Commons Sitting of 27 January 1967

Preamble
The House met at Eleven o'clock
PRAYERS
[Mr. SPEAKER in the Chair]

TAXATION SYSTEM
11.4 a.m.
Mr. Anthony Grant: I beg to move,
That the present system of taxation is oppressive, inefficient and wasteful; and that this House calls on the Government to simplify the tax structure by making far-reaching changes in fiscal policy and legislation.
I consider myself very fortunate to have drawn first place in the Ballot for this Motion, and I hope that the House will consider it not entirely an inappropriate subject to debate, in view of the serious economic situation in which we find ourselves, with the Budget for 1967 not too far off. It may be that, even at this stage, it will be too late to affect the decisions which the Chancellor will make in this respect, but I hope not. I hope that in this debate at least we can cause him furiously to think, through the medium of the Financial Secretary.
The Motion has been drawn in broad terms, and I propose to deal with it in a broad sense in the hope that many of my hon. Friends whom I know wish to speak will be able to bring forth and float ideas which may be of help to the Treasury in deciding on its future course of action.
I believe that it could be said fairly that the desire to simplify the taxation system is one which would commend itself to all sides of the House. Where we may differ is as to the methods by which we achieve it. At any rate, we may achieve some degree of bipartisanship in the fundamental motive behind the Motion. In so doing, I am following the. Chancellor's exhortation of November 1964, when he said that he aimed
"to stimulate a lively and radical interest"
in the subject of tax reform.
The tax system is really like a straitjacket. The more one tries to expand, the more one struggles within it, the
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tighter it binds one. Only a very few boneless escapologists or tricksters manage to wriggle out of its clutches. Its effect is such that the great mass of the population take one look at it, shudder, and pass by, plodding on through life in the same old rut.
The main reason why the complexity of taxation is such a problem is that the level is too high. This is especially true at the top end of the scale. I believe that we are not quite the highest-taxed nation in the world, but certainly among the highly industrialised nations like ourselves we tax most heavily the people who, because of their exceptional talents, can contribute so vitally to the economic strength of the country.
This oppressive level of taxation, with its complexity and illogicality, is a major factor in causing the brain drain, about which we are so worried. Heavy taxation in this bracket only minimally contributes to the total revenue received. It is not easy to calculate, but if one confiscated all incomes over £10,000 a year it would make only a minor difference, in view of the enormous scale of expenditure in this country. The bulk of the revenue comes from the broad mass of taxpayers and, as recent surveys have shown, in many cases they are paying, on the one hand, almost exactly as much in taxation as they are receiving, on the other hand, from social benefits, which seems to me a rather extraordinary situation in which to find ourselves.
The complexity is not anything like so much a problem when the level of taxation itself is considerably lower. Twenty, thirty or forty years ago, this debate would have been quite irrelevant. It is the level of taxation which causes us to be concerned.
A century or so ago, a French statesman, whose name escapes me, said:
"The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least amount of hissing."
At the moment, the feathers are still being plucked, but the hissing is getting considerably louder, even though it is perhaps falling on deaf ears. The plucking is becoming so vigorous that great chunks of valuable flesh are being torn away in the process.
I think that the complexity of taxation is well summed up in a footnote which appeared to a menu in a restaurant in

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London, and which was reported in The Times a little while ago. It read:
"You are participating in helping to pay for the following: company taxation, Corporation Tax, Customs and Excise tax, Income Tax, P.A.Y.E., graduated pension contributions, licence duty, import duty, National Health contributions, Purchase Tax, Profits Tax, rates reduction, investment allowances, Selective Employment Tax, Surtax, surcharge, temporary import charge and wine and spirit tax."
It went on to say:
"From the remainder we pay our suppliers and somehow we manage to make a living."
That is an illustration of the complexity of taxation as it exists today, and I think that it stems largely from the probably commendable craving that we have to achieve fairness throughout the community. But whereas the word "fairness" is very commendable, all too often it is translated into meaning "equality", which I think is probably less commendable. This craving for equality causes us to impose a complicated system of reliefs and allowances for every circumstance under the sun and adds greatly to the incomprehensibility of our taxation law.
I believe that this craving for equality has passed the point of no return and that we are beginning to get, if we have not already got it, a diminishing return in terms of effort and enterprise throughout our community. Far too much effort and enterprise is dissipated in the absurd pastime of what I might call taxman-ship. Both sides, the Revenue and the public and their advisers, are locked in a futile battle to separate what we return to the Revenue from what goes into the individual pocket. This is a futile pastime like the battle of Tweedledum and Tweedledee, and let us look at how much of our time and energy is being occupied on the two sides of this ludicrous mock battle.
First, let us consider the Revenue side itself. The staff of the Revenue has greatly increased, it is increasing, and will continue to increase in future if nothing is done about this problem. We remember that last year, owing to the complexity of the new taxation brought in by the Government, Corporation Tax and Capital Gains Tax, their morale took a shattering blow because they could not cope with the work, and this could only be remedied after various meetings among the staff by giving them an increase in pay, and very well justified it was to that
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fine body of men, to whom I must pay tribute, because they perform their duties like sea green incorruptibles, which is a source of admiration to many other countries where this does not necessarily apply.
But the result, apart from the damage to the morale of our civil servants in the Revenue, is that there have been great delays in dealing with the taxation of the citizen. One of my hon. Friends has referred to me the case of a constituent of his who had to wait two and a half years before he received his Surtax assessment. The individual retired some time ago whilst this was going on, and he is now unable to get access to the records which will enable him to deal with this assessment. This is a thoroughly unfair and undesirable consequence of the complexity of our legislation and the burden placed by ourselves by Statute on the Revenue staff.
Another case occurred in which the taxpayer's return was delivered in April, but it was not even examined by the Revenue until the following October. I am not blaming the Revenue staff for this. I believe that our taxation system has become so complex that they cannot cope, with the result that very often there is grave injustice to the taxpayer.
Again, there is the whole mystery of the cost of collection. I have sought on a number of occasions, by Questions, to find out the cost of administering the collection of Capital Gains Tax and other taxes. I am always told that it is impossible to separate the cost of collection as between one tax and another. If this is the case, how on earth can we be certain that we are getting a reasonable net yield from the taxation at all? This is information which the Government should try to ascertain and give to the House and to the public.
What is certain—and this is interesting —is that it costs nearly twice as much to collect direct taxation as it does indirect taxation. It costs about 1·39 per cent. overall to collect direct taxation, whereas only 0·86 per cent. to collect Customs and Excise taxation.
Mr. Frank Hooley: Is the hon. Gentleman taking into account the cost of collection to industry and commerce, as well as to the Revenue?
Mr. Grant: I am glad that the hon. Gentleman mentioned that, because I shall deal with it in a moment or two.
I come now to my second point, which follows from what the hon. Gentleman said. If the Revenue is suffering from increased work, what about the taxpayer and the members of the public themselves? What about the taxpayer and his adviser, if he can afford one after having his income taxed, because he gets no tax allowance for the advice which he so often needs? What about the burden of work on businesess, on companies, and on industry and on their professional experts?
The burden there is quite incalculable, and must be infinitely greater than that on the Revenue itself in terms of human effort and ingenuity. The expenditure must be incalculable and enormous in indulging in this absurd pastime of taxmanship. Hours are spent at business on wrangling about the question of tax, and about spending money on highly expert and skilled people and on going to tax counsel. Here I might say that it often takes many months to get an opinion from an expert tax counsel on the complex problems which face so many of our businesses today, and even when one gets his opinion one is very often told that the complexity of the drafting of our legislation is so great that he is unable to do more than pose two or three alternative possibilities. This game of taxmanship is a ritualistic activity devoid of any intrinsic merit, and not allied to any moral principle and purpose.
We should not forget, too, the amount of revenue work done for the Government by businesses, by companies, and by employers and individuals. For example, employers, be their businesses great or small, collect tax by way of P.A.Y.E. This is the individual, the taxpayer, doing the job of the Revenue. Manufacturers collect and pay Purchase Tax, again doing the job of the Revenue, and, of course, individuals, companies and firms do the job of the Revenue by deducting tax at the standard rate in the first instance from dividends, interest and rent before payment is made.
Look at the situation with regard to boards of directors. In recent years these have increasingly become dominated by accountants. They are dominant on most boards of companies because of the
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high level and complexity of taxation, and decisions made by boards of directors are all too often made on purely taxation criteria rather than on considerations of production and economic efficiency. As a lawyer, I am second to none in my admiration for the accountant profession, but I cannot help noticing that in America boards tend to have many more lawyers or business men on them than accountants. I am sure that this is to do with the complex nature of our tax legislation. I should like to see these highly skilled and talented men devoting their efforts to financial and management control and to matters relating to the earning of profits and expanding production, rather than to this artificial game of chess which takes place all the time with the Revenue.
Let us look again at the question of savings. We all agree that an increase in saving is vital if we are to get our economy right. At the moment the whole question of private savings is hamstrung by the problem of taxation. What incentive is there for the small man—who forms the mass of the community—when even the most minute capital gain must go through the whole paraphernalia and mumbo-jumbo of tax assessment and collection?
The Financial Secretary will remember that in the last two years I have referred him and the Chancellor to the grave problem of investment clubs—the small man's medium for saving—and the fact that this new and encouraging source has been completely demoralised by recent legislation concerning capital gains. I pay tribute to the fact that the Inland Revenue staff with whom we have had negotiations on behalf of investment clubs have made great efforts to simplify the form-filling procedures, but the policy itself has been wrong and we have been unable to achieve much within that framework.
What incentive is there to invest when one has to indulge in the annual buff-coloured form-filling farce to recover excess tax that has been compulsorily deducted from dividends? Heaven knows how much tax is being immorally collected from people who cannot bother to indulge in this complex procedure. I know from professional experience that many people—often old ladies and

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Widows—simply cannot face this problem and let the money go by default, living at a worse standard than they would otherwise enjoy. When shall we have the common sense and courage to stop using the phrase "unearned income" when we know that in the vast majority of cases this income is hard earned; it is usually the proceeds of a lifetime of hard work, the results of which have been invested for the benefit of the country?
In this context, I want to refer to the work and thinking of Professor Wheat-croft of the London School of Economics, who argues that if it is necessary to reduce taxation and give an incentive to people—which is more important—greater priority should be given to so-called unearned income than to earned income. He argues that in the case of earned income, although the considerations of net cash are very high and probably top the list, there are other factors that urge a person to work, such as the congeniality of the work and the interests of the person in his occupation, whereas in the case of investments and savings, and so-called unearned income, no other consideration than the amount of net cash which will be raised affects the minds of potential savers or investors.
This is a very important matter, if we agree that it is essential to increase saving and investment in this country. Last year a statement by the Chancellor received some publicity. He said, "More savings; less taxation". I agree. The only thing is that he got it the wrong way round. He should have said, "Less taxation; more savings". His priorities were wrong. I now turn to the presentation of our tax law. This is meant to be understood by every citizen, but it is extremely complicated. In the Library of the House of Commons I checked and found about 40 volumes relating to taxation law, 41 volumes of tax law cases, the considerable work on Income Tax by Lord Simon, consisting of eight volumes or folders in which, in the table of cases, there is reference to 5,200 tax cases, and, in the table of Statutes, reference to 400 separate Acts of Parliament.
It is extraordinary to tell people that ignorance of the law is no excuse and that they are expected to understand all this. I will not weary the House by
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reading out great chunks of statute law in all its complexity, but it was done in the Finance Bill debates last year. I challenge any hon. Member to go to the Library, open any book on any statute law on taxation, pick out any Clause, and see whether he understands it at first reading. The frustration and waste inherent in our tax system is endless.
I want to put forward specific suggestions to alleviate this situation. First, no group or body is charged with the task of considering the simplification of our tax law. A group or committee should be set up specifically charged with this task. It should contain members from the Inland Revenue, but it should be broader than that; representatives of industry and professional bodies should be bought in—bodies such as the Chartered Accountants Institute, which is specifically concerned with this task. It is not a suitable task for the Law Commission, whose composition is unsatisfactory for this purpose and which already has far too many tasks to engage in.
The setting up of such a body would be a most useful contribution to the simplification of taxation law. This body could announce in advance which sections of tax law it was examining, so that interested parties and individuals could make suggestions. It should operate on a recognised schedule of work. It could produce a report, first, on Income Tax, then on Corporation Tax, then on Estate Duty and other matters. This would enable consolidating Acts to be passed every ten years or so—which was the recommendation of the Radcliffe Royal Commission on taxation.
Secondly, the presentation of the law could be simplified. At the moment a person needs to refer to four separate Acts of Parliament to find the statute law relating to the ordinary and reduced rates of Income Tax, even though Income Tax law was consolidated in 1952. With Estate Duty, the position is far worse. The basic Act was passed in 1854 and has been continually amended. We should indulge in something like the loose-leaf system used in Australia, which makes matters much clearer. Instead of passing Clauses saying, "Section X, subsection (y) of the Finance Act of such-and-such a year shall not be construed so as to give rise to a chargeable amount

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in the terminal year of any company, as defined by Section 7, except so on and so forth", we would say, "In regard to the Income Tax Act, 1952, Section X is deleted and a new Section X, as follows, is inserted." This would make the tax system much clearer and much more readily understandable. It would clear a path through this mass and enable the people concerned to march more confidently through the jungle of tax law.
Surely it would be a good idea when there is to be a major tax change, to publish a draft Bill which could be seen by all members of the public and all the bodies concerned, enabling them to digest the wording of the Clauses rather than a few lines in a White Paper, and enabling them to make representations on those Clauses and their effects, which recommendations could then be embodied in an ultimate Bill put before Parliament. This would overcome much of the hustle and haste and would avoid the many undesirable and unforeseen consequences which have occurred in respect of recent legislation.
We must have more time to consider these Bills. We must not repeat the experience of the 1955 Finance Bill, which, although it was a highly complex piece of legislation, we debated in the House only two weeks after it was first published. It may be argued that this might infringe Budget secrecy. This is not a valid argument. Budget secrecy nearly always refers to the yield rather than to the form of taxation, and in any event tax proposals can always be back-dated to Budget day.
Another reform I would like to see is the exemption of small capital gains. The Financial Secretary and I have debated this issue for the last two years, and I give him notice that we shall undoubtedly debate it again this summer. From the inquiries I have made of various bodies —the C.B.I., and people in the City and elsewhere—I know that the one thing upon which they are united is the need to exempt small capital gains. I hope that the Financial Secretary will apply his mind to this question and perhaps be a little more forthcoming this summer.
The final, major point which I wish to make is most important. We have
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come to the time when we must consider seriously a shift from direct to indirect taxation. A distinguished academician, Professor Merrett, has done some interesting work on this subject in a Bulletin of the Oxford Institute of Economics and Statistics at the end of last year. He showed that most people in the population pay about 28 per cent. of their income on taxes. If anything, the very poor spend a bit more of their incomes and those who tend to pay less are in the middle groups.
He therefore asks, "Why not abolish Income Tax and Purchase Tax and replace them with a flat-rate sales tax, of, say, 30 per cent., or, if it is preferred, a sales tax containing a higher rate for so-called luxury goods and a lower rate for food?" The effect of this would be hardship to certain groups, but these difficulties could be ironed out by increased social benefits to those people. For example, the old-age pensioners could be assisted by increasing their pensions and family allowances could be increased for people with large families.
The trend would be to get away from direct taxation, to move towards indirect taxation and to compensate people who suffered as a result of this through the medium of social benefits. I do not necessarily go as far as Professor Merrett. He is the academic talking. But I believe that we should be moving along these lines, and I hope that the Government will apply themselves seriously to this proposal.
We should then say to people, "You can keep more of what you earn. We shall tax you if you spend, but we shall help you with social benefits if you are in need. We shall be encouraging you to save". This will be an incentive to work and to save, the two most essential features required today in our economic situation.
A proposal which may be made later today concerns an added value tax, as an alternative form of indirect taxation. This is very relevant, and I am well aware of the consideration given to it by Mr. Richardson and his report a few years ago, which outlined the difficulties. But if we get into the Common Market this is a consequence which will have to be faced, and I want to alert the Government in that respect without necessarily

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dilating for too long upon it today, because I know that many hon. Members who are greater authorities on the subject than myself will refer to this proposal later today.
Successive Chancellors of the Exchequer of both parties have called attention to this matter. In two Budgets my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) showed a desire for reforming zeal. He was followed by my right hon. Friend the Member for Barnet (Mr. Maudling) and by the present Chancellor of the Exchequer. But although they showed great enthusiasm, I am bound to say that very little has been achieved in this respect. Our ingenuity seems to be applied to introducing new taxes, thereby adding to the trembling structure of tax law. When any one desires to remove a tax, we are told of the difficulties attendant upon removing it. It is easier to impose a tax than to remove one.
If the present Chancellor and the two previous incumbents of the office—and I say this in a bipartisan spirit—did not bring light to bear on the subject, at least they made the darkness visible. On 24th February, 1965, in one of his more gritty phrases—with which I entirely agree—the Prime Minister, on television, said,
"If a tenth of the energy and ingenuity and expertise that goes into sidestepping the tax inspector went into the export trade, we would have no trade problems."
I entirely agree, but the answer lies in his hands and that of the Government of the day to do something about it.
If the present Chancellor grasps the nettle of tax simplification firmly and decisively, not only will be probably be the first incumbent of his great office to earn the gratitude of the bemused taxpayers but he may also reward himself by liberating himself from a post which we understand is becoming increasingly distasteful to him. Much more important, in so doing he will so liberate the energies and the initiative of the people of this country that we may achieve the economic growth in the future that we so much desire.
Mr. Speaker: Before I call the first hon. Member to take part in the debate, may I observe that it should be possible to call every hon. Member who wishes to
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take part in the debate if those hon. Members who are called will keep their speeches to a reasonable length.
11.36 p.m.
Mr. Frank Hooley: I will not follow the hon. Member for Harrow, Central (Mr. Grant) too closely, because in many ways his presentation of what is a serious and important problem was remarkably superficial. The tax system of this country is grossly discriminatory and favours the rich. It has been shown that our system of direct taxation benefits the children of the very wealthy in a quite remarkable manner in comparison with the children of the poorest families. It is also true that in housing the very wealthy can draw benefits from allowances on mortgages which far exceed the subsidies given to poorer people, and particularly to tenants of municipal housing. This kind of pattern runs through our whole system of tax allowances. It has been established—and the hon. Member bore this out—that indirect taxation bears more heavily as a proportion of personal income upon the poorer families than upon the rich.
Mr. Grant: Than upon the middle groups.
Mr. Hooley: That confirms my point—that the poorer people are relatively worse off in terms of indirect taxation than are the wealthier. A priori, this would apply even more in the very high ranges of indirect taxation than in the middle ranges. Taking taxation, combined direct and indirect, it has been established that the poor are certainly paying in taxation, as a proportion of their available income, as much as if not more than are the wealthier members of our community.
It does not seem to me that the total weight of taxation is a very relevant consideration, because the total weight of taxation must equal the burdens placed on the Exchequer of the country by Government policy, whatever Government are in power. If the Government decide that we must have a world-wide military rôle costing £2,000 million a year, the tax system has to carry this load. If it is decided that we must have interest rates at a fantastic level of 7 per cent., then taxes must be levied to meet the burden of public debt, and so on through the various items of public expenditure. I

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submit that the total rate of taxation is not relevant to the present argument.
What is relevant is the nature and distribution of the system of taxation, but on this there are important things to be said. I want as quickly as I can to cover three points. The first concerns the tax arrangements on families—and here I acknowledge with pleasure the very important work done by the Child Poverty Action Group in pointing out how our present tax and social benefits systems favour the higher income groups at the expense of the lower, who are obviously in much greater need of help.
The Child Poverty Action Group has published some startling figures based on 1965–66 income rates, which may not still apply in all particulars, but which I think are still generally valid, as to the benefits received by a family in family allowances and tax allowances. The figures go only as high as incomes of £30 a week, and do not take account of incomes in the £2,000, £3,000 and £4,000 ranges. They show that in a family with three children, which no one can claim to be excessively large by modern standards, a man earning £10 a week receives combined family and tax allowances of £59 a year—a little over £1 a week. But a man on £30 a week, £1,500 a year, receives £174 a year in the combined allowances, or something over £3 a week. Yet the needs of his children are exactly the same, and he has a greater disposable income to provide for them.
I have great sympathy with the Group's suggestion that we should abolish the tax allowance for dependent children and introduce a compensatory family allowance at a higher level than at present. It has demonstrated that in this way the three-child family might enjoy family benefits of about £156 a year, some £3 a week, assuming that the family allowance was pitched at 10s. for the first child and 25s. for subsequent children. That takes account only of children under the statutory school leaving age, and takes no account of special educational payments which might be paid, and which are being paid at the moment. The importance of the Group's suggestion is that under that system men earning £10, £18, £30 or even £300 a week would enjoy the same level of social security benefit for their children.
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Some people argue that those in the higher income ranges should get less, or nothing. It is fantastic that in the present tax system the higher one's income the greater allowance one obtains from the State for one's dependent children. I am at one with the Group in thinking that that situation is absurd and urgently in need of correction.
I now turn to a somewhat different question. I should like to see our system of direct personal taxation revised to provide a more refined instrument for economic planning. I believe that the idea of the standard rate dates back to the time when only the top income groups paid Income Tax, and it was paid on an annual basis. We now want the rates of Income Tax to be more finely graded over a long scale. They should not jump abruptly from 2s. 6d. to 4s. to 8s. 6d., or whatever the figures happen to be at present, but should be graded more gradually, with perhaps even a different rate for each £100 of income up to a certain level, to make them a more refined instrument of checking on the individual purchasing power of consumers.
I should also like to make the direct taxation part of our regulatory system for damping down or increasing purchasing power, if it is technically feasible to do so. In these days of computers and tabulating machines, that should be possible. We have a powerful regulator in credit and indirect taxation. One can raise hire-purchase deposits, change the levels of interest and so on, but there are disadvantages in that to particular industry, for example, the car industry, which can be very savagely hit in comparison with others by sudden changes in Purchase Tax.
I should like a system by which we could adjust the P.A.Y.E. tables or the tax codes so that one could release £X million of purchasing power into the economy or tax £X million out, spread over the totality of taxpayers, and thereby deflate or inflate as required without savage jolts to individual industries which hit certain groups of employees so savagely, as we have seen in the past six months. I am aware that there will be technical difficulties, but I have given a little thought to the matter, and I am

