FINANCE BILL

HC Deb 25 May 1966 vol 729 cc476-664

Order for Second Reading read.

4.33 p.m.

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

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

We have now reached the stage when we start to implement my right hon. Friend's Budget proposals, proposals which the House unanimously regards as relevant to the needs of our country, novel in their conception, and challenging to certain habits of thought. I hope that I may be allowed to depart on this occasion from the normal tradition in introducing a Finance Bill, which has been to go through the Clauses one after another, explaining the effect and purpose of each.

So many of the Clauses have already been described in speeches made from this Box earlier and, as the Press has correctly said, there are no surprises in the Bill, nothing that one was not expecting, and very little that is not administrative or has not been already explained. I am sure, therefore, that it will be for the convenience of the House if I deal with those matters which are of new principle, which alter existing taxes or which bring in new taxes.

There are several Clauses which help international trade and exports. Clause 1, for example, makes it easier for exported goods to qualify for relief from duty on their import content. Other Clauses give effect to undertakings which we have given to our partners in E.F.T.A. and concern, among other things, vodka and heavy oils, both of which, I am told, are lubricants, though one has to be careful which one uses for which purpose.

There are many provisions defining with greater precision the position of the taxpayer, but I do not think that they involve any new principles. There are, of course the usual number of provisions relating to avoidance, and I think that I should say a word or two on the general topic of avoidance, particularly having regard to what the hon. Lady the Member for Finchley (Mrs. Thatcher) said during the Budget debate on 5th May. I am glad to see the hon. Lady in her place. During her speech, she is reported to have said: … it is now time to point out that some of the anti-avoidance devices are really anti-confiscatory devices". I do not know whether HANSARD correctly reported the hon. Lady's words because, obviously, she was referring to avoidance devices, not to anti-avoidance devices.

Mrs. Margaret Thatcher (Finchley) Indicated assent.

Mr. Diamond

I am not quite sure which way she actually put it, but I am sure that, if she had thought about it beforehand, she would have said it as I have just amended it.

The hon. Lady went on: 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."—[OFFICIAL REPORT, 5th May, 1966; Vol. 728, c. 1891-2.] At that point, one of my hon. Friends said "Shame", and we on this side, at all events, share that view.

We do not take the view that high marginal levels of taxation on incomes of £200 a week and more, imposed by Parliament after full debate, can justify one section of the population in using the resources available to them to avoid and escape their fair share of the burden which Parliament clearly intended to impose upon them. We would not describe that kind of taxation decided upon by this House after full debate as confiscatory. We would regard a remark in that regard coming from the Opposition Front Bench as wholly irresponsible. [An HON. MEMBER: "What?"] Wholly irresponsible. I am astonished that no right hon. Gentleman who shared the responsibility of government for 13½ years has risen to say anything about it.

What we try to do in this House is to ensure that the will of the House is carried out. If there are any complaints about the kind of taxation imposed, this is the place to debate them. Once a decision is taken, patriotic citizens should pay their taxes and——

Mr. Nigel Birch (Flint, West)

Does the right hon. Gentleman?

Mr. Diamond

Yes—and, moreover, a comment like that must sound odd indeed in the ears of millions of taxpayers who pay their taxes willingly and of those millions who are subject to the most rigorous of all Schedules, Schedule E, who have their taxes deducted under P.A.Y.E., who have no opportunity to reduce their burden, to take advice to see whether it is open to them, or even the means to do so. In those circumstances——

Mr. John Farr (Harborough) rose——

Mr. Diamond

I will give way in a moment.

I want to add a further point about the effect of a high level of tax on high incomes. For those who have high incomes and have to pay taxes it may be that the payment of taxes results in their having to forgo some additional luxury. But, for the ordinary man or woman, payment of taxes may mean that one of their children has to go without a pair of shoes. [HON. MEMBERS: "Oh."] That is the difference. I could have hoped that Parliament would speak with one voice on the responsibility for paying taxes.

Mr. Farr

Would not the right hon. Gentleman agree, however, that it is the confiscatory level of taxation on, for instance, the £200 a week man which is the very reason that we in this country are suffering from the brain drain?

Mr. Diamond

I would not accept any such comment at all. I repeat the simple fact which hon. Members opposite seem to be unable to be aware of, that at all levels of income one can eat only three meals a day.

In the Bill there are three Clauses relating to the new duties. Those are the Clauses which, I imagine, will attract the greatest amount of interest. There are Clauses dealing with the new betting duty, the references to the new investment incentives, and, of course, the Selective Employment Tax. The duties relating to betting and gambling were fully described in principle by my right hon. Friend in his Budget statement. It is clear that he is in the exceptional position of having won universal approval, at all events, for this tax.

I need only draw the attention of the House to two aspects of the control of the new betting duty. First, it will be seen that racecourse authorities may be required to assist the Customs and Excise in administering the duty, and, in particular, to deny access to their courses or tracks to bookmakers who have not complied with the fiscal law applicable to them.

The Customs and Excise for a number of years have had co-operation from the proprietors of dog racing tracks in the administration of existing duties imposed on bookmakers operating on their tracks, duties now to be replaced by the general betting duty. I should like to pay tribute to the proprietors for that help. I am confident that there will be similar co-operation forthcoming from the horse racecourse authorities. Secondly, while we do not wish to sound in any way minatory I mention the provision in Schedule 2(20) for the withdrawal of a betting office licence in the event of a second conviction for an offence.

While bookmakers have assured my right hon. Friend of co-operation in making the new duty work, it would be unrealistic to assume that there will not be some cases of attempted evasion. This stringent penalty is necessary both to protect the reputable bookmakers from unfair competition based on tax evasion and to make it clear and plain to others that such evasion will not be worth while.

As to gaming, there is one relaxation in the scale of duty from the plan already announced. Where bingo and other dutiable games are played on the same premises, it will not be necessary to take out two licences. The higher rates of licence duty will cover the playing of all games, including bingo. There will be other details which perhaps we can usefully discuss in Committee.

Clause 33 of the Bill provides for the abolition of investment allowances and the amendments——

Mr. J. Bruce-Gardyne (South Angus)

Before the right hon. Gentleman leaves the subject of the betting tax, would he not agree that the Chancellor said that the money from the tax was to be used to finance the Government's option mortgage scheme? Why is the tax not financing the mortgage scheme?

Mr. Diamond

The hon. Member is not accurate in what he says about my right hon. Friend's statement. [HON. MEMBERS: "Oh."] My right hon. Friend compared the amount coming from this source and the amount which would be available for another purpose. Every right hon. Gentleman knows that under no circumstances does one hypothecate a particular tax to a particular item of expenditure. It all goes into the same pool. [HON. MEMBERS: "Answer."] My right hon. Friend did not say that and I have answered the hon. Member.

Dame Irene Ward (Tynemouth)

Read it out.

Mr. Diamond

The provisions of Clause 33 are to be read in conjunction with the measures giving the new investment grants described in the Industrial Development Bill, which received its Second Reading last week.

Before I turn to the third of the new taxes, the Selective Employment Tax, perhaps I may say a word about the interrelation of the two taxes. It is sometimes argued that the way to discourage recruitment of labour into the service industries is by providing additional incentives to investment in labour-saving plant and equipment and that we have failed to do this. Conversely, so the argument runs, it cannot be right to encourage the recruitment of labour to manufacturing industries and, at the same time, to provide incentives for the kind of investment which reduces labour requirements.

Both these views are mistaken so far as concerns service industries the imposition of a tax of these quite measurable proportions, and, in particular, the impact of a new and unexpected tax, would be sufficient of itself to encourage the acquisition of labour-saving equipment without a special inducement to investment. In manufacturing industry the need is both for additional labour and plant. It is by increasing the scale of industrial production that we shall get both a greater volume of production and greater efficiency.

I now turn to the Selective Employment Tax, which is the main talking point of the Finance Bill. I wish to deal with some of the principles of the tax and then with the administration, about which there have been one or two grumbles. First, as to the tax itself, may I remind the House, because I think that this has been overlooked in pursuing the argument about service versus manufacturing, that the main reason for introducing the tax was to provide revenue. Every political and economic commentator in the period leading up to the Budget was agreed that there was a need for £200 million to £300 million of extra revenue to provide the necessary element of deflation. I doubt whether there was ever such unanimity in the Press except when the Press told us that Labour would lose the Hull by-election. On this occasion, however, they were clearly right and all have accepted my right hon. Friend's Budget judgment.

One way of raising the equivalent revenue would be to increase the rates of Purchase Tax in the way described when my right hon. Friend gave cogent reasons for not adopting those traditional methods. In particular, he had in mind the need to maintain a high rate of investment and full employment. It is clear that increases in Purchase Tax fall with severity on a limited sector of our manufacturing industries and have damaging effects, such as those on motor car production, for example. My right hon. Friend, therefore, turned to a new indirect tax which provides the necessary revenue—in particular, at the time of year when it is expected to be needed—which avoids depressing employment and investment, which avoids the pitfalls of the stop-go policy of the party opposite and which is widespread in its impact.

Anyone, therefore, who seeks to criticise this tax must first say in the most precise terms exactly what alternative method he would have proposed for raising the necessary revenue and raising it at the right time and in the right way and avoiding stop-go. Any criticism which does not base itself on a positive alternative proposal is completely without validity. The Selective Employment Tax can be used——

Mr. T. L. Iremonger (Ilford, North) rose——

Mr. Diamond

I have given way four times already.

Mr. Iremonger

I am obliged to the right hon. Gentleman for giving way. An alternative should have come from savings, which would have been available if there had been more incentives in the economy. The right hon. Gentleman says that the object of this tax is to raise revenue, but is this really so? Is he not also saying that the object is to deflate the economy, to mop up surplus purchasing power, which is not at all the same thing? The Government could have perfectly well done without the revenue, for they are not spending all that much more and are boasting about their surplus.

Mr. Diamond

I am sure that the hon. Gentleman does not want to make a speech now. Perhaps he will have an opportunity later, when I shall listen with interest. There is very little difference between raising revenue and saying that deflating is the purpose of the Budget. That is the purpose of every Budget nowadays. There is more than a revenue-raising purpose behind the tax. It is a contemporary tax which takes account of contemporary conditions, particularly full employment.

Much of the criticism which I have read has provided the major justification for this aspect of the tax, for it has demonstrated the extent to which employers of all kinds have been stimulated into looking at their employment practices and considering how they should use their labour force more efficiently. It has been most gratifying to note that only a minority of employers appear to be taking the view that they should automatically pass on the whole of the increased cost and that, therefore, there is no need for them to consider the efficient deployment of their labour. Here again, we see further proof of the wisdom of adopting this kind of indirect tax, because if we had instead increased Purchase Tax the general reaction would immediately have been to put up the price of goods by the corresponding amount.

Purchase Tax, because of its nature, has come to be regarded as something which is automatically added on at the end of the bill and paid for by the consumer. It is much more encouraging to greater efficiency to have a tax which, by its very selectivity, makes employers question themselves about their use of the scarcest of our resources—manpower.

Mr. Anthony Royle (Richmond, Surrey) rose——

Mr. Diamond

By providing——

Hon. Members

Give way.

Mr. Diamond

No. I have given way five times now.

Hon. Members

Three.

Mr. Diamond

Moreover, by providing premiums the tax encourages recruitment into manufacturing, and to a certain extent could also encourage the flow of labour from services into manufacturing. That would be all to the good. For too long our fiscal policies have encouraged the flow of labour into services, with the result, as was pointed out by my right hon. Friend the Chancellor of the Exchequer in his Budget speech, that 90 per cent. of the increase of our labour force in the past five years has gone into services and only 10 per cent. into manufacturing.

I say "for too long" because if we as a nation wish to increase our productivity we can most readily do so in the field of manufacturing. The available statistics indicate very clearly——

Mr. Richard Sharples (Sutton and Cheam)

On a point of order, Mr. Speaker. Is it in order even for a Minister to read his speech word for word from a prepared text?

Mr. Speaker

The hon. Gentleman knows that Ministers, like back-benchers, are allowed to make use of copious notes.

Mr. Diamond

I was saying that it is in manufacturing that the increase in productivity is conditioned and limited by the increase in the numbers of employees attracted to it. All the statistics clearly show that this country, in particular, has been limited in its increase in productivity because it has denied manufacturing the necessary increase in the volume of labour. All the international statistics, comparing countries at a similar stage of development, have shown that we are virtually at the bottom of the list as regards the proportionate increase in our labour force in manufacturing.

This has been going on for a long time, and it is high time that we took note of it and tried now to encourage the employment of labour in, and particularly the recruitment of labour into, manufacturing. The tax is fully justified as a revenue raiser, as a wise beginning in broadening the tax base, as a step towards redressing the balance of taxation between services and manufacturing, and as an encouragement to greater efficiency and productivity in manufacturing. In this way we shall grow more competitive in the manufacture of goods for both the home and overseas markets.

A number of hon. Members, on both sides of the House, have questions about the administration of the tax which they would like answered. I thought it right first to describe at some length the various weighty arguments in support of the tax because, although it is easy to criticise detailed points in the proposed administration in isolation, no such criticism has any real validity unless those who criticise offer, at the same time, an alternative tax which would do all the things to which I have referred. We shall be only too happy to listen to suggestions for improving the tax.

Clearly, there could be arguments about its ultimate effects, about the various rates at which it is to be imposed, or on detailed points of administration. We have deliberately delayed finalising all these detailed points until we had an opportunity, which, in fiscal matters——

Mr. A. Royle rose——

Mr. Diamond

—can only arise after the proposals have been published to this House, of discussing with the various interests concerned the best method of achieving our objectives and also of listening to representations by those who are likely to be affected. The administration which we propose must be based on simplicity and the minimum use of additional labour.

This tax is infinitely variable in both rates and area of impact. It can be as sophisticated or complicated as Parliament may desire, but with complexity inevitably goes the engagement of large numbers of civil servants with the necessary skills. We do not think that it would be consonant with the spirit of the tax, or would pay sufficient regard to the shortage of labour, to introduce too many complications. We are, therefore, keeping it simple and, as far as possible, making it capable of being used with existing machinery. For this reason we are compelled to make the tax universal in its application and are adopting other methods, which will be described in more detail when the Ministry of Labour Bill becomes before the House, of dealing with payment of refunds or premiums.

To get a totally new tax launched and accepted it should be capable of being easily grasped and understood. Its out1ine should remain clearly visible, rather than being hidden behind a host of subtle refinements. The logic of all this is that for the time being, at all events until everyone is used to the working of the new tax, we should use the administrative machinery which is available to us and avoid, as far as possible, unnecessary refinements and complexities.

In the light of these principles, we have considered the group of employees comprising the elderly, the part-time and the disabled. The argument which has been put forward is that the Selective Employment Tax will bear disproportionately heavily on these categories, with the result that there will be not merely a transfer of labour, but, in certain cases, a loss of employment. For both economic and social reasons, these questions deserve the most careful and sympathetic consideration. very much doubt, however, whether the tax will have the effect on which the whole of this argument is based.

So long as the policy of full employment is maintained—and this the Government are determined to do—it does not seem that there can be an overall falling-off in the need for workers in these groups. Moreover, we must remember that the tax falls on the employers and not on the employees.

In the case of part-time workers, any scheme for exemption or refund would, by the very nature of the part-time employment, be complicated and open to serious risk of evasion and abuse. Disabled employees—and no category merits more careful consideration—will continue to be covered by the special quota system under which employers with 20 or more workpeople are legally bound by the Disabled Persons Employment Act, 1944, to employ a minimum number of disabled persons—that is to say, 3 per cent. of their labour force. More importantly, it must be remembered that generally they do as good a job as the next man. To suggest otherwise would be to do them a great disservice.

As to the more seriously disabled who may require sheltered employment, the Government, of course, provide this through bodies such as Remploy. For all these reasons, therefore, my right hon. Friend does not feel that it is necessary to take any special steps at the present time—[HORN. MEMBERS: "Shame."]—concerning these three most important categories.

Mr. Nicholas Ridley (Cirencester and Tewkesbury) rose——

Mr. A. Royle rose——

Mr. Diamond

I hope that those two hon. Members, who have been bobbing up and down the whole time and to whom I have given way on many occasions, will have regard to the fact that I have already given way five times—[HON. MEMBERS: "Three."]—that they have been bobbing up and down a dozen times during one paragraph dealing with the same item, and that had they had any responsible interest in wanting to hear about this topic they would have sat down and waited until I got to the end. If they will be good enough to contain themselves until I have got to the end of the paragraph, about which the House is anxious to hear, if the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) is not, I will be glad to give way to his hon. Friend.

Mr. Farr

On a point of order. Is it not the case, Mr. Speaker, that the Minister is making a parody of Parliamentary dialogue by reading so exactly from what is obviously a written statement? I suggest that he not reading from copious notes, but is reading word for word, line by line, a prepared speech which has been put into his hands, properly prepared by Dr. Kaldor.

Mr. Speaker

Order. The hon. Member has been in Parliament long enough to know that what he has raised is not a point of order.

Mr Archie Manuel (Central, Ayrshire)

A schoolboy trick.

Mr. Diamond

It will, perhaps, interest the House to know that I have a number of announcements to make concerning a number of categories in which hon. and right hon. Members, on both sides, have expressed a great deal of interest. In accordance with the normal practice of the House, I propose to read precisely what I have carefully prepared to say about it.

I repeat that for the various reasons which I have given my right hon. Friend does not feel that it is necessary to take any special steps at the present time. In any event, many people will be in employment where the tax is reimbursed or where a premium is paid already. We will, of course, keep their circumstances under review. Given, however, the need to get a simple scheme into operation this year, my right hon. Friend does not feel that there is any need for special arrangements at the present time. I repeat that we shall watch the position closely in case it is found right and possible to give them special treatment under a more refined scheme later.

Mr. A. Royle

I am grateful to the right hon. Gentleman for giving way. Does his decision also exclude the Star and Garter Home, where over 200 disabled men, who were disabled in two world wars, are involved and the tax will cost the hospital over £10,000 a year?

Mr. Diamond

I wish that the hon. Member had waited. I have told him several times that I have a number of announcements to make. He has asked me about a charity. I shall talk about charities presently.

Mr. Paul Dean (Somerset, North)

May I ask the right hon. Gentleman a question concerning the disabled?

Mr. Diamond

I am sure you will forgive me, Mr. Speaker, for saying that we are on Second Reading of the Finance Bill. We shall have a long Committee stage of the Bill and of an associated Bill. I shall be at the service of the House and of the Committee to answer as many questions in as much detail relevant to the various Clauses as hon. Members may require, as has happened in the past. I am sure that this will satisfy the hon. Member.

A related question is the effect of the tax upon disabled employers. The Government recognise that these represent a class which merits particular, sympathetic consideration. It is not possible to exempt them from the Selective Employment Tax itself, but the Government hope to bring forward proposals to deal with the real hardship which might otherwise result.

We have considered the effect of the Selective Employment Tax in relation to various bodies which receive grants from the Exchequer. There are a large number of these bodies and the amount of assistance which they receive varies greatly from case to case. The Government have decided that the effect of the Selective Employment Tax on these bodies should be regarded in just the same way as any other cost increase and, indeed, in exactly the same way as one would regard an increase of indirect taxation.

That means that as a general rule the effect of the tax will be taken into account with all other costs when the level of the grant is next reassessed in the normal course of events. I recognise, however, that there may be exceptional cases where a grant-aided body finds itself itself in financial difficulties before the end of the current period. In these and future cases the Government will consider requests for assistance on their merits. We will, of course, expect the grant-aided bodies concerned to have first made any possible economies in manpower.

I next come to charities. The Government recognise that charities are in a somewhat special, indeed unique, position. My right hon. Friend will be meeting the National Council for Social Services and the Churches Main Committee after Whitsun. He is looking forward to a useful discussion with them. There are, of course, a great number of charities. A fair proportion will not be directly affected by the tax, but there are many who will be faced with serious problems. It is the Government's intention to consider in principle how and in what way they might be recompensed.

Finally, the House will wish to know the Government's decision on two particular industries affected by the Selective Employment Tax. First, extractive industries. The position here is that nine-tenths of all employment in mining and quarrying is under the National Coal Board, which is to get the refund along with the nationalised industries generally. We think that it would be right for the remaining one-tenth in the other extractive industries to be treated in the same way. These include stone and slate, chalk, clay, sand and gravel extractions.

This will also help the construction industry.

In the case of forestry, after discussion with some of the interests concerned we have considered the most appropriate machinery for giving effect to the policy of the White Paper relating to forestry. In the light of the decision to make individual repayments to agriculture and horticulture it has been decided to make similar arrangements for private forestry. Power will, therefore, be taken in the Ministry of Labour Bill for repayment of the tax to be made to private woodland owners through local offices of the Ministry of Agriculture, and the Department of Agriculture for Scotland. Details will be announced in due course.

Sir Harmar Nicholls (Peterborough)

The right hon. Gentleman is puzzling me. At one point he explained, very properly, that before the Budget he could not have more than preliminary discussions to see how the ideas would work, and that the post-Budget period could he used for further discussions. Now he seems to be giving categorical decisions which one would have expected to have been made in Committee on the Bill when, one would have thought, proper consideration could have taken place. Are his decisions on these matters now ruling out any further Amendments we might move in Committee?

Mr. Diamond

I am quite at a loss to know what the hon. Gentleman is complaining about. I am not quite sure whether he is saying "Thank you" or not. He said that I had got him confused. He has certainly got me confused. If he is asking me whether it would be out of order for him to put down Amendments, I can only say, Mr. Speaker, that I wish I could say "Yes", but I am afraid not, and I shall look forward to any Amendments he cares to put down——

Sir Harmar Nicholls

And look at them sympathetically?

Mr. Diamond

—and look at them with the same sympathy as I always do.

Last year my right hon. Friend introduced an important new tax directed towards establishing a greater sense of social justice, to increasing efficiency in production, to lightening the burden on those companies which look more to future growth than immediate high returns. This year we are continuing the process of modernising our tax system. We are creating a new source of revenue, spreading the burden more widely and more evenly, and keeping in the forefront of our minds at all times the need to maintain full employment and a high level of investment.

No one can doubt that the Labour Government, in their fiscal policy, are ever conscious of their social responsibilities, and both imaginative and resourceful in their determination to strengthen our economy.

4.10 p.m.

Mrs. Margaret Thatcher (Finchley)

The Chief Secretary at least chose an unusual method of introducing the Finance Bill, and I must say that seldom have I heard a speech to lead me with more pleasure into the "No" Lobby at the end of the debate.

The Chief Secretary described the new tax as "modernising" the tax system. Some modernising! If he had read his own professional journal last week he would have discovered that this tax was first introduced in 1777, when it was a tax upon servants, and that, ironically enough, in 1873 it was abolished with respect to hotel employees—only to be reimposed less than 100 years later. He made a number of announcements and he made noises of sympathy which extended only to the sermon part of his speech and not to the announcement of practical points of policy. It was extremely disappointing. He quoted conclusions from a number of international statistics, with most of which I could not agree in any way. I have always been taught to be very careful about comparing international statistics, and I gratuitously pass on the advice to the Chief Secretary.

I now come to the main part of his thesis, which was the Selective Employment Tax. This is, of course, entirely the core of the Budget. The Chancellor has chosen to make it the core of the Budget, and I believe that it has left him with very little manœuvring space to deal, as he should, with cases on their merits when they are presented to him from all parts of the House, as I am sure they will be. This is his choice. It is our job to criticise the measures which he puts forward in his Bill and not to attempt to impose another Finance Bill; that is not our task. We dislike this Bill. The Chancellor has never show himself inhibited from introducing a Budget at any time of the year other than that traditional for a Budget, and indeed it may be that we shall have another Budget before the end of this year.

We dislike intensely the method he has chosen for implementing his proposals and also we dislike not being in a position even now of knowing the full implications of the tax. Indeed, almost every word the Chief Secretary said made it clear that he is not ready to bring in this tax. It should be delayed till next year—at least till his proposals have been sorted out. We are in a difficult position in putting forward Amendments to this Bill without knowing what the next Bill will contain, and we are in a difficulty because of the terms of the Money Resolution to the Bill.

Now, as to the tax itself. Seldom has a tax caused such an upheaval and such widespread dismay. From all sides there have been criticisms of it; indeed, from all sides criticisms have been sent to the Chancellor, and it is those criticisms which have led the Chief Secretary to make some of the noises of sympathy he has made today. There are certain criticisms which go to the root of the tax and certain criticisms which lead to mitigating its effect in relation to certain groups of people. I shall try to deal, first, with those which go to the root of the tax.

The White Paper says that one of the objects of the tax was to redress the balance between services and manufacturing, because services have been lightly taxed as compared with manufactured products. In fact, however, services have often borne the brunt of indirect taxes on commodities; they have borne the brunt of petrol tax, and they have borne the brunt of Purchase Tax. Indeed, in the days when we used to have Budgets which reduced Purchase Tax—those days, of course, are long since gone—those Budgets caused shopkeepers a good deal of trouble because they lost a lot of money through Purchase Tax having financed the holding of goods which were liable to that tax. But there are certain other services which have borne a lesser proportion of taxes. These are the services which the Chancellor is proposing to tax now. They are not luxury services. They are the essential and vital services. They are food, housing, clothing, insurance—and, therefore, saving—financing, and all the specialist services, including research.

This is a widespread tax. It is widespread tax upon essential and vital services. If its object is to take money out of the consumer's pocket—that is to reduce demand—it will only work through rising prices I thought I heard the Chief Secretary say that he thought that most industries would absorb the tax. If they do, the absorption will come from money which would otherwise have gone in savings and into modernising. It would seem, therefore, to be a backward step and not a forward step. The psychology of the Budget has not been lost upon the country. I think it will work only by price rises, but if prices do rise the Chancellor has arranged his Budget in such a way that he can blame someone else for the rises. This, of course, is a frequent occurrence with the present Government, for they are always ready to pass on the blame to somebody else while ready to take credit for the things which go right.

The second objection, which goes to the root of the tax, is that it will hit export earners very badly indeed. I mentioned in my earlier speech on the Budget the special case of export houses and other export services. These services already suffer compared with manufacturing industry, because at least exports which attract tax get the drawback of tax. At least if one exports manufactured goods one gets an export rebate. Export services get no such rebate and are, therefore, in a bad position compared with manufacturing, and in this case if there is a balance to redress it will go to services. It will hit the hotel and catering trades very badly, and I understand that tourism is our fourth biggest dollar earner.

It will also hit insurance and finance. The whole trend of financing exports recently has been to have a series of measures which will make it easier and easier to get finance and enable manufacturers to sell to people who cannot pay immediately. Yet these very finance houses will be the ones to be penalised in the Budget. They are the ones who are enabling some of the manufacturers to do the exporting. That is a very serious objection to the tax.

I noted that the Chief Secretary said, or I thought that he did, that the tax was infinitely variable in its impact and in its area. In that case, he can do a lot of the things which later in his speech he refused to do, and we shall make certain that we table Amendments which I hope we shall be successful in moving in order to put some of the things right.

The next objection which goes to the root of the tax is the completely artificial classification between manufacturing and services. In so far as one manages to export products—and this is a vital part of the whole Budget strategy—it is a matter of teamwork between all sides of industry. It is no use being able to produce the goods if one cannot distrib ute, finance and sell them.

Numerous Questions have been put to various Departments of Government to try to elucidate in more detail the exact classification. So far, they have been unsuccessful. Only last Monday there was an Answer from the Minister of Labour about the precise classification of head offices which said that the hon. Member must await the publication of the Bill. That means that we cannot discuss in detail the precise effect of the tax upon even manufacturing industry, not knowing the exact definition of "manufacturing industry." We should have had the other Bill long before we had to discuss the Second Reading of this Bill. But the essential point is that the whole of exporting is really part of one process, and it is quite artificial to try to divide it between the manufacturing and service industries.

There is one further objectionable aspect of the tax, and I refer to the financing of it. In the Budget debate, the Chancellor said: It is true that manufacturers… will have to wait for the premiums for which they are eligible. I have not over-looked this, and, against the background of the general credit restraint which it is necessary to maintain, I shall be considering what steps may be needed to enable the banks to respond to temporary needs for credit in such cases."—[OFFICIAL REPORT, 3rd May, 1966; Vol. 728, c. 1457.] Three weeks have passed. I hope that the Chancellor has considered and will tell the House when he winds up what his decision is and how far he is going to allow the banks to relax their credit restrictions and lend money to enable manufacturers and others to meet their very considerable obligations under the tax.

We believe that it is quite wrong to force everyone to borrow at 7 or 7½ per cent. in order to give an interest-free loan to the Government. We shall table Amendments designed so that the impact of the tax does not come until the end of the financial year when the mechanism for repayment of premiums should be ready. I say "should" because for most taxes it would be an insult to call them half-baked. With this tax in its present state, it would be a compliment.

The Chief Secretary, like all hon. Members, is worried about the administration of the tax. He will agree that I have some idea of the National Insurance administration, and I do not accept for a moment that it is necessary to collect the tax in respect of every single person. National Insurance is an excellent system of administration. There are already some 35 different insurance stamps and some 60 different rates of National Insurance contributions. That is a considerable number of permutations and combinations, and if given a reasonable amount of time to administer the tax properly—and no tax should be introduced before it is capable of being administered properly—it will not be necessary to take in the tax in respect of every single employed person. The Ministry could deal with it in a much better way by taking in the tax only from those whom it is desired to make liable to it.

Apart from those objections which go right to the root of the tax, there are a number which could be used to mitigate the effect of it. During the course of the Bill and of the Ministry of Labour Bill later, we shall table many Amendments to mitigate the effect of the tax on people who are deserving cases.

I anticipate that we shall get back to the days of Government majorities of the kind that we had under the previous Governments, when back bench Members spoke to Amendments on merit and even voted on merit. I anticipate that we shall be joined on this side on the occasion of this Finance Bill, unlike the last one, by many hon. Members opposite, because a lot of these Amendments are not party political matters at all. I imagine that the Chancellor's own back benchers will be just as annoyed with him as we shall be if he does not give in.

The Chief Secretary referred to some of the cases. I was very disappointed in what he had to say about charities. By a decision taken in principle many years ago, charities have always been exempt from direct taxes and direct rates have been mitigated. There is no new decision to take here. It is one which is as old as the hills. Charities are exempt from the effect of direct taxation, and that is a principle from which the Chancellor should start now. He should build the tax around that, so far as it relates to charities.

Most hon. Members have had a large number of letters from charities in their constituencies and all over the country about the effect of the tax upon them. I want to refer to one in particular which came from the charity called "Help the Aged". It put the point most cogently: The point we feel the Chancellor may not have appreciated is that he is not taxing those who are running charities such as 'Help the Aged', but is taking money from those in need. That is the essential point. In so far as he is taxing charities, he is not taxing something rather cold and abstract. He is taking money directly from those whom the charity is designed to help.

The point was cogently put again in a letter published in The Times on 20th May, 1966: We have just had a house-to-house collection for the Red Cross which has realised £3 10s. Od. It is gratifying to know that this sum will pay the employment tax for an ambulance driver and one assistant for one week and leave 20 shillings to run the ambulance and equip it with essential medical supplies. These cases speak for themselves. It is not a question of whether charities can be exempted from the tax; they must be exempted from the tax. We hope that the Chancellor will change his mind and announce that they will be exempt when he replies to the debate.

Employees of all religious bodies should also be exempt from the tax. I have had representations from all kinds of religious bodies—from the Church of England, the Free Church and the synagogues —and I should have thought that that again would have gone without argument.

I come to another aspect about which we feel strongly. We feel that employees of educational establishments should be exempted from the tax. There are half a million children educated in independent schools. I understand that the tax would cost some £6.9 million. If they were all to close down there would be educational chaos. We think that the fiscal instrument should not be used to give vent to any political feelings that hon. Members opposite may have about independent schools. I come to a different category of employees—employees of nursing and convalescent homes, private hospitals and old people's homes. Not all are registered charities. Most of them, in fact, save a far greater liability from falling on the State. It would be far better for the State to do a little to help them, or at least to refrain from penalising them, than to take over all the buildings and obligations. These organisations should be free from the tax.

The Chief Secretary referred to the employees of disabled persons who require whole or part-time help. He suggested that he would have some proposals to make, but he did not say what those proposals were. This is another example of the way in which the tax has not been thought out. The Chancellor has several hours between now and winding up the debate to find out what these proposals are. I hope that he will tell us exactly what he proposes to do to help those disabled who have to employ people to look after them.

Another group of employees of organisations which we shall endeavour to help are those who work for organisations for the promotion or study of science, literature and the arts. It took us on this side of the House many years to exempt the theatre from Entertainments Duty. This Budget is a reverse step; it is, in effect, putting an entertainments tax on the theatre once again.

For all those categories which I have mentioned we shall table Amendments, and I hope that we shall be successful in moving them. It would be even more helpful to the passage of the Finance Bill if the Chancellor were to give in to some of them at the outset. They all speak for themselves, and I hope that he will consider them very carefully.

Another aspect of the same group of Amendments concerns other employees who certainly should be excluded. The Chief Secretary referred to these—the part-time workers. It is inequitable that part time for this purpose should be defined as eight hours a week merely because the tax comes under the National Insurance Act. Why should it not be 20 to 21 hours a week as under the Redundancy Payments Act? I am delighted to note that I appear to have some support in this matter from hon. Members opposite. If that were done it would make a very considerable difference to the incidence of the tax, and it would help those in the retail trade who have to rely on this part-time labour to a considerable extent. It would also help a number of the old folk, many of whom do not work for more than about 20 hours a week but for whom it is most important that they should be able to continue work and that work should be available for them.

The Chief Secretary referred to disabled employees. I hope that they will be excluded from the incidence of the tax, because it would be a great incentive to employers to employ more than the minimum quota if disabled workers were excluded from the operation of the tax. I hope that the Chancellor will consider the problems of the handicapped and disabled people and will agree that these people, too, should be exempt.

We shall also table Amendments designed to raise the absurdities of a tax which treats farming, horticulture, forestry, tourism, catering, hotels and the construction industry differently from some of the manufacturing industries. This matter will arise to some extent on this Bill and to some exent on a later Bill, but we should have discussions on this Bill about the classifications.

The Chief Secretary referred to certain aspects of the Selective Employment Tax. First, he mentioned the appeal procedure. II is obvious that if we are to impose a tax which falls on employed but not on self-employed, there will be a number of questions for determination as to classification. Under the National Insurance Act at present—and I assume that this will apply in this case—such questions are for the determination of the Minister.

It is rather strange that the Minister of National Insurance should have jurisdiction to determine what are essentially taxation matters. We shall have to look very carefully at whether a proper appeal procedure is provided for this tax. Under certain circumstances the Minister can refer the matter to the courts, but we are here dealing with a tax, and it is wrong to have the National Insurance appeals machinery applying to this tax.

Very few people have referred to a fact which struck me the moment the Chancellor announced the tax—that it is a staggeringly high impost, for 25s., or 25 bob-a-nob, as one of the newspapers put it, is very high indeed. When I think how carefully we used to consider the question of raising National Insurance contributions and how we were always wary of raising them as by as much as 3s. a week for the employer, I realise just how high this tax is; and the higher it is the more important it will be to get the appeal procedure right.

Any new tax should be thoroughly considered before being presented to the House—not afterwards but before. The requisite decisions have not been taken, and the House will have to do the work of the Executive throughout the Finance Bill by making essential decisions on policy.

Mr. William Hamilton (Fife, West)

The hon. Lady has suggested certain exemptions from the tax. Some of us might agree about some of them. Has she, or has her right hon. Friend, made any attempt to estimate what the loss to the Revenue would be from those exemptions? Has she any suggestion as to an alternative source of that revenue?

Mrs. Thatcher

It is difficult to assess the loss to the Revenue when it is so difficult to assess the yield of the tax. The Chancellor pointed out that with a new tax it is very difficult to assess the yield. When he cannot even decide what is a manufacturing establishment and what is not, it is even more difficult.

I come to what the Chancellor called his general Budget judgment in relation to this tax. There have been a number of views about the general Budget judgment in relation to this tax. I recognise at the outset that it is a very difficult year in which to make a general Bugetary judgment. There is the unknown effect of the imports surcharge being taken off at the end of November. We do not know whether quotas or licensing will be imposed a couple of days before the imports surcharge is due to come off. We cannot get an undertaking from the President of the Board of Trade on this point. We do not know the effect of the present strike on exports and imports. We do not know how far the terms of trade will continue to turn against us or how far copper prices will rise, although we know that they almost certainly will rise. We do not know the cost of sanctions against Rhodesia. All this makes it a very difficult year. I accept that at the outset. But even accepting that, in relation to the tax itself the judgment is by no means clear cut.

The Economist, too, shares this view. The Chancellor put his estimate of the deflationary effect of this tax at £315 million. But the Economist points out that he will have to return a part of that in the quarter beginning in the next fiscal year. Other commentators have put the deflationary effect of this tax this year at only £135 million, which is the amount of net non-returnable receipts this year. Others have said that the effect of the tax is deflationary by some £240 million a year because that is what it would do in a full year. This is a very wide discrepancy, and if it is as wide as this I doubt very much whether I am under any obligation to propose alternative sources of taxation.

Moreover, even since the Chancellor framed his Budget there have been a number of other Measures agreed to which will require many Supplementary Estimates to be placed before the House. Indeed, the Chancellor must have begun to feel that the economy is in very much better shape now to give his approval to the Measure which was brought before the House yesterday and which required another £65 million of expenditure. The Chancellor shakes his head. Perhaps the economy is not in very much better shape after all. Undoubtedly he will tell us tonight.

It may be that there is an alternative explanation—what we know as the "lump it" explanation, which was referred to at the Dispatch Box by the former Chancellor of the Duchy of Lancaster on one occasion, when he said that the Government would do what they liked about the social services and if the international financiers did not like it they could lump it. Perhaps the right hon. Gentleman will give us the true explanation.

I now turn to certain other specific taxes mentioned in the Budget. The Chief Secretary has given us a number of details about these taxes. The Second Reading of the Finance Bill is not the place to discuss them in detail, but there are a few comments that I should like to make. Everything that we said last year about the complexities of the Capital Gains Tax has been abundantly borne out in fact and can be substantiated by those whose duty it is to try to operate this tax, whether inside or outside the Inland Revenue. I do not know who is complaining most.

Even the Chief Secretary will have noted that there was a meeting of accountants last week at which their grumbles were very vociferous and entirely warranted. This tax will probably go down in history as the tax which had the highest cost of collection in proportion to its yield. In some cases the requisite calculations are impossible to make even when presented to the Treasury. My hon. Friend the Member for Belfast, North (Mr. Stratton Mills), on 8th March, 1966, asked the Chancellor of the Exchequer: what was the original cost to the Treasury of the £316 million of dollar securities recently sold? That would be a standard calculation if we were having to do it for Capital Gains Tax purposes, and one would have expected the Treasury to be able to provide an answer. Not a bit of it; the reply was: Their current value is, as I stated, £316 million. That was very helpful. That was what the Question was about. The answer went on: Changes in the composition of the portfolio over time make it impossible to calculate the original cost of these securities."—[OFFICIAL REPORT, 8th March, 1966; Vol. 725, c. 460.] It is extraordinary how the Treasury and the Inland Revenue expect taxpayers to do what they themselves cannot do.

