Commons Sitting of 27 June 1967

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
PRIVATE BUSINESS
  DARTFORD TUNNEL BILL
  Read the Third time and passed.
  SAINT STEPHEN, SOUTH LAMBETH BILL [Lords]
  Read the Third time and passed, with Amendments.
  CITY OF LONDON (VARIOUS POWERS) BILL [Lords]
  To be read a Second time Tomorrow.
  KINGSTON UPON HULL CORPORATION BILL [Lords]
  Read a Second time and committed.
  ST. ANDREWS LINKS ORDER CONFIRMATION BILL
  Read the Third time and passed.
ORAL ANSWERS TO QUESTIONS
  COMMONWEALTH AFFAIRS

    Gibraltar
    Mr. Wallasked the Secretary of State for Commonwealth Affairs if he will make a statement on the constitutional future of Gibraltar.
    Mr. Gwilym Robertsasked the Secretary of State for Commonwealth Affairs when he proposes to hold a Gibraltar Constitution Conference; and, in view of the votes given to the Integration with Britain party candidate at the recent Legislative Council by-election, if he will
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    ensure that representatives of the Integration with Britain party are invited to participate in such a conference.>
    The Minister of State for Commonwealth Affairs (Mrs. Judith Hart): As I stated on 14th June [Vol. 748, c. 565], we intend to hold constitutional discussions, probably in Gibraltar, after the referendum with representatives of all shades of political opinion in Gibraltar including the Integration Party if the majority vote to retain the link with Britain. We shall then discuss any appropriate changes in the constitution which may be desired.
    Mr. Wall: Would not the hon. Lady consider including in the referendum the type of relationship which the people of Gibraltar may require with this country? Does she not agree that further delay might exacerbate the situation?
    Mrs. Hart: No, I do not agree. I think that it is better to take the referendum as a first step and then to follow it by the constitutional discussions.
    Sir C. Mott-Radelyffe: May I ask the hon. Lady whether a new principle is being established by which a referendum is held if the results are predictable and convenient to the Government of the day but not held if the results are not convenient?
    Mrs. Hart: I do not know whether the hon. Member regards that as a particularly helpful remark, but the circumstances in which the referendum is being held have been made perfectly clear.
    Sir W. Teeling: As the integrationists and the present party in power in Gibraltar have rather different ideas about the future, surely there will be difficulty in the referendum unless the people are told a little in advance what the British Government intend to do afterwards?
    Mrs. Hart: The hon. Member may think that to be the case, but I have no reason to suppose that any of the people of Gibraltar agree with him.
    Mr. Fisherasked the Secretary of State for Commonwealth Affairs what plans Her Majesty's Government have made to enable air services to Gibraltar to be continued when weather conditions at Gibraltar Airport make it impossible

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    to conform to the restrictions imposed by Spain.
    Mrs. Hart: The Governor, in consultation with the civil air line representatives, is concerting arrangements in case individual flights have to divert to Tangier due to bad weather.
    Mr. Fisher: If this situation arises, and it almost certainly will, what will be the Government's policy—to submit to the Spanish restrictions or to afford military support to our civilian aircraft? Has the hon. Lady considered another proposition, that of banning Spanish aircraft into and out of British airports?
    Mrs. Hart: The hon. Gentleman's Question related to weather conditions causing diversion from Gibraltar and my reply related to that, but even in normal circumstances there are some situations in which there has to be diversion from Gibraltar, and I have answered that part of the Question.
    Mr. Wood: Is it not the fact that Britain has appealed to the International Civil Aviation Organisation in Montreal in this matter? When is consideration to be given to that appeal, and does not the hon. Lady agree that the matter is very urgent?
    Mrs. Rut: The question of the prohibited zone is very urgent indeed, I agree. It is perfectly correct to say that the Government are raising this matter with the I.C.A.O. The dispute will now have to follow normal I.C.A.O. procedures for dealing with disputes, and I hope that this matter may be dealt with as soon as the procedures permit.

    Rhodesia
    Mr. Wallasked the Secretary of State for Commonwealth Affairs if he will make a statement on the reopening of talks with Rhodesia.
    Mr. Edward M. Taylorasked the Secretary of State for Commonwealth Affairs if he will make a further statement on the situation in Rhodesia.
    Mr. Channonasked the Secretary of State for Commonwealth Affairs what plans he now has for seeking a negotiated settlement with the illegal Rhodesian régime.
    Mr. James Johnsonasked the Secretary of State for Commonwealth Affairs if he will make a further statement about the situation in Rhodesia following the visit of Lord Alport as official investigator for Her Majesty's Government.
    The Secretary of State for Commonwealth Affairs (Mr. Herbert W. Bowden): I have nothing to add to the statement made by my right hon. Friend the Prime Minister on 13th June.
    Mr. Wall: When does the Secretary of State expect Lord Alport to report? Can he define a little more clearly the Prime Minister's statement that he would be prepared to reconsider N.I.B.M.A.R. if there were substantial and guaranteed changes in circumstances?
    Mr. Bowden: In reply to the second part of the hon. Member's supplementary question, I do not think that there would be any advantage whatever in trying at this stage to spell out hypothetical circumstances. At present, it is difficult to see them. In reply to the first part, I think that Lord Aiport will probably take two to three weeks.
    Mr. Taylor: If, as seams likely and as we hope, the Government have abandoned N.I.B.M.A.R. as a prior condition of settlement, is it not better to say so clearly so that those who are anxious to promote a settlement can create the right circumstances?
    Mr. Bowden: If Her Majesty's Government had abandoned N.I.B.M.A.R., I agree that it would be better to say so. We have not abandoned N.I.B.M.A.R.
    Mr. Johnson: Bearing in mind the past behaviour of Mr. Smith and the language which he has used about our Prime Minister, will my right hon. Friend give a firm assurance that Lord Alport will be collecting the voices, so to speak, and will not be acting in any capacity whatever as a backstairs negotiator?
    Mr. Bowden: It has already been made clear that Lord Alport is not in any way negotiating. He is engaged in what might be regarded as a reconnaissance.
    Mr. Maudling: The question of N.I.B.M.A.R. is not entirely as hypothetical as the Secretary of State has suggested. Can he make it absolutely clear that it is no longer the Government's policy to adhere, whatever may come, to N.I.B.M.A.R. in spite of the effect that it might have on a solution?
    Mr. Bowden: The policy has been made clear by my right hon. Friend the Prime Minister that, in the event of considerably changed circumstances, we would come back to the House, which gave an undertaking about N.I.B.M.A.R., and to the Commonwealth.
    Mr. William Hamilton: Can my right hon. Friend repeat the Government's adherence to N.I.B.M.A.R., without qualification?
    Hon. Members: No.
    Mr. Bowden: I have said that N.I.B.M.A.R. remains the Government's policy.
    Mr. Edward M. Taylorasked the Secretary of State for Commonwealth Affairs if he is satisfied with the extent to which the policy of sanctions against Rhodesia is being observed by other countries; and if he will make a statement.
    Mr. Bruce-Gardyneasked the Secretary of State for Commonwealth Affairs whether, in view of the fact that exports to Rhodesia of those members of the Organisation for Economic Co-operation and development for whom figures are so far available were running at the same level in the first quarter of 1967 as in the corresponding period of 1966, he is satisfied with the operation of the United Nations embargo; and if he will make a statement.
    The Minister of State for Commonwealth Affairs (Mr. George Thomas): Mandatory sanctions opertions operate primarily against Rhodesia's major exports, and apply only to a few specified items among its imports. Their effectiveness in reducing the country's earnings of foreign exchange has been shown by the steps the illegal régime have had to take in order to control imports and over such matters as the size of next year's tobacco crop. The means whereby they can be made more effective are constantly under review. In particular, where there is evidence of possible evasions of sanctions this is drawn
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    to the attention of the appropriate Governments.
    Mr. Taylor: Would not the hon. Gentleman agree that British sanctions do not apply to just a small number of items? Do not the trade figures recently published make it obvious that our competitors are using the sanctions as a means of stealing our markets?
    Mr. Thomas: I do not agree with the hon. Gentleman. Quite frankly, when we have a policy of sanctions, difficulties such as those which he mentions are bound to occur.
    Mr. Bruce-Gardyne: As the Government have admitted, is it not a fact that there has been a substantial increase in the export of cars, which are clearly covered by the United Nations embargo, from such countries as the Netherlands, Japan and France? Is it not obvious that our competitors are grabbing our market and, in our parlous balance of payments position, can we afford this?
    Mr. Thomas: The hon. Gentleman takes subjects and figures which suit his argument. I do not blame him for doing so, because I do it myself from time to time. However, we do our case no good —either the case which the hon. Gentleman advances or the case which the House has decided to advance—by distorting or exaggerating the figures.
    Mr. John Lee: If any of the allegations are true, are Her Majesty's Government making representations to the countries which are offending against this, and with what result?
    Mr. Thomas: Yes. Sir. Where we have evidence of an increase in trade, representations are made, and are made with effect.
    Mr. Maudling: Recent figures have shown that French sales in Rhodesia are up by 100 per cent. and that German sales are up by more than 40 per cent. What, in practice, are the Government doing about this?
    Mr. Thomas: First of all, the right hon. Gentleman ought to know that, if he looks at the French figures in detail, in 1967 they show a declining trend. I would expect him to be pleased by that. Secondly, we cannot be responsible for the French Government.
    Mr. David Steel: Since the hon. Gentleman said that the Government are considering ways of making sanctions more effective, could they be extended to cover telecommunications and passports?
    Mr. Thomas: My right hon. Friend will be dealing further with sanctions in other Questions today.
    Mr. Bruce-Gardyne: On a point of order, Mr. Speaker. In view of the totally unsatisfactory nature of the hon. Gentleman's replies, I beg to give notice that I shall seek to raise the matter on the Adjournment at the earliest opportunity.
    Mr. Evelyn Kingasked the Secretary of State for Commonwealth Affairs by how much the consumer price index has risen in Rhodesia during 1966.
    Mr. Bowden: The only available figures are those published by the Central Statistical Office in Salisbury. According to those figures, the European Index on the basis of 100 at January, 1962, rose from 107…5 for the last quarter of 1965 to 110…2 for the last quarter of 1966. The African Index, on the basis of 100 at September, 1965, rose from 100.8 in 1965 to 103…1 in 1966.
    I am unable to confirm the accuracy of these figures.
    Mr. King: Does not that Answer indicate the total and blank ignorance of the right hon. Gentleman about what is happening in Rhodesia? Can he any longer contend that we are the legal Government of Rhodesia when it is clear that we are impotent to govern and are not even trying to govern? Ought we not to govern in fact or get out?
    Mr. Bowden: I shall endeavour to assist the hon. Gentleman by quoting some figures given by the so-called Ministers of the illegal régime. The so-called Minister of Finance stated on 17th April that the increase in prices for vehicles and vehicle spares was 11…2 per cent.; it was 10…6 per cent. for drink and tobacco, and 5…9 per cent. for foodstuffs. The so-called Minister of Commerce and Industry has set up a committee to look into the question of overcharging and profiteering.
    Mr. Biffenasked the Secretary of State for Commonwealth Affairs if he will detail the evidence he has of the
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    effect of sanctions on economic and political conditions in Rhodesia.
    Mr. Bowden: The economic effects of sanctions have been clearly demonstrated by such measures as the illegal régime's reductions on import quotas and in the figure set for the next tobacco crop. As regards political conditions in Rhodesia, I think it will be best to await consideration of Lord Alport's report.
    Mr. Biffen: Whatever may have been the economic consequence of sanctions, is it not now clear that the political reality of power lies with Mr. Ian Smith, and should not the Government adjust their policies accordingly?
    Mr. Bowden: I would not agree that political power rests with Mr. Smith. This is one of the things which Lord Alport has to confirm, or find out what the actual position is. It is not clear that Mr. Smith would today be in a position to negotiate if negotiations started. This is one reason for Lord Alport's visit.
    Mr. Orme: Would not my right hon. Friend agree that, in relation to the tobacco position in Rhodesia, sanctions are beginning to bite, and great concern is being shown by the Government there, and therefore many of us on this side urge the British Government to maintain, and if necessary increase, the sanctions?
    Mr. Bowden: I do not want to weary the House with figures—there are many of them—but an additional one from the régime confirms that exports dropped by £60 million in 1966 and imports were reduced by £35…6 million.
    Mr. Wall: Can the right hon. Gentleman explain how it is that in the first quarter of this year exports from certain major European countries to Rhodesia increased from 62 per cent. to 100 per cent., and from South Africa by 33 to 110 per cent.?
    Mr. Bowden: No, Sir, I cannot explain those detailed changes, but I can assure the hon. Gentleman, and I am sure he will be delighted about this, that we are getting full co-operation from foreign Powers when we draw to their attention breaches in the sanctions wall.
    Mr. Molloy: Will my right hon. Friend acknowledge that he has had two conflicting pieces of advice from hon. Gentlemen opposite? The hon. Member for

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    Dorset, South (Mr. Evelyn King) asked him to do something as the responsible Government of Rhodesia, while the hon. Member for Oswestry (Mr. Biffen)—
    Mr. Speaker: Order. Questions must be brief.
    Mr. Molloy: Will my right hon. Friend take the unanimous advice from this side of the House, which is designed to bring this illegal régime to an end, and end all the difficulties for many other countries which wish to support decency and sanity in the world?
    Mr. Bowden: I hear advice from many quarters on how to handle the Rhodesian position. I do not always take notice of all of it.

    Zambia Radio
    Mr. Biggs-Davisonasked the Secretary of State for Commonwealth Affairs whether he is aware that in April Zambia Radio broadcast to Rhodesia incitements to violence; which British subjects seconded from the public service in the United Kingdom are employed by Zambia Radio; and what action has been taken.
    Mr. George Thomas: I understand that the broadcast to which the hon. Member refers was made by representatives of the Zimbabwe African National Union. There is one British civil servant at present serving on secondment to the Zambia Broadcasting Corporation from the Central Office of Information, but he has no control over broadcasts to Rhodesia or their content, and no action in his respect has been taken.
    Mr. Biggs-Davison: Since it appears that the Zambian Government are paying no attention to Her Majesty's Government's representations against these incitements to violence and bloodshed from Zambia Radio, would it not be desirable for Her Majesty's Government to consider withdrawing Mr. Kittermaster from Zambia Radio, because it is most unfortunate that that gentleman and this country should be connected with that sort of thing?
    Mr. Thomas: While in no way condoning the broadcast—[Interruption.]because it was not a particularly nice broadcast—I ask the hon. Gentleman not
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    to exaggerate the position. This is an isolated incident, and the hon. Gentleman does his cause no good by exaggerating.

    Nigeria
    Mr. G. Campbellasked the Secretary of State for Commonwealth Affairs whether he will make a statement on the present situation regarding British citizens' lives and property in Nigeria.
    Mr. George Thomas: As I told the House on 6th June [Vol. 747, c. 810–12], there have been no incidents involving British lives or property. The High Commissioner, with whom I have been in close touch, has nevertheless arranged for the evacuation of wives and children of our people working in the Eastern Region as a precautionary measure. No further moves are considered necessary at this stage.
    Mr. Campbell: Can the Government provide their good offices to try to prevent hostilities breaking out, which would lead regrettably to violence and bloodshed?
    Mr. Thomas: I much appreciate the tone of the hon. Gentleman's supplementary question. We are doing our utmost and, this very day, one of our chief officers is flying out to Nigeria. The House can be assured that everything that can be done to get an understanding in Nigeria is being undertaken.
    Mr. James Johnson: Is my hon. Friend aware that no cables or letters are coming out of the Plateau region, particularly Jos, in the north? Will he make inquiries about that?
    Mr. Thomas: With things as they are in Nigeria, there are bound to be communication difficulties, but I will, of course, make inquiries as my hon. Friend requires.

    Tanzania (British Banks)
    Mr. Brewisasked the Secretary of State for Commonwealth Affairs what compensation has been received from Tanzania for the nationalisation of British banks.
    Mr. George Thomas: None, as yet. The claims for compensation submitted by the three British commercial banks are being considered by the Tanzanian authorities.
    Mr. Brewis: Has the hon. Gentleman seen a 7ecent statement by the Finance Minister of Tanzania to the effect that Tanzania will not pay any compensation at all? What is he doing to stand up for the interests of British companies there?
    Mr. Thomas: I am pleased to say that the Tanzanian Finance Minister has denied flat statement. He has said:
    "There is no truth in this. We are ready to discuss and settle claims for compensation submitted by the British banks."
    Mr. Biggs-Davison: Is it not almost impossible for Tanzania to pay adequate compensation? While one sympathises with some of the sentiments in the Arusha Declaration, cannot Her Majesty's Government get together with the Tanzanian Government to see whether private enterprise can continue to help that country?
    Mr. Thomas: The Tanzanian authorities have assured us that full and fair compensation will be paid—
    Mr. Biggs-Davison: Out of what money?
    Mr. Thomas: The hon. Gentleman must wait for the Tanzanian Government to keep their word, as they will.

    Zambia (Mr. A. M. Simbule)
    Mr. Bilfenasked the Secretary of State for Commonwealth Affairs what is the result of his discussions with the Zambian Government regarding the statements made by Mr. A. M. Simbule, Zambian High Commissioner-designate; and if he will now declare him persona non grata.
    Mr. William Hamiltonasked the Secretary of State for Commonwealth Affairs if he will now officially recognise Mr. Simbule as the High Commissioner for Zambia.
    Mr. Ronald Bellasked the Secretary of State for Commonwealth Affairs what action Her Majesty's Government have taken and intend to take about the despatch to this country as High Commissioner by the Government of the Republic of Zambia of a person whom Her Majesty's Government have declared to be unacceptable to them.
    Mr. Ashleyasked the Secretary of State for Commonwealth Affairs what
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    steps he has taken to recognise officially the new High Commissioner of Zambia.
    Mr. Bowden: The position is as follows. In February of this year the Zambian Government sought agreement to the appointment of Mr. Simbule as High Commissioner in London and Her Majesty's approval was duly given. Subsequently, Mr. Simbule was reported to have made statements at Dar es Salaam in derogatory terms about Her Majesty's Government. Her Majesty's Government made it clear to the Zambian Government that the controversy created by Mr. Simbule's remarks would, if they were left uncorrected, make it impossible for him to fulfil the task of fostering good relations between our two Governments which would fall on him as Zambian High Commissioner in London. Mr. Simbule arrived in London at the end of last month despite the fact that our inquiries of the Zambian Government were incomplete. Since then he has made a number of statements stressing his feelings of warm friendship for the British people and his desire to strengthen Zambia's relations with Britain. Our consultations with the Government of Zambia have, however, still not been completed; consequently no steps have yet been taken to arrange for Mr. Simbule to present his Letter of Accreditation and to be received as High Commissioner.
    Mr. Biffen: Will the right hon. Gentleman bear in mind that there are limits of self-effacement which the public will expect from Her Majesty's Government in this situation? Will he take it that the kind of gratuitous insults offered by Mr. Simbule at Dar-es-Salaam are totally unacceptable, and that his position as the accredited representative of his country cannot be accepted unless he makes an unqualified withdrawal of those remarks?
    Mr. Bowden: Of course, everyone in the House regrets the inane remarks of this gentleman before he arrived in this country as the High Commissioner following on the signing of the Agrément, but one does not want to be vindictive and I would have hoped that an opportunity could have been given to him, and I think it has been given to him now, to retract. Unfortunately although he has himself made some statements regretting the controversy and assuring us of his

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    friendship, some of his colleagues have not been helpful in this respect.
    Mr. Hamilton: If we can send Lord Alport to talk to representatives of an illegal and totalitarian régime in Rhodesia, why cannot we make this gesture to our friends in Zambia who have suffered more than most from the sanctions policy of the Government, often without consultation?
    Mr. Bowden: I do not accept that the position is quite on all fours with that of Rhodesia. Here was a gentleman who was accredited to this country as the representative of his country, who was to attend here as the High Commissioner, and he made remarks which I am sure he would now personally regret having made. With regard to the comparison with Rhodesia, there we have an illegal régime guilty of a treasonable act against Her Majesty and Britain.
    Mr. Ronald Bell: As this gentleman has, quite rightly, been given this extended opportunity of withdrawing his remarks, and has not done so, and since during that period the Foreign Minister of Zambia has, most unhappily, repeated and approved them, is there really any alternative facing us but to declare this person persona non grata?
    Mr. Bowden: I accept and appreciate the difficulties, but I still feel that nothing is lost by waiting a little longer to see whether we can get the position resolved. I would remind the House that, apart from this incident, there are between 40,000 and 50,000 British subjects in Zambia.
    Mr. Luard: In view of the crucial importance of this country's relations with Zambia and many other African countries over the coming months, will my right hon. Friend undertake to think very carefully before taking any irrevocable step which would cause our relations to deteriorate still further in the near future?
    Mr. Bowden: The fact that I have been considering this for a month since Mr. Simbule arrived here indicates that I am giving it full consideration.
    Mr. Wood: Can the right hon. Gentleman say when we can expect a decision on this matter? The continued inability
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    of the right hon. Gentleman and his office to make up their minds makes him look a little ridiculous.
    Mr. Bowden: On the contrary. The fact that we have during the past month tried very hard to help the position by getting an adequate retraction does, I think, indicate to everyone who is fair-minded about the matter that the British Government are doing their best to resolve the problem and not exacerbate the position in Central Africa.

    Malta (Joint Mission's Visit)
    Sir G. Sinclairasked the Secretary of State for Commonwealth Affairs whether he will make a statement on the results of the Robens Commission's visit to Malta.
    Mr. Bowden: I will consider making a statement when I have seen the report of the Joint Mission, of which Lord Robens is Chairman. I hope this will be completed very shortly.
    Sir G. Sinclair: In view of the added economic difficulties in Malta following the closure of the Suez Canal, may I ask whether the right hon. Gentleman will try to present a statement to the House before the Summer Recess so that this matter is not left in abeyance when Malta is badly in need of practical help?
    Mr. Bowden: I am aware of the difficulties and added problems facing Malta as a result of the closing of the Suez Canal and because their work in the dockyards is declining, and declining rapidly. I understand that Lord Robens will be reporting fairly shortly, certainly in plenty of time for a statement to be made to the House before the Recess.
    Mr. Maudling: Can the right hon. Gentleman confirm that Her Majesty's Government are in consultation with the Government of Malta about possible means of helping to meet these new and additional difficulties?
    Mr. Bowden: Yes, Sir. Certain suggestions have been made with a view to trying to get some work into the area.

    Hong Kong
    Mr. Dodds-Parkerasked the Secretary of State for Commonwealth Affairs whether he will make a statement about the situation in Hong Kong.
    Mr. Fisherasked the Secretary of State for Commonwealth Affairs whether he will make a further statement about industrial unrest and strikes in Hong Kong following last month's disturbances in the Colony.
    Mrs. Hart: There have been continuing efforts to introduce widespread strike action in Hong Kong, mainly in transport and public utilities, but, I am glad to say, with only limited success.
    The Communist propaganda campaign has continued.
    On 24th June there was an incident at a village on the Chinese border which involved about 700 people who were eventually dispersed by the police with the use of tear gas.
    The Governor of Hong Kong arrived in London yesterday and the Secretary of State and I are having discussions with him.
    Mr. Dodds-Parker: May I express on behalf of the House its admiration for the Governor and all the authorities in Hong Kong who have been handling this difficult situation so admirably? Has the hon. Lady any information to the effect that the Bank of China is apparently the centre for supplying arms, and for broadcasting and telecommunications? Is not this wholly illegal in a place like Hong Kong?
    Mrs. Hart: I know that the whole House will agree with the hon. Member in his remarks about the way in which the Governor has handled matters over the past month in Hong Kong. We are highly appreciative of all his efforts. As for the hon. Member's second point, the Bank of China has been the centre for a good deal of the organisation of local Communist activity in Hong Kong. We have been well aware of this for some time, and the Governor has been dealing with the matter appropriately.
    Mr. Fisher: Will the hon. Lady convey personally to the Governor, now that he is here, our personal congratulations and good wishes? Can the hon. Lady say whether the volume of trade in Hong Kong has been adversely affected by the disturbances last month, and also state whether the essential services and the normal lives of the people are carrying on as usual in Hong Kong now?
    Mrs. Hart: In answer to the first part of the hon. Member's supplementary question, there was some uncertainty on the trading side at the time of the disturbances. I have no figures to suggest that there has been any actual decline in trade, and many efforts are being made to restore the degree of business confidence there was before. In answer to the second part of the supplementary question, efforts have been made by local Communists to induce strike action in a way which would affect various of these services. There have been temporary interruptions in some, but up till now none has been seriously interrupted.
    Mr. Rankin: Will my hon. Friend pay regard not merely to what she calls Communist activities but also to the low level of wages in Hong Kong, the poor standards of living, and the general low consumption level in this part of the British Commonwealth?
    Mrs. Hart: I think we are all aware that in dealing with any situation of this kind in this part of Asia factors of this kind will be involved. But it is important to distinguish between the general background and the specific efforts made by a number of people to create disturbances in Hong Kong.
    Mr. Luardasked the Secretary of State for Commonwealth Affairs what proposals he has for improving the youth services in Hong Kong.
    Mrs. Hart: As well as the expansion of existing services, new youth camps, youth centres, special facilities for young people at community centres and in welfare buildings on resettlement estates, and a training centre for youth leaders, have recently been provided or will be completed shortly. But I will, with permission, publish fuller particulars in the OFFICIAL REPORT.
    Mr. Luard: Would my hon. Friend agree that there is considerable evidence that both in the "Star Ferry" riots last year and in certain phases of the disturbances this year, an important factor was the very large number of young people in the Colony with too little to do and with nowhere to go except the streets? Does she not accept that this is very strong evidence that there is need for much better youth services in the Colony?
    Mrs. Hart: My hon. Friend will see when he reads the fuller particulars published in the OFFICIAL REPORT how much is going on in this direction; for example, tomorrow, in the new territories, a new youth centre and camp to serve several thousand young people is being opened, and this is the first part of a tremendous effort that is being made in this matter.
    Following are the particulars:
    Government departments and voluntary agencies in Hong Kong are aware of the problems of youth and increasing effort is being made to guide leisure activities into constructive channels. Existing facilities are being expanded with an emphasis on outlets for young people, aged 14 to 21 years, and long term planning will result from survey into urban family life now being conducted. Some 120,000 young people are in regular contact with agencies offering facilities in forms of youth centres, award schemes, wide range of outdoor activities and libraries.
    2. In last 10 years number of children's playgrounds increased from 9 to 124; parks and gardens from 16 to 244: number of mini-football pitches, basketball, volleyball and tennis courts from 43 to 232. 37 public bathing beaches have been developed. Series of swimming complexes each accommodating 5,000 people at a time are being planned in addition to two existing public swimming pools.
    3. Two new large urban community centres under planning will have facilities for youth groups as well as libraries. Two additional social centres and youth centres will be opened between 1968–1970. Welfare buildings in resettlement estates planned at a rate of one building for 50,000 tenants have similar facilities. Large youth camp on Lantau Island and youth centre on Hong Kong just opened; two other camps and a youth centre will be opened before 1968. Combined youth centre and camp house in New Territories serving several thousands of young people every year will be opened on 28th June.
    4. 1967 summer projects involve 30,500 children and youths in variety of activities, such as work camps, children's camps, expeditions, clubs, etc. Army recently offered 2,000 boys a week of adventure and training.
    5. Government subventions to voluntary agencies working with youths now runs at £238,000 p.a. and being increased by £38,000 in present financial year. A centre for training to be completed next year will help solve problem of obtaining and training leaders.
    6. A survey into urban family life is now being conducted and it is expected that this will give useful information for the long term planning of youth services.
    Mr. Frank Allaunasked the Secretary of State for Commonwealth Affairs (1) if he is aware that many textile operatives in Hong Kong are working 359 days each year; that women and young persons in the Hong Kong garment industry work a 10-hour day plus overtime, longer than in any other Asian countries; and what progress has now been made with the introduction of legislation to reduce these excessive hours;
    (2) if he will call for a report from the Governor of Hong Kong about the communication sent to him by Mr. John Greenhalgh, General Secretary of the International Textile and Garment Workers' Federation on 23rd May; and if he will include in his proposed labour legislation a universal rest day and a 48-hour week for women and young persons in all industries.
    Mr. James Johnsonasked the Secretary of State for Commonwealth Affairs if he will now make a statement on his plans for introducing labour legislation for workers in the textile industry in Hong Kong in the near future.
    Mrs. Hart: I am discussing this week with the Governor legislation providing for a phased reduction in the hours of work over a specific period, to 48 a week for all women and young persons employed in industry with adjustments to permissible overtime. The answer to the first part of Question No. 21 is, with some qualifications, yes, Sir; and to the first part of Question No. 22, no, Sir.
    Mr. Allaun: Will my hon. Friend give an assurance that the hours will be reduced from ten to eight a day in all industries, including the garment and other industries at present quite ridiculously excluded? Is she aware that, after five weeks, the Governor, despite his other commitments, has not even acknowledged the letter from the General Secretary of the Federation?
    Mrs. Hart: I would ask my hon. Friend, to read again carefully what I have just said. I was talking about legislation to provide for a reduction in the hours of work to 48 a week covering all industries employing women and young persons. The letter sent by Mr. Greenhalgh to the Governor did not raise any matters of which the Governor and I were not fully aware.
    Mr. Johnson: Will the Minister accept that working conditions for women and juveniles in this British Colony are worse than those in the Philippines, Indonesia, Korea and Formosa? Will she confirm that the Governor is here not only to talk about Communist disturbances in the Colony but about labour legislation for these women and young persons?
    Mrs. Hart: May I say to my hon. Friends that I completely take their point, and what I have announced just now is that legislation is now being discussed with the Governor which covers a great many of the points raised. My hon. Friends are right, of course, to be concerned, but things are being done.
    Mr. Fletcher-Cooke: Would it not be an exaggeration to say that working conditions in Hong Kong are worse than those in Formosa or South Korea? Are they not, in fact, much better?
    Mrs. Hart: In some respects one can make some favourable comparisons with other countries in the area, but in other respects one cannot do so.

    St. Kitts, Nevis and Anguilla
    Mr. Channonasked the Secretary of State for Commonwealth Affairs if he will make a statement on the situation in Anguilla.
    Dame Joan Vickersasked the Secretary of State for Commonwealth Affairs what consultation he has now had with other Commonwealth countries about the situation in Anguilla.
    Mr. Rowlandasked the Secretary of State for Commonwealth Affairs what requests he has now had to intervene in the affairs of Anguilla; and if he will make a statement.
    Mr. Martenasked the Secretary of State for Commonwealth Affairs if he will make a statement about the situa-
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    tion in St. Kitts, Nevis and Anguilla in the light of the request made to Her Majesty's Government for assistance.
    Mrs. Hart: The Premier of St. Kitts informed us at the beginning of June of his difficulties in maintaining law and order. There have been two aspects to the problem; first, the attempt of Anguilla to secede, and secondly, disturbances in St. Kitts itself. He asked us and some of the Commonwealth countries in the Caribbean for military or police assistance, and has declared a state of emergency.
    I have had discussions with the High Commissioners for Jamaica, Barbados, Guyana and Trinidad, with Mr. Southwell, the Deputy Premier of St. Kitts, and with the Premiers and Ministers from the other Associated States in the area. A proposal has been made that a delegation from the independent Commonwealth Caribbean countries should discuss the problems involved with the Premier of St. Kitts, who has now agreed. They are assembling in Antigua today before proceeding to St. Kitts. I shall keep closely in touch with them.
    On the one hand, we have no responsibility for internal security in an Associated State. On the other, we feel a great deal of concern. Our British Government Representative is in St. Kitts and has visited Anguilla.
    Mr. Channon: Can the hon. Lady say what action Her Majesty's Government are taking in the case of Mr. James Milne-Gaskell, a British subject who is in gaol at the moment? Can she say what charges he has to face, when he will be called to face them, and what Her Majesty's Government are doing about it?
    Mrs. Hart: We have been very busy on behalf of Mr. Gaskell. The British Government representative saw him personally last week. He reports that Mr. Gaskell's prison conditions are completely satisfactory. He can move about freely during the day and can have all the food he wants sent in. He and his lawyers are content with the conditions. As to the charge, a charge has been made which relates to some of his previous activities. We have been looking very carefully at the legal position in respect of charges made under the Constitution, and at the

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    moment we are awaiting a reply from the Premier of St. Kitts to a Note that we have sent him on this matter.
    Mr. Speaker: Order. Questions and Answers are getting very long. We have a lot of questions to deal with.
    Dame Joan Vickers: Can the hon. Lady say whether it is true that St. Kitts landed 150 armed men on Anguilla and will she continue her efforts to get the Government and Opposition in St. Kitts round the table, under the auspices of other West Indian countries?
    Mrs. Hart: There appears to have been a landing. The exact numbers I am not sure of. In answer to the second part of the question, that is my intention.
    Mr. Rowland: Can my hon. Friend state what independent Commonwealth Caribbean countries are taking part in the discussions which she has announced? Will she bear in mind that this incident should not deter the Government from considering associate status for other small territories which want to be independent but cannot be fully independent?
    Mrs. Hart: My present understanding is that the countries sending representatives are Barbados, Guyana and Jamaica. I agree with my hon. Friend in the second part of his question.
    Mr. Marten: Is the hon. Lady aware of the report that quantities of arms have been flown into St. Kitts? If they have, from where have they come? Can she give an assurance that they will not be used to impose any wrong solution on Anguilla?
    Mrs. Hart: This is where the question of our own responsibility and lack of responsibility for internal security becomes very difficult. There is the problem of where we have concern but not responsibility. As for the shipping of arms to Anguilla, there have been some supplies for the police, which have been legitimately ordered by Mr. Bradshaw, but I have no detailed information about this.
    Mr. Wood: Can the hon. Lady add to her reply to my hon. Friend and say when Mr. Gaskell is likely to be brought to trial? Secondly, can she say quite clearly how the situation was left wish Mr. Bradshaw before independence? Had
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    he any right to expect that we should be assuming any responsibility for the internal security of the island after independence?
    Mrs. Hart: The understanding with Mr. Bradshaw stretched no further than the constitutional agreement expressed in the White Paper and the West Indies Bill which came before this House. No further understanding than that existed. As for the rest of the question, we are going to make every possible effort and I have no reason to believe that Mr. Bradshaw will not be ready to seek a political solution of the outstanding problems concerning Anguilla. The charge against Mr. Gaskell and the time at which he will be brought to trial are matters which have been the subject of the British Government's representative's Note to Mr. Bradshaw, to which we now await a reply.

    Commonwealth Planners Conference, Nairobi
    Mr. Dodds-Parkerasked the Secretary of State for Commonwealth Affairs if he will make a statement about the results of the Commonwealth Planners Conference in Nairobi.
    Mr. George Thomas: Yes, Sir. The meeting of senior officials from 22 Commonwealth countries was held in Nairobi from 24th May to 2nd June. The Commonwealth Secretariat is to prepare an analytical report of the discussions on planning with a view to publication. The meeting has submitted a number of recommendations on both these subjects to Commonwealth Governments.
    Mr. Dodds-Parker: What progress has been made about getting the more developed countries of the Commonwealth, apart from the United Kingdom, to give help to these developing countries?
    Mr. Thomas: They took their part in the discussions at the Commonwealth Conference, and I look forward to good results.
    Mr. Wood: What view does Her Majesty's Government take about the Indian proposal for a market development fund?
    Mr. Thomas: I cannot say at this moment. All the proposals are being considered by all the Commonwealth Governments in turn.

    Kenya (Hola Concentration Camp)
    Mr. John Leeasked the Secretary of State for Commonwealth Affairs if he will seek to establish a memorial in the United Kingdom to victims of the Hola concentration camp in Kenya
    Mr. George Thomas: No, Sir.
    Mr. Lee: Will my hon. Friend reconsider this, bearing in mind that this was perhaps the most disgraceful episode in the 13 disgraceful years of Tory rule'?
    Mr. Thomas: It so happens that I took part in the debate on the Hola Camp, and I visited it. I see no advantage now in stirring up unhappy memories of a difficult period, when Kenya itself wants to put the past behind her and is concentrating on developing a successful multi-racial society.

    Zambia (Lieut.-Colonel Arnott, Mr. Nursten and Mr. Swift)
    Mr. Biggs-Davisonasked the Secretary of State for Commonwealth Affairs whether criminal proceedings in Zambia have yet been initiated against Lieut.-Colonel Arnott, Mr. Nursten and Mr. Swift, or whether they have been deported.
    Mr. George Thomas: Lieut.-Colonel Arnott and Mr. Swift were deported from Zambia on 11 th and 19th June respectively. Mr. Nursten is still in detention. Criminal proceedings have not been initiated against any of them.
    Mr. Biggs-Davison: Since the Minister has stated the international position in law—that it is wrong for such a person to be detained except for the purpose of his being either tried or deported—can the hon. Gentleman say whether either of these things is likely to happen?
    Mr. Thomas: We have made representations. We believe that it is wrong that a man should be kept in prison without a charge being laid against him and without his being brought to trial. We will continue to make our representations.

    PRIME MINISTER (SPEECH)
    Mr. Bruce-Gardyneasked the Prime Minister if he will place in the
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    Library a copy of his public speech to the Confederation of British Industry on 17th May on manufacturing investment.
    The Prime Minister (Mr. Harold Wilson): I did so on 25th May, Sir.
    Mr. Bruce-Gardyne: Very interesting, but in view of the Board of Trade's latest forecast showing no expectation of a recovery in private manufacturing investment before the end of 1968 at the earliest, can the Prime Minister explain why his frequent bromides about manufacturing industry have so little effect?
    The Prime Minister: I think the hon. Gentleman will agree that, compared with the very gloomy predictions that were made about investment in the autumn, there has been a considerable pick-up of investment in recent months, and I think that there is wide evidence, not least the latest C.B.I. survey, that there is a more optimistic feeling that investment will pick up further.
    Mr. David Watkins: There is particular need for the sort of investment in the development areas to which my right hon. Friend referred in his speech, but would he agree that such investment in the development areas is not likely to take place without Government intervention?
    The Prime Minister: Unfortunately, I could not hear the opening words of my hon. Friend's supplementary question, but I caught what I think was the key part of it—about the development areas. The help we are giving the development areas with investment grants is on an unprecedented scale. In addition, we now have the decision about the regional employment premium, which is one of the best incentives for new development there that one could have.

    EUROPEAN ECONOMIC COMMUNITY
    Mr. James Davidsonasked the Prime Minister what provision he has made to represent the special interests of Scotland in the course of negotiations for United Kingdom entry to the European Economic Community, in view of Scotland's status as an equal partner with England under the Treaty of Union of 1707.
    The Prime Minister: I have nothing to add to the Answer which I gave on 6th June to a Question by my right hon. Friend the Member for Easington (Mr. Shinwell).—[Vol. 747, c. 189.]
    Mr. Davidson: Has the Prime Minister considered that General de Gaulle's apparent reluctance to allow the United Kingdom's entry to the European Economic Community might not, in part at least, be due to his suspicion of English nationalism and, in particular, to the traditional, historic rôle that England has played in keeping Europe divided? If Scotland were permitted to play a more significant rôle in the negotiations—
    Hon. Members: No.
    Mr. Speaker: Order. That supplementary question is, I think, long enough.
    The Prime Minister: Unfortunately, in my talks with General de Gaulle we did not get on to the question of the Auld Alliance but to questions of our future. It would seem from some of the interruptions just now that some hon. Members are not keen to have separate Scottish entry to the Common Market. But, as I have said in a previous Answer, we shall see that the interests of Scotland are fully represented in the discussions.
    Mr. Hector Hughes: In any negotiations such as are mentioned in this Question, will my right hon. Friend bear in mind the great advantages which flow to north-east Scotland from its close association—historical, family and otherwise—with Scandinavia?
    The Prime Minister: Yes, Sir. This is fully recognised, and, of course, the decision of Scandinavian Governments to apply for entry shows that they attach the same importance to this as does my hon. Friend, and the same determination that their interests shall be safeguarded by negotiation or otherwise.

    MIDDLE EAST
    Mr. Winnickasked the Prime Minister what consultations he has had with the leaders of other countries over the Arab-Israel war.
    The Prime Minister: I have had meetings in their own countries with the
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    Prime Minister of Canada, the President of the United States and the President of France; and in London with King Faisal of Saudi Arabia, the Prime Ministers of Malawi, Australia, Singapore and Italy and the Deputy Prime Minister of New Zealand. In addition, I have had personal exchanges with the President of Pakistan, the President of Tunisia, the Prime Ministers of the U.S.S.R., India and Israel, and, as my right hon. Friend the Foreign Secretary explained to the House yesterday, while he was in New York he had discussions with the Heads of Government or Foreign Ministers of most of the countries directly or indirectly involved.
    Mr. Winnick: What effective international action can be taken to help the new wave of Arab refugees? Is my right hon. Friend aware of the tremendous concern at their suffering and hardship—the same sort of concern as was expressed a few weeks ago by many people about Israel's existence?
    The Prime Minister: Yes, Sir, and I think that we have all expressed this concern. In the very week of the fighting, in a speech in the country, I said that this was one of the things which must be dealt with in a permanent settlement, and, as was shown by my right hon. Friend's speech in New York and his answers yesterday, all of us attach the same importance to this as does my hon. Friend.
    Mr. Hastings: Does the right hon. Gentleman think that all these discussions upon which he has elaborated and those which the Foreign Secretary had with these various nations have had the slightest effect on anything at all during the course of these debates?
    The Prime Minister: If it were the hon. Gentleman's policy that we should avoid all discussions of international affairs, I should be very surprised. It is necessary, in view of the vitally important and difficult discussions at the United Nations, that we should keep in close touch with our colleagues and I thought that it was the view of all hon. Members when we debated the Middle East before the trouble began that we should have the closest liaison with the Commonwealth on this question.
    Mr. Bellenger: What will be the procedure, the methods and machinery, for

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    getting the permanent settlement about which my right hon. Friend the Foreign Secretary talked yesterday? He gave the impression that it would be settled in the Security Council. May we know what is to be done?
    The Prime Minister: I have nothing to add to what my right hon. Friend said. It is, of course, impossible at this stage to forecast even the result of the General Assembly Resolution, as we do not know what Resolution will be moved or its effect, and it will probably have to come back to the Security Council, as my right hon. Friend said. He made one suggestion about a senior representative of the Secretary-General going out to the Middle East aid trying to reconcile these differences. Other suggestions, such as four-Power talks, may become desirable at the last moment. President de Gaulle and I felt last week that the right moment had not come for pushing that matter.
    Mr. Frederic Harris: Have the right hon. Gentleman's extensive consultations taken fully into account the urgent need for the reopening of the Suez Canal, and would he make a statement on that?
    The Prime Minister: This is one of the things with which we have been dealing, and it is of particular concern to the Indian Government, because of the many food cargoes to India, where there is acute food shortage and even, in some areas, famine conditions. This has been one of our arguments, but I have nothing to add to what my right hon. Friend said yesterday about the present situation.