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not convinced that in this day of computers and mechanical means of accounting they could not be overcome. I should be interested in the views of my hon. and learned Friend the Financial Secretary on the principle that direct taxation can be used as a regulatory instrument to inflate or deflate the economy as the circumstances of the country demand.
My final point concerns our balance of payments problems. It does not seem to me that the tax system is being used to the full to deal with them. President Johnson's interest equalisation tax has not, so far as I know, attracted a great deal of public comment in this country, although it may have been discussed in the more rarefied financial circles. This would probably be a very useful instrument for use in our circumstances, where swift movements of capital in and out have serious repercussions on our general economy. I should like to know the Government's view on that instrument as it is applied by the Americans, or as it could perhaps be applied here to help—obviously it could not solve—the problems of our balance of payments.
There are important parts of social security, economic planning and our balance of payments problems where the use of a more refined technique of taxation could be applied with very great benefit to our economic affairs.
11.47 a.m.
Sir John Foster: I wish to say a few words on one aspect of the Motion so well moved by my hon. Friend the Member for Harrow, Central (Mr. Grant) concerning the inefficiency of the tax system. It seems ridiculous that when we consider the Income Tax law we must look at the consolidation Act of 1952 and 14 other Statutes. Very often when arguing a case or looking at a difficult point we must go to all the Income Tax Acts back to 1842—and sometimes even 1797 when dealing with remittances.
The way to cure that situation is to follow the Australian and New Zealand example of one single Income Tax Act, and the American example of having what the librarians call the Dewey system of decimal points to insert amendments. We should also have to alter the procedure of the House of Commons, because if the Schedule is printed as amended the
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House can debate the whole thing, and it would obviously be unwise to make it possible to debate the whole of an amended Act in the Schedule. In the 1945 Parliament I persuaded the hon. Gentleman who is now Lord Shawcross to print the Government's Diplomatic Privileges (Extension) Bill as amended in the Schedule, and agreed on behalf of the Opposition not to debate it. That is obviously rather cumbrous procedure. The Opposition might not always agree.
The difficulties in looking into 20 or 30 Acts, seeing how the Schedules are amended, and so on, are disgraceful compared with other countries. The recommendation is entirely non-political. I hope that this Government will take it into account, and that if they do not the next Government will.
The complexities of the tax system also arise from the point of view of the unfortunate taxpayer having to fill in his assessment. I am not sure that the instances given of the Revenue being so late in assessing Surtax should be regarded as such a disaster to the payer, but there are instances where repayment of tax takes a very long time. The repayment division of the Inland Revenue does not keep in touch by computer or otherwise with the assessment division and sometimes a taxpayer is being pressed to pay something when there is even more due to be paid the other way. I have come across many instances of that kind.
We should look at comparative ways of raising taxation and at the American and Canadian system which entails a short form and a long form. The person with a simple tax has the short form, whereas in England the form is rather formidable for the person with the most simple form of tax though not unnecessarily the lowest income.
In regard to Estate Duty the position is even more scandalous. As my hon. Friend said, there has been no consolidation since 1894. Generally the Revenue shows an understanding of the difficulties of the taxpayer, especially over Capital Gains Tax, but a rather anomalous result is that some Income Tax Acts show gross injustice. So then the Revenue gives concessions. If we look at the Annual Report of the Income Tax Commissioners we find a list of individual concessions which are not in the Statute. That allows the Revenue not to apply a

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concession because it may consider that the taxpayer has erred in other directions.
The Commissioners are also able to give concessions which are not printed in the Report, but it is difficult to get at those because the Commissioners may say, "This is a concession in regard to only a number of taxpayers and is not a general one". I ask the Financial Secretary to consider whether where a concession is needed because there is injustice this should be stated. For instance, a man may have to pay twice on a foreign diviend which he has never received, and he does not get a concession. There is also a concession about bringing in money under the Exchange Control Act, but that does not consider a remittance if it is sent out again.
A person who has a rather inexperienced adviser or is advising himself often does not know that he can find a concession at the end of the Report. From an entirely non-party but efficiency point of view, I urge that we should examine the complexities of taxpayers filling in forms. Then we should look at the list of concessions which may be made. My hon. Friend said that ignorance of the law is no excuse. Mr. Vachell, a great Oxford circuit practitioner, once said when summing up a case to the jury that if a Chinese lands on the coast at Dover not knowing a word of English he is immediately deemed to know all the law in several hundred volumes of Statutes, some 4 million cases, 250 volumes of statutory rules and orders, and 1 million decided cases. Everyone is deemed to know the law except Her Majesty's judges who have a Court of Appeal put over them to put them right.
The Revenue does appreciate the difficulties, but I have found that sometimes inevitably it has to charge tax which is unfair, because no concession is allowed by the Board. A dentist was made bankrupt because his tax demands were larger than his income over six years. That was because of provisions which I recommend should be very much altered. He had a high income in the first year on which he paid three times while his income was going down. When he got to the end of the six years he had been charged more in tax than he had received in income. The hardest-hearted Member of Parliament would say that that is
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unfair. The dentist thought it was, anyway.
Quite apart from party, it strikes one as very odd, given the most extreme Socialist philosophy of the party opposite, that they are so set on separate taxation of companies. They want the bees to make so much honey and then to take it away before the bees can eat any of it themselves. Companies do not themselves consume the honey—they are means of production—yet I make bold to prophesy that in the next Budget the Chancellor is very likely to increase Corporation Tax from 40 per cent. to 45 per cent. because of the increase in the public sector. It is not good for the country, whether there is capitalist philosophy or if after the next election we go further downhill in Socialist philosophy, that the Revenue should always catch his salary before it gets into the taxpayer's hands.
There is a peculiar psychology which says that a big company is inimical to the State. One has only to mention such giants as Shell for them to be regarded as enemies of the State by some members of the party opposite. I agree that they do not all take that view, but there is a remnant of those who do. A man who makes an ingot of steel gets his S.E.T. back plus a bonus, but a fellow who signs an insurance policy and gets £1 million straight over the line in balance of payments is regarded as a City spiv and has to pay the tax.
The Financial Secretary to the Treasury (Mr. Niall MacDermot): The hon. and learned Member has got it wrong, for neither of them pays the tax or gets the benefit. It is on the employer.
Sir J. Foster: The employer of the brawny-handed man is doing good business and he can get it back with a bonus, whereas the employer of a man who has an insurance policy and by ingenuity gets millions of pounds for the benefit of the country has to pay the tax. There are many people in the middle of that range.
I saw the other day that the Leader of the House was proposing that 12 minutes should be about the optimum time for a speech. I am getting within three minutes of that limit. As I have an important appointment in my constituency, I hope the Financial Secretary will accept my apology as I shall not be

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able to remain to hear his answer to the debate.
Each year there should be a Finance Bill dealing with the things which are secret and the amounts of tax. Then there should be a separate tax Bill, just as in my view there should be a separate law reform Bill. That Bill would deal with technicalities and it would give an opportunity for both sides to make the system more efficient. The Government would get more money by that means. That is the effect of efficiency. They would reduce costs and get, not a greater willingness, but greater ability to pay taxes, and reduce the incidence of tax. If the party opposite remains in power they will spend more in what they call this social purposive way. Whichever way it falls, each side could make use of a more efficient system of taxation by enabling the country to create a bigger gross national product which would not be wasted in taxation. For these reasons I very much endorse the Motion.
12 noon.
Mr. R. B. Cant: We are faced with a number of problems in discussing this Motion, because obviously people approach it from different points of view which are largely the consequence of their training or profession or situation in life. I am not a tax accountant. Nor am I a rich man. So, in practice, I have never had to tackle the problems of Surtax or tax on dividends and so forth. I am somewhat apprehensive because, at the end of his speech, the hon. Member for Harrow, Central (Mr. Grant) brought in a reference to Professor Merrett. He spoke about him and his academic contribution with a certain measure of contempt.
Mr. Grant: A measure of admiration rather than contempt.
Mr. Cant: I feel fortified to carry on because that is, in a sense, my role. I begin with a point made by Professor Merrett and just accept the fact that we pay about £70 million a year to collect our taxes, which is a great deal of money. But, if we are honest with ourselves, we not only have to calculate this actual cost but try to calculate the opportunity cost of collection which will include all these other items to which reference has been made. This is quite a considerable burden on the community, but I do not
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think—and I think the Opposition would agree—that we could go as far as Professor Merrett in terms of simplifying the system by making the sort of calculations that he has made. It is a delightful sort of calculation, because it tells us that most of our tax revenue, direct and indirect, comes from people with modest and middle incomes. It also tells us—and this is striking—that if we levied a uniform rate of 28 per cent. on 96 per cent. of incomes, we would have all the money we wanted. Why should we not do this? It is wonderfully simple. But it is not practical.
We must emphasise that the objectives of a Budget and a tax system these days are numerous. I do not need to refer to the economists' textbooks in order to list them. Obviously, the objectives of a modern Chancellor of the Exchequer are different from those of Mr. Gladstone. He is not only concerned with wanting to balance the books. He also has to serve the cause of equality and see to it that reasonable social policies are underpinned and so forth. With due respect to Professor Merrett, I think that we must leave him now, while thanking him for his intellectual exercise.
What surprises me is that in talking about simplifying our tax system no one has yet made a reference in the debate to certain facets of that system, such as the place of rates. As a local government elected representative of some 15 years' standing, I have a wonderful affection for rates. I do not think one can turn one's back on an independent source of revenue which gives one £1,300 million a year. But this is a problem.
My hon. Friend the Member for Sheffield, Heeley (Mr. Hooley) referred to the National Insurance stamp. Hon. Members opposite have been superficial in talking about the tax system, for they have not considered the implications of the National Insurance stamp. Yet this is an area of the tax system where I should like to see substantial reform, although I have not time to go into that aspect now. No doubt some of my hon. Friends will deal with it.
I do not believe that, basically, equality is a function of the way in which one divides up the cake. It is a function of the size and not the distribution of the national income. What I want to

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do now is merely say one or two words about the relationship of any change in the fiscal system to economic growth—a word which has not been mentioned by hon. Members opposite, although it is enormously important. The emphasis on a change from direct to indirect taxation is not confined to this country. In a massive volume by the Brookings Institute entitled, "The Rôle of Direct and Indirect Taxes in the Federal Revenue System", although the authors try hard to prove that European growth has been faster than American growth because of a greater emphasis on indirect taxation, they do not really come to any specific conclusions. But I think that this country, compared with the Common Market countries, as my hon. Friend the Member for Heeley hinted, perhaps gets rather too much from direct taxation as distinct from indirect taxation.
Despite all the abuse that the Chancellor of the Exchequer received for the introduction of the Selective Employment Tax, in a sense—and I was critical of it because I felt that it was being introduced at the expense of the old, the part-time workers and the disabled, about whom something must be done—it represents a step in the right direction in that it increases the proportion of tax from indirect tax sources.
It is interesting to note, and I say this with a slight air of apology, that articles commenting on the Selective Employment Tax—beginning with Samuel Brittan in The Banker, an article in the Westminster Bank Review, an article in the Moorgate and Wall Street Journal, and even an article yesterday in The Financial Times—are commenting rather more favourably on the tax than they were doing a few months ago.
A number of things need to be done about the S.E.T., but it is an extension of indirect taxation which eventually might lead us to the added value tax which has been referred to. My time is almost up and I would have liked to have said a great deal about this, but if we are simplifying and making the tax system more efficient, quite apart from any play to get into the Common Market on the grounds of tax harmonisation, we shall have to accept that, perhaps in two years' time, the Government will begin to look at this.
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The acceptance of the S.E.T. will offer us more hope of cleaning up the tax system in terms of simplifying it and eliminating some perhaps wasteful aspects than any other. It may enable us to substitute a differential services tax for the S.E.T. as we know it today. It may enable us to eliminate completely the employers' National Insurance payments. It may enable us—and I am sure that the Opposition would agree with this —to reduce Corporation Tax. It might enable us to eliminate the tax on fuel, although that is already rebated for exports, and it might—although I say this with reservations—enable us to remove industrial rating.
We have to accept that it is a further complication in our tax system which eventually will simplify it, but I would go even further in saying that if we are looking at the fundamentals of our tax system we need to do some more basic rethinking. I think that the disadvantages of the economics of the Selective Employment Tax would be looked after by the added value tax. The economic argument for it was based on a number of fallacious assumptions into which I I do not have time to go in any detail.
I here take up a point from the article in the Economist on the Selective Employment Tax. We have to accept that if this country is to have a tax which is to promote economic growth, it will have to have a tax which will promote concentration in industry. If our resources of manpower are limited, then the only hope we can have of economic growth in future is a tax which promotes the concentration of industries and so on.
As Voltaire once said, a perusal of the Act is frequently as great a tax as the payment of tax secured by the Act. There is a great deal of truth in that, but I do not think that we can do much about it. I merely underline certain references by hon. Members opposite and say that in future we should not regard the whole Budget situation as an esoteric exercise in which hon. Members can play no part. We should not think of a new tax as an occasion when a Chancellor of the Exchequer—be it from either party—pulls out a tax, as it were, as he would a card from up his sleeve, and throws it on the Treasury Box. We should regard the whole fabric of our tax system and

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the introduction of new taxes as what H. G. Wells once called an open conspiracy. I do not know the mechanics of this, but I hope that one way or another we shall be allowed to play our part as a House in reviewing, simplifying and making less wasteful the tax system in future.
12.14 p.m.
Sir John Vaughan-Morgan: The hon. Member for Stoke-on-Trent, Central (Mr. Cant) will forgive me if I say that I agreed with almost everything he said. I find myself astonished by someone from the benches opposite using the phrase, "equality is a function of the size of the cake". I cannot but feel that if the hon. Gentleman continues on this line it will not be very long before he joins us over here. I must make one slight reservation. At one point he spoke of "having an affection for rates". Although I admire him for saying it, that is something in which I cannot join him, and nor can any of us.
My congratulations to my hon. Friend the Member for Harrow, Central (Mr. Grant) are very warm and they are not just formal. It astonishes me that in the years I have been in the House this is the first time that I have known a Private Member's Motion to be used for such a useful and general subject as this today. It draws attention to a very marked gap in our procedures which we have often discussed and which is that between Budgets the House of Commons as a whole does not have that opportunity for a general debate on the background and philosophy of taxation which we ought to have. To put it paradoxically, we do not have time to get down to the generalities of the matter. That is what we ought to be doing. I seldom take part in debates on the Budget or the Finance Bill. When the Budget comes I am stunned, and by the time the Finance Bill comes, I am numbed and find that I have tended to lose some of my initial enthusiasm and interest. This Motion has given us a most admirable fresh opportunity.
My hon. Friend's plea for simplification will find an echo from us all. He also eulogised the tax gatherers generously and rightly. I would cavil a little at the slightly infelicitous phrase which he chose when he talked of "paying tribute" to them. I will say no more.
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There is no doubt that tax gathering, although it did not figure as such in the National Plan, is certainly a major growth industry. I have a son-in-law who is a tax expert and it is almost with regret that I say that he flourishes.
We have gone a very long way from the days of Adam Smith and even of Mr. Gladstone when the main test of a tax was that it should be simple and inexpensive to collect. Hon. Members have drawn attention to the appalling burden of tax collection on industry itself. I am hoping to have a study made in my own firm of what this involves for a middle-sized firm and the number of people employed on various facets of taxation in order to act as agents of the tax gatherers. It is an astonishing number already and moreover these are the kinds of administrative brains which we need and which could be far better deployed in other spheres, particularly in those industries which are largely concerned with exports.
However, the theme on which I should like to speak today is more concerned with our approach towards Europe. I hesitate even to discuss the addition of a new tax, but I agree with what the hon. Member for Stoke-on-Trent, Central said about the added value tax. I hope that today we shall be given some idea of the Government's thinking on this matter by the Financial Secretary to the Treasury. Naturally, we would not ask him now to come down on one side of the fence or the other. I was converted to it—perhaps "converted" is not the right word—when I went to see our own business in France and the manager spoke to me of the "beautiful simplicity" of this tax. This seems to be justified when it is compared with the complexities of most of the taxes in this country.
I must say frankly that I greatly regret that my right hon. Friend the Member for Barnet (Mr. Maudling), when Chancellor of the Exchequer, did not pursue the matter further. I realise that he was in a difficulty in view of the conclusions of the Gordon Richardson Committee, but at the time I thought that that Report was wrong. It may have been because its terms of reference were wrong. However, I think that this is a subject which should now be considered again and I hope that the Chancellor will not feel in any way prejudiced or inhibited

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by the past. We must look frankly and seriously at this in the context of entering Europe. The proposals of the European Economic Commission for the added value tax, on the French model, are now under consideration and it is planned, if approved, that they should be adopted by 1971.
Mr. Hooley: Is not the right hon. Gentleman aware that the balance of direct and indirect taxation in France is well out of step with some of her partners in the Common Market and that other members are much closer to our system than France?
Sir J. Vaughan-Morgan: All that I am saying is that the Commission is putting forward a tax on the French model to the Ministers. I am not disagreeing with this at all. The whole gravamen of my remarks is devoted to trying to point out that we must attempt to harmonise ourselves with Europe, even when the French are out of step with their colleagues in the Community. I am talking of one particular tax and it is the French model that the Commission has chosen to adopt.
If there is any sincerity, and I know that there is, in the Foreign Secretary's efforts towards joining Europe, they would be greatly enhanced by any steps which could be taken on these lines. Progress has been negatived in some ways by every step we have taken in the last two years. It is said that the added value tax is more cumbersome than Purchase Tax because there are more points of collection. But this is the inevitable result of broadening the base of taxation.
We have to accept that there could be, as a consequence of this, an immediate offset of direct taxation which would lead substantially to the simplification that we desire. I know that there are other countries in Europe which have a Corporation Tax on the lines which we have adopted, but we have to accept again that it is not now in accordance with the spirit of the changes in opinion as opinion is now moving inside the Community. The Selective Employment Tax as it was applied, was in one way a step towards Europe and two steps backwards at the same time.
A payroll tax is usual in Europe and I strongly support it. In a highly technological, industrial world where the most
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valuable commodity is manpower, it is sense that employers should be compelled to economise with this commodity. I support the tax in principle but I cannot accept the element of selectivity, which has made nonsense of the intentions of the tax, and which cannot be harmonised in any way with the present practice in Europe. This must be and should be the overriding theme of the Government's thinking at this time, and we shall welcome the thoughts of the Minister in this respect.
12.25 p.m.
Mr. John Ryan: I should like to follow previous speakers in congratulating the hon. Member for Harrow, Central (Mr. Grant) on initiating this debate about the importance of simplifying our taxation system. We are particularly grateful to him for doing so at a time when the Government are considering and reconsidering the entire framework of social legislation and the interaction of the taxation structure and the social services. It is particularly fortunate that we should be considering some of the underlying principles of taxation in their social context as well as some of the more technical points about taxation.
When I say that I am grateful to the hon. Member for initiating the debate. I must say that I cannot admire his choice of priorities in his own speech. They did not impress me but, knowing his connection with the Wider Share Ownership Council and so on, it is natural enough that he would make a plea for a more lenient attitude towards unearned income. Many of us on this side of the House would wish to congratulate my hon. Friend the Member for Sheffield, Heeley (Mr. Hooley) for touching upon a most important feature, namely, the inter-relationship between tax allowances and poverty in the community. I should like to follow the point made by the hon. Member for Harrow, Central when he spoke of the harsh system of taxation which he claims we have, and its effect upon a certain group of people.
The taxation system is hardly progressive at all. Bands of taxation are extremely wide, particularly on the standard rate, and for the marginal rate of tax it is not spread out enough. The marginal rate of tax on the standard rate is 32 per cent. and this means that it