The Bill provides some specific reliefs from Capital Gains Tax, and we shall table Amendments to these. There is one point to which I want to refer now. In the Bill the Chancellor has allowed to life assurance funds the same Capital Gains Tax level as we wrested from him in the middle of one night in respect of investment trust funds last year. But this rate is too high for life assurance funds. These funds are mostly held by people who would not be liable to the maximum Capital Gains Tax rate and who, if they were individuals, would be able to choose the alternative basis of assessment.

It is quite unfair that these individuals should be penalised because they hold their savings in life assurance funds rather than individually. This is specially important now that the majority of savings are done through life assurance companies. There are also special reasons why life assurance companies warrant more relief than they will at present obtain in respect of dividends paid oat of pre-1966-67 profits. They are reasons which do not apply to ordinary companies but do apply to life assurance companies, and we shall have something to say about this matter when the time comes.

I now come to a further small but important necessary relief from some specific taxation proposals. I refer to the adverse effect of bunching dividends on age relief, where a person over 65 years of age receives age relief if his investment income does not exceed £900 during the fiscal year. It may be that the bunching of dividends takes his or her income well above that amount, and I would have thought that this was a case where specific reliefs should be provided to take this into account, so that these people are not penalised.

In my last speech on the Budget I devoted a section to what might be entitled "Women and Children Last". I shall confine my remarks now to the elect of the Budget on married women, and the way in which I think the taxation erect may be alleviated. The difficulty is that what the Government preach and what they practise are two entirely different things. There is nothing unusual about that with this Government, but there must come a time when the process comes to an end. The National Plan, on page 38, in paragraphs 11 and 12, says: Further consideration will then be given to ways of making it easier for those married women who wish to do so to take paid employment. The National Plan is attempting to make it easier. Part of the debate on the Gracious Speech was devoted to Ministry of Labour matters and this theme came up again. But as soon as we had an assurance on the matter along came the Chancellor with his fiscal measures, which make it infinitely more difficult. It would be so much easier if the two Departments worked together and pulled in the same direction instead of opposite ones.

There are three fiscal ways in which the Chancellor could encourage married women to return to work. Here I should declare an interest. I am at work—at least I hope that the Chancellor considers that replying to his Budget is being at work. First, tax relief could be given for domestic help, without which a married woman cannot contemplate going back to work. There is a legal decision which prevents any expenditure on domestic help from ranking for relief from tax. It is about time we reversed that decision and made special statutory provision.

A second way would be to provide that the first £1,000 of a wife's earnings—because many of the women whom we want back are highly trained, and it has cost the State a lot of money to train them, and they can command high salaries—should not count for Surtax purposes.

A third possibility would be a considerable extension of the point of earned income relief. Whichever way the Chancellor wishes to do this, the essential point is as The Times put it the other day in a short piece of doggerel, that Working wives ought to be Left with a lot more £ s. d. I hope that that message is not lost on the Chancellor.

The idea has been floated about that the taxes in the Budget could one day be used to raise revenue in place of Income Tax. It is important to get one fact clear. This tax is not in substitution for any other tax; it is in addition to taxes which are already severe. This is a bad tax, and for that reason we shall vote against it tonight.

4.47 p.m.

Mr. Roy Hughes (Newport)

I welcome my first opportunity to address the House, and, in passing, I express my thanks to the people of Newport who sent me here. From time to time there is controversy on the question whether my constituency lies in England or Wales. In view of the fact that maiden speeches tend to be non-controversial it may be appropriate if I describe Newport as being situated in the ancient Kingdom of Gwent. What is beyond dispute is the fact that Newport possesses the premier Rugby team in Wales, despite any reservations my right hon. Friend the Chancellor may have on the subject.

On a personal note, I recall a train journey that I made a few weeks ago. I entered a compartment which was occupied by an hon. Lady who sits on the benches opposite. After we had exchanged the usual pleasantries, she said, "Are you a lecturer?" I said, "Oh, no, I am one of those dreadful trade unionists." Needless to say, after that we had a most interesting conversation.

The right hon. and learned Gentleman who preceded me as Member for Newport, Sir Frank Soskice, played a most distinguished part in the affairs of the House. I am very privileged indeed to succeed him. He was popular in the constituency and most kind to me personally. I know that hon. Members on both sides will join me in congratulating him upon his recent honour and will welcome him back to Westminster in another place.

Hon. Members

Hear, hear.

Mr. Hughes

Fundamentally, Newport is known for its dock facilities. It grew up as a port when millions of tons of coal were being exported to many parts of the world. Nowadays, the industrial pattern and organisation of the area has considerably changed and my constituency tends to be increasingly reliant on the steel industry. It imports vast quantities of iron ore: although this is a valuable traffic, it would seem to be tempting fate to rely so exclusively on this one form of trade. We need a wide diversity of traffic so as to ensure the future prosperity of the area.

At the moment, we are anxiously awaiting the decision of the Minister of Transport on the future organisation and development of dock facilities in the Bristol Channel. In view of the tragic past industrial history of South Wales, any decision by the Minister to by-pass the area will bring back many old fears and anxieties.

The Government propose in the next few years to carry out a major reorganisation of the steel industry. I welcome this. On the border of my constituency lies the great steel plant of Llanwern. I believe that there is a need for a further major extension of the plant to spread its overheads and make it a more viable economic unit. When considering their reorganisation plan, I am sure that the Government will bear this suggestion in mind.

This is the Second Reading of the Finance Bill. One of its fascinating features is not what it contains, but rather what it does not contain. Before the Budget, the pundits were confidently predicting stiff taxation in the traditional pattern, but they were proved wrong. It is not proposed to increase Purchase Tax, car licences, beer or tobacco duties. Instead, one of its principal provisions is the Selective Employment Tax, which I welcome, though bearing in mind that it contains a number of anomalies which need to be ironed out. It is, however, a new way of raising taxes and a means of tilting the balance of the economy towards greater productivity. After all, the primary issue is how can we earn our living as a nation. In this sense, the new tax is a step in the right direction.

I also welcome the recent proposals of the Prime Minister for increasing productivity. To me, the real problem all along has not been that wages are too high, but that productivity is too low. There has been a tendency for many firms to rely on out-dated methods, failing to modernise simply because labour has been too cheap. Sir Maurice Laing, the President of the Confederation of British Industry, subscribes to the view that our basic economic difficulties stem from a lack of efficient use of manpower.

Speaking in London on 18th May this year at the annual meeting of the newly formed association of employers' and manufacturers' organisations, he is quoted as saying: Until we permanently solve the problem of using our manpower with the maximum practical degree of efficiency we shall stagger from balance of payments crisis to crisis. Compared with our principal trading rivals—Western Germany, France and Japan, wages in this country have not risen more. If, however, output per man hour had risen as much in this country as it has in Western Germany and Japan, our exports would be much more competitive in the world's markets. Is it a coincidence that in these countries, where hourly rates have risen most, output per man hour has also risen most?

I have always had the highest regard for the British worker, from the point of view both of skill and of effort put into a job. As I see it, the increased productivity which the nation so badly needs can come only from increased capital investment in industry. In other words, it will come by putting more horsepower at the elbow of the worker so that more can be produced with less effort.

In one of his more philosophical moods, the Minister of Labour has described the period in which we live as the "age of grab". He is also reliably reported as having come to the conclusion that the principal difficulty in industry is that of overtime working. Many of us have realised for some time that some employers rely on overtime as a form of temporary wage increase. When the order books are full, plenty of overtime is available, but when there is a slackening off in orders, overtime is cut to a bare minimum and, correspondingly, wage costs are, too.

I do not wish to place all the blame in this respect on the employers, however. Many work people are heavily in debt with mortgage repayments and payments on cars, televisions, washing machines and refrigerators. Far be it from me to deny ordinary people these useful amenities and labour-saving devices, but in many cases these articles are not being paid for through higher wages and increased productivity, but through systematic overtime working.

During the last 25 years, hours of work have hardly been reduced because industry has been organised in such a way that ordinary families cannot obtain a decent standard of living on a 40-hour week. There is a fundamental need for change and a reawakening in industry. It is the manufacturing sector of our economy on which we must concentrate and which we must make more efficient.

The principal provisions in the Bill and recent utterances of Government spokesmen gives me cause for hope that, at last, more emphasis is being placed upon increased productivity, to be obtained through a more efficient organisation of industry, and less on the more negative aspects of wage restraint. I trust that this trend will continue.

5.0 p.m.

Mrs. Jill Knight (Birmingham, Edgbaston)

Throughout the length and breadth of this land there exist some strange, and even primitive, customs by which newcomers are initiated into a new life. For instance, I believe that those adopting the cooper's trade are incarcerated in a barrel and rolled around a yard. I know of a school where the custom is to rub a certain white berry which, fortuitously or not, appears on the bushes at the start of the new school year, into the hair of the poor unfortunates commencing as new pupils.

However, such is the gentleness of the House to its fledglings that I take courage from the certainty that I am in no danger today from barrels or berries. The only ordeal is inflicted from within by one's own nervous reflexes.

I understand that it is customary on these occasions for new Members to speak of their constituencies and their predecessors. I do this with justifiable pleasure and pride. Dame Edith Pitt was a very great lady. When I came here I very quickly discovered the depth of affection and respect that existed for her in all quarters of the House. The whole object of her life was service; and serve she did—her constituents, her country, and her party, with utter devotion and loyalty. Hon. Members will perhaps recognise that in choosing another woman the Edgbaston constituency was quite deliberately paying an important tribute to Dame Edith, for this is the first time a woman of the same party has ever succeeded a woman to a Parliamentary seat.

What a seat it is. Edgbaston goes back in history to Anglo-Saxon times, although I have no intention of tracing it all the way there this afternoon. Just over 100 years ago a great deal of it was laid out on pleasant, spacious lines, and I recommend those who believe that Birmingham is nothing but factory chimneys to visit my green and pleasant constituency. Here they will find the judges' lodgings, some very beautiful botanical gardens, a silver sweep of reservoir, a famous hospital, an important university, many excellent schools, a high-powered chamber of commerce, and a world-famous cricket ground. I am very proud to represent the Edgbaston constituency.

Now to the Bill. I wish, first, to speak on Clause 42. I listened with very great anxiousness to what the Chief Secretary said about the Selective Employment Tax and I was, like my hon. Friend the Member for Finchley (Mrs. Thatcher), very bitterly disappointed that he was not more forthcoming with regard to charities. Perhaps I am over-optimistic, but I seemed to detect that there was a slight glimmer of hope and that at least the doors were not quite closed. If this is so, may I warmly recommend the right hon. Gentleman to yield to whatever impulses he may have to be more generous towards charities, because there certainly is every reason to be so.

The Chancellor of the Exchequer has already told the House that the cost to the larger charitable institutions will be of the order of £2 million. For thousands of smaller charities, there is as yet no estimate, but we know, for instance, that Oxfam will be poorer by £10,800. The Royal School for Deaf Children—I have one in my constituency—must find £2,800. The Church of England Children's Society will lose £23,000. The National Society for the Prevention of Cruelty to Children will have to find no less than £30,000.

There is an almost endless catalogue, and I have no doubt that some charities will be forced out of existence, unless something is done to alleviate the impact of this tax, because, although the British public is as generous as any public anywhere, I point out that it gives deliberately to certain causes. People will not give to the State, which they suspect is already taking more than a fair share from them in rates and taxes. I am sorry if this distresses the right hon.

Gentleman, but I must tell him that, while the man in the street will buy a flag for charity, he will not buy one for the Chancellor of the Exchequer.

State and local authority welfare services will certainly become less efficient. Speaking as one who has been engaged for some years in the practical application of these services, I can tell the House that these, by themselves, are not capable of meeting all needs. Without the aid of voluntary helpers administered by such bodies as my own Birmingham Council of Social Services, they cannot manage. There are the W.V.S. ladies, for instance, who carry out the meals on wheels service. There are the case workers and voluntary helpers who work in hospitals or with problem families. The Birmingham Council of Social Services says that it simply cannot afford to absorb the extra charge, which, I understand, will be in the region of about £1,000 a year.

Children committees are often very glad indeed to place some of the children they have in care to a voluntary children's home. For one thing, these homes are very much cheaper than those run by local authorities. For another thing, particularly difficult cases, not perhaps acceptable to local authority homes, can often be accommodated in voluntary homes. This is because devoted workers put in hours of service for reward which is not only monetary.

Ministries, too, ask the Y.M.C.A. to run hostels. How can such work be extended if this organisation, which I remind the House is one of the oldest of the recognised voluntary organisations, has to sustain an employment tax at about £124,000 a year? It seems to be neither wise nor just that voluntary bodies, already stretched to the limit of their resources, and using the maximum voluntary help for the minimum of paid staff, should be penalised.

The Government must surely by now also be aware of the blow that the Selective Employment Tax is to music and the arts. For a country which is aiming at raising its standards of taste, I find it astonishing that the Government should smile upon juke box manufacturers and tax the philharmonic orchestras, should fine the museums and art galleries and yet give a subsidy for the manufacture of plastic gnomes.

Perhaps the most incredible thing about all this is the army of extra civil servants needed to perform the complicated fiscal minuet of taking more than is needed and giving back more than is taken. The cost of this danse macabre will mop up a goodly portion of the money bled from charitable institutions.

The gyrations of this strange dance are certainly very extensive. The Arts Council gets a grant from the Government amounting to £1,250,000; but the theatres, the orchestras and the ballet will have to pay almost the same sum back to the Exchequer. Local authorities give rate rebates to charities, but the Selective Employment Tax takes it away again.

I am also deeply concerned about part-time workers. I am not really happy about what the Chief Secretary said, in his optimistic tone, about these women. Some are women, fitting in a job they can manage while their children are at school. Some are old-age pensioners. Some are disabled. It simply is not good enough to say that it does not matter, that these people will not be sacked, because it is the employer who pays the tax. With the employer paying just the same tax for them as for full-time workers, there is no doubt but that they will tend to become redundant. It is no use telling them that they must get a full-time job in a manufacturing industry. I hey will not, because they cannot.

Another question disturbs me very much. Some enlightened health authorities set up sheltered workshops for handicapped people. Strictly speaking, I understand that this is not a "service" as listed in the explanatory leaflet about fie Selective Employment Tax. These people are frequently mentally handicapped people and they do contract work for local factories. They also do a great deal on the service side. For instance, some of them do laundry work. Are these workshops to be penalised? Undoubtedly, the tax will add enormously to their running costs. Whether a local authority will bear it and then have the money paid back again in another of these costly monetary manoeuvres so beloved of the Chancellor, I do not know.

I understand that already warning signs are appearing to the effect that even tax officials are of the opinion that the complexities of measures passed by the Chancellor are becoming too much to comprehend. It would seem that those drafting fiscal legislation either cannot or will not speak plain English. For example, I draw attention to Clause 38(3), which literally defies elucidation. It states: For the purposes of this section an interest including an interest limited to cease on death shall be treated as two separate interests one of which is the interest limited to cease on death, and an interest shall he regarded as one including an interest limited to cease on death if it is an interest under more than one title and one title is to an interest limited to cease on death, or if it is an interest which cannot terminate before the death, or which in certain contingencies not related to the death cannot terminate before the death. I tried out that subsection on three lawyers. Two of them said frankly that they could not make head or tail of it. The third said that he might be able to do something with it if I left it with him over the weekend. Is it not possible for Bills to be couched in phrases which are comprehensible to the hon. Members who pass them?

Since coming here I have reached the conclusion that, if brevity is the soul of wit, there are too few witty souls in this place. Wit may desert one, the opportunity for brevity never. I now take it.

5.12 p.m.

Mr. William Hamling (Woolwich, West)

I am fortunate to have the opportunity to follow two very fine maiden speeches. The first was made by my hon. Friend the Member for Newport (Mr. Roy Hughes), who comes here with a typical South Wales accent and reminds one of so many of our old friends. He speaks with the authentic tones of the old South Wales trade unionist.

It is particularly pleasant to be reminded of his predecessor, Sir Frank Soskice, whom so many of us have known for so very many years and have admired, respected and loved. Perhaps the Newport Rugby team is not the best there is—there are one or two others, like Waterloo and Liverpool—but we welcome my hon. Friend to the House and congratulate him on having made his maiden speech.

It also falls to me to compliment the hon. Lady the Member for Birmingham, Edgbaston (Mrs. Knight) on her very charming maiden speech. The hon. Lady is a pleasant addition to the benches opposite. One could wish for a few more like her and perhaps a few less of the others. She made what I would call a typically West Woolwich noncontroversial speech, because she clouted my right hon. Friend the Chancellor with everything she had but did it so nicely that he could not possibly be offended. The hon. Lady's speech warned him and other members of the Treasury Bench that in future there will be on the Opposition benches a very good ally for the hon. Lady the Member for Finchley (Mrs. Thatcher), who is a formidable debater indeed. I often wonder what would happen if Cassius Clay had to fight someone like the hon. Member for Finchley. He would certainly lose.

It is also pleasant to be reminded of Dame Edith Pitt, the predecessor of the hon. Member for Birmingham, Edgbaston, whom we all admired and respected. I had a special affection for Dame Edith, because she showed great kindness and restraint in dealing with me when she was Chairman of a certain Committee upstairs. Perhaps that takes a bit of doing now and again.

I turn to the attitude of the Opposition to the Finance Bill in general and the Selective Employment Tax in particular. I am reminded that we received a good deal of advice from financiers, bankers and economists in various quarters urging us to introduce a deflationary Budget. It is remarkable that, having produced a Budget—certainly a type of tax—which is intended to be deflationary, we should then have complaints from the very people who previously advocated the introduction of a deflationary Budget.

While they are being indignant about the Selective Employment Tax, we might remind them that a most distinguished right hon. and learned Gentleman opposite introduced a similar tax in 1960, the Payroll Tax. That was very similar in purpose because it was designed to reduce consumption—to place a regulator on consumption—and to take out of the economy about £200 million of purchasing power; which, I suppose, compares very much with the figure that the Selective Employment Tax is intended to take out of the economy. So before hon. Gentlemen opposite start getting too indignant over this, they might look back to some of the proposals of this sort which they have advocated and supported.

Mr. Ridley rose——

Mr. Hamling

No, I will not give way. I do not have much time. I promised not to speak long and I am sure that the hon. Gentleman will have an opportunity to speak later.

The Opposition now repudiate any obligation on their part to suggest how, alternatively, this revenue should be raised. The only comment I will make on that—apart from the obvious one of reminding hon. Gentlemen opposite of what they said when they were in Government—is that if my right hon. Friend had presented a Finance Bill in which he set out to increase Corporation Tax, the tax on petrol, Vehicle Excise Duty or Income Tax, the indignant speeches of hon. Gentlemen opposite would have outdone anything that the hon. Member for Finch-ley said this afternoon.

While considering the Tory attitude towards finance in general, one should not forget that hon. Gentlemen opposite have consistently stated for the last two years that we are in a state of over-employment. And, having said that, they are indeed under a moral obligation to tell the House and the country how they would proceed to increase unemployment and what economic and financial measures they would introduce to produce an increase in unemployment. I hope for once that they will accept that challenge.

Having come to the aid of my right hon. Friend the Chancellor, I will now say something of a more critical nature to him. [Interruption.] We are entitled, unlike hon. Gentlemen opposite, to do that. Hon. Gentlemen opposite had 13 years of bankruptcy, so they can rest silent for once. I question whether it is necessary at this stage to remove so much purchasing power from the community, and I ask whether it is necessary to produce this degree of deflation at this time. We are budgeting this year for a very high surplus—for a great amount of deflation in the economy—and it is questionable whether we are going a little too far. The index of production has stuck obstinately at about 131 to 133. [HON. MEMBERS: "Hear, hear."] It is no good hon. Members opposite saying, "Hear, hear". After all, they want unemployment. They want to reduce output. What is needed, surely, is to encourage output, if not demand, and one may ask whether this tax is designed to do that.

Another purpose of the tax is supposed to be to subsidise exports without breaking G.A.T.T. rules. One point here is that non-exporting industries will benefit from the tax. One might ask whether continued membership of the G.A.T.T. is worth all this sacrifice. The E.E.C. countries manage to use G.A.T.T. rules and at the same time have Customs unions. In these circumstances, we seem to be suffering certain disadvantages compared with them.

Another purpose of the tax is supposed to be to increase the efficient use of labour by all employers during the period September, 1966, to March, 1967. Is it true that labour hoarding is to be found anly in the small inefficient firms and in the service industries? Is it not true that there are some manufacturing firms hoarding labour which will benefit from the tax—[An HON. MEMBER: "Hear, hear."]—especially in Birmingham? I am glad to hear that somebody opposite agrees. Is it true that labour hoarding exists only in distribution? There are many larger firms which will continue to hoard labour in anticipation of the end of the credit squeeze, and there is much labour hoarding in manufacturing.

There may well be a shake-up of labour, but the labour shaken out may well be inefficient and will need a great deal of retraining in order to be absorbed in manufacturing industries, and much of it—I think of part-time workers and women workers—may not be readily adaptable to manufacturing trades.

On the question of shifting the emphasis on growth from service industries to manufacturing, it is reasonable to argue that the standard industrial classification is not entirely satisfactory in this respect. Past editions of the Ministry of Labour Gazette have shown that about 22 per cent. of the labour force in secondary industry is clerical or administrative. Some of this, surely, is not of very great advantage to the export trade or to manufacturing. Should not bounties be based, perhaps, on occupational rather than industrial classifications so that, for example, chemists, technicians and people of that kind could count towards the bonus and clerks, typists, administrators and, perhaps, managing directors would not?

There is also the doubt as to whether in integrated concerns there may be a tendency for ambiguously classified staff to be transferred from the non-industrial parts of the undertaking to the industrial subsidiaries or operating companies. These are points which should be watched.

In presenting the Finance Bill, my right hon. Friend anticipated some of the criticisms which certain of us might make, particularly about charitable societies and organisations and the mentally and physically handicapped. But I make one point on this aspect of the matter. Not all mentally or physically handicapped workers are easily identifiable. I want my right hon. Friend to look into this very closely. I hope that he will look also at the position of some elderly workers and part-time workers, especially widows.

On the retail trade side, I make a plea for discrimination in favour of the Cooperative movement. Some of my hon. Friends have argued with me on this and said, "Surely, you will not argue that co-ops ought to be treated differently from private retail firms". The short answer is that I am, and I shall explain why. A co-operative society is not like an ordinary private retail firm which exists for profit. The purpose of a cooperative society, although it has to make a surplus in order to continue, is service. My society, the Royal Arsenal Co-operative Society, provides services to its members as consumers which no private firm in Woolwich or the South of London provides. We provide services that no private firm could or would give, and we shall be in great difficulties under this tax. It will cost us about £300,000 a year. We offer very special services which we shall have to discontinue, and our members will be losing certain services to which they, as members, feel they are entitled.

Normal economic considerations do not apply in this sort of case. I hope very much that my right hon. Friend will have something to say when he winds up which will be of benefit to a co-operative society. [Laughter.] Before hon. and right hon. Members opposite laugh too much, it should be remembered that, over the years when they were in Government, they themselves accepted discrimination at law in favour of co-operative societies. They should keep that in mind before they start giggling, or they should go outside and do their homework. The other plea I make is for investment grants for co-operative societies and for retail firms in order to make them more efficient.

In general, I am in favour of this kind of selective tax, this approach to taxation. It is necessary to look at new sources of revenue. It is necessary to cast the fiscal net much more widely. How dreary it would be to have another of the sort of Budgets we were having, for example, in 1961. There is need for a new look to be given to our taxes, and in that respect I congratulate my right hon. Friend.

5.27 p.m.

Mr. Tim Fortescue (Liverpool, Garston)

I thank you, Mr. Deputy Speaker, for allowing me to catch your eye in this important debate. I do not know whether I am relieved or alarmed to find that I have hit the period between the Front Bench speeches and the time at which hon. Members return from Epsom. It must, I suppose, be a long time since there were more hon. Members on this side of the House than on the other side on Derby day.

I stand here in the room of Richard Bingham, who represented Garston in the House from 1957 until this year. Dick Bingham is a courteous and charming man who made many friends in the House. He is much beloved by the constituents of Garston, where he is their pride and joy, being a "local boy". About a year ago, he felt that he had to choose between his legal career and his Parliamentary career, and he decided that he would choose the law. Who am I to say that he was wrong? His recent appointment as Judge of Appeal in the Isle of Man is undoubtedly the first step towards greater eminence which, I am sure, will come. He will be much missed in the House.

I suppose that for every Member his constituency is remarkable, just as for every parent his child is remarkable; but for Garston the word "remarkable" is too mild. Garston must be very nearly unique. It covers about 13 square miles of the city of Liverpool, and one cannot get much nearer to being unique than that. It has its own dock system quite distinct from the ordinary Mersey dock system, and I am glad to say that this dock system is on the point of being removed from the control of a nationalised board where it has been most efficiently administered, and being handed over to the less public Mersey Docks and Harbour Board. This must be an unusual way for any enterprise to move in these days.

Garston has five golf courses within the bounds of the city of Liverpool. It has belts of rolling parkland. It has an industrial estate, it has Speke Airport, and it has Woolton Village, a famous name in the Conservative pantheon. Above all, it has 67,000 of the kindest, warmest-hearted and most hospitable people I have ever met. I should know, because I am the first southerner ever to be elected for this constituency. They have taken me to their hearts, and I only hope that I shall not let them down.

There is another feature of representing a Liverpool constituency which may not be entirely appreciated by all hon. Members, and that is that once a year about this time half one's constituents come to London on the same day to see one or other of their football teams playing in the Cup Final at Wembley. This was the other day, and they came as usual. I would also point out that if one hears a violent argument going on in Liverpool, even during a General Election campaign, between a group of men, and the name "Wilson" is being bandied about, they are talking about the Everton full back and not the Prime Minister. Liverpool priorities are sometimes slightly humbling.

New Members of Parliament have three advantages to which I wish briefly to refer. First, there is the extraordinary kindness and courtesy which is shown to them by all hon. Members on both sides of the House. This has been referred to by many maiden speakers, and I add my tribute to all hon. Members for this feature. Every one has been enormously kind to me. I should like especially to mention the hon. Members representing Liverpool constituencies on the other side of the House—I am afraid that I cannot at the moment see any of them here—who went out of their way to show me the ropes. I am most grateful to them.

The second courtesy is the indulgence shown to the maiden speaker, which is being shown to me now. A third, which comes from circumstance rather than tradition, is that, by definition, new Members of Parliament are able to look at things through the eyes of the general public rather more easily than other hon. Members can because we are closer to being members of the general public than the others are.

It must be admitted that this time the new Members of Parliament have been thrown into the deep end of Parliamentary matters rather fiercely. We had a Budget debate about 24 hours after we came here. Since then we have had a Motion of censure, several pieces of major legislation and a message proclaiming a state of emergency. There have been many things in the space of four or five weeks which in other circumstances we might not have met for a long time. These things have made a considerable impression on us, perhaps more impression on new hon. Members on this side than on the other side for obvious numerical reasons.

We have seen many things happening. During the Budget debate we saw the Chancellor refusing to give the House the date on which the Ministry of Labour Bill would be published, and we kept our counsel. During the debate on the Motion of censure on a Minister, we saw an hon. Member, for whom I have the greatest regard, brought into the House in an attempt to turn the whole thing into a boisterous farce. In the debate on the Land Commission Bill we saw a Minister refusing to give the House what the estimated levy of the Bill would be, and we kept our counsel again.

Perhaps I might say—I know that I am a little out of order—that from the height of my extreme ignorance it would seem to me to be more profitable for any reform of the procedure in this House to turn its attention towards limitations of the power of the Executive in the shape of the Government Front Bench than to trying to take away any of the pieces of harmless ceremonial which remind us of the strenuous efforts of this House during its history to reduce the power of the Executive in the person of the Sovereign. The action of the Minister during the Land Commission debate in refusing to give the estimated yield of taxation was surely a twentieth century version of the reasons why in the seventeenth century Charles I was executed. I am not one who normally advocates capital punishment, but in this case the precedents seem to be remarkably strong.

I turn to the subject of this debate—the Finance Bill in particular, and the Selective Employment Tax. I have one simple question to which I should like the Chancellor to reply. To me and to many others it is still not clear, in spite of the cogent speech of the Chief Secretary this afternoon, exactly what the Chancellor's objectives are in imposing that tax, and, in patricular, how he reconciles it with other objectives of the national economy which he and his colleagues constantly put at the top of the list of our national priorities.

It is easy to ridicule the tax, and so many have done it far better than I can that it would be almost sadistic to continue. Who would have thought that we should ever see the Governor of the Bank of England and other eminent bankers put in the same category for taxation purposes as a lady employed by a striptease joint, simply because neither is productive? It seems to me that this is not a logical or sensible categorisation. In the Budget debate the First Secretary said that it was a question of rough justice. On this side of the House the roughness is painfully obvious but the justice is scarcely visible.

Before I came to this House I had the honour and privilege of being a manager in a large industrial concern. I am told that there are very few managers in this House. I do not know why that should be. It has been suggested that, whereas there are plenty of company directors and trade union officials, there are very few managers, because managers cannot be spared. It would not do for me to follow that line of thought very far, because, after all, I have been spared. However, I believe that we should have more managers in the House, and I will explain why.

Part of the job of a manager—perhaps the most important part—and the thing which distinguishes a good manager from a bad manager, or a manager from a non-manager, is the ability to foresee the result of one's actions before deciding what to do, and before putting a decision into practice, to be able, roughly anyway, to foresee what will happen when one does so. That is what management is all about. I believe that the Selective Employment Tax has been imposed without anybody foreseeing what effect it will have on the nation.

In order to illustrate this, I will take one or two of the sections of the economy and explain my meaning. The first one, of which I know something, is the milk industry. The price of milk is controlled throughout every stage of its long journey from the farm to the doorstep. The price which a farmer gets for his milk from the Milk Marketing Boards is set by the Minister of Agriculture at the Annual Price Review. It is then allotted by the Boards according to the estimated gallonage to be used for liquid milk and manufacturing milk. Then the agreed costs of the producers and distributors of milk are set by abstruse calculations based on costings from dairy companies all over the country, and decided by the Ministry, on a cost plus basis.

These calculations are made to three decimal points of 1d. per gallon. Everything is calculated, everything is fixed and everything is arranged. This is a controlled industry. It is the last controlled industry. It is the last relic of wartime food controls. Whether it should continue to be so is an argument that I should like to deploy on another occasion; but it is.

Into this controlled situation the Chancellor suddenly introduces a new tax. He intends, we presume, to tax milk distribution with the Selective Employment Tax. I should like to know what he is trying to do to the price of milk on the doorstep. Is he intending to increase it; or is he intending to say to the housewife "You cannot have the milk on your doorstep every morning, where you want it, because it will cost the milkman too much to put it there"? Would it not have been more honest and more ethical to have said to the electorate before the General Election campaign that if Labour got back to power milk would either be more expensive or would not be on the doorstep in the morning?

My second point concerns the building industry, which has been mentioned by many other hon. Members. The architectural profession will be greatly hit by this tax. There is a grave shortage of labour in that profession. We have not enough architects. Private firms of architects serve local authorities and the central Government all over the country. Is it the Chancellor's intention to make the architects more expensive or to make the service given by them less efficient? We ought to know. We ought to know what he is trying to do—if he has, indeed, decided what he is trying to do.

Many hon. Members have spoken about the effect on charities. I am sure that there is not a single hon. Member in this House who has not had representations from his constituents about the effect of the tax on charities. I have here a formidable letter from one of my constituents, an archbishop—and that is a frightening sort of letter to have. The Archbishop of Liverpool and the Bishop of Liverpool live in my constituency. I am somewhat worried about what I shall have to reply. The Archbishop writes: It seems to me that in this matter a basic principle is at stake, and I hope that you will use all your influence in persuading the Chancellor of the Exchequer that registered charities should be exempt from this additional and crushing burden. My influence on the Chancellor is minimal, but somehow I have to reply to the Archbishop. So I urge the Chancellor, in order that I may send a reasonable reply, to interpret generously what the Chief Secretary said when he told the House that the Chancellor "will consider in principle how and in what form charities might be recompensed". I hope that the Chancellor's decision will give me every assistance in replying to the Archbishop.

Inventors of new taxes are not noted in history books very kindly. Morton, of "Morton's Fork", is not remembered kindly, and Callaghan of "Callaghan's Cudgel" will not be remembered kindly, either. But there is one way in which he can make his memory sweeter and that is to tell us what his objective is. People do not resent so very much being taxed so long as they understand the purpose. In this case, they do not understand. They feel that the tax is being put up as a cockshy to be knocked down by the strongest lobby. That is Government by pressure group, and it is inevitable when the necessary homework has not been done.

During the next few weeks we shall spend many long and weary nights of tedium in considering this tax until the very words "Selective Employment Tax" will stink in our collective nostrils. I hope that the Chancellor will enable the process to be more pleasant by explaining to us today what he expects the outcome of the tax to be.

I thank you, Mr. Speaker, and the House, for your indulgence.

5.52 p.m.

Mr. Harold Lever (Manchester, Cheetham)

It is always a pleasure to congratulate a maiden speaker, and the pleasure in this case is all the more because the hon. Member for Liverpool, Garston (Mr. Fortescue) comes from my part of the world. He delivered his speech with considerable charm and, if we cannot say that it entirely escaped the winds of controversy, we can at least say that it was delivered in such a non-controversial manner as fully to justify the House in extending its indulgence. We look forward to hearing him again. We lament the passing of his predecessor to the Isle of Man, where he will spend the rest of his days in an area where fiscal modernity is unknown so that his successor, the hon. Member for Garston, will have to put up with the disagreeable consequences and no doubt will be in constant communication with him.

Any hon. Members who have a stink in their nostrils from the tedious debates likely to come should be sure of what the stink is. It does not necessarily derive from what my right hon. Friend the Chancellor of the Exchequer has done. If I plunge at once into the aspect of the Bill that has excited most immediate attention—the Selective Employment Tax—I say at the outset that I support this great innovation. At the risk of being tedious and repetitive, I still think that the heart of the matter is that if one concedes that there has to be a budget for so large a surplus as the Chancellor has demanded in the present situation, one must suggest, at any rate in general terms, where the money is to come from if some such innovation as this is not being undertaken, as it is, with a great deal of courage, by my right hon. Friend.

I know that the favourite word of the Opposition in describing the tax is "half-baked". But even the best bread is half-baked at some stage. It is no reflection upon the Chancellor that the House will take some part in the final stages of the baking of this loaf. There are half-baked Bills and half-baked bread and half-baked arguments, but whereas bread may proceed to delicious completion some half-baked arguments remain permanently half-baked.

I want to deal with some arguments advanced by the hon. Lady the Member for Finchley (Mrs. Thatcher). I note that she is in search of enlightened company in the Conservative lobby during the Committee stage. I can understand that need. I am not sure that we will fulfil it. But if we do, it will be more likely because of her charm than because of her logic. For example, she put the argument by anomaly. That is a favourite argument, because it can be directed against every tax ever instituted. One picks upon a particular application of a tax which is the least in accordance with its general principle and points out the anomaly of inflicting it upon the person in question. No one, however, objects to the fact that the charities have to pay tax on petrol for the cars they use for merciful purposes. They are charges nevertheless. It is idle and unfair to charge my right hon. Friend in a tear-jerking way of taking money from charities because, under the S.E.T., charities will pay for their employees.

It is equally inaccurate to say that charities have always been exempted from taxation. That is not so. I will give one example, but, in fact, there are very many. The only taxation from which charities are exempted is Income Tax, and it might be a good idea for the Chancellor to look at that matter. I must emphasise that I am not unsympathetic to general charitable endeavours. I know what great value they are to the State. During the Budget debate the right hon. and learned Member for Chertsey (Sir L. Heald) thought I was being unsympathetic to pleas for charity, but that is not so.

But I must point out that my right hon. Friend is not operating a city state in which the effect on each individual and operation can be judged. We have to deal in general with these matters. We can discuss the position of charities in Committee, but it is inaccurate and unfair to say that the new tax proposes to take money from them and to make inroads into reliefs that they have enjoyed hitherto. The hon. Lady complained that the tax will bear on essentials and not just on luxuries. It is all the more honest because of that. If the Chancellor wishes to take money out of circulation and reduce buying power, it is ridiculous for him to tax caviare or luxuries of that kind because, if he did, he would be taxing the rich, which would cause a decline in investment, and would be neglecting to bring about a decline in general overall consumption. One must be honest and candid about these things.

If the total buying power of the country is largely in the hands of the mass of population, as it is said to be, and if it is decided for economic reasons to reduce that buying power, then the reduction must fall on day-to-day needs as well as on what we call luxuries, like tobacco and cigarettes. It is not new that we tax day-to-day necessities. What is new is that the Chancellor has the courage to widen the tax base and make it fairer, more beneficial and less damaging to the economy.

I am unimpressed by the arguments about artificial borderlines and points of that kind. Artificial borderlines exist in every tax in every industrial country. I could spend the next hour giving examples of existing taxes where artificial borderlines exist, but I shall not do so. I leave that to the hon. Member for Worcestershire, South (Sir G. Nabarro), who spent hours under the Conservatives drawing attention to artificial borderlines existing under Conservative Governments in relation to Purchase Tax.

I want to say something on other aspects of the tax. We are really too near an election for me to resent the fact that most hon. Members opposite who have spoken have found it necessary to amortise their election oratory and allow the House to enjoy benefits which were restricted to rather narrower audiences at the recent election.

I want to make a few comments on some of the arguments which have been advanced. It has been widely said that manufacturers are as great hoarders of labour as the service industries. I do not know what experience other hon. Members have of this, but I have not found a great deal of hoarding going on. It is an expensive proclivity to have a whimsical retention of labour at considerable cost just for one's own amusement. I know that academic economists rarely set foot in the sordid precincts of factories and consequently cannot immediately understand the function of everybody employed in factories. That does not astonish me.

However, it does not follow that we should try to cut by half the number of people employed there. There is an ebb and flow in production and the organisation and administration of production sometimes require people to be fully employed and at other times not so obviously employed. Surely the people actually paying the wage bill are better judges than some of the lighthearted commentators as to whether hoarding is taking place. Economy is not necessarily achieved by maintaining an inadequate staff organisation. I have yet to meet hoarding.

Over-manning is a different matter, and discussion of that would take me into a wide and interesting area. But the Chancellor of the Exchequer cannot himself in the Finance Bill cure the tendencies and arrangements of over-manning. If one thing is certain, it is that the present Government have done and are doing more and intend to do more about over-manning more effectively than any of their predecessors.

I want now to refer to the alleged favourable treatment of the manufacturers. The bonus given to manufacturers is not very striking and it is certainly ludicrous to suppose that anybody will employ extra men because he will get a few extra shillings net a week from the Chancellor of the Exchequer for doing so. I do not make the case that the tax will shift people from the service industries to manufacturing industries. I pin my case wholly to the fact that the Chancellor needs to raise revenue and needs to widen the tax base.