    ARMS SALES
    Sir T. Beamishasked the Prime Minister if he will now make a further statement of policy about the sale of British arms and equipment for use in Vietnam to the United States, Australia and New Zealand, taking into account the common obligation with them under the South-East Asia Treaty Organisation pact to resist aggression against South Vietnam and the fact that the other co-Chairman of the 1954 Geneva Conference on Indo-China, namely the Soviet Union, is supplying large quantities of arms and missiles to the Communist side in North Vietnam.
    The Prime Minister: I have nothing to add to the Answer I gave on 12th July last year to a Question by my hon. Friend the Member for Woolwich, West (Mr. Hamling).—[Vol. 731, c. 191.]
    Sir T. Beamish: Are not the Government in a completely false and anomalous position? What restrictions have been placed, if any, on the use of British arms by Britain's allies in Vietnam? By what criteria do the Government judge whether to export arms to the United States, bearing in mind that the export to Australia and New Zealand is unconditional and unrestricted?
    The Prime Minister: I explained this in great detail a year ago and the position has not changed. We believe that, in our position as co-Chairman, however differently the other co-Chairman to which the question referred may interpret his position, we should not be shipping arms directly for use in Vietnam. We therefore have to take a decision case by case as to what the position would be, and the United States Government fully understand this.
    Mr. R. C. Mitchell: Would my right hon. Friend not agree that the best way for Britain to help Vietnam in its struggle against aggression is not by sending arms, either directly or indirectly, but by substantial increases in civilian aid, for example, medical supplies and doctors?
    The Prime Minister: We have given help with medical supplies and doctors, particularly doctors for treating children injured in the fighting, and we have already discussed with a number of countries concerned what we hope can be given when the fighting stops, because there will be a tremendous need for economic development then.
    Mr. Goodhart: Is the right hon. Gentleman aware that the only British supplies really needed by our allies in Vietnam are cases of Scotch whisky?
    The Prime Minister: That has not been drawn to my attention and is not on any strategic embargo list in any possible market.
    Mr. Wallace: Is my right hon. Friend aware that a British Government concerned with peace could best direct their efforts to the reduction of arms sales throughout the world and in the U.N.?
    The Prime Minister: Yes, Sir, and this is our policy, as I explained in an answer last week. We are particularly concerned with this, the urgency of which has been shown in recent weeks in the Middle East, but in that case we want some reciprocity from the other arms-supplying countries.

    RHODESIA
    Mr. Hastingsasked the Prime Minister whether he will make a further statement on Rhodesia.
    Mr. James Johnson: On a point of order. Is it possible to find out why the Question of the hon. Member for Mid-Bedfordshire (Mr. Hastings) is answered in this way while humbler mortals like myself have their Questions transferred to the Commonwealth Secretary?
    Mr. Speaker: That is a question not for me but for the Minister concerned.
    The Prime Minister: I have nothing to add to the Answer I gave on 13th June to a Question by the right hon. Gentleman the Member for Streatham (Mr. Sandys). —[Vol. 748, c. 305.]
    Mr. Hastings: Has the right hon. Gentleman seen reports of the great increases in exports from France, Japan and even the E.F.T.A. countries? Does he not realise that, whatever happens to next year's tobacco crop or the tobacco crop of the year after, Rhodesia will never be brought down by his sanctions policy? Is it not quite unrealistic to talk of negotiations or even to despatch Lord Alport to Rhodesia while he preaches that N.I.B.M.A.R. is his policy?
    The Prime Minister: I have seen the figures for many countries and there have been some increases, but vast reductions have been made by some countries which previously traded with Rhodesia. As to the effect of sanctions, the difference between us is that the hon. Gentleman does not want to see the Rhodesian illegal régime brought to constitutional rule. We do want to see that, and that has been the purpose of all our policies.
    Mr. Huckfield: How much of Rhodesia's trade is still done with Zambia?
    The Prime Minister: A sharply diminished amount. For obvious reasons,
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    because the two countries are contiguous —this applies also to Malawi and one or two others—it has not been possible to cut it out altogether, but there has been a sharp reduction made by Zambia.

    ROYAL OBSERVER CORPS
    Mr. Deedesasked the Prime Minister why it is proposed to transfer the Royal Observer Corps from the Royal Air Force to the Home Department.
    The Prime Minister: There has been no decision affecting Ministerial responsibility for the Royal Observer Corps. Ways of improving the efficiency of the Warning Organisation, which includes the Royal Observer Corps, are under consideration, but as I have said no decisions have yet been reached.
    Mr. Deedes: Will the right hon. Gentleman bear in mind, in considering what the ultimate state of this Corps will be, that it attaches enormous importance to its association with the Royal Air Force and that deep concern will be felt if this long tradition were broken?
    The Prime Minister: As the right hon. Gentleman knows from his experience at the Home Office, that Department is already and in his time was responsible for operational policy and control of the Royal Observer Corps and meets the bulk of the Corps' costs, but, whatever changes may emerge as a result of these considerations, the Corps will obviously continue to have close links with the Royal Air Force.
    Mr. Macdonald: Why has there not been much consultation with the members of the Corps up to now? Will my right hon. Friend ensure that, before any final changes, they will be consulted?
    The Prime Minister: There have been consultations with the senior officers of the Corps on certain of the changes. This is now being studied, and the process of consultation will be continued wherever appropriate.

    STANSTED AIRPORT
    Mr. Arthur Lewisasked the Prime Minister whether he will publish in the OFFICIAL REPORT the communication,

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    dated 16th June, 1967, concerning Stansted Airport, which he received from Mr. Brian Halliwell.
    The Prime Minister: No, Sir, it would not, I think, be right for me to publish letters I receive from members of the public in this way.
    Mr. Lewis: If my right hon. Friend will not publish it, will he consider seriously the points contained in the letter, which I hope he has studied up to the moment?
    The Prime Minister: Yes, Sir, I will continue to give the closest consideration to these points, although many people who write to me would, I think, be a little perturbed if I were to get into the habit of publishing their letters without their agreement. A reply will, of course, be sent in due course.

SERVICES, PRESS AND BROADCASTING COMMITTEE (COLONEL LOHAN)
Sir Richard GlynQ9. Sir Richard Glyn asked the Prime Minister what specific inquiries were made in the autumn of 1964 as to the suitability of Colonel Lohan for the post he held; which Minister considered the result of these inquiries; and who was responsible for allowing Colonel Lohan to continue as Secretary.
The Prime Minister: First, I will tell the House why the information given to the House about the inquiries which began it 1964 on Thursday last was not given to the Radcliffe Committee. The answer is that it was not known to any of my right hon. Friends or myself until some days after the Radcliffe Report was published.
On 13th June the Radcliffe Report and the Government's White Paper were published. Both made it clear that the Secretary of the Services, Press and Broadcasting Committee had not been positively vetted. On 14th June the Secretary made a statement to the Press flatly denying that he had not been cleared security wise to the highest level.
On the same day a Parliamentary Question was tabled to me on this point by the right hon. Gentleman the Member for Orkney and Shetland (Mr. Grimond). On making inquiries about
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the Secretary's security status, I learned, as I told the House last week, that early in 1964 preliminary consideration was given to his general suitability for a post of this kind.
As I told the House, this led to a decision later in the year to make specific inquiries, one of a number of questions for examination being the over-close association with journalists and especially the journalist concerned in the case the House was debating. Colonel Lohan was informed of this.
This particular anxiety was not wholly allayed, but, in the event, it was decided, taking everything into account, to allow the Secretary to continue in his post, which was not then a P.V. post, for the time being. At no stage, as the House knows, did he get full security clearance.
In the later stages of the debate last Thursday both the right hon. Gentleman the Member for Altrincham and Sale (Mr. Barber) and the right hon. Gentleman the Member for Ashford (Mr. Deedes) challenged me to deal with allegations made in the debate by hon. and right hon. Members about these matters. These issues were directly relevant to the conclusion the House had to reach and, having been challenged on them, I gave the reply and kept it to the very minimum.
Sir Richard Glyn: Is not the Prime Minister responsible for the security of this country? Was not he personally responsible for the decision made by others to continue Colonel Lohan as Secretary? Is not he responsible for the failure of those concerned to convey to him and the Radcliffe Committee the results of the specific inquiries in the autumn of 1964?
The Prime Minister: I bear my full share of the responsibility, and share it with my predecessors, that these decisions were taken. The post was not a P.V. post, as I have said. Whether it should have been is a matter for much controversy. I personally think that it should. A week or two before the events of February, which led to the Radcliffe Report, my right hon. Friends and I were discussing certain changes in that respect; but then the incident occurred and, because of that, the matter was left in suspense until the Report was

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received. Yes, I agree that it probably should have been a P.V. post all along; and I accept my share of the responsibility that it was not.
Mr. Arthur Lewis: Has my right hon. Friend's attention been drawn to an article by Chapman Pincher in last Saturday's Daily Express in which Mr. Pincher admits to a close association with Colonel Lohan, but says that it is no different from the close association he has had with the Paymaster-General? In view of that, will my right hon. Friend consider taking some action, or issuing a D Notice?
The Prime Minister: As my hon. Friend knows, no D Notices have so far been issued since this Government were formed. I read this highly entertaining article last Saturday. There is a difference between an association with any journalist and a civil servant, on the one hand, and an association between a journalist and a back bench hon. Member of the Opposition, which my right hon. Friend then was. This is the difference which I did not see clearly laid out in that article.
Mr. Heath: May I ask the Prime Minister one specific question and, in doing so, assure him that I am choosing my words very carefully? [HON. MEMBERS: "Hear, hear."] He will recognise the importance of this matter. Is it correct to say that in March of last year, 1966, very senior officials dealing with these matters placed on the record their conclusion that they were all satisfied that there were no grounds on which they could question Colonel Lohan's reliability?
The Prime Minister: I am aware of the correspondence between two officials at that time, following some of these inquiries; and it was this letter which I think the right hon. Gentleman was paraphrasing. Anxieties were still expressed in the course of that exchange. It was decided to look at the matter again. The matter was not looked at again until after the post was transferred from one Department to another and following further consideration, from Aviation to the Ministry of Defence, the whole matter was reopened again.
As I have said, the reopening of it—[HON. MEMBERS: "Answer") I am
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answering—was deferred because of that particular inquiry. Since the right hon. Gentleman chooses to quote a letter which, as he knows, is headed "Staff—in Confidence"—
Hon. Members: Oh.
Mr. Speaker: Order.
The Prime Minister: Since the Leader of the Opposition quoted, in paraphrase form, from a letter between civil servants which is headed "Staff—in Confidence", I think that it would be wrong for me to answer that question any further—[HON. MEMBERS:"Why?"]—without answering other letters in the same sense. If the right hon. Gentleman wants to know all the exchanges—and I am not having one selected in this way; it happens to be the one which has been handed out to the right hon. Gentleman —and wants to pursue the whole general matter, the importance of which I agree with him, then this is not the place to be bandying about arguments of security stages. [HON. MEMBERS: "Why say it?"] I answered at the end of the debate as I did because I was challenged by the right hon. Gentleman, but I kept my answer to the minimum.
If the right hon. Gentleman wants to go into all the aspects affecting Colonel Lohan's clearance and his suitability for the post, I will be glad to show him all the papers that I have been shown. That is the right relationship on a matter of security. It is also the right relationship in a matter affecting the personal status of a civil servant.
Mr. Heath: The Prime Minister will recognise that this matter has been opened up as a result of his quoting words in the debate and giving us no opportunity to reply. I put this question to him specifically: will he confirm that this was a conclusion—indeed, the final conclusion —of those officials in March, 1966? Secondly, is he now saying that after March, 1966, the whole matter was opened up again and has not been settled?
The Prime Minister: To answer the second part of the right hon. Gentleman's question, the matter was opened up again during the winter. It was opened up again following the transfer of responsibility for this post from one Department to another. The matter came to a head

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in late January or early February, but, because of the newspaper article and everything that followed, the matter was held over.
To answer the first part of the right hon. Gentleman's question, he said that I was the one who had raised this. The right hon. Gentleman the Member for Altrincham and Sale, in an intervention in the speech of my hon. Friend the Member for Ilkeston (Mr. Raymond Fletcher), asked whether the Government would deal with the allegations which, he rightly said, were serious and which had been made by my hon. Friend. I was further asked specifically by the right hon. Member for Ashford (Mr. Deedes), who was the Member of Parliament for the civil servant in question—we understand his concern—whether the statement in the Radcliffe Report and the White Paper, or the statement of the Secretary himself, as to whether he had been positively cleared, was right. I gave my answer, using the minimum number of words that I could have used in all the circumstances.
As for the quotation made by the Leader of the Opposition—his paraphrase from it—I did not think that it was for me to say whether or not that paraphrase represented the whole of the story. I have invited the right hon. Gentleman to come and see all the correspondence that I have seen—the reports, and so on—and then he must decide, after that, what he feels to be the right course of action.
Mr. C. Pannell: Is my right hon. Friend aware that the fate of Colonel Lohan is something more than an interparty political row and that it goes down to the very principle of one man being isolated in a matter which has reached the stage of being a vote of censure in this House?
Will my right hon. Friend therefore now say, without breaching security, why this man remained in this post for so long a period without, presumably, anything so deep in his relationship with the Government that would have necessitated his removal from a highly confidential post?
The Prime Minister: In the statement which I made on the day of publication of the Report, I said that all of us understood lie extreme difficulties and anomalies of Colonel Lohan's position.
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It is a lonely post—[Laughter.]—yes, he must take a lot of decisions on his own. One of the lessons which has come out of the original Report and our own inquiries—and the evidence shows the difficulties under which whoever has that post has to work—is whether this post should have been a P.V. post all along. I take full responsibility for that.
I am sure that my predecessor and the Ministers in the previous Conservative Government agree that we all assumed that it was a P.V. post. When it was discovered what highly sensitive material was going through the hands of the Secretary, we decided to reopen the question over a wide field, and those inquiries were going on. I agree with my right hon. Friend that very many things have gone wrong, and I take my share of the responsibility.
It is not a question of one individual. As I said last Thursday, I had no intention of bringing out this information and would have been very loath to do so. [HON. MEMBERS: "Oh"] I know the speech which I had dictated, and which I was ready to give in the House. I was very loath at that time to bring out anything about any individual.[HoN. MEMBERS: "0h"] But in view of the challenge by the right hon. Member for Altrincham and Sale I had to deal with the point, and I said the very minimum required.
The right hon. Member for Ashford, perfectly appropriately, in my view, as he is the Member of Parliament concerned, also challenged me on these points. In those circumstances, I felt it right, particularly since it was germane to the decision which the House had to reach, to give the information which I had to give—and I gave as little as possible.
Mr. Heath: The Prime Minister must realise that he cannot leave the matter as it now stands. It is not sufficient to say that the Leader of the Opposition can see the appropriate papers. The Prime Minister said that the matter was reopened at the turn of the year. In fairness to Colonel Lohan, he must either say that the decision of March, 1966, was overthrown, and give the reasons, or he must say that the decision of March, 1966, still stands.
The Prime Minister: I had hoped that the right hon. Gentleman would prefer to

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accept my invitation to read the papers rather than to press this point. But I will answer the question. The responsibility for what I say must lie on those who put the questions. I would prefer the right hon. Gentleman to see the papers and then to decide his attitude. He is not gagged by seeing the papers— he never has been.
The right hon. Gentleman asked about reopening the inquiry. As I have said, it was reopened because when it was realised—there had been a change of responsibility both of the officials concerned and of the Department concerned—what highly sensitive material was passing through his hands—material with a very high degree of sensitivity—the fact that it was not a P.V. post came to light. Certainly, I was surprised about it when I heard it. We therefore gave urgent consideration to whether it should have been a P.V. post. I thought that it ought to have been a P.V. post all along.
The right hon. Gentleman put a specific question to me. I must answer it. We are dealing with a very important aspect of security. We are also dealing with the concern of the whole House, which I share, about the P.V. status of an individual, which is normally not a matter to be bandied about across the Floor of the House. I invited the right hon. Gentleman not to pursue the matter until he had time to see the papers. But if hon. Gentlemen opposite want to pursue it, for whatever motives may seem good to them, then I must tell the right hon. Gentleman, as I have already said, that Colonel Lohan was not P.V.-ed at the time. It was not a P.V. post so that the P.V. inquiries were not completed. Whether he would have been P.V.-ed is a matter about which the right hon. Gentleman must form his own view. The right hon. Gentleman asked the question and he must form his own view.
The matter did not arise at the time. Once we had decided that in principle it ought to be a P.V. post, then, obviously, the whole question had to be raised again. If the right hon. Gentleman wants to go on putting questions about this gentleman, whose cause he is supposed to be protecting—and that is said to be the only reason for all that we have seen in the Press in the last few days—then I think that the right hon. Gentleman
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should do it as he would have done with any civil servant, by looking at the papers before he starts putting questions.
Mr. Woodburn: This man, whether rightly or wrongly, has suffered already. May I make a plea that the Leader of the Opposition will not use him as a pawn in the political field? Before any public discussion of the matter takes place, the Leader of the Opposition should get Colonel Lohan's permission to push his inquiries.
Mr. Hooson: The Prime Minister has said that Colonel Lohan was the subject of informal inquiries in 1964. Would he tell the House, first, whether Colonel Lohan was then asked to change his method of dealing with the Press? Secondly, if it were alleged that he was on too friendly terms with correspondents, was he warned that in the view of the Government he was on these terms with correspondents and that it should cease, or, if he were not so informed, why not?
The Prime Minister: Spread over 1964 to 1965—I do not know the precise date—he was informed of the anxiety. There were never charges. Looking back on it, it might have been right if there had been a straight Civil Service board as is provided for in the rules of the Civil Service and the matter could have been thrashed out. But it was not done that way, I think perhaps regrettably. But he was made aware of what the anxieties were and there were discussions with him about it.
Mr. David Griffiths: Is my right hon. Friend aware that a considerable number of us who were in Parliament in 1945–51 were entirely suspicious of a lot of information that was conveyed to right hon. and hon. Gentlemen opposite?
The Prime Minister: This has been a continuing problem not only in 1945–51 or 1961–64 or 1964–67. This is an endemic problem which all Governments have to face. I have already expressed my regret for my unworthy suspicions that what had happened in the Ministry of Aviation up to 1964 was due to the then Minister. Since it was continued afterwards, I knew that it was not.
Mr. Heath: The impression has been given so far that Colonel Lohan did not pass the P.V. test and that it was through some fault of his. Either this

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was so, or it was not. In his last answer to me the Prime Minister implied that the test was done because the status of the post was changed. May I have a specific clear answer to this: was the P.V. undertaken because of the Prime Minister's doubt about Colonel Lohan and an overthrowing of the 1966 decision, or was it undertaken because it was decided to make the post a P.V. post? Secondly, did the test remain incomplete through any fault of Colonel Lohan, or did it remain incomplete for other reasons?
The Prime Minister: I will try to answer that question as far as I can, but I must first ask the right hon. Gentleman to make it clear whether he was referring to the original inquiries of 1964 and subsequently or whether he was referring to the reopening of the case at the turn of the year to which I have referred. Perhaps he will make that clear.
Mr. Heath: I am referring to the reopening of the case at the turn of the year.
The Prime Minister: The position is this—and again I want to choose my words carefully. I really would prefer the right hon. Gentleman to see the papers. He will find on this matter, as I found when I was in his position and had to consider the Philby case, that there were very difficult complications that cannot be explained across the Floor of the House and which make it difficult to give a straight open and shut answer. On the Philby case I fully supported the Prime Minister, incredible though from the outside the situation appeared.
In this case there were certain difficulties about what kind of procedure should be followed after 1964. I have already hinted at that. I do not want to go further. I would prefer the right hon. Gentleman to see the papers. One of the reasons the matter was left rather open at the end of the day was that in any case it was not a P.V. post and the question of the final completion did not need to arise.
With regard to the reopening at the turn of the year, one of the main factors that entered into our consideration at that time was the fact that, the whole matter, having been looked at again, it was re-
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cognised that the highly sensitive and secret nature of the papers passing through the post made it highly desirable that at any rate it should be considered whether it should be a P.V. post. This was one of the reasons why the matter was reopened.
There was a second reason—and again I choose my words carefully. As I reported to the House, the result of the earlier inquiries was that he should be kept in his post for the time being. That was the decision of the official concerned when the matter was last looked at. Now it was reopened—with a new official, a new chairman of the D Notice Committee and a new Permanent Under-Secretary. Naturally, such papers are brought forward after a period of time. They were brought forward and looked at, therefore, because the matter had been deferred from the previous inquiry. That was one reason. The second reason was that I felt that the post probably ought to be a P.V. post.
Mr. Edelman: The Prime Minister used the term, "over-close association with journalists". In view of the fact that it was Colonel Lohan's function to associate with journalists, would the Prime Minister describe exactly what is the implication of the term "over-close "? Is it a technical term? Is it a euphemism? Perhaps he will explain.
The Prime Minister: I do not think that it would help if I tried to explain this philosophical expression. Certainly, this is one of the points I had in mind when I referred to the difficulties of this post. It does require the carrying of confidence with journalists. Some of the arguments in the Radcliffe Committee's Report suggested that some of the confidence was breaking down a little. It means a free and easy relationship with all of them.
I think that the phrase "over-close" in this connection was used having regard to the requirements of the job. Government information officers have to have association with journalists, but they must not have over-close or selective relations between one and another. Any phrase of this kind must be related to the requirements of the job. I have said that this was one of the anxieties of that time.
Mr. Deedes: I must ask the Prime Minister this. When he spoke on Thursday night about the incidents early in 1964 was he aware of the fact that Colonel Lohan was on probation on this job from 1st January to 1st June, 1964, and was confirmed in the post after the incidents to which he has referred? In the light of what he has said about all this now, why was Lord Radcliffe so kept in the dark?
The Prime Minister: The position is—in fact, I could put it even better from the right hon. Member's point of view than he did—that Colonel Lohan had been acting Secretary of the Committee during the very serious illness of Admiral Thompson and as he had been acting for some time he was given the job. Admiral Thomson of course, a very distinguished admiral, was never positively vetted. [Laughter.] Hon. Members think that this is a humourous subject, but I think that a very distinguished admiral, with his record, would hardly expect to be vetted in that situation, particularly since he was a war-time censor where very rigorous rules apply, much rougher than certain aspects of vetting as properly understood.
Colonel Lohan stood in for him when he was ill. Then consideration was given to whether he should be given the post substantively and at that time general inquiries as to his suitability for the post properly came to be taken. Despite part of the security procedure being carried out, the security procedure was not completed and he was confirmed in his post, but the position was left for the time being. This was in 1966.
Mr. Deedes: The Prime Minister is misunderstanding me. I am asking about events early in 1964, to which the Prime Minister alluded in the debate. Colonel Lohan was on probation from January to June and the incident occurred while he was on probation but he was confirmed in the appointment in June. Why?
The Prime Minister: This is perfectly true, but then inquiries continued, as I have said, for the reasons I have mentioned—Colonel Lohan knew about these—during the subsequent months and, indeed, he answered some of the points which had been raised. Following all that the position then was that he was confirmed in his post, or kept in his post
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for the time being. Inquiries were reopened earlier this year.
On the second question, about why was Lord Radcliffe not told about this, Lord Radcliffe did not raise the question—nor did other members of the Committee, so far as one can tell from the evidence—about Colonel Lohan being kept in that post. They did not raise this matter. They discovered—I think there was a slight reference to this in their Report—the fact that he was not P.V.-ed. It is quite clear that one of the reasons for the breakdown of communications in this episode was the fact that he was not at the Foreign Office meeting because he was not P.V.-ed and, still less, given the full clearance required for that kind of Foreign Office work.
Mr. Blackburn: Can my right hon. Friend say whether the letter which has been paraphrased was a confidential document and, if so, what action has been taken?
The Prime Minister: As I understand, it was headed "Staff—in Confidence". It was not headed "Secret" or "Top Secret". My own practice with "Staff—in Confidence" documents is to treat them as at least as secret as those headed "Secret". This document was in the hands of the Secretary and, obviously, it is now in other hands. I do not think that it is a matter for me to pursue further. Some very odd things have happened in the last few weeks. [HON.MEMBERS: "Hear, hear."] Colonel Lohan is a civil servant. He has made some very strong pronouncements in the Press, some highly critical pronouncements, and on television. We have not thought it right to take exception to them, but hon. Members who have been civil servants will know that the procedure has been a little different from what is usually the position of civil servants.
Colonel Lohan's first statement made to the Press was made before either the Report was published or any comment was made by the Government. His first statement to the Press followed a statement in one newspaper—an inaccurate statement—that he had been summoned before a disciplinary board. He had not been summoned before a disciplinary board, but someone got the idea that he had and printed it. That is why he made his first statement.
Mr. Sandys: Is the Prime Minister really asking us to believe that but for the two speeches of my right hon. Friends he would not have made these damaging insinuations against Colonel Lohan in the last two minutes of the debate? Since his statement today has cast a further slur upon Colonel Lohan's character and conduct, does he not think that it would be only fair to publish the evidence and to give Colonel Lohan an opportunity to reply?
The Prime Minister: On the first part of the question, that is what I ask the right hon. Gentleman to believe. [HON. MEMBERS: "Oh."] I have the right to ask the House to believe that. The behaviour of some hon. Members shows that their concern could not be further from questions of security or Colonel Lohan. Some are regarding this—as every other issue, policy or not—as an opportunity of hounding one or other member of the Government. I told the right hon. Gentleman that I was not going to use this information on Thursday evening, but I was challenged by both right hon. Gentlemen—if I may say so, in conditions which were perfectly fair—and I decided that it was right to reply. I cut down my reply to the absolute minimum that was necessary to deal with the question that was raised.
If I have said more this afternoon it has not been by my choice, because at the very beginning of the supplementary questions I suggested what is the normal method of handling security questions, which was always respected when I was Leader of the Opposition without further question even if doubts remained in my mind. I challenge the right hon. Gentleman to mention one case where, having been given the facts in secret, even though doubts remained, I tried to make a party political issue of them afterwards.
Mr. Sandys Mr. Sandys rose—
Hon. Members: Sit down.
Mr. Speaker: Order. The right hon. Gentleman knows the rules of the House. When Mr. Speaker is standing the right hon. Gentleman must sit down.
Mr. Sandys: On a point of order. Before you end discussion of this, Mr. Speaker, could the Prime Minister be
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given a chance to answer the second part of my supplementary question?
The Prime Minister: Further to that point of order. I am sorry if I did not answer all the right hon. Gentleman's questions. If he will remind me of the second part I shall certainly answer it.
Mr. Sandys: The question was whether the Prime Minister will publish the evidence and give Colonel Lohan the chance to reply.
The Prime Minister: I am sorry that I did not answer that part of the question. I have already told the House what I think is the right answer in this case, which is for the right hon. Gentleman to see all the papers I have seen. If not, the only alternative I can see, from the way things are going, is that we shall get Questions about this unfortunate individual week after week. [HON. MEMBERS: "Who started it?"] I shall answer the question of who started it.
It was started by a question—a perfectly fair and legitimate question—by the right hon. Member for Orkney and Shetland (Mr. Grimond) two or three days after the Report was published. He tabled it the day Colonel Lohan denied a statement in the White Paper and Report about his security clearance. That was when this started, and it was continued further by challenges to me in the debate. If we do not follow the procedure I have suggested we shall have Questions week after week about this individual. It cannot be in his interest. It cannot be in the interests of any civil servant to have Questions of this kind tabled from both sides of the House, still less for it to become a matter for a party political hunt.
Mr. Thorpe: So that this gentleman shall no longer be left on the rack and subject to Parliamentary exchanges, and that he shall have a fair hearing into this matter, which is the wish of both sides of the House, would not it be helpful if this specific matter could be looked into by the Radcliffe Committee, which would be reconstituted for that purpose?
The Prime Minister: I have suggested the procedure which I think should be followed and which is usual in these cases. This was not a matter that the Radcliffe Committee thought it right to inquire into. The question of his positive-vetting status

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and the reason for it was not a matter that the Committee thought it right to inquire into. I thought it right to refer to it last Thursday night partly because of the challenges and partly because—I think that every hon. Member formed his own view—I think that the question of the different treatment by the Daily Mail and the Daily Express might be due to different treatment of the Daily Mail and the Daily Express. I thought that this was a germane point. Having been challenged, I thought it appropriate to give that information. I do not think that it would be appropriate to refer this back to the Radcliffe Committee, which has signed its Report. But I will discuss with the right hon. Gentleman, when he has read the papers, what, if any, further action he thinks should be taken.
Mr. Barber Mr. Barber rose—
Hon. Members: Oh.
Mr. Speaker: Order. This must be the last question. Mr. Barber.
Mr. William Hamilton: On a point of order. While one respects the rights of right hon. Gentlemen on both sides, the back bench Member has equal rights. Is it not the case, Mr. Speaker, that a few moments ago you were about to proceed to closure this discussion and two right hon. Gentleman opposite rose? If back benchers had been rising you would have closed the proceedings, which is, in the view of many of us, a differentiation between the treatment meted out to Privy Councillors and that meted out to back benchers.
Mr. Speaker: Order. I am quite in sympathy with the point put by the hon. Gentleman. If he looks, he will find that whenever there is a volley of questions at this time Mr. Speaker goes out of his way to choose back benchers as well as Front Benchers. I had intended to close this round of questions. The Leader of the Liberal Party rose and I thought that it was a courtesy to the Leader of one of the three parties to call him. Then the Opposition Front Bench have taken this as a major matter and it was for that reason that I called the right hon. Gentleman the Member for Altrincham and Sale (Mr. Barber).
Mr. William Hamilton: Further to that point of order. If the right hon. Member for Altrincham and Sale (Mr. Barber) is to be called and another right hon. Gentleman on the Front Bench rises, such as the right hon. Member for Kinross and West Perthshire (Sir Alec Douglas-Home), is he to be called to the detriment of the interests of back benchers on this side of the House?
Mr. Speaker: Order. I do not usually answer a hypothetical question, but the answer is, "No".
Mr. Hastings: On a point of order. You will recall, Mr. Speaker, that I sought over the weekend to put a Private Notice Question to the Prime Minister on this matter—
Mr. Speaker: Order. It is not in order to refer to the substance of Private Notice Questions.
Mr. Barber: I think that I should make it clear that I had no intention of intervening this afternoon—
Hon. Members: Then why do it?
Mr. Speaker: Order. The right hon. Gentleman was frequently referred to in the Prime Minister's answers.
Mr. Barber: The only reason I am intervening to put a question to the Prime Minister is that he said on a number of occasions that his remarks at the end of the debate were, in part, due to an intervention by me. Does he realise that my intervention was not concerned particularly with what happened in 1964? Does he realise that in his concluding remarks about Colonel Lohan he referred only to 1964 in terms which have been widely interpreted as being highly defamatory? If he intended to refer to 1964 at all, why did he not also refer to the decision in March, 1966, to which my right hon. Friend the Leader of the Opposition has referred? What possible security—[HON. MEMBERS: "Oh."] This is of great importance.
Mr. Speaker: Order. At this stage questions must surely be brief.
Mr. Barber: Then I ask the Prime Minister what possible reason of security there can now be for him not to admit frankly that in 1966 all those senior people concerned were satisfied, as my

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right hon. Friend said. Why cannot he say, "Yes"?
The Prime Minister: I, unlike hon. Members opposite in my case, fully accept that the right hon. Gentleman was sincere when he said that he would not have intervened this afternoon but for certain things. It is also true when I said that about last Thursday night.
With regard to the right hon. Gentleman's question about his challenge to me, the challenge was to the Government, as I have said, and it was about statements made by my hon. Friend the Member for Ilkeston (Mr. Raymond Fletcher). They were allegations, which, I think, the right hon. Gentleman called very serious, about the relationship between the journalist in question and the Secretary of the Committee. I did not confirm or deny the allegations because I know nothing about the rumours in Fleet Street that were referred to.
But it was part of the answer, and a fair answer, that there were anxieties about this question. That was all that it was necessary for me to say, because the letter, which, however it got into the hands of right hon. Gentlemen opposite, did get there, was already extensively quoted from or paraphrased before I got up.
It would have been inappropriate then, and it would be now, to quote this confidential letter without quoting a lot of other confidential papers. I believe that it would be in the highest interests of all concerned—not a matter of security—if this matter were now handled in the way I have suggested to the right hon. Gentleman. But if right hon. Members opposite want to press me to quote not only from that letter, but from other letters, I might have to consider doing so, though I do not think that it would be right.
Several Hon. Members Several Hon. Members rose—
Mr. Speaker: Order. The Clerk will now proceed to read the Orders of the Day.

ORDERS OF THE DAY
  WAYS AND MEANS [26th June]
  Resolution reported,
  WAYS AND MEANS [26th June]

    STAMP DUTIES (TRANSFERS BETWEEN ASSOCIATES)
    That further provision be made as to the circumstances in which instruments are to be exempt from stamp duty under section 42 of the Finance Act 1930.
    Resolution agreed to.
    Mr. Speaker: Order. Will hon. Members please leave the Chamber quietly?

  FINANCE (No. 2) BILL (PROCEDURE) (AMENDMENTS ON REPORT)
  Ordered,
  That, notwithstanding Standing Order No. 53 (Amendments on Report), amendments may be proposed on consideration of the Finance (No. 2) Bill in pursuance of any Order of this House authorising provisions as respects income tax relief for a future year, or in pursuance of any resolution of the Committee of Ways and Means agreed to by this House and relating to stamp duties.—[Mr. Callaghan.]

  FINANCE (No. 2) BILL (PROCEDURE) (INCOME TAX RELIEF)
  Ordered,
  That, notwithstanding anything to the contrary in the practice of the House relating to the matters which may be included in Finance Bills, provision may be made in any Finance Bill of the present Session for amending, as respects the year 1968–69 and later years of assessment, income tax relief for dependent relatives.—[Mr. Callaghan.]

FINANCE (No. 2) BILL
As amended, considered.
Mr. Speaker: I have published a list of the selected new Clauses and Amendments for Report, and we come at once to new Clause No. 1.

FINANCE (No. 2) BILL

  New Clause No. 1.—(Tax RELIEF FOR PRIVATE SCHOOLS.)
  Where a private school earns a profit the sum shall not be subject to tax where it can be shown to the Inland Revenue that the profit has been devoted solely and exclusively to educational modernisation and improvements in the school.—[Sir G. Nabarro.]
  Brought up, and read the First time.
  4.10 p.m.
  Sir Gerald Nabarro: I beg to move, That the Clause be read a Second time.
  The new Clause is unique in the records of Finance Bills. No hon. Member has sought in earlier years to seek the kind of relief from taxation for what I describe in the new Clause as a private school. I define a private school as an independent fee-paying school which is non-grand-aided; and, as profits are entailed in the new Clause, it would be a school which is a non-charitable trust.
  Although there may be a tiny minority in the party opposite who would seek to discriminate against private fee-paying schools, I think that the overwhelming majority of men and women, of all political parties, recognise the right to continuing existence of the private sector in education, or the private fee-paying school.
  There is no means of establishing from statistical records how many private fee-paying schools there are in Britain, although I believe that it would be correct to say that in all categories they number 4,200. What is more reliable is a statistic, the latest available in this context, which was published in 1965. My source is the Education Statistics, 1965, Part I, pages 21 and 63, which state that in independent schools in Britain in that year there were 477,494 pupils, or 5·3 per cent. of the entire school population, as compared with 8·3 million, or 92·7 per cent. of the school population, at maintained schools—that is, State schools—of all categories and 2 per cent. of the school population at direct grant schools, the latter equalling 179,559 pupils. It is not unreasonable, therefore, to say that the new Clause relates to that part of the education system of Britain which caters for about ½ million schoolchildren at fee-paying and independent schools.
  I believe, and the entire Conservative Party believes, that the private fee-paying sector should be allowed to continue to exist, and to flourish. Non-charitable establishments in the private sector may from time to time earn a surplus or a profit on their year's work. I do not believe that a primary purpose of these fee-paying schools is to make a profit, but in the course of their conduct and in order to remain healthy, they should make a profit. If they are run at a con-
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  tinuing loss, they will inevitably pass into bankruptcy.
  I declare at once a constituency interest. The greatest concentration of private fee-paying schools in Britain in any one constituency is in Worcestershire, South. There are no fewer than 32 fee-paying schools in Malvern alone. I shall not name them in great detail, but they include the famous boys' public school of Malvern, Malvern Girls' College and Abbey, St. James, Lawnside, and the remainder. There is a very large number of private fee-paying schools. That is my constituency interest in the problem.
  4.15 p.m.
  I also have a much wider interest as Chairman of the National Consultative Committee for Independent Education, which is a body representative of most of the organisations which deal with private fee-paying education in Britain. As Chairman, I submitted recently my evidence on behalf of this Consultative Committee to the Newsom Committee, or Public Schools Commission. Under paragraph 5 of the evidence which I was privileged to submit on behalf of the Consultative Committee, I included a section on taxation.
  I dealt with the discrimination against private schools in the matter of the Selective Employment Tax and the discrimination in the matter of Purchase Tax. Also, I included the following passage—I quote it exactly in the context of the new Clause—which was the progenitor of the new Clause.
  I quote:
  "Excepting educational establishments registered as charities, the surplus, or profit, earned by private schools is taxable. It should not be taxed so long as it is demonstrated to Inland Revenue that the surplus has been devoted solely and exclusively to educational modernisation and improvements in the school; expansion of educational facilities and the provision of additional places; the enlargement or enhancement of curricula; extra sporting and playing field facilities; television and radio; and cultural improvement in the educational standards within a private school. All such improvements should be accepted, therefore, as a charge against taxation of surplus or profits earned by the establishment."
  That, briefly, is the purpose of the Clause.
  It would not be possible to determine what the Clause would cost the Revenue. As far as I am aware, there are no published statistics. I hope that the

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  Financial Secretary, in replying to the debate, will at once correct me if I am wrong. I can find no record of published statistics stating the taxation revenue which is derived from the profits or surpluses of the 4,200 private fee-paying schools which are not registered as charities. It cannot, however, be a very large sum of money.
  I remind the hon. and learned Gentleman that education, in the national aggregation, on capital and on revenue account is costing about £1,650 million a year. My calculation is that if, which is impossible, the private fee-paying sector in education were eliminated entirely—all the public schools, all the preparatory schools and all the Froebels and the kindergartens which are fee-paying in character—the cost of education to the nation this year would rise by approximately £150 million. That could not be contemplated by the Ministry, neither would it be practicable to carry it through.
  If that sum of money were devoted to the private sector were it nationalised, commensurately lesser sums would be available to educational pursuits and advancement which is the general objective of all political parties. I believe that the new Clause would cost a relatively small sum of money. It is non-discriminatory in character. It does not ask for any privilege for a small minority. Rather would it save public funds along the lines which I have suggested.
  I suppose that in Britain today the most Left-wing of all representative educational bodies is the Workers' Educational Association. I give this quotation from its evidence to the Newsom Committee, or Public Schools Commission, as reported in the Observer of 19th February, last. The Workers' Educational Association concluded its evidence in these terms:
  "The abolition of public and other independent schools ' is outside the range of practicality and out of harmony with the mood of the British people '".
  Mr. Speaker: Order. I hope that the hon. Gentleman will not widen the debate. We are discussing a tax exemption. cannot discuss the whole future of private schools.
  Sir G. Nabarro: I was endeavouring to use that quotation only as support for the view I expressed—this is a very Left-
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  wing organisation—that there is no desire in any part of the House to eliminate the private sector of education. If that is so, then we should give fiscal encouragement to the expansion of that sector, keeping it up to date and ensuring that conditions and equipment and curricula are at least as good as those available in State establishments.
  Mr. J. J. Mendelson: The hon. Gentleman, in making his argument and trying to be fair to everybody, should not be unfair to the W.E.A. It will not thank him for calling it Left-wing.
  Sir G. Nabarro: I have no great knowledge of the Workers' Educational Association. I am sure it is a very noble body, but it is to the Left of me.
  Mr. Speaker: Order. This is always the danger of going beyond the subject under discussion.
  Sir G. Nabarro: In those short terms I commend the Clause to the House. It is my endeavour not to be partisan in my approach to this matter. I have almost been completely non-party political in the speech that I have made and I hope that all my right hon. and hon. Friends, and the Treasury Bench as well, will support my Motion and the contribution it makes to educational advancement and attainment.
  Mr. Joel BarnettThe hon. Gentleman the Member for Worcestershire, South (Sir G. Nabarro) has moved this Clause unnecessarily. If he has in mind what is set out in the Clause he did not really need to move it at all. He told us that its primary objective was the advancement of private education. The Clause says:
  "… that the profit has been devoted solely and exclusively to educational modernisation and improvements in the school."
  If a private school does not wish to distribute its profits it is a simple matter to turn itself into a charity. If it turns itself into a charity, it will not be subject to tax. Not only will it not be subject to tax, but it will be in a better position than that type of private school would be if the Clause were accepted, because it could accept fees under covenant. Under this Clause it would be worse off unless the hon. Gentleman has in mind having the best of all possible worlds. In other words, one year getting exemption from tax for