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applies to a range of incomes from single people earning £700 to a married couple with two children earning £1,140 right up to the surtax level. This means that a person getting a salary increase from £1,500 to £1,600 a year will pay £32 tax on that extra £100 and the person getting a salary increase from £3,900 to £4,000 a year will still pay £32 on that extra £100 earned.
I do not consider that this is a genuinely progressive taxation system and I would be grateful if the Minister who is to reply to the debate would say something about the possibility of sorting out marginal rates of tax over the narrower bands and introducing a more genuinely progressive structure in the taxation system, without diminishing the revenue to the Treasury derived from this system. I should like to develop a point made by my hon. Friend the Member for Heeley about some of the crevices of poverty still existing in the fairly high standard of living that we now have. Some of the research that we have seen recently has focussed our attention on child poverty, which is a feature of the lower income groups with large families. I suggest that the taxation system could be used as a means of redistribution in this direction without terribly complicated legislation.
For instance, in 1964 in terms of tax rebates for children, the Treasury was prepared to subsidise certain people to the extent of £1,485 million. If one regards a tax rebate as a form of subsidy, in the same way that a loss is a negative profit, one can see that this is a form of distribution of income. If we take a married couple with two children, and look at the value of the tax arrangements at certain income levels, we find that it is quite steeply regressive. Take the situation of a married couple with two children, with an income of £630 a year. The effect of having another child, in taxation terms, is nil.
If they earned £800 a year, the rebate would have the effect of their paying £11 a year less tax—a net gain of £11 over the year. If the couple earned £1,700 they would have a net gain of £42 a year, and if they earned £16,000 they would get a net gain of £105 over the year. This shows the subsidy to the higher income groups from the general pool of taxation. It is a regressive
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system of distribution of social allowances. Coupled with this is the system of family allowances, allowable on taxation. This costs the country something like £148 million a year. The average effect of this, if one divides the total by the number of children, is something like £38 a child.
A man on the standard rate of taxation gets something like £47, and there are many people in the community who do not pay tax at a sufficient level to gain materially from this situation. It would be much fairer to get away from this system of a flat-rate subsidy and flat-rate allowance to a genuinely progressive system which would have the corollary that people who did not qualify for any allowances because of the lowness of their income would receive a net subsidy. It is along those lines that we should look for legislation later from the Government on this very important question of redistribution of income.
The assertion that our taxation system generally is progressive can be contested also in regard to housing. Tax relief is given in respect of interest payments on mortgages, and here again the greatest benefit goes to the highest income earner. In 1964, these reliefs cost the community about £240 million. They can be expressed as a percentage relief per £100 interest paid on a mortgage, and examples can be shown of the way they work. If a family has an income of £750 a year and mortgage interest payments of £50 a year, the effect of the present system is a gain of nothing for them. If they had £2,000 a year and mortgage interest payments of £300 a year, they would gain £96. If they had an income of £20,000 with the same mortgage commitment of £300 a year, the gain would be £274. This means that they would be paying only £26 or so of the £300 interest and the rest would be a subsidy from the general community tax fund. It is unfair that people with the same responsibility in buying the same sort of house on the same mortgage repayments but with grotesquely different incomes should, as a result of our distribution of taxation, bear so different a burden, the greater burden being borne by those earning considerably less.
Next, there is the effect of our taxation system on the wives of people who pay Income Tax at different levels. I

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should be the last to urge higher taxation on women who work because of the disincentive effect this would have. It is enormously important, because of our manpower shortage, to make it easier for women to return to work or take up part-time work. Nevertheless, our taxation structure is unduly generous to people at the top end of the income scale. The general principle of allowing separate allowances and separate taxation gives a gain in benefit of something like the excess of the two individual personal allowances added together over the married couple allowance, which is normally about £120 a year, which in terms of subsidy is determined by the marginal rate of tax which the people pay.
Underneath the Surtax level it has this effect. For a wife with an income of £500 a year and a husband earning £3,000, the net gain is considerably greater than if she was earning £500 and the husband was earning £1,000. Again, it is a distribution upwards because of the marginal rates of tax paid.
Sir J. Vaughan-Morgan: Is not the logical conclusion—I should have some sympathy with it—that the incomes of husband and wife should be taxed separately?
Mr. Ryan: No. The situation is unfair because the benefit is determined by the present marginal rates of tax paid by the husband. It would be logical if the right hon. Gentleman accepted my point that our tax system is not progressive and that there should be increased marginal rates for smaller bands. The present system has a disincentive effect at certain levels. At the level where the wife's aggregated income takes the husband above the Surtax point, he has to pay an extra 10 per cent., 47 per cent. instead of 37 per cent. It is evident from surveys which have been made that there is for this reason a strictly disincentive effect against wives working at that level.
As incomes tend to rise, more and more people will be pressing against that level, and there will be a continuing disincentive preventing the community from having the benefit of the contribution which women can make at work if the marginal rates of taxation are kept at such a high plateau away from the previous rate. This is not an argument
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for lower Surtax. It is an argument for a genuinely progressive system with narrow bands and with jumping-up rates.
My hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant) touched on the question of National Insurance contributions, which are a form of poll tax. It seems an administrative complication that these should be charged in with the Income Tax return when it should be possible to account for them by another method of coding. This is an example of possible tax simplification, and I shall be glad to have my hon. and learned Friend's comments on it when he speaks from the Front Bench.
In considering questions of tax simplification, it should be remembered that taxation in this country can be regarded as an industry with a turnover of about £10,000 million a year, and it costs the community about £70 million to collect its taxes. I should like to know from the Financial Secretary how much research is being done on the question of tax collecting and possible simplifications in the system.
I am particularly interested in research into the nature of the tax forms themselves. I am not an accountant, but many constituents come to me with great problems because they do not know how to deal with their taxation forms. The hon. Member for Harrow, Central said that he would like accountants' fees to be allowable in our tax structure. This would be no answer because those who use accountants at present tend, in the main, to be at the top end of the income scale. They probably have more complicated returns, but it is people in the higher income brackets who use accountants for the purpose of saving tax or avoiding the payment of tax which it is not strictly necessary for them to pay. Therefore, any attempt to overcome the problem of tax return forms by allowing accountants' fees or giving some sort of subsidy towards accountants' fees would have a regressive effect since it is people at the top end of the scale who at present employ accountants. I agree that one has to think also of the small businessman earning, perhaps, a small income but whose taxation situation is fairly complicated and requires the help of an accountant, but I do not regard him as a dominant feature in this context, and

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the general effect of such a scheme would, in fact, be regressive from the point of view of income distribution.
Is any research being done to find ways of simplifying the tax forms? They are formidable forms. The colour of them is off-putting. The print may be all right for people with brilliant eyesight, but I do not enjoy such good eyesight and neither do many of my constituents. The general effect of our tax forms is reminiscent of something from a workhouse at the end or in the middle of the last century, formidable and thoroughly off-putting. One can see the contrast by comparing the forms used in the Government service with the forms used by commercial enterprises.
The forms used by commercial enterprises in requiring information from or giving information to their clients show what can be done. I think particularly of the banks who produce quite brilliant booklets explaining the simple elements of banking to people who have previously had no interest in banking or having a bank account. These booklets show clearly how to fill up a cheque form or credit transfer or how to arrange for a standing order. They are, perhaps, rather lavishly printed, but they are excellent for explaining to people with no previous experience the various things which have to be done. They are attractively prepared and they do not put people off. They are easy to read and do not create the feeling in people's minds that they are grotesquely ignorant if they do not know how to fill up a cheque or credit transfer form correctly.
I urge my hon. and learned Friend to consider the issue of an explanatory booklet with the tax forms couched in layman's language, in large print on nice thick white paper—the sort of thing which would attract people and make them—
Mrs. Lena Jeger: Make them want to fill in their tax forms?
Mr. Ryan: Perhaps not that, but at least it would be considerably better than the buff or brown-coloured forms with terribly small print which we have now. This is not an unimportant point. These things do colour people's general attitude towards taxation, making them confused
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and feel that they are being "diddled" even if they are not.
Many of us feel that our debates on taxation in the House are highly technical debates about particular instances of taxation. As our society develops, it is increasingly necessary to see taxation in its social context. I subscribe to the view that taxes should be simple to collect. They should be intelligible. They should not have a disincentive effect. But, as a Socialist, my basic view is that taxation is concerned with the redistribution of income. I regard our Income Tax system in this country as leaving great scope for redistribution, and I hope that the Government will pursue it.
12.40 p.m.
Mr. Stratton Mills: I would commence by giving my warm congratulation to my hon. Friend the Member for Harrow, Central (Mr. Grant) —who has now changed places and gone on to the Front Bench—both on the width of his Motion today and the admirable way in which he proposed it.
I want to speak very briefly, because I think there is a danger in a debate on tax simplification of it devolving into a debate on generalities or into highly difficult calculations when one loses one's audience half way through. I want to examine two matters in some slight depth: firstly, the question of family allowances and the tax allowances controversy; and secondly, the close company provisions of the Finance Act, 1965.
The background to the controversy on family allowances as against tax allowances has been filling much of the national Press in the last few months. Every one of us in the House from his own constituency experience knows the hardships of the 200,000 families living below National Assistance level and the 1 million living only slightly above that level, and no one of us can have failed to have had brought home to him forcefully on many occasions and in human terms what those hardships are. We all know that this is a self-perpetuating problem, that many of these people have large families and small incomes and that their situation is repeated in that their children in their turn fall into the same category, and one fully recognises that this is a matter with which any Government will have to deal. However, I should like

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to confine my remarks merely to certain taxation consequences of any method of tackling this suggestion which has been proposed by hon. Members on the other side of the House.
As I understand it, the basic figures are these: family allowances cost £150 million a year; allowances against tax for children cost £580 million a year, estimated for 1966–67. But the basis of my argument is to show hon. Gentlemen opposite that the complete abolition of the tax allowances for children would hurt the rich only marginally and that it is the average wage and salary earner who would be extremely hardly hit indeed by any such proposal. I would refer hon. Gentlemen to the Inland Revenue Report for the year ended 31st March, 1965, at page 82, where there is very valuable information on this subject, admittedly only for the most recent year, 1963–64.
I apologise, and hope the House will bear with me for just a few minutes, for giving some statistical background. I think hon. Members opposite may be interested to know, by the way, that 0·75 per cent. of taxpayers have incomes of over £5,000 a year and that those taxpayers pay about one-quarter of all the Income and Surtax collected by the Inland Revenue. So hon. Gentlemen opposite must recognise that the opportunities for increased taxation on that group are, frankly, very limited. The broad range of standard rate taxpayer and this is my main point—in the from £1,000 to £5,000 range, encompasses 6½ million taxpayers out of about 20 million. So the burden of my argument is that the standard rate taxpayers are about one-third of the total number of taxpayers in this country. If we extend the class to those with from £700 to £5,000—because I think there is always some uncertainty as to where the standard rate begins, depending on family commitments—we have 12 million taxpayers in this country in that category, some 60 per cent. of all taxpayers. So I would suggest that it is absolutely clear that a proposal to abolish the child allowances for tax purposes would affect only marginally the rich but would hit very heavily indeed Mr. Average.
How much would Mr. Average—if I may so describe him, the average stan-
1964
dard rate taxpayer—how much would he be hurt? Well, the worth of the child allowance is easy to calculate—for a child under 11 it is £47 a year; for a child between 11 and 15 it is £57 a year; for a child of over 16 and receiving full-time education it is worth £68 a year. I ask hon. Gentlemen opposite, would they welcome explaining in their constituencies their suport for a Chancellor of the Exchequer who had hit Mr. Average, the standard taxpayer, as severely as this in removing income from his pocket?
Mr. Ryan: Would the hon. Member accept that this expression "Mr. Average" is meaningless because of the tax band at the standard rate and because many people pay a very small proportion at the standard rate? People with just under £4,000 pay a small proportion at the standard rate. We are talking of a group of people within a wide range of incomes.
Mr. Mills: I take the hon. Gentleman's point about the width of the standard rate. I think it is valid, and I think it is clear that with creeping inflation the number of people who have moved into the standard rate class is much too high. I think the example I am about to give may help the hon. Gentleman in taking my point.
As I say, take the example of Mr. Average earning £25 a week or £1,250 a year—the skilled artisan, the white collar worker with two children under 11 and one between 11 and 16. I estimate that if the child allowance were abolished Mr. Average would pay £151 extra tax which at present he saves by reason of the child allowance on his three children. So I think the point must be made quite clear that the taxpayer earning £25 a week would be losing from his pocket £151 a year—almost £3 a week—which he has got at present in tax allowance.
Of course, he would under the scheme suggested from the benches opposite be receiving as a supplement to replace this a new family allowance. One does not know how much that would be, so it is impossible to estimate where the break-even point would be, but, of course, that family allowance would be subject to Income Tax. The point I am making is this—I hope hon. Members on the benches opposite realise just how very severely indeed any such proposal forced

1965
on a Chancellor by them would hurt the average wage and salary earner in this country.
As I see it, there are further very substantial practical objections to the scheme. It is a cumbersome proposal taking in money on one hand to pay it out with the other, with all the machinery required for it; the administrative costs would, of course, be quite considerable. Furthermore, the abolition of child tax allowance would have the effect of bringing into the Income Tax bracket probably millions of people who are at present under the Income Tax bracket because of the benefit of child allowances. Bringing them into the tax bracket and collecting money from them with one hand and paying out money with the other hand is, I think, a substantial practical objection to the proposal.
Furthermore there is the objection that the whole burden of the scheme will be placed on the taxpayers with children—those couples without children, and gay, rich bachelors, and, maybe, some of the more affluent teen-agers, would entirely escape any contribution.
I do not wish to labour the point further, but again I emphasise that I feel that much of the Press and academic comment on the financing of any method of helping the large families at the National Assistance level has been extremely superficial, and I hope that hon. Members on the back benches opposite will reflect just a little on the extent to which it is going to hit the average taxpayer.
Another matter which I wish to deal with is the effects of the Finance Act, 1965, on close companies—broadly, the small or medium family businesses, although the definition of them is such that certain companies quoted on the Stock Exchange also come within the definition. When the Bill was going through the House, many of us on these benches pressed that it would be very harmful to the small and medium family businesses. But we heard two voices on this. First, we heard the voice of the Chief Secretary, who said that we had exaggerated the problems and that the position would be largely the same as before under the profits tax system. But we also heard the voice of the hon. Member for Edmonton (Mr. Albu), who was then Minister of State at the Department
1966
of Economic Affairs. When one of my hon. Friends said that the Government's proposal would cause the death of many small and medium businesses, the hon. Gentleman is quoted in HANSARD as having shouted out from a seated position, "And a good thing, too." These are the two voices of Socialism in its approach to the family business.
On that occasion we objected to many of the provisions in the Finance Bill, and our objections are being entirely borne out by events. I should like to list them again and to comment on them briefly. First, the level of directors' remuneration in close companies was limited in the Act to £4,000 for one full-time director and £7,000 for two directors. It is clear that this level is too low, particularly when compared with remuneration earned in large industry, in local government and in the Civil Service. It should be considered again.
Secondly, we expressed disquiet about the 60 per cent. requirement for payment out after Corporation Tax because we felt that it was arbitrary and unfair. Again, I think that it has been the experience of many business men and their professional advisers that this has worked great unfairness.
Thirdly, we forcefully expressed the view that a close company which has money lent to it by the families of the participators should be entitled to pay them a reasonable rate of interest as an expense before Corporation Tax as if the company was borrowing from a bank or merchant bank. But the Government resisted this. The effect has been I imagine the withdrawal of certain funds from close companies and general unfairness being caused to the companies in extra taxation.
Fourthly, we felt that the definition of a close company in the Finance Act was much too narrowly expressed.
I accept that it is difficult to produce statistical evidence to confirm my point. One speaks largely from personal experience and from impressions gained from first-hand or second-hand experience. But I believe that the effects on close companies of the 1965 Act have been very harmful and have retarded their development as businesses.
I am told that the Inland Revenue recently prepared a report on the effect

1967
on close companies of the 1965 Act, and that that report was very critical of the legislation. I do not know whether this is true; I am merely repeating secondhand and third-hand information. It would be interesting to hear the comments of the Financial Secretary on that matter.
Mr. Henry Clark: Would my hon. Friend agree that when one uses the phrase "close company" or "family company" the general supposition is that it is a small inherited business, like a draper's shop, which has carried on year after year? Is not my hon. Friend's argument even more valid when applied to a small new company, opened in the last three or four years by the personal enterprise of one member of the family, with the assistance of his relatives, many of which are making a serious contribution to the country's exports?
Mr. Stratton Mills: I entirely accept my hon. Friend's valid point. The 1965 Act has had the effect of tying one of the company's hands behind its back when it is trying to get off the ground with the individual effort of a couple of working directors. Great problems have been caused to such companies by this legislation. This underlines the fact that, while the Government have shown their general hostility to business as a whole, they have concentrated particular hostility on the small, growing business, and this is to be strongly regretted.
When a Tory Government returns to power, which I hope will not be too long delayed, I trust that there will be two main principles on which they will approach taxation reform. First, I hope that they will make great efforts to reduce direct taxes and to alter the balance between direct and indirect taxation, which at the moment is unfair. My right hon. Friend the Member for Reigate (Sir J. Vaughan-Morgan) made a valid point about the great importance of examining again an added value tax.
Secondly, I hope that a Tory Government will concentrate on reversing the balance between private and public expenditure, which last year's estimates, and, I suspect, this year's estimates, show is getting gradually out of hand. I trust this matter will have considerable priority.
1968
The scope of tax reform for any Government is great. I hope that this Government will not be unduly timid and will not act in a politically partisan way as in the last two Finance Acts.
12.57 p.m.
Mr. John Lee (Reading): This debate will obviously cover a wide range of matters. I do not propose to take up the argument of the hon. Member for Belfast, North (Mr. Stratton Mills), except in one particular. In contrast with some of my hon. Friends, I find myself in a measure of agreement with the hon. Gentleman on the subject of child allowances. There is some danger—we had experience of it just after the war—of imposing excessive taxation on those in the middle income bracket compared with the taxation imposed on people very much higher up the scale. The remarks made by the Child Poverty Group and the total inadequacy of child allowances are not invalidated by this.
This debate is about two matters—tax administration, and tax policy. The hon. Member for Harrow, Central (Mr. Grant), who proposed the Motion, successfully blurred the distinction between them, quite legitimately, from his point of view. There is probably a wide measure of agreement among Members on both sides of the House on tax administration. We could all give instances of maladministration or examples of the strain from which the Inland Revenue may be suffering as a result of the series of tax changes which have taken place in the last few years. We can all quote many things which should be put right in the application of the tax system. However, there is little agreement between the two sides of the House about tax policy.
I wish to say a few words about the matter of tax administration. I entirely agree with hon. Members on both sides of the House who say that our tax system should be coded. It is 14, nearly 15 years since the Income Tax Act, 1952, which did not do the job completely. We are in dire need of something of the sort being done again. It is ludicrous that the tax law should be spread over se many different Acts of Parliament and be so difficult to reference and difficult for the layman to apply.
A number of my constituents have put to me cases of wrong assessments by

1969
the Inland Revenue. I had a case the other day of a man who was presented with a demand for tax backdated some eight years. It is fair to say that it was for a small amount, but, as far as I was able to see, it had arisen through an error in the local office of the Inland Revenue and not through any error on the part of the taxpayer, still less from any desire on his part to suppress or understate his tax liability. There ought to be something by way of an administrative instruction that, if tax is outstanding for more than a certain length of time, it ought not to be claimed where the error arises not from the taxpayer but in the Inland Revenue's offices. Sometimes it affects quite humble people, and it can be extremely embarrassing for a person to be faced with a demand out of the blue years after he thought that he had settled his tax liability for that year.
I listened to my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant)—I say this in no personal sense to him, as I am sure he will appreciate—but I wonder what he and I have in common when he talks about the size of the cake being more important than equality. I should have thought that the promotion of equality was the basis upon which the Labour Party was founded.
In so far as the tax system is an instrument of equality, it is a singularly ineffective one. In spite of the fact that we have had two world wars, the second of which involved the loss of something like one-quarter of our national wealth, in spite of death duties in one form or another since the days of Sir William Harcourt, some form of Surtax ever since Lloyd George's so-called "People's Budget" and a standard rate which has not been below 7s. in the £ since before the war, there is still a massive inequality of wealth in the country. I cannot see that our present system is geared towards reducing it, still less eliminating it. It is still true that about 2 per cent. of the population own about 50 per cent. of the private wealth. At the other end of the scale, nearly 90 per cent. of people have assets of only about £100.
To take other examples of the massive inequality which is characteristic of this country, I look at the percentage of estates not exceeding £5,000. In 1913–14, the last financial year before the First
1970
World War, 88·8 per cent. of all estates were assessed as being of less than £5,000. The figure just before the Second World War was 88·2 per cent. In other words, there was a move of 0·6 per cent. in a matter of more than 20 years, with a war falling in between. One would have thought that, with the more egalitarian measures of the wartime Coalition Government, the position would have improved markedly; yet the figures for 1964–65 show that the percentage of estates of less than £5,000 was still 79, which means that there has been a movement of less than 10 per cent. in over 50 years.
When one looks at the distribution of wealth which is privately owned, in 1911–12, 1 per cent. of the population owned 65 per cent. of the private wealth. By 1935, it was down to 56 per cent. By 1963–64, it had fallen to 33 per cent. At first sight, it looks as if some change was under way. Yet, when one looks at the top 10 per cent. of the population, there is hardly any difference. Ten per cent. of the population owned something like 90 per cent. of the privately-owned wealth in 1911. By 1963–64, it still had not fallen below 75 per cent. It is still true that one can talk in terms of a top 10 per cent., just as one can talk of a submerged 10 per cent.
Mr. John Tilney: Does that include all the pension funds as well?
Mr. Lee: I am quoting directly from the Blue Book on Incomes. I would have said that it did.
I want to turn now to the number of high incomes. It is a curious coincidence that, in 1963–64, it was said that 99 people had an income of over £100,000, and exactly the same figure applied in 1937–38. Despite a world war, the postwar taxation of the Labour Government and a fairly high rate of taxation in the early years of Conservative Government, there had not been very much change.
The most extraordinary feature of all is that the tendency towards greater equality in this country, slight though it is and slight though it has been for a very long time, was actually reversed during the last six years of Conservative Government. It carried on up to about 1957. Then, I suppose, assisted to some

