SCOTLAND (SELECTIVE EMPLOYMENT TAX)

HC Deb 15 July 1968 vol 768 cc1117-76

7.19 p.m.

Mr. Ian MacArthur (Perth and East Perthshire)

I beg to move, That this House deplores the effects of the Selective Employment Tax on industry and employment in Scotland. The House will know that it is frequently claimed in Scotland that fiscal policies which may be appropriate to the economy of England run contrary to the economic needs of Scotland. The Government must be aware of this feeling and one can on occasion, but only on occasion, detect a ritualistic obeisance to it in the stream of emergency statements which have sprung from their mishandling of the economy. I recall, for example, the promise that the development areas would be sheltered from the effect of some of their wilder proposals, but this, as so much else, turned out to be little more than mere words in the double-talk of the last few years. The Selective Employment Tax is the supreme example of the application to Scotland of irrelevant and harmful taxation. As a national tax, it is foolish enough; as a Scottish tax, it is sheer lunacy.

The House will recall that, by introducing the tax in May, 1966, the Government flew in the face of their own White Paper on the Scottish economy published only four months earlier—a significant four months, because a General Election intervened. Since the tax was introduced, there has been a growing tide of opposition to it in Scotland, where we depend so heavily on the service industries. This opposition has been brushed aside by the Government with an insensitivity illustrated by the Secretary of State's rebuke that the Highlands were "whining" in their opposition to the tax. To other objections, they replied that the tax was flexible and could be refined to assist the development areas.

We had an example of this so-called refinement in this year's Finance Bill, which brought Scottish hotel keepers marching in anger on Whitehall. The present Chancellor confessed: … it is not a wholly popular tax."— [OFFICIAL REPORT, 19th March, 1968; Vol. 761, c. 284.] That is the under-statement of the year. However, I am glad that he agrees that the tax is unpopular. New taxation is particularly unpopular when imposed by a Government which took office on the promise of no general increase in taxation and then proceeded to increase taxation by over £2,000 million.

The Government have argued that the tax is a success, so they have put up the main rates by 50 per cent. from this autumn. That is a case of a vaulting taxation o'er-leaping itself in advance of the Reddaway inquiry into its effect. No doubt the Government will point today to the £50 million which Scotland will receive in a full year by way of the Selective Employment payments to manufacturers and the Regional Employment Premium, a figure which the hon. Member for Aberdeen, South (Mr. Dewar) obtained in a Written Answer the other day, but this gifthorse has a strikingly ugly mouth.

First, I do not accept that this is a wisely calculated means of assisting manufacturing industry. A sum of £50 million could be invested more constructively than in the present form of a wages subsidy. Second, there is nothing in the premium system to encourage the economic deployment of labour in manufacturing industry. Third, the premium structure has increased the relative disadvantage of the service industries—a discrimination which will be sharpened when the Selective Employment Tax rates go up in September, at a cost to the Scottish service industries of £45 million in a full year.

These figures conceal the geographical impact of the tax. While the manufacturing subsidy goes primarily to the industrial central belt, the tax falls heavily on the rural and semi-rural areas which have long suffered from loss of population to the central belt and which form the bulk of Scotland's land mass. Indeed, the further one goes from the centre, the more one witnesses the impact of the tax on the local economy.

The Highlands, for instance, have little manufacturing industry. Only one in 10 of the working population is employed in manufacturing. The Government claim that they cannot calculate the annual cost of the tax in the Highlands, but they have not yet challenged my estimate of £2 million or more, a figure which will increase from next September and which has exceeded by far the capital put into the area by the Highlands and Islands Development Board during its two years of existence.

Agriculture also carries a heavy burden. The tax is repaid at the end of each quarter, but by the end of each of these periods, at the new rates, the industry will have made a tax-free enforced loan to the Government of over £1 million—and this at a time when cash in agriculture is short and credit hard to come by.

I now turn to the impact of the tax on the tourist industry. In its last annual report, the Scottish Tourist Board called attention to the hardship which the tax had brought to the tourist industry, a very important growth industry in Scotland. It pointed out that the tax had forced many hoteliers to dispense with staff whom they would normally have retained during the winter months and that the tax served to aggravate the serious staffing difficulties which had faced the industry for a long time. It added: The effect which this tax is having on such an important servicing industry requires immediate reconsideration. Of course, the Government did reconsider the effect of the tax at long last, just as we on this side had urged them to do from the day of its introduction. This led, in this year's Budget, to what the President of the Board of Trade, opening the second day's debate, called a "concession", whereby hotels in certain rural areas would get their Selective Employment Tax refunded.

During his speech, I rose six times to ask him what this concession would amount to in Scotland, but I had no reply. In the debate, I said that we would feel that the Government had cheated if the net result was that the Scottish tourist industry had to pay more in Selective Employment Tax than it had in the past.

This reconsideration led to the notorious Schedule 17 of the Finance Bill, whereby hotels on one side of a seemingly arbitrary line would get the rebate and those on the other side would not. The outcry against these anomalies was such that the Government refrained the Schedule and included large areas which had been previously excluded. But, because of the relentless crash of the guillotine on our debates on the Finance Bill, the Schedule was not debated, either in its original form or in its more recent amended form.

On Third Reading, my hon. Friend the Member for Bute and North Ayrshire (Sir F. Maclean) called attention to the grotesque anomalies still remaining in the Bill and pointed out the hardship and anomalies which would arise in his own constituency, but there was no attempt to answer the important questions he raised.

Of course, this change will help hotels in many rural areas and I welcome that, because it will pay them back a tax which should not have been levied on them in the first place, but the concession is less attractive than it appears. What I feared has come about. Despite the revision of Schedule 17, from this Autumn the Scottish tourist industry will be paying out £150,000 a year more in S.E.T. than before the so-called concession. The increase in the tax will take £750,000. The repayments arising from the original Schedule amount to about £300,000, and those from the revisions to the Schedule to a further £300,000, making £600,000 in all. This information has been given in various written Answers recently.

It will not be surprising if the industry feels cheated when it discovers that the effect of this much-heralded concession is to increase its S.E.T. bill by £150,000. Further, the catering industry is to get no rebate and will suffer the full impact of the increased tax.

The House will know that the Selective Employment Tax has produced a long string of anomalies. I will give just two. First, a horticulturist has pointed out that his flower-growing concern in Scotland entitles him to a straight repayment of the tax, but if he was to switch to the manufacture of artificial flowers he would gain the premium in addition. Secondly, a large computer data processing centre in Dundee has to pay Selective Employment Tax for its computer processing staff. That is its reward for helping the efficiency of commence and industry in the technological revolution about which the Prime Minister used to speak so much.

Apart from the many anomalies, the very nature of the tax is grossly unfair. The laundry and dry cleaning industry is particularly hard hit, and the new rate will represent between 4½ and 6 per cent. of turnover. This industry cannot absorb it all. Yet housewives are particularly sensitive to prices in this market. Perhaps the Government now regard the laundry and dry cleaning industry as a dispensable luxury. If so, that is in marked contrast with the Government's attitude towards the industry during the war when it was regarded as essential, and work in it was classified as a reserved occupation.

The Parliamentary Secretary to the Board of Trade, in a letter to me dated 11th July, said: We recognise that for some firms, including those within the laundry and dry cleaning industries, it has caused difficult problems of adjustment. It certainly caused a difficult problem of adjustment for one laundry firm in my constituency. The firm had to close down, making 140 workers redundant. The tax certainly had some part to play in the decision to close. It is often the last straw in the small firm's fight to survive. I know of two shops in my constituency which were forced to close by the tax. The Glasgow Herald of 11th July contained the following notice on the public notice page: Barnet & Son. Notice of removal. Owing to tremendously increased rentals, assessments, and selective employment tax, which would have compelled us to considerably increase the prices of our goods, we have decided to vacate our present premises…. It states that it is moving to another area and cutting down the scope of the business, one reason being Selective Employment Tax. This again illustrates the hardship that the tax has brought to the distributive trades—a fact which gives cause for Co-operative Members to remember whether they are Labour Members or Co-operative Members when it comes to Divisions.

The original purpose of the tax was clearly stated by the then Chancellor of the Exchequer in his Budget speech on 3rd May, 1966. The first aim was to raise revenue. The second aim—and it commands more space in the Budget speech —was that the tax should encourage the redeployment of labour. The right hon. Gentleman said: If manpower can be saved in the service industries … extra labour might well become available for manufacturing, giving it greater scope for growth. It would be helpful to have a tax system which recognised this. There are several similar references. The summing up of the purpose of the tax is, … first, as a means of raising revenue, and also as an incentive for labour economies and manpower redeployment."—[OFFICIAL REPORT, 3rd May, 1966; Vol. 727, c. 1454–6.] We on this side of the House have tried to find out what effect the tax has had in shifting people in Scotland from the service industries to the manufacturing industries, but always without success. I hope that the Government will tell us tonight that if the tax has failed to move people from service industries to manufacturing industries in Scotland it has failed in one of its two original purposes, and that is a further argument for removing the tax altogether.

On the other hand, if the Government can show tonight that the tax has influenced a movement out of the service industries in Scotland, they will simply underline the contradiction between what they say about the pattern of employment in Scotland and what they do about the pattern of employment in Scotland. Indeed the Parliamentary Secretary to the Board of Trade, in the letter to which I referred, admits that the tax is discriminating. The letter goes on: Nevertheless, the Government is convinced that it was necessary to discriminate between the service trades and the manufacturing sector of industry in the operation of S.E.T. and investment grants so as to give the maximum help to the production industries upon which the nation depends for some two-thirds of its total overseas earnings. The hon. Lady might try that on the insurance industry in Perth which makes a large contribution to our balance of payments and yet pays Selective Employment Tax in full. At least the Minister's letter was a frank admission of discrimination. It demonstrates again the Government's curious and economically harmful belief that it is more deserving to make than to sell.

This penalising of the service industries and the original attempt to force people out of them is totally contrary to the Government's declared policy for Scotland. In January, 1966, the Scottish Plan was produced. The tone of the plan was set out in paragraph 1 which stated that 130,000 new jobs would need to be created by 1970. The Report stated: Of these, some 50,000 might be in manufacturing industry, 20,000 in the construction industry and 60,000 in the service industries. So the major growth envisaged by the Government in 1966 was that 80,000 of the 130,000 new jobs to be created, or about two-thirds, were to be in the sector of the economy which the Government penalised and discouraged just four months later.

But the contradiction does not end here. Throughout the White Paper there are constant references not only to the importance of the service industries in Scotland, but to their rôle as generators of growth. I want to read some of the Secretary of State's words back to him. Paragraph 124 states: The service industries, therefore, have a major rôle to play in the build-up of modern manufacturing industry and in the reduction of emigration from Scotland. Paragraph 125 states: Certain of the service industries can also make a direct contribution to the development of the Scottish economy since they are themselves generators of economic growth. In discussing office employment, paragraph 129 of the Report states: It is important for Scotland to share fully in the development of this type of employment if a balanced modern economy is to be built up. Yet all of these are the sectors penalised and taxed a few months later, now to be taxed at a rate increased by 50 per cent. We have challenged the Government over and over again on this point. We have reminded them that this White Paper was based on the National Plan, long since discredited and discarded, but the Secretary of State insists that he and the Government adhere to the Plan for Scotland. If that is so, let the right hon. Gentleman consider that the argument in support of the service industries could not be more clearly put than in his own document. The right hon. Gentleman might look again at paragraph 138 to see the dependence of manufacturing industries on the service sector: … certain of the service industry activities contribute significantly to the satisfactory working of the manufacturing sectors and can help to improve productivity there. If the Government adhere to this Plan, as they say they do, they should read carefully paragraph 143 which states— and I quote it in full: The Government is conscious of the role which the service industries have to play in the expansion of the Scottish economy. In addition to the contribution which certain of them make directly to economic growth, they help provide the basic prerequisites for industry as well as providing the facilities and opportunities which go with a rising standard of living. They also play an important part in influencing both the capacity to restrain migration and the ability to attract new industry. The argument against the Selective Employment Tax could not be better put. Those were the Government's own words in January, 1966. Let them now act on them by relieving Scotland altogether of this wretched and damaging tax.

7.41 p.m.

The Minister of State, Treasury (Mr. Dick Taverne)

I should, perhaps, first explain to the House why I am taking part in this debate, which is specifically concerned with Scottish affairs. The effect of the Selective Employment Tax on Scotland cannot, of course, be judged apart from the general question of the S.E.T. Indeed, the hon. Member for Perth and East Perthshire (Mr. MacArthur) referred to what he called the general demerits of this tax. Since it is the Treasury which is concerned with the tax as a whole, I am intervening in the debate.

I want to start by looking at the S.E.T. in general. I shall then say something about its application in Scotland and my hon. Friend the Minister of State, Scottish Office will deal with further specific points which, no doubt, will be raised by hon. Members in the debate.

The hon. Member for Perth and East Perthshire said that my right hon. Friend the Chancellor had admitted in his Budget speech that this was a tax which was not wholly popular. That is true, but it is nothing new against any particular tax. When Income Tax was first imposed, it was wholly denounced. When Purchase Tax was first imposed, it was strongly denounced. The same has happened with the imposition of this new form of tax.