It is very much to our economic advantage that he should not operate, as has been done in the past, on a narrow area of industry, but should spread his benign or retarding influence, according to circumstances, over a wider area of our industry. The bonus for manufacturing industry when one takes into account the advance payment which has to be made amounts to little more than shielding manufacturers from the impact of the new tax, little more than exemption of manufacturing industry from any retarding effects of the new tax. This hullabaloo and this attempt to mislead the public and arouse agitation and excitement about the tax is beyond me.

The Conservative Government themselves tentatively proposed a payroll tax and it was widely rumoured in the Lobbies that it would have been brought in but for the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), who threatened resignation. That was the rumour among the knowledgeable in the Lobbies of that time. I know that the right hon. Gentleman would neither confirm nor deny the accuracy of that, but that shows that the tax is not something thought up by a malicious Socialist Chancellor of the Exchequer anxious to make milk dearer on the doorstep, or to forbid its arrival there altogether. The tax is just desirable in the special circumstances of our case.

The Chancellor has said, and it is said, that increased costs must be absorbed or there will be price rises. The answer is that, if the tax is absorbed by increased productivity, there will be no price rise, of course, and the tax will not have done any harm, but, on the contrary, will have done good. On the other hand, if, most unfortunately, there are price rises, it does not follow that, for example, charities will have less money. It may well mean that those who are charitably minded will decide that they have to deny themselves some other expenditure so as to maintain their charity at full strength. [Laughter.] But this is a choice which the Chancellor is leaving to the citizen.

It is not for the Chancellor to decide how a man should spend his money. It is for the man to decide. Broadly, the Chancellor decides the overall consumption which, in our given economic circumstances, is desirable and how much money may be demanded in society, but it is for every individual to decide how to spend it. It is one of the unfortunate necessities when the Chancellor is forcing us to cut our coats according to our cloth that we cannot have everything we want. It will, therefore, be for the individual citizen to decide what he wants most.

This tax will be very much overdue in order to broaden the tax base and it must be welcomed. It is quite false to charge the Chancellor, when innovating in this way, that he can justify it only if he brings in a tax which is so faultless in its prose, agreeable in its incidence and compelling in its logic and justice that the whole House rises in one chorus of praise in unanimous and excited approval of the Chancellor of the Exchequer.

I know that, theoretically, that is the scene which we all hope will arrive one day. I agree with the hon. Member for Garston that inventors of new taxes rarely go down to posterity in the most amiable sense, but I must say that this tax is necessary, useful, and inevitable, and I entirely support its general principle.

However, I want to conclude my comments on the tax by saying that nobody should take it to be an annual tax of so much a year. It is wrong for a charity or anybody else affected by the tax to say, "This will cost me £40,000 a year", or, "This will cost me £10,000 a year". It will cost them £40,000 or £10,000 this year. No doubt next year, when our circumstances are different and when administrative possibilities have increased, it will be possible to make more adjustments than will be made in Committee this year.

In Committee, I shall want strongly to press the Chancellor on only the following concessions. First, he ought to look at some of the charities, at any rate, although personally I favour the idea that he should undertake a general overhaul of the definition of "charity" for tax exemption purposes. I have pointed out before that it seems a little illogical for the State to make financial concessions to both the Lord's Day Observance Society and the "Society for the Propagation of Enjoyable Sundays", to help to finance the League Against Cruel Sports and with equal zest and at equal cost to finance the "Society for the Propagation of Open-Air Exercise on Horseback". So I could go on—Muslims, Jews, Sikhs, Seventh-Day Adventists, all impartially receive the bounty of the Chancellor of the Exchequer.

I do not say that these are not all worthy and deserving cases, but I suggest that the logic of all this should be considered.

The Chancellor of the Exchequer (Mr. James Callaghan)

I shall not judge between that lot.

Mr. Lever

The hon. Member for Manchester, Ardwick (Mr. L. M. Lever) is thought to have a unique experience of the places of worship of different denominations in his constituency and he might be pressed into doing this service if desired.

I yield to no one in the House in my belief that the voluntary work undertaken in this country for charitable purposes is a great saving to the Government and of great advantage to the country, not only for the spirit which it engenders, but the substance of the work done, and I do not make this case out of any lack of sympathy for their work.

I hope, too, that the Chancellor will not listen merely to the negative advice from the bowels of the Treasury on other matters such as disabled persons, old persons and part-time workers. It would be a disaster if a tax especially concerned with the labour situation could at any time be charged with reducing the amount of labour available in both the manufacturing and service industries by causing any depletion in the supply of part-time workers, disabled people, old people and the like, apart from the moral case which should be borne in mind in the instances which I have mentioned.

I want to pass from there to one or two other matters that have occupied the mind of the House on the Finance Bill. It has been mentioned that the question of tax avoidance arises on every Finance Bill. I heartily agree with the Chief Secretary, though I do not perhaps interpret his words in quite the sense that he intended. Surely no one in the House is in favour of illogical tax avoidance. We ought to get this question about a person's obligations clear. These obligations are established, and can only be established, by strict wording of law. No citizen is obliged so to organise himself to his disadvantage so as to come within the taxation spectrum when he might reasonably be outside of it.

It is high time that the whole question was candidly thrashed out, because there is great confusion of thought in two respects and it is shown in an aspect of this Finance Bill. It is this. The Chancellor should not be concerned with the motives which induce a taxpayer to alter his situation so as to obtain a benefit, in a taxation sense. What he should be concerned with is the effect of these alterations upon the position of the citizen. If he thinks that the effect is bad, he should change the law so that this effect will not be brought about.

The other matter that ought to be looked at, and it follows closely upon what I have said, relates to a person finding himself accidentally in a situation which anomalously redounds to his advantage under the taxing Statute. Nobody can blame him then, but if he deliberately puts himself in such a position then that is thought to be infamous, vile, and generally to be deplored. I confess that this seems anomalous as an argument. I cannot, for the life of me, see why when my neighbour accidentally happens to be in an anomalously advantageous taxation position which makes him better off than myself, I should not put myself in the same position.

A good deal of humbug is always talked in the House on this occasion, and by no means exclusively from this side of the House. If I had to adjudge I would have to say that much more humbug was talked on the other side of the House. Hon. Members on the other side are so anxious to whitewash themselves that I often hear a good deal of cant on this subject. I get the impression that the House of Commons, at any rate on taxation affairs, is unrepresentative of the great mass of the population. In the House we have groups of persons, almost without exception, unanimously eager to pay the maximum amount of tax payable to the Revenue in all possible circumstances.

This does not entirely tally with what is to be seen outside the House. My own position is very clear upon this—one should not be dependent upon accident in assessing one's taxation position, and I will give a little illustration from the Bill. I see that the Chancellor has acted against what he calls a transparent tax avoidance, namely, the "Siamese twins". I must congratulate the Treasury. It has managed to give each of these devices names that no one else has ever heard of before, but which are extremely interesting and make ready identification tabs. In the case of the twins, what is happening is that people deliberately put themselves into a situation which already exists by accident in innumerable private and public companies. It is very questionable whether, even in the case of the "Siamese twins", these people are causing any greater loss to the Revenue than is already taking place by the very nature and design of the tax, without any deliberate attempt on their part.

The Chancellor will have to look at this. I cannot resist saying, since the hon. Lady the Member for Finchley (Mrs. Thatcher) was good enough to refer to a suggestion I made, that this was one of the things which I had in mind before the Finance Bill of 1965, in relation to the dangers of dividend tax. It could produce the anomalous situation that the capital structure of a company would decide the total amount of tax paid upon the profit. This is a matter in which I am in a minority of one, because the Conservative Party are pledged to continue the Corporation Tax unamended, according to a declaration—[Interruption.] Unamended in this respect. I have not heard any declaration. It would be interesting to have one and I would like to hear from the Conservative Party about its proposals for amending die Corporation Tax. One thing is certain—at no stage during the last Finance Bill did they put down any Amendment, or use any argument which would eliminate this anomaly.

Mr. Patrick Jenkin (Wanstead and 'Woodford)

Surely the hon. Gentleman has forgotten the Amendment, debated at considerable length and put down by my right hon. Friend the present Leader of the Opposition and other hon. and right hon. Friends, providing that the rate of tax on distributions should be at a substantially lower level than the rate of tax on retained profits? That was the structure of the Corporation Tax which we urged upon the Chancellor, as I am sure he will recognise. It is a structure which we would like to see.

Mr. Lever

The hon. Member is merely confirming what I have said, namely, that the Conservative Party did not propose the reconstruction of the Corporation Tax in such a manner as would eliminate the anomaly that the amount of tax to be paid by two companies, in otherwise identical circumstances, would vary because of the company's capital structure. That can only be achieved not by pious and electorally advantageous resolutions to reduce the magnitude of the dividend tax, but by a total reconstruction of the tax so as to eliminate the dividend, and that was never proposed, and has not been proposed, by the Conservative Party. It is, therefore, unlikely to be adopted. I am not vain enough to suppose that my minority opinion should prevail against so much collective wisdom.

The other matter which was dealt with in the Finance Bill was the question of share options. The Chancellor has an overwhelming case here for abolishing the share option schemes. I shall go into this in greater detail in Committee stage. but if one is to produce an incentive effect upon one's higher paid staff by a shareholding interest in a company it should be done in a direct fashion and not in a devious way, as it is done in the share option schemes. I am not making any reflection upon those who misguidedly took part in the Garda scheme. I refuse to believe, although I do not know any of the gentlemen concerned, that they were dishonest, or were dishonestly inclined in any way whatever. They failed to realise the full implications of what they were doing, and that is much to be deplored. This sort of option scheme produces the kind of devious thinking which results in the Garda scheme, and that kind of thing.

The Chancellor has an impeccable, logical and moral case for abolishing share options, and I will certainly support him, in Committee, as well as on the main Bill. In abolishing share options it means that many companies will be deprived of a means of giving additional incentives to their senior employees and it follows that the Chancellor should look with benign sympathy upon alternative and justifiable schemes for encouraging share ownership by employees at all levels in business. This is a very desirable thing. It is bad, and we in this party particularly believe it to be bad, that ownership of property should be concentrated into a few hands. It follows that we must believe in the wider spreading of the ownership of property, including wider ownership of shares.

Sir Tatton Brinton (Kidderminster)

Would the hon. Gentleman not agree that share option schemes are a dodge and arise because of the difficulty of rewarding the abler managers of this country? In the face of such excessively high direct taxation these people are prevented from ever building up any substantial nest-egg without dodges of this sort.

Mr. Lever

During the Committee stage I may have the opportunity, if I am fortunate enough to be called, to suggest some alternative schemes which, without being dodges, or devious, will produce the desired results. I will ask the Chancellor to say that he will not regard them as being undesirable, as I believe that the wider ownership of property adds to the dignity of individuals while achieving greater social justice. This applies especially to shares in businesses and undertakings in which people have worked for many years. It is very attractive and reassuring to know that on retirement one owns a fifty-millionth part of British Railways, but it does not buy a cottage at the seaside, or add to the pleasures and securities required by older people. As we are all in favour of people saving it is not a bad thing that we should encourage the wider ownership of shares among those who work in industry.

The final point I want to raise deals with the export of capital. I heartily endorse everything that the Chancellor has said on this matter. I speak as one who greatly favours investment overseas when our circumstances make it to our overall advantage to do so. The country has been labouring under a complete delusion in believing that, whereas we cannot afford investment in the dollar area, we can afford investment in the sterling area. This is a kind of sentimental self-deception which has to be ended. We must face the fact that investment in the sterling area produces almost precisely the same strain on our resources as investment in the dollar area. There is hardly any justification at all for it and the Chancellor has done well to bring this matter up and to see if we can produce some curbs upon it.

My right hon. Friend has also done it in a manner which shows that he has control, in spite of what has often been alleged against him, and has a very reasonable, trusting and open mind. He rightly showed great trust in the big companies which he hopes will co-operate in this respect. He may find that it will not be through lack of co-operation or of sincerity on the part of those companies that he will have to take further measures to deal with these matters, but generally there will be great co-operation.

Sir Cyril Osborne (Louth)

Does the hon. Member think that this restriction should apply to the export of plant and machinery to subsidiary companies abroad which would have the same effect as restricting capital? So far as I know, the Chancellor did not say a word on that aspect of the problem.

Mr. Lever

It is not possible to deal with this in detail now and I do not want to go into great detail. The main thing is that the Chancellor has shown great courage in tackling something in an area where there has been serious lack of logical thought which has had very serious effects on our economy. No one has dared to touch this very vital aspect of foreign exchange problems, the export of capital to the sterling area on a vast scale.

It is striking that misguided liberalism causes people to emigrate from this country and to convert their capital into dollars. I should like the Chancellor to tell us why it is necessary at this stage of our difficulties to allow emigrants to take their fortunes out of the country immediately in one lump sum, converting them into dollars through blocked sterling. They do not do it through the ordinary channels, but by blocked sterling. Probably we would find that in the end the biggest buyers of blocked sterling are the Bank of England. The Chancellor should follow the logic of what he said, and of which I utterly approve, in getting the balance of payments right.

I congratulate the Chancellor. He has shown great courage and intelligence in addressing himself to our central problems. If he goes on in this way, with the backing which he will get from this side of the House and from the country—because what is said by hon. Members cpposite by no means reflects accepted opinion on the Labour Party in the country—he will at long last put the country on the right economic road.

6.14 p.m.

Mr. Nigel Birch (Flint, West)

The hon. Member for Manchester, Cheetham (Mr. Harold Lever) did something which I do not think I have ever heard a Socialist do before. He rejoiced that indirect taxation was being very heavily increased, and that it was being imposed on necessities. That, of course, was not quite the line which his party has taken in the past, but he showed courage in putting forward that view, and good luck to him.

The hon. Member also said that this Government were the first to do anything about over-manning. I am delighted to hear it, but I should like to be told what it is they are doing, as I have not heard of it before.

On the question of Corporation Tax, the position taken by the Conservative Party has always been that we were free to do anything we liked with it, including abolishing it if we wanted to. We are not committed to it at all.

Mr. Harold Lever

May I remind the right hon. Gentleman that the present Leader of the Conservative Party made it quite plain that neither the Capital Gains Tax nor the Corporation Tax were to be abolished, but were to be made a permanent part of our system? Of course, hon. Members opposite are free to do what they like, but they should give a fuller indication of their policies than they gave in our debates last year.

Mr. Birch

That, I think, will be given soon and that is a subject to which I shall refer.

I shall not go into the question of how many Budgets the Chancellor has had. He will probably have to have another this year. The two Budgets I want to talk about were both at orthodox times of the year. There was great similarity between the two. Both imposed new taxes. We can say with certainty that the taxes in last year's Budget failed in their ostensible object. They caused vast administrative confusion, were ill-prepared,, and are having damaging side-effects which were not foreseen. This Budget, I believe, will fail in its ostensible object. It is certainly already causing extraordinary confusion, it was obviously quite unprepared, and it will also have damaging unforeseen side-effects.

I want to illustrate those points, but, first, I say this, and make no apology for saying it. The reason why there has been this great similarity between the two Budgets is that the taxes in both were conceived by the same man, who of course, was not the Chancellor of the Exchequer. Mr. Kaldor—I can mention his name, because he has been at great pains not to hide his light under a bushel—has long been an open advocate of devaluation and he has quite a record of advising other countries.

I remember that when I was in Ceylon, in 1958, all the Ministers, the civil servants and the business community, both foreign and local, said that the advice taken and the taxes put on had produced administrative chaos. Kaldor's advice was given in India and the Finance Minister had to resign. In Mexico, there was prolonged and violent opposition, in Turkey the Government had to resign, in Ghana there was a general strike, and in British Guiana there was a revolution. That is not a bad record. He is not a man who has been taken very seriously by other economists. Hon. Members ought to read what that very distinguished economist Sir Hubert Henderson wrote about Mr. Kaldor's book, "Full Employment in a Free Society."

Take last year's Budget—what was the ostensible object of bringing in Corporation Tax and Capital Gains Tax? We were told that this would do two things. The taxes would help with the wages policy and there would be simplification of taxation. Wages have gone up more quickly than ever before and quicker than one would expect in the state of pressure on the economy. I cannot think that any trade unionist gave a moment's thought to either of these taxes before putting in his wages claim.

As to simplification, the tradition of the administration in our country, particularly Treasury administration, is very distinguished. Infinite care has been taken in the past before a new tax was imposed to think out every detail. The only complicated change with which I had to do when I was at the Treasury was the Overseas Trading Corporation Tax. Eleven months' work was done by the Treasury, the Inland Revenue, the Colonial Office and the Board of Trade on the proposal and when it was brought about no major amendments were necessary.

I know that the Chancellor abolished it for foreign exchange reasons. I do not argue whether that was right or wrong. The point I make is that the administration was so done that it did not have to be amended to make it work. Contrast this with the Corporation Tax and the Capital Gains Tax. There were 400 Amendments to the Finance Bill last year. I think that the Chancellor has cheated a little this year because he has conflated the Amendments to an unprecedented degree. If we look at the Bill we find that 40 pages of Clauses and Schedules are taken up with Amendments to the Corporation Tax and the Capital Gains Tax—and this is before the taxes have really started working.

What about the Inland Revenue? The only thing which has cheered me since this Government came in has been that the Inland Revenue has declared the Capital Gains Tax "black". The Chancellor of the Exchequer will appreciate the point here, as a former official of the union. If the union has declared the Capital Gains Tax "black," anybody who returns a capital gain is blacklegging—an odious charge.

I would bet a very large sum of money that if the Chancellor himself were given an examination paper on the Capital Gains Tax, he would get very low marks indeed, despite the fact that he brought it in himself and is a bloodsucker by trade, and even if he had by him the 7,000 clause crib that the Inland Revenue now has. If I am right on that, as I am certain that I am—I certainly could not pass an examination on it myself—how does he expect people to cope with this sort of thing? How can he expect people in the Inland Revenue, who are not at all well paid, to cope with this situation?

The tax will bring in very little revenue and it will lose far more, because the whole machine is clogging up and slowing down. What about the unforeseen side effects? One, which probably was foreseen, is damaging to the free enterprise system, and it may have been foreseen and wished for. The effect which probably was not foreseen is the effect on interest rates that this has had. Hon. Members may have noticed that last month's cost-of-living index went up by 1.4 per cent. and that the Ministry of Labour attributed this rise largely to increases in rates and water rates. Interest payments have a considerable bearing on the expenditure of local authorities and water undertakings. This is a considerable factor. The last local authority issue was floated at an effective rate of 7 per cent. This is 16⅔ per cent. more than the last issue during the golden years of Tory rule.

The rate is still rising and is forcing the Chancellor to pay more. The grossed-up rate of interest on the last issue of National Savings Certificates was equivalent, for somebody paying Income Tax at the full rate, to 7¾ per cent. Even the best companies are having to pay very high rates on debentures. How, in those circumstances, can one suppose that building societies can charge less than 7⅛ per cent.? How, in fact, can they charge only that? What could be dottier than referring the question of building societies' reserves to the Prices and Incomes Board? Ministers are increasingly trying to shelter behind the tattered fig leaf provided by the wretched Jones.

The ostensible object of the Selective Employment Tax was to switch labour from service industries to manufacturing industry. I do not believe that will come off. I do not think that service industries on the whole are really wasters of labour. They certainly do not have over-manning. The banks and insurance companies are as highly mechanised as they can be, and they are all in their second generation of computers, and they are still short of labour.

Practically every country hotel which I know is desperately short of labour. The sort of hotels that this tax will succeed in closing down are the tourist industry hotels of Northern Scotland, North Wales, where I come from, and the West of England. There is no manufacturing industry there to which labour can move. The Chancellor will get nothing out of that at all. I do not really believe that any of these service industries is grossly over-manned. That does not, of course, apply to many other industries.

Hon. Members may have seen a report in last Wednesday's Daily Telegraph of a rather interesting case at the Mansion House Court. It appeared from the facts that the newspaper industry was employing men on a short night shift at £12 6s. 10d. a shift, but one could only obtain that job if one had a chit from the union. Very naturally, there was a thriving black market in forged chits at the local "pub". This is over-manning. That is where things are going wrong, and not elsewhere.

I should like now to mention one of the things which is going more wrong than anywhere else as a result of S.E.T. I have received a lot of letters, some of which I have sent to the Chancellor, from people in my constituency, very old people who are trying desperately hard to make do but who cannot manage on their own without a certain amount of home help. Several of them have written to me saying that this tax is the end. Very often they employ two home helps for short periods of perhaps eight hours, and they will be liable to two lots of tax if they do this. They simply cannot manage it. If they break down in health, they will have to go to an institution of some sort, which will cost the State money, and there may not be accommodation for them. This is far more labour-consuming. I do not believe that this tax will fulfil its ostensible objects.

It is most fantastic that the Chancellor was unable to answer any of the main questions on administration. Hon. Members may have noticed that he said in his Budget speech that agriculture would be compensated as far as practicable during the Price Review. Everybody gasped, because they knew that it could not happen. They knew that he would have to run, and run he did. He could not say what would happen about disabled people, and he cannot answer today about part-time workers and pensioners in full- and part-time employment. All these basic questions cannot be answered; and the thousands of things which will be thrown up, and which nobody has thought of, beggar description.

It has not been the tradition in this country to introduce vast new measures of taxation without most careful thought, the longest possible consideration, consultation with other Ministries which are affected, and so on. I believe that the very evil side-effect here will be the degradation of the Treasury's reputation. We have been the most law-abiding people in the world and the most docile taxpayers, and we have been that because the Treasury has been efficient and has tried to be fair and to think things out before they were introduced. This has not happened this time. The Treasury might have stood up to one of them, but two years running is too much. I believe that a great weight of guilt hangs upon that Department and that we shall all suffer for it in the future.

6.28 p.m.

Mr. Joel Barnett (Heywood and Royton)

The right hon. Member for Flint, West (Mr. Birch) was in his usual witty form, but, as we have learned to expect from right hon. and hon. Gentleman opposite, his speech was solely destructive. There was not one constructive element in it.

Much of the debate has dealt with the Selective Employment Tax. There has been much criticism of it, and I myself have some criticism. For example, I hope that, despite what my right hon. Friend the Chief Secretary said in opening today, Amendments will be accepted in due course in respect of people over 65, part-timers and the disabled. I hope, too, that we might be able to do something for charities. I am also none too happy about the idea of refunds to manufacturing industry in the way suggested in the Bill. I would far rather that this was done by investment grants paid in greater amounts and more quickly. But I find the general idea of the Selective Employment Tax entirely acceptable, and the idea of broadening the tax base in this way has my complete support.

That is not to say that I like the tax. I do not like tax. For anybody to say that he likes a particular tax would be a rather dishonest statement. It may well be that a few people like tax, but I am not one of them. Those who seek exemption for particular industrial categories should recognise how easy it is to make a very strong case for almost all industrial categories. If their arguments were to be accepted, we would have an entirely non-selective tax.

If hon. Members want a non-selective tax, let us hear them say so. Do they want a blanket form of tax? If so, let us hear it from them. If they want that kind of tax, there would be no anomalies and no discrimination, but there would be no imagination either and we would be back to the old answers that have failed in the past. Therefore, I do not quarrel with the general idea of the Selective Employment Tax. I welcome the opportunity that it will provide in due course to change the whole tax system. What I disagree with about the Budget and the Finance Bill generally, however, is the defensive approach underlying the whole thinking behind the Bill.

The Budget statement of my right hon. Friend the Chancellor of the Exchequer referred to his triple objective. He told us that the mandate which we had was to achieve all three items in the triple objective at the same time, and a strong £ came first. The maintenance of the £ is the centre of the Chancellor's thinking. Indeed, it has been the centre of his thinking for so long that it is tending to obscure his vision. I believe that we are in grave danger of making the £ into a little tin god and bowing down and worshipping it.

Growth should be the centre of our thinking. Economic growth is what we need, and growth should be at the top of our list of objectives. We cannot have a strong £ without economic growth, unless people are prepared to restrain themselves or allow the Government to restrain them to a greater degree than is really possible in a free society. Thus, the inevitable end of putting growth second to the £—and this is the underlying reasoning of the Finance Bill—will not be to save the £.

To talk of an incomes policy as being the only way to save the £ is dangerously to overestimate the value of such a policy. In the process of doing so, we could ensure its failure because, by the nature of things, a prices and incomes policy can have only limited success.

I do not mean that in any way as criticism of my right hon. Friend the First Secretary of State—indeed, the achievement of the prices and incomes policy, particularly concerning prices, has been immense; but the mistake is in believing that in our type of society we can achieve more than a slight slowing down in prices and incomes. On the other hand, by putting growth at the head of our objectives before the £, as it were, we are more likely to save the £ than by having it the other way around.

That is not to say that I do not appreciate the difficulties of my right hon. Friend the Chancellor in his problems with the nation's creditors. We have to carry them with us in the steps that we shall be taking now and during the next few years. I believe that we can carry them with us if we take certain steps and if we show them the steps which we propose to take.

First, while pursuing economic growth we should be taking positive action to reduce Government expenditure. I refer, in particular, to Government expenditure abroad and to defence expenditure in the area east of Suez. I have said this many times before and I propose to keep on saying it. I do not believe that we can expect our creditors to pay for us to maintain the myth of a world military rôle.

Secondly, we should restrain demand, not by the dead hand of tax, but rather by a new and major offensive in National Savings. There is a great deal that can be done here. We must take a new and major offensive in this direction so that we can have restraint of demand without having constantly to increase taxation.

Thirdly, we must put some certainty into our balance of payments position. In the short period, until we can reduce Government expenditure abroad, there is really no alternative to getting some certainty into our balance of payments by having a system of quotas. It is not enough simply to list the difficulties of such a policy. The solutions which we have tried in the past have failed, and it is not enough merely to live in hopes.

Mr. Bruce-Gardyne

Does the hon. Member really believe that after operating the import surcharge for more than 18 months, against all the rules of a whole series of international treaties, if we were to replace it by import quotas, other countries would not retaliate against our exports?

Mr. Barnett

Many difficulties are inherent in a policy of import quotas, but we should be concerned not with making debating points, but about the state of our economy, with getting certainty into our balance of payments, in the short term. I am not proposing that a policy of quotas should be persisted in for very long—I suggest that we should have a selective form of import quotas until such time as we can deal with the longer-term problem. In the short term, however, with the surcharge coming off in November, resulting in a flood of increased imports, it seems to me that there is no alternative to this sort of policy.

Fourthly, I would continue the attempt to keep the growth of prices and incomes below the growth of productivity, whilst recognising the very limited success for which one can hope, bearing in mind, as we should bear in mind, the basic unfairness of our existing wage structure. We are starting with a wage structure which is anything but fair. Therefore, to hope and suggest that we can have a prices and incomes policy which could be wholly successful is totally to overstate the case for such a policy.

Taking that view, it will be clear that while I welcome the Selective Employment Tax and the fresh thinking evidenced by it, I am disappointed that the opportunity has not been taken with the introduction of this tax to give back some of it by way of increased personal incentives as well as greater incentives to industry, although in the latter case I do not wish to belittle the measures which have already been taken and are proposed to be taken.

The plough back in Corporation Tax and the incentive to plough back for greater growth, cash investment grants, of which I very much approve, assistance to development areas, the Industrial Reorganisation Corporation, aids to exports, which we have never had before, and the whole fresh approach by the Department of Economic Affairs—all these measures we have had and are very good, but we must face the fact that, despite all these measures, industrial production is stagnant.

The reason is known. It is the insistence on putting the £ before growth. I fear that this policy will fail on both counts, because that seems to me to be the thinking behind the Bill; and because that seems to me to be the thinking behind it I am rather disappointed with it.

6.38 p.m.

Mr. John Boyd-Carpenter (Kingston-upon-Thames)

As the Bill deals with taxation and as the age of the taxpayer is sometimes relevant to his liability, I hope that you will not rule me out of order, Mr. Speaker, if I wish you many happy returns of the day—[HON. MEMBERS: "Hear, hear."]—and if in doing so I use the word "returns" in the non-taxation sense.

As the Chief Secretary to the Treasury has told us, the Bill is necessary to give legal effect to the Budget; and as it is a bad Budget it is a bad Bill. It imposes additional taxation upon what is already the heaviest-taxed nation in the world. It offers not a spark of the incentive to which the hon. Member for Manchester, Cheetham (Mr. Harold Lever) referred, and not a spark of the encouragement to enterprise to which the hon. Member for Heywood and Royton (Mr. Barnett) referred. It offers not the slightest encouragement to anybody to end the stagnation which affects British industry today. It simply goes on with the dreary process of adding a further solid load of taxation to the burdens which the Chancellor, in his previous Budgets, has imposed upon the country.

The stagnation in our economy comes at a time when taxation is at its highest, when the rewards which can be offered, the incentives to young executives which were referred to, are so low, and when, inevitably, so many people at the heads of great enterprises have to concern themselves with the taxation effects of the actions they take rather than with enterprise and profits.

That is why for my part I feel under no obligation to respond to the Chief Secretary's challenge and say, when I come to criticise the Selective Employment Tax, what alternative I would propose. I will say bluntly that taxation is too high already, and that for my part I propose not only that the Selective Employment Tax be not applied, but that there is no need for any alternative whatever. I would quote the Chancellor of the Exchequer on that proposition, from his own Budget speech: The message is clear: 'More savings, less tax'."—[OFFICIAL REPORT, 3rd May, 1966; Vol. 727, c. 1440.] There is nothing here in this Finance Bill to encourage those savings which, on the Chancellor's own showing, would reduce the necessity for tax.

I want to address myself to the Selective Employment Tax. The Chancellor, who has been very patient in listening to this debate, cannot feel exactly encouraged by the response to it. Even his hon. Friends who began by saying how much they welcomed it ended by damning it pretty fully in practice, and my hon. Friends have shown that it is really riddled with anomalies. The hon. Member for Cheetham thought the argument by anomalies, as he called it, unfair, and he quoted by way of example, in the context of charities, the fact that charities are not exempted from the petrol tax. What the hon. Member did not seem to appreciate was that this is a tax which prides itself on its selectivity, whereas petrol tax is universal, or almost universal, in its application, and the criticism which we make of the Chancellor is that these are not accidental anomalies inherent in a universal tax, but these are deliberately imposed by the right hon. Gentleman, through that selective aspect of this tax which he claims to be its particular merit. Therefore I say to the hon. Member for Cheetham, as I say to the Chansellor, that the criticisms which have been made this afternoon most effectively—and others no doubt will be made—of the anomalies and unfairnesses of this tax are not ones which he can rebut by this kind of argument, which is relevant to a universal tax but is completely irrelevant to a tax which the Chancellor has chosen as selective. As far as petrol tax is concerned, though charities have to pay it, they do not, at least, have the irritation of knowing that somebody else is subsidised to the extent of 7s. 6d. a gallon.

The tax itself, I think, owes its origin to two unhappy mental approaches, the old-fashioned Labour Party idea that there is some moral superiority about working in a factory as opposed to working anywhere else, and the concept of the planners and those who advise the Chancellor that human beings are "bodies"—in the old Army phrase—to be moved about in accordance with the precise direction in which the planners think they can be most usefully employed.

It is on these two curious intellectual strains that there has grown this curious concept that workers are in three classes: the first-class workers who are quite admirable and to be encouraged and are encouraged by 7s. 6d. a week extra to their employers, who work in factories; second-class workers whose employers have to make the Chancellor interest-free loans but who ultimately do not pay more than that—these now, thanks to the right hon. Gentleman's surrender, include agriculture as well as transport; and the third-class, really bad workers, who work in such disreputable occupations as insurance, banking, building, and export agencies. This is the result of this curious thinking which has produced this quite extraordinary tax.

I take it first, straightforwardly, on the economic judgment behind it. It is simply not a fact that the capacity of this country to earn its living in the world is concentrated on its manufactures. There are an infinite variety of services, banking, insurance and so on, which earn a great deal of foreign exchange with the further advantage of attracting the minimum of imports. Therefore, I do suggest to the House that even on the straightest economic test the Chancellor has really done a most curious thing when he has provided that the man who prints the most trivial publication, a brochure which advertises a bunny club, or the man who manufactures bingo equipment—and the Prime Minister is always talking about the bingo society—are admirable people engaged in manufacturing who must be subsidised, whereas those who work in an export agency or in banking or in insurance are people who should be discouraged and fiscal means should be taken to diminish the strength of their employment. I shall come to the social point of view in a moment, but even from the economic point of view, surely, with very great respect to the Chancellor, this is nonsense, and it is extremely dangerous nonsense.

We know of another aspect of this from the recent statement by the Chairman of the Prudential, Sir John Mellor, whom many of us knew as a very distinguished Member of this House. He quoted the words of the Chancellor that I quoted a moment ago, The message is clear: More savings, less tax and he went on to say with very great effect: Life assurance and pensions provision are the pre-eminent sources of private saving in the lower income groups, for whom industrial life assurance is virtually the only form of saving. Whatever merits may be claimed for the Selective Employment Tax, its effect on life assurance savings is in conflict with the Chancellor's stated aims. Sir John pointed out that the effect on the great organisation over which he presides would be a gross tax burden of £1,400,000.

Why impose it on the building industry? The House knows well that last year we had a record increase in the cost of house building—10 per cent. When I asked the Minister of Housing and Local Government at Question Time yesterday what would be the effect of this tax on the price of houses he said that it itself would produce a further increase of 2 per cent. Well, 2 per cent. may not seem much to hon. Members, but the ordinary price of a house in London is about £4,000, and, though I dare say that the right hon. Gentleman under-stated the case, taking his words at their face value it means an increase of £80 in the price of a house. What economic or social purpose is served by deliberately imposing the full burden of a selective tax on the construction industry, and in particular on that section of it which is concerned with building houses for our people? I asked the question yesterday, and I repeat it, is it the policy of the Government to increase or decrease the price of houses? Because this tax, on the statement of Ministers themselves, is a tax which must have the effect of making an appreciable increase in the cost of a house.

There is the tourist industry, our best dollar earner, one of the most important sources of overseas earnings. The Chief Secretary, at that Box today, said that we want employers to think hard about whether or not they are retaining too much labour. In the hotel industry they are not worried about having too much labour. They are worried about how to get the labour necessary to keep up in the hotels the standards which are required if we are to attract tourists here. Here again is one of the best methods of earning foreign exchange, and yet by this tax it is discriminated against by the right hon. Gentleman. From the economic point of view, with respect to the Chancellor, this is foolish discrimination, and is surely nonsense.

I turn to the social side. I think it is the very greatest mistake to put the collecting of the tax on the Ministry of Pensions. The hon. Member for Cheetham referred, perfectly fairly, to the fact that my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) some years ago went so far as to include in a Finance Bill a much more modest proposal which would have had the same effect in respect of a much smaller and non-discriminatory tax. But the House will recall that my right hon. and learned Friend made it clear that it was only intended to put it in as a safeguard during one year and that a better method of providing a regulator would be found. In the event, it was never applied. Whether my right hon. and learned Friend was right or wrong is not material to whether the imposition of this large tax—25s. as against 4s.—through a social service Department may not do very serious harm. I suggest that it will.

The Ministry of Pensions and National Insurance is a Department with a very high standard of administration and a considerable social conscience. It is a social service Department. To put upon it this duty must be to alter the administration of our social services in considerable degree, because it will be turned into a tax-gatherer.

Is the amount to be collected on the same stamp as the National Insurance contribution? I think that it will have to be, because there is no room on the card for another. That will mean that the stamp itself will cost over £2 a week. It is the fact that the difficulties of enforcement will be greater. It means that the difficulty of enforcement for a contribution where everyone knows that what is being provided is for someone's benefit is very much less in human terms than the enforcement of a tax. If there is evasion of a joint stamp, then the pension rights of the individual worker will be affected.

Has the Chancellor considered the enormous stimulus that it will give to people becoming self-employed? The labour-only type of contract which exists in the building industry will be enormously stimulated by it.

Mr. Harold Lever

I am sure that the right hon. Gentleman would not want to give credence to the story and would want to make it clear to the country that if workers co-operate in this they will suffer by not being eligible to get redundancy pay or unemployment pay.

Mr. Boyd-Carpenter

The hon. Gentleman may say that, but, if he knows the building industry, he will also know that it has already developed to a considerable degree. If he wants confirmation, his right hon. Friend the Minister of Labour admitted that only a few days ago. The factors that the hon. Member has in mind do not seem, even now, to prevent it developing.

I am saying that the temptation to arrange for a man who works for one to become an independent contractor must be increased if that is going to save one a 25s. a week tax. It is a pity, because it will deprive the worker concerned of the protection of the Industrial Injuries Act and the advantages of unemployment benefit. Socially, it will be a bad thing, but surely it must be the inevitable effect of linking the tax to the National Insurance contribution in respect of employed people. That, again, is one of the quite unthought-out social effects of the tax.

There is one advantage that the Chancellor could take of using the National Insurance system. It is that it is not anything like as inflexible as he appears to think. He could easily exempt those drawing pensions but still working, because they contribute on an employer contribution only, with a different stamp and I think a different coloured card. The Chancellor could also exempt Northern Ireland, because it has its own National Insurance system. Why does he not do both those things? Is it really helping the deployment of labour to impose a 25s. a week tax on someone who employs an old man for a limited number of hours at a moderate wage—so moderate in most cases that 25s. a week will loom very large in proportion?

The tax will make the employment of old people more difficult, though to make it easier is the very objective for which social service Ministers of both parties have fought hard in years past. I beg the Chancellor to take advantage of at least one of the flexibilities of this instrument and exempt employed pensioners altogether. I suggest that he should consider doing the same for Northern Ireland, where unemployment is three times the United Kingdom level, where there is no shortage of labour and where, as they have their own machinery of National Insurance, they could do it.

I beg him to think hard about the disabled person. It is all very well for the Chief Secretary to say that a disabled person makes the same contribution as anyone else. Disabled people work very hard and well. I have seen many of them at work. But it depends on the degree of disability, and they are registered by the Ministry of Labour as disabled people because it is felt that they need special and sheltered employment and special protection. Does the Chancellor think that by imposing the tax, which will discourage the use of disabled people, he is really doing any good? Does he think that he can take a disabled man who acts as a lift operator in an office and send him into a factory? He will much more likely cause automatic lifts to be introduced and that disabled person to be deprived of his job.

I come, then, to the shocking inclusion of charities. The right hon. Gentleman the Chief Secretary said something about considering how and in what way they could be compensated. I hope that the Chancellor will tell us what that means. Does it mean that the Government are determined that these charities shall be in no worse position after the tax is imposed than now? If that is so, it is a repentance which would be very welcome. Alternatively, does it mean, to adopt the rather sinister phrase that was used, that the whole matter is still the subject of useful discussion which is to take place after Whitsun? We must press for an assurance about that.

I agree with my right hon. Friend the Member for Flint, West (Mr. Birch) that it is shocking that a tax should be brought in which will fall in this way on the multiplicity of charities that we have. To give the Chancellor an example from my own constituency, we have in Kingston the only voluntary hospital to be started and maintained since the National Health Service came into being. The Kingston Victoria Hospital has been maintained, despite the difficulties of the day, as a result of devoted service by consultants and physicians and a tremendous fund raising effort in the locality. The tax will cost that hospital an additional £1,000 a year which, for a hospital on this small scale, will be a crippling and perhaps fatal burden.

