HC Deb 03 May 1966 vol 727 cc1468-562

Motion made, and Question proposed,

  1. 30. That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision 1469 in connection with finance, so however, that this Resolution shall not extend to making—
    1. (a) amendments of the enactments relating to purchase tax so as to give relief from tax, other than amendments making the same provision for chargeable goods of whatever description, or for all goods to which any of the several rates of tax at present applies;
    2. (b) amendments of the provisions of the Finance (No. 2) Act 1964 relating to temporary charges on imports so as to give relief from the duty imposed by those provisions, other than amendments making the same provision for all goods chargeable with that duly.—[Mr. Callaghan.]

5.4 p.m.

Mr. Edward Heath (Bexley)

Undoubtedly one of the most pleasant and agreeable tasks which fall to the Leader of the Opposition is the opportunity of being the, first to congratulate the Chancellor on his Budget Statement. However ardent we may be in the cause of Parliamentary reform, I hope that nobody will ever alter this very acceptable tradition. Today I can congratulate the Chancellor on the way in which he has delivered his statement, and I congratulate him from this side of the Committee with great sincerity.

He has delivered his statement with immense lucidity and also with a considerable degree of brevity compared with some of those to which we have listened in the past. For both those things we thank him and congratulate him. He has also shown great courtesy to the Committee in the detail with which he explained some of his proposals and the fact that he immediately laid a White Paper on probably the most novel, proposal he put before us today. That we also appreciate. I should like, of course, without committing myself to the contents of his speech—the Prime Minister was always very careful about that when speaking from my place—nevertheless to offer the thanks of the Committee for the way in which he made the statement.

He has demonstrated his antipathy towards Siamese twins in a form that has probably not come to the notice of many of us before. Whether the Budget will be known as the "Siamese Twins Budget" or the "White Handkerchief Budget" remains to be seen. On that the Press will judge. In the early days the signalling was done by a Whip sitting on the Front Bench. Perhaps a return to that tradition might avoid the embarrass ment we have had today. In commenting on the speech, may I also express our warm welcome to the First Secretary of State and Secretary of State for Economic Affairs on his return in good health to the Front Bench? Let us say quite frankly that when he is absent from the Front Bench something is missing.

I propose this afternoon only to make a few brief remarks about the statement to which we have just listened. My right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) will be speaking tomorrow and commenting upon it in more detail. I was greatly interested in the Triple Objective of the Chancellor to which he gave a great deal of emphasis. He repeated this several times—a strong pound, a movement towards industrial strength, and full employment. It is noticeable that he missed out from his objective the maintenance of stable prices. This presumably was a quite deliberate decision by the Chancellor of the Exchequer. It is a very interesting and important decision to choose those three objectives rather than the objective of the maintenance of stable prices. Looking at his statement as a whole, my first reaction today is that he proposes to achieve these objectives, first, by restraint overseas, albeit as he indicated, voluntary restraint at the moment in the sterling area; secondly, by putting additional burdens on industry, both manufacturing and distributive, at home; and thirdly, by relying on action from all citizens through the prices and incomes policy.

Those seem to be the three ways in which he is trying to achieve his objectives. The question is whether these methods can be successful and whether they are the right methods to be using. We were grateful to him for explaining the proposals of a minor kind which he is putting forward. I was very interested when he used the phrase that he was going to complete the Capital Gains Tax and Corporation Tax. It is obvious from what he said that he proposes to issue a yet further batch of Amendments to the Bill we considered at this time last year. No doubt the Prime Minister will say, "More tomfoolery".

There were other minor things which we welcome. Of course, we welcome any proposals to try to increase National Savings. We were delighted to hear that the last issue is being successful, and further steps forward are welcome. Compared with the Chancellor's problem, they are comparatively small. There is one which arises from them, on which perhaps the Chief Secretary will be able to comment later, and that is that the more successful these new certificates and developments are the more difficult it will be for the building societies to resist raising their rates for investment for savings themselves. Therefore, this will have an effect on mortgages and on the financial consequences of the Government's Bill. It may be that the Chief Secretary can help the Committee on that.

Perhaps the Chancellor's speech was comparatively short because he gave very little by way of an economic assessment. He perhaps left the Committee to rely on the papers which have already been published. I should be rather inclined to doubt the belief that there is now going to be a check in demand, for the reason that I see very little check in the degree of wage increases being granted. This means that the pressure of demand, so far as I can see, is likely to remain very heavy and will be working against the Chancellor's other purposes. I noticed that, from the point of view of achieving the balance of payments, when he was dealing with the economic assessment he said that his objective is to see that there is a trend towards improvement. This is a very considerable movement away from his first objective, which was to have complete balance in 1966. His second objective was to be at a rate of balance by the end of 1966, and the objective now appears to be that there should be a trend towards a balance in 1966. It remains to be seen how successful this is in the view of the Government's creditors and of opinion overseas.

The Chancellor concluded that it was necessary to take further action to strengthen the balance of payments. He made the very interesting and important point that he was not prepared to have unemployment at home in order to have investment or expenditure overseas. He promptly went on to say that the demand on home resources is too great and must be reduced. He therefore wants to reduce demand at home which runs the risk of unemployment unless there are countervailing exports and sales over- seas. Could we not abandon this automatic reflex action, that if any proposal is made for dealing with demand at home automatically people are in favour of large-scale unemployment? It just is not true. On the other hand, it puts us entirely in a straitjacket from the point of view of developing economic policy if we produce an automatic reflex action that any proposal means unemployment at home and is unacceptable. Certainly there must be unemployment which arises in a transitional way, as the Minister of Labour said in his speech on the Address.

We come to the action which the Chancellor of the Exchequer proposes so far as the sterling area is concerned. What he is really saying is that he is prepared to tolerate stagnation at home and, as a result of it, to reduce investment overseas. He is hoping to reduce investment in the sterling area considerably. In fact, as I understand it, he is making the conditions and terms of investment in the sterling area the same as they are at the moment outside the sterling area, but by voluntary means. This means that the sterling area will have no preference over the rest of the world. Is not this an important step to take? Is it not going to raise in the minds of other countries the question, "What is the purpose of belonging to the sterling area if there is no preference to be gained by countries overseas?"

I put these questions in an interrogatory form because they are important and should be considered. Has the right hon. Gentleman had assurances about sterling balances which are kept in this country, on the present form of the sterling area? Obviously, all this has to be taken into the balance of a voluntary action which is a major step for the Chancellor to take. The developing countries have already been affected by the action that we took in the last Budget and, as he knows, investment in countries overseas has fallen to a low level; this includes Commonwealth countries as well as other countries overseas. Now we are withdrawing from overseas because we have stagnation at home, and that is the plain fact of the matter.

I welcome the Chancellor's announcement that he will pay back on half of the I.M.F. loans falling due in 1967. In his speech on 7th March in the House, he put in the qualifying parenthesis that they would be repaid providing no other arrangements were made.

Mr. Callaghan

On the second one.

Mr. Heath

On the second one. That still stands. We accept the Chancellor's assurance. The first one will be repaid, and obviously if he manages to reduce the reserves and if he has built up the balance of payments sufficiently that can be done. But let us realise what that would mean to the reserves even with the liquified investments in the United States being moved any further.

Now I should like to comment on the rate of Corporation Tax. This brings back many memories. How many times did we say last year during those long debates on the Finance Bill, "Of course, it is going to be 40 per cent." How indignant the Chief Secretary and the Financial Secretary became. The thought was never in their minds—banish it. Every argument was based upon a figure of 35 per cent. "Take £100", said the Chief Secretary, "we deduct £35 for Corporation Tax". Now that the rate is fixed we find that 40 per cent. is slapped down and some of the omissions or, as the Chancellor told us, some of the holes are blocked, and the burden becomes greater.

What is the effect of this going to be? It will react on the investment of companies. The Chief Secretary will say that it will cut down dividends, and companies should deliberately reduce their dividends. But is that going to happen? No. It will affect the investment of companies because they will have to pay much more than they have done under the present rates of taxation to the Government. This is the first blow of the Chancellor's on investment by companies in this country. Let him try later to explain how this will not happen. If he is working on the basis that dividends will not be reduced and investment maintained, I do not believe that is a justifiable argument.

The second action which will affect so many companies is the Selective Employment Tax. Obviously, we shall have to study the White Paper in great detail. I believe that on the Finance Bill this will require a considerable amount of discussion. May I say to the Chancellor that one of the best ways of furthering Parliamentary reform would be to give the Committee time to discuss the Finance Bill properly and thoroughly during normal hours. This means that the Leader of the House and the Chief Whip will have to be prepared to provide the time. Then the Committee can really get down to this business in detail and feel that it is tackling the problem properly and not hastily with its views being cut short because of the action of the Government. I hope the Chancellor will bear that matter in mind.

I can only give preliminary reactions to the Selective Employment Tax. My first reaction is to consider how interesting the effect would have been on the electorate if the Chancellor had announced this in his "mini Budget" speech, as he did in connection with gambling, instead of keeping it till after the election. He will put a considerable burden on the distributive industries and services. What is the purpose?—to make them economise in manpower. What is the method of making them economise in manpower?—to give them investment allowances so that they can use equipment which will economise in manpower. This was specifically excluded by the Chancellor of the Exchequer and by the Board of Trade. When the Chancellor calls for wholehearted support from other Government Departments, the Treasury might look at their own policies as a whole before producing contradictory policies like this. To say to the service industries, "You must not have incentives to improve the use of manpower. We are going to tax you if you improve it." will have a bad effect on the service industries. This is an additional burden which will be placed upon them.

The Chancellor has apparently learned the lesson with the construction industries. He is now bringing them into the scheme. I cannot see a satisfactory dividing line between a service industry being given investment allowances to encourage it to economise in the use of manpower and giving them to the construction and manufacturing industries. This seems to me to be a contradictory approach to the problem. This will not be contained by the service industries themselves, especially without inducements to use better equipment. So it will go on the cost of living in the same way as the increase in the Purchase Tax. The Chancellor said that he wanted to avoid this. What is the difference? The difference is that this will fall on food, clothing and all those items which are at present exempt from Purchase Tax. All those forms of manufacture have distribution services, and the cost will therefore fall on the food and clothing because of this poll tax on the distribution services.

What the Chancellor is really doing is extending the whole range of Purchase Tax, albeit at 3 per cent. to 4 per cent., over the whole field of consumer purchases, including food and clothing, to which right hon. and hon. Gentlemen opposite have always been bitterly opposed. I have no doubt that the co-operative societies will speedily bring this to his attention, and quite rightly, too.

What will be the effect on manufacturing industry? This I fail to comprehend. If the Chancellor of the Exchequer had said that manufacturing industry is going to be exempt I would have understood. The more people the industry employs the more money it will get. How is this an inducement to economise in manpower? I feel there must have been a sophisticated form of thinking by the Chancellor which needs further explanation, to say the least. At first hearing, it is difficult to see how the Chancellor's main purpose of getting industry to economise in manpower is achieved by paying it something for every man it employs. I put it as simply as that. I would have thought that the hon. Member opposite, with his technical background, would have been able to keep the Chancellor straight. It is quite obvious that the capital investment industries of his own North-East will now benefit if they employ more men, because they are to be paid by the Treasury to do so.

At first sight, this seems to be a somewhat difficult proposition to deal with, and, of course, there are further effects. There is the effect on the tourist trade. Will it be beneficial to our balance of payments if those engaged in the tourist trade have to carry this additional burden? Moreover, it will affect some of the most outlying parts of the United Kingdom. Eighty per cent. of activities in the Highlands of Scotland are concerned with services, so that the regional policy which the First Secretary of State and the Secretary of State for Scotland are trying to carry forward will be affected directly by this new tax. It will affect those areas which rely on tourism and on services in particular. Once again, therefore, there is a contradiction within the Government's policies. Are these not sufficient reasons for saying that we shall have to think very carefully about this proposal and examine it in great detail, not only at this stage but when the Chancellor comes forward with his Finance Bill?

I welcome the Chancellor's statement that the surcharge is to disappear in November. This is immensely important. It is immensely important from the point of view of the protective attitude in industry and in our relations with the G.A.T.T. I was rather surprised that the Chancellor did not develop any further today his hint during the election campaign that he wished to reform the G.A.T.T. The removal of the surcharge is very important for any discussions which are carried on with the European countries, including, of course, the E.F.T.A., and we welcome the announcement that it is to go, but this does not alter the fact that, as it had to be announced today, presumably, in view of the E.F.T.A. meeting, there may very well be a very large build-up of goods held back until after the date on which the surcharge is to be removed. However, the right hon. Gentleman has, presumably, taken that into account and is prepared to accept it.

I come now to the Chancellor's reliance on the prices and incomes policy, which he is still banking on a very great deal. He said so at the beginning and repeated it in his peroration. One is entitled to ask whether the past history of the prices and incomes policy justifies his relying to this degree upon it as a weapon of economic policy. It is the Government's job to carry it through. The Prime Minister has now intervened and taken direct responsibility for it in the meetings he is addressing up and down the country. He has done this now. Hitherto, it has been the First Secretary of State.

The Prime Minister (Mr. Harold Wilson)


Mr. Heath

With respect, the Prime Minister has now announced that he intends to do a crusade. It has gone from the First Secretary's circus to the Prime Minister's crusade. This means that the Prime Minister will give it that particular spiritual quality which is so characteristic of him. The family doctor leads a crusade—a political crusade with our backs to the wall, in the Dunkirk spirit.

The Government must show that the action which the Prime Minister is now taking through his speeches in the country can produce a major weapon in the prices and incomes policy, but all one can say on the figures at the moment is that though more successful with prices than with incomes, it cannot be said to be working successfully with incomes, and this is going the way of producing additional problems for the Chancellor. As prices have been held down but wages have not, demand itself is far greater than the Chancellor wants to see. He said himself that it has been an acute problem for him, and I believe that it is likely to remain so.

Those are the important points on the Chancellor's statement which I make at this stage. How can one sum this Budget up? One can say that the balance of trade situation appears to be less favourable in the first quarter of this year than in the first quarter of last year and, therefore, the Chancellor's problems have now become greater. He is proposing to put very heavy taxation on to industry and services, almost the whole of our economic life, in fact. They will be very great burdens indeed. The additional rate of Corporation Tax and the Selective Employment Tax ensure this.

The Chancellor is not putting the burden directly on the consumer, and I cannot help feeling that it was his own speech before the election and the attitude taken by the Government during the election campaign which led to this point of view. The Government did not want to be accused of having taken a line which would lead the electors, the consumers, then to say, "This was not what you said at the election". By putting the burden on industry, in its widest form, the Government hope that the electors, the consumers, will not notice it. But, of course, they will notice it indirectly, and very quickly after these taxes come into operation.

Once again, there are minor incentives to savings, but there are no real incentives to industry or to individuals to produce the enterprise which can really deal with our problems. The Chancellor is quite right when he says that the Budget is only one part of the economic approach. We expressed our view on these matters during the debate on the Address. We believe that the Government are lacking here. We do not believe that the Budget statement today will produce that enterprise and incentive which can meet our problems by expansion rather than by withdrawal overseas, and those will be our criticisms of the Budget statement which the right hon. Gentleman has addressed to us today.

5.25 p.m.

Mr. W. R. Rees-Davies (Thanet)

I take this early opportunity to direct attention to one or two matters within the broad horizon which the Chancellor pictured today, and I do so with some humility because this is an early stage to speak without having had several days to mull over the Chancellor's proposals. I ask the House to consider the effect of the proposed poll tax on certain industries and services, and I am glad to have the Chancellor's attention on the Front Bench now because I want him to give careful thought to these matters.

The tourist trade is rapidly becoming one of our most successful exporters. It is the greatest invisible export earner that we now have. The hotel expansion which has recently taken place in this country is a prerequisite of successful tourism. I hope that I may have the right hon. Gentleman's attention on this point. I realise that there are, probably, many attractions for him after his very able effort this afternoon in presenting his Budget with great clarity, on which I, too, congratulate him, but I wish to direct his attention specifically to certain problems.

In excluding the hotel and tourist trade entirely from any possibility of refund—it is quite clear that this is his intention—did the Chancellor fully appreciate that no less than 25 per cent. of the whole of the gross costs of hotels and catering businesses are borne upon their wages? The Selective Employment Tax, so far as it affects the tourist trade and, more particularly, hotels and guest houses, will be a direct tax upon 25 per cent. of their gross costs. In effect, by imposing a tax of this kind, the Chancellor will put a direct tax upon the hotel and catering trade in itself.

It may be that there is a case for doing this. It may be said that there ought to be, as there is in France, some sort of luxury tax upon the special hotels. This has existed in other countries. But it is totally unrealistic to argue that, by application of a poll tax of this kind, one is not putting a direct impost upon the whole hotel and boarding house trade which, next year, must immediately entail a substantial rise in the cost of holidays for everyone in this country.

I am raising this matter now because I take it that the First Secretary of State will be deploying the more detailed arguments which arise on the effect of this tax in its various aspects, and I want the right hon. Gentleman to be good enough to pay attention tomorrow to the serious effects which it will have on the hotel industry.

First, there is the whole question of the development of hotels in this country. At present, the hotels of London are full and we need more hotels. The demand is such that the British Travel Association—I speak as one who, for some years, has been an officer of an all-party committee in this House which deals with tourism—is concerned with the expansion of hotel provision. We need more provincial hotels. We need good hotels in the Midlands, in Birmingham, in Manchester. We need to modernise our hotels throughout our tourist centres and resorts. Not only has the Chancellor turned a stony heart to investment allowances—investment grants are "out" for the catering industry—but just when we want to expand tourism, he has imposed a substantial tax on 25 per cent. of their gross profits—the wages element in the average hotel.

It is no good saying that this will not affect the cost of living. Consider the effect on all the camps and tourist places to which people go for their holidays. Consider the situation for those who operate camps, such as Butlins, Warners or Pontins. In a camp of 8,000 people, they require 1,500 employees to provide the service. That is a ratio of nearly 20 per cent. serving those who are on holiday. This means a very substantial tax of 25s. a week on, say, 1,000 men and 12s. 6d. a week on, say, 500 women. These are large figures. It will not be long before the trade unions say, "It is no good giving us two or three weeks holiday without taking into consideration the increased costs which we shall have to pay".

The tax is allegedly selective. We must see how it will be applied. Is it to apply to hairdressers? What about agriculture? It may be that on very large farms it will be an encouragement for the introduction of still further modernisation, but there are many farmers each employing 8 to 10 people, and they may well find this tax crippling. That is certainly the situation in horticulture. While I am attracted to the idea of covering a wider field than Purchase Tax, we shall need to give careful consideration to the application of this tax in our debates over the next few days.