There has throughout been a blanket condemnation by hon. Members opposite in particular without any attempt to examine the effect which the tax has on the economy or to see it as part of the tax structure as a whole. It is, therefore, important to look at the aims of the tax, to which the hon. Member referred in part, and to see how far they are being achieved.

The first aim of this tax is to raise revenue. If one is faced with a situation, as my right hon. Friend the Chancellor was faced in the last Budget, of increasing revenue, it must come from either direct or indirect taxation. For years, hon. Members opposite have complained that the basis for indirect taxation was too narrow. If, however, one looks at the base for taxation on goods, one finds that there is little scope for broadening the base because the only goods, in effect, which have been exempted from Purchase Tax and which are exempt at the moment are food, domestic fuel and children's clothes. If one is looking for broadening the base of indirect taxation in terms of imposing it on goods, if one rejects the S.E.T., one must pursue a course of taxing a particular sector where the tax would be economically harmful and particularly unjust.

There are two areas which are largely free from tax: services and construction. It is on these that the S.E.T. falls. Therefore, the second aim of the S.E.T., to which the hon. Member did not refer, is to broaden the base of taxation by redressing the imbalance between goods and services.

The hon. Member stated, as many hon. Members have done, that to select services or particular services for the S.E.T. was somehow to select them as being unworthy. There is nothing about the particular areas of services which bear the tax which has been selected as being somehow unworthy. The tax is not a judgment about merits. It implies an objective standard. It does not regard laundries as a luxury. It does not regard the hotel trade in some way as unworthy. It is simply that this tax broadens the base of taxation. Just as Purchase Tax falls on a large number of items which are not in any sense unworthy, so the S.E.T. falls or services without in any sense condemning the services involved.

The third aim of the S.E.T. was, as the hon. Member stated, to encourage economy in the use of labour in the services sector and, in the long term, to make more labour available for expansion in manufacturing industry. Looking at the overall position, there can be no doubt whatever about the need to do this. In the six years before the S.E.T. was imposed, the total labour force expanded by about 1¼ million, yet out of that figure just over 10 per cent. went into the manufacturing sector and over 80 per cent. went into services of all kinds.

Mr. John Brewis (Galloway)

Is the hon. and learned Gentleman relating his remarks in any way to Scotland? I believe that the Scottish figures are quite contrary to what he is saying.

Mr. Taverne

The Scottish figures have shown an even greater growth in the distributive trades and service sectors than the English figures. First, I am approaching the position in general. Then, I shall relate the position to Scotland.

Therefore, one has the position that the vast bulk of the increased labour force —over 80 per cent.—went to services and just over 10 per cent. to manufacturing industry, yet overall manufacturing industry had shown the shortage of labour which had caused the overheating, which had caused the restraint in growth and which had limited the potential for the expansion of our visible exports.

The hon. Member for Perth and East Perthshire said briefly in passing that what one wanted to see was something in the nature of a payroll tax applying to all forms of employment. A flat payroll tax which was not selective would, however, have exactly the same effect as an all-round wage increase. It would mean, in effect, that the increase in costs would be equally great over the whole of industry. On the best estimates that we can find, if the whole burden were spread evenly over all and had the effect of an equivalent wage increase, which it would have, the effect might well be to affect for the worse our balance of payments by £350 million a year in lost exports or higher imports.

Judged against the aims of the S.E.T., it is important to see how this has worked out. Again, I start with the general effect. The S.E.T. will raise £500 million a year if one excludes the regional employment premium. It provides something like 5 per cent. of the total yield from all taxes, although it still provides only half of what is provided by Purchase Tax and only 10 per cent. of what is provided by indirect taxes as a whole. If there were no S.E.T., the corresponding burden on other sectors would be correspondingly heavier.

Mr. Terence L. Higgins (Worthing)

If the hon. and learned Gentleman is quoting the overall figures, can he at least quote the Scottish figures in brackets?

Mr. Taverne

I shall come to the Scottish figures when I deal with the effect on Scotland.

The hon. Member for Perth and East Perthshire referred to the general effect of the S.E.T., and it is extremely important first to see the general figures for the whole of Great Britain, including Scotland. The further merits of the S.E.T. are that this is a method of raising revenue which is very cheap, much the cheapest of any form of collection of tax. It has much less impact on the cost of living than Purchase Tax or Customs and Excise duties.

Sir Fitzroy Maclean (Bute and North Ayrshire) rose—

Mr. Taverne

I prefer not to give way. I do not want to take much time. There is limited time for the debate, and it is important that as many hon. Members as possible should have a chance to speak.

As to redressing the imbalance, services are still much more lightly taxed than goods because, while Purchase Tax ranges from 12½ per cent. to 50 per cent. and duties are even higher, the burden which S.E.T. imposes is something like 5 or 6 per cent. of the total expenditure on services.

In considering the changes in employment trends, there is no doubt that since the S.E.T. was imposed, an important change has become visible. It is still early days, it is perfectly true, and one cannot be dogmatic at this stage, but the signs which there are so far strongly suggest that the Selective Employment Tax is having the desired effect.

There was in the past a rapid increase in employment in services without regard to the rate of increase in the economy, without regard to whether or not this was a time of slow or increasing rate of growth. Yet between 1966 and 1967, in the first year of the tax, employment in distribution and construction fell by 3.7 per cent. and 5.6 per cent. in Great Britain as a whole. This is a remarkable change and it it reasonable to suppose that the tax has had its effect on this.

Mr. Anthony Stodart (Edinburgh, West)

In Scotland?

Mr. Taverne

I am coming to the Scottish figures.

Part of this shift, it is true—it has been claimed to account for the whole of it, which is not true—part of the shift but only a very small part, has been a shift to self-employment or to part time from full time, but this has been only a very small part of the overall decrease.

If one looks at the Scottish position one finds exactly the same trend, though it is less pronounced. Whereas the average decrease over Great Britain as a whole was 3.7 per cent. in the services position in Scotland it was 2.2 per cent. There was one particular reason for that, and that is to be found in the employment in the construction industries, because there has been no decline in the construction industries in Scotland and this accounts for the lower decrease in services generally in Scotland as compared with the rest of Great Britain.

Mr. MacArthur rose—

Mr. Taverne

I am sorry, but I cannot give way. No doubt further points can be raised by the hon. Gentleman's colleagues. I want to finish this explanation.

The reason for the absence of decline in the construction industries in Scotland seems to be an expansion of the construction industry in Scotland and new orders in Scotland. Yet the increase in Scotland, as indeed in England and Wales, appears to have been achieved by higher productivity, which in its turn appears to have been achieved by the Selective Employment Tax.

Mr. MacArthur

I am much obliged to the hon. and learned Gentleman for giving way and I will not detain him for more than a moment. I should be interested to know how the Minister can relate this claim to success, that employment in the services sector has fallen in Scotland, with the stated policy of the Government in January, 1966, that 80,000 new jobs would have to be created within these very industries by 1970 if the Scottish Plan was to succeed.

Mr. Taverne

First of all, that refers to 1970, and it is not part of Government policy in any way to found future prosperity on the uneconomical use of labour in any sector of industry whatsoever. The fact remains, in the example from the construction industry, that there, as in other service industries, a considerable increase in productivity has taken place which has seemed to be related to the introduction of the Selective Employment Tax.

However, there is one further outstanding fact which the hon. Member tried to minimise, and that is the overall effect of Selective Employment Tax on the economy of Scotland, because the fact remains that the yield from Scotland of the lax is some £45 million, which is about 10 per cent. of the total, and particularly reflects the size of Scotland in population. Yet regional employment premium going to Scotland amounts to £40 million, the Selective Employment Premium refunds amount to some £10 million. On balance, therefore, the effect on the Scottish economy of this Selective Employment Tax, from which the regional employment premium cannot be separated, is a net gain of £5 million to Scotland. One has the position that the tax remitted from Scotland goes back to Scotland. Whereas if one looks at England and Wales one finds only 20 per cent. is returned in the form of regional subsidies.

It is perfectly true that there has been special concern in particular areas where there has been no industrial base—for instance, the Highlands and Islands, and other areas, and, no doubt, there will be references to these later, and it is suggested that because of this there should be relief of S.E.T. in those areas. Again, of course, one appreciates the very great difficulties with which the Co-operative movement is faced because of the services which it renders in remoter areas, and, of course, because it feels it is wrong in principle to make its members in remoter areas pay, and one is aware of the difficulties which the Scottish co-operative societies face, but there is no way to exempt them specially without undermining the tax as a whole, and there is no line which can be drawn which would be defensible as against other bodies engaged in retail distribution.

If one comes to the general question, the answer to the special areas is not a general relief from the Selective Employment Tax. This would be an extremely wasteful way of giving relief to particular areas' need. My hon. Friend the Minister of State will deal with questions about the actual way in which relief is being given and should be given, but the sensible way to do this, in order to help employment services which cater for local needs would be to attract this from outside, and it is for this reason that the Government founded their policy on the concession for hotels, because this is particularly a concession which, in the areas where there is no benefit from regional employment premium, can attract further tourists and benefit other industries. The hotel industry is, after all, the only service industry whose income is derived almost wholly from outside.

This concession—I think this has been misunderstood—is not primarily to benefit hotels in areas where the concession applies. It is a concession designed to help rural development areas by attracting tourists to those areas to the benefit of the areas as a whole.

Of course there were difficulties about defining the areas, particularly when one has to base repayment on the labour exchange areas and, of course, one wanted to hear, in debate, after representations, how best this line could be drawn. I was extremely grateful for the speech made in Committee by my hon. Friend the Member for Glasgow, Springburn (Mr. Buchanan), who pointed out some of the ways this might be improved, and also for the assiduous representations which were made by my hon. Friend the Member for Berwick and East Lothian (Mr. Mackintosh). I also saw representatives from the hotel trade.

I think this concession is one which is more generally acceptable than the one which was originally proposed. If one looks at the impact of the tax as a whole, and if one looks at the impact of the tax on Scotland, then already some of the effects of the tax have become felt, although its real benefits will become available and really visible only in the long-term as the slack in the labour market in the development areas is taken up.

However, I find a Motion such as this, deploring its effect on Scotland, somewhat astonishing, because if one looks at the overall effect on Scotland one finds that, far from harming the economy of Scotland as a whole, the tax should be welcomed in Scotland, because the net effect of the tax is that Scotland, far from being harmed, is a net gainer.

7.58 p.m.

Mr. Anthony Stodart (Edinburgh, West)

The hon. and learned Gentleman said, and rightly so, that certain specific areas were bound to be mentioned in this debate, and I make no apologies for immediately doing so by mentioning the City of Edinburgh. It is almost exactly a year ago that I raised the question of the burdens which are falling on the City of Edinburgh. Perhaps I should more correctly say, the City of Edinburgh with Leith and Portobello.

I think it would be wholly wrong if, in this debate, a Member who represents an Edinburgh constituency did not bring to public attention the impossible burdens which are falling on manufacturing industries in the city and on one other industry which has been singled out for unfair treatment in this matter. I refer, of course, to the hotels and restaurants within the capital.

I quite realise that I must be extremely careful not to concentrate on the exclusion of Edinburgh from the development areas and the consequent loss of investment grant and regional employment premium, but in order to make later what I consider to be an extremely important point I must quote something said by the right hon. Gentleman the Secretary of State for Scotland on reasons for the exclusion of Edinburgh.

In the debate on 5th July last year, the Secretary of State said that the unemployment figures did not justify including Edinburgh in the development areas, and this is, of course, a case that is continuing. The right hon. Gentleman continued: Not only are its figures lower than in any other part of Scotland, but they are amongst the lowest in the United Kingdom. Then, said the Secretary of State: In any case, I do not think that Edinburgh's future lies in manufacturing industry …"—[OFFICIAL REPORT, 5th July, 1967; Vol. 749, c. 1942.] With that remark I entirely and wholeheartedly agree. I do not think that the future of Edinburgh ought to lie in its becoming a great manufacturing and industrial city. The Edinburgh Corporation does not want it to be. But it is one thing to apply a disincentive to new industries starting up there and quite another to penalise industries that are already there and positively encourage them to move out. Whilst Edinburgh should not attempt to be a magnet for new industry, I do not think that the city should lose the industries it already has.

Mr. George Willis (Edinburgh, East)

The hon. Gentleman is not forgetting, of course, that Aberdeen has a lower level of unemployment than Edinburgh?

Mr. Stodart

That point had not escaped me. But I imagined that the hon. Member for Aberdeen, South (Mr. Dewar) might want to say something about that.

This is what the restricting of the regional employment premium to the development areas has done. It is extremely ironical that manufacturing firms in my constituency—and, I have no doubt, those in the right hon. Gentleman's constituency—which have drawn, and which continue to draw much labour out of the development areas—in West Lothian, in my case, and probably from East Lothian in the right hon. Gentleman's case—and which have done this useful job throughout the dull days of the pre-war depression, should suffer by being penalised now. It is grossly unfair that they should have to compete with firms not very far away which get the premium in addition to the refund.

The effect of this, is, according to the chamber of commerce report, that 14 out of 26 firms have announced that they have stopped any possible extra development. One might argue that that might not be altogether undesirable if one is not to move in the direction of the industrialisation of Edinburgh, but when it is discovered that eight firms are now considering moving out because of the Selective Employment Tax, amongst other things, one feels that this is where the Government are doing something positively harmful.