If one considers the great charities, Dr. Barnardo's Homes have said that it will cost them over £100,000. The National Lifeboat Institution says that it will mean the cost of a new lifeboat every year. There are half a dozen major charities, as well as the small ones, which will be very adversely affected.

It is no good hon. Members opposite saying that they can raise more money. Do they not realise that it will make it even more difficult to raise the present sums of money when the public know that a proportion of what they contribute at some sacrifice to themselves is to be taken into the Exchequer by way of the tax? It is my view that, far from raising more, the charities will be in a position probably to raise less.

What good is done by stopping the service to children, sick, old, disabled and ex-Service people which these bodies perform by deliberately imposing a selective tax upon them? It means diminishing the amount of service that they can do. They can look after fewer children, house fewer old people and give less help and employment. What about the Lord Roberts Workshops, which provide sheltered employment, good in financial terms and better in self-respect, for disabled ex-Service men? Does the Chancellor contemplate imposing a selective tax which will fall upon that kind of employment?

The right hon. Gentleman will remember that Chancellors of the Exchequer are not always remembered in the future for the financially significant parts of their Budgets. Lord Butler is sometimes remembered for the "pots and pans" Budget. Unless he can tell us that he will take charities completely out of this Measure, the right hon. Gentleman will certainly be remembered as the Chancellor of the Exchequer who, so far from trying to soak the rich, tried to drown the poor, and his Budget will be known as the Barnardo Budget.

7.1 p.m.

Mr. Robert Edwards (Bilston)

I have seldom listened to two speeches from the other side of the House as destructive and negative as the two speeches which we have heard during the last hour. Apart from the last five minutes of the speech of the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), which was excellent and full of idealism, his contribution was completely negative and, in my view, extremely dangerous for the British economy. To suggest to the House and the country that the economy is stagnating is a very damaging statement to make.

I wonder who is doing the work in this country. I wonder who is responsible for producing the highest volume of exports ever in our history. Does that sound like stagnation? I wonder who is producing the chemicals which we export to the markets of the world in greater volume and of a greater value than we have ever exported before. I wonder who produces the cars which we sell in the markets of the world to a greater extent than ever before. It is nonsense to suggest that the economy of this country is stagnating. It is true that we could do much better, but it is dangerous in the extreme to say that the economy is stagnating.

Mr. John Hall (Wycombe)

My right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) said that the economy was stagnant. Is the hon. Member saying that production is not stagnant? If so, would he like to quote the more recent figures?

Mr. Edwards

The right hon. Member for Kingston-upon-Thames said that the. economy was stagnating. I should be very happy to enter into a dialogue about production, but at the moment we are not talking about production; we are talking about our economy in general.

Mr. Boyd-Carpenter

Is the hon. Member arguing that an economy can be vigorous and expanding when production within it is stagnating, as he apparently accepts?

Mr. Edwards

The economy of this country is not stagnating because production is not stagnating. I hope that in reply to the debate the Chancellor will be able to produce what I cannot produce at a moment's notice, because I do not speak from notes—the up-to-date figures relating to productivity.

I admit that some of our basic industries are working at only about 60 per cent. of their capacity, and the basic purpose of this Selective Employment Tax is to deal with that special problem. As a nation we live by our exports. We have to buy from other countries half of the food which our people eat. In order to purchase this food we have to export to the markets of the world. In order to export, we have to import raw materials, and in order to do this we have to have a bias on taxation in the direction of production.

Mr. Iremonger

We do not have to import anything in order to export our invisible exports, which are supported by the service industries.

Mr. Edwards

By some of the service industries. But perhaps I might be allowed to make my own speech without all these interruptions. Some of the points which hon. Members are making are Committee points. [Laughter.] I do not know why you think it is so frivolous. These are Committee points, as you know and I know.

Mr. Speaker

Order. This is the second time that the Chair has been brought into the matter. The Chair is neutral.

Mr. Edwards

I would never dream of accusing you of being frivolous, Mr. Speaker, and I withdraw the remark. The point which I am making is that when we get into Committee we begin to deal with such finer points as hon. Members opposite are raising. The service industries were mentioned in an interruption. Only a few of the service industries make a basic contribution to our balance of payments, and I presume that those services will receive special consideration during the Committee stages of the Bill.

The right hon. Member for Flint, West (Mr. Birch) made a dreadfully destructive speech. He made an attack on a fine economist who is serving this nation and who has been subject to libel and attack from hon. Members opposite just because he was born in Hungary. This man is giving his services to this nation, and he is a brilliant economist. To suggest that he was responsible for the difficulties in India or that they were due to his advice; to suggest, as the right hon. Member for Flint, West did, that he was responsible for the collapse of the economy in Ghana; and to suggest that he was even responsible for a revolution in British Guiana is no joking matter. [[Laughter.] It is no joking matter to libel and attack a man and to blacken his character in this way. Apparently you think this is funny. You ought to be ashamed of yourselves.

Mr. Speaker

Order. The hon. Member must not permit his indignation to take him beyond the rules of order.

Mr. Edwards

I beg your pardon, Mr. Speaker, but I think you will admit that we have been very heavily provoked during the last hour of the debate. We all know that we are living in a world of inflation. This is characteristic of India, Ghana, British Guiana and of this country, and it is a problem which every nation, including the Communist countries, is having to face. To dare to suggest that an economist who is serving this nation well was responsible for inflationary developments in the three countries which were mentioned, and to let that be placed on the record without some kind of response, would be doing a disservice to the House and is not related to the kind of issues which we are debating.

It is my view that the Budget is very imaginative. It moves away from the old routine of stop-go economics. If new income had to be found for the nation, I believe that most of us on this side of the House agree that the Selective Employment Tax is a very constructive way of obtaining it. There are, however, criticisms which I should like to make.

I am sorry that I have taken so long to get to the point which I wanted to make. Our economy basically is biased in favour of the producer. There is an unbalance in the economy in favour of the producer and against the consumer. We must have a proper and better balance in this respect.

My criticism of the Selective Employment Tax is that it will unbalance our economy much too far in favour of the producer and less and less in favour of the consumer. During the last half century there has been massive pressure in this House, against all Governments, in favour of manufacturers and producers. All kinds of Bills have reached the Statute Book giving the producer overwhelming power in our economy. Tariffs have been built up to protect the manufacturer. The worker, as a producer, has organised unions and has developed campaigns which have brought about the great Factory Acts and Acts which deal with redundancy and all the other social problems that affect the workers.

In recent years, however, we have begun to introduce Bills for consumer protection. We were achieving a realistic balance in our economy. I am afraid that the payroll tax will unbalance our economy all over again. Basically, it is a tax on the distributive trades and services, into which we were trying to inject more efficiency and a better organisation of distribution. I presume that one of the basic purposes of the tax is to draw surplus labour out of the distributive industry. But, as the right hon. Member for Kingston-upon-Thames rightly pointed out, the tax will not draw surplus labour from distribution because it is just not there; there is a shortage of labour in the distributive trades.

I hope that I may be forgiven if I refer to the Co-operative movement. I have an interest to declare. For three generations my people have been active members of the movement. A forebear of mine started one of the first co-operative bakeries in this land. The village in which he lived had no regular wholesale fresh bread. A group of workers got together and formed the bakery so that the village would have regular daily supplies of fresh bread. My forebear was not paid for this; he did it voluntarily and never made any money out of it. All the profits went back to the consumers in the form of dividends.

From these localised beginnings the great Co-operative movement has developed, based on the principle of common ownership, with no profit-making, and with all surpluses going into modernisation and dividends to buyers who are the owners. This tax is one of the heaviest blows delivered at that movement since its inception. I hope that I have now put myself in order, Mr. Speaker. The tax will cost the Co-operative movement £10 million a year. It distributes dividends amounting to £40 million a year, which means that the tax represents a loss of one quarter of its distributed dividends to 13 million co-operators each year.

The technique of voluntary common ownership should be part of the structure of our society. This method of self-help and mutual aid should develop in industry, the distributive trades and agriculture to an increasing extent, but it will not do this if those trades have to bear the dead weight of the payroll tax. The London Co-operative Society, in addition to all its other taxes, will have to find an extra £750,000 a year, and the Royal Arsenal Co-operative Society will have to find another £350,000 a year. These are heavy blows at organisations built on the principle of service to the community.

Co-operative organisations deliver milk, coal and groceries to their customers. This is a costly method of distribution, but it is demanded by consumers.

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

Does the hon. Member realise that Unigate will have to carry £11 million? Is he suggesting that the Cooperative movement should be specifically excluded, or that the distributive services as a whole should be excluded, and that if they are not the delivery of bread and milk to which he has referred may cease and the whole thing be put on a cash-and-carry basis in future?

Mr. Edwards

I am not suggesting that the Co-operative movement should be completely excluded, or should receive more favourable treatment than any other section of the distributive trades at this moment. But for the future this technique of common ownership by voluntary association is worthy of favourable treatment, such as it receives in Denmark and Sweden.

Nor do I suggest that the distributive trades should be relieved completely of this tax. I suggest, however, that at this moment there is little justification for the very heavy rebates that will be paid to industry without discretion. I take the town of Burton as an example. The distributive trades there, including the Co-operative movement, will pay the payroll tax. By doing so they will help to subside the brewers who do not need the subsidy and have never asked for it. It means that voluntary organisations and charities will subsidise the patent medicine industry which produces its witches' brews which have no medical value at all.

There should be discrimination in the question of rebates, because they will amount to £130 million a year. They should be abolished in respect of industries which are making no important economic or social contribution to the economy. The money thus saved should be used to reduce the sum of 25s. a week for each male worker and 12s. 6d. a week for each woman worker which service industries will have to pay.

I have spoken much longer than I intended. It was my purpose to make a short speech, but I was provoked into lengthy arguments by hon. Members opposite. It will be the intention of a number of hon. Members on this side interested in the Co-operative movement to table Amendments and we hope to have a dialogue with the Government during the Committee stage. I hope, by this means and by detailed and constructive arguments, that some concessions will be made, particularly as the tax relates to part-time labour and to the employment of older people and younger people.

7.20 p.m.

Mr. Richard Wainwright (Colne Valley)

I sympathise with the attack of the hon. Member for Bilston (Mr. Robert Edwards) upon certain aspects of his Government's tax. I, too, like many hon. Members, have had sombre figures from co-operative societies in my constituency—significantly enough, one from one of the largest and most dominant retail societies in the kingdom and another from one of the smallest.

When another practising accountant in the House—the hon. Member for Heywood and Royton (Mr. Barnett)—spoke, I, as a practising accountant myself, was fascinated at the prospect of a defence of the Bill from a professional point of view from that side of the House. I noticed that he quickly turned instead to an interesting speech on the £ and the prices and incomes policy.

The Bill underlines the perplexity and confirms the dismay created in the country by the Budget statement and brings certain added disappointments. Part V clamps down even further on the country the Capital Gains Tax, with none of the hoped-for provisions for a general exemption limit for small capital gains. I hope that, in the Chancellor's winding-up speech, we shall hear something of the reasons for the continual refusal to provide some general exemption limit, particularly having regard to the storm which was caused when the return forms for 1966-67 were issued to the public recently.

Part III clamps down the Corporation Tax even further upon the country, with no recognition of the folly of importing into a 40 per cent. tax all the crudities inherent in the 15 per cent. Profits Tax so usefully forged for the present Government by those now sitting on the Opposition benches. I doubt whether any practising accountant can understand why the acceptance, such as it was, of the crudities of the comparatively low Profits Tax should excuse their appearance in what is now the chief company tax in our system.

The Bill, in the view of my right hon. and hon. Friends, suffers basically from a lack of consultation, a lack of ventilation of its main proposals, over the years beforehand. In that fault, it contradicts entirely the spirit of the National Plan, which is that of co-operation in planning. It contradicts good practice in other countries. In the United States of America, for instance, most of their revenue proposals are ventilated well beforehand and there are even public hearings. In that way, a great many crudities and inequities are eliminated and some tax proposals never see the light of day at all.

Perhaps the Treasury has forgotten that all previous innovations of taxation on this scale have been introduced when war was imminent or taking place or we were in the immediate aftermath of war—in conditions, therefore, when controversy was stilled and those who operated the tax system, both for the taxpayer and for the Revenue, were willing to swallow their distaste and get on with the job. This is not the atmosphere at the moment and one cannot except it to be so.

Therefore, I suggest that an entirely new approach to innovations in taxation is required and that there should be a great deal more preliminary consultation. I know that I shall be confronted with the alleged need for secrecy, but I suggest that the shadow of the bonded warehouse is no longer a legitimate excuse for regarding the Budget as a great conspiracy which has to be sprung on the nation with out public opinion being in any way prepared.

I should like to take up the challenge thrown out from the benches opposite for alternative suggestions. I was sorry that the right hon. Member for Kingstonu'Don-Thames (Mr. Boyd-Carpenter) refused to take up this challenge. I was surprised to hear that Conservatives do not want to reduce taxation on earnings and are apparently not seeking methods reducing tax on the profits and earnings of success, enterprise and risk-taking. We on this bench want to do just that.

We went on record before and during the election in favour of a general payroll tax, payable by all employers on a basis of a percentage of pay, variable according to region, age and sex in order to reduce the burden of taxation on earnings. I would say to hon. Gentlemen opposite who have thrown out the challenge that we were on record with this before the election. I did not hear during the election—certainly not up the Colne Valley—any proposals for a Selective Employment Tax, although that district, being conspicuously a manufacturing district and lacking in service trades, would have been an excellent platform from which to launch their tax biased in favour of manufacture.

The opportunity for consultation and preliminary ventilation has gone by. I hope, therefore, that at least during the winding-up speech we may have some enlargement of the statement made earlier this afternoon that the framework of the tax is infinitely flexible. If the Chancellor has deliberately chosen a flexible instrument, he must have some idea of what way he hopes to bend it as the years go by. I hope that he will reveal this to us.

There are one or two other aspects of the Bill in which we are interested. I will not dwell on them at length, because we hope to table Amendments, but I wish to quote them now as evidence that there has not been any proper consultation with responsible opinion.

We read on page 37 that, in addition to the usual Clause to which we have become accustomed, in respect of changes in the investment allowance—namely, that the allowance shall apply if a contract has already been entered into for the purchase of the asset—there is now for the first time the extraordinary addendum that the asset which has been contracted for must be borught into use not later than 16th October this year.

I should like to ask the Chief Secretary how he supposes that, in the case of industrial buildings, where the allowance has to disappear and not be replaced by any of the new grants, a large factory contracted to be built, with the contract sealed in January, 1966, can be expected to be brought into use not later than 16th October this year. His experience of the building trade must be entirely different from mine.

From the point of view of the Revenue it seems extraordinary that Clause 23, which is apparently aimed at catching options and bringing these things into the Revenue net, is strangely aimed only at options to acquire shares in the employing company. Therefore, not attempting to catch practices such as that of the Garda Trust, of which we have heard so much recently, it will endanger a great many useful co-ownership and co-partnership schemes.

It is our opinion that if——

Mr. Harold Lever

Surely, in the case of the Garda Trust we are dealing with a totally different subject. The Chancellor is dealing with share options. I do not think that there were share options in the Garda Trust. There was a share subscription, which is another question. It is questionable whether the right to subscribe shares in the trust was not already given under existing tax legislation as an emolument to the Treasury.

Mr. Wainwright

I am grateful to the hon. Member for that point. I stand by my general comment that there are share option schemes where the shares are not to be in the employing company and those, very strangely, are missed by this legislation.

Mr. Barnett

The hon. Gentleman will agree that that already would be treated as an emolument.

Mr. Wainwright

No. As I understand, the rules to which apparently the Revenue now takes exception are the same in, the case of a share option for shares outside the employing company as they are for a share in the employing company. I am satisfied about that.

In conclusion, if there are to be further innovations on this scale—the Prime Minister promised us some in his speech at the Press Gallery luncheon recently—it is the hope of the Liberal Party that we shall have a more civilised procedure, more preparation, and the consulting of responsible opinion, particularly the opinion of those who will have much of the duty of operating new taxes

7.31 p.m.

Mr. Robert Sheldon (Ashton-under-Lyne)

The hon. Member for Colne Valley (Mr. Richard Wainwright) brought up one point that I, too, am interested in, concerning the time limits for payment in the case of new investments. He will find that one or two hon. Members on this side will agree with part of what he said. Perhaps this is a point we can discuss rather more fully on Committee.

I judge the Bill principally by its effects on economic growth. I admit that there are other ways than by bringing in Finance Bills by which one can have some greater effect on economic growth. Better methods are by using the ingenuity of manufacturers, the use of educated skills and technology, and, most particularly, using the drive and energy of some of our better industrialists. These are not matters in which the Government can concern themselves very greatly.

I believe that what the Government can do is to concern themselves about the level of investment. There are two Clauses which have a bearing on investment—Clause 33, which replaces allowances by grants, and Clause 42, which introduces the Selective Employment Tax, which also can have some effect, if used in a certain way of improving investment. These two Clauses, coupled with the investment grants introduced in the Industrial Development Bill, are valuable, but must be seen in the context of the Budget statement of my right hon. Friend the Chancellor of the Exchequer. In his Budget statement my right hon. Friend said this: At present, I foresee little change in private industrial investment this year."—[OFFICIAL REPORT, 3rd May, 1966; Vol. 727, c. 1443.] It is this statement which I find so disturbing, because of its implications for the future and for economic growth. Many have witnessed forced development in a country such as Russia, where large sums were accumulated through massive saving, which helped to create there an industrial base. Despite the inefficiency, the result was a massive increase in investment and, consequently, production. There is a very great difference between forced investment, which can succeed in producing a certain quantity of production, and the kind of production that we would wish to acquire, the kind of production required by a sophisticated market, and, most particularly, the kind of production required by our overseas customers.

Nevertheless, the example of Russia shows that the capacity of a country to invest is not dependent upon outside circumstances, but only upon what diversion of resources a country is prepared to accept. If heavy investment and the consequent rapid economic growth are considered important enough, we can have it, even in our present economic difficulties; but we must be prepared to forgo other things to get it. In particular, we must be prepared to forgo the expensive privilege of helping to order the affairs of countries east of Suez while neglecting our own.

In the short term, too, it may mean the acceptance of import quotas as a means of introducing some certainty into our balance of payments position, so that industrial investment can expand. These are hard and ruthless decisions, but if we are serious in wanting high investment leading to high growth such a choice must be made.

There are two main shortages of investment that we have to remedy. First, the level of capacity generally has been too low. There have been in the past fears of stop-go: fears, too, of the dangers of over-investment with unsaleable production resulting from it. But, for the nation as a whole, even such over-investment may not be totally unprofitable, if the industry concerned is forced to a ruthless examination of its costs and if it then turns to export markets to keep its plant and machinery running. But, because capacity has been so low, manufacturers generally have had a greater choice than they ought to have between export markets, on the one hand, and the softer home market, on the other.

It has also meant that early in an expansionist phase the limits of capacity are quickly reached, with a consequent increase in prices that manufacturers are so able to obtain, coupled with a stagnation in exports and an increase in imports.

This is the case for the encouragement of investment leading to a general increase in capacity. My right hon. Friend the Chancellor of the Exchequer can give investment grants or allowances, but it is no use, unless an expansionist economic climate is created at the same time. Industry will not invest in plant if it sees little chance of selling the increased production. The great strength of the National Plan and the way it was introduced was not that it laid down goals capable of precise attainment but that by making clear the expansionist aims of the Government it encouraged industry to take a long look ahead. It thus encouraged the modest increase in investment which the economic situation did not justify.

The greater investment which should have been made last year and the sub-slantial investment that ought to have been made this year will be denied to us. The machinery and the equipment which should have come into use this year will affect the level of production next year and in 1968. There are great dangers here for the future—dangers that manufacturers will be disillusioned by future forecasts by the Government and also, by its own optimism, dangers that the retrenchers of industry may come into their own and that the investment cycle may once more resume its position in the economy: a danger, too, that co-operation between the Government and industry may be soured for years to come. These may be the consequences of failing to provide conditions favourable to general investment.

The second kind of investment that I believe we ought to encourage needs to be much more selective and discriminating. I believe that the Selective Employment Tax is an attempt to introduce such discrimination. By the standards of modern industrial countries, our investment relative to our gross national product has been low, but it has not been too low to account for all our investment problems. If we accept the figures, it would appear that we have invested in too many of the wrong things. We need to be much more selective and discriminating. We need to encourage modernisation and new techniques of manufacturing.

The thinking behind the discrimination of investment is well documented and the arguments also apply to the Selective Employment Tax. In 1951, the Tucker Committee on the Taxation of Trading Profits favoured discrimination of annual allowances. In 1955, the Royal Commission on the Taxation of Incomes and Profits favoured discrimination by subdividing investment into categories qualifying for different capital allowances. In 1963, the N.E.D.C. pamphlet "Conditions favourable to faster growth" pointed out the advantages of greater discrimination.

One report after another has favoured such greater discrimination and the case for this is now overwhelming. However, as soon as we decide on greater discrimination, we need to break down investment into categories and to state what kinds of investment will qualify for the differing rates of grant. Discrimination walks hand in hand with categorisation and to accept one is to accept the other.

The Tucker Committee anticipated this and also anticipated the pressure of Parliamentary lobbies which would be introduced in an attempt to change the categories. This pressure we are seeing, and we shall see, during the passage of the Selective Employment Tax and the Ministry of Labour Bill. The task of such pressure groups is obviously made easier because of the inevitable anomalies created whenever categorisation is attempted. Anomalies we shall always have, although a reduction in their number and importance should be possible.

Legislation involving categories inevitably provides a field day for the carpers and nigglers of our Parliamentary system, but if we wish to influence the direction of the economy—when economic growth is the first priority of our time—the Government cannot be neutral. If we wish to influence the direction of the economy, decisions favouring certain investments and not favouring others must be taken. There may from time to time be need for the use of blunter weapons than we might like to use. We need finer instruments, but the Government must not be reduced to inaction because they have no rapier to hand.

Mr. Stratton Mills (Belfast, North)

Is the hon. Gentleman aware that he is drifting into the use of language of a totalitarian State?

Mr. Sheldon

The function of the Government is to see that broad economic goals are achieved. I quoted at some length the opinions of a number of bodies which examined this matter on behalf of Governments. I should have thought that that was answer enough to show that some discrimination needs to be applied by any country, particularly a country in our position.

I was saying, concerning discrimination, that frequently we will have to be satisfied with broad differentiations, such as we see between services and manufacturing in Clause 42. I admit, however, that such differentiation is a rough form of categorisation and that the growth of services is a sign of increasing wealth. But I draw a distinction between consumer services and other services, a proportion of which are of definite advantage to the nation.

This distinction between consumer and other services cannot be too closely defined, but it is one which the House will recognise. Increases in consumer services largely come about not because the requirements increase, but as consumers' needs for manufactured goods become satisfied, so that the surplus income spills over into demand for such increased services. If we can afford it, it is splendid, although it is reasonable to expect that such services should pay their share of taxation.

But when we are trying to encourage investment, such encouragement should go to those who, in the main, are contributing to the economic good of the country. Of the other non-consumer services, some are of great benefit to the country—to manufacturing industry and exports—and here I hope that it will be possible in time to refine these categories much further to give incentives to certain non-consumer services. I appreciate that anomalies are an unavoidable adjunct to discrimination, but some assistance for modernisation could be given, and there are others to which I will return in Committee.

The recent economic measures of the Government have followed two main lines of thought: one towards greater discrimination and the other an unwillingness to put growth at the head of our priorities. As discrimination becomes refined, so valuable economic weapons can become available for use. It is necessary, however, that such discrimination should be joined to an expanding economy which alone will provide real grounds for confidence. My fear is that discrimination, with too much deflation, may not prove the remedy for our economic ills.

7.45 p.m.

Mr. Geoffrey Hirst (Shipley)

I trust that the hon. Member for Ashton-under-Lyne (Mr. Sheldon) will forgive me if I do not comment closely on his remarks, although I found them extremely interesting. I observe that a large number of hon. Members still hope to take part in the debate and I wish to direct my attention to several points which I had noted before the hon. Gentleman rose to speak.

I will not say a lot about the Selective Employment Tax because a great deal has already been said. I made a public comment on the subject about half an hour after the Chancellor had completed his Budget speech. I said on that occasion that the tax was complete nonsense and that everyone would realise that it was. Virtually everyone has now realised that that is the case and the view which I expressed is getting a great many more adherents among intelligent writers on this subject. It is obvious that this view is held by a great many hon. Members, including many hon. Gentlemen opposite.

The hon. Member for Bilston (Mr. Robert Edwards) obviously does not like this form of tax. The only difference between him and some of his hon. Friends—and, of course, my hon. Friends and I—is that we propose to vote against it Strongly tonight. If the hon. Gentleman wishes to justify his claim that the tax will damage the Co-operative movement, he should vote with us, but I am sure that if we do not find him lurking there, we will find him happily wandering through the Labour lobby.

I can afford to speak in this way because I have occasionally played truant when I have felt keenly that something was against the interests of those whom I represent, and it would be a pity if the Government could not get a shaking on this issue because, whether or not hon. Gentlemen opposite like it, they are going to get a shaking sooner or later from the country.

In many respects this tax is really a bit of a swindle, as my hon. Friend the Member for Worcester (Mr. Peter Walker) pointed out in an earlier debate. It is a bit of a swindle because while hon. Members have been talking this afternoon about beneficiaries receiving a um alleged to be about £133 million, we know perfectly well that they will get nothing of the sort. Indeed, they will have to pay a very large sum for the extra costs of the services and materials which they use. One hon. Member after another has pointed out the many instances in which it is absolutely vital that these services are obtained in businesses. These are not services which can just be discarded. In addition, they will have to pay the smacking great rate of 40 per cent. Corporation Tax. This will, therefore, be an administrative nuisance even for those who are allegedly the beneficiaries.

The Chief Secretary is always courteous to the House and has always been courteous to me. I therefore do not wish to be anything but courteous to him. However, while I have a great deal of respect for the ability of the right hon. Gentleman—and we have argued over the years on many subjects, sometimes on the same points—I must tell him that he should not have allowed himself to come to Parliament with the sort of brief with which he was armed today. He was obviously uncomfortable with it. Indeed, I thought that it was the only shocking speech which I had ever heard the right hon. Gentleman make, although I realise that it was not enirely his fault. He was let down and I trust that he will not get let down again in Committee because that would make the legislative process affecting the Bill a very long one.

Come to think of it, the Government come before us and plonk down a blank cheque for £1,100 million and ask the House to sign it without giving us the precise details of how the Chancellor's statements will be carried out in regard to those who, we are told, will get their money back or will receive a so-called bonus, in addition to everything else we have been told that they will be given. Bearing that in mind, the Chief Secretary—and I trust that he will excuse the phrase—waffled his way through all these important points, about disabled people and others, without making anything clear. My right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), with his great experience of the Ministry of Pensions and National Insurance, pointed out the difficulties and I do not understand why these matters could not have been sorted out before this stage. It is not very forthcoming—it is not quite the usual standard of courtesy that I would expect—to imagine that we can sit down and take on the chin a debate of this kind when the leading spokesman for the Government cannot be clear even on the points about which he tells us the Government are thinking.

The same goes for charities. We must have a definite answer, and I hope that the Chancellor will give one tonight. There can be no argument about it. It is a special case and is recognised to be. The Chief Secretary says that charities are a special case, yet at the beginning of the debate we have no answer on it at all. All this is exceedingly shocking.

From the general point of view, let the Government realise that the new tax will put up the cost of living considerably. It is not just a question of passing it on here and there—which, even though they do not like to give too much lip-service to it, might be regarded as a desirable economic necessity from their point of view—but it will put up the cost of living a great deal and will lead inevitably to wage claims. Of course it will. The Confederation of British Industry, with which, as the Chief Secretary knows, I have many connections, has given authority to that statement. I was on the committee which prepared the paper which was passed by the Council the other day, and I can tell the House that that is very strongly the Confederation's view.

The Government's scheme for payment of rebates implies, as I understand it, a permanent compulsory loan by industry to the Government of a standing amount in the region of £400 million. That is the way it is going. It may be a bit more—I do not know—but that is my guess.

Mr. Iremonger

And interest-free.

Mr. Hirst

And interest-free. There is another snag here. As the timing for company payments for the purpose of Income Tax on dividends is being advanced by reason of the last Budget and Finance Bill, there is a double disadvantage to industry. This is bound to make it more difficult for firms to have cash available for investment. In the circumstances, investment will inevitably be reduced, even by those happy firms which have the money and do not have to go to the bank to achieve these objects.

Do not the Government realise that a rapid advance in the growth of services and the construction industry in a modern society such as we are developing today is not a snag, is not something which should be shouted down or be regarded as stinking, as somebody said. It is the hallmark of a go-ahead advancing economy, not something which should be shot down in flames. The Government's distinction between manufacturing and services in this context is arbitrary, anomalous, and positively absurd.

I am concerned also that we have had no answer about part-time workers. As the House knows, I represent an area which has a high concentration of the wool textile industry, in which the part-time worker is almost the life and soul of the industry's capacity to keep up its high export record. This will be further discouraged now unless something is done to deal with that aspect of the matter. Certainly, nothing under 20 hours a week, for example, should count for tax. Something of that kind must be considered.

The Government ought to look—it is not a bad thing occasionally—at the sins in their own life. If the need to economise is one of the ideas, it ought not to be forgotten that non-productive manpower is just as important and, indeed, is very relevant to the position of some Government Departments. It is very relevant also to the position of the nationalised industries and local authorities. Somehow, they should not go scot-free under this selective tax system.

The tax will not produce any rapid redistribution, if anything at all, from the distributive trades into manufacturing. The two are quite different. In any case, many of the distributive trades are vastly important. In the Bradford and Shipley wool district I have one association—in fact, it is a national organisation—which is 100 per cent. exporting. There is not a member otherwise. They are merchants, dealers in raw wools and yarns, and theirs is a first-class organisation. The Chief Secretary knows it and the Board of Trade knows it only too well. Yet these merchants are 100 per cent. penalised. In schoolboy language, the thing is positively "crackers" The Government must give more thought to it.

I am not necessarily against some form of payroll tax, if it is necessary. I was not against it when it was being discussed in my own party. But what the Government propose now is a very different story. That tax, if it had been put across the board right away, would have involved rates of something like 7s. for a man, 3s. 6d. for a woman and 2s. 4d. for a girl. I think that it was something like that—my figures are not wildly wrong—so that it would have been about one-third the present rate. If that had been done, with some compensatory factors to give encouragment, perhaps a slightly lower rate of Corporation Tax than was expected, or something like that, there would have been incentive to effort and the drive we want in our economy. There is something to be said for that. I cannot say that I should particularly like it, but, at least, I could argue a case for it. Nobody can argue a case for this tax, however, and it is obvious that right hon. and hon. Members opposite are having a devil's time in trying to do so. Having known something of that sort of thing in my time on those benches, I sympathise with them, though I cannot think that what they are doing is at all reasonable.

Under Clause 11 we are to have a betting tax. My hon. Friend the Member for Birmingham, Edgbaston (Mrs. Knight) in a very amusing and entertaining maiden speech, drew attention to the Finance Bill itself and asked whether we could have it in better language which people could understand. I do not know whether the right hon. Gentleman had got down as far as studying Clause 11(4), which is supposed to guide people on the General Betting Duty: For the purposes of the general betting duty, where a person bets on more than one contingency on the terms that, in the event of his bet being successful in respect of one contingency, his stake on the bet, or his winnings in respect of that contingency, or both, are to provide the stake in respect of another contingency, then, unless he makes his bet on both or all of those contingencies at the same time and on the terms that both his original stake and the whole of his winnings in respect of any of those contingencies are to be the stake in respect of any other contingency on which the bet is made— That is very good. I have read a lot of these Bills——

Mr. Harold Lever

It is quite simple.

Mr. Hirst

I am not a betting man, but I should like to have some idea of what that means before the Committee stage. It all sounds rather like mumbo-jumbo to me.

There is to be a Gaming Licence Duty, and Clause 12 lists all sorts of games. I think that the Bill will become known as the "chuck-a-luck and craps" Bill—one cannot help that sort of thing happening—hut my concern is that enormous powers are given to the Treasury to add to the list. This also needs looking into.

There is then the question of the rates of duty on gambling halls. I do not object in the slightest to a duty, and a fairly high one, being imposed here, but I am sure that the Government have gone wrong in their allocation of the different rates. The duty on premises of under £1,000 rateable value is £500 for all games. Over £1,000 and under £3,000 rateable value it will be £5,000, in respect of premises of rateable value over £3,000, it will be £50,000.

My objection to this is that it is nearly always the small places which are inclined to be the least desirable. The highly organised club of the Crockford's kind is usually carried on exceedingly well. We all know that it is much more difficult on the Continent to set up a casino and get permission than it is in this country. It has been too easy here, and it is quite right that the Government should do something about it both on the control side and also to recoup some revenue. But, unless they are going to stop all gambling, they should not penalise by taxation the type of gambling establishment which, I think, might be quite an asset in our tourist trade and quite a credit and which usually has arrangements and circumstances which are highly desirable as compared with the smaller places.

Now a word about certain things which the Finance Bill does not do. It does nothing to amend—we drew attention to this last time—the unacceptable restrictions on the remuneration of directors of close companies. The present distribution limits must be greatly increased. That is painfully obvious. I trust that, as further Amendments will no doubt come from the Government, we may be saved the need to put one down ourselves.

Next, I must again maintain that there is no rhyme or reason for disallowing the interest at normal commercial rates paid on a loan by a director who owns some—I believe 5 per cent. or more is the figure—of the equity capital in a close company. That also requires attention. Ha s anything been done to permit United Kingdom companies within the same group to elect to group their profits and losses for Income Tax purposes? That was permitted for Profits Tax. I think that the figure was 75 per cent. ownership for Profits Tax, and I would accept that figure for Corporation Tax. Many other changes are necessary.

I should like the Government to take courage to do something which my own party, unfortunately, did not do. It would be a matter of justice, and also the right thing to do for other reasons, to increase the absurdly low Surtax level for investment income. We have all grown up—even the Labour Party—to realise that investment income is an asset to the country. It is a source of investment in our companies. It is not something to penalise. Other countries do not penalise it—the United States, for example. It is one of the forces in industry. I should like the Government to show a little political courage and do something which has been overlooked far too long. My right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) failed to deal with it when he adjusted the other aspect of the problem.

With regard to Clause 36, statutory redundancy payments should be permitted as a full allowance where businesses cease. I hope to press on the Government exemption of small transactions under Capital Gains Tax. The whole machine will become clogged through the fussing around with pettifogging little items. The Government should get away from this absolutely absurd attitude towards tax evasion. It is a rather mean-minded, mealy-mouthed attitude that it does not matter if one hits 5,000 people on the head provided that one prevents someone getting away with sixpence. We shall never get our economy right if everything has to be shut down and enormous numbers of people have to be penalised because somebody somewhere might get a little advantage. It is a parish pump attitude. I could not have believed that the Chief Secretary would have worn it as well as he did this afternoon. I know that some of his right hon. Friends have very little knowledge of these matters, but I should have thought that he had more intelligence—I know he has—and would know that this is tommy rot and that the less we have of it the better.

There is far too great a tendency in many quarters—they are diminishing rapidly—almost to welcome a 40 per cent. Corporation Tax. That is a smacking great increase, amounting to £150 million. I know that there are one or two compensating factors, but some of them are compensating not against this but against what the right hon. Gentleman withdrew in an earlier Budget. Industry does not look at all calmly on the statement that this is merely a "hand back". It is not. It is a great rate of tax. If people who draw their income from industry are to be taxed at that rate of Corporation Tax and then at the standard rate of Income Tax, shareholders, including members of unit trusts—not Surtax payers—will be paying the appalling rate of 64½ per cent. in tax. To put it another way, they will be allowed only 35½ per cent. of their money.

I have no time to go into the general economic situation. However, the Bill, like the Budget, shows that the Government's whole approach is wrong. I wish that the Finance Bill had carried out what the Chancellor said—savings instead of taxation. Now we have taxation instead of savings. That is fundamentally wrong. It will cost the country very dearly. It will certainly cost the reputation of the Government equally dearly.

We shall challenge the Bill and also the other Bill which is coming along unless we get a great deal more forthcoming attitude towards these measures than we have had today. I trust that my party will challenge them at every stage, and, if necessary, as indeed I shall, without mercy.

8.5 p.m.

Mr. W. S. Hilton (Bethnal Green)

The hon. Member for Finchley (Mrs. Thatcher), opening for the Opposition, said that the Selective Employment Tax was the core of the problem, and the speeches of others have shown that this is true. Indeed, most of us believe that it is the core of the problem.

Unfortunately, the taxation implications of the Measure have been dealt with more than the Chancellor's other basic objective, which is that the Selective Employment Tax should have a beneficial long-term effect by encouraging economy in the use of labour in services. I gathered from the speeches of two hon. Members opposite that they felt this to be nonsense because there was no over-manning in industry at present and no further efficiency in manpower could be achieved in the industries mentioned in the Bill That is an amazing tribute to the efficiency of the industries and the workers concerned, perhaps the first time it has ever come from the Opposition benches.

This tribute to the high level of efficiency was made before the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) arrived to declare that the economy was in a state of stagnation. The Opposition will have to decide whether or not there are economies which can be made in industry with this tax. The construction industry was mentioned in particular. The House should do an exercise on this industry to decide whether the Chancellor is right in his assumption that some economy can be made in the use of labour. The construction industry is divided into various sectors, such as repairs and maintenance, new housing, large civil engineering projects, and industrialised building, and so the tax will not fall evenly over every employee in it.

What is the level of production efficiency in the construction industry? Opposition speakers have lamented that builders have proclaimed that housing prices must go up. In the repair and maintenance section nearly 500,000 men are employed, and there are almost no incentive schemes to greater productivity in that section. If any Opposition speaker can tell me that this tax and premium on using labour will not bring about greater efficiency because there is no leeway to be made up, I shall be glad if he would tell me now.

There have been experiments with repair and maintenance. In Wolverhampton, a very large building section had a time and motion study carried out which led it to send out teams of men in specially designed vehicles to do its repair and maintenance programme, and it achieved a 55 per cent. increase in productivity. Manchester, which has another very large department, used short-wave radio contact together with vans equipped with spares, and so on, and achieved an 80 per cent. productivity increase. Of course, I should explain that these are examples of municipal enterprise, and perhaps that explains why these achievements were obtained.

So, in the repair and maintenance section of the construction industry, large productivity increases can be obtained provided that the employers will do what is required. An increase of 50 per cent. means that 40 men can do the work previously done by 60 men. If we have a 5 per cent. overall increase, this would mean in relation to the 500,000 men employed in the repair and maintenance section that 25,000 skilled men would be released to go into other areas of the industry.

The method of applying incentives in house building is quite easy. It has been done for many years. Yet today only 16 per cent. of the men employed on house building are working on incentive production schemes. What does this mean in terms of completion times? A study by the Building Research Station showed that an efficient employer can build a traditional semi-detached bricks and mortar house in 900 to 1,300 hours. Other contractors may take between 1,300 and 1,800 hours. There can, therefore, be a difference of 900 hours in the production of a home. Is there any other industry where a manufacturer could survive if he took twice as long as others to produce a similar commodity?

