected by this tax.

We still do not know the exact effect of the tax on the regions, particularly with regard to unemployment, and not only the regions but particular sub-regions. I welcome the tax because it offers an opportunity for this country to rationalise its method of collecting tax and its regional policies. For far too long there has been chaos in all the differing areas. The Ministry of Labour's employment exchange areas, the Department of Economic Affairs sub-regions, the Ministry of Housing and Local Government areas and the Treasury's taxation areas all are different and need to be unified and rationalised so that we can get a systematic analysis of regional and sub-regional statistics. Only if we have that sort of information can the planning policies to which we on this side of the House are committed become effective.

I therefore ask the Government to try to obtain a unified structure and to assess the needs of the regions so that the tax will not have a detrimental effect on those regions and sub-regions which at the moment are poorest and that they will be able to act speedily.

Sir Cyril Osborne (Louth)

Too late.

Dr. Owen

It will not be too late, because there is another measure which the Bill could enshrine. Not only could it act in a negative way to counteract unemployment which exists but it could anticipate unemployment and be a useful armament in regional policy. This is a positive aspect of the Bill. There are many other aspects such as its flexibility and selectivity. One thing must be said clearly: this is a new tax; it is an innovating tax; it is the sort of tax for which we have been crying out for many years. The switchback economy, the stop-go, was largely due to the fact that those hon. and right hon. Members opposite when they were the Government used blunt, unimaginative, fiscal methods.

Mr. Geoffrey Wilson (Truro)

Will the hon. Gentleman explain who he supposes would decide the priorities as to the selectivity of this tax in the South-West, and how would local people be consulted?

Dr. Owen

If, as I suggested, the sub-regions of the Department of Economic Affairs were linked with the Ministry of Labour's employment exchange areas, very good statistics would be available. There would be unemployment figures. Details of industrial building—factory sites—would be known. It would be possible to anticipate depopulation, which is a special problem in the South-West. These are the sort of things at which we are now merely guessing. We cannot anticipate trends. The trouble is that we are planning without the real statistical evidence on which to plan a sane economy. This is a marvellous opportunity.

I know that the Ministry of Labour will say that regional flexibility in this respect would offer even greater problems than the tax already presents. The benefits which would accrue are substantial and would be in accordance with the policy of regional planning accepted by both Conservative and Labour Governments. I urge the Government to consider this suggestion carefully. In its selectivity, in its sensitivity, in its subtleness, this tax could be a very useful armament in our drive to expand the economy. Coming from the South-West I am well aware of our great problems. The Government have advanced a great deal in the concept of regional planning. My suggestion would not involve at this stage any financial commitment. I ask the Government to table an Amendment which enshrines the principle of regional flexibility. If they did so, I for one would welcome wholeheartedly the tax as an imaginative new venture in fiscal reform.

8.58 p.m.

Mr. Gordon Campbell (Moray and Nairn)

I am the only Scottish Member who will speak in the debate. I have about two minutes in which to do so. The hon. Member for Plymouth, Sutton (Dr. David Owen), to whom I am grateful for allowing me this time, said that the effects of the tax on various regions were not well known. The Chief Secretary has given information to the House about the percentage of the tax which will be collected in different regions and returned. For the whole of England, 68 per cent. will be returned in premiums and refunds. For the Highlands and Islands—the seven crofting counties—the figure is 18 per cent.

I vigorously oppose this inequality in the application of the tax. It is this crazy system of selection and premiums which will have a very marked effect on the North of Scotland and the Highlands. This is an area where, according to the latest available figures—those for 1965—manufacturing industry provides employment for only 10 per cent. of the working population. The Government cannot expect a tax of this kind to create new manufacturing industry in large quantities overnight.

In an area like this, and in all large rural areas of Scotland, the service industries must always be the preponderant industries. The time will come when the highest level of tax per head of population will be paid in the rural areas, particularly in the North of Scotland and the Highlands, and then that tax will be handed out in premiums to manufacturing industry in the South. This is clean contrary to all the protestations written into the White Paper on the Scottish Economy, which came out in January. In May, we had a Budget which produced this tax, which will do exactly the opposite.

I ask the Government, even at this late stage in their thinking, to reshape their Bill to take account of regional requirements and not to allow it to go forward to make utter nonsense of everything they have been saying about regional development. They keep saying that their other policies are assisting regional development. This is nonsense. Setting up planning boards does nothing in itself. If they wish to prove that they want to do something, they can do it on this Bill.

9.0 p.m.

Sir Keith Joseph (Leeds, North-East)

My first duty is to congratulate the hon. Gentlemen the Members for Bristol, North-East (Mr. Dobson) and for Uxbridge (Mr. Ryan) on two excellent maiden speeches. They are both fluent and vigorous speakers of force and lucidity. They both spoke up well for their constituencies, both spoke warmly and courteously of their predecessors, and both espoused causes—the hon. Member for Bristol, North-East cricket and construction, and the hon. Member for Uxbridge part-time workers—which are central, cricket coming under sporting charities, to the Bill. We hope to hear plenty more from them during this Parliament.

The debate has been notable as the speakers on both sides have, obviously, known their subject backwards, and, with very few exceptions, they have torn the Bill into small pieces. The Selective Employment Tax was, I think it is generally understood, born of a perfectly understandable effort by the Chancellor to find a way to deflate to the amount he judged necessary with minimum political unpopularity. There is nothing in the least discreditable in that if the Measure is properly prepared.

But the Chancellor sought at the same time to achieve several quite separate objectives. The Bill is designed not only to deflate but also to improve the use of labour, to help exports, and to widen the tax base. There is something to be said for each of these objectives in detail, but the resulting legislation for the Selective Employment Tax, thrown together in the greatest haste, tackles them all at once and, in addition, the thoroughly wrong-headed objective of altering the structure of the economy. The end result is a confused and even dangerous muddle which will achieve little of its aims and a very great deal of unpremediated damage.

There has been in this debate virtually no support for the Bill whatever. The right hon. Gentleman the Minister of Labour read his Treasury brief honourably but without a spark of enthusiasm, and from most Government supporters there has come only dutiful and minimal support. We have had two of the most impressive, well-informed, passionate and trenchant speeches I have ever heard in 10 years in the House. I refer to the speeches of the hon. Members for Sheffield, Brightside (Mr. Winterbottom) and Newcastle-upon-Tyne, East (Mr. Rhodes). They criticised the Bill from positions of great knowledge. The hon. Member for Brightside called it "an anomaly-creating Bill." He said that "from a practical point of view it is useless," and he went to prove that it is more than useless and, in his view, it will be actively damaging. The whole House will wish to pay tribute to those hon. Members for the forthright and highly articulate way in which they put their views. We can only hope that the Government will take note of them.

We on this side have a number of major criticisms of the Bill. First, we want to criticise the concept of selection itself in taxation policy. This is a highly dan- gerous weapon in a Government's hands. Of course, to some extent, selection is unavoidable in taxation. In excise duties and Purchase Tax it is a necessary evil, but the purpose of these taxes is to raise revenue. The Selective Employment Tax has no such moderate limits.

Its purpose is, among other things, to promote long-term structural change. I acquit the Chancellor of the Exchequer of personal arrogance and I hope that he will not misunderstand me. But the concept that the Government can embark upon long-term structural change by discriminatory taxation is an arrogant and dangerous concept. It is not intended arrogantly and dangerously, but it must have that effect.

