BUDGET RESOLUTIONS AND ECONOMIC SITUATION

HC Deb 05 May 1966 vol 727 cc1875-2006

3.43 p.m.

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

It cannot be denied that what we are discussing is a very novel and unusual Budget. Perhaps, therefore, the Committee will bear with me while I describe a novel and unusual experience which befell me yesterday morning, the day after Budget Day.

I was on my way to No. 11 to discuss certain matters with the Chancellor. As soon as I turned into Downing Street, I saw to my astonishment the first of a cavalcade of cars, each one garlanded and bedecked with flowers carrying [...]anners with the motto, "Car drivers can't thank you sufficiently". Four cars stopped in turn and a passenger emerged in each case carrying a bouquet which was placed with loving care on the doormat outside No. 11. I hastened to read the large cards attached to each bouquet. The first one read, "Blessings from the imbibers of beer", the second, "Whisky drinkers wish you well", the third, "We are coughing much better, thank you", and the fourth, "Surtax payers seldom more satisfied". I attempted to gather up the flowers to lay them at the feet of a clearly beloved Chancellor, but they seemed to evaporate in my hands and to be transmuted into a file of papers marked "Budget. Top Secret". It is just conceivable that I had been allowing my imagination to wander. But the message is clear. There are millions of fellow citizens who are feeling deeply grateful to the Chancellor for having refrained from adding the particular burden which they most feared and for having conceived instead a solution to some of our fiscal and economic problems in an entirely novel and much less painful manner.

Mr. Anthony Barber (Altrincham and Sale)

We thank the right hon. Gentleman for the very interesting account which he has given. I wonder whether he will convey the congratulations, I am sure of the whole House, to Transport House.

Mr. Diamond

If the right hon. Gentleman thinks that these few words are worthy of Transport House, I am indeed complimented, for in fact they were my own humble effort.

In order to establish the right climate for co-operation and growing initiative, the Chancellor has avoided adding to any one of the traditional direct or indirect taxes. This must surely be a unique occasion in that the only revenue arising from changes in taxation comes in effect from two entirely new taxes—the betting tax and the Selective Employment Tax. It is not even the case that the Chancellor has added to the anticipated revenue by fixing the Corporation Tax at 40 per cent. Indeed, as he explained in his Budget speech last year, Corporation Tax was not introduced as a device for increasing the total burden of company taxation but rather as a means of redistributing that burden. The equivalent rate was then 35 per cent., as I told the Committee on many occasions, and by equivalent was clearly understood the rate of Corporation Tax which as part of the new system would produce the same amount of revenue as would have been produced under the old system of Income Tax and Profits Tax. Subsequently, during the passage of last year's Finance Bill a number of concessions were made which had the effect of increasing the equivalent rate to something more than 35 per cent. but still well below 40 per cent. I would not quarrel with the figure of 361½ per cent. suggested by the right hon. Member for Enfield, West (Mr. Iain Macleod).

But, in assessing the yield for the current year, we have had to take account of two special factors. The first was that as there was a considerable increase in the dividends paid last year, some of it clearly in anticipation of dividends which would otherwise have been paid in the current year, there is likely to be a corresponding fall in the yield from this tax for the current year. The second and more important was that as tax in respect of distributions does not have to be accounted for until a month after the date of payment, there will be 11 months' payments only in the current year, reducing the yield correspondingly. In fact, the rate of Corporation Tax which, when added to the Schedule F tax to which I have just referred, would result in the tax payable this year being the equivalent burden to the tax which would have been payable under the old system of Income Tax and Profits Tax, would be more than and not less than 40 per cent.

Mr. Reginald Maudling (Barnet)

As the two main factors which have changed in his fixing of the tax at 40 per cent. are essentially temporary, will the right hon. Gentleman undertake that it will be reduced again when their effect has ceased?

Mr. Diamond

I am grateful to the right hon. Gentleman, whose capacity for the immediate grasp of the obvious is one which we have come to admire. I was going to give him the answer to that question in a few moments and I will do so if he will allow me to continue.

In fixing the rate at 40 per cent., therefore, the Chancellor of the Exchequer, far from increasing the burden of taxation on the business community is somewhat reducing it. The answer to the question about next year is that we shall have to take into account all the factors which prevail then. There are some which the right hon. Gentleman knows about already—investment allowances and the like, which have their impact and will have their impact for next year and not for this year. There may be others which we do not know at this stage. What the right hon. Gentleman and his hon. Friends clearly wanted to know was what would have been the rate of Corporation Tax to produce the same burden as that under the old system, and the answer is, "Something slightly more than 40 per cent."

So much, therefore, for the statements made by hon. Members opposite and particularly by the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin), who said that not only was the 40 per cent. a depressingly high level of Corporation Tax but that it would add one more nail in the First Secretary's coffin. Earlier, as reported at c. 1754 of the OFFICIAL REPORT, he had said: The rate of 40 per cent. will cause increasing dismay among those in industry as they realise what the effect will be. At the moment the dismay is muted, because industrialists were led to believe that there was a chance that it would be 42½ per cent."—[OFFICIAL REPORT, 4th May, 1966; Vol. 727, c. 1754.] It may be that the Opposition is muted but the industrialists are not muted or dismayed. The industrialists calculated that the equivalent rate would be 42½ per cent., as it could well be in many cases. They and their shareholders are delighted with this small but helpful reduction in their burden of taxation, as, indeed, the rise in the Stock Exchange prices has confirmed.

Neither drinker nor smoker, neither Income Tax payer nor Surtax payer, neither car owner nor corporation is up to this point one penny the worse off as a result of my right hon. Friend's Budget. This is something which may have escaped the attention of the Opposition but it has certainly not escaped the attention of the people of this country.

Sir Gerald Nabarro (Worcestershire, South)

Before the right hon. Gentleman leaves Corporation Tax, which he is evidently about to do, would he explain what difference there will be in the yield of Surtax for the year 1965–66 due to the fact that such a large number of what would otherwise have been interim dividend payments in 1966–67 were translated forward to a date before 5th April, 1966, thereby resulting in a substantial additional yield for Surtax for the Treasury? Was that taken into account?

Mr. Diamond

When we come to the Finance Bill that will be the appropriate time to discuss in detail the effects of Surtax. My right hon. Friend has already indicated in his opening Budget Statement, as was proper, the way in which he proposes to deal with that particular problem of the bunching of dividends for Surtax purposes.

In addition to the points which I have just made, there is the new Selective Employment Tax and some alterations in the detailed provisions affecting existing taxes, mainly in connection with stopping avoidance. Perhaps it would be convenient if I were first to deal with the more important of those alterations and then to reply to some of the questions raised on the Selective Employment Tax.

First, I will deal with the refurbishing and strengthing of the existing tax system. We made a start last year in redesigning the tax system for the 1970s. Just as the Capital Gains Tax made a vital contribution towards social justice and a fair spread of the burden of taxation, so the Corporation Tax rationalised the structure of company taxation and stimulated industry towards capital investment and economic growth.

As my right hon. Friend indicated on Tuesday, we intend this year to introduce a number of Measures which will consolidate the reforms in the 1965 Finance Act and which, though for the most part relatively minor, will, in sum, represent a useful strengthening of the existing tax structure. My hon. and learned Friend the Financial Secretary, should he by chance have the good fortune to catch your eye, Sir Eric, will be referring to certain aspects of the Capital Gains Tax and I turn now to certain proposals affecting the Corporation Tax.

There is a loophole in the provisions under which the issue of a bonus debenture is treated as a distribution chargeable to Income Tax under Schedule F. It is not clear that the provisions would apply if it could be shown that the debenture was irredeemable. There is no reason why they should not apply in these circumstances, and provision will be introduced to make it clear that they will.

Another proposal relates to companies which have redeemable preference shares outstanding. Under the existing definition of "distribution" a bonus issue made after the beginning of this year could give rise to an obligation to account for Income Tax in respect of the sum so capitalised up to the limit of any funds laid out at any time since last Budget Day in the redemption of other share capital. My right hon. Friend has decided that there is no need for this liability to attach to certain cases where the shares redeemed are genuine fully paid preference shares. The alternative broad qualification for this relief is either that the preference shares were already in issue on Budget Day a year ago or, in the case of those issued later, that they did not themselves contain any bonus element and were not issued in substitution for ordinary shares.

My right hon. Friend also thinks it possible to temper the consequences of the definition of "distribution" in its application to past bonus issues of debentures or other loan capital. Hon. Members may recall that the interest on such a security is not a Corporation Tax deduction to the company paying it. In general, this is the rule which must prevail to prevent deliberate avoidance. If it were not so, a company could reduce its liability by purposely issuing bonus debentures to its ordinary shareholders and then paying them interest instead of the dividends that they might otherwise have looked for. It has, however, been represented to me that there can have been no avoidance motive where the security was issued before last year's Budget, and my right hon. Friend proposes accordingly that the disallowance of interest shall be limited to cases where the bonus security was made on or after 6th April, 1965.

Two other proposals are intended to widen the range of cases where a dividend or an annual payment such as interest from one company to another can be excluded from the rules for the deduction of Income Tax at the source. A trading company which is jointly controlled by a consortium can obtain this treatment for payments which it makes to members of the consortium. Following representations on behalf of industry, my right hon. Friend proposes that the same facility should be extended to a jointly controlled company which is not itself engaged in trade but has the task of supervising, on behalf of the consortium which controls it, the activities of one or more trading companies whose shares are in its ownership.

The other extension relates to annual payments by one member of a group to another. These payments can be paid in full by one subsidiary to a fellow subsidiary or by any subsidiary to the parent of the group. The existing legislation does not cover payments by the parent to one of the subsidiaries, but there appears to be no reason why the existing legislation should exclude cases of that type, and we propose that it should be amended to bring them in.

I might also mention two minor proposals in the field of close companies. On further consideration of arguments advanced during last year's debates, we have come to the conclusion that, subject to appropriate safeguards, an employee's beneficial interest in shares held on behalf of an approved superannuation fund or other analogous trust can reasonably be left out of account when reckoning the total number of shares in which a participator and his associates have an interest.

My right hon. Friend also proposes to make it clear that the Corporation Tax deduction given in respect of a company's payments under a charitable covenant will be available in cases where the company happens to be a close company and the charity concerned owns shares in it. The existing provisions could be held to prevent the deduction in such cases, and this would be contrary to our intention that the relief should be available quite generally for all charitable covenants satisfying the test laid down last year.

As to investment grants, as my right hon. Friend explained in his Budget speech, the Finance Bill will include provisions withdrawing investment allowances and making other tax alterations consequential on the introduction of the investment grant scheme. There is one point on this on which the Committee may like further information. Some people have been concerned to know more precisely the conditions under which expenditure incurred on or after 17th January under contracts entered into before that date will be eligible for investment allowance. What is proposed is that the investment allowance should be due on payments under such contracts if the payment is made and the asset concerned is brought into use not later than 16th October, 1966. This provision is intended to prevent undeserved advantage accruing to any trader who entered into long-term contracts for the supply of assets which will not rank for grant under the new arrangements. Of course, as the White Paper makes clear, if investment grant is paid, no investment allowance will be given.

I apologise to the Committee for having to burden it with a good deal of technical information, but I think it will be for the convenience of hon. Members, and those who are interested when they read in HANSARD what I have been saying will, I believe, draw benefit and a number of uncertainties will be removed.

A good deal has been said in the course of the debate about the entirely novel suggestion of the Selective Employment Tax, but I doubt whether sufficient stress has been laid upon the need for such a tax in terms of raising revenue. As my right hon. Friend the Chancellor of the Exchequer made clear in his economic assessment, it is likely that there will be a check to the growth of demand in the next few months for the reasons he explained; but the rate of increase in home demand is likely to rise again later in the year. What the Selective Employment Tax does is to meet that situation by raising during the period from September to next April the substantial net sum of £315 million. This is a new source of revenue which any Chancellor is bound to regard with interest, perhaps even affection. Admittedly, special circumstances apply in the first year; but even in a full year the figure is still the very substantial sum of £240 million.

So far as the general level of demand is concerned, the Chancellor explained—although perhaps not all hon. Members may have heard him fully at this point in his speech owing to the intervention of a hypothetical handkerchief—[HON. MEMBERS: "Actual."] If hon. Members will be good enough to refer to HANSARD, they will find a precedent for the word that I have used.

The effect would be the same as increasing the 25 per cent. rate of Purchase Tax to 33⅓ per cent. and the 10 per cent. rate to 15 per cent., or alternatively putting up the standard rate by 6d. and the reduced rates correspondingly. As a result, as the Financial Statement shows, the estimated surplus for the current year is now more than £1,000 million, nearly double the estimated surplus of a year ago. These are very striking figures which will, no doubt, be borne in mind by all those interested in the economic strength of this country.

In spite of the novel method which my right hon. Friend has discovered of raising such a substantial sum of money, and one which falls less painfully on individuals than many other forms of taxation, the Opposition are apparently opposed to it and offer two main grounds of criticism: the first, that it will raise prices; the second, that the tax is faulty in its structure and its impact.

Let me deal first with increases in prices. But let me preface this by saying that it would be absurd to assume that the whole of the tax will be passed on in increased prices. There will be many cases—and my right hon. Friend the First Secretary has given some remarkable examples already—where employers will absorb either the whole or part of the effect of the tax in increased efficiency; and that is what we seek to encourage in every possible way. But even assuming that the whole of the increase were passed on, its effect on prices is bound to be small. The labour element in the cost of services will be increased on average by less than 6 per cent. But the labour element is mostly less than half the total cost; and accordingly the total cost would rise by something between 2½ and 3 per cent. But services, in their turn, are only a part of the cost of living. Man does not live by lawyers' fees alone—[HON. MEMBERS: "Or accountants'."] I am grateful, Sir Eric, that this reference to a profession of which I have heard has been made by all sorts of hon. Members, I am sure to the glorification of that profession, without putting me in any professional difficulty whatsoever. In fact, if the whole of the cost of the tax in its effect on services were passed on in the form of increased prices, the retail price index would rise by two-thirds of one per cent.

The examples of possible price increases that are put before us by the Opposition are ill-considered and unrealistic. It may well be that there will be some who will feel that this moderate tax can be used as an excuse for a substantial increase in the price of the services they offer. As my right hon. Friend the First Secretary has pointed out, we now have the appropriate machinery for discouraging action of that kind and he will not hesitate to use it in appropriate cases. Indeed, it would, I think, be salutary for the public to be fully alive to this situation. An increase in charges of from 10s. to 10s. 6d. or from £1 to a guinea might conceivably be justifiable—and even then not before next September, of course. But an increase of 5s. an hour in the charge for a mechanic is either plain profiteering or political claptrap, and, knowing the source, I myself am in no doubt which of these two it is.

I think it is a mistake when trying to assess the merits of a tax of this kind to concentrate on a single instance which may be wholly non-representative and, by arguing from the particular to the general, to try and demonstrate that the tax as a whole is inappropriate. Nor is the Budget debate the appropriate occasion for such detailed discussion. Nevertheless, as the question of food has been mentioned, I think I ought to answer some of the wilder allegations which have been made by saying that, of course, the Government have given consideration to this important aspect and that, having regard to the fact that agriculture will be treated in the way that the Chancellor has already described and that a good deal of our food is processed in manufacturing establishments, I see no reason why the remarks which I have made with regard to prices generally should not apply equally to the price of food.

Mr. F. A. Burden (Gillingham)

Would the hon. Gentleman not agree that meat is a staple food and that at the moment, whatever arrangements may be made about the agricultural industry and the actual production of meat, the fact is that it will be subject to the levy? The meat industry is controlled entirely through wholesalers, and the wholesalers have a tax of 25s. on each of their employees. Then, of course, it has to go to the retailers. So that at least in the line of sale, from the production to the sale of meat, there is a considerable final increase in the cost of labour.

Mr. Diamond

I think the best answer to give to that intervention is that I have already indicated the unsuitability of the time to debate one particular item entering into our diet during the course of a Budget debate. [HON. MEMBERS: "It is food."] I mentioned food, and I have given the Committee the answer on food. Nothing which the hon. Gentleman has said alters what I have already told the Committee—that so far as the cost of food is concerned, many of the allegations made by hon. Members opposite are wild in the extreme, and there is no reason to believe that the increase will be other than I have indicated with regard to the cost of living generally, namely, overall up to two-thirds of 1 per cent., making the assumption that all increases in cost are fully passed on in increases in price, which is an untenable and pessimistic assumption.

Sir Douglas Glover (Ormskirk)

This is a very important part of the Budget statement, and I cannot follow the right hon. Gentleman's reasoning, particularly with reference to food. The Chancellor said that there was £7,000 million spent on services, and that includes the whole of distribution, including good distribution. As the Chancellor is endeavouring to raise £380 million to £400 million from that element of the community, there must be an increased cost to food distributors of between 5 and 6 per cent., not two-thirds of one per cent.

Mr. Diamond

Even on the surface, without digging deeper, the hon. Gentleman's arithmetic is faulty. He knows that the gross addition to labour is of the order of 5 to 6 per cent. If the total cost were exclusively labour, his argument might be tenable, but there is no commodity whatever on which the total cost is exclusively labour. One has to take into account all the other items entering into it.

Sir D. Glover

indicated dissent.

Mr. Diamond

The hon. Gentleman shakes his head, but I am sure he does so in kindness. He has asked me a question, and he would, I take it, like me to answer it. [An HON. MEMBER: "He is confused by the right hon. Gentleman's confusing argument."] The hon. Gentleman is not confused. He is settling down comfortably into his corner waiting for the next five years to pass. I remember telling him at one time, in the kindest possible way, that the first seven years of opposition were the worst. He is entitled to a courteous answer. He always treats me courteously, and I want to give him the information.

The fact is that 5 to 6 per cent. is the maximum possible additional cost on labour alone, but labour is an element entering into the cost of any service, and services are an element entering into the cost of food at the table. When we take all those things into account in estimating the additional cost, we see that that additional cost, were it to be carried through, would be of the order of two-thirds of one per cent.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

The right hon. Gentleman will recall that during the election campaign the First Secretary of State said that if we were to join the Common Market the price of food might go up by as much as £300 million to £400 million a year, and this was said to be utterly unacceptable. How does he now justify putting on taxes of the same amount which provide no tangible benefit or return as joining the Common Market would?

Mr. Diamond

No doubt, Sir Eric, the hon. Gentleman will seek to catch your eye and make whatever points he wishes to make. He does not ask me a question of any kind. I am sure that he, at all events, has the intelligence to follow the simple figures which I have given. I repeat that the additional cost of food, if every single increase as a result of this tax were fully passed on—which I do not for a moment believe it will—would be two-thirds of one per cent. If the hon. Gentleman thinks that the Budget debate is an appropriate occasion for discussing the whole of the General Election again, I cannot share that view. I should have thought that it would be much too painful for hon. and right hon. Gentlemen opposite, including those who are no longer here.

Mr. Ridley

Does the right hon. Gentleman accept that if we were to join the Common Market the effect of the increase in the price of food would be ⅔ per cent. on the cost of living and that this is totally unacceptable? If it be true in that case, it must be true also of the effect of this tax according to the figures which the right hon. Gentleman has given us. He cannot have it both ways.

Mr. Diamond

We are not at the moment debating the cost of food on going into the Common Market, nor the period at which it would apply. I tried very hard to ascertain at the time of the election what the attitude of the Opposition was. I read very carefully the speech of the right hon. Gentleman the Leader of the Opposition, and I debated the matter with the Chairman of the Conservative Party and got two opposite answers. The Chairman said that the Leader was quite wrong.

Mr. Edward Heath (Bexley)

Non-sense.

Mr. Diamond

That is exactly what the Chairman said about the Leader.

The major attack on this tax is on its structure and impact. What could be more unjust, it is said, than singling out certain services to bear this additional levy? Why should the Government regard all the manufacturing activities as good and all services as bad? What could be more foolish, ask the Opposition, than increasing the cost of the services which enter into so many things we buy and, indeed, form part of many of our visible and invisible exports?

The first answer, as my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) pointed out yesterday, is that the Government are not attempting to make a moral judgment of any kind. What the Government are trying to do is to redress or, at all events, go some way towards redressing the balance of taxation as between commodities and services. The trouble with the Conservative Party is that it always assumes that an existing situation is the right one, and it never bothers to question its assumptions.

As my right hon. Friend the Chancellor pointed out, putting it very shortly, commodities are taxed, on the average, at 40 per cent. and services at 1 per cent. But no hon. or right hon. Gentleman opposite has attempted to justify that disparity or has even turned his mind to it. All we are saying is that taxes have their economic effects and that the marked preference which services have enjoyed for so long is not justifiable. There is a lack of balance which we must go a considerable way towards redressing. This is exactly what the new tax does, and no hon. Member opposite is entitled to claim that the new tax is unfair in its incidence until he has demonstrated that the existing ratio of 40 to 1 is the best ratio in the interests of our economy. I repeat that we do not believe that it is, and no one in this debate has attempted to justify it.

The new tax can be wholly justified in that, on the one hand, it raises the extra revenue which is necessary in order to contain demand without at the same time putting a further burden on manufacturing industry, and, on the other hand, it redresses to some extent the imbalance which I have mentioned.

The new tax will, in addition, have the beneficial effect in terms of the structure of employment which was described by my right hon. Friend the First Secretary of State in the longer if not in the shorter run. For whatever its immediate effect in encouraging transfers of labour, it is bound to influence the pattern of recruitment as between services and manufacturing from now on. This is without doubt in the interests of our economy if only because, as has already been demonstrated, recruitment has hitherto been far too much the other way. A comparison between this country and similar developed countries confirms this conclusion. We know from both internal experience and from comparison with others that what is needed in order to make the country more efficient and more competitive and, as a result, more capable of increasing both output and exports is to redress the imbalance to which I have referred. There is no doubt that this tax will serve as a useful corrective.

Mr. Peter Tapsell (Horncastle)

Before he leaves that point, may I say that I was both struck and puzzled when the Chancellor made that observation in his speech. Can the Chief Secretary explain whether the 40 per cent. figure includes the tax on beer, spirits, tobacco and petrol? If it does, to lump them in with manufacturing industry seems somewhat misleading.

Mr. Diamond

Of course it does. I am taking the tax on commodities and the tax on services. The tax on services is very small indeed, amounting to 1 per cent., and it is the tax on services which we now propose to put. This is a selective tax on services. We are redressing the balance. The sooner hon. Members opposite realise that there is this imbalance, that it is holding our industry back in productivity and the employment of labour and that we are starving our industry of employment, the sooner will they realise why they have been incapable of helping us towards economic development.

May I now turn—

Several Hon. Members

rose—

Mr. Diamond

I have given way several times already.

Mr. Tapsell

rose—

Mr. Diamond

I have just given way to the hon. Gentleman.

Mr. Tapsell

It is an important point.

Mr. Diamond

It is an important point and I have answered it.

The Chairman

Order. If the Minister does not give way, the hon. Gentleman must resume his seat.

Mr. Diamond

I have given way many times, and I do not want to detain other hon. Members. I have given way on every occasion on which I have been asked.

Mr. Heath

I would just like to ask the Chief Secretary how he reconciles his accusations against this side of the House with the fact that we carried through the Resale Prices Act, which has had a considerable effect in introducing competition in wholesale and retail distribution. This was the real way to get a fair impact on the number of people employed in those services, and it will have an increasing effect.

Mr. Diamond

We are not discussing that Measure at this moment. What we are discussing is a furtherance of the benefit which the right hon. Gentleman alleges came from it. If he says that his Measure gave certain benefits which were needed, I say this tax proceeds in the same direction. We are therefore all going in the same direction, which I bitterly regret for certain personal reasons, but he should accept it as something, from the Government's point of view—

Mr. Heath

Then the Chief Secretary should not always accuse us of maintaining the status quo.

Mr. Diamond

The right hon. Gentleman is right. I withdraw. On that occasion he did not maintain the status quo, but he succeeded on every other occasion.

In short, my right hon. Friend has in his bold and imaginative way conceived this entirely novel tax which at one and the same time provides a new and buoyant source of revenue—and provides it comparatively painlessly from the individual taxpayer's point of view—which we can use in a variable and flexible manner, which in its economic effects corresponds entirely with the national interest, and which at the present time has enabled him to contain demand appropriately while leaving all existing taxes at their present levels. "Pay as you serve" is a brilliant conception which has added to the already very considerable stature of my right hon. Friend. Accordingly, the great majority of people outside and inside this House salute him.

4.22 p.m.

Mrs. Margaret Thatcher (Finchley)

The Chief Secretary began with a floral tribute to the Budget, and I thought that it was rather appropriate. I must congratulate him on his verbal dexterity in proving that if Corporation Tax is at 40 per cent. it is a 5 per cent. reduction on 35 per cent. His next part will, I hope, read rather more interestingly than it sounded. It was extremely complicated, and it sounded as if the right hon. Gentleman was not, perhaps, over-familiar with it either.

He then talked about prices. I think that in his assessment of the small price increases that will come about, he has forgotten exactly how many increases in rates, National Insurance contributions and labour costs the distributive trades had last year, which they absorbed without very much rise in prices. Increases in costs far outstripped the rise in prices. When he adds those increases to the increases imposed by this Budget, he will find that the price rises will be a great deal above what he calculates them to be now. I note from the figures in the Economic Report that hourly wage rates rose by 10.1 per cent. last year. No industry can go on absorbing costs without raising prices.

The right hon. Gentleman said that rises greater than his own estimate would be "plain profiteering". I shall be interested to see how big a rise there is in the price of meals in the House of Commons occasioned by the increases which the Kitchen Committee will have to bear. It will have to bear increases in food and meet the payroll tax—because I understand we are not a part of the Civil Service—

Mr. Harold Lever (Manchester, Cheetham)

My right hon. Friend did not say what is attributed to him. He said that a rise in prices of the magnitude given as an example in the motor trade of 5s. an hour on the charges for a mechanic would be either plain profiteering or claptrap. He did not say that any deviation from the percentage given as the general impact of the tax would be necessarily profiteering.

Mrs. Thatcher

My recollection is that we had quite a contretemps about food, and the right hon. Gentleman gave a specific figure of two-thirds of 1 per cent. to cover most rises in prices. That is what a good deal of the argument was about. However, in view of his own argument and that of the hon. Member for Manchester, Cheetham (Mr. Harold Lever), the only way to bring home to hon. Members the effect of the Budget will be for them to have their own meals in the dining room raised in price. Then we shall see exactly what the effect of the Budget has been. I am told that the Budget will involve the Kitchen Committee in an increase of many thousands of £s.