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  the use in a particular way of its profits and the following year reverting back and having a distribution of the profits.
  If the sponsors of the Clause have true educational interests at heart, there is no need to move it. These schools could easily turn themselves into charities and solve their problems, because there would be no tax liabilities.
  That is my reason for saying that the Clause is unnecessary and that I am not in favour of it. Having said that, may I say that I am totally opposed to what is going on at the present time by way of abuse of the tax system by the use of covenants by private schools whereby large sectors of the population, the reverse of what the hon. Gentleman was saying, are being discriminated against. I mean, of course, that the pupils in non-fee paying schools—State schools—are being discriminated against in the sense that they are at schools with a teacher-pupil ratio of more than 40, whereas the fee-paying schools are subsidised by the Revenue to a very large extent. I have not been able to find out to precisely what extent. I asked the Treasury how many fee-paying schools were charities and I was not given an answer.
  However, there is no doubt that of the 4,200 which the hon. Gentleman referred to, a very large number of them are charities and, as charities, they are receiving much of their fees under covenant and at the expense of ordinary taxpayers whose children are being educated in schools where the teacher-pupil ratio is far too high. Therefore, it is they who are being discriminated against, and not the private schools, as the hon. Gentleman was suggesting. Therefore, I hope that the Clause will be thrown out. What is more, I hope that after it has been thrown out the Government will give serious consideration to a review of the whole fee-paying school system so that we can have a revision of the present definition of charities.
  Mr. Speaker: Order. That will have to be done on another Amendment, possibly even another Finance Bill.
  Mr. Barnett: I think I have made the point, even if inadvertently out of order, Mr. Speaker. However, it is for those reasons that I am wholly opposed to the
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  Clause and I hope that the Treasury Bench will not agree to it.
  Mr. John Page: This Clause gives an opportunity to the Government to show that they do not intend to discriminate against independent schools and parents who send their children to them.
  Mr. Mendelson: How many public schools are there in the hon. Member's constituency?
  Mr. Page: To reply to the hon. Gentleman, who interrupts from a sitting position, there is none in Harrow, West, though there is a school bearing that name in a neighbouring constituency.
  In Harrow, West there are some small independent fee-paying schools many of which are owned by the headmaster or headmistress. I see a difficulty in turning one of these schools into a charity. This is not my subject, but, although this was what the hon. Gentleman the Member for Heywood and Royton (Mr. Barnett) suggested, I think that it would be very difficult for the owner of the land and the school buildings to give to a charity the totality of his or her personal capital.
  The hon. Gentleman also said that if independent schools were abolished the pupil-teacher ratio at all State schools or schools in general would improve. I take a different view.
  Mr. Barnett: I hope I did not say that. If I did, I am sorry. What I said was that there was discrimination against children in State schools in that they have a very large number of pupils per class whereas in fee-paying schools the State is subsidising their smaller pupil-teacher ratio.
  Mr. Page: To continue his argument, the hon. Gentleman wishes to discourage the present treatment of these independent schools, therefore insinuating that they should be abolished.
  Mr. Speaker: Order. I warned the hon. Gentleman the Member for Worcestershire, South (Sir G. Nabarro) that we could not debate the abolition or non-abolition of private schools on this Clause, which proposes merely a tax concession.
  Mr. Page: I will draw away from that, Mr. Speaker.
  I believe that the existence of independent schools increases the number of teachers as a whole. We are here considering the schooling of 477,000 pupils, or 5·3 per cent. of the pupil population. The Clause would give these schools an opportunity to keep themselves up to date, to modernise and maintain efficiency. Through their efficiency and modernisation, they could then make a contribution even greater than they are making now to the total sum of education in Britain.
  4.30 p.m.
  Mr. R. H. Turton: This short debate has shown some of the inequalities in the taxation of independent schools. As the hon. Member for Heywood and Royton (Mr. Barnett) pointed out, a school which is a religious foundation or a charitable institution can erect new laboratories out of profits and pay no tax on the income. All the maintained or direct grant schools can use their resources for modernisation, without any liability to tax. Only in the other sector, the smaller independent schools, does ore find, as my hon. Friend the Member for Harrow, West (Mr. John Page) pointed out, a barrier against turning a school into a charity and getting round the difficulty. In these smaller independent schools, every improvement made out of profits is none the less subject to taxation.
  On Thursday, 8th June, answering a different debate but one relating to independent schools, the Financial Secretary said:
  "I agree that education in general is a social service, and that most education in this country is provided as a social service and paid for from public funds. But a part of education is operated on a commercial basis and is already subject to taxation in various forms. There is no general principle for exempting it from tax. I do not consider it reactionary to tax commercially run education."—[OFFICIAL REPORT, 8th June, 1967; Vol. 747, c. 1408.]
  If that is the hon. and learned Gentleman's standpoint, I ask him to follow the advice given by my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) and do something to remove some of the anomalies attending expenditure directed out of profits for the modernisation of these schools,
  282
  modernisation which is desperately needed if they are to conform to the requirements of Part III of the Education Act.
  To pursue the argument by comparison, I take the example of commercially run rented property. In its wisdom, Parliament gives the owner of rented property an improvement grant of 50 per cent. for modernisation. For the property of an industrial enterprise, on the other hand, an initial allowance of 15 per cent. is allowed on industrial buildings, and, if they are not industrial buildings, there are tax-free investment grants. In addition, the industrialist will be helped in certain districts by the regional employment premium. There are similar allowances in agriculture. A farmer wishing to modernise his farm receives a grant from the Government of 25 per cent. and a further investment grant of 5 per cent. If it is not an approved scheme, he will now receive, under the new Order, an investment grant of 12½ per cent.
  The owner of a private school, who, surely, is doing as much for this country in improving the education of our children, receives no help whatever. If he uses his profits for the building of new laboratories, classrooms or assembly halls, ordered by the Ministry of Education so that he may be recognised as efficient, he has to pay for those developments but he receives no relief from taxation and no grant from the Government. I am sure that this is harming education very much today.
  The 4,000 independent schools—I am thinking particularly of the 500 smaller independent schools, of whose association I am president—are subject to a thoroughly unequal state of affairs. They see the big public schools which are charities doing building works and modernising out of their profits, without liability to tax. The quality of education provided in the smaller independent schools is good, but some of their buildings are desperately out of date. Either this Government or their successor will have to tackle the problem and encourage these schools to bring their buildings up to date. The Clause now before us gives what is probably the easiest way to do it.
  Although I put my name to the new Clause, I am not absolutely happy about its wording. I think that, if we restricted it more clearly to the requirements of the Ministry of Education under Part III of

  283
  the 1944 Act, it would be a workable Clause. But I beg the Financial Secretary to realise that, if the Minister of State for Education and Science, when conducting her inquiry into the efficiency of the small independent schools, could offer some measure of tax relief when profits were directed towards modernisation, this would be of enormous help.
  The Financial Secretary to the Treasury (Mr. Niall MacDermot): In moving the Second Reading of his new Clause, the hon. Member for Worcestershire, South (Sir G. Nabarro) claimed, rightly I think, that it is unique and has never been put to the House before. This might have caused some people to hesitate for a moment and wonder whether there was a flaw in the principle underlying the Clause.
  Sir G. Nabarro: I take the hon. and learned Gentleman's point. It comes from his deeply suspicious mind. He must know that the Newsom Committee, or the Public Schools Commission, is sitting now. I quoted a passage from the recommendations on taxation which I put to that Committee on behalf of the National Consultative Committee for Independent Education. That is my purpose in moving the new Clause today.
  Mr. MacDermot: The hon. Gentleman meant that it had not been proposed before in any Finance Bill debate, and I think that that is correct. It has been my sorry experience in the last three years that it is difficult to put any new ideas to the Commissioners of Inland Revenue to which they cannot produce formidable objections.
  The hon. Gentleman and his hon. Friend the Member for Harrow, West (Mr. John Page) suggested, as a bait, that the Clause gave the Government an opportunity to show that they did not wish to discriminate against private schools. It is a curious way of giving us that opportunity because, in fact, the Clause asks us to discriminate in their favour, and to do so as compared with any other organisations run commercially and for profit. In effect, the proposal in the new Clause is to equate the position of private schools run for private profit with schools operated by charitable trusts and not run for profit. That is the effect and, I think, the intention.
  284
  The existing reliefs enable private schools, if they wish, to plough back a good deal, if not all, of their profits in certain forms of capital outlay. They can have relief, in effect, for the full range of equipment and apparatus which is used in a school—school furniture, laboratory equipment, kitchen equipment, and so on—because that ranks as machinery or plant and is relieved either by way of normal capital allowances or on the renewals basis. Thus, profits made from carrying on a school are already effectively relieved to the extent that they are expended on acquiring new equipment used in the schools.
  Where, if it were accepted, the Clause would go further would be in giving them relief for capital expenditure on buildings. This is the difference. There are many other fields in which people engaged in commercial activities have argued for, and continue to argue for, a scheme of capital allowances applying to buildings. My hon. Friends interested in the Cooperative movement argue this in favour of shops and offices. It is argued in favour of nursing homes, consulting rooms, and so on.
  These pleas have always been resisted on the grounds that it is necessary to maintain a clear distinction in tax principle between organisations which are run on a commercial basis and run for profit and those which are charities. The right hon. Member for Thirsk and Malton (Mr. Turton) said that there is discrimination against certain private schools. The right hon. Gentleman is thus saying that by granting tax concessions to charities we are discriminating against bodies which are not charities. I do not think that this is an acceptable argument.
  I invite the House to consider the real substance of it in relation to school buildings. We are dealing with schools which are owned by an individual or a partnership or a company. They want to plough back profits into school buildings. This will enhance the capital value of the school. It will enhance the school's earning capacity. They must make up their minds. Either they are in business to make a profit as well as to educate the young, or they are purely bodies with educational aims and purposes and none other; and with no commercial objects.
  As my hon. Friend the Member for Heywood and Royton (Mr. Barnett)

  285
  pointed out, if they do not intend to distribute their profits but intend to spend them and plough them back in advancing education, they can take the simple course of turning themselves into charitable trusts. Then they get all the benefits. But they do not turn themselves into charitable trusts because they have the intention at some later stage, if not immediately, of distributing some or all of the profits. If that is so, surely they ought not to be given this advantage over other commercial bodies of being able to expand their capital assets, in effect, in this way out of tax-free income.
  If we granted aid to private schools, we would be under great pressure from many other bodies which are run commercially, which no doubt do very useful work, which perform a useful social function, but which are organised as profit-making bodies. They would say, "If the owner of a private school can do this, why cannot we?" This is the overwhelming objection to the proposal in the Clause.
  Finally, it would seem particularly inappropriate to give direct encouragement of this kind through the tax system to privately owned schools at a time when inquiries are being made under the auspices of my right hon. Friend the Secretary of Education and Science into various aspects of the school system. As we have been reminded, what we are concerned with here is the taxation aspect of this. As I hope I have convinced the House, there are overwhelming objections of tax principle to accepting the Clause.
  4.45 p.m.
  Sir G. Nabarro: With your permission, Mr. Deputy Speaker, and that of the House, I will reply very shortly. I found the Financial Secretary's reply most unsatisfactory. I doubt very much indeed whether any rational or reasonable man compares a wholly educational establishment—a school—with a commercial profit-making enterprise in industry, trade or commerce. People do not run schools for that reason. People run schools because they are dedicated to the correct upbringing of the young and to educational
  pursuits and purposes. That is why people run private schools. It is not the profit motive that causes them to do it. I believe the larger the private sector in British education becomes the better our educational system will be.
  The one thing which will be fatal to State education is a monopoly in State education and the removal of all parental choice or freedom as to where a boy or girl shall be educated. Without going too wide, I ask the House to remember that those parents who make the great sacrifice and who often endure heavy hardships by paying fees for private education do so in addition to the large sums they pay in taxes and local rates.
  I reject the arguments of the Treasury Minister. Of course the Clause is unique. It is meant to be. My right hon. Friend the Member for Thirsk and Malton (Mr. Turton) and myself conceived it. It is unique. "Unique" means in this context, as in other contexts, "without parallel". Such a Clause has never been moved on a Finance Bill before.
  Mr. James Johnson: The hon. Gentleman is unique.
  Sir G. Nabarro: I, too, am unique—I realise that. I have done what I have done with my right hon. and hon. Friends this afternoon to draw attention to the very important fiscal aspects of the private educational sector, representing, as it does, 5·3 per cent. of the school population. May that small minority private sector flourish and expand in the future, for variegated educational arrangements, as well as these facilities available for freedom of choice for parents, are invaluable in our educational system.
  In view of what the Treasury Minister has said, I have no alternative but to advise my right hon. and hon. Friends to divide the House in support of this important Clause.
  Question put, That the Clause be read a Second time:
  The House divided: Ayes 136, Noes 226.

  Division No. 393.]

  AYES

  [4.47 p.m.

  Alison, Michael (Barkston Ash)

  Balniel, Lord

  Black, Sir Cyril

  Allason, James (Hemel Hempstead)

  Barber, Rt. Hn. Anthony

  Bossom, Sir Clive

  Astor, John

  Biffen, John

  Boyd-Carpenter, Rt. Hn. John

  Baker, W. H. K.

  Biggs-Davison, John

  Boyle, Rt. Hn. Sir Edward

  Brewis, John

  Hitey, Joseph

  Page, Graham (Crosby)

  Bruce-Cardyne, J.

  Hirst, Geoffrey

  Page, John (Harrow, W.)

  Bryan, Paul

  Hogg, Rt. Hn. Quintin

  Pearson, Sir Frank (Clitheroe)

  Buchanan-Smith, Alick (Angus, N&M)

  Holland, Philip

  Peel, John

  Buck, Antony (Colchester)

  Hornby, Richard

  Peyton, John

  Bullus, Sir Eric

  Howarth, Harry (Wellingborough)

  pounder, Rafton

  Burden, F. A.

  Howell, David (Guildford)

  Powell, Rt. Hn. J. Enoch

  Campbell, Gordon

  Hutchison, Michael Clark

  Price, David (Eastleigh)

  Carr, Rt. Hn. Robert

  Irvine, Bryant Godman (Rye)

  Prior, J. M. L.

  Chichester-Clark, R.

  Jenkin, Patrick (Woodford)

  Pym, Francis

  Cregg, Walter

  Jopling, Michael

  Quennell, Miss J. M.

  Cooke, Robert

  Kaberry, Sir Donald

  Ramsden, Rt. Hn. James

  Corfield, F. V.

  Kerby, Capt. Henry

  Renton, Rt. Hn. Sir David

  Costain, A. P.

  Kershaw, Anthony

  Ridley, Hn. Nicholas

  Crowder, F. P.

  King, Evelyn (Dorset, S.)

  Rossi, Hugh (Hornsey)

  Cunningham, Sir Knox

  Kirk, Peter

  Royle, Anthony

  Dalkeith, Earl of

  Kitson, Timothy

  Russell, Sir Ronald

  Dance, James

  Knight, Mrs. Jill

  Shaw, Michael (Sc'b'gh & Whitby)

  d'Avigdor-Goldsmid, Sir Henry

  Lambton, Viscount

  Sinclair, Sir George

  Dodds-Parker, Douglas

  Langford-Holt, Sir John

  Smith, John

  Elliott, R.W.(N'c'tle-upon-Tyne, N.)

  Lloyd, Ian (P'tsm'th, Langstone)

  Tapsel, Peter

  Emery, Peter

  Lloyd, Rt. Hn. Selwyn (Wirral)

  Taylor, Edward M.(G'gow, Cathcart)

  Eyre, Reginald

  MacArthur, Ian

  Taylor, Frank (Moss Side)

  Farr, John

  Maclean, Sir Fitzroy

  Temple, John M.

  Fisher, Nigel

  Macleod, Rt. Hn. Iain

  Thatcher, Mrs. Margaret

  Fletcher-Cooke, Charles

  McMaster, Stanley

  Turton, Rt. Hn. R. H.

  Foster, Sir John

  Maginnis, John E.

  Walker, Peter (Worcester)

  Galbraith, Hon. T. G.

  Marten, Neil

  Walters, Dennis

  Gilmour, Ian (Norfolk, C.)

  Maude, Angus

  Ward, Dame Irene

  Gilmour, Sir John (Fife, E.)

  Mawby, Ray

  Weatherlll, Bernard

  Glover, Sir Douglas

  Maxwell-Hyslop, R. J.

  Webster, David

  Goodhart, Philip

  Mills, Peter (Torrington)

  Whitelaw, Rt. Hn. William

  Goodhew, Victor

  Mills, Stratton (Belfast, N.)

  Wills, Sir Gerald (Bridgwater)

  Grieve, Percy

  Montgomery, Fergus

  Wilson, Geoffrey (Truro)

  Griffiths, Eldon (Bury St. Edmunds)

  More, Jasper

  Wolrige-Gordon, Patrick

  Gurden, Harold

  Morrison, Charles (Devizes)

  Wood, Rt. Hon. Richard

  Hall, John (Wycombe)

  Mott-Radclyffe, Sir Charles

  Wright, Esmond

  Harris, Frederic (Croydon, N.W.)

  Murton, Oscar

  Wylie, N. R.

  Harrison, Brian (Maldon)

  Nabarro, Sir Gerald

  Harrison, Col. Sir Harwood (Eye)

  Nicholls, Sir Harmar

  TELLERS FOR THE AYES:

  Harvie Anderson, Miss

  Noble, Rt. Hn. Michael

  Mr. David Mitchell and

  Heald, Rt. Hn. Sir Lionel

  Nott, John

  Mr. Hector Monro.

  Higgins, Terence L.

  Osborn, John (Hallam)

  NOES

  Albu, Austen

  Crossman, Rt. Hn. Richard

  Griffiths, Rt. Hn. James (Lianelly)

  Allaun, Frank (Salford, E.)

  Dalyell, Tam

  Griffiths, Will (Exchange)

  Alldritt, Walter

  Davidson, James(Aberdeenshire, W.)

  Hamilton, James (Bothwell)

  Allen, Scholefield

  Davies, G. Elfed (Rhondda, E.)

  Hamilton, William (Fife, W.)

  Anderson, Donald

  Davies, Ednyfed Hudson (Conway)

  Hannan, William

  Armstrong, Ernest

  Davies, Harold (Leek)

  Harper, Joseph

  Atkins, Ronald (Preston, N.)

  Davies, Ifor (Cower)

  Harrison, Walter (Wakefield)

  Atkinson, Norman (Tottenham)

  Davies, S. O. (Merthyr)

  Haseldine, Norman

  Bacon, Rt. Hn. Alice

  de Freitas, Rt. Hn, Sir Geoffrey

  Hazell, Bert

  Barnett, Joel

  Dempsey, James

  Henig, Stanley

  Baxter, William

  Dewar, Donald

  Herbison, Rt. Hn. Margaret

  Beaney, Alan

  Diamond, Rt. Hn. John

  Hilton, W. S.

  Bellenger, Rt. Hn. F. J.

  Dickens, James

  Hooley, Frank

  Benn, Rt. Hn. Anthony Wedgwood

  Dobson, Ray

  Hooson, Emlyn

  Bennett, James (G'gow, Bridgeton)

  Doig, Peter

  Horner, John

  Bessell, Peter

  Dunn, James A.

  Houghton, Rt. Hn. Douglas

  Bidwell, Sydney

  Dunwoody, Mrs. Gwyneth (Exeter)

  Howarth, Harry (Wellingborough)

  Binns, John

  Dunwoody, Dr. John (F'th & C'b'e)

  Howell, Denis (Small Heath)

  Blackburn, F.

  Eadie, Alex

  Huckfield, L.

  Blenkinsop, Arthur

  Edwards, Rt. Hn. Ness (Caerphilly)

  Hughes, Emrys (Ayrshire, S.)

  Boardman, H.

  Edwards, Robert (Bilston)

  Hughes, Hector (Aberdeen, N.)

  Booth, Albert

  Ellis, John

  Hughes, Roy (Newport)

  Boston, Terence

  Evans, Albert (Islington, S.W.)

  Hunter, Adam

  Bowden, Rt. Hn. Herbert

  Faulds, Andrew

  Jackson, Colin (B'h'se & Spenb'gh)

  Braddock, Mrs. E. M.

  Fernyhough, E.

  Jackson, Peter M. (High Peak)

  Brooks, Edwin

  Fitch, Alan (Wigan)

  Jeger, Mrs.Lena (H'b'n&St.P'cras, S.)

  Brown, Hugh D. (G'gow, Provan)

  Fletcher, Ted (Darlington)

  Jenkins, Hugh (Putney)

  Brown, Bob (N'c'tle-upon-Tyne, W.)

  Foot, Sir Dingle (Ipswich)

  Johnson, Carol (Lewisham, S.)

  Brown, R. W. (Shoreditch & F'bury)

  Ford, Ben

  Johnson, James (K'ston-on-Hull, w.)

  Butler, Herbert (Hackney, C.)

  Callaghan, Rt. Hn. James

  Forrester, John

  Johnston, Russell (Inverness)

  Cant, R. B.

  Fraser, Rt. Hn. Tom (Hamilton)

  Jones, Dan (Burnley)

  Carmichael, Neil

  Galpern, Sir Myer

  Jones, T. Alec (Rhondda, West)

  Chapman, Donald

  Gardner, Tony

  Kerr, Mrs. Anne (R'ter & Chatham)

  Coe, Denis

  Gordon Walker, Rt. Hn. P. C.

  Kerr, Dr. David (W'worth, Central)

  Coleman, Donald

  Greenwood, Rt. Hn. Anthony

  Kerr, Russell (Feltham)

  Concannon, J. D.

  Gregory, Arnold

  Lawson, George

  Conlan, Bernard

  Grey, Charles (Durham)

  Leadbitter, Ted

  Corbet, Mrs. Freda

  Griffiths, David (Rother Valley)

  Ledger, Ron

  288

  289

  Lee, Rt. Hn. Frederick (Newton)

  Moyle, Roland

  Small, William

  Lee, John (Reading)

  Murray, Albert

  Snow, Julian

  Lever, Harold (Cheetham)

  Neal, Harold

  Spriggs, Les,ie

  Lewis, Arthur (W. Ham, N.)

  Ogden, Eric

  Steel, David (Roxburgh)

  Lewis, Ron (Carlisle)

  O'Malley, Brian

  Steele, Thomas (Dunbartonshire, W.)

  Lipton, Marcus

  Orme, Stanley

  Strauss, Rt. Hn. G. R.

  Lomas, Kenneth

  Oswald, Thomas

  Summerskill, Hn. Dr. Shirley

  Loughlin, Charles

  Owen, Dr. David (Plymouth, S'tn)

  Swain, Thomas

  Luard, Evan

  Owen, Will (Morpeth)

  Symonds, J. B.

  Lubbock, Eric

  Padley, Walter

  Taverne, Dick

  Lyons, Edward (Bradford, E)

  Palmer, Arthur

  Thornton, Emest

  McBride, Neil

  Pannell, Rt. Hn. Charles

  Thorpe, Rt. Hn. Jeremy

  McCann, John

  Park, Trevor

  Tinn, James

  MacDermot, Niall

  Parker, John (Dagenham)

  Tomney, Frank

  Macdonald, A. H.

  Pavitt, Laurence

  Tuck, Raphael

  McKay, Mrs. Margaret

  Pearson, Arthur (Pontypridd)

  Urwin, T. W.

  Mackenzie, Gregor (Rutherglen)

  Pantland, Norman

  Varley, Eric G.

  Mackie, John

  Perry, Ernest C. (Battersea, S.)

  Wainwright, Edwin (Dearne Valley)

  McMillan, Tom (Glasgow, C)

  Price, Christopher (Perry Barr)

  Wainwright, Richard (Colne Valley)

  McNamara, J. Kevin

  Price, William (Rugby)

  Walker, Harold (Doncaster)

  Mahon, Peter (Preston, S.)

  Probert, Arthur

  Wallace, George

  Mallalieu, E. L. (Brigg)

  pursey, Cmdr. Harry

  Watkins, David (Consett)

  Manuel, Archie

  Rankin, John

  Watkins, Tudor (Brecon & Radnor)

  Mapp, Charles

  Rees, Merlyn

  Wellbeloved, James

  Mason, Roy

  Rhodes, Geoffrey

  Wells, William (Walsall, N.)

  Mayhew, Christopher

  Richard, Ivor

  White, Mrs. Eirene

  Mellish, Robert

  Roberts, Albert (Normanton)

  Whitlock, William

  Mendelson, J. J.

  Robinson, W. O. J. (Walth'stow, E.)

  Williams, Alan Lee (Hornehurch)

  Mikardo, Ian

  Rogers, George (Kensington, N.)

  Williams, Clifford (Abertillery)

  Millan, Bruce

  Ross, Rt. Hn. William

  Willis, George (Edinburgh, E.)

  Miller, Dr. M. S.

  Rowland, Christopher (Meriden)

  Wilson, Rt. Hn. Harold (Huyton)

  Milne, Edward (Blyth)

  Ryan, John

  Winnick, David

  Mitchell, R. C. (S'th'pton, Test)

  Sheldon, Robert

  Winstanley, Dr. M. P.

  Monoy, William

  Shinwell, Rt. Hn. E.

  Moonman, Eric

  Silkin, Rt. Hn. John (Deptford)

  Yates, Victor

  Morgan, Elystan (Cardiganshire)

  Silkin, Hn. S. C. (Dulwich)

  Woodburn, Rt. Hn. A.

  Morris, Alfred (Wythenshawe)

  Silverman, Julius (Aston)

  TELLERS FOR THE NOES:

  Morris, Charles R. (Openshaw)

  Slater, Joseph

  Mr. W. Howie and

  Mr. Ioan L. Evans.

  New Clause No. 2.—(EXEMPTION FROM INCOME TAX OF ALLOWANCE PAID TO MEMBERS OF LIFEBOAT CREWS FOR TIME SPENT SAVING LIFE AT SEA.)
  Exemption shall be granted from income tax chargeable by virtue of section 156 of the Income Tax Act, 1952, in respect of any allowances awarded, or other payments made, by the Royal National Life-boat Institution to duly appointed coxwains and crew members of the lifeboats of the Institution solely in recognition of time spent at sea in the lifeboats with the express intention of saving human life at sea. —[Mr. Nott.]
  Brought up, and read the First time.
  Mr. John Nott: I beg to move, That the Clause be read a Second time.
  Mr. Deputy Speaker (Mr. Sydney Irving): I suggest that it would be convenient for the House to consider at the same time new Clause No. 9—"Exemption from income tax of allowance paid to members of lifeboat crews for time spent saving life at sea".
  Mr. Nott: This proposal seeks to exempt from Income Tax the allowances paid to voluntary lifeboat crews for time spent at sea in rescue operations around the coasts of this country. We now have about 150 lifeboat stations and these are
  290
  manned almost exclusively by men who voluntarily and frequently put out to sea to rescue lives, and risk their own in the process. Last year more than 800 lives were saved by the lifeboats and inshore rescue boats of the Royal National Life-Boat Institution. These boats were called out about 2,000 times to undertake their task.
  The valour of the lifeboat crews and the hazards under which they work are well known to hon. Members and I need not elaborate on them. Since, however, it is the object of these proposals to gain exemption from tax for the allowances paid to voluntary crews, I must show good reason why this group of people should be excluded out of the countless others who devote their time and energies to public service as well. I hope to do this by pointing out not merely the acknowledged valour of the lifeboat crews but by calling attention to taxation precedent and equity.
  The present financial position of the Royal National Life-Boat Institution, a wholly self-supporting charity, is that last year, in 1966, its income was £1·33 million while its expenditure was £1·45 million. The deficit of about £124,000 in its accounts was met wholly out of its

  291
  reserves. From these resources, the Institution provides a small retainer to coxswain, second coxswain and bowman, but these retainers do not exceed £100. The voluntary crews which put out to sea to man these lifeboats when rescue operations take place receive no retainers whatever.
  The Institution also pays to full-time mechanics and a few full-time crews—I believe that there are only two or three in the whole country—a standard wage, but I emphasise that the new Clause does not seek exemption for the allowances and retainers which are paid to full-time lifeboat crews. Nor does it seek exemption from Income Tax for those retainers paid to coxswain, second coxswain and bowman.
  5.0 p.m.
  In addition, the Institution pays allowances to voluntary crew members for rescue work at sea. These allowances amount to 30s. for the first two hours at sea and 7s. 6d. for every hour thereafter. This makes an average of about £2 to £3 for the voluntary crew member for each trip. Quite apart from the constant risk of life which these voluntary crew members accept, one has to bear in mind the sacrifice of earnings from their normal occupation. An inshore fisherman, a shell fisherman—bearing in mind that most of the calls on a lifeboat occur in the summer months—might well lose in one day's call up to £20 or £30 of earnings. The lifeboat is normally called out to a greater extent in the summer months, and it is in those months that the fishermen who largely man the lifeboats have to earn their income to tide them over the barren winter months.
  In 1966 the total of these allowances paid to voluntary members of the Royal National Life-boat Institution were about £50,000. Taking the effective rate of tax of each of the crew as about 4s. in the £, the Treasury would lose about £10,000 by granting this concession, and this £10,000 can be compared with more than £1 million which the Government probably save by virtue of the fact that our rescue services around the coast are wholly carried out by the R.N.L.I. But for the fact the R.N.L.I. is entirely self-supporting from voluntary subscriptions, the Government would have to provide the type of rescue services
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  around the coast which they provide on the road, in the air and on the railways. We are talking about only an amount of probably £10,000, based on an effective rate of tax of 4s., on a total payment of £50,000.
  Even if the Government concede that in equity this £2 or £3 which the men receive for risking their lives at sea in order to save others is a very small amount, they may say that it is not reasonable to make these allowances free of tax. I will explain later why I feel that they should be free of tax from the tax point of view. The Government may say that they cannot do this because it would create a precedent and there would be a flood of applications from others involved in the public service who would also ask that their allowances be free of tax when received. If the argument is that this concession cannot be granted because it would create a precedent, I suggest that there already are plenty of precedents. Under Schedule E, where no office or employment can be shown, the Revenue makes no attempt to tax this type of allowance on the principle that these are financial loss allowances.
  If we look at the allowances which jurors receive for attending a jury, or local authority councillors receive for attending council meetings, or members of hospital boards receive, surprisingly, we find that all these come under Schedule E, but they are not taxable in the hands of the recipient because the Revenue deems them to be financial loss allowances. I suggest that a voluntary lifeboat crew member who has another occupation but who is spending his time rescuing lives at sea could be deemed to be in a very similar position to a member of a hospital board who, under Schedule E, is not required to pay tax on the amount which he obtains. It is not possible to show that any office or employment exists in the case of a voluntary lifeboat crew member.
  I feel that the allowances might come under Case VI of Schedule D, if they are not assessed under Schedule E. The R.N.L.I. does not engage any crew members and there is no contractual relationship between the R.N.L.I. and individual crew. The coxswain is chosen by the local honorary secretary, who asks him whether he will abide by certain regulation. He is certainly not an employee

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  under any normal criteria. Even less are the crew members obliged to turn up for rescue work, because they are entirely free to come and go as they please. The R.N.L.I. has no power to give them orders, and they may turn up for a particular rescue operation or not, entirely as they wish. I suggest that there is no employer-employee relationship at all between the R.N.L.I. and voluntary crew members of the lifeboat. Surely, therefore, for the purposes of Schedule E one must say that there is no office or employment and that the allowances should be treated on a comparable basis with those of people engaged in public service who receive a financial loss allowance. If they do not receive a financial loss allowance under Schedule E, then I suggest that they should be taxed under Case VI of Schedule D.
  In my view these allowances have been taxed under Schedule E for many years in the mistaken belief that voluntary lifeboat crew are employees. Until 1949 no attempt was made to assess these allowances for tax, and it was only under stricter arrangements entered into in that year to tax part-timers that the R.N.L.I. were required to make a return of these payments. The Treasury allow the R.N.L.I. to disregard in their return to the Revenue any payments to individuals not exceeding £50. The Revenue are already granting a concession to the R.N.L.I. in that they need not declare on their return any sum less than £50 paid to individuals. I suggest that the Revenue are not entitled to give this concession to the R.N.L.I. if it is under Schedule D, because then the R.N.L.I. cannot be required to make a return of the payment to lifeboat crew at all.
  As I have said, these are derisory amounts. The average voluntary member of a crew might get £2 or £3 for a rescue operation in which he risks his life, whereas his normal earnings in a good day's fishing might be £20 to £30. Since it is only £2 or £3, I think that these sums might even be regarded as the expenses which the men incur going to and from the lifeboat station and warming themselves with rum on their return from the trip. That is not asking too much if the man is assessed under Schedule D. If he is assessed under Schedule E, then he is in a comparable position with the
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  juryman, local councillor or member of a hospital board who does not pay tax on his allowance, because, I am told, it is regarded as a financial loss allowance.
  We know in the House that the Treasury can set its mind against any concession which the whole world considers to be fair and just. It is, however, up to Treasury Ministers—and I know that the Financial Secretary always bears this in mind—to act sometimes against the negative attitude of their Department and to mete out justice in a case of this nature.
  I do not pretend that these voluntary lifeboat crew perform any greater service to the community than others who administer to its needs but it can be shown that the environment in which they work and the occasions on which they put to sea frequently involve dangers which are unsurpassed in other fields. Ultimately the Government bear responsibility for the safety of our shores. They can meet this responsibility by removing a genuine grievance felt by many voluntary lifeboat men around the coasts of this country. This can be done by bringing these payments as financial loss allowances under Schedule E, or allowing them as expenses under Case VI of Schedule D. I hope that the Government will not reject the Clause, because it is a matter about which the voluntary lifeboat crew feel most deeply. I trust that the Financial Secretary will give me a positive reply.
  Mr. James Johnson: I will be brief in supporting this new Clause, but I would feel ashamed if no one supported it from this side of the House. The hon. Gentleman the Member for St. Ives (Mr. Nott), has made a most competent speech. He has obviously done his homework, and if ever there was a deserving cause this is one. This is not a political matter. In February, 1950, in another place, when we were lodgers over the way, Sir Stafford Cripps changed the system when he confirmed that regular fees and awards paid to voluntary lifeboatmen would be taxable save for
  "… a special award for a particular act of gallantry."
  What could be more gallant than the hazardous work of lifeboatmen?

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  I was born on the Northumberland coast and saw lifeboats going out, particularly in winter. I accept the point made earlier that if they go out in the summer this can mean a considerable loss to the crew who are earning perhaps £20 or £30 a day as fishermen. The sum that they are paid as lifeboatmen is no compensation. I speak with the support of the R.N.L.I., which sponsors this new Clause, and I hope that the Financial Secretary will not be a stony-hearted as a former right hon. Friend was and will look at this upon its merits.
  I also represent the seaport of Hull. We have a deep-sea fishing fleet, and I know that many of our men feel strongly about this situation. It is a big grievance among inshore fishermen who are the lifeboatmen of the Yorkshire coast. They receive very small awards, which are no compensation for their loss of earnings. The R.N.L.I. cannot afford to increase its payments and the fact that these meagre amounts do not rank for Income Tax relief causes much hard feeling.
  The hon. Gentleman made one of two technical points about Schedule E and Schedule D, which I did not always follow. As a layman the point that I particularly want to make is that these men are not employees. One can argue one case on Schedule E and another on Schedule D, but the point that struck me was that under Schedule E all manner of people, members of hospital boards for example, can claim Income Tax relief. It seems that a well-financed gentleman may leave Hull for a hospital board meeting in Leeds and claim these special allowances and facilities, whereas the fisherman who is out beyond Spurn Point, in the teeth of a North Sea gale, in filthy weather, does not get the same treatment. There is no equity here. This is one of the most deserving cases that I have ever come across.
  Surely 30s. is a legitimate expense to cover, amongst other things, some hard liquor to keep warm when these men return from a rescue. These men volunteer for the task and look upon it as much more than a job. It is scandalous that jurors and local councillors, as I understand it, qualify for tax allowances under Schedule E whereas these fishermen, saving lives at sea, do not. Bearing
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  in mind the hazardous work that these men perform and the action of a former Chancellor nearly 20 years ago, with which I did not agree, and which probably made all of us feel unhappy, perhaps tonight we shall see a slight change in the law passed in 1950.
  5.15 p.m.
  Mr. W. H. K. Baker: I wish to support very briefly what has been said, both from this side of the House by my hon. Friend the Member for St. Ives (Mr. Nott) in moving the new Clause, and by the hon. Member for Kingston upon Hull, West (Mr. James Johnson). I would stress three points. The first is the hazardous nature of the work of these men. It is true to say that in my part of the world we have two lifeboats constantly at the ready, and when they go out in bad weather the hazardous nature of their ask, in the North Sea and the Moray Firth, has to be seen to be believed. I have seen it. I have been to sea in a half-gale in the Moray Firth, and I know what the conditions are.
  It is obviously a disincentive to tax these rates. They cannot in any way be called payments for work carried out, and I sincerely hope that the Government will take note of this point. It is important to realise the voluntary nature of this work. These men have no direct contractual relationship with the R.N.L.I. There is no question but that if the lifeboat is called out they turn up. Very few lifeboats put out to sea with an incomplete crew, and we do not want, by way of disincentives such as we have at present, to prevent this happening.
  A great proportion of the population in my constituency is directly or indirectly occupied in the inshore fishing fleet. This is a hazardous occupation and many of the wives of these fishermen have told me that they gain a certain amount of comfort from two things. The first is that they can listen by radio to what is happening at sea, between the various vessels, when they talk to each other, and the other very important point is that they have at the back of their minds that if any disaster overtakes their boats the lifeboat is available.
  This stability and feeling of security is amply proved by the tremendous efforts made locally in raising funds for the R.N.L.I. They run whist drives, organise

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  flag days, and even have a stand in the local agricultural show. It is in the prime interest of the local communities such as those I have mentioned that we remove this restriction. I trust that the Government will accept this new Clause.
  Mr. John M. Temple: I congratulate my hon. Friend the Member for St. Ives (Mr. Nott) on the way in which he moved the new Clause and on its underlying motives. For many years I was co-governor of the Fisheries Organisation Society with my hon. Friend's predecessor in the House. I know that his predecessor would have been proud of the task which he has performed in trying to get a certain amount of recognition in tax terms for those inshore fishermen who, in fair weather and foul, make rescues round our coasts.
  Only a few weeks ago I had the privilege of attending the Annual General Meeting of the Royal National Life-boat Institution. On that occasion the award of a gold medal was made to Commander Harvey, my constituent. That medal was awarded for rescue work at sea—in fact, on the North Wales coast—when he had had charge of a lifeboat which was responsible for rescuing a considerable number of seamen from a Greek ship which had foundered.
  My hon. Friend the Member for St. Ives has put forward a magnificent case on technical and other grounds. I wish to make only two practical points. The first concerns the Royal National Lifeboat Institution. It is almost unique as a voluntary institution. I do not think that there is an institution comparable with it anywhere else in the world. We should be grateful to those volunteers who help round the coasts with the work of that institution, which is supported entirely by voluntary subscriptions.
  I have had the good fortune of visiting many parts of our coastline, both as governor of the Fisheries Organisation Society and as president of the National Council of Salmon Netsmen of England and Wales. Ninety per cent. of the crews of our lifeboats are manned by inshore fishermen. When they are at sea, inshore fishermen are normally capable of looking after themselves. The rescue work which they perform is usually
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  done for people other than their own kith and kin.
  I mentioned that Commander Harvey was in charge of a lifeboat which rescued Greek seamen. A few moments ago the hon. Member for Kingston upon Hull, West (Mr. James Johnson) said that he was interested in distant and middle water fishermen. But distant and middle water fishermen, whom we respect enormously, do not crew the lifeboats because necessarily their tasks lie far from our coasts. Therefore, the lifeboat crews are drawn mainly from the inshore fishermen.
  These men perform a dangerous job. If I had gone out of the Chamber an hour ago, I might have picked up the evening newspaper which might have referred to a "storm in the Commons." A storm in the Commons is news, a storm at sea is not. But a storm at sea is a very serious matter, and it is on those occasions that these men are called out. They are paid very small sums for their rescue work at sea. All that we ask for in the new Clause is that they should have tax remission on those sums.
  Since a new Clause of this nature was moved some years ago, there has been a significant change of circumstances. It will be common knowledge to anyone who read the newspapers over the weekend that an enormous number of yachts go out along our coast which are in the hands of very inexperienced yachtsmen. When they get into difficulties, the first people probably who are called out are the lifeboat men and those who man the rescue boats. Helicopters may take part as well.
  We are concerned in the new Clause with the work of the lifeboat and rescue boat crews. They may go out to sea at any moment. Whatever the state of the tide, these men have to man the lifeboats. I mention the state of the tide, because the men I represent—the inshore fishermen—often have to spend many hours at sea in a lifeboat. They will probably be the most important members of their respective crews just because they are experienced. They may well miss the tide and, therefore, lose the opportunity of fishing for a day or two or three because they should catch a tide in order to be in a certain position off the coasts to do their fishing.
  This is a matter which ought to be recognised by the Treasury Bench. It is

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  not a case of earning overtime just when it may suit the employer or employee. It is a question of performing a vital service for a very small reward, indeed. Frankly, I was surprised when my hon. Friend the Member for St. Ives told us about the scale of the rewards. This is a voluntary service which these men are proud to perform. We are proud of them. The Treasury Bench should take a very sympathetic view of the new Clause. We owe these men a tremendous debt. When I go round our coasts and see them, knowing what they have to face when a storm blows up, it seems to me that we ought to do everything in our power to assist them. I am glad that this is a cross-bench appeal to the Financial Secretary and hope it succeeds.
  Mr. Raymond Gower: I, too, congratulate my hon. Friend the Member for St. Ives (Mr. Nott) on the new Clause. I hope that it will not be necessary for him to divide the House. The hon. Member for Kingston upon Hull, West (Mr. James Johnson), who supported the Clause, made a most helpful and pertinent speech. Last year, the lifeboats were called out on about 1,000 occasions, as a result of which 489 lives were saved. How can we value this service when it is stated in terms like that? The inshore rescue boats were called out about 700 times last year, as a result of which at least 328 lives were saved.
  It is true that in these days of advanced technology and scientific devices many things have improved, but even today, for those of us who live along the coastline of this country, there is a reality about the words
  "for those in peril on the sea".
  It can be really frightening to hear the power of nature. We are getting this hazardous service far too cheaply. We are not recognising its enormous value. These men are volunteers. If we go on treating them in this quite unworthy way, will we have them much longer? Perhaps we shall, because they are such splendid men. But I do not think that Parliament should cause them to be treated in such an unworthy manner.
  It is significant that prior to 1949, I understand, most of these allowances were not taxed. It was as a result of a most regrettable change in that year, which
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  was before I had the honour to sit in the House, that they were taxed. I hope that the Financial Secretary will have the honour of reversing that unfortunate decision. It will be a well-deserved honour for which we will praise him. I hope that he will rise to this great occasion and do justice to the men who serve
  "those in peril on the sea".
  Mr. MacDermot: The hon. Member for Barry (Mr. Gower) referred to something which happened in 1949. I am not instructed and cannot assist the House about that. However, I believe that during the course of the Finance Bill in 1950 some Amendments or new Clauses were tabled proposing something similar to what is proposed in this new Clause. Both in Committee and on Report, a proposal was put down that the retaining fees paid to lifeboat men and retained voluntary firemen should be exempt from tax. I not know whether it was discussed, but that was the last time that an Amendment of this kind was put down.
  5.30 p.m.
  Let us get clear what we are discussing. As the hon. Member for St. Ives (Mr. Nott) made clear, there are, I understand, certain full-time and fully-paid employees of the Royal National Life-boat Institution. The new Clause is not directed at them. The mechanic, for example, of a lifeboat is normally a full-time employee and paid a full wage. The coxswain is rarely full-time and the remainder are part-time volunteers. They receive, first, a retaining fee, which ranges from something like £100 a year for the coxswain to £15 a year for the bowman, and the ordinary crew receive no retainer. I do not think that the new Clause is intended to apply to them, although as it is worded it might do so.
  Secondly, a fee of 25s. is paid for each exercise trip. That, clearly, is intended to be covered by the new Clause. Thirdly, there is an award for a summons when the men are called out—
  Mr. Temple: I do not think that the 25s. is covered.
  Mr. MacDermot: By the wording, I thought that it was covered.
  Mr. Nott: The wording of new Clauses 2 and 9 is similar. In practice, although I think that there is a strong case for