The other subject with which I wish to deal this afternoon is a subject on which I claim to have a certain expertise—the tax proposed on betting and gaming. Two years ago I put certain proposals to the Treasury which I believe found favour in the eyes of many of those who wanted to introduce a betting tax. These were proposals on how we could achieve a fair and proper tax on betting and gaming. The proposals contained in the Budget and on page 7 in Table I, Customs and Excise, of the summary, set out a system of taxation which will inevitably fail, is completely inept and has no chance whatever of meeting the purpose for which it was designed. A tax of 2½ per cent. upon the stake money of every punter in this country will have a first effect of leading to substantial evasion, a great deal of crime and growing illegal betting. The purpose for which the tax is introduced on betting will be set aside. Furthermore, the tax system is impracticable because the bookmakers who are not honest—and some of them are not—will not only evade the tax but will put the punter's money to their own benefit. The great majority of bookmakers, who are perfectly honest, will pay the tax. Thus, those who are dishonest will reap the benefit of their dishonesty.

The tax will fail, too, because it does not understand the technique of betting. It does not recognise that the ordinary punter does not have a single bet on one race or bet once or twice in one day. The average punter probably has 12 ls.doubles, trebles, accumulators and Yankees, and the tax provides that someone must calculate 2½ per cent. on each of those shillings. One's imagination baulks at a situation which is so ridiculous and which envisages that we can tax betting by taxing it on turnover.

It does not require much wisdom to make proposals which would achieve for the Chancellor what he wants to achieve. First, it is agreed among the betting fraternity that they are willing to accept a betting office licence of a considerable sum in respect of every betting office. One well-known sporting newspaper said that £30 a week or £1,500 a year could be carried by a betting office as a tax. That would cover the cash betting operator.

I raise this matter today because there is still time to consider these proposals again. I have reason to think that my proposals attracted the Treasury and, when they were made, attracted some of my hon. Friends. I raise the matter today because if they attract the Chancellor the necessary changes could be made. What should he done? First, there should be a betting office licence and, secondly, there should be a tax upon the telephones in the S.P. betting offices. A bookmaker cannot operate without telephones, and by the number of telephones we know the volume of his business. If we wish to tax betting, do so on the telephones and through a betting office licence, but let us give up this absurd notion that we can tax on 2½ per cent. of turnover. Anyone with considerable knowledge of racing knows that we cannot do this without getting into a great many more troubles, and perhaps the most serious of these troubles would be those of enforcement for our police force. In view of the amount of crime in the country the last thing we want to do is to impose still further burdens of enforcement and surveillance upon the police, who will not want this duty and will find it unacceptable.

I am delighted to see the right hon. Member for Dudley (Mr. Wigg) here. When I read about the turnover tax I wondered whether at some stage he would assure us that it was not intended that the tax should break down so that in future it might be argued that the totalisator should take over altogether, getting rid of bookmakers entirely. If the tax broke down the Government might then seek to set up a complete dictatorship of the totalisator. For some time I have believed that there was a feeling in certain quarters of the House that they would like to see an end of the days of the colourful race course, with the bookmakers, and would like to turn to the dreary way in which they operate in France or America, without the benefit of the traditions of racing in this country.

I turn to the question of gaming. About the right amount has been set for amusement machines. I suppose that it is all right to have a licence for gaming houses which can be fixed at different levels. But the amounts set out are not very suitable. We have a considerable increase in tourism and money is attracted into this country, brought here by those who can enjoy all the pleasures in the "with it" London of today and throughout the provinces. We want to ensure that these premises are made attractive, and it is not a very good method of taxation to apply a low tax to small premises and a very high tax to attractive premises. That does not achieve the purpose which we have in mind.

Would it not be more effectively achieved if it were decided to have proper control of gaming clubs? Might not this achieve the purpose which we are discussing today of bringing revenue to the Treasury, in the first place, and, more important, meeting the social and moral purpose which we have in mind in improving our gaming legislation? When the Betting and Gaming Act was introduced in 1960 it was recognised that amending legislation would be required at an appropriate time. My right hon. and learned Friend the Member for Huntingdonshire (Sir D. Renton) said two years ago that there had not been a long enough period for consideration of such amendments and that the time was not ripe for them. We know that the Home Secretary and the Home Office now think it time to review this legislation.

If we review the legislation for gaming, we can assure effective licensing of gaming clubs. Having secured that, we can control the supervision and surveillance of those clubs with an inspectorate, thus ensuring a code of good and reasonable gaming so that there is none of the social evils and none of the trouble which has arisen. This proposal is attractive to some of my hon. Friends. Having done that by an inspectorate, we can control the nature of the games played, the type of games played and the stakes, without difficulty, and we can get an effective siphoning off of the taxation which we want. That will be easy to do. In order not to put a further burden upon the police force, this can be done by setting up a gaming commission similar to the Jockey Club, and, I hope, rather better managed. If we have a first-class gaming commission, we can ensure that we get the revenue which the Government require, on the one hand, and surveillance and licensing control, on the other hand.

I spoke, first, about the poll tax and the grave effect which it will inevitably have, unless there is some amelioration, on both those who take holidays and those who serve the holidaymaker. Secondly, I spoke about the changes necessary to bring into effect taxes in respect of betting and gaming—taxes which I believe it to be absolutely right to impose. I have raised them so that the Government may consider what I have said, and I have done so in a wholly constructive sense. If the Government are determined to go on with a poll tax which covers hotels, restaurants and catering as well as agriculture, I hope that they will examine the situation carefully to see whether compensation can be provided by investment allowances or in other ways to meet the grave disadvantages which they are placing on certain sections of the community.

If the Government are to tax betting, gaming and bookmaking, I sincerely trust that they will try to do it efficiently so that we are not left with more crime and more contempt for the law but respect for the law because we introduce a system which will be respected by all and sundry and which is workable. In that event those who have knowledge and experience of the subject may assist the Government in achieving the purpose which we should all like to see achieved.

5.45 p.m.

Mr. Roland Moyle (Lewisham, North)

I thank you for calling me, Mr. Steele, and for allowing me to undergo the ordeal of making my maiden speech. I crave the indulgence of the House and I am well aware that any ordeal which I may be undergoing will no doubt be fully reciprocated by those hon. Members who remain to listen to me. In the circumstances, the hon. Member for the Isle of Thanet (Mr. Rees-Davies) will appreciate that I cannot comment on his arguments.

I represent the constituency of Lewisham, North, succeeding Mr. Christopher Chataway who represented it in the last Parliament, a gentleman who made his name before he entered the House in a way which appealed to many people. He also made his name in the House among other things for his support for a number of liberal causes and his hon. and right hon. Friends on both sides may rest assured that his torch will not fall to the ground as a result of his departure and that I am only too ready to pick it up and carry it forward as best I can.

Lewisham is a tadpole-shaped wedge thrust into the south-east London suburbs and pre-eminently an area where Londoners rest from one bout of commuting to gird their loins in preparation for the next. It is a dormitory area and as such is primarily interested, among many other problems, in housing. Because of that, I welcome the announcement by the Chancellor of the Exchequer that he is to go ahead with the betting tax, because that tax was originally tied up with a scheme for reducing rates of interest on house purchase mortgages. The tax will be welcomed widely by many of my constituents and those who hope to move into the constituency.

I hope, too, that some of the benefits of the taxation which my right hon. Friend intends to raise will rapidly find their way into the council housing accounts of authorities throughout the country, particularly Lewisham Borough Council, for we have a number of council tenants in the constituency who will welcome the promised increased council house subsidies. We find these people eminently desirable citizens and we hope to welcome a great number more within the next few years.

It is also an area where the benefits of the Rent Act, 1964, are beginning to spread and where appreciation of its benefits is spreading even more rapidly. However, there is one reform which will be welcomed by a number of my constituents and which does not require any taxation to effect. That is the project to carry out a measure of leasehold reform. Such a reform would help to alleviate a heavy anxiety in the minds of many of my constituents and to relieve them from a sharp sense of injustice, which I can readily appreciate in view of the principles which have informed our society over the last 10 or 15 years.

One of the areas of distinction in the constituency is Blackheath, an area of gracious charm with many Regency buildings and with a high standard of amenities which the inhabitants are determined to preserve and foster. I share their determination and I will assist them to carry out that laudable objective to the best of my ability throughout my service in Parliament. It is the area in the constituency which gives one the greatest sense of history. To one of my cast of mind, the greatest claim to historical fame would be the fact that Wat Tyler and his peasants camped on Blackheath the night before they took London. It gives me some feeling of satisfaction to think that I, too, camped in Blackheath the night before we took North Lewisham, although enjoying somewhat more substantial accommodation than Wat Tyler, with the last 900 years of a 999-year lease and with a mortgage which will take another 17 years to pay off.

But to get from North Lewisham to Westminster one has to travel, and there is the rub. I cannot help feeling that Wat Tyler in his progress along the line of the Southern Region Railway to London Bridge and Cannon Street enjoyed a considerably easier time than many of his present-day successors, for at least he knew that if he steadily progressed in a westerly direction he would get there. It is the view of most of my constituents that public transport has deteriorated, is deteriorating and, unless something very drastic is done, they have a shrewd suspicion that it will continue to deteriorate. I should like to say more about that on another day.

The fact remains that just as unemployment was the major social problem between the wars and housing the major problem since the war, in the years to come transport, and particularly the accommodation of the internal combustion engine to our urban way of living, will be the major social problem.

The Chancellor of the Exchequer has obviously devoted a great deal of his attempt at getting the economy on the right lines to relying on increased industrial efficiency. He is right to do so, for industry obviously has the major contribution to make. In this respect, I am put in mind of the advice which I gave to a number of constituents who during the election asked me what they could do as ordinary individuals to help to solve the country's economic problems, what they could do to put their backs into the job and to get us in the position which we hope to reach. I said, "If management comes forward with proposals for reorganising the work and increasing efficiency, do not turn them down, but try to find out what sort of cut they are prepared to offer you; have a jolly good bargain with management and, finally, when agreement is reached, stick to it and work it in the intended spirit until the time comes to have another go at it".

It is very easy to make generally acceptable statements about industrial relations. I have had 10 years' experience of applying them in industry. The trouble—the real fun if I may say so—comes in trying to apply those generally acceptable statements to the prevailing conditions in industry. If the people in this country can get into the habit, not of saying "No", to proposals for change, but "How much?", we shall begin to generate a dynamic in this country which will take us a long way towards the solution of our economic problems.

Those things are now called productivity bargains. We have heard a great deal about them in the last year or two, and I am glad that the Prices and Incomes Board has nailed this standard to its mast. However, a word of warning is appropriate. These productivity bargains are usually advocated as methods by which the British worker is induced to slough off his restrictive practices, accepting increases which are larger than usual in return for selling work practices to the management. In my experience of productivity bargaining—and I have been associated with two of the largest productivity bargains in British industry in terms of numbers in the last two years—the strains placed on management and the upheaval on management structure are far greater than those placed on the employees.

What is the essence of a productivity bargain? It is that the management pays money in order to get more room to manage. If it is to achieve anything as a result of such an agreement, it has to have the technical expertise to take advantage of the freedom of manoeuvre granted to it. It is my fear that these productivity bargains will be used in and out of season throughout the country when many managements are not in a position to be able to exploit the opportunities which the trade unions give them. That is the one word of warning which I have to say at this stage on the subject of productivity bargains as a counteraction to the wild enthusiasm with which they have been greeted throughout the country.

I hope that I have not exhausted the indulgence of the House on this occasion and I thank all hon. Members who are present for having listened to me.

5.55 p.m.

Mr. Frederic Harris (Croydon, North-West)

It is my great pleasure and privilege to follow the hon. Member for Lewisham, North (Mr. Moyle) and to congratulate him on behalf of the Committee on the excellent maiden speech to which we have had the privilege of listening this evening, not only on the material of his speech, which we all found interesting, but on the great confidence which he displayed in delivering it. I must say that I was very envious even after 18 years in the House of Commons. He will understand when I say that his predecessor, Mr. Christopher Chataway, was held in deep affection by hon. Members, not only on this side, but on both sides of the House of Commons, and we shall miss him very much, indeed. However, we look forward with pleasure to hearing the new Member's future speeches.

Speaking so shortly after the Budget Statement, it would be wrong of me to attempt to comment in too much detail on what the Chancellor of the Exchequer said, but I share the views of my hon. Friend the Member for the Isle of Thanet (Mr. Rees-Davies) about the betting tax—like my hon. Friend, not so much about the gaming tax—for we must make sure that the betting tax is satisfactory and fully effective. I have many misgivings about it, but time will tell. I sincerely hope that the troubles which my hon. Friend mentioned will not come upon us, because the tax would then be a great disservice to the country.

I was concerned that the right hon. Gentleman should take Corporation Tax to the full limit of 40 per cent. Many of us suspected that he would and some prophesied that he might even go beyond that figure. It is not exactly an incentive to industry that he should have taken the figure to 40 per cent.

However, undoubtedly the matter which will attract our interest in the weeks ahead will be the Selective Employment Tax. This is a new and very heavy tax. As such, one can say that the Budget will be very tough when fully effective. Many difficulties will arise, some of which can be immediately foreseen and some of which were mentioned by my right hon. Friend the Leader of the Opposition. No doubt, as the debates on the Budget develop, we shall get the full details.

The new tax seems to be an extraordinary temptation to manufacturers at least to over-employ. It seems fantastic to give them a premium for the number of employees they decide to have. I think that the tax will mean tremendous duplication of administrative effort and expense, for people are to be made to pay the tax and then claim rebate. The cost of administration will be immense and undoubtedly the cost will be passed on in the price of services and so put up the cost of living. It will also be easy to increase the number of bureaucrats, which is surely a disturbing factor normally to be avoided.

Before making what I hope will be a short intervention in the debate, I should like to make a personal reference to a former colleague of mine, Sir Richard Thompson, who was Member for Croydon, South. He lost at the last election by a mere 81 votes. I should like briefly to place on record my appreciation of his unstinted hard work over a period of 15 years for Croydon, South and the town of Croydon. He will be a great loss to the House and I am pleased that he intends to soldier on in public life. Having said that, I should like on behalf of the House to extend a welcome to the new Member for Croydon, South (Mr. Winnick), who has come into the House even younger than I was in 1948 and who has got off to a flying start, having delivered his maiden speech only two days after coming into the House.

In making these few comments tonight about the Budget I do not intend to attempt to set myself up as an expert economist. Most of us agree that we suffer from enough of these, and certainly that we suffer from enough experts. Invariably even they do not agree with themselves. This must be recognised as a tough Budget and I am sure that it will be when it is fully studied, and all its implications realised. It certainly confirms what the Conservatives were saying would be the country's lot once the Socialists were returned to power. Certainly, so far as Croydon is concerned, it is a point which most candidates forgot to mention during the election.

We have reached the impossible stage when we face more and more taxation. Do the Chancellor and the Treasury think that this is the way to get the country out of the red? In my personal and business capacity I consider that we already suffer far too much from over-taxation. We have ever-increasing taxation and this adds not only to our personal burden and the burden of our people, but very clearly to prices and services. This Budget will hit very hard at prices and services and it is deliberately intended to do so.

It is a vicious circle. It discourages personal incentive; in many respects, the effort of the individual becomes quite pointless. To overcome the present troubles we should be encouraging our people to work harder, thus avoiding the fantastic hidden unemployment which we all know, regrettably, exists in all walks of life. The answer will not be found in taxing the people more and more. As a businessman I know the difficulty of recruiting staff, particularly when we have tough Budgets against us. Ultimately and sadly, one can hold one's staff or tempt more to join the business only by giving increases in wages and salaries. Consequently, the sole criterion cannot be the pegging of wages and salaries back to our deplorable low increase in national productivity in the last year or so. We just have to keep our staff, at whatever cost, and many companies can ill afford this. Eventually they will come up against difficulties in a bigger way and some will go out of business. I should like to ask the Treasury what is the answer to this?

Another point I wish to raise relates to the complexity of the present tax system, which, as we all know, was greatly increased by the Finance Bill of last year, and which, from what we have been told today, is going to be added to again in the next Finance Bill. People just do not know what tax they should be paying. They certainly do not know what allowances they are entitled to claim. The Treasury is obtaining additional taxation, most of it unfairly and often almost illegally. Professional advisers often cannot cope because they are overworked and often do not know the full implications of the taxation law. It is a very sad state of affairs.

If we are the modern country we claim to be we should go all out to simplify our taxation system. A strong directive should go out from the Chancellor to this effect. Even rate collection today is a constant worry to the public because, like tax, it is an ever increasing burden, full of complexities. People do not know what rate rebates they are entitled to claim, and the last legislation passed in this House regarding such matters had added to the problem.

As to the simplification of the tax system, I should like to give one concrete example which relates to Road Fund licences. In March I had an Adjournment debate in the House under the heading of "The scandal of unlicensed vehicles". This followed the increase, in the last Budget, of the Road Fund licence from £15 to £17 10s. per vehicle. As such taxes increase so do the number of tax dodgers. I received a considerable number of complaints from constituents who felt very bitter because a lot of people were dodging the payment for Road Fund licences. Today there is still an outrageous evasion. I do not intend to go over the details of the Adjournment debate, but after very full and personal investigation I came to the conclusion that—often through lack of staff or through the dreariness, or the length of proceedings in the present archaic system—of about 9 million car owners, about 4½per cent., or something like 400,000, do not initially pay Road Fund tax. It was rather amusing at that time to go to New Palace Yard and find large numbers of cars which did not have current Road Fund licences.

Sir Arthur Vere Harvey (Macclesfield)


Mr. Harris

It may be privilege. A year ago the Financial Secretary tried to palm me off by saying in a letter that the percentage was roughly 1 per cent. This was undoubtedly an under-statement. Then the Parliamentary Secretary to the Ministry of Transport, who answered me in the Adjournment debate, gave a most unsatisfactory reply. It is obvious to many that between £5 million and £7 million a year of such tax is not being paid. This was at a time when the new Minister of Transport announced that she was cutting the road programme for 1966–67 by £19 million, and at a time when we had the highest ever number of road deaths.

There is always the honest person who, unfortunately, forgets to renew his licence. This could be overcome. It would not be difficult to send out reminders as is done in the case of radio and television licences, driving licences and dog licences. There is, too, the dishonest person, who will try to get away with this as long as he or she possibly can. Although I could not develop a full alternative in the Adjournment debate I did put forward a system in which something like 6d. a gallon was put on the price of petrol. This would automatically get rid of tax dodging and eliminate the task of the frustrated and already overworked policemen, who are trying hard to find the offenders and who are constantly bombarded by the public, complaining about such offenders. It would also dispense with the services of a large number of local authority employees who are now engaged in this work and who could be given much more satisfying work to do.

It would save a very considerable amount of money and would be fairer to the man who used his car only at the weekends. The man who used his car more frequently would accordingly pay a little more. We need some original thinking along these lines. It would undoubtedly pay dividends. Most of us know of other ways in which simplifica- tion of the tax system could be brought about. Why do not the Government attempt to do something about this? At present the honest taxpayer undoubtedly pays for the dishonest taxpayer. This is aggravated more as taxes are increased, as invariably happens in each Budget. The ever-increasing burden of tax is surely only a very short-term answer to the country's economic problems. In the long run, we must lose out.