This is a matter to which my right hon. Friend the Chancellor of the Exchequer has turned his attention in so far as the Selective Employment Tax affects the construction industry. I believe that achievements in efficiency are possible in the industry, provided that the employers are prepared to do so. I accept that the worker has a responsibility for responding to moves towards greater efficiency, but it always rests with the managements to initiate these moves—an aspect that sometimes escapes attention among right hon. and hon. Members opposite.

I hope that greater industrialised production of houses will take place within the near future, for I believe that the primary costs of house building are not so important as erecting the house quickly and getting back rents and rates to offset the tremendous interest burden. Industrialised building is, therefore, extremely important. Now there is in the Bill an incentive for people to enter industrialised production of houses because, when they do so, they will receive the same premium as other manufacturers.

In other words, my right hon. Friend has not applied a cat-o'-nine tails to the industry, more the principle of the stick and a carrot. Those who want the carrot can have it. If they transfer more of the manufacture of a house from the site to the factory, this could achieve a great break through in industrialised building because a premium of 7s. 6d. would be payable, and would help to reduce present costs. That is something that the building industry should take into account. I hope that what I have said will convince the House that my right hon. Friend is right in his assumption that there can be greater efficiency levels in some of the industries that he has mentioned.

I want to put in a word of caution, however, echoing the sentiment uttered by the right hon. Gentleman the Member for Kingston-upon-Thames and other hon. Members. It concerns the way in which the self-employed person is being dealt with. He is, in fact, being exempted from the Selective Employment Tax. If that loophole is not stopped up, then it is possible that the Chancellor's objectives will not be achieved in the construction industry, but that there will be more anarchy through the growth of labour-only sub-contractors and self-employed labour contractors. When I say "anarchy", I am not dramatising.

I want to quote from an article written by a member of the Construction Industry Training Board on the effect that labour-only sub-contracting has on the work of the Board, set up under the Industrial Training Act, passed by the last Conservative Government and perhaps one of the finest things they did. When the Board came to examine the number of employers liable to pay the levy they found about 45,000 labour-only sub-contracting firms in existence. The article, written by Mr. Harry Weaver, said that the Board …circularised 45,000 labour-only firms with assessment forms to enable their contribution to the Government imposed levy to be assessed. Of these, 15,000 forms have been returned by the G.P.O. dead-letter office because they could not be traced, another 16,000 employers have not replied, 7,000 claimed that they were either self-employed or in partnership as self-employed persons… All in all, out of the 45,000 firms written to, the magnificent total of 647 have, up to now, conceded their liability to contribute to the scheme. This is anarchy. If a loophole is provided in the Bill for self-employed people, we can be sure that the effect on the construction industry will not be an inducement to greater efficiency but to greater evasion.

Up until a few weeks ago, I thought that this danger applied in construction, but almost nowhere else. The loophole has since grown wider because other people have seen the possibilities. In distribution—and I am particularly interested in this as a Labour Cooperative Member—I know that the cooperative societies cannot resort to these practices in order to dodge this legislation, but that is not true of other sectors of retail distribution.

I have now heard that there are private retailers who are ready to make self-employed contracts with people distributing milk, bread and coal if self-employed people are to be exempt from this tax. What we could have is anarchy developing, not only in the construction industry, but throughout all industries where self-employed people are to be exempt. Once that happens, and this tax is evaded, it will also mean, in turn, as we have seen in the construction industry, evasion of the industrial training levy and of normal taxation and other payments. In the long run, the Chancellor may find that, unless he stops the loophole, advantage will be taken by many sectors of industry to deny his objectives completely.

I say that not on behalf of the cooperative societies alone, but on behalf of the trade union executives in the building industry who have discussed this Measure. They feel that the Chancellor is right in his assumption that greater levels of productivity can be achieved and they are behind him in that. But they believe that, if this loophole is not sealed up, his objectives will be denied.

Mr. Diamond

My hon Friend is giving considerable publicity to this point, for the best of reasons which I well understand. But, because of this, I ask him whether he is satisfied, in the case of the roundsmen and others he has referred to, that this practice could possibly spread when the individuals concerned would forfeit, knowingly, their unemployment benefit and put themselves in very great difficulty indeed by accepting the so-called self-employment arrangements?

Mr. Hilton

Certainly, I think that the practice could spread. Already, 250,000 men in the construction industry are' prepared to forgo these things in order to be self-employed or work for labour-only sub-contractors. This is a definite danger. The inducement is there both for the employer and for the self-employed person.

For example, employed by a construction firm a man may earn an average of £20 a week, and, after taxation and paying for his National Insurance stamp, may take home a net £17 or £18. The employer pays the industrial training levy in respect of that man, for insurance and other contingencies. Thus, he may pay the man £20 in gross wages and perhaps another £3 for him in other overhead payments. He is paying a total of £23 for that man whereas the man himself is getting only a net £17 or £18. The employer can, therefore, offer a man this £23 a week as a self-employed person without loss to himself. That is the inducement and, unfortunately, people are willing to forgo the protection of other legislation in order to earn it.

I say very sincerely that I believe that the Chancellor's assumptions are right and that there are sectors of the construction and other industries where great improvements in efficiency levels can be made, but, at the same time, there is this tremendous loophole which he must close so as to achieve his long-term objectives.

8.20 p.m.

Mr. Gordon Campbell (Moray and Nairn)

The hon. Member for Bethnal Green (Mr. Hilton) has dealt with the construction industry. While I agree with him about the need to encourage industrialised building, it surely should not be necessary to do so by harshly penalising the rest of the building industry at a time when we need to use all construction methods to build the houses and schools and other buildings which are needed.

I wish to address myself entirely to Clause 42 and the Selective Employment Tax. When he introduced the tax, the Chancellor of the Exchequer no doubt hoped that he would give the impression to the ordinary taxpayer that he was getting off lightly, but the effect of the tax on the citizen will be the equivalent of a general increase in indirict taxation, Purchase Tax, Excise Duty, the motor tax and so on. I quarrel with this tax in that it is selective, and I quarrel with the method of selection and its proposed application.

I am not against a payroll tax as such, but it is the selectivity which makes the application of this tax so anomalous. Today the Chief Secretary made a vague statement about what is to be done about charities. As he will have noticed, I am a sponsor of the Motion on the Order Paper deploring the effect of the tax as now proposed on charities. The concept that if anything is manufactured a premium will be paid but that a charity will have to pay 25s. a week for every man it employs is a concept which the House should surely not accept. My hon. Friend the Member for Finchley (Mrs. Thatcher) spoke of the position of the disabled, the elderly and part-time workers and the need for the Chancellor to look again at the way in which the tax will affect them.

I want to speak especially about Scotland and the effect of the tax there. I recognise that in built-up industrial areas the effect may not be sharply felt. There may be enough in the way of factories and manufacturing industries for such areas to escape much of the impact of the tax.

It is the extensive rural areas, including the Highlands, which will be hard hit, and the Highlands cover nearly half of Scotland. In the White Paper published only last January, figures were given for the structure of employment in the seven crofting countries, the Highlands, and show that in 1964 only 10 per cent. of the employment in the Highlands was provided by manufacturing industry. Precise figures for the rest of the North of Scotland were not given, but the position there is broadly similar.

Is the Chancellor trying to reduce the jobs in the service industries in the Highlands and the North of Scotland? Only today I had a Question to the Secretary of State for Scotland asking to what extent it was Government policy to reduce the numbers employed in non-manufacturing industry in the Highlands and Islands and the answer was that it was certainly not part of Government policy in those areas. Why is the Chancellor proposing to apply this tax, when he says that it is his intention to encourage transfers from service to manufacturing industries, to an area where that is not needed?

It may be argued that the object of the tax is simply to raise revenue, but if that is the case why it is made selective in a way which is bound to damage the Highlands and no doubt other rural areas in Scotland and Britain as a whole? For the Government cannot think that they can rapidly increase the amount of manufacturing industry in the North of Scotland. Geography and the available resources dictate that a high proportion of the industries there must be industries such as tourism, agriculture and forestry.

In reply to a Question on 19th May, the Chief Secretary gave percentages of premiums returned on the tax payments as a proportion of the tax payments, excluding the public sector. The figures were for England 68 per cent., for Scotland 60 per cent. and for the Highlands 18 per cent. It is clear that the Highlands will be paying far more tax per head of the population than will be the case anywhere else. The attraction of the premiums in manufacturing areas, urban and built-up areas, must surely have the effect of attracting people into the towns and cities, and surely that will simply accelerate depopulation which the January White Paper said that it was the intention to halt.

The hon. Member for Ashton-under-Lyne (Mr. Sheldon) criticised some speeches from this side of the House as coming from pressure groups concerned with categories, and he spoke of carping and niggling. I do not speak as a member of any pressure group other than a Member of Parliament for the North of Scotland. I speak for the people living in a large and important area in which my constituency is situated. This is not a question of pressure groups.

This acceleration of depopulation, this burden on the North of Scotland and the Highlands, would not be so strange if there had not recently been issued the White Paper on the Scottish Economy, which is also called the Scottish Plan and which was supposed to be linked to the National Plan published last September. Two of its objects stated repeatedly were to stem depopulation and to create as many new jobs in the service industries as possible. It was said that in the six years 1964 to 1970 it was proposed that 130,000 new jobs should be created in Scotland. This in itself was a very disappointing target, because in the previous four years of Conservative Government 157,000 new jobs had been created.

Even this modest target may now be at risk because of the Government's attitude to the service industries, since these new jobs were given in the White Paper in their categories. Only 50,000 of them are to be in manufacturing industry—the other 80,000 are to be in the service industries. Has the attitude of the Government changed since last January, and is it their intention that there should be 80,000 new jobs in the service industries in Scotland as opposed to 50,000 in the manufacturing industries?

Paragraph 143 of the White Paper said: The Government is conscious of the rôle which the Service industries have to play in the expansion of the Scottish economy. They do not appear to be conscious now. In January the service industries were made ineligible for investment grants, and now we have this new tax penalising them. Why have the Government got this fetish about the manufacturing industries? These industries benefit at the expense of the service industries under both of these fiscal measures. The Chancellor should call in a psychiatrist to attend to the originator of these schemes. It will probably be found that there is some simple reason for the complex about manufacturing industries and the phobia against the service industries.

The Chief Secretary must have read in the papers today that the General Assembly of the Church of Scotland passed a resolution yesterday deploring the effect of this tax upon their organisation and said that it would cost about £100,000 a year. There is the anomalous situation of the merchanting firm which achieves a high percentage of exports but which has to pay the tax at the full rate.

Mention has been made on both sides of the House of the temptations there will be to change status from self-employed to employed or, probably more often, from employed to self-employed in order to get into a different category for the purposes of this tax. There will be many borderline cases. An extra man in this or that job may make the difference in the classification of a firm. It becomes almost metaphysical when we come to consider, for example, whether a fish fillet is manufactured. Which category will it be in? It could also be regarded as an extractive industry.

There are two industries which are going to suffer as a result of the tax. One is tourism, which has received two major blows from the Government this year. It has an acute shortage of labour and in Scotland this is because it is expanding. It is providing employment and has been expanding rapidly for the past six or eight years, particularly as a result of such developments as winter sports. The other industry to suffer is the construction industry, to which the hon. Gentleman the Member for Bethnal Green referred. Here the Scottish White Paper stressed the shortage of labour, particularly skilled labour, and prophesied an increase. That seems contradictory to what the Government, on the Treasury side, are intending. At present the housing programme in Scotland is all at sea. In Scotland there were 2,000 fewer houses built in 1965 than in 1964. The Minister of Housing, who is only responsible for England and Wales, did not say this when we had a housing debate a few days ago. In Scotland there is an acute housing shortage. This is going to make it more difficult for the construction industry and it is going to make houses more expensive.

Can the Chief Secretary say what is to be the position of the direct labour forces of local authorities as compared with the rest of the construction industry? In paragraph 22 of the White Paper dealing with the new tax it is stated that the local authorities will be reimbursed for the extra amount they have to pay. Are they to be reimbursed for what is spent on their direct labour force? If so, this is going to make the position even more difficult, competitively, for the rest of the construction industry. It has been shown recently in this House that the rest of the industry has a much better productivity record than direct labour forces.

Does the Chancellor know that the effects of this new tax in Scotland will be the opposite of everything which his party has said about jobs and development in Scotland and the Highlands before and during the General Election? Has he simply forgotten Scotland, or is he determined to reverse the regional development measures of the last ten years? Does his spcial adviser on taxation use one of those maps of the British Esles which ends at the top at Berwick? Because of these likely effects in Scotland the Chancellor was asked to receive a deputation of Scottish Conservative M.P.s, including my right hon. Friend the Member for Kinross and West Perthshire (Sir Alec Douglas-Home) and my right hon. Friend the Member for Argyll (Mr. Michael Noble). The Chancellor apparently refused to see us and said that instead we should go to see the Secretary of State for Scotland.

The last-named Minister cannot be responsible for this new tax. In any case he is reported in the newspapers in Scotland as having said in a speech that the new tax will benefit Scotland. After the facts which I have stated, any Minister who can say that is not in a position to receive this deputation. I was very sorry about this because I was part of a deputation which the Chancellor most courteously received at the end of last year. I was therefore sorry that the Chancellor, who usually receives deputations and gives them time when he is very busy, should have treated us in this way on this occasion.

The effect of this tax on Scotland will be extremely serious, particularly in the North and other extensively rural areas. When he opened the debate, the Chief Secretary said that the selectivity of the tax was one of its chief points, or words to that effect. He said that it could be varied in different directions at different times. I ask him, in considering its selectivity, to make sure that it does not run completely in contradiction to the regional policies to which his Government have at least paid lip-service.

8.37 p.m.

Mr. Frank Judd (Portsmouth, West)

In this debate there has been much concern about the position of charities under the Selective Employment Tax. Those of us on both sides of the House who have been concerned will have welcomed indications from the Government Front Bench that this problem will be looked at sympathetically together with responsible representative bodies. Some of us who are concerned will be quite confident that when the problem is looked at it will not regarded in the light of a reluctant concession, but will be seen rather in terms of a positive aspect of social policy.

The reason for making this point is that the Government have constantly stressed the importance of partnership between the Government and people in the execution of the Government's social priorities. It is quite certain that in the wide variety of non-governmental organisations in Britain we have an excellent growth point in social responsibility as a basis for partnership with the Government. It would be sad if measures were taken at this stage which were to stunt positive involvement of ordinary people just at a point when that was so vital for overall policies.

It might be suggested that this tax will not hit voluntary activities and that if the tax were implemented on charities it would be to break down bureaucracies which are tending to appear in charitable activity as distinct from the charitable action of the ordinary supporting membership. It might be true that some important organisations have a more adequate staff these days than they had in the past, but any careful analysis of the situation will clearly reveal that the majority of charitable organisations are working with minimum administrative resources and smallest possible staffs necessary to underpin the voluntary activity of the ordinary members.

We might find that some of the most valuable work done by voluntary organisations is done in the smallest with the smallest staffs which will have most difficulty in paying the tax. It would be impossible to contemplate the operation of the tax on charities without accepting that this would inevitably lead to a cutback in the activities of charities and in the charitable work undertaken for those in need.

We ought also to recognise another problem. Because of the shortage of resources in many of these organisations, the full-time professional staff are often doing exemplary work with high productivity at rates of remuneration far below those which they could command elsewhere. There is a real danger that if this tax were applied we might over-exploit their sense of commitment and vocation.

We already have the precedent. The Government have established that they recognise the value of charitable organisations in social policy. It has been said that already, under tax concessions, these organisations receive back £55 million a year from the Government. Many have received official and specific encouragement from Government Departments.

I should like to give just three brief examples to illustrate the point. The Government are now stressing in their social policy the importance in social work of looking at the family as a unit. One of the most important organisations pioneering this sort of approach has been the family service unit. In Glasgow, a new family service unit has recently come into being, and it is more or less exclusively financed by the Glasgow Corporation. Yet if this tax were applied to charitable organisations the F.S.U. would be faced with a bill of about £5,000.

Then there are the organisations which receive constant praise from both the Government and the Opposition, which are sending young qualified people to work as volunteers in the developing countries, as part of the Government's overseas development programme. These organisations would have to find £6,000 to £7,000 between them if the tax were applied.

We also hear from the Government, and very rightly, the importance of youth work. At a time of considerable juvenile delinquency and an alarming rise in crime rates, perhaps the youth service work is one of the most important investments that we could see in the sort of social standards that we want to develop in the community as a whole. Yet these very services, some of them very small enterprises, would be gravely hit at local level by trying to find the extra funds to meet the bill. One could go on with a list of countless smaller organisations.

Charities must be given a clear-cut lead and decision from the Government, a clear-cut ruling on this issue. The precedent is there. The Charities Act, 1960, underlines this, the rating relief enjoyed from local authorities underlines this, the exemptions provided under the Finance Act, 1965, underline this and the deeds of covenant which have been operating for many years also underline it.

Of course, the Government can understandably be concerned about some bodies which might slip through the net, bodies which by no stretch of the imagination could be regarded as charities in the commonly accepted sense—for example, some independent schools. But this is a nettle which must be grasped by the Government, by introducing urgent alternative social legislation. It may even be necessary for the Government to look at the definition of charity, which was not considered in the Charities Act, 1960.

It is quite certain—and I know that this is a view which is held strongly on this side of the House at this juncture, especially in view of the announcements which we have heard from the Front Bench this afternoon—that there is a great opportunity for the Government to demonstrate that they are anxious to encourage those organisations which have a vital role to play by bringing ordinary people into active participation in social policies and meaningful participation in society as a whole.

8.44 p.m.

Mr. Stratton Mills (Belfast, North)

I do not wish to follow the theme of the hon. Member for Portsmouth, West (Mr. Judd) as time is short and I wish to be brief, but there are three basic points which I wish to make this evening. The debate has been dominated essentially by the Selective Employment Tax and it is becoming increasingly clear that nothing like enough thought has been given to this measure before it was introduced by the Government.

I represent a constituency in Northern Ireland. In such an area, which has high unemployment, there is concern that the Government should have taken this action, which is working entirely against their other activities to help promote employment in that kind of area. There is great resentment at the introduction of this tax and the general feeling is that the needs of the under-developed areas have been overlooked by the Treasury.

I do not wish to over-dramatise the situation, but undoubtedly this new tax must have the effect of cutting back on jobs in certain industries and of working against Government policy of promoting industrial development. I ask the Treasury before the Committee stage to look seriously at the effect upon areas of high unemployment and to consider whether Northern Ireland and the development areas cannot be excluded from this iniquitous tax.

The initial reaction of many people in looking at this tax is to say that a Selective Employment Tax could serve a useful purpose provided that the right exemptions are granted—and, of course, the Government have given their own list of exemptions. One's own reaction is to say that the list is not complete. As I have argued, one could well exempt areas of high unemployment, as well as the building and construction industry, if, as the party opposite always tell us, housing is a social service. We could exempt the over-65s. We should exempt the staff who are required to look after the elderly and the disabled in their homes. We could exempt part-time workers, charities and hotels. But when we come to the end of this list, on top of the list already given by the Government, one is forced to the conclusion that precious little is left to bear the weight of this tax.

My point is that it is really impossible to patch up this tax and that it is basically an unworkable and unsatisfactory measure. That is the only conclusion to which one can be forced upon examination of its effects right across the board.

Next I would like to say something about savings. One of the great fallacies of both parties in the post-war years has been the idea that purchasing power can be taken out of the economy by increasing direct or indirect taxation. This has been proved to be a fallacy because people apply their own corrective devices. Merely because the Government say that more money must be taken out of the economy, people are not prepared to accept a lower standard of living than that to which they have been accustomed. The only way of tackling this difficulty is to persuade people that if they save money it will be ultimately to their benefit, rather than wasting time on exhortation on the need to save.

I was disappointed with the Chancellor's Budget speech because it contained all the old pious platitudes about the need for savings, tributes to various people in the National Savings movement and a couple of minor amendments of the law. That was not the kind of approach that was needed. The only thing that the Bill contains about savings is to bash severely on the head an excellent scheme prepared by the friendly societies which was having a substantial effect in encouraging people to save. While I condemn the Garda type of scheme of share options, the Bill also has the effect of discouraging the other method of encouraging people in industry to take share options in their firms. This is a very undesirable measure in the Finance Bill.

The point has been clearly made before that incentives to savings are in a complete mess. There is a limit to the number of Savings Certificates which a person may hold, but they give complete exemption from tax even to those who pay tax at the highest rate. The Post Office Savings Bank at 2½ per cent. yields £15 tax-free; the building societies, for standard rate taxpayers, have tax exemption; life insurance and pension schemes have complete tax concessions. I think that the more one looks at it the more one can become convinced that it is a complete mess which has grown up piecemeal over a period, and it does need to be looked at again. Mr. Ian Fairburn of M. & G. Securities recently made a statement on this point. I think he put the point very well when he called for an inquiry to look into: The whole structure of personal savings, and the reliefs given or necessary to encourage them". He also made the point forcefully that it is the act of saving which is important, not the media, and that people who are prepared to save through private schemes are every bit as worthy from the country's point of view as people who are prepared to save through the National Savings movement.

I should like to have seen a savers' Budget, with less exhortation and more positive incentives, and I do ask the Treasury over the next year to look at this whole field again—to look at tax incentives to savings: to look at the small marginal amounts of capital gains, perhaps up to £100, to see if they might be exempt; to look at the treatment of investment income; to look at the development of National Savings; to look at the desirability of a State unit trust, perhaps mixed in with Savings Certificates; to look at contractual savings, because with 5s. per head per week for 23 million people the yield would be something like £250 million a year. So there are really great opportunities if the Government are prepared to look imaginatively at the whole field of savings. I ask them to pay particular attention to this, and to convince people that it pays to save.

The right hon. Gentleman will have seen the article by Harold Wincott in the Financial Times of 12th April, in which he referred to the fact that in the United Kingdom something like 8 per cent. of all disposable incomes are saved, but in Germany, with very much greater financial incentives, 12 per cent. per annum is saved. Harold Wincott went on to argue that if the United Kingdom saved 12 per cent. of disposable incomes this would put an extra £1,000 million into savings per annum. I think that this is a very great goal for a Government prepared imaginatively to look at this whole field of savings afresh.

Now I turn to my final point. It is a matter which, I hope, it will not be thought presumptuous for me to deal with, but I think it is an important point, and it concerns the whole relationship between the City and Westminster, which over the last two years has, frankly, gone very sour indeed. It is not in the national interest that this relationship should be so very bad. The reasons for it are well known. They go back some time. They go back, probably, to the time of the Prime Minister's analysis, at the time of the Bank Rate Tribunal, of the workings of the City, and that got him off to a very bad start. They went wrong during the election when, for party political reasons, the City was attacked by the Prime Minister and described as "parasitical". I think it went very sour indeed because of the whole attitude of the Treasury Bench to the City's comments on Corporation Tax and Capital Gains Tax, those comments were very ill received last year and were dismissed as pure special pleading. Of course, on the other side—I accept this entirely—the City is too much of a compact body, and nothing like enough is known about it by hon. Members on the other side of the House. I think that matters like the Garda Trust are to be condemned. It is, however, worth noting that the self-policing mechanism of the City has been quite effective in such matters.

The point that I wish to make is that, in the national interest, the City of London has a vital contribution to make to the growth of the economy. It is the most effective and efficient capital market in the world. The savings collected by the City over an average year are £1,000 million in life and pension funds, £500 million in the building society movement, and £100 million in unit trusts. Those savings are channelled by the savers to the capital spenders, so that the City is a very important asset to the nation. I ask that the Government should, for their part, recognise the importance of the City and not regard criticism of their tax policies as coming from purely selfish vested interests.

The Chancellor of the Exchequer and the Prime Minister himself would be well advised to make a positive effort during the next year to repair relations which have so badly deteriorated over the last two years. If they make that effort, I am sure that it will be greatly to their advantage and to the advantage of the nation.

There is a great opportunity for the development of savings and in using the mechanism of the City of London to help in that. The rewards which would reach the Government who did that could be very great.

8.56 p.m.

Mr. William Hamilton (Fife, West)

I want to get away from the City and go north of the Border for a few minutes to reply to the speech made by the hon. Member for Moray and Nairn (Mr. G. Campbell), who has no doubt gone out to get some sustenance, and I do not complain about that. I will deal later with one or two of the points which he raised.

At the outset, I want to say that right hon. and hon. Gentlemen opposite have very much overstated their case, particularly on the Selective Employment Tax. In so far as they have made a case at all, it has been an extremely negative one. They have never attempted to pose any alternatives, and the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) went out of his way to say hat he had no intention of doing so. That is a very undesirable state of affairs in the House.

Mr. Iremonger rose——

Mr. Hamilton

The hon. Member has just walked in, and, in view of the time available, I had better get on with my speech.

Mr. Iremonger

On a point of order, Mr. Deputy Speaker. I have been in my place without a break for the whole of the debate.

Mr. Hamilton

I think that that is not true.

Mr. Iremonger

Further to that point of order, Mr. Deputy Speaker. I really must object. If the hon. Gentleman does not want to give way, that is up to him, but he cannot say that he is not giving way because I have not been here.

Mr. Deputy Speaker (Sir Eric Fletcher)

Order. The hon. Member for Fife, West (Mr. William Hamilton) must please himself whether or not he gives way.

Mr. Hamilton

Yes, of course, Mr. Deputy Speaker, and I am doing just that. If the hon. Member for Ilford, North (Mr. Iremonger) has been here all the time, I apologise to him. He will understand that, in view of the time available, I would prefer to get on with my speech.

I want to refer to the speech of the hon. Member for Moray and Nairn, who addressed the House about the effect of the Selective Employment Tax on the Highlands. If he had been here, I would have asked him what his party's alternative was to the solution of the problem in the Highlands when it was in power. Far from discriminating in favour of the Highlands and Scotland, its policies discriminated against them, and that is why the party opposite fared disastrously north of the Border, particularly in the Highlands, in two successive General Elections.

The Selective Employment Tax is designed specifically to encourage manufacturing industries and in that regard Scotland will benefit. I will come back to the specific problem of the Highlands when, I hope, the hon. Member who made the attack and the former Secretary of State for Scotland are in their places.

The basic problem facing the Government in this situation was how to achieve some measure of deflation without the stop-go policies which we had from the Conservative Party in successive crises during the course of their 13 years in office. The Government could quite easily have taken the orthodox, easy and rather lazy way out of this dilemma— an increase in Purchase Tax, in Income Tax, in taxes on tobacco, beer and other commodities. Had they done so we should have had the predictable howls from the Opposition benches and from interested parties outside.

If the Opposition reject that kind of alternative, we have a right to know what other alternatives they would have taken and what other new source of taxation revenue they would have put forward. Or would they have let things rip? If the Opposition have any ideas at all about new sources of taxation, there is an obligation on them to tell us exactly what they are. We all know that the rather daunting prospect of at least five years in opposition presents them with an almost irresistible temptation to be wildly and negatively irresponsible in their criticisms of the Government.

There is nothing so unpatriotic as the Tory Party out of power. They are carrying over into this Parliament the tactics that served them so ill in the last and which brought them at the election the results which they suffered—tactics based on malice, on misrepresentation and on exaggeration, seeking to cash in on the grievances of various sections of the community, sections whose grievances had been studiously ignored, neglected or even exacerbated by those tiresome 13 years of Tory "fiddling".

I remember the speech made by the Leader of the Opposition on the Welfare State just before the election, in which he talked about the poverty of large families, the poverty of the non-pensioned old, the hardship for ratepayers, and so on. We have now the same malodorous manoeuvres. The Selective Employment Tax appears to them to offer a heaven-sent target on which to vent their spleen, and we have had a bit of it this afternoon. No doubt we shall get it, too, when we reach Committee stage. Extravagant forecasts have been made as to the effects of the tax on various industries, on various regions and on different groups of people. In the event, I suppose, some of the forecasts may turn out to be accurate. I do not know. We shall have to wait and see.

But, meanwhile, a new tax is being launched. The base of the tax structure is being enlarged. Whenever one introduces a new tax or increases any tax at all, it hurts somebody somewhere. All taxes do that. Whenever a new tax is imposed, those on whom it falls for the first time squeal loud and long. Of course they do, until they get used to it. But it does not follow that the new tax is necessarily wrong. The British people have an almost pathological dislike of innovation, of change, of modernisation, whether it be in their Parliamentary procedure or in their tax structure.

We have opponents of modernisation in some respects even on our own Front Bench. Some of the worst reactionaries are there at the moment. But hon. Members on this side of the House unanimously acclaim the principle of the new tax. It is easy to administer. [Laughter.] Yes. That is one reason why it has been brought in now, and the machinery suggested is suggested precisely because of the need to get action this year. It is extremely flexible. It can be used as an instrument in the furthering of the Govvernment's plans for regional development, and I hope that it will.

The tax can be used to differentiate between various industries and types of employment. The contributions and the premiums, and their incidence, can vary according to the will of the Government. The more flexible tool the Government have at their disposal the more smoothly can the whole economy advance along the road that we want it to take.

Tributes to the ingenuity and the morality of the tax have been paid by all kinds of people. Margot Naylor writing in the Observer on 8th May——

Mr. Iain Macleod (Enfield, West)

The only one.

Mr. Hamilton

No—wait a minute. There is plenty of time.

Mr. Iremonger

The hon. Member said that he could not give way to me because he had no time. Now he says that there is plenty of time because this is exempted business.

Mr. Hamilton

This is selective intervention. I have no time for the hon. Member.

Margot Naylor said: With his highly ingenious solution of the Selective Employment Tax Mr. Callaghan has made history and I congratulate him. She went on, referring to the right hon. Member for Enfield, West (Mr. Macleod), With this thought in mind, I am disappointed with the Conservative Party's negative reaction. Mr. Macleod says the amount raised by the Chancellor is the equivalent of 1s. 6d. on income tax. Would he have preferred this way of raising revenue? Would he? We should like to know. The editorial of the Observer on the same day made the same point about the tax, but I shall not quote from it now.

Rather interestingly, the Archbishop of Canterbury commended the morality of the tax in the Observer on 15th May. So it is clear that there are some very notable people and notable journals on our side in this matter. I am proud to call them in aid. The tax as it now stands may well be criticised for having rough and blurred edges, and for containing within itself some anomalies——

Mr. Iain Macleod

Purely as a matter of accuracy, for the record, when the hon. Member referred to the Archbishop of Canterbury does he not mean the former Archbishop of Canterbury, who is known to have very peculiar views on this sort of subject?

Mr. Hamilton

Many people have a lot of peculiar views on a lot of things. [HON. MEMBERS: "Answer."] I take the point. I have the quotation. If it is worth anything to the right hon. Gentleman I will concede the point to him. At any rate, the Archbishop is as respectable as is the right hon. Gentleman, and is as worthy an authority on these matters.

As I have said, the tax has some rough edges. As one of my hon. Friends said, it is rough justice. But a lot of these rough edges can be smoothed off in Committee and in the course of the history of the tax. It is here for a very long time, I hope.

Some claims for exemption have more force than others. We have heard a lot about charities. The case for a blanket exemption for all charities may seem to be very strong on the face of it, but, as the Sunday Times said on 15th May, there are charities which strain one's benevolence. There are many charities which would need very careful examination before we exempted them from this tax. A total exemption of all charities would almost certainly lead to widespread abuse.

I turn now to another complaint made by the hon. Gentleman the Member for Moray and Nairn. It was about hotels. There may be a case for special treatment of the Highlands, but there is no case for special treatment of hotels in, for instance, London—[HON. MEMBERS: "Why?"] I will tell the House why. I will quote one example from The Guardian of 6th May. The article is headed, "The Savoy, with salt", and reads: Mr. Hugh Wontner, the Chairman of the Savoy Hotel Limited, made a plaintive little protest yesterday morning about the payroll tax and produced some figures showing how tourist receipts have risen while hotel and catering staff have been pared down over the last few years. Filled with sympathy, 'Miscellany' arranged a small … luncheon at the Savoy Grill Room to show Mr. Wontner we were all on his side. A modest, three-course lunch, with cheese, coffee and wine. At one time or another, nine separate waiters. either picked up or put down something on our table during the hour-and-three-quarters it all took. One of the younger ones spent his plentiful spare moments scribbling on a pad—his memoirs, perhaps? Apart from eating, the only thing we did ourselves was pour out the salt. (Salt-mills and attendant grinders have no doubt all been ground away by ruthless rationalisation.) We also came into direct contact with one doorman, one youth who revolved the revolving doors, two cloakroom attendants, one lift man, one welcoming head-waiter and a farewelling one. Net total: 16. The Savoy won't say how many it employs or if its staff has dwindled of late. But one sympathises: indeed, indeed. Indeed, indeed. The sooner these people are sorted out, the better. If this tax can do anything towards that end, it has the full support of every hon. Member on this side——

Mr. Peter Bessell (Bodmin)

Will the hon. Gentleman——

Mr. Hamilton

No, I am thinking of the time. I have taken longer than wanted to take.

I wanted to put this question of hotels in the context of the Highlands. The hon. Member for Moray and Nairn forgot the tax which his Government were seeking to impose on the hotels in 1963, in the Countryside and Tourist Amenities (Scotland) Bill. On that occasion, the idea was to impose a bed tax on every bed in every hotel, apart from the smallest ones, in the whole of Scotland——

Mr. William Baxter (West Stirlingshire)

Only in Scotland.

Mr. Hamilton

Only in Scotland: I am coming to that point.

The right hon. Gentleman who was then Secretary of State for Scotland talked about tourism being a prosperous industry with a good growth record and said: In these circumstances it is difficult to see why the industry cannot help to promote further expansion without help from the taxpayer. He went on: …Additional charges are never popular initially."—[OFFICIAL REPORT, Scottish Grand Committee; 3rd December, 1963, c. 9.] This is a very good reason why the present tax should be introduced. It is perhaps not popular initially, but people will get used to it——

Mr. G. Campbell rose——

Mr. Hamilton

No.

The proposition was that there should be a charge of 50s. per bed per year and the estimated total income would be £225,000 annually. This was differentiation, discrimination, against Scottish hotels, because no such charge was proposed for English hotels and this was the argument which was used against the tax by hon. Members on that side, including the hon. Member for Bute and North Ayrshire (Sir F. Maclean)——

Mr. G. Campbell rose——

Hon. Members

Give way.

Mr. Hamilton

The hon. Member for Edinburgh, South (Mr. Clark Hutchison) used these words in that context: I do not believe that we should put overmuch faith in the tourist industry…We should not be hypnotised by the possibilities that it is sometimes suggested are in the tourist industry. While visitors are welcome…we should not grovel to get them. Our people in Scotland are not servants or lackeys."—[OFFICIAL REPORT, Scottish Grand Committee; 3rd December, 1963, c. 31-2.] This was the attitude of hon. Members opposite against a tax on the tourist industry.

Mr. G. Campbell

Surely the hon. Gentleman remembers that the money collected from this levy was all to be used within Scotland for the tourist industry. It was simply a subscription. This has been done on a smaller scale within Scotland, such as along Speyside and Strathspey, with great success.

Mr. Hamilton

It was such an enormous success and such a wonderful idea that the last we heard of the Bill was on Second Reading. They never went any further with it.

I regard this year's Budget and Finance Bill as excellent, relevant to our economic problems, forward looking, and challenging to all of us. The editorial in the Observer of 8th May sums up the feelings of this side of the House and, I believe of the country: Despite the passionate, and frequently exaggerated, criticisms of the new payroll tax. Mr. Callaghan and his advisers have produced a Budget which is well designed to improve the strength of Britain's domestic economy. The effects of the Selective Employment Tax will be to deflate the economy quite sharply; by reducing spending (particularly by the well-to-do) while at the same time doing the minimum possible harm for the prospects for long-term economic growth. It was a remarkable achievement to produce measures which are at the same time, deflationary, socialist and oriented towards maintaining growth. This sums up the attitude of my hon. Friends. When the Bill has been through the fire of the Committee stage, I am certain that it will be a very powerful weapon in the cause which we all have at heart.

9.18 p.m.

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

I am delighted to have the opportunity, briefly though it may be, to follow the hon. Member for Fife, West (Mr. William Hamilton). It is of no real account that the hon. Gentleman should call us malicious, accuse us of being full of misrepresentation, call us unpatriotic, and accuse us of being a bunch of Tory "fiddlers", because we are accustomed to hearing that kind of language from him. It is the typical puerile piffle to which we are accustomed from him, and he treated us to it tonight. However, he tried to misrepresent the tourist industry, a subject on which I have at least some knowledge, and in this matter I propose to try to put him firmly and squarely in his place.

Tonight, I want to confine my remarks to one aspect of the Finance Bill, namely, those parts affecting the tourist industry in all its aspects. As I want to be brief, I say here and now that I do not propose to give way. The tourist industry is just as much industrial as agriculture and manufacturing are industrial. Anyone who has the slightest understanding of the tourist industry will soon become aware of that, if he is not already aware of it. The tourist industry is now our fourth largest industry, with 2¾ million visitors last year, producing over £300 million for the country. It is also our biggest dollar earner.

The labour shortage is more acute in this industry—certainly in the hotel section of it—than in any other industry. The position is that in the hotel section alone there are about 272,000 employees with a present short fall of about 46,000. That is the picture and those who talk about the number of waiters who serve one at the Savoy Hotel should remember that the whole purpose of the luxury side of the industry is to give first-class service and attract a large amount of dollars thereby. To do that, one must offer the sort of service that cannot be had elsewhere and for which people are willing t o pay.

It so happens that the Savoy Hotel provides probably some of the finest service to be found in any hotel anywhere in the world. That is what Americans come here for and what they are willing to pay for. If one wants to ruin this country by driving away overseas trade, the hon. Member for Fife, West is about the first person who could lead us straight into bankruptcy.

I will give the House briefly a few important figures. It is, of course, a farce to try to divide manufacturing industry on the one side and what is one of the fastest growth services industries on the other. The fastest growth industry in this country today is the tourist industry. The present Government have done more deliberately to damage this industry since they came to power than any Government in any country in any similar period.

They have done the following things. First, they have provided no investment grants, and that must be remedied. Secondly, they took away the investment allowances. Thirdly, they applied building control under the Building Control Bill with a system of licensing by which one could not build the hotels which are badly needed for the tourist industry. Fourthly, they provided no type of capital allowance for industrial buildings. Fifthly, they have found no method of alternative system by which one can get a loan at a reasonable rate of interest to erect a building because their policies resulted in such high interest rates.

Sixthly, they have found no method by which one can carry out necessary structural improvements in the tourist industry and be able to modernise and improve the industry as is possible in other countries. This has become impossible because the Government have refused to treat earnings and revenue as being for purposes which are deductable for tax. Seventhly, they have even managed to keep luncheon vouchers at the same price fixed 15 years ago, 3s. only being allowed as a deduction.

Having failed to do all these things—which has prevented the tourist industry from developing in the way it should—the Government have finally introduced the Selective Employment Tax and it is apparent to all my hon. Friends, and a great many hon. Gentlemen opposite, that if one had to have such a tax at all—assuming that it is necessary to take £150 million to £200 million by way of further taxation—then clearly it should have been a poll tax straight across the board, which would have been 4s., 5s. or, at the most, 7s. for a man and 3s. 6d. for a woman. Had that been done we would not have had all the trouble that we have had over the Selective Employment Tax and all the trouble that will arise in Committee.