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  the fees paid for exercise to be covered, I did fix include them because I used the term:
  "saving human life at sea".
  I was referring solely to the allowance of 30s. for the first two hours and 7s. 6d. for each hour thereafter. I was not including payment for exercises, but I agree that there is a good case for doing so.
  Mr. MacDermot: I thought that it was intended to cover that item, and I still think that it is covered by the words
  "in recognition of time spent at sea in the lifeboats with the express intention of saving human life at sea."
  That is the intention of the exercises.
  The third form of payment is an award for a summons which amounts to 30s. for the first two hours and 7s. 6d. for each succeeding hour. I understand from the hon. Member for St. Ives that that is intended to be covered.
  Fourthly, there are special awards, to which scme hon. Members have referred, not exceeding £5 which may be granted for special acts of gallantry. They are normally paid, not by the institution, but by the Ministry of Transport or the owners of the ship concerned. What we are concerned with, therefore, are the awards for a summons.
  I have listened with sympathy to the speeches which we have heard from hon. Members, on both sides—there is no party aspect to the matter—who have spoken with the emotion which we all feel when we think of the work of the lifeboat crews. This is not, of course, the only work for which we get pleas for tax concessions for particular forms of income, nor is it the only income which is related to dangerous work.
  The answer to all these arguments, however, always has been, and remains, that Income Tax is a tax on income and that in taxing it we do not distinguish between the nature of the occupations which people are carrying on when they earn the income or the dangerous or disagreeable nature of the work which is involved.
  Let me give examples. There are many other occupations, like those of Service men, coal miners, people engaged in deep sea fishing and test pilots, in which people are paid a bonus for particular work which they do—it may be work for
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  which they volunteer—for which danger money or dirty money is paid. Those additional payments are, of course, all taxable.
  If we were to grant an exemption in this case on the ground of the hazardous nature of the work, we would surely have to extend it to danger money and payments which are made by way of danger money unless one singles out this occupation and says that there is something particular about the nature of the work which requires to be given different treatment.
  All the arguments which we have heard this afternoon would apply to part-time firemen, who, indeed, were included in the Amendments that were put down in 1950. It would be very difficult to say that people who do part-time work on a voluntary basis to save life at sea should be entitled to remuneration for it which is tax free but that firemen, who equally imperil their lives to save people in burning houses, should not. It seems to me that the same considerations apply.
  Mr. James Johnson: Is my right hon. and learned Friend comparing miners who in a pit accident get men out from the coal face? Is he saying that the money which they get for that job is comparable with that which is paid for those who go out to sea to rescue others? If that is what my hon. and learned Friend is saying, I would like him to consider also my analogy or comparison with men or women who in local government tasks would get allowances as opposed to fishermen who go out to sea to save lives.
  Mr. MacDermot: I am not aware whether any such payments are made to miners in the circumstances of accident to which my hon. Friend has referred.
  Mr. Johnson: In that case, it is not correct for my hon. and learned Friend to start speaking about dirt money or danger money, in this way. It is not a proper analogy.
  Mr. MacDermot: There are plenty of occupations in which people are paid danger money, and they are taxed on money which they receive as danger money. If the argument is that owing to the hazardous nature of the work exemption should be given, we had better not embark on it lightly without considering whether we would propose

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  to extend the extension to all moneys which are paid as danger money. One can imagine the development which would result from that if substantial parts of remuneration in certain occupations were classed as danger money to get the benefit of the exemption. These are the sort of difficulties which, from the viewpoint of tax principle, one encounters in starting to make an exemption on that basis.
  Mr. Frederic Harris: Surely, danger money and dirt money are paid mainly to people in the course of their employment. It is an extension of their remuneration for the work and they are, therefore, taxed upon it. In the new Clause, we are concerned with voluntary workers who do an entirely separate task. The Financial Secretary has confused the two issues.
  Mr. MacDermot: I must take the arguments one by one, and I am merely answering the first argument, the emotional one, which is put forward on the basis that the work is dangerous. The hon. Member for Croydon, North-West (Mr. Frederic Harris) seeks to answer me by shifting on to another point: that the occupation is part-time and voluntary. There are other occupations which are part-time and voluntary but in which people are taxed on their remuneration from them.
  I come next to the second point raised by my hon. Friend the Member for Kingston upon Hull, West (Mr. James Johnson), which was contended also at the outset by the hon. Member for St. Ives. It is the analogy of the financial loss allowance which is paid to people like jurors, to certain people in local government and on hospital management committees, and so on. The difference here is that, in those cases, we are concerned with an allowance which is paid to people undertaking voluntary work against proof of financial loss. The payments here, however, are not in respect of financial loss, and there is no need for there to be any financial loss. We were given the example of a fisherman who might lose £20 on the day and that he is called out, but he is still entitled to the award if it happens to be a day when he would not have gone out fishing. In other words, it is given on the basis of a remuneration
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  and, for tax purposes, comes under the heading of income.
  A number of hon. Members have stressed this point and have based their arguments on the very heavy financial loss which many of these people suffer. The hon. Member for City of Chester (Mr. Temple) spoke from a great deal of experience about the financial sacrifice which this can cause to inshore fishermen. If the Life-boat Institution would like to consider whether it wants to alter the basis of the award and make it payable not as a fee which is payable in all circumstances but as a financial loss allowance against proof of financial loss—and I am sure that it is a matter on which it would want to reflect—certainly I shall be prepared to meet representatives of the institution and discuss it with them, after I have had suitable advice.
  I have not had an opportunity to have advice on this point because it is a new one to me which has arisen during the course of the debate. There may be difficulties inherent in the proposal; I do not know. However, if hon. Gentlemen would like it treated on that basis for tax purposes, certainly I will look into it. In view of the stage which we have reached this year, it is a matter which would have to be dealt with and brought forward in another year. However, I could not accept the Clause as it stands at the moment for the reason that, although we are dealing with a small class of persons, small payments and ones which excite great sympathy, we should be getting ourselves in difficulties if, for reasons of sympathy, we were to adopt an approach which offends against the most basic principle of Income Tax, which is that it is a tax generally upon incomes of all classes, without distinction as to the nature of the work or the source of the remuneration.
  Mr. Gower: I thank the hon. and learned Gentleman for what he has said. He quoted the example of part-time firemen and said that they appeared to be very similar. Surely the people voluntarily doing dangerous work of this kind for very small amounts must be relatively few in number, and I should have thought that his argument was not fatal to the acceptance of the Clause.
  Mr. MacDermot: I will look into what the hon. Gentleman has said, but

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  I should much prefer to approach it on the basis which I have indicated and see if any kind of solution can be found on that basis. If one starts trying to carve out a category of earnings and say that, if the work is voluntary, part-time and dangerous, the income should be tax free, for the time being one might get a self-contained and closely defined class. However, it would not have a great deal of logic or principle behind it. The other approach might be more rewarding.
  To answer the technical point about whether these people are taxed under Schedule D or Schedule E, I agree that they fall within Schedule E and are taxed under that Schedule. It has been argued that, if they were treated as being persons in employment and taxed under Schedule D, they might be entitled to exemption on the basis of the payment being expenses for getting to and from the lifeboat station. But none of us gets expenses for getting to and from work, nor for keeping ourselves warm while carrying out the work, so that would not provide a solution. Fortunately, they are taxed under Schedule E, and therefore one can approach the matter by comparing them with jurors or people on a hospital management committee. However, this would require payments to be made on a different basis from that on which they are made at present.
  Mr. Iain Macleod: I say straight away that I know that it is the view of my hon. Friend the Member for St. Ives (Mr. Nott) that we should not divide the House on this matter, and that enables us to discuss it in as calm and as helpful a way as we can.
  First of all, we should be as clear as possible what we are discussing. It is common ground that, by these Clauses, we are not considering the question of the annual retainer. There is some dispute between the Financial Secretary's interpretation and my hon. Friend's as to whether exercises are or are not included. As a matter of legal drafting, I think that the Financial Secretary is right and that exercises probably are included. However, I think that it is also right to say that they are not meant to be included.
  5.45 p.m.
  The Clause has received support on the Order Paper from all three parties. What
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  we really care about on both sides of the House is the allowances which are paid for rescue work. One is almost ashamed to mention them, it seems. They are 30s. for the first two hours and, thereafter, 7s. 6d. per hour at sea.
  I do not feel that either side of the House can feel very happy about what has happened over the years. Curiously enough, in the very first month in which I was a member of the House, I remember this principle being discussed in March, 1950, and I think that it is true that the case of part-time firemen was then argued. Since then, successive Chancellors have not altered the position as laid down by Sir Stafford Cripps, and successive Shadow Chancellors have not pressed the case. So I do not think that we can look back over the years with any great happiness.
  However, I think that the Financial Secretary was very conscious of the feeling of the House that we want something to be done. I do not underestimate the difficulties. I accept the position in relation to Income Tax and the simple argument that one taxes income, and there it is, although I think that there is great validity in the point made by my hon. Friend the Member for Croydon, North-West (Mr. Frederic Harris) that it is not a valid comparison to say that it is possible to draw a parallel between these people, who are voluntary workers, in respect of the rescue work which we seek to free from tax, and those whose work is, as it were, an extension of their ordinary occupations.
  What everyone in the House wants to say to the Financial Secretary is, "Please find a way round this." We know the difficulties, and we shall not push him on it. It may be that in some way this could be considered as expenses. Heaven knows, the sums are trivial enough to come under that heading. I am sure that the R.N.L.I. will be glad to have talks with the Financial Secretary, and it may be that a way can be found to attribute this in some relationship to financial loss. That may prove to be a way round the problem.
  In short, though it may have taken a long time, the House has come together to feel that we must do something about

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  this. I am content to leave it with the Financial Secretary. I am sure that his statement was made in absolute good faith. I hope very much that the conversations which he will have with the R.N.L.I. will be fruitful, and that in next year's Finance Bill we will remove an injustice which has lasted for far too long.
  Mr. F. J. Bellenger: Having listened to the debate, it seems that my hon. and learned Friend the Financial Secretary is making some sort of a concession—qualified, of course. He is not giving the point entirely to the hon. Member for St. Ives (Mr. Nott), but he has said that he thinks—he has not taken advice—that this can be dealt with by treating it in a different way, which is quite legal. Will he give the House an assurance that before we finally finish with the Bill he will take advice on this so that hon. Members can know whether it will be possible for the method he suggested to be used? If he does not do that, and the Clause is withdrawn, hon. Members may find themselves in the position that the advice given to my hon. and learned Friend is purely negative, and then where will they be?
  Sir Douglas Glover: It is not very often that I rise in this House to sympathise with a Minister, but I do so in this case. It is right that income is income, and Income Tax is tax on income. Wherever the money comes from it is income.
  I sympathise with what has been said by my hon. Friend the Member for St. Ives (Mr. Nott), and the hon. Member for Kingston upon Hull, West (Mr. James Johnson) about the problems of lifeboat men. As the Financial Secretary proposes to discuss this problem with the R.N.L.I., I think that it will be as well if he discusses it also with the mountain rescue organisations who do a similar job on dry land to that which is done by the lifeboat men at sea. These men go to the top of Snowdon to bring down misguided mountaineers, often on stretchers, and the number of fatalities among them is higher than amongst lifeboat men. One must consider, too, those who go down pot-holes to rescue people. We had an example of this over the weekend. They go to considerable difficulties to rescue their colleagues, and they, too, must lose
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  a considerable amount of money and time in carrying out this work.
  If the Financial Secretary wants to create justice for all these people, he has a very difficult job ahead of him, but I hope he will remember that it is not only lifeboat men who come into this category. As I have said, there are the mountain rescue teams, and those who go down 1,000 feet below ground and crawl along these confined spaces to get to injured colleagues. I do not think that this is anything to laugh about, particularly as I would not want to go down a pot-hole, but I would volunteer to go out in a lifeboat to rescue someone who was in difficulties. I certainly would not be prepared to go down a pot-hole, because that would give me claustrophobia. To me, going down a pot-hole represents far greater danger than going out in a lifeboat in a rough sea.
  Mr. Temple: As I shall be speaking on behalf of the inshore fishermen, can my hon. Friend help me by saying whether any allowance is paid to these mountain rescue workers, or to these pot-holers?
  Sir D. Glover: I cannot tell my hon. Friend that, but I would have thought that as they were always on call to go out at short notice there was some voluntary system of cash allowances for them. All I am asking the Financial Secretary to do is to consider the other people when he has his discussions about the lifeboat men.
  If the Financial Secretary can get over this problem, I am sure that, irrespective of occupation, the public will be glad to see these men drawing this money without any deduction for tax. The sum involved is very small indeed, and it seems almost indecent that when people have risked their lives to save others the small allowance which they receive is deducted for tax. If the Financial Secretary can get round the problem by regarding this money as an expense allowance, or a claim for loss of earnings, he will have the support of the whole House, and in fact the whole country.
  Mr. Nott: In view of what has been said, and with particular reference—
  Mr. Deputy Speaker: Order. The hon. Member must have the leave of the House to speak again.
  Mr. Nott: With the leave of the House, may I say that in view of what has been said, and with particular reference to the Financial Secretary's—
  Sir D. Glover: On a point of order, Mr. Deputy Speaker. Does my hon. Friend need the leave of the House? This is his new Clause.
  Mr. Deputy Speaker: Under Standing Order No. 51 the only right given to a mover of a new Clause or an Amendment is in respect of a Bill which has been to a Standing Committee. The Finance Bill has not.
  Mr. Nott: As the Financial Secretary has said that he will consider whether this can be treated as a financial loss allowance along the lines of payments to local authority members and voluntary workers, I beg to ask leave to withdraw the Motion.
  Motion, and Clause, by leave, withdrawn.

  New Clause No. 7.—(DEFINITION OF 'INVESTMENT TRUST' FOR PURPOSES OF CAPITAL GAINS TAX.)
  Section 37(2)(c) of the Finance Act, 1965 (Unit Trusts and investment trusts), shall be amended by the insertion after the words 'United Kingdom' of the words 'or that the company is not under the control of less than 50 persons'.—[Mr. John Smith.]
  Brought up, and read the First time.
  Mr. John Smith: I beg to move, That the Clause be read a Second time.
  The Clause should, I think, prove acceptable to the Government because the words which it seeks to insert in the Bill were first put forward by the present Chancellor of the Exchequer and supported in principle, as I shall show, by the present Chief Secretary to the Treasury, the Financial Secretary to the Treasury, and the hon. Member for Manchester, Cheetham (Mr. Harold Lever). Indeed, in those days before he assumed the chains of office, the hon. Member for Cheetharn went a great deal further than anyone else on this subject.
  However, in the general confusion surrounding the Finance Bill of 1965 these wise words were removed from it by a Government Amendment put forward as
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  a result of Opposition pressure and designed to do something quite different, namely, to avoid making a number of large quoted investment trusts liable to double taxation. The Clause seeks to put back into the 1965 Finance Act these good Government words which were ill-advisedly removed, and by so doing to relieve certain members of the public from double taxation which the Government never intended they should bear.
  The Government have said many times, and they said it in 1965, that they wish to encourage savings in all forms. I do not have to quote HANSARD on that. One of the most useful forms of saving is through the medium of investment trusts. Indeed, except perhaps for the invention of limited liability, which is now under attack, and possibly life insurance, the investment trust movement has been the most powerful of all the forces which have expanded the economy in the past 100 years, and in particular has generated those dollar resources which have seen us through two world wars and which may yet see us through balance of payment troubles in the future. I think that no one in this House should be in any doubt about the value of the investment trust movement.
  Recognising this, the Government, when they introduced the Capital Gains Tax, sought to relieve shareholders in bona fide investment trusts of some of the effects of double taxation. The Finance Act, 1965, laid down, wrongly, in my view, that capital gains realised by investment trusts should be taxed, but that the shareholders, when they finally sell their shares, should, by an extremely complicated and time-consuming procedure, not he taxed again, providing the investment trust was a bona fide affair.
  6.0 p.m.
  But, of course, the Government were soon involved in the inevitable complications that spring from this ill-thought-out Capital Gains Tax and which still clog the economy. They had to define a bona fide investment trust. Their objective was plain and acceptable. On 8th July, 1965, the Chief Secretary said:
  "The objective is to distinguish the genuinely public investment trust from an investment trust company under private control."—[OFFICIAL REPORT, 8th July, 1965; Vol. 715, c. 1842.]

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  On 31st May, the Financial Secretary said:
  "I should like briefly to explain our objective in laying down the criteria in the Bill. It is to distinguish the genuinely public investment trust, in respect of which the relief under the Clause is intended, from the investment trust company which is under private control and which is, in substance, no more than a company designed to hold the private fortune of a family group; for example, the shares of a family company in which a large number of members of the family are interested."—[OFFICIAL REPORT, 31st May, 1966; Vol. 713, c. 1314.]
  When the Bill—as it then was—was first drafted the words used by the Government to describe a genuine investment trust were as follows:
  "that it is a company in which the public are as shareholders substantially interested and that it is not under the control of less than 50 persons".
  But, by the time the Bill became law this definition had been revised—if I may paraphrase—to provide "that the shares of the company are quoted on a Stock Exchange". This excludes those companies which are unquoted yet which met the original conditions.
  Mr. Robert Sheldon: Was not the purpose of this provision not so much to exclude those organisations which were already in existence, but rather to prevent the creation of a number of spurious organisations of this kind seeking to obtain the advantages of this tax? One can think of many commercial types of organisation which could have provided an outlet for this type of promotion.
  Mr. Smith: I am coming to that point. It is clear from everything that was said in those debates that the distinction intended to be drawn—this is the most important point—was not between quoted and unquoted trusts but between public and private trusts. All the words are quite clear.
  Now, there are several bona fide public investment trusts which are unquoted, for good reasons, and the shareholders of those have been left liable to double Capital Gains Tax. It is, of course, quite possible for an investment trust to obtain a quotation on the day it is born, but mainly to protect the public and to give the company time to establish a record by which the public can judge it soberly, it is more usual not to apply for
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  a quotation for some years. Indeed, it is in the public interest that this should be so. The Act as it stands, in respect of that part which I seek to amend, actually encourages investment trusts to take a course, that of obtaining an immediate quotation, which can be against the public interest.
  At any one time there are always several absolutely bona fide investment trusts—indeed, trusts in which the public have got not merely a substantial interest—which the Government wanted—but a total interest; that is to say, only members of the public are shareholders. These trusts are on their way to a public quotation, but they are disqualified by the unfortunate change in the original definition put forward by the Government.
  I cannot do better, to summarise this anomoly, than to read what the hon. Member for Cheetham said in 1965, on 8th July, 1965:
  "If I invest in an investment trust company which is not quoted on the Stock Exchange but which fulfils every single one of the Chancellor's requirements except that, why should I pay double tax; whereas, say, the right hon. Member for Sutton Coldfield (Mr. Geoffrey Lloyd) who invests in a company which is indentical with regard to its investments, size, number of shareholders, nature of its investments, and the amount of its capital profit, is exempt from double taxation merely because the company is quoted on the Stock Exchange?".—[OFFICIAL REPORT, 8th July, 1966 Vol. 715, c. 1845.]
  Indeed, the present definition shuts out some investment trusts which are a great deal more public than some which it lets through.
  There remains the problem of excluding the family investment trust—the problem of making sure that these wicked people who have gone forth and multiplied should pay double tax. To achieve this the new Clause has been drafted to apply only to trusts controlled by not less than 50 persons, which was the Government's original wording. I know that in moments of stress I have the feeling that it would take a great deal more than 50 persons to control my family, but for ordinary, common or garden families, which are not called Smith, the definition of 50 persons should be tight enough to exclude them.
  By choosing 50 persons as a criterion, private companies are automatically excluded, as the Government wish, and for the same reason subsidiary companies are automatically excluded, as the Inland

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  Revenue wishes. This exclusion also meets the wishes of the Association of Investment Trusts. This latter body is so capable, and enjoys such good relations with the Inland Revenue, that the House may sometimes forget that it represents only quoted investment trusts; whereas the new Clause is concerned only with unquoted investment trusts. Indeed it is possibly because this powerful and effective Association of Investment Trusts does not embrace them that the unquoted trusts have been overlooked in a way which the Clause seeks to put right.
  The new Clause opens no doors. It creates no precedents. It creates no thin ends of wedges. It simply puts right a wrong inadvertently done to a few thousand members of the public—a wrong which Treasury Ministers have all, by their own words—and to their credit—shown to be inadvertent. It would be extraordinary if, in the Finance Act, 1965, certain mistakes had not been made and, I earnestly commend the new Clause to the House.
  Mr. Gower: I will not go over in detail the ground which my hon. Friend the Member for Cities of London and Westminster (Mr. John Smith) has covered adequately. I want to press the Chief Secretary in respect of only one matter. I hope that he will acknowledge the force of my hon. Friend's argument that what is asked for is a moderate change and one which appears to be consistent with the first intention of the Government when Capital Gains Tax was introduced not long ago.
  As my hon. Friend said, investment trusts in general have served a splendid purpose in our financial and industrial build-up. It would he most undesirable if the Government allowed the exclusion of all unquoted investment trusts to continue. In some ways the position can be summarised by saying that we look for some, at any rate, of the successful quoted public investment trusts of tomorrow among the unquoted investment trusts of today. In the same way, we look for the successful public companies of the future among some of the small private companies of today.
  I believe that this has been an inadvertent exclusion. For that reason I hope that the Chief Secretary will assure us that the Government do not intend it
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  to continue. I have, however, one slight difference with my hon. Friend. Even in respect of the small family trust, I see no justification for double taxation. I wonder whether my hon. Friend is prepared to consider that. But I agree with him on the main issue. As he said, we have here a clear definition—
  "not under the control of less than 50 persons".
  The words were included in the first draft of the Bill.
  I therefore hope that the Chief Secretary will at least accept the principle of the new Clause.
  The Chief Secretary to the Treasury (Mr. John Diamond): The hon. Member for the Cities of London and Westminster (Mr. John Smith) is right in saying that the words were originally in the Bill. But I am not sure that he retained his ground firmly in considering the purpose of those words. They were to ensure that there was a genuine public interest. He and I do not move on the same basis as to the argument of double taxation. We do not accept for one moment that there is any question of double taxation. Corporation Tax is a proper tax which has its effect. But we recognise that where individuals were investing in large numbers in this way there might be a special provision so as to enable them to have this advantage. That was the situation when the Bill was printed.
  We then received representations that the principal objective which we were setting out to achieve—and, as far as I am aware, there is common ground between us about it—namely, a demonstration of a genuine public interest which would satisfy the conditions of the relevant Clause, was being vitiated by the restrictive terms of the Clause. I cannot do better than read the memorandum which was submitted to the Chancellor of the Exchequer after the publication of the Bill with the Clause containing words which are in the proposed new Clause.
  The memorandum was received from the Association of Investment Trusts. I recognise that the hon. Member does not speak on behalf of the association, but what it said is relevant to the new Clause.
  The association said that the Clause in its original form, providing that the company must not be under the control

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  of fewer than 50 persons, would exclude most genuine public investment trusts with thousands of individual shareholders, which could have a few large holdings by insurance companies, pension funds or unit trusts. It therefore suggested that the definition should be altered to secure the purpose of the original words and not to vitiate that purpose. Accordingly, the words were altered and the purpose achieved in that way.
  6.15 p.m.
  I recognise that the hon. Member is suggesting that there should be an additional or alternative definition so as to include investment trusts which are not under the control of as few as 50 persons and yet are not public. They would be very odd trusts not to be under the control of 50 persons or fewer. It takes very few shareholders to join together to have control of a company, and the units would have to be divided very evenly indeed. It would mean that the largest 49 shareholders would hold less than 50 per cent.
  The fact that it is unusual is not an argument on which to rely. The hon. Member will ask: if it is so unusual, and if it is providing for virtually no cases, what am I worried about? I am worried only because I cannot imagine the type of case which he has in mind which would satisfy the essential criterion that there is a genuine public interest. A public interest is not only that which concerns a lot of private people. It is an interest in which the public freely come and go, in which there would be changes of shares and in which individual members of the public would have a right to use the services of the investment trust.
  Mr. John Smith: That was most certainly not the intention of the words originally put in the Bill by the Government. I should not be wasting the time of the House by putting forward a new Clause at some length if there were not actual examples to be quoted. Far from being odd trusts, these investment trusts are exactly what the Labour Party would like to see—trusts in which the shareholdings are manifold and also very evenly divided. Of course they exist, as
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  all of US who are financially literate know.
  Mr. Diamond: I will not be put off by that last bad-tempered comment. I was about to say that I had listened to the argument. It is a new argument. The fact that it is new does not detract from it. We have never had representations of this kind from any of the bodies which are continually making representations to us either in the House or outside it. I therefore could not see any particular reason for adding to the words. I find it difficult to think that the words which we have in the Bill are not satisfactory.
  But if there is new information of which we are unaware, I am prepared to listen to it and to receive representations. All of us who are illiterate like to improve our literacy if we are sensible people. There are many fields in which I am very ignorant, and I am always delighted to learn. If, out of his vast knowledge of these matters, the hon. Member wishes to make representations to my right hon. Friend or myself, or if he wishes to bring a delegation, we shall be glad to listen to him, to receive the delegation and to consider the matter.
  I cannot go further than that, because, even after listening carefully to the hon. Member, I have difficulty in understanding that there are cases which satisfy the original criterion which we had in mind in proposing the words which were in the Bill but which are not now covered.
  Mrs. Margaret Thatcher: We are most grateful to the Chief Secretary of the Treasury for what he said. If he looks through the records of the Inland Revenue he will find that letters have been sent to the Inland Revenue on this very point. I have in my hand a copy of a letter which was sent to the Inland Revenue shortly after the Finance Act, 1965, was passed. A reply to it was received from the Inland Revenue on this very point. These letters are dated November and December, 1965. I will let the Chief Secretary have copies of them.
  However, as he seems genuinely fairly sympathetic to the point—indeed, he argued that the new alternative test did not appear to go far enough—I wonder whether my hon. Friend would pick up his offer during the coming months and

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  that we might get some decision, to be incorporated in another Finance Bill perhaps, or, who knows, in an autumn Budget.
  Mr. John Smith: May I have your leave to speak again, Mr. Speaker?
  Mr. Speaker: The hon. Gentleman, who moved the Clause, does not need my leave or that of the House. He may speak again.
  Mr. John Smith Mr. John Smith rose—
  Mr. Speaker: Order. I am sorry. I stand corrected. The Bill has not been to Standing Committee, so the hon. Gentleman must have leave of the House to speak again.
  Mr. John Smith: With the leave of the House. I do assure the Chief Secretary that my expression about financial literacy was not ad hominem. There are few Members in the House so literate in that way as the Chief Secretary: indeed, it is because we know that he knows the facts of many cases that we are shocked when he expresses certain opinions.
  I agree that the purpose of the definition was that there should be a genuine public interest in investment trusts which are allowed to qualify. The right hon. Gentleman said that it was represented to him, correctly, by the Association of Investment Trusts that the Government's definition would exclude a large number of public quoted investment trusts; and the wording was altered. Because the wording is improved to remove an anomaly to allow certain trusts to qualify which it was intended should qualify, it seems unreasonable at the same time to exclude from relief other trusts which were also intended to qualify.
  The right hon. Gentleman has been handsome and said that, if I can produce an example of this rare animal, he will reconsider the matter. In view of that assurance, I beg to ask leave to withdraw the Motion.
  Motion and Clause, by leave, withdrawn.

  New Clause No. 13.—(INVESTMENT ALLOWANCES.)
  Where the Treasury is satisfied that—

  (a) expenditure in respect of an asset consists of the payment of sums under a contract entered into on a date not later that 16th January 1966, and

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  (b) the asset was brought into use at the earliest practicable date, being after 16th January 1968,

  then subsection (1) of section 35 of the Finance Act 1966 shall not affect the application of any of the enactments specified in Part IV of Schedule 13 to that Act, to that expenditure.—[Mr. Iain Macleod.]
  Brought up, and read the First time.
  Mr. Iain Macleod: I beg to move, That the Clause be read a Second time.
  The new Clause arises out of Section 35 of the Finance Act 1966, which provided that investment allowances on capital expenditure would be discontinued unless, first, the contract was entered into before 17th January, 1966, and, second, the asset in question was brought into use before 17th January, 1968, thereby giving a two-year period. The Bill was originally drafted to give a period of nine months, but in debates in Committee it was pointed out and accepted by the Treasury Bench that nine months was certainly too short; there was general agreement that a longer period should be provided for.
  In a letter, of which he probably has a copy, the Chief Secretary on 3rd March, wrote to Mr. Brilliant, of Britannia Airways, laying down the objective of the extension of the time limit:
  "We therefore decided to make a substantial extension of the time limit so as to make it long enough to enable, so far as could be judged, all assets genuinely contracted for in the normal course of trading before 17th January 1966 to be completed and brought into use."
  The right hon. Gentleman then explained that two years was the period most frequently mentioned in Committee and the period upon which the Government had decided, and added:
  "A delay in delivery of over two years is, I think, very exceptional and we have no evidence, apart from this case, that the limit is proving too short."
  That is accurate, as far as it goes, and I also have no evidence beyond the case which is the basis for the new Clause.
  The complication is that the Chief Secretary has said that hard cases make bad laws. Although there is no doubt—he will not dispute this—that, in this case, a genuine contract has been genuinely entered into and planned to be delivered as early as possible, it still falls out with the scope of Section 35 of the 1966 Act.
  There may well be other cases concerning aircraft, because the Clause

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  would particularly catch orders for aircraft purchase. The reason is that, when an airline buys an aircraft which is technologically advanced, it will normally have to wait about three or four years from the commitment to the delivery. Whereas one can buy or order an aircraft like the Boeing 707 or the BAC111 with a lead time of approximately one year, if one goes in for more advanced types like the Boeing 737 or 747 or the BAC211, there is a lead time which may extend into three or four years. This is clearly not the fault of those who order, but the limitation of two years in Section 35 of last year's Finance Act catches them.
  In this case, Britannia Airways ordered Boeing 737s, I think, in October, 1965, for delivery at the earliest date, and the key words in the new Clause are, of course, "earliest practicable date". But the earliest practicable date turns out to be—for the reasons I have given, this is not surprising with an advanced aircraft—April-July, 1968. Therefore, in effect although not in intention, the Clause which was passed a year ago discriminates against the purchase of advanced aircraft.
  I gather that the Treasury's anxiety is that there must be a time limit so that people who peer into the future and guess—accurately, in this case—the line which might be taken by the Government's investment incentives should not benefit unduly from long-term contracts which they might enter into for the supply of assets which would, perhaps, not rank for grant under the new arrangement. But that, also, is taken care of by the new Clause, which says that the asset must be brought into use at the earlest practicable date, so there is no question of someone trying to forestall the provisions of the 1966 Act.
  It is only in the sort of case—I know of no other—in which a genuine order was made for a particularly sophisticated type of aircraft before January, 1966, and, therefore, applies on that score, and for which delivery has been requested at the earliest posible moment, which turns out to be beyond the two years allowed, which would not qualify under Section 35.
  Bearing in mind that I can give only this one illustration, I would not advise my hon. Friends to divide on this issue. The Chief Secretary will know whether or not, in former years, this was a wide-
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  spread complaint. However, I am sure that the Opposition spokesmen and Treasury officials would have heard of other cases, had they existed, through attempts to put them right. Even if this be the only case, it is worth bringing before the House to see whether there is some way—I admit that the new Clause may not be perfectly worded, or that it should be limited to advanced technological aircraft—of meeting this point. I have given evidence to show that, in these circumstances, Section 35 of the 1966 Act has resulted in something that the House of Commons did not intend a year ago.
  6.30 p.m.
  Mr. Diamond: The right hon. Member for Enfield, West (Mr. Iain Macleod) moved the new Clause with extreme reasonableness and made the background to it absolutely clear. The original proposal was a nine months' extension and many representations were made in Committee, as the Government wanted, on last year's Finance Act, but not one representation or proposal was made for a period longer than two years. There were several for a period shorter than two years, but the Government decided that it would be safer to go for the longest period which could reasonably be argued, and we settled on two years.
  There are at least two good reasons for having a time limit, even beyond the fact that if one is moving over to a new system one must cut off the old one to avoid the two running side by side. One reason is the case mentioned by the right hon. Gentleman; of foreseeing the future and providing for it in that way. The other reason is to consider whether, by similarity foreseeing the future, one could provide for a series of circumstances in which, say, one contract entered into before the relevant date, could be covered almost permanently for future deliveries coming at various intervals.
  There are, therefore, good reasons for having a limitation, and we must look at any special cases against that general background. Other than the one case to which the right hon. Gentleman referred—I do not have the correspondence, but I remember it well; I am obliged to the right hon. Gentleman for having mentioned this matter to me earlier—we have had no other cases at all. I confirm that. Prior to the right hon. Gentleman saying

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  that he had this particular case in mind, I had been minded to say, in reply—and, in any case, I will say it—that after the two-year period has expired—and it does not expire until 1968; two years from the relevant date of the new system starting—I intend to see which cases, how many of them and what kind of cases, if any, have proved some sort of hardship and have been caught by the two-year rule. I still say that, and I wish to make this clear.
  If it turns out that this still remains the only case where there is a feeling that the two-year period has been too short, then the House must accept—and I am not disputing that these are genuine circumstances—that, as against that one case, one must protect the Revenue from a variety of other cases. It is difficult to legislate for one aeroplane delivery. While I do not wish to mislead the right hon. Gentleman—remembering that in Committee we said that we would consider everything brought to our attention; and on Report we are certainly producing the goods—if it turns out that this is still the only case, I would not then look at it with anything like the same sympathy as if it were one of several cases, which, in such circumstances, we would obviously be more inclined to meet.
  However, I affirm that this is, to the best of my knoweldge, a perfectly genuine case and I am grateful to the right hon. Gentleman for having raised the matter.
  I hope that he will feel that the best way of treating the issue at present is to see what representations we receive after the two-year period has expired, which will be in mid-January, 1968. We will then see whether it would be appropriate to make any alteration, if there were a serious case for it to be made, in the next Finance Bill. I must again point out, however, that I would not look on this matter with such great sympathy if it turned out to be the only case, as it is at present, on which we received representations.
  Mr. Iain Macleod: I am grateful to the Chief Secretary for his reply. We are obviously agreed about the facts in this case and I was glad to hear him say that he accepts that this is an absolutely genuine one. I could not reasonably ask more than that he should, when the time expires early in January next, look at
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  the whole matter again to see if other cases have been harshly treated by the provision which we passed a year ago. In the circumstances, I beg to ask leave to withdraw the Motion.
  Motion and Clause, by leave, withdrawn.

  Clause.—(TERMINATION OF SURCHARGE UNDER FINANCE ACT 1961 S. 9 AND RELATED INCREASES IN DUTIES.)
  Mr. Gordon Campbell: I beg to move Amendment No. 2, in page 3, line 35, at the end to insert:
  (6) As from 12th April 1967, section 8(2) of the Finance Act 1964 shall have effect with the substitution for the reference to five groups of a reference to six groups and with the substitution for group (b) of the following groups—
  '(b) duties of customs or excise chargeable in respect of spirits (other than power methylated spirits),
  (bb) duties of customs or excise chargeable in respect of beer, wine and British wine,'.
  The Amendment seeks to separate home-produced spirits from wine and beer for the purposes of the regulator. It should be attractive to the Government because it would give them more flexibility in future, when they are applying the regulator, than there has been since it was brought into existence.
  The Amendment is concerned with home produced spirits and whisky in particular. In Committee, on 1st June, my hon. Friends and I sought to prevent the increase in duty on whisky, resulting from the measures of 20th July of last year, from being consolidated in the Bill. We pointed out that, for the first time for many years, there had been a drop in home consumption in Scotch whisky and that this drop, quite a large one, had resulted in the Exchequer receiving a negligible amount in revenue. The drop was recorded over a period of 12 months compared with the previous 12 months. It was the surest way of measuring this change because it took account of the periods which the Government have referred to as "pre-Budget forestalling periods". If we take one period of 12 months—a financial year, in this case—and compare it with the previous 12 months we find that we cover the forestalling periods for two Budgets, so these should even out.