We must provide incentives greatly to increase our national productivity and to keep prices more steady, particularly export prices, in this very keen competitive world, for exports are our lifeblood, otherwise we shall gradually grind ourselves to a halt. But it will be the people who will suffer from such lack of leadership and guidance by the Government. One deplorable economic setback last year was undoubtedly in regard to the essential savings which are as valuable to the Treasury, if not more so, as taxation.

During the 13 years that the Conservatives were in power, National Savings increased by £200 million a year. But, unfortunately, last year they went from a net surplus of £232 million in 1964 to a net deficit of £26 million. In such inflationary times, how can we seriously blame people if they put savings into more tangible assets which are more liable to hold their values rather than into cash or National Savings Certificates? I had hoped that this afternoon the Chancellor of the Exchequer would have attempted to make a more dramatic statement in this respect to find a way of halting this very disturbing decline and to get savings back on the right road again. But he has gone about it only very quietly indeed and made some very small alterations. I find this aspect extremely disturbing.

I wish to make a point which I should like to be passed on to the Chancellor of the Exchequer. It may be considered small in the context of the Budget, but it is important to many individual taxpayers. Too often I find tax inspectors building up cases against taxpayers even when they have nothing to go on except surmise. Then their inquiries drag on until the person on the receiving end, unfortunately, becomes quite ill through sheer worry, although he or she has really nothing to worry about.

In my opinion, the Chancellor of the Exchequer should ensure that taxpayers do not do this kind of thing. Once tax inspectors commence such inquiries, they should be compelled to conclude them very quickly one way or another. To my mind, it is quite deplorable that they should unnecessarily prolong the agony. In saying this, I am speaking on behalf of a large number of honest taxpayers who have frequently experienced this tax persecution. It is grossly unfair to the individuals concerned.

6.13 p.m.

Mr. Laurence Pavitt (Willesden, West)

I agree with only two points which the hon. Member for Croydon, North-West (Mr. Frederic Harris) made. The first concerns the maiden speech of my hon. Friend the Member for Lewisham, North (Mr. Moyle). I assure my hon. Friend that the congratulations of the hon. Member for Croydon, North-West were very sincere, and that the hon. Gentleman spoke for all of us when he commented on my hon. Friend's speech. Many of us have had to listen to a number of maiden speeches. I assure my hon. Friend that what was said about his was said sincerely on behalf of the whole House because he spoke with fluency, knowledge and with the kind of approach which the House thoroughly enjoys.

The second point on which I thoroughly agree with the hon. Member for Croydon, North-West is the welcome which he gave to my hon. Friend the Member for Croydon, South (Mr. Winnick), who happens to be one of my constituents and still serves on my local authority.

On those two points, the hon. Member for Croydon, North-West and I are in complete accord. There is very little else on which I agree with him. He mentioned, as is customary within his party, the great problem of bureaucrats. I am reminded that the Conservative Party fought four elections saying that it would bring down the cost of public expenditure. At the end of its terms of office, after the four elections, there were still more civil servants employed than ever before.

Mr. Peter Walker (Worcester)

The hon. Gentleman will find that there were 18,000 fewer civil servants when we left office than when we took office.

Mr. Pavitt

I accept the point. The theme which runs so frequently through the speeches of hon. Members opposite—and the hon. Member for Worcester has made this point in his turn, too—is that we must never have taxation; we must not raise the necessary finance. Then the following day, when we discuss schools, roads, hospitals and everything else, right hon. and hon. Members opposite are most anxious to convince the world that they want them. When it comes to the means of providing them, immediately they have a profound resistance. This theme ran throughout the speech of the hon. Member for Croydon, North-West.

Captain Walter Elliot (Carshalton)

The way to do it is to increase the national income and then we can have not only more schools and hospitals but less taxation. That is what the Conservatives did when they were in office.

Mr. Pavitt

I cannot entirely accept the hon. Gentleman's point, because what he is, in effect, saying is that this is the only remedy, whereas if he had listened with great care, as I did, to the Chancellor of the Exchequer, he would have realised that the policy of the Government is to increase productivity so that the total amount which the Chancellor of Exchequer can tax is that much more because of a planned economy, that there is no need to raise individual rates of taxation—which my right hon. Friend has not done today.

As the House knows, I am a Co-operative Member of Parliament. I want to make a quick response to what the Leader of the Opposition said about the effect of the new tax on the consumer. I understand my right hon. Friend's difficulties. Whatever taxes he proposes, it is said, "They are all right provided they do not affect me." What my right hon. Friend has done, in an ingenious way, is to produce an entirely new tax which will give him a fresh source of revenue and will enable him to deploy this new sector of taxation in future years before the five-year National Plan is finished.

The basis of the country's financial stability rests on whether we shall succeed in the great adventure on which the Government have embarked of a prices and incomes policy—a planned growth of wages and a planned economy. This is the start. This Budget is at the outset and is the framework within which that aim can be achieved. In pursuing it, the Government have been under pressure from people interested in incomes, on the one hand, and people interested in prices, on the other. Unless we are able to hold prices, the task of trying to hold wages, salaries and other incomes will be extremely difficult. Therefore, I contend that the starting point of this policy must be prices.

I express concern that the new tax, which will affect services rather than manufactured goods, is likely to have an immediate effect on prices. Once again, it is the housewife who will have to bear the burden. Housewives, although there are many of them, are not organised in precisely the same kind of pressure groups which are organised elsewhere and it is difficult for their voice to be heard. I speak, in some respects, for a Co-operative movement which consists of 13¼ million members which is not a mean proportion of the public—one in four. This movement will be considering with much deeper concern than I have been able to show in a short speech the effect which this tax will have on prices and particularly on groceries.

To look at the matter from the sectarian point of view of the Co-operative movement, we have 250,126 employees. Hon. Members can work out what impact 25s. makes on the weekly pay roll. Of that number, 218,222 are directly involved in services and sales. I suspect that some of my colleagues who have given service to the Union of Shop Distributive and Allied Workers will be interested to know what effect the tax will have on the union's members.

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

On a point of correction, the 226,000 employees in the Co-operative movement are being charged up with 25s. as a debit charge when the vast majority of them are women and will not have to pay the 25s.

Mr. Pavitt

I welcome the correction of my hon. Friend, who has had a good deal of experience in these matters. If what he says is correct, it is most welcome. This is the sort of point which we shall examine in great detail in the next two or three days, but I understand that women employees are also charged for at a reduced rate. Whether it has such a swingeing effect or is less than would appear at first sight, it will still be a heavy burden which has to be borne.

I bear in mind that the Co-operative organisation is non-profit-making. Any surplus that it makes goes back in the form of dividends in proportion to the size of people's purchases. The existing dividend in a co-operative society may well be something like 4d. in the £ on sales. I estimate that this new kind of tax might well eliminate the dividend in some societies. I shall need to do more homework about this, because it is difficult to give accurate facts if one speaks immediately after a Budget Statement has been made.

At the same time as the distributive trades meet this kind of problem, my right hon. Friend is also making a change in the way in which investment incentives are given by the Government, and this will affect distributive costs and not production. Here, therefore, is a second way in which I estimate that the Co-operative movement loses something like £1¼ million or £1½ million because of the rearrangement of the way in which incentives are being given.

Inevitably, an increase in the cost of distribution has the same result as increasing the cost of production. When the final article is sold, the increase is passed on to the housewife. This aspect must be given a good deal of thought if we are to ask the community, as we must, to accept a prices and incomes policy. We must accept that prices have to be kept down to keep wages within the rising level of productivity.

Last year, 80 per cent. of the total sales of the Co-operative movement, representing a figure of £1,068 million, were accounted for mainly by grocery, butchery and greengrocery. The other points of consumption accounted for only the remaining 20 per cent. Over this whole sector, therefore, there will be a tremendous rise in cost.

It will be difficult to persuade members of trade unions to co-operate with the prices and incomes policy when their wives tell them that they cannot make both ends meet. Their husbands will then say, "We have agreed through the T.U.C. to restrict our demands for wages within the productivity level." The housewife will reply that the price of bread, butter, sugar, milk, tea and other items is now higher and that without more income for her purse, she cannot manage. We must, therefore, be careful to maintain a proper balance in fulfilling my right hon. Friend's desire to give incentives to increase exports and to redeploy manpower so that any spare manpower goes not into services, but into production.

Most grocery stores are understaffed. There has been a big movement away from personal salesmen to self-service in shops because of the shortage of staffs in retail distribution. There is not a surplus that will keep flowing from behind the counters of shops into the factories to produce more goods. The surplus simply does not exist. I hope, therefore, that in the course of the debate, we shall get a little more intormatian about the kind of Government help that we can expect if the retail distributive trades are to absorb the new tax, as we hope that they will, without passing it on to the consumer. Will the Government look again, for example, at the investment incentive scheme? What other action can they take so that the consumer will not be, as usual, on a sticky wicket?

During the whole of my time in the House of Commons, I have seen that in any question of fiscal or economic policy the Government are subject to pressures. There has only to be an agricultural Price Review and every hon. Member knows that his wastepaper basket will be full next morning with the stuff which we receive from the National Farmers' Union. Whenever anything happens about drugs, every manufacturer of medicines sends us his literature. If something happens affecting workers, the trade unions make sure that their voice is heard both in the House of Commons and elsewhere. There is great difficulty, however, in getting organised pressure for the housewife and the general consumer. I hope that during the next five years, in implementing the Government's plan, we shall see a little more strength of action in this direction.

My last point is to ask my hon. Friend the Minister of State for clarification of the way in which services provided through the National Health Service will be affected by the new tax. My right hon. Friend the Chancellor of the Exchequer has made it clear that in the case of nationalised industries and other sectors such as the Civil Service, it will be a matter of taking it from one pocket and putting it into another. I would be interested to know how all this will affect a very large body of people who are employed by, for example, the regional hospital boards, in all grades—not simply nurses, medical staff or professions supplementary to medicine such as physiotherapists and radiographers, but hosts of people like porters, who wheel the trolleys, stokers and all the others who help to make a hospital efficient. Will all these people come within the purview of the new tax, or will there he an arrangement by the Ministry of Health so that the Health Service is regarded as a nationalised industry: or is it regarded in the same way as the kind of exemptions which my right hon. Friend announced for local authorities?

Naturally, we shall have more time to consider and study my right hon. Friend's proposals in detail. I hope, however, that he will take seriously the whole question of the way in which retail distribution will be affected and in which the new tax results in a policy which makes the housewife's task even more difficult than in the past. This might even jeopardise the whole of his gigantic plan to get organisation and some kind of sense into our prices and incomes and productivity policy. If my right hon. Friend omits to tackle this question, it does not matter how successful he is with Mr. Woodcock and the T.U.C.; if he fails with prices, his whole policy will be in jeopardy.

6.28 p.m.

Sir Arthur Vere Harvey (Macclesfield)

I can well understand the concern of the hon. Member for Willesden, West (Mr. Pavitt) at the statement by his right hon. Friend the Chancellor of the Exchequer. When the Chancellor made his statement, many of us might have thought that it was novel, extremely well delivered, compact and easy to put into operation. After an hour's reflection, however, my views agree very much with those of the hon. Member.

The impact of the Chancellor's statement will be enormous. When the public study it in the hours ahead, they will be concerned, because it is quite contrary to what we were led to believe during the General Election. Only three or four weeks ago, we were told by the Chancellor that there would be no severe taxation in the forthcoming Budget. He eased up a little on that as the campaign went on, but I understood him this afternoon to say that in a full year his new tax will raise £340 million. If that is not severe taxation in one year, I do not know what is.

It was hinted last year that the Corporation Tax would probably be at a level of 35, 37½ or, possibly, 40 per cent., although the latter figure was suggested as unlikely. More recently, the Press have suggested 42½ per cent. Many people will, therefore, give a sigh of relief that it is not to be higher than 40 per cent. In my view, that is much too high, because it means that the investment that is required in industry will not be made. Profit margins in industry are narrowing daily. Salaries and wage rates and every single charge in industry are on the increase. If profits disappear, the people who suffer in the long run are the workers and, in consequence, the Government, who will fail to get the revenue which they expect.

We heard what the Chancellor said about sterling. I understand his concern that large sums have been leaving Britain for Australia, New Zealand and elsewhere. If, however, we are to impose restrictions on the export of sterling to those countries, we must expect something in return. We must expect them to take some sort of retaliatory action.

The Minister of State, Department of Economic Affairs (Mr. Austen Albu)

indicated dissent.

Sir A. V. Harvey

The Minister disagrees. I hope that he is right. I shall wait to hear whether there has been full agreement with the countries concerned. If we are to be denied free movement of sterling among one-third of the world's population, these restrictions are the thin edge of the wedge. The Chancellor said that this restriction was only temporary, but that has been said of many other arrangements and restrictions. We were told during the war that Purchase Tax was to be only a temporary arrangement. I have recently read a speech in HANSARD by Lord Attlee, when he was a Member of the House of Commons, in which he wanted to see the end of Purchase Tax. Twenty-five years later, we still have it. We shall follow up later the question of seterling, but it is alarming that restrictions are being placed upon it for the first time.

My purpose in rising to speak is to refer to agriculture. I could not believe my ears when I heard the Chancellor say that the new tax upon employees in agriculture would be taken into account at the next Price Review. I cannot understand what he must be thinking about, because agriculture has had two disastrous Price Reviews, this year and last year, when the industry has had to contribute something like £30 million over and above the grants given by the Government. There will undoubtedly be a well-justified demand by the farm-workers' union in the coming weeks for increased wages—and they should have an increase in wages. The workers in agriculture deserve every penny they get.

But where will the money come from? I have done a rough calculation which shows that under the Chancellor's proposal, the agricultural industry must contribute approximately £¾ million a week. On the basis of 600,000 workers in the industry at 25s. per head, this represents about £40 million a year. We are told that this will be taken into account at the next Price Review.

The new payments will start to be made in November. Heaven alone knows how many months it will take farmers to get their rebates from the Government. The Government are loading themselves up with rebate schemes, and they will be getting others going before this one comes into operation. To tell the farmers of this imposition today is disastrous for the industry.

In the National Plan, the industry that could make the greatest contribution towards partially solving our balance of payments problem is agriculture. It could produce anything between another £100 million and £200 million worth of food a year. We will have the extra-ordinary situation of the dairy farmer or the cereal grower being penalised but the chocolate manufacturer, who gets his milk at half its real price, being treated as a manufacturer. Surely, farmers who grow food should be treated as manufacturers. They should come into the full orbit. Enough men are leaving the farming industry without making things more difficult for the industry. People are leaving because of low wages and profit margins, and small farmers are having to get out of business altogether.

Clearly, the Labour Government have no love for agriculture. The hon. Member for Willesden, West referred to papers which he received from the National Farmers' Union. I have no doubt that in Willesden he is not greatly concerned about agriculture, but I suggest that nationally this industry can make a real contribution towards solving our problems. It is an industry which has always done what has been asked of it by successive Governments. It has had no strikes, it gets on with the job and it has increased production year by year with fewer men, yet this kind of disgraceful treatment is meted out to it today.

On the question of Government expenditure, the Chancellor told us nothing, except possibly on defence, about what the Government will do about their own affairs. They are the country's largest employer of labour. One reads of firms like Courtaulds, I.C.I. and Shell engaging experts like McKinsey's to go through their organisation with a fine comb to show what staff can be dispensed with. Why do not the Government set an example to the country by putting a fine comb through Government organisations and nationalised industries? The hon. Member for Willesden, West referred to civil servants. We have nearly 12,000 more civil servants today than we had a year ago. How many more will there he in a year's time with all these commissions and organisations that the Government propose to set up? That is where the money is going. If the Government want anyone to follow suit they should set their example, but they are not doing so.

I am sure that McKinsey's or some similar organisation, if it went through the Post Office, could achieve a great deal. But even Lord Beeching, doing the same sort of job for British Railways and having some success, was "fired". It was unsavoury of certain hon. Members opposite to throw him out when he was achieving so much. Of course, no one likes the results of these inquiries. No executive likes being told that he is surplus to the establishment. But we must sort out these things.

What worries me is that about 20 per cent. of the 10 million workers employed in industry are in the wrong industry, be it the motor industry or the aircraft industry, or any other. They are being held in their jobs by their firms because they will be needed if there is an upsurge of orders. What we want is a redistribution of workers. What will happen, however, is that there will be a great incentive to manufacturing industries to take on more workers. We want to distribute the labour to those needing it most. There is a shortage of skilled workers in the North-East. One cannot get skilled workers. It is surprising?

A young doctor in my constituency qualified a year ago and works in a hospital in Manchester. By the time he has paid his keep he is left with £30-odd a month. One more year and this young doctor intends to go to New Zealand, following 600 other doctors who have left the country in the past year. The Government must give incentives not only to doctors and professional men but to everyone. By taxing people so very heavily they will drive them out of the country. Some years ago the Prime Minister talked of the "brain drain". It is greater today than since the end of the war. People are flocking out of the country by plane and ship to Australia, Malta, Canada and elsewhere in the Commonwealth, and they include men we can ill afford to lose.

If our industries are to make the contribution that is needed, what must be done is to get men out of industries where they are surplus and not really required into those industries which need more labour. This is a serious situation. The Prime Minister will no doubt go out on his crusade and we shall be told again about the Dunkirk spirit. But what the country really must be told are home truths and hard facts.

The truth is that unless every person, whether he be a chairman or managing director, or an office cleaner, appreciates that he has to work another five or ten per cent. harder than in recent years, the country is in for a very rough time. The average working week is 40 hours, but the average number of hours worked is 47. Overtime totals on average seven hours. The individual is taxed so highly that he wants overtime to make up for his high taxation.

Hon. Members opposite say that we complain about Income Tax. Not at all. Of course money has to be raised. But if we could increase our gross product, that would take care of the extra schools and motorways that we all want. We cannot live on credit and "tick".

The Chancellor was very optimistic about the repayment of loans. We must face the fundamental issues affecting managements and unions. Far too many executives climb into their offices at 9.45 a.m. Continental firms know this and are quite aware that they cannot even get a telephone call through before 9 a.m. No typist will start work before 9 a.m.

There must be a change of outlook by everyone in the country if we are to make our way as a competitive nation. The Government appear to be converted to the idea of joining the E.E.C. The Prime Minister is doing another somersault and we shall probably be in it within two or three years. But if we do go into Europe there will be strong competition among all classes. Even the unions will have to face competition from abroad. But it will be the best way to bring the country to its senses so that it uses its great energy and experience before it is too late.

6.40 p.m.

Mr. John Fraser (Norwood)

I am grateful for having caught your eye, Mr. Irving. The constituency I represent is Norwood and it is, I understand, customary to say something about the former Members for one's constituency. I hope that the right hon. Member for Streatham (Mr. Sandys) will not take it in offence if I do not on this occasion pay tribute to him, but since 1945 my constituency has been represented by two Members.