I turn now to the hotel and restaurant side. Restaurants, no matter where they are, are excluded from the Selective Employment Tax refund but, in my view, they do just as important a job as hotels. I dare say that my girth might allow people to suppose that I rather prefer restaurants to hotels but, be that as it may, I think that, by and large, restaurants are much more desirable places than hotels. Further, holidays by caravan are becoming more and more popular, so that the development of more restaurants and cafes to supply their needs is extremely important.

The Selective Employment Tax refund to hotels in certain areas was a very considerable triumph for the energy of the hoteliers, who put their case rather well, and also for those of my hon. Friends who assisted them by taking them to see the Minister of State, Treasury, in order that he might listen to their difficulties, and who gave what advice they could. I, as representing part of the area which does not share in this bounty, nevertheless welcome that highly desirable achievement.

But if Edinburgh is not to become a manufacturing city it ought to be encouraged to become an even greater city for holidaymakers and for people attending conferences. No one can say that the city's present accommodation can meet the demands made on it. The Scottish Tourist Board reports: Next to London, Edinburgh is the most important tourist centre in Britain. It also says that 2 million bed nights were spent in hotels, guest houses and board residences in Edinburgh during 1966, and by 1970 it is estimated, particularly when the Commonwealth Games are coming along, there will be a need for more than 3 million bed nights, which is an increase of 50 per cent. on the present available accommodation.

What I thought was so significant—and this is why I quoted the Secretary of State's words to the effect that Edinburgh should not become a manufacturing city —was the comment made by the Chancellor of the Exchequer on 24th April, 1968, during the debate on the Second Reading of the Finance Bill. The right hon. Gentleman said: We have, however, thought it right not to extend the S.E.T. concession to the more indus- trial parts of the development areas, where we can look to expansion from manufacturing industry and where R.E.P. is of substantial importance. Nevertheless, hotels in these areas will benefit from the proposed hotel incentive scheme under which there would be a higher rate of grant for development areas as a whole." —[OFFICIAL REPORT, 24th April, 1968; Vol. 763, c. 254.] In other words, what he was saying was "Where we have a city which is not to go in for manufacturing we consider it desirable that it should go in for the tourist trade, and because of that we are extending the concession."

According to the Tourist Board's Report there are 128 hotels and 221 boarding houses in Edinburgh, and I do not know whether that is a complete list. Every one of those establishments will have to pay 50 per cent. more in S.E.T., and there is no question about it that the hoteliers in Edinburgh are being extremely heavily penalised. I know that the other cities in Scotland, among them Aberdeen, are in precisely the same boat in this respect, but at least they get a benefit which Edinburgh does not get, and that is the benefit of higher grants and loans for building and improving hotels, because they are in development areas. That means 5 per cent. more grant, with a £250 higher ceiling. That, again, puts Edinburgh in a thoroughly invidious and unfair situation.

I do not know—perhaps the hon. Gentleman who is to reply to the debate can tell us—why the Secretary of State has got his knife in the City of Edinburgh. If he and the Minister of State are not happy and comfortable in their office in Edinburgh and not enjoying hospitality, everyone would be delighted if the right hon. Gentleman and his colleagues vacated their offices in St. Andrew's House and took the whole Selective Employment Tax away with them.

8.10 p.m.

Mr. John Rankin (Glasgow, Govan)

There are two hon. Members in this House who represent in Scotland, as part of a much bigger job, what is called the Co-operative interest. Those hon. Members are nominated by the Co-operative movement. One represents, and represents very ably indeed, the great industrial, Co-operative and shipbuliding city of Greenock—my hon. Friend the Minister of State, Scottish Office, who is on the Front Bench. The other hon. Member is myself, who also represents a great industrial, Co-operative and shipbuilding constituency called Govan. I think I can say that both of us have done our jobs very well indeed and I hope that we shall continue to do so. I say that because it is difficult for other hon. Members to say it for us.

Tonight my hon. Friend and I find ourselves in opposite camps but only temporarily. This is the sort of conflict which arises in public life. From the conflict which does, may be, exist between my hon. Friend and myself at this moment will emerge the progressive synthesis for which the Labour and Cooperative movements, in Scotland particularly, have always been famous. So tonight, as my first job, I want to convey to the House the feeling which has been expressed in the meetings of Co-operative boards in Scotland.

I have here a large volume of information on these matters. As I go along I shall give a selective presentation of the views of ordinary working men and women who are running a business which has progressed very well indeed in Scotland, and also in England. I say nothing about England, however, because that has already been said in this House in other debates. The feeling expressed by the board of Broxburn Co-operative Society is that the Government have deprived it of £6,000 which was rightly its members'. Their grievance lies in the fact that that £6,000 would have gone to members of the Broxburn Society— the members who make their purchases, keep the society going and keep it prosperous.

I have from Central and East Fife board of directors the intimation that the cost of S.E.T. to them during the year will be £18,040. By that amount the living standard, interpreted as they do it, of their members is correspondingly reduced. Central and East Fife tell me that they will lose in a full, year £24,265. Cowlairs in the City of Glasgow will lose £42,000. Dunfermline, in Fifeshire, will lose what represents a 3d. per pound dividend to its members. East Lothian will lose £20,800. There is no reason why I should leave out Greenock. Greenock will lose £19,600, of which my hon. Friend is very well aware. I am certain that he, like every Labour Member in Scotland, has made protest on behalf of his members to the appropriate quarters in the Government. I am confident that in due course those protests will bear fruit.

Paisley Manufacturing Society is losing £14,554; the Northern Co-operative Society, which is in Aberdeen, is losing £140,000, and the S.C.W.S., the wholesale society, will lose £105,000. That is what this tax represents to the Co-operative membership in actual money. These losses have naturally created a feeling of dissatisfaction. Whether or not the dissatisfaction will diminish and be finally removed lies in the future, but every one of us recognises that a Government must have money and the demand presented to the Government for more and more services is one of the basic justifications for the course they have taken. That view has been expressed within the circles to which I have referred.

It is recognised and to some extent now accepted. But co-operative shops and other retailers are disturbed by the inconsistencies in the application of the tax. For instance, co-operative societies sell electrical appliances. So does the nationalised industry, but nationalised industries do not pay Selective Employment Tax on their sales of electrical appliances while co-operative shops and other retailers do. They consider that an injustice. I am sure that my hon. Friend will have something to say about that when he replies to the debate.

In addition, the Co-operative movement has employees as chemists, pharmacists and opticians in its shops, and it pays tax on those employees. In the private sector, on the other hand, one-man businesses on similar lines are exempt. That is an injustice which has been recognised, and I am sure that in his reply my hon. Friend will have some helpful and hopeful comments to make about such indefensible maltreatments. The Chancellor of the Exchequer has told us that he is awaiting the Reddaway Report before he reaches a final decision. In the meantime, co-operators, being in good hands, will live in hope and also in assurance.

Mr. Brewis rose—

Mr. Rankin

I do not mind giving way. The trouble today is time, which is the enemy of us all.

As I have emphasised, the reduction which has taken place in co-operative societies' dividends and what that has meant to societies, I should perhaps point out the great part which the dividend has played in the social and economic life of the people of Scotland. The hon. Member for Perth and East Perthshire (Mr. MacArthur) referred to the Island of Arran, off the West Coast of Scotland. It would be interesting, in passing, to know how many men and women holding responsible jobs in Scotland, and how many Scottish people in. many parts of the world, were educated on the co-operative dividend. In the younger days of many middle-aged and older people, there was not the State support for education which exists today. I wonder how many family holidays were assisted by the co-operative dividend and how many houses were built with its aid. I wonder about the household furniture, the pianos and other adornments, which, particularly in Scotland, became part and parcel of the home because of the part which the co-operative dividend played in the lives of such people as those of Scotland, who are fundamentally thrifty. I think of the number of last wills and testaments—

Mr. Deputy Speaker (Sir Eric Fletcher)

Order. I hesitate to interrupt the hon. Member, but I remind him that we are basically discussing the Selective Employment Tax.

Mr. Rankin

I hope that that is what I have been doing. The effect of the Selective Employment Tax on this form of saving is to deprive the people of Scotland of an aid which was significant to them in many periods of their lives. The hon. Member referred to the Island of Arran, where the Co-operative movement, through the dividend, played a very important part. The Co-operative Wholesale Society went into the island and opened its shops there. It bought the produce of the islanders, paying them for it on the spot and giving them what they had not had before—a money income. Previously they had had an income in food, with no fear of its lack; but they were not employed persons. For the most part they depended for their income on summer visitors. The Co-operative movement rescued the crofter from that position by buying the produce of his land at, his own door.

I shall be brief because many hon. Members wish to speak, but I must emphasise the importance of this type of social income to the people of Scotland and express the hope that my hon. Friend and those in Government with him will bring their promises to maturity. In reply to the protests I have presented one Minister said, The Budget proposals were an essential element in the Government's overall strategy for achieving a progressive and massive shift of resources from home consumption to the requirements of exports, import replacement and productive investment. The taxation measures designed to bring about a reduction in domestic consumption were widely spread and inevitably involved some increases affecting the services sector. Moreover, the need to switch resources from consumption to export means ensuring not only that the growth of home demand does not impede exports but also that there must be some redeployment of labour to the manufacturing sector". I ask my hon. Friend in his reply to tell us whether any evidence can be furnished tonight of any reduction in domestic consumption. To what extent have exports improved and how many people formerly in the service sector are now in the manufacturing industries? Surely, in view of the immense technological advances being achieved, it was possible to win increases in industrial output without making the women of Scotland pay for them.

8.29 p.m.

Mr. John Brewis (Galloway)

I was interested to hear what the hon. Member for Glasgow, Govan (Mr. Rankin) said about the Co-operative movement, and I shall refer in more detail to his speech a little later.

I am sorry that the Minister who opened the debate has had to leave us. I thought that he made the best case that he could for S.E.T., but he marred his speech by saying that Scotland could not be divorced from the position of England on taxation. It is because we hear that sort of statement from British Ministers so often that there have been such a rise in the S.N.P. in Scotland. Of course, the position of Scotland can be divorced from England on taxation. All that is needed is a differential pay-roll tax taking the development areas at one end, and the overheated South-East at the other.

The Minister said that there was overheating in manufacturing industry at the time the S.E.T. was introduced. I doubt whether that applied to Scotland at all. The real problem in connection with the lack of labour in manufacturing in Scotland is the lack of training facilities, and getting trained labour is much more important for manufacturing than the imposition of S.E.T.

We have been given a figure of 2.2 per cent. for the decline in Scotland of service industries, and we have been told that there has been no decline in the construction industry. No figure was given for the decline in industrial employment, but I believe that the figure for 1966–67 was higher than 2.2 per cent. We have now had two years of S.E.T. and I believe that it has proved ineffective in its operation, inequitable in its incidence, and cumbersome to collect. Scotland has naturally more service industries than has England. Scotland has a much greater need for transport, road construction, and so on because of the greater distance from markets.

Incoming industrialists to Scotland during the last few years have been extremely pleased with the standard of the natural amenities in Scotland, the scenery, and so on, but they have had certain comments to make on the standard of the service industries compared with those in England. One thing which sticks out is the lack of private housing, and in many cases hotels, restaurants, and public houses have not been up to the standard of those in England. This is true also of supermarkets, shops, and garages. All of these are undertakings which are hit by S.E.T.

Perhaps I might consider the effect of this tax on shops. This was referred to by the hon. Member for Govan. There is violent opposition to this tax from the co-ops, and I thought that the figures which the hon. Gentleman gave of the money being taken away from the dividends of the co-operatives was extremely impressive, but he is wrong in thinking that there is any necessary synthesis between the Co-operative movement and the Labour Party. The hon. Gentleman spoke about them living in hope, but let them be in hope of a Conservative Government which will abolish this tax. From the lack of interest taken in this debate by Scottish Labour Members it seems that there is no hope of that relief coming from a union between the Cooperative movement and the Labour Party. There have seldom been more than five Members on the benches opposite.

This tax is putting up prices on gross turnover by no less than 15 per cent. I wonder how many people, when they go to a supermarket in Scotland and find a long queue at the check out and empty gaps on the shelves, realise that this is due to the labour which has been squeezed out from the distributive trades? Few Members do their own shopping, so they do not realise the effect of this squeeze on shoppers.

About a year ago the Glasgow Chamber of Commerce carried out a survey among 22 of the largest retailers and wholesalers in Scotland, who between them employed no fewer than 19,000 workers. It was found that about 6 per cent. of the employees had been squeezed out by S.E.T. But most of those who were squeezed out were dismissed on account of their age or their disability, and the survey pointed out that these were mostly people who were not fit to take other jobs, particularly in manufacturing. This aspect of the tax is nothing short of inhuman. One of the worst criticisms of it is the way that it incites people to invent dodges. Part-time workers are encouraged to work a whole week in some establishments and then go on to the dole for a week, thus increasing the Government's payment and the unemployment figures. It also tends to replace men with women. Hotels, for example, employ fewer waiters and more waitresses because of the tax. There is a long-range problem in this modern technological age, of finding more employment for men.