We all know that Governments of all parties do enough harm by doing the minimum they have to do without blundering into activities where the wisest and the shrewdest are bound to cause consequences they never intended. How can the Government know what structural changes to aim at? If, by a miracle, they do know, how can they know how to achieve them? If, by a double miracle, they know both answers, how can they be sure what side effects there will be? These are the sort of thoughts one has and we suggest—nay, believe—that this Bill with selectivity at the centre is far more likely to do great harm than good.

We are all in favour of the Government pursuing the general concept of efficiency, but the Bill gives the Government huge power to tinker in a capricious and discriminatory way with different parts of the economy. The hon. Member for Bright-side and the hon. Member for Newcastle-upon-Tyne, East, illustrated some of the evils which can flow from the efforts of well-meaning people to go further than their knowledge justifies.

We believe that the broad use of the selection principle in the Bill is a second major point of criticism. The Bill hits services in order to subsidise manufacture—all this based on a Standard Industrial Classification which was intended for a different purpose. Is the surplus labour in the economy only in service industries? Of course, we know that it is not. Is manufacturing industry so efficient that it deserves, regardless of the merit of any particular enterprise, to be subsidised? Of course it is not.

We know that manufacturing is riddled with restrictive labour practices, sometimes by the fault of management and men together and sometimes by fault of one group alone. There is said to be a shortage of labour for manufacturing. No doubt there is a shortage of skilled craftsmen, but ex-waiters and bank clerks will not fill the gap. Most of them would not even accept the retraining. Any labour which is released under the Bill—it will be precious little—is not likely to help much in filling gaps in manufacturing industry.

The concept that services are secondary in the economy and manufacturing is primary is naive. In the war many manufacturing industries vanished while, at the same time, many services were given essential privileges—for example, their people were kept from war service—because their services were so indispensable. I commend to the Government what was said by the hon. Member for Brightside. He said "that production and distribution are two wings that should fly together". Let the Government ponder upon that.

We also disagree with the system of giving premiums to manufacturing industry. It is a positive encouragement to inefficient manufacturing. The Chancellor should contemplate that firms which will do best under the Bill are low-profit firms with large labour forces. They have large labour forces because they are over-manned and they make a small profit because they are inefficient. In these circumstances, the premiums they will get for the existing labour force will form a high proportion of the small profits they are making. The Government, quite wrongly, are giving very big dividends to inefficient manufacturers who are not up to date. The premium is not right for manufacturing and discriminatory taxation is not right for services.

There is an even more serious argument against the Government. Once more we have the spectacle of a Socialist Government working against the economic grain. They do not mean harm, but they do harm. There is a large service element in all modern technology. As my right hon. Friend the Leader of the Opposition explained, all prospering societies show a trend towards the service industries. Just as in the past this country modulated from a vast proportion of our labour force in agriculture to a vast proportion of our labour force in manufacture, so now we are seeing the modern equivalent in a great shift from manufacture into the service industries. Manufacturers will produce more and more goods with fewer and fewer men, releasing men and women for the growing service industries which any prospering and sophisticated economy must have.

My hon. Friend the Member for Blackpool, South (Mr. Blaker) gave an example of this principle from recent American history. Let me carry the story further. A few months ago, the President of America issued a report on labour projections. He showed what the projections were for the use of labour in the period 1965–70. In America, during those five years, manufacturing employment will increase by 5 per cent., but service employment will increase by 25 per cent., and there is an economy whose efficiency we would do well to copy.

The next big criticism—and I am not inventing these criticisms; they are the natural result of the Bill—is that we do not believe that the Bill will help our economic position. There is, first, the huge forced loan starting in September. What about the timing of this new dose of deflation? What about credit? What about the capacity of the public, who will have to pay this forced loan, to raise the money to pay it? The Chancellor has spoken of considering allowing a relaxation in the credit squeeze. We hope that he will tell us something about his idea of the correctness, now nearly two months after his Budget, of this new dose of deflation and tell us something more about how people are meant to pay it.

My hon. Friend the Member for Birmingham, Selly Oak (Mr. Gurden) spoke, quite rightly, of the huge interest burden which this forced loan will impose on the public. As the Chancellor will agree, the effect of the Bill is that the deflation will be effective only if his taxation is passed on to the consumer. So far in the history of his party in government, rising earnings have always swamped the Chancellor's repeated efforts to deflate. What does the Chancellor think will happen this time. Does he think that rising earnings will extinguish the deflationary effect which he intends? What about the refund next February? Is he happy that suddenly, next February—and even he cannot predict what the economy will be like then—there will be a torrent of £300 million returned in refunds?

I now come to something even more serious. The effect of the Bill on management effort is almost impossible to exaggerate. Management will be forced to take the irrelevant and mischievous factors in the Bill into account in all its decisions. Decisions will be made not for reasons of efficiency alone, but to optimise the benefits or burdens of the Bill. The Bill represents a vast diversion of effort and not once, but as many times as the Chancellor and the Government using their powers under the Bill decide to alter any of the factors of S.E.T.; there will be continuing uncertainty.

The Minister of Labour spoke of changing the Bill—and it will be necessary in many ways in order to improve it. But what a prospect for management that it cannot make a decision and abide by it, but will have to retake decisions all the time the changes occur! Taxation of profits is one thing; it may be more or less, but it is a slice out of the residue. This tax affects every management decision and the more it alters, the more distraction to management it will be and the less long-term effects it will have.

I now turn to the right hon. Gentleman the Minister of Labour. The Bill represents an attack upon every cherished policy of its Ministry. There are a number of ex-Ministers of Labour here. There is my right hon. Friend the Leader of the Opposition, and my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod). They and he share a common set of themes, in that they have worked or are working for the benefit of part-time workers, the disabled and handicapped, the elderly people who want to stay at work and for the benefit of the regions. The Bill hits every sensible manpower policy. I am amazed that the right hon. Gentleman should have lent himself to bringing it in.

We do not want to rub the Chancellor's nose in Amendments; we are glad that he has made a number of concessions already, covering the extractive industry, charities, the disabled as employers and the method of repaying agriculture. But there is need for more and I want to suggest some of them.

First, we ask him to alter some of the almost idiotic, though I am sure this was unintended, by-products of his choice of strategy. The economy needs to attract part-time workers into industry of all kinds, yet the Bill will tend to drive them out. Whole industries are dependent upon part-timers; shops, "Coops" among them, laundries, cleaning, dry cleaning, contract cleaning, Mrs. Mopps—90 per cent. of them are part-timers—and a host of others. Married women are a special section of part-time workers: a tax upon part-timers as domestic help will not increase the flow of nurses and teachers back to the schools and hospitals.

Most services are desperately short of labour. If they can reduce staff they will dismiss part-timers first and those part-timers cannot move to manufacturing. Already, part-timers have to pay full National Insurance and this is another hard blow. I hope that the Chancellor will tell us that he intends, by one means or another, to refund part or all of this Selective Employment Tax to part-timers—those people working for less than 21 hours a week. I put the same argument to him in favour of the disabled and the handicapped. I recognise that as employers the handicapped are covered, but not as employees, and I ask him to make the same changes in favour of pensioners, who are still at work.