1971
extent by the reduction in Surtax rates, the tendency was reversed. If one looks, for example, at the number of persons relieved entirely by tax allowances, the figure in 1955–56 was 3.8 million. By 1964–65, it had fallen to 2.7 million, a loss of 1.1 million. That may be partly offset now by other factors, but it is an example of the way in which we still tax people at the lower end of the scale far more than is reasonable.
To look at it another way, between 1949 and 1957, the average wage in manufacturing industry increased by about 73 per cent. In the same period, the salary increase was 54 per cent. Between 1957 and 1963, the corresponding figures were, for wages, 31 per cent., and, for salaries, a 35 per cent. rise.
Those who say that this change was necessary and those who apologise for it on the ground that taxation is a disincentive to work might be reminded of an article in the current Lloyds' Bank Review by Mr. R. J. Nicholson, who says that the gross national product grew at a slightly faster rate between 1949 and 1957, when tax incidence was on the higher side, than in the period between 1957 and 1963. That does not bear out the suggestion that a reduction in taxation acts as an incentive to people to invest more and produce more.
These matters are relevant from the point of view of those who are concerned about the brain drain. I have been looking at the starting salaries for a number of the categories of persons who are most affected and with whom we are most concerned in the so-called brain drain. If one looks at the very modest starting salaries for scientific officers in the Civil Service, doctors, or professional engineers, one sees that they are in the £900, £1,000, £1,200 and £1,500 range. The reliefs from taxation which were made during the last years of Conservative Government did nothing to help them, and I am bound to say that we have to go a great deal further on earned income allowances if we are to encourage people to stay in this country, particularly people in those professions.
We know perfectly well that in many cases the decision of a person to go into a job in this kind of category of work is taken once in a lifetime. A person
1972
takes his Ph.D. as a scientist and then decides to go abroad, or he does not do it at all. There is not so much movement later out of the country. The crucial stage is at the time of taking the first job, and if the taxation is such that it discourages people from staying in this country, we may well conclude that they will be lost to us for ever. This is one of the things in respect of which I find myself in agreement with those who have pressed for an increase in the earned income allowance.
I want, nevertheless, to turn back to the question of the great inequality of wealth in this country, and what we can do to try to reduce it. Many of us, but perhaps not all of my hon. Friends, would say that taxation was not necessarily the most effective way, and that widespread nationalisation was a much more effective method of getting this done. I wish I could feel that my enthusiasm for that was shared by the Front Bench, but perhaps I can try to persuade them to adopt the more modest proposals which I have put before them today.
Looking at the proposals which Sir Stafford Cripps included in his 1948 Budget, I see the proposal for the so-called once-and-for-all "Special Contribution" or capital levy. My hon. and learned Friend the Financial Secretary will know that in talking about a once-and-for-all contribution Sir Stafford Cripps was talking constitutional nonsense. Neither he, nor anybody else—nor any Parliament for that matter—could bind any successor Parliament from choosing the same method of taxation if it was so minded, and all that Sir Stafford Cripps' extraordinary remark did on that occasion was to embarrass successor Labour Governments from again using this method which I consider to be far more effective than any of the other new systems of taxation which have been introduced recently as a means of bringing about greater equality.
I have never been particularly enamoured of the Capital Gains Tax, not, I think, for the reasons which are normally advanced against at by hon. Gentlemen opposite, although I concede that there are many anomalies, particularly with regard to small incomes, and that the administration of the tax

1973
is extremely complicated. My great objection to it is that it has side-stepped the question altogether.
The great source of inequality of wealth is not income earned at the moment, or which has been earned over the last two or three years, but the great accumulation of wealth over the centuries. When Sir William Harcourt introduced death duties in 1894, he was accused of robbing the dead. If he was, he chose a singularly ineffective way of doing it. Apart from the figures which I have given of how many estates are still so small at one end of the scale, one is, I think, often reminded of how much land and real property is still concentrated in a few hands. Hon. Gentlemen opposite may have seen the colour supplement of the Telegraph recently, which showed that the great majority of the landed wealth in this country is still concentrated in an extremely small number of hands. The fact that Sir William Harcourt introduced this tax nearly 70 years ago just shows how ineffective Estate Duty really is.
My right hon. Friend the Prime Minister has on previous occasions referred to it as a voluntary tax, and we all know that numerous devices have been used to avoid it. Not only is it a voluntary tax, but to some extent it is an illogical one. Some estates have been reduced rapidly by the quick succession of the deaths of the owners, but in other cases, where the family has considerable longevity, estates have been spared the taxation which they should have paid merely by a freak of circumstances. I therefore commend the capital levy as a less anomolous and more logical way of tackling this question. I also commend it because I think that it is less of a disincentive.
There is obviously some truth in the contention that some people are deterred by taxation from working harder. I am sceptical of the relevance of this in the higher income groups, where most occupations are pleasant, and to a considerable extent self-rewarding, but I concede that, particularly in the £1,500 to £3,500 a year salary range, there may be some truth in the contention that high standard rates of taxation are a disincentive. Here is one way of raising money which could not possibly be such a disincentive. It is much more egalitarian, and I think that is also has to commend it the fact
1974
that it is disinflationary. If one forces estates on the market, if one forces wealth on the market, to meet taxation, one effect is to force down the value of the things to be sold.
I think that all those are reasons in favour of my proposition, though there are some objections and difficulties. Partly, I suppose, because of the novelty of the tax in 1948, there was a certain miscalculation of the amount which would be brought in. It was calculated that there would be £50 million in the first year, and £105 million in the first full year, in other words, in a period of just about two years. In fact it fell far short of that. Looking at the appropriate Blue Book, I was surprised to discover that the tax is still being collected—in minute quantities—and that the total amount collected in special contribution, 18 years after it was introduced in 1948, is only £111 million. Quite clearly something shorter and sharper is needed.
Perhaps I might remind hon. Gentlemen opposite of the basis on which it was assessed. It was assessed on individuals whose total income exceeded £2,000, and whose investment income exceeded £250, and the scale was as follows: people with an income investment of between £250 and £500 would pay 2s. in the £. Between £500 and £1,000 they would pay 4s. in the £. Between £1,000 and £2,000 they would pay 6s. in the £. Between £2,000 and £5,000 they would pay 8s. in the £, and with an investment income of more than £5,000 they would pay 10s. in the £.
That was a considerable time ago, and I do not suppose that anyone would want to levy a contribution on an income of £2,000 or thereabouts, so clearly one would have to start the rates higher up the scale. If one were to repeat the exercise of 1948 on the same basis of assessment as was applied then, this would produce about £400 million, but it is easy to see that if the rates higher up the scale were much steeper, even allowing for a much higher starling point, it would be possible to raise a great deal more than that amount of money, which was, after all, a very modest proposal.
I hope that my hon. and learned Friend the Financial Secretary will bear

1975
that in mind. I hope that it is not too late for it to be considered in relation to the Budget. About 2½ years ago the Chancellor of the Exchequer talked in terms of a wealth tax, and many of us on this side of the House were heartened because we thought it was a sign that the Treasury was coming to grips with fundamentals. Since then, my right hon. Friend has been singularly coy on the subject, and I earnestly hope that the Financial Secretary will convey these thoughts to the Chancellor of the Exchequer. I would have thought that in the light of the experience we are having in the administration of the new Corporation Tax, as it now applies both to distributive and undistributed wealth, and the difficulties with the Capital Gains Tax, we must think of some other source of taxation which will really hit hard.
I am an unrepentant believer that one of the social functions of this Parliament is to "soak the rich". I do not subscribe to the words of the late Lord Morrison, who said that there were no rich left to soak in 1949. We have seen many people acquire riches during the "never-had-it-so-good" period. I hope that my Front Bench will at last pluck up courage to deal with them.
1.20 p.m.
Mr. John Tilney: Although I agree with the opening remarks of the hon. Member for Reading (Mr. John Lee) concerning the need to refrain from taxing unduly heavily those with middle incomes I find it difficult to support his argument about dividing up the existing cake, and his disagreement with his hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant) about increasing the size of the national cake.
Mr. John Lee: Will the hon. Gentleman accept that I do not regard the two as mutually incompatible? I agree with my hon. Friend about increasing the cake, but I do not see that that deals with the problem.
Mr. Tilney: My feeling is that the policy advocated by the hon. Member would make it certain that the size of the cake would not be increased. The hon. Member referred to remarks made by the father of my hon. Friend the
1976
Member for Farnham (Mr. Maurice Macmillan), when he told the British people that they had never had it so good. What was wrong with that, when it was absolutely true, and when the standard of living of the British people had increased in 13 years faster than at any other time in history? That was far better than the present stagnation, brought about by the Socialist policies of Her Majesty's Government.
I also congratulate my hon. Friend the Member for Harrow, Central (Mr. Grant). I apologise if I am not here when the Financial Secretary replies. I have to go to my constituency, and British Eagle has changed its timetable. I congratulate my hon. Friend because it is high time that this House discussed the fundamentals of taxation. I do not argue whether the appalling rate of expenditure is right or wrong. Although I have views about what we should do in cutting down defence expenditure east of Suez, I am now in a minority in my own party. I am not arguing now about the size of the expenditure, but saying there is almost no room for manoeuvre at present, because so much money must be found.
But are we finding the necessary revenue in the right and cheapest way? Too few of us have thought about this problem. The Government have brought in some new taxes—Corporation Tax, Capital Gains Tax, and Selective Employment Tax—without enough thought. Certainly something is wrong with their administration. I wonder whether the Financial Secretary has looked into the question of the cost to the economy of each form of tax. Does anyone know —or is it that the Treasury just do not want to tell? On 20th December last I asked the Chancellor whether he would state in table form and alphabetical order all the various taxes, including each of the main classes of Purchase Tax and Excise, at present levied on the people of Great Britain, the original date when each was levied, the revenue each tax brings in, and—and I want to stress this; it was not answered—the approximate cost of collection of each tax.
According to the Answer, all Customs and Excise taxes are lumped together, and the estimated cost is 0·86 per cent. Is the Financial Secretary saying that it

1977
costs exactly the same to collect the tobacco tax as it does to collect Purchase Tax? Is he saying that the cost of collecting the Betting and Gaming Tax is the same as collecting the tax on wines and spirits? Is he saying that Income Tax, mineral rights duties and Surtax each costs 1·4 per cent. to collect —1·4 per cent. of £160,000 of mineral rights duty when there is a special set-up in Thames Ditton to do it?
Surely it is possible to find the right answer to those questions, with the Surtax people in a different place from the people dealing with Income Tax. The Customs and Excise people, who operate in tobacco warehouses, are not the same people as those who operate in the distilleries, or who deal with Purchase Tax. It must be possible to discover the cost of collection of each tax. Any business would find the cost of operation of each of its activities. Why should not the Treasury do so?
What the Chancellor should be thinking about is the question of productivity and exports. We have been discussing the size of the national cake. Hon. Members will have seen the table—which I thought a fascinating one, which should be put up in every board room and every trade union office and factory —showing the number of people employed in this country to produce exactly the same amount as one man produces in the United States of America. One finds that in the case of steel the figure is 2·3; for chemicals it is 3·4; metal products, 2·2; electrical machinery, 4·2; transport equipment, 3·2. What worries me is that the number of employed people in this country is much more than the number of people employed in most other European countries.
The tax system should be used as both a stick and a carrot. We operate a mixed economy. Even hon. Members opposite must believe in the capitalist system. Nearly all our exports depend on the capitalist system. It is therefore immensely important that we invest enough money in our industry to produce the right goods at the right time in the right places. At the moment we have a stagnant economy. The second thing that the Treasury should be considering is the problem of exports—what things should be sold, and whether the tax can be used to help sell those things
1978
abroad to help us buy all the raw materials to keep this country going.
I suggest that there are seven principles of taxation. The first is obvious: that taxes should bring in the amount the revenue requires. Secondly, taxes should be seen to be fair between different types of taxpayer. Although I agree with my hon. Friend that we should have more indirect and less direct taxation, it would obviously be unfair, as is the case in some tax havens abroad, for all tax to be indirect. Thirdly, we should take account of social justice. We in the Conservative party believe that there is an economic floor below which no one should be allowed to fall. We see no reason why those who can afford it should not pay prescription charges and do without housing subsidies.
Fourthly, no tax should be counterproductive of effort. That has happened under this Government. Stock options, such as are used in the United States of America to stimulate new enterprise and business, are heavily taxed in this country. Companies and people who take great risk for a big reward should not be penalised. They should be rewarded, because their taking those risks helps to provide a very much better standard of living for many people.
The fifth principle is that, if possible, taxation should help the balance of payments. The sixth is that it should be flexible enough to be altered—and here I agree with many hon. Members who have spoken in that I was always a supporter of the late Lord Keynes and I believe that we need some tax to be a regulator in case of inflation or deflation. Finally, the taxation system should be cheap to collect both in Treasury terms and in the economic terms of the country, and not enough thought is given to that.
With productivity and exports in mind, and with those principles in mind, the Chancellor must ask himself whether his taxes are achieving those goals. Why in France does it pay most companies to sell abroad rather than to sell at home? We have heard about the value-added tax. I am told that in some cases the exporter can get back as much as 20 per cent. compared with the 3 per cent. here. I pay my tribute to the present Government for at least introducing some form of export incentive, although it is only 1½ to 3 per cent. and

1979
nowhere near big enough. Every company board should be export minded, and we shall achieve that only if they have some tax incentive.
Again, the Chancellor should be considering whether the taxes on work—that is, on income and wages—are a direct disincentive. Obviously they should be kept as low as possible, and the emphasis should be on indirect taxes rather than on direct taxes. In this connection, it would be folly to reduce the Income Tax relief for a family in the middle or upper income bracket because I believe that if the Government were to do that this year, they would merely increase the brain drain, which would affect the employment of many unskilled people.
Have the Treasury ever considered the cost to the economy of the private tax collecting system—the tax advisers and those employed in every big company on P.A.Y.E. as unpaid civil servants? These are staff employed to collect the revenue for the Treasury, and the service industries now pay S.E.T. on those people who are employed for no other purpose than to collect revenue for the Chancellor of the Exchequer.
It is no good, however, merely criticising, for we are discussing what may be a long-term plan. I believe that taxation should fall into four groups. The first is personal taxation, and I agree with the hon. Member who urged that there should be a graduated tax to take the place of Income Tax and Surtax. But I should like to see it never greater than 66⅔ per cent., which is very different from the 96¼ per cent. last year on the top incomes. Into that group would go the Capital Gains Tax, which I should like to see very different from the present tax and much more like that in the United States. To some extent the present tax in this country freezes the capital market and, I believe, gives the minimum return for the maximum effort.
Is the Financial Secretary aware of the immense amount of time spent by professional people, possibly going back decades, long before 6th April, 1965, only to establish in many cases a nil return, when it is found that the stock, which has since been sold, was bought at a higher price? No search fee is allowed
1980
for all that effort. It would be cheaper to allow tax-free gains of a few hundred £s and to draw the line firmly at 6th April, 1965. At the moment there is a great deal of useless effort, and the people employed in it should be put to production in other directions.
The second group, which I believe could replace Purchase Tax, is the value-added tax, which would increase the exports of this country. The third group, replacing S.E.T., would be a payroll tax. I agree that all labour is valuable, but I do not think that Whitehall knows best how that labour should be employed. It is absurd that an export merchant should have to pay Selective Employment Tax whereas those who are mixing imported products get a bonus for so doing, even though they are all in the same group. I should like to see a graduated poll tax, not so much per month but graduated for age, for disability, for part-time work and to some extent for development areas. I should like a tax bonus for those who are in the north of England and who are thinking of retiring—a tax bonus to prevent them from moving to the South and to persuade them to stay in the North, so that there is in the North communities of well-to-do and retired people as well as those who are working.
The fourth group is that of the luxury taxes, which I should be prepared to see on cars above a certain price and on certain types of specially expensive foods, on restaurant meals above a certain price and on houses above a certain price, and into that category would go the present Estate Duty, the Gaming and Betting Tax and taxes on wine and spirits. With the balance of payments in mind, I do not understand why the taxes on British wines and especially on British spirits should not be reduced to a much greater extent than the taxes on imported liquors. I believe in a property-owning democracy, and as Estate Duty would go into this luxury group of taxes, I would prefer to see an inheritance duty rather than an Estate Duty. It seems to me unfair that where two testators leave the same amount of money, one with four children and the other with one child, the family of four are heavily penalised compared with the family of one.
All new taxes are disliked. They are tolerable only if they replace old taxes.

1981
Our object should be to minimise the national overhead charges. I understand that the United States has reduced the cost of the collection of taxes from 40 cents per 100 dollars to 20 cents, an immensely cheaper way of collection than, apparently, the method of collection of any of the taxes in this country. Too many of us think that our own tax system is the best. Is the fact that American costs for tax collection are so much lower than those of the United Kingdom a facet of their rich economy or one of the reasons for it?
1.38 p.m.
Mr. Leslie Hale: A few weeks ago two of my constituents entered into the bonds of holy matrimony, and their felicity was increased by the news that a chest had arrived from South Africa, made of indigenous wood, and valued at £29 10s. They were informed that it was at Liverpool and was at their disposal. They went to some trouble to prepare the necessary documents and they submitted them, as invited, to Messrs. Thomas Cook. On 17th November, Messrs. Thomas Cook wrote to them as follows:
"For your guidance, there is no concession for gifts and it will be necessary for us to pay the Customs on your behalf import duty and Purchase Tax. In addition, there are dock dues, quay porterage, landing and carriage charges to final address. Perhaps you will kindly forward a deposit of £30, and this will be adjusted after final delivery, and the charges will be increased by 7s. 6d. a day watching charge from 72 hours after landing."
I understand that even under the National Plan the cost of getting married has increased. I built my house for £625 when I married, and got a £150 subsidy and a mortgage of £500. I had a few bob in hand to buy furniture costing a total of £136. I am told by my constituents that you cannot now do things like that, and the week after you are wed is not normally the time to want to fork out £30 if you can help it.
I got in touch with the Board of Trade, who were extremely helpful, and my hon. Friend the Minister of State, the Board of Trade pointed out that whilst my constituents might be charged with quay porterage charges, the Board had nothing to do with the taxes. I wrote to the Treasury and the Board of Trade sending each a copy of each letter
1982
and waited while the 7s. 6d. a day was going on at Liverpool and being added to my unfortunate constituents' bill.
Nobody knew what the duty was. I put down a Question to my hon. and learned Friend the Financial Secretary, who was kind enough to reply that he was looking into the matter—and the 7s. 6d. a day was still going on. Then I was put in touch with the Customs and Excise, who told me that in their view the appropriate duty was £2 10s. or possibly £2.
At this moment some superb egghead had a brilliant inspiration: this was Thomas Cook, who are British Railways, who are the Ministry of Transport. It was a matter for the Ministry of Transport, and it would be appropriate to write to my right hon. Friend the Minister of Transport, who would write back at once and say, "I do not interfere in the day-to-day running of Thomas Cook. You had better write to Thomas Cook," which I had been doing about twice a week for three weeks.
When all seemed lost and the marriage might even have broken up or the chest have gone back to South Africa, a ray of hope came when the Board of Trade discovered that the chest was not at Liverpool at all, and that it was not in the care of Thomas Cook, who apparently had not even found out that fact. It had been dumped in Manchester by mistake, which was a fortunate mistake because Manchester is at least 30 miles nearer Oldham than Liverpool.
We went to an excellent firm of agents in Manchester, who dealt with the matter at once, and told us that the duty was £2 10s. Unhappily, charges had accumulated, but not at 7s. 6d. a day and my constituents got away with eight quid. We have the chest, which I should be happy to show my hon. and learned Friend if ever he comes to Oldham.
When hon. Members are talking about millions of £s and disposing of vast sums and reorganising our taxation system, I wanted to intrude this little matter only to wonder what it cost to collect that £2 or so, and whether it is ever worth the trouble of collecting the two quid and whether an effort to lift from the heads of the poorer members of the population some of those trifling sums could not he made successfully.