But the worst instance is in the construction industry. The extra cost of a 2,000 house will be £90 for the original S.E.T. and, I understand, a further £20 because of this year's Budget. This does not work out mathematically with S.E.T. increasing by 50 per cent. because so many builders have found dodges to get around the tax. For example, if one can isolate the joiner's shop, one can actually get R.E.P. on it. One can make many of one's employees pretend to be self-employed, and thus escape the tax. In industrialised building, for example, if the sections are assembled on the site, one does have to pay the tax, but if they are assembled in a factory some way off, one gets R.E.P. and is much better off. As a result, for example, Wimpey pays S.E.T. on industrialised building, while Costain does not.

Finally, it is a most cumbersome tax to collect. A total of 478 extra civil servants are employed just paying out the S.E.T. which another Ministry collects.

Mr. Donald Dewar (Aberdeen, South)

Could the hon. Gentleman give me an example of a tax in the present range of taxes for which the administrative costs are a lower percentage of the total raised than the figures for S.E.T?

Mr. Brewis

I cannot give one offhand, but a vast number of civil servants are employed on this. It might be a good idea if the Government themselves had to pay S.E.T. on the extra civil servants whom they have been employing lately.

I hope that Professor Reddaway will produce a much better solution. We should have, as I said, a payroll tax. If and when we enter the Common Market, we shall have to change the tax anyway to go over to a value added tax, which is at present operating on the Continent. I am, therefore, delighted that, when the Conservative Party is returned to power, we shall abolish S.E.T.

8.38 p.m.

Mr. Donald Dewar (Aberdeen, South)

There is a tendency, which I find entirely understandable, for the Chamber to empty when Tories start talking about taxation, and particularly when Scottish Tories talk about the S.E.T. It is one of their favourite subjects. It is an occasion for generalised ritual abuse, when all sorts of reasonable people start flogging themselves into a state of spurious indignation. This is a pantomime which has been rehearsed here on many occasions, and I am surprised to realise that it can only have started in May, 1966, when S.E.T. first burst upon the country. One thing which is marginally encouraging is the rather flat and possibly even anticlimactic atmosphere of the House this evening. Perhaps even some of the hard-core Tory agitators on S.E.T. are getting a little discouraged.

It is easy to shrug off this kind of demonstration which the Tory Party has been mounting for two years now in Scotland, but I would not be prepared to do it. I give them this credit—it has to some extent been successful. There is no doubt that all taxes are unpopular but that the Selective Employment Tax has been unpopular beyond all reasonable expectation.

I cannot help feeling that the dogged campaign of misrepresentation which has gone on for a very long time, and which on one or two important points has still been going on tonight, has contributed to the cumulative great unpopularity of the Measure. The Treasury Minister who opened the debate was right to remind us why we have a Selective Employment Tax. It is not an unpleasant whim made the more unpleasant because various Opposition spokesmen suspect it is a formula foisted on to the Government by, of all things, a foreigner. It is first and foremost a method of raising revenue.

I was surprised to hear the hon. Member for Galloway (Mr. Brewis) refer to the expense of collecting it. I and a large number of other people, including The Times, have commented on just how cheap it is to collect. One reason for that is that it uses existing machinery, which may be one of the reasons for some of the anomalies which have been so heavily criticised. As I remember the figures, the first full year produced £190 million and administration cost only £2 million, just over one per cent., which, by current taxation practice, makes it an extremely economical tax. It is fair to say that S.E.T. raises revenue and raises it cheaply.

I agree with the Government spokesman on the Front Bench that it is a sensible and useful way of broadening the basis of the indirect taxation system. Many people will remember the then Chancellor's speech when he introduced the tax in May, 1966. I have just reread it. I was impressed then and I still am impressed by the force of the argument that if it is necessary to raise this money, then one should look at a sector, the service sector, which has been very lightly treated in terms of indirect taxation. Of the £6,000 million on which Purchase Tax and Excise duties are eligible, 40 per cent. goes in this way. Of the £7,000 million spent by the public on services, only 1 per cent. is claimed by the Exchequer in indirect taxation. If it is accepted that there is a need to raise taxation, and if particularly the Tory Party is so obsessively opposed to the raising of direct taxation, then there is an obvious case for looking at the service industries and deciding to tax them in this way.

It may be that back in May, 1966, there was an argument, although it was not one of which I heard a great deal, that the Chancellor had his sums wrong and we did not need to raise so much money. But when we came to the last Budget and the jacking up of the S.E.T. level, I do not think there was a big quarrel between the Front Benches about the total sum that the Chancellor was taking out of the economy.

This is something that has been said many times in the House, but it is worth emphasising because I do not think the Conservatives have explained to my satisfaction how they get out of the logic of their own arguments. If they are to abolish S.E.T., if they are to increase defence spending or at least slow down the cuts that the present Government have introduced, if we follow the Shadow Chancellor in saying that we should not have indirect taxes which push up industrial costs and if we want him to reduce direct taxation, as the Tories have pledged themselves to do, it is difficult to see how they will reach the global sum that they have agreed is largely right and must be found. In that context there is a clear prima facie case in the total economic situation for supporting the Government in the imposition of some form of Selective Employment Tax.

I agree with the hon. Member for Galloway (Mr. Brewis) that it would be a sad measure of the inflexibility of the Government's fiscal ideas if they said there cannot be a differential taxation system for England and Scotland. But that is exactly what we have done. He may not like the way in which we have differentiated, but the Minister of State gave figures which prove conclusively that the whole S.E.T.-R.E.P. tax complex has been so heavily weighted in favour of Scotland and in favour of the development areas in general. Even a nationalist striving ultimately for complete political separation might still think there is a case for Selective Employment Tax suitably varied, for if it is the right prescription for the rest of the United Kingdom it will benefit Scotland in the sense that we will always be dependent economically on an expanding and buoyant English economy. England will always be our major market whether we are within or without the framework of the United Kingdom.

I have always been sceptical about the arguments in relation to the shift of workers from the service to the manufacturing sectors. I know that a large number of people do not share my scepticism. The Chancellor suggested in his last Budget that this had taken place and it was suggested again this evening from the Government Front Bench.

Shortly after the last Budget I remember reading an article in The Times, one sentence of which gives the keynote: Some evidence now suggests that the tax is achieving its purpose and that a real shake-out of employees in service industries is under way. The article went on to argue that employment in the service industries was dropping and, though in the manufacturing industries it was dropping faster, this still suggested that for the first time there was some response to direct Government policy and the economic cycle from the employment pattern in the service industries.

I am still sceptical about this. If it is happening, it is happening very slowly. I did not like that argument at the time, and I accept some of the points made by the hon. Member for Perth and East Perthshire (Mr. MacArthur) when he used the White Paper on the Scottish Economy as his text, but I maintain that in terms of the general economic strategy and as a means of raising revenue cheaply and efficiently, there is a lot to be said for the Selective Employment Tax.

The real question is how Scotland comes out of the sums, if it comes out well or badly and how we should after the situation if at all. A rather strange thing, it seems to me, has happened. When Conservatives talk about Scotland and the Selective Employment Tax, they do not mean Scotland at all. They mean the Highlands, the North-East or the Border. We see again and again this obsession which was not evident during their years in office but which suddenly bulks so large in their minds.

I agree that there are special problems in these areas. If one takes the Standard Industrial Classification categories III to VI—that is, the premium earning categories—it is true that in the North-East of Scotland only 25 per cent. of the employed population are in these industries, and only 10 per cent. in the Highlands. There are parts of Scotland with very real problems. In the same way, it is only 14 per cent. in the South-West Development District of England and in other parts of the United Kingdom. Taking Scotland as a whole, it is not true that Scotland is heavily dependent upon service industries. In fact, our proportion of service to manufacturing industries almost exactly corresponds with that of the United Kingdom as a whole.

I was told in answer to a Written Question that I put down on 2nd July that the net yield from the tax-bearing sector after deducting the neutral repayment section, was in Scotland £45 million but that England and Wales contributed £443 million to the Exchequer which is almost exactly what one might expect on a strict per capita basis, emphasising that the break down of manufacturing and service industries is very similar north and south of the Border.

But we get the weighting that I talked about earlier, and it is a massive weighting. I am told that the additional selective employment payment to manufacturers, now only found in the development districts, gives £10 million to Scotland and £15 million to England, and the R.E.P. ploughs into Scotland £40 million and into England £60 million.

If one takes account of the premiums going back to manufacturers and the additional R.E.P. premiums I have just mentioned, the net yield to the Exchequer in England is £368 million. In Scotland, we have a balance—a profit, in fact, of £5 million. There is a massive differential, and it is quite wrong to say that the Selective Employment Tax has been in some way designed uniquely to victimise Scotland.

One could argue with some justification that it may not be the best way of using the money which is ploughed into Scotland. It may be said that it would be better to double expenditure on roads. It may be argued that the infrastructure is more important than investment grants. There are a number of very far-reaching and important arguments which ought to be examined of this type. But one should never over simplify and merely say that S.E.T. is bad for Scotland. It is there to help Scotland and it does give Scotland a real financial advantage. It may be bad for Scotland in the same sense that growth point policy may be bad for Scotland, or the Tory Front Bench might say that spreading the jam thinly over the whole of Scotland is a mistake for Scotland, but one should not say that S.E.T. is not trying to help and is not making a very significant contribution.

The trouble is not that the Conservative spokesmen on S.E.T. are getting the wrong answers but that they ask basically the wrong questions.

Mr. Higgins

That is what the hon. Gentleman did when he put down his set of Questions. We were told originally that R.E.P. would be self-financing. If that had not been the case his Question would have been right. But as it is financed out of other taxation he must make allowance for the taxation Scotsmen pay to finance the £40 million R.E.P.

Mr. Dewar

I see that, and there may be some validity in the point. It is a nice financial calculation which is beyond me, and I suggest that it is beyond the hon. Gentleman without the aid of the Treasury. But even when one has made every possible allowance, I think the hon. Gentleman would agree, there is a very heavy favourable weighting in the system.

I said that there are areas in England as well as in Scotland where we are at a very considerable disadvantage. I want to say a word about this, and refer particularly to the tourist industry in my part of the country. It is one of the most distressing and aggravating features of the Labour Government that they often manage to get the worst of every world. It is incredible when one looks at the number of sizeable concessions that they have made to various interest groups in Scotland and other parts which have boomeranged upon them so that they have ended more unpopular than they were to begin with. I hope that my right hon. Friends do not think I am too uncharitable, but I think that this is a prime example of it.

We had a massive concession originally. The British Hotel and Travel Association said that Schedule 17 would have exempted one hotel in four in Britain, and the Scottish figures undoubtedly would have been higher. But we got no credit and were driven to make changes which I believe are considerable improvements, but which ought to have been made at the beginning.

We do not have an anti-tourist Government or Administration. The hon. Member for Perth and East Perthshire quoted the recent Report of the Scottish Tourist Board. He will have noted that the new investment grant scheme which was announced in a recent White Paper has been warmly welcomed by the Board, which has described this decision as the most encouraging in at least 20 years. There is, I am convinced, a very good appreciation of the importance of the tourist industry. It is sad that we should have got all the abuse and opposition and partly because it was so badly presented, without a sufficiently decisive and final form.

The worst thing from my point of view is that anomalies still exist. I recognise that there is an enormous advantage in administrative terms in neat lines. At the moment cities are excluded and the rural areas are not. Here is a nice hard and fast situation which everyone can appreciate. But originally Schedule 17 was drawn out in hard and fast lines also. There was the great principle that one could not sub-divide employment exchange areas, that it was not administratively possible and that it offended against the good canons of orthodox administration. But ultimately the Government decided that they could take this step, and they have sub-divided the areas and drawn much more sensible lines in terms of their original definition of "rural areas".

I should like to see them go a little further and look flexibly at the situation in other individual parts of Scotland and even in Scottish cities. With regard to Aberdeen, I now probably understand and appreciate, if I may make an admission, the very real feeling of someone who is placed just outside a development district—Edinburgh, say—looking in.

The situation developing in Aberdeen in the tourist industry has brought home to me the strength of feeling that this kind of position inevitably generates. Our tourist industry is immensely important. Of all Scottish cities, Aberdeen is the most heavily dependent on it. Edinburgh is, of course, a great centre, but of a different kind. It has other justifications and existences outside tourism. We are mainly a service centre for an agricultural hinterland. Aberdeen has but one other major industry—fishing—and that has an uncertain future and cannot be described as an obvious growth industry.

While I accept that this is purely special pleading, I hope that, at some point, my right hon. Friend will be prepared to look again at the boundaries he has drawn because otherwise there will be real hardship. The tourist industry in Aberdeen is going through a difficult transitional phase, since traditional trade and traffic patterns—for example, the Glasgow Fair—are declining. We are trying to adjust ourselves to the new touring traffic. There may well be real hardship among smaller hoteliers in my area if the Government are not prepared to look at this matter again.

The Motion on the Order Paper is extremely difficult to comprehend. The Opposition are deploring the effect of the Selective Employment Tax upon the Scottish economy. I suppose it depends on what one's criteria are for judging the situation. But in almost every field and by almost every standard the Government have done extremely well in the last few years. Public expenditure in 1962–63 was £240 million. In 1966–67 it was going well above the £400 million mark. In every department of public spending, such as roads and housing, the figure is up, with completions at a record level.

Admittedly, unemployment is still 150 per cent. of the United Kingdom level but even in my short career I can remember the days when it was commonplace and accepted that the Scottish figure should be above the 200 per cent. mark in relation to the United Kingdom total. Scotland was always, but no longer is, the Cinderella of the regions—with one of the worst ratios in relation to the rest of the country. I believe the dreary certainty of depression in the Scottish economy is no more. We do not now have to look forward to large unemployment and low investment.