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  When periods of less than 12 months have been suggested in debates before 1st June, the Government have very often said that there have been abnormal removals of whisky from bond because of pre-Budget forestalling. We know that the Chancellor of the Exchequer has been going in for a number of mini-budgets as well as the regular Budgets, and we even heard from the Financial Secretary on 1st June the astounding suggestion that the distilling industry and the whisky trade generally had been able in June of last year to foresee the crisis and the Chancellor of the Exchequer's measures of 20th July, even though the Government themselves weeks beforehand appeared to have had no idea that a crisis was upon them. That is the reason for the 12-month period being a measure and, unfortunately, a significant measure of the drop in home consumption.
  Replying to that debate, the Financial Secretary gave merely technical reasons for not accepting our Amendment. He did not appear deliberately to be wanting to raise the duty on spirits, but claimed that that on whisky was inextricably intertwined with other items in the regulator, and was also related to agreements with countries abroad which enjoined the Government to include the whisky duty in other increases.
  The Amendment is one move in the direction of improving that position. If it were accepted, the duty on home-produced spirits would be considered in relation to the merits of the industry, of consumption, and matters connected with those spirits. This major change—the drop in consumption—is something which the Government should take into account. When, previously, each year registered an increase in home consumption, the Government clearly had no need to worry, but now that we have this drop in consumption they should take action to separate home-produced spirits from other items on which taxes are considered.
  I hope that the Government will accept the modest change we suggest. I would point out to them at once that, unlike some Amendments to Finance Bills, this Amendment would not cost the Government any money—it would make a procedural change only.
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  The Financial Secretary also said on 1st June that difficulties arose from the E.F.T.A, and the Irish agreements. I say that the Government, while accepting this Amendment, should also investigate those difficulties. There is nothing now to stop them putting in train whatever action is necessary to ensure that before a future Budget, or other occasion when the regulator may have to be used, consideration is given to the position of the spirits trade, and the whisky industry in particular on its merits. The Government should not allow the whisky duty to be increased simply because it is tightly tied to other taxes that have to be increased.
  As a result of this Bill being passed, the tax on whisky will be no less than 37s. 6d. a bottle, which is a very high proportion of the total cost of a bottle of whisky. The industry is providing an enormous part of the United Kingdom export achievement, particularly in the dollar area. In moving this Amendment I have in mind the interests not only of the producers but of the consumers.
  I hope that the Government will see the advantages of accepting an Amendment that will not cost them any money and will make the situation more flexible in the future.
  6.45 p.m.
  Earl of Dalkeith: Although I do not accuse the Government of driving us to methylated spirits, I would point out that there is at present an increase in the consumption of drugs, such as L.S.D. I suggest that there is possibly a direct relationship between the price which the citizen has to pay for whisky so as to reach that sort of state of mind which some citizens like to reach and the switch-over to drugs. Perhaps the hon. and learned Gentleman will bear that suggestion in mind when considering this very worthy Amendment.
  Mr. J. Bruce-Gardyne: It is desirable to make clear that our purpose, certainly my purpose, in putting down this Amendment is not to encourage the Government to impose an additional 10 per cent. on the regulator on whisky. It is essential to say that, because one never knows what the Government may get up to by way of new proposals for increased taxation. The purpose of the Amendment is to enable

  325
  the Government to use the regulator exclusively in a downward direction, we hope, with reference to spirits as opposed to wines, including imported wines.
  If we had not had so many bitter experiences and disappointments from the Financial Secretary in past debates, we could genuinely expect him to accept this proposal because in terms of the management of the economy it makes very good sense. During the past year we have seen a substantial drop in home sales and deliveries from bond of Scotch whisky. On the other hand, we have seen a substantial increase in the value of imported wines, such as sherry. In other words, we have seen a movement of sales from a home-produced product to an imported product, and it is hard to conceive of anything less attractive to the Government in the present parlous state of the balance of payments.
  At the same time, it is only fair to say that—as I think my hon. Friend the Member for Ayr (Mr. Younger) will bear me out—ff ere has also been a substantial increase in home sales of beer. It is, therefore, conceivable that the Government might feel it very desirable to use the regulator on sales of sherry, other imported wines and beer—on beer because there is no evidence of the regulator affecting its sale, and on sherry because we do not want to encourage wine imports.
  The attraction of this proposal is that it would enable the Government to make a distinction between home-produced whisky and imported wines and sherries and home-produced beer. From the point of view of management of the economy and of helping the industry in Scotland, particularly in the Highlands which have suffered from so many of the proposals of the present Government, this is an eminently reasonable proposition. It need cost the Government nothing at all at this stage, so I hope that we shall not have the specious explanation which we had before from the Financial Secretary that reduction of duty on whisky would lead to a substantial drop in revenue, a view at which he arrived, apparently, when considering the last time that the duty was reduced, in 1895.
  I hope that the right hon. Gentleman will give the proposal the welcome which it deserves. It has no disadvantages, but many advantages.
  Mr. Ian MacArthur: I join with my hon. Friends in hoping that we shall have a much better reply from the Financial Secretary tonight than we had when we debated the subject on 1st June. My hon. Friend the Member for Moray and Nairn (Mr. G. Campbell) referred to some of the arguments which the hon. and learned Gentleman advanced at that time. It would be unkind to say too much about what the Financial Secretary said then, because his argument was remarkably weak.
  I recall, however, that the hon. and learned Gentleman showed great respect for the whisky industry, a respect so deep that he attributed to it most remarkable wisdom. He told us that the whisky trade last year, knowing that there would be an emergency Budget in July, forestalled the July measures by clearing inordinately large amounts of whisky stocks. If that was his belief, he was asking the Committee to accept that the whisky industry knew more than the Prime Minister, the Chancellor of the Exchequer and all the other Ministers who during the whole of that period were assuring us and the whisky trade that no emergency measures would be necessary.
  I hope that the Financial Secretary will accept the Amendment, which is designed to help him. I believe that lurking behind his speech was sympathy for the industry. He recognised the enormous help which it gives to our balance of payments and to the whole Scottish economy. The proposal in this Amendment provides a very much finer tool than the crude instrument available to the hon. and learned Gentleman at present. It would allow the Chancellor of the Exchequer to have much greater flexibility of selection. By isolating whisky and gin in this way he would be helping the Government to find a better tool of economic management than is in their possession at present.
  I hope that the hon. and learned Gentleman will also recognise that there is a need to ease the problems which confront the whisky industry. I do not have to extend the argument, for he knows that consumption of whisky at home has fallen quite sharply under the impact of additional duty. I am sure that he will accept that in many countries abroad duty is increased in step with increased sales in the domestic market. If this trend continues, the industry will

  327
  be severely depressed. If the hon. and learned Gentleman accepted the Amendment, he and the Government would be provided with the means of helping a great industry which is under severe pressure as a direct result of Government action.
  Mr. Hector Monro: This is an important Amendment which, I hope, will be accepted. It is very important for Scotland that the whisky industry should be in good heart and flourishing. It is patently obvious to those who live in Scotland that it is not at present. It is balanced on a knife-edge and might fall on one side or the other. There is no doubt that the policies of the present Government will depress the output of the industry. Then there will be a chain reaction which will reduce exports and revenue to the Exchequer.
  It is most important that the Government should realise that this Amendment could be of great importance if a downturn comes because then the Government could step in and reduce the excise duty. We are giving the Government an opportunity to step in if a crisis develops. We are afraid that such a crisis might unfortunately happen. This debate gives the opportunity to the Financial Secretary to give a better reply than he gave on 1st June when he appeared to be quite out of touch with the problem and singularly unsympathetic.
  I hope that the Government will accept the Amendment and as soon as possible put it to good use to reduce the tax because this is what the industry needs and what all hon. Members on this side of the House think should happen.
  Mr. William Baxter: I hesitate to intervene in this short debate, but I wish to make a slight criticism of the general policy pursued over the years of taking the easy road by way of levying taxation. It is easy to levy taxation on whisky. The Amendment, which I support, would be a step in the right direction against this trend. It is a trend which can have a great effect on one of the basic industries of Scotland and from which we draw a great deal of revenue.
  I have had occasion to visit Canada, New Zealand, and other countries and I have found the amount of taxation levied
  328
  against Scotch whisky encourages those countries to start to produce a type of whisky of their own. At Invercargill, in southern New Zealand, a new distillery is being built for the purpose of building up a whisky industry, not that they can ever achieve the blend which is necessary for good whisky because of the secret processes involved, but because they will be able to produce, as Canada and America have produced over the years, a type of whisky which, ultimately, will undermine the whisky industry of Scotland. This would have a dangerous effect on industry in Scotland.
  Many say that we should try to stop people drinking, but I do not think the way to do so it to put this industry out of business in Scotland, by too heavy taxation. The Government should be mindful of the pleas that have been made to them for some consideration of the burden placed on Scotch whisky. This Amendment would go a long way to giving the Government power to do that and I support the point of view which has been expressed in the debate.
  7.0 p.m.
  Mr. MacDermot: Hon. Members who have supported the Amendment have done so on two grounds: first, out of their desire to help the whisky industry at present; and, secondly, to provide the Chancellor with a more flexible tool of economic management.
  In Committee, we debated an Amendment which would have had the effect on the whisky industry which hon. Members want to achieve immediately by this Amendment. That Amendment was rejected. I will not go over those arguments again, save to say this. The hon. Member for Moray and Nairn (Mr. G. Campbell) referred with some scorn to what I said about the apparent forestalling before the July measures. I have the more precise figures here. There may be some other explanation. I do not know what it is.
  The figures are fairly striking. The clearances in June and July, 1966, were up by 201,000 gallons on the previous year—in other words, by about 18 per cent. Only about one-quarter of that increase would be explained by the earlier pattern of increases in clearances. To check this by the subsequent figures on consumption, the clearances for August, 1966, to February, 1967—that is, after

  329
  the July measures and taking us over the Christmas season—were, in actual figures, 8 per cent. below those for August, 1965, to February, 1966.
  The figures for the drop in consumption put forward by the trade on the basis of sales to the public show a drop of only 5½ per cent. Taking into account the increased clearances, be it because of forestalling or for whatever reason, in the months of June and July, there was over the whole period a decrease of 5½ per cent., which tallies with the drop in consumption.
  The figures suggest that there were abnormally high clearances in that period, with a resulting greater fall in clearances after. The shipping strike started in May. It may be that some gentlemen in Scotland are more prescient and in any event had taken what for them was an insurance risk which, in the event paid off for them. I attributed to them perhaps a greater intelligence than they deserve. I am still inclined to think that they showed that shrewdness for which their countrymen are famous.
  I turn to the question raised by the Amendment, which is wider than that which we considered in Committee. It is the proposal, not just now, but permanently, to separate the spirits duty from the duty on beer and wine with which it is grouped for purposes of the regulator. This would enable a Chancellor at any time to increase or decrease the duty on spirits without affecting the duty on other forms of alcohol, or indeed on any other articles. It is said that this would provide greater flexibility in the regulator and be a useful additional tool of economic management.
  It would provide a degree of flexibility which no Chancellor would desire for this purpose and would have awkward consequences for him. The purpose of the regulator is not to adjust individual duties to meet the needs of individual industries. Its purpose is to give the Chancellor the power to regulate the balance of economic demand within the country in a way which will have a speedy effect, either upwards or downwards, and have a direct effect on consumption.
  When the regulator was originally introduced by the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd), it was a very simple instrument to be
  330
  applied uniformly to the whole range of duties to which it related. However, following criticisms and pressures which were made by some of my right hon. and hon. Friends when they were in opposition, in 1964 it was made more flexible by dividing the duties into the now well-known five groups: tobacco; the one we are discussing, which is spirits, beer, wine and British wine; hydrocarbon oil; Purchase Tax; and the other remaining duties which are covered.
  This being the case, if we were now to have a further fragmentation of groups in the way suggested and single out one particular class of goods—in this case, spirits—it is difficult to see where the sub-divisions would stop. [HON. MEMBERS: "No."] Do hon. Members honestly think that, if this proposal were accepted, there would not immediately be pressure, if not from them, from some of their colleagues, on behalf of other industries to the effect that they should be separated and that there should be a special category made for them? I am sure that there would be pressure for the hydrocarbon oil group to be subdivided to allow heavy fuel oil to he separated. I think that I can predict fairly confidently which hon. Members would support such a proposal.
  Mr. Bruce-Gardyne: Why not?
  Mr. MacDermot: This is the point I am making. The same would apply to other industries.
  We should end up not with an instrument with five broad groups which a Chancellor can use to reduce or increase demand, but with an instrument broken down to cover nearly the whole of the tax field. We must face the fact that on the occasions when the regulator is used—it has been used only twice in its history since it was initiated in 1961—it is an instrument which has, and which is intended to have, a sudden and sharp impact on consumption. If it is used to raise the duty, it will have a sharp depressing effect on consumption over those areas.
  It obviously would be extremely invidious for a Chancellor to be expected to pick and choose between different articles in the refined way which would result from accepting this proposal, rather than having certain broad economic groups within which he can decide

  331
  to act and in which he can vary the rates of duty either upwards or downwards.
  Mr. G. Campbell: The Chancellor would still be able to use the regulator over all the groups if he wanted to.
  Mr. MacDermot: He certainly would, but, if the regulator is broken down into a refinement, including many groups, it will make it much more difficult for a Chancellor to use the regulator, and, when he uses it, he will be subjected to far more pressure and complaints from industries which will claim that they ought to be given more favourable treatment, or less unfavourable treatment, than other industries.
  Mr. George Younger: Is the hon. and learned Gentleman asking the House to believe that, however good the arguments for the Amendment are, it is too much trouble for the Chancellor to put it into effect?
  Mr. MacDermot: No. I am saying that, if the instrument is too refined and too complicated, it will not serve its purpose, and there is also the danger that it will not be used when it should be. After all, the regulator is only a temporary instrument which is used between Budgets, and then the matter falls to be reviewed, as it has been reviewed this year in the Finance Bill, to decide whether to consolidate the regulator or return to the previous position.
  I am saying that for that purpose one does not want to have the groups broken down so that, when considering whether and how to use the regulator, the Chancellor is compelled to make a minute examination of the position of particular industries, being prepared to defend the precise change which he makes in relation to a particular industry.
  Mr. Robert Cooke: Does the hon. and learned Gentleman, in considering the drink duties as a whole, accept that they must all be lumped together so that they all go either up or down together? How will he deal with, for example, the dwindling returns from port wine? How will he make sure that, in putting up the duty on wines and spirits as a whole, he does not kill his revenue altogether from that particular dwindling trade?
  Mr. MacDermot: That is a question which, if the case be made, we should consider in the ordinary annual review which we have in the Finance Bill. There is ample opportunity for it. What I am saying is that, in the circumstances, when the Chancellor is considering whether to use the regulator, he ought not, by the nature of the instrument, to be forced to consider the position of every single industry in the way now suggested.
  Mr. Michael Noble: As my hon. Friend the Member for Moray and Nairn (Mr. G. Campbell) said, this is an important Amendment, and we hoped to have a more coherent and sensible answer from the Financial Secretary. We did not get it. We have explained how the Amendment would give the Government the flexibility which they could use, if they wanted to, and, moreover, it would be a sensible Amendment to make in view of the experience of the whole drink trade during the past nine months.
  My hon. Friend the Member for Perth and East Perthshire (Mr. MacArthur) told the hon. and learned Gentleman—he knows it perfectly well—that, over the past few months, clearances of wine have gone up by 3·4 per cent., clearances of beer have gone up by 3·2 per cent., but clearances of spirits have gone down by 6 per cent. The hon. and learned Gentleman raised the question whether extra stocks were taken up before the July measures. I have no means of knowing, if this happened, why it happened. Clearly, the people concerned had no possible way of knowing what the Chancellor and the Prime Minister would do on 20th July.
  If the hon. and learned Gentleman had been half as closely in touch with the effects of the shipping strike on the western seaboard of Scotland as I was, he would never have made the suggestion that he did, because the real shortage in that area was not a shortage of whisky—luckily, a lot of it was produced earlier—but a shortage of beer. Therefore, that was in no way a contributory factor to the extra clearances which took place in June and July.
  The Financial Secretary has not made out the Government's case. He explained that the regulator, when first introduced, was intended to be a measure with a

  333
  short, sharp effect going right across the field, and then, at the encouragement and insistence of himself and many of his right hon. and hon. Friends, that single attack was changed into a possible attack for regulatory purposes within five groups. This is what hon. and right hon. Gentlemen opposite wanted, and it was done in 1964. Having argued at that time that the basis should be wider so that the Chancellor would have a chance to distinguish between one section of industry and another, the Financial Secretary now argues that the five groups are enough and the principle cannot be carried further. The Committee cannot regard that as an adequate answer, and neither can it accept the hon. and learned Gentleman's view that the whole purpose of the regulator is merely to have a short, sharp stop-go type of effect. This is certainly not what we have had in the last year. There has been a long period during which the regulator has been used, and the Government have then said that, in addition, they intend to consolidate.
  7.15 p.m.
  I am not in the least surprised that my hon. Friends felt in the first place that they wanted to exclude a particular industry, which is very important to their part of the country, from the regulator altogether, and that now, having been refused, they have put down a modest and sensible Amendment asking the Chancellor not to reduce the price of whisky, gin or vodka, but merely to accept a further power to be used, if he wants it at some stage, for regulatory purposes. It may well be necessary to use the regulator again fairly soon, in the circumstances produced by the Government's management of the economy. All that my hon. Friends ask is that, in such circumstances, the Chancellor should have the chance to look at a particular industry.
  We have not gone so far as to suggest that whisky alone should be taken out. We have offered the same to all the spirit industries, although there is a very good case for saying that whisky is a particularly important side of it both for the interests of Scotland and for the excellence of its manufacture and its quality as a product.
  The Chancellor has refused—I assume that this is so, as the hon. and learned Gentleman speaks for him in this debate—to take power to help the industry if the circumstances are such that the regulator must be used. I know that my right hon. and hon. Friends will wish to divide the House against him. The Government are wrong. If the regulator has to be used—I accept that the Government may feel that they have to use it in certain circumstances—then, whatever the level of percentage increase determined by the Government as necessary, inevitably it will fall with greater severity at the high-priced end of the range. Whisky is at the high-priced end of the range compared with beer and wines, the reason being that it carries a duty of 37s. 6d. a bottle. Were it not for that, the effect would not be so severe.
  The Amendment is intended simply to give the Chancellor an opportunity to show sympathy towards a very important side of the industry. The reply has been most unsatisfactory, and I ask my right hon. and hon. Friends to join me in the Lobby.
  Mr. G. Campbell Mr. G. Campbell rose—
  Mr. Speaker: Order. The hon. Gentleman has exhausted his right to speak. This is the Report stage, as I was myself reminded a little earlier.
  Question put, That those words be there inserted in the Bill:—
  The House divided: Ayes 122, Noes 196.

  Division No. 394.]

  AYES

  [7.20 p.m.

  Alison, Michael (Barkston Ash)

  Cooke, Robert

  Fair, John

  Allason, James (Hemel Hempstead)

  Cestain, A. P.

  Gilmour, Ian (Norfolk, C.)

  Astor, John

  Craddock, Sir Beresford (Spelthorne)

  Gilmour, Sir John (Fife, E.)

  Baker, W. H. K.

  Crosthwaite-Eyre, Sir Oliver

  Glover, Sir Douglas

  Balniel, Lord

  Crowder, F. P.

  Goodhart, Philip

  Bell, Ronald

  Dalkeith, Earl of

  Goodhew, Victor

  Biffen, John

  Dance, James

  Griffiths, Eldon (Bury St. Edmunds)

  Black, Sir Cyril

  Davideon,James(Aberdeenehire,W.)

  Gurden, Harold

  Brewis, John

  Deedes, Rt. Hn. W. F. (Ashford)

  Hall, John (Wycombe)

  Buchanan-Smith, Alick(Angus,N&M)

  Digby, Simon Wingfield

  Harris, Frederic (Croydon, N.W.)

  Buck, Antony (Colchester)

  Dodds-Parker, Douglas

  Harris, Reader (Heston)

  Builus, Sir Eric

  Drayson, G. B.

  Harrison, Col. Sir Harwood (Eye)

  Burden, F. A.

  Eden, Sir John

  Harvie Anderson, Miss

  Chichester-Clark, R.

  Elliott,R.W.(N'c'tle-upon.Tyne,N.)

  Heseltine, Michael

  Clark, Henry

  Eyre, Reginald

  Higgins, Terence L.

  Hiley, Joseph

  Maginnis, John E.

  Renton, Rt. Hn. Sir David

  Hirst, Geoffrey

  Marten, Neil

  Ridley, Hn. Nicholas

  Hogg, Rt. Hn. Quintin

  Maude, Angus

  Rossi, Hugh (Hornsey)

  Holland, Philip

  Mawby, Ray

  Royle, Anthony

  Hooson, Emlyn

  Maxwell-Hyslop, R. J.

  Russell, Sir Ronald

  Hornby, Richard

  Maydon, Lt.-cmdr. S. L. c

  Shaw, Michael (Sc'b'gh & Whitby)

  Hutchison, Michael Clark

  Mills, Peter (Torrington)

  Smith, John

  Iremonger, T. L.

  Mills, Stratum (Belfast, N.)

  Steel, David (Roxburgh)

  Jenkin, Patrick (Woodford)

  Mitchell, David (Basingstoke)

  Taylor, Edward M.(G'gow, Catheart)

  Johnston, Russell (Inverness)

  Monro, Hector

  Taylor, Frank (Moss Side)

  Jopling, Michael

  Montgomery, Fergus

  Temple, John M.

  Kershaw, Anthony

  More, Jasper

  Thatcher, Mrs. Margaret

  Kimball, Marcus

  Morgan, Geraint (Denbigh)

  Turton, Rt. Hn. R. H.

  King, Evelyn (Dorset, S.)

  Morrison, Charles (Devizes)

  van Straubenzee, W. R.

  Kirk, Peter

  Mott-Radclyffe, Sir Charles

  Wairnwright, Richard (Colne Valley)

  Kitson, Timothy

  Murton, Oscar

  Warters, Dennls

  Knight, Mrs. Jill

  Nicholle, Sir Harmar

  Whitetaw, Rt. Hn. William

  Lambton, Viscount

  Noble, Rt. Hn. Michael

  Wills, Sir Gerald (Bridgwater)

  Langford-Holt, Sir John

  Nott, John

  Wilson, Geoffrey (Truro)

  Legge-Bourke, Sir Harry

  Page, John (Harrow, W.)

  Winstanley, Dr. M, P.

  Lewis, Kenneth (Rutland)

  Peel, John

  Wright, Esmond

  Lloyd, Ian (P'tsm'th, Langstone)

  Pounder, Rafton

  Wylie, N. R.

  Lubbock, Eric

  Powell, Rt. Hn. J. Enoch

  Younger, Hn. George

  MacArthur, Ian

  Price, David (Eastleigh)

  Maclean, Sir Fitzroy

  Pym, Francis

  TELLERS FOR THE AYES:

  Macleod, Rt. Hn. Iain

  Ramsden, Rt. Hn. James

  Mr. Anthony Grant and

  McMaster, Stanley

  Rees-Davies, W. R.

  Mr. Bernard Weatherill.

  NOES

  Alldritt, Walter

  Edwards, Rt. Hn. Ness (Caerphilly)

  Ledger, Ron

  Allen, Scholefield

  Edwards, Robert (Bilston)

  Lee, John (Reading)

  Anderson, Donald

  Ellis, John

  Lestor, Miss Joan

  Archer, Peter

  Faulds, Andrew

  Lewis, Arthur (W. Ham, N.)

  Armstrong, Ernest

  Fernyhough, E.

  Lewis, Ron (Carlisle)

  Atkins, Ronald (Preston, N.)

  Fitch, Alan (Wigan)

  Lipton, Marcus

  Atkinson, Norman (Tottenham)

  Fitt, Gerard (Belfast, W.)

  Lomas, Kenneth

  Bacon, Rt. Hn. Alice

  Fletcher, Ted (Darlington)

  Loughtin, Charles

  Bagier, Gordon A. T.

  Ford, Ben

  Luard, Evan

  Barnett, Joel

  Forrester, John

  McBride, Neil

  Baxter, William

  Fowler, Gerry

  MacDermot, Niall

  Beaney, Alan

  Fraser, Rt. Hn. Tom (Hamilton)

  Macdonald, A. H.

  Bence, Cyril

  Galpern, Sir Myer

  Mackenzie, Gregor (Rutherglen)

  Bennett, James (G'gow, Brldgeton)

  Gardner, Tony

  Mackie, John

  Bidwell, Sydney

  Garrett, W. E.

  McMillan, Tom (Glasgow, C.)

  Bishop, E. S.

  Gordon Walker, Rt. Hn. P. C.

  McNamara, J. Kevin

  Blackburn, F.

  Gourlay, Harry

  Mahon, Peter (Preeton, S.)

  Blenklnsop, Arthur

  Gregory, Arnold

  Manuel, Archie

  Boardman, H.

  Grey, Charles (Durham)

  Mapp, Charles

  Booth, Albert

  Griffiths, David (Rother Valley)

  Mason, Roy

  Boston, Terence

  Griffiths, Rt. Hn. James (Llanelly)

  Mayhew, Christopher

  Bowden, Rt. Hn. Herbert

  Griffiths, Will (Exchange)

  Mellish, Robert

  Braddock, Mrs. E. M.

  Hamilton, James (Bothwell)

  Mikardo, Ian

  Brooks, Edwin

  Hamilton, William (Fife, W.)

  Milne, Edward (Blyth)

  Brown, Hugh D. (G'gow, Provan)

  Hamling, William

  Morgan, Elystan (Cardiganshire)

  Brown, Bob(N'c'tle-upor-Tyne, W.)

  Hannan, William

  Morris, Alfred (Wythenshawe)

  Brown, R. W. (Shoreditch & F'bury)

  Harrison, Walter (Wakefield)

  Morris, Charles R. (Openshaw)

  Butler, Herbert (Hackney, C.)

  Haseldine, Norman

  Murray, Albert

  Butler, Mrs. Joyce (Wood Green)

  Hazell, Bert

  Neal, Harold

  Callaghan, Rt. Hn. James

  Henig, Stanley

  Noel-Baker, Rt. Hn. Philip (Derby,S.)

  Cant, R. B.

  Herbison, Rt. Hn. Margaret

  Ogden, Eric

  Carmichael, Neil

  Hilton, W. S.

  O'Malley, Brian

  Castle, Rt. Hn. Barbara

  Hooley, Frank

  Orme, Stanley

  Chapman, Donald

  Horner, John

  Oswald, Thomas

  Coe, Denis

  Houghton, Rt. Hn. Douglas

  Owen, Dr. David (Plymouth, S'tn)

  Coleman, Donald

  Howarth, Harry (Wellingborough)

  Owen, Will (Morpeth)

  Concannon, J. D.

  Howie, W.

  Padley, Walter

  Conlan, Bernard

  Huckfield, L.

  Palmer, Arthur

  Culien, Mrs. Alice

  Hughes, Emrys (Ayrshire, S.)

  Pannell, Rt. Hn. Charles

  Dalyell, Tam

  Hughes, Hector (Aberdeen, N.)

  Park, Trevor

  Davidson, Arthur (Accrington)

  Hughes, Roy (Newport)

  Parker, John (Dagenham)

  Davies, G. Elfed (Rhondda, E.)

  Hunter, Adam

  Pavitt, Laurence

  Davies, Ednyfed Hudson (Conway)

  Jackson, Colin (B'h'se & Spenb'gh)

  Pearson, Arthur (Pontypridd)

  Davies, Harold (Leek)

  Jackson, Peter M. (High Peak)

  Pentland, Norman

  Davies, Ifor (Gower)

  Janner, Sir Barnett

  Perry, Ernest G. (Battersea, S.)

  Davies, S. O. (Merthyr)

  Jeger, Mrs. Lena (H'b'n&st. P'cras, S.)

  Price, William (Rugby)

  de Freitas, Rt. Hn. Sir Geoffrey

  Johnson, James (K'ston-on-Hull, W.)

  Probert, Arthur

  Dempsey, James

  Jones, Dan (Burnley)

  Reynolds, G. W.

  Dewar, Donald

  Jones, T. Alec (Rhondda, West)

  Rhodes, Geoffrey

  Diamond, Rt. Hn. John

  Kerr, Mrs. Anne (R'ter& Chatham)

  Richard, Ivor

  Doig, Peter

  Kerr, Dr. David (W'worth, Central)

  Roberts, Albert (Normanton)

  Dunn, James A.

  Kerr, Russell (Feltham)

  Robertson, John (Paisley)

  Dunwoody, Mrs. Gwyneth (Exeter)

  Lawson, George

  Robinson, W. O. J. (Walth'stow, E.)

  Dunwoody, Dr. John (F'th & C'b'e)

  Leadbitter, Ted

  Rogers, George (Kensington, N.)

  Eadie, Alex

  336

  337

  Ryan, John

  Taverne, Dick

  Weitzman, David

  Sheldon, Robert

  Thomas, George (Cardiff, W.)

  Wellbeloved, James

  Silkin, Rt. Hn. John (Deptford)

  Tinn, James

  Wells, William (Walsall, N.)

  Silkin, Hn. S. C. (Dulwich)

  Tomney, Frank

  Whitlock, William

  Silverman, Julius (Aston)

  Tuck, Raphael

  Williams, Clifford (Abertillery)

  Slater, Joseph

  Urwin, T. W.

  Williams, W. T. (Warrington)

  Small, William

  Varley, Eric G.

  Winnick, David

  Spriggs, Lesile

  Wainwright, Edwin (Dearne Valley)

  Woodburn, Rt. Hn. A.

  Steele, Thomas (Dunbartonshire, W.)

  Walker, Harold (Doncaster)

  Yates, Victor

  Stonehouse, John

  Wallace, George

  Summerskill, Hn. Dr. Shirley

  Watkins, David (Consett)

  TELLERS FOR THE NOES:

  Symonds, J. B.

  Watkins, Tudor (Brecon & Radnor)

  Mr. Joseph Harper and

  Mr. Ioan L. Evans.

  Clause 12.—(VEHICLES EXCISE DUTY: ADDITIONAL LIABILITY FOR KEEPING UNLICENSED VEHICLE.)
  The Joint Parliamentary Secretary to the Ministry of Transport (Mr. John Morris): I beg to move Amendment No. 5, in page 16, line 6, at the end to insert:
  (6A) The foregoing provisions of this section shall have effect subject to the provisions (applying with the necessary modifications) of any enactment relating to the imposition of fines by magistrates' courts other than one conferring a discretion as to their amount; and any sum payable by virtue of an order under this section shall be treated as a fine, and the order as a conviction, for the purpose of Part III of the Magistrates' Courts Act 1952 (including any enactment having effect as if contained in that Part) and of any other enactment relating to the recovery or application of sums ordered to he paid by magistrates' courts.
  Mr. Speaker: It has been suggested to me that it would be convenient if, with this Amendment, we discussed at the same time Amendments Nos. 6, 68, 69 and 70, if the House has no objection.
  Mr. Morris: The main purpose of Clause 12 is to provide that when convicting an offender of unlicensed use or keeping of an unlicensed vehicle on a public road the court shall, as well as imposing a fine for the offence, order payment of any back duty due, calculated in accordance with the provisions of the Clause. The Amendments—I am grateful to you, Mr. Speaker, for saying that we may take them together—seek to change this in the following manner.
  The words "for all purposes" in subsection (9) have been found to be too wide. They would mean that courts would have power to mitigate the sums payable, in the same way as they have power to mitigate fines for offences under the 1962 Act. This is not the intention. There is no reason why an offender who is liable to repay back duty under the provisions of the Clause should have any opportunity to escape payment of the
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  full sum due, calculated as provided for in the Clause.
  We therefore seek by Amendment No. 6 to replace subsection (9) of the Clause, and we do this by Amendment No. 5, which provides that the courts' discretion as to the amount of fines which they impose shall not extend to an ability to vary the amount of back duty which the convicted offender must be ordered to pay under subsection (1) of the Clause, and it preserves the other main provisions relating to fines.
  Amendments Nos. 68 to 69 are drafting, paving the way for Amendment No. 70, which adapts this change for Scotland.
  Amendment agreed to.
  Further Amendments made: No. 6, in page 16, leave out lines 17 to 19.
  No. 68, in line 21, leave out 'subsection (5)' and insert 'subsections (5) and (6A)'.
  No. 69, in line 22, leave out 'subsection' and insert 'subsections respectively'.
  No. 70, in line 31, at end insert:
  (6A) The foregoing provisions of this section shall have effect subject to the provisions (applying with the necessary modifications) of any enactment relating to the imposition of fines by courts of summary jurisdiction, other than one conferring a discretion as to their amount; and any sum payable by virtue of an order under this section shall be treated as a fine, and the order as a conviction, for the purposes of any enactment relating to the recovery or application of sums ordered to be paid by courts of summary jurisdiction.—[Mr. John Morris.]

  Clause 16.—(INCREASE OF RELIEF FOR DEPENDENT RELATIVE OF FE MALE CLAIMANT AND FOR WIDOWS AND OTHERS IN RESPECT OF CHILDREN.)
  Mr. MacDermot: I beg to move Amendment No. 8, in page 18, line 28, at beginning insert:
  (1A) In section 13 of the Finance Act 1957 (relief for persons over sixty-five with small incomes), as amended by section 10(6) of the Finance Act 1965, for the references to £390 and £625 (the income limits for exemption) there shall be substituted references to £401 and

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  £643; and (as regards the marginal relief) for the reference to £160 (the addition to the income limit) there shall be substituted a reference to £180.
  (1B) In section 216(1) of the Income Tax Act 1952 (relief for dependent relative), as amended by section 10(3) of the Finance Act 1965, for the reference to £210 (lower income limit of dependent relative) there shall be substituted a reference—

  (a) for the year 1967–68, to £221,

  (b) for subsequent years of assessment, to £235,

  and, subject to the next following subsection, for the reference to £285 (the higher income limit) there shall be substituted a reference, for the year 1967–68, to £296, and for subsequent years of assessment, to £310.
  Mr. Speaker: It would be for the convenience of the House if we also discussed Amendments Nos. 9 and 10, which, I am told, are consequential.
  Mr. MacDermot: These three Amendments increase the income limits for age exemption and the income limit for the dependent relative allowance to take account of the proposed increases in the basic National Insurance retirement pension announced the other day by my right hon. Friend the Minister of Social Security. The House will remember that the proposed increases in the retirement pension are 10s. a week for a single person and 16s. a week for a married couple, to take effect from 30th October next, if the House approves. The extra pension received this year will be £11 10s. for a single person and £18 8s. for a married couple. For a full year the increase will be £26 and £41 12s.
  The present income limits for the special exemption for elderly people over 65 are £390 for a single person and £625 for a married couple. Pensioners who only have their retirement pension are well below those limits. If a pensioner has other income bringing his total up to or near the present limit appropriate to his circumstances the increase in the pension would carry him above the limit.
  Similarly, if he has other income bringing his total to a bit above the present marginal relief limit, again he would be taken outside the range by the increases. What the new subsection (IA) in the first Amendment does is to increase the present age exemption limits by £11 to £401 for a single person and by £18 to £643 for a married couple. The broad effect will be
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  that the increases in the pension will not affect the title to age exemption or marginal relief this year.
  At present, some marginal relief might be due in the extreme case of a married couple with no allowances other than the basic married allowance, and an income of £781, an "excess" of £156. The present law rounds this up and provides a marginal band of £160. With the new income limit marginal relief could operate for incomes up to £176 above the married couple's limit, so that the figure of £160 is to be amended to £180.
  To turn to the dependent relative allowance. At present, the full allowance is due only if the dependant's income does not exceed £210, that is to say, £75 in the normal case, £110 for a dependent relative maintained by a single woman. This figure represents the present retirement pension of £4 a week rounded up, the exact figure being £208 a year. If the dependant's income exceeds this figure the allowance due is reduced by £1 for every £1 of the excess. The increase in retirement pension will increase the income of most dependent relatives by £11 10s. this year and £26 in a full year.
  The new subsection (1B) which the first Amendment proposes to add to the Bill raises the relative's income limit by £11 from £210 to £221 for 1967–68 and by £25 from £210 to £235 for subsequent years. A dependent relative whose only income is the basic retirement pension will still qualify for the full amount of the allowance, but a dependant who has a little other income will rank for the same dependent relative allowance for 1967–68 as was due before the pension increased. For 1968–69 the relief may be reduced by £1 because of the differences in the rounding up.
  At present, the full relief of £75 which is due if the relative's income does not exceed £210 drops by £1 for every £1 by which the relative's income exceeds £210, becoming nil if the income is £285 or more. Clause 16 of the Bill as it stands, increases the full allowance of £75 to £110 for claimants who are single women and, therefore, increases the £285 to £320 in those cases. The present Amendments increase these figures by a further £11 for 1967–68 and £25 for later years, so that the relief will drop to nil for 1967–68 on a dependant's income of £296, if the claimant is a man or £331 if the

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  claimant is a single woman. For 1968–69 and later years the corresponding figures for a dependant's income at which no allowance will be due are £310 and £345 respectively.
  The reasons why we have made provision in the Bill this year to cover the dependent relative allowance limits for the following year, 1968–69 are administrative. It would be very helpful to the Revenue when doing the preparatory P.A.Y.E. coding work for 1968–69 this autumn to know what will be the dependent relative's income limits for the year. On previous occasions when National Insurance pensions were being increased the dependent relative's income went up. It has been the practice to make an advance announcement that this would happen, so that the coming year's P.A.Y.E. coding would reflect the dependent relative allowance right from the start.
  As this announcement is being made simultaneously with provisions in the Finance Bill, we thought it right to give statutory form to this intention from the outset.
  Mrs. Thatcher: I am grateful to the Financial Secretary for his explanation. We had wondered why the subsequent year's assessments were dealt with for the income limits for dependent relative relief, and not for the other reliefs dealt with in this Amendment. I have one comment to make about the reliefs. We have noted that they were extremely small and we have noted the Financial Secretary's reason for it.
  We therefore expect them to go up in the next Finance Bill. I would make the point that the limit of £390 for the single person, which is now being increased by only £11, is still very small because the limit was changed to £390 in April 1965.
  Since then there has been an increase in the cost of living of 7·5 points which, if my arithmetic is correct, works out at about 6 per cent. This year a purchasing power of £390 in April, 1965, would require to be very nearly £415. The person who has a very small income does not enjoy the same tax exemption with the same purchasing power as he or she did in 1965. I mention this because I hope that the Financial Secretary will take this into account in the Finance Bill next
  342
  year and at any rate retain the purchasing power and the exemption limits which he and the Chancellor gave the House in 1965.
  Amendment agreed to.
  Further Amendments made: No. 9, in page 18, line 36, leave out 'three hundred and twenty pounds' and insert:
  'for the year 1967–68, £331, and for subsequent years of assessment, £345'.
  No. 10, in line 44, after 'by', insert 'subsection (1) of'.—[Mr. MacDermot.]

  Clause 20.—(RELIEF FOR GROUPS OF COMPANIES.)
  Mr. Diamond: I beg to move Amendment No. 11, in page 22, line 14, at the end to insert:
  (2) Group relief shall also be available in accordance with Schedule 10 to this Act—

  (a) where the surrendering company is a trading company which is owned by a consortium and which is not a subsidiary of any company, and the claimant company is a member of the consortium, or

  (b) where the surrendering company is a trading company—

  (i) which is a ninety per cent. subsidiary of a holding company which is owned by a consortium, and

  (ii) which is not a subsidiary of a company other than the holding company, and the claimant company is a member of the consortium, or

  (c) where the surrendering company is a holding company which is owned by a consortium and which is not a subsidiary of any company, and the claimant company is a member of the consortium:

  Provided that no claim may be made by a member of a consortium if a profit on a sale of the share capital of the surrendering or holding company which that member owns would be treated as a trading receipt of that member.
  (3) Subject to Schedule 10 to this Act, two or more claimant companies may make claims relating to the same surrendering company, and to the same accounting period of that surrendering company.
  Mr. Speaker: We are taking, at the same time, the Amendment to Amendment No. 11, in line 2, after 'surrendering' insert 'or claimant'; the Amendment in line 3, at end insert:
  '(or, as the case may be, the surrendering)';
  the Amendment in line 5, after 'surrendering' insert 'or claimant';
  the Amendment in line 9, after 'claimant', insert:
  '(or, as the case may be, the surrendering)';

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  the Amendment in line 10, after 'surrendering' insert 'or claimant';
  the Amendment in line 11, at end insert:
  '(or, as the case may be, the surrendering)';
  Government Amendment No. 13, page 22, line 24, at end insert:
  (b) 'holding company' means a company the business of which consists wholly or mainly in the holding of shares or securities of companies which are its ninety per cent. subsidiaries, and which are trading companies,
  and the Amendment thereto, line 2, after companies insert:
  '(whether or not resident in the United Kingdom)';
  Government Amendment No. 14, page 22, line 32, at end insert:
  (c) 'trading company' means a company whose business consists wholly or mainly of the carrying on of a trade or trades,
  and the Amendment thereto, line 1, after second 'company' insert:
  '(whether or not resident in the United Kingdom)';
  Amendment No. 73, page 22, line 33, after '(4)' insert:
  'Subject to the foregoing provisions of this section,'.
  Government Amendment No. 16, page 23, line 3, at end insert:
  (5) For the said purposes—

  (a) a company shall be deemed to be a ninety per cent. subsidiary of another company if not less than ninety per cent. of its ordinary share capital is directly owned by that other company,

  (b) a company is owned by a consortium if all of the ordinary share capital of that company is directly owned between them by five or fewer companies, and those companies are called the members of the consortium,

  (c) a member's share in a consortium shall be the percentage of the ordinary share capital of the surrendering company, or as the case may be of the holding company through which the surrendering company is owned, which is owned by that member in the relevant accounting period of the surrendering company, and if that percentage has fluctuated in the accounting period, the average percentage over the period shall be taken,

  and in this subsection references to ownership and to ordinary share capital shall be construed in accordance with section 42(3) of the Finance Act 1938,
  and the Amendment thereto, line 6, after 'companies' insert:
  '(of which companies owning at least three-quarters of the ordinary share capital are resident in the United Kingdom)'.
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  I have indicated that I would be prepared to call a Division on the Amendment to Amendment No. 11 and the Amendment to Amendment No. 13.
  Mr. Diamond: The House will recollect that when we were discussing group relief in Committee I undertook to consider the proposals suggested by the Opposition providing for relief to be extended beyond group relief to the case in which a company is owned by a consortium of companies. We have introduced the Amendment as a result of that consideration and the powerful arguments of the Opposition.
  The Amendment is fairly clear. With the leave of the House, I will answer any detailed points on which any Member seeks clarification. Therefore, perhaps I could move straight to some of the principles and points raised in the Amendments which we are discussing at the same time. I take it that the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) would prefer me to do that; or perhaps he would wish me to listen to his arguments on the Amendments and then respond later. I should be happy to do that.
  The principle of the Amendment is clearly explained in the Clause. The consortium which is defined in a subsequent Amendment makes it clear that we are dealing with a company which is wholly owned by not more than five joint owners who seek to get together to carry out some trading operation and who are residents. I made it clear in Committee that I was most anxious that where there were solid business reasons for acting in this form rather than in the more normal form of a parent and subsidiary company the form should not be a deterrent to the carrying out of business nor to the seeking of early relief on losses sustained by the jointly owned company.
  I say "early relief" because that is the essence of the matter. Instead of normally a loss being made by the jointly owned company and being carried forward and set against future profits which, one would hope, it would make, the loss could be relieved by being set proportionately against the profits of the joint owners. The Amendments which you, Mr. Speaker, have suggested we might discuss at the same time provide for the detail and definitions of the consortium and the method by which the loss is divided.