1983
Time and again I am called upon to write to the Income Tax people in Oldham to explain the worries of a small taxpayer whose affairs must cost the country very much more than they ever produce. They are always courteous, and I receive most helpful replies, for which I thank them. But when the textile industry is having to face one of its most serious crises we find special provision being made for Portugal, whose rate of wages is approximately that of Hong Kong, and that under the E.F.T.A. Agreement Portugal is getting most-favoured-nation treatment with consequent further damage to our own textile industry.
The point of my original observation is that nobody knows what the taxes are. It does not seem anybody's business; there is no one to whom one can turn and ask, "Who did this, or how is this done?" Even the House is never really fully informed and advised of the results of international agreements about Customs and taxation until mistakes have been made, and they are not easy to put right.
1.45 p.m.
Mr. Maurice Macmillan: I am probably the most unfortunate hon. Member to intervene in the debate in that as I follow the hon. Member for Oldham, West (Mr. Hale) my speech may seem rather flat and ineffective. We should all be very grateful to him for reminding us what the debate is all about —the effect of our tax system on people, particularly little people, and whether the damage, the difficulty and heartbreak it causes is worth while in the amount of tax collected.
Like the hon. Member and other speakers in the debate, I very much doubt whether our present levels of taxation and methods of collection achieve their purposes, if indeed one can identify any particular purpose in them or if, as the hon. Gentleman pointed out, we have any real knowledge of their effect.
I hope that I can keep to the generally non-political and non-polemical level of the debate, at least until the very end of my speech. My attacks, such as they are, are against the machine rather than any particular set of drivers, always assuming that there is a driver. The
1984
system has become unbearably complex and expensive, both to the Government machine and to the taxpayer. I think I am right in saying—I never had direct dealings with the Board of Inland Revenue, and the Financial Secretary will know far better than I—that in 1964–65 the cost of the Inland Revenue was about £64 million. That burden on the Administration is no doubt why the newer taxes are being collected by, and their subsidy distributed through, the Ministry of Social Security and the Ministry of Labour.
There is also the almost incalculable cost in man-hours and effort, and in the diversion of skill and intelligence to deal with the complexities of the tax system. I am not only talking about those who legitimately seek to minimise their tax commitments, but also those who merely to find out what their legal position is and what their duty as a good taxpayer is. For example, is the yield from Surtax—certainly on earned income—worthwhile in view of all that is involved in collecting it? We do not know.
The dangers are far greater than mere inconvenience to the Administration or to Business. Great uncertainty faces companies over their Corporation Tax position, making their trading efforts more difficult in a highly competitive market. Individuals are not able to discover where they stand; and that is a fundamental threat to the rule of law. No matter how much one may wish to tax any section of the population, it is surely only right that it should know in advance precisely what its liabilities will be before it engages in any particular activity.
The uncertainty, complexity and slowness that are now seen in the whole system lead to a premium being put, not on dishonesty—that would be going too far—but on what an American friend of mine once called "off-honesty" in approaching the conduct of personal affairs, of thinking too much about the taxation position and too little about more important matters.
Perhaps the worst aspect of all is the increasing lack of attention which seems to be paid to the economic effects of taxation as opposed to the purely fiscal, especially at an early stage in considering successive Budgets. Each autumn the Board of Inland Revenue produces a sort

1985
of fiscal shopping list. There are arguments with interested parties and a sort of running total is kept of the effect on the economy, what would happen if one argument was given way to or not, and so on. The cumulative economic effect is studied but not the effect in detail. It is the effect of the total Budget on the total economy that is considered, but not sufficient care given to the details of the economic effects on the tax structure.
Despite what my hon. Friend the Member for Harrow, Central (Mr. Grant) when moving the Motion said in reference to the oppressive burden of taxation, I am not at this stage arguing about the amount. I admit that the total amount and average rates are not greater than those of our overseas competitors. I am arguing about the effect on the taxpayer and on the economic structure of the methods of collection; and whether we could not find a method which, while raising the same amount in total tax, is less expensive in administration, less extortionate in impact on the individual taxpayer, and less of a disincentive at the margin to the owner but rather a greater incentive and greater encouragement to the saver who wishes to invest and to become an owner.
I shall give one or two examples of the incompetence of the present tax system. Even on the social side, despite what some of my hon. Friends referred to as an obsession with equality and a desire to redistribute wealth, our tax structure is not efficient if that is the object. Nor can it ever become so. Despite what the hon. Member for Uxbridge (Mr. Ryan) said, it is savagely progressive at certain stages. Eleven per cent. of all tax paid is paid by taxpayers with incomes of over £5,000, that is ½ per cent. of all taxpayers. As Professor Merrett pointed out, 75 per cent. of all taxes are paid by taxpayers with incomes of £1,752 a year or less, representing 95 per cent. of all taxpayers. For those 95 per cent. taxes are broadly proportionate to income. So there is no effect here of redistribution through tax. As Professor Merrett also pointed out, it is the benefits in our social services and social security system which have the redistributive effect, because it is obvious that taxation can only take money away and not give it to people. That is done by a system
1986
of subsidies of one form or another whichever is used.
I say to hon. Members opposite who have argued on a similar premise to the one I am using that we should increase family allowances by cutting the child allowance given to taxpayers, that that is a totally fallacious and illogical argument. It is, in fact, saying that there are some people in our community who should be subsidised and should get more; that it is necessary if we are to do this that the taxpayer should provide more; that because what is needed is needed for children, the taxpayer who has children will alone be asked to provide the answer.
This seems totally illogical, extremely damaging and harmful. It would use the tax system as a means of equating comparative need rather than as a method of obtaining money to meet that need. It would ignore the whole effect of such action on the question of incentive, of encouraging ownership, spreading wealth and other important economic and, indeed, social considerations. Our present tax structure is taking a very great economic risk for no particular purpose, and this is continued year by year because of a tax myth based on vague generalities and reinforced from time to time by political prejudice and occasionally just by plain ignorance.
We have heard the brain drain quoted today. There is no doubt that the very high marginal rates of taxation at some levels are a great disincentive. It is not merely very high earners who are affected. We may make a comparison between this country and Germany, France or the United States. At £2,500 a year a man receiving an increase in salary in the United Kingdom will pay a third in tax for every extra £ he gets. In Germany he would pay a quarter, and in the United States and France a fifth. I am sure it is this marginal rate rather than the level of salaries themselves which is having a discouraging effect not necessarily at the very top but to those who are hoping to reach the top and see a better chance of moving from present levels into a higher standard in other countries than in the United Kingdom.
At the same time, as hon. Members opposite have pointed out, we tolerate a rate of taxation at the very lowest

1987
level of the earning bracket which is extremely high, and made more so by the fact that the so-called insurance contribution is a flat-rate poll tax which at the very bottom level I do not believe is taken account of in wage agreements. Higher up probably it is, but in the lowest level, particularly for unskilled labour, it is not. This represents a savage tax which would be far better replaced by a graduated social security tax.
Turning once more to incentives, I think that more even than direct tax it is the indirect effect of our tax system and the philosophy which underlies it which is damaging the country and holding us back in the competitive race with other modern sophisticated economies. The Inland Revenue over the years seems never to have heard the old saying:
"Thou shalt not muzzle the ox when he treadeth out the corn."
They seem to work on a system which is designed to tax earnings to the absolute maximum rather than to encourage high earnings and a high rate of growth which in turn will produce a high yield for the taxation system.
It is the same fallacy which seems to have gripped far too much thinking of this country, which underlies the restrictive Income Tax policy which this Government follows—and the previous Government, I am sorry to say in some aspects, also tended to follow. It is always the rising end of the balance which is pushed down rather than the lower end being pushed up. There lies behind this the discouragement of those seeking legitimately and properly—to use a Victorian phrase—to "better themselves" and get on in the world. I am the first to admit—and said so in speeches as long as twenty years ago—that the old idea of enlightened self-interest in laissez faire economics was fallacious because such self-interest was not by itself necessarily enlightened. And on the old ideas it was difficult to know in many cases what to do to make it so. On the other hand, so often hon. Members opposite and successive Governments, when they talk about the national interest, are making statements which on examination do not stand up because they are equating the national interest with their own particular
1988
economic formulae rather than defining it by any objective standard.
But I admit and emphasise that one of the main rôles of the Government in a modern economy must surely be to see that individuals following their own self-interest can only do so successfully in a way which is broadly in accord with the national interest; to provide an incentive to do what the Government of the day would like done economically and a strong disincentive to discourage what the Government would rather not see done. It requires a positive and not merely a negative use of the tax system.
It is fair to say that, at the moment, the tax system works exactly the wrong way round. I have given one example from earnings. I give another from savings and investment. The tax allowances now make it possible for people to save within a business subject only to Capital Gains Tax. But even highly paid employees have income and Surtax to contend with as well. The only detailed correction I would mention now —although the hon. and learned Gentleman will grow tired of them, I hope, later in the year—concerns a plea for something in the nature of allowing stock options and thrift plans under the American pattern and the positive use of Capital Gains Tax to encourage more ownership —for instance, through the taxation of bonuses to employees on realisation and not on receipt.
The whole attitude of the Government towards profits is discouraging investors and others from feeling that savings and investment can help the country through helping to finance industry in the same way as their work can help it. There is one way in which the Chancellor of the Exchequer could have made a spectacular effect on investment decisions, and this is to reverse the incidence of Corporation Tax. It is crazy, particularly at a time of high interest rates, that it should be made easy for a company to retain profits and reinvest them in ways which may be neither in its own interest nor in the national interest, and certainly not in the shareholders' interest; rather than that it should distribute profits and allow the decisions as to investment to be made by the people who are, in fact, the owners —the shareholders. This reversal would mean making the company concerned go to the market for its money, on which

1989
it would pay even higher interest rates if the investment was really profitable and sensible. The present system tends to institutionalise capital provision, to exclude the individual and to continuing the influence towards centralising power.
I have deliberately confined myself to a very small amount of detail because I hope that we shall have a lot of time later this year to go into this at greater length. I hope that one of the effects of the debate will be to persuade the Chancellor of the need for a cost-benefit analysis of the whole of the tax structure. I want him to consider integrating the Inland Revenue and the Customs and Excise with the Treasury and making the division of Ministerial responsibility slightly different from what it is now.
I would like to end on a political note. I think that all Governments are bad by nature, incompetent and oppressive; and this is especially so in the complexities of a modern technological world. I wish I did not have to say that this Government seem to me deliberately to encourage this tendency and to work for the centralisation of power and a move towards a form of statism which is really verging on the totalitarian.
What we need is a positive effort in a reverse direction because, like the Red Queen, the tendency is such that we have to run as fast as we can to stay where we are. The tendencies towards statism in the world are strong enough without encouragement and need every effort of the tax system and the economic structure to overcome them. In 1932, Aldous Huxley published his "Brave New World". In 1946, he wrote a new foreword for the Penguin edition, and it is from that, written 21 years ago; that I want to quote. He said:
"…the immediate future is likely to resemble the immediate past, and in the immediate past rapid technological changes, taking place in a mass-producing economy, and among a population predominantly propertyless, have always tended to produce economic and social confusion. To deal with confusion, power has been centralised and government control increased".
Few of us would deny that this was an accurate forecast of the 20 years from 1946 until now. He goes on to argue that all the world's Governments will become more or less completely totalitarian.
1990
"Only a large-scale popular movement towards decentralisation and self-help can arrest this present tendency towards Statism."
It is that large-scale popular movement that should be encouraged by the purpose and structure of our tax system.
2.8 p.m.
Mr. W. T. Williams: I congratulate the hon. Member for Harrow, Central (Mr. Grant) on the subject he has chosen for debate today. When I read the Motion, I looked forward with fascination to the debate, but, as the day has gone on, my enthusiasm has waned. This is not entirely personal but because, as one fears in this House, as debates go on people increasingly become bogged down in detail—and I am certain that my hon. and learned Friend the Financial Secretary by this time finds his own mind boggling before the advice given him on many matters of detail.
I think that it was left to my hon. Friend the Member for Oldham, West (Mr. Hale) and the hon. Member for Farnham (Mr. Maurice Macmillan) to bring us back what was, as it seemed to me, the essential purpose of the debate —to discuss the philosophy of taxation and to ask what it is for, how far the present system fits the need for taxation and how effective we are in using the money that is obtained rather than wasting it inefficiently.
The hon. Member for Farnham substantially did that, and I am grateful. But he will not expect me to agree very much with the philosophy he adumbrated. In particular it seemed to me that, in the end, he fell into the trap of being doctrinaire without reason. It is customary to accuse us on this side of being committed to doctrine. But I am bound to say that, although I agree with him that all government is bad, this Government, if I have any criticisms to make of them—which God forbid—could be criticised on the ground that, perhaps more than any other Government, they play things by ear. Too often they have had too little regard to what should be the basic philosophy which should govern their actions and, in particular, their legislation.
In this business of taxation, for instance, I think that it was Gladstone who said that the purpose of taxation was to provide the wherewithal to enable

1991
a Government to administer the country's affairs in the interests of all its people. Increasingly as the years have gone by since that somewhat elaborate statement was made the amount of money which the Government have collected as their wherewithal has grown, and so have the Government's duties. A great part, perhaps too great a part, of the amount collected in taxation has been used for the sheer administration of the country—money which has been spent on defence, money which has been spent on the Civil Service in the administration of the tax system, and so on. But there still remains a very substantial part of taxation which is used to attempt, to some degree at least, to redress the balance of social inequality among different citizens and to seek to do justice by the State between one man and his neighbour.
The unfortunate thing about taxation, not only under the present Government, although the present Government is not guiltless, but under every Government, is that over the years taxation has become increasingly unrelated to any moral or social purpose. In listening to Chancellors of the Exchequer introducing their Budgets year after year, as I have done for the last 17 years, one often feels that the effort that has gone into the speech has been based on the assumption that something else to tax must be found.
The present structure of taxation as it now affects in particular the social responsibilities of the Government bears manifestly unfairly upon those whom in particular it is intended to help. It seems that in the incidence of taxation there is no basic consideration of justice or the capacity of the citizen to pay the tax. That is true of the rate structure, for instance. I was interested to hear my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant) say that he had a great affection for it. In this he must stand in splendid isolation. The rate structure bears upon people irrespective of their capacity to pay. It is outworn and ought to be replaced by some more just form of taxation. If one considers the insurance payments which are levied upon workpeople, despite the minor adjustments which have been made, when one takes into account the annual cost of insurance payments and the rebates and refunds available to
1992
people in the higher income groups, it is quite clear that the pressure on the lower paid is unfair as compared with the load on those who are better off.
Indirect taxation, if I do not exaggerate—and I do not want to exaggerate —and the increase in its incidence appear to me, unlike hon. Members opposite who would favour it as an increasing form of taxation, to be unfair and to bear unfairly on those who are least able to pay.
Not only in its incidence, but in its reliefs, our present system of taxation leaves a great deal to be desired. We have heard already, and I shall therefore not labour but only underline the argument, about the incidence of the relief which is given to those who are better off as against those who are worse off through family allowances and Income Tax allowances and the way in which the reliefs which are given to householders vary if one is a taxpayer or if one is a tenant in a council house or some other kind of house.
One so often hears people severely criticise the subsidies which are given to local authorities, and it is suggested that those who live in council houses are in some way parasitical on the rest of the ratepayers and upon the economy. One hears very little about the fact that, whatever benefits may accrue to people who are council house tenants, the amount of subsidy which is enjoyed by the better off owner-occupier who has Income Tax relief upon mortgage payments is substantially higher than that enjoyed by council house tenants.
Mr. Maurice Macmillan: I suggest that that comparison is illogical. The hon. and learned Gentleman may argue that mortgage payments are too high and discriminate unfairly as between taxpayers who get reliefs and taxpayers who do not. He can equally argue that council house subsidies are too low and are unfair as between those who need them and who do not get them and those who get them. Surely he is being illogical, however, if he equates the two.
Mr. Williams: I am willing to accept the other comments of the hon. Gentleman and I was about to say the same things, but I do not think that I am being illogical. This criticism is frequently made by owner-occupiers against

1993
people who occupy council property. But it is also true that the incidence of Income Tax relief as between owner-occupiers who are paying standard rate or higher rates of Income Tax and those who are paying no Income Tax is unfair to the lower paid.
The Government are doing something about this with the option mortgage scheme, but the fact remains that in absolute terms, the money which people receive, the benefits which they enjoy and the reliefs from taxation which they are given increase in ratio to the amount of money which is earned in the first place. This is a matter to which, of all Governments, a Labour Government should be giving very careful attention. But so far from this, it appears that each Government, including the present Government, has allowed its attitude to taxation to become increasingly amoral.
To give an example of a tax against which I am resolutely opposed, the imposition of the Selective Employment Tax is a remarkable example of this development.
My hon. and learned Friend the Financial Secretary will know, if I may re-coin a famous phrase, that I have from the beginning, thought that this was "a bloody awful tax", not merely because I was interested in a particular organisation affected by it, but because it appeared and still appears to me, to be an example of the way in which taxation is becoming increasingly unrelated to any social or moral purpose. For instance, when he introduced the tax the Chancellor said, in answer to criticism from Members on this side of the House about the tax benefitting "candy floss" industries while laying burdens upon desirable social activities, that he was not concerned to pass moral judgment between different parts of the economy.
This appeared to him to be a complete answer to the criticism. To me it is the ultimate condemnation, the ultimate nadir of the approach that is being increasingly made by Governments over this business of taxation. This tax epitomises the criticism that I have to make of the way in which taxation has increasingly become oppressive and unjust in its incidence. The results of this and other taxes by way of the social cost that has had to be paid is out of all proportion
1994
to the benefits, such as they are, to the economy. The price of this tax on part-time workers, who are largely people going to work in order to supplement otherwise inadequate incomes is remarkable.
If one looks at the way in which part-time workers have been sacked in the distributive industry it is a commentary upon the social purpose, which ought at any rate to have some part in the taxation system. The cost in reduced services that have had to be laid on the distributive industries in social terms can be seen in the reduction of, for example, deliveries of foodstuffs, which cannot be paid for by the poorest in the community.
It does not matter if I, as a Member of Parliament, earning £3,250 a year have to pay an extra shilling for delivery, but it matters tremendously if one is an old-age pensioner or a person living on a low income or, even worse, if one is a sick person who relies upon deliveries. There are hundreds of thousands of such people. In those circumstances people have to say, "Sorry we cannot take deliveries because we cannot pay the charge." This is a direct result of a tax of this kind.
We have been told that one of the essential things about taxation is that it should be economical to collect and that there should be some relation between its cost of collection and its value to the community. This tax is lunatic from that point of view because it costs £1,800,000 merely to administer the turnover of getting the tax and paying it back. This is what I am informed, but if the Financial Secretary knows differently I would be happy to be corrected.
Mr. MacDermot: The gross sum levied is entirely different from the cost of collecting the tax. Because existing administrative procedure was used the cost of collection of S.E.T. is pretty low.
Mr. Williams: I take that point but I am told that in order to turn over the tax, that is, to collect it and administer it, to go through the administrative cost of returning a very substantial part of it has resulted in an increase of something like 16,000 civil servants. It is unaccountable that in order to collect £200 million something like £1,200 million has first to be brought in and then £1,000 million has to be paid back again.
Mr. MacDermot: I cannot answer all of those points but the figure of civil servants is nearer to 600 than 16,000.
Mr. Williams: Maybe my information was wrong, but even 600 in these circumstances is too many. What I was seeking to do was to say that, bearing in mind costs of the kind that I have mentioned, and the way in which this tax has no moral content, assisting only the candyfloss industries—people who make no contribution to the life of our people, who make gaming machines and the like —and remembering the increases in the cost of basic foodstuffs which have arisen for the first time for many years as a result of taxation, I say that this tax is the epitome of the way in which taxation is becoming increasingly unrelated to any moral or social purpose.
Now, turning aside from S.E.T., taxation generally is so complicated, so bitty, and so full of escape holes and financial law that the gamesmanship resulting from present tax practice is like a nightmare game of chess every move made by the Chancellor is countered by some knight specialist activity on the part of those who devote so much expertise to tax avoidance that it is becoming one of our major growth industries. When one considers the vast expenditure involved in taxation, involving millions of ordinary people, and the fact that there is a built-in injustice in the system as taxation gradually extends its tentacles and becomes more onerous, it is obvious that there is need to return to a system of social priorities, which is the basic and fundamental reason why this party came into existence. Certainly this return should come about under a Government of the complexion which this Government is reported to be.
I offer no solutions. There has been a plethora of solutions offered for ad hoc reasons of personal preference. The time has come when a permanent commission on taxation should be set up to do for taxation what the Law Commission does for the law—to look into its incidence and anomalies and to relate, as we badly need to do, the collection of money by the Government to its redistribution among the people in the best interests of the people.
2.30 p.m.
Mr. Gordon Campbell: I hope that the hon. and learned
1996
Member for Warrington (Mr. W. T. Williams will understand if, in the interests of brevity, I do not take up all the points which he raised. However, he mentioned the Government's mortgage option scheme which will, to some extent —the extent to which it is used—improve the position of taxpayers in helping them to get mortgages, and it has the general support of both sides of the House. But I point out to the hon. and learned Gentleman that the Income Tax relief on mortgages must be regarded as a measure for encouraging saving. I would regard it in the same light as tax relief on, for example, premiums for life insurance policies. I do not believe that any Chancellor of the Exchequer can ignore encouragement of this kind towards saving. What both sides of the House would, I think, like to see is a widening of the application of this encouragement throughout taxpayers.
Three or four years ago there was a great deal of talk about tax reform, which is one of the main points which my hon. Friend the Member for Harrow, Central (Mr. Grant) raises in his Motion. My right hon. Friend the Member for Barnet (Mr. Maudling), who was Chancellor of the Exchequer in 1963, appointed the Richardson Committee to look into the possibility of a turnover tax which would be dramatically different from other kinds of indirect taxation which we have had. I shall say more about that later.
Since the Government have been in office, there have been some changes, but their effect has been to make taxation immensely more complicated. First, there were the two taxes which were not a surprise because they were announced before they were introduced—the Corporation Tax and the Capital Gains Tax. Both have presented great complications and, in particular the Capital Gains Tax has caused a great deal of extra work for all concerned with not very much revenue to show for it. There is also the Land Commission and the levy that goes with it which is extremely complex and difficult for the ordinary house-owner to understand or to know how he will be affected—and he will be affected—if he sells his house and later there is development.
The Selective Employment Tax came as a complete surprise because it was