One of the sadnesses and paradoxes is that an Administration which has presided over the biggest ever public expenditure boom in Scotland has still ended up as electorally unpopular, at least temporarily. I hope, as the results become more apparent to the electorate, this attitude will change, but it is an ironic and strange situation.

Even if we take the case of the shops —and the hon. Member for Perth and East Perthshire (Mr. MacArthur) has been reading public notices in the Glasgow Herald—there has been a real consumer boom in Scotland. I will quote a witness which is not often quoted on the Labour side—the annual reports of the House of Fraser. The last annual report produced record figures. The House of Fraser did well, too, in 1966–67, despite the fact that it had five months S.E.T. to pay. It did well specifically because the Scottish and northern stores had been particularly prosperous. The financial editor of The Times remarked that Scotland had come to the aid of Fraser and added that it looked as if a mass exodus to the North was called for. It was underlined that the northern stores had done particularly well. It may be that there are difficulties in the centres of certain cities and it may be that experiments with sites away from city centre complexes will have to be made, as the House of Fraser itself is making them.

All in all, the Conservative case does not hold up. The Opposition have proved that they do not like the S.E.T. and they are joined in that view by many people in Scotland. I can certainly accept that the tax needs further refinement and that it can be improved and changed, but I am not prepared to give my vote tonight to a sweeping condemnation or to countenance such an attack. This kind of over-simplification, this kind of denial of the facts, this attempt which in financial terms is important to hide the real effort being made to help the Scottish economy, can only encourage the disgruntled air which is abroad in Scotland, and in doing that we benefit and help no one.

9.1 p.m.

Mr. Russell Johnston (Inverness)

I should love to tangle with the hon. Member for Aberdeen, South (Mr. Dewar), because he has the marvellous flair of the born orator of generalising an argument to such an extent that at any given moment one is very impressed with what he says, although, when one tries to string it together as a coherent pattern of argument, it seems to fall down. However, I agree with him that this has not been exactly a firecracker of a debate.

At this time of the evening, the House is usually fairly crowded, but tonight only a very few hon. Members are present. The reason is probably simply that it is almost impossible to have a debate of this sort without a great deal of repetition, because all the ground has already been covered many times. I am reminded of my hon. Friend the Member for Aberdeenshire, West (Mr. James Davidson), who related to me the other day how he had been addressing a public meeting at which there were many Conservatives. In a tempting mood, which is dangerous on any occasion, he asked whether there was any Conservative present who could say what constructive proposals his party had put forward while in opposition. One quavering hand went up and a voice said, "We would abolish Selective Employment Tax". It is all very fine and dandy, but, although I go along with many of the strictures made in the debate, I would have preferred a debate on the alternatives which, as the Minister of State rightly said, one has to discuss if one engages in negative criticism. I do not propose to add much by way of stricture, not because I oppose the tax less, but because it has already been effectively said by others.

Despite the regional employment premium—and I fully appreciated the point which the hon. Member for Worthing (Mr. Higgins) neatly inserted into the speech of the hon. Member for Aberdeen, North—Selective Employment Tax has not encouraged the development of those parts of the United Kingdom which most need development. The Midlands flourish while Scotland, like Northern Ireland and the South-West—for this does not apply only to Scotland—suffer by comparison.

I quote an interesting regional analysis made by two gentlemen of the teaching staff of London University, Mr. Rawstron and Mr. Lewis. Taking the index of tax payments by service industries with the United Kingdom as 100, they say that Scotland is almost the same, at 101, whereas in the Midlands the Yorkshire and Humberside area is 85, the East Midlands, 82, and the West Midlands, 75. On the other side of the picture, the index of premium receipts by manufacturers, with the United Kingdom average as 100, in Scotland is 90.1, while in the West Midlands it is 140.1. In other words, in the area which requires help least, the greatest help is given.

Secondly, within Scotland itself the tax has a retarding effect on the development of those parts of Scotland which most need development—this is an extension of the same argument. The hon. Member for Perth and East Perthshire (Mr. MacArthur) has quoted figures of money going out of the Highlands area, and I do not want to repeat that argument. The original estimate was produced by a Question asked by the hon. Member for Oswestry (Mr. Biffen) a long time ago and it was between £2½ million and £3 million. This seems to be contradictory. It is also true to a certain extent of the South-West and the Borders.

Although I am not a taxation expert —and I can easily put my hand on my heart to say that—I have always believed that at least an attempt should be made not to make taxation anomalous, not to make it unfair as between one lot and another, and there is no doubt that this tax is grossly anomalous in many ways. One could quote many examples, but I shall quote only one. We welcome the concessions for hotels in development areas, but what is the logic of saying, for example, that the Station Hotel m Inverness, which is a splendid hotel, is to get the rebate, and a wee restaurant next door which is doing the same job shall not get anything? This is anomalous, and makes people think that the tax is unreasonable. Most people think that all tax is unreasonable, but if they get a grudge against taxation that is bad.

The Minister fairly asked what one can do instead. If there is one good thing that S.E.T. has done for us it is probably that in future we shall be forced to develop more and better co-ordinating machinery for assessing the regional and local effects of any change. Already there has been much comment that the tax has changed a great deal since it came into existence. I do not think that it is a good way of legislating, to quote the splendid and very appropriate words of one hon. Member, to be driven in disorganised fashion to make improvements. But I very much accept the hon. Gentleman's other point that we have not yet developed the right kind of machinery', and in many ways it ill behoves the Conservative Party to criticise the Government on that basis. The Government have had very little time to develop it.

The Minister said that there was no really flexible alternative to S.E.T., and he spoke rather disparagingly about the concept of the payroll tax, which the Liberals have advocated for some time and of which there has been considerable experience on the Continent. I believe that it is more flexible than the S.E.T. It is not necessarily involved in the rather artificial distinction between manufacturing and service. It can be varied according to employment; to assist export industries, despite G.A.T.T.; and it can be remitted for charities, part-time workers, the disabled and so on.

My hon. Friend the Member for Cheadle (Dr. Winstanley) said in June, 1966: A varied tax could be introduced immediately in the following terms to raise the £240 million per year which the Chief Secretary is so anxious to acquire. First, the West Midlands and the South-East would pay 7s. per employee per week. Secondly, Yorkshire, Humberside, the North-West, the East Midlands and East Anglia would pay 3s. per employee per week. Thirdly, the Northern Region, in terms of the Department of Economic Affairs, the South West, all Scotland and all Wales would pay no tax. The rates would be 7s. 3d. and no shillings, and it would realise precisely the £240 million which the Chancellor is so anxious to get with none of the troubles, arguments and special inquiries about who is to count because of these arrangements in industry …"—[OFFICIAL REPORT, 23rd June, 1966; Vol. 730, c. 1012–13.] Do we want regional dispersal or not? I admit that it would be very sweeping.

Finally, and briefly, because I am very conscious of the pressure of time, I do not think that I have ever really accepted, though I remember often arguing about it with the right hon. Member for Edinburgh, East (Mr. Willis), for example, when he was Minister of State, the distinction between service and manufacturing, and what it effectively means. It is very artificial, and I am not at all satisfied that it is a good way of encouraging manufacturing industry to pay extra premiums according to the number of people it employs. We should be much more concerned with the more efficient deployment of manpower than anything else.

There has not been much reference to a value-added tax in the debate, and it is rather late to start developing that theme. The evidence shows that it is a tax against inefficiency, and, indeed, in the long term, would be better than a payroll tax and would replace it.

I said that I thought the Motion was negative, but it is often true that negative things require to be said many times on some occasions.

9.10 p.m.

Mr. George Lawson (Motherwell)

I apologise for not having heard all the debate, but we have heard about this subject endlessly since the introduction of Selective Employment Tax. Hon. Members from Scottish constituencies have been particularly virile in their attacks on the Government on this matter. Although I have not heard all that has been said this evening, I am sure that I have heard it on other occasions. It is very unlikely that anything new has been said tonight.

I remember, when we were in opposition, the initial payroll tax being suggested by the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd). At that time we had criticism about its implications, but the scheme did not go ahead. When we think in terms of the Selective Employment Tax that we now have and why it was introduced in its present form, we recall that the then Chancellor of the Exchequer candidly stated that this was a means of raising revenue. My right hon. Friend said that if it were not done this way it would have to be done another way.

Everyone is crying out for more and more public spending, even hon. Gentlemen opposite, yet at the same time they cry out against it. But this was a means of raising revenue. The choice was between more direct taxation—and we have been told again and again that we have virtually reached the limit in terms of direct taxation so we could not raise more revenue there—and indirect taxation. The area for an extension of indirect taxation was pretty limited. It is not perhaps appreciated by many people that one great area that remains for an extension of indirect taxation, unlike most other countries, concerns food. We subsidise food rather than tax it, apart from "sweeties", ice cream and commodities of that kind. If one were to think in terms of the easiest way to raise money, this undoubtedly would be the easy way to go about it. But this was something alien to the then Chancellor of the Exchequer, and he pointed to services which at that time were not taxed. For example, if a man goes into a barber's shop and has a haircut, it is difficult to argue why he should not pay a tax related to the service of having his hair cut, whereas if he buys a razor or razor blades he pays a tax.

It was appreciated at the time that imposing this tax might, for example, injure certain sections of our industry. The then Chancellor of the Exchequer had in mind our export trade. Great emphasis was placed on the selective character of the tax. My right hon. Friend said that he wanted to raise a large amount of revenue, but in a manner which would be least injurious to our export trade. He argued that the manufacturing industries were more important for exports than any other. He did not say that the services of the tourist industry or the hotels were not important, but that they were trying to be selective and to do least harm to the export trade and that to single out manufacturing industry for a repayment with a premium was one way of doing so.

It is enormously difficult to produce a tax of this kind without anomalies. If the Government deserve blame at all, it is, perhaps, because they have been too concerned to meet objections and arguments. Hon. Gentlemen opposite have cried out about how the hotels, particularly in Scotland, were being injured —although the trade has been rising over this period—almost as though there were no other part of the United Kingdom than Scotland. I sometimes wonder where this place Scotland is. How important it is as a part of the United Kingdom! We hear so much about it.

Then, a scheme was brought forward to help the hotels and immediately there was a greater outcry than ever because some were being helped and not others. If I were being critical, I might say that it would be better not to bother about the hotels and to get "all your thanks in the one dish". The Government have had no thanks at all for what they have been doing.

The S.E.T. is only one aspect of a selective tax system. I and many of my hon. Friends used to argue in Opposition for some modification of taxation to help the development areas, and not just Scotland. We had no answer; we were not taxation experts and did not have the Liberals behind us to tell us what to do, but we urged some selectivity in taxation to help these areas. And now we have it. This is of far more help than I ever dreamed. In my wildest imaginings, I never dreamed that there could be so much discrimination in a taxation system in favour of the development areas as there is in the S.E.T. and the R.E.P.

My constituency would have lost an important factory but for the regional employment premium and the money which goes back to manufacturing industries in our areas. Although I have nothing against the Highlands of Scotland—it is a very nice place to visit occasionally— that is not where the people of Scotland are to be found. They are in the industrial areas, and Scotland is a highly industrialised country. In this sense, Scotland reaps great benefit from the R.E.P.—

Mr. Gordon Campbell (Moray and Nairn)

Is the hon. Gentleman discounting and writing off all the North of Scotland?

Mr. Lawson

No, since my hon. Friends and I have been pressing for efforts to develop Scotland. My right hon. Friend the Member for Edinburgh, East (Mr. Willis), who is present, piloted through the Bill which brought into being the Highlands and Islands Development Board, which has been doing much more for Scotland than has been done for a very long time. I would say to the hon. Gentleman who represents the lairds and gentry that if Scotland has suffered, the Highlands particularly, it is because of the absent gentry, the folk who have turned the Highlands into a deer forest. They are the people who depopulated Scotland. [Interruption.] The hon. Gentleman need not laugh. My ancestors were just as involved as ever were his, but that is not what I am arguing about.

Mr. James Davidson (Aberdeenshire, West)

I am not arguing with the hon. Gentleman's argument he is now putting forward, but I thought I heard him say a little earlier that people in the North and in the Highlands are people. Where do people start to be people?

Mr. Lawson

It is people we want to see. I am sure the hon. Gentleman the Member for Inverness (Mr. Russell Johnston), although he has left the Chamber now, wants to see in his area more than tourism and wants to see industry there. So do I. Measures of this kind are measures which will develop our country. By all means let us have some holiday folk and tourism, but let us have industry, and it is this type of measure which will help Scotland, not the greeting and girning we get from hon. Gentlemen opposite. I can assure my hon. and learned Friend the Minister of State who spoke from our Front Bench that he has the full support of his Scottish colleagues.

We have had two subjects debated today. When we on this side were the Opposition we always put aside two Supply days for Scotland and we always, among other things, debated industry and employment in Scotland. We have not had a debate on that subject this Session. Why? Instead we get a niggling little subject like this Selective Employment Tax—not even as it affects the United Kingdom, but as it affects Scotland. This is the kind of thing which discredits Scotland. I should like to see hon. Gentlemen opposite becoming a little bigger in their approach to matters of this kind.