I have instanced a number of things which should or should not have been done and which my hon. Friends and I will develop at greater length in Committee. I warn the Government that there are many hon. Members in all the three parties who will seek to show that if the Government intend to go on with a tax of this nature, very great concessions will have to be made in other spheres to compensate for it.

I will give a few more figures to show the direct impact that this tax will have because the public generally and hon. Members would like to have them. These figures have not been disclosed. They come from two or three large public companies, the names of which are well known but which I will not disclose, although they will be available to the Chancellor or his advisers if they require them.

Apart from the labour shortage, there will be a 3½ per cent. increase in bar prices. This means at least 1d. extra on every drink, and if one takes into account services, renewals and other matters, it will probably mean an increase of 2d. a drink at bar prices.

The most serious effect is in banqueting. Most hon. Members must attend banquets, whether in their constituencies or elsewhere, and the figures I have been given show that on a 30s. dinner, the cost of wages is about 9s. and the effect of the tax will be a rise of about 6 per cent., or 1s. 8d. If one allows for wages and takes into account laundry repairs and renewals, the effect will be an increase of 2s. 7½d., or nearly a 10 per cent. surcharge on a 30s. meal.

On wines, the estimate is that there will be a surcharge of about 10 per cent. For hotels, it will be about 3½ per cent., but allowing for extra costs which will fall on laundry and other requisite services, a surcharge of about 5 per cent. will be carried on every hotel bill in this country. For restaurants it will be more, the estimate varying between 6½ and 7 per cent.

I have here some other figures, of which I shall give only one example. This is a non-seasonal hotel with a male staff of 142 and a female staff of 180. In 1965 the annual turnover was £584,000. The cost of staff was £160,000, that is, 27.4 per cent. of turnover. The estimated cost of the Selective Employment Tax for the year 1967 is £16,143, that is, 2.76 per cent. of turnover, or 10 per cent. of the wage cost. I have here figures relating to cafés and each of the various types of restaurant and hotel as well.

I cannot think that the country yet begins to appreciate what a serious divergence is being drawn between the whole of the tourist industry, the most rapid growth industry in the country today, and manufacturing industry, with agriculture, forestry and horticulture treated, so to speak, as being in baulk in between.

I shall not say more tonight, but I hope that I have said enough to show the House that it is simply no good trying to regard this matter as though it involved only a number of people with luxurious lives. I am not speaking at the moment only for Margate or Ramsgate. I am speaking of matters which profoundly affect the whole country. In the enormously competitive conditions of tourism today, it must never be forgotten that it is a battle to bring and keep the tourists here. Our visitors from tourism are rising by a quarter of a million every year, and in income the aim is to reach £500 million by 1970. The past year was a record year with over £300 million.

I hope that the Government Front Bench will show enough experience and knowledge to look properly at the facts and to listen to the various associations and interests in the industry. They must bring forward effective proposals to combat something which is distorting and will distort the whole of this sector of the country's economy and be highly damaging if prompt remedial action to bring about the necessary reforms is not taken.

9.27 p.m.

Mr. Hugh Jenkins (Putney)

Hon. Members opposite seem to be divided between those who think that the Selective Employment Tax should not be selective and those who think that it should be much more selective than the Government propose. I have one or two suggestions to make following the latter line, but, before I come to those, I have a general proposal to make regarding this tax.

I suggest that the tax should be levied not according to weekly wages but according to hourly earnings. Adoption of this method would be most advantageous. Being based on a 40-hour week, it would provide a rate of 7½d. per hour for men and 3¾d. per hour for women, and in that way it would immediately solve the whole problem of the part-time worker. The employer would pay pro rata according to the number of hours worked.

It would have the additional advantage that there would be incentive to economy in labour because the more hours were worked by way of overtime the more would have to be paid in Selective Employment Tax.

I hope that the Government will con-side this proposition seriously. It has another incidental administrative advantage. The present proposal is that the tax shall be collected by a stamp. I regard this as an entirely wrong and mistaken idea. The purpose of collection by stamp through the Ministry of Pensions and National Insurance is that the individual may have a record of his own contributions. This is quite unnecessary in the case of this tax, and the mere fact of collection by the Ministry of Pensions and National Insurance is no ground for adopting the stamp method of collection.

If we adopt the method which I suggest, the employer can write a cheque at the end of the week for the number of hours employed in the enterprise. The consequence would be that the whole thing would be very much simpler and the administration would be much easier. Also, we should have what my hon. Friend the Member for Fife, West (Mr. William Hamilton) asked for—a much more selective tax. It would be more appropriate to proceed with this point in Committee, but I hope that, in replying, my right hon. Friend will make some sympathetic noises in this direction.

The question whether the cheque should be made out to the Ministry of National Insurance or direct to the Treasury is immaterial. If the Treasury does not want to receive the money in small sums but would prefer to receive it en bloc from the Ministry of National Insurance, there is no reason why that should not happen. However, that is not an important point. The method also avoids the possibility, which might occur with some methods of collection, of avoidance. The method—[Interruption.]

Mr. Speaker

Order. There is a background of conversation which is not fair to the speaker.

Mr. Jenkins

I do not think that there should be or can be any occupational exceptions or exemptions from the tax. What there can and should be is exclusion of categories of persons—old-age pensioners and disabled persons. They could easily be excluded. For the rest, the question of occupational adjustments must be dealt with on the basis of payment followed by refund.

The standard industrial classification is riot a good instrument for this, not being designed for the purpose. It was drawn up for a quite different function and is altogether too crude. However, if the Chancellor is committed to this blunt instrument, he can lessen its absurdities by being flexible and wise in his refund policy. There is no virtue in being rough and ready and doing needless damage.

That will not impress anyone and will only bring what is fundamentally a good new tax into disrepute. A new tax should be applied with discretion from the beginning if it is to gain general support. There is no point in being rough and ready for the sake of being tough. That will merely get the new tax off to a bad start. It is not possible to compensate for weakness abroad by being tough at home unless that toughness is directed towards correcting injustice. To be rough in creating anomalies is not to impress anyone.

Before I turn to the industry which I know best—the entertainment arts—I want to point out that one side-effect of the tax will be to strengthen the drive towards bogus self-employment, which is already causing alarm in the construction industry and elsewhere. In the construction and building industry so-called employment agencies, which are licensed, are being created solely for the purpose of giveing a legal fiction of self-employment, and they are thriving. I have been lucky in the Ballot and hope to introduce a Private Member's Bill to regulate employment agencies. The proposal has been supported on both sides of the House. It was supported in 1951 by the Labour Government, who issued proposals for implementation, and it was supported by the Conservatives in 1957——

Mr. Speaker

Order. The hon. Gentleman must not pursue this in detail. He must come to the Finance Bill.

Mr. Jenkins

Then, Mr. Speaker, I will merely say that the proposals for this have been produced on both sides of the House. If the Measure can be supported on both sides, it will help to plug up one of the gaps in the Finance Bill to which I have referred.

The Government have abandoned the idea of reimbursing the farmers through the Annual Price Review. This has not prevented the Government from proposing to do something even less advantageous for the arts and entertainment. The reimbursement of farmers might have been clumsy but it could have been done through the Annual Price Review, for all farmers are concerned in that Review. But reimbursement cannot effectively be done in the arts because all arts are not subsidised by the Arts Council. Only a minority of the theatres will be reimbursed. That is likely to be too little and too late.

No business enterprise works on such a narrow profit margin as the small professional provincial theatre manager. Large monopolies will survive. What Mr. Lew Grade loses on the Moss Empires roundabouts he can make up on the A.T.V. swings, but the publicly supported theatre will be hard put to it to survive the period between payment of the tax and reimbursement by the Arts Council, while the commercially managed theatre in some cases will not survive at all.

I want to make a new point about the publicly supported theatres. Over the years, the Arts Council has always advised local authorities not to run their own civic theatre companies but to create trusts so as to avoid the position of local authorities being subsidised by a Government agency, so few actors are employed directly by local authorities. An exception to this rule is the Manchester Library Theatre, which needs no Arts Council subsidy but makes a profit for the rates. Its actors will be in the refunded category, whereas large companies with big overheads surviving with a subsidy will not be reimbursed.

Budgeting in a theatre is very tight and companies make their plans on the basis of the support they are to receive, having, in most cases, no contingency funds. The consequence of a non-reimbursement must be an immediate reduction in standards, for what bank manager will lend money to a local repertory manager? If he did, he would be fired because he would have no security and no chance of securing repayment.

One could give several examples of the cost to the Arts Council supporting repertory companies of the new tax. Figures vary between a minimum of about £2,000 a year to a maximum of about £5,000 a year if we are talking solely about small repertory companies. We understand from my right hon. Friend the Chief Secretary to the Treasury that we may expect to see such reimbursement but before the Bill is passed I hope that that expectation will be couched in more positive and direct form.

But the Arts Council does not support the commercial theatre. The principle is that it does not subsidise a profit-distributing organisation and that principle is sound. Indeed, it is one that the Chancellor would do well to operate in industry generally. If he did, he would avoid a great deal of public money being distributed in dividends and giving rise to lucrative capital appreciation. But that principle, although sound, means that the commercial theatre in the provinces will take a beating, unless my right hon. Friend does what he could easily do—put the theatre as a whole into the position of the Manchester Library Theatre, which is in the refunded category.

Those are some of the problems which the entertainment world—[Laughter.] Hon. Members opposite need not worry; these letters are merely ballast to my hands—will encounter if, during the course of its passage through the House, the Bill is not modified in the way I have suggested.

I have received many letters from theatrical managers all over the country and you, Mr. Speaker, and hon. Members on both sides of the House, will be relieved to know that I shall not read them. I merely hold them in my hand as evidence. They are documents which, if the House had time to hear them, hon. Members would find interesting and absorbing, and I hope that later in the passage of the Bill an opportunity will arise for me to advise hon. Members of them.

9.40 p.m.

Mr. John M. Temple (City of Chester)

I will not comment on the arguments of the hon. Member for Putney (Mr. Hugh Jenkins), as I heard most of them in the main debate on the Budget. This Budget will be judged mainly by its effect on keeping prices stable and I am very dubious about whether that will be its effect. The effect of the Selective Employment Tax is much more likely to be inflationary than deflationary. I would have thought that one of the strategies behind the Budget should have been to get productivity going again, a matter frequently mentioned by hon. Members opposite.

I shall endeavour, in the short time available to me, to make my points with as much rapidity as possible. I shall refer, first, to some of the matters in the Finance Bill, then to one or two things which certainly should be, and to one matter of financial strategy. A tremendous opportunity has been lost by the Chancellor of the Exchequer to invigorate the whole economy by this Finance Bill. There are practically no concessions to increase productivity, but only more taxation, and I would describe it as a thoroughly Socialist Budget.

In the debate there has been very little mention of the rate of Corporation Tax. I am sorry that the Chief Secretary is not here, because he has some very dubious and devious arguments to support his view that the equivalency of Corporation Tax to present rates of Income Tax and Profits Tax added together would be 42½ per cent. We did not hear anything about 42½ per cent equivalency during the Finance Bill debates last year. The figure mentioned was 35 per cent.

One of the arguments the Chief Secretary uses in his support of a rate of 40 per cent. is the fact that some concessions were made during the last Finance Bill. One so-called concession was of considerable magnitude and was made as a result of pressure by myself, and I am sure that the Financial Secretary will remember it. It involved a special concession about the remission of dividends and interest on investments of insurance companies which were placed abroad in order that they could carry on their business of insurance abroad.

If that concession had not been made, British insurance companies would have withdrawn from those overseas markets and there would have been no chance whatever of the Chancellor getting any taxation whatever from that source. It cannot be called a concession when it saves an industry from death overseas and when the Chancellor has a vested interest in the profits of every insurance company to the extent of nearly 60 per cent.

I want now briefly to refer to the Selective Employment Tax which has been mentioned once or twice. During the course of waiting a number of hours to be called in this debate, I happened to go to the Tea Room where, fortunately, the ham sandwiches had run out. The lady behind the counter, with her own hands, gave me a freshly cut ham sandwich. That was the product of a service industry. If I had had a ham sandwich out of a cellophane bag, or a biscuit out of a cellophane bag, that would have been a product of a manufacturing industry. How stupid can one get? If one gets a delicious ham sandwich produced while one is waiting, something one is looking forward to, then the employee is in an industry subject to this new tax.

I can give another example. I am rather fond of Cheshire farmhouse cheese. I can say that the Cheshire farmhouse cheese-makers are in a very much worse position than the producers of all kinds of factory cheese. Being factory-produced it means that the workers in that factory are to get 7s. 6d. a head extra for producing this cheese which is not nearly as acceptable to me or most Members of the House, yet the Cheshire farmhouse cheese-making industry is only regarded as an industry which will be in the neutral zone.

I would like to answer an hon. Member who said something about the noble Lord, Lord Fisher, one-time Primate of All England. I have had rather more up-to-date advice from the Church, because my good friend the Dean of Chester wrote on 23rd May to the Chancellor of the Exchequer. He wisely sent a copy of the letter to me. He said that the effect of the new Selective Employment Tax on his employees at Chester Cathedral would cost the cathedral £1,600 per annum. The cathedral is kept open from 7 a.m. until dusk so that regular services can be held and to provide a major tourist attraction for the City of Chester, indeed to the whole country.

I hope that the Chancellor will have in mind the importance to our economy of such organisations, and of such places as Chester Cathedral being kept open, because I am told by the Dean that the tax cannot be passed on, by any method, to those people visiting the cathedral.

The other evening I had the great good fortune to be invited to the Catering Creative Circle's dinner. [An HON. MEMBER: "How many waiters?"] I must say that there were not two waiters for everyone eating on that particular occasion, but the dinner was very good indeed. The Circle had sent invitations to the Labour Party, the Liberal Party, and to myself as a member of the Conservative Party. The main matter under discussion was the Selective Employment Tax. Hardly surprisingly, only myself and the representative of the Liberal Party turned up. There was no Labour Party representative there. [HON. MEMBERS: "Shame."] The point made at the Catering Creative Circle dinner was the effect of the Selective Employment Tax on industrial catering. It may seem surprising that the industrial catering companies do 25 per cent. of this country's industrial catering and that British industry subsidies industrial catering to the extent of £100 million a year.

This is no small matter. If an industrial catering company is catering for, say, the Ford Motor Company or the B.M.C., as it does, and for central and local government, as it does, or for the Royal Exchange Assurance, as it does, it will be catering for three different types of establishment, one is in the bonus zone, one is in the neutral zone and the other in the service zone. That is the Royal Exchange Assurance. What will be the position of the employees of industrial catering services who are providing the same services in these various organisations falling into different zones for the Selective Employment Tax?

I had occasion to have conversation a few days ago with persons connected with the industrial cleaning industry, an industry which has not so far been mentioned. [Laughter.] Hon. Members may laugh, but £300 million worth of industrial cleaning is done every year. These industrial cleaning companies work in factories, offices, schools, hospitals—a fairly wide range of institutions. Ninety per cent. of the costs of industrial cleaning are labour costs and 60 per cent. of the workers are part-time workers. The "Mrs Mopps" work a morning or an evening shift. They are part-time workers.

A great many workers in the industry are disabled. Organisations and firms that I know have very close relationships with industrial cleaning companies so that they can take on men and women for part-time work who are not capable of doing anything other than light jobs. The incidence of this tax on the part-time workers in the industrial cleaning sphere will be about 10 per cent. of the wage bill. If the Chancellor insists on putting this tax through in this form, the effect on the industrial cleaning industry will be extremely anti-social, because it will mean that these organisations will employ full-time men who will work throughout the night with mechanised equipment. As they are doing a job by night they will not be seeing their families. If women do it by night they will certainly not see their families. The Chancellor will force the industrial cleaning industry—far from its wishes because I know it wants to be as social as possible in its employment—into an anti-social attitude.

Sir Harmar Nicholls

To pinpoint that instance, which is very fair, may I inform my hon. Friend that under the tax an excellent firm of which I know will have to pay £53,000 extra, yet the biggest profit it has made since it came into existence was £23,000 a year.

Mr. Temple

My hon. Friend has emphasised the point I was making and given me a slight breather before turning to a subject which is very much in our minds on Derby Day. No one has mentioned it and I sat on this bench for two hours before I got the name of the winner conveyed to me. I did not actually back the horse.

The Chief Secretary to the Treasury suggested that all had been agreed behind the scenes about this tax. That, on his part, was wishful thinking.

There were three ways in which the betting levy could have been imposed on the horse- and dog-racing industry. It could have been imposed on premises, on telephones as a licence fee. It could have been put on winnings, but it has been proposed on stakes. I suggest that the Chancellor has picked the worst of three methods. I shall do all I can in Committee to make him change his mind.

There are two omissions from the Bill in regard to proposals for betting legislation. Has the Chancellor forgotten about hedging bets and the blower?

Mr. Callaghan indicated dissent.

Mr. Temple

The Chancellor indicates that he has not forgotten. I shall have to draw his attention to this. Has he forgotten void bets and that in the case of a cancellation one can get the money back?

On the question of the taxation of gaming clubs, I am amazed at the Chancellor. Has he consulted his right hon. Friend the Minister of Housing and Local Government about this? That Minister is constantly telling the House and the country that he has no faith whatsoever in the rating system and in the accuracy of rateable values. Yet the Chancellor is basing his entire system of taxation on gaming clubs on the basis of rateable values. Can he clear this up? Is he fully behind what his right hon. Friend says about rateable values?

I turn to a couple of glaring omissions from the Bill. I thought that all of us were in favour of home-ownership and wanted to do something for building societies. The Chancellor of the Exchequer has missed a golden opportunity to do something in the way of relief from tax for building societies so that they would not have to raise their rates to 7⅛ per cent. The onus lies entirely on the Chancellor for having saddled them with 7⅛ per cent. because he has clone nothing whatever to help building societies. The Selective Employment Tax amounts to nearly £¾ million a year and the composite rate of Income Tax paid by societies will be very much greater this year than last year.

I make only one point about investment abroad. An hon. Member opposite said that he was very much in favour of cutting down overseas investment. I was in Australia about a month ago. Only today I was giving lunch to the Agent-General for New South Wales. When in Australia, and when giving him a lunch today, I found everyone concurred that it was disastrous to the future of British exports to Australia that we were cutting down on investments in Australia. One cannot cut off the supply of money and expect the orders for replacements to flow. The United States, Japan and other countries are jumping quickly into the market, which we have, unfortunately, left wide open for them.

To me it is no strange coincidence that stagnant production goes hand in hand with increasing taxation. The Financial Secretary knows the points which I put to him about the impact of increased taxation on rising prices. The two are correlated. I do not believe that the country will ever leap ahead again so long as it is saddled with this enormous impost of Socialist taxation.

9.56 p.m.

Mr. Martin Maddan (Hove)

We have spent just over six hours so far in this debate, and the greater part of it has been about the Selective Employment Tax. We have had criticisms from both sides of the House, some in politer terms, and some in less polite terms. The debate has shown in a most startling way what an extraordinarily ill-prepared tax this was for the Chancellor of the Exchequer to bring before the House. It is even more surprising, because after the Chancellor's Budget speech, in the tea room next door, within half an hour, I heard voiced at least the embryo of just about every criticism that we have heard during the debate. In other words, these points occurred to hon. Members on both sides of the House very shortly after the Chancellor had brought his Budget proposals to the House.

This emphasises and underlines what extraordinarily poor preparation there must have been in the Chancellor's Department before he brought this proposal to us. As an aside, I add that I was surprised that political and financial journalists swallowed this hook so happily in the first days after the Budget, because it certainly was not swallowed by hon. Members, certainly on this side of the House. This, perhaps, shows that hon. Members in touch with their constituents are more aware of the realities of economic and social life than some of the writers upon whom we rely for views and comments to be spread.

I want next to underline two of the points which have been raised in objection to the Selective Employment Tax. The hotel industry is our largest dollar earner. It is a dollar earner with an extremely small import content and, therefore, its net earnings are even higher than the normal figures initially suggest. To hit this industry in this way highlights once again what little thought can have been given, not only from the fiscal but also from the economic point of view, when the tax was proposed and brought forward.

The hon. Member for Bilston (Mr. Robert Edwards) said that the tax was weighting the economy in favour of manufacturers and against consumers. I want to develop that point by going a little further and saying that in so doing it particularly weights the scales against those who are retired, who are living on fixed incomes and are out of the productive age. They can only be consumers, because they not only cannot go with their union and obtain higher wages but they largely spend their money on service items. Perhaps they have people coming in to help them with their housekeeping. They do not buy new refrigerators, new carpets, new furniture, and the like. Therefore, this tax will bear particularly heavily on the cost of living of elderly and retired people. I am grateful to the hon. Member for Bilston for having begun to make that point and I hope that he will agree with me when I carry it that stage further to the conclusion which I have just reached.

The Bill does not contain the provisions for repayment of the premium, although we have before us the provision for the payment of the tax in the first instance. When this tax is paid it will go into the hands of the Government and there may be arguments for many months about whether employers get it back. Is the Chancellor aware that he has introduced the first tax in history, as far as I know, in which the Administration have a vested interest in confusion, muddle and delay? The money will be taken, no interest will be paid upon it and the longer the question of either straight rebates or rebates with premiums can be delayed by administrative muddle, confusion, bureaucracy, "red tape," spinning out, "passing the buck" and all the rest of it, the better will it suit the right hon. Gentleman.

The Chancellor has thus introduced not only a new tax. He has introduced a new fiscal weapon by turning what used to be considered to be a vice into what he may start to consider to be a virtue. That is a yet further reason why I and my right hon. and hon. Friends will certainly vote against the Bill and this tax and certainly, in Committee, seek to change it in many important ways.

10.2 p.m.

Mr. T. L. Iremonger (Ilford, North)

Hon. Members opposite will have observed that the night is young and that the Bill is exempted business and even after the trains have stopped the taxis will be available for a short time and after that the trains will start again. [Hon. Members: "Hear, hear."]

Mr. Speaker

Order. The hon. Member must come to the Bill.

Mr. Iremonger

I am coming to it, Mr. Speaker——

Sir Douglas Glover (Ormskirk)

Is my hon. Friend aware that the taxes will be there all the time waiting for him to pay?

Mr. Iremonger

That is a helpful intervention by my hon. Friend. It was Lord Byron who said: I like a parliamentary debate, Particularly when it's not too late. And so I shall hasten to the Bill. This must have been a very painful debate——

Mr. Manuel

It is painful to us.

Mr. Iremonger

The pain has not started yet. It has been a painful debate for the Chief Secretary, who sat here so assiduously, and also, I am sure, for the Chancellor of the Exchequer in so far as what has been said has been passed on to him. What the Chancellor must have observed throughout this debate is that in speech after speech from the benches behind him the Bill and, in particular, the Selective Employment Tax have been subjected to ruthless and merciless criticism.

We hear a lot nowadays from hon. Members opposite about the reform of Parliamentary procedure. That is relevant to the objections which have been made to the Bill, because I would say to hon. Members opposite that it is not the procedure of this House that needs to be reformed but the attitude of hon. Members to their duty. The most potent weapon in the hands of hon. Members is not any device of procedure: it is their right to vote on matters such as have been raised from both sides of the House during this debate. I hope that the Chancellor will take stock of these criticisms which have been made with great tact and great skill and great persuasiveness, and I hope the Chancellor will have taken note of the very serious temper of the criticisms, from that side of the House as well as from this.

I hope that hon. Members on the other side of the House, when it comes to putting down Amendments to this Bill, will not hesitate to support them in the Lobby. [HON. MEMBERS: "0h."] We are talking about Parliamentary reform and the reform of Members of Parliament. [Laughter.] Well, there will not be much left of this Finance Bill if hon. Members live up to what they have been saying in this debate. I hope it will have been a sobering experience for the Chancellor and that when he comes to have the discussions which we understand he is going to have with those concerned with the taxation of charities he will realise that not only on this side of the House are there very serious misgivings about the proposals in their present form in this Bill.

I should like to refer to one thing said by the hon. Member for Fife, West (Mr. William Hamilton), who taxed hon. Members on this side of the House, my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) particularly, with not having put forward alternative taxes. As has been rightly said from this side of the House, it is not the business of the Opposition to do that: but the real point and the real answer is that if the level of savings in the economy at the moment were at the height at which it was under the administration of the Conservative Party there would have been no need to take this degree of purchasing power out of the economy.

I should like to take the parts of this Bill—and there are seven of them—and the Schedules—there are 12 of them—in order, with the exception that I should like to single out for earlier treatment Part VI, the Selective Employment Tax, before I go on to discuss the general principles raised by all the other Parts and all the other Schedules.

I should like to make two preliminary observations about the victims of the Selective Employment Tax. These are very important matters, which affect constituents of mine in particular, and the first is embodied in a letter which I have had from a constituent, a letter which, will reflect the anxieties of the constituents of hon. Members on both sides of the House and could well be treated with a degree of seriousness. This is a letter from a constituent, who says: I am a retired professional man, aged 90. I was in a hard professional practice in East London until my retirement. I am now a widower, and owing to my age I have to employ a housekeeper to attend to my needs. In October, 1964, I was paying National Insurance on her account of 8s. 9d. a week. In April, 1965, this went up to 11s. 8d. and is now 11s. 10d. a week. I would say in passing that there can be only a minority of inhabitants of this country who have reached the age of 90 and are able to be so acutely aware of what their outgoings are. He goes on to say: When the payroll tax becomes law I shall have to pay another 12s. 6d. a week, bringing the total to 24s. 4d. a week, more than two and a half times what I paid when Labour took office, and a rather high price to pay for the so-called benefits of a Socialist administration. I do not suppose you can do anything to help me"— I think that he rather underestimates the assistance which we expect from the other side of the House. He goes on: …but I thought you should know how a very ordinary person is affected. There are many others in similar circumstances.

That is the kind of appeal which the Chancellor ought to take very seriously, and I would like to submit to him a case of rather wider implication also directly concerning my constituency, in which is situated the largest of the village homes of Dr. Barnardo's Homes. The Secretary of Dr. Barnardo's Homes tells me that the Selective Employment Tax will cost the Homes £110,000 a year in respect of a total staff of 2,900 employees. That is equivalent to a tax of 3 per cent. on a gross income of £3½ million. Dr. Barnardo's Homes estimate that, in addition, they will pay an equivalent of a 3 per cent. tax on their income because of the effect of costs, which are particularly heavy for them since they use so many services such as the laundry and so on which have to come from outside.

The tax is a levy upon a charitable organisation, the whole income of which has to come from gifts which are made voluntarily by members of the public who have already paid tax on the income out of which they make those gifts.

The Chancellor might consider whether he agrees with the Nathan Committee which said that in welfare work the charities and the local authorities were a partnership. As he considers it suitable to make a rebate to local authorities in respect of their employees, he ought to consider whether he should not make a similar rebate to the organisations which the Nathan Committee quite rightly classified as being in partnership with the local authorities. When the time comes, on the Bill or on a subsequent Bill, I hope that we shall be able to have an exemption made for Dr. Barnardo's Homes and other similar organisations. I hope also that we shall see special provision made for organisations which are not strictly charities but which could not on any construction be classified as profit-making organisations. I refer to such bodies as the Commonwealth societies, Voluntary Service Overseas and other organisations which have been referred to by hon. Members on both sides.

Reference has already been made to the tourist trade. Much of what has been said might be taken for granted, but I would add that if the idea is that the service industries are employing too many people, the Chancellor should have regard to the fact that the numbers employed in hotels and catering in 1963, according to the Ministry of Labour Gazette, were 536,000. This year, they are 519,000. That represents a drop of nearly 6 per cent. per annum, and it is difficult to see why those services should invite this kind of taxation, which can hardly be expected to slow down a process which is already very embarrassing for an industry that is a great earner of foreign exchange.

Just how great may not be appreciated by the House. It is the top dollar earner, with £320 million in foreign exchange and no import costs at all in the balance of payments context, as compared with £416 million for chemicals and £653 million for transport engineering, both of which have very heavy import costs to counterbalance them. The export and import agencies, of which there are over 1,000, are very short of labour already, and it is impossible to see how this tax can do anything but decrease the efficiency of our export services and put up the prices of our exports.

The victims are the charities, education, the arts and those parts of our industry which are most valuable as export earners. The beneficiaries are very largely the bureaucracies—11,000 extra civil servants to be employed during the year—the brewers and the manufacturers of candy floss, to whom the Prime Minister referred in such scathing terms in his General Election campaign.

Nor can there by any possible justification for the tax if its object is to be deflationary. The Chief Secretary said that its object was to raise revenue, but I questioned that in an intervention. I do not see how the revenue can be required, since the Government boast of having a surplus. The Government want to take purchasing power out of the economy. If the Chancellor is to succeed in this aim, then he will deliberately put up the cost of living, and in so far as he fails, his tax will fail in its purpose of being deflationery.

Nor is it necessarily desirable that labour should be deployed into manufacturing industry, because it has been pointed out that in so far as the tax makes labour less short in manufacturing industry, it removes the incentive from manufacturing industry to re-equip with automotive equipment and so to raise productivity. The Chancellor may have seen a letter to The Times of 10th May from the managing director of an engineering company in East London in which he said that the foreman of his welding shop was delighted because he had long been struggling valiantly to keep delivery promises, despite a desperate shortage of skilled labour, and he was now to understand that he was to have the help of three hairdressers, two photographers and one male ballet dancer. How the Chancellor imagines that sacking one ladies' hairdresser will increase the productivity of pig-iron puddling in the North of England passes understanding.

I do not think that the alleged economic philosophy of the tax has anything to do with its imposition. I think that it was a hastily conceived tax, put on at the last moment because the Chancellor was made acutely aware of the fact that the Inland Revenue absolutely refused to take on the administration of any further impost of tax through conventional means. The Chancellor was at his wits end, and he went to his advisers and asked, "What on earth can we do?". To his rescue came the ubiquitous Dr. Kaldor.

I should like to say something about Dr. Kaldor, because there is something offensive in references in the House to civil servants by name.

Sir Beresford Craddock (Spelthorne)

He is not a civil servant.

Mr. Iremonger

I understand from what has been said from the opposite benches that he is a civil servant. At any rate, he is a gentleman who cannot answer for himself in the House. It is a highly objectionable situation in which to put anyone, and I think that the Government are open to very serious criticism for having done so. It is well known that the Government take advice from this man. He is a man of impeccable personal reputation, and of great intellectual and academic achievement, and in my opinion the fact that he came here from Hungary reflects credit both on his judgment and our merit as a country to which people come. I am in no way criticising him. I am criticising the Government. That the Government should base their policies upon the eccentric advice of an economist with a particular and individual series of theories, instead——

Mr. Michael Foot (Ebbw Vale)

Disgraceful stuff.

Mr. Iremonger

—instead of bringing him into the House—[Interruption.] The Chancellor should not accuse me——

Mr. Callaghan

I am not speaking to the hon. Member; I am addressing my hon. Friend.

Mr. Iremonger

The Chancellor says that what I am saying is too cheap for him to bother about. What I am saying about Dr. Kaldor is very serious. When the Government wanted the advice and services of the right hon. Member for Nuneaton (Mr. Cousins) he came into the House as a Member of the Government and, although he does not do it very often, he can appear at the Dispatch Box and answer for his policies, and be questioned by hon. Members.

The Chancellor is the puppet of Dr. Kaldor. He ought to bring his adviser into the House and let him answer for his own policies at the Dispatch Box, and be questioned by hon. Members, instead of having his policies brought forward in this hole-and-corner way in a written speech which the Chief Secretary has to read out entirely based upon these theories.

This is a typical example of the arrogant and contemptuous way in which the Government treat the House. What the Government want is silent support from a large majority, and they are contemptuous of the representations made by hon. Members on this side of the House.

The most objectionable feature of the Selective Employment Tax is that it embodies the Socialist philosophy of hon. Members opposite. It is designed to penalise above all those enterprises which are the result of individual initiative and personal endeavour. What hon. Members opposite want is State control of all the agencies of social improvement. I very much doubt whether the Chancellor will give a sympathetic ear to the representations made to him in respect of charities. What he wants to do is to monopolise the charitable activities of a public service in the hands of the State. He does not want to preserve this traditional element in English life.

That is the basic philosophical origin of the Selective Employment Tax, and it is for that reason that it is so highly objectionable and that we on this side of the House will see to it that it is relentlessly opposed. We hope that the support given vocally from the benches. opposite during the debate will be manifested physically in the Division Lobbies in Committee.

10.25 p.m.

Mr. J. Bruce-Gardyne (South Angus)

I do not intend to delay the House for very long. If I had been fortunate enough to catch the eye of the Chair earlier I might have had more to say about the impact of the Selective Employment Tax on the Scottish economy. Fortunately, my hon. Friend the Member for Moray and Nairn (Mr. G. Campbell) has covered the ground very much more effectively than I could hope to do.

The Budget conforms to a pattern with which we are becoming drearily familiar. It involves more taxation; it involves more civil servants, and it involves more congestion—[Interruption.]

Mr. Speaker

Order. The hon. Gentleman who has the floor at the moment has sat right through the debate. I hope that the House will give him a courteous hearing.

Mr. Bruce-Gardyne

Thank you, Mr. Speaker.

I was saying that the Budget conforms to a wearily familiar pattern. It involves more taxation, more civil servants, more congestion in the Inland Revenue, which is approaching a stage when it will come to a halt altogether; it involves an ill-prepared and inequitable new taxation proposal, and it is totally irrelevant to the fundamental problems facing our economy, where it does not positively accentuate them.

Clause 8 deals with the withdrawal of the export rebate on exports to E.F.T.A. countries. I raised this point on frequent occasions last autumn with the President of the Board of Trade, when this concession was being negotiated by him. My complaint is that this involves a permanent concession in exchange for a temporary forgiveness on the part of our E.F.T.A. partners for the import surcharge. I cannot help wondering whether it can end there. Either the export rebate is a rebate of internal taxation, in which case it is surely in conformity with the Treaty of Stockholm. If, as the Government seems to have admitted, it is not in conformity with the Treaty of Stockholm, it must presumably be classified as an export subsidy. If so, surely it is not merely against the Treaty of Stockholm, but also against the G.A.T.T. I wonder how long it will be before the export rebate will have to be withdrawn altogether in order to satisfy similar demands from the members of the G.A.T.T.

As I said, my hon. Friend the Member for Moray and Nairn dealt thoroughly with the inequitable effects of the Selective Employment Tax on the economy of Scotland. I have for long been in favour of a regionally differentiated payroll tax, because I believe that it could do two things at the same time. It could encourage the movement of industry to areas where there is room for industry to expand, and it could discourage the over-manning of industry in areas of high employment, in the South and the Midlands. The hon. Member for Manchester, Cheetham (Mr. Harold Lever) said that we must not talk about wastage of labour, but I am not sure whether I would agree with him. At any rate, let us talk about over-manning.

I believe that a regionally differentiated payroll tax could have both these effects. I should not have thought it possible to devise a payroll tax which would have precisely the opposite effect, which would hit hardest the areas of underemployment and areas of emigration, where there is room for industry to expand, and that at the same time would encourage over-manning and wastage of labour in areas of high employment. Yet this, I believe, is precisely what the Chancellor, in his ingenuity, has managed to achieve.

I do not suggest that the 7s. 6d. rebate will have an enormous effect in encouraging over-manning, but we cannot consider this in isolation. We must also take account of the Redundancy Payments Act. We have got ourselves into a position where an employer with surplus labour will receive 7s. 6d. a week for every man he retains and have to pay up to £600 for every man he declares redundant. I cannot believe that this sort of stick and carrot treatment can possibly do other than encourage wastage of labour and over-manning in the areas of high employment.

The Chancellor often tells us how successful the Government have been in their policies for reducing the incidence of unemployment in Scotland. I see the right hon. Gentleman nodding, presumably in agreement, now. It is true that we have managed to keep the level of unemployment in Scotland down below 3 per cent., and we are delighted with that, but the credit for that goes entirely to my right hon. Friend the Member for Barnet (Mr. Maudling) and the Leader of the Opposition for the measures which were introduced when we were in office, in particular the system of free depreciation which we introduced. Even so, the level of unemployment in Scotland is still more than double the national average, and this after a year in which, for the first time in more than a decade, the population of Scotland actually declined.

The Chancellor has made great play of the fact that the level of unemployment in Scotland has declined more steeply than it has in England. It is rather like a doctor with two patients, one with a temperature of 102 and the other with a temperature of 98.8, who manages to bring the temperature of the first to 101 and of the other to 98.4 and who then says, "This is a typical example of the effects of differential medicine."

I am worried about the Finance Bill because I do not believe that it will solve the underlying problems of the British economy. This worries me most because it is still true that when England sneezes Scotland catches cold. That is why it is particularly important for Scotland that we aim to avoid a serious recess on. I appreciate that in framing his Budget this year the Chancellor had a difficult path to tread. He wanted to avoid provoking a recession in 1967 and creating a balance of payments crisis in 1966. I suggest that he has laid the basis for achieving both.

The Budget's economic forecast struck me as being almost offensively inadequate. The Chancellor told us that he had counted on pre-Budget stocking up in anticipation of a much more immediately deflationary Budget to reduce demand this summer. Many hon. Members, certainly my hon. Friends, know by now that the right hon. Gentleman is a remarkably bad psychologist, and once again I believe that his psychology has gone wrong. I call in evidence the latest figures of demand in the motor car industry. These figures hardly suggest that the Chancellor's forecast of a drop in demand after the Budget is being fulfilled.

Nevertheless, in his Budget the Chancellor introduced a number of measures to tackle directly the underlying balance of payments problem, and I will refer briefly to two of them. First, the question of the Rhine Army offset. I wholeheartedly welcome his statement that he hopes to arrange a new agreement with the Federal German Government, and I hope that when replying to the debate the right hon. Gentleman will say something about the outcome of his discussions with the German Chancellor yesterday.

I find it rather nonsense that we should continue to tolerate a position in which, when the West German reserves are more than double ours. reserves which do not, unlike ours, make a substantial contribution to the financing of international trade and we should continue to be paying between £30 million and £40 million per year, which represents in affect a net loss to the international liquidity circuit. I wish the right hon. Gentleman good fortune in correcting this situation, but, on the basis of past experience, I am not sanguine about his chances. In any case, I hope that he will keep the negotiations well clear of the hands of the Foreign Office.

I also hope that the right hon. Gentleman will clear up a point which arises from a Written Answer which the Financial Secretary gave me on 27th April last, when I was told that of the …£45 million set aside…for the financing of additional British exports… that was in the Anglo-German Agreement of 29th June, 1965, …transactions have now been approved in principle which will in due course result in the whole of the deposit account referred to in Article 5 of the Protocol of 20th July, 1965, being used up".—[OFFICIAL REPORT, 27th April, 1966; Vol. 727, c. 37.] What does "in due course" mean? Can the right hon. Gentleman assure the House that any transactions accruing from this £45 million account will not be used to count against the £54 million which the Federal German Government have undertaken to pay over across the exchanges during the current financial year?