The first was its first Labour Member, Mr. Ronald Chamberlain, who served from 1945 to 1950. The second, until his retirement this year, was Sir John Smyth, who was very much loved in the constituency and, I understand, was regarded also with very great affection and esteem in this House. He had the unique distinction of winning in the field the very highest award that this country knows. I know that right hon. and hon. Members will miss him greatly and will wish me to record some tribute to him on his retirement.

Perhaps the greatest problem affecting my constituents, like many other London constituents, is housing. Norwood is, like Lewisham, North, a dormitory constituency yet not without life and containing a microcosm of residential London with housing ranging from lush town houses to some sorry tenements. It forms part of one of the largest London boroughs, Lambeth.

It is a measure of our housing difficulties that we have 13,000 families on the waiting list with little hope of being able to provide rehousing for them within the area. This is not because of lack of effort by the Government or the local authority but because the constituency has run out of land and is looking to a solution outside the borough.

We would welcome a reduction in service industry employment in London which would perhaps reduce the imbalance of employment in different parts of the country. We welcome the establishment of new towns and overspill areas. We welcome proposals for lower interest rates for local authorities, which are thereby enabled to get on with building more houses.

I want to refer to Income Tax matters which affect people who might be trying to find some other form of housing in my constituency than council housing. The first course open is that of buying a house, which appeals to many in my kind of constituency. For some time it has had the advantage of Income Tax relief on mortgage interest but this has always worked rather unfairly in that the man earning the greatest amount of money and paying the highest rate of tax got the greatest housing subsidy through Income Tax relief, whereas those with low incomes and perhaps large families got the lowest Income Tax relief—the lowest Income Tax subsidy, in other words.

Moreover, it is difficult for people, when buying a house, to calculate the cost to them, because jobs, family circumstances and Income Tax may change. It is difficult for them to calculate the true cost of buying a house because of these complexities. It is, therefore, particularly welcome that the Government have made proposals for mortgage option schemes whereby people will have set out firmly the benefits and reliefs to be made available. This is a move that my constituents, especially the younger people about to set up home, will welcome.

Another form of housing which has been encouraged by both this Government and the last is the establishment of housing associations. It is particularly welcome that in my area there are three co-operative housing associations. Before 1963, when people came together to form a co-operative they borrowed money from the local authority or the Government and paid rent—which in effect was the same as the mortgage payments by owner-occupiers. The difference was, however, that a member of such an association got no Income Tax relief on the interest element in his rent whereas the owner-occupier got relief on his mortgage.

This situation was remedied by Section 43 of the Finance Act, 1963, which, in effect, said that, if tenants of a housing co-operative were also the members of the housing co-operative, and if it was entirely democratically controlled by the tenants in the co-operative, then the income Tax reliefs available to house purchasers would, by machinery to be made available, be given to the tenants of such housing co-operatives as well. However, the same drawbacks still obtain when calculating the amount of rent that will be required.

A person might go into a housing co-operative newly married and then, when children come along, there are effects on Income Tax. It is difficult to give such people any idea of the amount they will get and the amount they will have to pay in going into the co-operative. I commend to my right hon. Friend either an extension of the proposed mortgage options scheme to housing co-operatives and housing associations, so that when they get money they know that relief has been given and can state fairly to their prospective tenants the rents required without having to make haphazard calculations of Income Tax reliefs, or a uniform rate of relief to be given, roughly equivalent to the average relief given to all these tenants. When people invest in building societies, they get standard rates of interest without the complication of tax reliefs. All I ask is that tenants of co-operative housing associations should be given a similar type of relief so they know before they rent their houses exactly what they will have to pay.

6.48 p.m.

Mr. Norman St. John-Stevas (Chelmsford)

I must first congratulate the hon. Member for Norwood (Mr. John Fraser) on a most distinguished contribution to the debate and also his predecessor, the hon. Member for Lewisham, North (Mr. Moyle), who also made his maiden speech today. I hope that they will forgive my congratulating them, for I am almost as junior as they are. Nevertheless, it falls to me by convention of the House to extend congratulations. I am sorry that someone of greater seniority than I is not able to commend them on their first oratorical expeditions in the House. We all hope that we shall hear them again soon.

My major criticism of the Budget is that, like so much of Government policy, it is wholly irrelevant to present British economic needs. At times when the Chancellor was speaking, I sensed that his main concern and his main energies seemed to he devoted to the task of stopping up the loopholes of tax avoidance rather than in tackling the much more vital problem of increasing the growth in our wealth.

I feel that the Budget itself, as an institution, is certainly in need of reform, and it is a pity that the Government have missed this opportunity once again. One reform which I should certainly like to see enacted would be the equating of the financial year with the calendar year. Why in fact should we have a Budget beginning and ending in April?

This point has an especial significance if the Government are indeed serious about their intentions of joining the European Economic Community, because one of the steps which could be taken to align ourselves with the countries of the Common Market is precisely this. This is the position in every member country of the E.E.C. Even if the Government have so far refused to realign our agricultural policy with that of the Six, as a preliminary measure before applying to join the Common Market they could, perhaps, make a small start here next year.

I must congratulate the Chancellor on one thing—that he resisted the temptation to play up the importance of the Budget in our economic situation. In fact, he went to some lengths to play the importance down, with a self-sacrifice which is rare amongst politicians. I do not regret the absence of Mr. Gladstone's bag, although I regret very much more the absence of his financial principles, which seem to have been abandoned by all parties in this Committee—the excellent basic principles that taxation is a bad thing and that the money should be allowed to fructify in the pockets of the people. The effect of dramatising the Budget must be to limit a Chancellor's own freedom of manoeuvre, because it concentrates the attention of our foreign creditors on what we are doing with our finances at a particular moment, and they thereby acquire an undue influence over our affairs.

The truth is that the Chancellor's measures today were dictated not so much by the needs of the British economy as by the very urgent need to reassure our creditors abroad. In our present situation of indebtedness the Chancellor could not bring before this Committee any other sort of Budget than a Budget which increased taxation. Our foreign creditors demand a degree of deflation, but it is very dubious whether the degree of deflation which has been imposed by this Budget—and we should not allow the novelty of the manner in which it has been imposed to hide from us the extent and gravity of the deflation which has been proposed—is necessary at the present time. Economics is an inexact science, but there are many indications now that the economy is already on the turn down, and the grave risk which the Chancellor has taken is that he may be turning what is already the beginnings of a recession into a major slump. Time alone will show whether his judgment on the amount of extra taxation he has thought necessary to impose is justified.

At the moment the problems of the British economy are threefold. We all have our trinities. My trinity differs from that of the Chancellor of the Exchequer. I would put my first aim as the need to right the balance of payments. I believe our second aim should be to increase our competitiveness at home and so improve our competitive position in trade abroad. Thirdly—and this is most important: I put these aims in the ecclesiastical order of precedence, where the greatest comes at the end—we must achieve and sustain a prolonged and even period of growth. I fear that, far from moving forward to these objectives, this Budget does nothing to make them easier of achievement, and in a number of ways makes it more difficult.

Our balance of payments problem was stressed by the Chancellor, and it is, indeed, intractable, but it is certainly one which should not be beyond the scope of our economy, given good management, to cope with. What, after all, are we asking for? We are asking for an increase of £300 mililon in exports from a country which has a national income of £25,000 million. That is not an effort which should be beyond the capacities of our people.

Unfortunately, the increased taxation in this Budget will have exactly the opposite effect. It is liable to have some marginal effect on our import bill, but, by pushing up costs in Britain, it will make it much more difficult for us to export. The estimate the Chancellor makes of the yield of the new tax, the Selective Employment Tax, is £240 million, but we must also remember that there is an increased load of taxation coming from the Corporation Tax, which has been put at 40 per cent. There has been so much speculation about a higher rate of tax that psychologically this has been greeted with some relief, but if this is psychologically justified it is certainly not statistically nor economically justified. It is placing a much heavier burden of taxation on industry as a whole than was imposed equivalently by the previous system of taxation. This will hamper us in the export markets of the world. This indiscriminate increase in taxation will hinder us abroad. It is also a further obstacle, erected by the Government themselves, to growth at home.

Already, in two Budgets, the Government have raised taxation by nearly £600 million. Now we have a third instalment of this unholy trinity, as opposed to the pious aspirations of the Chancellor. He has now probably imposed an increase in taxation of another £300 million. This is a very sorry record indeed, and it contrasts sharply with that of Conservative Governments who, in Budget after Budget, in situations frequently of economic difficulty, managed to reduce taxation. We have been spared a rise in Income Tax in this Budget, but let us not forget the achievement of previous Conservative Governments in getting the standard rate of tax down from 9s. 6d. to 7s. 9d. Although this Government in this Budget have paused, in previous Budgets they started the move upwards to a penal level of taxation once again.

Another criticism I would make of the proposals in this Budget affects not income but capital, the provisions governing capital investment in the sterling area. First of all, the effect of this must be to weaken the importance of the sterling area and so indirectly weaken sterling. Secondly, I have the gravest doubts about whether this voluntary scheme which has been put forward by the Government will work. After all, why should people co-operate? This is only a form of blackmail. The threat is, "If you do not do this voluntarily you will have to do it compulsorily".

Why should a man not dispose of his money as he wishes if the law allows him to do so? Why should the Government presume to make a claim on the way people invest their money in order to help the Government out of a hole in which they have got themselves? If the Government think that it is in the national interest to restrict sterling area investment, surely the correct course is to do so by law. The great risk which they are taking by adopting this policy is that they will not stem the flow of capital to the sterling area. Rather, they will encourage it, because people will take the opportunity to invest their money freely while they can.

The matter for the greatest regret in this Budget is the lack of positive measures to make our economy more competitive and to get the economic growth, which has virtually stopped, going again. This is the Chancellor's second objective. I believe that it should be the first. I believe that it is the central problem of our economy. Economists differ about why our rate of growth has been slower than that of equivalent countries, which it has been for a long time. I believe that a high degree of responsibility must be placed on the policy of "stop-go" which undermines investment confidence and so leads to the possibility of only a slow rate of economic growth. But if that is the effect of the policy of "stop-go", what will be the effect of the policy of "stop" with no "go", which is all that we have had so far from the Government?

For all the influence which the Department of Economic Affairs has had on the Budget, it might as well not exist. This Budget finally proves the folly, which has been pointed out from this side, of dividing up the control over the economy into two empires, one dominated by the Treasury, and the other by the Department of Economic Affairs. The result of this has been that effective control of the economy has remained with the Treasury, and further it has removed from the Treasury the most influential voices arguing the case for economic growth. Their talents have been diverted to such academic exercises as the National Plan, which is now deader than the dodo. Even the First Secretary's vocal rôle has been taken over by the Prime Minister. I think in this connection of Belloc's verses on the dodo: The voice which used to squawk and squeak Is now forever dumb— Yet you may see his bones and beak All in the Mu-se-um", which in this case is the Department of Economic Affairs, but perhaps I am being a little optimistic in thinking that the First Secretary has been silenced permanently.

It is vital in this debate that the case for expansion and economic growth should be put, and I hope that it will be put from the back benches on both sides, because our future depends on the solution of this problem. The Chancellor admitted in his speech that a major handicap to growth was the acute shortage of labour. We have a very low level of unemployment at the moment—about 1.2 per cent. This shortage has been made worse by the restrictive immigration policies of the Government, but even more important has been the shortage of new natural sources of labour within the country on which we might have drawn for new manpower to sustain economic expansion. Other countries on the Continent, such as Italy and France, have had these advantages which we do not enjoy.

In this situation, the correct and efficient use of manpower becomes a central problem of economic management. The over-manning of British industry is widely known, and it is equally widely known that this is so because employers hold on to labour which they do not need, in times when there is a turn-down, for fear that they will not be able to get that labour back again when expansion is once more got under way. This is the most important single sphere in which effective action to stimulate growth could have been taken by the Government in the Budget. The sad thing is that the opportunity has been missed, and very badly missed indeed.

There is much to be said for a payroll tax, but a payroll tax to be effective in this situation should, first, apply to all industry, both manufacturing and service industry, without discrimination. Secondly, it should be flexible so that there is power to vary it from region to region, and it should be flexible also in relation to the sex of the employees to which it applies. What justification can there be for drawing this sharp and arbitrary distinction between service industries on the one hand, and manufacturing industries on the other, which is the essence of this Selective Employment Tax?

Does the Chancellor think that the service industries contribute nothing to our balance of payments? One example alone should suffice. The hotel industry is as important an earner of foreign currency as almost any branch of our manufacturing industry. What about banking and insurance, those two great service industries? They are making a vital contribution to solving our balance of payments problem, but these industries, with the exception of the construction industries, are not only going to be loaded with this extra taxation, but are still being deprived of the investment grants which they were denied in the last Budget. This is a particularly heavy blow to the hotel industry, which is such an important dollar earner.

What an extraordinary view is taken of the economy of Britain by this 20th century Government. They evidently believe that somehow service industries and manufacturing industries are separate in kind. That might have been true in the 18th century, although even then one could have put up a good case against it, but it is certainly not true today, when service industries and manufacturing industries are inter-connected at so many points that the separation of them can only be for academic purposes which bear no relation to the realities of economic fact.

This tax which has been imposed on the country will do nothing to reduce over-manning in manufacturing industry, which is the very point where over-manning is at its worst. In fact, it will have the contrary result. The effect of this tax will be to encourage manfacturers to employ more people, because they are to be given an extra subsidy by the Government for every individual they employ. If we had not heard this with our own ears from the Chancellor, and read it rather hastily in the White Paper with our own eyes, we would find it hardly credible that this was seriously being put forward by the Government as a contribution to solving our economic problems. This is a case where half a loaf is very much worse than no bread at all. It would have been better to have had no payroll tax rather than this ill-thought-out and half-baked version which will make it infinitely more difficult to produce a sensible payroll tax, and which will have the most harmful effects on the economy. I hope and believe that the Opposition will relentlessly oppose this tax at every stage of the Budget.

There is a second omission in the Budget which I regret, and this concerns exports. Exports have risen but they have not risen nearly enough. The Chancellor admitted that world trade was buoyant and rising, and any increase we have had in exports so far seems to be dependent on that buoyancy of world trade. In fact, we shall shortly be faced with a threat of a rise in imports when the surcharge is removed. I am glad that the surcharge is to go, but make no mistake about it; it will call for a tremendous extra effort to raise exports. I am sorry that the opportunity was missed of giving a direct export incentive in financial terms, because that is the only effective way to increase exports. It is much more effective than any amount of exhortation, even that given at the highest level.

The third omission is the omission of any encouragement to savings. Nothing has been done to arrest an extremely sinister movement for the future—a movement of people's private savings from long-term to short-term investment.

But the most extraordinary omission from the Budget speech is the complete lack of any forecast of the future movement of our economy, especially in relation to growth. We are entitled to ask the right hon. Gentleman what has happened to the target of 25 per cent. growth over six years which was outlined in the National Plan. Where is it now, and what has happened to the proposed 3.4 per cent. increase in output per man laid down in the Plan? There is nothing in the Budget to aid their achievement.

I agree with the Chancellor that the Budget must not be seen in isolation but must be taken into consideration in the context of our whole economic policy. What is quite clear from the Budget is that the Government are now more dependent than ever for the success of their economic objectives on the incomes policy. The Budget, by omitting to take direct action to curb the flow of imports and by creating a situation in which imports are likely to rise, makes it more essential than ever to increase our exports, and we can do that only with a successful incomes policy.

I believe in an incomes policy. It is vital for Britain—probably more vital for Britain than for any other country. But a policy which has no other backing than exhortation, even if it comes from the Prime Minister, is doomed to failure. The Chancellor admitted as much in his speech when he said that the rise in wages in 1965 was not justified by the rise in output. That will go down as one of the understatements of all time.

If the Government are to have a successful incomes policy they must do two things. First, they must enforce it in the nationalised industries, where alone they have both power and responsibility. Secondly, they must back up their incomes policy by structural and legal trade union reform. It is no good exhorting the A.E.U. to throw its rule book away; the Government should take some positive action to bring them to fling it away. I therefore regret this Budget very much, as dismal and unimaginative. It does nothing to raise industrial production; it does nothing to increase our growth; it does nothing to increase our exports, and it does nothing to increase the competitiveness of our economy. It is a Budget which is totally irrelevant to the needs of Britain today, and I hope that it will be exposed as such to the British people in the debates which follow.

7.14 p.m.

Mr. Kenneth Lomas (Huddersfield, West)

I am most grateful for the opportunity once again to follow the hon. Member for Chelmsford (Mr. St. John-Stevas) in a debate in the House. I listened to his speech with great interest. I found it very much like the curate's egg—good in parts. There were many parts of it with which I agree entirely, but in other respects I felt that it was harking back to a day that I had hoped had long gone by. The hon. Member regretted the absence of Gladstonian principles in the Budget. I remind him that times have changed and that we are living in a society in which the community recognises that it has obligations to the individual, and that the relatively poor and the not too well off do not have to rely any longer on charity as they did 70 or 80 years ago.

It is right to recognise the fact that because of the developments which have been made in the last 60 years the community now has this obligation to the less fortunate. But the Chancellor is faced with this precise problem—which is his job every year—of trying to obtain the necessary revenue in order to make sure that we have the cash available to implement the social reforms which have been so long delayed and, at the same time, to make certain that he can cream off, if necessary, a certain amount of purchasing power in order to prevent an inflationary situation developing, in which there is inevitably a spiral of wages chasing prices, with all the consequences.

I agree with hon. Members on both sides who have said that the key to the problem is increased productivity, but it ill becomes hon. Members opposite to lecture us about obtaining increased productivity when during the whole of their time in office we got nothing like the increase in production that we should have had.

Sir Cyril Osborne (Louth)

More than we are getting today!

Mr. Lomas

We have been in only for 18 months. If we start from a base figure and remember that we inherited a terrible mess, we realise that it is not possible to get into top gear immediately. But by the time the next election comes along in 1970 we shall find not only that we have obtained an increase of 3.8 per cent. in our production per year but have exceeded the 4 per cent. figure. It will move slowly to begin with but will accelerate and pass the target in the last two years of the National Plan.

Hon. Members on both sides of the Committee will accept many of the minor proposals in the Budget. They will welcome the very small but necessary amendment which will allow a shopkeeper to sell stamps without having to obtain a licence. This is a long overdue reform, and I see no real reason why it should not be possible for the Chancellor to examine the great bundle of possible reforms which are so overdue in taxation, and which he might have included in the Budget.