The Chief Secretary went on to deal in detail with some of the tax changes. Obviously, we have to leave discussion of most of those to the Finance Bill, and scrutinise them in detail when they are published.

Every Finance Bill and Budget contains a large amount of anti-avoidance legislation, and it is now time to point out that some of the anti-avoidance devices are really anti-confiscatory devices. The complex of taxes, with Income Tax, Surtax, Capital Gains Tax and an 80 per cent. rate of Estate Duty, is so great on some of the top incomes that people try to take defensive action—[An HON. MEMBER: "Shame."] An hon. Member says "Shame", but I know of no law in this country that says one should regulate one's affairs so as to pay the maximum amount of tax. If there were such a law, the Chancellor of the Exchequer's issue of National Savings certificates would not do very well.

In the meantime, we have to stop some of the loopholes. Some devices are of such a nature that they are really within the scope of the tax but just outside its legal effect. We reserve our opinion on some of the points.

I noted a comment in The Times of 22nd April about the Tyndall trust which may be caught, although we shall have to look at this in detail, by friendly society legislation which the right hon. Gentleman is proposing. It states: But no one is allowed an investment of more than £500 in this form of saving, a mere minnow of an amount for most of the so-called surtax sharks. It would be tragic if over five million small savers were to be penalised, and the Government's fund-raising efforts were to be hampered, just to victimise the Surtax payer for trifling amounts. There are one or two malicious points in the anti-avoidance legislation. I refer particularly to the remarks made about Surtax relief and the suspension of Section 238 of the Income Tax Act, 1952, for one year. This really is a vengeance measure. The Chancellor of the Exchequer has got very angry because some companies have distributed rather a lot of dividends before the end of the year—as we told him when discussing the Finance Bill last year that they would. Those companies are quite different legal entities from the individual shareholders. Indeed, it is the very foundation of the Chancellor of the Exchequer's argument for Corporation Tax that the two are apart. He dislikes what the companies have done and therefore proposes to take it out on the shareholders. This is very puerile.

Section 238 directs that the Special Commissioners shall charge liability to Surtax … so as to give such relief as may be just … It is rather piquant that this year the Labour Government have decided to suspend justice for one year—because that is the effect of what the Chancellor intends to do. We shall have to look extremely carefully at the rest of the detailed provisions when we have the Finance Bill.

I turn to some arguments about administration—and straight away to the payroll tax. Most of us would agree that good administration is vital to good government. Whatever the payroll tax is, it is thoroughly bad administration. Just let us examine it in a little more detail from the administrative aspect. What the Chancellor is proposing to do in a time of labour shortage is to take from a large number of people 25s. a week in order to repay the same amount six months later. This is sheer lunacy. I only wish that Gilbert and Sullivan were alive today so that we could have an opera about it. Who will benefit?—more civil servants, although the reason for the tax is supposed to be greater labour shortage. Who pays?—the public.

Then one comes on to a second group of people. What the Chancellor wants to do is to pay 7s. 6d. a week in respect of employees in manufacturing industry. Why cannot he just give the industries 7s. 6d. a week? Why does he have to have a system whereby he takes away 25s. to repay 32s. 6d. six months later? This is absolute nonsense, and I really think that the right hon. Gentleman needs a woman at the Treasury. This is just sheer stupidity. If my chief had come to me and put up a cockeyed scheme like that, I should have asked him if he was feeling all right.

The only advantage it has, as far as I can see, from the Government's viewpoint is that it compels industry to give an interest-free loan to the Government while having to borrow money at 7½ per cent. itself in order to do so. So from the administrative viewpoint this is really a very absurd scheme indeed. The Government want to take away 25s. a week from about one-third of the sector. They take it away from everyone and then give some back later. This is from the party that prides itself on streamlined administration. Next, I suppose, the Chancellor will come to the House and say that he is going to have a war on waste. When we have a war on waste, it will be a war on waste that he has created.

The payroll tax is levied on an establishment. It is not at all clear what the definition of "establishment" is or how large head offices of manufacturing concerns are to be treated. Perhaps the Financial Secretary will tell us when he winds up, although I understand from the Financial Times today that this may not be decided for a month or two. This reinforces what my right hon. Friend said about this tax, that it was thought up in a hurry. It was thought up and has not yet been thought out.

Another point about the tax is its effect upon export houses. There is a letter in The Times today pointing out that there are a thousand international shipping and forwarding agents and many hundred packing companies serving exporters in all fields. This cost will directly go on to the cost of the goods which they handle for export. The letter says: When debating this Bill in the House, I trust members of all parties will think seriously of the crippling effect on the trade and the export companies they serve. and I therefore hope that the Chancellor will consider exempting those from the very sharp payroll tax which he is imposing.

I turn from that aspect of administration, which is a serious one, to a different aspect of administration, while we have the Chief Secretary with us. I refer to the Income Tax forms which we have all had and, more than that, to the directions we have had about how to fill them up. I should like to ask the Financial Secretary, arising from the section which refers to chargeable assets acquired—I may say in passing that I do not understanding how anyone can understand that section unless he sat through the last stages of last year's Finance Bill—whether one really has to return on one's Income Tax form assets valued at below £1,000 now.

Perhaps the Financial Secretary will be able to tell us. But perhaps he will not be able to tell us, because in another issue of the form telling people how they should fill their forms up and how chargeable gains will be calculated, I notice that the Inland Revenue has got it wrong. In one of the issues of the large yellow paper—paragraph 17 entitled: "Assets held on 6th April, 1965"—it attempts to say how chargeable gains will be computed. It says the chargeable gain will be computed in the case of land the disposal price of which includes development value, by reference to its market value on 6th April, 1965, according to its then existing use. Those last words are nonsense. There is no authority whatsoever for them in last year's Finance Act, and it is even more than the Chancellor ever asked for. One is really getting into realms of bad administration when the Inland Revenue form gets it wrong. Who in fact can get it right if those telling us how to fill the form up do not know what the Act means? It is a very severe stricture on the Act. I wish to say very seriously that, if one has to rely on the Inland Revenue to tell one what the Act means and if the Inland Revenue does not know, it will have very serious repercussions for the future of taxation in this country and it will very quickly bring the whole system into disrepute.

I note that the new tax forms have upset the taxmen. The Daily Mail of 27th April, 1966, referring to some motions which have been tabled for the Inland Revenue Staff Federation Conference, said this: The Conference motions demand more money, more staff and a simplification of the tax system". This is after last year's Finance Bill which was alleged to simplify the tax system. One branch says it is 'concerned at the ever-increasing pressure of work in the chief inspectors' branch and is alarmed at the possibility of a complete breakdown in morale'. If the tax gatherers' morale is breaking down, they might spare a thought for the taxpayers, who have almost no morale left.

This explains why the payroll tax is being administered by the Ministry of Labour—because the Treasury and the Inland Revenue refuse to have it; why investment incentives have had to be drafted to the Board of Trade—because the Inland Revenue cannot take it any longer; and why there is to be a special Land Commission set up to take on another 2,000 people at a cost of £7 million a year to operate a development levy in addition to a Capital Gains Tax.

Unless the Chancellor takes note of this serious position in administration and of the difficulty of finding out what tax is due, I think we shall reach a position where no one will have any respect any longer for the taxation system.

I turn to a different aspect altogether—the social service aspect of the Budget. The short answer is that there is not one. I have been through every spring Budget Statement and Finance Bill since 1946. This is the first one in which there has not been either some small social service relief or some relief in tax. What a comment on this Labour Government. The Chancellor knows that some of these reliefs are chickenfeed compared with the vast amount of tax he is collecting, but not one small relief is he proposing to give.

The Chancellor differs in this respect from some former Labour Chancellors and from almost all Conservative Chancellors. In 1946, Hugh Dalton exempted National Insurance contributions from Income Tax. Last year the Chancellor put them back on to Income Tax. Dalton also increased the special allowance for married women from £80 to £110. In 1947 the Budget again increased the child allowance and the dependent relative allowance. In presenting his Budget in 1948 Sir Stafford Cripps said this: I next propose to do something for married women in industry". —that is very different from the present Chancellor— I propose to give the wife in employment the benefit of the reduced rate reliefs".—[OFFICIAL REPORT, 6th April, 1948; Vol. 449, c. 75.] Again, in 1949, Sir Stafford Cripps exempted unemployment, sickness and maternity benefits from tax.

I go on. Every single Budget has had some social service reliefs or reductions in tax, except this one. In 1950 Cripps reduced the lower rates of Income Tax. In 1951, which indeed was a difficult year, a far more difficult year than any the Chancellor has had to cope with, Hugh Gaitskell increased the pensions in the Budget. I am not suggesting that the Chancellor should increase pensions in Budgets now. We do not do it in that way these days. But I am making the point that, even in very difficult years, there has always been something for the social services.

In 1952, the first Conservative spring Budget provided special treatment for people on small fixed incomes. In 1953 there was a clairvoyant Budget—if I may mention this in passing—for it made certain that those who escape to the Scilly Isles do not thereby escape taxation. That Budget increased relief on small investment incomes for the over 65s. In 1954, Lord Butler reduced Entertainment Duty on cinemas and sports. In 1955, again the limit for small income relief was raised, together with child allowances.

The Chancellor of the Exchequer (Mr. James Callaghan)

And taken back in the autumn.

Mrs. Thatcher

In every single year till now something has been given. Does the right hon. Gentleman wish to intervene?

Mr. Callaghan

I was pointing out that, having given that relief in spring, 1955, Lord Butler took it all back in the autumn. Indeed, he took back more.

Mrs. Thatcher

I have not included autumn budgets. If I did, the right hon. Gentleman would not come off very well.

In 1956, there were retirement provisions for the self-employed. Again, 1957 was a difficult year, yet variable child allowances according to age and age exemption reliefs were introduced for the first time. In 1958—not an election year—there came the biggest set of reliefs ever given until those given later by my right hon. Friend the Member for Barnet (Mr. Maudling). There was exemption from Stamp Duty for certain house purchases, exemptions for the elderly were extended and there was also a change in the allowances for dependent relatives. The year 1959 was an election year, but there were only small reliefs allowing for the payment of post-war credits in certain hardship cases.

I am not giving details of all the reductions in taxation—far from it. If I were to give the figures for reductions in the standard rate, it would make much better reading for the Conservatives than for the Government. This is the first Budget in which there have been no social provisions and no reductions in tax at all. I know that hon. Members opposite do not like this, for it makes too good reading for the Conservatives.

In 1960, the dependent relative and housekeeper allowance was increased and certain post-war credits were paid out. In the 1961 Budget, the Chancellor improved the income limits for the dependent relative allowance and gave relief in respect of some payments to victims of Nazi persecution. None of these concessions in the successive Budgets cost much but always there was something waiting to be done.

In 1962, the relief limit on small incomes was raised, together with the level of Estate Duty exemption. In 1963, came the biggest set so far of personal reliefs, including exemption limits on Estate Duty, and the Stamp Duty on small houses. In 1964, there was an allowance for blind people. In 1965, the right hon. Gentleman the present Chancellor gave reliefs. But this year, he gives nothing The right hon. Gentleman is taking more revenue than ever before. He can surely afford to yield a small amount for small reliefs, many of which need now to be increased.

I want now to put a different aspect of the Budget—its effect on married women and widows, to whom the right hon. Gentleman is no fiscal friend. We had some debate last year on the effect of his provisions on widows—those ladies, often with young children, who have to go out to work and in doing so, as breadwinners, have to take in someone at home to look after the children. What happened last year? I acknowledge that the Government increased the pension by 12s. 6d. a week on 29th March. But within one week some of that relief had to be given back because the Chancellor withdrew the relief on the employer's part of the National Insurance contributions. Thus the widow had to face 11s. 2d. as an additional sum not being allowed for tax purposes payable in respect of the help in the house.

Now, the widow must pay this new impost of 12s. 6d. a week because, if the payroll tax is to follow the National Insurance rules, it will apply to anyone working eight hours a week or more. So the widow or married woman who goes out to work will have to face an increase out of her net taxed income of 12s. 6d. a week and I doubt whether this will be very good for recruitment to teaching or the nursing profession.

Mr. Diamond

I only interrupt to reinforce what I am sure the hon. Lady has overlooked—that this is a tax on employers.

Mrs. Thatcher

I do not think that the right hon. Gentleman has been listening. In this case the married woman and the widow is the employer. Why does the right hon. Gentleman think that I mentioned eight hours a week? She has to have someone in the house to run it in her absence and look after the children. Obviously the tax has been so hurriedly thought up by the Government that they have not even thought of this point. Now at least the right hon. Gentleman has thought of it. Perhaps the Financial Secretary will give an undertaking that married women and widows will not have to face this payroll levy.

Another aspect of the Budget affecting married women is the increase in prices that is forecast. I quote from that very respectable newspaper The Times. In to-day's edition it prints comments from various sectors of industry on the effect of the payroll tax. For example, the meat traders say: The result must be a substantial increase in the price of meat. The grocers say: The Chancellor has struck another savage blow at the distributive trade. To the grocer paying the tax without much opportunity of increasing prices, this will be most difficult". The dry cleaners envisage a minimum price increase of 3 per cent. in the autumn.

So once more the married woman who goes to the butcher, grocer and dry cleaner and then, when she is finished and wishes for a little pleasure, to the hairdressers, will find that prices are going up. It is a very bad Budget for women. The Chancellor is no friend to those whom some of his colleagues are trying to encourage to return to work.

I should also like to know from the Financial Secretary what has happened to the option mortgage scheme? One would have expected this to be mentioned in the Budget Statement since it concerns relief for mortgages. But no mention of it has been made. Has it been postponed for yet another year? Even with no mention in the Budget Resolutions, one would have expected the Chancellor or the Chief Secretary to mention it.

I want now to turn to the effect of the Budget on industry as I see it. I think that the rate of Corporation Tax at 40 per cent. is very high. I agree that some companies were expecting it to be higher and are relieved that it is not. But they are relieved because they have come to associate this Government with two things—high taxation and taking a hit at industry whenever they can. It is because of this innate view of industry in the Government that companies are relieved that the tax is not as bad as they thought it might be.

If I were in the right hon. Gentleman's position, I should be very worried indeed if any major sector of Britain took that view of the Government because I doubt—and I think that these companies doubt—whether Corporation Tax will stay at 40 per cent. and whether many hon. Members opposite would be prepared to say that it will not go up during the lifetime of this Parliament. Before the Government were returned, the hon. Member for Cheetham doubted whether we would have a 40 per cent. Corporation Tax plus the complete withholding tax that we have. I read an article by him, I believe in The Statist, which I have not with me at the moment.

Mr. Harold Lever

The hon. Lady flatters me by recalling an article I wrote so long ago and with so little effect. I advocated a flat Corporation Tax and no withholding tax, entailing a tax of something around 50 per cent.

Mrs. Thatcher

That would be a great improvement on a 40 per cent. Corporation Tax and a 41¼ per cent. withholding tax. If we draft an Amendment to that effect during the Committee stage of the Finance Bill I hope that we will have the hon. Gentleman's vote. Last year we had his voice with us on many occasions but rarely his vote.

I turn now to investment allowances and modernisation. As the right hon. Gentleman said, the Budget will cancel the most beneficial set of investment allowances in the world. I do not think that we should let it go without making that clear.

Mr. Diamond

indicated dissent.

Mrs. Thatcher

I agree that that is not exactly what the right hon. Gentleman said but I feel sure that it is what he would have said had he thought about it before he said it.

I am sorry that investment allowances are being changed. The N.E.D.C. Report "Conditions Favourable to Faster Growth" includes this recommendation in paragraph 171: It seems desirable to increase industry's confidence in investment allowances by giving such assurance as is constitutionally possible that they will not be reduced without, say, two or three years notice. They are, however, being reduced. The N.E.D.C. Report goes on: With frequent variation they lose much of their effect because a business planning its investment cannot be sure what allowances will be in force when the expenditure is incurred. If I have a complaint about investment allowances it is that they have been changed far too much in the past. It was not until we came to 1963 that we got the best set of investment allowances in the world. It would have been far better for the Chancellor to have kept them as they were, increasing the percentages to retain real value.

I have one or two comments about the White Paper on Investment Incentives. Perhaps the Financial Secretary can tell us whether the legislation envisaged will give an allowance for capital expenditure on laboratory buildings. The White Paper says that the Chancellor is retaining the allowance for ordinary scientific expenditure in the laboratories but laboratory buildings are not industrial structures. Under my right hon. Friend the Member for Barnet, they warranted a 30 per cent. allowance. It looks to me that they will not get any allowance under present proposals.

I have considerable doubts about the method of giving grants only to manufacturing processes. In a highly efficient industrial concern, one cannot divide efficiency as between one department and another or one part of the processing as against another. It is just as important that those responsible for the documenting and invoicing of orders and for warehousing goods within the factory should have the best possible equipment as it is that the manufacturing side should have the best possible equipment.

A large number of industries must have excellent storage accommodation and systems for getting their stock quickly. Again, if a factory is efficient, the chances are that it will have good conditions both for its staff and its ordinary workpeople and everything contributes to the success and efficiency of a concern. It is wrong to suggest that the Government should give an allowance only to that part of a company concerned with the manufacturing process. Prosperity is indivisible in this way and it would be far better if we had the present system of capital allowances.

My next point about the effect of the Budget on industry relates to changes in the Capital Gains Tax which will have to come about because of the development levy. It has not been widely enough realised that when the Land Commission legislation is through, manufacturers and industrialists who extend their premises or build new factories on land which they already own will not only have to finance the extension or development, but have to pay a tax on it. It is quite absurd for a party which says that it believes in modernisation then to put a development tax on modernisation. If the Chancellor is to do that, there will undoubtedly have to be changes in the Capital Gains Tax procedure. I hope that he will tell us that he will exempt industry from yet another increase in taxes.

I come to a wider aspect of industrial policy which has been brought up by the present suggestion of a payroll tax. Personally, I dislike permanent subsidies and the premium paid back to industry will in fact be a permanent subsidy. I believe that the efficient neither want nor need subsidies. The inefficient benefit from them because they keep them in business when they ought to go out of business.

Of course, the Chancellor will be very popular with inefficient industries, but I do not wish to be popular with inefficient industries. I would rather be popular with the efficient. What he is doing is trying to keep in existence companies which hold quite a bit of labour and which are not efficient. He is to give them investment allowances, regardless of efficiency or whether they will ever make a profit, and now he is to give them a premium in respect of each man of 7s. 6d. a week. They will do well out of it, but the efficient companies will not do so well out of it. Their investment allowances are down in value, and when they get the premium, it will be taken into account as a trading receipt, and be liable to Corporation Tax. Structurally and philosophically this is wrong, and it will never ever solve Britain's problems if the Chancellor carries on down this path.

There is, of course, the excellent example from the construction industry which will have to bear 25s. a week tax for each man. In the debates on the Gracious Speech the other day, my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) gave certain figures relating to those given by the building trades employers of the output of men employed on different kinds of building of new houses under different agencies. The figures are interesting. Output per man per year when working for a contractor working for a private developer is £3,260; output per man working for a contractor working for a local authority is £2,825; in a direct labour organisation of a local authority it is £1,990—the lowest of the lot. Yet the direct labour men will not have to pay the 25 per cent. payroll tax, because local authorities are exempt, while the efficient contractor will have to pay. Once again, this is an example of subsidising the inefficient and not helping the efficient.

Mr. Charles Pannell (Leeds, West)

Those are the figures of the National Federation of Building Trades Employers. I used to try to be technocratic on this matter, but this is one of the perennial arguments on which I could match different sets of figures. There is a great deal of prejudice in that body against local authority building and other public sector building. I want only to say in all sincerity that, having looked at these figures many times, I could not accept them on their face value.

Mrs. Thatcher

In that case, may I quote the Minister of Housing and Local Government in the same debate? The right hon. Gentleman said: I am alarmed because in the past year the completion time for public sector houses has prolonged itself from 15½ to 16½ months."—[OFFICIAL REPORT, 28th April, 1966; Vol. 727, c. 981.] That, of course, is a great deal above the completion time for private houses.

Mr. Roy Hattersley (Birmingham, Sparkbrook)

Is the hon. Lady aware that the Parker-Morris Report shows that in the private sector supervision is infinitely inferior to supervision in the public sector? Private contractors working for local authorities, as well as direct labour organisations, have invariably to undertake more supervision, and inevitably the cost and the time to build houses for a council are greater than the cost and the time of building houses for private individuals.

Mrs. Thatcher

I am aware of that Report and of the many debates which we have had in the House on the subject, but to my knowledge no one has ever contended—and I notice that the hon. Member for Birmingham, Spark-brook (Mr. Hattersley) and the right hon. Member for Leeds, West (Mr. C. Pannell) did not contend—that direct labour is the most efficient way of building houses. So my point stands.

I think that the correctness of my main thesis is borne in on the Chancellor and I hope that he will change his policies. The future of Britain depends on deciding which industries are efficient and encouraging those to expand; taking a look at the inefficient and deciding which can be made efficient and helping those, in the same way as my party did with the cotton industry, to become efficient; while the rest must go. We have no room for inefficient industry and the Budget will prolong the life of inefficient industry.

I want briefly to refer to inflation. As my right hon. Friend the Leader of the Opposition pointed out, this is the first Budget in which the objectives of policy have not included the maintenance of stable prices. Going back over Budgets and Royal Commissions for a long time, one sees that even as far back as the old Macmillan Committee the objectives of monetary and budgetary policy have nearly always been the same and have always included the stability of prices, and that was among the objectives put before the Radcliffe Committee.

I believe that the Chancellor's dropping of this objective from his Budget statement has rather more significance than he has been prepared to admit. I believe that a number of his advisers—and he can obviously choose whatever advisers he likes; I think that he is better with advice than without it—think that a little bit of inflation is a good thing for business. That is why the maintenance of stable prices has been dropped as an objective.

I note that the National Plan, taken together with the White Paper on Public Expenditure, is a blueprint for inflation, because the National Plan puts the average growth target between 1964 and 1970 at 3.8 per cent. while the White Paper on Public Expenditure proposes an increase in public expenditure of 4¼ per cent. a year. This is a blueprint for inflation. But when to that is added the performance of the rate of growth, about 2 per cent. over the past year, it can be seen that inflation is built into the economy, and we shall get it more and more under a Labour Government.

Mr. J. J. Mendelson (Penistone)

I have been worried that the hon. Lady might give us an outline of 15 Conservative Budget speeches all paying lip-service to the stability of prices. I have been thinking of inviting her to give us the facts rather than the speeches.

Mrs. Thatcher

I should like to refer to another Budget speech, but if I were to give an outline of 15 Conservative Budget speeches it would be found that the vast majority included considerable decreases in taxation. I have been through all the aspects of all the Budget speeches. This has been fairly interesting, because the Chancellor himself emphasised that Budgets have trends and he said that he was more interested in trends and in long-term strategy than in any one Budget. The trend he is following now is almost exactly the same as the trend which was taken from about 1947 to 1951.

Going through the speeches of those days one notices that there were many direct subsidies and that very soon the amount of direct subsidy was a great headache for the Chancellors of the day. One also had a very extensive system of controls which we never got rid of. Controls and higher subsidies, and both lead to higher and higher taxation. The Budget of 1951 is the first and the only post-war Budget speech in which any Chancellor has ever said that we should have to reduce our standard of living. The point is that with a system of extensive controls there are higher subsidies leading to higher taxation, and in the end that led to the Labour Government being put out of power.

I believe that we have embarked on exactly the same course again—extensive subsidies, vast numbers of new controls, and higher taxation. This, I agree with the Chancellor, is the strategy of Socialism and that is the significance of this Budget—we are in one of those long corridors of power once again.

The hon. Member for Penistone (Mr. Mendelson) invited me to refer to the Conservative Budget Statements.

Mr. Mendelson

indicated dissent.

Mrs. Thatcher

I shall accept the invitation whether given or not. I want to refer to a particular Budget speech which shows very well what Conservative strategy is and it compares very well with the present Socialist strategy and is much better. In one of the speeches—I will identify it in a moment—xthe then Chancellor of the Exchequer said: I have looked for a method which will relieve corporate industry and which will not forget the vital human element … the fact that we have not been getting the best out of our productive capacity springs in part from our terrible burden of taxation … All reliefs are carefully designed for the prime purpose of giving the incentive for greater production."—[OFFICIAL REPORT, 14th April, 1953; Vol. 514, c. 60-61.] Those were the aims. The facts were: Income Tax was reduced and the reduced rates were reduced. That Budget speech was 18 months after we came to power.

Mr. Mendelson

And the cost of living rose.

Mrs. Thatcher

No. It was 18 months after the great financial crisis of 1951. Because we had a different philosophy and a different strategy from right hon. Gentlemen opposite, we were able to reduce taxation, quite the contrary trend to what the Chancellor is following at the moment. The hon. Member mentioned the cost of living. The year in which we had the largest rise in the cost of living was 1950–51, when it went up by nearly 13 per cent. I have quoted that figure many times from the Government Dispatch Box. It was given to me when I was a Junior Minister at the Ministry of Pensions, and so it is an official Government figure.

I believe that the whole strategy of this Budget is wrong and I think that it will finish up once again in high subsidies and even higher taxation. The Chancellor will never be able to do what Conservative Chancellors did—to reduce direct taxation. I think that the Budget is wrong and I have no hesitation in condemning it.

5.9 p.m.

Mr. James Dickens (Lewisham, West)

In this my maiden speech to the House of Commons, I make the claim that I am not in any sense an old traditionalist, and that while I believe that certain traditions should be upheld and honoured, there are others with which we should dispense. I do not intend in any sense to carry on the tradition that I should be non-controversial. I hope that a small and diminishing number of hon. Members will find my remarks controversial.

However, I want to keep two traditions which are valuable. First, while I do not want to take hon. and right hon. Gentlemen on a tour of my constituency, I should like none the less to make a brief reference to it. It is a well known, charming part of inner South London, with two notable public institutions—the Horniman Museum at one end and the Catford Greyhound Racing Stadium at the other. It is, none the less, a place of considerable activity and public interest. It had the distinction of being represented in the last Parliament by my predecessor, Mr. Patrick McNair-Wilson. It would be fitting if I were to make reference to him. In his short period of only 17 months in Parliament he rose from the back benches to become an Opposition Front Bench spokesman on fuel and power.