Meantime, this is something about which my hon. and right hon. Friends on the Front Bench need not worry. My only fear is that in trying to meet hon. Gentlemen opposite they may have gone too far.

9.23 p.m.

Mr. Patrick Wolrige-Gordon (Aberdeenshire, East)

After due reflection I do not think I will follow the hon. Gentleman the Member for Motherwell (Mr. Lawson). I hope he will excuse me. He came to the aid of his party in noble fashion.

I have detected during the debate a certain amount of complaint from him and from other hon. Gentlemen opposite at the fact that we should raise this matter again. They say, quite fairly, that this matter has been discussed many times already. That is absolutely true. What I think they fail to recognise is that a Government who think even the act of listening is granting a concession may have to be told 20 times even before they really begin to absorb the fact that a solid, serious case is being presented to which they should pay the most urgent attention. It is not our fault we have to raise the matter again; it is the fault of the Government.

Of course, all taxation is indefensible, considered in isolation. It becomes only even remotely bearable when we consider what can be achieved with the money which is raised by the taxation. In this case the Government produced a lot of talk about overheating of the economy, translation of resources, raising revenue, a lot of talk which does not mean much to anybody but themselves— and, as the carrot at the end of the stick, the R.E.P., the regional employment premium.

I am opposed to the whole of the Selective Employment Tax, R.E.P. and all, and I am concerned that manufacturers in Scotland find in the regional employment premium the sort of artificial carrot which may have little relation to the reality of their economic circumstances and which may place them in very real difficulties as and when it is removed. In my view the whole concept of the Selective Employment Tax is arrant nonsense, and even if the Government can afford to be led up the garden path the ordinary people cannot. We will therefore abolish the tax as and when we get the chance.

"But," say hon. Members opposite, "what taxation will you raise instead?" "Nothing," we say. "Ah," they say with a great gleam, "what then will you cut?" "Nothing," we will say, and the last glimmer of interest disappears. They really cannot imagine that anyone else can run the country's affairs better than they can.

The hon. Member for Aberdeen, South (Mr. Dewar) said that he could not understand why this tax was so particularly unpopular. I should like quite briefly to enlighten him, and as he left the Chamber some time ago I have no doubt that he will read my speech. The Selective Employment Tax was introduced shortly after an election when our people were still basking in the euphoria of statements by the newly-elected Government that no further increases in taxation were necessary.

That was the first point. The next is the basic discrimination between the service industries and the manufacturing industries which many of our people felt to be highly insulting, apart from being extremely unfair in its effects on the economic structure of their lives. There are many smaller examples that could be given, but the discrimination between hotels and restaurants is that which has come out most often and most obviously in this debate.

Then there was the way in which the whole business was handled. First, we had agriculture. After a great struggle it was decided that those in agriculture could have the money back: "Let's find a few more civil servants to take the money in and more of them to pay it back." Then there was fish processing, then bakehouses. The latest event in this chronicle of decision, reconsideration, changes of mind and panic all round is the exemption of various hotels in Scotland from the Selective Employment Tax. If the Government are to handle their taxation affairs in this way they cannot tackle any potential exporters, or anyone else, about their way of handling their affairs. That is the reason for the unpopularity of this tax.

9.28 p.m.

Mr. William Hannan (Glasgow, Maryhill)

We now know from the hon. Member for Aberdeenshire, East (Mr. Wolrige-Gordon) the Opposition's programme for the next election. The two answers he gave on behalf of his party were in the negative—"nothing", "nothing"—and I expect that that will be the result of any policies that the Opposition have to offer in the next election.

The debate has centred round the principle of the Selective Employment Tax, and it seems that some hon. Members opposite did not listen to what my hon. and learned Friend the Minister of State, Treasury, was saying. He pointed out that nationally the S.E.T. has yielded much more than was anticipated in the Budget in 1966 when the tax was introduced, but that Scotland had benefited to the extent of £5 million net. I should have thought that that was something of which Scottish hon. Members would be appreciative, in the sense, particularly, that along with the other statements made, it shows that out of these moneys which are coming in, the big industrial change which the Government are trying to bring about in the development areas and in Scotland is succeeding—too slowly for some, perhaps, but at least the results are coming through. Hon. Members opposite ought to think of the other side of the coin. They forget the new growth industries which are coming to Scotland in the East, particularly the biggest electronics complex in the world outside the United States. This is something we ought to be proud of.

Is it not also a fact that only recently in a Press statement in the very area which so many hon. Members opposite represent, the Chairman of the Highlands and Islands Development Board was reported as saying that for the first time in 100 years depopulation in the Highlands had been brought to a standstill and forecast that in three or four years the population in the Highlands would increase? Because of the activities of such agencies as the Highlands and Islands Development Board, assisted by income from the Selective Employment Tax and resources provided by the Government, Scotland's fortunes are on the turn. Hon Members opposite would do better in the present state of mind in Scotland if instead of always crying "Woe, woe"—

Mr. Michael Noble (Argyll)

For three years on every single thing that the Government have done for the Highlands, or any other part of Scotland, I have congratulated them. For the two and half years before that, whatever was done for Scotland—although the hon. Member for Glasgow, Maryhill (Mr. Hannan) may have been an exception—his hon. Friends did exactly the opposite.

Mr. Hannan

I should love to follow that point. There has not been any exception of myself. The point we made in those days of opposition was that the Government were not using the opportunities laid before them to do precisely that which the present Government are now doing. The right hon. Gentleman knows that in certain circumstances in regard to the pulp mill and the rest, hon. Members opposite were prepared to hand out public money for private enterprise, but the present Government are ensuring that the money is used in the proper way.

Mr. Lawson

The right hon. Member for Argyll (Mr. Noble) may recall that a number of his hon. Friends and I attended a meeting at the pulp mill at which I had much to say in support of what the Government were doing when he was Secretary of State for Scotland.

Mr. Hannan

I recognise that I am infringing the arrangements made through the usual channels. I have no wish to pursue the matter, much as I should like to, but I ask hon. Members of the Opposition to recognise in the present climate the result of some of the actions they are pursuing.

9.34 p.m.

Mr. Terence L. Higgins (Worthing)

It is very appropriate indeed that we should be debating this subject this evening. No one can deny that the debate has been lively and controversial. It is particularly appropriate to have the time of this Supply day to debate this subject because the House was deprived of any opportunity of debating the Selective Employment Tax when we were concerned with the Finance Bill, either on recommittal or Report. Therefore, because the whole basis of Supply days is that taxation should not take place without grievances being redressed, it is right and proper that the Opposition should be giving time to debate this very important subject. We can only deplore that the Government, by taking the Finance Bill's Committee stage in Standing Committee and by the imposition of the Guillotine, did not give us the opportunity to do so in Government time. We regard both the Selective Employment Tax and, in particular, its effect on Scotland as very important.

Much reference has been made to Schedule 17 of the Finance Bill, which was not debated at all during the proceedings on that Bill and which had not been discussed until we reached this debate this evening. The general condemnation of S.E.T. was summed up in the C.B.I.'s reference to that tax this year in its report on the Budget: S.E.T. has proved ineffective in its operation, inequitable in its incidence and cumbersome to collect. As an instrument to encourage productive effort by penalising the allegedly less productive use of manpower, it has been a failure, and it has made the tax system more arbitrary by substantially enlarging the area of Ministerial discretion. This tax is universally condemned, and I believe for very good reasons. Both sides of the House say that they recognise the need to adopt a policy towards those regions which suffer normally from high levels of unemployment which will increase employment there and thus enable us to Operate the entire economy at a higher level, because those areas suffer very much in times of depressed demand and do not become as prosperous as they might when demand is increased.

It is worth referring to the analysis carried out by the National Institute's Economic Review for May, 1966, at the time that S.E.T. was introduced. It made a serious of calculations designed to show a comparison between S.E.T. and a straight poll tax which did not differentiate in the way in which S.E.T. differentiates. It transpired from these calculations that the area which gained most was the West Midlands with a coefficient of plus 14.7 per cent. Areas in the North West of England had a coefficient of plus 8.3 per cent. and the North of England of plus 07 per cent. But a Scotland it was minus 22 per cent. It was clear at that time that the tax penalised Scotland. It continues to do so— indeed, it penalises Scotland even more following the increase of S.E.T. by 50 per cent. in the last Budget.

I want to take up a point mentioned by the Minister of State in his opening speech and mentioned, too, by his hon. Friend the Member for Aberdeen, South (Mr. Dewar). I refer to the assertion that the tax somehow benefits Scotland to the extent of £5 million per annum. The Minister based his assertion on a Question put down by his hon. Friend suggesting that the net yield of the tax-bearing sector of the economy through S.E.T. was £45 million. The premiums paid out were £10 million and the regional employment premiums were £40 million. I see that the Minister nods his head. Had he been here when his hon. Friend the Member for Aberdeen, South made that point, he would know that I then intervened and pointed out that the calculation was incomplete. The calculation would have been valid had the regional employment premium proved self-financing as the Government said it would. In fact it has not; the regional employment premium is costing us about £100 million a year, which is paid out of taxation, much of it imposed on Scotland. That is in addition to the calculations made in the Answer. It is, therefore, not true that the net advantage of the tax to Scotland is £5 million. In fact it has a very adverse effect on the Scottish economy.

Reference has been made to the manufacturing premium and to the service industries, and I want to speak briefly about both subjects. Dealing, first, with the manufacturing premium, we do not believe that the right approach to the problem is to give a hand-out to manufacturing industry. Many of my hon. Friends have indicated that the right answer is a reduction in direct taxation rather than a system of collecting taxation and then redistributing it in the form of hand-outs in whichever way the man in Whitehall thinks right. Surely the right approach is to try to give incentives to people to make profits and not to impose further taxation on them. This is what the giving of the premium does, because it adds to the amount of revenue which needs to be raised otherwise.

In the short time available I want to make one or two points about the hotel industry because, as my hon. Friend the Member for Bute and North Ayrshire (Sir F- Maclean) said during the Third Reading debate on the Finance Bill— though he got no reply from the Minister on that occasion—and as my hon. Friend the Member for Edinburgh, West (Mr. Stodart) said this evening, the tax as it now stands discriminates in a quite absurd way between different areas of Scotland. We believe that it ought to be abolished for the entire hotel industry, but to discriminate between one area and another across arbitrary lines is quite absurd.

I hope that the Minister will answer the point raised by my right hon. Friend the Member for Argyll (Mr. Noble) about whether, even after all the adjustments which were made in the Budget, the net effect of the Budget is to increase the revenue raised from hotels in Scotland by £150,000 in a full year. We believe that the hotel industry is vital for exports or, more accurately, for earnings from abroad, because it makes a considerable contribution to our balance of payments.

It is no use the Minister of State, Treasury, as he did in his opening speech, quoting lots of figures about visible earnings because, as he knows, this country depends very largely at the margin for its invisible earnings to get us into a balance of payments surplus. Therefore the rôle played by the hotel industry, not only in this or that employment area in Scotland, but also in those areas of Scotland which do not get the S.E.T. refund, is very important. The hon. Member for Motherwell (Mr. Lawson) seemed to be under the impression that hotels get the premium. All that is happening under the so-called concession is that some hotels in Scotland will not have the tax increased.

I do not want to cover the general case against S.E.T. as the Minister of State did in his opening speech, but I feel bound to say that though he said he was going to give the figures for Scotland which he gave for the United Kingdom as a whole, he did not do so, and we shall be interested to know what are the appropriate figures which he did not quote. If they are not available, this surely is significant, because the statistics on Scotland as we now have them are inadequate.

I turn, now, to the question of the anomalies. It is true that all the anomalies which exist in the country as a whole exist also in Scotland in the S.E.T. context. But I believe that there are many others which exist only in Scotland. I shall mention only one or two. They all arise from the absurd proposi- tion in the S.E.T. that somehow the line has to be drawn somewhere, and that it is possible to get away from arbitrary decisions if one does that. I do not believe that that is so, and I want to quote one case, the absurd division between saying whether a thing is or is not a service industry. There is the celebrated case of Mr. McTavish's kitchen in Oban. As is well known, because one of the restaurants in that area, McTavish as against Archibald, is said to be a manufacturing industry while the other is a service industry, one of these restaurants pays the tax, and the other does not. As a result there are considerable variations in the prices which these establishments can charge. This is grossly unfair, and is typical of the difficulties which arise when one tries to draw the line between one establishment and another. The difficulty was brought out—and I am sorry that I do not have more time to expand it—very clearly in one of the Sunday newspapers a short time ago.

This tax creates anomaly after anomaly, and, as in the United Kingdom, it is particularly unfair on the low-paid workers. As in the United Kingdom, it has an adverse effect on nursing homes and hospitals outside the National Health Service, though these make an important contribution. As in the United Kingdom, it is unfair on the construction industry, on pensioners, and on the Co-ops, as was mentioned by one hon. Gentleman opposite. Here again we have good reason for believing that this tax ought to be abolished.

We have heard a great deal about the Reddaway Report. It would be a mistake for hon. Members, on either side, to have too great hopes of the Reddaway Report, because its terms of reference are narrowly drawn. It is concerned only with the effect of the S.E.T. on prices, margins and productivity in industry on which the tax falls as a net burden, not the other industries which may in one way or another be affected by it.