1997
announced only five weeks after a General Election campaign in which there had been no mention at all of the possibility of the imposition of a tax on jobs in services and non-manufacturing industries. I made my views clear in the debates during the summer, and I will merely summarise them in the following objections.
First, the tax works against regional development. Secondly, it encourages depopulation of rural regions because there is, on the whole, less manufacturing industry there. Thirdly, about 80 per cent. of the tax is paid out again. There is a system of collection whereby farmers, for example, pay a tax which is paid back to them again some months later. It seems to me that this is entirely unnecessary and bureaucratic. Fourthly, there is the compilation of classification —for example, the question of whether more than 50 per cent. of the staff are engaged in a manufacturing process—and the machinery for assessment and dealing with claims.
If it were necessary to have a tax on employment, I should have favoured, as I have said before, a simple payroll tax which would have been at a lower rate and which could have been varied regionally, if necessary. Its advantage would be simplicity. The tax could be easily terminated if conditions were such as to make it no longer necessary. The Chancellor has introduced so much in the way of new taxes which have to be digested that he has deprived himself of the scope to make changes in the near future.
This brings me to the main points which I wish to make. First, for the benefit of exports and growth, I agree with my hon. Friend the Member for Harrow, Central, that the emphasis must be more on indirect taxation than direct taxation, for three reasons: first, because it is able to provide more in the way of incentives at all levels; secondly, because rebates on indirect taxation are legal under international agreements, but rebates on direct taxation are not; and, thirdly, because indirect taxation can be applied to consumption and so relieve investment and savings and encourage them.
My next main point, which has been made by my hon. Friends already, is that it is essential to simplify our taxation
1998
system. Professor Merrett has done a general service to us all by giving the salutary reminder that, in spite of the enormous taxation system which we have, most people pay about the same percentage of their income in tax. As I have said, the Government's actions in establishing a complicated system, in particular the Selective Employment Tax, have made it more difficult for a Chancellor of the Exchequer to undertake reforms in the near future which may well be necessary.
I should like to take up what my right hon. Friend the Member for Reigate (Sir J. Vaughan-Morgan) said about the probability of Britain joining the Common Market sooner or later. The problem which must arise is whether our indirect taxation system should be harmonised with the systems of the countries of the Six. This raises the question of a value added tax, because by that time most of the members of the Community are likely to be operating that tax as their main system of indirect taxation. France has had such a system for some years. Germany has been changing to it from a cascade turnover tax; and Italy is now moving towards a value added tax.
I do not say that we should now change to this form of tax. As I have pointed out, I do not believe that it is possible in the near future because of the enormous changes and complications now being digested. But I believe that this is the main fiscal decision which will have to be faced by a Government in the coming years if we go into Europe, and it is not too soon to be considering the issue now. I ask the Government, through the Financial Secretary, not to shackle our country in the meantime by building up a complicated system under the Selective Employment Tax, because it will be entirely irrelevant.
If entering Europe means that we have to change our indirect taxation and work towards a value added tax, I believe that, unfortunately, it will involve extra administration and complication because of the additional points at which the tax must be collected. This would be a great disadvantage to this country. That is probably what the Minister will say. It was certainly brought out by the Richardson Committee. But I believe that the administration is considerably less than it would be with a cascade type

1999
of turnover tax such as that which Germany and other European countries have had. The Government should be considering how such a value added tax system, if we needed to introduce it, could be brought in with the minimum of extra administration and complication.
This type of tax is applied in the European countries, particularly France, to almost all goods and at each stage in their manufacture and distribution up to the wholesale stage, including components. Our Purchase Tax is applied simply at the wholesale stage, and our Excise taxes, broadly, are similarly applied. All these taxes—the European taxes and our taxes—being indirect, can legitimately be returned on export of the items concerned. In practice, this may mean administratively that the tax is simply not paid in the first place, or, if it is paid, that it is returned, and it may well simply be an accounting procedure.
The Richardson Committee, when it reported in March 1964, advised that it was not worth changing in Britain to a system of this kind because of the administrative difficulties which, in its opinion, would not be outweighed by the advantages which might accrue. But the evidence which that Committee conscientiously sought and considered was based upon this system replacing the Profits Tax, and it was viewed also against the background of investment allowances. Both those systems have now been drastically changed. The background is quite different, so that the Government would have to look at the question again in the light of new circumstances.
In my view, the main reason for the appointment of the Richardson Committee was the belief being widely voiced at that time that export incentives could be built into a value added tax system. The Richardson Committee dismissed this idea and, in general and in theory, I think that it was right to do so, but I wish to put another slant upon it now because I am sure that it will all come up again and the controversy will be renewed as we approach Europe.
In certain circumstances, systems of turnover tax, whether value-added or cascade, have had the effect of stimulating exports in the countries concerned, and this, I am sure, was the reason for
2000
the widespread belief among quite a number of British exporters that there was a built-in advantage. This point was raised by my hon. Friend the Member for Liverpool, Wavertree (Mr. Tilney) in relation to France and the rebates of as much as 20 per cent. possible there. I hope that the House will bear with me and follow the example which I now give to illustrate the point.
If a firm in this country exports, having paid Purchase Tax, that tax is simply returned. It is a payment at one stage. With the value-added tax, in the case of a complex item, the firm exporting it may only pay tax at the final stage at a rate of 5 per cent., for example, as its tax on the transaction. But if the item has come to it through various stages from other firms, and if it consists of components made by others, other nationals in the same country will have paid tax as well, and in the example I am giving there may be another 12 per cent. tax which has been paid in addition to the 5 per cent. paid by the exporting firm. When the item is exported, the exporter can claim the whole 17 per cent. of the tax; he gets the 12 per cent. paid by the other people further back along the line as well as the 5 per cent. paid by himself.
The key point here is the question of prices at home and in the export market. When the exporter buys the article which he will in due course sell, the price will contain the tax already paid on it and accumulated so that, in theory, he has paid the whole 17 per cent. by the time he has paid his 5 per cent. as well, but if he can sell the article abroad at broadly the same price as in his own domestic market, when he gets the 17 per cent. back that is an addition to his own margin. This is what has been tempting to firms in countries which have had this tax arrangement.
In theory, if manufacturing costs in all countries were the same, the export market price would be 17 per cent. less than the price at home and, therefore, the transactions would cancel each other out and there would not be the extra amount. But situations have arisen in which firms in such countries have been able to sell abroad at prices not greatly below their domestic market price and they have been able to keep a sizeable tax rebate, when only part of the tax has directly been paid by themselves. In

2001
my example, the other 12 per cent. was paid by people further back along the line. Therefore, the exporter at the end of the line has had the feeling that, if he could sell abroad, he would get the "jackpot". That is a colloquial way of putting it.
The question to what extent this has been illusion and to what extent fact has been a matter of controversy. None the less, I believe that there has been an encouragement to export in the circumstances I have described, but it does depend on the comparative costs in the home country and the market abroad. It will not happen, and the opportunity would not occur, if costs in the country of the exporting firm are high. But if they are competitive, even with the accumulated tax on the article, there would appear to have been this encouragement to export.
It has had this effect particularly on smaller and medium-size firms which have an article which they could export but which they can sell at home too. Perhaps it is an easy home market and they may have no particular wish to sell abroad, but this kind of encouragement has had its influence none the less in the circumstances I have described. Smaller firms in our competitor countries have been tempted to go abroad to sell because of the rebate which they could get back if the price situation was as I have described it.
I can only say that this is what I observed when I was working at an embassy in Europe before coming to the House. I studied what appeared to be motivating smaller firms from other countries, rivals of ours, who were ready to move into export markets when they might have been quite easily satisfied to sell their goods in a comfortable home market. I have described the matter at some length because there has been a lot of controversy about it, and it is the sort of thing which we shall have to look into again as we approach Europe.
I agree with my hon. Friend the Member for Harrow, Central in saying that there is too much taxation and there is a danger of taxation being even higher. This will merely bring into effect the law of diminishing returns not only in revenue but in effort, too. The prime example is whisky. The tax has been going higher
2002
but the revenue last year was only very little more than in the previous year, and the figures up to November this financial year indicate that the revenue coming in may be even lower than the previous year if the tax continues as it is.
Finally, I have a suggestion for relating tax more directly to the expenditure involved. For example, our road programme must grow. We need new motorways and dual carriageway trunk roads, and these are enormously expensive. In Italy the money is raised by a system of bonds, 30-year bonds, which are tied to a toll system. Enormous quantities of money are being raised in this way, and, paradoxically, these bonds are being sold in London. British money which we need for our roads is being supplied voluntarily to help Italian roads. The key point is that the money is being raised by voluntary investment and from savings.
I realise that it is probably too late to introduce a toll system and that it would not be welcome in this country, but we ought to devise a way of raising the very large sums of money needed for these purposes not out of general taxation, which nobody likes, not by another 6d. in the £ on Income Tax or more in indirect taxation, but out of investment in bonds or similar instruments and then relating them to the vehicle licence fees —not necessarily to tolls—so that in some way the money to service the bonds is raised from the motorists who use the roads. This would be an advance. It is something which we must look to in order to raise the enormous sums of money needed for huge capital projects of that kind without raising general taxation. I hope that the Government will consider it.
2.50 p.m.
Mr. Gerry Fowler: I am a bachelor, relatively young, I hope gay, though not rich, and I gather that however the system of taxation changes I should not be called upon to pay more, and so I shall not, as I had intended to do, say more about the speech of the hon. Member for Belfast, North (Mr. Stratton Mills).
But I do feel I should say one word an another topic advanced from the benches opposite today, and that is the

2003
argument that the tax system is too progressive. Repeatedly we have had mention of the calculations of Professor Merrett. I have not seen those calculations, but all of us know the difficulty of calculating the degree to which the tax system is progressive, because it is very difficult to give due weight to indirect taxation in such calculations. It has been argued today that we should have a shift in the direction of indirect taxation. I, for one, am unhappy about this suggestion, because all too frequently such taxation bears hardest on those least able to bear it. We should not forget such taxes, or non-taxes, as the National Insurance contributions and other flat rate taxes which bear most hardly on those with low incomes. So I am a little dubious about the value of such calculations.
I am personally convinced that in the years when we had a Conservative Administration the tax system became progressively more regressive. It is very hard to demonstrate this, too. While I congratulate the hon. Member for Harrow, Central (Mr. Grant) on introducing this Motion today and stimulating such an excellent discussion I must say that I was a little surprised that such a discussion should be initiated from that side of the House because of the complex nature of the tax system, which makes it very difficult for us on this side to demon-state that there was a move towards regression in the tax system when the party opposite was in power. I have always felt that we should usually have done better if we had been able to make these points more clearly in general elections.
I want to revert to the type of topic discussed by my hon. Friend the Member for Reading (Mr. John Lee), namely, taxation of capital. It would, of course, be silly to pretend that we do not tax capital, for in a certain sense and in various ways we do. We have Estate Duty, a singularly inefficient form of taxation for reasons which are perfectly familiar to us—as has been said earlier today, almost a kind of voluntary taxation, because of the operation of gifts inter vivos, because of the operation of certain types of trust. We now tax capital gains, but here again, I think, there are weaknesses in the system, as there must be with any
2004
capital gains taxation. Because we tax realisation rather than accrual, and there is hence an in-built tendency to accumulate capital. Of course, such a tax is independent of the level of capital; it depends merely upon the gain, the realised gain, and not upon the level of wealth. We also tax the earnings from capital which is invested. Now such a tax is again not related to the amount of capital; but it has a further disadvantage, because there is no incentive, in the taxation of unearned income, for risky investment, investment designed to produce high earnings. So then, the present form of taxation, of capital particularly, has profound disadvantages.
It is also a very complex system, and that is how it relates to this Motion today—a very complex system indeed; and I should like to see devised a totally new system which I give as an example of what we might be doing to reform and simplify the tax law. I should like to see a new tax which has the advantage on the one hand of combining many taxes into one, which would be administratively easier, and also permitting every individual more readily to calculate his own tax liability, a thing which, as we know, at the moment very few people can do, which would give us an equitable treatment of capital gains, which would minimise the avoidance of taxation on capital, as Estate Duty does not, and which would also give some incentives both to earnings and to risky investment.
My right hon. Friend the Chancellor, before he occupied that office, used often to talk of the introduction of a wealth tax, and the tax I have suggested would indeed be a wealth tax, but it might also subsume under itself the present Income Tax and Surtax.
The features of such a tax would be that income would be assessed as capital, by some method of, for instance, multiplying the annual earned income by 15 or 12 in order to give the figure of assumed capital, the notional capital, for tax purposes. I say 15 or 12 because I think this would give an inbuilt advantage to earned income as against unearned income. If one had a different political philosophy one could, of course, vary the factor here, and in this way give advantages to unearned income. Combined with this one would propose a rate of taxation varying through a steady series

2005
of steps from a very low percentage on a low level of assumed wealth, to a relatively high percentage—say, from 0·1 per cent., to 4 per cent. on high wealth.
I agree with my hon. Friend the Member for Sheffield, Heeley (Mr. Hooley) and my hon. Friend the Member for Uxbridge (Mr. Ryan) that we want a much more finely graduated system, and the system which I have suggested would certainly be susceptible to such fine graduation. I would suggest that by taxing capital and not income from it we would automatically give strong incentive to risky investment for high returns, and I would suggest that such a tax would tap capital much more successfully than we do at the moment. By thus taxing capital we might give incentives to high earnings, give incentive to an increase in earned income, in a way which perhaps the present system on personal taxation does not.
It would also be hard to evade, because it would be very hard, at least in the long term, to avoid declaring capital, since any movement of capital or the purchase of substantial goods would reveal the presence of capital.
Finally, unlike the present Estate Duty, such a tax would ensure that capital would be taxed regularly, and not once for all, or quasi accidentally because of sudden death before the requisite trust could be set up.
I give this as an example of a way in which, to my mind, the tax system could be simplified by the combination of many taxes, and I will make in this connection one further point, a point which has been already alluded to today. Were we to do this we should find that we would have acute difficulty in this House, because of the procedures of this House. Were we to abolish a large number of existing taxes and substitute for them a new combined tax, a more rational tax, and a simpler tax, we should find we should want not only an all-night sitting or two all-night sittings, but perhaps all night sittings for a couple of months, because of the complexity of the Measure to effect what in essence would be simplification of the tax system. Just as charity begins at home, I believe that tax reform also begins at home with the reform of the procedures of this House, and we shall never achieve the sort of tax reform which many of us
2006
want until we have reformed our procedures here.
Many of us object to one other form of taxation, and I refer here to local rates. One day, I hope that we shall substitute a more rational form of local government and, with it, a more rational form of local taxation such as regional personal taxation, preferably with some form of Income Tax as a substitute for rates.
With that, I hope that the Financial Secretary will forgive me if I do not hear him wind up. I must now make my departure to a remote part of the country.
3.0 p.m.
The Financial Secretary to the Treasury (Mr. Niall MacDermot): The House is grateful to the hon. Member for Harrow, Central (Mr. Grant) for his choice of subject for this debate. It is not often that we get a chance to have a free and wide-ranging debate of this kind on taxation. If the hon. Gentleman had chosen slightly less provocative words with which to frame his Motion, I might have been able to commend to the House that we could accept it, and all depart in a spirit of great harmony. However, when I read the Motion, I find that I cannot do that.
There are certain inherent contradictions in the point which the Motion seeks to make, and this has become obvious from the debate which we have heard so far today. An assertion of the need for simplification, coupled with an assertion that our system is oppressive, inefficient and wasteful, slides over what is one of the basic difficulties. It is that most of the complication of our tax system and that which gives rise to so much time and effort on the part of those concerned with tax matters derives from a scrupulous desire to be fair. It would be easy enough to simplify the tax system if one was heartless about its effects.
I was a little surprised to find the hon. Member for Belfast, North (Mr. Stratton Mills) encouraging the Government not to be unduly timid in reforming the system. For a Government who in their first two years of office introduced Corporation Tax, Capital Gains Tax and the Selective Employment Tax, timidity would hardly be an apt term, I should have thought, whatever else they could be accused of.

2007
In view of the time of year, I am naturally inhibited and restricted in commenting on some of the points which have been made. I am sure that that will be understood. A number of hon. Members have referred to the recommendations of the Child Poverty Group. As has already been made clear, the Government are giving urgent study to the problems and, quite clearly, I am not in a position to comment upon these matters today.
We have heard many useful suggestions. If I do not comment on them I am sure that hon. Members will understand that it is only due to the lack of time. We shall give careful study to everything that has been said today and take it to heart.
A number of hon. Members have dealt with administrative matters. Both the Inland Revenue and Customs and Excise Departments constantly and successfully look for way to improve their administrations. A number of hon. Members, for example, referred to the forms used for Income Tax returns. There is a simplified form, which the hon. and learned Member for Northwich (Sir J. Foster) had not appreciated, and we are considering further simplification.
Another hon. Member referred to booklets. We have produced a number of booklets recently to help explain tax matters. The one explaining the Income Tax position of elderly people is one which has been particularly well received and helpful to that class of taxpayer. Two others dealing with Capital Gains Tax matters will be coming out within the next month or two, one on how to calculate capital gains and the other on stocks and shares.
A number of hon. Members made some general remarks on the need for more basic thinking about taxation. They have urged various kinds of bodies which might be set up to undertake that task. More than once in the last year or two, my right hon. Friend the Chancellor has emphasised his interest in that sort of approach. Certainly there cannot be too much thinking devoted to the economic effects of taxation, and I know that my right hon. Friend lends encouragement to studies, whether they come from academic quarters or from
2008
people involved from a more practical point of view in putting forward ideas and, above all, doing the research work needed.
I do not think that it is quite fair of the hon. Member for Farnham (Mr. Maurice Macmillan) to suggest that the Inland Revenue Department had not heard or had forgotten the advice:
"Thou shalt not muzzle the ox when he treadeth out the corn."
The hon. Gentleman said that he was not directly concerned with that Department when he was at the Treasury. I think that if he had been he would have realised that it is very much alive to the importance of the economic effects of taxation. This is always stressed in the proposals which it puts forward, and in the advice which it gives to Chancellors of the Exchequer.
The main subject raised in this Motion is the need for simplification. It is a cry which meets with a warm response on all sides, from the taxpayer, from the tax gatherer, and from the professional people concerned with tax matters, and there have been suggestions that there ought to be a permanent commission concerned with simplification. Various Royal Commissions have been appointed to look at taxation from time to time, and most of them have commented on this matter. The 1955 Royal Commission said that one of its most ardent desires was to simplify the tax structure, and that perhaps the most formidable single obstacle was the fact that hitherto the tendency both of Parliament and of the Inland Revenue had been in the opposite direction. Scrupulous regard has been paid to even small differences in individual situations, and while it is comparatively easy to advance from a simple system to a more refined one by introducing qualifications and distinctions, it is very much more difficult to retire from a refined system to a simpler one and by so doing to ignore distinctions which hitherto have been recognised and allowed for.
The hon. Member for Moray and Nairn (Mr. G. Campbell), in a speech in which he was advocating a greater shift from direct to indirect taxation, did not lose the opportunity, as a good constituency Member, to refer again however briefly, to those objections which he and so many of his colleagues raised to the

2009
attempt which this Government made to broaden the tax base by expanding indirect taxation in the form of the Selective Employment Tax.
Mr. G. Campbell: I am sure the Financial Secretary will agree that I pointed out that I would have favoured a straightforward simple payroll tax which would have raised the same amount of revenue.
Mr. MacDermot: I know the hon. Gentleman did, and I think he probably ignored the fact that this would have been a much more complicated tax to administer and collect.
Mr. G. Campbell: Nonsense.
Mr. MacDermot: The fact is that if we had wanted to introduce a payroll tax we could not have done it last year because of the administrative problems involved. It would have meant setting up a big new administrative organisation and appointing more administrative staff. We hear complaints from hon. Gentlemen opposite about the growth in the number of Inland Revenue staff. Have they stopped to consider what would be the growth in the Inland Revenue staff if we were to introduce a payroll tax?
Mr. G. Campbell: We could have done it.
Mr. MacDermot: They could have, but they did not. That is the simple retort. I assure the hon. Gentleman that, on purely administrative grounds, the S.E.T. was a very much simpler tax to collect, even with the whole of the refund provisions, than a payroll tax would have been.
Nearly all the complaints about the S.E.T.—and goodness knows how many hours and days of them we had during the debates last year—were in effect complaints about the lack of complication, the lack of complexity, the oversimplification of this crude tax, so that whereas in general one gets pleas for simplicity, as I know, being a Treasury Minister, in fact and in practice what one constantly gets belaboured with is a demand for more complexity to produce more justice.
The same difficulty arises when one gets a plea for greater simplicity of language. I think that the MacMillan Codification Committee in 1936 put its finger on it when it said:
2010
"Income Tax legislation must, by its very nature, be abstract and technical, and can never be easy reading. It is concerned with principles and methods of calculation which it is difficult to express in words without any appearance of complication, as anyone will realise who attempts to describe in writing even a simple mathematical process."
Burke's classic dictum is as true of the form as of the substance of taxation:
"To tax and to please, no more than to love and to be wise, is not given to men."
Nevertheless, we have moved on with the task of consolidation. The Royal Commission has expressed interest in the subject. Consolidation does not simplify the content of the law but it greatly simplifies its presentation. This week there was published and introduced in another place a Bill to consolidate the provisions of the Income Tax and Corporation Tax law regarding capital allowances. This will replace provisions at present scattered over about 16 Acts.
In order to illustrate the complexity of modern business, and to show that it is impossible to keep tax laws short and simple, it may be of interest to hon. Members if I tell them that on this one topic alone that Consolidation Bill runs to 120 pages. This is mainly because of the enormous variety of expenditure and the different forms of allowance which are appropriate for different kinds of expenditure. The chief Consolidation Measure was the Income Tax Act introduced by the previous Administration in 1952, but already, since that Act, there have been about 240 Sections affecting Income Tax and Surtax up to 1964 alone—during the period of the previous Government.
I am excluding Sections merely fixing the rates of tax or altering the amounts of personal allowances, or formal matters. Of those 240 Sections, 134 gave new or extended relief, and so added to the complexity of the law. The remaining 106 include a few which withdraw or restrict existing reliefs, but mainly they are machinery provisions or anti-avoidance measures. This illustrates some of the difficulties. It is not that the law in itself is complicated; it is that the situations with which it deals and the whole structure of modern business in our society is so complex that if we are to produce any kind of equity in taxation it is inevitable that the law will be complex.