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  I will leave the matter there and listen to any arguments adduced as to how we have not satisfied the proper and reasonable requirements of industry that the form should not be a deterrent to seeking early tax relief for the jointly owned corn pany.
  7.45 p.m.
  Mr. Patrick Jenkin: I must begin by expressing the thanks of my right hon. and hon. Friends to the Government for having moved so far to meet the case which we put to them in Committee. It is clear that our arguments found favour. We therefore have a whole string of Amendments—some of which are not being taken with this group but will arise when we discuss the tenth Schedule—which the Government have had to draft to take account of most of the points which we made.
  May I make one criticism, if it is not churlish to do so in the face of Treasury magnanimity, which is rare these days? Clause 20 and all the Amendments on the Notice Paper on this matter are intended to replace the subvention system under the Finance Act, 1953. It would be out of order to attempt, and I have no intention of attempting, to argue the merits of the subvention system, save only to say that it was comprised in a relatively few lines of the Act. It worked well for a number of years and is now to be replaced by pages and pages in the Finance Bill which, I agree, introduce further refinements but in many cases leave those who have to deal with these matters with a less flexible system than they had before.
  Amendment No. 11, so far as it deals with the consortium company, is intended to take account of the position in which the consortium companies—the joint offspring, if I may so describe it—makes a loss and the parent companies make profits and the loss relief is shared among them under the group relief in Clause 20. But it is only that way round. In the case of a normal group of companies, there is no such limitation. Any member of the group can be the claimant company and any member of the group can be the surrendering company. But under Amendment No. 11 the surrendering company is the consortium company, and the claimant company must be one of the joint parents.
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  The question which immediately arises is: why should it not be allowed to operate the other way round? It is difficult, and indeed it is a highly artificial hypothesis, to imagine a situation in which there are five parent companies, some or all of which make losses and their joint offspring makes a profit. This situation would be so unlikely that one might leave it out of account altogether. I am advised, however, that it is not unusual that a 50–50 consortium with two parents, each owning half of the shares in their joint offspring, could be in such a position that for some years the joint offspring makes a profit and the two parents make losses.
  One can imagine the situation in which two independent companies decide that it would be much better to pool their resources into a 50–50 company and that the pooled resources make a profit, but that means that two parent companies are in a loss-making situation. It seems unreasonably restrictive that the loss-sharing provisions of the Clause should not extend to that situation, which is, in a sense, the reverse of that governed by Amendment 11.
  I pointed out in Committee that the whole concept of a consortium was originally introduced into the Finance Act, 1965, by the Government as a novel concept which we welcomed, first, in relation to the group treatment of dividends; and latterly, owing to Opposition pressure, that was extended to interest payments. Dividends can by definition move only one way, from the joint consortium company to the parents. It is not surprising, therefore, that that is what happened in Section 48 of the 1965 Act.
  Section 48(7) of that Act envisages, however, the situation where interest payments may be made gross in either direction, either from the consortium company to the parents or from the parents to the consortium company. It seems to me that there is no difference in principle whether the loss relief should not be similarly available both ways. Our series of Amendments covering from lines 2 to 11 are intended to provide that position.
  My right hon. and hon. Friends and I have put down Amendments also to Government Amendments 13 and 14 concerning definitions. I have already referred to Section 48(3) of the Finance

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  Act, 1965, which relates to the payment of dividends, and Section 48(7), relating to the payment of interest.
  As originally drafted and as the 1965 Bill became an Act, the consortium situation envisaged only one of all the many possible combinations: namely, parents, five or fewer, owning shares in a trading company. The 1966 Act, by Schedule 5, paragraph 1, extended that situation to the case in which a parent company owned the shares, not in a trading company, but in a holding company which itself owned shares in a series of trading companies. This was an extension for the purposes of dividend and interest payment and the group treatment of them.
  In Amendment 11, the Government deal with all three cases at once. Paragraph (a) deals with the consortium company which owns the trading company and paragraphs (b) and (c) deal with the position where the consortium company is a holding company with trading subsidiaries.
  The position can be explained in terms of a family relationship with a grandfather, the father—the holding company—and a series of children who are the trading subsidiaries. Paragraph (b) extends group relief as between grandfathers and grandsons, because there are several of them, and paragraph (c) extends group relief as between the grandfather and the father, the holding company.
  It is obvious that in those circumstances the definition of a holding company and of a trading company are critical as to the extent to which the relief will be available to groups of companies, because not every holding company or trading company will be able to benefit from these provisions. It is to this point that our two Amendments to Government Amendments 13 and 14 are directed.
  Subsection (4) of the Clause makes it clear that any reference in the Clause to a company means a United Kingdom resident company. Therefore, the definitions of holding companies and trading companies, although it is not expressly stated, are limited by that restriction to United Kingdom resident companies. Our Amendments are intended to indicate that we regard this as being too restrictive, but in slightly different ways.
  From our Amendment to Government Amendment 13, dealing with the defini-
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  tion of a holding company, it is clear that not only the holding company, but all its subsidiaries, must be wholly or mainly United Kingdom residents. This would preclude the granting of relief to a consortium company when the consortium company's subsidiaries were mainly overseas subsidiaries even though some of them might be United Kingdom subsidiaries. It prevents the granting of relief even as between ultimate parents, the grandparents and the United Kingdom grandchildren. It is a little unclear why that should be so. This is merely a question at this stage of the definition of the holding company and does not in any way affect the computation of the relief that would be granted.
  Our Amendment to Government Amendment 13 would merely extend the category of holding companies—consortium companies—to which Clause 20 relief is available. It does not bring within the sphere of the relief the over seas trading subsidiaries. It merely brings within the sphere of the relief a consortium company which happens to have a majority of overseas subsidiaries even though it may have some United Kingdom subsidiaries. It seems to us on this side that that would be a reasonable extension of the Clause and would not in any sense lead to the sort of avoidance which the Government obviously had in mind in imposing this limitation in the first place.
  In Schedule 5, paragraph 1, to the 1966 Act, the Government extended to holding companies with trading subsidiaries the group dividend and interest relief. The one limitation in it was that the holding company should be mainly or wholly a company holding interests in United Kingdom subsidiaries. This is a new limitation which is introduced into the Clause. For the moment, we are unable to see why it should be so limited.
  The position is rather different concerning our Amendments to Government Amendment 14, because it is not a question of definition only. By extending the definition of "trading company" to include not only United Kingdom resident companies, but overseas companies as well, we are clearly envisaging that the group relief would operate in relation to the overseas income of the holding company, income arising from its overseas subsidiaries, which is taxed in this

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  country under Case 5 of Schedule D. Hitherto we have been talking about Case 1 income. In this instance it would come in under Case 5. It is not, therefore, merely a question of the extension of the definition of a holding or trading company. This would be an extension of the relief so that the profits made by the holding company would be available for group relief.
  I submit that that is entirely unobjectionable. The object of group relief is to share out any losses within the consortium that may arise so that, overall, the consortium does not pay more tax than its overall position in the year in question would appear to warrant. It would seem, therefore, to be fully in accord with the overall purpose of the Clause that Case 5 income in the case of a holding company with overseas subsidiaries should be included.
  My right hon. and hon. Friends and I have tabled an Amenment to Government Amendment 16, which also contains definitions. One has to recognise that subsection (5,b) in Amendment 16, which uses the word "all", makes it clear that we are dealing with a more limited sort of consortium than was comprised in Section 43 of the 1965 Act. In this case, it is clear that the Clause requires that the what of the share capital of the consortium company should be owned by five or fewer companies. This is much more restrictive than Section 48(3), because there the requirement is that at least three-quarters of the share capital should be owned by five or fewer U.K. resident companies. It means that this group relief under Clause 20 will not be available if even one share of a consortium company happens to be owned by an overseas parent. It is not difficult to imagine circumstances where that could obtain.
  8.0 p.m.
  On another Amendment, I made reference in Committee to the whole question of know-how and patents. It is common knowledge that, with these consortium companies, very often one of the elements which go into the partnership is the know-how of one of the parents. Again it is common knowledge that in many cases the technical expertise will come from an overseas company, perhaps an American company. At one stroke, therefore, the Government are eliminating from the con-
  350
  sortium group relief which their Amendment No. 11 is intended to provide a substantial number of some of the most important consortium companies in the country which have one or more American parents.
  The intention of our Amendment is to limit that exclusion. It would allow consortium group relief to operate, provided that at least three-quarters of the share capital of the consortium company was owned by United Kingdom resident companies, and it would not matter if one-quarter or less of the share capital of the consortium company was owned by an overseas company. In this case, of course, there would not be any sharing of relief with the overseas company, because clearly that would be inappropriate, but it would leave the position as between the consortium company and the United Kingdom resident parent companies still entirely free to take advantage of the relief available under the Section.
  Those advising me in these matters were of the opinion that this was possibly an oversight, because subsection (5,b) as provided in Amendment No. 16 is taken almost directly from Section 48(3,b) of the 1965 Act, where the reference to residence is not apparent and has to be introduced specifically. It uses the words "companies so resident", whereas here the mere use of the word "company" automatically imports United Kingdom residence by virtue of the definition in subsection (4) of Clause 20. I hope that that is so, and I hope, therefore, that the Amendment which we have tabled to Government Amendment No. 16 is adequate to right what may well be an unintentional oversight and that consortium companies with a quarter or less of their shareholding owned by an overseas parent are nevertheless entitled to take advantage of the relief which the Clause offers.
  These are a number of fairly technical Amendments to what by any standards is a fairly technical Clause. I hope that the Chief Secretary feels that I have outlined the purpose underlying the Amendments which we have tabled, and I hope that he will be able to accept some or possibly all of them.
  Mr. Diamond: With the leave of the House, I rise again to congratulate the hon. Gentleman. He has made the

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  Amendments and his point of view extremely clear. However, it would be more satisfactory if, instead of attempting to reply on the technical level, I attempted to reply on what I may call, not in contradistinction, the level of principle, so that the hon. Gentleman can see where the difference between us lies and the extent to which I am able to help.
  The approach in the Bill to the concept of a consortium obtaining early relief for the losses of a jointly owned company is one which I have and one which the hon. Gentleman had. Of course, he is entitled to widen the scope of his arguments and his views, but all the arguments which he put forward originally were based on the approach of imagining companies getting together to perform a joint, sensible, business operation, where the obvious way of doing it was a loose consortium rather than forming more limited and permanent structures of the kind to which we are accustomed.
  I was impressed with the argument which he put forward, and I looked at it in the same way as he did, namely, how does such a company get early relief if, as may be frequently contemplated, its joint offspring loses in the early stages.
  I thought that it was right that nothing should be put in the way of obtaining early relief, and the legislation has been framed on that basis. If I am right, and the hon. Gentleman is right, the proposed legislation meets those circumstances. I think that our approach is right. I would not have been moved by the hon. Gentleman's argument if he had put it the other way. The way to make progress is little by little, but he has made a great deal of progress in one large step, and I am anxious that we should not go back.
  I recognise the force of the case which he put forward originally, and I think that we have met that broadly. It is the normal case of five British resident companies getting together to do a job. We have gone further and said that it is a quite usual piece of organisation that, interposed between the joint owners and the offspring, there should be a holding company for the purpose of sensible control mechanism. We have accepted that and incorporated it in our Amendments. We have met his point, and I think that that was the right approach.
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  The hon. Gentleman will recognise that there is a vast difference between that approach, whereby a business is helped along, and the alternative of looking at it and saying, "With all these complicated financial arrangements, there is a great opportunity for tax avoidance. There is no benefit to the economy of the community, and this structure must not be looked at in the same slightly dangerous way in which it has been so far."
  I hope that the hon. Gentleman will agree with me that we have gone a long way. I am not saying that we close our minds to going any further. At the moment, we have gone as far as we can. I wanted to listen to his arguments, and I have heard them, some matters require more careful consideration, and I do not rule out the possibility of coming some way to meet him in due course, which inevitably will be in a year's time.
  I do not want the hon. Gentleman to believe that there is any real likelihood of a complete volte face and changing the approach from that of contemplating a joint offspring losing in the early years to that which he described later when he talked, in a different way, of getting all the profits and all the losses of a holding company's joint offspring, putting them into the melting pot, and saying that the whole purpose is to see that the net profit from that shall be taxed and no more.
  That is a different approach, a much wider approach, and one which at the moment I do not share, but there are certain things at which we would like to look a little more carefully. When one introduces an Amendment of this kind at this stage, although it makes the point clear, it is not possible, for practical reasons, to accept it, because all sorts of consequential amendments would arise if we did. The hon. Gentleman is introducing a different point of view into the whole structure, but in any event I could not, for technical reasons, accept the Amendment.
  Mr. David Mitchell: If it were not for the technicalities to which the right hon. Gentleman has drawn attention, would he be prepared to accept in principle what is suggested, and perhaps deal with this next year?
  Mr. Diamond: I am not saying anything like that. I am saying that the

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  Amendments stem from what is essentially a different approach. The Government's approach is that which the Opposition were taking originally, namely, that we have regard to the likelihood of a loss being made in the early stages by the joint offspring, and we meet that by giving early relief for it. That is the purpose of the Bill.
  What is now proposed is a different concept of what is the real function of the operation, and a different concept of how we should give relief, not with a view to giving early relief, but with a view to mixing it together and assessing the net profit remaining, having added together the profits and losses of joint owners, holding companies, joint offspring, the lot, including some element of non-resident companies.
  I cannot, certainly for technical reasons, accept the Amendment, but also because I am not persuaded about all that the hon. Gentleman said. Some of the things are well worth further consideration, and I suggest that he should join us in passing the Government Amendment. I assure him that I shall consider very carefully some of the things he said to see whether we can move a little further next year, but it will only be a little further.
  Mr. Deputy Speaker (Sir Eric Fletcher): Before I put the Question on the Amendment, may I inquire whether a Division is desired on the Amendment in line 2?
  Mr. Patrick Jenkin: I think, having heard the Chief Secretary, who was not entirely without hope that some of the points would be looked at between now and next year, that it would be wrong to ask my right hon. and hon. Friends to press our Amendment to a Division.
  If I need the leave of the House, may I have it, to say that I do not believe there is much difference in principle between the two sides of the House on this matter. I believe that this is a question of the extent to which one is prepared to fit the tax system to reasonable trading arrangements and be prepared to accept from time to time the risk that some revenue may slip through the net, and the extent to which one is prepared to tighten up the net to the maximum possible extent.
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  This is the difference which has come between us on a number of occasions—our attitude to tax avoidance versus business convenience. I believe that our Amendments will go some way to ease business convenience with very limited extra risks of tax avoidance, but we are grateful for what the Chief Secretary has said, and in the circumstances we would not wish to press the Amendment to a Division.
  Amendment agreed to.
  8.15 p.m.
  Mr. Diamond: I beg to move Amendment No. 12, in page 22, line 14, at the end to insert:
  (2) A payment for group relief—

  (a) shall not be taken into account in computing profits or losses of either company for corporation tax purposes, and

  (b) shall not for any of the purposes of the Corporation Tax Acts be regarded as a distribution or a charge on income,

  and in this subsection 'payment for group relief' means a payment made by the claimant company to the surrendering company in pursuance of an agreement between them as respects an amount surrendered by way of group relief, being a payment not exceeding that amount.
  The Amendment arises out of our consideration of an official Opposition Amendment in Committee. It concerns the tax treatment of a payment for group relief made when one company claims group relief for another's losses and there is an agreement between them that the claimant company shall make a payment to the surrendering company. It provides that any such payment shall be disregarded for the tax purposes of both companies.
  Under the Bill as introduced, group relief can be obtained whether or not any payment is made by the claimant company to the surrendering company. The outstanding advantage of the group relief system over the subvention payment system is that one is not required to make this payment which was previously an essential condition of getting the subvention relief. Although one is not required to make a payment, there can, without question, be cases in which it is reasonable and proper for a payment to be made, and the question arises how, if a payment is made, it should be treated for tax purposes.

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  On the introduction of group relief, which requires no payment, the new legislation left out the question of what tax consequences, if any, would follow if a company chose to make a payment up to the amount of the loss. There were doubts, and these doubts would impede the companies from making these payments. We have therefore decided that it is appropriate to make it clear that where group relief is claimed a payment of up to the amount of the transferred loss is to be disregarded in computing the profits of both companies, and is not to be treated as a distribution or a charge on income.
  I think that this is the proper way to deal with the matter. The effect of group relief itself will be to cancel one company's losses and reduce the other's profits. There will therefore be no room for any tax effect to be related to inter-company payments when group relief is claimed.
  There are one or two side effects of these inter-company payments as they affect shortfall calculations, dividend stripping, the three-year surplus relief and the overspill calculations. I think that when we last discussed this matter I promised to give favourable consideration to the first two, but I made it clear that I was not impressed by the argument on the second two. Accordingly, Amendment 47 which proposes to leave out paragraphs 10 and 11 of Schedule 10, meets that point.
  There is one detail of the Amendment which it is necessary to explain. The payment to be made has to be made under agreement, and accordingly it will be incumbent on the companies to satisfy themselves that any agreements they make are intra vires having regard to the rights of minority shareholders in the paying or receiving company. I am taking responsibility for the tax aspects. The company law aspects and the rights of directors to do certain things are a different matter. They must satisfy themselves that they are acting properly.
  Mr. A. H. Macdonald: I am pleased to see this Amendment on the Notice Paper. I heard my right hon. Friend say that there might be cases in which two companies would want to transfer sums of money. The main object of the exercise under the subvention payment was to transfer actual cash sums across.
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  In our discussions in Committee I sometimes wondered whether or not we were tending to overlook that aspect of the subvention payment system. Because of that, and because there were certain advantages in the subvention payment system, I see that the Goverment have moved this Amendment and the various other Amendments to the Clause and to Schedule 10 which are in some respects a little complex.
  When we were discussing this matter in Committee my right hon. Friend the Chief Secretary remarked that one of the objections to the subvention payments system—which we are now replacing—was its complexity. In column 1185 of the OFFICIAL REPORT he used the phrase, "adding complexity upon complexity". In that context, the second word "complexity" referred to the alleged existing complexity of the subvention payment system—a complexity which is not immediately apparent to me, but my right hon. Friend's experience in these matters is much greater than mine—
  Mr. Diamond: I was suggesting that we were compounding complexity if we had two system which inevitably had to cater for detailed and complex circumstances running side by side.
  Mr. Macdonald: I accept that. That was certainly the context in which the remark was made. But, with respect to my right hon. Friend, I still think that the second "complexity" in his statement referred to the alleged difficulties arising from the subvention payment system—a point which was taken up by the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) subsequently.
  I see now exactly what we have done by Clause 20 and the Amendments that we are discussing. I see that the effect is to replace the old subvention payment system by a new one. But I am still in the dark why we have done it at all.
  Mr. Deputy Speaker: Order. I am afraid that that point does not arise on this Amendment.
  Mr. Macdonald: In that case I will close my remarks, because I have got in the point that I wanted to make.
  Mr. Patrick Jenkin: Again, we must offer a welcome to the Amendment, since it meets an objection that was raised

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  immediately by many people in industry and commerce who felt that the abolition of the subvention payment system and its substitution by the new group relief, without any provision for the transfer of cash between companies, would give rise to difficulties and embarrassments. It is wise that the Government have accepted the views which my hon. Friends and I put forward in Committee, namely, that something should be done about the situation.
  Here, with the elimination of two paragraphs in the Tenth Schedule, dealing with close companies and dividend stripping, we may have got something slightly shorter flan before, and that is an advantage. However, it is right to point out—because we are dealing with the provision for payment in much the same form as existed under the subvention procedure—
  Mr. Diamond indicated dissent.
  Mr. Jenkin: The Minister shakes his head, but here the group relief will come first and then the payment, whereas under the subvention payment system it was the payment first, which then attracted group relief.
  Practitioners in this field will find themselves asking why on earth all this rigmarole has been gone through to achieve what appears to be, as the hon. Member for Chislehurst (Mr. Macdonald) has pointed cut, so minor a change. The only explanation is that this is the way in which the Government work. They see a small ill and remedy it with a massive change in the taxation procedure. They saw the ill in respect of dividend stripping, and on the question of overseas tax and investment allowances. The result is that we have the Corporation Tax. They saw the ill in knives and forks getting investment allowances, and we now have the whole system of investment grants. They saw the ill in the subvention payment system, through the possibility of tax avoidance, and so we will have pages and pages of Section 20 of the Finance Act, 1967, as it will be.
  All I can offer by way of compensation to businesses which will have to deal with this point is that it is not quite as bad as it might have been as a result of this and many other Amendments.
  Amendment agreed to.
  Mr. Deputy Speaker: May I take it that a Division is not required on the Amendment to Amendment No. 13?
  Mr. Patrick Jenkin indicated assent.
  Amendment made: No. 13, in page 22, line 24, at end insert:
  (b) 'holding company' means a company the business of which consists wholly or mainly in the holding of shares or securities of companies which are its ninety per cent. subsidiaries, and which are trading companies.—[Mr. Diamond.]
  Mr. Deputy Speaker: May I take it that a Division is not required on the Amendment to Amendment No. 14?
  Mr. Patrick Jenkin indicated assent.
  Amendment made: No. 14, in page 22, line 32, at end insert:
  (c) 'trading company' means a company whose business consists wholly or mainly of the carrying on of a trade or trades.—[Mr. Diamond.]
  Mr. Deputy Speaker: May I take it that a Division is not required on the Amendment to Amendment No. 16?
  Mr. Patrick Jenkin indicated assent.
  Amendment made: No. 16, in page 23, line 3, at end insert:
  (5) For the said purposes—

  (a) a company shall be deemed to be a ninety per cent. subsidiary of another company if not less than ninety per cent. of its ordinary share capital is directly owned by that other company,

  (b) a company is owned by a consortium if all of the ordinary share capital of that company is directly owned between them by five or fewer companies, and those companies are called the members of the consortium,

  (c) a member's share in a consortium shall be the percentage of the ordinary share capital of the surrendering company, or as the case may be of the holding company through which the surrendering company is owned, which is owned by that member in the relevant accounting period of the surrendering company, and if that percentage has fluctuated in the accounting period, the average percentage over the period shall be taken,

  and in this subsection references to ownership and to ordinary share capital shall be construed in accordance with section 42(3) of the Finance Act 1938.—[Mr. Diamond.]

  Clause 25.—(ADDITIONAL PROVISION FOR REFUNDS OF, AND OTHER PROVISIONS AS TO, SELECTIVE EMPLOYMENT TAX.)
  Mr. R. Chichester-Clark: I beg to move, Amendment No. 18, in page 29, line 31, at the end to insert:
  (2) Where an employer has in any week after 4th September 1967 paid selective employment tax in respect of a person employed full time in activities falling under minimum list heading 500 (which relates to building and construction) then the Minister shall make to that employer a payment of an amount equal to the tax paid in respect of that person for that week.
  Like Cassandra on another occasion, I might begin with the phrase, "As I was saying when I was so rudely interrupted", because it was last year, when I was moving a similar Amendment, that the noisome operation of the Guillotine took place and we were prevented from discussing for more than about 10 minutes one of the most important industries in the country and the application of this tax to it. I have no hesitation in saying that since then there has been little significant long-term improvement in the general state of the building industry. Such improvement as there has been is of a short-term nature, which can easily be reversed by the next economic crisis which the Government create. There has been no improvement directly attributable either to the Selective Employment Tax or to the Building Control Act, 1966.
  The purpose of the Amendment is self-evident. It is to move the industry into the neutral class—not, for various reasons, into the premium class. For the last year the major part of the building industry has been bearing the full incidence of S.E.T. without refund or premium. It has cost the industry about £80 million, which could have been much better spent in respect of its 1·35 million men who are liable for the tax.
  We are still waiting for the Government to implement what was described as their policy of giving greater incentive to industrialised building. That was how the Chancellor put it when speaking on 23rd June last year. The Government do not seem to realise—perhaps this is the opportunity for them to tell us what they are doing about it, if anything—that out of the 26,100 houses built by industrialised building in the first three-quarters of 1966, 11,900 were constructed by "in
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  situ" methods of manufacturing units by pouring concrete into moulds.
  8.30 p.m.
  As the hon. and learned Gentleman no doubt knows, this method involves very large capital expenditure and so far it has not been accepted as attracting a premium under the repayments of the tax. On the other hand, where units of this kind are manufactured in special factories either on site or away from the site, they get the premiums. When it is borne in mind that in the three quarters of 1966 to which I have referred the Government were dependent on these methods for nearly 50 per cent. of the industrialised housing output—I think that 50 per cent. is probably right—one cannot help wondering whether they are trying very hard to solve this problem. I gather that the difficulty is in finding a definition of "industrialised building". It seems worthwhile having another look at the definition which is set out in the Government's own publication "Housing Statistics", which I thought was supposed to be an authoritative publication. I must say that the lack of a definition merely points out once again how ill-considered was the application of the tax to the building industry. I hope that we shall be given some statement to clear up the matter tonight.
  Why was the Selective Employment Tax applied to the building industry at all? Surely the first requirement of any tax is, or ought to be, the requirement of relevance—relevance to the problems of the industry, especially if one of the avowed aims and predicted effects of the tax is to assist solve those problems. And in this case there were such predictions. We were told last year that one of the avowed aims of the tax was
  "that it will have a beneficial longer-term effect by encouraging economy in the use of labour in services and thereby make more labour available for the expansion of manufacturing industries."
  That was in the White Paper.
  In his Budget statement in 1966 the Chancellor said:
  "The tax will apply to construction in the same way as services so as to encourage the industry to scrutinise its use of labour more closely …"—[OFFICIAL REPORT 3rd May, 1966; Vol. 727, c. 1455.]
  The Chancellor's argument, therefore, is that there is inefficient use of labour in

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  this industry. I would be prepared to dispute that. More important, I would argue that the real problem of the industry is a serious and chronic shortage of skilled operatives and craftsmen.
  The Minister should know that the regional reports which have been flowing into the Ministry of Public Building and Works National Consultative Council over recent years have emphasised the shortage of labour, and in particular of certain skills, one of them, notably, carpenters. I am informed that the rate of recruitment of apprentices to the building crafts is showing signs of lagging in consequence of the tax, and unless the supply of new entrants to the industry is increased a serious manpower shortage is bound to occur.
  Moreover, since the National Plan—if we are still allowed to talk about it—forecasts that there will be an average annual percentage increase in manpower in the industry of only 0·9 per cent. between 1964 and 1970, it must be assumed that the shortages of which I have been talking will continue. The National Plan went on to show how far the construction industry has been improving its use of manpower.
  If hon Members turn to paragraph 9 of page 113 they will read:
  "During the past 10 years, productivity of contractors' site labour employed on new work has been growing at an average rate of about 5 per cent. a year. … There has been, however, a steady flow of new techniques, equipment and materials, and improvement in management efficiency associated in part with the rise in the size of the off-site labour force. Increased productivity of the site labour force is vitally dependent on this steady rise in the number and quality of off-site staff."
  In short, the off-site staff and the increased number of administrators had improved efficiency in the industry as a whole. But these are exactly the people, whom the National Plan regards as vital, whom the Chancellor has taxed and in respect of whom we want to give a premium, or at least, by this Amendment, a refund. Nor can it be seriously maintained that the industry has been backward in investment in plant. All the figures show the contrary. Nothing more detrimental to investment can be imagined than this tax and its application. The National Plan shows that investment by contractors in plant and machinery increased annually on average between 1956 and 1964 by
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  9 per cent. It is estimated that the increase between 1964 and 1970 will be 11 per cent. annually. A sum of £58 million was invested in plant in 1964 and £110 million is predicted for this investment for 1970. Figures for investment in vehicles are equally impressive.
  But is the Selective Employment Tax, which withdraws much-needed finance from the industry, helping in the drive to investment? No one can seriously believe that it is. As the Minister no doubt knows, the industry has forcefully and continually made this point. It says that by reducing the cash available to contractors the tax has been a disincentive to such investment, a disincentive which the inclusion of construction in the investment grant scheme, with an 18 months' gap between claims and payment of grant, does very little to remedy.
  So the S.E.T. fails to meet the two requirements of the industry. I have outlined its failure to meet the test of relevance and I maintain that it fails to meet the other requirement, that one Minister should not take action designed to nullify the declared policy of another.
  I claim again that this Act does just that and that the Amendment would put this right. At the time that the tax was born the Government were worried about the sharp increase in house prices under their Administration, and it must have been a gloomy moment for the then Minister of Housing, now Lord President, when the S.E.T. was introduced. He must have known that it would increase house prices in the long if not in the short run, and this has proved to be so.
  If he has been briefed on this, the Financial Secretary may well be surprised that I should say that. Perhaps he will claim that the Government have now stabilised house prices. I concede that, in the last quarter of 1966, there was no increase over the third quarter, but that was a small consolation, as the rise in the index of new house prices from the end of the fourth quarter of 1965 to the end of 1966 was 8 points, from 161 to 169, on top of a 15 point rise the year before.
  Moreover, there is general agreement in the industry that prices are rising again now and will rise more sharply over the rest of the year. No one can seriously

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  believe that the betterment levy will do anything but put prices up. If prices stabilised last autumn, it was not because of the Selective Employment Tax nor because of the price freeze, but, much more likely, because of the general depression of the housing market leading to an actual reduction in the prices of some houses because they simply could not be sold.
  I hope that no one in the Government wants to take credit for that. It would be odd if they started boasting that they had stabilised the market price of an essential article through the simple procedure of eliminating demand by fiscal means. All the Government's legislative action—the S.E.T. and the Land Commission in particular—have conspired to push prices up and their effects are certain to be felt strongly this year. So long as this tax remains, so long will this country be denied part of the housing programme which it deserves.
  Just as the tax impedes the building programme, so does the fact that it interacts with the building control legislation which was enacted in 1966, retrospectively to 1965, and one must consider both Measures together. My hon. Friend the Member for Ludlow (Mr. More) and the Minister of Public Building and Works had an interesting exchange on this matter, I think on 24th April, when my hon. Friend asked for a statement of the increase of productivity in the industry as a result of the interaction of the Building Control Act and the S.E.T.
  The Minister was unable to give any such information and I was not entirely surprised, because the industry has not been helped by either of these Measures, as the hon. and learned Gentleman well knows. There was a good deal of huffing and puffing from the Prime Minister and other Members of the Government about the waste of building resources on casinos and gambling establishments. The Prime Minister's Bletchley speech in 1965, with which the Financial Secretary must be familiar, seems particularly ludicrous, as it transpired subsequently in Question and Answer in the House that no one had applied for a licence to build either a casino or a gambling establishment.
  However, I found—this has relevance to the tax—with considerable interest a
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  rather coy piece of information recently given by the Minister of Public Building and Works to the hon. Member for Cardiff, North (Mr. E. Rowlands) on 4th May. The hon. Member had asked what percentage of the total building in England and Wales in 1966 was housing and for comparative figures in other areas. One might have expected that, in these days of Socialist Government, the bad old days of wicked developers would have gone and the squandering of the nation's resources on casinos and whatever other fantasies occupy Ministers' minds would have stopped, but what did we find? In 1964, when the Tories were in power, 40·1 per cent. of the building effort was devoted to housing. In 1965, the figure was 39·7 per cent. and in 1966 it was down to 38·9 per cent. So much for the Dolce Vita society of the Prime Minister's speech.
  We will no doubt be told today that there are two quarters of this year which show an improvement, but to talk about two quarters of the year, as the Minister of Public Building and Works did the other day at Question Time, is somewhat disingenuous. After all, if we mention that the housing figures for any quarter are bad and that we are worried about them, we are told not to judge too much on one or two quarters but to wait for the annual figures.
  Another aspect of S.E.T.—another of its least desirable side effects—has been the increased impetus it has given to self-employment. Here I draw a distinction between genuine sub-contracting by labour-only, where sub-contractors are responsible for tax, stamps and so on, and gangs of self-employed men, where legal responsibilities are all too often evaded. I am certainly not opposed to self-employment in principle, but I join with the N.F.B.T.E. and the union in viewing with disfavour any artificial increase in gangs of self-employed men working on a labour-only basis. There can be little doubt—indeed, the Minister virtually admitted this the other day—that S.E.T. has made the position in this respect much worse. I trust that we will be given more information about this. I appreciate that an inquiry is in progress. How far has that progressed and when are we likely to have a statement about it?
  Before the Guillotine fell on an Amendment last year I was able to deploy in

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  some detail the iniquitous arrangements for the repayment of S.E.T. in respect of operatives employed by labour departments on maintenance work. We have a new Minister this year and I hope that I will receive a more satisfactory answer than I got last year. On the last occasion it appeared to be a matter of some pride to the Chief Secretary that the Government had so arranged matters that he could claim to have prevented unfair competition against contractors by virtue of the fact that those engaged in new construction in direct labour departments would bear the tax in full.
  I pointed out to him then that this was a miserable concession, since only 18 per cent. of the labour force employed by local authorities was engaged in new construction and that the Opposition joined with the builders in believing that the remaining 82 per cent. engaged on maintenance were getting an unfair advantage. But the Chief Secretary seemed unable to seize the point that maintenance depots of local authorities are in competition with contractors for many projects, such as external house-painting and re-roofing; and I am sure that my hon. Friend the Member for Folkestone and Hythe, (Mr. Costain) can give many other examples. Certainly the builders felt very strongly that the arrangements were grossly discriminating. I hope that this year the Chief Secretary has made a better appreciation of the situation and that he will move to end this anomalous and unfair situation.
  The industry needs a shot in the arm. For the last two years it has been reeling from one legislative shock to another. No sooner has its advisers digested the details of the latest Government move than they have found themselves having to consider something even more offensive to the industry's interests. We had the economic measures of July, 1965, which resulted in the first brick glut. Then we had the Building Control Act, with its arbitrary provisions, in complete breach of all undertakings by the Government that that would not happen. That was followed by the Land Commission Act. I can say little to its good, except that it is subject to repeal on a change of Government. We had the discrimination in favour of direct labour departments, the withdrawal
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  of investment allowances and the reluctant and belated substitution of cash grants. Following on the further economic measures of July, 1966, we got the ill-conceived rigmarole of S.E.T.
  If the Government really mean business in their housing programme, they should accept this Amendment this year, just as they should have accepted a similar Amendment last year. If they do not accept it, then at least their motives will be somewhat suspect.
  Mr. A. P. Costain: According to tradition, I must declare my interest. I have interests in the building industry and I support the Amendment. I hope that I will be able to comment on it with the calm and dignity shown by my hon. Friend the Member for Londonderry (Mr. Chichester-Clark), but, having suffered as a result of S.E.T., I will find that difficult to do. I am only sorry that the rules of order prevent me from moving that the tax should be put to giving a bonus to other manufacturing industries.
  8.45 p.m.
  The Amendment proposes that building and civil engineering capital projects should have the same status as farming. There is some similarity between farming and building. In both, the work is in the open, and both have problems of weather. They have both gone in for a great deal of mechanisation, and both have produced an increase in productivity which, if equalled by the rest of the nation, would see us out of our present economic difficulties.
  That far, there is a similarity, but there it ceases, because farming products are consumable items and any tax on a consumable item is dealt with in the year concerned. Building and civil engineering projects are capital items, and even the crazy finance of this Government must realise how impossibly is a situation in which we impose a tax to give revenue in the current year in order to pay for some of their extravagances, and then, by dealing with capital in this way, leaving posterity to pay the tax.
  There is something very ironical in having a Government which insist on giving grants for machinery to cover modernisation but which, at the same time, put a tax on the buildings that house that machinery. It does not make

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  sense. The Government's policy in regard to the Selective Employment Tax on the industrial front is to me incomprehensible, but when the tax is applied to housing it is indefensible. Can the Minister explain how a Labour Government can have decided to give a 7s. 6d. bonus to anybody who is building a luxury yacht but, at the same time, put on a tax that adds 3 per cent. to the cost of slum clearance? If at the General Election I had said that if the Labour Party got into power it would subsidise luxury yachts and penalise slum clearance I would have been called a liar, but that is precisely what has happened.
  There is the fallacy of a situation in which the Government are prepared to pay a bonus for shipbuilding but not for ordinary construction. Again, shipbuilding and civil engineering construction have similarities. They work in the open and they put components together. Shipbuilding produces something which carries away our exports and so keeps our export trade healthy, but the building industry produces houses for those producing the exports and keeps them healthy. What possible excuse can there be for putting a tax on there?
  I hope the Financial Secretary will not use the fallacious argument that we can sell ships overseas. Has he quite disregarded the fact that the construction and civil engineering industries this year have exported "know-how" to the tune of £190 million? How many other industries that are not getting the benefit of the Selective Employment Tax have such an exports record?
  My hon. Friend has dealt in great detail with anomalies connected with industrialised building and I will not weary the House again with those details, but how stupid it is that the biggest amount of industrialised building is ordered by the Government's own Departments and which they are supposed to encourage, does not get the benefit of the S.E.T. because this is in situ work.
  Here I would draw attention to an article in the Contract Journal which points out how bad the Selective Employment Tax was before, but says that now that we are getting the further anomalies of the S.E.T. and the regional employment premium the position is becoming impossible.
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  The article said:
  "But, now, instead of reducing the anomaly the reverse will happen under the proposals for regional employment premiums. …
  What does this decision mean for the construction industry? It means that firms in the development areas whose major activity is manufacturing will, as from 4th September and for at least the following seven years, receive a premium for adult male employees not of 7s. 6d. per week, but of 37s. 6d. per week. Thus, if such firms also engage on construction work, they will enjoy a discriminatory tax advantage over a major activity construction firm not of 32s. 6d. per man per week, but of 67s. 6d. per man per week.
  This discriminatory advantage, it seems, will not be confined to the regional development areas as far as construction activities are concerned. There would appear to be nothing to prevent a manufacturing major activity firm in a development area from sending construction workers from that area to contracts in any part of the country."
  A firm which was manufacturing paint in an area which got the benefit of this bonus and which sent out from the factory a number of painters fewer than the number of people employed in the factory would have a bonus from the Government of 62s. 6d. a week, but a genuine contractor would pay a penalty of 25s. a week because houses were painted by his own painters. A manufacturing firm would get the bonus of 62s. 6d. Is this fair competition?
  I emphasise what my hon. Friend said about the encouragement which S.E.T. has given to labour-only sub-contractors. Let the Financial Secretary ask his backbenchers about the concern which trade unions have over the employment of labour-only sub-contractors—the one-man gang. I was on the Public Accounts Committee which disclosed the scandal of people not paying Income Tax in respect of this work, but this provision encourages that sort of thing. Is this the sort of planning we should have for the building industry?
  The arguments have been put extremely clearly by my hon. Friend. I hope that I have made enough points in support of the Amendment. I can see nothing which would put the matter right except for the Government to accept the Amendment.
  Miss Harvie Anderson: I support the Amendment and appeal to the stony-hearted Financial Secretary on behalf of this important industry. We ought to do everything in our power to encourage the industry.

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  There can be no industry which contributes more to the well-being of the nation, but there can be no industry which has suffered more grievous setbacks over the last two years. It seems very strange that the construction industry is deemed a service industry at all but, it having been so deemed, in the short time that S.E.T. has been payable it has been made clear that this has done the industry no good at all.
  I wish to make a particular point in relation to the increase in house prices. I hope that the Financial Secretary will pay special attention to the cost of houses built north of the Border. No doubt the hon. Member for Rutherglen (Mr. Gregor Mackenzie), who sits behind the Financial Secretary, is telling him of the serious position in Rutherglen. I doubt whether he will have sufficient time to explain the extent of damage which his Government have inflicted on those struggling with vast housing undertakings in those parts of the country where the problem of 19th century building is now at its worst.
  There is a dual problem: first, the increase in house prices; and, secondly, the falling demand for private housing. There has been an increase in house prices in Scotland over the last 18 months. Admittedly, there is a certain stabilisation now, but for a very bad reason, especially in parts of the country where money is short. There is a freeze on and few mortgages are available. This leads to a falling demand for houses.
  This falling demand has been made plain in my constituency. It is an endemic problem in Scotland, but the increased falling demand in recent times has meant that there is a substantial difference between the price of houses being sold in England and bought in Scotland. As part of the economic policy for Scotland is to persuade industry to come there, particularly to the central belt, it is essential to have private housing which will house in particular executives, who can get a house by no other means than by buying.
  With the low demand for houses and with imposts such as S.E.T., it is very difficult, if not impossible, to find houses in Scotland at prices comparable with those obtaining in the north of England.
  370
  I know that the Financial Secretary will say that there is some improvement, but this may well prove to be only a temporary uplift and obtain only until then next financial crisis.
  In direct works there is a distinction between work on new construction and that on maintenance. Anybody with experience on a local authority knows that maintenance is done in direct competition with private firms which are, in the main, very small and frequently dependent for work on the area where they function. An aggravating factor is that direct-labour departments do more maintenance work than building work, yet an advantage is being given to direct-labour departments in opposition to small private firms.
  What is the cost of maintenance in a direct-works department? Do the Government realise the real difficulty in arriving at this figure? The competitive tender by a direct-works department will be put forward and it will go through a committee. This is the competitive tender price at which the direct labour department gets the job, but it does not necessarily represent the price of the work done. The difference between the two figures can be of shocking proportions in some cases.
  The consequence is that the direct labour department has yet another financial advantage. It puts forward a tender figure, which passes a committee, so that it gets the job, but thereafter it can put through the accounts a figure which may be substantially different. Thus, having won a tender in circumstances which are already advantageous to it through S.E.T. the direct-labour department has the further advantage of being able to exceed its tender price without arousing comment. It is the more important, therefore, to ensure that this distinction which militates against the small private firm, is wiped away.
  The only reason advanced hitherto for not accepting this Amendment or its predecessors has been that it would be administratively inconvenient. I hope that the Financial Secretary will adduce more powerful reasons than that, if he intends again to reject the Amendment, though I retain a fleeting hope that, on this occasion, he will give us a more encouraging reply.
  9.0 p.m.
  Mr. MacDermot: This debate, reasonably short in time but covering a large area of the activities of the building industry, is on an Amendment which would put the industry in the refund category for the purposes of Selective Employment Tax. The suggestion underlying most of the speeches we have heard is that this tax is throwing an appalling burden upon the industry. The picture painted is one of gloom which can be relieved only by putting the industry in the refund category. As I hope to show, that picture is false and over-pessimistic. Perhaps I might begin by going right to the heart of the matter, which is why the construction industry is subject to the Selective Employment Tax.
  The first and primary purpose of the tax was to raise revenue and to do it in a way which would spread the tax base and not involve imposing further indirect taxation on those sectors of manufacturing which had been bearing the brunt and burden of our indirect tax system. This was done by introducing a tax which, in its effect, was equivalent, on average, to a 2 or 3 per cent. Purchase Tax in its total burden, but spread over a wide range of services, including the construction industry. By spreading it widely in that way, it was possible to keep the rate low. That was the first and main purpose, to raise revenue and spread the tax net.
  The second and long-term purpose was that, by making it a tax on labour, one would provide an incentive to the more economic use of labour and help to relieve, in particular, the labour shortage in manufacturing industry. We have said all along that we did not envisage this taking place by people in the service and construction industries being immediately dismissed and promptly re-employed in manufacturing. We made clear from the start that this was a long-term aim which we saw taking effect largely through its influence on recruitment, apart from the general healthy effect the tax would have, and has had, in many sectors in making people look critically at their employment of labour and at their labour costs. This is something which efficient firms have already been doing, but there is plenty of evidence that one effect of the tax has been to contribute to that.
  372
  When we introduced the tax—here I am dealing with its effect upon the construction industry—we said that we thought that the inclusion of the construction industry within its scope, combined with the inclusion of the industry in the investment grant scheme, which would act as an incentive to increase investment in capital equipment, would in the long term have beneficial effects on productivity. That remains our view. We are not suggesting that the full effects of that will be seen in the short term. But I think that the short-term effects are quite different from those suggested in some speeches.
  I stress that there is no intention behind the tax to drive employees away from the construction industry—I do not think that has been happening—but I think that it has contributed to the undoubted increase in efficient employment of people in the industry and the increased productivity.
  Mr. Costain: Surely the hon. and learned Gentleman has statistics to show that productivity was increasing years before the tax was thought of?
  Mr. MacDermot: I shall come to that point in a moment and quote views on it from persons more independent than the hon. Gentleman and myself.
  The main argument against the proposal for a refund of tax would be its effect upon the Revenue, which is estimated at £80 million in a full year. That figure, which is already well known, would be slightly reduced by the part-timer concession included in the Bill this year. We are unable to say what the effect of this will be on the construction industry because we have no statistics of part-time employment industry by industry, but I am not claiming that there would be a large reduction because it is not an industry that employs a large number of part-time workers.
  Secondly, the industry will be the main beneficiary of the overseas employee concessions also contained in the Bill. As the hon. Member for Folkestone and Hythe (Mr. Costain) said, in certain areas the industry makes an important contribution to our export effort, and it is, in particular, employees of the construction industry whose employment will be eliminated from the tax as a result of the concession. Again, I am not suggesting that in terms

  373
  of the total figures this will amount to a great deal, but just for accuracy I point out that the £80 million figure will be subject to reduction slightly under both heads.
  The main question is the general state of the industry and whether it is in such a state that we need to take what would be very drastic action from the Revenue point of view in this way. The evidence certainly cannot support any suggestion that S.E.T. is having any marked effect on output on this industry which, at the end of last year was at a near record level, and 11 per cent. higher than the year before. It was suggested that there is a falling demand for houses. The figures were given by my right hon. Friend the Minister of Housing and Local Government recently. During the first four months of this year 150,000 houses were started in Great Britain, compared with 120,000 over the same period last year, and 120,000 houses were completed, compared with 117,000. At the end of the period 472,000 houses were under construction compared with 447,000 a year earlier. That is not a picture of falling demand.
  Turning to the output figures, the provisional figures collected by the Ministry of Pubic Building and Works show that contractors obtained orders for new construction worth £429 million in March, which was an increase of £159 million over the February figure, and a total value of orders obtained in the first quarter of 1967 reached the record level of £968 million, which is £209 million more than in the same quarter of 1966, and about £250 million above the average quarterly level of orders obtained throughout 1966.
  Examining these figures, when allowance is made for seasonal factors, expressed in terms, of constant prices, orders rose by almost 30 per cent. when compared with the fourth quarter of 1966 and almost 25 per cent. compared with the average level obtaining in 1966.Confidence in the industry is rising. Whereas, three months ago, the industry forecast only a 1 per cent. increase in the value of new orders this year, it is now forecasting a 3 per cent. increase. Productivity in the industry is also rising, and the forecast upward trend in the long term is 4 per cent. a year and there is every reason to expect that to rise strongly this year.
  374
  Hon. Members interested may have seen the article which appeared in the issue of Building for 9th June, by the Vice-Chancellor of the University of Lancaster, in which he says.
  "The most remarkable feature of the statistics presented this quarter is that the increase in the Price Index, which in my last article I suggested for the last quarter of 1966 was not confirmed by the Ministry statistics."
  He says, with modesty, that it is the most serious error of forecasting that he can recall. Later he says:
  "I assumed that the net effect of S.E.T. would be to increase the cost index by 2½ per cent. and that other factors would be neutral".
  He goes on, a little later:
  "In the event, the Ministry's statistics showed productivity as leaping upwards in the new housing sectors and in repairs and maintenance, and maintaining its recently increased level on other new work. The net result of the drop in material prices, and the rise in productivity, was that the cost index showed no appreciable change. In other words, the whole of S.E.T. could be absorbed without any significant change in prices."
  He says that he is bound to say that the reaction of some people on whom he has tried this statement has been "tell me another".
  He goes on:
  "The plain fact is that though the output of the construction industry remains, at the end of 1966, at a near record level, the recorded number of operatives was down this year on the previous year by 3 per cent. in October and 4 per cent. in a fair and mild January, warmer, and with nearly twice as much sunshine as January, 1966. There is no doubt that this is the effect of a very marked increase in productivity and shows that certainly some of the costs of the S.E.T. can be absorbed by the industry."
  That has been the case at a time when there has been some decline in the size of the labour force.
  9.15 p.m.
  Hon. Members have raised a number of specific points which I should seek to answer. In particular, comment has been made on the effect of S.E.T. in encouraging the trend towards self-employment in the building industry. The hon. Member for Folkestone and Hythe said that this trend had been disturbing people in the industry. It is much older than the Selective Employment Tax. The hon. Gentleman was on the Public Accounts Committee when it first lighted on this subject. I am glad to say that from the revenue point of view the action

  375
  taken to counter this appears to be having considerable effect. But the problem remains, and it is causing great concern.
  As hon. Members know, my right hon. Friend the Minister of Labour set up the Phelps Brown Committee in consultation with the Minister of Public Building and Works to inquire into the engagement and use of labour and labour only sub-contracting in these industries. It is not expected to report until next year, but its report will cover S.E.T. as part of a very much wider field. But it is important to bear in mind, as the Parliamentary Secretary to the Ministry of Labour said in the House on 24th April, that the increase in self-employment in these industries has not accelerated since the S.E.T. was introduced.
  I accept that in theory this could be an added incentive to people trying to evade various responsibilities, including insurance responsibilities, but I do not think there is any evidence as yet to show that this has been aggravated by the S.E.T. However, as I say, this matter is being fully investigated.
  Hon. Members have referred to the alleged unfair competition between local authority direct-labour forces and outside building contractors. The information of the Ministry of Housing and Local Government is that there is very little competition between local authority labour forces and private contractors' labour in maintenance. Steps have been taken to ensure that there is not, by reason of S.E.T., unfair competition in new construction work. If hon. Members have information which conflicts with that, I ask them to give it to my right hon. Friend the Minister of Housing and Local Government.
  Mr. Costain: Every local authority has a direct-labour maintenance organisation. If the Financial Secretary wants cases, we can show him 1,000 or so. The facts are there. What are these people doing if they are not doing maintenance work?
  Mr. MacDerrnot: They are doing maintenance work, but they are not working in competition with outside firms in the sense that there is competitive tendering in the way that there is in the construction field. This is where the S.E.T. gives unfair advantage. If a local authority decided before the S.E.T. came into force
  376
  that it would not put its maintenance work out to contract, but would do it all by its own direct-labour force, the introduction of S.E.T. did not affect adversely private contractors, because this was a market in which they were already unable to compete. In that sense, I invite information to be tendered to my right hon. Friend which conflicts with what I said.
  Miss Harvie Anderson: The point is that there are many authorities in which the responsibility for this work is divided between the maintenance department and private small firms. It is with those cases that we are particularly concerned.
  Mr. MacDermot: The hon. Lady is right. It is precisely to such cases that I am referring.
  The hon. Member for Londonderry (Mr. Chichester-Clark) raised the question of on-site industrial building. As he knows, there is a problem here. From the start, we made it clear that where the industrialised building work on site could be shown to be a separate establishment on the site, it could qualify as an establishment and attract the refund. The difficulty arises where there is not on the site an establishment within the meaning of the Selective Employment Tax legislation. The difficulty then is one of definition of what constitutes industrialised building.
  This matter is, as the hon. Member said, being considered by experts from the Ministry of Public Building and Works and the Ministry of Labour to try to overcome the problem of definition.
  Mr. Chichester-Clark: May we have an assurance that it is still being considered and has not been abandoned as impossible?
  Mr. MacDermot: Yes, I give that assurance. It is still actively under consideration.
  The hon. Member for Folkestone and Hythe asked why the tax applies to the industry at all, using an emotive argument about the tax being imposed on slum clearance whereas luxury manufacturing and yacht building—and, I suppose, expensive motor cars—are not affected by the tax. This comes back to my earlier point that one is trying to spread the tax burden.