I want to turn to the meat of the subject and to consider some of the proposals in the Budget statement. I take the view that this is a good Budget, a thoughtful Budget and an imaginative Budget. I am very glad that we have at long last set our sights on new economic horizons and that we are no longer, I hope, to trot out the old tired horses of increases in Purchase Tax or Income Tax as the solution to this country's economic difficulties.

I take pride in the fact that we on this side of the Committee have introduced a new type of Budget, a Budget which is part of the overall National Plan over the next five years. I thought that the Budget introduced in April, 1965, was the best that this country had had since the courageous, historic Budget introduced by Mr. Lloyd George in 1909. I am glad that the Budget introduced in 1966 fully emulates that of its predecessor.

The distinctive features of the Budget can be summarised as follows. The Selective Employment Tax is just the sort of measure which we so desperately need to get rapid economic expansion and quick industrial growth in manufacturing industry. It may well be that this tax can be subject to review and reconsideration in the years ahead. The important thing is that it is a tax of a type that the country needs. We now have a tax which has a direct bearing on the economic performance of the country. Over the years it will encourage further development of manufacturing industry. Obviously, again in the years ahead, it must be subject to amendment and improvement as we derive experience from its operation. I hope that over the next five years it will not be applied to all manufacturing industry. I hope, too, that it will be found possible to limit its effects on some service industries, such as tourism. I trust that a way can be found to make it more flexible in its application to the regions of this country, notably the West Country, Scotland and the North.

The second significant feature of the Budget which I like is its determination to do something to reduce the heavy outflow of capital from this country. I entirely agree with the Chancellor of the Exchequer that it is nonsense to argue that we should deliberately create unemployment to enjoy the luxury of allowing private investment overseas in highly developed industrial countries. Over the last financial year we were able to reduce the net outflow of capital from this country from £247 million in 1964 to £137 million. My right hon. Friend's voluntary three point programme for reducing it further is entirely sensible. He will be well advised to consider the operation of this voluntary three point programme over the forthcoming year and to be assured that many of my hon. Friends and myself will support stern action in the years ahead if it should prove necessary.

I was encouraged by the determination of my right hon. Friend the Chancellor to seek a new agreement with the Federal Government of Western Germany on support costs for the British Army of the Rhine. We note with considerable apprehension that in the financial year 1966–67 the estimated cost of maintaining the B.A.O.R. is £90 million. I welcome the renewed effort to reach agreement with the Federal Government on the foreign exchange costs of keeping our forces in Germany. Notwithstanding the endeavours of the Chief Secretary to the Treasury in 1965, it is high time that we reinforced our view with a direct indication to the Federal Government that, unless this problem is finally solved in 1966, we shall embark on a phased withdrawal of the B.A.O.R. over the next five years. I suggest that it is in no way intimidating to put forward as a counter-proposal that if the Federal Government cannot see their way clear to meet this enormous burden on British overseas expenditure we shall reduce the B.A.O.R. by a token of 1,000 men per month until satisfaction is achieved.

This brings me to the question of defence spending as part of this country's financial policy. I take the view that we in Britain labour under a very considerable economic handicap in supporting our present defence burden. We must bear in mind that today Great Britain spends 6.7 per cent. of her gross national product on defence. The Defence Review of 1966, which is a constructive document—it would be churlish to deny that much hard work went into its preparation and it represents an advance on anything we have had before—still foresees a very heavy burden in 1970—6 per cent. of our gross national product.

We must compare this situation coldly and rationally with that of countries in the European Economic Community. We are at present taking steps to open negotiations with our friends in the Common Market. I make it clear that I stand by the Gaitskell conditions laid down in 1962 for this country's entry into the Common Market. But it is worth noting the way in which countries in the Common Market concern themselves with defence spending. Their defence expenditure as a percentage of the gross national product in 1965 was as follows: France 5.1; Germany 5; Holland 4.4; Italy 3.3; and Belgium 3.2. The average percentage of the gross national product spent by the Six on defence is only 4.7.

I do not think it Utopian, far-fetched or irresponsible to suggest that we should set ourselves the aim in the immediate future of getting our defence spending down to something like that level. There can be no question but that the continued expenditure of at least an additional £600 million per annum on defence above the average spending of the Common Market countries is a major handicap to economic growth and social advance in Britain. The time has come to review not only our defence spending but the basis of it for our policies abroad.

Unfortunately, we still hear from senior Ministers references to the need for a British presence in South-East Asia and east of Suez generally. It is worth noting that all the Common Market countries, with one exception—Luxemburg—are former imperial powers. No one talks of the need for a Dutch presence in South-East Asia or for a Belgian or German presence in Africa. The Common Market countries have taken a much more sensible attitude. Their defence effort is concentrated in Europe. Internationally they are getting collective security on the cheap, as is America. The people who are paying the cost are the British tax-payers, through the British economy.

It is worth noting in passing that one of the repercussions this very high level of defence spending has been the fact that whereas Britain, with 450,000 men under arms, has some 103,000 stationed in the Near, Middle and Far East—representing 23 per cent of that total—the Common Market countries, with an aggregate of 1,650,000 men under arms, have only 11,000 stations outside Europe. There is a real moral in that for Britain.

In welcoming this Budget and congratulating the Chancellor and the Treasury team upon turning out what I think is a first-class job of work, I would draw their attention to the fact that all their endeavours will continue to be handicapped by this heavy and needless additional burden, of what I would term excess defence expenditure overseas. Over the next five years, if we go on as we have been going on in overseas defence commitments, we shall be spending an excess amount of something like £3,000 million or roughly 10 per cent. of our current Gross National Product. In my view that is too high.

I have been incautious enough to put my name to a Motion on the Order Paper calling for a limit on the duration of speeches. It is appropriate that at this juncture I should adhere to the inspiration of this Motion. I conclude by saying that I think that the Chancellor, in putting forward this Budget at the start of this new Session, has set his sights correctly. I am quite confident that the people will respect new endeavours, new ideas and a new approach to the problem of carrying forward the more equitable and more sensible distribution of the country's gross national wealth in the years ahead.

5.22 p.m.

Sir Lionel Heald (Chertsey)

Although I have been in this House for a few years, this is the first time that I have had the privilege and honour of congratulating an hon. Member on his maiden speech. I should like to do so in all sincerity and to say that I am quite sure that we will listen to the hon. Gentleman the Member for Lewisham, West (Mr. Dickens) with great interest on many occasions in the future. It would be an impertinence for me to say that he speaks with great fluency, because I understand that, although he comes from the greyhound racing country, he has spent a great deal of time quite close to this House, as a member of the Westminster City Council. I understand that he also has technical qualifications which will allow him to assist the House in a way in which we are hoping many of the new hon. Members will be able to do. Therefore, I welcome the hon. Gentleman among us and venture to wish him all good fortune.

In the first flush of the Chancellor's Budget, the new Selective Employment Tax was headline stuff. It could not be analysed in great detail at that time, and its incidence and effect, it is generally agreed, were considerably under-rated. Today public opinion is beginning to be alerted and I am glad to have the opportunity of assisting in this. The early comments on the Chancellor's speech and the Budget were mainly directed to rejoicings at the absence of any increase in the Income Tax or such things as the Road Fund tax. It almost looked as if the Chancellor was going to get away with the airy and rather misleading impression that the effect of £200 million extra additional taxation would be quite marginal.

He certainly appeared to be anxious to give the impression that what he was going to do with his new tax would not hurt the people who really matter when he was making that speech. At that time we had not had the opportunity of seeing the White Paper. I have now read it and I wonder whether he really had in mind, at the time of his speech, what I regard as the most astonishing and revealing anomaly arising from it. I refer to Order XV. This is in a section devoted to manufacturing industries, which are exempt. Item 486 of that Order includes the publishing of newspapers. I have found during the last two days that very few people appear to have appreciated that newspapers are to be entirely exempt. I am concerned to consider what this involves. No employee of any newspaper is to involve the proprietor of that newspaper in liability to pay the tax. By contrast liability does arise upon every employee or person engaged in radio, television, cinema, theatre, symphony orchestra, exhibitions, or any form of religious work.

To put it more simply, supposing that a church employs a man to look after the heating apparatus. The church expenses have to support him and now another 25s. 6d. per week will have to be found. Yet the man who looks after the heating in the building of The Guardian will not render the owners liable for any tax. I am sure that this has escaped the notice of The Guardian hitherto, and I am very hopeful that tomorrow, or the next day, we shall have a statement issued by it to say that it has asked the Chancellor to make it liable for its heating engineer, on grounds of social justice.

It is rather strange that nothing has yet been heard from the television people in spite of the fact that one might have thought that they would have expressed some indignation at the way they were referred to in this document. The word "television" does not occur. I suppose that it comes under "Radio", etc. One wonders why that kind of language was chosen, but one has to remember that television has been rather a naughty boy, whereas the Press has not been nearly so naughty. Is it not an extraordinary tax if it makes an orchestra liable for tax in respect of the bassoon player, yet excludes the porter in the Daily Express office or Cassandra's secretary? Is this social justice? I wonder if hon. Members on the other side of the Committee are going to be able to subscribe to this? What will The Times do with the 7s. 6d. a week which it is going to get for each man? This shows that there is something rather odd about it all. In other words, this is a political tax. It is not planned on economic lines at all. As we go through it, we find more and more that that is the case.

I believe that when the debate comes to an end on Monday, we shall have been able to show the public that this is one of the most ill-considered, unfair, useless and stupid tax innovations ever proposed to this Committee of the House of Commons. I can find quite a lot of support for this view from both the other parties in the House of Commons. I do not want to quote them at length, but I refer particularly to the Leader of the Liberal Party, who used words just as strong as those which I have used.

That this tax is ill-considerd and unfair was virtually acknowledged by the First Secretary himself when he said yesterday that it involves a measure of rough justice"— not social justice, but rough justice. The right hon. Gentleman went on to say that in due course the Government can arrive at a more sophisticated scheme".—[OFFICIAL REPORT, 4th May, 1966; Vol. 727, c. 1671.] Whether he was going to do that himself or who else will do it, he did not tell us.

Almost every speech, from either side of the Committee, has shown one or more defect, vice, unfairness or anomaly in this extraordinary tax. That it is stupid is best demonstrated by reference to a considerable authority, no less an authority than Mr. George Woodcock, the T.U.C. General Secretary, as quoted in the Daily Mail yesterday morning. He said on Tuesday about this tax: Frankly I do not understand it. It seems so contradictory. One of the greatest problems facing us is the misuse of labour within manufacturing. Yet firms in that field get a sort of subsidy. Poor Mr. Woodcock.

Nor is there any preference for export industries. People will get the bonus just the same, whether they are in export or not. I read in an article this morning, according to the very well-known gentleman who wrote it, that Actually it is the kind of industry that is least important in relation to the export trade that will benefit most—for instance, not chemicals, but clothing. In the geographical field, the tax will have the worst impact on some of the areas which we need to help the most: that is to say, those whose agriculture and tourism is, and must be, the mainstay of their employment. I therefore make no apology for the use of the word "stupid". My hon. Friend the Member for Finchley (Mrs. Thatcher) made use of it in her splendid speech this afternoon. Perhaps I might be allowed in passing to congratulate her on putting the Chief Secretary in his proper place on one or two occasions.

The reason why I used the word "stupid" is that this is a kind of Alice-in-Wonderland scheme. It appears to be designed to produce exactly the opposite result from what the Government really mean. That is most extraordinary. In putting forward that view, I do not rely upon myself. I rely in particular on at least two experienced hon. Members who have spoken from the other side of the Committee concerning the cost of living. During the election, I found in my constituency that this was the subject in which people were more interested than anything else, and I talked to a very large number of people about it. At their request, I promised that if I were returned, I would do my utmost to keep prices down or to persuade those reseponsible to do so, irrespective of politics and whichever Government were in power. As I was—I say it in all due modesty—fortunate in getting more votes than I did in 1964, although my majority was reduced, I feel that I am not only entitled, but am bound, to oppose this tax root and branch, because it is mere political bunkum and humbug for the Chancellor to pretend that the effect will be marginal.

I do not pretend to be an expert on economics or on the subject of retail business. I prefer to rely on the experience of someone like the hon. Member for Willesden, West (Mr. Pavitt), who is an expert on this subject, and who made a striking contribution on it on Tuesday. I can give two quite short quotations from the hon. Member; they are so important that I feel that the House of Commons and the public should have them. The hon. Member said: 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 green-grocery. 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 hon. Member ended by saying: 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."—[OFFICIAL RFPORT, 3rd May, 1966; Vol. 727, c. 1496, 1498.] We know from the quotation which I have given earlier that the Chancellor has not been very successful so far with Mr. Woodcock in regard to this tax. This reinforces what I am saying.

I would like to say a word about individuals. The Chancellor said something about the disabled, and it appears from the Press this morning that he contemplates offering a concession. My suggestion is that this is quite inadequate. There is no justification for limiting it to a particular class of people. There are many others who cannot qualify as disabled but who are old and infirm—pensioners, for example. If the disabled are entitled to it, the Chancellor has given away an enormous concession, because he must be logical.

The Chancellor is making this concession because he agrees that if this tax is to act simply as a fine, as it will do in cases where it cannot be passed on, it is unfair and something must be done about it. He has, therefore, got himself into considerable difficulty already. If this tax can be passed on, it will be passed on; and if it is passed on, I prefer the views and experience of the hon. Member for Willesden, West to those of the Chief Secretary.

This does not apply only to employers. It applies to the employed as well, because many men and women are employed by people of very small means—small employers, retired people and the like. Thousands of those people will not be able to get an industrial job in their neighbourhood and they will suffer.

The other striking example of unfairness is provided by a comparison between the private enterprise technical or educational people who are to be discriminated against in favour of those with the same special qualifications doing the same work, who happen to be employed in local authority or Government service. This is absolute Socialist discrimination. Are these people anti-social, that they have to be treated in this way? No, they are anti-Socialist.

I want to give two specific examples which illustrate the attitude of those who are responsible for devising this tax who are referred to rather well in language which I will not quote, but most people must have read it, by Sir Paul Chambers of I.C.I., I think it was this morning. Let us consider horticulture. This proposal is one of the biggest swindles that one could have, because the Chancellor said the other day this this will be made up to agriculture by the Annual Review. There is no Annual Review for horticulture, so it will not be made up to this industry at all. It is said that they will be taken into account in future Government policy, but this is not going to help a man who is trying to pay wages to his employees.

We then find a most astonishing thing. We find religion specifically put in as an item. It is not that it slipped in under a generality and that the Government propose to take it out. In order to rub it in, it is a separate specific item in this list. Do not let the religious organisations have any doubt about the way in which the Government propose to hit them. Is this a good thing to do?

I deal next with charities. There is nothing in this document to prevent charities and voluntary organisations from being badly hit. This morning I heard of two organisations which are gravely concerned about the Chancellor's proposals. Even if charities are removed—and some of us will take what steps we can to get at least that promise—the voluntary organisations will remain. What is to be done about them?

During the election we heard a great deal about "Your Government", and "You know Labour Government works". It was on all the posters. I suggest the addition of just two words. What we are going to say to people all over the country is, "You know now how Labour Government works".

5.43 p.m.

Mr. Edwin Brooks (Bebington)

I have a great deal of sympathy with the view expressed by my hon. Friend the Member for Lewisham, West (Mr. Dickens) about the need for uninhibited controversy in the House, but on reflection I think that I will continue to seek the customary indulgence of the Committee towards a maiden speaker. Indeed, I was fortified by Mr. Speaker's generous assurance some weeks ago that war would not be declared on me until I was rash enough to catch the eye of the Chair on some subsequent occasion. I therefore felt it conventional, if not entirely in accordance with my inclinations, to be a neutral in the conflict which is at present engaging this Committee, and I suppose, like all neutrals, run the risk of being blamed by the antagonists for intruding with my well meaning homilies. But I feel that my theme will quickly show that any claim I might have to be a non-belligerent is perhaps unjustified. A non-belligerent perhaps in the battle of the Budget, but this is hardly likely to protect me from the controversies which all hon. Members know swarm round the theme to which I should like to address a few remarks.

My theme is local government reform and its relationship to regional planning and regional government, and indeed to national Government in the years ahead. It is a theme which I suggest is less remote than it might appear at first glance from the matters which are now before the Committee, the problems of economic and industrial efficiency in the country and in the various localities.

It is certainly a subject which has a distinct record of polemic and parochial warfare, and I sometimes suspect that the teaching of Mao Tse-tung about guerrilla warfare came originally from a study of the resilience and dexterity which is shown in the field, and in battles for each field, which are fought by our native institutions of local democracy. But perhaps the parallel is more with the trench warfare of 1914–18, for the pattern has become one of great rigidity and slow attrition. A system which was created in the late 19th century has become fossilised and even sanctified by time. The arrival of the electric railway, the telephone, radio, television, the motor vehicle, and so on, this huge revolution in communications which is daily transforming us into a nation of urban nomads, has largely passed by, and been ignored by, our institutions of local democracy.

It is fair to say that the Local Government Act, 1958, made some attempt to grapple with this problem. It recognised the existence of Special Review Areas in which novel suggestions for reform were to be sought, but this belated recognition of the facts of 20th century urban geography deserve no more than two cheers, for the Special Review Areas were so tightly corseted and so narrowly constricted by an outdated definition of conurbations, a definition which ignored the presence of large and dynamic urban regions, that the necessary structural reform was fatally handicapped from the outset.

The essential problem does not lie in redrawing the administrative equivalent on a larger scale of the medieval town wall. It lies rather in recognising that any clear distinction between town and country, between borough and shire, has been destroyed by this remarkable and continuing increase in personal mobility which has characterised the past half century.

It is, of course, much simpler to criticise than to find equally obvious solutions, and one of the difficulties is apparent from what I have tried to argue. For while increased mobility may have disrupted old, local communities, it has not yet erected in their place new regional communities with any sense of coherent identity, or common purpose, or transcending loyalties.

Is it likely that a region as curiously amorphous as the East Midlands will produce these binding passions of loyalty for which the men of Rutland were prepared so recently to go to the stake? I am sceptical of those who by some ambiguous so-called democratic alchemy are seeking to recreate the ancient kingdoms of England in a regional mould. Perhaps I can clarify this point, because, as a councillor with eight years' experience in Birkenhead, which in part straddles my constituency of Bebington, I am conscious of the heavy burden which local councillors throughout the country are shouldering, not least the weighty financial problems which in their own way, in their own province, match those of my right hon. Friend, and if the pressures on local authorities are already so formidable that the amateur status of the councillor is increasingly jeopardised, how much more difficult will it be to find men and women of the right calibre and of the correct representative skills to serve on elected regional authorities?

I know it is often suggested that elected regional councillors would be responsible only for the so-called strategic decisions, the major policy questions. The detailed day-to-day work would devolve upon lower tier authorities. But I am sceptical of the inference that this might lead to some reduction in the work load upon such so-called strategic councillors. There may well be a difference between those whose view spans the far horizons—as my right hon. Friends need no reminding—and those of us in the honourable infantry who tramp the well-worn paths of duty. But would any general or Prime Minister accept that because his rôle is strategic it guarantees a short working day? Is it not certain that regional councillors will equally find their time consumed and their work exacting? And even if they avoided becoming full-time, paid professional politicians, with all the occupational hazards of which hon. Members are well aware, I am dubious about the attractions of such an office to the young, able, ambitious and—not least—happily domesticated family man or woman.

There is too much gerontocracy already in local government, and it would be a sad paradox if the rule of the elderly retired was to be unwittingly confirmed by an ostensible attempt to enlarge regional democracy.

Yet when all is said and done about the difficulties of electing regional authorities I remain apprehensive about the character of the new regional planning councils. I am disturbed not because of the calibre of their members; they are eminently qualified in both expertise and experience. I am simply hostile in principle to a system of nomination which is wholly bureaucratic. Such nominees are bound to seem the creatures of Central Government, with no representative roots, and no locally derived political power. Is it likely that the elected council of some powerful authority would tamely accept unwelcome advice from such a body, and is it desirable?

The battle for democracy against centralised bureaucracy in a technically advanced State is never-ending. Vigilance is at least as necessary within these Islands as it is towards the institutions of the European Community. We are told correctly that this is the time for bold initiative towards Europe. Equally it is the time for brave experiment in democratic evolution at home. The two strands are inextricably interwoven, for if regional policies in Britain, with all their relevance for economic growth, come to be defined in a greater Europe, is it not all the more necessary that regional interests should have effective means of expression? If, as I have tried to argue, elected regional authorities may prove unrepresentative of those interests, and if, alternatively, nominated regional authorities may lack political power to enforce their decisions, particularly unpopular ones, is there perhaps a case for giving further thought to the ideas sketched by the Prime Minister during the debate on the Gracious Speech, referring to regional all-party committees?

Are not Members of this House in a potentially effective position to scrutinise, criticise and exercise democratic surveillance at regional level? Instead of intruding into the regions yet another level of elected councillors to serve as regional ombudsmen, would it not be wiser to harness the energies and democratically derived political power of hon. Members of this House?

Such an approach, in principle, is more likely to add to the dignity of this House than is the establishment of provincially separatist parliaments. Given some such approach to the regional problems we can then embark upon a drastic reform of local government proper, simplifying the present hotch-potch without producing authorities too vast to be communities in anything but a cartographic sense.

Indeed, without such an agonising reappraisal of our local government, whose orbit now covers so many of the important growth sectors of the economy, such efficient use of manpower as the Budget seeks to encourage will be gravely handicapped, for there is an immense and wasteful duplication of scarce skills at present in local government employment.

I apologise for having spent so long on our regional geography of government, but I understand that I am the first academic geographer to enter this House since Sir Halford Mackinder, a notable geopolitician. It has, therefore, grieved me to find that the geographical whereabouts of my constituecny of Bebington are a mystery to more than a few hon. Members. By my disappointment that such a busy and important and thriving part of Merseyside has not yet entered the geographical consciousness of such Members is moderated by the respect and recognition which its former representatives in this House so obviously enjoy.

Of my immediate predecessor, Mr. Geoffrey Howe, I would simply say that if our party system is to be faulted, it should be reproached for denying this House the services of such an able and industrious Member. His predecessor, who now graces another place, was widely known and a friend of many hon. Members. I am again reminded of the high standards of constituency service against which I have to measure myself.

Bebington has at least one other distinguished son in the House. My right hon. Friend the Member for Huyton—the Prime Minister—as a young man went west—not too far west—from his native Yorkshire to the sunnier plains of Cheshire and became the premier, and, indeed, the solitary sixth-former in the newly completed Wirral Grammar School in my constituency. But Bebington, no less than the Prime Minister, has changed immeasurably since those days. Within the Wirral Peninsula it is a thriving and rapidly growing area of prosperity and scenic attraction. Sophisticated new industries guarantee its continued progress and in that drive towards industrial modernity and efficiency which this Budget debate is really all about I am confident that my constituency will fully play its part.

5.58 p.m.

Mr. Peter Tapsell (Horncastle)

Having been involuntarily absent from the discussions of this Committee for the past 18 months I hope that it will not be thought presumptuous of me to offer my most sincere congratulations to the hon. Member for Bebington (Mr. Brooks) on the successful, fluent and thoughtful way in which he delivered his maiden speech. Hon. Members on this side, in particular, will very much have appreciated his generous and charming tribute to Mr. Geoffrey Howe, for whom we have a high regard. if I may return the compliment, I would say that it reflects great credit on the constituency of Bebington that, if it has to dispense with the services of Mr. Howe, it should have chosen in his place someone of such obvious intellectual calibre. We all look forward with keen expectation to hearing the hon. Member on many future occasions.

I presumed once upon the indulgence of the House when I made my maiden speech in 1959, and I certainly do not intend to presume on it again. If some of my remarks are not controversial I shall be extremely disappointed. It seems to me that the two most important announcements contained in the Chancellor's speech were the introduction of the voluntary scheme for restricting and controlling British investment in the sterling area and the proposal to introduce a Selective Employment Tax at home.

Of these two, not surprisingly, the Selective Employment Tax has attracted by far the greater attention in our discussions, and on television and in newspaper reporting. But I venture to suggest that in years to come the other proposal—the voluntary scheme to restrict British investment in the sterling area—will be seen to be the more important of the two, indeed, it may be that its economic consequences will prove to be as far-reaching as the political consequences of the decision to give independence to India in 1947, and of the speech which Mr. Macmillan made to the South African Parliament in 1960. I believe that this decision about the sterling area marks a significant milestone in the long and—I believe—inevitable withdrawal of Britain from her Imperial role in the world.

I understand the Government's problems over investment in the sterling area. Following, to some extent, the point made in another interesting maiden speech, by the hon. Member for Lewisham, West (Mr. Dickens), I would say that if one looks at the figure of Government expenditure overseas in round terms, one sees that it is approaching £500 million a year, which, speaking broadly, breaks down into £350 million on defence expenditure and about £150 million on aid, on overseas representation and on our subscriptions to international organisations and bodies of that sort.

This figure of about £500 million—perhaps £480 million is more accurate—represents a tremendous increase in the level of our overseas expenditure in very recent years. As recently as 1952 the figure was only about £50 million a year, and now it is about £480 million—nearly ten times as much as thirteen years ago.

One sees the far-reaching consequences of this in many aspects of present Government policy, both at home and abroad. For instance, I presume that it is the main reason that we have the Corporation Tax in its present form, which goes so far towards encouraging investment at home and penalising investment abroad. I assume also that these figures were very much in the Government's mind when they imitated the United States in the introduction of this so-called "voluntary" scheme for restricting capital investment in the sterling area; and also, no doubt, lay behind the announcement of the Government's intention to renew negotiations with Germany about our defence costs.

Of course, I understand that, in addition to all this, an official inquiry into Government spending abroad is now under way. No doubt this may prove useful to the Government, but I should have thought that the facts about the situation are already known. The fact is the difficulty we find in getting out of our past political and military commitments, however embarrassing they may prove financially.

The first of the three political and military commitments on which overseas expenditure has risen most sharply is Germany. In a most interesting speech yesterday, my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) pointed out some of the very great difficulties in putting into effect the intentions about Germany which were announced by the Chancellor. Secondly, there is a very sharp increase in costs over Aden, while the attempt to disengage in a rather clumsy way there will, I suspect, lead to a considerable increase in our expenditure in the Persian Gulf area, from which I returned in February. The third commitment, the use of aircraft carriers in the Far East, has also played an important part in this very substantial increase in overseas expenditure.