I congratulate the Chancellor. In spite of all the fears of the newspapers and of people both inside and outside the House that there would be an increase in the Purchase Tax on cars, and that the price of beer, tobacco and petrol were all going to rise, there was almost an outburst of indigation among hon. Members opposite when it was announced that that was not to happen. Hon. Members opposite were surprised, because they expected that this was the way that the situation would be dealt with. They were surprised that Income Tax was not increased. This is an indication of the fact that the Budget was conceived bearing in mind the National Plan and the objectives which have been stated time and again by the Government, of getting the country moving forward in a stabilised way, not only in respect of incomes of all kinds but of prices. That is what the Budget has sought to do. We should be very grateful not only for the small mercies but for the larger ones.

As for the Selective Employment Tax, which will occupy the House in Committee for many hours in the weeks and months ahead, there are certain dangers which I accept, and which must be studied very closely. We talk a lot about modernising industry and of re-equipping it and revitalising it. This needs to be done. We talk about the need to encourage the mobility of labour, which must be done if the National Plan means anything. But I am worried that this tax may persuade employers to hoard labour. It may mean that they will keep more than they should, and that even those that do not now do so may be persuaded not to introduce new measures that they should be introducing, because they have the labour to get by using their old methods and techniques. This has to be watched very carefully indeed. I welcome the tax in itself because it is a new form of tax, a wider form of taxation. It will bring in £240 million. We must nevertheless watch any effect it may have on prices, although the Chancellor said that it would have an effect of no more than 1 per cent. If that is so, I think it can be absorbed by increased efficiency in industry. It can be absorbed in so many different forms.

The hon. Member for Chelmsford did not think the Government had really done anything to help in terms of exports or to restrict our imports. We have been doing this all the time in the 18 months we were in Government and we have now gone further along the road. The Chancellor this afternoon quite rightly gave an indication that the import surcharge would be coming off towards the end of the year. This, surely, is a good thing. It certainly will be welcomed in my own constituency, which has felt the effect of the surcharge on some of the goods it has to import.

It was also said this afternoon that there would be an increase in the facilities being given to exporters. This again is right. There are many industries in this country that are grateful to the Government for the Export Credit Guarantee Scheme. If this can be increased and enlarged, so much the better. When people criticise the import surcharge they should realise that it was essential because of the legacy we found when we became the Government. The Export Credit Guarantee Scheme was necessary in order to stimulate our exports and to sell our goods overseas.

There is positive proof in the Budget that the Chancellor has drawn it up with the national problems in mind. We must get out of this vicious circle of periodic crises where we have a balance of payments problem recurring every three or four years which in the past has been solved only be creating something like 800,000 people unemployed. We want to avoid that and we have been fighting against it. This is what this Budget is designed to do—to maintain that low figures of 1.2 per cent. or 1.3 per cent. unemployment. That is what we are after when we speak of maintaining full employment.

We want at the same time to maintain a steady—not a galloping and then a full-stop and reverse—type of growth. We want a steady and sustained rate of growth in the whole of industry. This I think we have done. It is so easy to solve any balance of payment crisis or economic problems merely by applying the screw and forcing people out of work. We can reduce the purchasing power of the people quite easily in that way. We can make conditions such that they have not the money to buy goods and so cut back on demand. But that would stunt and cripple the economy and retard growth. We decided to set our face against this.

It is also the duty of the Budget and of the Labour Government to make sure that not only do we have the full employment we seek but that we increase the whole wealth of the country. We cannot do that unless we are prepared to face the fact that if we are to go on shouldering burdens which our economy cannot carry the net result will be economic bankruptcy. That is why in the Budget Statement this afternoon I was pleased to hear the Chancellor's comments on the question of our troops in Germany and that we should be relieved of some of the payments for keeping them there. I hope we shall go further in this respect. Although there has been a review of defence costs, I hope there will be a further review to see how it is possible to make certain that defence expenditure bears a realistic relation to our economy. Otherwise we shall be in trouble. There is no point in being, or attempting to be, one of the greatest military Powers in the world if the net result turns out to be economic bankruptcy.

Mention has been made by hon. Members opposite that the Budget makes no reference to the over-riding need for growth in industry. This is done in many ways, by encouraging investment, and helping to stimulate industry where we can. There has to be an acceptance of change on the part of the manufacturer as to what he makes and where he sells it, and an acceptance of change on the part of the worker in what he produces and where. There has to be an acceptance of change on the part of the nation. There has to be a realisation that unless we change our ways we shall be stuck in the mud for ever. We on this side of the Committee recognise that without change there can be no progress.

Sir C. Osborne

Will the hon. Member tell the Committee how he would make the nation realise these brutal facts?

Mr. Lomas

I can tell the hon. Member, and if I start with him perhaps I can persuade his party and the rest of the country. One can do this, as we have been doing it, when we go to our constituencies. We have a National Plan which has been accepted by the whole House. We are encouraging co-operation with industry and the trade union movement. We are holding conversations and consultations at the highest levels with various organisations. It is up to the people who actually believe in planning to take the message back and try to get across to the general public the fact that if we do not plan we are heading for trouble.

It follows that if we accept the need for this we must think in terms of regional planning as well. This is precisely where the policy is beginning to take effect. In the regions there are planning boards and planning councils made up of individuals from all walks of life. They know the problems of the regions. Their views can be made known to the councils. It might be worth while considering having one Member of Parliament from either side of the House from the back benches to represent the views of a region on a planning council so that the views of constituents could be made known to their Members of Parliament. That is worth thinking about as a means of spreading democracy not only throughout regions but throughout the whole country.

The biggest development with which we are faced is acceptance of the need for planning. This has to be done if we are to escape from the jungle law, the free-for-all society, which many hon. Members opposite accept and desire. If we do that, we must use the Budget with all its fiscal powers. Above all, we must get home to the people and do whatever we can about the idea of the prices and incomes policy.

I have been a trade unionist for 29 years, and I am not against the prices and incomes policy. On the contrary, I am completely in favour of it. I believe it means that we can at long last get some kind of ordered and planned growth in our policy for wages and salaries. This does not mean that those at the bottom will be tied to the existing norm of 3½ per cent. The whole policy of prices and incomes shows clearly that if wages are too low they should be allowed to go through the norm. This is why wages went up last year—because those left at the bottom were allowed to go through the norm. I accept what the hon. Member for Louth (Sir C. Osborne) said. It is easy to mouth words such as "full employment" and "stable economy", but we all have a job to do to try to spread the message that the essential need is for ordered growth.

The prices and incomes policy is not designed to retard wages; it is designed to increase the real value of wages and to stop paper increases being swallowed up. The trade union movement is a responsible organisation which is prepared to accept these things, provided that it also realises and accepts that the Chancellor by his Budget and statements is making it fair to all and that it is not merely those on one side who are asked to make sacrifices.

I am a Socialist. I have been a Socialist for a long time. Because I am a Socialist I have been accused of being starry-eyed. Perhaps I am, but at least I am not blind to the facts of life. The facts of life are that I realise, even if some of my hon. Friends on this side of the Committee do not, that we are living in a mixed economy, whether we like it or not. As long as we are living in a mixed economy we must have co-operation between industry, the trade union movement and the Government. Unless we have that, no progress can be made. I hope that we shall continue to have the support of industry and of the trade union movement.

One cannot change something overnight. It would be arrogant for any Gov- ernment or individual to pretend that any impact that they could make could transform society within a matter of years. It is a slow and steady progress. I ask the Government, and the Chancellor in particular, to realise that what we on this side of the House want to see, what the person on the shop floor, in the distributive trades, in the hospital services, in every kind of job, want to see is a clear indication that it is not just their wages which will be affected, but that the whole range of incomes and all kinds of prices will be dealt with effectively.

This is not, perhaps the Budget which many expected. It is not, perhaps, a Budget which will make a great squeeze in any way. It is a sensible Budget which does not tamper with a lot of taxes. It is a Budget which clearly shows that we shall try to leave prices as stable as we can. This Budget is fair in the sense that it makes sure that any sector of society which has not made its contribution shall do so. I believe this will be accepted as a fair Budget. I believe it will be accepted by the trade union movement. Provided there is this essence of fairness to all sides, provided there is no interference with the right of the trade union movement to negotiate on behalf of its members, provided we also obtain the consent of industry to the efforts that we are making on its behalf as much as on our own behalf, I believe we can go forward to a better society. But there must be this positive proof.

It has been underlined that the present Government are intent on redistributing wealth, on making a society based on social justice and equal opportunity. For that reason I have pleasure in supporting what my right hon. Friend the Chancellor said, and I hope that the Budget will receive the full support of the House in the shortest possible time.

7.33 p.m.

Mr. Michael Shaw (Scarborough and Whitby)

It gives me great pleasure on my return to the House to be able to make an early intervention and, in doing so, to follow another Yorkshire Member of Parliament.

Whilst I do not want to be too controversial on this occasion, I feel bound to comment that I thought everybody realised now that the present Government did not inherit a mess when they came into power. On the specific point of the increase in productivity, there was a productivity rise of some 5 per cent. in 1964 when we left office. What we complain of is the fact that that increase was not continued, that the economy stagnated after the run-down when the present Government's policies were put into effect.

Mr. Lomas

May I intervene? If a deficit of £800 million is not a mess, what is? The fact is that during the period that hon. Members opposite were in office production increased by only 2.3 per cent.

Mr. Shaw

It was not a mess. The hon. Gentleman should read any of my election speeches or any other election speeches made by hon. Members on this side of the Committee and he will see clearly stated the explanation of how that situation arose. The matter was under the control of my right hon. Friend the Member for Barnet (Mr. Maudling), whom I believe to be one of the most outstanding Chancellors of the Exchequer that this country has had for a long time. During his period of office he was trying to do something that many Chancellors have tried to do, namely, to get out of this permanent "stop-go" policy, a very difficult thing to do. Difficult though it was, I believe my right hon. Friend had a fair chance of success with his policies. Alas, due to our failure to get back into power we shall never know whether he would have succeeded, but I certainly believe that we stood a better chance of progress with his policies than we do with the policies that succeeded him.

I should like to pay tribute to my predecessor, Sir Alexander Spearman, who served as Member for Scarborough and Whitby for nearly 25 years and who during that time earned not only the affection and regard of everyone in that constituency but also the greatest respect in this Chamber. It gives me added pleasure that I should be allowed to intervene in this debate in which I know, had he been here, he would have wanted to take part, for he always took the greatest possible interest in financial debates.

During my absence from the House I have been, as it were, on the receiving end of its deliberations. Frankly, the reactions that I found at that end were neither entirely flattering to the House nor encouraging for the country's future. There was an overriding feeling of uncertainty as to what lay ahead. There was, in fact, only one common feeling held by everyone, I believe, during those 18 months, and that was a feeling that in view of the Government's narrow majority and as a General Election could not be long-delayed, nothing drastic would be done to curb demand; and whatever actions the Government took to stop the economy overheating were viewed against that background. As a result, I believe that demand kept up, that wage claims were made and won on the basis of a continuing scarcity of labour and that they were accepted often too easily by industry because the demand was such that costs were not of the first importance.

As a practising accountant, may I say that quite apart from their merits or otherwise, it was a mistake to push through in one Finance Act two such complicated measures as the Corporation Tax and the Capital Gains Tax at one and the same time. I hope that there is no tendency to underestimate the tremendous difficulties and uncertainties that exist both in the Inland Revenue and among the staffs of practising accountants throughout the country. Take personal Income Tax, for example. The forms have now come out and most of them have been pretty hastily forwarded to the accountants' offices. These will present a tremendous headache to all professional advisers as well as to Inland Revenue staff.

I hope that we shall be able to do a considerable amount during the passage of the next Finance Bill to alleviate some of the anomalies and difficulties that are presented to us. But it is not only the difficulties and doubts that are the problem. The problem also is the size of the task that is involved in working out all these computations. The size of this task means more skilled labour, and the problem is where to get it. There will be great difficulties both in accountants' offices and in the Inland Revenue in having the work done competently and fairly so that justice is done.

Whilst on the Capital Gains Tax, no one can now believe that any layman has the slightest hope of making an accurate return of his transactions in any year. While declaring an interest in this matter, as, obviously, I do, I submit that from now on professional fees for establishing profits and losses are as necessary an expense in the acquisition or disposal of property as are the charges of stock-brokers or auctioneers. Believe me, I can give fair warning that these charges will not be light. From the few returns I have seen already, and the attempts made in them to provide all the answers, it is clear that the costs involved for people as a charge on their income must be considerable if it is to be discovered whether there is any claim or liability. I am sure that these costs are absolutely essential, and it is in the interests of Inland Revenue officers themselves that they should be met and, indeed, encouraged to be met so that proper returns can be made and the work at the other end be kept to a minimum.

Next, I make a point not from the accountancy point of view but from the businessman's point of view. For well over a year now, there has continued to be a high level of demand and at the same time there has been a continued credit squeeze of varying degrees of intensity, at times a degree tougher than I can recollect on any other occasion. Yet I believe that the credit squeeze has had far less effect than was expected. I do not pretend that there has been no effect at all—obviously, that is not true, it has had an effect—but I consider that it has had less effect than expected. The reason is that it is the job of industry to satisfy demand and, if demand exists, as it did throughout this period, industry will do everything in its power to meet it. Not only was industry willing to pay higher rates of interest for capital—and why should it not, because cost was not paramount and sales were easy?—but in large sections of industry another means of financing operations came into being and people stopped paying each other for a month or more. In many sections of industry, everyone took longer to pay and took greater credit.

It would be a very interesting exercise for the record to find out by how much the objects of the credit squeeze were vitiated by the size of the additional credit created by this extension of credit throughout whole industries. I can think of one example. A factory working flat out for a month at the beginning of this year did not get in enough to pay the wages in that month. Of course, it was an exceptional month because taxes had to be paid and so on, but my guess is that this went on in many instances in various parts of industry.

A continued credit squeeze, in so far as it is successful, is damaging if applied too long because it falsifies the normal conditions of credit upon which industry relies. What is more, established firms which, generally speaking, have their credit facilities well organised and, usually, well in excess of their normal requirements, are all right, but the people who are hardest hit are the most vigorous, the growing enterprises. The growing firms are the ones which, as they take each step forward, rely, possibly quite temporarily, on banks and such institutions for the additional capital to get them over the hump of each advance. If for a long period of time we stifle the growth of these new and energetic firms, we stifle the very people who put competition into industry, who get after the heels of the established firms and see that they are not too comfortable and do not have too many overheads comfortably on their shoulders. There is a very real danger if we continue the system of credit squeeze too long.

The lesson we have learnt during the past 12 months is that, if we are to take, as take we must, the heat out of the economy, then we must reduce demand both by the public in its consumer spending and by the Government in their requirements for material projects and for manpower. In other words, we cannot isolate too finely the different sections of demand. As soon as we start to do that, we get into trouble. Certainly, we cannot isolate Government expenditure because it is such a major burden upon resources.

We have now had the election, and, though I cannot say that I am very pleased about the result, it was a good thing to have it because of the uncertainty to which I have referred and the belief that no one would really grapple with the nation's problems until it was out of the way. The Government can now concentrate on governing, putting first things first. First of all must come the putting of our economy on a sound basis. We can fairly say that, from now on, right hon. Gentlemen opposite have no excuse and they will be judged by their actions, not by their words.

In my opinion this is a holding Budget. The level of taxation is too high. I can see that, because of our present situation, which is in large measure due to what has happened during the past 18 months, there is no alternative to this type of Budget, but undoubtedly the level of taxation which we are suffering now and will suffer next year is at crisis level.

Obviously, the most interesting feature of the Budget is the selective employment tax. Making notes before I heard the Chancellor this afternoon, I noted my belief that there should be some form of payroll tax if additional taxes were needed, and, therefore, without approving this particular form—one has not had a chance to study it in all its aspects—I welcome the approach that, if a tax is necessary, this type of tax has been looked at and accepted. But, if I have to accept this tax, I accept it on the condition that, when the period of crisis has been overcome and we can, as I hope, begin to reduce taxation, this type of tax will be left in force and the emphasis in reduction of taxation will be on the reduction of direct taxation, both Income Tax and Surtax.

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


Mr. Shaw

Ah, indeed—and high time, too.

Now, two specific points with reference to the new tax. Why has the date 5th September been chosen? I make a plea on behalf of the hotel industry that if this tax is to be introduced, it should be introduced at the end of September and not at the beginning of September. This would allow the many hotels which close down at the end of September to work out their new costings for the next season in plenty of time and they would not be tied up in the new tax in the last month for which they remain open and are busy.

This new tax will bear very hardly upon hotels. I regret that the new investment grants will not apply to hotels. I regret the abolition of the investment allowances. That decision shows a weakness in the Government's attitude towards taxation. At every stage, whatever they do, whether it is theoretically advantageous or not, the result is an additional complication. One of the great virtues of the old investment allowances was that everybody knew where they stood and what they would get, that they applied to everyone and were easy to apply and that it did not need a single additional clerk to administer that tax. Moreover, it rewarded those who were successful because it gave the allowance to them in tax relief. The allowance was given to the hotel industry, which is only now beginning to reorganise itself from its rather Victorian appearance of a few years ago.

Coming from a farming area, I cannot fail to mention the most serious difficulty of all which arises from the tax—its effect upon the farming community. The smaller farmers are finding it difficult to keep going, and the strain of keeping their working force together is very great. More and more they have to look around for ways of getting rid of one or two helpers and of relying more and more upon themselves and their wives. This tax will be a great burden to them. It is the acceptance of an immediate burden in return for a theoretical compensation at a later date, and no farmer will be particularly enthusiastic about that.

May I turn to the question of Surtax on certain dividends received from companies which have paid earlier interim dividends. May I state clearly my own philosophy on this matter? I do not believe that retrospective legislation is justified in any circumstances whatever, unless it is to right a wrong which has been inadvertently committed in the past. If it is in the nature of an additional levy or burden, it should not be allowed. In this case many thousands of shareholders are affected who had no say at all in the decision. Most of the additional dividends declared by interim dividend were declared by the boards of directors. The shareholders simply received these dirk dends, as they had every right to do, just as the directors had a right to declare these dividends as the law stood at that time. But because it has not been popular with them, hon. Members opposite propose to change the law for that year only, so that the additional dividends in the year 1965–66 may not be spread over several years, as may he done in any other year when exceptional dividends are received from a particular company. This is wrong. The action taken by those companies was legitimate and within the law. People have the right to act as the law stands without having those actions upset by subsequent legislation.

I agree with the Chancellor that the greatest problem at the moment is how to increase productivity. During the last week we heard many speeches on this subject, which is a good thing, but we are entitled to judge the Government by their actions and not by their words. Many actions will have to be taken by the Government if we are to get the increased productivity which we all require. I cannot see the justification for the unions having different sets of law applicable to them by comparison with any other set of people in the community. Just as it is right that we should get rid of restrictions introduced in the past by industries to protect themselves—restrictions which are no longer justified—so it is right that we should apply this principle to the unions.

When Ministers are asked to intervene in wage settlements they must influence the decisions in favour of productivity. I do not say that they will not do this but we are entitled to judge them by the actions which should follow their words.

7.58 p.m.