Then I ask him to follow the advice of my hon. Friend the Member for Chichester (Mr. Loveys) and my hon. Friend the Member for Blackpool, South and to look again at the tourist and hotel industries. These are big net export earners. He has already taken investment allowance away from them, and there is little scope for labour-saving. They are 20 per cent. light on labour. We hope that the Chancellor will tell us that the discussions now going on will help both of these great industries. We hope that the Chancellor will reconsider the case put by my hon. Friend the Member for Moray and Nairn (Mr. G. Campbell) and other hon. Members in favour of the regions—Scotland, Wales, the South-West. They are all hit by this tax and he can do something to help them.

Now I turn to the construction industry, and I must declare an interest because I am in a construction company. This industry is generally short of labour. It should, and will, increase its productivity. Its record has been approximately an increase of 5 per cent. in productivity a year since the war, but the effect of this tax will be to put prices up, to threaten specialist sub-contractors and many main contractors, and it is entirely unfair in its impact on pre-Budget contracts with months or years to run.

Hon. Gentlemen opposite will take very seriously the threat that the Bill introduces, in encouraging "labour-only" sub-contracting, some of which is responsible and decent, some of which is anything but those two things. Many small, labour-intensive businesses in contracting and other fields, painting, for instance, will perish as a result of the Bill. Their men will either go self-employed, or else they will move to new maintenance and service departments of manufacturing, probably run less efficiently than their specialist predecessors.

I turn to my hon. Friend the Member for Windsor (Sir C. Mott-Radclyffe), and his excellent speech on the importance of export earnings by insurance companies. Surely the Chancellor sees that his discrimination will injure our invisibles in insurance and banking? As for home insurance, the tax will only cut investment savings, and will not save staff.

I ask the right hon. Gentleman also to look at the near-charities—hospital savings schemes, for instance—which are still bitterly affected by the Bill. Hospital savings schemes will be paying £40,000 extra a year under the Bill. I ask him to bear in mind the comment of the right hon. Member for Leyton (Mr. Gordon Walker) that Reuters will be crippled by his tax.

I turn to the confusions, distractions and unfairnesses resulting from the Bill. There is such a gulf between the tax and no refund, on the one hand, and refund plus premium, on the other, that industry will be distorting itself to optimise the result. Fiscal factors, not efficiency, will dictate the placing of staff. Groups seeking to rationalise their operations—the "Co-ops" among them—will have their purposes blurred. Companies will consider moving offices to factories, hiving off groups of office workers from the factories, adding service departments for work like cleaning and canteens far better done by specialists. My right hon. Friend the Member for Reigate (Sir J. Vaughan-Morgan) gave a number of vivid examples. Specialists will perish. But there will be no real change except that their staff will go under manufacturing umbrellas and will probably be managed less well.

Some firms, after great efforts, will end up all square. For them it will be a vast and sterile exercise. Manufacturers will be tempted to take on extra men to qualify for the refund and premium by outnumbering their office staff. Cross-postings, redeployment, even mergers, will be the order of the day, not genuinely between services and manufacture, but within firms and purely nominally, like cleaning staff being moved from specialist contractors to their clients.

Then there are a number of puzzles. The hon. Member for Newcastle-upon-Tyne, East produced a number. Let me produce a few of my own. What will happen to offices with research and engineering staff in them? Will the Chancellor tell us the answer to the bakery conundrum? What will happen to theatres and orchestras? What will happen to the London Library? What will be the end result of the differential treatment of transport, depending on who is the employer? What about professional offices of all sorts who pay the tax although the firms for whom they work do not have to pay a tax if they have professional men and women on their staff and the factory staff outnumber the professionals? That is unfair between the professions and industry.

What about private schools? What about private hospitals? What about private nursing homes, which do not happen to be charities?

Mr. Callaghan

They will not get it.

Sir K. Joseph

The right hon. Gentleman says that they will not get it. Will they survive at all? That is the question which the right hon. Gentleman has to answer. We know that, alas, they will not get it.

What about the unfairness as between the construction industry paying the tax and the direct labour departments of local authorities, not all of which, to put it mildly, are very efficient? What about competition between private enterprise electrical and gas sub-contractors and the electricity and gas boards which will get a refund? What about the threat of which the hon. Member for Brightside warned us—of men moving from industry and services of all sorts into self-employment?

What about export houses and forwarding agents who have to pay a tax when people doing the same job on shipping and air lines get a refund? What about the nationalised industries escaping the tax altogether? They are not the most efficient users of labour. Since October, 1951, service prices have risen 78 per cent., whereas nationalised industry prices have risen 123 per cent. Yet services are taxed and nationalised industries are not.

We ask the Chancellor of the Exchequer to answer a number of questions. Will he tell us what instructions he will be giving the banks about releasing credit to enable industry, large and small, farmers, professional people, charities and private employers, to pay this tax and make the forced loan? What will the Chancellor do about part-time workers, about the disabled, about elderly workers? What will he do about hotels and tourism? What will he do about the damage to service employments in Scotland, Wales and the South-West?

We ask him whether he is sure that the economy will benefit, first, from the forced loan and, then, from the sudden release of £300 million at one time next February. We ask the Chancellor, now that he is taxing labour employed in services, to re-establish investment allowances for the service industries.

I apologise if my speech has been a long catalogue of complaints and criticisms. But I should not be doing justice to the Bill if I had spent less time on them, and there are very many which there has not been time to make.

I will try to sum up our verdict on the Bill. If a Tory Chancellor had imposed such a burden on consumers by a tax so hard and crude, the whole Labour movement would have risen in opposition. I wish that I had had the wit to make up that sentence myself, but it is a quota- tion from a speech by the Chairman of the Co-operative movement.

Prices will rise, and that is the Government's object, because in no other way will they get the deflation which the Chancellor has told us is his purpose. But they will rise not the 1 per cent. which the Chancellor has predicted, but much more, and again I have quotations from the Co-operative movement which may be slightly extravagant, telling us by how much more they will rise. The deflation may or may not be right in size or timing, but if it is anything like the previous efforts of the Chancellor, it will be drowned by the rising earnings which have so far brought all the Chancellor's previous attempts to naught.

The economic benefits will be nil. It will be no help to the redeployment of labour and no help to the balance of payments. Inefficient production will be subsidised, and the Government are acquiring a highly dangerous weapon of discrimination with which to tinker with the economy.

Against all reason, against the policy of all parties, the Bill hits part-time workers, married women, the disabled, the handicapped and the elderly workers. It creates a vast upheaval for a minimal, if any, benefit. It creates a great rigmarole of paper, and the whole effort will lead to a mountain of misplaced effort. Once again, management will be drowned in work to react to clumsy Government interference. There will be no certainty that all will not have to be done again and again as the Government struggle to minimise the damage they do by altering the factors.

The Bill is distracting, dangerous and distorting, with many damaging byproducts which can already be identified and with many more which will emerge as time goes on if it is passed. We have the prospect of management contorting its enterprises, coalescing, moving, taking on labour, transferring labour, dismissing part-timers, expanding here and contracting there, not for efficiency, but for the completely irrelevant purposes of the Bill. Vast sums of money will pass. Vast numbers of management hours will be wasted. A vast amount of paper will be generated. The end result will generally bear no relation to the national interest, and that is why we oppose the Bill.

The Chancellor of the Exchequer (Mr. James Callaghan)

We have listened to a catalogue of woes and distortions in the economic system which, if I am to believe both the Leader of the Opposition and the right hon. Member for Leeds, North-East (Sir K. Joseph), are clearly going to be worse than the Bolshevik Revolution. We got rather near to it, because I was told that I had a streak of Stalin in me.