2011
If any hon. Member wishes to introduce a Ten Minute Rule Bill to simplify the tax law—a Bill which will not require a Money Resolution—I can offer him a simple one, the Long Title of which would be
"An Act to Simplify Income Tax and for Purposes Connected Thereto."
Clause 1 would state, "Companies are hereby abolished"; Clause 2 would state, "Marriage is hereby abolished", and Clause 3 would state, "This Act may be cited as the Income Tax (Simplification) Act."
Following the initiative of the Law Commission, consideration is being given to this field of codification, and it has urged that Estate Duty and Stamp Duty should be consolidated. Work on the consolidation of the Income Tax Acts has already been started, but it will take some time to complete that task. We hope that by 1969 or 1970 it will be possible to complete the consolidation of the Income Tax and Corporation Tax Acts. It is not possible to carve out any other sectors than that to which I have referred, for which the Bill was published this week.
I turn now to that part of the Motion which says that our tax system is oppressive, inefficient and wasteful. Repeated assertions have been made of the great weight and burden of taxation in this country as compared with others. There are many things which we hold dear but I suspect that there are few things that we cherish more than our illusions, and one of our illusions is that the weight of taxation in this country is greater than that in most other countries, in particular, those with which we compete.
This fiction grew up in the early postwar years and has successfully resisted all attempts to refute it by fact. I will try again. International comparisons—
Mr. Stratton Mills: Direct taxation.
Mr. MacDermot: —are notoriously difficult to make in this field.
Probably the most satisfactory measure of the total tax burden is the percentage of the gross national product which is represented by all kinds of taxation, direct and indirect, levied both by central and by local government, including social security contributions but excluding taxes
2012
on capital. I am quoting the O.E.C.D. figures for 1964, which is the last available year, and comparing the United Kingdom with the Common Market countries and the United States. I take the percentage of the G.N.P. at market prices in those countries, and all forms of tax: France, 45·5 per cent.; West Germany, 39·6 per cent.; Holland, 37·6 per cent.; United Kingdom, 34·6 per cent.; Italy and Belgium, each 33·4 per cent.; United States, 30 per cent. We are in the middle of the list and, I think, below the average as a percentage. So much for the first and general allegation.
The second illusion is that we levy a far greater proportion in direct taxes than do other countries, a point which the hon. Member for Belfast, North made in his intervention. I will give figures both including and excluding social security contributions. The yield from indirect taxation as a percentage of both direct and indirect taxation combined, excluding social security contributions, is such that the Common Market average is 61 per cent. and our average is 57 per cent. I will not take time by giving the figures for all the countries. If we include the social security contributions—and many hon. Members have stressed the point that it is right to do so—the figure for the Common Market is 41 per cent. and our figure is 47 per cent.
Again, these figures do not support the general picture that we have an oppressive burden of direct taxation compared with indirect taxation, by comparison with other countries. Even the trend is not in the direction which hon. Members suggest. Whereas the percentage collected in indirect taxes had fallen in every one of the Common Market countries between 1960 and 1964, it remained constant in the United Kingdom.
It may be suggested that the value added tax system will alter this. One does not yet know what form of value added tax will be adopted in the Common Market countries. But since the existing turnover taxes which it is designed to replace are themselves comprehensive taxes, it by no means follows that the valued added tax would make any material difference to these figures.
I have not time to outline the figures of our direct personal taxation at different

2013
levels compared with that in other countries. Broadly, the picture is that at the lower and medium ranges we are, as it were, again in the middle of the table compared with other comparable countries. It is at the higher levels that we move up and have a higher rate of taxation. That is only another way of saying that we have a more progressive system of taxation. Hon. Members who want this changed must make clear where it is that they expect the additional burden to fall if we relieve the rates of direct taxation at the higher end of the scale, and I will return to that in a moment.
I return to the burden of company taxation. We have a low rate of Corporation Tax compared with other countries. Some hon. Members have criticised that and have suggested that we ought to have a higher Corporation Tax and a lower withholding rate. But even if we take into account the tax on dividends on distributed profits, there is no reason to believe that the burden on companies and shareholders in this country compares unfavourably with that in our competitor countries.
The previous Government took a number of steps towards the simplification of the tax structure and the tax system, including the Income Tax Management Act, 1964, and their measures in the Finance Acts of 1958 and 1960. Among other things, they simplified company taxation by reducing the rates of Profits Tax from two to one.
We have continued that process with the Corporation Tax system. I shall not rehearse all the arguments again; I repeat only the assertion that when we are through the transitional stages and transitional provisions the Corporation Tax system will prove to be immensely simpler than the previous system, and it will be much more readily comprehensible by the businessman. Under the Corporation Tax system, the ordinary industrialist who previously found it almost impossible to estimate his company's potential liability to tax will now, as he earns his profits, be able to know approximately what level of tax he will have to pay upon them.
The charge of complexity in respect of the Capital Gains Tax has a great deal more substance. Here is a typical example of the real dilemma in choosing between
2014
equity and simplicity that faces anyone who seeks to devise a tax. The purpose of the tax rested to a singular degree on social equity, and there are very few hon. Members on either side of the House who have attacked the principle of it. Everyone realises that it is inconceivable that we could have had the degree of success we have had with the prices and incomes policy if we had not introduced the Capital Gains Tax in our first year of office. [Interruption.] An hon. Member says "Nonsense", but the effort made by his Administration when there was not such a tax never achieved anything like the same success as this policy has already achieved.
Nearly all the complexity of the tax results from the desire to achieve a reasonable measure of equity, and most of that complexity is transitional, deriving from the fact that we were determined not to make the tax retrospective. It would have been much simpler if we had just said that we would levy it on all gains realised after Budget day irrespective of the period concerned. That would have been much simpler, but I do not think that any hon. Member would have accepted it. The hon. Member for Liverpool, Wavertree (Mr. Tilney) suggested that we should have taken gains from Budget day and ignored whether they were real or only on paper. That would have made for much greater simplicity, but I can imagine the terms in which the hon. Member would himself have objected if we had sought to levy tax on an assumed gain which was in fact no gain at all.
The other complexities arise from the alternative basis of charge and various special reliefs, some of which were given during the passage of the Bill through the House. I do not recall any of the hon. Members who have today urged greater simplicity in our tax structure asking us in the debates in 1965 not to accept the complex Amendments that were urged upon us, on grounds that that would make for greater simplification of our tax structure.
We heard again today the argument for exempting the first £500 of capital gains, a typical example of the kind of simplification argument that is put forward. But that would be a wholly unjust concession. Why on earth should the first £500 of addition to a person's wealth in the form

2015
of capital gains be exempted and not increases in other forms? I do not know what answer hon. Members think we could make to the man on the shop floor when he asks why his first £500 of overtime should not be exempted, and why many other kinds of wealth increases should not be exempted. The greatest benefit which would result from the proposed exemption would be to the person paying the highest rate of tax. That is a feature which is common to a great many of the proposals made by hon. Members opposite. The professed object of this reform would be to save unproductive work, but this is largely illusory. The work involved is not in an assessing the liability to tax but in calculating the amount of gain, and in nearly all cases this work would still have to be done to see whether or not the exemption applied.
Mr. Grant rose—
Mr. MacDermot: I am sorry, but if I keep giving way to hon. Members I shall take far too long.
My hon. Friend the Member for Reading (Mr. John Lee) made a most interesting and thoughtful speech advocating, as he called it, a capital levy or, as it is otherwise known, a wealth tax. I am surprised that no hon. Member raised the question of a gift tax. Obviously when we can find the time and have the patience and good will of our colleagues and of the House for further tax reforms, these are the sort of proposals which merit further consideration.
Turning to the third part of the Motion urging us to have far-reaching fiscal reforms, I am sure there are a great many other fruitful ideas, but all these are matters which have to be studied far more closely. Their economic effects will need to be considered and any transitional provisions will have to be carefully worked out.
We had reference again to Estate Duty as a system of voluntary levy. I remind the House that there are some fairly generous volunteers, if that is a right description. We levy £300 million a year by way of Estate Duty. This comprises a greater proportion of the G.N.P. than that in other countries.
The hon. Member for Wavertree raised the question of a legacy duty. I
2016
do not want to comment on that in detail. I have reservations and doubts as to whether it would achieve all the things claimed for it.
Turning to the remaining main argument addressed to me, the proposal for a general shift from direct to indirect taxes, I have already pointed out what the figures are of the existing relative burden to suggest that there is not quite the same case for that as hon. Members suggest. Bearing in mind that the effect of any such shift would be to lessen the progressive character of our system, hon. Members must ask themselves where they think the extra burden would fall. They should remember what we get at the moment from our indirect taxes. We get about £3,500 million a year, of which 93 per cent. comes from four taxes. Tobacco provides just over £1,000 million, hydro-carbon oils £880 million, Purchase Tax £688 million and alcoholic drinks £672 million. There is nothing very inefficient or wasteful, whatever else we complain about, in these taxes as revenue-raisers. Betting and gaming and other minor forms of Customs and Excise duties bring in about another 2 per cent. of that total, and protective tariffs account for the remaining 5 per cent.
Indirect taxes are taxes on consumption. They include value-added tax. What additional form of consumption do hon. Members want to tax, unless they want to raise the rates of those taxes to which I have referred? The total consumer expenditure in the country is about £22,500 million a year. On goods now subject to Purchase Tax the expenditure is about £4,720 million, and on other goods subject to Customs and Excise duties it is about £3,881 million. This is a total of £8,701 million.
Then there are rent, rates and water charges, which are not a very fruitful field for taxation and only account for something over £2,000 million. All this takes us up to £10,700 million. We then have untaxed goods worth £8,370 million, over £5,000 million of which is food. Hon. Members know the sort of response to any suggestion that we should tax food. Then come fuels—coal, gas, electricity, coke—totalling just over £1,000 million, and other items such as children's clothing, household textiles, books and newspapers, totalling £2,174

2017
million. That is the range of untaxed goods.
There are also untaxed services, including travel, post, medical expenditure, insurance and a whole range of personal services. I remind hon. Members of the reception which the modest tax on employment in the services received when we introduced the Selective Employment Tax. This was some attempt to correct the imbalance. The average for manufactured goods in indirect taxation, excluding tobacco and alcohol, is just under 15 per cent., and Selective Employment Tax is equivalent to a purchase tax on services of 3 to 4 per cent. Hon. Members then brought forward every example of all the beneficial things that we were proposing to tax. Indeed, today, my hon. and learned Friend the Member for Warrington was again charging us with having lost all sense of morality because we dared to tax so many worthy causes.
These are the difficulties which hon. Members must face up to when urging that we should make a greater shift from a direct to an indirect taxation system. Unless we merely shuffle about existing taxes, if we are to get any fresh revenue through indirect taxation, we shall have to start taxing things which up to now we in this country have assumed that we would not tax.
This is one of the differences between our approach and that of the E.E.C. countries. They do not have the same attitude to the taxation of essentials, including food. I have no time to elaborate the arguments about a value-added tax, and it is probably better that I do not. This subject was studied under the last Government by the Richardson Committee which pointed out, rightly, that some of the arguments used for the tax were based on misconceptions—about the incentives and advantages for the export trade, for example.
Admittedly that judgment was made against a somewhat different background from what we have today. The National Economic Development Council has shown interest again in the subject and is studying it. The Government await the outcome of that study with interest. In view of the attitude and interest shown among E.E.C. countries in this form of taxation, obviously it is a subject we shall have to look at and con-
2018
sider again in due course. But if I had time to elaborate the point I would remind hon. Members that, whereas the value-added tax system may have great advantages over that which it is replacing abroad—the cascade system—our Purchase Tax system has many advantages over the value-added tax, including a very much greater simplicity of administration and cost of collection. I cannot give a precise figure, but we estimate that the amount of money we get from Purchase Tax would, under the value-added system, cost four to five times what it costs to collect under Purchase Tax. That is a very real argument to be considered.
I have spoken too long, and I must leave many points unanswered. I thank the hon. Member for Harrow, Central for raising the subject. I am only sorry that he did not do so in a form in which I could agree with the Motion.
3.35 p.m.
Mrs. Margaret Thatcher: I join with the Financial Secretary and with other hon. Members in congratulating my hon. Friend the Member for Harrow, Central (Mr. Grant) on having selected this subject for a Friday debate. I only wish that we could now have a further whole day to quarrel with the speech which the Financial Secretary has just made, so strongly do I feel about it.
He made certain assertions about the Selective Employment Tax and said that he could not possibly have had a payroll tax this year and therefore had to have the Selective Employment Tax.
Mr. MacDermot indicated dissent.
Mrs. Thatcher: I thought that he did.
Mr. MacDermot indicated dissent.
Mrs. Thatcher: They were words to that effect.
I do not see why it would have been any more difficult to add 4s. to the stamp per head than 25s. to the stamp per head. The result would have been that the Chancellor would have got in the same amount of money, but would not now have to pay any out, and so the administration would have been simpler. The Financial Secretary can afford to look smug and complacent, because he has got all the money in and not yet

2019
paid any back. I gently reminded him at Question Time recently about this and he said that the premiums would be started to be paid back in January. I remind him that time is now rapidly running out and expires next Wednesday. Perhaps the premiums will shortly be paid.
I agree with him that in the kind of sophisticated life which we have here we cannot have an ultra-simple tax system, but I do not accept that there are no simplicites to be made in the present tax system. We do not have to accept all its complexities. The hon. and learned Gentleman was a little too complacent about it and said that because we had a sophisticated life, the present tax system was perfectly all right and there were no simplifications to be made. I do not accept that argument for a moment.
He gave some figures of the comparative burdens of tax in this and in European countries. I notice that he did not—probably because he could not —select comparable figures which would give a correct indication after two years of Socialist taxation in this country.
Mr. MacDermot: I gave the dates.
Mrs. Thatcher: He gave the dates of the figures, but they were dates from a period when we still had comparatively low rates of taxation under Conservative Governments. Since then, taxation has gone up enormously in this country and the balance of the comparison may well have turned against us.
He made one or two comments about Capital Gains Tax and disagreed about exempting small capital gains, saying that the same amount of work would still be entailed. I disagree with him about that and I can tell him of one present case which concerns a very small shareholding in unquoted shares of a private company which have had to be realised. The person concerned owns no other assets and yet at this moment the Inland Revenue is straining every mental sinew to its limit to try to prove that he realised a capital gain within a few months. The case has taken a good deal of time, both on the part of the Inland Revenue and on the part of the man concerned, who has had to take professional advice, and
2020
yet the capital gain can be only very small. There must be many cases like that when it would be quite clear that there would be no work if small capital gains were exempt, and yet during our debates on the Finance Bill the Government rejected some of our Amendments exempting small capital gains altogether.
I notice that when the hon. and learned Gentleman spoke about fiscal reforms, in the same breath he instantly talked of a new tax. That is probably indicative of his psychological thinking. To him the two are synonymous—fiscal reforms and new taxes—and that is exactly what has been happening in the past two years. Certainly we have had new taxes, but they have been new taxes in addition to and not in substitution for old taxes. I hope that the present record of two new taxes a year under Socialism will not continue very much longer. It will be a very sad thing for the British people if it does.
I have one further comment to make about simplification. The hon. and learned Gentleman's approach to it and mine can be illustrated quite simply. It took him a three-Clause Bill to suggest the simplification of the tax system, in a rather humorous way. If we are to do it in a humorous way, I would do it in a one-Clause Bill to abolish the Inland Revenue. It takes the hon. and learned Gentleman three Clauses to do something which I could do in one. Suffice it for me now to say about simplification that I would prefer the Merrett solution to the MacDermot solution, and I think that the whole of the country would.
In general, throughout the debate there have been two broad approaches to the subject. Some hon. Members have concentrated on their pet subject within the tax system and, therefore, on detailed matters, and others have concentrated on the broad structural changes.
I should like to say a few words about each. There are a number of minor changes which still need to be made, for example, the difference between Schedule E and Schedule D tax. There are a very considerable number of changes which need to be made in the taxation of married women to relieve them from tax. I partly agree with what hon. Gentlemen opposite have said, in that the burden upon married women, if she is married

2021
to an able man, is very considerable indeed. I must not say too much about that, because I must plead an interest.
A number of people have mentioned a child allowance scheme and I agree with what was said by my hon. Friend the Member for Belfast, North (Mr. Stratton Mills) and my hon. Friend the Member for Farnham (Mr. Maurice Macmillan). It is a great mistake to confuse two things—firstly, the way in which one raises a tax and secondly the destination of that tax. If one is talking about child poverty and wishing to help there, then that is a matter for the destination of taxation revenues once they have been collected.
The collection of those revenues takes account of family liabilities and other commitments, and it is a mistake to link the two in any way. Since it seems that the Government are thinking of some kind of option scheme it would be a mistake if they thought that they could give an option child allowance scheme on similar lines to the option mortgage scheme, which we have not yet got, but for which a gambling tax was imposed. So far as an option child allowance is concerned, apart from all the administrative complexities, which would be enormous, it would raise between the husband who gels the child allowance, and the wife who gets the family allowance, a certain amount of difficulty. If people have to exercise their option there could be differences of opinion between husband and wife, and that would lead to a number of difficulties. If the burden would fall on to the married woman then the hon. Gentleman would have me to contend with as well.
This scheme is not a wise one to deal with child poverty. The hon. Gentleman's Government should make a systematic study of tax anomalies. My hon. Friend the Member for Farnham has described the fiscal shopping list that comes up from the Inland Revenue every year, and it must be about time that it is delivered for the Chancellor to consider in his Finance Bill. What I suspect happens is that there is no one at the Treasury who is in charge of Inland Revenue and Customs and Excise, as distinct from answering Questions about them.
Those Departments are directly responsible to the Chancellor, not to the
2022
Treasury. At present there are seven Ministers looking after the finances of the country. Four were enough for us. I should have thought that the Government could have allocated one of these to look at the Inland Revenue and Customs and Excise systems to see if we can get any simplification and to see if a systematic study of the tax anomalies can be made. I would have my favourite for this post, I would recommend the hon. Member for Manchester, Cheetham (Mr. Harold Lever), whom I was delighted to see had joined the Government. In this job he would stand no humbug, and he is practically unique in this Government in having had practical experience of this subject. It has led him frequently to be on our side in finance debates, and I feel that he will be ideally suited to this task.
When it comes to structural changes in taxation one has to make a number of decisions. One very fundamental decision appears already to have been taken, according to the Leader of the House in one of his most helpful speeches—helpful at any rate to the Opposition. At a Fabian Society meeting on 23rd November, 1966, he indicated what decision the Government had taken about public expenditure. This is a year, may I remind the hon. Gentleman, in which the Revenue could not possibly he affected, because it is a year in which he is damping everything down and in which his policy has been not to increase national incomes except with Government permission. During that year, the Leader of the House said this:
"Despite the critical nature of the economic situation we inherited, we accordingly decided that in the future the public sector must take an increasing share of the national income…over the period of 1964–70—a rate of growth a good bit higher than the expected rise in the gross domestic product."
Clearly, a decision has been taken that the Government shall take a larger share of our money at a time when the growth of that money is static. Therefore, the Government plainly are planning an increase in taxation over that period. The one thing must virtually follow from the other.
We would quarrel fundamentally with that decision. We believe it a wrong decision to take to try to increase the burden of taxation on this country. Once the decision is taken, naturally

2023
the growth of public expenditure will rise because the whole approach has been wrong. But it is interesting to know that the Government are planning increased taxation and that it will not just happen because they have to increase expenditure on worthy objects to which they need to give attention.
I should like to say a few words about incentives. A number of hon. Members have mentioned this subject, and their ranks have been joined by bank chairmen. I notice that the Chairman of the National Provincial Bank had something to say about this the other day. In speaking about taxation, the Governor of the Bank of England said:
"I venture to think that its level in this country is already dangerously high. I have much sympathy with the points made by the Chairman of the Stock Exchange. I wonder how much thought is given in the appropriate quarters not merely to raising taxes but to shaping the tax structure so as to increase the incentives to us all to work and produce efficiently".
We need incentives all the way up the scale. I am told that the marginal rate of taxation, £1,700 a year, is greater in this country than it is overseas. People need extra incentives at a much higher level, because already people prefer more leisure to the extra amount of take-home pay which they would get from working extra overtime.
The structure for Corporation Tax chosen by the Government was both far-reaching and wrong. It was deliberately chosen. It has already given rise to a number of complications with regard to overseas companies, double taxation agreements, and so on. It would have been far better if they had chosen a slightly higher rate of Corporation Tax and a much much lower rate of withholding tax. I agree that savings, too, need boosting. All these are structural changes which go fundamentally to one's approach to the system of taxation. I should be very critical of the system of investment allowances and the Selective Employment Tax.
With all these new taxes, I am amazed that industry has managed to perform so well and to adapt itself so well. The excellent results achieved by industry— exports are still going up—have been achieved in spite of the Government's efforts and with no help from the Govern-
2024
ment at all. Let me illustrate that with one or two points.
Ideally, a person with a great talent and ability should be able to arrange his business affairs as befits the requirements of his industry. It would clearly help some people if they could set up overseas because in some countries the markets are closing down as they want their own secondary industries. The Government have made it more difficult for them to do that by their attitude to overseas tax, so they have to consider a structural alteration there.
Hitherto, if people got a certain piece of capital equipment they knew what the effects would be on their taxation liability. They could bring it into their costs and calculate the profit which they were likely to make on products manufactured by the machine. Now they go to the Inland Revenue and the Board of Trade and say, "If I buy this machine, shall I get a tax allowance?" The Board of Trade cannot tell them because it is a future transaction. How can anyone calculate his profits or costs on that basis? One can calculate precious little at all. The person who has the "Yea" or "Nay" in whether an investment grant should be made is not the President of the Board of Trade but someone who has been recruited for the job who probably knows precious little about it. So the industrialist has all that to cope with as well.
For the purpose of Selective Employment Tax, one has to consider the basis of establishments, which is a "phoney" one. Hitherto, an industry based itself on the best principles of organisation and methods for producing a particular product. All that must now go overboard. Someone who concentrates on that might make himself liable to heavy Selective Employment Tax, because the tax depends on the organisation of establishments and how many productive people compared with service people there are in one establishment. Therefore, an industrialist can alter his entire incidence of Selective Employment Tax by reorganising his establishments to fit the tax. But industry ought never to have to do this. It ought to be able to go ahead with the best structural and organisational arrangements for its business.
When they have done all that, if they have the time, industrialists can then

2025
turn to production and selling goods overseas, but they have to cope with it somehow because of the totally misconceived fiscal changes which this Government have made. I join with the hon. and learned Gentleman on one point. His Government have not been timid in their attitude to taxation and fiscal reform. Certainly not. The trouble is that they have gone about it like a bull in a china shop, with very much the same results. I hope that the Financial Secretary will listen to some of the advice which has been tendered today, but I fear that I am a woman of little faith in that connection.
Question put and negatived.