We are, therefore, firmly convinced that this tax is adverse for the economy. It is not that the tax was specifically designed to penalise Scotland—we do not think that, as some hon. Members opposite have suggested. We believe that its effect has been to penalise Scotland in particular because Scotland depends so much on the hotel and tourist industry and for the other reasons which have been mentioned during the debate.

There is no point in refining or trying to improve this tax. The fact is that it has an effect on the country as a whole which is adverse and on Scotland in particular which is adverse. The only answer is to do as we on this side are pledged to do: to abolish it at the earliest possible moment.

9.46 p.m.

The Minister of State, Scottish Office (Dr. J. Dickson Mabon)

I am disappointed with the contribution by the hon. Member for Worthing (Mr. Higgins), because I thought that he would give us in more official terms the kind of arguments that we had gracefully and effectively from the hon. Member for Galloway (Mr. Brewis). I know that the swashbuckling efforts of the hon. Member for Aberdeenshire, East (Mr. Wolrige-Gordon) do not reflect the true spirit of the Tory Party in this regard.

The hon. Member for Galloway argued a case for a payroll tax. The hon. Member for Perth and East Perthshire (Mr. MacArthur), who opened the debate, was at one time a Whip of the Tory Party when on the Floor of the House they first suggested a payroll tax. Admittedly, they did not proceed with it. The opposition to an all-round payroll tax was far too heavy even for them, with the hon. Member whipping effectively as he did, to sustain for some time. I accept the compliment, if it is the case, that the Opposition at that time drove the Government of the day not to carry on with their foolishness. This is to our credit and I accept the compliment.

Some hon. Members among the party opposite certainly dissented from an all-round payroll tax. Certainly, the so-called peripheral areas—although I resent the word "peripheral"—such as the North-East did not like the suggestion of a payroll tax. The hon. Member for Inverness (Mr. Russell Johnston)—I am surprised that he is in such bad company tonight—did not come down in favour of a payroll tax but dignified it with the wording "differential payroll tax ". I am sorry that I was not present to hear him utter those disgraceful words.

If a differential payroll tax were to be applied, it should be noted how expensive it would be and what anomalies there would be in its application. I understand that the party opposite are thinking about replacing S.E.T. with some other tax-not, as the hon. Member for Aberdeenshire, East said was their policy, replacing it with nothing, but replacing it with something. No party could possibly seek to replace the revenue yielded by S.E.T. with nothing. Hon. Members opposite are deceiving themselves and the electorate if they pretend that. I know that the more responsible among them do not believe it.

Therefore, the choice, I understand— the hon. Member for Galloway mentioned the two tonight—is between a differential payroll tax or an added-value tax such as is applied in the Common Market countries. I am disappointed with the hon. Member for Worthing for not telling us which it is to be and for not telling us of all the anomalies that its application would involve; they may be less or they may be more than are thrown up by the operation of the S.E.T. in this country and in Scotland in particular.

The hon. Member for Worthing, as an ex-professor of economics—how many professors there are on the benches opposite, I do not know—also disappointed me in not appreciating the distinction between the argument of the economists and the argument of the financiers in relation to the self-financing rôle of the Selective Employment Tax with the regional employment premium.

I ask the hon. Member for Worthing to note that the quotation which he gave from the National Institute Economic Review Bulletin was written before the operation of the R.E.P. If he does his calculation again, he will appreciate, as my hon. and learned Friend the Minister of State, Treasury argued successfully tonight, that Scotland comes out of S.E.T. and R.E.P. with a bonus. Therefore, he cannot maintain that this does harm to Scotland. That is why I congratulate him on this, for he is circumspect in this regard, that he did not devalue hyperbole by using the debating language of the hon. Gentleman the Member for Perth and East Perthshire. He described it as rather important. He did not describe it as disgraceful, outrageous and wretched.

Mr. Higgins

The hon. Gentleman is quite wrong about this. I realise that the figures I acquired from the National Institute are before R.E.P., but I answer this point, as I did in the intervention earlier, by saying that if one is to allow for the cost of S.E.T. and R.E.P., allowance must be made for the fact that this is not the distinction between financial and economic. The Government said that R.E.P. would be self-financing. It is quite clear now that it is not being so, as can be seen by examining the accounts and the tax revenue for Scotland. Allowance must be made for the burden on Scotland as a whole.

Dr. Mabon

Time does not allow me to pursue this. If we were to divert the £40 million without the self-financing procedure of S.E.T. and R.E.P. to extra expenditure on roads or some other infrastructure expenditure, that would be an additional demand on resources. It would thus involve raising direct taxation, which is exactly what the hon. Gentleman said we ought not to do. We ought to seek by different ways to achieve what we are trying to achieve in manufacturing industry.

The right hon. Gentleman the Member for Argyll (Mr. Noble) is on record—and I take it that this vote tonight is also on record—as being in opposition to R.E.P. as well as S.E.T. This is fundamental to our argument.

Public investment in Scotland is proportionately substantially higher than it is in England, and the hon. Member for Perth and East Perthshire will confirm this. He has the figures, and, as a good Scotsman should be putting it about widely that public investment on roads and housing is, quite properly, higher in proportion in Scotland than it is in England. These are the circumstances in which we are having this debate on the effects of S.E.T.

The hon. Gentleman the Member for Galloway tried to argue a point here about the construction industry, but the construction industry is being helped by having the stimulation of industrialisation. It is one of the industries which has been growing under the Government and in 1967 it achieved the highest figures in Scotland in the history of house building, and a record year in 1968 is still to come. While I accept that the cost of housing in Scotland is appreciably higher than the cost of housing in England, his party did nothing about it. We at least have asked for a full investigation and the real breakdown not of the additional £90 attributable to S.E.T. but of the £400 to £500 that represents the difference in the cost of construction.

May I now turn to points raised tonight in relation to Edinburgh and hotels. I am glad that my hon. Friend the Member for Motherwell (Mr. Lawson) emphasised that present in the House tonight are hon. Members from the North-East, Tayside and so on, but not from the central belt. Why? Because, as the hon. Gentleman readily confessed when he congratulated us on giving the concession—and I am grateful for that part of his speech—the central belt is benefiting from S.E.T. and R.E.P. But four-fifths of us live in the central belt and, while I do not take the view that the other one-fifth should be neglected, it would be no exaggeration to say that the central belt balances out any disadvantages that there may be in the Highlands. The figure on loans and grants to industry in the Highlands to June 1968 stands at £3.2 million. He cannot possibly argue a case that this is to the detriment of the Highlands, when all this investment is going to the Highlands alongside the S.E.T. and R.E.P.

I am grateful to my hon. Friend the Member for Aberdeen, South (Mr. Dewar) for quoting page 4 of the Report of the Scottish Tourist Board. We are told by the hon. Gentleman opposite and by the hon. Member for Worthing that the hotel industry is in chaos in Scotland, and that the service industries are collapsing. In a reference to the White Paper on hotel development incentives which has recently been published by the President of the Board of Trade we find this courteous compliment from the Scottish Tourist Board in its report for 1967–68: The decision of the present Government, announced prior to publication of this Report, to stimulate the modernisation of the industry by providing incentive grants for a period of four years from March 1968 to encourage the expansion of existing hotels and the construction of new ones to meet present and potential demand, is warmly welcomed by the Board. This decision, the most encouraging in at least 20 year …". That is one in the eye for the 13 years under right hon. and hon. Gentlemen opposite. [Interruption.] This Government's policies, for instance the commissioning of the Edinburgh Accommodation Survey, will be of advantage to Edinburgh as such. In addition, the Hunt Committee will be considering the position of Edinburgh in relation to development area status.

Mr. George Younger (Ayr)

On a point of order, Mr. Deputy Speaker. Is it in order for the hon. Gentleman not to refer to S.E.T. in his speech, which is what the debate is about?

Dr. Mabon

I am only sorry that we do not have more time at our disposal; otherwise I would be glad to deal with the hon. Gentleman's interruptions. We have been denied a debate on an important matter by having spent the greater part of the day debating something much less significant—[HON. MEMBERS: "Oh."] I hope that Scotland will note that right hon. and hon. Gentlemen opposite seem to think a regiment more important than thousands of jobs in Scotland.

In the three years in which we have been in power, we have provided 22 per cent. more jobs than right hon. and hon. Gentlemen opposite did. That is a direct result of R.E.P. and the other financial incentives adopted by the Government.

Taking the three years referred to by the hon. Member for Edinburgh, West (Mr. Stodart) and giving him the whole of 1964, the number of jobs projected under his fiscal policies from 1962 to was 40,000. Taking the three years for which we have been responsible, to 1967, 63,000 jobs are projected. There has been a 50 per cent. Increase in the number of jobs, in other words. It cannot follow from that that S.E.T. is ruinous and that R.E.P. is damaging Scotland's economy. It is rubbish to suggest that it can.

Right hon. and hon. Gentlemen opposite have not allowed a full debate on this subject. They want only to be abusive, and so obscure the main argument. We want to provide the best possible form of fiscal instrument to attract development and industry in Scotland.

Mr. Stodart

Mr. Deputy Speaker, I made a very good speech on the subject. The hon. Gentleman has said that he would deal with it. He has not mentioned it.

Dr. Mabon

The hon. Gentleman does me a grave discourtesy. All the references that I made to the Edinburgh Accommodation Survey and the Hunt Committee and so on were made in 90 seconds flat, and this was done for his benefit. I would have been delighted to have gone further into the subject had time allowed.

This debate has boomeranged on the Opposition. The setting of the various figures one against the other has shown a net gain for Scotland.

The hon. Member for Worthing might have been in a better position if he had been debating England or the South-East. He might have had a case then. But the present Government are dedicated to regional policies to try and help Scotland, Wales, the North-East, Northern Ireland and the south-west of England and, at the same time, to ask the Midlands, the South-East and other prosperous parts of the country to help us in that development. It is in character for right hon. and hon. Gentlemen opposite to seek to reverse that policy, as they did over 13 years.

Question put:— That this House deplores the effects of the Selective Employment Tax on industry and employment in Scotland.

The House divided: Ayes 252, Noes 295.