However, it is not a bad idea to keep a sense of historical perspective about these things. It is something which is always said whenever an innovation of this kind is introduced. I assure the House that the country has been ruined on at least five previous occasions. The ruin has been described in language just as extreme, indeed, almost more extreme than that used today. It sprang from innovations which have become part and parcel of the weft, the woof and the warp of the British fabric of society.

In order that hon. Members may place the last three minutes of the right hon. Gentleman's speech in some perspective, I think that it would be interesting to read what was said about the introduction of Income Tax. Some called it a measure so unjust in its principle and partial in its operation that no modifications of it could remove their objection". Others called it an outrage upon the popular opinion". There is a good chapter on this, and I commend it to the right hon. Gentleman when he is thinking up his weekend speech.

When Estate Duty was introduced, the fury of the Conservative Party knew no bounds. We were told that it was altogether vicious, that its effects would be disastrous, and that it was an outrage on morality. I think that by comparison with my predecessors, in terms of the language that is being used I am getting just about the same treatment, and the results will be just about the same too.

The plain truth is that there has been gross exaggeration of the effects of the tax by those who are battening on every vested interest to kick the Government. I shall come to the detailed points in a moment. I merely repeat that the exaggerated language which has been used has no relation to the Measure which we are discussing today.

I relate it, for example, to the amount of tax compared with the wage bill or the labour costs. I need not repeat all the things which the right hon. Gentleman said. Most employers in this country are paying increases in wages at least twice as much as the amount of tax every year. They seem to absorb it somehow. They do not seem—

Mr. Heath

This is the result of the right hon. Gentleman's incomes policy.

Mr. Callaghan

The point I am making is that the exaggeration that is being used about the amount involved here bears no relationship to the nature of the problem that we are discussing. There are marginal cases where there will be difficulties, but, in general, there will not. It is not true. It does no service to the cause of truth to exaggerate the effects which will follow.

I listened to the right hon. Gentleman the Leader of the Opposition, who was in good voice this afternoon. [HON. MEMBERS: "Hear, hear."] He should have been, he has not been with us for the last couple of days. The cut which hurt me most was when he accused us of indolence. I do not know what his right hon. Friend thought about that. The right hon. Gentleman said that we had been indolent, after we had been here until 5 o'clock this morning, and 4 o'clock yesterday morning. I thought that that was a bit harsh. However, I do not complain.

The right hon. Gentleman asked a number of questions with which I propose to deal, but before doing so I should like to join the right hon. Member for Leeds, North-East in congratulating my hon. Friends the Members for Bristol, North-East (Mr. Dobson) and Uxbridge (Mr. Ryan) on the way in which they made their cases.

The right hon. Member for Leeds, North-East fairly recognised the objectives of this tax, and he put it in a way about which I do not complain. The truth is that not only does he recognise its objectives, but the country, too, recognises the objectives of this tax. This is why, although everybody who is required to pay it can make a jolly good case why he should be excused, the country has broadly accepted both the objectives and the methods of this tax.

In truth, the Opposition do not really object either. The right hon. Gentleman the Leader of the Opposition said so. He said that he was in favour of a payroll tax.

Mr. Heath

Not selective.

Mr. Callaghan

Not selective? I am not sure how true that is. I understood him to say that he wanted it differentiated by regions, so he wants a degree of selectivity there as between one area and another. Therefore it is not true to say that he does not want it to be selective.

As I understand it, he is in favour of transferring—and the right hon. Member for Enfield, West (Mr. Iain Macleod) said this too—part of the cost of the social services to the shoulders of industry. That will have exactly the same effect as putting up taxes, exactly the same effect of increasing prices and exactly the same deflationary effect that is proposed now. The difference between the proposal of the right hon. Gentleman and what we are doing is that we are ensuring that the burden of the tax does not fall on manufacuring, whereas the burden of the tax would, in his case, fall on both manufacturing and services. There is no basic difference in concept between what the right hon. Gentleman the Leader of the Opposition proposed this afternoon and what is being done in the Bill.

The major difference is that he does not believe that services should be singled out for this form of taxation. He has not challenged the total amount of taxation that is required, and, indeed, he said the other day that we are living in an inflationary situation. He has not challenged the objective of a payroll tax. Therefore, I say that, despite the objections of right hon. and hon. Gentlemen opposite, they accept this tax. They accept it in the same way that the country accepts it.

Mr. Heath

I cannot allow the Chancellor of the Exchequer to try to get away with a statement like that. I should have thought that even he could see the essential differences between moving part of the cost of the social services on to industry and the concept in the Bill. First, these would be very small amounts compared with the total amount which he is taking out of industry, a large part of which he is then refunding. This would be concerned only with the net balance. Secondly, it could be done in the same way as at present, at regular intervals once a week, and there would not be all the problems coming from that. There are many differences in concept between the two.

Mr. Callaghan

The right hon. Gentleman has made a couple of detailed points of difference and I concede those to him. The right hon. Gentleman cannot have it both ways. The Opposition are either in favour of the objectives of this kind of taxation or they are not. They really want to accept the principle of the tax but to try to get the maximum benefit in the country out of opposing it. We shall pin them down on this. The statement which was made by the right hon. Gentleman the Member for Enfield, West, before the General Election, and which was made by the Leader of the Opposition during the General Election campaign and again by him today, shows quite clearly that they accept the principle of a tax of this sort but that they would make it more expensive to manufacturing industry. That is the basic difference.

The right hon. Gentleman the Member for Leeds, North-East said something which I must challenge straight away, because I do not think that it is in the record of his party and it is certainly not in ours. He said that Governments do least harm by doing as little as they must, and he thought that it was intellectual arrogance for Governments to assume that they could impose long-term structural changes on the economy. In that case, what was his regional development policy about? What were his party trying to do in those days? Were they or were they not trying to impose long-term structural changes on the economy in order to ensure that unemployment did not blight the North-East, Scotland, Wales and other parts of the country?

Sir K. Joseph

I was arguing in the context of discriminating by taxation between one form of employment and another, and I made a strong case afterwards for regional discrimination, but not as between forms of employment.

Mr. Callaghan

The right hon. Gentleman's own Government introduced the investment allowances, and free depreciation in the development areas. If that is not attempting to influence the long-term structural changes of the country, I do not know what is. Even though there may be differences between us I think we all accept the need for intervention in order to try to achieve long-term structural changes. It is the continuation and the more successful development of the policy that was started in 1945–50 and was then allowed to drop by the Conservatives in the middle fifties. They picked it up again when unemployment grew in 1961–62, and we are intensifying it.

This is why we can envisage a tax of this kind now, while our Conservative predecessors, who introduced a "mini mouse" of this sort in 1961, were never able to operate it, because the level of unemployment in the regions was so high and the structure of the regions so weak that they dared not impose it in the form in which it was proposed. It is an entirely different set of circumstances in which we are operating today, when we can envisage a tax of this nature knowing that the structure of the regions and employment in the regions is much stronger than it was in 1961.

Mr. Iain Macleod (Enfield, West)

Is the right hon. Gentleman aware that in 1961 when my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) put forward this proposal it was severely attacked, also that the rate which he refers to as a rate of heavy unemployment in 1961 was precisely one-tenth of 1 per cent. different from what it is today?

Mr. Callaghan

The right hon. Gentleman has made that point before. It does not destroy my case, because at the first whiff of disinflation the regions suffered most. That was why my predecessor, the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd), was not able to do the job that we are now doing.