  377
  Already, through Purchase Tax, the manufacturing sector was bearing a high burden of indirect taxation, and one of the purposes of the tax was not to have to increase that burden and to spread the load. I beg hon. Members, as I frequently have to do, not to think that the imposition of a tax implies some moral or other judgment upon the usefulness of the activity which is being taxed. We have to find fair ways of spreading the tax burden, and many industries which do extremely useful work have to bear their fair share of taxation.
  It was for those reasons that we came to the conclusion in the first instance that it was right to make the industry subject to Selective Employment Tax. For the reasons which I have given, and on the basis of the figures which I have given to the House, we do not believe that any events which have subsequently taken place should operate to make us change our minds about this.
  Question put, That those words be there inserted in the Bill: —
  The House divided: Ayes 126, Noes 203.

  Division No. 395.]

  AYES

  [9.24 p.m.

  Alison, Michael (Barkston Ash)

  Griffiths, Eldon (Bury St. Edmunds)

  More, Jasper

  Allason, James (Hemel Hempstead)

  Gurden, Harold

  Morgan, Geraint (Denbigh)

  Astor, John

  Hall, John (Wycombe)

  Morrison, Charles (Devizes)

  Baker, W. H. K.

  Harris, Frederic (Croydon, N.W.)

  Mott-Radclyffe, Sir Charles

  Bell, Ronaid

  Harris, Reader (Heston)

  Murton, Oscar

  Bessell, Peter

  Harrison, Col. Sir Harwood (Eye)

  Nicholls, Sir Harmar

  Biffen, John

  Harvie Anderson, Miss

  Noble, Rt. Hn. Michael

  Birch, Ht, Hn. Nigel

  Heald, Rt. Hn. Sir Lionel

  Nott, John

  Black, Sir Cyril

  Heseltine, Michael

  Page, Graham (Crosby)

  Body, Richard

  Higgins, Terence L.

  Page, John (Harrow, W.)

  Boyd-Carpenter, Rt. Hn. John

  Hiley, Joseph

  Peel, John

  Brewis, John

  Hirst, Geoffrey

  pounder, Rafton

  Brinton, Sir Tatton

  Hogg, Rt. Hn. Quintin

  Powell, Rt. Hn. J. Enoch

  Bryan, Paul

  Holland, Philip

  Price, David (Eastleigh)

  Buchanan-Smith, Alick (Angus, N & M)

  Hooson, Emlyn

  Prior, J. M. L.

  Buck, Antony (Colchester)

  Hornby, Richard

  Pym, Francis

  Bullus, Sir Eric

  Hutchison, Michael Clark

  Quennell, Miss J. M.

  Burden, F. A.

  Iremonger, T. L.

  Ramsden, Rt. Hn. James

  Chichester Clark, R.

  Jenkin, Patrick (Woodford)

  Rees-Davies, W. R.

  Clegg, Walter

  Johnston, Russell (Inverness)

  Renton, Rt. Hn. Sir David

  Cooke, Robert

  Jopling, Michael

  Ridley, Hn. Nicholas

  Corfield, F. V.

  Kimball, Marcus

  Rossi, Hugh (Hornsey)

  Costain, A. P.

  King, Evelyn (Dorset, S.)

  Royle, Anthony

  Craddock, Sir Beresford (Spelthorne)

  Kirk, Peter

  Russell, Sir Ronald

  Crosthwaite-Eyre, Sir Oliver

  Langford-Holt, Sir John

  Shaw, Michael (Sc'b'gh & Whitby)

  Dalkeith, Earl of

  Legge-Bourke, Sir Harry

  Smith, John

  Dance, James

  Lewis, Kenneth (Rutland)

  Steel, David (Roxburgh)

  Davidson, James (Aberdeenshire, W.)

  Lloyd, Ian (P'tsm'th, Langstone)

  Taylor, Edward M. (G'gow, Cathcart)

  Deedes, Rt. Hn. W. F. (Ashford)

  MacArthur, Ian

  Taylor, Frank (Moss Side)

  Digby, Simon Wingfield

  Maclean, Sir Fitzroy

  Temple, John M.

  Dodds-Parker, Douglas

  Macleod, Rt. Hn. Iain

  Thatcher, Mrs. Margaret

  Drayson, G. B.

  McMaster, Stanley

  Turton, Rt. Hn. R. H.

  Eden, Sir John

  Maginnis, John E.

  van Straubenzee, W. R.

  Elliot, R.W. (N'c'tle-upon-Tyne, N.)

  Marten, Neil

  Wainwright, Richard (Colne Valley)

  Eyre, Reginald

  Maude, Angus

  Whitelaw, Rt. Hn. William

  Farr, John

  Mawby, Ray

  Wills, Sir Gerald (Bridgwater)

  Fletcher-Cooke, Charles

  Maxwell-Hyslop, R. J.

  Wilson, Geoffrey (Truro)

  Gilmour, Sir John (Fife, E.)

  Maydon, Lt.-Cmdr. S. L. C.

  Wylie, N.R.

  Glover, Sir Douglas

  Mills, Peter (Torrington)

  Younger Hn. George

  Goodhew, Victor

  Mills, Stratton (Belfast, N.)

  Grant, Anthony

  Mitchell, David (Basingstoke)

  TELLERS FOR THE AYES:

  Grant-Ferris, R.

  Monro, Hector

  Mr. Timothy Kitson and

  Grieve, Percy

  Montgomery, Fergus

  Mr. Bernard Weatherill.

  NOES

  Albu, Austen

  Beaney, Alan

  Brooks, Edwin

  Allaun, Frank (Salford, E.)

  Bence, Cyril

  Brown, Hugh D. (G'gow, Provan)

  Alldritt, Walter

  Bennett, James (G'gow, Bridgeton)

  Brown, Bob (N'c'tle-upon-Tyne, W.)

  Allen, Scholefield

  Bidwell, Sydney

  Brown, R. W. (Shoreditch & F bury)

  Anderson, Donald

  Bishop, E. S.

  Butler, Herbert (Hackney, C.)

  Archer, Peter

  Blackburn, F.

  Butler, Mrs. Joyce (Wood Green)

  Armstrong, Ernest

  Blenkinsop, Arthur

  Callaghan, Rt. Hn. James

  Atkins, Ronald (Preston, N.)

  Boardman, H.

  Cant, R. B.

  Atkinson, Norman (Tottenham)

  Booth, Albert

  Carmichael, Neil

  Bacon, Rt. Hn. Alice

  Boston, Terence

  Castle, Rt. Hn. Barbara

  Bagier, Gordon A. T.

  Bowden, Rt. Hn. Herbert

  Chapman, Donald

  Barnett, Joel

  Braddock, Mrs. E. M.

  Coe, Denis

  Baxter, William

  Bray, Dr. Jeremy

  Coleman, Donald

  Conlan, Bernard

  Huckfield, L.

  Owen, Will (Morpeth)

  Corbet, Mrs. Freda

  Hughes, Emrys (Ayrshire, S.)

  Padley, Walter

  Cullen, Mrs. Alice

  Hughes, Roy (Newport)

  Palmer, Arthur

  Dalyell, Tam

  Hunter, Adam

  Pannell, Rt. Hn. Charles

  Davidson, Arthur (Accrington)

  Jackson, Colin (B'h'se & Speab'gh)

  Park, Trevor

  Davies, G. Elfed (Rhondda, E.)

  Jackson, Peter M. (High Peak)

  Parker, John (Dagenham)

  Davies, Ednyfed Hudson (Conway)

  Janner, Sir Barnett

  Pavitt, Laurence

  Davies, Harold (Leek)

  Jeger, Mrs. Lena (H'bn & st. P'cras, S.)

  Pearson, Arthur (Pontypridd)

  Davies, Ifor (Gower)

  Johnson, James (K'ston-on-Hull, W.)

  pentland, Norman

  Davies, S. O. (Merthyr)

  Jones, Dan (Burnley)

  Perry, Ernest G. (Battersea, S.)

  de Freitas, Rt. Hn. Sir Geoffrey

  Jones, T. Alec (Rhondda, West)

  Price, Christopher (Ferry Barr)

  Dempsey, James

  Kelley, Richard

  Price, Thomas (Westhoughton)

  Dewar, Donald

  Kerr, Mrs. Anne (H'ter & Chatham)

  Price, William (Rugby)

  Diamond, Rt. Hn. John

  Kerr, Dr. David (W'worth, Central)

  Probert, Arthur

  Doig, Peter

  Kerr, Russell (Feltham)

  Reynolds, G. W.

  Dunn, James A.

  Lawson, George

  Rhodes, Geoffrey

  Dunwoody, Mrs. Gwyneth (Exeter)

  Leadbitter, Ted

  Robertson, John (Paisley)

  Dunwoody, Dr. John (F'th & C'b'e)

  Ledger, Ron

  Robinson, W. O. J. (Walth'stow, E.)

  Eadie, Alex

  Lee, John (Reading)

  Rogers, George (Kensington, N.)

  Edwards, Rt. Hn. Ness (Caerphilly)

  Lestor, Miss Joan

  Ryan, John

  Edwards, Robert (Bilston>

  Lewis, Arthur (W. Ham, N.)

  Sheldon, Robert

  Ellis, John

  Lewis, Ron (Carlisle)

  Silkin, Rt. Hn. John (Deptford)

  Evans, Ioan L. (Birm'h'm, Yardley)

  Lipton, Marcus

  Silkin, Hn. S. C. (Dulwich)

  Faulds, Andrew

  Lomas, Kenneth

  Silverman, Julius (Aston)

  Fernyhough, E.

  Loughlin, Charles

  Slater, Joseph

  Fitch, Alan (Wigan)

  Luard, Evan

  Small, William

  Fletcher, Ted (Darlington)

  McBride, Neil

  Spriggs, Leslie

  Ford, Ben

  McCann, John

  Steele, Thomas (Dunbartonshire, W.)

  Forrester, John

  MacDermot, Niall

  Stonehouse, John

  Fowler, Gerry

  Macdonald, A. H.

  Summerskill, Hn. Dr. Shirley

  Fraser, Rt. Hn. Tom (Hamilton)

  McKay, Mrs. Margaret

  Swingler, Stephen

  Galpern, Sir Myer

  Mackenzie, Gregor (Rutherglen)

  Symonds, J. B.

  Gardner, Tony

  Makintosh, John P.

  Taverne, Dick

  Garrett, W. E.

  McMillan, Tom (Glasgow, C.)

  Tinn, James

  Gordon Walker, Rt. Hn. P. C,

  McNamara, J. Kevin

  Tomney, Frank

  Gregory, Arnold

  Mahon, Peter (Preston, S.)

  Tuck, Raphael

  Grey, Charles (Durham)

  Manuel, Archie

  Urwin, T. W.

  Griffiths, David (Rother Valley)

  Mapp, Charles

  Varley, Eric G.

  Griffiths, Rt. Hn. James (Llanelly)

  Mason, Roy

  Wainwright, Edwin (Dearne Valley)

  Griffiths, Will (Exchange)

  Mayhew, Christopher

  Walker, Harold (Doncaster)

  Hamilton, James (Bothwell)

  Mendelson, J. J.

  Watkins, David (Consett)

  Hamilton, William (Fife, W.)

  Mikardo, Ian

  Watkins, Tudor (Brecon & Radnor)

  Hamling, William

  Milne, Edward (Blyth)

  Weitzman, David

  Hannan, William

  Mitchell, R. C. (S'th'pton, Test)

  Wellbeloved, James

  Harrison, Walter (Wakefield)

  Molloy, William

  Wells, William (Walsall, N.)

  Haseldine, Norman

  Morgan, Elystan (Cardiganshire)

  Whitlock, William

  Hazell, Bert

  Morris, Alfred (Wythenshawe)

  Williams, Clifford (Abertillery)

  Henig, Stanley

  Morris, Charles R. (Openshaw)

  Williams, W. T. (Warrington)

  Herbison, Rt. Hn. Margaret

  Murray, Albert

  Winnick, David

  Hilton, W. S.

  Neal, Harold

  Winterbottom, R. E.

  Hooley, Frank

  Noel-Baker, Rt. Hn. Philip (Derby, S.)

  woodburn, Rt. Hn. A.

  Horner, John

  Norwood, Christopher

  Yates, Victor

  Houghton, Rt. Hn. Dougas

  Ogden, Eric

  TELLERS FOR THE NOES:

  Howarth, Harry (Wellinghborough)

  O'Malley, Brian

  Mr. Harry Gourlay and

  Howell, Denis (Small Heath)

  Oswald, Thomas

  Mr. Joseph Harper.

  Howie, W.

  Owen, Dr. David (Plymouth, S'tn)

  Clause 26.—(REGIONAL EMPLOYMENT PREMIUM.)
  Mr. Terence L. Higgins: I beg to move Amendment No. 23, in page 32, line 10, to leave out paragraph (a).
  When we debated the regional employment premium in Committee we made it clear that we were opposed to the principle of it, a view which had some support on both sides of the Committee. We accordingly registered our disapproval in the Division Lobby. My right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) said on that occasion that we intended to consider the matter in greater detail on Report, and
  380
  this is what we are now seeking to do with this Amendment and the group of Amendments which follows it.
  I should stress that within the terms of the Money Resolution governing the regional employment premium it has been very difficult to find an Amendment which can do very much to improve the form of the premium arrangements. Certainly, we found no way of removing the anomaly which the premium creates in development districts between manufacturing industry and those service industries on which many of the development districts depend so heavily.
  The purpose of the Amendment is to remove the paragraph to which I referred

  381
  in my opening remarks. As it stands, subsection (5) reads:
  "The Treasury may by order made by statutory instrument—
  (a) substitute for all or any of the amounts specified in subsection (1)(a) to (d) of this section such other amount or amounts as may be specified in the order …"
  In other words, it is taking power to alter by Statutory Instrument the rates of regional employment premium which the Government are proposing to pay to manufacturing industries in the development areas.
  We believe that this provision is quite contrary to the intention which the Government have declared, because the whole basis of taking an investment decision, and the selection of factors which are allowed to determine an investment decision, depends on the confidence one has that it will be of advantage or disadvantage to one. This has certainly been so in the case of other investment allowances which successive Governments have given, and cash allowances for investment which have also been given. Unless the company which is concerned with taking a decision is certain that the allowance is likely to be permanent, and will have effect over the life of the asset, it is almost certain that it will disregard that factor in reached its decision.
  I am sure that hon. Members on both sides of the House who have been or are now concerned with advising on or taking investment decisions will know that the normal practice of a board room, unless there is certainty that the allowance will be paid, is to disregard any allowance or cash hand-out of a kind like the regional employment premium.
  It seems to us that the insertion in the Bill of a Clause providing that the Government can alter the amount quite arbitrarily by Statutory Instrument is not the right approach, and is not likely to produce the confidence which we regard as necessary if the scheme is to have any meaning. We believe that the basic conception is misguided, but at least the Government should be consistent within their own terms of reference.
  The fact that the Government can alter the rates means that they have almost the power to abolish the allowance cornpletely—they cannot quite do that, as the Chancellor of the Exchequer has ex-
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  plained—or to replace it by a quite different arrangement.
  I want to quote from the Green Paper setting out the original proposal for the regional employment premium. Paragraph 27 says:
  "The proposal"—
  that is to say, the regional employment premium proposal—
  "is not advanced as a short-term contra-cyclical measure. Though there should be some immediate impact, on the whole it is believed that the effects in the very short-term would be rather limited. But over a period of, say, 3–5 years it could narrow the unemployment gap".
  That is in the regions. If it is not to be a short-term contracyclical measure there is no need for the provision that we are now discussing. That is why we feel that there is a strong case for eliminating it. It seems to shake confidence without giving the Government any powers which we might otherwise have felt it necessary for them to have.
  Some explanations were given in Committee why the Government needed these powers. They are set out in the arguments put forward by the Chancellor on 14th June, 1967, when he said:
  "Subsection (5) provides that the rates may be varied by Treasury Order, subject to affirmative Resolution in both Houses of Parliament. It does not give power to reduce the premium to nil, which would terminate the scheme, and I have already said that the Clause does not run down. With this qualification, it gives the Government considerable flexibility in carrying out the purposes of the scheme and the necessary powers to carry out the intention in regard to tapering, to which I referred in our earlier debate".
  It seems to us that this statement conflicts with the Chancellor's own White Paper, which had been published earlier, in which, in respect of this provision, it says that
  the intention is that payments of this magnitude in respect of manufacturing employment in the Development Areas should continue to be given until their purpose has been achieved—and in any case for not less than seven years in the existing Development Areas."
  We shall come to the question of the period of seven years in a later Amendment. The point is that the Chancellor's Amendment in Committee was clearly in conflict with his own White Paper, which says that the magnitude of the amounts will not be altered. That is why we feel that the Government ought to accept the Amendment.

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  The argument which the Chancellor put forward for increased flexibility is, first, that the ratios of the rates paid between the various groups—men, women and part-timers, for example—may need to be altered. He added:
  "Paragraph (a), read with the last five lines of the subsection, provides that the rates can be varied up or down without limit for men or women, boys and girls and part-timers, together or separately."
  Surely the argument put forward for setting the present ratios and the amounts to be paid for men, for women, and so on, are clearly based on some idea of what is the right rate and what are the various wage rate ratios for those groups. If the Government intend to oppose the Amendment, I hope that the Chief Secretary will advance some argument why, in any circumstances the Government should wish to alter the rate paid to the various sub-groups—men, women and part-timers—in conformity with the statement which the Chancellor made. We believe that there is no reason why this flexibility should be written into the Bill.
  Secondly, the Chancellor added:
  "I come now to the point of the hon. Member for Belfast, East—that different rates may be fixed for different development areas, whether in existence now or scheduled in future, or for parts of such areas."—[OFFICIAL RFPORT, 14th June 1967; Vol. 748, c. 584.]
  We wish to know what the Government have in mind about this. If they are to go around altering, within the development areas, the regional employment premiums paid to one group or another in different parts of quite a small area, we shall have to consider what the Government guarantee about the certainty of the regional employment premium is worth. Clearly, if one merely knows that one will receive some rates without knowing what they are, business confidence in the scheme is not likely to be increased.
  It is doubtful what the situation would be for the so-called grey areas surrounding development areas. Are we to understand that it would be possible for the Government to extend a development area to cover the grey areas that surround it and then to grade the premiums paid between what used to be the grey area and the new development district?
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  The third reason why, we are told, the Government need to take the powers in the paragraph which we are seeking to delete is that the powers are necessary because of the tapering arrangements which the Government have in mind at the end of the period for which the regional employment premium will be paid. Why is that necessary? It shakes confidence in the whole scheme and the Government's word on the subject if they build into the Finance Bill a tapering arrangement and take powers to make the alteration by Statutory Instrument, when these tapering arrangements are not likely to be needed for five or seven years ahead. Would it not be much more sensible for the Government, instead of building in these arrangements, to say that when they decide to give up the scheme some arrangement will be made for tapering, it off? They have not built into the Bill a provision for the termination of the scheme at a specific date, and we see no reason why it is necessary for the Government to build tapering arrangements into the Bill so far in advance of what they say they regard as the minimum time limit for the termination of the regional employment scheme.
  I hope that the Chief Secretary will give us clear answers on these points. It seems to us that the powers which the Government are seeking to take in paragraph (a) are excessive and likely to defeat the whole object of the scheme. We do not believe that the scheme is a good scheme. We do not believe that it is likely to have the results which the Government say they want to achieve. But at all events those results are likely to be jeopardised if the Clause and subsection remain in the Bill.
  9.45 p.m.
  Sir D. Glover: I support my hon. Friend the Member for Worthing (Mr. Higgins) and congratulate him on an able speech.
  I do not understand the Government's thinking. I am wholly opposed to the regional employment premium which is trying to buy employment at about £7,000 a job—
  Mr. Speaker: Order. We cannot discuss the whole issue of regional employment premiums on this Amendment. We are discussing the taking out of paragraph (a).
  Sir D. Glover: That was just an opening remark, Mr. Speaker. I was leaving that matter. I apologise to the House.
  I do not understand why paragraph (a) should have been included. As a practical man and not an economist. What is the object of the regional employment premium? It is to try to persuade me or the hon. Member for Heywood and Roy-ton (Mr. Barnett) to establish a factory in a development area. Anyone who does so will cost the profitability and discover that productivity is lower than where he is at present, in Birmingham for example, and the additional transportation cost and the other expenses of any business will mean that with this premium it would be worthwhile to establish a factory there, provided that each man receives a premium of 30s.
  But, if the paragraph remains, the Government obviously hope that many firms which would consider going to such an area would consider it profitable and sensible; but, after all the expense of establishing a factory, admittedly with a 45 per cent. premium under other legislation, the Government may next year alter the premium from 30s. to perhaps 10s. and then that firm's castings would be up the pole. Instead of a profit it would make a loss, and would not be prepared to take the risk—
  Mr. Barnett: Is the hon. Gentleman arguing that with paragraph (a) large numbers of firms, knowing that they had the 30s. and that it would not be altered for seven years, would be prepared to enter a development area and that the Clause would be wholly successful without this paragraph?
  Sir D. Glover: If I replied to the hon. Gentleman I should be wildly out of order. I did not claim that but said that a firm—not a shoal of firms—might decide to take a chance on a development area. I do not say that every firm would want to go there, and if the Clause were wider I should like to develop the argument about the employment created by people going to those areas and not by the people who are unemployed there.
  If the Government think that the Clause will be successful and that industry will be attracted, they must establish some certainty, which is lacking while paragraph (a) remains. After having worked out the costs and decided that it would be marginally more attractive to
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  open a factory in a development area, a firm might suddenly find that the Government had arbitrarily altered the premiums and that their calculations were up the pole and they now had a factory with a lot of expensive machinery which would run at a loss?
  People in business and industry must be certain about the length of time for which they will receive a benefit. Unless the Government can give some certainty about this benefit, there will be no reaction to the Clause. Industrialists will say, "We cannot afford to take the risk. We are spending £250,000 on establishing a factory, installing machinery and encouraging people to go there on the basis of our getting 30s. for each male employee. We dare not take the risk because the Government obviously did not include this provision in the Bill for no reason. They obviously thought that they might want to alter the premium, and in all probability, if they alter it, they will alter it downwards". Firms in such a position will not go to the development areas because an alteration in the premium would upset their calculations and they would find themselves up the pole.
  We are all anxious to reduce the amount of unemployment in the development areas. We may have different views about how that should be accomplished, although in discussing the Amendment we cannot go into the broad picture of unemployment. If the First Secretary does not accept the Amendment, I fear that the Government will lose any advantages that may be inherent in the premium.
  Mr. Walter Clegg: I have a deep constituency interest in this matter in that the township of Fleetwood and Thornton has been described by the Lancashire and Merseyside Industrial Development Association as forming the unemployment black spot of Lancashire. At the same time, however, we are not in a development area or geographically near one, unless one considers the other side of Morecambe Bay.
  I wish to illustrate the problem mentioned by my hon. Friend the Member for Worthing (Mr. Higgins) in trying to define this provision. My hon. Friend asked the Chief Secretary what effect the Clause would have on what we call the grey areas. It has been suggested by the Lancashire and Merseyside Industrial

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  Development Association that Fleetwood and Thornton should be included in such an area when dealing with these matters, and my hon. Friend asked the right hon. Gentleman to define the areas in which the premium will be paid.
  Mr. Speaker: Order. With respect, the hon. Gentleman cannot discuss any of those matters now. We are discussing whether the Government should have the power, for which they have asked, in paragraph (a) or whether that power should be taken away. The hon. Gentleman must relate his remarks to that point.
  Mr. Clegg: Perhaps on this issue the House should not give the Government these powers; that is, unless they are prepared to define them more specifically. They are not adequately defined in the Clause and if the provision were deleted the Government would have to take steps to define these areas more closely. What effect will the Clause, as drafted, have on my constituency? If it remains un-amended the powers contained in the provision will allow the Government to make variations in this procedure. I do not know, from the way in which it is drafted, whether or not unemployment in my constituency will benefit from the variations the Government may make.
  At present I.C.I. has factories in my constituency and similar factories elsewhere in the country, and the factories elsewhere are in development areas. The Government intend to restrict the premium to the development areas. This may mean that instead of new jobs being created in North Fylde, I.C.I. will create new jobs outside my constituency and make the unemployment situation in my part of the world even worse. If the right hon. Gentleman could indicate the Government's intentions about areas such as mine which have this very difficult problem I would know which way to vote on the Amendment. These powers give the Government a wide discretion, but if the right hon. Gentleman could narrow that discretion and say that constituencies like mine may be helped, I might be able to vote with him.
  Mr. Stanley R. McMaster: I find myself at variance with my colleagues. I have no doubt at all that these provisions will substantially help Northern Ireland. Last month's unem-
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  ployment figures for Northern Ireland, which have just been published show, that about 7½ per cent. of the population—almost 40,000 people—are out of work. That is the highest since 1957.
  This presents a very serious problem to all Ulster Members and it has faced me ever since I came to Westminster. The amount being spent by the Government is very substantial, and is equal to the entire amount spent in other ways in helping the development areas. I do not think that there is any practical alternative to the scheme that the Government are now trying.
  Variations in the amount are necessary to make this a workable scheme and I hope that, if necessary, the premium may be graded in different parts of the country. If, for instance, in one development area there is persistent unemployment of 10 per cent., 15 per cent. or 20 per cent., I should like to see the Government able to pay for the period of seven years the full amount of £2 per head. Where unemployment is lower, and in many development areas it is more like 3 per cent. or 4 per cent.—which, while being very serious, is only half the percentage we have in Northern Ireland—somewhat less could be paid.
  Such grading might mean that the grey areas would find the whole measure less exceptionable, because the areas where unemployment is persistently high are those where manufacturers seem reluctant to set up new factories and many existing factories are finding it very hard to remain in business. This is particularly the case in a period such as the last 12 months, a situation which we have experienced with depressing regularity since the end of the war, when we have had to impose special measures of restraint, regulators, and the so-called "freeze" or "squeeze" to make sure that our overseas payments kept in balance. In times like this marginal districts like the development areas—and, in particular, my own area—suffer very considerably. The unemployment rate is just an example of this.
  I therefore hope that the Minister will be able to wait before deciding by experience, because this is a new idea, whether there is reason to vary the amounts. I hope that he will decide, first of all, whether the scheme as a whole

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  is proving effective and, if it is, whether it might not be improved by some type of regional variation. I hope that the scheme will be applied flexibly, because I am sure that with such a flexible application as is catered for existing firms in an area like Northern Ireland will not only be able to remain in business but will, in many cases, be able to expand, and to increase employment. I am sure that this provision will be effective in drawing in new firms. This persistent unemployment affects many skilled workers.
  10.0 p.m.
  We see in Ulster a rundown of many of our traditional industries, particularly the linen industry, shipbuilding and, recently, the aircraft industry. Skilled men are being thrown on to the labour market. In this way our case differs from that of areas such as the Highlands of Scotland and agricultural areas in the East and South-East. There are unused resources in Northern Ireland which were spoken about in the Green Paper. A redistribution of industry which these provisions would make possible would be beneficial to the country as a whole. We would then be able to make use of the manpower which at the moment is wasted in Northern Ireland, or which threatens to emigrate and would be lost to the United Kingdom as a whole.
  We could make use of capital resources in Northern Ireland which, at the moment, are not fully utilised. With a scheme like this in the shipyards we could introduce a shift system and so reduce the proportion of capital cost attributable to each unit of output and make more use of skilled labour in face of the fierce competition from overseas, from European and Far Eastern shipyards. This boost is welcomed in Northern Ireland. Cabinet Ministers in the Northern Ireland Government have stated publicly since the scheme was announced that they welcome it.
  Mr. Speaker: Order. The hon. Member is drifting—I can understand why—into the premium scheme as a whole. He must come back to paragraph (a).
  Mr. McMaster: I apologise, Mr. Speaker. I shall come back to it immediately.
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  With the welcome which it has received in Northern Ireland, there is a good case for these variations which would allow the Government to increase the benefit in an area where persistent unemployment is double that of other development areas. I do not think that there is a practical alternative. The suggestion of a tax holiday could be considered, but without that I cannot see that this sum of money—£100 million, £11 million of which, under the present scheme, will go to Northern Ireland—can be spent in any other way.
  The arguments we have heard from this side of the House are conflicting. Some hon. Members from fringe areas say that they object to the scheme because it will damage those areas and take industry away from them.
  Mr. Speaker: Order. Again, the hon. Member is discussing the scheme as a whole. He must keep to paragraph (a), which gives the Government power to vary the premium.
  Mr. McMaster: I am sorry, Mr. Speaker. I have finished that point.
  The case for a variation of the Order depends on whether the scheme itself will be effective or not. If the scheme is effective, I would argue that there is a case for a variation as suggested in paragraph (a). [Laughter.] I do not understand the reason for hilarity, because I am trying to make a very serious point. If the scheme as a whole works there is a case for varying it as between development areas. If it worked as a whole and we varied it, a fortiori, it would help those districts which are in most need of help.
  Some say that the scheme will be of no use and imply that industrialists will not be attracted to the areas concerned. The counter-argument is that it will be effective and will damage grey areas in the rest of the country. The arguments advanced on this side of the House are conflicting. They cannot both be right. The scheme will be effective, and for this reason I support it with the variations.
  Mr. Richard Wainwright: After that outburst of Tory rebellion, I want to endorse the closely argued case adduced by the hon. Member for Worthing (Mr. Higgins) against this paragraph, and particularly his correct insistence that industrialists will

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  require a great degree of certainty before they pay any serious attention to a measure such as the regional employment premium. My quarrel with the hon. Member for Worthing is that he did not go far enough in his criticism. He dwelt eloquently and cogently on the dangers of the premium being reduced under the powers in this paragraph. I remind the House of the equally great dangers of the premium being increased, particularly for what are euphemistically described here as "parts of development areas", areas showing a tendency to be wobbly in electoral terms, an area on whose fringe by-election or local election reverses have been suffered. This is a great danger with a measure of this kind which is financed out of thin air.
  I readily agree—this is one reason why my right hon. and hon. Friends and I supported this measure in principle—that it can proceed from very sound economics and, in good hands, it can be an admirable measure. But this paragraph may well lead this measure out of the boundaries of sound economics into those of gross electoral appeasement, because there is no requirement that the Exchequer should face up to the financing of the premium if it is to be increased. Because of the risk of this happening, which is a very real one, perhaps not next year, but the year after, if the Amendment is pressed to a Division I shall recommend my right hon. and hon. Friends to divide against the Government.
  Sir D. Glover: Does the hon. Gentleman think that there will be enough money in the Treasury to buy the Labour Party support by the next election?
  Mr. Wainwright: Evidently I have failed to explain myself to the hon. Gentleman. I shall not trespass on the time of the House by trying again. My whole case is that money is not required in the Exchequer to finance this operation.
  Mr. Michael Alison: Paragraph 38 of the green pamphlet on the regional employment premium contains a useful analysis of the incentive on what might be described as the marginal firm. The analysis relates to a firm for which the gross extra costs of going to a development area, without the premium, are just too heavy for it to move.
  Mr. Speaker: Order. The hon. Gentleman appears to be discussing the premium itself. The House is discussing paragraph (a) which gives the Government power to vary the premium.
  Mr. Alison: I am hoping to show, Sir, that the power to vary what the Government are taking will have a severe effect on the marginal firm which has just been induced to go to a development area, because the exact last shilling of the premium is just sufficient to overcome the gross costs involved in a marginal firm's moving from a prosperous area in the south to a non-prosperous area in the north. Paragraph 38 says this, and it is relevant to the marginal firm:
  "In the case of the proposed regional premium, the upper limit on the differential costs of firms which might be induced by this scheme to go into the Development Areas would be represented by the amount of the premium payments; otherwise the premium would not be sufficient to induce them to move."
  There will be a firm—the marginal firm —which is just induced to go to a development area by the last two shillings of the premium. The Government have not paid enough attention to the real difference between a firm which has been attracted into a development area, with the substantial extra costs arising there-from, and those which are already there and which will receive the premium. The overheads, depreciation and everything else of the firms already there are almost certainly lower, and the extra cost will fall on the firm which is drawn into the development area.
  Firms which are attracted into development areas will be peculiarly vulnerable to any powers which the Government take to reduce the premium. The incoming firm will be hit, not those which are already there, and it is precisely firms in prosperous areas, firms in growth industries, which we hope to attract into the development areas. Because they will be the most vulnerable, confidence is all the more necessary in their case. We must, therefore, have a firm undertaking from the Chief Secretary that his concept in this matter is not one of reduction in the premium, because reduction would hit the incoming firms earlier and harder than firms already there.
  Mr. Diamond: I could not attempt to persuade the whole House to vote either

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  one way or the other on the Amendment because we have had rebellion in both parties opposite on the question of the Amendment and how it would affect the scheme.
  The hon. Gentleman the Member for Worthing (Mr. Higgins), who moved the Amendment, is rebel No. 1. In the debate on the main Clause, the official spokesman for the Conservative Opposition, the right hon. Member for Argyll (Mr. Noble) said:
  "I accept that it is very important that we should have flexibility in thinking about how we are to use the powers which the Government have taken, and I am delighted that the Chancellor has said that he has taken the powers in order to be able to vary the amounts and the regions and areas, -because this may well be necessary."—[OFFICIAL REPORT, 14th June, 1967; Vol. 748, c. 681–2.]
  We have had various speeches tonight. We had an interesting speech from the hon. Member for Ormskirk (Sir D. Gloves), and a most serious speech from the hen. Member for Belfast, East (Mr. McMaster), who knows of these problems at first hand. I shall come back to that speech later, because I wish to meet several of the points which the hon. Gentleman made.
  Again, on that earlier occasion, the chief spokesman for the Liberal Party, the hon. Member for Roxburgh, Selkirk and Nebles (Mr. David Steel) gave his party's support for the Clause which it is now sought to amend. He made a long speech without, as far as I recall, any reference to difficulties or the question of flexibility, and he took the whole of his party into the Division Lobby with us On it. [An HON. MEMBER: "All five of them."] All five, or whatever the number was. The whole of the Liberal Party supported the Clause. Let us not spoil my argument.
  Mr. Richard Wainwright: I hope that the right hon. Gentleman is not suggesting that my hon. Friend was unreserved in his welcome. He said that it was better than nothing.
  Mr. Diamond: I am telling the hon. Gentleman what his hon. Friend said on that occasion. Speaking for the Liberal Party, he welcomed the regional employment premium and he took the whole of his party into the Lobby to vote for it. It is, therefore, by no means clear that
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  the whole of the Opposition are in favour of the Amendment and against the Clause.
  The Amendment is designed to give a certain flexibility. Let me come to the essential point. I thought that I had dealt with it fully last time, but I am only too glad to deal with it again. It was raised by the hon. Members for Worthing and for Ormskirk, when they spoke of the attitude of directors sitting round the boardroom table and saying to themselves, "Shall we or shall we not move into a development area, having regard to the Government's regional employment premium scheme?".
  10.15 p.m.
  That is the question, and, therefore, I want to repeat what I said previously. I am glad to affirm it again. The White Paper is the Government's firm statement. In paragraph 17(vi) the Government's intention is clearly stated. The intention is that payments of this magnitude in respect of manufacturing employment in development areas should continue to be given until their purpose has been achieved and in any case for not less than seven years in the existing development areas.
  The first point that I want to make clear is that our conduct must be such as to satisfy a reasonable board of directors looking at all the facts. The hon. Member for Ormskirk is a capable director. He has sat at many board meetings. What he gave us today as the attitude of a board of directors was a travesty. I know full well that he is capable of making the right decision, taking all the facts into account, among which would be the regional employment premium, the level of employment, the potentiality of skilled labour, the cost of raw materials, transport in the area, power and a host of other things. This aspect would be one, though an important one, out of very many.
  Sir D. Glover indicated assent.
  Mr. Diamond: The hon. Gentleman is good enough to agree with me.
  In connection with that there would have to be sufficient reliance on the intention of the Government that that factor would take its proper place in all the other factors entering into the minds of the board in making that decision. So I make that clear; I repeat and affirm