The other fact which is already known, and which I should not have thought required an official inquiry to establish, is the fact of the increasing cost of giving countries independence. Malaysia is the most striking example, but other countries also, as soon as they are given independence, want substantial loans from us. Contrary to expectations a few years ago, these formerly dependent countries cost us more when they are independent than they did when they were Colonies.

As I say, these basic facts are known. It is difficult, therefore, to see the point of the official inquiry. The real question which we in this Committee and the country must ask is this: will the Government change their policies in order to battle with this problem? This, of course, was the question posed, in a very relevant and searching form, by the right hon. Member for Woolwich, East (Mr. Mayhew) when he resigned from the Government.

The result of present policies, which are to continue with all these commitments I have outlined is also clear. It is that the Government are cutting back on our investment abroad, which at least brings in a valuable return in foreign exchange and helps our export drive. I do not say that this choice is either right or wrong. I do not pretend to have sufficient information to make that decision, but I do say that it is important for the Committee and the whole country to know that this choice exists, It is a question which has to be answered. I could have wished for a little more frankness from the Chancellor and from other Ministers in indicating that their financial policies are, at so many levels, being influenced by our overseas commitments.

My second point concerns the Selective Employment Tax. I do not wish to repeat the many criticisms which have already been made from all three parties on this subject, except to say that I do not accept that the Government are in a position to say which industries are more or less useful than others; which industries contribute more or less to the export drive; or which industries are more or less wasteful of manpower.

To try to make an arbitrary division of usefulness and export performance between industries which are called "manufacturing" industries on the one side and "service" industries on the other, and to suggest that all the "manufacturing" industries fall on one side of that line and all the "service" industries on the other is not realistic. If anyone were in any doubt about that, he would only have to read the first letter in today's Times from Mr. Hugh Wontner, pointing out that the labour force in hotels has been falling, while their earnings, particularly in dollar currency, have been rising.

I thought that the Chief Secretary, who was good enough to give way to me during his speech, rather weakened the case for the Selective Employment Tax when he admitted a fact which had not been clear to me earlier, that when the figure is mentioned of 40 per cent. of taxation falling on the manufacturing industries and only 1 per cent. on the service industries, the 40 per cent. includes the tax on beer, spirits, tobacco and petrol.

When we heard about the unfairness of this, and when the contrast was put to the Committee in the Chancellor's speech and repeated with great emphasis by the Chief Secretary today about the manufacturing industries making this great contribution to exports—and in some way appearing almost morally superior to the service industries—I do not think that we immediately thought of industries like the tobacco, beer, spirits and petrol industries.

Far be it from me to say anything against the tobacco industry, having represented Nottingham, West for five years where I had 9,000 tobacco workers in my constituency. Of course it is a manufacturing industry, but one can hardly say that our tobacco industry makes a great contribution to our balance of payments problem, since it is one of our largest importers of raw materials. The same can be said, of course, of the petrol industry.

It seems to me that this Selective Employment Tax should be looked at most carefully by the Committee during our discussions throughout the summer. I hasten to assure the Chief Secretary that I am not opposed to a Selective Employment Tax in principle. Nor am I opposed to the concept of broadening the tax base. Indeed, in the economic debates in 1961 I argued in favour of both broadening the tax base and introducing a regionally variable payroll tax. However, I have serious misgivings about the Government's present proposals.

The regional point was well put yesterday by the right hon. Gentleman the Leader of the Liberal Party and I will not pursue that in general beyond saying that the regions which he mentioned are not the only ones which will be extremely hard hit by the proposals in their present form. For example, my new constituency of Horncastle in East Lincolnshire is in exactly the same position as some of the other regions which he mentioned. There is no competition there for manpower between manufacturing and service industries. We only wish that there were such competition.

The trouble is that we have virtually no manufacturing industry in East Lincolnshire and the only large-scale opportunities for employment lie either in tourism, using that word in its broadest sense—hotels, caravanning, camps such as Butlin's holiday camp and so on—or agriculture. These two industries, in an area where we already have considerable seasonal unemployment, lack of variety of employment and lower than national average wages, will be hard hit indeed.

If we consider tourism—hotels and allied trades—it seems that a triple burden has been imposed on this industry, not just by the present Government but over the years. To begin with, costs in the hotel industry have been pushed up by the effects of the catering and wages legislation. Secondly, the Government recently excluded the industry from the investment grant arrangements given to manufacturing industries —on the curious grounds that the manufacturing industries contributed more to the export drive.

Mr. Wontner's letter in The Times today makes it clear that the hotel industry is the fourth largest earner of foreign currency and the principal source of dollars. Now it is to be excluded from the payroll tax remissions and I hope that the Government will look closely at this matter.

Competition for foreign exchange earnings is not now an internal matter for the hotel industry. London is not competing with other British cities but with Paris and Rome. It is only fairly recently that it has been possible to fly from New York direct to Paris or Rome without stopping over in London. But now, if this tax is placed on the hotel industry in London and elsewhere in the country, many Americans, when planning their overseas holidays, will choose to go direct to Paris or Rome.

If one considers the effect of this tax on agriculture, about which a great deal has been said and about which a great deal more will be said—

Sir G. Nabarro

Hear, hear.

Mr. Tapsell

—one realises why the farming community, certainly the farming community in my constituency, regards it as really rather insulting for agriculture to be termed a "service" industry in the somewhat depreciatory sense in which Socialists appear to use that word. If ever there was a basic industry in Britain, it is the agricultural industry, which is not only the largest single industry in the country and an enormous saver of foreign exchange, but an industry which employs a very large labour force and is basic to our activities.

I hope the Chancellor will accept—because I am not trying to make debating points but am reflecting what will be a widespread and deep-seated anxiety among farmers and farm workers—that there is great anxiety in the country districts arising from four main points. The first is that they do not believe that there is any certainty of a full refund in subsequent Annual Price Reviews of this new tax, despite what is stated in the White to Paper.

They have good grounds for this anxiety, although I hope that the Chief Secretary will be emphatic on this point. They are anxious because in past Price Reviews the refunds for increased costs which they expected to get have so often been greatly reduced by the increased efficiency factor which has been introduced. The agricultural community would like an assurance that the refund of this new Selective Employment Tax will never be reduced because of the argument of the efficiency factor.

The second anxiety is that even if the full refund is guaranteed, no one can see how the overall total return to the agricultural community is to be distributed fairly between individual farmers.

The third anxiety—and this was brought out by my hon. Friend the Member for Finchley (Mrs. Thatcher)—concerns the consequent delay in the refund and the fact that it will amount to a tax-free loan from farmers to the Exchequer at a time when overdrafts in farming are running at more than £600 million a year and when very high interest charges must be paid.

The fourth anxiety arises because there can be no doubt that the new tax will have a depressive effect on agricultural wages. The National Union of Agricultural Workers has put in a claim for a basic wage of £14 a week. All the farmers with whom I have spoken in my constituency regard this as only fair and just and a sum that will take farm workers only some way towards true comparability with their skilled counterparts in industry.

But if, as is undoubtedly the case, the farmers are finding it difficult to pay even the present level of wages to agricultural workers, how much more difficult will it be for them if they are fined, as it were, 25s. a week for each man they employ.

I hope that the Government will carefully study the Australian payroll tax in the light of the criticisms which have been made in all parts of the Committee. If the Chancellor studies the Australian system he might find that many of these criticisms could be met without the Government giving up the substance or principle of their proposals. In Australia, the payroll tax is levied on all employers and no invidious selectivity is made by the Government between one industry and another.

It is important to note that in Australia small-scale employers get a refund. These are employers with a wages bill of less than 400 Australian dollars a week, about £160 sterling. In other words, those with not more than about 12 employees get a complete refund of the payroll tax. Such an amendment of the Government's proposals would be of tremendous help to my constituents who work in agriculture and tourism and would greatly alleviate the hardship that will be caused throughout the country.

Another aspect of the Australian payroll tax system which I hope will be studied is the help which it gives to exports. Australian manufacturers may obtain a rebate of the payroll tax when their exports are greater than an average of their exports for the years 1958–59 and 1959–60. If the increase represents at least 8 per cent. of gross receipts the tax is rebated to them in full.

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

The hon. Gentleman may not be aware that that provision was introduced into the Australian tax legislation before that country subscribed to the G.A.T.T. Consequently, Australia is allowed to continue with it. We could not introduce such a measure now.

Mr. Tapsell

If that is the case, I must naturally accept what the hon. and learned Gentleman says. However, the way in which the Australian payroll tax is operated indicates that a much more sensitive and intelligent application of this type of tax can be made to help various aspects of Government policy than the somewhat rough approach which is being applied in this country.

I hope that the Chancellor will look at these suggestions, at any rate at two of them if not all three. I sometimes suspect that we are a little more loyal to our obligations under the G.A.T.T. than many other countries and that perhaps a little less loyalty to the strict letter and spirit of the G.A.T.T. might make us less dependent on foreign charity. These suggestions would enable the Chancellor to keep a broadened tax base and to reduce hardship for many farmers and much of the hotel and tourist trade which undoubtedly will otherwise arise. If allied to powers for total remission of the tax on a regional basis and the abandonment of the proposal of the Government to draw distinctions between industries in an arbitrary way this would remove many of the criticisms made in the country.

6.21 p.m.

Mr. W. T. Williams (Warrington)

Perhaps it would not be inappropriate if I were to say to the hon. Member for Horncastle (Mr. Tapsell), who has just made his second "maiden speech", or perhaps in view of its length I should say two maiden speeches, that we listened to him with great interest. There was something, but not a great deal, in the speeches he made with which I disagree.

The speech I have to make is a difficult one, for I have to try, as warily as I know how, to tread between the Scylla of criticism and the Charybdis of open war. I hope that I may persuade my hon. and learned Friend the Financial Secretary and his colleagues in the Treasury that the comments I make this evening are made temperately and reasonably, and that my object in making them is neither to encourage the hosts of Midian opposite to cheer nor to rouse him to such a fury of indignation that he can offer no assistance in the matters about which I and those who belong to my group in this House, the Co-operative group, are deeply and vitally concerned.

Sir G. Nabarro

Sectional interests again.

Mr. Williams

The hon. Member in a previous dispensation earned the reputation of having a voice like the Bull of Bashan.

Sir G. Nabarro

The bull of whom?

Mr. Williams

Bashan. The hon. Member for Worcestershire, South (Sir G. Nabarro), I am happy to know, has at last reached one subject on which he admittedly knows nothing. He often speaks on such subjects, but never has he so frankly admitted his ignorance as he has done now. I am delighted with his interruption, because it afforded me the opportunity of making that comment.

Sir G. Nabarro

I have in my hand, waiting to correct the hon. and learned Member's speech, an extract from the Financial Times on the Selective Employment Tax. It is headed: "Shocking for the Co-op." That is the hon. and learned Member's theme.

Mr. Williams

I should have remembered from days gone by that it is always a mistake to give way to the hon. Member. His interruptions are usually irrelevant, often too long, and generally designed not so much to correct or to inform as to give an opportunity to the Chair of knowing that he is in the Chamber.

I say at the outset of the comments which I wish to address to my hon. and learned Friend that I and my colleagues on this side of the Committee do not criticise the Budget on any ground of unfairness or moral obliquy. We do not dispute the need for nor criticise the payroll tax in principle. We recognise that the Government, faced with the parlous economic position with which they were faced when they came into power, were forced to take serious and far-reaching measures to deal with the situation. We recognise the problems with which the Chancellor was faced when at the same time he had to try to restore our economic position and to avoid the kind of deflationary measures which would have resulted in increased unemployment and make more difficult the task that all of us, I suppose, on both sides of the House, want to see achieved.

Our criticisms and our plea to the Chancellor are not based on a failure to understand the problems with which he is faced. In return, may we invite the Chancellor to consider some of the problems and difficulties which he had inflicted upon one section of the community, and that an important section? I recognise, and I am not now trying to push the Chancellor on this score, that once the principle has been established of a payroll tax—even of a selective payroll tax—no eloquence of mine, if I had any, would persuade him that the advice he has received was wrong and that he would do better to listen to the hon. and learned Member for Warrington.

Dealing specifically with the refusal of the Chancellor to grant exemptions to any section of the distributive trades, may I ask the Chancellor whether in the light of what he has heard, or of what has been told to him since this particular form of payroll tax has been publicised, whether he will consider now representations in respect of that tax to alleviate its most crushing effects?

The Chancellor has told us that his object in this tax is at the same time to raise money for the Exchequer—a most laudable purpose—without increasing substantially the cost of living; to attempt without direction to redistribute labour and at the same time to assist manufacturers, especially those in the export industry. There is no doubt that an ingenious and intelligent device like the payroll tax will in the long-term achieve those objects. In consequence, I am not altogether without sympathy with the Chief Secretary, who said yesterday that until those long-term objects are achieved it is possible that only rough justice will be done for certain sections and that there will be hard borderline cases.

It is quite clear that it is useless for me to ask the Chancellor to look at the whole distributive trade and to make concessions, for it is from the distributive trade substantially that this considerable sum of tax is to be mopped up. It does not accord with practical experience to say that this overall charge on distribution will mean, as the classical economists and academic economists seem to suggest, an increase in particular instances of more than 1 per cent. Obviously this tax will fall unequally. Equally obviously, its heaviest incidence will be upon those services that are in greatest general use—groceries, bread, meat, things of that kind. It follows that it will not be of much comfort to a man who pays 10s. more for a £50 suit if he goes home to his wife and is told that every single item in his wife's grocery basket has perforce carried increases.

This is a somewhat unrealistic way of looking at the problem of increased prices in practice. The once-for-all charge stands in the same queue in distribution as the daily purchase, and it is clearly the latter that will have to bear the brunt when it comes to adding up the cost on every weekly wage packet. If that is true of the short-term practical effect, there is another and most serious matter to which I beg the Chancellor to give his attention. Perhaps the best way I can illustrate what I want to say is by a comment on the general application to a specific example. That I think would most simply convey the point I want to make.

There is a large co-operative society in the London area whose turnover is £31 million a year. Something like 80 per cent. of that total turnover is in groceries and kindred goods requiring dairy deliveries, bread deliveries and deliveries of foodstuffs generally. Something like 9,000 people are employed by that society including a very large number of part-time workers. The cost of the payroll tax for that society will be £364,000 a year. That is an increase of 7 per cent. on its wages bill, not a penny of which will go to its workers—it will all go to the Government. At the moment it pays 6d. in the £ dividend and, unless some other way can be found of absorbing it, the cost will mean a reduction of something like 3d. on every £ in dividend.

Mr. Burden

Would not the hon. and learned Member agree that the reason why so many part-time workers have to be employed in the distributive industries, including the co-op, is that they cannot obtain other labour? Therefore, this will have no effect on transferring labour from those industries into manufactures.

Mr. Williams

I am obliged to the hon. Member for making my speech for me. He can do it much more efficiently than I can. I was about to make that point, but now he has saved my time in making it.

This is an efficient society. It has spent substantial sums in improving efficiency. It has ruthlessly closed uneconomic stores, save where they had to be kept open for social reasons. This is a burden that the co-ops bear but, for the most part, other traders do not. The society of which I am speaking has enormously developed its self-service stores, its self-selection counters and its supermarkets. It has even on two successive occasions instituted computers.

Overall, the Co-operative movement is contributing no less than £11 million to the payroll tax. By reason of Government policy—not only the policy of the present Government, but Government policy generally—the society in question has decreased its employees by 15 per cent. in each of the last six years. Part of this has been the result of force majeure, simply because new employees cannot be obtained. At the same time, purchase costs have risen tremendously and rates and all other incidental expenses have gone up. The society has been compelled to carry out all the changes which it has undertaken—the improvement of its self-service stores, computer installation and the rest—without a penny of assistance from the Government, because although these matters would have justified investment incentives, those incentives have been withdrawn. And the society now has this further burden.

In spite of increased costs, at the request of the Department of Economic Affairs the society has kept its prices down and absorbed increases into its own overheads. It has maintained services that are socially desirable even when they have been unprofitable. It maintains a substantial service of bread and milk deliveries and social and educational activities. I will not in this place mention anything about its political activities. It has done all these things, and its contribution to savings has been considerable, although each Government in turn has refused to allow even the small privilege that is allowed in the case of Post Office savings by making the first £15 of interest tax-free.

It would appear that when one deals in practicalities, the position of such a society, having regard to its efficiency and its remarkable social conscience, has been remarkably insufficiently rewarded. One cannot but regret that when these taxes were considered there was nobody who could point out the sort of thing that would happen when societies of this kind were, as this society believes itself to have been, driven against the wall.

The National Plan urges greater efficiency upon the distributive trades, but taxation of this kind makes the achievement of greater efficiency as difficult as possible. The loss of investment allowances has cost this society alone £57,000 a year. It has empty shops that are no longer economically viable, which have to be left empty because each Government successively has refused to allow to the distributive trades, the service industry so-called, building depreciation allowances. That has involved them in great loss.

This situation does not seem to me just or to many other people who are not otherwise critical of the Government and who are anxious that the Government should succeed in their overall plan. The weapon which they have chosen, although possibly a long-term efficient weapon, is at the same time not sufficiently just to the hard cases, of which, unfortunately, there are too many. So that if we ignore them, we will not he able to fulfil the lawyers' cliché that hard cases make bad law. If the Government do not have regard to hard cases of this kind, they will injure the body politic and the social structure.

I am sure that my right hon. Friend the Chancellor of the Exchequer does not want to close these co-operative stores, but the burden which he has laid upon them is immensely greater than that which he has laid upon anybody who has made special pleading to him today or in the course of this debate. The highest of the burdens that will be laid upon the competitors of the co-operative societies is that of Messrs. Debenham, in whose case it will be £1¼ million, as against £11 million for the co-operatives.

It really is not wrong of me to ask the Chancellor to consider from where he expects these societies to get this money if they are not to close their doors. They cannot get it from increased margins, because the simple fact is that if we talk in terms of 80 per cent. of their turnover being in milk, bread and other commodities of that kind, the Government have required and obtained from these organisations the undertaking that they will not raise their prices.

The Government ask us, on the one side, to keep down the prices of these essential commodities. Then, having made it impossible for us to increase prices over the overwhelming part of our sales, the Government then say to us with their other voice, "We will also inflict upon you further burdens".

It is not possible to reduce labour costs. Distributive workers are already the worst paid in Britain. The reaction of many of the people to whom I have spoken about this matter is not surprisingly a panic reaction. Even so, it is not a reaction which the Chancellor should disregard. They feel that they, the worst-paid workers in Britain, are being fined so that money might be given back to industries which are already highly favoured by comparison with themselves. They cannot get the money by a reduction in their labour force. They are already at the bottom of the market.

It is difficult to know the source of the statistics which purported to show that the supply industries were borrowing at the expense of the manufacturing industries, because that certainly is not true of the distributive trades. The example which I have given of the society which has lost 15 per cent. of its labour each year for the last six years could be echoed in most of the distributive industry. Very few people from the societies go into other industries.

It is outside my present duty to say anything more than a word about the obverse side of this selective tax. It is a flexible instrument, and I mention this only because I hope that its flexibility will be completely tried. Just now, it is a kind of blanket injustice to the retail trade that is matched by a compensating blanket covering for industry and for Government employees, who for some reason have escaped this tax, and grow like an overdose of yeast in bread.

I hope that when the Chancellor gets this tax working, he will see to it that the candy-floss industry of Britain does not profit and that the one-armed bandit makers are not given a present of £40 per employee a year. Indeed, it would seem to me that in many spheres dearer labour is good economics.

I ask the Chancellor, within the limits of the policy he has set down, nevertheless to consider urgently the position of the people who have now been left with very little way of escape. There very little that they can do, except, perhaps, to close their doors. I ask my right hon. Friend to consider within the general overall principle that he has established of the payroll tax, about which we would feel much easier if we could feel that we were having a fair crack of the whip, what he can do to make possible some alleviation of the burden that he has laid upon us.

Is it impossible for the Chancellor to reconsider his position concerning investment incentives? If my right hon. Friend really wants to replace labour intensity by capital equipment intensity in this industry, he must surely recognise that this demands capital. It is not right that he should at the same time require this industry to make better use of its labour and refuse it the money for the instruments with which alone this can be done.

I should like my right hon. Friend to consider urgently with his advisers the position of part-time workers in this industry. It is a rather odd situation that if a woman comes in to work on a Saturday and she happens to work for nine hours, the employer has to pay the full cost of an insurance stamp and the full cost of this inequitable tax. If the woman is married, not a penny piece will be repaid. This really is not right.

It does not seem to me that it invalidates the principle that the Chancellor has established in this tax if we invite him to consider again whether it is not possible—and it surely must be possible for men of so lively a wit—to devise with his advisers a system whereby, if people work for less than a certain number of hours a week, they can be classified as genuinely part-time, or that if their gross earnings are less than a certain figure, they should be either exempt from the taxation or have to pay a lesser tax. The situation of most of the distributive trades is that a large section of their employees are boys who work on Saturdays, sixth-formers and the like, when they are not at school, or women who work in the evenings or mornings, doing just the odd couple of hours a week. It will be a heavy burden when these people, already employed part-time to save costs and to assist in efficient distribution, have to carry this vastly increased taxation.

I suppose that I am beating against the wind when I ask for depreciation allowance on commercial buildings, but since I am on my feet I might as well say that, too. We shall be grateful for such benefits as my right hon. Friend can give us. There is another way in which the Chancellor of the Exchequer might help us without destroying the general principle of the thing to which he has set his mind. The co-operative societies—and indeed all distributive organisations—are dependent on the co-operative wholesale societies, which will obtain certain benefits from the premiums to be given because they are manufacturing societies. But these benefits are very carefully—more carefully, in some senses—prescribed than are some of the other things that have been defined in the White Paper. One of the restrictions upon the allowance of premiums to manufacturing industries is that the employee in question must be concerned with manufacture. There is one way in which manufacturers could assist the retailers without damage to my right hon. Friend's purpose. Would my right hon. Friend be disposed to assist the manufacturers so as to enable them to have among their employees the packing and despatch departments, in order that that at least could be passed over in the form of a saving of costs to the retailer? This would be some slight assistance, and could quite easily and simply be done within the overall picture.

I said at the beginning that I hoped I would be able to speak on this subject temperately and intelligibly. I hope that I have succeeded in awakening the interest of the Treasury in the problems that this section of industry has to face. I hope I may obtain an assurance that, in spite of the difficulties it has had to face with the general economic problem, the Treasury recognises also that it has responsibilities and concern for the maintenance of such distributive services as those to which I have drawn attention, so that these people do not have inflicted upon them burdens too heavy for them to bear. I urge the Department to exercise even greater ingenuity than that of which I am capable to discover within the overall pattern of its intentions some way of assisting these societies, so that the last of these straws will not break these patient camels' backs.

6.52 p.m.

Mr. Richard Wainwright (Colne Valley)

I am grateful for the opportunity of addressing this Committee for the first time—an occasion made the more daunting by my recollection of the great part played here by the great men of Colne Valley. I think of Philip Snowden, Chancellor of the Exchequer in three Administrations; the late Mr. Will Glenvil Hall, a Financial Secretary to the Treasury and a chairman of the Labour Party; from the Liberal benches, the late Sir James Kitson, first Lord Airedale, and, also from the Liberal benches, the late F. W. Mallalieu, not the least of whose distinctions was to father the hon. and learned Member for Brigg (Mr. E. L. Mallalieu) and the hon. Member for Huddersfield, East (Mr. J. P. W. Mallalieu). I hope that I have said enough, although by no means all that could be said, to indicate that in British politics the Colne Valley has been a source and not a mere reflection. I believe that my immediate predecessor, Dr. Duffy, was a zealous and energetic chairman of an important committee of the party opposite.

I am particularly pleased to be able to follow the hon. and learned Member for Warrington (Mr. W. T. Williams), whose remarks will be studied by the diligent committees of numerous co-operative societies in my constituency, and, no doubt, throughout the country. There is in my division a co-operative society—Meltham Mills—which contests the claim of the Rochdale Pioneers to have been the first retail co-operative trading organisation, and I believe its evidence on this point.

The great theme of the Budget Statement was the need for change, and hon. Members may agree that nowhere is change more rapid than in the following four items: what men and women throughout the world wear, agricultural machinery, what we put upon the floors and walls of our homes, and means of motive power. It is largely by anticipating changes in these particular goods, and by taking considerable risks to be ready to meet demand—particularly from overseas—for these goods that my constituents earn their living, and also earn us a great deal of foreign currency.

In referring to my constituents, I do not have the great advantage possessed by the Prime Minister of having been born, bred and partly schooled in the Colne Valley—a fact which has been heavily underlined in the constituency during the last three years—but I am aware of some of the respects in which my constituency want assistance in the sort of changes which enable them to earn their living. One of them is assistance in renewing their industrial buildings. It was, therefore, with great dismay that I heard the Chief Secretary confirm Budget Resolution 17, which proposes to abolish all investment allowances. As we know from the White Paper published last February. In respect of industrial buildings outside development areas, the Government have nothing of any importance to put in the place of the departing investment allowances. There is, it is true, the proposal to step up slightly the initial allowance, but hon. Members know that this is no more than a very temporary loan.

In many parts of the country there are multi-storey buildings dating from the Industrial Revolution, whose third, fourth and fifth storeys are quite unsuitable for modern, fast-running machinery. It seems to me to be very odd that at this stage in the attempt to modernise Britain assistance should be removed from people who want to modernise their buildings. I could take the right hon. Gentleman to places where modern fast-running machinery has to be operated at very much less than optimum speed because of the old-fashioned nature of the buildings. I hope very much that in the Finance Bill we shall see that there have been some second thoughts on this important point. It not, the Government are condemning a large number of workers to go on in unattractive surroundings, and working at very much less than the full efficiency that is desired.

As my right hon. Friend made clear yesterday, Liberals do not accept the proposed Selective Employment Tax, but if we must have it, why must it be in the primitive form of a flat-rate uniform per capita tax? Why, in a country supposed to be modernising itself, should a tax be introduced, with a show of novelty, on a tribal back-of-beyond basis of "25-bob-a-nob"?