I now turn to some of the more detailed points that have been made. Quite apart from the exaggerations that have been used, I am sorry if I disappoint the Leader of the Opposition when I say that the administration of this tax is easy and cheap. We are raising a net sum of about £240 million at a total cost of £1¼ million—something like half of 1 per cent. If it is necessary to raise additional revenue, this is a very good way of doing it on the cheap. In my view this is one of its great advantages. We were able to use the existing organs of Government to enable us to make the change. I welcome this change as being profoundly important and one which will be extremely beneficial in the years to come.

I now turn to the questions I was asked by the Leader of the Opposition. He referred to the "quarterly convulsion" which will take place when repayments are made. It will not operate in that way, because repayments will be made throughout the quarterly period. When one considers the vast sums which pass in and out of industry the sums that we are dealing with, although large, will not cause anything in the nature of a convulsion. They will represent a small proportion of the labour costs of industry, to take one example.

The hon. Member quoted some figures with which I do not disagree, but I want to give one example of the exaggeration which has been used. We were told that the farmers will have all their liquidity removed. I ask those who use that argument to pause for a moment and to think what the average labour force on a farm is. Let them ask themselves how much tax will have to be raised over a period of 13 weeks and let them relate it to the farmer's turnover. They will find that in comparison it is infinitesimal. We know that this is so. After all, in relation to wages, the tax is only a tiny percentage. The hon. Member for Windsor (Sir C. Mott-Radclyffe) raised this point.

Let me give him one example of one farm which I know, but which, alas, I do not have the good fortune to own. It has half-a-dozen employees and its tax for a year will be approximately £400 and, for a quarter, £100. That is what that farmer will have to find. His annual turnover is at least £60,000. All this tax is taking—despite the talk about a great tax-free loan being required—is £100 for a quarter. Many people of this kind spend as much as that on an afternoon at Ascot. As regards the question—

Sir John Rodgers (Sevenoaks)

The right hon. Gentleman talks about an infinitesimal sum. Does he not agree that he will collect about £1,200 million in order to raise an ultimate revenue of £240 million?

Mr. Callaghan

I thought that that was obvious from all the discussion. I do not see that that intervention was worth while.

The right hon. Gentleman asked whether this would be within G.A.T.T. My advice is that it is within G.A.T.T. If we were to say, of course, that it was an export subsidy and could be thought to be such, it would not be within G.A.T.T.; but because the premiums are being extended throughout the whole of manufacturing industry, this cannot be challenged by G.A.T.T. I know that no right hon. Gentleman opposite would want to cast any doubts on that. Therefore, I am glad to say that I am confident this general relief to manufacturing is well within our international obligations.

Now I come to the question of contracts. This was raised by the right hon. Member for Leeds, North-East. There will be a great incentive to industrial building. It will follow that if a manufacturing establishment in the construction industry has teams of assembly workers out on the sites, provided those assembly workers are serviced and paid and directly controlled from the head office, the whole of those groups of workers will be eligible for the premium. This will have a very valuable effect in altering the shape of the construction industry by speeding up industrial building. I welcome it as a great improvement.

The right hon. Gentleman mentioned the transitional problem of the large number of contracts which are current between Government and private industry. I agree that these contracts were entered into before these fiscal arrangements were proposed. Although, in general, it is not Government practice to reckon to make good to contractors the cost of tax changes, the Government feel that there is a special case here. In view of this, Government Departments and other bodies responsible for letting contracts wholly financed by the Exchequer will be authorised to agree with any contractors who request that they should do so some revision of the price on account of the S.E.T. payments which the contractor will have to make from September next.

It would be contrary to the broad aims of policy if the whole of the effect of the tax were to be passed on to the consumer. I have always said that. In view of this, it is not intended in general that the adjusted prices should enable the contractors to recoup the whole of their tax payments. In doing this, the Government will be acting in a reasonable way in their capacity as a party to current contracts and I would expect that local authorities will act similarly.

On contracts between two parties in the private sector, it is not possible for me to offer help. It will be for the supplier and customer to decide between themselves whether any adjustment of the contract price should be negotiated. But the Government have indicated their view in relation to their own contracts.

I now turn to two groups of persons whose cases have been raised—the elderly and the part-timers. I emphasise again that this is a tax on employers, to be paid by employers. It is not a tax on the elderly. Nor is it a tax on part-timers. [Interruption.] It is a tax on employers.

The position of the elderly is, of course, one which I would want to keep under very close review and I have undertaken to do that. However, we are introducing this tax in a period of very full employment. There is at present a great swirling around of people offering jobs to part-time workers—

Sir Douglas Glover (Ormskirk)

To the disabled?

Mr. Callaghan

—and to the disabled and the elderly. There are more elderly people at work now than at any time in our history, and this is a remarkable social phenomenon. A great many of these elderly people are in occupations which are eligible for the premium, and for them there is no problem. Indeed, I think, from the figures I have—such as they are; they are only estimates—that well over half of the elderly are in places where the premium will be paid. As I mentioned, this is what the position looks like on the estimates I have and, since they are only estimates, I hope that I will not be pressed further on the subject.

My view is that, in conditions of full employment, it would not be right-indeed, I suggest that it is cruel—to make a great storm about elderly people being put out of work, when at the present time, there is no sign at all of that happening. I do not think that any hon. Member on either side of the House would wish to encourage this kind of thinking about these people. We should encourage employers to keep them and, in most cases, I am sure that they will wish to keep them. The tax is a liability which is paid by every employer, just as any other tax would be paid. As I say, we will need to watch the position very carefully to ensure that, on social and economic grounds, the fears which I know exist, and some of which have unfortunately been fostered, are not justified.

I come to the question of part-timers. In respect of anyone who works for eight hours or less—[Interruption.]—his employer does not pay the stamp and, therefore, is not liable to pay the tax.

Sir C. Osborne

Per week?

Mr. Callaghan

Yes. An employer is not liable for anybody who works less than eight hours a week. Many people are employed on Saturdays only, particularly in shops, although in some cases they may be employed on Fridays. However, a great many people are employed for eight hours or less. Their employers do not pay the stamp and, therefore, the employers are not liable for this tax.

An obvious way of dealing with this aspect would be, as has been suggested, to raise the eight-hour limit below which employers' National Insurance contributions are not payable, but this would give rise—and this is a factor which I had to take into account—to serious difficulties on pension grounds. If the limit were raised, the effect would be to take people out of full National Insurance cover and so take them away from the benefit and rights which they at present enjoy, thus seriously damaging many employees' interests, while we would be helping their employers.

This is the difficulty about raising the limit from eight to, say, 20 hours or whatever figure might be suggested. Again, this is a problem which we must look at carefully. We will have to see how it operates, remembering that we are operating in a condition of full employment. If changes can be shown to be necessary—in terms of administration or in terms of need—then those changes will be made.

The Bill is clear in giving my right hon. Friend the Minister of Labour power, by order, to alter a number of provisions. They can be altered either in that way or, if they relate to charging, through the Finance Bill. It is obviously our intention, with a new tax like this, to keep it under scrutiny and continuous review to see how it works out.

I come to the question of the regions and I must again say that a great deal of exaggerated poppycock has been talked on this issue. [Interruption.] The Leader of the Opposition said that what we had done was mere bogus camouflage which this tax completely offset. This really is the language of hyperbole.