MINISTRY OF HOUSING AND LOCAL GOVERNMENT (ORDER)
3.52 p.m.
Mr. R. J. Maxwell-Hyslop: I beg to move,
That this House deplores the action of the Minister of Housing and Local Government in moving that an Order be approved involving the expenditure of over £2,600 million before the Select Committee on Statutory Instruments had completed its consideration of the Order, and believes that in so doing he impaired the ability of the House of Commons to control public expenditure.
This very morning the Third Report of the Select Committee on Statutory Instruments, which we were denied when this Order was debated, has been printed and is available in the Vote Office. The Committee resolved,
"That it is the opinion of this Committee that the Rate Support Grant Order 1966 should be drawn to the attention of the House on the ground that it appears to make unexpected use of the powers conferred by the Statute under which it is made, in that the Order was laid before the parent Act was available to Members and the public".
In other words, the Committee, as many of us guessed, was not satisfied with the way in which the Minister put the Order before the House, and, having considered the memorandum which the Minister submitted to the Select Committee in response to its invitation, it is still not satisfied. But the House is denied any redress because the Minister put the Order through before the House had the benefit of the Report from the Select Committee.
2026
What are the precedents for such action? As far as one can tell, they are virtually non-existent. I am extremely grateful for the assistance of the department of the Clerk of the House in looking up precedents. None has been found except on 24th November, 1965, involving Rhodesia. Hon. and right hon. Members will recall the urgency with which those Measures were passed by the House as extraordinary Measures. Much of the normal machinery of the House was run at a fantastic speed in order to get them through. There is absolutely no reason for voting such an enormous sum of money, which amounts to the equivalent of 13s. 6d. in the £ on the standard rate of Income Tax, before the Select Committee has had opportunity of reporting on it.
Now, why was this done? Not because there were no days left in the Session. There were two days left. Therefore, I attempted on 20th December to adjourn the debate until after the Committee would have had an opportunity of reporting. That was not accepted by the Chair, and, of course, one must accept the Ruling of the Chair. But when the Minister, once it had been pointed out to him—at the time, I may say, the Minister was busy filling his stomach rather than his mind, I understand, and could not bring himself to be present for the short time the debate lasted in the House—was summoned and came, and there was a rapid consultation, even then did not do as he could have done—withdraw the Order.
When the Joint Parliamentary Secretary got up at the end of the debate he made what one can only describe as a very half-hearted, near apology. He said:
"Perhaps I might begin with the nearest thing to an apology which I have to make. If, by any chance, my right hon. Friend has erred in regard to paying adequate respect to the Statutory Instruments Committee, which is not admitted, I can only say that the reason was that we were extremely anxious to get all the information available not only to the House but to the local authorities…"— [OFFICIAL REPORT, 20th December, 1966; Vol. 738, c. 1323.]
So the Minister could not be bothered himself to be present for this short debate.
The Joint Parliamentary Secretary to the Ministry of Housing and Local Government (Mr. James MacColl): On a

2027
point of order. I shall not have time to reply to the hon. Member, but he is giving the impression that my right hon. Friend deliberately absented himself from the debate. My right hon. Friend was present. He moved the Order, and he was here, apart from other Ministerial duties taking him away, a great part of the discussion. Therefore it is a little unfair of the hon. Member, and shows what a weak case he has got, to try to exaggerate it by a personal attack on my right hon. Friend.
Mr. Maxwell-Hyslop: A somewhat peculiar point of order, but I did not say that the Minister was not present at any time. If the hon. Gentleman will check what I have said he will find that what I have said is accurate, although he has endeavoured to contradict it.
Mr. MacColl: What the hon. Member said was that my right hon. Friend was absent and had rapidly to be brought back and was apparently reluctant to come back. My right hon. Friend was here a very large part of the debate. He came back in the ordinary course of the debate. He listened to it as much as his other duties would allow him to. I was present for the rest of the debate and myself dealt with the point which the hon. Member had made.
Mr. Maxwell-Hyslop: We need not pursue this further, because those in the House at the time will remember the Minister being sent for, and he came back very rapidly indeed.
Mr. MacColl rose—
Mr. Maxwell-Hyslop: No. I have given way twice and on a bogus point of order.
There has, alas, been only a handful of minutes available for what ought to have been a debate which was thrashed out in considerable detail. If the House of Commons thinks it worth while to have a Select Committee on Statutory Instruments it is worth while that that Committee should be able to perform its functions before the House votes on a measure, let alone a measure involving such an enormous amount of public money, and now we have received a Report which is not satisfied with the Minister's response, and the House has no redress. It cannot repeal the Order. It has no redress at all except to ballot, as has been done, and hope that there is sufficient time for a proper debate—which, alas, there is not.
4.0 p.m.
The Joint Parliamentary Secretary to the Ministry of Housing and Local Government (Mr. James MacColl)rose—
It being Four o'clock, the debate stood adjourned.

ORDERS OF THE DAY

  DISUSED GRAVEYARDS BILL
  Order for Second Reading read.
  Hon. Members: Object.
  Second Reading deferred till Friday next.

  BROADCASTING ENABLING BILL
  Order for Second Reading read.
  Hon. Members: Object.
  Second Reading deferred till Friday next.

  RENT ACT (AMENDMENT) BILL
  Order fop Second Reading read.
  Hon. Members: Object.
  Second Reading deferred till Friday next.

  MATRIMONIAL HOMES BILL [Lords]
  Order for Second Reading read.
  Hon. Members: Object.
  Second Reading deferred till Friday next.

  HIGHWAYS (STRAYING ANIMALS) BILL
  Order for Second Reading read.
  Hon. Members: Object.
  Second Reading deferred till Friday next.

  LOCAL GOVERNMENT (PROMOTION OF BILLS) BILL
  Order for Second Reading read.
  Hon. Members: Object.
  Second Reading deferred till Friday next.

  CLIENTS' MONEY (ACCOUNTS) BILL
  Order for Second Reading read.
  Hon. Members: Object.
  Second Reading deferred till Friday, 17th February.

  LIVESTOCK EXPORT CONTROL BILL
  Order for Second Reading read.
  Hon. Members: Object.
  Second Reading deferred till Friday next.

  NATIONAL INSURANCE BILL
  Order for Second Reading read.
  Hon. Members: Object.
  Second Reading deferred till Friday next.

  FREEDOM OF PUBLICATION PROTECTION BILL
  Order for Second Reading read.
  Hon. Members: Object.
  Second Reading deferred till Friday next.

  PONIES BILL
  Order read for resuming adjourned debate on Second Reading [24th June].
  Hon. Members: Object.
  Debate further adjourned till Friday next.

  SUEZ OPERATIONS (SPECIAL COMMISSION) BILL
  Order for Second Reading read.
  Hon. Members: Object.
  Second Reading deferred till Friday next.

  HOUSE OF LORDS (ABOLITION OF DELAYING POWERS) BILL
  Order for Second Reading read.
  Hon. Members: Object.
  Second Reading deferred till Friday next.

  MATRIMONIAL CAUSES BILL
  Order for Second Reading read.
  Hon. Members: Object.
  Second Reading deferred till Friday next.

  PRESS AND BROADCASTING FREEDOM BILL
  Order for Second Reading read.
  Hon. Members: Object.
  Second Reading deferred till Friday next.

  KEELE UNIVERSITY (MEDICAL SCHOOL)
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. loan L. Evans.]
  4.2 p.m.
  Mr. Jack Ashley: I welcome this opportunity to elucidate upon and advocate the need for the establishment of a school of medicine based on Keele University and the hospitals of the Stoke-on-Trent Group.
  I recognise the temptation of the Government, in times of economic difficulty, to minimise their financial burdens by allocating limited capital resources to the extension of existing schools, but I am confident that they will resist that shortsighted approach.
  The fact that the Royal Commission on Medical Education and the University Grants Committee are considering the problems of new medical schools is an indication that the Government will maintain their forward-looking and enlightened approach.
  2032
  The siting of a new medical school on Keele University and on the Stoke-on-Trent Group of hospitals offers advantages not only to the immediate area but to the whole North Staffordshire region. It also provides facilities which are indispensable in establishing a modern, vigorous and progressive medical school. No Government have been more sensitive to the needs of the regions than the present one. But by siting the next medical school in North Staffordshire, they will help to redress the maldistribution of doctors, which is partly caused by the preponderance of medical schools in the South of England.
  Some regions have suffered more than others from this maldistribution of doctors, and I must record the fact that a very serious situation has arisen in the Stoke-on-Trent area, where the average doctor's list of patients is as many as 200 over the national average. I regret to have to tell the House that some doctors have as many as 2,000 patients over the national average, thus, instead of an average of 2,500, some doctors in North Staffordshire have between 4,000 and 4,500 patients on their books.
  When general practitioner posts are advertised in Stoke-on-Trent, there are sometimes no replies to the advertisements, and as a consequence patients have to be spread between the already overburdened doctors in the area. This is an intolerable situation. It is bad for the doctors, it is worse for the patients, and it is contrary to the Government's avowed policy of fair shares for the regions. I want to give the Government a clear and categorical warning that unless they act quickly in the short term, and unless they plan for the long term, they will face a chaotic situation in North Staffordshire.
  The establishment of a school of medicine in Stoke-on-Trent would not only ameliorate the short-term problem, but would help to solve long-term problems, not just for this great city, but for the whole of North Staffordshire. It is an established fact that doctors who are trained in a particular area tend to practise in that area, so a medical school in Stoke-on-Trent would be a firm foundation on which the future of the North Staffordshire medical profession could rest, and, given the right decision

  2033
  by the Government at this stage, the impending chaos could be replaced by orderly progress.
  The region of North Staffordshire is well defined, and has a sphere of influence covering a population of about 650,000, but the impact of the new medical school would be felt far beyond this sphere, reaching a total population of about 1,200,000. I believe that it is indefensible to deprive such a large section of our community of the benefits of a new school, no matter how capably the existing hospitals may be dealing with the problem.
  Not only is the North Staffordshire centre dealing with current problems; it is also trying to plan for the future. A medical school based on Stoke-on-Trent has exciting potentialities as a training ground for the whole of the Midlands and for the north of England. The existing framework into which a medical school could be fitted could not be better. The existing hospitals of the North Staffordshire hospital centre stand in 120 acres of land, all of them linked by a new road, and with 40 per cent. of the site area available for development. There are 50 acres of land in public hands available for teaching departments, hostels, and administration. This is an advantage which cannot be overlooked, nor can it be overestimated. Its availability is a tribute to the far-sightedness of all those concerned. They planned for the future in an imaginative way.
  By 1972 a large part of the centre will be housed in buildings only 10 years old or less. Design and function are as advanced as modern planning techniques can make them and top priority has been given to the suitability of the buildings for clinical teaching. The hospital centre has a fine tradition of research activity extending over an extensively wide area.
  It now has an impressive schedule of over 50 research projects, covering such diverse subjects as experimental cardiac surgery, advanced tissue grafting procedures, pneumoconiosis, electrocardiography and blood viscosity—a tremendously wide area of research. Discussions are now in hand for the use of the centre as an experimental field for the application of computer techniques to all aspects of hospital activity.
  2034
  Research is not something that the North Staffordshire Hospital Centre has suddenly discovered, when it has asked for a medical school. It is and always has been an integral part of the life of the hospital centre. It is not only research into the 50 or so specific medical problems which I have just mentioned; it is research into all the problems confronting the medical profession. It is research into the function and performance of the out-patient department; it is research into the demand for local health, welfare and hospital services; it is research into the field of epidemiology organisation and administration in the National Health Service.
  These are but some examples of the diversified work done by the North Staffordshire Hospital Centre. It is cooperating closely with Keele University, with the Tavistock Institute and the Midlands Faculty of the College of General Practitioners. It has won for itself a high reputation as a centre with its feet planted firmly on the ground but with its eyes on the future.
  As the Prime Minister said only this week in Strasbourg, in another context, "This is blowing one's own trumpet." Why not? There is something to blow about in Stoke-on-Trent and North Staffordshire. The Centre even raised £100,000, largely by local subscription, to build one of the finest medical institutes in the country. Its excellent lecture theatre, library and other facilities would be an invaluable asset to any medical school. The group is already active in post-graduate education, and in association with Birmingham University it has conducted courses in advanced medicine, a Commonwealth School symposia, and clinical and pathological conferences. It has close associations with Keele University, and their joint resources are devoted to new projects like the establishment of a Department of Medical Physics.
  Keele University is an ideal choice for initiating an experiment in medical education. The university was essentially an educational experiment itself, and as the oldest of the new universities it has much experience in educational experimentation. It is ideally placed to set up a medical school and a school of human biology.
  That is the case for a new medical school based on Keele University and

  2035
  the hospitals of Stoke-on-Trent. The detailed financial estimate prepared by the group clearly illustrates that such a project offers a low-cost opportunity for a significant increase in medical manpower. The difficulties created by the Government's failure to give a clear answer to the question whether to have a new medical school are immense. I appreciate the need for the University Grants Committee and the Royal Commission to examine various proposals, but vital decisions on the redeployment of staff and resources are being help up and are creating confusion. A definite answer is needed in the immediate future.
  I do not want an answer today, but I would appreciate an assurance that there will be a definite answer in the immediate future. The land, the resources, the facilities, the skill and the experience are all there awaiting a clinical school on which so much of the future depends.
  But there is something more than that. There is a kind of vigorous enthusiasm which adds the extra dimension to any project such as this. It is the kind of spirit the Government have been asking, nay pleading for, up and down this land, and it has to be seen in North Staffordshire to be believed. If the Government dissipate this enthusiasm by undue procrastination, there are many people who will want to know why. It will be a failure that will not be forgiven lightly. But if they harness this enthusiasm to the resources and the facilities which have been so painstakingly collected and prepared, they can rest assured that in Stoke-on-Trent and in Keele University they will have a medical school of which the whole nation can be proud.
  4.17 p.m.
  The Minister of State, Department of Education and Science (Mr. Goronwy Roberts): My hon. Friend the Member for Stoke-on-Trent, South (Mr. Ashley) has developed with care and cogency the case for a new medical school in his area. I am sure that he will expect me first to refer briefly to the question of Departmental responsibilities in relation to establishing and financing the development of medical schools.
  Building work for the provision of accommodation for the pre-clinical departments of medical schools is the
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  responsibility of the universities; the capital required is allocated by the University Grants Committee from the amount available for the universities' building generally. Teaching hospitals are the responsibility of my right hon. Friend the Minister of Health, who determines priorities within the hospital building programme, although the universities' share of the cost, for example for specialist teaching and research, is found from the Vote for universities and colleges administered by the Department of Education and Science. Although this part of the cost does not count against the individual university's application. it is subject to approval by the U.G.C., and, in the case of more expensive projects, by the Department of Education and Science and also by the Treasury. This means that any proposal for a new medical school or the enlargement of an existing school is a matter on which the University Grants Committee advises my right hon. Friend.
  The University Grants Committee is responsible for the allocation between universities of the recurrent and capital funds placed at its disposal. For this purpose it considers the national needs, the circumstances of particular universities and the other claims on its funds. Naturally, it maintains close contact with the Ministry of Health in the matter of overall numbers of medical school places needed. For priorities as between medical school projects, it consults the Ministry so as to ensure that clinical facilities in the appropriate teaching hospitals can be matched to the pre-clinical provision in the universities concerned.
  We are all, I think, fully conscious of the urgent need to expand medical education. My hon. Friend had some sound things to say about that. If there is one respect in which the Robbins Report might be criticised, it is that perhaps it did not direct very forcible attention to what is now seen to be a major problem of higher education. That has now been remedied by the establishment of the Royal Commission under Lord Todd which my right hon. Friend the Prime Minister announced in June 1965, among other things, that Royal Commission was specifically asked to report on what changes might be needed in the pattern, number, nature or location of the institutions providing

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  medical education. It is already far advanced in its work.
  In the meantime, things have not stood still. I listened with great interest and basic agreement to what my hon. Friend said about the need for more doctors not only in his area but in similar areas throughout the country. We are making progress in making more doctors available for such areas. The intake of students into our medical schools has risen from 2,020 in 1960 to 2,444 in 1965 and to over 2,500 last October. That is an increase of 24 per cent. in six years.
  Further major expansions are already planned for the next few years. The U.G.C. has made capital allocations for the years to 1970 amounting to over £7 million, which will add another 500 to the student entry when those schemes are complete. Those numbers of entrants may sound modest, but taking into account the length of the course, one must multiply them all by six to arrive at the number of students for which the developments will provide.
  Most of what I have described is based on expansion in existing medical schools. The exception is Nottingham, where a new school is planned. The U.G.C's view has been that the way to get rapid expansion was by enlarging on the existing base—if need be, by improvisation and more intensive use of facilities. Expansion by the creation of new schools is far slower. The school must be planned in relation to its associated hospital; a new organisation must be created. Between the decision to have a new school and the day it produces its first doctor there is a gap of perhaps nine or ten years, and may be longer.
  I now come to the proposal for a new medical school at Keele, which is one of 15 or so in which universities and
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  colleges from every part of the United Kingdom have expressed an interest. Some of these have reached the stage of putting detailed proposals to the U.G.C., and they are being examined. It is clear that all the plans cannot have priority, and that projects involving the expenditure of many millions of £s must be studied carefully from every point of view, including the comparative contribution each will make to the national framework of medical education. Nor would it be right, given the terms of reference of the Royal Commission, for any decision to be made about a new medical school without consulting it.
  Although this is not the time for me to discuss the merits of the case put forward by my hon. Friend, I assure him that what he has said today will be noted by those advising my right hon. Friend on this matter, both in the Royal Commission and in U.G.C. My hon. Friend would not expect me to go further. As I have indicated, there is a number of claims to be assessed, and the implications of that assessment are a highly expert matter with far-reaching academic and financial consequences.
  What I can say with confidence is that steady progress and substantial provision are being made, and that while we all look forward with great interest to the overall recommendations which the Todd Commission will make, we do not exclude major individual advances even before its full report is published early next year.
  My hon. Friend asked us to act in the short term and to plan for the long term. I believe what I have said indicates that this is in fact what we are doing in this vital field.
  Question put and agreed to.
  Adjourned accordingly at twenty-five minutes past Four o'clock.