HC Deb 27 June 1967 vol 749 cc359-79
Mr. R. Chichester-Clark (Londonderry)

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 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 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 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 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 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 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 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 (Folkestone and Hythe)

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 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.

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 (Renfrew, East)

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. 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. 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.

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 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.

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 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 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.

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)