I will rehearse some of the things that are being done. In the development districts investment grants for plant and machinery for qualifying processes are to be given at the rate of 40 per cent. In the case of Local Employment Act assistance there will be assistance for projects providing extra jobs in development areas. There is the control of office development providing extra jobs in development areas. There are the industrial development certificates. There is preferential access to the Public Works Loan Board and exemption for development districts from deferring capital projects. To say that all this is set off by the tax is rubbish. It is absolute nonsense to talk in that way. That is the kind of exaggeration which in time will rebound on the heads of those who are using it.

We shall certainly watch the development of this tax and we shall see how it affects all these sectors. What hon. Members opposite are in fact saying is, "Let us do nothing. Leave it alone. Let us go on in the same old way as we did for 13 years". We do not propose to do that.

Mr. Heath rose——

Hon. Members

Sit down.

Mr. Callaghan

I really must get on.

Mr. Heath

I do not wish to debate with the Chancellor, but I want to ask him for an assurance that he will recall the point about bank loans.

Mr. Callaghan

As regards bank loans, we had a discusison in the course of the Committee stage of the Finance Bill the night before last. I have nothing to add to what I said then. I said it was too soon yet to give an indication.

I should like to say a word about the co-ops. I cannot undertake to exempt the co-ops from payment nor to repay them. They are a part of the services of the country and, as part of the services of the country, in the words of the Co-operative News, they must learn to live with the tax. Among other things it is a challenge to Co-operative efficiency. A great many co-operatives are at this moment reorganising themselves in order to face the challenge. I hope that they will continue to do so.

As to marginal cases that are left, I want to go into those very carefully. It is, of course, absolutely true that the overwhelming majority of manufacturing establishments are clearly on the right side for receiving the premium. If we look at the position of the labour force in all the major manufacturing groups we find that the proportion of those entitled to receive the premium against those in

non-qualifying activities is such that the overwhelming proportion of manufacturing concerns will receive the premium.

Wherever we draw the boundary a few are bound to be on the other side, but the great majority will be well behind the front line receiving the premium. This is why there has been so little protest, indeed no protest, from industry.

This is an innovating tax, one which is received and generally welcomed throughout the country. The Opposition—

Mr. Geoffrey Hirst (Shipley) rose——

Mr. Callaghan

The hon. Member ought to have no voice left after all the speeches that he has made recently.

The Opposition have tried and failed to find a theme by which to be an Opposition. This will be an innovating and reforming tax which will be of great value to the economic development of the country.

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

The House divided: Ayes 323, Noes 252.