I hope that the Chancellor will clear up another point in his Budget speech when he appeared to imply that he was hoping to get agreement on the offset of these exchange costs during the course of the current financial year and apply it in the current financial year. I take it that all he is, in fact, expecting is to have the complete offset over the financial year 1967-68.

I appreciate that the sums involved here are not enormous, certainly not in terms of the sums which the Government propose to spend on the F111, but every little counts in these matters. We must look carefully at what has come over the balance of payments account on current account over the past ten years. Comparing the figures on current account for the period 1951-55 with those for the period 1961-65, one finds that there has been a substantial improvement in the overall visible trade position, and there has been a very substantial improvement in the overall position of invisibles on current account, which, of course, the Selective Employment Tax will do its best to reverse. Nevertheless, we ended the first five-year period with a global surplus and we ended the second with a global deficit.

The reason was that Government spending had increased from about £530 million over the first five-year period to nearly £2,000 million in the second. These are formidable figures. We cannot allow this situation to continue. I know that hon. Members opposite believe that the answer lies in cutting our defence commitments overseas. The Secretary of State for Defence has not found this so easy, and, in any case, it is not the only answer. If we could recover the proportion of international trade and exports in manufactured goods which we used to have, we could bear this burden. Besides that, about 40 per cent. of Governmental overseas spending accrues from civilian transactions, and I imagine that a large part consists of aid. We must do more to increase the proportion of our aid which is tied to the purchase of British goods.

The aspect of the Budget which depresses me most is that in his Budget speech the Chancellor almost began to admit defeat on the balance of payments side. The achievement of equilibrium seems to be becoming the crock of gold at the end of the right hon. Gentleman's rainbow. Originally, his target date for equilibrium was the second half of 1966. Then it was the end of 1966. Now, we are told—he said it again yesterday—that it is the trend which matters. He says that we have ample credit facilities for meeting the temporary fluctuations which may occur in the balance of payments account. Of course we have, if we are permitted to use them. But this is for the judgment of the international central bankers, and I question whether they will be quite so sanguine about trends as the Chancellor appears to be.

The right hon. Gentleman is taking a great gamble in this Budget, and he is counting—perhaps safely counting once more—on the willingness of the United States to bail him out because the United States has its own fears about the consequences of a devaluation of the pound. But I believe that this willingness to depend in the last analysis on an acceptance of further credits from the United States conflicts with what should be the essential first objective of the British Government—to take this country within the European Economic Community. I do not believe for a moment that President de Gaulle will accept this country into the Community so long as it is, in effect, attached—almost by a begging bowl—to Washington.

It is because I believe that the Budget does nothing to deal with the underlying economic problems facing the country and, in effect, represents recognition by the Government that they can continue to rely on charity from overseas that I shall be delighted to join my hon. Friends in voting against the Bill tonight.

10.41 p.m.

Mr. F. A. Burden (Gillingham)

I find it difficult to imagine how the Chancellor, who has been a member of the Inland Revenue, can introduce such a Measure as the Selective Employment Tax. It seems almost impossible to conceive of a tax more difficult to administer or collect. One can only suppose that in some way he has lost all the knowledge that he must have learned when he was in the Department. Undoubtedly the most scathing remark made against the tax was that of the right hon. Member for Leeds (Mr. C. Pannell), who stated that, although he was a Minister until early April, he had no idea that the tax was being considered and felt that it had not been given proper consideration.

I think that if the Chancellor were honest he would admit to a great deal of concern behind the benign smile that he has spread over the proceedings on this Bill and the Budget debate. He must have been gravely concerned at the criticisms that have come from his back benchers. It may well be that they have been largely muted criticisms because of party loyalty, but he must admit that there has also been very strong criticisms. If there had been full voice of the criticisms held by his hon. Friends, I think that he and his party would have been in a very difficult position. I believe that if they followed out their inclinations and cast aside party loyalty for what they believe to be in the best interests of the country, a number of hon. Gentlemen opposite, besides co-operative society Members, would be in the Lobby with us tonight.

The Chancellor has made some conciliatory noises towards charities, but I hope that he will take some positive action on their behalf during the Committee stage. The taxes on charities cannot be upheld on any social or moral grounds, and they must be repudiated on those grounds. Any tax that must be repudiated on social and moral grounds must be a bad one, whatever Government might try to introduce it.

I am on the board of management of two charities which operately solely on behalf of elderly people, bringing them free homes and a great deal of help in their declining years, including medical attention. I am also a member of the Council of the R.S.P.C.A. The tax will cost it £40,000 a year. It means that it will now have to cut back very considerably the services that it gives to local authorities, particularly in regard to the care, housing and destruction of stray dogs. Will the Chancellor provide the money for local authorities to carry out these services which will undoubtedly have to be cut back by the R.S.P.C.A.? If charities, such as Dr. Barnardo Homes, are unable to carry out their considerable duties towards children, will the Government make good the money taken by the tax? Does the Chancellor not realise that many people who now give to charities will say, "Why should I give so freely when the Government will take a good deal of it?" Does not he realise the psychological effect of the tax? I hope that the right hon. Gentleman will discontinue the conciliatory noises and take positive action to rectify the situation. I ask him—and I shall be writing to him about it—to allow me to bring to see him representatives of some of the charities in which I am interested.

The Chancellor—and here I speak from experience—did not do his homework before introducing the tax. Most of us engaged in the distributive industries know that we are on a shoe-string with our employees. We cannot get rid of any employees. Indeed, many of us are not fully efficient because we cannot get enough employees, either full time or part-time. I hope that he will look again at the tax on part-time and elderly employees, who are invaluable and essential to many concerns in distribution.

There is much Government talk about distributive industries absorbing the extra cost. I remind the right hon. Gentleman that the wholesale textile associations work mainly on a 3 per cent. net profit. That is their average net profit. If he really believes that it is possible for them to go on absorbing more taxation, then he is living in cloud-cuckoo-land. It just is not possible. It will have to be passed on to the consumer.

The same is true of stores and retail shops. They are all starved of staff. The staff excesses are not in the distributive industries but are more likely to be found in many of the manufacturing industries, which are now to draw an extra bonus for harbouring labour. Does not the right hon. Gentleman realise that if the cost of living goes up the workers in manufacturing industry will not be content to allow the employers to draw 7s. 6d. bonus per worker? The first thing they will do is to say to their employers, "You are drawing 7s. 6d. a week for each of us; we want it, and a bit more". That will be the reaction. The tax will promote more wage demands.

I put some Questions to the Chancellor about the operation of the tax and got woolly answers. Indeed, they were no answers at all. I was fobbed off and told the matter would be given consideration. An example of the difficulty of administering the tax is in the position of the manufacturing wholesalers. I hope that the right hon. Gentleman will listen, for these are points to which I hope he will give serious attention. They are not meant to be unhelpful and he must apply himself to them. What is the position of the manufacturing wholesaler who has his own distributing organisation? If he were purely and simply a manufacturer, he would receive the rebate with a bonus of 7s. 6d. a week, but as a manufacturing wholesaler will he receive the rebate on the manufacturing side of his business and only for those people employed on that side? If so, how is it to be assessed and who is to assess which is which, and what is to stop him from putting, say, his packers from the wholesale side into the manufacturing side? What of the manufacturing wholesaler who, in addition to wholesaling his own merchandise, buys from other manufacturers and wholesales their products? Those are only two of the questions. I refrain from giving the many more I could give, because of the lateness of the hour.

I ask for the Chancellor's very serious attention for a few minutes while I deal with a very serious export matter. The right hon. Gentleman constantly tells us that we must have more exports. In a Question, I pointed out to the Chancellor that in this country are many firms entirely financed by their overseas principals and whose one object is to act as buying offices in this country in order to send British merchandise to their principals or customers overseas. They perform another very important function. They have a staff in this country whose sole job is constantly to seek out new sources of manufacture of goods which might be useful to their overseas principals. When the buyers come here, they are taken to the manufacturers to give them guidance, if needed, on styling and generally to promote the sale of their goods abroad.

These firms will have to pay the Selective Employment Tax for doing this essential job. Their only function is to promote British exports and ensure that their overseas customers and principals buy as much as possible from this country. Many of these firms are very bitter about this imposition and I fear that they will switch their business and their buying offices to Europe and that we shall suffer as a result.

There would be no difficulty about excluding them, for it would be the easiest thing in the world to find out who they were and to ensure that they were not subjected to the tax. I hope that the Chancellor will consider that. I am glad that he is not smiling and I am sure that he will consider it, for I know that he is very concerned about our balance of payments and exports. Anything that he or anyone else does which minimises or stops exports is against the best interests of the country.

During the election, the Labour Party treated us to the remarks of Lord Sainsbury, a good Socialist and a Socialist Peer. What has he said about this tax? I do not know why the right hon. Gentleman did not consult him before introducing this tax, because a greater expert on the distribution of merchandise, the distributive industry, and on the likely effect on costs of an action such as this tax it would be very difficult to find. As an acknowledged expert he was paraded by the Labour Party as such, yet he was ignored. He has said recently that this is a bad tax and that the distributive industries will suffer and that they cannot be further denuded of staff. I wonder if the right hon. Gentleman might not now take note of what he said and at this late stage realise what a bad tax this is. Lord Sainsbury and everyone else knows this, and it is extraordinary that the Minister did not know this when he said that the cost of the tax would add less than 1 per cent. on the cost of living.

This is the acknowledged expert whom he could have consulted but this was wishful thinking, this was cloud-cuckoo-land. I am afraid that the Minister in due course will be called to account for his prophecy and will be shown to be very wrong indeed. It is extraordinary, if one looks at the record, that in his 1951 Budget speech Hugh Gaitskell said: …we have to recognise that there must be some reduction in our standard of living."—[OFFICIAL REPORT, 10th April, 1951; Vol. 486, c. 828-9.] There had been massive increases in taxation during that time and, after six years of Labour Government, the Chancellor had to stand up at that Dispatch Box and admit that the country had reached a position in which there must be some reduction in our standard of living. This Government have raised £1,000 million in extra taxation since they have been in power. On 11th March, 1964, the right hon. Gentleman admitted to me across the Floor of the House that when one raised taxation one automatically increased prices. He said that everyone knew that. If that is true, the right hon. Gentleman knows full well that his actions must increase prices, and he knows this will hit the aged, the people living on small fixed incomes, the old-age pensioners. The situation has now been reached after two years of Socialism, without being acknowledged by the Governmental—although Hugh Gaitskell admitted it openly in 1951—that we must again expect some reduction in the standard of living, which means a reduction in the standard of living of old-age pensioners and a cut back in the services they receive from charities. If this is the legacy of Socialism so far, heaven knows what the future holds.

10.58 p.m.

Mr. Iain Macleod (Enfield, West)

I would like to thank the House for exercising a great deal of patience while this debate ran into exempted time. I recall with some embarrassment now, that a few days ago I wrote in not wholly charitable terms about some of the maiden speeches which have been made. I must now eat those words, because three admirable maiden speeches have been made in the course of the debate.

The hon. Member for Newport (Mr. Roy Hughes) and the hon. Member for Liverpool, Garston (Mr. Fortescue) both made first-class speeches, and I assure them that I am not saying that out of conventional politeness but by way of tribute to them. I hope they will not mind my saying—they can put it down to prejudice, if they like—that I thought the speech of my hon. Friend the Member for Birmingham, Edgbaston (Mrs. Knight) was, by any standards in any Parliament, an outstanding maiden performance.

A Second Reading stage of the Finance Bill is not the most exciting of stages. The debates on the Budget are behind us and the debates in Committee and on the remaining stages are still to come. The Chief Secretary opened this debate with a speech which, frankly, we on this side of the House found deplorable. I do not just mean that it was a bad speech. We all make bad speeches. What worried us as to the future of our discussions on this Bill was that it was completely insensitive to the problems which this original tax—we must give it that much credit—will cause to so many people.

I listened to the hon. Member for Manchester, Cheetham (Mr. Harold Lever) praising this Budget, and I turned up what he said on the Second Reading of the Finance Bill a year ago. He said: I have not been able to agree with complaints that the Bill is badly drawn. It is a little masterpiece of its kind…those who are at all expert in understanding the drafting and style of Finance Bills must find that this is an outstanding one."—[OFFICIAL REPORT, 10th May, 1965; Vol. 712, c. 86.] As we all know, in the end it turned out to be the worst drafted, most incomprehensible of any Finance Bills, or indeed any other Bills, and no one proved that more eloquently than did the hon. Member for Cheetham—with his voice if not his vote as we went through those days. Perhaps we could ask that the Treasury would this year listen at the beginning instead of at the end of our discussions. We then might avoid having, as we have this year, between 40 and 50 pages of the Finance Bill—and this is only the first instalment—devoted to putting right some of the errors of the Bill which went through the House a year ago.

I mention, in passing, because I do not want to dwell on it but wish to come fairly swiftly to the S.E.T., the question of the betting and gaming tax. I think the Financial Secretary, who discussed my views on this in the last debate on the Budget, was a little supercilious in dismissing them. The point is that there are three possible methods, as he will agree. There is the method of turnover, the method he has selected as far as betting is concerned, the method of a tax on winnings—or more accurately on returns, as it can include stakes—and the method of taxing the physical assets. I think that everyone who is well-informed on this matter believes that the Government have picked the worst of the three methods. This is something which we shall have to demonstrate to them in the course of the Finance Bill. He quoted Mark Twain to me in response to my views. I do not ask for my views to be considered because I have given some minor study to this matter, but I ask them to be considered for Whistler's reasons, when he said: I don't ask this price for two days' work, but for a lifetime's experience. Perhaps I can assure the Financial Secretary of this. There are many things of which he knows much more than I do. I cannot think of them at the moment, but I am sure that there are. Perhaps he will take it from me in advance of the Committee stage that the taxation of gaming is not one of those, and this we shall demonstrate to him.

I mention, in passing, because it is of such importance, the question of Corporation Tax at 40 per cent. That is quite a major decision. The position, I understand, is that the old combined rate was 561 per cent. and the new rate is 641 per cent. This is a swingeing increase, one which we are not satisfied with for the reasons given, and one which we shall move in due course to lower in Committee. Very briefly, and perhaps the Chancellor might wish to make some reference to this, on the question of his general estimate to which my hon. Friend the Member for South Angus (Mr. BruceGardyne) referred, I found the Chancellor strangely optimistic in his Budget speech on the facts as they are available to the House at present. If, for example, one takes the trade figures—clearly for some months they will be affected by the strike, but when unaffected by the strike—we find that for the first four months of this year they showed an average deficit of £23 million, as against an average of £16 million for 1965. Those figures are seasonally adjusted, and clearly the trend is a bad one.

Secondly, on the question of the balance of payments—£23 million as against £16 million—the total deficit for the first four months of 1966 was £92 million, and it was £65 million in 1965. I think the Chancellor will find that that is correct.

Mr. Callaghan

Take the average over the 12 months and not five.

Mr. Macleod

I was comparing the first four months of this year with the first four months of last year. The right hon. Gentleman will find that my figures are correct—an average of £16 million as against an average of £23 million.

I now turn to the general trend in the balance of payments. Before the General Election, in our debate on 1st March, I warned the right hon. Gentleman—he will find it in HANSARD and will remember it—that he was being much too optimistic in his assessment of the speed at which we should recover from our balance of payments difficulties. It is now admitted that he was too optimistic, but he is still being bullish about 1967. I have the same doubts, and I have the same reasons.

It is not easy to see, although I welcomed it at the time, what confidence lies behind the right hon. Gentleman's assertion that we can repay on time, and perhaps even before time, the first of the loan repayments which are required from us. The possible explanation—he might like to comment on this—is that the import surcharge might be replaced by quota restrictions. Can he give a firm indication tonight that that is not so?

All of this leads us to further anxiety about the timing of the Chancellor's proposal, because nothing effective will happen until the third quarter of this year, which is seasonally always the most difficult quarter, and then, with the winter beginning to loom up, he will take very nearly £100 million a month in a forced, interest-free loan from the employers. He justified this on what seemed to me to be a very strange argument about the course of demand anticipating the Budget. This can only be a trifling factor in the ordinary course of demand. It is far too slender a base on which to hang as much as the Chancellor has chosen to do.

The Selective Employment Tax has, of course, dominated the debate, and probably about 90 per cent. of the time of the speeches has been devoted to it. I find it difficult to discuss this tax rationally. I find anger boiling up in me when I consider it. I feel exactly as Sir Geoffrey Crowther did in a letter to The Times, which all hon. Members will know. In it he said that he had intended to ask for space to protest once again about the way in which the Government seems determined to ruin British hotels, a struggling export industry. Then he says that on reflection, I think there is something even more basically wrong with the Selective Employment Tax than its capricious economic mpact. And he says that the tax is an outrage against morality. The evidence is now overwhelming that this tax was thought of at the last moment. The clearest possible evidence is a statement made by the Chancellor towards the end of the General Election campaign. Speaking at Cardiff on 25th March, the right hon. Gentleman said: We will sit the burdens on the shoulders of those able to carry them, on the strongest, not on the weakest. This tax will fall on the old, on women, on the disabled, on charities, on the development areas. I do not believe hat the Chancellor could possibly have made a. remark like that if the Selective Employment Tax had been in his mind, because otherwise that statement at that time would be completely immoral. I do not for a moment believe that on 25th March the Chancellor had even thought of this.

If I may produce another piece of evidence, I do not mind who gets the credit for the move from agriculture and, now, forestry away from their original position. What is apparent is that to everyone, at least on this side, the absurdity of the original proposal was manifest at once. My hon. Friend the Member for Hove (Mr. Maddan) said this. My hon. Friend the Member for Macclesfield (Sir A. V. Harvey), who rose to speak at 6.28 p.m. on the day of the Budget, said this: My purpose in rising to speak is to refer to agriculture. I could not believe my ears when I heard the Chancellor say that the new tax upon employees in agriculture would be taken into account at the next Price Review. I cannot understand what he must be thinking about ".—[OFFICIAL REPORT, 3rd May, 1966; Vol. 727, c. 1500.] My right hon. Friend the Member for Grantham (Mr. Godber) issued a statement the same evening. There was a Motion on the Order Paper at once, the same night. I referred to this next day in my speech and on television and on sound radio. The absurdity is the manifest one of assuming that a national review could conceivably take account of the individual interests of individual, farmers.

For my part, I am in the same position regarding agriculture as A. P. Herbert, who once put a paragraph in his election address headed "Agriculture" and beneath it, "I know nothing about agriculture." I know only a little more than that, but I know that every person who heard the Chancellor's speech knew within minutes that this was an absurd idea.

What, then, are we to think of the Minister of Agriculture who, I presume, was consulted on this matter, in view of the wording of the White Paper, who in any event must have heard this in the Cabinet, at the latest, the day before the Chancellor made his speech and either sat dumb or did not realise the implications of this tax for his industry? It is clear that we are heading for what my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) called administrative bedlam.

Let me give two short quotations from The Guardian leader on Monday of this week: The Ministers of Labour and National Insurance, who will have to administer the tax, seem to have been given only the sketchiest information in advance of the Budget. They were not asked to give their views on the possible consequences of the tax or to advise on the ways in which it ought to be operated.… What happened before the Budget was not planning, purposive or otherwise. Crude guesswork is a closer description. That, therefore, is the position.

I do not want to spend too much time on the anomalies, obvious though, of course, they all are. There are the sort of anomalies that under the Government's proposals as they have been presented, we will pay a premium to cigarette manufacturers and we will tax cancer research. We will tax the churches and we will pay a premium to the manufacturers of ice cream, bingo tables and the rest. All these can conceivably be described, if one likes, as debating anomalies, but it goes much deeper than this. There is the whole question, to which my hon, Friend the Member for Gillingham (Mr. Burden) has just referred, of export merchants and all those who are concerned in their insuring, forwarding or merchanting the country's products.

There are, too, the question of contractors and all the problems of tourism and hotels. The hon. Member for Fife, West (Mr. William Hamilton) is utterly wrong when he attacks the luxury hotels of London. I have not the reference here, but I remember a letter from my hon. Friend the Member for Eastbourne (Sir C. Taylor) in The Times referring to Grosvenor House, and the figures, as I recall them, were that 73 per cent. of the lettings were foreign lettings and 56 per cent.—no less—were for bookings from North America. The advantage of that to the economy of this country is enormous. It is not just the expenditure in the hotel. It is all the other expenditure—in places of entertainment, in the shops, in everything related to tourism. But the point is that it is the hotel booking which is the anchor for all the tourist expenditure which comes to this country, and it is particularly stupid to tax in a way in which other countries do not and to penalise the hotel and tourist industry of this country.

Mr. William Hamilton

They do.

Mr. Macleod

No. I have a list which I was going to use in Committee, and if we compare the treatment of hotels in this country with that of hotels in other countries we shall find that their treatment in this country is worse than their treatment in almost any other country.

Finally on these main subjects, on the question of the distributive trades, what we feel was splendidly put in a leader in the Co-operative News on 21st May. This is how it opens: Nothing that has happened since Mr. Callaghan introduced his so-called Selective Employment Tax proposals has modified our view that it is a thoroughly bad and dishonest measure. It taxes the people's food, it will provide free gifts without any selection to all types of manufacturing industry, and it will not result in a single distributive employee being transferred to manufacturing. Perhaps I should make quite clear on this—because I think it is an important point—that we will move at the appropriate stage an Amendment to this. We do not believe in what has been called the Welfare State for industry, and we shall oppose the payment of premiums to manufacturing industry and move that they be struck out of the Bill altogether.

The next point I should like to make is in relation to the Ministry of Labour classification. I have, I suppose, some indirect responsibility for this, because I think the last time it was revised was in 1958 when I was at the Ministry of Labour, but, as the hon. Member for Putney (Mr. Hugh Jenkins) and other hon. Members have said, the classification, of course, is entirely for the purposes of statistics, and it is intellectually illiterate to use this form of classification as a method of demarcation between different forms of manufacturing in this country. It was said by the Financial Secretary to the Treasury, quite rightly, that the definition, broadly speaking, of an establishment—on which so much is going to turn: no less than 32s. 6d. for every man in the labour force, the difference between the maximum 25s. and 7s. 6d., an enormous sum—was that the whole of an establishment was normally the whole of the premises. That is perfectly true, but I wonder if the House would just listen while I read the next paragraph, which says: The reference to 'the whole of the premises at a particular address' in paragraph 4 above is subject to the following qualifications. Where, at a single address, there are two or more departments engaged in different activities in respect of which separate records are available, each department is treated as a separate establishment and classified accordingly. It may be, however, that separate records are available for some types of information and not for others and for the purposes of some kinds of statistics all the departments at the address, even if engaged in different activities, have necessarily to be classified as one unit. Indeed for some statistics—for example bank advances—it may not be possible to obtain statistics by establishments but only by enterprises. Well, we know just where we are, do we not, as a result of this? I wonder if the Government have really thought for a moment of the administrative chaos which will be created. The Ministry of Labour machine is utterly unfitted to deal with these disputes.

Then there is the point raised by my hon. Friend the Member for Finchley (Mrs. Thatcher) about the legal responsibility and the right of appeal. We all know why the Ministry of Labour has come into the matter, and the Ministry of Pensions has to come into it. As I said in a speech last weekend, the reason is that the Inland Revenue is so clogged up with work that the Chancellor of the Exchequer has to sub-contract this year's Finance Bill to other Ministers in the Government.

Some of the consequences are only just becoming apparent. I only mention this one on the legal point which was taken up because the effect of paragraph 1 of the 10th Schedule is to assimilate the collection of the tax with the provisions for collecting insurance contributions. It follows that any question relating to payments by an employer of S.E.T. or of any employer's liability to pay the tax will be decided not by the court, not by the Commissioners of Income Tax, not by any tribunal or judicial body, but by either the Minister of National Insurance or one of her local officials. With great respect to her and her Ministry, that is something that they are not suited for or capable of doing.

So what happens? There is no appeal, except on an individual point of law to a single judge, and there is no appeal from that judge's answer. In that very unsatisfactory way, the rights of the ordinary citizen are gradually being taken away.

I turn now to my last two and most serious, criticisms. First of all, the Bill is wholly against the flow of policy of many Ministries and Departments in the Government. It is against many of the things that the First Secretary of State is trying to do in the development areas, and it is against things that the Secretary of State for Scotland is trying to do. It is overwhelmingly against the very jobs which lie at the heart of the work of the Ministry of Labour, and I am coming to that special point in a moment.

That is why it is intolerable that we should have two Bills pushed before us this summer, and why I ask the Chancellor to conduct both those Bills himself. After all, this tax is the central and only real feature of his Budget, and he must explain and defend the answers that he wishes to give to the country, not only on the Finance Bill but on the Ministry of Labour Bill as well.

When I had an exchange with the First Secretary of State in the Budget debate and quoted something that he had said about the tax introduced by my right hon. and learned Friend the Member for Wirrall (Mr. Selwyn Lloyd) in 1961, the right hon. Gentleman, who thinks very fast on his feet, said, "Ah, but that was quite different; the unemployment level was quite different." In fact, the unemployment level for May, 1961, was 1.3 per cent., which I guess is what it will be in May, 1966. That point sounded all right at the time, but it disappears now.

As someone who has been Minister of Labour, I think that it is very wrong that the Minister of Labour should be asked to conduct this Bill. What is more important is that almost everything that the Minister of Labour tries to do is attacked by the Bill. Ministers of Labour of all parties have tried to bring the disabled more and more into the ordinary stream of employment. They have tried to find occupations for married women and for part-time workers, to the great benefit of our economy. Every single one of those things is attacked directly by the Chancellor of the Exchequer in these proposals.

What he does not seem to realise is that, almost throughout, there is a double loss.

Take the question of the catering, tourist and hotel trade in this country. There is the obvious loss that if we make hotels in this country more expensive, we encourage people to holiday abroad and therefore put a strain upon our balance of payments. But, equally, if we make this country more expensive relatively than, say, Italy, or any of the other choices of people coming from North America, then they do not come here and we do not get the compensation which we have had in the past.

This double loss runs right through the Bill, because if it happens that a woman who has been able to do part-time work is no longer employed because the 12s. 6d. makes the difference between it being worth while and not being worth while, again there is a double loss. There is a loss to the economy and there is also a social loss, because, clearly, this woman will not go into manufacturing industry. She will go back to her own home and there will be a loss both to her and to the economy.

Many letters have been quoted, and I want to quote only one. It is one which I think the House would like to hear, and perhaps they will bear with me while I read it. It is not from my constituency. I do not know the area. It reads: I am very glad that you are opposing the pay-roll tax. I am a widower who, of necessity, has to employ a housekeeper to care for my daughter aged 2½. While I do not expect that the Chancellor intended to include persons in my circumstances, we have not been specifically excluded. As I receive an Income Tax allowance for my housekeeper, she is surely in a different category from private domestic service. But I feel that we are likely to be included with valets, gardeners, housemaids. etc., unless someone speaks up for us. At the moment my income as a clerical officer in the Civil Service is less than my expenses. So 12s. 6d. a week will be a real hardship to me. I have had a very worrying time lately and it is grossly unfair that I should have had this added anxiety. Life is quite difficult enough for widowers who are struggling to bring up a family. I have been in a somewhat similar position myself, except that I was much luckier than this man. His wife died and he was left with a daughter aged 21. The point is that successive Chancellors of all Governments have gone out of their way to make the circumstances a little more tolerable for a man in this situation. I know that the Chancellor will look sympathetically at this point. I am quite prepared to leave the matter there.

The point is that there is an income tax allowance of £75 for people in this category. Unless exemption can be made for such cases, the result of the Selective Employment Tax is that about half the value of that allowance is taken away. I think that the House as a whole—I do not mean just one side of the House—would say to the Chancellor, having heard that letter, that this is something up with which we will not put, and we ask the Chancellor to find a way, perhaps along the lines which I suggested or perhaps in some other way, to get round these difficulties.

The last question with which I want to deal is that of charities. What the Chief Secretary said worried me very much indeed. He said that the Chancellor intended to have discussions, and obviously that is right, although I feel that it would have been much easier if, from the beginning, as is traditional and has been for centuries in this country, charities had been exempted straight away from this tax. What I am unhappy about is the suggestion which seemed to be in the Chief Secretary's speech that there would be some sort of discrimination between charities, and that we should have a selected list of charities—those which the Minister may approve and those which he may not approve. [HON. MEMBERS: "Hear, hear."] I am horrified that hon. Members on the other side of the House should approve that. Of course we all have our favourite charities. I have. Every hon. Member has. We all contribute, and I dare say most of us work for one, two or more charities. But it would not be tolerable to have a Minister of the Crown deciding about the charities of this country. One remembers the Nye Bevan phrase about priorities being the language of Socialism. I hope that no one will dare to use that phrase again unless the charity problem is cleared up swiftly and straight away.

This is one of the reasons why I believe it to be vital that the Chancellor of the Exchequer should himself conduct the Ministry of Labour Bill. I will take a full part, of course, in discussions on the Bill, not because I am looking for work but because, as this is the central feature of the Budget, that clearly is the appropriate thing to do. The Chief Secretary said in answer to an intervention that he would look at all Amendments with the sympathy with which he always does. That is just our anxiety. I hope very much that, if we are to be told that our economy depends on hurting some of the people to whom the attention of the House has been drawn tonight, at least the Chancellor will shoulder the responsibility of decision for himself.

It is comparatively rare—or was until recently—to divide the House on the Second Reading of the Finance Bill, yet I am in no doubt that that is the right course for us to take. It is not important, in the last resort, whether the Bill has been born of ignorance or of malice. What matters is that if unamended it will have disastrous effects for the whole quality of life in this country and for all our constituents. [HON. MEMBERS: "Nonsense."] We have already had a number of votes in this Parliament, and no doubt there will be many more. I am certain that there will never be one more fully justified than the one we shall cast tonight.

11.32 p.m.

The Chancellor of the Exchequer (Mr. James Callaghan)

Before I proceed to deal with the right hon. Gentleman's speech—[HON. MEMBERS: "Oh."]—surely that is the object of a reply—I should like to echo what he said about the maiden speech of my hon. Friend the Member for Newport (Mr. Roy Hughes). I agreed with my hon. Friend about many things; but I thought that his superlatives about his local rugby side might be challenged on another day in another place. I also agreed with what the right hon. Member for Enfield, West (Mr. Iain Macleod) said about the very pleasant speeches of the hon. Member for Liverpool, Garston (Mr. Fortescue) and the hon. Lady the Member for Birmingham, Edgbaston (Mrs. Knight). Women are rare enough in this Chamber, and we are delighted to see so powerful an addition to their ranks.

The right hon. Gentleman got into a little trouble in talking about maiden speeches, and I should like to share some of his trouble with him. Speaking as someone who, like many other hon. Members, has been here for over 20 years, it seems to me that some new traditions are growing up. Indeed, there are three traditions of maiden speeches which hon. Members seem either to ignore or to observe. Two traditions which they observe are new, and one which they do not observe is old. The two traditions which seem now to be growing up are that one must always eulogise one's predecessor no matter how badly one thinks of him, and that one must say what a splendid place one's constituency is.

As one ordinary hon. Member of the House, I would say that these were not traditions when I came into the House. I see no reason why we should build up traditions of this kind, which are quite needless. I am expressing my own opinion and not that of the Government. The tradition which is not being observed is that hon. Members should make a noncontroversial maiden speech. I do not think that that matters so much, except that most of us did not make controversial maiden speeches in our day—at least, I do not think I did—and it taxes to a certain degree those who have been here longer when controversial speeches are made. On the whole, this is a pleasant innovation: I would much prefer to hear an hon. Member speaking his mind from the word "go" rather than making a non-controversial speech. I hope that the House will forgive my reflecting on the old traditions and the new ones which seem to be growing up.

The debate today has been dominated by the Selective Employment Tax, and I am not surprised that it was. But before we consider that, there are one or two other matters to which I should refer because they have been brought up by hon. Members.

There is, first, the voluntary programme which I announced in my Budget speech for restraining investment in the developed countries of the sterling area. This is not a welcome development of policy; but it is a necessary one. I wrote immediately after the Budget to the chairmen of more than 200 major companies which in the past have been concerned with direct investment in the countries to which I referred, and I invited their co-operation in carrying out the voluntary programme. So far I have received about 100 replies, and almost all of them promise the fullest co-operation in support of the programme. I thank those who have promised their support, and I assure them that I have read each letter.

I wish in some ways that every hon. Member could see the kind of response I have been getting from the chairmen of companies to a policy which cannot be welcome to them but of which, nevertheless, they say, "We think it is necessary and, however unpalatable it may be, we will do our best to carry it out." It has been most encouraging to me, in my capacity as Chancellor of the Exchequer, to see the wealth of good will—whatever disposition there may be to disagree with the policy—that exists in trying to carry it out; and I am confident, in the light of the replies I have had, that we shall get a great deal of support from them.

I expect that I shall be able to give reports from time to time to the House about the way in which the programme is going, and I shall certainly hope to do so. I appreciate the anxiety of companies investing overseas that the programme should be a temporary one. That would certainly be my intention, too, because I simply do not see that there is much profit in supporting a foreign policy and defence commitments all over the world at the expense of earning our living in the world.

As was pointed out by the hon. Member for South Angus (Mr. Bruce-Gardyne), Government overseas spending on defence and in support of our overseas policy has risen exceptionally during the last 10 years, and especially during the last six years. We use foreign exchange to support our overseas policy; and Government overseas spending must be brought into better relationship with our resources.

I am glad to have at least some support from hon. Gentlemen opposite on this. But, like so many other things, it is all very well to say "Yes, we agree in general": one must agree in particular as well. How can we escape from commitments in Aden and how can we cut down overseas expenditure unless we in fact take these very painful decisions? It is for this reason, that I ask for the support of the House. These are practical alterations that must be made in our defence policy. They must be pushed through in the face of very great difficulties, overseas and at home on occasions; but we must go ahead with them.

I was asked about my conversations, and those of the Government, with Chancellor Erhard. I do not think that it would be proper for me to go beyond what is in the communiqué. I can say, however, that we have agreed that the Minister of Finance, Dr. Dahlgrun, and I should meet. I have sent him an invitation to come to London immediately after Whitsun, as I am anxious to get on with this, and we shall be able to transfer the discussions elsewhere to set up a mixed commission to consider every aspect of the matter.

I am looking for some means of supplementing the Offset Agreement. That Agreement, which was negotiated some years ago—and I make no party complaint about that—has been a source of irritation as much to the Germans as to ourselves. Their manufacturers complain that they are being required to buy—or that their customers are buying—British exports which they would not otherwise buy. We on our part are unable to say whether the exports which we are getting are in part in satisfaction of the Offset Agreement or are exports which we would have made in any case. This is not a satisfactory way of carrying out these obligations and we are, therefore, trying to find other means of doing so.

Chancellor Erhard has agreed that both parties should report back to their Governments by 15th September, and I hope to press ahead with these negotiations during the next few months.

Mr. Bruce-Gardyne rose——

Mr. Callaghan

I ought to push on as I have a great deal to say. I have dealt with the hon. Gentleman's observations rather fully.

Mr. Bruce-Gardyne

I am most grateful to the right hon. Gentleman for giving way. Could he clear up one point? Is he expecting or hoping to get the full offset over the current financial year, or was he referring in his earlier statement to 1967-68? It is an important question.

Mr. Callaghan

I prefer not to answer that question at this moment. It has not escaped my notice.

In addition to the defence costs which we bear, there are the requests for foreign aid which continue to grow at a rapid rate. They are genuine and necessary requests. We should endeavour to meet them as far as we can; and yet, in our straitened balance of payments circumstances, it is extremely difficult for us to meet requests for aid which, I believe, the whole House would want us to meet in other circumstances. Our capacity to help must be strictly limited until we get our balance of payments right.

We are constantly trying to secure an improving trade balance against a background of full employment. Full employment is the most difficult economic policy to follow, yet we are following it and we intend to continue to follow it, adjusting our measures in order to maintain it. The strains which it imposes are obvious, first, in relation to imports, because, when demand is high, imports are sucked in. Second, full employment imposes a strain on exports because products which might otherwise go abroad are kept in the home market. There is also the consequence that demands for increased wage are readily conceded in conditions of full employment. Indeed, employers may themselves offer higher pay in order to attract and keep their labour force.

Against that background we are struggling to solve the problems concerned with our trade balance, and the present situation in the docks—[Laughter.] I know the right hon. Member for Wolverhampton, South-West (Mr. Powell) takes this seriously. At least, I hoped that he took it seriously, but his inane laughter makes me begin to wonder. He has pointed out the dilemma here, and he, at least, is one of those who are honest about a solution. He believes that there should be substantial deflation and large-scale unemployment. [An HON. MEMBER: "He is not the only one."] I shall return to the question whether there are others. But that is, at least, a solution. The right hon. Gentleman is right: if we had large-scale unemployment in this country, we would at least release resources—whether they would go into exports or not is another question—and we should cut down the volume of imports. At least, I respect the right hon. Gentleman's intellectual integrity, if not his compassion.

But we have to try to work a policy with which, I believe, a great many hon. Members opposite are in agreement as well as all my right hon. and hon. Friends. We have to try to work a policy under which we do not throw men and women out of work, but endeavour at the same time to earn our living in the world and so keep our balance of payments right. It is against this background that the present dispute, from which our attention has been diverted today, must be seen. It is clearly setting back the time when we shall be able to balance our payments.

This is recognised on all sides. The dispute highlights the dilemma which we face. I can only say to the House, to those engaged in the dispute now, to those engaged in launching further wage claims and to those who may concede wage claims, that large wage increases in 1966 mean nothing but inflation. Unless this is understood, and not only understood but acted on, by all concerned, then other remedies—not other remedies; it will be another disease—will creep up on us in a way that not even the best intentions of the most able Government will be able to avert.

I want to put it quite clearly that full employment in this country means voluntary self-restraint in wage increases. There is no escape from that conclusion. If we do not have voluntary restraint in wage increases, in the end full employment will be the sufferer and men and women will be out of work. We cannot have full employment and a free-for-all in wages. If we have a free-for-all in wages we drive up industrial costs, we suck in imports, we divert exports and we get further into debt with other countries.

We are still doing this despite the great improvement in 1965. Wages have risen much faster than production. Industry's costs are going up at the present time and its competitiveness is being reduced. Exports naturally suffer when competitiveness is reduced. It would be folly for the Government to bring pressure to bear on employers to concede large wage increases in 1966. It would spell nothing but inflation, and we should be breaking faith with the ordinary people of this country who know we are here because we do not wish to jeopardise full employment, because we wish to control inflation and because we want to see ordinary people in secure jobs living out their lives. It is for this reason—it is not merely an abstract "policy on prices and incomes"—that the Government have put their weight behind it. How shall we organise the structure of society today? This is the problem; and that is why the Government have to say that we cannot concede, nor can we encourage, large wage increases in present circumstances.

There is another way, and the right hon. Member for Wolverhampton, South-West has told us what it is. This way is constantly being pressed upon me. There is hardly a day passes when I do not get advice from some quarter or another that I should so manipulate the economy as to create widespread disinflation and, therefore, unemployment. It is sometimes open; it is more usually whispered. I reject that advice. The Government have made their choice, and it is to stand firm on a policy of full employment and moderate wage increases and higher productivity. It is the basis for a healthy development of this country's economy.