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

I hope that I shall not be misunderstood if I say that I am glad to see the hon. Member for Scarborough and Whitby (Mr. Michael Shaw) back in the House if only to give me the opportunity of replying to him in the debate.

I have listened with interest to the debate, and I should like to remind the Conservative Party that they were defeated in the General Election and that they must realise that, together with the Liberal Party, they form a minority in the House. This is a fact which they must not forget when giving advice to the Government because they must leave it as advice and not give it in the way in which they have given it for so long—as if they own the roost.

The hon. Member believes that professional fees are necessary. I will not question that argument now but I will relate it to another subject which I shall introduce, and I hope that he will permit me to leave it till then.

He spoke about Capital Gains Tax and Corporation Tax. We could not have had one without the other. We could not have had Capital Gains Tax alone or Corporation Tax alone. These two taxes were introduced together as part and parcel of a tax system to touch the individual and to touch the corporate body.

Many hon. Members opposite have spoken about the effect of the Selective Employment Tax on agriculture. May I remind them that before the election the Conservative Party were advocating a new system of agricultural pricing to bring their policy into line with the agricultural policy of the Common Market. The hon. Member has forgotten that.

Mr. Shaw


Mr. Winterbottom

I should like farmers to know that the Common Market agricultural pricing policy advocated by the Conservatives would have meant a reduction in the subsidies which would have affected the economy of every farm much more than will the Selective Employment Tax suggested by the Chancellor.

Mr. Hector Monro (Dumfries)


Mr. Winterbottom

I must get on a little further with my speech before I give way.

The Chancellor of the Exchequer has been adventurous in his introduction of the Selective Employment Tax and has taken a bold step from the known to the seemingly unknown. He has faced a dangerous situation with the greatest courage. I will argue for the tax before I put some points about it which should be considered.

One important argument in support of the Selective Employment Tax—I may not have my figures exactly right; they are only general figures—is that when I was a young man the productive workers in this country were in a ratio of one to eight compared with those in the service industries. Today that ratio is one to 21. In the industrial life of Britain the service industries have grown out of all proportion to the productive industry, and somehow something must be done by the Government to put that right. We shall never build up the export trade with barristers, lawyers, doctors, and, with respect to the hon. Member for Scarborough and Whitby, with accountants. We shall build up the export trade of the country with the products of our looms and factories and our productive workers.

Mr. Shaw

That makes an even greater case for reducing the complex laws which oblige us to have so many accountants.

Mr. Winterbottom

Let me finish my argument. The hon. Member should not try to argue my case for me. I will do it in my own little tin-pot way. It may be inadequate, but at any rate it is done sincerely, and if I did it in the way in which the hon. Member wants me to do it, it might not appear to be quite so sincere.

I have watched this revolution almost the whole of my life. Distribution is one of the greatest service industries in the country. If distribution is out of line with production, the whole of the economy suffers. This adventurous move by the Chancellor has forced the distributive trades to a consideration of the fundamentally revolutionary nature and implications of these proposals.

On the face of it, it appears that this Selective Employment Tax will increase prices. At first glance, it seems bound to do so. Co-operative societies have been mentioned, and I should like to give some facts about one. With 1,000 employees, in a period of 12 months it will have to pay between £20,000 and £25,000. Its dividends are 7d. in the £. Its shops are mainly grocery shops on a 16 per cent. margin, and this means that about £40 a week will have to go on overheads and the tax will mean an increase of about 4½ per cent. in those overheads. On the face of it, that will reduce the dividend from 7d. to 4d., a crippling blow.

But let us consider the other side of the coin, the necessity for reorganisation of distribution by that society. The immediate problem can be overcome by wise buying. Some of the multiple grocery establishments with a wages bill of 14 per cent. of turnover and a 16 per cent. margin of gross profit still find themselves able to pay dividends to shareholders, all because of wise buying. Over these many years, while prices have been on the increase, it has been comparatively easy to meet the difference in gross profit by wise buying. If the Government are successful in stabilising price levels, that avenue will be closed and another will have to be found.

The subject of prices in relation to this new tax therefore assumes the highest importance and if the Prices and Incomes Board is to be successful it will have to examine prices much more intensely than it is now studying the specific issues referred to it. It will have to examine the margins of all commodities and to fix the margins in all commodities. It will have to recommend to the Government that certain things should take place to reduce price levels, because some price levels can be reduced—and I refer now to agriculture.

The subsidy paid for fat cattle is very high in relation to the retail price of meat. The difference between the auction price of meat and the price of meat on the butcher's block is comparable with the return of 1s. 6d. for a dozen cabbages to the farmer and the Is. a cabbage which has to be paid in the shops. The reason for the discrepancy in the two prices of meat is the same as that for the cabbage. There are those who toil not, neither do they spin, and yet who make a profit so that it can be said of them, Solomon in all his glory was not arrayed like one of these. The Prices and Incomes Board will have to examine very closely the whole range of commodities which appear in the food shops.

Captain W. Elliot

The hon. Gentleman spoke earlier about the service tax "apparently" increasing prices and then seemed to argue that it would not do so for co-operative societies. He has now quoted what the farmer gets and what the retail price is. Surely the reason for the difference is the cost of distribution which the tax will specifically increase.

Mr. Winterbottom

No. I am saying that if the varying prices of commodities are examined from source to final point of sale, it will be found that there are many examples of expense which can be eliminated. For instance, in the distribution of meat there are five distinct types of person who receive a subsidy for every pound of meat which comes under the auctioneer's hammer, and some of those people never handle or see the meat for the commission which they receive, and yet that commission is reflected in the price of meat on the butcher's block.

If those costs were eliminated, the saving would more than compensate for the new tax. The Selective Employment Tax will cause a great deal of heartburning and searching in the distributive trades, and I congratulate my right hon. Friend on introducing it at this stage in the difficult economic conditions through which we are passing, for I believe that ultimately it will not only stabilise, but lower price levels.

Just as I want price levels to be examined, so I believe that we have to do something about wages, a subject mentioned by many hon. Members today. When we discuss the new tax, we discuss those in the service industries who today take more out of the economy than those who produce the wealth on which the country depends. One of the problems of the Prices and Incomes Board is the fact that there are so many people who, despite what some people say, receive what can be described only as starvation wages.

There are some 90 wages councils in the country, 75 per cent. of them producing wages of less than £10 a week for men on a 47-hour week. About 60 per cent. of them provide wages of less than £6 a week for women. What is the value to society of those who are getting £6 a week, or less than £10 a week, as against the value of the accountant, the lawyer or the doctor? Just as we have an examination of prices, so we should have something in the nature of job evaluation in order to find some relativity between various jobs, and perhaps so as to fix a minimum rate below which no one could fall.

These are important issues and they cannot be approached as the hon. Member for Scarborough and Whitby approached them. The hon. Gentleman praised Gladstone. To me, the heritage of Gladstone is that I went to work as a cotton worker at 12 for 2s. 6d. a week. To me, Gladstone means the cotton mills of Lancashire and the dirty, mean, terraced houses without baths and without hot water and with nowhere for children to play. "Thank heavens", it was said, "they did not need to play, because they could be sent to work". That was Gladstone.

I hope that this is a 20th century Government. I hope that it has a 21st century outlook, not the outlook of Gladstone, but the outlook which sees in this problem of Britain a problem which is a whole, which takes industry and commerce and the problems of education and wages and exports as a whole and relates one to the other and out of that relativity finds justice for all. I do not object to the new tax. It has made me think much more clearly today than I have done for many a long day in the past.

8.20 p.m.

Mr. Patrick Wolrige-Gordon (Aberdeenshire, East)

I hope that the hon. Gentleman the Member for Sheffield, Brightside (Mr. Winterbottom) will forgive me if I do not follow him too closely in what he has said in the course of his interesting and long speech, which was concentrated mainly on distribution and the effect of this new tax on distribution services. I would like to say a word or two about the Budget. The Budget will be judged on two counts. First, on the extent to which it affects everyone's pocket and area, and secondly, on the extent to which it points the way for getting our country out of its present difficulties. I will deal with the first point quite briefly. I imagine that reactions will be as various as every citizen. My own comment would be that this further rise in taxation, which is what we have, comes ill from hon. Members opposite who, for as long as I have been in Parliament at any rate, have always argued that they could pay for their programmes out of increased production without having recourse to increased taxation.

I want to deal more fully with the effects of this selective tax on the areas. I was impressed, as I imagine many of my hon. and right hon. Friends were, by the Chancellor's statement and by the figures he gave by way of comparison between the service and manufacturing industries. However, 60 per cent. of Scotland's population is engaged in the service industries and last year we had the highest rate of emigration from our country ever. In my own part of the country, in the north-east of Scotland, the service industries are the principal source of employment for our population.

Whatever the Government may say about their regional development policies, let there be no doubt that this tax is inevitably going to make life more difficult for such areas as mine, in spite of the fact that they are already development areas. A move of this sort only underlines what I think is going to become increasingly more important and urgent, namely, that the time has come to consider seriously some kind of differential tax system for such areas. At present one has industries in those areas which cannot pay the same wage as industries in other parts of the country.

A lower wage rate makes a strong disincentive for the local people to stay and develop the local economy. I see no reason why the Government of the day should not provide the circumstances in which any industry, manufacturing or service, could pay a uniform rate of wage throughout the country.

The other serious impact of this measure concerns agriculture, which is the largest industry in Scotland. Once again the Government are condemning agriculture to live under a question mark. I hope that we shall hear in the course of this debate what is going to be the effect upon agriculture of this new tax. I do not believe that any farmers will welcome this formula of organising it in some way through the Agricultural Price Review machinery. I should like to ask why not have a perfectly straightforward rebate system for the agriculture industry?

Mr. Peter Mills (Torrington)

Would my hon. Friend not agree that it is very rare that we ever get full recoupment at the Annual Price Review?

Mr. Wolrige-Gordon

That is true, and it is the reason why the farmers would be so concerned by the Chancellor's statement that in some vague way they were going to be looked after in the Price Review.

I want to deal with the second part of the judgment upon the Budget, that is whether it points the way to getting the country out of its present difficulties. This is a very important point and one upon which everyone in this House would wish the Government success. If we are to succeed in solving our present economic difficulties, we have to depend upon the voluntary effort of all the people. To that extent any increase in taxation makes that voluntary effort on the part of the people for the sake of the Government that much more difficult.

To a certain extent the Chancellor is responsible for his own misfortunes by his apparent determination to concentrate upon economics alone. We have heard strong speeches last weekend from two Treasury Ministers, talking about "The age of grab." They described a very selfish country. If they were right, which is certainly possible, then to concentrate purely on the economic situation is to concentrate and to seek to cure merely the symptoms and not the disease. If the Chancellor is saying to the nation in this Budget "Come on, let's now proceed to solve our economic difficulties," I believe the average reaction that he will get is, "Why?" That is the normal British reaction to every sort of crisis particularly a financial crisis such as we are now in and which is still disguised from the great majority of our people.

That is the normal British reaction. It is a very phlegmatic reaction and correctly led it leads to a steadiness and composure of great strength. Misused and misled it means finding ourselves in warfare without weapons, in economics certainly without work, wealth and welfare. I imagine that everyone agrees with the Chancellor that the Budget is an important weapon but that it is just one weapon used to get our economic situation corrected. He and the Government are also responsible for providing the kind of leadership which the people will see and respond to and work for in order to put things right.

The goals set by the Government are so small. Their line is "Raise our production by ¾per cent, and all will be well". In my experience, given modern methods and the will, the enthusiasm, the dash and energy and the dare, it is possible for production to rise in our modern 20th century Britain, in specific industries, by anything from 20 per cent. to 30 per cent. a year. Two things are needed—the incentive to do the job and the necessary team work. I do not think that self-interest is an adequate incentive. Men do not live by bread alone and there is a need for new horizons to make efficiency and hard work acceptable once more in Britain. We did it in the war when there was an obvious battle to be won. Are there no great aims left? We have not far to look.

The world is in danger of falling to bits. Humanity has to fashion a new age quickly, where greed must be replaced by care and selfishness by sharing. If we decided to do these things, they could mean a lot for Britain. First, they could mean the assumption of responsibility for a task so big that we would not have time to grumble if we thought that somebody was better off than someone else. And we would begin to see how out of place such grumbles are when we think of the difference between how we live and how millions of our fellow citizens of this world live, in terrible conditions.

For our industry, it would mean beginning to meet the world's needs for its products as well as making profit the aim of that industry. It would mean, in other words, a redirection of motive.

For our politicians it would mean considerable change I never understand why, with all this talk about modernising Britain, modernising industry and modernising Parliament, so very little attention is paid to modernising the British. It is a field in which Parliamentarians might, with justice, be expected to give a lead. It is a gigantic task, but this is an age of giant problems as well as of great opportunities. I believe that it is by dealing with big issues that Britain will solve her small ones, never the other way about.

8.30 p.m.

Dr. Hugh Gray (Yarmouth)

I am sorry that my hon. Friend the Member for Sheffield, Brightside (Mr. Winterbottom) attacks professional men. Just before the last General Election, the chairman of the local Conservative Party said that intellectuals were not wanted in Great Yarmouth. Fortunately, from my point of view, he was proved wrong. My opponent recently said that he thought this country was being ruined by Fabians and intellectuals. Workers by hand and brain are equally important for the well-being of this country, not least for earning it invisible exports.

A few years ago, just after Mr. Peter Thorneycroft resigned as Chancellor of the Exchequer, he came to the London School of Economics to speak to the students' union. After he had spoken, he was congratulated by a student speaker for having had the courage of Professor Paish's convictions. Those days are long past. Today, Oxford has succeeded London in its influence on the Exchequer, and a Socialist Chancellor of the Exchequer has succeeded a Conservative one. Both changes are important for the future, particularly the latter. Underlying the themes of a stable £, growth and expansion, there is a deep Socialist concern for redistribution of wealth. We on this side of the House stand for this because we wish, in accordance with our values, to see greater social and economic equality achieved. The Budget was an exciting one. It suggested new means of raising money and new means of dealing with the question of redistributing wealth. Because some of the proposals are new, they cause some apprehension, as indeed all new proposals must.

As a new Member making my second speech, I should like to say what a great privilege it was to be here and to listen to such speeches as those we heard today from my right hon. Friend the Chancellor of the Exchequer and the Leader of the Opposition. The right hon. Gentleman made a point about the tourist industry. I believe that he was thinking of foreign tourists coming to this country. I immediately thought of the town of Yarmouth, which is a seaside town flooded mainly by internal tourists during the season. It is true that we also have foreign tourists from Holland, and their number will increase when, as I believe will happen soon, we go into the Common Market. The new pay-roll tax, which will hit the service industries, will cause great apprehension to all hotel owners and boarding house keepers.

I support a remark made by an hon. Member opposite. He said that he hoped that the Chancellor of the Exchequer would reconsider the vesting date. It is most important for hotel keepers and boarding house keepers to get through this season. If my right hon. Friend could put the vesting date back a month, it would be a great help. The interests of the town of Great Yarmouth may be hit. I hope to receive reassurance from the Government spokesman on this point because in the winter unemployment in Yarmouth is high. Many people hope to earn enough money in the summer to get them by during the winter.

Unfortunately, the structural changes which are foreseen by the Chancellor of the Exchequer for the whole country have not yet taken place in East Anglia, particularly in Yarmouth. I foresee that the claim of East Anglia to be considered as a special development area will be even stronger after this change has been introduced. But I may be wrong. I deeply hope so. Apart from the town of Yarmouth, my constituency is one-third rural. Like my hon. Friends and many hon. Members opposite, I immediately thought of the effect of the tax on agricultural workers and small farmers. I hoped sincerely that they would be cushioned in some way.

A change of this kind is rather like dropping a stone into a puddle. Some of its repercussions are extremely difficult to visualise. One will concern transport. Garages provide service. Possibly the cost of repairs will go up. In my constituency we live under the threat of rail closures and the curtailment of services to many villages which have no bus service. Today I received a letter from a lady, a Roman Catholic, who said that in future when services are curtailed on Sundays she would no longer be able to go to church. If rail closures take place, one expects that bus services will be provided. The Labour Party stands for an integrated transport system for the whole country and for East Anglia. We look to that. But some people may have to buy motor cars, in which case they will have to pay for repairs. I hope that when the Government spokesman replies, he will deal with these repercussions, with the problem of towns which rely upon the holiday trade and with the situation of agricultural workers.

This Budget is a forward-looking Budget, a thrusting Budget, a Socialist Budget. I heard it with great pleasure but with some apprehensions. I am sure that it is a Budget that looks to the changing structure of the country. Our Government are a modernising Government, a Government who will take the country into Europe. They are a Government of a long future, and I suggest that the Budget is one step in the long right direction.

8.39 p.m.

Sir Tatton Brinton (Kidderminster)

I would like to confine my speech, since other hon. Members have covered various aspects of the Budget, to some comments about the Selective Employment Tax. I see from the White Paper, which I have not had time thoroughly to read, that the objectives are first to improve the structure of the tax system by redressing the balance between services and manufacturing. It seems to me that a basic fallacy is implied in that phraseology, because in the end the people who pay taxes are individuals. They are the source of all effort and of all wealth through the work they do, and in the end it is they who have to suffer tax in one form or another, whether directly or indirectly.

What the Government are saying in that sentence is not that they are redressing the balance between a service or services and manufacturing industry. They are saying that they will make the products of service industries less attractive, because they will be taxed more than they were before. That is fairly obvious. To that extent, there are various kinds of service industries. First, one has the real service industries such as catering, the distribution of food and, perhaps, laundries—a number of service industries might occur to one—in which there is a very small tax content. The greater part of the service industries, however—and I speak here of the true service industries, and not as these industries have been defined today by the Chancellor of the Exchequer—are in the distribution of goods which at various stages in their manufacture bear a certain amount of tax, either as Purchase Tax, Excise duty or in other ways.

To the person who purchases goods at the end of the process, it does not matter whether the tax falls at the manufacturing or the distributive stage. He still has to pay it in the price of the article. It is naive in the extreme to suggest that taxation can be imposed upon the service industries without its ultimately falling upon the pocket of the consumer. That is what must happen in the long run. The consumer is the ultimate source of the taxation which the Chancellor collects. It does not seem to me, therefore, that there is very much truth about the object of redressing the balance except in so far as this new tax will bear on various commodities which so far have largely escaped tax, mainly in food and catering.

The second object which is mentioned in the White Paper is encouraging economy in the use of labour in services and thereby making more labour available for the expansion of manufacturing industry. The question has already been asked whether, if one were looking round the country to find where there is spare labour, it would be in the service industries that one would look first. I do not think that I would. There is greater featherbedding and greater retention of unnecessary labour, for reasons which we quite understand, in the manufacturing industries than there ever is in the service industries.

What the Government are saying, therefore, is not that they are trying to squeeze spare labour from the service industries and get it into making some form of practical use or exportable value. They are saying that they will deliberately discourage the service industries in order to get more and more people into the factories. That is surely the truth behind this tax.