Division No. 58.]	AYES	10.0 p.m.]
Abse, Leo	Buchanan, Richard (G'gow, Sp'burn)	Dunwoody, Dr. John (F'th & C'b'e)
Albu, Austen	Butler, Herbert (Hackney, C.)	Eadie, Alex
Allaun, Frank (Salford, E.)	Butler, Mrs. Joyce (Wood Green)	Edelman, Maurice
Alldritt, Walter	Callaghan, Rt. Hn. James	Edwards, Robert (Bilston)
Allen, Scholefield	Cant, R. B.	Edwards, William (Merioneth)
Anderson, Donald	Carmichael, Neil	Ellis, John
Archer, Peter	Carter-Jones, Lewis	English, Michael
Armstrong, Ernest	Castle, Rt. Hn. Barbara	Ennals, David
Ashley, Jack	Chapman, Donald	Ensor, David
Atkins, Ronald (Preston, N.)	Coleman, Donald	Evans, Albert (Islington, S.W.)
Atkinson, Norman (Tottenham)	Concannon, J. D.	Evans, Ioan L. (Birm'h'm, Yardley)
Bacon, Rt. Hn. Alice	Conlan, Bernard	Faulds, Andrew
Bagier, Gordon A. T.	Corbet, Mrs. Freda	Fernyhough, E.
Barnes, Michael	Cousins, Rt. Hn. Frank	Finch, Harold
Barnett, Joel	Craddock, George (Bradford, S.)	Fitch, Alan (Wigan)
Beaney, Alan	Crawshaw, Richard	Fletcher, Raymond (Ilkeston)
Bellenger, Rt. Hn. F. J.	Cronin, John	Fletcher, Ted (Darlington)
Bence, Cyril	Crossman, Rt. Hn. Richard	Floud, Bernard
Benn, Rt. Hn. Anthony Wedgwood	Cullen, Mrs. Alice	Foley, Maurice
Bennett, James (G'gow, Bridgeton)	Dalyell, Tarn	Foot, Sir Dingle (Ipswich)
Bidwell, Sydney	Darling, Rt. Hn. George	Foot, Michael (Ebbw Vale)
Binns, John	Davidson, Arthur (Accrington)	Forrester, John
Bishop, E. S.	Davies, G. Elfed (Rhondda, E.)	Fowler, Gerry
Blenkinsop, Arthur	Davies, Ednyfed Hudson (Conway)	Fraser, John (Norwood)
Boardman, H.	Davies, Harold (Leek)	Fraser, Rt. Hn. Tom (Hamilton)
Booth, Albert	Davies, Ifor (Gower)	Freeson, Reginald
Boston, Terence	Davies, Robert (Cambridge)	Galpern, Sir Myer
Bottomley Rt. Hn. Arthur	de Freitas, Sir Geoffrey	Gardner, A. J.
Bowden, Rt. Hn. Herbert	Delargy, Hugh	Garrett, W. E.
Boyden, James	Dell, Edmund	Carrow, Alex
Braddock, Mrs. E. M.	Dempsey, James	Ginsburg, David
Bradley, Tom	Dewar, Donald	Gordon Walker, Rt. Hn. P. C.
Brooks, Edwin	Diamond, Rt. Hn. John	Gourlay, Harry
Broughton, Dr. A. D. D.	Dickens, James	Gray, Dr. Hugh (Yarmouth)
Brown, Rt. Hn. George (Belper)	Dobson, Ray	Gregory, Arnold
Brown, Hugh D. (G'gow, Provan)	Doig, Peter	Grey, Charles (Durham)
Brown, Bob (N'c'tle-upon-Tyne, W.)	Dunn, James A.	Griffiths, David (Bother Valley)
Brown, R. W. (Shoreditch & F'bury)	Dunnett, Jack	Griffiths, Rt. Hn. James (Llanelly)
Buchan, Norman	Dunwoody, Mrs. Gwyneth (Exeter)	Griffiths, Will (Exchange)
		Gunter, Rt. Hn. R. J.
Hale, Leslie (Oldham, W.)	Mackintosh, John P.	Roberts, Goronwy (Caernarvon)
Hamilton, James (Bothwell)	Maclennan, Robert	Roberts, Gwilym (Bedfordshire, S.)
Hamilton, William (Fife, W.)	MacMillan, Malcolm (Western Isles)	Robinson, Rt.Hn. Kenneth (St.P'c'as)
Hamling, William	McMillan, Tom (Clasgow, C.)	Robinson, W. O. J. (Walth'stow, E.)
Harper, Joseph	McNamara, J. Kevin	Roebuck, Roy
Hattersley, Roy	MacPherson, Malcolm	Rogers, George
Hazell, Bert	Mahon, Peter (Preston, S.)	Rose, Paul
Healey, Rt. Hn. Denis	Mahon, Simon (Bootle)	Ross, Rt. Hn. William
Heffer, Eric S.	Mallalieu, E. L. (Brigg)	Rowland, Christopher (Meriden)
Henig, Stanley	Mallalieu, J.P.W.(Huddersfield, E.)	Rowlands, E. (Cardiff, N.)
Herbison, Rt. Hn. Margaret	Manuel, Archie	Ryan, John
Hilton, W. S.	Mapp, Charles	Shaw, Arnold (Ilford, S.)
Hobden, Dennis (Brighton, K'town)	Marquand, David	Sheldon, Robert
Hooley, Frank	Mason, Roy	Shinwell, Rt. Hn. E.
Horner, John	Mayhew, Christopher	Shore, Peter (Stepney)
Houghton, Rt. Hn. Douglas	Mellish, Robert	Short, Rt. Hn. Edward (N'c'tle-u-Tyne)
Howarth, Harry (Wellingborough)	Mendelson, J. J.	Short, Mrs. Renée (W'hampton, N.E.)
Howarth, Robert (Bolton, E.)	Mikardo, Ian	Silverman, Julius (Aston)
Howell, Denis (Small Heath)	Millan, Bruce	Skeffington, Arthur
Howie, W.	Miller, Dr. M. S.	Slater, Joseph
Hoy, James	Mitchell, R. C. (S'th'pton, Test)	Small, William
Hughes, Rt. Hn, Cledwyn (Anglesey)	Molloy, William	Snow, Julian
Hughes, Emrys (Ayrshire, S.)	Morgan, Elystan (Cardiganshire)	Spriggs, Leslie
Hughes, Hector (Aberdeen, N.)	Morris, Alfred (Wythenshawe)	Steele, Thomas (Dunbartonshire, W.)
Hughes, Roy (Newport)	Morris, Charles R. (Openshaw)	Stonehouse, John
Hunter, Adam	Morris, John (Aberavon)	Strauss, Rt. Hn. G. R.
Irvine, A. J. (Edge Hill)	Moyle, Roland	Summerskill, Hn. Dr. Shirley
Jackson, Colin (B'h'se & Spenb'gh)	Mulley, Rt. Hn. Frederick	Swain, Thomas
Jackson, Peter M. (High Peak)	Murray, Albert	Swingler, Stephen
Janner, Sir Barnett	Neal, Harold	Symonds, J. B.
Jay, Rt. Hn. Douglas	Newens, Stan	Taverne, Dick
Jeger, George (Goole)	Noel-Baker, Francis (Swindon)	Thomas, lorwerth (Rhondda, W.)
Jeger, Mrs. Lena (H'b'n&St.P'cras, S.)	Noel-Baker, Rt. Hn. Philip (Derby, S.)	Thomson, Rt. Hn. George
Jenkins, Hugh (Putney)	Norwood, Christopher	Thornton, Ernest
Jenkins, Rt. Hn. Roy (Stechford)	Oakes, Gordon	Tinn, James
Johnson, Carol (Lewisham, S.)	Ogden, Eric	Tomney, Frank
Jones, Dan (Burnley)	O'Malley, Brian	Tuck, Raphael
Jones, Rt.Hn. Sir Elwyn (W. Ham, S.)	Oram, Albert E.	Urwin, T. W.
Jones, J. Idwal (Wrexham)	Orbach, Maurice	Varley, Eric G.
Judd, Frank	Orme, Stanley	Wainwright, Edwin (Dearne Valley)
Kelley, Richard	Oswald, Thomas	Walden, Brian (All Saints)
Kenyon, Clifford	Owen, Dr. David (Plymouth, S'tn)	Walker, Harold (Doncaster)
Kerr, Mrs. Anne (R'ter & Chatham)	Owen, Will (Morpeth)	Wallace, George
Kerr, Dr. David (W'worth, Central)	Padley, Walter	Watkins, David (Consett)
Kerr, Russell (Feltham)	Page, Derek (King's Lynn)	Weitzman, David
Leadbitter, Ted	Paget, R. T.	Wellbeloved, James
Ledger, Ron	Palmer, Arthur	Wells, William (Walsall, N.)
Lee, Rt. Hn. Frederick (Newton)	Panned, Rt. Hn. Charles	Whitaker, Ben
Lee, Rt. Hn. Jennie (Cannock)	Park, Trevor	White, Mrs. Eirene
Lee, John (Reading)	Parker, John (Dagenham)	Whitlock, William
Lestor, Miss Joan	Parkyn, Brian (Bedford)	Wigg, Rt. Hn. George
Lever, Harold (Cheetham)	Pavitt, Laurence	Willey, Rt. Hn. Frederick
Lever, L. M. (Ardwick)	Pearson, Arthur (Pontypridd)	Williams, Alan (Swansea, W.)
Lewis, Arthur (W. Ham, N.)	Peart, Rt. Hn. Fred	Williams, Alan Lee (Hornchurch)
Lewis, Ron (Carlisle)	Pentland, Norman	Williams, Clifford (Abertillery)
Lomas, Kenneth	Perry, Ernest G. (Battersea, S.)	Williams, Mrs. Shirley (Hitchin)
Luard, Evan	Perry, George H. (Nottingham, S.)	Williams, W. T. (Warrington)
Lyon, Alexander W. (York)	Prentice, Rt. Hn. R. E.	Willis, George (Edinburgh, E.)
Lyons, Edward (Bradford, E.)	Price, Thomas (Westhoughton)	Wilson, William (Coventry, S.)
Mabon, Dr. J. Dickson	Price, William (Rugby)	Winnick, David
McBride, Neil	Probert, Arthur	Winterbottom, R. E.
McCann, John	Pursey, Cmdr. Harry	Woodburn, Rt. Hn. A.
MacColl, James	Randall, Harry	Woof, Robert
MacDermot, Niall	Rankin, John	Wyatt, Woodrow
Macdonald, A. H.	Redhead, Edward	Yates, Victor
McGuire, Michael	Rees, Merlyn	Zilliacus, K.
McKay, Mrs. Margaret	Reynolds, G. W.
Mackenzie, Gregor (Rutherglen)	Rhodes, Geoffrey	TELLERS FOR THE AYES:
Mackie, John	Richard, Ivor	Mr. John Silkin and Mr. Lawson.
	Roberts, Albert (Normanton)
NOES
Alison, Michael (Barkston Ash)	Bennett, Dr. Reginald (Gos. & Fhm)	Braine, Bernard
Allason, James (Hemel Hempstead)	Berry, Hn. Anthony	Brewis, John
Astor, John	Bessell, Peter	Brinton, Sir Tatton
Atkins, Humphrey (M't'n & M'd'n)	Biffen, John	Brown, Sir Edward (Bath)
Awdry, Daniel	Biggs-Davison, John	Bruce-Gardyne, J.
Baker, W. H. K.	Birch, Rt. Hn. Nigel	Bryan, Paul
Balniel, Lord	Black, Sir Cyril	Buchanan-Smith, Alick (Angus, N&M)
Barber, Rt. Hn. Anthony	Blaker, Peter	Buck, Antony (Colchester)
Batsford, Brian	Body, Richard	Bullus, Sir Eric
Beamish, Col. Sir Tufton	Bossom, Sir Clive	Burden, F. A.
Bell, Ronald	Boyd-Carpenter, Rt. Hn. John	Campbell, Gordon
Bennett, Sir Frederic (Torquay)	Boyle, Rt. Hn. Sir Edward	Carlisle, Mark