I do not ask, and the Government do not seek, restraint only on the part of those who earn their incomes from wages. During 1965, because to some extent of the Government's policies, companies' profits turned down, and in the second half of the year they were about the same as a year earlier. There is also evidence that profit margins have been affected adversely by the rapid rise in wages. On the other hand, dividends have not fallen back. They have gone up, and gone up substantially. They have shown some very sharp increases. This is because of a rephasing of payments reflecting the change to Corporation Tax and designed to escape its consequences. Many people have endeavoured so to escape Corporation Tax. Hence, in the Finance Bill I have taken power to ensure that about £60 million which would otherwise have escaped the Revenue and which should properly have come into the Exchequer should now do so. So this is not a one-sided policy in any way.

We introduced the Corporation Tax and the Capital Gains Tax because it was long recognised that the absence of Capital Gains Tax made possible a great deal of tax avoidance based on the conversion of taxable income into capital gains. Of course, it is in the interests of some hon. Members opposite to pretend that the Capital Gains Tax cannot be worked. They do not like it. But they do not care about the tax gatherer who is merely a convenient vehicle for their complaints.

We say that if there is to be this kind of restraint on the part of incomes in order to maintain full employment, and if hon. Members opposite really want a policy like this to succeed, they should not be attacking the Capital Gains Tax in its present form.

I take another illustration of this, the question of tax avoidance. It was raised today and I want to state the way in which we look at the problem of avoidance—and if it causes trouble among hon. Members opposite, so be it. What has happened in the past is that a particular form of avoidance has been detected and legislation introduced to stop it. Then the original legislation has had to be followed by a number of amending provisions year by year designed to close loopholes which the practitioners in these activities have discovered. A good deal of time, energy and money has been spent on discovering loopholes in legislation about whose intention Parliament was quite clear. Until each successive loophole can be closed, large sums of money may be and sometimes are lost to the Exchequer.

I do not think this is the way for Parliament to proceed. Nor is it fair to the many millions of taxpayers who cannot or will not avoid their liabilities in this way. I therefore wish to state that when Parliament has expressed a clear intention of putting an end to a particular form of avoidance, but that intention is put in danger of being frustrated because loopholes are discovered in the original legislation and exploited, I shall feel justified in proposing further legislation to the House which will be retrospective to the date from which the original legislation became operative. [Interruption.] We shall no doubt have an opportunity of debating this.

Before we do debate it, I hope that hon. Members opposite will look up the policy of their own Government which, alas, they never carried out. The then Financial Secretary to the Treasury, Mr. Henry Brooke, said in December 1955 in relation to dividend stripping: …if clever people should discover ways and means of getting round this legislation, which is squarely directed against dividend stripping, the Government will not hesitate to stop any such loophole by further legislation and to make such legislation retrospective."—[OFFICIAL REPORT, 13th December, 1955; Vol. 547, c. 1022.] We shall see the difference in the philosophies of the two sides of the House in that I shall certainly carry out the promise which the then Chancellor of the Exchequer did not despite the expressed intention. [Interruption.] The party opposite really must beware of the way it is going in many ways, because it will soon become known as the friend of the wealthy and of the tax dodgers.

One of the major proposals by the hon. Lady the Member for Finchley (Mrs. Thatcher) today was that the first £1,000 of a wife's earnings should be free of Surtax. I must say that I thought it was rather an odd set of priorities to put forward at this time. It would, of course, go to married couples with a joint income of more than £5,000 a year. I quite accept that there could be a condition in which this country might eventually arrive when it would be worth while for something of this sort to be done, but to select as one of the major priorities extending joint earned income relief and tax relief for domestic work seems to be very odd.

The hon. Lady has indicated the reliefs which she herself would propose if she had the opportunity. The right hon. Member for Enfield, West indicated that he thought that at least some rates of tax were too high. I suppose that one could hold both views at the same time. I made a rough calculation of the hon. Lady's suggestions and I would put a figure of £75 million as the cost of the concessions she asked for. How we are at one and the same time to give concessions of that kind—it depends on how high she wants to put the earned income relief, and we would obviously have to discuss that, but I put a modest figure on it—and still reduce the rates of Corporation Tax and other taxes are matters about which no doubt we shall be enlightened during the course of the next few weeks.

I listened to the right hon. Gentleman's speech. It was erudite; it was witty; it was thorough; it was well prepared; it had all the qualities of logic arid sentiment which go to hold the House of Commons. It was completely sterile and negative. He had not a single positive proposition to make. it was the epitome of the position of the Conservative Party at present—it can do nothing but attack what is put forward without being able to put anything positive in its place. I promise right hon. Gentlemen opposite—and I had 13 years of this—they will remain the Opposition until they put forward something positive.

Of course, it was right and proper that the right hon. Gentleman should find the weaknesses of the tax and the difficulties in putting it forward. I am reminded of what Winston Churchill said—"Do not argue the difficulties; they will argue themselves". They have been well argued this afternoon. Many of them have been extremely well argued. A great many Committee points have been made. But nobody has said that, faced with the situation in which we are today, he would come forward with an alternative proposal for a different kind of tax. But nobody!

But this follows from the right hon. Gentleman's analysis. He said that I was being too optimistic—he thought that my estimates were on the optimistic side. I hope that he was wrong. I can say in passing that it certainly is not our intention to replace the temporary import charge. I mention that because I think that it is important that I should say so, having been asked the question.

But it is necessary for the Opposition to indicate whether they believe that it was worth while, despite all the difficulties, which obviously anybody could foresee, to do this. What is their answer? Is it worth while trying to do this or not? [Interruption.] Out of the babble of voices, I did not get a clear reply.

Mr. Ray Mawby (Totnes)

The last thing I wanted to do was to interrupt the right hon. Gentleman, but as he has asked the question so many times I think that I ought to answer. None of us on this side of the House and few hon. Members opposite, after the Chancellor's statement before the election, expected that he would ask for an increase in taxation of £300 million a year. That is the simple answer.

Mr. Callaghan

That, I agree, is an alternative proposition, but it does not answer the major question which I am putting.

Do the Opposition believe that it is worth while breaking fresh ground in order to broaden the tax base in this way? We have had no clear answer to that question. There will be other opportunities when they can make up their minds as to whether they want it unselective, more selective, or whether they want it at all, and I have no doubt that in due course we shall get the same sort of reply as we got on the Corporation Tax. The position is that here is a new instrument that does not fall severely upon the whole community. [HON. MEMBERS: "0h."] It is spread very thinly over a very wide range of services and industries.

Let me give an example of what I mean. [Interruption.] I will show the hon. Gentleman whether I know what I am talking about by quoting figures. If one considers the burden of taxation at present on alcoholic drink, the tax as a percentage of consumption, excluding the cost of distribution, is 62½ per cent. On tobacco, it is 76½ per cent.; on oil, which enters heavily into industrial costs, it is 58 per cent.; on matches and lighters, which are a separate Customs heading, it is 52 per cent. The Purchase Tax overall on average is l4½ per cent. This is as a percentage of consumption excluding distribution costs.

If one now takes the general spread of this tax, and that is what I have been doing with these other taxes, 62½ per cent., 76½ per cent., 58 per cent., 52 per cent., and 14½ per cent., it comes out at around 3 per cent. on average. That will be the general level of the tax on services in this country. It is not additional. It is a separate range of taxation.

Mr. Victor Goodhew (St. Albans) rose——

Mr. Callaghan

I know that the hon. Gentleman is a distinguished restaurateur, and he will be able to argue his case later, but not just now. I have no doubt that it was better to use a system of this sort rather than intensifying taxation in the particular areas that I mentioned with the consequences that would have flowed to industry in a very direct way.

The second advantage of the Selective Employment Tax is the ease of collection. [HON. MEMBERS: "0h."] I thought that hon. Gentlemen were concerned about administration. Have they reached the giggling stage when they are ready to laugh, at anything? All afternoon I have been told that we must find simple administrative means of levying this tax. I warrant that even the collective wisdom of the other side could not find a simpler administrative means of doing it than this—collecting it through the insurance stamp.

The third advantage of the Selective Employment Tax is that it is capable of very great variation and flexibility. It can be varied for regional purposes by means of inclusions and exclusions as the House believes right from year to year.

It would be interesting to have a clear statement from the Opposition of what their objections are to this in principle. Do they have any? I believe that they do not, and if they do, then I will put my view against theirs—that the country is not thinking or saying what they are saying in this House. This is a matter of opinion, and everyone is entitled to his own.

This is a progressive tax. It is pretty clear that the more affluent members of society, in terms of family incomes, spend more on services. It is the case, and we have been able to show that it is the case, that the higher the income level the more is spent on services. Therefore, this is a truly progressive tax and it certainly satisfies those of us on this side of the House.

There have been a number of proposals for exemption, but before I come to them, perhaps I should say a word about the question of appeals. The hon. Member for Finchley put the point and it was followed up by the right hon. Member for Enfield, West. I think he was a little off the mark in his belief that there are thousands of appeals a year to the Minister in cases where a man says that he is self-employed and so on. In fact there are about 200 cases a year, I am told, which go to the Minister. The right hon. Gentleman was also not right when he said that of course there would be no appeal to a judge. I understand that one or two appeals are made to the High Court: this is allowed for by the legislation.

Mr. Quintin Hogg (St. Marylebone)

He said that.

Mr. Callaghan

I am reading what it says here; that there are one or two appeals. [Laughter.] Hon. Members do not imagine that I know, do they? It says: one or two appeals are made to the High Court each year. I promise the right hon. Gentleman that I do not read everything in my speech, but I had better read this: The legal distinction between employment and self-employment is generally dependent on whether there exists a contract of service, and a contract of service generally exists where the employer has the right to control the manner in which the employee works. I understand that it is in one or two of these cases where appeals are made. If someone puts the stamp on and if it is shown that the stamp is payable, they pay the tax. It is for that reason that exemption from the tax cannot be given at that stage.

Mr. lain Macleod

I do not think the Chancellor has taken the whole of the point. Clearly figures in advance are useless as a guide because this situation has not arisen, and will not arise until 5th September this year. The point is that judgments in the past of what are matters of National Insurance are perfectly proper to be decided by the Minister of Pensions and National Insurance and by her chain of local officers. It is not proper—this is the submission we make to the Chancellor and ask him to look at—that taxation matters themselves should be decided in that way. Therefore, a special right of appeal should be provided.

Mr. Callaghan

I really do not follow that argument. Appeals at the moment are made from the inspector of taxes to the general commissioners, a local body of worthy gentlemen selected for their eminence, and they decide the appeal. Local officers are at least a rough equivalent for this purpose. [HON. MEMBERS: "Oh!"]; Of course they are a rough equivalent. [HON. MEMBERS: "No."] I am taking the view that they are. We shall argue it later, but that is my view. Then, if there is an appeal from the general commisioners, it goes to the courts.

Likewise, I understand, an appeal here can go to the courts; but what are we discussing? We are not discussing, as the general commissioners are, whether a Schedule D assessment should be in the sum of £5,000 or £15,000. We are discussing a very simple, narrow issue, which is what they will be concerned with, whether someone is liable to pay the National Insurance stamp or not. That is the question. This is an entirely different set of circumstances from those in which we bring in the panopoly of the commissioners.

I come to the exemptions. I repeat what my right hon. Friend said about a number of proposals which have been put forward for exemptions. Of course, it is the simplest thing in the world to propose exemption from this tax. I quite understand that everybody has a good case for not paying it and no one wants to pay it. That is universally the view about all taxes at all times.

This tax will raise £315 million this year arid £240 million in a full year.

Therefore, in considering any exemptions, I start from the budgetary point that revenue is needed for a number of purposes, which I shall specify at any time I am asked to do so. This is the beginning of the discussion whether there can be exemptions. I want to make the point clear. In the administrative machine as designed, everyone must pay the tax. That is the way in which it will be done for administrative simplicity. It is a matter for the House to decide in due course who shall be repaid or receive a premium.

The right hon. Gentleman has expressed himself quite properly about this. He wanted to see the repayments side as well as the taxing side. In some ways, in the Government's mind these two things go together, but the taxing side is separate. I am raising £240 million net in a full year. The Opposition is entitled to vote against that if it wishes, but this is the taxing aspect of the Measure, which stands on its own. I am anxious to meet the right hon. Gentleman on this matter, as he knows from what my right hon. Friend the Leader of the House has said.

Therefore, we have placed the Clause on the Selective Employment Tax at a strategic position in the Finance Bill, so that we shall reach it quite late on, and by that time I understand that the repayments Bill, the Ministry of Labour Bill, will have been published. It will certainly be published by the first day of the Committee stage of the Finance Bill. The House will be in possession of the facts before we reach the relevant Clause in the Finance Bill. There will be opportunity for discussion on Second Reading of the Ministry of Labour Bill, and it will be for my right hon. Friend the Leader of the House to say when we start the Committee stage.

I now turn to particular cases, first, that of charities. Everyone has a feeling about charitable organisations, and this is not limited to one side of the House. I fully accept what the right hon. Gentleman said. One of the difficulties in introducing a tax of this sort is identifying the people concerned. As far as I can make out—we did this calculation a long time ago—there are over 100,000 charities, something like one for every 500 citizens. Many of them are very small, and not a very large number—a few thousand—are of a significant size where this tax might hit them. It is very difficult to track them down and identify them. Indeed, I understand that in Scotland there is no process of registration of charities, and the law has never been codified.

Charities range over a very wide field, varying from the kind of cases which the right hon. Gentleman and others have quoted. All sorts of charities are clearly registered as such and, therefore, must be regarded as such. I do not regard it as my responsibility, nor do I want to undertake the task, to judge between the relative social merits of any of these charities. Therefore, it is a case of all in or all out, as far as I can see, with all the implications that flow from that.

Charities as a whole at present receive very substantial State aid. The Inland Revenue has given me a figure of £55 million of tax a year of which they are relieved. A great deal of this takes the form of seven-year covenants, by which people get Income Tax relief, and the House has agreed that they should get this Income Tax relief. [Interruption.] The Opposition are getting more atavistic with every week they pass in opposition. Very many hon. Members opposite took the view when they were in Government that it clearly is a relief to the charity from the general body of taxpayers that payments should be made in this way. Nobody—at any rate at a normal time of day—would try to argue against that proposition.

I hope to meet the leading charities in the next week or so. I have asked them to come to see me because I am anxious to find a solution to this problem. We must try to find a way in which they can be recompensed. This is my view. [Interruption.] If hon. Members opposite had been here this afternoon they would have heard my right hon. Friend the Chief Secretary say that, and I repeat it. It is our intention to try to find away of recompensing them.

Sir Arthur Vere Harvey (Macclesfield)

Did the Chancellor take into account when considering covenants that a charity like the Royal National Lifeboat Institution, in building without Government aid its vessels for saving life, must budget five or six years ahead to replace craft, that there is nothing to spare over and above the covenants that it receives and that without these funds it would need a subvention from the Government?

Mr. Callaghan

I appreciate that such a body budgets several years in advance. I am anxious not to prejudice any discussions that I shall have with such bodies. I have said that we shall certainly try to find ways and means of recompensing them for the payments they are making. Having said this, I think the House will accept that that is the intention which I shall try to carry out.

Mr. Temple rose——

Mr. Callaghan

I am sorry, I must carry on.

Mr. Speaker

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

Mr. Callaghan

There will be time to discuss this later. I know that the hon. Member is one of the team of thirteen appointed to follow us in the Finance Bill. My right hon. and hon. Friends and I are flattered. But the hon. Member will have many more opportunities.

As regards hotels and tourism, a great deal of the criticism is misplaced. We clearly cannot put hotels or the tourist industry into a special category because of their export merits. The right hon. Gentleman and others who follow these matters will clearly understand that if we were to do so, we should immediately fall foul of the G.A.T.T. It simply is not possible to say that because an industry takes a large part in exporting, it can for that reason be put into a new category. That is the answer to other hon. Members, too.

I must also point out, if the case is based on tourism and on the revenue that is got from the foreign tourists, that only about 10 per cent. of the hotel industry's trade is derived from tourism. Even if we were prepared to defy the G.A.T.T. and to say openly and flagrantly, as some hon. Members, apparently, would do, that we will exempt exporters, we would still be giving the premium to an industry 90 per cent. of whose turnover has no relation whatever to exports.

As regards some of the retailing institutions, and especially the co-operatives, I accept what my hon. Friend the Member for Bilston (Mr. Robert Edwards) said about the co-operative societies. They render a great service to ordinary working people. They have taken on a burden that some other institutions have not, namely, they have kept the burden of milk and bread retailing and delivery in a way that some other institutions have not. I have understanding for that position. The basis of this tax, however, is that retail services should be taxed, and it is impossible for me, therefore, to exclude the co-operative societies, whatever may be their other merits, from the tax. I thought it rather odd, in view of the attacks made on me about the cooperatives, to read the stirring letters in the Daily Telegraph saying that this was clearly a piece of class legislation against the public schools which I was introducing.

As to pensioners and part-timers, all these matters can be reviewed, not this year, but as the tax proceeds. I cannot recommend any concessions on these matters this year. From the debate today, I am not sure yet how strong the economic case is. One cannot say, in one and the same breath, although some hon. Members contrive to do so, that it is impossible for the distributive industry to give up any labour, so great is the shortage, and that employers will discharge all their part-timers and pensioners unless this tax is removed. The two things do not run together. One of them is not true.

In my view, there has been a great deal of exaggeration by hon. Members opposite of the consequences on employment of this tax. I have never claimed it will have a large effect; I simply do not believe it will have a large effect. Because 90 per cent. of part-timers are women we deliberately fixed the rate of tax at one-half that of men, unlike the National Insurance stamp, where the rates are much closer.

As regards arts and theatres, in the case of those who are receiving grants from the Arts Council, then the Selective Employment Tax will be one of the matters which can be taken into account in considering the amount of the grant, and consideration will be given to that. But I cannot exempt any of these institutions from the tax. It must be paid. As regards other reliefs, for budgetary reasons I cannot see a way of recommending any major concessions apart from those I have announced so far.

Mr. Burden rose——

Mr. Callaghan

No. I have answered the hon. Member's point in relation to exporters and I would be glad if he would relieve me of the obligation to go further now.

As regards the regions—and I conclude on this—I need only echo what has been said before, that the Selective Employment Tax must be seen against the whole range of Government measures designed to aid the regions of this country and to build up their economic strength. It is an armoury we can be proud of, and I believe myself that the country has accepted the Budget, and will accept the Finance Bill and its consequences, because they believe it is a new means of striking out in a different direction in an attempt to escape from the stagnation of the past.

Mr. Edward Heath (Bexley)

The Chancellor has been dealing with specific exemptions, which are matters of policy, and we appreciate this, though we may disagree with him on the points he has made, but in view of the importance of this matter, which I am sure he appreciates as much as anybody, will he now give the House the assurance for which I asked, that he will handle the second Bill himself rather than leave it to the Minister of Labour, who is responsible for machinery and is not responsible for matters of policy with which the Chancellor has been dealing?

Mr. Callaghan

The repayments and the premiums are the responsibility of the Minister of Labour. [HON. MEMBERS: "No. Rubbish."] The Bill is his Bill. [HON. MEMBERS: "No."} I was asked a question. I hope I shall be allowed to answer it even if hon. Members opposite do not like the answer. The Minister of Labour's Permanent Secretary is the accounting officer for his Bill. I cannot take responsibility for another Minister's accounting officer, as the right hon. Gentleman will know.

But I certainly say this to the right hon. Gentleman, that either I or one of my hon. and right hon. Friends, one of the Treasury Ministers, will be on the Treasury Bench when the Minister of Labour is introducing his Bill, and at all convenient stages during Committee. I certainly give that assurance to him, and if that helps him I promise him we shall be here as much as possible, but I cannot—constitutionally I cannot, as the right hon. Gentleman knows—take responsibility for the Bill. The Minister of Labour must do that.

Mr. Heath

I am grateful for the assurance the right hon. Gentleman has given so far as it goes, but he will appreciate that the Committee will be in a difficulty on this point because the Minister of Labour is responsible administratively, of course, for handling the whole of this, but on the other hand the question of exemptions with which the Chancellor has been specifically dealing are policy matters for which the

Chancellor is already taking full responsibility. Therefore, I do hope it will not be forgotten that the Committee will be bound to regard the Chancellor as settling these points of policy on exemptions. They are matters of policy for him. They are not administrative matters. They are policy matters.

Mr. Callaghan

The right hon. Gentleman seems to forget that we have such a thing as Cabinet Government and Cabinet responsibility and that when one Minister speaks he speaks for the Government. He speaks for all of us, and when the Minister of Labour speaks he speaks for all of us.

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

The House divided: Ayes 317, Noes 240.

Division No. 16.]	AYES	[12.24 a.m.
Abse, Leo	Craddock, George (Bradford, S.)	Galpern, Sir Myer
Albu, Austen	Crawshaw, Richard	Gardner, A. J.
Allaun, Frank (Salford, E.)	Cronin, John	Garrett, W. E.
Alien, Scholefield	Crosland, Rt. Hn. Anthony	Garrow, Alex
Anderson, Donald	Crossman, Rt. Hn. Richard	Ginsburg, David
Archer, Peter	Cullen, Mrs. Alice	Gordon Walker, Rt. Hn. P. C.
Armstrong, Ernest	Davidson, Arthur (Accrington)	Gourlay, Harry
Ashley, Jack	Davies, Dr. Ernest (Stretford)	Gray, Dr. Hugh
Atkins, Ronald (Preston, N.)	Davies, G. Elfed (Rhondda, E.)	Gregory, Arnold
Atkinson, Norman (Tottenham)	Davies, Ednyfed Hudson (Conway)	Grey, Charles
Bacon, Rt. Hn. Alice	Davies, Harold (Leek)	Griffiths, Rt. Hn. James (Llanelly)
Bagier, Gordon A. T.	Davies, Ifor (Gower)	Gunter, Rt. Hn. R. J.
Barnes, Michael	Davies, Robert (Cambridge)	Hale, Leslie (Oldham, W.)
Barnett, Joel	de Freitas, Sir Geoffrey	Hamilton, James (Bothwell)
Baxter, William	Delargy, Hugh	Hamilton, William (Fife, W.)
Bellenger, Rt. Hn. F. J.	Dell, Edmund	Hamling, William
Bence, Cyril	Dempsey, James	Hannan, William
Benn, Rt. Hn. Anthony Wedgwood	Dewar, Donald	Harper, Joseph
Bennett, James (G'gow, Bridgeton)	Diamond, Rt. Hn. John	Harrison, Walter (Wakefield)
Bidwell, Sydney	Dickens, James	Haseldine, Norman
Binns, John	Dorg, Peter	Hattersley, Roy
Bishop, E. S.	Donnelly, Desmond	Hazell, Bert
Blackburn, F.	Driherg, Tom	Healey, Rt. Hn. Denis
Blenkinsop, Arthur	Dunn, James A.	Helfer, Eric S.
Boardman, H.	Dunnett, Jack	Henig, Stanley
Booth, Albert	Dunwoody, Mrs. Gwyneth (Exeter)	Herbison, Rt. Hn. Margaret
Boston, Terence	Dunwoody, Dr. John (F'th & C'b'e)	Hilton, W. S.
Bottomley, Rt. Hn. Arthur	Eadie, Alex	Hooley, Frank
Bowden, Rt. Hn. Herbert	Edelman, Maurice	Homer, John
Boyden, James	Edwards, Robert (Bilston)	Houghton, Rt. Hn. Douglas
Braddock, Mrs. E. M.	Edwards, William (Merioneth)	Howarth, Harry (Wellingborough)
Bradley, Tom	Ellis, John	Howarth, Robert (Bolton, E.)
Brooks, Edwin	English, Michael	Howell, Denis (Small Heath)
Broughton, Dr. A. D. D.	Ennals, David	Howie, W.
Brown, Rt. Hn. George (Belper)	Ensor, David	Hoy, James
Brown, Hugh D. (G'gow, Provan	Evans, Albert (Islington, S.W.)	Hughes, Emrys (Ayrshire, S.)
Brown,Bob(N'c'tle-upon-Tyne,W.)	Evans, loan L. (Birm'h'm, Yardley)	Hughes, Hector (Aberdeen, N.)
Brown, R. W. (Shoreditch & F'bury)	Faulds, Andrew	Hughes, Roy (Newport)
Buchan, Norman	Fernyhough, E.	Hunter, Adam
Buchanan, Richard (G'gow, Sp'burn)	Fitch, Alan (Wigan)	Hynd, John
Butler, Herbert (Hackney, C.)	Fitt, Gerald (Belfast, W.)	Irvine, A. J. (Edge Hill)
Butler, Mrs. Joyce (Wood Green)	Fletcher, Raymond (Ilkeston)	Jackson, Colin (B'h'se & Spenb'gh)
Callaghan, Rt. Hn. James	Fletcher, Ted (Darlington)	Janner, Sir Barnett
Carmichael, Nell	Floud, Bernard	Jeger, George (Goole)
Chapman, Donald	Foley, Maurice	Jeger,Mrs.Lena(H'b'n&St'P'cras,S.)
Coe, Denis	Foot, Michael (Ebbw Vale)	Jenkins, Hugh (Putney)
Coleman, Donald	Ford, Ben	Jenkins, Rt. Hn. Roy (Stechford)
Concannon, J. D.	Forrester, John	Johnson, Carol (Lewisham, S.)
Conran, Bernard	Fowler, Gerry	Jones, Dan (Burnley)
Corbet, Mrs. Freda	Fraser, John (Norwood)	Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)
Collisins, Rt. Hn. Frank	Fraser, Rt. Hn. Tom (Hamilton)	Jones, J. Idwal (Wrexham)
Judd, Frank	Morris, Alfred (Wythenshawe)	Sheldon, Robert
Kelley, Richard	Morris, John (Aberavon)	Shinwell, Rt. Hn. E.
Kenyon Clifford	Moyle, Roland	Shore, Peter (Stepney)
Kerr, Mrs. Anne (R'ter & Chatham)	Mulley, Rt. Hon. Frederick	Short,Rt.Hn.Edward(N'c'tle-u-Tyne)
Kerr, Dr. David (W 'worth, Central)	Murray, Albert	Short, Mrs. Renee (W'hampton,N.E.)
Kerr, Russell (Feltham)	Neal, Harold	Silkin, S. C. (Dulwich)
Ledger, Ron	Newens, Stan	Silverman, Julius (Aston)
Lee, Rt. Hn. Frederick (Newton)	Noel-Baker, Francis (Swindon)	Slater, Joseph
Lee, Miss Jennie (Cannock)	Noel-Baker,Rt. Hn.Philip(Derby,S.)	Small, William
Lee, Joan (Reading)	Norwood, Christopher	Snow, Julian
Lestor, Miss Joan	Oakes, Gordon	Steele, Thomas (Dunbartonshire, W.)
Lever, Harold (Cheetham)	Ogden, Eric	Stewart, Rt. Hn. Michael
Lever, L. M. (Ardwick)	O'Malley, Brian	Stonehouse, John
Lewis, Arthur (W. Ham, N.)	Oram, Albert E.	Strauss, Rt. Hn. G. R.
Lewis, Ron (Carlisle)	Orbach, Maurice	Summerskill, Hn. Dr. Shirley
Lipton, Marcus	Oswald, Thomas	Swain, Thomas
Lomas, Kenneth	Owen, Dr. David (Plymouth, S'tn)	Swingler, Stephen
Loughlin, Charles	Owen, Will (Morpeth)	Symonds, J. B.
Luard, Evan	Page, Derek (King's Lynn)	Taverne, Dick
Lyon, Alexander W. (York)	Palmer, Arthur	Thomas, George (Cardiff, W.)
Lyons, Edward (Bradford, E.)	Pannell, Rt. Hn. Charles	Thomas, lorwerth (Rhondda, W.)
McBride, Neil	Park, Trevor	Thomson, Rt. Hn. George
McCann, John	Parker, John (Dagenham)	Thornton, Ernest
MacColl, James	Parkyn, Brian (Bedford)	Thin, James
MacDermot, Niall	Pavitt, Laurence	Tomney, Frank
Macdonald, A. H.	Pearson, Arthur (Pontypridd)	Tuck, Raphael
McGuire, Michael		Urwin, T. W.
McKay, Mrs. Margaret	Pearl, Rt. Hn. Fred	Varley, Eric G.
Mackenzie, Gregor (Rutherglen)	Pentland, Norman	Wainwright, Edwin (Dearne Valley)
Mackie, John	Perry, Ernest G. (Battersea, S.)	Walden, Brian (All Saints)
Mackintosh, John P.	Perry, George H. (Nottingham, S.)	Walker, Harold (Doncaster)
Maclennan, Robert	Prentice, Rt. Hn. R. E.	Wallace, George
MacMillan, Malcolm (Western Isles)	Price, Christopher (Perry Barr)	Watkins, David (Consett)
McMillan, Tom (Glasgow, C.)	Price, J. T. (Westhoughton)	Weitzman, David
McNamara, J. Kevin	Price, William (Rugby)	Wellbeloved, James
MacPherson, Malcolm	Probert, Arthur	Whitaker, Ben
Mahon, Peter (Preston, S.)	Pursey, Cmdr. Harry	Whitlock, William
Mahon, Simon (Bootle)	Randall, Harry	Wigg, Rt. Hn. George
Mallalieu, E. L. (Brigg)	Rankin, John	Willey, Rt. Hn. Frederick
Mallalieu, J. P. W.(Huddersfield,E.)	Redhead, Edward	Williams, Alan (Swansea, W.)
Manuel, Archie	Rees, Merlyn	Williams, Alan Lee (Hornchurch)
Mapp, Charles	Reynolds, G. W.	Williams, Mrs. Shirley (Hitchln)
Marquand, David	Rhodes, Geoffrey	Willis, George (Edinburgh, E.)
Marsh, Rt. Hn. Richard	Richard, Ivor	Wilson, Rt. Hn. Harold (Huyton)
Mason, Roy	Roberts, Goronwy (Caernarvon)	Wilson, William (Coventry, S.)
Maxwell, Robert	Roberts, Gwilym (Bedfordshire, S.)	Winnick, David
Mayhew, Christopher	Robertson, John (Paisley)	Winterbottom, R. E.
Mellish. Robert	Robinson,Rt.Hn.Kenneth(St.Picias)	Woodburn, Rt. Hn. A.
Mendelson, J, J.	Robinson, W. 0. J. (Walth'stow, E.)	Woof, Robert
Mikarda, Ian	Rodgers, William (Stockton)	Wyatt, Woodrow
Milian, Bruce	Roebuck, Roy	Yates, Victor
Miller, Dr. M. S.	Rogers, George	Zilliacus, K.
Mitchell, R, C. (S'th'pton, Test)	Rose, Paul
Molloy, William	Ross, Rt, Hn, William	TELLERS FOR THE AYES:
Moonman, Eric	Rowlands, E. (Cardiff, N.)	Mr. John Silkin and Mr. Lawson
Morgan, Elysian (Cardiganshire)	Ryan, John
	Shaw, Arnold (Ilford, S.)
NOES
Alison, Michael (Barkston Ash)	Bromley-Davenport,Lt.Col.SirWalter	Cunningham, Sir Knox
Allason, James (Hemel Hempstead)	Brown, Sir Edward (Bath)	Currie, G. B. H.
Astor, John	Bruce-Gardyne, J.	Dalkeith, Earl of
Atkins, Humphrey (M't'n & M'd'n)	Bryan, Paul	Dance, James
Awdry, Daniel	Buchanan-Smith,Alick(Angus,N&M)	Davidson,Janies(Aberdeenshire,W.)
Baker, W. H. K.	Buck, Antony (Colchester)	d'Avigtior-Goldsmid, Sir Henry
Balniel, Lord	Bullus, Sir Eric	Dean, Paul (Somerset, N.)
Barber, Rt. Ho, Anthony	Burden, F. A.	Deedes, Rt. Hn. W. F. (Ashford)
Batsford, Brian	Campbell, Gordon	Dighy, Simon Wingfield
Beamish, Col., Sir Tufton	Carlisle, Mark	Dodds-Parker, Douglas
Bell, Ronald	Carr, Rt. Hn. Robert	Doughty, Charles
Bennett, Dr. Reginald (Gos & Fhm)	Channon, H. P. G.	Douglas-Home, Rt. Hn. Sir Alec
Berry, Hn. Anthony	Chichester-Clark, R.	Drayson, G. B.
Bessell, Peter	Clark, Henry	du Cann, Rt. Hn. Edward
Biffen, John	Clegg, Walter	Eden, Sir John
Biggs-Davison, John	Cooke, Robert	Elliot, Capt. Walter (Carshalton)
Birch, Rt. Hn. Nigel	Cooper-Key, Sir Neill	Errington, Sir Eric
Blaker, Peter	Cordle, John	Eyre, Reginald
Body, Richard	Corfield, F. V.	Farr, John
Bossom, Sir Clive	Costain, A. P.	Fletcher-Cooke, Charles
Boyd-Carpenter, Rt. Hn. John	Craddock, Sir Beresford (Spelthorne)	Forrest, George
Boyle, Rt. Hn. Sir Edward	Crawley, Aidan	Fortescue, Tim
Braine, Bernard	Crosthwaite-Eyre, Col, Sir Oliver	Foster, Sir John
Brewis, John	Crouch, David	Fraser,Rt.Hn.Hugh(St'fford & Stone)
Brinton, Sir Tatton	Crowder, F. P.	Galbraith, Hn. T. G.

Gibson-Watt, David	Lambton, Viscount	Prior, J. M. L.
Gilmour, Ian (Norfolk, C.)	Lancaster, Col. C. G.	Quennell, Miss J. M.
Gilmour, Sir John (Fife, E.)	Langford-Holt, Sir John	Ramsden, Rt. Hn. James
Glover, Sir Douglas	Legge-Bourke, Sir Harry	Rawlinson, Rt. Hn. Sir Peter
Glyn, Sir Richard	Lewis, Kenneth (Rutland)	Rees-Davies, W. R.
Godber, Rt. Hn. J. B.	Lloyd,RtHn.Geoffrey(Sut'nC'dfield)	Renton, Rt. Hn. Sir David
Goodhart, Philip	Lloyd, Ian (P'tsm'th, Langstone)	Ridley, Hn. Nicholas
Goodhew, Victor	Lloyd, Rt. Hn. Selwyn (Wirral)	Ridsdale, Julian
Gower, Raymond	Longden, Gilbert	Rippon, Rt. Hn. Geoffrey
Grant, Anthony	Loveys, W. H.	Rodgers, Sir John (Sevenoaks)
Grant-Ferris, R.	Lubbock, Eric	Roots, William
Grieve, Percy	McAdden, Sir Stephen	Rossi, Hugh (Hornsey)
Gurden, Harold	MacArthur, Ian	Royle, Anthony
Hall, John (Wycombe)	Mackenzie,Alesdair(Ross&Crom'ty)	Russell, Sir Ronald
Hall-Davis, A. G. F.	Maclean, Sir Fitzroy	St. John-Stevas, Norman
Hamilton, Marquess of (Fermanagh)	Macleod, Rt. Hn. Iain	Scott, Nicholas
Hamilton, Michael (Salisbury)	McMaster, Stanley	Sharpies, Richard
Harris, Frederic (Croydon, N.W.)	Madden, Martin	Shaw, Michael (Sc'b'gh & Whitby)
Harris, Reader (Heston)	Maginnis, John E.	Sinclair, Sir George
Harrison, Brian (Maldon)	Marples, Rt. Hn. Ernest	Smith, John
Harrison, Col. Sir Harwood (Eye)	Mathew, Robert	Stainton, Keith
Harvey, Sir Arthur Vere	Maude, Angus	Steel, David (Roxburgh)
Harvie Anderson, Miss	Maudling, Rt. Hn. Reginald	Summers, Sir Spencer
Hastings, Stephen	Mawby, Ray	Talbot, John E.
Hawkins, Paul	Maxwell-Hyslop, R. J.	Tapsell, Peter
Heald, Rt. Hn. Sir Lionel	Maydon, Lt.-Cmdr. S. L. C.	Taylor, Sir Charles (Eastbourne)
Heath, Rt. Hn. Edward	Mills, Peter (Torrington)	Taylor, Edward M. (G'gow,Cathcart)
Heseltine, Michael	Mills, Stratton (Belfast, N.)	Taylor, Frank (Moss Side)
Higgins, Terence L.	Miscampbell, Norman	Teeling, Sir William
Hiley, Joseph	Mitchell, David (Basingstoke)	Temple, John M.
Hill, J. E. B.	Monro, Hector	Thatcher, Mrs. Margaret
Hobson, Rt. Hn. Sir John	More, Jasper	Thorpe, Jeremy
Hogg, Rt. Hn. Quintin	Morgan, W. G. (Denbigh)	van Straubenzee, W. R.
Holland, Philip	Morrison, Charles (Devizes)	Vaughan-Morgan, Rt. Hn. Sir John
Hooson, Emlyn	Mott-Radclyffe, Sir Charles	Vickers, Dame Joan
Horderm, Peter	Munro-Lucas-Tooth, Sir Hugh	Wainwright, Richard (Coins Valley)
Homby, Richard	Murton, Oscar	Walker, Peter (Worcester)
Howell, David (Guildford)	Nabarro, Sir Gerald	Walker-Smith, Rt. Hn. Sir Derek
Hunt, John	Nicholls, Sir Harmar	Walters, Dennis
Hutchison, Michael Clark	Noble, Rt. Hn. Michael	Ward, Dame Irene
Iremonger, T. L.	Nott, John	Weatherill, Bernard
Irvine, Bryant Codman (Rye)	Onslow, Cranley	Webster, David
Jenkin, Patrick (Woodford)	Orr, Capt. L. P. S.	Wells, John (Maidstone)
Jennings, J. C. (Burton)	Orr-Ewing, Sir Ian	Whitelaw, William
Johnson Smith, G. (E. Grinstead)	Osborn, John (Hallam)	Wills, Sir Gerald (Bridgwater)
Johnston, Russell (Inverness)	Osborne, Sir Cyril (Louth)	Wilson, Geoffrey (Truro)
Jones, Arthur (Northants, s.)	Page, Graham (Crosby)	Winstanley, Dr. M. P.
Jopling, Michael	Page, John (Harrow, W.)	Wolrige-Gordon, Patrick
Joseph, Rt. Hn. Sir Keith	Pearson, Sir Frank (Clitheroe)	Wood, Rt. Hn. Richard
Kaberry, Sir Donald	Peel, John	Woodnutt, Mark
Kerby, Capt. Henry	Percival, Ian	Worsley, Marcus
Kershaw, Anthony	Peyton, John	Wylie, N. R.
King, Evelyn (Dorset, S.)	Pike, Miss Mervyn	Younger, Hn. George
Kirk, Peter	Pink, R. Bonner
Kitson, Timothy	Pounder, Rafton	TELLERS FOR THE NOES:
Knight, Mrs. Jill	Powell, Rt. Hn. J. Enoch	Mr. Pym and Mr. R. W. Elliott.

Bill accordingly read a Second time and committed to a Committee of the whole House.

Committee this day.