Surely, the only genuine type of employment tax would be on a percentage basis—variable also regionally and in other ways. The absurd results of a poll tax imported from the jungle will be obvious at every turn of one's daily life. For instance, the cost to the bank of employing the kindly old man who watches the door will probably be about 12 per cent. of his wages. The cost to the bank of retaining a prestige economist who could probably well be winkled out for more useful service elsewhere will be a mere 2 per cent. or less of his wage. He is therefore likely to stay, whereas the chap at the door may be discharged and is most unlikely to be used in manufacturing.

The Chancellor of the Exchequer is reported in The Guardian this morning as having claimed to his hon. Friends that he has at last got away from rusty and traditional instruments of taxation. In this case he has gone back to mediaeval forms of taxation by importing a poll tax into his new scheme. I cannot help feeling that the Chancellor has been the victim of a rather favoured theory of recent times, that the most important feature of a tax is that it should be totally enforceable and that there should no possible loophole, however complicated the machinery.

The mention of rusty and traditional instruments brings me naturally to my last point—National Savings. The Chancellor announced that the new certificate has been a great success. He did not tell us how much genuinely new saving the certificate has attracted, as distinct from the transfer of money already invested or money which would have been invested but which is now attracted no doubt by the enticing rate to anybody paying tax at 15s. in the £ of 18 per cent. which is for money only lent at call. I am not sure how far the low-wage earners of the Colne Valley will rejoice to know that their taxes are being appropriated to pay 18 per cent. for money at call. As is quite blatantly advertised, the return to somebody paying simply the standard rate of Income Tax is no less than 7¾ per cent.

I was disappointed that the Budget Statement contained no hint that the Chancellor has listened to the appeals of the Chairman of the National Savings Movement, the hard-working Sir Miles Thomas, who is known to have been advocating for some time a State unit trust. I can only hope that the Bill when it comes will contain something along the lines of liberal proposals for enabling people to take up shares in industry without encountering the full force of the Inland Revenue machinery for Income Tax and Capital Gains Tax.

I have some slight encouragement in hoping that, because, when these Liberal proposals were last debated in the House although they seemed to fall on the very deaf ears of hon. Members who now sit on this side of the House—retribution has now come upon them for their hard hearts—the right hon. Member now the President of the Board of Trade said this: The aim of this Liberal revolution is thoroughly laudable. It is the spread of ownership of shares over a higher proportion of the individuals of the community. It is all too true, as the two speakers from the Liberal Party, have said, that at present only a very small minority of the population holds industrial shares of any kind."—OFFICIAL REPORT, 2nd July, 1958, Vol. 590, c. 1496.] I hope that the President of the Board of Trade is still of the same opinion and that he will show some evidence of this.

In general, I hope that when we see the Finance Bill it will contain clear indications that the Government are willing to listen and that they have had many second thoughts.

7.4 p.m.

Mr. Harold Lever (Manchester, Cheetham)

It is a very agreeable task to congratulate the hon. Member for Colne Valley (Mr. Richard Wainwright) on a maiden speech which was of great interest, which was delivered with great charm and which exhibited all the characteristics of combativeness and good nature which I should have thought are qualities which most commend speeches to hon. Members. The hon. Gentleman spoke on a subject which is dear to my own heart and I hope to have the great pleasure of hearing him make contributions on other occasions. If the hon. Gentleman did not entirely convince me or other hon. Members whom he criticised—because I noticed his inclination to chastise with complete impartiality all erring Members of the Committee, except the higher and holier crowd who sit on the Liberal benches—I am sure that he pleased them all and engaged their very great interest. We wish him great success in future in his interventions.

A certain unreality creeps into these debates. It is obvious to anybody who attends debates on Finance Bills with any attention that there is an unanswerable case for the abolition of every existing tax and an overwhelming case for opposing the introduction of any new one. The Committee may be somewhat inhibited in yielding to these overwhelming arguments by the equally passionate pleas for relief from taxation from many other deserving causes; because if we were to succumb to the special pleading to which we are treated in these debates there would be no revenue from which to grant relief.

There appear to be a great many misconceptions, too, about taxation. It is generally supposed that the Chancellor is in a position to introduce some magic new tax—and here I am rather touched that hon. Members opposite have an even higher opinion of the Chancellor than I have myself, because they seem to expect of him that he will produce a tax which will raise large sums of revenue, which will encourage thrift and at the same time make spending more enjoyable, but which will not fall upon the exporter, the old, the sick, the lame, or any of those who have suffered the tyrant strokes of fate from ill health to misfortune in love.

In those circumstances, if my right hon. Friend the Chancellor could produce a tax which we are to assume would be acceptable only if it was received with a unanimous chorus of hallelujahs from those who had to pay, he would be popular, not only with right hon. and hon. Members opposite, but probably with everybody in the country. I, for one, admiring him as I do, am not in the least surprised that he did not on this occasion succeed in producing a tax of this nature.

There is another misconception, which is harboured especially by those in the Liberal Party. It is that taxation has some relationship to the moral feelings of the Chancellor of the Exchequer or the Government in relation to the activity that is being taxed. I suppose that the Liberal Leader meant to infer that because we are taxing service industries we approve and applaud manufacturing while looking down upon and disdaining the activities of service industries. This is an odd sort of argument. If carried to its logical conclusion it must be assumed that the Chancellor is opposed to all drinking, smoking, and profitable industry. [HON. MEMBERS: "He is."] In other words, on that theory, the Chancellor has one passion in life, clearly, which is to kill a series of geese which lay a whole host of golden eggs annually which he relies upon.

I can understand hon. Members opposite supposing that by an accident of clumsiness he achieves this end, but they all seem to think that this is the Chancellor's deliberate and set intention. Only thus can I explain what the Leader of the Liberal Party said yesterday.

Finally, it might be said that it is reassuring, if the assumption made by the Leader of the Liberal Party is right, that what the Chancellor taxes most he likes least. It is good to know that the Chancellor is very much against any of us dying but very much in favour of us all enjoying immortality, so high is the rate of Estate Duty which he maintains.

The first question which the Committee must ask itself is: has the Chancellor got his general financial equation right? If it is agreed that for the purpose of discussing the merits of a particular tax we must make this assumption, and if we assume in my right hon. Friend's favour that he has got the general financial equation right and that he must take this amount of buying power from the economy by fiscal means, I think that the least anybody who criticises this particular means has to do is to suggest some alternative way of raising the revenue—not necessarily in great detail, but some broad general indication. So far, nobody has ventured this. Everybody praises the Chancellor for not using all the known means of raising revenue. They all want innovation—not this innovation and not any innovation which they have so far ventured to suggest.

I think that my right hon. Friend the Chancellor is to be congratulated on his courage, if he is right in raising this revenue, on breaking new ground in this way. In broadening the tax base, my right hon. Friend the Chancellor has done a right and courageous thing. I am not disposed to deny that there are marginal criticisms to be made of the way the tax falls. In Committee we shall be making these points. But I hope that I shall do so with more realism than is being displayed even by distinguished persons like the right hon. and learned Member for Chertsey (Sir L. Heald), for example, when he talked about religious organisations.

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

Or agriculture.

Mr. Lever

Or agriculture. The right hon. and learned Member for Chertsey seems to think, when religion is put into the schedule of occupations which must bear the tax without relief, that this is an atheistic blow against the Church by a malign Chancellor of the Exchequer determined to make it plain that such is his intention. But the right hon. and learned Gentleman might as well accuse my right hon. Friend in a similar spirit of exacting Surtax from the Archbishop of Canterbury for, in fact, my right hon. Friend takes the tax for the same reason—he wants to raise revenue and this is the appropriate way of raising it from the Archbishop.

Whether it is desirable upon examination that a particular industry should be subjected to the tax or have relief is another matter. Whether it is desirable to give a premium in the way suggested again may be open to discussion. But the wood of this new tax, so to speak, is that my right hon. Friend has broadened the tax base in a way much overdue and much to the advantage of our economy. The trees we can all examine in Committee.

My right hon. Friend's proposal is particularly desirable in that, because of the narrowness of the tax base, his ability to use fiscal means to stimulate or retard the economy as might be desired from time to time has been such that he has had either to produce a wide boom over a narrow area—such as in the motor car industry—or a dislocating depression.

If he broadens the tax base over a wide area of industry, as my right hon. Friend is doing, he is going a more realistic and reasonable way of influencing the economy from time to time. A broadened tax base is one of the first things required to meet the request of the Leader of the Liberal Party that we should consider how far we may use Keynesian techniques in the Budget and general financial measures. From the point of view of influencing the economy by stimulating it or retarding it as required, the method proposed by this new tax must be welcomed.

I am not impressed by the expectations, which are substantial, that this will affect things like the hoarding of labour. It is not a cure for industrial ills or mismanagement. If a company is so badly managed that it employs a man at £30 a week and gets no attendance or work from him, it is unlikely that this marginal intervention by my right hon. Friend by way of penalty or bonus will have the smallest effect. What is wanted is for management to bestir itself to deal with situations of that kind.

Mr. J. Grimond (Orkney and Shetland)

Surely the Chancellor, in giving a bonus of 7s. 6d., must intend to do something. But in so far as he is doing something it is to encourage firms to keep labour. I remind the hon. Gentleman that, during the proceedings on last year's Finance Bill, he said that death—which, he rightly says, the Chancellor is against—was now being treated by the Government as a form of tax evasion.

Mr. Lever

The direct relevance of my own old jokes to what I am now arguing is not immediately apparent.

I must question the common sense and logic of the right hon. Member for Orkney and Shetland (Mr. Grimond) in supposing that, if the Government give a 7s. 6d. subvention of this kind for every worker, they are, by accident or design, encouraging firms to keep on £30 a week workers to no end.

The hon. Member for Finchley (Mrs. Thatcher) made a charming, lucid and, indeed, at many points convincing speech. I went all the way with her in some of the things she said. I am glad she thinks it right to correct errors of tax law so that loopholes are closed in the statutory way by rule of law in the manner we intend by the Finance Bill. If the hon. Lady believes that, however, she must not accuse the Chancellor of being obsessed by tax avoidance—as she frequently did—when he corrects these loopholes or misjudgments in previous legislation.

I agree with the hon. Lady that it is cant and humbug to urge upon the citizenry that it is their duty to tax themselves, as it were, and impose the moral obligation on themselves not to accept the advantages offered by the law itself in assessing the amount of their tax. No one is obliged to order his affairs in a manner most convenient to the Chancellor of the Exchequer and no one should be dishonest enough to pretend that it is a normal matter for citizens not to arrange their affairs to their own best advantage. There is nothing improper in that. Such action, however, is better substituted by patient legislative activity rather than by the sermonising that all too frequently takes place in this Committee. But if one believes that, as I believe it, then one must not hamper the Chancellor of the Exchequer taking the necessary technical steps in the Finance Bill to put matters right. I would not include in this, however, the particular Surtax provision that is being made in the Bill—and I agree with the hon. Lady on this. However, I will leave more criticism of that until the appropriate Committee stage.

I also agree with the hon. Lady in her regret that the proposed friendly society provisions will take from the protection of the friendly society exemptions these relatively modest savings. My right hon. Friend needs these new savings. He should look at this again. I wonder whether, in this case, we have not fallen foul of the logic of our own thinking. Since we no longer raise revenue exclusively for tax purposes—especially with £1,000 million surplus—but to effect Government purpose, it is not impressive to say that friendly society savings schemes run away with the revenue. We should not mind that, so long as it induces savings—which is in the national interest. I hope this point will be looked at.

Now I come to overseas investment. I do not suppose that anyone on either side has more enthusiasm than I for overseas investment that is within our means. But no one agrees more than I with my right hon. Friend that, if the circumstances of our nation are such that we either curtail overseas investment or distort and contort our own economy, damaging it and restricting it, then overseas investment has to be curbed. To go on making it when one has not an export surplus but a balance of payments problem is about as sensible as a man who, having heard of a good Stock Exchange investment and not having the money, strips the lead from the roof of his house doing 10 times the amount of damage compared with the amount he gets from selling it and then invests the money in blue chips on the Stock Exchange. It is little use arguing that this is a good investment. He has wrecked the roof of his house. It is our job to see that we do not wreck our national roof by making investments abroad beyond our strength at a particular time.

We have a very faulty mechanism in relation to our overseas lending which is now causing serious difficulty to the nation and jeopardising the prospects of valuable and useful overseas investment. We have continued to make overseas investment since the war on the assumptions of pre war—that we have the economic and financial strength of pre-war days and do not really need to go into any special calucation or take any special precautions in making such investment.

The post-war situation is totally different from the pre-war situation for this country and we could not and should not have gone on doing what we were doing—allowing investment to take place, on the one hand, by private citizens and, on the other hand, expecting the Government, through the Bank of England and the Treasury, to foot the Bill, as it were.

A great deal of post-war overseas investment was financed by borrowed money. But it was the public authority which stood responsible to meet the calls for repayment on this borrowed money, whereas the private investor—I do not blame him; I was such an investor—was only required to deposit his securities with some authorised depository, solicitor or banker in Wigan or something of that sort.

What I urge on the Treasury is to start to rethink this matter. At the moment we act as though the choice was either to invest overseas and have the Government threatened with a serious additional balance of payments problem, or to stop it. There is a third course, which is that we should end this dissocation between the obligation for the financing of overseas investment by the Government and the assets which are acquired in the course of it and which inevitably and rightly and desirably go into the hands of private investors. What we have to do so that overseas investment can be resumed as soon as possible is to ensure that the assets which are acquired by private investors overseases are brought into the central control of the Government and made immediately available to them to be available to finance and support such borowing as may be necessary from time too time to support our national currency.

The Chancellor's steps in relation to the sterling area are overdue, but I very much doubt whether they will suffice. I think that they will have to be reinforced. There is a popular notion that, as long as overseas investment goes to the sterling area, it is no strain on our balance of payments. Of course it is a strain in two ways. First, if we commit our resources by giving our sterling to any country, whether Australia, the Bahamas, Ireland, or anywhere else, it is that country which is then in possession and able to use these resources and we are deprived of them when they could have been exported profitably in a hard currency area, or wherever else was desirable. We no longer have them available because we have loaned them long term to the people to whom we have loaned the sterling.

Secondly and more important, it often indirectly results in a very serious indirect burden on our dollar payments situation. If we give buying power in sterling in Australia, it often ends up in dollar conversion; the alternative to that can only be that sterling balances are built up in Australia, which is not the case. All this shows that we have been exporting capital to the sterling area without limit in the naïve belief that this was very different from exporting to the dollar area or investing in the dollar area and that in some way that represented a startlingly different degree of burden on our balance of payments. This is not the case and I venture to think that the Chancellor has acted wisely in taking action now to reduce the burden on our balance of payments and the country generally of these investments in the sterling area.

Mr. John Tilney (Liverpool, Wavertree)

I agree with what the hon. Gentleman has said about investment, but would he not also agree that what he has said applies equally well to government-to-government loans? After all, what we have been doing in recent years is to lend comparatively good money expecting it to be paid back, if at all, in a depreciated currency, and this is an even worse form of investment for this country than buying equities overseas.

Mr. Lever

In purely financial and economic terms, I would not dissent. If we make loans to overseas countries without guarantee of getting their real value back, or often even their paper value back, we can approve of that only if we have an overall political purpose behind it. I have left that out of account, because I have assumed that we were helping backward people and making our contribution to their protection and development, but I was not supposing that it could be defended on financial and economic grounds. Provided that we do it within our strength and without fundamentally jeopardising our economic purpose, I very much favour making loans of this sort, not because they are a paying proposition, but because they have a purpose of which all hon. Members in general approve.

I should like the Chancellor to have another look at the tax on existing investments overseas, because there is only a case of convenience for affecting existing overseas investments by penal tax of the kind which now applies. Existing investments overseas, apart from portfolio investments, of course, will not be repatriated and there seems very little justification on balance of payments grounds for putting an undue burden of taxation on existing overseas investments to which we are committed and which there is no intention of selling. I know that there are difficulties about dealing with this and I know that in the last Finance Act the Chancellor went a long way to help these people, but I hope that he will have it constantly in mind.

Basically, this is a fine Budget, but in detail there may be marginal objections. I have said before that it is very easy to make special pleading against the hardship which is caused to particular sectors by the new tax which has been brought into being. However, in so far as it is right to change it, I have no doubt that we shall be able marginally to do so.

However, in general we have to realise that there is nothing sacred about the retail trade so that it should escape all taxation. Nor does it imply hostility to a particular trade to make it bear tax and to broaden the tax base, any more than the taxation of motor cars is evidence of the Chancellor's hostility to either mobility or the motor car industry. The Chancellor must get his tax from different sectors of industry in the manner most appropriate and most convenient to those sectors.

When people say, as hon. Members opposite say, that the tax is invidiously selective, that is begging the whole question. Is it invidious to be selective? It may be entirely desirable that it should be selective, and many of the arguments of hon. Members opposite suggest that it is absolutely appropriate that it should be selective. I suppose that if my right hon. Friend had not made it selective, he would have been told that he was wielding a blunt instrument on the whole of British industry. In the circumstances, I very much welcome his courage in introducing the tax, which, I am sure, will be a valuable addition to the range of taxation and which will broaden the base in the way I have mentioned.

I observed that yesterday the right hon. Member for Enfield, West (Mr. lain Macleod) thought that my right hon. Friend was Jacob and that there was an Esau in the background. I want to make only one or two comments about that. Having regard to his Scottish connections, I am sure that the right hon. Gentleman is familiar with the story and knows that in the end both Jacob and Esau received a blessing. I was waiting expectantly for the right hon. Gentleman to conclude his speech in that form, having regard to the nature of the blessing which was conferred on Jacob.

Mr. Iain Macleod (Enfield, West)

The wrong man's blessing.

Mr. Lever

I did not realise that the right hon. Gentleman was so anxious that Esau should be blessed, but in this case it may be said that the wrong man was cursed.

The gentleman we have in mind, who was the Ishmael of the last Finance Act, has now been converted to the Esau of the coming Finance Bill. I think that he has been subjected to a great deal of hostility and undeserved criticism. No one can resent the fact when anybody subjects a man to criticism in the House of Commons, but, equally, some of us should speak up in his defence. I for one feel, despite the very grave errors which I believe to have been made in the last Finance Act, most of which were put right and against all of which I protested vigorously, that the great reforming zeal which was introduced and the knowledge and skill which went behind it into the last Finance Act and the present Budget and which are attributable to the gentleman we have in mind show that he has rendered a great and valuable public service. While I have conferred my own modest blessing on the Chancellor, the Jacob in this instance, I am very happy to say that Esau, too, is entitled to a blessing.

The right hon. Gentleman—and I say it in a very different spirit from the way in which it has been said on other occasions by members of his own party—is a very distinguished person as well as a distinguished bridge player. He knows as well as I do that there are certain circumstances where passive defence is not enough and one has to be active. If I were to search for the present distinction between the Conservative Party and the Labour Party it is not that the Tories are malign whereas we are benevolent, or that they are stupid whereas we are alert and skilled, but that they are always obsessed with the risk of action and we are rather inclined to be anxious about the risks of inaction.

I am very glad that the Chancellor has taken his courage and his intelligence and brought them to bear on our problems, has not left us exposed to the real dangers in our present situation of continued inaction, but, on the contrary, has shown by the Budget that the nation is determined to attack and solve its economic and financial problems.

7.30 p.m.

Mr. R. Bonner Pink (Portsmouth, South)

May I first of all thank you, Mr. Irvine, for allowing me to catch your eye, so giving me the opportunity of addressing this House for the first time. I represent the constituency of Portsmouth, South, one of the three constituencies representing that historic and ancient city of Portsmouth, the premier naval port. I would like first of all to pay a tribute to my predecessor, Sir Jocelyn Lucas, who served our constituency and this House with distinction for very nearly 27 years. He was a highly respected Member, held in great regard for his friendliness, humanity and integrity. There are many hundreds of our constituents who have the greatest regard for him and who are most grateful to him for his sympathy and for the work he did for them when they came to him with their personal problems.

Portsmouth is an ancient and historic city, a dockyard and a naval port. The dockyard does not come within my constituency, but the seaside resort of South-sea and the historic port of old Portsmouth does. Portsmouth is not a rich city. We have a larger than average number of pensioners, old-age pensioners, Service pensioners and people living on small fixed incomes. These people have been hard hit by inflation and the continual rise in the cost of living. They have been hard hit, too, by the rates increase, and I was pleased to see in the Gracious Speech that Bills will be introduced to relieve the domestic ratepayer and reorganise Exchequer grants to local authorities; The ratepayers were promised speedy aid some months ago, but it has not yet materialised. This Session may last 18 months and we do not know when these Measures will be introduced. However, no new legislation is needed to help the ratepayer. All that is necessary is to add a percentage over and above the normal increase in the general grant. I hope that the Chancellor has made some provision in his estimates to grant generous aid in this direction. Without doubt the Budget will mean an increased burden on the less well-off citizens. The new Selective Employment Tax must mean a rise in the cost of living. I think that the Chancellor put it at under one per cent. He also said that if all charges were passed on the rise in the price of services would be broadly comparable to a Purchase Tax on services of 3 per cent. to 4 per cent.

Elderly people do not usually buy all the things that go to make up the cost of living index. They spend proportionately more on food, clothing and household necessities, so they will probably be faced with this 3 per cent. to 4 per cent. increase in their cost of living. It could even be higher. The Chancellor indicated that farmers would be compensated for the new tax in next year's Price Review. That is many months ahead. Is it not likely that in the meantime food prices will go up? It would surely be better, in order to avoid this possibility, to exclude agriculture and horticulture.

It is almost inevitable that the increased cost due to this new tax will be passed on, particularly by the food trade. This is a highly competitive trade in which there is no margin for absorbing these extra costs. I do not think there is any scope for them to reduce staff. Prices are bound to rise, resulting in hardship to these old people. The new tax will also adversely affect the many hoteliers in my constituency. Their well-being or otherwise is a major factor affecting the prosperity of Portsmouth as a whole. Tourism is our most important industry after the dockyard.

The season is all too short and staffing problems are difficult. The added burden of this new tax can only result in higher charges. Not only will this encourage people to take their holidays abroad—which the Chancellor, as I know from his remarks at the Boat Show, does not wish to see happen—but it will discourage foreign tourists from coming to this country. The hotel industry is one of the most important and valued sources of foreign currency and a material factor in the balance of payments. There are other matters in the Budget upon which I could comment, but I have tried to be non-controversial and I have tried to be brief. I hope that I have been successful.

7.35 p.m.

Mr. Arnold Gregory (Stockport, North)

It is a pleasure to follow the hon. Gentleman the Member for Portsmouth, South (Mr. Pink) who has just made his first speech in this House. It seems such a very short time ago that I was doing likewise, addressing this Committee in a Budget debate, so that I hardly feel competent to say to the hon. Gentleman the kind of things one should on these occasions. I shall merely take the situation as I find it and say that the speech which we have just heard was extremely competent, during the course of which we have heard many interesting things about Portsmouth, and that we are indebted to the hon. Gentleman and look forward to his further contributions in debate.

The main features upon which I wish to comment in this Budget debate relate to the proposals in the Chancellor's speech which were described by the First Secretary as a novel method of budgetary proposal and as setting a new precedent in such matters in placing the required emphasis upon the importance of the human being, as distinct from the durable object and the commodity, and in assessing and focusing our national resources. The value and quality of human labour, in whatever form, when industrially applied is the all-important factor when we are determining our economic and social policies. The other day an hon. Member said that it was a matter of working harder to get us out of our present economic difficulties. It was, I think, Aneurin Bevan who said in this House that it was a question in modern terms of working more intelligently.

It is probably that kind of background which prompted the Prime Minister the other day, when addressing one of our leading trade unions, to advise it that it was necessary in modern terms and times to relegate its rule book to the museum or to tear it up. What cannot be ignored, whatever the language one may choose to use about it in the process, is what Government priorities are given to the application and use of the country's labour resources. The methods adopted by the Chancellor are a step in the right direction. Previously we have had all of the right kinds of noises off stage, and the Prime Minister's recommendations on the question of the rôles of trade unions and industry generally were something like the right kind of noise. Now we begin to make the correct moves, through the budgetary proposals about which we have heard.

For the first time we see a Budget designed to increase productivity based on foundations of correct fiscal techniques. But we see only the foundations, because there must be properly designed investment policies by the Exchequer to go with it. The emphasis is on men and machines, with the emphasis and proper stress on men. This is a message which has been carried through in the Chancellor's statement and in the debate so far.

We are, however, still bedevilled by the skilled and unskilled labour classification in human terms which, in the main, is outdated and is stultifying and putting the brake still further on real industrial progress. Hand in hand with the Selective Employment Tax, we should consider introducing a selective investment system, for the old basis of hit and miss in our economy—the "pins or battleship" theory—is totally outdated and decrepit stuff.

I should like to raise a question about the quality of "know-how" applied to modern industry which surely cannot be in dispute. Its applied use is in abundant evidence for all of us to see. We have the skill and "know-how" to lead the world in science-based and high technology industries. I wish to refer to some of the industries in my constituency of this high technological order which are science-based and which have had a tough situation in which to develop and survive.

Taking a town like Stockport, first we saw our textile industry crumbling after the war, and we sought to see implemented by the Government financial and industrial policies to steer us out of the trouble and decadence into which the North-West was apparently falling. Alongside the crumbling of older industries, we saw the difficulty of getting new industries off the ground. We paid due regard and respect to the industrial leadership which created a situation whereby the new technological industries on a positive scientific basis, even though diversified from industries like the aircraft industry and other relatively modern industries, were shaping a future for themselves and contributing to our economy.

In the field of nuclear power for the production of electrical energy, we now lead the world. In the production of nuclear energy for power and peaceful purposes, we are poised not only to improve our position in achieved electricity production, but in a position to assert our superiority over such competitor nations as the United States and the Soviet Union. In addition, we are in a position to move into the 1970s in real technological terms with a proven record over other competitor nations—well into the second generation of nuclear power reactors. We are able to shape a second-to-none industry in terms of export potential as the leading supplier of the cheapest known means of producing energy when other natural resources in the world show signs of drying up—water, oil, coal and gas.

The remarkable thing is—and this is why I mention the question of attracting investment to new industries with much more difficult tasks to carry out—I am informed that over 18 years we have invested about £1,850 million in the nuclear power industry without seeing major nuclear reactors sold overseas as a regular feature in our exports. We have passed on the "know-how" to other countries, but we have not yet established an industry of this very complicated nature as a major contributor to our export trade.