It may be that that is a desirable objective, but there is no greater fallacy in life than to suppose that the man who manufactures a rolled steel girder is in some way morally superior and more economically and more socially desirable than the man who cooks a first-class dinner, because in the long run the man who is making the steel girder is doing so only so that in the ultimate somebody may enjoy a better meal, wear a better suit, watch a better television set or drive a better motor car. That is what it is all about. The whole process is designed for human satisfaction and nothing else. It is not an end in itself. Therefore, do not let us have any kind of moral judgment about what people should be doing. In present circumstances, we must take account of what they are doing because of our acute economic crisis outside.

The point has been made that many of our service industries are of considerable importance to us. In the short time since the Chancellor spoke, I have not been able to discover the value, for instance, of the tourist industry in terms of foreign exchange, but it must be one of our foremost industries. In neglecting such industries, we are neglecting an export industry.

Several of my hon. Friends have mentioned agriculture. I find it extraordinary that the Chancellor should classify this great productive industry as a service industry or that he should ever have considered it as such. It is an industry the efficiency of which has increased by more than that of practically any manufacturing industry over the last few years. It is now treated as if it were an industry from which further labour should be squeezed for the benefit of people who produce manufactured products. This is extraordinary. I can only hope that the Chancellor will reconsider it, because to place a further burden on agriculture, which under the existing system of subsidies can be covered in the long run only by a further subsidy from the public purse, is both unnecessary and illogical.

Even if we accept the desirability of the objectives of this tax, I suggest that it is still the wrong tax to have imposed. I accept, as many of my hon. Friends have done, that there is a strong case for a turnover tax. Whether it should differentiate between one form of enterprise and another is a separate question. For the sake of my argument, however, let us accept that we need the power to differentiate between one enterprise and another.

Why have not the Government considered—or perhaps they have considered and rejected—the possibility of a value-added tax? We have been told on previous occasions, not only by Socialist Chancellors, but by at least one Conservative Chancellor, that there is good reason why a value-added tax does not work. It works in other countries, but apparently it would be difficult to work here. Yet the Government are imposing a form of pay-roll tax which could perfectly well have been a value-added tax, in my belief. What are the advantages of a value-added tax?

First, the Government could if they wished differentiate between one industry and another by varying the rates to be applied. They could differentiate between one specific enterprise and another in the same way as they now propose to differentiate between service and manufacturing industries. Secondly, the tax would be more closely related to the total size of a business, very nearly as closely related to its pay roll and more closely related to its profitability than the proposed new tax will be. The Chancellor's new tax is a blunt instrument. It is "so much a nob". It will not matter whether a man is earning £50 or £5 a week—he will cost the same.

Thirdly, the value-added tax would have a vital bearing on exports because it would be remittable. Under the terms of international agreements it can be remitted on exports. This useful tax is already in existence in France. Why is it not being used for the purpose for which the Government are using their Selective Employment Tax? It could have been made selective if the Government wished, although I have serious doubts about selectivity.

In applying the principle of selectivity, what sort of omelette will the Government be creating? Is this to be a situation similar to that of the Purchase Tax situation, where one used to pay 20 per cent. on a match box but only 10 per cent. on a pill box, so that match boxes were sold as pill boxes and vice versa? My hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) had many years of fun out of these anomalies.

What sort of situation will we get into? When will an industry be a service and when manufacturing? There will be many marginal cases very difficult to define. What will be done if a manufacturer, discovering the cost of pay-roll tax on, for example, those employed to run the canteen for him, instead of employing outside contractors, which is a common practice, decides to run his own canteen? Are those workers then manufacturing or service?

Will a firm have to list every single person in a factory employing, say, between 500 and 20,000 people, dividing exactly the sort of jobs the people do, whether manufacturing or service, or will the process begin with the definition of the enterprise? What about enterprises with a little bit of both manufacturing and service? What about the man who makes and sells goods in his own shop? Is he manufacturing or distributing? How easy will it be to define these marginal differences?

There is a further danger inherent in this differentiation. We have already heard how, in the construction industry, as a result of the high turnover, there has grown up the practice in many parts of the country of people contracting with an employer instead of becoming proper employees. They are self-employed and contract their labour to a construction concern. Will we see more of this happening? Will a man self-employed and selling his labour as a free agent on an hourly or perhaps weekly basis attract this tax? Are we to create the awkward situation where people are constantly trying to find loopholes to escape a heavy tax which, in one capacity, they will have to pay but in another capacity will not? That is the danger of differentiation. If everyone across the board had to pay there would not be this danger but the differentiation will cause trouble.

I hope that the Treasury Ministers during the debate will give us their ideas about how this is to work, because it seems to me that, in principle, there are dangers in it. I would still plead for the Government to think very carefully about the value-added tax instead.

8.55 p.m.

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

I am sorry to inflict yet another maiden speech on the Committee, but in a sense I am happy to be able to make mine when the benches are so empty because this gives me perhaps a little false courage. I represent Stoke-on-Trent, Central and already the House has heard the maiden speech from my hon. Friend the Member for Stoke-on-Trent, South (Mr. Ashley), who gave a vivid word portrait of this city which produces so much of the world's most famous pottery. Names like Wedgwood, Minton and Doulton are known internationally. I will not add to that description.

I have the very great honour of following Sir Barnett Stross and I think that both sides of the House would agree that he established himself in the hearts of everybody and made a tremendous contribution to the work of the House in the many years he was a Member. I assure hon. Members that he did this equally in Stoke-on-Trent where he not only became the medical man to a large number of lay people but the medical adviser to the pottery and mining industries and became very intimately associated with them. Therefore, in a sense I have the great advantage of basking in a little of reflected glory from Sir Barnett Stross, but at the same time I am very conscious of the very high standards which he set me, and I can only hope that I can in some measure live up to them.

My own rather esoteric profession, I may say in the context of this debate, is that of monetary economics, and it is in this that I hope while a Member of the Committee to make some sort of contribution. I should like to distinguish, in case the distinction is not already clear, between the financial economist and the monetary economist. I gather that the financial economist is one who engages in the field of income and capital appreciation, and is usually a fairly wealthy man, whereas the monetary economist is a man who knows rather more about money than the people who actually possess it.

I would add, in case there are too many misgivings, that I received my basic training in this very important subject of economics at a time when, on the whole, economics was still written in the Queen's English—more often by Scotsmen—and when perhaps we were in a period of transition when it was coming to be written by Hungarians in algebra. I am not referring to the two distinguished gentlemen whose names appear in the newspapers from time to time. I am referring, of course, to their predecessors, people like Hayek, Kalecki, and others. They have subsequently emigrated, and I do not know whether that will happen again.

What I should like to do in the few minutes remaining to me is not to talk specifically about the provisions of the Budget, because I think it would be a bit presumptous of me to do that, but just to take up two points which I should like to emphasise, two points which I think are extremely controversial and non-controversial at the same time.

The first is one made by an hon. Member opposite earlier today, that we as a nation are rapidly coming to the point where we are suffering from a sort of economic hypochondria. We have got ourselves into a situation where we become so mesmerised by this sort of average balance of payments deficit of £300 million that we do not get this into the correct perspective. I should like to correct a figure given by the hon. Member opposite. The gross national product is something like £33,000 million. I think that when the history of this post-war period is written, from whichever political point of view, this will be seen as some- thing of a malaise, because we surely should be able so to arrange our affairs that we can do something about this when our annual production of goods and services is so very large.

That is point number one. The second point is a bit more controversial. I suffer a little bit here from an anti-climax, because the Chancellor is obviously moving in this direction, but I am glad we are coming to the point of view that fiscal policy is a relatively unimportant thing. We have had Mr. Gladstone mentioned today, and we recollect his Budget of £63 million, I think it was, about a century ago—a somewhat different order of things from that today.

Following the work of that great Liberal, Lord Keynes, we entered a period in which everybody came to believe that fiscal policy was a really decisive instrument of economic matters. I think that this is completely incorrect. I do not want to be accused of too much heresy, but if we study Budgets from 1951 to 1965, and if we look at the sort of what some people irreverently call ritual surplus which the Chancellor estimates he will get, and his actual outturn, we see that in respect of each year there is an almost perfect negative correlation. In other words, if the Chancellor said, "I am going to get a big surplus", he got a small one, and if he said, "I am going to get a small one", he got a big one. One cannot regard as being scientific anything that behaves in that sort of peculiar fashion.

The other point is simply that we must surely have been forced into the belief that fiscal policy just does not work. I think that there is an enormous amount of evidence that even though the Chancellor may think, "I am going to cut aggregate demand within the community by a certain order", and even if he manages this, it has very little effect at all. If we were to ask for an estimate of the cut in aggregate demand imposed by the present Chancellor since October, 1964, we would find that it is without precedent in our financial history, and I think that the result of this in terms of cuts in demand on the economy is that there has been no result at all.

I cannot pursue this, but we have now reached a point with fiscal policy where we have to accept that there are so many factors in the situation outside the Budget which can supplement particularly consumer demand that the Chancellor's efforts are often without avail, just as we have come to see in monetary policy that there are so many sources of credit from financial intermediaries that increasing the Bank Rate and putting the screw on bank advances renders even monetary policy almost impotent.

If we look at this tremendous work by Mr. Dow on "The Management of the Economy", we find that he argues—I shall not quote at this stage because my time has run out—not only that the fiscal policy has not been a contributory factor to economic stability, but argues forcefully that it has created instability, and I am glad that the Chancellor today attempted to put fiscal policy in something of its true perspective.

My other point which makes its contribution to this sense of anticlimax which I feel is that when I asked myself, "What should a Budget do?" my note on this piece of paper was quite simply that I should recommend to the Chancellor—very presumptuously at this stage of my Parliamentary career—that he should use the Budget as a sort of selective financial mechanism, and my only recommendation was that he should impose a payroll tax.

I thank the Committee for listening to my maiden speech. I hope that in the years to come I can make some sort of contribution which will commend itself to the House, and that my general conduct in the House will lead me to earn something of the respect which my predecessor, Sir Barnet Stross, obviously enjoyed.

9.5 p.m.

Sir Cyril Osborne (Louth)

It is my pleasant duty to congratulate the hon. Member for Stoke-on-Trent, Central (Mr. Cant) on a most agreeable maiden speech. He has just said that he hoped that he would establish for himself the same good will that his predecessor earned on both sides of the House for many years. If he continues in the moderate and reasonable way in which he presented his views tonight I am sure that he will earn that, and that the House will look forward to hearing him again. Having been here for 21 years, I begin to wish that I had the same ease and felicity of speech as so many of the new and distinguished Members have shown in the last few days. The hon. Gentleman said that we were mesmerised by statistics. That is one of the occupational hazards of a budgetary debate.

I am grateful for the presence of the Chief Secretary of the Treasury, because there are one or two things that I wish to say to him. First, the Budget is not nearly as harsh as we expected—and for that we are grateful. Secondly, we all recognise that the Chancellor faces a very difficult problem, and that to the extent that both sides of the Committee can agree we should all give him our sympathetic help and consideration in dealing with this difficult problem.

But I must tell the right hon. Friend that the Budget does not face the fundamental problem of our country, which is that we are living beyond our means.

Mr. W. Wilkins (Bristol, South)

You never faced it.

Sir C. Osborne

Please! We have either to earn more or spend less. In a Budget debate we cannot deal with the expenditure part of the problem, but we cannot get into balance until both sides are considered. On the budgetary side we are dealing with the problem of earning more, and there is nothing in the Budget which will help us to earn more. The other weakness of the Budget is that it assumes the success of the incomes and prices policy. Right from the beginning I have supported that policy. It is the only economic hope for the nation. But I cannot see how the Government can assume its success when the Minister of Technology, who is the head of the greatest trade union in the country, is himself really against it at heart, together with his union. The fallacy of the Government's reasoning lies in the person of the Minister of Technology. That is the great hurdle that the Cabinet must surmount.

I want to make three points about the. Budget which cause me to feel that it is a clever Budget, drawn up by someone who has no practical experience of life. Let us consider overseas investment, which the Chancellor mentioned and then passed on, and which, as far as I know, has not been mentioned today by any other speaker. The Chancellor said that he would allow investment overseas only if it repaid itself in two or three years' time. That is preposterous. Hon. Members opposite should not shake their heads. No investment could possibly earn 33⅓ per cent. as a minimum and 50 per cent. as a maximum to repay the capital in two or three years. That assumes that the investment starts to earn dividends from the very moment that the first sod is turned to build a factory. It is preposterous, and no one who has ever had anything to do with overseas development or business would dream of making that suggestion.

If such a thing were possible it would be profiteering of the most extravagant and ruthless kind. Does the right hon. Gentleman believe that foreign Governments will allow that? It is this stupid impossibility of a schoolboy concept—and I am trying to be fair to the Government—that vitiates these proposals. It is ridiculous, and I am surprised that such an intelligent man as the Chancellor should make a suggestion of that nature.

The Chancellor's main suggestion is a selective poll tax. I agree with the hon. Member for Sheffield, Brightside (Mr. Winterbottom) that generally the people in the distributive industries get more out of our economic system than those engaged in manufacturing industry. That imbalance has to be put right, but this selective poll tax leaves out the two greatest sinners who ought to be brought in — Government Departments and nationalised industries. They will escape, but they are clawing to themselves a greater share of manpower than anyone else. I ask the Chief Secretary to the Treasury to look at this.

On Tuesday next I am to speak to farmers and corn merchants in the Louth area. They will be furious about this poll tax. They are to be told to pay first and to recoup themselves through the February Price Review. They complain that already they do not get from the Review the expenses imposed upon them. To put this initial burden on them will make them livid. I ask the Government to thing about it again.

I speak also for small hotel and boarding house keepers who are having a very difficult time. There are many in Cleethorpes, where I have 23,000 constituents. This tax will put an unbearable burden on these people in a small way of business. It is bound to put up prices and drive people overseas for holidays instead of encouraging them to spend holidays on our own sea coasts. It will make our people spend more currency abroad.

Also in my constituency there is a big dairy company. I know from experience that it is having the utmost difficulty in getting men to work a seven-day week on milk distribution. This will be an intolerable burden on an industry such as that. It suggests that the Government think we ought to follow the French example over purchases of bread and milk and that one should buy a loaf, tuck it under one's arm and carry it home. Do the Government want a revolutionary change such as that, or are they interested in fundamentals?

I quote from a newsreel which the First Secretary to the Treasury will recognise. It was issued by the Labour Press and Publicity Department. That is a very good source from which to quote. The May Day message by the Prime Minister, issued last weekend, said this, and it is germane to the Budget: we are still in grave danger of paying ourselves much more than we are truly earning, and unless we hold back in our demands, all our plans for improved industrial efficiency and higher living standards will be undermined. This is what the Chancellor should have been saying and underlining. The Prime Minister went on to say: it would be tragic if we created unemployment through an uncontrolled scramble for higher wages which priced our goods out of world markets. I can hear the late Sir Stafford Cripps saying that 20-odd years ago. The Prime Minister also said: Incomes must not rise more quickly than productivity. This is our problem. The same department reported a speech by the Minister of Labour who came to the Bull's Head Hotel in Loughborough, two miles from where I live, to a May Day victory dinner. This is the sort of thing which should have been said in the Budget statement. The Minister of Labour said: No Government can of itself increase by one penny the total resources available for improvement in standards of life. The Chancellor did not say that. The resources of this nation accrue from our productive effort and only as we are more efficiently, and in greater quantity, produce the goods that we sell, can we find any answer to the continuing demands. He finished with this stern warning which should have been given to this crowded House this afternoon: The alternative to continuing our present selfish and slothful way, indeed our thriftless and dishonest way of living on foreign money"— I hope hon. Members will note that; after 18 months they cannot blame the Tories for this— is in the end to have deflation forced upon us … deflation that could mean unemployment This is what is really at the basis of all our troubles— our present selfish and slothful way, indeed our thriftless and dishonest way of living on foreign money", as the Minister of Labour said in Loughborough on Saturday night. The Budget has done nothing at all to touch that problem.

Having listened to Budget speeches for 21 years, I want to hark back to the man whom I respected more than any other man in the Labour Party—Sir Stafford Cripps, for whom I had a deep regard, as I said in the House when he was Chancellor of the Exchequer. This is what he said in this House on 27th September, 1949, and he should have been here tonight saying it: Any firm which could earn dollars and fails to do so, or any manufacturer or trader—whether he exports or not—who does not get his costs down to the lowest figure, is, in fact, helping to put up the cost of living for us all, and to put some of us on the dole. Any worker by hand or brain who goes slow, or is an absentee, or demands more money for no more output, is, in fact, doing his best to put up his own household bills and to put somebody—quite possibly himself—out of a job."—[OFFICIAL REPORT, 27th September, 1949; Vol. 468, c. 31 and 32.] This is a stern warning which I was hoping the Chancellor would give to the nation today, but he failed.

Later, in this House on 26th October, 1949, Sir Stafford Cripps spoke again and I should like to quote from his speech. It could be said that these utterances of his are as applicable today as they were when I first came into this House. He said: We can express our present situation, robbed of all its technical surroundings and explanations, in quite simple terms. Unless we can all quickly produce more and get our costs down, we shall suffer a tragic fall in our standard of living accompanied by all the demoralising insecurity of widespread unemployment. That was an honest and fearless man speaking, a man of character and integrity. Let me quote his concluding sentences. I can remember them now. I was immensely impressed by him, for one felt that he was speaking the truth from the bottom of his heart. He said: These economies, like devaluation, are a prelude and no more to a new surge forward to conquer the hard currency markets without which our industries, our standards of living, indeed, our civilisation itself, must fade and wither away. Mr. Speaker, we dare not fail in our efforts."—[OFFICIAL REPORT, 26th October, 1949; Vol. 468, c. 1352-3.] That is a challenge to this Government from the grave. I know that the right hon. Gentleman had a great regard for Stafford Cripps, as I did. But the problem still faces us in spite of those stern warnings.

At that time, the average industrial wage for male workers over 21 years of age was £7 6s. 6d. a week. The latest available figure shows that the corresponding industrial wage in October, 1965, was £20 3s. 3d. For the benefit of those who like stupidly to talk about thirteen wasted years, I remind the House that the corresponding figure in October, 1964, was £19 8s. 10d. Industrial workers have said to successive Governments of both parties, since these stern warnings, "If this is an industrial crisis, may it go on for ever". They have done fine out of it. They are not bothered. When the hon. Member for Huddersfield, West (Mr. Lomas) said earlier that we must make the nation face the facts, I interjected to ask, "How are you going to make them believe them?". It says in the Good Book, … neither will they be persuaded, though one rose from the dead. This is the core of our problem: how do we make people believe, until they are hungry?

Neither the country nor the House would believe Winston Churchill's warnings until Hitler stood at the very gates of our country, breathing down our necks and putting the fear of God into us, which made us work and made us fight. Can we have that same spirit from our people without the hardship that that was for us? How does the right hon. Gentleman think that he can make the industrial worker and the employer—for both are equally involved—believe him when they would not believe Cripps and Attlee? This is the problem. The rest of the Budget really does not matter.