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  the words in the White Paper and do not detract from them one iota.
  Sir D. Glover: Is the right hon. Gentleman telling the House that, on the basis of the premium at present being 30s. for a man, a firm in making its decision would be assured that for seven years the premium would not be less than 30s. but might go up?
  Mr. Diamond: I have carefully chosen my words. I am saying exactly what is in the White Paper—not one word more and not one word less. I will explain it in a moment because it is important that there should be confidence in the board members. That is why it is in the Government's White Paper.
  The hon. Gentleman and I have been in the House long enough to know what such a document means and the care that goes into its preparation. The hon. Gentleman would know that among all the other elements that he has to take into account there would be this element of the magnitude—the White Paper does not say the exact figure—for all time. It refers to the magnitude.
  I want to make sure that a managing director in the board room would be satisfied that the costs in this respect would be reasonably reliable, probably a good deal more reliable than most of the other costs on which a board bases its decisions and over which it has very little control, such as the price of imported material. That is why the statement is in the White Paper.
  There is the question why we should have flexibility. The argument here is merely, "Shall we incorporate in the Act sufficient powers to enable us to do whatever the House wants us to do from time to time with the minimum of trouble, or shall we not incorporate these powers in the Act so that when anything has to be done we have to have new legislation?" That is the only difference.
  The Government are not taking powers to do anything without the consent of the House. They are taking powers to propose courses of action which they will put to the House and which the House on affirmative Resolution will or will not endorse. If the House endorses them, it means that we get our business through
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  much more quickly. If we want to respond quickly to the circumstances of the time we can do it much more readily with the powers that are provided here.
  I want to turn now to the point raised by the hon. Gentleman the Member for Belfast, East. I give this purely as an example of the variation content in the powers in the subsection which the Government seek to retain in the Bill. Supposing that in this area there was an aircraft manufacturer, supposing he was trying to sell an aeroplane, supposing, which would not be surprising, that what determined whether the plane was sold was the price, and supposing that a large element in the price was the labour content, and supposing that the cost of the labour content was varied by this R.E.P., and supposing that the Government took the view that in an area—although I am not saying that the Government will take this view—where the unemployment was twice as high as elsewhere, there was an argument for using the flexible powers which are contained here, it would not be impossible, in those circumstances, that an additional rate of premium might have the effect of so reducing the cost to get the order which was otherwise a very marginal possibility.
  This would mean that instead of employing a handful of men on a mock-up one could have 2,000 to 3,000 men employed on manufacturing the aircraft. That is something which might happen.
  Mr. Barnett: Would this variation upwards that my hon. Friend has in mind, be so flexible as to enable it to be given to just one company in a development area?
  Mr. Diamond: I am not arguing that. I am not saying that I have anything in mind. I said quite the opposite, I have not got anything in my mind. It is absolutely clear that the Government have not given consideration to this. As to the specific point my hon. Friend asked, no, there is no power in this subsection to vary in that sense, to give it to one firm only. There is no power at all.
  Mr. Barnett: In other words, if one wanted to vary the premium up to, say, £3 per man in order to help a particular aircraft factory, one would have to give it to the whole development area? Is this what he is saying?
  Mr. Diamond: I do not say that one wants to vary it in order to help a particular factory. I should make it absolutely clear that I am giving an example of what might happen the other way round. If there were an area such as Northern Ireland, where the employment rate was twice as high as anywhere else, that might be an argument for considering whether the flexibility in the subsection should not he used. I went on to say what one of the results of that might be, and then I gave that purely as an example, out of the top of my head.
  Mr. R. B. Cant: Surely my hon. Friend is imparting an entirely new dimension into this concept of regional employment premiums? A number of us who were not really critical of the idea—[Interruption.] I said some of us—might want to know whether this is an authoritative Government statement, or whether the Financial Secretary is just thinking aloud.
  Mr. Diamond: All that my hon. Friend 1- as to do is to listen to what I have said twice. I will say it a third time. It is not an authoritative Government statement. We have not given the matter consideration. This is merely an example of what might happen if, in a given area, owing to the high level of unemployment, these flexible powers were used. What I am saying authoritatively is that the difference between having these powers and not having them is that the House can decide whether to vary areas by Order quickly, or by legislation slowly.
  The only difference is the time to be spent making use of this flexibility. Having regard to the fact that the chief spokesman for the Conservative Party said that he welcomed them—
  Mr. Higgins: The hon. Gentleman quoted a passage from column 682 of HANSARD on 14th June. My right hon. Friend the Member for Argyll (Mr. Noble) went on to say.
  … the point that the Chief Secretary did not make convincingly enough for me, though it may he the case, is that the firm getting the full premium at the moment will be entitled to believe—if it is to believe in the measure at all—that it will get the full premium for seven years …".—[OFFICIAL REPORT, 14th June, 1967; Vol. 748, c. 682.]
  This is the same point which we are making in this Amendment and it is in no way inconsistent between one side
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  and the other. He makes a very clear statement, certainly that there might be a case for some flexibility, but also that we need to be quite clear. If we are not to shake confidence in the scheme completely, this Amendment should be accepted.
  Mr. Diamond: I answered the hon. Gentleman by saying that there is a statement of intent in the White Paper, and I do not retract one word of that. That can be utterly relied upon. In addition, there is this flexibility which will enable the Act to be used much more fruitfully, much more appropriately and to be tailor-made in appropriate circumstances within the powers already there. As everybody knows, the powers are wide, but they are limited, and they can in no circumstances be enacted without an affirmative resolution of the House.
  Mr. Baker: Is the right hon. Gentleman saying that the White Paper has the force of legislation?
  Mr. Diamond: No, I am not saying that. Nobody has asked me that. Everybody knows that it is not an Act. It is a statement of the Government's intent. The whole argument about these powers is: what do the Government intend to do? The powers are clear. The question is how are they to be used, in what circumstances, and when? That is what the House is properly interested in. That is why I say that the guideline as to how the powers are used is governed by the statement of intent, which is as clear as a bell. It is in the paragraph which I read out, and it is spelt out in more detail in some of the later paragraphs of the same White Paper.
  Mr. McMaster: I should like to get this clear. Is it possible under paragraph (a) of subsection (5) for the Government to differentiate between existing firms and new firms which come into the area?
  Mr. Diamond: I must be careful how I answer that. If a scheduled area becomes descheduled after, say, five years from the start of the scheme, existing firms will continue to get for a further two years what was being paid under the original scheme. That is continued. New firms coming in after that will not. So that a new firm would get a different rate from an old firm because the old

  399
  firm was still covered by the guarantee which the House, I am glad to say, insists on having. That answers the hon. Gentleman's question.
  Mr. J. T. Price: Would my right hon. Friend give way?
  Mr. Diamond: Not yet. Let me finish answering.
  But in other circumstances, no. One could not select between firms which had been there all the time and say, "This one can have a greater or smaller amount, but not this one."
  Mr. J. T. Price: The hon. Member for Belfast, East (Mr. McMaster) has just raised a valid point. I am all in favour of flexibility and I fully support the Government's request for these powers. But I want to know how they will be applied. These are blanket powers which will give the premium of 30s. a week to all firms already in the area. I want to know how this large sum of Government money, £100 million, will be dispersed. How will the Government justify payment to existing, powerful, successful companies in the development areas, such as in the famous case of Pilkington Bros. of St. Helens to which I have referred on previous occasions? This is where I should like to see the flexibity used to relieve the Government of expense which they should not incur.
  Mr. Diamond: I make it absolutely clear that there is no power saying that in a given area where a given figure is being paid to men and women, part-timers, and so on, a particular firm will be excluded. It is not in the Act, and it is not in this Clause.
  Mr. Alison: The right hon. Gentleman has stirred the interest of all of us by his thesis on the variations. He has been talking about the vital paragraph 17(vi) of the White Paper which categorically states that payments of this magnitude will be made and, in any case, for not less than seven years. Are we to understand that these variations are applicable only after the passage of seven years, or will they apply before the period of seven years has elapsed?
  10.30 p.m.
  Mr. Diamond: There is nothing in the subsection to prevent that from happen-
  400
  ing earlier if the House so decides—upwards, downwards. Upwards, down-wards, variations as between sexes, adults, children, geographical areas—it is all stated quite clearly, absolutely clearly. I am sure all hon. and right hon. Gentlemen opposite have read it. There is nothing to prevent that from happening under this subsection. What the Opposition are saying is, "We do not like it. Therefore, we want a guarantee that we shall have it for at least seven years." It is an argument a bit difficult to follow but I understand that that is their problem.
  Mr. Sheldon: I am sorry to interrupt, but my right hon. Friend had mentioned something quite new and something of extreme importance. He has mentioned about firms moving in after an area has been descheduled and these would not be eligible for R.E.P., but existing firms would maintain their eligibility for R.E.P. Does this eligibility for R.E.P. go for increasing the numbers of employees in the existing firms? Does my right hon. Friend get the point?
  Mr. Diamond: Yes, the answer is that there would be, of course, if a firm is established, nothing in R.E.P. —in the Clause—to say that the premium to be paid will only be paid to employees in week No. 1 or week No. 2. Firms have powers to reduce or increase their employees in week No. 3, in week No. 4, in every year. There is nothing here to say firms must have an exact number of employees. I am sure that my hon. Friend will agree. It will follow, therefore, as a factor in development in the number of employees.
  It also follows that if one is to have a guarantee for seven years—I am sure my hon. Friend is as interested in my reply as I was in his intervention—and the area is descheduled after five years then it is essential, if that guarantee is to be implemented, that the firm which was established there must continue in the area for two further years, must continue to receive the premium.
  I am grateful for the interest hon. Members opposite have expressed in the need to have this flexibility which they desire, and I would hope that we could now come to a decision.
  Question put, That the words proposed to be left out stand part of the Bill: —
  The House divided: Ayes 180, Noes 117.

  Division No. 396.]

  AYES

  [10.35 p.m.

  Albu, Auslen

  Galpern, Sir Myer

  Milne, Edward (Blyth)

  Allaun, Frank (Salford, E.)

  Gardner, Tony

  Mitchell, R. C. (S'th'pton, Test)

  Alldritt, Walter

  Gordon Walker, Rt. Hn. P. C.

  Molloy, William

  Allen, Scholefield

  Gourlay, Harry

  Morgan, Elystan (Cardiganshire)

  Anderson, Donald

  Gregory, Arnold

  Morris, Alfred (Wythenshawe)

  Archer, Peter

  Grey, Charles (Durham)

  Murray, Albert

  Atkins, Ronald (Preston, N.)

  Griffiths, David (Rother Valley)

  Neal, Harold

  Atkinson, Norman O ottenfiam)

  Griffiths, Rt. Hn. James (Llanelly)

  Noel-Baker, Rt.Hn. Philip(Derhy,S.)

  Barnett, Joel

  Griffiths, Will (Exchange)

  Norwood, Christopher

  Baxter, William

  Hamilton, James (Bothwell)

  Ogden, Eric

  Beaney, Alan

  Hamling, William

  O'Malley, Brian

  Bence, Cyil

  Hannan, William

  Oswald, Thomas

  Bidwell, Sydney

  Harper, Joseph

  Owen, Dr. David (Plymouth, S'tn)

  Bishop, E. S.

  Harrison, Walter (Wakefield)

  Owen, Will (Morpeth)

  Blackburn F.

  Haseldine, Norman

  Padley, Walter

  Blenkinsop, Arthur

  HazeII, Bert

  Palmer, Arthur

  Boardman. H.

  Henig, Stanley

  Panned, Rt. Hn. Charles

  Booth, Albert

  Herbison, Rt. Hn. Margaret

  Park, Trevor

  Boston, Terence

  Hilton, W. S.

  Parker, John (Dagenham)

  Braddock, Mrs. E. M.

  Hooley, Frank

  Pavitt, Laurence

  Bray, Dr. Jeremy

  Horner, John

  Pentland, Norman

  Brooks, Edwin

  Houghton, Rt. Hn. Douglas

  Perry, Ernest G. (Battersea, S-)

  Brown, Hugh D. (G'gow, Provan)

  Howell, Denis (Small Heath)

  Price, Christopher (Perry Barr)

  Brown,Bob (N 'c'tle-upon-Tyne, W.)

  Howie, W.

  Price, Thomas (Westhoughton)

  Brown, R. W. (Shoreditch & F'bury)

  Huckfield, L.

  Price, William (Rugby)

  Butler, Herbert (Hackney, C.)

  Hughes, Roy (Newport)

  Probert, Arthur

  Butler, Mrs. Joyce (Wood Green)

  Hunter, Adam

  Reynolds, G. W.

  Callaghan, Rt. Hn. James

  Jackson, Colin (B'h'se & Spenb'gh)

  Rhodes, Geoffrey

  Cant, R. B.

  Jackson, Peter M. (High Peak)

  Robinson, W. O. J. (Walth'stow, E.)

  Carmichael, Neil

  Janner, Sir Barnett

  Rogers, George (Kensington, N.)

  Chapman, Donald

  Jeger,Mrs.Lena(H'b'n&St.P,cras,S.)

  Ryan, John

  Coe, Denis

  Johnson, James (K'ston-on-Hull, W.)

  Sheldon, Robert

  Coleman, Donald

  Jones, T. Alec (Rhondda, West)

  Silkin, Rt. Hn. John (Deptford)

  Conlan, Bernard

  Kelley, Richard

  Silkin, Hn. S. C. (Dulwich)

  Corbet, Mrs. Freda

  Kerr, Dr. David (W'worth, Central)

  Silverman, Julius (Aston)

  Dalyell, Tam

  Lawson, George

  Slater, Joseph

  Davidson, Arthur (Accrington)

  Leadbitter, Ted

  Spriggs, Leslie

  Davies, C. Elfed (Rhondda, E.)

  Ledger, Ron

  Stonehouse, John

  Davies, Ednyfed Hudson (Conway)

  Lee, John (Reading)

  Summerskill, Hn. Dr. Shirley

  Davies, Harold (Leek)

  Lestor, Miss Joan

  Swingler, Stephen

  Davies, Ifor (Cower)

  Lewis, Arthur (W. Ham, N.)

  Taverne, Dick

  de Freitas, Rt. Hn. Sir Geoffrey

  Lewis, Ron (Carlisle)

  Tinn, James

  Dempsey, James

  Lipton, Marcus

  Tomney, Frank

  Dewar, Donald

  Lomas, Kenneth

  Urwin, T. W.

  Diamond, Rt. Hn. John

  Loughlin, Charles

  Varley, Eric G.

  Doig, Peter

  Luard, Evan

  Wainwright, Edwin (Dearne Valley)

  Dunwoody, Mrs. Gwyneth (Exeter)

  McBride, Neil

  Walker, Harold (Doncaster)

  Dunwoody, Dr. John (F'th & C'b'e)

  McCann, John

  Watkins, David (Consett)

  Eadie, Alex

  MacDermot, Niall

  Watkins, Tudor (Brecon & Radnor)

  Edwards, Rt. Hn. Ness (Caerphilly)

  Macdonald, A. H.

  Weitzman, David

  Edwards, Robert (Bilston)

  Mackenzie, Gregor (Rutherglen)

  Wellbeloved, James

  Ellis, John

  Mackintosh, John P.

  Wel's, William (Walsall, N.)

  Evans, loan L. (Birm'h'm, Yardley)

  McMillan, Tom (Glasgow, C.)

  Whitlock, William

  Faulds, Andrew

  McNamara, J. Kevin

  Williams, Cifford (Abertillery)

  Fernybough, E.

  Mahon, Peter (Preston, S.)

  Winnick, David

  Fitch, Alan (Wigan)

  Manuel, Archie

  Winterbottom, R. E.

  Woodburn, Rt. Hn. A.

  Fletcher, Ted (Darlington)

  Mapp, Charles

  Yates, Victor

  Ford, Ben

  Mason, Roy

  Forrester, John

  Mayhew, Christopher

  TELLERS FOR THE AYES:

  Fowler, Gerry

  Mendelson, J. J.

  Mr. Charles R, Morris and

  Fraser, Rt. Hn. Tom (Hamilton)

  Mikardo, Ian

  Mr. Ernest Armstrong.

  NOES

  Alison, Michael (Barktton Ash)

  Burden, F. A.

  Dodds-Parker, Douglas

  Astor, John

  Chichester-Clark, R.

  Drayson, G. B.

  Baker, W. H. K.

  Clark, Henry

  Eden, Sir John

  Bessell, Peter

  Ciegg, Walter

  Eyre, Reginald

  Bitten, John

  Cooke, Robert

  Farr, John

  Black, Sir Cyril

  Corfield, F. V.

  Fletcher-Cooke, Charles

  Body, Richard

  Costtain, A. P.

  Gilmour, Sir John (Fife, E.)

  Boyd-Carpenter, Rt. Hn. John

  Crosthwaite-Eyre, Sir Oliver

  Glover, Sir Douglas

  Brinton, Sir Tatton

  Dalkeith, Earl of

  Goodhew, Victor

  Bryan, Paul

  Dance, James

  Grant, Anthony

  Buchanan-Smith, Alick(Angus,N&M)

  Davidson, Jarnes(Aberdecnshire,W.)

  Grant-Ferris, R.

  Buck, Antony (Colchester)

  Deedes, Rt. Hn. W. F. (Ashford)

  Grieve, Percy

  Bullus, Sir Erie

  Digby, Simon Wingfield

  Griffiths, Eldon (Bury St. Edmunds)

  Gurden, Harold

  Maclean, Sir Fitzroy

  Pym, Francis

  Hall, John (Wycombe)

  Macleod, Rt. Hn. Ian

  Quennell, Miss J. M.

  Harris, Frederic (Croydon, N.W.)

  Magirmis, John E.

  Ramsden, Rt. Hn. James

  Harris, Reader (Heston)

  Marten, Neil

  Renton, Rt. Hn. Sir David

  Harrison, Col. Sir Harwood (Eye)

  Maude, Angus

  Ridley, Hn. Nicholas

  Harvie Anderson, Miss

  Mawby, Ray

  Rossi, Hugh (Homsey)

  Heald, Rt. Hn. Sir Lionel

  Maxwell-Hyslop, R. J.

  Royle, Anthony

  Hesedtine, Michael

  Maydon, Lt.-Cmdr. S. L. C.

  Russell, Sir Ronald

  Higgins, Terence L.

  Mills, Peter (Torrington)

  Shaw, Michael (Sc'b'gh & Whitby)

  Hiley, Joseph

  Mills, Stratton (Belfast, N.)

  Smith, John

  Hirst, Geoffrey

  Mitchell, David (Basingstoke)

  Taylor, Edward M.(G'gow,Cathcart)

  Hogg, Rt. Hn. Quintin

  Monro, Hector

  Taylor, Frank (Moss Side)

  Holland, Philip

  Montgomery, Fergus

  Temple, John M,

  Hornby, Richard

  More, Jasper

  Thatcher, Mrs. Margaret

  Hutchison, Michael Clark

  Morgan, Geraint (Denbigh)

  Thorpe, Rt. Hn. Jeremy

  Iremonger, T. L.

  Morrison, Charles (Devizes)

  Turton, Rt. Hn. R. H.

  Jenkin, Patrick (Woodford)

  Mott-Radclyffe, Sir Charles

  van Straubenzee, W, R.

  Johnston, Russell (Inverness)

  Murton, Oscar

  Wainwright, Richard (Colne Valley)

  Jopling, Michael

  Nicholls, Sir Harmar

  Whitelaw, Rt. Hn. William

  Kimball, Marcus

  Noble, Rt. Hn. Michael

  Wilson, Geoffrey (Truro)

  King, Evelyn (Dorset, S.)

  Nott, John

  Winstarnley, Dr. M. P.

  Kirk, Peter

  Osborn, John (Hallam)

  Wright, Esmond

  Kitson, Timothy

  Page, Graham (Crosby)

  Wylie, N. R.

  Langford-Holt, Sir John

  Peel, John

  Younger, Hn. George

  Legge-Bourke, Sir Harry

  Pounder, Rafton

  Lewis, Kenneth (Rutland)

  Powell, Rt. Hn. J. Enoch

  TELLERS FOR THE NOES:

  MacArthur, Ian

  Prior, J. M. L.

  Mr. R. W. Elliott and

  Mr. Bernard Weatherill.

  Mr. Higgins: I beg to move Amendment N3. 24, in page 32, line 13, after 'section', to insert 'would'.
  Mr. Deputy Speaker (Sir Eric Fletcher): I think it will be convenient if with this Amendment we discuss Amendment No. 25, in line 18, after 'period', to insert:
  'being a period at least seven years from 4th September 1967',
  Amendment No. 26, in line 20, to leave out from 'specified' to the end of line 21 and to insert:
  'after the end of the said period'.
  and Amendment No. 27, in line 21, at the end to insert:
  Provided that while these payments continue similar payments are made on the same terms to new establishments within the same category of the principal Act, beginning operations in the area which has ceased to be part of the development area.
  Mr. Higgins: I agree, Mr. Deputy Speaker.
  I want to make it clear at the outset that in Committee when we considered this Clause we made it clear, both in our speeches and when we voted in the Division Lobby, that we were against the concept of the regional employment premium, and my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) said then that we would seek to amend it in some respects on Report.
  The Amendments fall into two parts, and I think that it is convenient to group Nos. 24 and 27 together, and then to consider Nos. 25 and 26 together. Fundamentally, we are concerned in the first two Amendments with a point which was touched on in the last debate. What we are seeking to do now is to clarify the Government's guarantees on the regional employment premium and despite the Chief Secretary's suggestions in the last debate, I do not think that this is in any way inconsistent with our attitude to the premium as a whole.
  We are against the regional employment premium, but if the Government are to give guarantees of its continuance for a set period, these should be written into the legislation, and after the debate which we have just had the House may feel that there is some cause for tying the Government down rather more closely than we have done hitherto to
  406
  exactly what their much vaunted guarantee entails, and we shall judge them both on the reply that we get to this debate, and on the way they vote in the Division Lobby.
  10.45 p.m.
  Amendment No. 24 is rather an elegant Amendment merely inserting the word "would" into line 13. The intention is more clearly spelt out in Amendment No. 27, which says that the arrangements should be carried out
  "Provided that while these payments continue similar payments are made on the same terms to new establishments within the same category of the principal Act, beginning operations in the area which has ceased to be part of the development area."
  The Government guarantee will continue to firms in a development area for a period of at least seven years. Let us suppose that part of that development area becomes descheduled after two years. Presumably, the firm in the descheduled part will have the remainder of that time to run; it will be guaranteed the regional employment premium for the remaining five years.
  But what is the position of a new firm which arrived in the descheduled part of the development area after it had been descheduled? Unless it gets the guarantee at least for the balance of the seven years which remain and receives the premium for those years—even though it moves to a location which is no longer part of the development area—it will be competing on very unfair terms with the firms which are already there.
  A firm which was there from the beginning of the seven-year period will receive the premium for the balance of the five years, but the new firm setting up next door to it will not receive the premium at all for those same five years. That is the point which we seek to cover in Amendments Nos. 24 and 27.
  The whole of the regional employment premium scheme, like S.E.T., is riddled with anomalies, but if we are to have two firms operating next door to each other for five or more years, with one receiving the Government hand-out and the other not receiving it, that is an utter economic absurdity. I hope that the Chief Secretary will make it clear whether that is the intention and, if so, what explanation the Government have for it.

  407
  Amendments Nos. 25 and 26 bring us back to the interesting point which the Chief Secretary made in the last debate. He rightly referred to paragraph 17 on page 7 of the White Paper, which reads:
  "The intention is that payments of this magnitude in respect of manufacturing employment in Development Areas should continue to be given until their purpose has been achieved—and in any case for not less than seven years in the existing Development Areas."
  The right hon. Gentleman made great play of the expression "of this magnitude" and suggested that the fact that the Government are proposing to vary this amount was not inconsistent. This is an odd semantic situation if we are to have any belief in the Government's so-called guarantee. What variation, are we to believe, around the magnitude does not alter the magnitude? Does a 5 per cent. variation around the magnitude alter the magnitude which has been guaranteed—or 10 per cent., 15 per cent., 50 per cent. or 100 per cent. variation around that magnitude?
  The Chief Secretary cannot play with words in that way and still expect that the Government's assurance or guarantee will convince any businessman who has the good fortune, in the circumstances, to read this evening's debate. We want to know what variation leaves the magnitude unchanged—
  Mr. Cant: If, because of this £100 million, the numbers of employed in the development areas grew, might not the Government have to reduce the premium to keep the total at that figure?
  Mr. Higgins: This raises an interesting point, and I hope that the right hon. Gentlemen will deal with it. Does the expression "payments of this magnitude" refer to the total £100 million or to the amount which individual firms receive? No firm will rely on the guarantee if it is to depend on the total amount spent on the premium and have nothing to do with what the firm will receive by conforming to a policy which the Government say will benefit the country.
  We deplore the present fall in investment, and this measure is not likely to fulfil the Government's intentions. As we have said, the effect of the premium will spill over into other regions, and I gave several reasons for that in Com-
  408
  mittee. Nothing in the Committee on the Prices and Incomes (No. 2) Bill has suggested that wage claims are not likely to mop up much of the premium.
  The hon. Member for Colne Valley (Mr. Richard Wainwright) asked earlier whether the proposal was self-financing. In the short term, it will not be. The Chief Secretary made it clear that only about half would be covered in monetary terms in the short run—
  Mr. Diamond: I am afraid that I have lost the hon. Gentleman. In talking about self-financing, is he discussing the first or second two Amendments?
  Mr. Higgins: The second two. We are concerned with a Government guarantee and it is not unreasonable to ask its cost.
  The hon. Member for Colne Valley suggested that the proposal would cost nothing, but would be self-financing, but clearly, in the first year, it will cost about £50 million in increased taxation or Government deficit, so can we have much belief in a guarantee which the Government say they will give those thinking of investing in development areas? The Government's proposal to vary the premium up or down is likely completely to invalidate what they say is a straightforward guarantee.
  The right hon. Gentleman said that the White Paper is not legislation, but if the guarantee means anything, why is it not in legislation? Of course, this Government's statements do not induce confidence in their promises, so even if it were, it might not be worth the paper it was printed on. It would be a good idea to have it in black and white so that we can see what this guarantee amounts to in this case.
  Far from giving a clear guarantee to an area such as that represented by my hon. Friend the Member for Belfast, East (Mr. McMaster), the Government have given a nominal guarantee, but could vary the premium or reduce it under these powers—or, perhaps, even eliminate it to the proverbial penny. This is not good enough and I hope that the right hon. Gentleman will make it clear that the Government are serious about this guarantee, so much so that they are prepared to write it into the Bill. That is the helpful spirit in which my hon. Friends and I approach this

  409
  matter, although we do not believe that the scheme will achieve the objectives of the Government because people will not have confidence in the sort of nebulous guarantees they are being given.
  Mr. Diamond: The hon. Member for Worthing (Mr. Higgins) questioned me about Northern Ireland. As the Government of Northern Ireland will be making these payments, any questions the hon. Gentleman has to ask about the position in the constituency of his hon. Friend the Member for Belfast, East (Mr. McMaster) should be addressed to the Northern Ireland Government.
  It is difficult for me to say much more on the general case. The hon. Gentleman went over the same ground as we debated on the last Amendment. I have tried to make it perfectly clear that the prime consideration is the intention stated in the White Paper. It follows from that that if a firm moves to one of these areas on the basis of that intention, and if the area fortunately becomes descheduled—this is in the context of the area, or part of the area in which the firm has been established for five years, becoming descheduled within that time —then that will mean that the policy has proved successful and the prosperity of the area has improved.
  Nevertheless, a guarantee has been given, on the basis of which certain capital expenditure and early losses may have been made as a result of the firm moving to the area. It is only right, in these circumstances, that the guaranteed payments should continue to be made. This being so, the hon. Member for Worthing goes on to ask whether this creates an inconsistency for a new firm going to the area. Any new firm going to an area which is other than a development area does not get development area treatment; the range of benefis under this treatment, including special grants and allowances. If a firm moves into an area which is not a development area, it does not get these benefits, and that is an end to the matter.
  The hon. Member for Worthing complains that such a new firm might be only a few miles from another firm which is getting these benefits. That is always the case as between firms inside and outside development areas. If the hor. Gentleman wants us to give a clear, firm and sufficient guarantee on
  410
  which a board of directors can rely in making this move, it must follow that, under that guarantee, the payments should continue to be made, even though there may be no economic need for them should that firm find itself in an area which has become descheduled.
  This does not create an anomaly. It recognises the fact that the benefit, in terms of the premium, is being paid to that firm for the expenditure it incurred in difficult times. If a new firm comes in later, after the area has become de-scheduled, the difficulties will have gone, general prosperity in the area will be broadly equal with non-development areas and, in this situation, I do not see how an anomaly arises. We are giving the undertaking for which the hon. Gentleman is asking.
  11.0 p.m.
  That, I think, deals with Amendments Nos. 24 and 27. So far as the other two are concerned, the powers which the Government ask are necessary for a variety of reasons; for example, for the "tapering" which the hon. Gentleman mentions and if he has to have the premiums which are relevant to all the purposes I have already mentioned in the previous debate. These are permissive powers which cannot be put into operation without the support of the House.
  Mr. John Hall: The right hon. Gentleman has not answered the point about the phrase "of this magnitude". What is meant by it? If, for the sake of argument, I have a factory which I want to locate in some area and I am influenced by the thought of getting this payment, then can I look forward to a guaranteed period of seven years at a figure very near to those now in the Act, or am I likely to have that figure reduced considerably over that seven years?
  Mr. Diamond: I do not think the hon. Member was in the Chamber during our previous discussion, or he would have known that that point was gone over very fully. The statement in the White Paper is such as would satisfy any reasonable board of directors who, sitting round the table for the express purpose of considering the setting up of a factory in a development area, or moving from one development area to another, in that they would know this was one of many

  411
  elements to be taken into consideration. They would know that this was one consideration they would have to give to the removal, and this element would fit into the scheme and could be sufficiently relied upon for them to take their decision. That does not mean that they would have a guarantee for all time for a substantial sum.
  The hon. Gentleman knows very well that no firm can expect that in relation to many ordinary activities. It could not expect it in wage costs, transport costs, availability of labour; in its raw materials cost, especially in material from abroad, and no firm seriously considering this—which, if I may say so, I do not think the hon. Member is doing—takes all these fluctuating factors into account.
  In that context, the purpose of the White Paper is to make it absolutely clear that a firm, on moving could rely on the Government's attitude for the seven years, notwithstanding that it is "descheduled", as provided for in this Clause.
  Mr. John Hall: The right hon. Gentleman is not being frank. When a board of directors is considering all the facts it also considers the costs incurred over a period of time and, by and large, it will be able to say fairly accurately what these considerations are likely to be. Directors can take it on trust that the Government will not move the figures by any method or amount sufficient to influence their decision not to go into an area. Is that what the right hon. Gentleman is saying? Surely the Government can give a better guide as to limits on movements over seven years. Or could a firm go into a development area and then, within three or four years, if that place ceases to be a scheduled development area, find that the amount is reduced to practically nothing?
  Mr. Diamond: With permission, I recognise that this is an interesting point, and I am grateful for it, because the Government naturally want the business community to be satisfied. If I were speaking as a director in a board room I would not find this difficult at all, but the hon. Gentleman is not speaking as a director. If he were considering the elements I have indicated, and recognising the fact that one cannot control any one of them to these very fine limits, and
  412
  recognising that they are all moving, he would know that the Government's statement of the intention to continue payment of this magnitude is a much firmer guarantee than directors would get on any other element in their costs over seven years.
  No supplier will give a guarantee price over seven years, no supplier of power will give a guaranteed price for power over seven years—nothing is guaranteed over seven years. But the Government say that payments of this magnitude will continue, and for seven years, and will then taper off. They will not stop at a moment's notice. And if the policy proves successful in the particular area and it is descheduled, these payments will notwithstanding continue. I assure the hon. Gentleman that such a statement is more than satisfying to any reasonably enterprising business man who wants to make a success of his business.
  Mr. Geoffrey Hirst: I have followed the discussion very closely, and I think that there is justice in the point that has been made, but the Chief Secretary is not making very clear the reference to magnitude. I have had some connection with business, and I appreciate that there are a lot of other considerations which one cannot expect to be guaranteed—that is fair comment—but in the period of years concerned one is in no doubt that, basically, electricity charges, for instance, will not go up by 200 per cent. or 100 per cent. There will be some movement, which may be roughly estimated from past movement. It may be 5 per cent. or something like that, but within reasonable limits one will know what that movement will be, and so will all one's competitors in all parts of the country. It is not a factor that would be considered to be any different from that affecting anyone else. The charge would have to be paid in any other part of the country whether it was a development area or not.
  But this provision is within the caprice of the Government. The words in the White Paper about the payment continuing to be paid really mean nothing at all, and they are unusual words to be used in a Parliamentary paper of any sort. I should have thought that they meant that the payment would continue in very close proximity to the amount stated at the beginning. We know that

  413
  White Papers are not legislation. They may state an intention but I have been in this House for a number of years, and I am sorry to say that I find neither White Papers nor Ministerial statements of any real value in the last analysis. What we want is an interpretation of the law.
  In this case, we want to give guidance to the Government to carry out their promises, but we want some clarification. If the Chief Secretary really means that the words "of this magnitude" imply that there would be no more than a modest adjustment of the amount at the beginning we are getting to some place, but otherwise assurances as to magnitude cease to have any meaning. It may well be half. It is not a consideration that any board or directors would think about.
  The right hon. Gentleman inferred that my hon. Friend the Member for Wycombe (Mr. John Hall), who has great experience, is not speaking as a director, but I should be extremely unhappy if he said the same of me. I would take offence, because I speak very much as a director and I say that such assurances as this get no credence. Directors want to know what "of this magnitude" means, and the right hon. Gentleman owes it to the House to be more clear.
  Mr. Costain: The Chief Secretary said that no firm would get a guarantee for seven years, but it is quite simple to get a rent guarantee for seven years.
  Question put, That "would" be there inserted in the Bill:—
  The House divided: Ayes 113, Noes 167.

  Division No. 397.]

  AYES

  [11.10 p.m.

  Alison, Michael (Barkston Ash)

  Hall, John (Wycombe)

  Murton, Oscar

  Astor, John

  Harris, Reader (Heston)

  Nicholls, Sir Harmar

  Baker, W, H. K.

  Harrison, Col. Sir Harwood (Eye)

  Noble, Rt, Hn. Michael

  Bessell, Peter

  Harvie Anderson, Miss

  Nott, John

  Bilffen, John

  Heald, Rt. Hn. Sir Lionel

  Osbom, John (Hallam)

  Black, Sir Cyril

  HesDitinc, Michael

  Page, Graham (Crosby)

  Body. Richard

  Higgins, Terence L.

  Peel, John

  Boyd-Carpenter, Rt. Hn. John

  Hiley, Joseph

  pounder, Rafton

  Brinton, Sir Tatton

  Hirst, Geoffrey

  Powell, Rt. Hn. J. Enoch

  Bryan, Paul

  Hogg, Rt. Hn. Quintin

  Price, David (Eastleigh)

  Buchanan-Smith, Alick(Angus, N&M)

  Holland, Philip

  Prior, J. M, L.

  Buck, Antony (Colchester)

  Hornby, Richard

  Pym, Francis

  Burden, F. A.

  Hutchison, Michael Clark

  Ramsden, Rt. Hn. James

  Chichester-Clark, R.

  Iremonger, T. L.

  Renton, Rt. Hn. Sir David

  Clark, Henry

  Jenkin, Patrick (Woodford)

  Ridley, Hn. Nicholas

  Clegg, Walter

  Johnston, Russell (Inverness)

  Rossi, Hugh (Hornsey)

  Cooke, Robert

  Jopling, Michael

  Royle Anthony

  Corfield, F. V.

  Kimball, Marcus

  Russell, Sir Ronald

  Costain, A. P.

  King, Evelyn (Dorset, S.)

  Shaw, Michael (Sc'b'gh & Whitby)

  Crosthwaite-Eyre, Sir Oliver

  Kirk, Peter

  Smith, John

  Dalkeith, Earl of

  Kitson, Timothy

  Steel, David (Roxburgh)

  Dance, James

  Langford-Holt, Sir John

  Taylor, EdwardM.(G'gow, Cathcart)

  Davidson, James(Aberdeenshire, W.)

  Legge-Bourke, Sir Harry

  Taylor, Frank (Moss Side)

  Deedes, Rt. Hn. w. F. (Ashford)

  Lubbock, Eric

  Temple, John M.

  Dodds-Parker, Douglas

  MacArthur, Ian

  Thatcher, Mrs. Margaret

  Drayson, G. B.

  Macleod, Rt. Hn. Iain

  Thorpe, Rt. Hn. Jeremy

  Eden, Sir John

  Maginnis, John E.

  Turton, Rt. Hn. R. H.

  Elliott,R.W.(N'c'tle-upon.Tyne,N.)

  Marten, Neil

  van Straubenzee, W. R.

  Eyre, Reginald

  Maude, Angus

  Wainwright, Richard (Colne Valley)

  Farr, John

  Mawby, Ray

  Whitelaw, Rt. Hn. William

  Fletcher-Cooke, Charles

  Maxwell-Hystop, R. J.

  Wilson, Geoffrey (Truro)

  Cilmour, Sir John (Fife, E.)

  Maydon, Lt.-Cmdr. S. L. C.

  Winstanley, Dr. M. P.

  Glover, Sir Douglas

  Milts, Peter (Torrington)

  Wright, Esmond

  Goodhew, Victor

  Mills, Stratton (Belfast, N.)

  Wylie, N. R.

  Grant, Anthony

  Mitchell, David (Basingstoke)

  Younger Hn. George

  Grant-Ferris, R.

  Monro, Hector

  Grieve, Percy

  Montgomery, Fergus

  TELLERS FOR THE AYES:

  Griffiths, Eldon (Bury St. Edmunds)

  Morgan, Geraint (Denblgh)

  Mr. Jasper More and

  Gurden, Harold

  Morrison, Charles (Devizes)

  Mr. Bernard Weatherill.

  NOES

  Albu, Austen

  Barnett, Joel

  Booth, Albert

  Allaun, Frank (Salford, E.)

  Baxter, William

  Boston, Terence

  Alldritt, Walter

  Beaney, Alan

  Braddock, Mrs. E. M.

  Allen, Scholefield

  Bence, Cyril

  Bray, Dr. Jeremy

  Anderson, Donald

  Bidwell, Sydney

  Brooks, Edwin

  Archer, Peter

  Bishop, E. S.

  Brown, Hugh D. (C'gow, Provan)

  Armstrong, Ernest

  Blackburn, F.

  Brown,Bob(N 'c'tle-upon-Tyne, W.)

  Atkins, Ronald (Preston, N.)

  Blenkinsop, Arthur

  Brown, R. W. (Shorditch & F'bury)

  Atkinson, Norman (Tottenham)

  Boardman, H.

  Butler, Mrs. Joyce (Wood Green)

  Cant, R. B.

  Howie, W.

  Oswald, Thomas

  Carmichael, Neil

  Huckfield, L.

  Owen, Dr. David (Plymouth, S'tn)

  Chapman, Donald

  Hughes, Roy (Newport)

  Owen, Will (Morpeth)

  Coe, Denis

  Hunter, Adam

  Padley, Walter

  Coleman, Donald

  Jackson, Colin (B'h'se & Spenb'gh)

  Palmer, Arthur

  Conlan, Bernard

  Jackson, Peter M. (High Peak)

  Pannell, Rt. Hn. Charles

  Dalyell, Tam

  Janner, Sir Barnett

  Park, Trevor

  Davidson, Arthur (Accrington)

  Jeger,Mrs.Lena(H'b'n&St.P'cras,S.)

  Pavitt, Laurence

  Davies, G. Elfed (Rhondda, E.)

  Johnson, James (K'stOn-on-Hull, W.)

  Pentland, Norman

  Davies, Ednyfed Hudson (Conway)

  Jones, T. Alec (Rhondda, West)

  Perry, Ernest G. (Battersea, S.)

  Davies, Harold (Leek)

  Kelley, Richard

  Price, Christopher (Perry Barr)

  Davies, Ifor (Cower)

  Kerr, Dr. David (W'worth, Central)

  Price, William (Rugby)

  de Freitas, Rt. Hn. Sir Geoffrey

  Lawson, George

  Probert, Arthur

  Dempsey, James

  Leadbitter, Ted

  Reynolds, G. W.

  Dewar, Donald

  Lee, John (Reading)

  Rhodes, Geoffrey

  Diamond, Rt. Hn. John

  Lestor, Miss Joan

  Robinson, W. O. J. (Walth'stow, E.)

  Doig, Peter

  Lewis, Ron (Carlisle)

  Rogers, George (Kenington, N.)

  Dunwoody, Mrs. Cwyneth (Exeter)

  Lipton, Marcus

  Rowland, Christopher (Meriden)

  Dunwoody, Dr. John (F'th & C'b'e)

  Lomas, Kenneth

  Ryan, John

  Ellis, John

  Loughlin, Charles

  Sheldon, Robert

  Faulds, Andrew

  Luard, Evan

  Silkin, Rt. Hn. John (Deptford)

  Fernyhough, E.

  McBride, Neil

  Silkin, Hn. S. C. (Dulwich)

  Fletcher, Ted (Darlington)

  McCann, John

  Silverman, Julius (Aston)

  Ford, Ben

  MacDermot, Niall

  Slater, Joseph

  Forrester, John

  Macdonald, A. H.

  Spriggs, Leslie

  Fowler, Gerry

  Mackenzie, Gregor (Rutherglen)

  Summerskill, Hn. Dr. Shirley

  Fraser, Rt. Hn. Tom (Hamilton)

  Mackintosh, John P.

  Swingler, Stephen

  Galpern, Sir Myer

  McMillan, Tom (Glasgow, C.)

  Taverne, Dick

  Gardner, Tony

  McNamara, J. Kevin

  Tinn, James

  Gordon Walker, Rt. Hn. P. C.

  Mahon, Peter (Preston, S.)

  Urwin, T. W.

  Gourlay, Harry

  Manuel, Archie

  Varley, Eric G.

  Gregory, Arnold

  Mapp, Charles

  Wainwright, Edwin (Dearne Valley)

  Grey, Charles (Durham)

  Mason, Roy

  Walker, Harold (Doncaster)

  Griffiths, David (Rother Valley)

  Mayhew, Christopher

  Watkins, David (Consett)

  Griffiths, Will (Exchange)

  Mendelson, J. J.

  Watkins, Tudor (Brecon & Radnor)

  Hamilton, James (Bothwell)

  Mikardo, Ian

  Weitzman, David

  Hannan, William

  Milne, Edward (Blyth)

  Wellbeloved, James

  Harper, Joseph

  Mitchell, R. C. (S'th'pton, Test)

  Wells, William (Walsall, N.)

  Harrison, Walter (Wakefield)

  Molloy, William

  Whitlock, William

  Haseldine, Norman

  Morgan, Elystan (Cardiganshire)

  Williams, Clifford (Abertillery)

  Hazell, Bert

  Morris, Alfred (Wythenshawe)

  Winnick, David

  Henig, Stanley

  Morris, Charles R. (Openshaw)

  Winterbottom, R. E.

  Herbison, Rt. Hn. Margaret

  Murray, Albert

  Woodburn, Rt. Hn. A.

  Hilton, W. S.

  Neat, Harold

  Yates, Victor

  Hooley, Frank

  Noel-Baker, Rt.Hn.Philip(Derby,S.)

  Horner, John

  Norwood, Christopher

  TELLERS FOR THE NOES:

  Houghton. Rt. Hn. Douglas

  Ogden, Eric

  Mr. Alan Fitch and

  Howell, Denis (Small Heath)

  O'Malley, Brian

  Mr. Ioan L. Evans.

  Mr. Iain Macloed: I beg to move. That further consideration of the Bill, as amended, be now adjourned.
  I think the end of our discussions and voting upon R.E.P. is the natural break, and I would be confident that we could complete the Report stage of the Bill in the half day that is allotted tomorrow, so I hope the Chief Secretary will agree to the Motion.
  Mr. Diamond: I am grateful for what the right hon. Gentleman has said about
  416
  tomorrow, and I certainly give full agreement to the Motion.
  Question put and agreed to.
  Bill, as amended, to be further considered Tomorrow.

  ADJOURNMENT
  Resolved,
  That this House do now adjourn.—[Mr. Filch.]
  Adjourned accordingly at nineteen minutes past Eleven o'clock.