I do not want to bore the Committee with too many quotations, but I should like to make two from Mr. P. J. Duncton, Chief Executive and Technical Director of Fairy Engineering Ltd., who contributed an article to the current edition of the European Review in which he dealt with European co-operation in advanced technology. He made two important statements. First, he writes: It is not fully appreciated that the United Kingdom has established, and is maintaining, a world lead in nuclear power technology. British nuclear power stations have generated more electricity than the total of that generated by the nuclear power stations of the whole of the rest of the world including America and Russia. Its installed operating capacity is almost three times that of the United States and nearly four times that of Russia. The output of Dungeness B Station alone will exceed the total present capacity of American nuclear stations. This is the new station yet to be built. When it is completed it will exceed in capacity the potential and running record of the whole of American nuclear power.

Dealing with the challenge to the rest of the world, Mr. Duncton says: Many countries in Western Europe have already built up a considerable fund of research and development know-how in nuclear engineering. The level of activity and achievement is, in all cases, dwarfed by that of Britain. In that Britain can be considered as a natural component of Europe, it can he claimed that Europe already leads the world. It can continue to lead the world only by exploiting to the full the lead it already has. It is clear from that expert comment and critical analysis of this sort that, if we are to retain this lead, assistance from the Government will be needed and that we must face the challenge and utilise and exploit our ability and advantage in order to reap the reward of exporting throughout the world.

It is not always right to "knock spots" off our national image and blacken our face to the rest of the world when we have much to offer and real greatness to claim. It might be a homespun delight, but it can be so easily misunderstood. We can be too often taken too seriously in describing our follies. The real problem which we face is how best we can fully employ our human resources. As I have tried to point out, the Chancellor's proposals have taken this into account and injected real substance into our budgetary thinking.

The hon. Member for Macclesfield (Sir A. V. Harvey), on Tuesday, referred to the shortage of skilled labour. Indeed, in parts of the North-West we are short of unskilled as well as skilled labour, and we shall shortly arrive at the point at which we shall be concerned about our ability as a nation—and both the Government and industry are vitally involved as partners in this one—of training and, indeed, retraining men and women to do new jobs with a minimum of training in the most complicated technologically-based industries; or we must face the prospect that many of these industries will fail because of the shortage of labour.

It was certainly a sad spectacle for me to see the decline of the cotton textile industry in Stockport and the rest of the North-West, to see mills close and their labour force melt away. I spent nearly 20 years in the industry and witnessed the decline. The pattern followed through in my constituency was a microcosm of the fate of the industry in the rest of Lancashire and Cheshire. Now we can see a change. Instead of a highly intensive labour industry we see a high degree of capital activity, re-equipment involving British technology, automatic arrangements and the research and introduction of new fibres.

Although one welcomes the introduction of the measures which my right hon. Friend the Chancellor described on Tuesday when he emphasised that the Selective Employment Tax was to deal with the question of the movement of labour and that we would see encouraging things of the type which I have described as an injection into the lifeblood of industry, we have to reflect, with a touch of sorrow, on the passing later this year of the import surcharge as far as the textile industry is concerned, and certainly as it affects household textiles and clothing. It is true that one could not claim it as a measure which for all time could give the industry the protection it needed. Obviously it must exist as an industry on its own terms. It must produce new fibres for export at competitive prices on the world market and contribute to the national economy in its own right. It must supply quality goods and fabrics at keen prices at home and attempt to carry through a research and modernising programme. It did, however, serve as a buffer for low-cost imported goods at a rate which normally saturated or strangled our domestic market.

With the going of the surcharge, it will be necessary for the Chancellor of the Exchequer to talk to my right hon. Friend the President of the Board of Trade to see what further positive measures can be introduced to buffer the home textile industry against what is an unfair and destructive situation. A similar situation, I believe, exists—certainly this applies to my own constituency—in the sphere of light electrical assembly and accessories. Whereas British-made goods and fittings have to be made in design and adaptation to British Standards Specifications, and bearing in mind also the price of copper and its generally rising cost levels, imported Hong Kong products meet no such demands and can be bought at extremely low price levels as against the British product. No one would argue for a taxation system that would featherbed the home producer, but it is necessary to re-examine in the light of these forthcoming changes where fair play can be seen.

The main question which I wish to put is whether the measures proposed will encourage the movement of labour from areas where it is too concentrated and essentially rendered inefficient into new industries which greatly need it. I believe that the measures proposed will have this result. It then becomes a real challenge, as has been said more than once in this debate, whether, labour having been diverted from service-type businesses and manufacturing industries having been encouraged to go into certain areas, we can tackle effectively the job of retraining on the large scale which is essential to the kind of industries which I have outlined.

The underlying point of all this is the necessity to improve our national productivity. This is the essential in the whole exercise. It is now most vital that we show how determined we are to carry the job through. I believe that the Chancellor's proposals are a step in the right direction.

7.52 p.m.

Mr. Michael Alison (Barkston Ash)

The hon. Member for Stockport, North (Mr. Gregory) touched on an interesting theme in the latter part of his speech, but I do not know whether he realised that he was, in my view, laying bare the essential fallacy in the proposal behind the Selective Employment Tax, namely, that the Chancellor of the Exchequer seems to have become cross-eyed economically and appears to be trying to look in two different directions at once.

If the aim of the Chancellor's proposal is to make the Revenue more buoyant, the implication of this must be that he expects a great number of people to stay in the service industries and not to cross into the sort of manufacturing industries which the hon. Member has described in his constituency, otherwise the Revenue will not be very buoyant. On the other hand, if the aim of the Chancellor's proposals is to get a massive movement out of the service industries into the areas of the economy which make manufactured goods, looking at the realities of the employment position in the regions I fear that it will not have this effect. That is the essential misleading dualism in the Budget: the Chancellor does not know which way he is looking.

The kernel of the country's economic problem is the manpower gap, to which the Chancellor should be addressing himself. The great question mark over-hanging the National Plan, as most hon. Members have pointed out, is what we are to do about the shortfall of 800,000 able-bodied men and women in employment without whom it has been stated explicitly that the economy will not be able to grow at the predicted rate of 4 per cent. a year.

In thinking about the manpower gap, we should bear in mind that in the National Plan the service industries laid claim to a share in any extra labour which might be available. We should not forget this, although the Chancellor made an interesting reference to the need to divert certain manpower resources out of the service industries, which, he said, had been growing disproportionately.

One of the carrots that the Chancellor is holding out in front of the population in the National Plan for the next five years is an increase in the standard of living, particularly of those whose standard of living has fallen behind in recent years. It may be worth recalling that the famous White Paper, Cmnd. 2915, "Public Expenditure: Planning and Control", which forecast expenditure in the public sector for the next six years, anticipates an increase in grants for the elderly—for example, pensioners—of no less than 38 per cent. in order to raise their standard of living to bring it more into line with that of the prosperous sections of the community. If this means anything, it means that the Chancellor anticipates that more people will be able to enjoy those elements in consumption which represent a high standard of living, namely, more services. There is no doubt, therefore, that the National Plan anticipates a growth in the service sector and that that sector can lay fair claim to it.

The National Plan has focussed attention on the terrible gap in manpower and how we are to meet all the demands for manpower in the service industries, in manufacturing industry and in public administration. Part of the trouble which faces us is that one of the effects of highlighting the gap of 800,000 work people has been to make industrialists hoard labour. The point was made in the National Institute Review that part of the explanation of the inexplicable reduction in the rate of increase in the gross national product this year to as low as 2½ per cent., accompanied by no reduction in the level of employment, is due to the fact that manufacturers and industrialists are hoarding labour because they have read the danger signs in the Plan. It has been advertised to them that there will be this manpower gap, and why, therefore, should they release labour? Another aspect of this is that with shorter working hours, manufacturers need more labour to maintain the pre-existing level of production.

When the Government add to this a bonus for obtaining labour in the shape of the premium which is to be paid to manufacturing industry, there will certainly be no redeployment or movement of labour within the manufacturing sector. There will be no incentive to release the hoarded labour in manufacturing industry. The great question, therefore, is whether the Chancellor's proposals, which fundamentally are designed to raise more taxation, will have the effect of moving men and women out of the service industries into manufacturing, where there will certainly be no dishoarding.

Looking at the question on a regional basis—and this is where the Chancellor has allowed himself to fall into a fatal trap—one ses that there is no hope whatever of a redeployment of labour from the service industries into manufacturing industry, which is one of the Chancellor's claims in trying to sell this Selective Employment Tax to us.

I want to introduce the not very familiar economic catchphrase of the "activity rate" because this is something which we must bear carefully in mind. By the term "activity rate". hon. Members will, no doubt, be aware that we refer not to the percentage of the working population which is unemployed, but to the percentage of the population as a whole which is prepared to seek employment.

One of the interesting things about the National Plan is that we are told that if we can raise the activity rate in the economy as a whole to what is described as the national average for activity, we could close half the manpower gap. The National Plan tells us that 400,000 of the 800,000 in the manpower gap could be met if the activity rate of the parts of the country which are below the national average could be raised to the national average. The national average is about 50 to 58 per cent. That is the national average for the whole population from the age of 15 upwards, of both sexes, who seek work.

There are, however, severe discrepancies as between regions. In the North, the South, the West in particular, and in Scotland and Wales, the activity rates are well below the national average. The National Plan tells us that if somehow we can extract in Wales, Scotland, and the south-west of England a higher activity rate, we will be going halfway towards closing our manpower gap.

What will be the effect of the Selective Employment Tax on raising the activity rate in those parts of the country, particularly Wales and Scotland, where it is below the average? I fear that it will operate in precisely the opposite direction to that which the Chancellor wishes, because if one considers Wales, one realises that one way to raise the activity rate there is to make it possible to bring forward the elderly and women for work. It is worth noting that in the London conurbation and in the South-East, the most economically active part of the community, the rate of employment for people over 65 is double what it is in Wales. In the South and South-East as a whole, the level of activity for all sexes and ages above 15 is about 5 or 6 per cent. above what it is in Scotland or the South-West.

Is the Selective Employment Tax going to have any effect on raising the activity rate? The answer clearly is that it is not, because in parts of the country like Wales we will not, by means of this tax, bring forward men over 65 and put them into coal mines, or tin mines, or steel manufacturing industries. I feel that with the possibility of boosting the service industries in that part of the country, we might increase the activity rate.

Correspondingly, if we boost tourism and improve skiing facilities in Scotland we might raise the activity rate there. What we will not do is raise the activity rate in parts of the country where it is below the average by discriminating against the service industries, by discriminating against the sort of employment which can bring in the elderly and employ women on part-time work.

Not only will this tax tell against the activity rate in those parts of the country where it is low, but in Yorkshire, for example, where there is over-full employment, but where, at the same time, the emphasis in industry is on manufacturing and industrial production, and the service sector lags relatively compared with London and the South, the effect of the tax will be to emphasise the bidding-up process for labour. If we put a premium on manufacturing labour in industry, we will put a premium on the auction for labour, which is the root of the drift. The tax will operate only in that part of the country where industry is diversified, and where there is a high volume of service industry at the present time, namely, London, the South-East, and the Metropolitan conurbation.

I think that we ought to remind ourselves of what was said by one of my hon. Friends yesterday. This tax will not drive hairdressers out of hairdressing establishments into oiling the wheels at the Nine Elms locomotive depôt. I fear that if it dislodges men and women from service industries, it will drive them into public administration, and it is worth noting that Command Paper 2915 points out that there is a manpower gap of 500,000 in the public services.

The tax will impinge in a regional way in the South and the South-East, and the effect, if it has the effect of making manpower shift at all, will be to shift the elderly and part-time women workers out of the service industries into public administration. The net effect will be to make the Revenue less buoyant, to diminish the services available to the community, and to increase the premium or subsidy to manufacuring industry. This will be the most ludicrous of all possible results, the only effect of which will be to reduce the buoyancy of the Revenue and to increase the scale of public service.

Perhaps I should point out not only the regional contradictions in economic terms of this tax, but also underline the social inequity which lies behind it, because it is no bad thing to note that in the south of England and the London conurbation it is possible for double the number of people over 65 to find employment as night watchmen, doormen, at banks, in offices doing different jobs, and so on. This makes a real contribution to their standard of living, and to discriminate against them would be socially inequitable.

There is a further social implication of this tax. In the social services, one of the trends in modern times is to try to get the sick, particularly the mentally ill, out of institutions and into some sort of community employment. This again is a sector in which the discrimination will tell not only in unfavourable economic terms, but socially. It will discriminate against people whom we are trying to get into work and reintegrate into the community in small, part-time jobs which will help them to readjust themselves to society. These people will feel the crunch, and, as my hon. Friend the Member for Finchley (Mrs. Thatcher) said, it will tell particularly against disabled people who are able to do a job only because they can get domestic help at home while they are away.

This is a dualistic tax. It cuts in two opposite and contradictory directions. It is economically cross-eyed to claim that it will contribute to a solution of the manpower problem, and at the same time claim that it will make the Revenue buoyant. Its real aim is to raise revenue; but it will do nothing to help the manpower shortage, and will undoubtedly damage the economy.

8.6 p.m.

Mr. David Marquand (Ashfield)

I should like to begin by craving the indulgence which the Committee traditionally displays to maiden speakers. There have been so many fierce Cromwellian speeches from these benches on the need for Parliamentary reform and the desirability of sweeping away the ancient traditions of the House that I confess I felt a little apprehensive about whether this tradition would survive long enough for me to make my maiden speech. I hope that it will last at any rate for the next few minutes.

I am proud to be able to stand here today as the Member for Ashfield. It is a very appropriate constituency from which to come if one wishes to take part in a debate on the Budget Statement, because my constituency contains within its boundaries a large part of what is left of Sherwood Forest, and that was, of course, the haunt of that pioneer of progressive finance, Robin Hood.

It has, however, changed considerably in character since the days of Robin Hood. It is now predominantly a mining constituency. Hosiery and engineering are also of considerable importance to a large section of my constituents. However, mining is the linchpin of the economy at Ashfield, and the few points which I want to make in this debate spring directly or indirectly from that fact.

I do not think it is an exaggeration to say that at this moment the coal mining industry of this country faces a grave crisis of confidence as a result of the development of competitive sources of energy and the accelerated programme of colliery closures in uneconomic coal- fields. There is a real danger that miners in the profitable East Midlands coalfields may slowly move away from the mining industry and find other forms of employment.

If that happens, the place of coal mining in the whole economic development of this country could be seriously affected, so my first point is to tell my right hon. Friends that they should pay serious attention to this, and that it is urgently necessary for them to work out a comprehensive fuel programme in order to be able to assure the miners of the East Midlands about their future for a long time ahead.

My second point is rather more general. In addressing the Committee last night, my hon. Friend the Member for Consett (Mr. David Watkins) was extremely eloquent about the impact made on a newcomer to a mining district by the experience of going down a coal mine. I cannot hope to compete with my hon. Friend's eloquence, and I shall not try. But there is another and more disquieting impact made on the newcomer to a coalmining district, and that is to realise that a large number of miners are very poorly paid. There is a tendency among people who do not know mining districts to regard miners as a kind of aristocracy of labour, and to think of them as taking home pay packets of £40 per week and rushing around in powerful cars. That is not so. Many miners in my constituency are earning wages of £11 and £12 a week, and are deplorably underpaid. My main point is connected directly with this.

As I understand it, the debate is concerned not merely with the Budget proposals of my right hon. Friend but with the whole economic strategy, of which the Budget proposals form a part. I want to talk particularly about the incomes policy, to which the Chancellor of the Exchequer referred briefly at the beginning of his speech on Tuesday and which my right hon. Friend the First Secretary spent rather more time on yesterday. I do so for two reasons—first, because I believe that the incomes policy is vital to our whole economy and, secondly, because I am absolutely confident that the only way in which the underpaid miners in my constituency can ever hope to be given a real improvement in their position is through a proper working of the incomes policy. I therefore declare myself a passionate supporter of the policy which is now being hammered out my right hon. Friends.

My reason is that if this policy is to work at all, it must in the long run have be an egalitarian policy. Only then will it work—only if it is aimed at greater social justice, and delivers greater social justice. By nature, an incomes policy is voluntary. The Government are quite right in saying that they intend to bring in legislation of the kind which they started to introduce in the last Parliament, concerning the early warning of wage claims. But whether or not there is legislation in this form, the policy itself is bound to be voluntary.

In a democracy we cannot conceivably impose an incomes policy by fiat from Whitehall over the whole mass of industry. Since the policy must be voluntary, it must be accepted by the people whom it touches, and that, in turn, means that it must be regarded by them as fair—and if they are to regard it as fair, it must in fact be fair.

I know that my right hon. Friends have recognised this throughout. What distinguishes the present Government's incomes policy from the embryonic attempts at an incomes policy pursued by right hon. Members opposite when they were in power is that this policy explicitly says that it is aimed at social justice. The White Paper brought forward by the Government last year not only lays down a norm by which increases should be governed; it also lays down that there may be exceptions to the norm, and that those exceptions are partly, at any rate, to be made on the ground of social justice. My right hon. Friend the First Secretary emphasised this yesterday.

Here, however, I would like to make one small constructive point. The Government arc going to have to extend and, to a certain degree, strengthen the incomes policy if this objective is to be realised. The White Paper on Prices and Incomes introduced by the Government a year ago said that increases above the norm could be granted in exceptional circumstances—if, for example, the living standards of certain groups of wage-earners were deplorably low. It also said—as is common sense—that if exceptional increases are to be granted to some people others must get less than the norm. If we are going to give exceptional increases to some people and do not say that others must therefore get less the norm becomes merely a metaphysical abstraction.

There are some signs that there exists in our society very powerful social pressures which make it difficult to live up to this declaration of the White Paper. The best way of describing what I mean is to look at the recent increase awarded to higher civil servants and to examine the reasons given for that increase. That increase was undoubtedly within the norm, but no one can pretend that it was an egalitarian measure to give considerable increases to people already earning ten times as much as many of my constituents. The justification put forward by the Prices and Incomes Board for giving these increases was the necessity of competing for a very scarce pool of highly talented people.

I want to quote briefly from the Board's report. Paragraph 13 says: We have stated that the Standing Advisory Committee collected information on a confidential basis about the movement of earnings in comparable posts outside the Civil Service. It is clear from their report that evidence of the movements of other incomes was not one of the primary considerations in their minds. … We understand, nevertheless, that their enquiries left no room for doubt that the average annual increase in the two years from April 1963 of salaries and earnings in broadly comparable employment outside the public sector was appreciably greater than the average annual increase for the Higher Civil Service as a whole which would result from their recommendations. We consider, in the light of this evidence, that the salary structure of the Administrative Class must be improved if the Civil Service is to compete fairly with others for its share of talented people, and provide rewards that are commensurate with the responsibilities carried by the various higher grades. That is a very important statement. It says that the public sector is forced to compete with the private sector for this very small pool of highly talented people. In other words, what is happening, according to the Board, is that movements in salaries and emoluments in the private sector are going faster than the norm, and because of this there is a chain reaction back into the public sector, and the public sector has to compete.

This is a very dangerous state of affairs if the incomes policy is to be carried through in the egalitarian way in which it must be if it is to succeed. In the long run I am convinced that my right hon. Friends will have to bring within the ambit of the incomes policy the movements in the emoluments of highly paid people in the private sector of industry—and in the salaries paid to very high management.

As a first step towards this I urge my right hon. Friends, at the very least, to look at the Private Member's Bill introduced by my hon. Friend the Member for Stepney (Mr. Shore) in his days as a back bencher. His Bill sought to make it mandatory that the emoluments and rewards to top management in the private sector should be published, so that we should at least know what the facts are—which is not the case at the moment. I therefore suggest this as a modest way of toughening and strengthening the incomes policy. Only if we can demonstrate to the people of this country that the incomes policy is not simply a wage freeze, but that it is holding back people at the top while at the same time bringing up people at the bottom, can we make it work and stick. I am convinced that if we do not make it stick the outlook for our economy is gloomy indeed.

8.20 p.m.

Sir Gerald Nabarro (Worcestershire, South)

I claim no indulgence from the Committee. I have spoken here before. I find myself in the happy position, on the occasion of my first speech in this Parliament, of being able to congratulate the hon. Member for Ashfield (Mr. Marquand) upon a cogent, attractive and highly informative speech, notably in those passages relating to his constituency. The majority of hon. Members in the Committee remember his distinguished father, a member of two Labour Administrations and formerly the Professor of Industrial Relations at the University College of Cardiff. I sat at his feet at that seat of learning about 30 years ago, and the most I can say to the hon. Gentleman this evening is that I hope that, with the passage of years, he gains the eminence and the deep respect which the great majority of us accord today to his father.

I will now pass to the Budget Resolutions. The Chancellor of the Exchequer talks deflation and practices inflation. I find his Budget Resolutions highly un- satisfactory in a number of important regards. There is quite insufficient emphasis put upon the gravity of the balance of payments position. That ought to be at the nub of all the Budget Resolutions. Every proposal in the Chancellor's Budget speech should have been related, directly or indirectly, to the closing of the gap in our balance of payments. That gap during the current year, I believe, on current account, excluding capital considerations, will still be of the order of £300 million. I have no crystal ball, of course, and I cannot precisely determine the trend of trade. I would only qualify that figure by saying that the balance of payments may well tend to improve during the next few months due to the ephemeral advantage gained by importers deferring bringing in their goods until the cessation of the temporary charge on imports, next November.

This, no doubt, will give an aura of well-being to many who study the trade figures, but it will be, as I say, strictly temporary, strictly ephemeral. Had I been the Chancellor in this situation, and talking only in the context of the balance of payments, which I regard as the issue of major importance, I should have dwelt most largely on considerations for improving the shipment oversea of British manufactured goods and encouraging the expansion of British services which earn us foreign exchange.

For example, there are in the Budget some things which have been done which are a definite deterrent and not an incentive to British exporters. One which has not been mentioned in our debate is to be found in the early part of the Budget Statement, where the Chancellor withdraws the export incentive on goods sold to the E.F.T.A. countries. He said: The Finance Bill will give effect to an agrement in E.F.T.A. to limit the application of the export rebate scheme so that it will no longer apply to goods which are to be imported into those countries on E.F.T.A. terms."—[OFFICIAL REPORT, 3rd May, 1966; Vol. 727, c. 1438.] I do not know what the terms of the agreement alluded to, are with E.F.T.A. countries. I do know that British exporters had a large volume of exports to E.F.T.A. countries and that the withdrawal of this incentive is a further deterrent to exporters.

A great deal of nonsense has been talked in the Committee during the last two days about giving incentives to exporters. One of my hon. Friends, the hon. Member for Norfolk, South (Mr. J. E. B. Hill), slipped into the error of suggesting, "Why not rebate Income Tax—give Income Tax relief on profits earned from exports?". Of course, we have gone over and over this ground during the last ten years or more—as to how we should increase the incentives to exporters. There is one simple fact—that if we wish to remain a part of the G.A.T.T. organisation and observe its rules, we cannot rebate direct taxation on the profits earned by British exporters. All we can do is to refund—[An HON. MEMBER: "Oh?"] Yes. That is the rule. The only alternative is to get out of the G.A.T.T., and I would not recommend that.

What we can do is on a very narrow front, and I propose to concentrate on this. We can give back in the form of a rebate to manufacturers those indirect taxes which form an element of cost in the price of British goods exported. That is what the Labour Government did in October, 1964, one of its first acts. But it was tiny. The refund was 1 per cent. to 3 per cent.—

Mr. Diamond

indicated dissent.

Sir G. Nabarro

The Chief Secretary nods his head in dissent. I repeat, the refund was tiny. It was between 1 per cent. and 3 per cent. Now that has been vitiated by the withdrawal of the incentive in respect of exports to the G.A.T.T. first, but, second, the Chief Secretary might remember that industrial profits are taxed today—as a result of the machinations of his colleagues and himself—at approximately 65 per cent., as an aggregation of the Corporation Tax and other provisions. Therefore, the 1 per cent. to 3 per cent.—which, for simple purposes I will average at 2 per cent.—incentive is mulcted by two-thirds and reduced to less than 1 per cent. net after taxation.

I say that this is nugatory. It is hardly worth taking into account. But the Treasury could give much more. I have carried out my own calculations across the broad sweep of the engineering, textile, chemical and many more manufacturing industries, and the fact is that, including the local rates—I remind the Chief Secretary that industry is now re-rated as to 100 per cent. and the local rates are a major item of cost and are indirect taxes in the terms of the G.A.T.T. provisions—it is perfectly practicable—[An HON. MEMBER: "No."]—It is so: it is admitted by G.A.T.T. It is therefore practicable to give the incentive today to British exporters far larger than the 1 per cent. net which is being offered.

In fact, it could be possible within the terms of G.A.T.T. and without breaking G.A.T.T. provisions to give as much as 5 per cent. net and equate that against the indirect taxes which form a major element of cost in the prices charged for British exports.

That is my first grouse. My second grouse about the Budget is that nothing whatever has been done to relieve the pressure on inflationary demand and, notably, the position of gross over-employment which exists in our country today, in the North-West, in the Midlands and in the South-East notably. For example, in parts of the North-West, the published rate of unemployment is 0.8 per cent. Over the country as a whole there was, at the last count by the Ministry of Labour, reputed to be 307,000 persons registered as unemployed. On the same date there were 435,000 registered vacancies for jobs, but out of the 307,000 registered unemployed 180,000 are deemed by the Ministry of Labour's own inquiry, on a sample survey, to be unemployable.

Therefore, there are really only about 127,000 employable persons without jobs as compared with about three times that number—435,000—registered vacancies, or a ratio of 3:1. That is a position of gross over-employment, and there is nothing whatever in the Budget designed to relieve that situation.

Many of my hon. Friends have related their views on the Selective Employment Tax and have said that agricultural workers, men and women in the construction industries, and personal servants, are not likely to be translated, as a result of this S.E.T. proposal, to manufacturing industry. Neither is manufacturing industry as a result of this budgetary proposal likely to disgorge any labour at all.

The hon. Member for Manchester, Cheetham (Mr. Harold Lever), who knows a lot about business, validly made the point that no commercial firm today, with the pressure of two-thirds of its profits being taken in taxes and with ever-rising inflation of costs, notably wage inflation, retains on its payroll a single person it can dispense with. Firms just do not do that, and people who think otherwise, including the Members on the Treasury Bench, are living in cloud-cockoo-land.