We are importing more than we are exporting. We are told that there is a limit at the moment to what we can export. We are compelled, therefore, to look at the problem of imports. Instead of increasing taxation, as I thought he would, in order to mop up what Cripps used to call the extra spending power, will the Chancellor consider these two figures? In the so-called tragic year of 1964 when the Tory Party is supposed to have failed so miserably, the physical adverse balance of trade was about £375 million. The rest was finance, as the right hon. Gentleman knows. But in that year Canada exported to this country £458 million worth and we exported to Canada only £193 million. Thus, the Canadians had a favourable trade balance with us of £265 million. America exported to this country £650 million worth and took from us only £425 million. If the North American Continent had bought as much from us in that year as we bought from it, there would have been a trade balance in our favour.

It is true that in 1965 the position improved slightly. Canadian exports to this country were £458 million and her imports from this country were £208 million, leaving a balance of £250 million. The position vis-à-vis America has improved extremely well: imports to this country were £672 million, and our exports to America, with re-exports, were £514 million, giving a balance in favour of America of £158 million.

When I was in Vancouver and San Francisco talking to businessmen there last October, I constantly said to them, "If you do not buy our goods, how can we have the American and Canadian dollars to pay for your goods?" This imbalance with North America has lasted every year since the end of the war. It is time that we talked straight to both countries and said to them, "If you will not allow us to sell our goods in your market, we are sorry but we shall have to impose quotas." They would not like it, but they would have to lump it.

An example was brought to my notice only recently that plastics going into the American market from this country have to carry a tariff of 40 per cent. whereas American plastics coming into the United Kingdom carry a tariff of only 10 per cent. This is cockeyed and should be put right. No matter what they say about G.A.T.T., it is high time that we said to the North American Continent, "If you do not buy our goods, we cannot buy yours". We should have no balance-of-trade problems if we did that, and I ask the right hon. Gentleman please to look at that suggestion.

May I ask two other questions? Does the right hon. Gentleman and does the Chancellor accept high money rates as inevitable for ever? May I remind him that between 1932 and 1951 we had a 2 per cent Bank Rate? Now we are suffering the highest rate of interest for the longest period which this country has ever known. In the old days the Socialists used to talk about international financiers as blood-sucking, non-producers. It seems to me that the present Government are in the pockets of the international bankers. Can they not get out of those pockets? Is it not possible for the Treasury to control the volume of credit and to reduce its price? Does the right hon. Gentleman think that hot money does us any good? Could we not do without it? I remind him that these high rates of money have caused housing rents to go up, have made it more difficult for expanding industries to borrow money either on debentures or on the issue of equities and have put an extra burden upon us. Can nothing be done about it?

There is nothing in the Budget about these things, but these are the things which really matter. Do the Government accept inflation as inevitable? Have they no cure for it? Have they given up the fight? If so, what rate of inflation per annum do they regard as acceptable? It is unfair to all Government stockholders to say that inflation must go on for ever. If the Chancellor is ever to get people back into National Savings, then he need not give them a higher rate of interest; he should gear their capital to the cost of living. They would rather have a much lower rate of interest and be sure that the capital which they have saved is safe then they would have a bigger return at present.

I beg of him to say to his people in the trade union world and to our people on the employing side of industry that the way to real political ruin in the country, as history shows, is to ruin the currency. In classical days the Roman Emperors fell when their currency was debased. It was the debasement of the currency in Germany which caused the middle class in Germany to turn to Hitler. The greatest challenge which this Government have is to keep money fair and decent.

I ask the Chancellor to look at the questions which I have put. I feel that the Budget does not face up to the real problems with which we are confronted.

9.28 p.m.

Mr. W. A. Wilkins (Bristol, South)

It is not very often that I intervene in these debates, and usually I do so only when I feel provoked, as I felt provoked while listening to the hon. Member for Louth (Sir C. Osborne). He said that he has been in the House for 21 years. So have I. But obviously we have not been in the same House—or he has a very convenient memory and wishes to forget many of the things that have happened in the 21 years he has been here.

It so happens that the former right hon. and learned Gentleman to whom he has paid the highest praise was my own Member of Parliament for many years, and I probably knew much more about him than did the hon. Member for Louth. I share the hon. Member's admiration for the way in which that late right hon. and learned Gentleman tried to tackle the nation's problems. To listen to hon. Members opposite, particularly the hon. Member for Louth, speaking tonight, one would think that the situation which we face today is new. May I remind the hon. Member that Sir Waldron Smithers, formerly a Conservative Member of the House, once reprinted from HANSARD a speech which he made in the House in 1926 and issued it to all hon. Members. I sometimes wonder if I am the only one who has retained a copy of that speech. It was a speech which Sir Waldron Smithers made on a Friday afternoon when he moved a Motion the terms of which concerned the adverse balance of trade and the text of which, if repeated in the House tonight, would be precisely and absolutely applicable to our present situation. That was 1926, 40 years ago. There has never been a time, if we are frank about this, when we have not been in the kind of situation which we have experienced in post-war years.

When I hear the hon. Member for Louth pontificating to my right hon. Friends on the Government Front Bench about what they ought to do in the present situation, I wonder why on earth he did not say those things to his own Front Bench when they were in power for 13 years and had all the opportunities in the world, with huge majorities, to change the economic climate of this country if only they had had the desire to do it.

Sir C. Osborne

I probably still sit here on these back benches for doing that very thing.

Mr. Wilkins

I concede to the hon. Gentleman that from time to time he has had outbursts of clarity on subjects of this kind, very often much to the discomfiture of his own Front Bench. He may be right, but he may be wrong, when he says that that is the reason why he remains on the back benches.

I claim that it is only since the advent of the Labour Government in 1964 that we have tried to tackle this problem fundamentally at its roots, and with not a little success. It is this policy which the Chancellor now proposes to continue, because we believe that in the last two years it has paid some dividends.

When I hear the hon. Member for Louth critical of a Chancellor who has had both the courage and the determination at least to begin to institute tax reforms, it makes me wonder. Not the least of the troubles which we are encountering in the country was encouraged by Tory Chancellors of the Exchequer for 13 years. One has only to listen to the criticisms which one hears, especially at General Elections, about allowing betting shops at almost every street corner. I remember saying, at the time when Mr. Harold Macmillan was Chancellor of the Exchequer and when he brought in his Premium Bonds, that it was the beginning of the process of encouraging people to believe that it was possible to get rich quick. to indulge in that sort of thing and to make money if one was lucky.

There is only one remedy for the ills of this country and I have never ceased to say so on public platforms. It is all very well for the hon. Member for Louth to challenge us, but I have always tried to make it absolutely clear that the country can survive only when it becomes self sufficient and its economy pays its way. No one can accuse my hon. Friends of not facing this responsibility.

I suppose that the Tories are pretty hard pressed to be critical of this Budget.

Sir D. Glover

You wait!

Mr. Wilkins

We know that the hon. Member for Ormskirk (Sir D. Glover) will find some dead horse which he can flog during the course of the next couple of days when he has had time to go home and ruminate on the Budget. I have no doubt that he will arrive back here tomorrow or the day after, having found something about which he can express his views.

The truth is that the Tories are bitterly disappointed with the Budget. They were hoping that it would be a weapon with which they could flog the Labour Party when they went to the country this weekend, but they have been disillusioned—no increased tax on tobacco, on beer, petrol or entertainment, no increase in Purchase Tax and the surcharge to be taken off in November. What do they have? I can well understand their disappointment that they do not have some whip with which to flog the Labour Party on the hustings this weekend. It is intriguing to read the newspapers. especially the Evening Standard headline at midday and the Evening Standard headline this evening. The newspaper prophets and the prophets of woe and doom have been bitterly disappointed.

I rose not only to deal with the outpourings of the hon. Member for Louth, but also to congratulate my right hon. Friend on breaking new ground and to congratulate him and his Friends in the Treasury on the almost stunning secrecy with which they were able to bring this about.

Sir D. Glover

He would have had to resign otherwise.

Mr. Wilkins

It was the best kept Budget secret for a very long time. It has captured the imagination not only of hon. Members but of the public that for the first time we have a Chancellor who is seeking to bring in a system which will be, I hope, only the beginning of tax reform. I confess that when the Chancellor was dangling us along at one time I thought that he would suddenly tell us that he was to substitute some form of sales tax for Purchase Tax, but it was not to be. I am not one of those who would strongly resist the imposition of sales tax, provided that it was used to eliminate other indirect forms of taxation.

The nation is anxious to become self-sufficient and to balance the adverse trade figures and it must be made to understand that there is only one way in which that can be achieved. I have told my trade union friends—and I hope to be doing it again shortly at their conference—that this is so and that the prices and incomes policy is the only policy which can bring economic salvation to Britain. We must not cease from trying to impose this point of view upon those on whom we are dependent for increased productivity and for balancing our trade figures.

If the hon. Member for Louth is fair in his exposition of the Budget, I hope that he will tell those to whom he speaks that we have had to do these things very largely because of neglect by his own party's Chancellors of the Exchequer for 13 years. If I had thought when I came into the Chamber that I was going to speak, I would have brought an abundance of evidence relating to at least the last four Chancellors of the Exchequer in Conservative Governments which would show that they had no courage whatever in tackling a similar situation. I congratulate the Chancellor. I wish him well and I believe that the people will appreciate the courage of the decisions which he has made and also the intention so obviously behind this Budget, to place the burdens on the shoulders of those who are best able to bear them.

9.42 p.m.

Captain Walter Elliot (Carshalton)

I thought that the hon. Gentleman the Member for Bristol, South (Mr. Wilkins) was rather unfair to my hon. Friend the Member for Louth (Sir C. Osborne). As I understand my hon. Friend's speech, he did not say that this situation was something new. I have heard him many times over the years speaking in much the same vein. Whatever the Chancellor said this afternoon, no one can accuse my hon. Friend of not having issued a stern warning.

It was interesting to note that he quoted the stern warning of Sir Stafford Cripps, given 20 years ago. I wonder if, from that stern warning to that of my hon. Friends, the people have paid the slightest attention. It is one of the troubles of the Socialist Government today. It is one of the troubles of the National Plan. Stern warnings have been issued, a National Plan has been issued, but there is not the slightest incentive or encouragement for anyone to put it into operation. I believe that the last Budget and today's Budget have continued that policy.

The hon. Gentleman the Member for Bristol, South accused at least four Tory Chancellors of not having courage. I reject that. My right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) instituted in his Budget what was known as the pay pause. At least he had the courage to impose a pay pause in that area of employment over which he had direct control. The country reaped the benefit of that in stable prices for over two years afterwards. He got precious little support from the Socialist Party at that time.

Mr. Wilkins

Does the hon. Gentleman remember the "port and pheasant" Budget of the then Chancellor of the Exchequer, the present Lord Butler?

Captain Elliot

I was not in the House at that time, so I do not feel qualified to talk about that. I assume that was an expression used by the then Mr. Butler. I cannot argue further on that. I feel that the hon. Gentleman under-estimates the qualities of politicians on all sides of the House when he suggests that the Conservative Party will not have grounds to criticise this Budget. I would like to refer to two particular aspects.

The Chancellor brought out three points which he said the Budget was designed to meet. They were, firstly, a strong £, secondly, full employment and, thirdly, a growing economy. I believe that there is a fourth, and I do not know whether this will also be a stern warning. It is not intended to be. This fourth point should not necessarily be the last, and it is the repayment of the debt of £900 million which remains to be paid over the next three years starting next year. It is a horrible debt. We must not forget also the great sum outstanding to the United States and Canada, borrowed in 1947 over which we defaulted in November, 1964, and again in November, 1965. It was a legitimate default; it was allowed for in the agreement. But we did not pay the capital and interest. These great debts are perhaps the first priority which we have to meet if this country is to continue successfully on its way.

The Chancellor said that he would repay those debts, that he was making preparations to do it now. I ask the Treasury Bench how will he do it. I read in the newspapers today or yesterday that we have just liquefied over 1 million shares in an American oil company which realised 83 million dollars to go to our reserves. Will that be used to pay back our debts? It may be a legitimate way to do it, but it seems very illogical to liquefy our overseas investments for this purpose, while at the same time attacking overseas investment which is going on today. In any case, it is the wrong way. I believe that it is eating the seed corn.

If it was necessary to raise money from these investments, could not they have been used as a security and allowed to go on growing as they have grown since the last war when we possessed them? The Prime Minister, in his famous New York speech, rightly boasted of our overseas assets but, with his Government, he is doing precious little to preserve them or build them up.

The Chancellor of the Exchequer said at the end of his speech, almost in passing, that he hoped that the balance of payments would be right in five years. Until then, we had always believed that we would be in balance by the end of this year. If we are not to be in balance for five years, how will we pay our debts except through realising our overseas investment? This is a further example of the Rake's Progress.

I believe that my hon. Friend the Member for Louth was right when he said that this Budget under-estimates the seriousness of our economic position; and I am sorry that it does. The first theme of the Budget—it may not have been intentional—is that instead of balancing our accounts by the end of this year it will take another five years.

The second theme of the Budget—and it is depressing repetition of the last Socialist Budget—is increased taxation. In making his proposals to increase taxation, the Chancellor referred to them as if they were harmless—absolutely nothing. The hon. Member for Yarmouth (Dr. Gray), who is not in his place—[HON. MEMBERS: "Yes, he is."] I apologise to the hon. Gentleman; I did not see him. He said that it was a Socialist Budget. As I say, the Chancellor referred to these increases as though they were nothing, and yet they amount, as he said, to £387 million. That is to be added to the cost of Socialist rule of £600 million over the past 18 months, making a total of nearly £1,000 million. I do not know whether the hon. Gentleman is proud of that. Will he go back to his constituency and boast about it?

The purpose of the increased taxation in the last Budget in 1965 was to control demand. It failed to do it and subsequently further impositions by the Chancellor also failed to curb demand.

We reached a rather absurd position during the General Election campaign when the Chancellor boasted of his failure. We had over-full employment and this was to the credit of the Socialist Party, in spite of all the Chancellor's previous measures to curb demand. Of course, that was rubbish. In his speech today, the Chancellor said clearly and rightly that demand was too high, and his solution again is to increase taxation, by £387 million. He will fail again because this will raise prices. As my right hon. Friend the Leader of the Opposition said, speaking immediately after the Chancellor, the right hon. Gentleman's service tax will act directly on articles of everyday use, including clothing. It will operate on food and on all types of goods, and it will raise prices.

There is no doubt that as the result of this Budget, prices will go up. That is all very well for the great big pressure groups. It is all very well for the individual who has a big pressure group behind him like a trade union, enabling him not only to keep abreast of rising prices, but to keep ahead of them. The weight of this Budget will fall upon the pensioner, those living on fixed incomes, and those living on their invested savings. They are the ones who will pay for this Budget, but they are not the people who are putting pressure on demand. It is those who are currently earning, with the big pressure groups behind them, but these people will escape because they can apply economic pressure to keep up their earnings.

Mr. Geoffrey Wilson (Truro)

Has my hon. and gallant Friend considered the possibility that this subsidy of 7s. 6d. per nob for each man employed might lead to an increased demand for wages?

Captain Elliot

I agree entirely with my hon. Friend. There are many aspects of the service tax which, no doubt, in the course of this debate will be gone into thoroughly, but I am grateful to my hon. Friend for raising that point.

I believe that this Budget will fail for three reasons, apart from the general reason that it does not go far enough. It will fail, first, because those really responsible for the pressure of demand will escape. I believe that demand will continue to rise. Secondly, the Budget fails because of the complete lack of incentive for greater efforts or for the taking of greater risks. Thirdly, it fails because it continues to weaken our long-term position.

I spoke recently in the debate on the Queen's Speech and I said that the Government would have the right to call upon the support of the Opposition if they acted courageously on economic policy. I meant that sincerely. I believe that many of my hon. Friends on this side feel that way also. I said that I awaited the Budget with acute interest. I would have supported the Government had they taken the measures which, I think, are necessary to get our economy straight, to pay back our debts and to pay our way. I do not believe that this Budget is an answer to our problems. It is a continuation of the Socialist Rake's Progress, it is the road to disaster, and it will not be long before this is brought home to the country.

9.55 p.m.

Sir Douglas Glover (Ormskirk)

I am delighted to have been called in this Budget debate tonight. It is a long time since the repeal of the Corn Laws, but the present Government are the first to have the courage to tax the nation's food. This is a very different story from the one put out during the General Election, when the party opposite complained about Tory policy for agriculture because, they said, it would raise the price of food. Then, within a month, the Government bring in a Budget which, at a very conservative estimate, will put up the price of most food by 5 per cent.

There is to be this 25s. a week tax on employees of all the distributive trades, including slaughterers, distributors, retailers and any processor who does not come under the heading of "manufacturer". This again will be a heavy burden, particularly to the people on fixed incomes and the old-age pensioners. It is also inflationary, because it will be passed on to the cost-of-living index. It will give to the public a reason for demanding increased wages.

I am not against a pay-roll tax. I am against the present proposal for a payroll tax, because I cannot understand what was in the mind of the Chancellor of the Exchequer when he made these proposals. If his proposal said that any manufacturing firm which kept its turnover to the same level but was able to dispense with any of its employees would get a bonus from the Government for increased efficiency, I could have understood this.

I admit that it might have been difficult to work out. It might have been a difficult administrative problem. But it would have been a strong pressure for increased efficiency in our manufacturing industries. But what do the Chancellor's proposals bring about? The trade unions now know that, in a foreseeable time, each of their employers will receive 7s. 6d. a week per employee as a bonus from the State.

For the life of me, and however responsible the trade union leaders may be, I cannot see any union not slapping in an immediate claim for 7s. 6d. increase in wages. They will know that the employers will be getting the money from the State and they will therefore demand that the money be paid to those working in the industry. Human nature being what it is, I cannot see how I could blame them for taking that action.

There is nothing in the proposal, therefore, to bring about increased efficiency. It will merely provide an inbuilt reason for retaining labour in the manufacturing industries and for demanding wage increases by the unions in industries where the State, out of its generosity, is subventing the employers by 7s. 6d. a week for every male employee and 12s. 6d. for every female employee. If that does not create inflation I should like to know what will.

I also want to criticise the Chancellor's proposal in that he claims that the agricultural community will recoup its expenditure on the pay-roll tax in the Annual Price Review. I need not tell you, Sir Eric, with your long experience, that in the last two Price Reviews, the farming community under-recouped its costs by £28 million and if the Government think that they can sell to the farming community the idea that the pay-roll tax will be taken care of in the next Price Review——

It being Ten o'clock, The CHAIRMAN left the Chair to report Progress and ask leave to sit again.

Report of Resolutions to be received Tomorrow.

Committee also report Progress; to sit again Tomorrow.