Carr, Rt. Hn. Robert	Higgins, Terence L.	Osborn, John (Hallam)
Cary, Sir Robert	Hiley, Joseph	Osborne, Sir Cyril (Louth)
Channon, H. P. C.	Hill, J. E. B.	Page, Graham (Crosby)
Chichester-Clark, R.	Hirst, Geoffrey	Page, John (Harrow, W.)
Clark, Henry	Hobson, Rt. Hn. Sir John	Pardoe, J.
Clegg, Walter	Hogg, Rt. Hn. Quintin	Pearson, Sir Frank (Clitheroe)
Cooke, Robert	Holland, Philip	Peel, John
Cooper-Key, Sir Neill	Hooson, Emlyn	Percival, Ian
Cordle, John	Hordern, Peter	Peyton, John
Corfield, F. V.	Hornby, Richard	Pike, Miss Mervyn
Costain, A. P.	Howell, David (Guildford)	Pink, R. Bonner
Craddock, Sir Beresford (Spelthorne)	Hunt, John	Pounder, Rafton
Crawley, Aidan	Hutchison, Michael Clark	Powell, Rt. Hn. J. Enoch
Crosthwaite-Eyre, Sir Oliver	Iremonger, T. L.	Price, David (Eastleigh)
Crouch, David	Irvine, Bryant Godman (Rye)	Prior, J. M. L.
Crowder, F. P.	Jenkln, Patrick (Woodford)	Quennell, Miss J. M.
Cunningham, Sir Knox	Jennings, J. c. (Burton)	Ramsden, Rt. Hn. James
Currie, G. B. H.	Johnson Smith, C. (E. Grinstead)	Rawlinson, Rt. Hn. Sir Peter
Dalkeith, Earl of	Johnston, Russell (Inverness)	Rees-Davies, W. R.
Dance, James	Jones, Arthur (Northants, S.)	Renton, Rt. Hn. Sir David
d'Avigdor-Goldsmid, Sir Henry	Jopling, Michael	Ridley, Hn. Nicholas
Dean, Paul (Somerset, N.)	Joseph, Rt. Hn. Sir Keith	Ridsdale, Julian
Deedes, Rt, Hn. W. F. (Ashford)	Kaberry, Sir Donald	Rippon, Rt. Hn. Geoffrey
Digby, Simon Wingfield	Kerby, Capt. Henry	Rodgers, Sir John (Sevenoaks)
Dodds-Parker, Douglas	Kershaw, Anthony	Roots, William
Doughty, Charles	Kimball, Marcus	Rossi, Hugh (Hornsey)
Douglas-Home, Rt. Hn. Sir Alec	King, Evelyn (Dorset, S.)	St. John-Stevas, Norman
du Cann, Rt. Hn. Edward	Kitson, Timothy	Sandys, Rt. Hn. D.
Eden, Sir John	Knight, Mrs. Jill	Scott, Nicholas
Elliot, Capt. Walter (Carshalton)	Lambton, Viscount	Sharples, Richard
Errington, Sir Eric	Lancaster, Col. C. G.	Shaw, Michael (Sc 'b' gh & Whitby)
Eyre, Reginald	Langford-Holt, Sir John	Sinclair, Sir George
Farr, John	Legge-Bourke, Sir Harry	Smith, John
Fisher, Nigel	Lewis, Kenneth (Rutland)	Stainton, Keith
Fletcher-Cooke, Charles	Lloyd, Rt. Hn. Geoffrey (Sut'nC' dfield)	Steel, David (Roxburgh)
Forrest, George	Lloyd, Ian (P'tsm'th, Langstone)	Stodart, Anthony
Fortescue, Tim	Longden, Gilbert	Stoddart-Scott, Col. Sir M. (Ripon)
Foster, Sir John	Loveys, W. H.	Summers, Sir Spencer
Fraser, Rt. Hn. Hugh (St' fford & Stone)	Lubbock, Eric	Talbot, John E.
Galbraith, Hn. T. C.	McAdden, Sir Stephen	Tapsell, Peter
Gibson-Watt, David	MacArthur, Ian	Taylor, Sir Charles (Eastbourne)
Giles, Rear Adm. Morgan	Mackenzie, Alasdair (Ross&Crom'ty)	Taylor, Edward M. (G'gow, Cathcart)
Gilmour, Ian (Norfolk, C.)	Maclean, Sir Fitzroy	Taylor, Frank (Moss Side)
Gilmour, Sir John (Fife, E.)	Macleod, Rt. Hn. Iain	Teeling, Sir William
Glover, Sir Douglas	McMaster, Stanley	Temple, John M.
Glyn, Sir Richard	Macmillan, Maurice (Farnham)	Thatcher, Mrs. Margaret
Godber, Rt. Hn. J. B.	Maddan, Martin	Thorpe, Jeremy
Goodhart, Philip	Maginnis, John E.	Tilney, John
Goodhew, Victor	Marples, Rt. Hn. Ernest	Turton, Rt. Hn. R. H.
Gower, Raymond	Marten, Neil	van Straubenzee, W. R.
Grant, Anthony	Maude, Angus	Vaughan-Morgan, Rt. Hn. Sir John
Grant-Ferris, R.	Maudling, Rt. Hn. Reginald	Vickers, Dame Joan
Gresham Cooke, R.	Maxwell-Hyslop, R, J.	Wainwright, Richard (Colne Valley)
Grieve, Percy	Maydon, Lt.-Cmdr. S. L. C.	Walker, Peter (Worcester)
Griffiths, Eldon (Bury St. Edmunds)	Mills, Peter (Torrington)	Walker-Smith, Rt. Hn. Sir Derek
Grimond, Rt. Hn. J.	Mills, Stratton (Belfast, N.)	Wall, Patrick
Gurden, Harold	Miscampbell, Norman	Walters, Denis
Hall, John (Wycombe)	Mitchell, David (Basingstoke)	Ward, Dame Irene
Hall-Davis, A. G. F.	Monro, Hector	Weatherill, Bernard
Hamilton, Marquess of (Fermanagh)	More, Jasper	Webster, David
Hamilton, Michael (Salisbury)	Morgan, W. G. (Denbigh)	Wells, John (Maidstone)
Harris, Frederic (Croydon, N.W.)	Morrison, Charles (Devizes)	Whitelaw, William
Harris, Reader (Heston)	Mott-Radclyffe, Sir Charles	Wills, Sir Gerald (Bridgwater)
Harrison, Brian (Maldon)	Munro-Lucas-Tooth, Sir Hugh	Wilson, Geoffrey (Truro)
Harrison, Col. Sir Harwood (Eye)	Murton, Oscar	Winstanley, Dr. M. P.
Harvey, Sir Arthur Vere	Nabarro, Sir Gerald	Wood, Rt. Hn. Richard
Harvie Anderson, Miss	Neave, Airey	Woodnutt, Mark
Hastings, Stephen	Nicholls, Sir Harmar	Worsley, Marcus
Hawkins, Paul	Noble, Rt. Hn. Michael	Wylie, N. R.
Hay, John	Nott, John	Younger, Hn, George
Heald, Rt. Hn. Sir Lionel	Onslow, Cranley	TELLERS FOR THE NOES:
Heath, Rt. Hn. Edward	Orr, Capt. L. P. S.	Mr. Pym and Mr. R. W. Elliott.
Heseltine, Michael	Orr-Ewing, Sir Ian
Bill accordingly read a Second time.
Bill committed to a Committee of the whole House—[Mr. Harper.]
Committee Tomorrow.