I do not earn my living in this House but as a manufacturer, a director of companies and as managing director. I am in touch with all these problems day by day and week by week. The most earnest endeavour of every competent manager in business today is to run his plant with the minimum number of hands. There is no fat to be disgorged in the fashion suggested by so many hon. Members in this debate.

Mr. Harold Lever

I rise merely to correct the hon. Gentleman. I did not say that there were no cases where there was mismanagement in the handling of labour because of the pressure of wages, taxation and so on. I said that in those cases where there was mismanagement and where there existed more labour than was desired or required to be employed, no marginal action by the Government could stop it. Only better management was the answer, I said.

Sir G. Nabarro

We can all criticise individual managements and trade unions. No form of human organisation is perfect, and I am not suggesting that the remarks I have made about the general condition of British industry cannot be faulted in individual cases. I claim no perfection in these comments, but I am aware that, notably in the North-West and the Midlands, where I earn my living mostly, it is grossly wrong to say that industry is flabby in terms of manpower and that there is a reservoir of manpower available.

Mr. Tilney

What, then, does my hon. Friend say about the Report of the Royal Commission on the Press, command 1811, which stated on page 114: In the National newspaper offices production is gravely inefficient, mainly through the employment of excessive labour. Is he aware that Personnel Administration Ltd. estimated that a saving of 34 per cent. could be made in manpower in that industry?

Sir G. Nabarro

I thank my hon. Friend. While he was making that intervention I heard an hon. Gentleman opposite say, "And the steel industry". The point made by my hon. Friend about newspapers and that made by an hon. Gentleman opposite as to steel are both Committee points which I will deal with at length in Committee on the Finance Bill. Meanwhile, I will merely say that the position in the newspaper industry is due most largely to the restrictive practices of the unions. The position in the steel industry is due to the faults of my own party, which legislated in 1956 on Monopolies and in 1963 on Restrictive Trade Practices but did not drag the steel companies before the Restrictive Trade Practices Court to bust the cartel in prices. Had my party done so, the steel companies would have been in a much healthier position today.

However, I have been side-tracked. I will deal with these matters in Committee, which is the correct place to deal with them. The fundamental point I am making about this form of taxation is this. The Chancellor says that it will raise £240 million in a full year. In the following year, in my judgment—due to the influence of what I call the multiplier; the log roller—it will probably raise £100 million more than that, but it will not raise it in the form of taxes. It will raise it in the form of increased prices.

The whole of this exercise is the most dreadfully inflationary thing this Government have done. One Minister, I think the First Secretary, suggested that these price increases could be referred to the Prices and Incomes Board. Indeed! What about restaurateurs and hoteliers? Does the First Secretary believe that the proprietor of a good pull-up for carmen who puts up his prices by 3d. for two poached eggs on toast on account of having to pay the additional wages to the men he employs in that pull-up should be dragged before the Prices and Incomes Board?

The points of application for this kind of tax are so variegated and run into hundreds of millions of transactions in the course of a year that it is manifestly impossible for any incomes and prices policy to apply to them. And when the First Secretary—and I shall come to blows with him verbally in Committee on the Finance Bill—says that the influence will be to raise prices by less than 1 per cent., I wonder if he was taking into account the effect on the prices of the agricultural and horticultural industries when he made that assessment. Apart from horticulture, because it is difficult to see how that industry can raise its prices because of foreign competition, agriculture will be very hard hit. Farmers with their Review commodities must look to recoupment in the February Price Review next year, and they rightly have no confidence in Her Majesty's Government.

Worcestershire is a lush agricultural and horticultural county. The National Farmers' Union of Worcestershire sent me a telegram. [Interruption.] It is a very good county. The Financial Secretary should not sneer at it in undertones. [Interruption.] I assure the hon. and learned Gentleman that I lip-read magnificently. The telegram I received from the Worcestershire N.F.U. yesterday stated: This county has no confidence in Employment Tax being recouped at Price Review (Horticulture has no chance of recoupment). No member will be satisfied unless farming is put in Class 1. Farming is an import saver and is entitled to Class 1 treatment. Request every effort to rectify this outrageous situation. They were well chosen words. My reply is in equally carefully chosen words. [Interruption.] I am a Class 1 hon. Member. Hon. Gentlemen opposite should know that. I replied by telegram: Congratulate NFU upon firm stand iniquitous Selective Employment Tax which is further dreadful blow to farming industry STOP Will raise price of food STOP Will further depress farmers' incomes STOP Will cause additional exodus from agriculture and horticulture at a time when we need much more home produced food to remedy deficiency balance of payments STOP I will resolutely oppose this tax falling on farmers and growers STOP Absolutely at one with Worcestershire farmers deprecating this pernicious poll tax. Those are my views.

Mr. Diamond

I interrupt the hon. Member, but he did say that he did not want the treatment which we afford to a semi-maiden speaker. There was one part of the telegram with which I did agree, and he repeated the message five times—"stop".

Sir G. Nabarro

I have sat through 14 hours trying to catch your eye, Mr. Irving, 14 hours with only very limited sustenance—two glasses of Horlicks this afternoon; that is all.

I want to repeat in another context how dreadfully inflationary this kind of taxation is likely to prove. The First Secretary yesterday announced with a flourish that he had obtained a statement from the Chairman of Marks and Spencer, Lord Sieff, that they would do their utmost to absorb the tax. Marks and Spencer is a magnificent organisation, a most highly competent member of the distributive trade. I tip Marks and Spencer's shares to hon. Members opposite—a good investment—but this is not the view of the whole distributive trade. Oh, no. Let us take one of the largest distributors in Britain. I quote the President of the Scottish Co-operative Society. He does not take Lord Sieff's view about it. He is very fed up with the Labour Government, and he underlines the point I have been endeavouring to put to the Committee in the last few minutes. He says: Under these circumstances all that the Budget can mean is an added burden on the retailer which must be passed to the consumer. I repeat his final words, "which must be passed to the consumer". This is Mr. Tom Taylor, President of the Scottish Wholesale Co-operative Society. That is my view as well. All this tax, plus the multiplier of the next 12 months, will be passed to the consumer. It is dreadfully inflationary. It does nothing whatever to relieve the pressures of labour shortages or on the general gammut of rising prices that we have all lived through and suffered from so severely during the last 18 months.

If the Chancellor had taken two offset actions in this same Budget to relieve the inflationary prospects of this form of taxation, I should have been much more sympathetic to him this evening. The first would have been, of course, to give realistic cash allowances right across British industry on an even larger scale than the withdrawn investment allowances to quicken the rate of modernisation of plant and the installation of all machinery and equipment designed to save manpower. That has not been done. Generally, the Chancellor has done the opposite.

The other which is extraordinarily neglectful of him—we cannot move Amendments in Committee on it and so this is the only opportunity I have of raising it—is his neglect to observe what has happened to personal savings during 18 months of Labour Government. These figures have not been given today. In respect of National Savings alone—and National Savings are only one relatively small sector of personal savings as a whole—in 1964, the last year of Tory Government, these was a surplus on National Savings account of £192 million. In 1965 the first year of the Labour Government there was a deficit of £65 million. Therefore, there was a turn round from surplus to deficit of the mammoth sum of £257 million in a single year. These are not my figures; they have come from the National Savings Movement.

Small wonder that the Chief Secretary blows up today the fact that the Chancellor is budgeting for a surplus of more than £1,000 million. He has to because the whole of the support from the National Savings Movement has now collapsed and he is doing nothing to restore it.

Mr. MacDermot

Rubbish.

Sir G. Nabarro

The hon. and learned Gentleman says "rubbish", but I have forgotten more about savings and investment than he is ever likely to know. He has been in the legal profession all his life, but I have been concerned with finance and industry. I know where people go with their savings when they want to earn a return on them and a hedge against inflation. The Chief Secretary vaunted the £2,500 of National Development Bonds at 5½ per cent. per annum, plus a tax-free bonus of 2 per cent. Allowing for the 2 per cent. tax-free, that is gross, 6½ per cent. But today one can get 4 per cent., Income Tax paid, from a building society. One can get 7½ per cent. on an industrial debenture, and one can earn 8 per cent., 8½ per cent., or 9 per cent. subject to tax on unit trusts, all of which are an infinitely more attractive form of investment for the small saver than buying National Development Bonds.

As for the present issue of National Savings Certificates, the 12th Issue, which the Chancellor of the Exchequer praised, saying that we have secured £58 million in a month, I say to him "chicken-feed". That comes mostly from the Nabarros of this world who buy £500 worth for himself, for his wife and for each of his children in order to get a modicum of tax-free investment. It does not come from the genuine small savers. The way to get genuine small savings and to hedge against inflation which has been going on at record rates during the last 18 months is to offer commercial terms which the National Savings Movement has not yet dreamed of doing. I forecast that this current issue will be a flop. It has had its first flush from people who can afford to invest, but that flush will not last very long on account of the much more attractive alternative investments available today which furnish a more powerful hedge not only against the inflationary tendencies of the record of the Government but the highly inflationary tendencies enshrined in the Budget.

It is a bad Budget. It will have a bad progeny. I have no doubt that in the autumn there will be another Budget—for the simple reason that the temporary charge on imports comes off at the end of October. The revenue which the Chancellor obtains from it is more than £200 million. It is not coincidental that the exercise of the regulator on all Customs and Excise duties, that is on Purchase Tax, on tobacco, on alcohol and on every other form of Customs and Excise duty, will also raise just over £200 million. I predict that at the beginning of November we shall see the removal of the surcharge on imports, accompanied by a rush of piled-up imports, frustrated in the next few months by British importers deferring their arrivals in order to escape the payment of the surcharge. As the surcharge disappears, and with it the Chancellor's revenue of £200 million—that is the sum which it will cost him—then it will be replaced by the exercise of the regulator at 10 per cent. to yield him an equating, an equivalent, £200 million-plus. The hon. Member for Cheetham should not look so gloomy. It is his party which is doing it.

Mr. Burden

Does not my hon Friend agree that this is made absolutely certain because buyers for retail stores and others will not buy with the surcharge? Contracts have to be taken up. This situation is bound to occur and to flood the economy after November.

Sir G. Nabarro

I am grateful to my hon. Friend who has reinforced my argument. I am entirely in agreement with him.

There is much that we shall seek to amend in the Finance Bill. No doubt it will be a compendious Measure. It will allow a large number of Opposition Amendments. No doubt there will be the usual flood of Government second thoughts, as there were on the Finance Bill last year, and many Amendments flowing from them. All these points of detail will no doubt come to the surface in Committee. I hope to play an active part in all these Committee Amendments knowing that we, the Conservative Party, are opposed to the fundamentals of this Budget, which we regard as dreadfully inflationary and bad.

8.51 p.m.

Mr. Michael Barnes (Brentford and Chiswick)

This will be a very short maiden speech indeed because the time which I have at my disposal is now not very long. The subject to which I want to refer briefly is one which I believe is vital to the economic future of the country, and it is one to which not nearly enough attention is being paid at present.

It has been a familiar theme in recent years and throughout this debate that British industry must increase its efficiency and that productivity must be increased. There is one aspect of this at which both the Government and industry have to look with a great sense of urgency, and that is the whole aspect of business education and a growing sense of professionalism throughout industrial life.

I believe that it is not inappropriate that I should raise this subject, because the constituency which I represent, Brentford and Chiswick, is the home of some of the best known brand names in the country, manufacturing firms which make a considerable contribution to the economy of the country. I understand that one of these firms is now benefiting from the services of my predecessor as Member for this constituency, Mr. Dudley Smith, and if he serves it as diligently as I believe he served the interests of his constituents while he was a Member of the House, then that firm will be very fortunate indeed.

In this country we have just started two business schools, one in London and one in Manchester. Both are offering post-experience courses and soon will be offering post-graduate courses, too. There are other courses in management studies available at universities, colleges of advanced technology, technical colleges and schools of commerce. It is true that the Government are trying to encourage local education authorities to provide more education in technical colleges for management and supervisory courses. To that extent it is true that business education has arrived in this country.

But we are still only making up lost ground compared with modern industrial countries with which we are trying to compete. For example, when they get going London and Manchester are aiming merely to offer the same sort of thing as is available at Harvard and the Massachusetts Institute of Technology, and it is only London and Manchester in this country which are batting in this league. Even when they get going in a few years' time they will be offering courses for only a few hundred students—and this at a time when British industry is supposed to need about 20,000 new managers every year.

In this situation two things have to be done. First, the Government must provide a much more definite framework in which to co-ordinate and stimulate all efforts in this field. Secondly, industry must show a much greater awareness of the fact that there are these modern techniques to be learned. Let me give an example. For some years "marketing" has been a magic word in industry—and it still is. I wish that even half the people who have bandied the word "marketing" about appreciated what it meant. It is the drawing together of all the threads to ensure that the right product is on sale at the right place to the right people at the right price and at the right time. It is the catalyst which makes the whole commercial operation work.

This country is still paying the penalty for having initiated the great Industrial Revolution of the last century. We still have far too many companies that are production orientated. It is very significant that those companies that are most successful in the most competitive markets are nearly always those that are truly marketing orientated.

There is still far too great a disparity in the incomes and standards of living of different sections. In a recent television programme there was a dialogue between a bus driver and the head of one of the big companies. I do not think that I have ever felt so angry towards our society as I did then, not so much because of what was said but because of the sheer uncomprehending nature of the discussion on either side. It was a very salutary reminder of the gulfs in our society that still remain to be closed.

The rewards and privileges of leadership in industry are very great, but so are the responsibilities. It is no use talking about more business education and a greater sense of professionalism in British industry unless they are accompanied by a better sense of proportion on the part of all of us in assessing the rightful place everybody must have in the community.

Yesterday there was good news about doctors' pay, but the legitimate claims of many other sections—the people working the buses, teachers and nurses, to name but a few—must be satisfied before very long, because we must always remember that the price which a society puts on the services which different sections provide is a sure sign of the values according to which that society tries to live.

8.56 p.m.

Mr. Terence L. Higgins (Worthing)

It must be very unusual for anyone who has the honour to speak from this Front Bench for the first time to have the privilege of congratulating no fewer than six maiden speakers. It is, therefore, with great diffidence as well as a particularly sympathetic feeling that I congratulate them.

First. if I may, I would refer to the hon. Member for Brentford and Chiswick (Mr. Barnes), who made a speech that was not only uncontroversial but forward-looking, and typical of today's maiden speakers. There was a similar forward-looking speech from the hon. Member for Lewisham, West (Mr. Dickens), and he and the hon. Member for Bebington (Mr. Brooks) paid generous tributes to their predecessors. We shall look forward to hearing from them again. The hon. Member for Lewisham, West said he had signed a Motion advocating shorter speeches, but we shall none the less look forward to hearing him frequently, if not at length.

The hon. Member for Colne Valley (Mr. Richard Wainwright) made a speech that was perhaps a little more controversial than some, but it hit a fine line between partiality and impartiality, and again, we shall look forward to hearing him. Similarly, I congratulate the hon. Member for Ashfield (Mr. Marquand)—the son of a distinguished former Member of this House. I should particularly like to congratulate my hon. Friend the Member for Portsmouth, South (Mr. Pink), not least because the matters he raised—rates, the hotel industry and the effect of the cost of living on the elderly—are all of great concern in Worthing.

Someone was singularly unkind recently in suggesting that the Chancellor of the Exchequer was something of a latter-day Christopher Columbus—he did not know where he was going when he started, he was not sure where he was when he got there, and he did it all on borrowed money. Be that as it may, there is some truth in the view that the Chancellor of the Exchequer has a regrettable tendency to take something which starts off as an excellent idea, and then somehow along the way it gets off the track. This is particularly so in the case of the idea that we should get away from the annual Budget ritual and should instead move towards a system where the economy is regulated from time to time throughout the year.

This indeed the Chancellor of the Exchequer has adopted as a principle, with the one unfortunate aberration that, instead of getting the idea of dividing up the annual Budget, what we have had is the amount which would normally be covered by the annual Budget multiplied throughout the year. We have, therefore, had a succession of Budgets of considerable magnitude.

It is very important that we should understand why this has come to be so over the last 18 months. I would put it to the Chancellor that the reason why we have seen Budget after Budget and restriction after restriction has been that there has been insufficient co-ordination between the Chancellor and the First Secretary of State and Secretary of State for Economic Affairs. This has meant that we have had a continual succession of Budgets designed to mop up purchasing power which has been created by money, representing wage claims pumped into the economy by unions. These wage claims which have been granted by employers who have been prepared to grant them because they know they can pass the increases on in the form of higher prices.

This tendency has been exaggerated and accentuated by the actions which the First Secretary has taken. We have had a situation in which the First Secretary soon after taking over his office introduced his incomes policy and issued his declaration of intent. It was not surprising in these circumstances that we should find the trade unions—all trade unions which had the interests of their members at heart—putting forward wage claims which were larger than we would otherwise have had and putting them forward earlier than would otherwise have been the case. These wage claims were granted because the Chancellor of the Exchequer's measures had not yet begun to take effect. In essence, it has been the mistiming of the Chancellor's measures which has enabled these wage claims to go forward.

The second point is that the Chancellor himself, in the absence of effective restraint of a general monetary and fiscal kind, on aggregate demand, has tended to resort to exhortation on a number of occasions in public speeches. I quote, for example, one from a speech of his in Swansea on 3rd July: How long are we going to deceive ourselves into believing that a wage increase greater than the norm will make us better off if output per man only goes up by 3 per cent.? The difference will take the form of higher prices at some point so we might as well take 3 per cent. in the first place and save hardship to those who are unable to get the larger increase. Surely the right hon. Gentleman must recognise that he cannot make this kind of appeal, unless he can back it up with a clear undertaking that other people will not get a larger increase than the voluntary restraint which the particular union he is addressing is asked to impose on itself. This kind of exhortation, without the creation of a general economic climate in which wage demands will be resisted, is likely to lead to an inflation. This resort to exhortation, to ear stroking, to what the Germans I believe call soul massage, is not good enough.

From a study of the pattern of the impact of taxation through time, it is perfectly clear that wage claims and money incomes have been putting purchasing power into the economy faster than the Chancellor has been taking it out.

This afternoon the Chief Secretary confirmed our worst suspicions of the Budget timing. He made it clear that the 40 per cent. rate of Corporation Tax was, in fact, for the forthcoming months only, at a lower rate than would have been produced by Profits Tax and the corresponding Income Tax under the previous arrangements. In other words, this tax imposes no real increase in taxation between now and the autumn.

The same is true of the Selective Employment Tax, which will not be imposed until later, so we are likely to have a period in which wage claims will again be put forward—and the more the Secretary of State for Economic Affairs says that he is going to have an incomes policy the more this is likely to be encouraged. Yet the general fiscal and monetary framework has not been sufficiently stringent to achieve prices and incomes increases justified by the increase in production.

There is now a danger that the Government, finding that exhortation fails, will resort to compulsion and will go beyond an early warning system to something which imposes positive and definite restraint on specific wage claims. That is totally different from the philosophy of this side of the Committee, which argues that we should set a framework in which unions can negotiate on a reasonable basis and in which settlements reached are carried out and adhered to by both sides of industry.

In considering the whole question of economic objectives, there is some danger that we do not clearly understand the change which has taken place, at any rate in emphasis, in the Chancellor's statements. In place of the customary objectives of full employment, price stability and economic growth, he listed a strong pound, full employment and a steadily strengthening economy. As my hon. Friend the Member for Finchley (Mrs. Thatcher) said, the significant thing is that there is now no explicit mention of stabilising prices and dealing with the cost of living.

The fact that this was not explicit is significant. We should be clear that, in the immediate pre-election period, it was possible that the Government felt that it would be unwise to take severe deflationary measures which would be likely to lose them votes in areas which are typically those of high employment when they had already lost the vote in areas which, typically, suffer worst from inflation.

The strange thing is that we who thought this might be the case were perhaps being too cynical. For we now have a change in the whole approach of the Government. It seems that they are going to try to run the economy flat out, come what may, and that if this means that inflation continues at a considerable rate then that is something people will have to suffer.

Yesterday my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) stressed the need to redefine what we mean by full employment. In this context I am sure that he was right to refer to the 1944 period. Today we need to rethink the social policy set out in the Beveridge Report. In addition we need to redefine the term "unemployment".

Lord Beveridge himself, in his more pessimistic moments, talked in percentage terms of unemployment which we would regard as totally unacceptable today. But in his more optimistic moments he defined, in his book, "Full Employment in a Free Society", full employment as being a situation in which there are more jobs than men to fill them. This effectively meant an inflationary situation and the book was subsequently stigmatised as "Free Employment in a Full Society". Nevertheless, Beveridge's definition made in the 1940s appears to be what the Government are now proposing to adopt as a definition of "full employment".

This must mean four things. First, those living on fixed incomes will suffer very severely. Secondly, as my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) pointed out, savings will inevitably decline and, as the right hon. Gentleman the Chancellor of the Exchequer has pointed out, this must mean continually higher taxation. Thirdly, we are likely to run into balance of payments difficulties as our prices become less competitive than those overseas. Fourthly and most importantly, the whole pattern of the economy, if an attempt is made to run it flat out all the time, will become completely frozen and this means that we shall not have a change in the industrial pattern reflecting changes in consumer demand. This surely is a very important consideration if we are, looking not to the immediate short-run effect, but to the long-run effect on the growth of the economy. Therefore, we need a more realistic definition of unemployment which takes account both of those who are unemployable and the fact that people are moving from one job to another.

In the last 18 months, there have been some radical changes in the country's economic structure, and we have found constant Government interventions on specific issues—the beginning of what my hon. Friend the Member for Oswestry (Mr. Biffen) yesterday described as "a welfare state for industry", a system where inefficient industries are featherbedded. This was again emphasised in the remarks of my hon. Friend the Member for Finchley earlier today, and what she said was extremely important.

We on this side of the Committee are sometimes accused of believing in the profit motive to the exclusion of other things. It is very important to appreciate that we believe in both the profit motive and the loss motive. We believe that people who are inefficient, people who are not meeting consumer wants, people who are not competing, ought to be driven out of business. As my hon. Friend said this afternoon, the fact of the matter is that the measures which the Government have taken so far in the last 18 months and again in the Budget are likely to assist the inefficient rather than to encourage them to go out of business, and on this side of the Committee we are firmly convinced that what we need is greater competition and not greater feather-bedding.

I want next to turn to the whole question of whether the Government should intervene, as they are doing in this Budget, on a selective basis, dealing with specific individual parts of the economy. We agree that the Prices and Incomes Board fulfils a useful function in investigating particular industries and making recommendations which may lead to greater efficiency in those industries. However, it is a satellite of the main object of economic policy and should not be confused with an incomes policy itself which must inevitably be the responsibility of the Government. If we are to have an incomes policy, it is necessary for the Government to set the economic framework and the general fiscal and monetary policy but not to intervene on specific prices, because this can lead only to general distortion, first because if the Government try to interfere with specific prices, they cannot do it across the whole of the economy but only in a few instances. This is bound to lead to distortion.

More particularly, such intervention is dangerous if it does not necessarily act on the input prices as well as the selling prices. Intervention is likely to create a situation in which profits are squeezed, but only in specific industries. As a result, the whole pattern of investment is likely to be distorted. The extraordinary thing is that we now have a situation in which the Government are likely to intervene to control or affect a particular price and to squeeze profits in a particular industry, and this is having a distorting effect on investment. On the other hand, the Government intervene to say, "We will give cash handouts to anyone who invests, regardless of what is happening to his level of profitability."

This, we believe, involves the wrong principle, because we believe in giving investment incentives to those firms which are profitable and which are clearly meeting consumer demands. All the action taken by the Government over the last 18 months tends to distort the pattern of investment. For example, Corporation Tax tends to encourage firms to hang on to profits rather than to dis- tribute them, so that they can be taken up by other firms which need to use the investment funds.

The final point I want to deal with in this context relates to the Selective Employment Tax. I make no apology for returning to this matter, which has already been discussed in some considerable detail. The tax is a novelty and it is right that we should bring out the full implications of what the Government have proposed. I think that we on this side of the Committee would not have been opposed to a payroll tax. Our manifesto suggested that there was a good case for introducing, on the one hand a system whereby more of the cost of social services was paid for by employers, while at the same time a greater incentive were given to industry by using the money available to reduce the level of taxation and to encourage economic growth and investment.

The measure which has now been introduced is a perversion of the idea of a payroll tax. The first point which needs to be made is that because a broad sector of the country is growing that is no reason why the Chancellor should feel that he must hit it on the head and say, "This is a bad thing, services are growing too fast". In a prosperous and growing economy services are likely to grow faster in relation to manufacturing industry. Part of the argument put forward by the Chief Secretary as to why services should be taxed now because they have been escaping previously seemed extremely odd. It has been pointed out that among the manufacturing industries which the Chancellor is so sad to see heavily burdened with taxation are tobacco, beer, spirits and petrol.

Moreover, in saying that the ratio of taxation is something like 40 to 1 between manufactures and services, he is not taking account of the fact that a very large percentage of the retail price of the manufactures comprises services which have gone into the production of those finished products. I am glad that the right hon. Gentleman the Chief Secretary has now returned to his place. I must say that I was very puzzled by his argument on this. He went on to accuse Members on this side of the Committee of wanting to maintain the status quo.

I do not think that we want to maintain the status quo, as was shown by our manifesto proposal. But we certainly do not want a measure like the Selective Employment Tax which will clearly burden the whole structure of Government and have effects which can only be deplorable. This is a tax upon services.

As has already been pointed out, it will fall heavily upon agriculture, and the agricultural community have grave doubts about whether it is likely to be offset in the Price Review. What is particularly sinister is the fact that, according to the National Plan, more people will have to go out of agriculture. If the Government want to do this, the new tax is a very good way of doing it, provided its effects are not fully offset in the Annual Price Review. If the Government are really taking measures to implement the National Plan, we must therefore look a little askance at their assurance that all will be well. The horticultural industry does not have an annual price review and those in it will therefore suffer the full burden of the new tax.

But the really important question to be asked is what scope is there for substituting machinery for labour in many of these service industries and what scope is there if investment allowances are not to be given to. for example, hotels? There is not as much scope as right hon. Members opposite imply. Moreover, what will these people do if they are driven out of the service industries? To be specific and parochial, what will the hoteliers' employees in Worthing do if they are driven out of their hotels? What will the shop assistants do? It is part of the Govern. ment's policy to restrict industry in this sort of area. The points which my hon. Friend the Member for Barkston Ash (Mr. Alison) made about the activity rate in the economy are extremely relevant to this matter.

The second half of the tax is concerned with subsidising manufacturers. But it is in manufacturing industry that there is the greatest hoarding of labour. This is something which we should avoid. When hon. Members opposite bandy about phrases like "discounted cash flow", they should consider whether British industry does not invariably invest in machinery which is too labour-intensive rather than too capital-intensive, because, as the Chief Secretary will well know, unless D.C.F. techniques are used—and comparatively few firms use them—the tendency is to work on the basis of present labour capital ratios rather than labour capital ratios midway through the life of the asset. Therefore, this kind of tax will give a bias in precisely the opposite direction to the direction in which we should be giving bias if we want to make British industry efficient.

It has been suggested that this tax may be of some help to the export industries. Clearly it will not be of help to the import-saving industries or export-earning industries like the tourist industry. Surely we should be encouraging not discouraging the capital-intensive industries, because these are the important exporters. But, as my right hon. and learned Friend the Member for Chertsey (Sir L. Heald) said, the people who will be encouraged are the clothing manufacturers, not the chemical manufacturers. But the people who export most are the chemical manufacturers, not the clothing manufacturers.

If we think it through, the whole basis of the tax is misconceived. It has all the appearances of having been constructed in a hurry without a full examination being made of its implications. It has not been thought through from the point of view of demarcation. For example, among those industries which will not benefit under this scheme are educational services. Does the right hon. Gentleman really want to say that school teachers in private schools should not have the tax offset in the same way as school teachers in other schools? Do we want to deter any tendency towards boarding schools which are most heavily affected? Do we want to tax scientific services? Surely this kind of thing is not consistent with the Prime Minister's statements about the "white hot heat" of technology. How does the Chancellor of the Exchequer reconcile that with his viewpoint?

The more one considers this tax, the more one is forced to the conclusion that it is ill thought out and that the definitions which have been used, presumably the standard industrial classification, do not form a reasonable basis either in economic terms or in terms of clarity. I hope that we shall have from the Chief Secretary a clear series of definitions. I hope that, first, we shall have a definition on whether disabled people are to be excluded. Secondly, what is the definition of a part-time employer and a part-time employee? Are they to be charged as full-time employees and employers? What definitions are to be used within the meaning of the White Paper for an establishment and for a head office? Will the definition of a head office cover "manufacturing" if the main occupation of the enterprise is manufacturing?

If this tax has really been thought out, not merely thought up, the Financial Secretary will be able to give answers, though it is not clear why they were not given in the White Paper. It is not enough for the Chancellor to say that he will spell all this out later. If the whole proposal has really been prepared, surely the specific questions which have arisen in the national Press in the last couple of days would have been dealt with in the White Paper. As it stands, the Budget as a whole and this Tax in particular seem to be totally and utterly misconceived.

9.26 p.m.

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

It is my first pleasurable duty to join the hon. Member for Worthing (Mr. Higgins) in congratulating the maiden speakers. As there was no winding-up speech from this side yesterday, I should like also to congratulate those who made their maiden speeches yesterday. From this side of the Committee we heard my hon. Friends the Members for Aberdeen, South (Mr, Dewar), Portsmouth, West (Mr. Judd), Consett (Mr. David Watkins) and York (Mr. Alexander W. Lyon) and from the benches opposite we heard the hon. Member for St. Ives (Mr. Nott). Today, there were a number more: my hon. Friends the Members for Lewisham, West (Mr. Dickens), Bebington (Mr. Brooks), Ash-field (Mr. Marquand) and Brentford and Chiswick (Mr. Barnes), and from the benches opposite we have had the hon. Members for Colne Valley (Mr. Richard Wainwright) and Portsmouth, South (Mr. Pink).

The hon. Member for Colne Valley was kind enough to explain to me that he could not be here for the winding-up speech this evening. I hope that his Leader will convey to him our appreciation of his speech. The hon. Member is, perhaps, a distinctive Member of the House of Commons, if for no other reason than that he was the only Member to win a seat from the Labour Party at the last election. The fact that he did so by winning votes from the Conservatives was no great consolation to us. We certainly heard his speech today with great pleasure and look forward to hearing him again, as we do all the other maiden speakers.

I am sure that I speak for everyone in saying that we have all been impressed by the quite outstanding quality of the maiden speeches that we have heard this year. This is more so, perhaps, from this side of the Committee, because there are rather more of them on these benches, but from both sides it is clear that we have this time an intake of new hon. Members who speak with an astonishing fluency, confidence and authority as "maidens". I do not know how they will speak later on. Clearly, we will have our debates enriched by competent speakers who will speak with great knowledge and practicality when they take part in our debates. I would also like to welcome back the hon. Members who now represent Horncastle (Mr. Tapsell) and Worcestershire, South (Sir G. Nabarro), who are well known to us from previous Parliaments.

The hon. Lady the Member for Finchley (Mrs. Thatcher) is well known to us on the Front Bench, but I believe that this is the first time she has spoken from the Front Bench on finance. I certainly bid her a very warm welcome. We have learned to respect the hon. Lady's ability and calibre. I felt that at times an element of feminine logic was introduced into her speech, but there is no reason why it should be any the worse for that. We certainly look forward greatly to further battles with her in our finance debates.

The hon. Lady asked me a large number of questions, many of them on rather detailed points. She will, perhaps, forgive me if I answer them somewhat briefly in so far as I am able. The hon. Lady asked about the definition of "establishments", as the hon. Member for Worthing also has done. For a fuller definition, I would refer the hon. Lady to the standard industrial classification publication, on which it is based. Briefly and subject to qualification, it is the whole of the premises at a particular address. It is the premises which constitute an establishment.

The hon. Lady asked about chargeable assets—

Mr. Geoffrey Wilson (Truro)

rose—

Mr. MacDermot

I am sorry, I must give warning that I do not have time to give way. I have a great deal to say in trying to answer hon. Members who have raised points in the debate. With regard to chargeable assets acquired, the hon. Lady asked whether this meant that people had to deal in their returns with those chattels acquired for less than £1,000. The answer is "No".

The hon. Lady made play with what she thought was a lack of social service relief in the Budget. The answer to the hon. Lady's point lies in another point which she asked me, and that was about the option mortgage scheme. She will remember that my right hon. Friend made it clear that the introduction of the gambling tax this year would enable the option mortgage scheme to be financed. This is a firm commitment, and I assure the hon. Lady that it will be introduced this Session.

If I understood another of the hon. Lady's questions aright, she asked whether investment grants would be available to take the place of investment allowances for laboratory buildings. As I understand the matter, they never did attract investment allowances, and they will not attract investment grants. They will, however, continue to attract 100 per cent. depreciation in one year. I may not have understood the hon. Lady's question fully, and if so perhaps she would let me know and I will write to her.

Finally the hon. Lady asked about the overlap of development levy and Capital Gains Tax. This is a matter which will require legislation, and it will be brought forward in the Land Commission Bill. Our proposals for ensuring proper provision will be made clear during the debates on that Bill.

Finally, may I welcome the hon. Member for Worthing in his maiden speech from the Dispatch Box. In a sense, it was hard for some of us to realise that it was his maiden speech because we became so accustomed to his contributions during the Finance Bill debates last year. We learned then always to listen to him with respect, as someone who had a well thought out and carefully reasoned argument to put before us, and he showed those qualities again this evening. He will forgive me if I do not seek to answer his arguments tonight, because I have other matters to deal with, and perhaps my right hon. Friend in winding up the debate will deal with some of the points he raised.

Now, if the Committee will bear with me, it is my duty to make further announcements of tax changes which my right hon. Friend is proposing to introduce in this year's Finance Bill. I am afraid that this is part of the price which hon. Members must pay for having enjoyed a much shorter Budget speech than usual this year. I will deal with them as shortly as I can. Most of them relate to Capital Gains Tax, one to Surtax and certain payments under covenant, and two to Stamp Duty.

The first deals with rights issues. My right hon. Friend announced that he proposed to amend the Capital Gains Tax rules governing the sale of rights on a rights issue, and it may be helpful if I give a little further information about the Amendments we propose to make.

When a person sells, instead of taking up, rights which are offered to him in respect of shares which he already owns, he is at present treated for Capital Gains Tax purposes as if he had sold a proportionate part of his total new holding, including the new shares to which the rights would have entitled him. The amount which he would have had to pay to the company if he had taken up his rights is treated for this purpose as if it were expenditure he had incurred on the new holding.

One effect of that provision is that if the original shares have been held for a long time, and have considerably appreciated in value, the gain for which he becomes liable to pay tax on the sale of the rights may exceed the cash he receives for the rights, and this may give rise to hardship even though in the long-term the charge is compensated for by the fact that on the final disposal of the shares the chargeable gain is so much the less. To avoid hardship of this kind, we propose to provide that the cash which a person receives on selling his rights is to be treated as if it were a capital distribution from the company in respect of the shares to which the rights attach.

In consequence, there will be a smaller Capital Gains Tax charge than now when the rights are sold. And if the proceeds of the sale of the rights are small in comparison with the value of the shares, the sale of the rights will not give rise to an immediate Capital Gains Tax charge; instead, the amount received on the sale of the rights will be deducted from the allowable cost of the shares. I hope that that is all crystal clear.

A second matter arises on the position where a person has to sell a small part of his land to an authority having powers of compulsory purchase. For example, this may arise on a road widening scheme. My right hon. Friend has decided that in future in such cases there should be no charge to Capital Gains Tax at that point of time. This will save the landowner having to make a choice at that stage about the basis of calculation of his gains—that is to say, the time apportionment or valuation at Budget Day last year—which would bind him on all future disposals of the rest of the land. Instead, the consideration for the disposal of the part will be deducted from the allowable cost of the whole unit.

The third point arises in connection with the meaning of "life interest". There is a defect in the definition of "life interest" for Capital Gains Tax purposes. I can explain it best in this way: it is possible for the terms of a settlement to give a life interest to A for the duration of the life of B—a much younger person—with the consequence that A's life interest does not terminate on his death but passes to his heirs. As the law stands there is no charge to Capital Gains Tax on the death of A in those circumstances. To accord with the general structure of Capital Gains Tax it is clear that there should be a charge on all the settled property whenever a life tenant dies, and we propose to amend Section 25 of last year's Act to bring about this result.

Then there are two Amendments in favour of the taxpayer which we propose to make to Section 34 of last year's Act, which exempts capital gains up to £10,000 on the transfer of a family business on retirement. First, we propose that the relief should be available to the taxpayer if the family business is liquidated at the time of retirement as well as when the taxpayer sells his shares. The exemption will apply only to the gain accruing to the shareholder and will not extend to gains which accrue to the company itself on realising its assets for the purposes of the liquidation.

Secondly, there will be cases in which the taxpayer has been working in the family business for the 10 years preceding his retirement, but the business has been incorporated for part of that period and unincorporated for the remainder. The Inland Revenue is in practice extending the relief to cover such cases, but we think that it is right to make it statutory.

The next point concerns annuities. The charge in respect of settled property which arises on the termination of a life interest in possession does not apply on the death of an annuitant. The object of excluding annuities was to limit the number of occasions on which the settled property came under charge. It follows that where there is a separate fund for the payment of an annuity, that fund is liable to Capital Gains Tax at 15-year intervals. It has been pointed out to us that, as a result, the funds available for the payment of the annuity may be eroded by the Capital Gains Tax charge and may, in course of time, become insufficient for the purpose for which they were set aside. We therefore propose that where an annuity is payable out of appropriated funds, without right of recourse to the remainder of the property in the settlement, the annuity shall he treated for the purposes of Section 25 as a life interest in the appropriated fund. As a result, the fund will not become chargeable to Capital Gains Tax until the annuitant dies.

Then there is a point on gifts made within five years of death. On the death of a taxpayer, any Capital Gains Tax then becoming payable is allowed as a deduction against the value of the estate for Estate Duty purposes, but there is, as the law stands, no similar relief in respect of a gift where the donee becomes liable to Estate Duty on the death of the donor within five years of the making of the gift. We propose that it the donee disposes of his gift before the death and becomes liable to Capital Gains Tax, the tax shall be a deduction in the Estate Duty calculation. If he does not dispose of the gift until after the donor's death, he will be given a deduction for Capital Gains Tax purposes for the Estate Duty paid which was referable to the gain between the date of the gift and the date of death.

A point also arises on Surtax, in connection with certain settlements. Section 12(3) of last year's Act allowed Surtax relief to continue for certain annual payments made under a partnership agreement to a retiring partner, or to a widow or dependants of a deceased partner. It has been represented to us that this exception is too narrow, as it does not cover cases where an incoming partner has, under the new partnership agreement, undertaken obligations in respect of a retired or deceased partner with whom he had not himself been in partnership. My right hon. Friend proposes to extend the exception to cover genuine cases of this kind.

The Section also allows Surtax relief for payments by one spouse to the other while they are separated by court order or under a separation agreement. It has been put to us that this exception should also cover cases where the husband and wife are in fact living apart, though not under a separation agreement. My right hon. Friend proposes to amend the relevant provision for this purpose.

Finally, there are two points connected with Stamp Duty. We understand that many stockbrokers would find it convenient to use franking machines for marking the Stamp Duty on contract notes, instead of putting on adhesive stamps, and we propose to provide for this and we propose to limit to 6d. the Stamp Duty on life assurance policies made for a period not exceeding two years. This fulfils an undertaking given by my right hon. Friend the Chief Secretary at the Committee stage of last year's Finance Bill, on a Clause put down, I think, by the hon. Member for Richmond, Surrey (Mr. A. Royle).

In the time remaining, I should like to select out of the many subjects which have been raised during the debate three on which I should like to comment. First is the gambling tax, then National Savings and then overseas investment. The right hon. Member for Enfield, West (Mr. Iain Macleod) obliged the Committee by tendering some advice upon the form of the gambling tax. He modestly explained that the conclusions at which he had arrived were the result of no less than two studies, one a few years ago for one of his right hon. Friends in Government—I was not sure whether the right hon. Gentleman was himself in Government at the time—

Mr. Iain Macleod

indicated assent.

Mr. MacDermot

He was.

The other was a short while ago, since he became shadow Chancellor. I am reminded of Mark Twain's essay on the awful German language, when he explained that some people presumed to write upon a subject which they had not fully and profoundly studied, but that he could not be criticised for that, because he had studied the matter for upwards of no less than six weeks and so he was well qualified to write upon it.

The right hon. Gentleman advanced the proposition that one should always tax the physical assets and not the cash flow. He did not explain why he favoured this principle—whether on grounds of equity, to prevent evasion or for economy of collection.

On the grounds of equity, I should have thought he was plainly wrong. Since, in the end, it is undoubtedly the punter who will pay and since it is the expenditure on gambling which it is thought right to tax, it is surely plain that a tax on stakes is more equitable. This was the method adopted by the Conservative Government in relation to pool betting, in my view rightly, though I concede that there are differences between the position of pool betting and, for example, horse racing, particularly in relation to the restaking of winnings. We carefully considered the suggestion that the tax could be effectively levied on the licence, the shop or the number of telephones, but we did not share his confidence in these either for equity or for the revenue which they would produce.

The right hon. Gentleman criticised the general turnover tax on betting on the grounds that the opportunities for evasion are large. I would repeat my right hon. Friend's assurance that the Customs and Excise are not innocents abroad in this matter and that, unlike the right hon. Gentleman, they advanced beyond the era of Edgar Wallace and Gordon Harker and the fiasco of Winston Churchill's gambling tax. They are confident that they will collect more revenue and collect it more fairly by the method which we propose than by that proposed by the right hon. Gentleman.

With regard to economy of collection, I concede that the method he proposed would have advantages. That is one of the reasons that we have chosen it for gaming, as opposed to betting. I would accept his view that there is a certain lack of sophistication in the graduation of the tax in relation to casinos, but apart from the merits of simplicity, the arguments cut both ways, I thought that his conclusion that the present boundary lines would put a premium on the sleazy type of club was rather far-fetched.

Indeed, the more boundary lines there are, the more casinos there would be falling just the wrong side—from their point of view—of the boundary lines, and, therefore, the more who would be seeking ways to get round it. No doubt we shall have opportunities to discuss this and other matters related to the tax either by day or in the sleazy hours of the night on the Finance Bill.

National Savings was a subject commented on by a number of hon. Members, including the hon. Member for Worcestershire, South. A number of hon. Members have been critical of the performance of National Savings in the past year. As I have said before, the result here, certainly in some respects, was disappointing, but this is perhaps inevitable in a year when, owing to high interest rates, other media of savings were offering more attractive terms. Most people accept that National Savings cannot be juggled with at every whiff of change in other markets.

I hope that hon. Members will now cast off their pessimism and join in helping the National Savings Movement to make an outstanding success of its Jubilee Year. There is certainly solid ground for encouragement.

The National Savings Certificate is, perhaps, one of the best known barometers of the savings climate. The new 12th Issue has got off to an impressive start and has been enthusiastically received by the voluntary workers, as well as by members of the family of the hon. Member for Worcestershire, South. It is worth reminding the Committee of its attractions. It can be purchased for 20s. and pays back 25s. at the end of five years. If held for the full five years, the certificate yields a net return of £4 11s. 3d. per cent. As it is free of tax, this is the same, to the standard rate tax-payer, as £7 15s. 4d. per cent. grossed up, and the maximum holding is £500.

The Premium Savings Bond was also mentioned by my right hon. Friend as a successful means of attracting savings. The Bond is undoubtedly popular. It is a genuine form of savings, with the capital absolutely guaranteed. Net sales last year were higher than ever before.

The National Development Bond has also been referred to. It serves a useful function and has an attraction for a special kind of investor. Including the 2 per cent. tax-free bonus on maturity, the total return if held to maturity is £6 2s. 7d. per cent.

The new tax reserve certificate for companies to meet the problems that have arisen as a result of the introduction of Corporation Tax should restore the competititive advantages of this means of saving. Another new feature which lends encouragement to the National Savings Movement is the introduction, on 20th June next, of the new Post Office Investment Accounts. Trustee savings banks have led the way with this form of saving and have achieved a remarkable degree of success. I take this opportunity to pay tribute not only to their own achievement but to the friendly way in which they have received and welcomed the competition of the Post Office Savings Banks in this sphere.

Like the Prime Minister and myself, the National Savings Movement was born in 1916 and although much has changed in 50 years, I am sure that the Movement is right to take great pride both in its long tradition and in its adaptability to meet the needs of today. The formal inauguration of the 50th Anniversary will be marked by a ceremony in the Guildhall on 19th May, under the Patronage of Her Majesty The Queen, and I know that the Committee will wish the whole Movement every success in its Jubilee Year.

I turn to the question of overseas investment and the voluntary programme. The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) asked whether it was intended to be a temporary measure. I was a little surprised at the question because I felt sure that he must have either heard my right hon. Friend make his Budget speech or would have read my right hon. Friend's statement. My right hon. Friend made it perfectly clear that he was thinking in terms of a year or two. It is, of course, a serious step to introduce any curb on the free flow of capital within the sterling area, even when it is done on a temporary and voluntary basis. But I do not think that this move was wholly unexpected. Some commentators have been expecting an extension of full exchange control to the sterling area.

Let us look at the facts. We are striving to recover from a severe imbalance in our overseas payments and, as my right hon. Friend the Chancellor said, it is still our aim to achieve balance by the end of this year. No one on this side of the Committee seeks to underestimate the importance to this country of overseas investment. But it is not going to help us to get back into balance and to establish a strong £ if we continue to pour out capital overseas which we are not earning by current trade and which has to be financed by borrowing, most of it short-term.

The figures speak for themselves. The net outflow of long-term capital from the United Kingdom in 1965 amounted to £218 million and our deficit on capital and current account combined was £354 million. The total investment in the sterling area in the same year amounted to nearly £200 million.

If we look just at direct investment other than oil in the four developed sterling area countries covered by the new scheme, we see that the average for 1960–64 was £89 million. In 1965 the figure for the four countries was estimated for over £100 million, about two-thirds of it in Australia. Taking portfolio and oil investments into account, our average annual investment in the four countries from 1960 to 1964 was £95 million a year, or about half the total investment in the sterling area. We cannot ignore an outflow of that order. I suggest to hon. Mem- bers that it was inevitable that we should look to this sector for help in dealing with our present balance of payments difficulties.

It has been suggested that for us to ask for restraint is unworthy of a great country. I reject that argument entirely. A somewhat similar programme of voluntary restraint was recently introduced in the United States. In any event, I suggest that it is rather more unworthy to make a habit of investing funds which we have not got.

It has been said that this voluntary programme is a blow at the concept of the sterling area. Quite the contrary. It is in the interests of all sterling area countries, not only the United Kingdom, that our balance of payments should be put on a healthy footing. Obviously the countries concerned will be disappointed if, for a time, we export less capital to them than we have been doing. But they understand our problems very well and they know that it is in their interests that we should solve them.

The right hon. Member for Enfield, West said that the proposals had an unhappy reception in Australia. I am glad to say that the Federal Treasurer of Australia, the country most affected, has expressed understanding of our position in very generous terms. I quote from his speech to the Australia Parliament: Our need for capital being as great as it is, we deeply regret any action by capital-supplying countries to reduce investment in countries like Australia. But we have to be reasonable. The United Kingdom is still carrying a great external burden. We should acknowledge, too, the great contribution which United Kingdom capital has made, and is still making. to the growth of Australia. Again we have, and will continue to have, a great interest in the strength of sterling as a currency and in the stability and progress of the United Kingdom economy as a whole. Another criticism made by the right hon. Gentleman was directed to the criterion of quick, substantial and continuing benefit to the United Kingdom balance of payments. He doubted whether a criterion which required the benefit to equal the cost of the original investment in two or three years was realistic. The hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) said that it was "a nonsense". I refer hon. Members opposite to their right hon. Friends the Members for Wirral (Mr. Selwyn Lloyd) and Barnet (Mr. Maudling), for the criterion we are proposing is similar to the one which the right hon. and learned Member for Wirral applied in 1961 for selecting direct investment projects in the non-sterling area to be financed with official exchange. That criterion worked under the previous Administration from 1961 onwards and then under the present Administration to last July. Experience shows that it is perfectly practicable.

I think there has been some misunderstanding about this test. It is not that a "return" in the form of profits, dividends and interest is required in a three-year period to equal the amount of the investment. It is wrong, therefore, to talk in terms of a requirement for a 33⅓ per cent. "return". What is required is a "benefit" to the United Kingdom balance of payments of this amount and this includes, in addition to the direct return on investment, any consequential receipts across the exchanges such as increased exports, or increased premium remittances on insurance projects. I can assure hon. Members that there has been much investment in the non-sterling area for years past which has satisfied this criterion.

It has been suggested that this scheme discriminates against the sterling area but that is not so. Investments in the non-sterling area are of course subject to exchange control. Those which are approved will still have to be financed with investment currency, which means paying a premium. In addition they will have to satisfy the same criterion of a quick, substantial and continuing benefit to the United Kingdom balance of payments. No such premium will be payable on funds for investment in the sterling area, so there is a preference for investment in the sterling area.

Finally, I say a few words about our general attitude to overseas investment. Exaggerated language has been, and will be, used about what the Government are trying to do. There is no question of "destroying" the overseas position of British business. There is no question of "Little England winning again". No one would deny the contribution to our balance of payments which comes from the income from overseas investments or the close relationship which exists between some overseas investments and pro- motion of exports. One of the objects of the criterion now introduced is to select those investments which need to increase exports or otherwise contribute to the balance of payments in the short term. Other investments may be desirable in themselves, but for the time being we have to ask companies to co-operate in the voluntary programme. We feel confident that they will co-operate and that they will be the first to see that this is the method best suited to the traditions of the sterling area.

The sooner that we can get back into balance and establish a healthy surplus in our trading accounts, the sooner we can relax these controls and move towards the outward looking, competitive economy, welcoming the free flow of goods and the flow of capital round the world."—[OFFICIAL REPORT, 1966; Vol. 727, c. 1761.] about which the hon. Member for Wanstead and Woodford waxed so eloquent in his peroration last night.

In conclusion, the outstanding feature, as I see it, of this debate has been the almost total lack of criticism directed at the general lines of this outstanding and novel Budget. Many hon. Members have criticised detailed points, and particular interests which will be affected by the new tax have already quite rightly been represented by speeches by hon. Members, but there has been very little criticism on the Budget judgment of my right hon. Friend, namely the extent to which in this Budget he is imposing additional taxation and withdrawing purchasing power from circulation. The right hon. Member for Enfield, West suggested at the beginning of his speech that the danger facing the Chancellor was in having a Budget which was too soft. Certainly I have heard no suggestion that the Chancellor ought to be budgeting for a higher surplus than that for which he is budgeting, which is very great indeed.

The criticism of the new taxes has been directed, as my hon. Friend the Member for Cheetham (Mr. Harold Lever) pointed out, at the trees rather than at the wood. No one who has condemned the tax roundly has suggested in which way my right hon. Friend ought preferably to have sought to raise this very large sum in taxation. No one has suggested that it would have been better for him to raise it by way of Income Tax or Purchase Tax or by the other more traditional deflationary means. What my right hon. Friend has done is to devise a new form of tax which imposes taxation in a field which up to now has been escaping the tax burden relatively lightly compared with other sectors.

The criticisms which have been made have chiefly been that the new tax is not selective enough. I say to right hon. and hon. Members opposite that that criticism comes very ill from them. When my right hon. Friend assumed office, among all the formidable difficulties confronting him was the fact that he had been left such an inadequate armoury of instruments with which to deal with the situation. If there is crudity in the form of the tax, this is due in large part to the nature of the weapons which are to hand. It is very much to my right hon. Friend's credit that he succeeded, with the assistance of his right hon. Friends the Ministers of Pensions and National Insurance and of Labour, in devising a workable scheme at all, and no doubt in time it can be further fashioned and improved.

I have dealt with the criticisms of the measures dealing with overseas investment. It is generally recognised that until we get our balance-of-payments situation right we must take adequate steps to control and restrain the level of our over- seas investment. The fact is that once again my right hon. Friend has produced a Budget which is startling in its novelty and which is directed to the real needs of the economy both in the long and in the short run.

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

Committee report Progress; to sit again Tomorrow.