Division No. 280.]	AYES	[9.59 p.m.
Alison, Michael (Barkston Ash)	Biffen, John	Brown, Sir Edward (Bath)
Allason, James (Hemel Hempstead)	Biggs-Davison, John	Bruce-Gardyne, J.
Astor, John	Birch, Rt. Hn. Nigel	Bryan, Paul
Atkins, Humphrey (M't'n & M'd'n)	Black, Sir Cyril	Buchanan-Smith,Alick(Angus,N&M)
Awdry, Daniel	Blaker, Peter	Buck, Antony (Colchester)
Baker, Kenneth (Acton)	Boardman, Tom (Leicester, S.W.)	Bullus, Sir Eric
Balniel, Lord	Body, Richard	Burden, F. A.
Barber, Rt. Hn. Anthony	Bossom, Sir Clive	Campbell, B. (Oldham, W.)
Batsford, Brian	Boyle, Rt. Hn. Sir Edward	Campbell, Gordon (Moray & Nairn)
Beamish, Col. Sir Tufton	Braine, Bernard	Carlisle, Mark
Bell, Ronald	Brewis, John	Carr, Rt. Hn. Robert
Bennett, Sir Frederic (Torquay)	Brinton, Sir Tatton	Cary, Sir Robert
Berry, Hn. Anthony	Bromtey-Davenport.Lt.-Col.SirWalter	Channon, H. P. G.
Chichester-Clark, R.	Howell, David (Guildford)	Pike, Miss Mervyn
Clark, Henry	Hunt, John	Pink, R. Bornier
Clegg, Walter	Hutchison, Michael Clark	Pounder, Rafton
Cooke, Robert	Iremonger, T. L.	Powell, Rt. Hn. J. Enoch
Corfield, F. V.	Irvine, Bryant Codman (Rye)	Price, David (Eastleigh)
Costain, A. P.	Jenkin, Patrick (Woodford)	Prior, J. M. L.
Craddock, Sir Beresford (Spelthorne)	Jennings, J. C. (Burton)	Pym, Francis
Crosthwaite-Eyre, Sir Oliver	Johnson Smith, G. (E. Grinstead)	Quennell, Miss J. M.
Crouch, David	Johnston, Russell (Inverness)	Ramsden, Rt. Hn. James
Crowder, F. P.	Jones, Arthur (Northants, S.)	Rawlinson, Rt. Hn. Sir Peter
Cunningham, Sir Knox	Jopling, Michael	Rees-Davies, W. R.
Currie, G. B. H.	Joseph, Rt. Hn. Sir Keith	Renton, Rt. Hn. Sir David
Dalkeith, Earl of	Kaberry, Sir Donald	Rhys Williams, Sir Brandon
Dance, James	Kerby, Capt. Henry	Ridley, Hn. Nicholas
Davidson,James(Aberdeenshire,W.)	Kershaw, Anthony	Ridsdale, Julian
d'Avigdor-Goldsmid, Sir Henry	Kimball, Marcus	Rippon, Rt. Hn. Geoffrey
Dean, Paul (Somerset, N.)	King, Evelyn (Dorset, S.)	Robson Brown, Sir William
Deedes, Rt. Hn. W. F. (Ashford)	Kitson, Timothy	Rodgers, Sir John (Sevenoaks)
Digby, Simon Wingfield	Knight, Mrs. Jill	Rossi, Hugh (Hornsey)
Dodds-Parker, Douglas	Lambton, Viscount	Royle, Anthony
Doughty, Charles	Lancaster, Col. C. G.	Russell, Sir Ronald
Douglas-Home, Rt. Hn. Sir Alec	Lane, David	St. John-Stevas, Norman
Drayson, G. B.	Langford-Holt, Sir John	Sandys, Rt. Hn. D.
du Cann, Rt. Hn. Edward	Legge-Bourke, Sir Harry	Scott, Nicholas
Eden, Sir John	Lewis, Kenneth (Rutland)	Scott-Hopkins, James
Elliot, Capt. Walter (Carshalton)	Lloyd,Rt.Hn.Geoffrey(Sut'nC'dfield)	Sharples, Richard
Emory, Peter	LIoyd, Ian (P'tsm'th, Langstone)	Shaw, Micheal(Sc'bgh & whitby)
Errington, Sir Eric	LIoyd, Rt. Hn. Selwyn (Wirral)	Silvester, Frederick
Eyre, Reginald	Longden, Gilbert	Sinclair, Sir George
Farr, John	Loveys, W. H.	Smith, Dudley (W'wick & L'mington)
Fisher, Nigel	Lubbock, Eric	Speed, Keith
Flectcher-Cooke, Charles	Mcadden, Sir Stephen	Steel, David (Roxburgh)
Forstescue, Tim	MacArthur, Ian	Stodart, Anthony
Foster, Sir John	Mackenzie, Alsdair (Ross & Crom'ty)	Stoddart, Anthony
Fraser, Rt. Hn. Hugh (St'fford & Stone)	Maclean, Sir Fitzroy	Stoddart-Scott Col. Sir M. (Ripon)
Galbraith, Hn. T. G.	McMaster, Stanley	Summer, Sir Spencer
Giles, Rear-Adm. Morgan	Macmillian, Maurice (Frnham)	Tapsell, Peter
Gilmour, Ian (Norfolk, C.)	Maddan, Martin	Taylor, Sir Charles (Eastbourne)
Gilmour, Sir John (Fife, E.)	Maginnis, John E.	Taylor, Edward M.(G'gow,Cathcart)
	Marples, Rt. Hn. Reginald
Glover, Sir Douglas	Marten NeiI	Taylor, Frank (Moss Side)
Godber, Rt. Hn. J. B.	Maude, Angus	Teeling, Sir William
Goodhart, Philip	Maudling, Rt. Hn. Reginald	Temple, John M.
Goodhew, Victor	Mawby, Ray	Thatcher, Mrs. Margaret
Cower, Raymond	Maxwell-Hyslop, R. J.	Thorpe, Rt Hn. Jeremy
Grant, Anthony	Maydon, Lt.-Cmdr. S. L. C.	Tilney, John
Gresham Cooke, R.	Mills, Peter (Torrington)	Turton, Rt. Hn. R. H.
Grieve, Percy	Mills, Stratton (Belfast, N.)	van Straubenzee, W. R.
Griffiths, Eldon (Bury St. Edmunds)	Miscampbell Norman	Vaughan-Morgan, Rt. Hn. Sir John
Grimond, Rt. Hn. J.	Mitchell, David (Basingstoke)	Vickers, Dame Joan
Gurden, Harold	Monro Hector	Waddington, David
Hall, John (Wycombe)	Montgomery, Fergus	Walker, Peter (Worcester)
Hall-Davies, A. G. F.	Morgan, Geraint (Denbigh)	Walker-Smith, Rt. Hn. Sir Derek
Hamilton, Lord (Fermanagh)	Morrison, Charles (Devizes)	Walls, Patrich
Hamilton, Michael (Salisbury)	Mott-Radclyffe, Sir Charles	Walters, Dennis
Harris, Frederic (Croydon, N.W.)	Munro-Lucas-Tooth, Sir Hugh	Ward, Dame lrene
Harrison, Brian (Maldon)	Murton, Oscar	Weatherill, Bernard
Harrison, Col. Sir Harwood (Eye)	Nabarro, Sir Gerald	Well, John (Maidtone)
Harvey, Sir Arthur Vere	Neave, Airey	Whitelaw, Rt. Hn. William
Harvie Anderson, Miss	Nicholls, Sir Harmar	Williams Donad (Dudley)
		Wills, Sir Gerald (Bridgwater)
Hastings, Stephen	Noble, Rt. Hn. Michael	Wilson, Geofferey (Turto)
Hawkins, Paul	Nott, John	w instansley, Dr. M. P.
Heald, Rt. Hn. Sir Lionel	Onslow, Cranley	wolrige Gordon Patrick
Heath, Rt. Hn. Edward	Orr, Capt. L. P. S.	wood, Rt. Hn. Richard
Heseltine, Michael	Orr-Ewing, Sir Ian	woodnutt, Mark
Higgins, Terence L.	Osborn, John (Hallam)	worslev, Marcus
Hiley, Joseph	Osborne, Sir Cyril (Louth)	Wylie, N. R.
Hill, J. E. B.	Page, Graham (Crosby)	younger, Hn. George
Hirst, Geoffrey	Page, John (Harrow, W.)
Hogg, Rt. Hn. Quintin	Pearson, Sir Frank (Clitheroe)	TELLERS FOR THE AYES:
Holland, Philip	Peel, John	Mr. R. W. Elliott and
Hordern, Peter	Percival, Ian	Mr. Jasper More.
Hornby, Richard	Peyton, John
NOES
Abse, Leo	Atkinson, Norman (Tottenham)	Bennett, James (G'gow, Bridgeton)
Albu, Austen	Bacon, Rt. Hn. Alice	Bidwell, Sydney
Allaun, Frank (Salford, E.)	Bagier, Gordon A. T.	Bishop, E. S.
Alldritt, Walter	Barnes, Michael	Blackburn, F.
Allen, Scholefield	Barnett, Joel	Blenkinsop, Arthur
Anderson, Donald	Beaney, Alan	Boardman, H. (Leigh)
Archer, Peter	Bence, Cyril	Booth, Albert
Atkins, Ronald (Preston, N.)	Benn, Rt. Hn. Anthony Wedgwood	Boston, Terence

Bottomley, Rt. Hn. Arthur	Harrison, Walter (Wakefield)	Mitchell, R. C. (S'th'pton, Test)
Boyden, James	Hart, Rt. Hn. Judith	Molloy, William
Braddock, Mrs. E. M.	Haseldine, Norman	Moonman, Eric
Bradley, Tom	Hattersley, Roy	Morgan, Elystan (Cardiganshire)
Bray, Dr. Jeremy	Hazell, Bert	Morris, Charles R. (Openshaw)
Broughton, Dr. A. D. D.	Healey, Rt. Hn. Denis	Morris, John (Aberavon)
Brown, Rt Hn. George (Belper)	Heffer, Eric S.	Moyle, Roland
Brown, Hush D. (G'gow, Provan)	Henig, Stanley	Murray, Albert
Brown, Bob (N'c'tle-upon-Tyne, W.)	Herbison, Rt. Hn. Margaret	Neal, Harold
Brown, R. W. (Shoreditch & F'bury)	Hilton, W. S.	Newens, Stan
Buchan Norman	Hobden, Dennis (Brighton, K'town)	Noel-Baker, Francis (Swlndon)
Buchanan, Richard (G'gow, Sp'burn)	Hooley, Frank	Noel-Baker, Rt. Hn. Phllip (Derby, S.)
Butler, Herbert (Hackney, C.)	Horner, John	Norwood, Christopher
Callaghan, Rt. Hn. James	Houghton, Rt. Hn. Douglas	Oakes, Gordon
Cant, R. B.	Howarth, Harry (Wellingborough)	O'Malley, Brian
Carmichael, Neil	Howarth, Robert (Bolton, E.)	Oram, AIbert E.
Carter-Jones Lewis	Howell, Denis (Small Heath)	Orbach, Maurice
Castle, Rt. Hn. Barbara	Howie, W.	Orme, Stanley
Chapman, Donald	Hoy, James	Oswald, Thomas
Coe Denis	Huckfield, Leslie	Owen, Dr. David (Plymouth, S'tn)
Concannon, J. D.	Hughes, Rt. Hn. Cledwyn (Anglesey)	Page, Derek (King's Lynn)
Conlan, Bernard	Hughes, Emrys (Ayrshire, S.)	Paget, R. T.
Corbet, Mrs. Freda	Hunter, Adam	Pannell, Rt. Hn. Charles
Craddock, George (Bradford, S.)	Hynd, John	Park, Trevor
Crawshaw Richard	Irvine, Sir Arthur (Edge Hill)	Parker, John (Dagenham)
Cronin John	Jackson, Colin (B'h'se & Spenb'gh)	Parkin, Ben (Paddington, N.)
Crosland, Rt. Hn. Anthony	Jackson, Peter M. (High Peak)	Parkyn, Brian (Bedford)
Crossman, Rt. Hn. Richard	Jay, Rt. Hn. Douglas	Pearson, Arthur (Pontypridd)
Cullen Mrs. Alice	Jeger, George (Goole)	Peart, Rt. Hn. Fred
Dalyell Tam	Jeger, Mrs. Lena (H'b'n&St.P'cras, S.)	Pentland, Norman
Darling, Rt. Hn. George	Jenkins, Hugh (Putney)	Perry, Ernest G. (Battersea, S.)
Davidson, Arthur (Accrington)	Jenkins, Rt. Hn. Roy (Stechford)	Perry, George H.(Nottingham, S.)
Daves, Ednyfed Hudson (Conway)	Johnson, James (K'ston-on-Hull, W.)	Prentice, Rt. Hn. R. E.
Davies, Dr. Ernest (Stretford)	Jones, J. Idwal (Wrexham)	Price, Christopher (Perry Barr)
Davies, Ifor (Gower)	Judd, Frank	Price, Thomas (Westhoughton)
de Freitas, Rt. Hn. Sir Geoffrey	Kelley, Richard	Probert, Arthur
Delargy, Hugh	Kenyon, Clifford	Pursey, Cmdr. Harry
Dell, Edmund	Kerr, Mrs. Anne (R'ter &Chatham)	Randall, Harry
Dempsey, James	Kerr, Russell (Feltham)	Rankin, John
Dewar, Donald	Lawson, George	Reynolds, Rt. Hn. G. W.
Diamond, Rt. Hn. John	Leadbitter, Ted	Richard, Ivor
Dickens, James	Lee, Rt. Hn. Frederick (Newton)	Roberts, Albert (Normanton)
Dobson, Ray	Lee. Rt. Hn. Jennie (Cannock)	Roberts, Rt. Hn. Goronwy (Caernarvon)
Doig, Peter	Lee, John (Reading)	Roberts, Gwilym (Bedfordshire, S.)
Dunn, James A.	Lestor Miss Joan	Robertson, John (Paisley)
Dunnett, Jack		Robinson, Rt. Hn. Kenneth (St.P'c'as)
Dunwoody, Mrs. Gwyneth (Exeter)	Lever, Harold (Cheetham)	Robinson, W. O. J. (Walth'stow, E.)
Dunwoody, Dr. John (F'th & C'b'e)	Lever, L. M. (Ardwick)	Rodgers, William (Stockton)
Eadie, Alex	Lipton, Marcus	Roebuck, Roy
Edelman, Maurice	Lomas Kenneth	Rogers, George (Kensington, N.)
Ellis, John	Loughlln, Charles	Ross, Rt. Hn. William
English, Michael	Luard, Evan	Ryan, John
Ennals, David	Lyon, Alexander W. (York)	Shaw, Arnold (Ilford, S.)
Ensor, David	Lyons, Edward (Bradford, E.)	Sheldon, Robert
Evans, Albert (Islington, S. W.)	Mabon, Dr. J. Dickson	Shinwell, Rt. Hn. E.
Evans, loan L. (Blrm'h'm, Yardley)	McBride, Neil	Shore, Rt. Hn. Peter (Stepney)
Faulds, Andrew	McCann, John	Short, Rt. Hn. Edward (N'c'tle-u-Tyne)
Fernyhough, E.	MacColl, James	Short, Mrs.Renée (W'hampton, N. E.)
Fitch, Alan (Wigan)	MacDermot, Niall	Silkin, Rt. Hn. John (Deptford)
Fletcher, Raymond (Ilkeston)	Macdonald, A. H.	Silverman, Julius
Fletcher, Ted (Darlington)	McGuire, Michael	Skeffington, Arthur
Foley, Maurice	McKay, Mrs. Margaret	Slater, Joseph
Foot, Michael (Ebbw Vale)	Mackenzie, Gregor (Rutherglen)	Small, William
Ford, Ben	Mackle, John	Snow, Julian
Forrester, John	Mackintosh, John P.	Spriggs, Leslie
Fowler, Gerry	Maclennan, Robert	Steele, Thomas (Dunbartonshire, W.)
Fraser, John (Norwood)	McMillan, Tom (Glasgow, C.)	Stewart, Rt. Hn. Michael
Freeson, Reginald	McNamara, J. Kevin	Stonehouse, Rt. Hn. John
Galpern, Sir Myer	Mahon, Peter (Preston, S.)	Strauss, Rt. Hn. G. R.
Gardner, Tony	Mahon, Simon (Bootle)	Summerskill, Hn. Dr. Shirley
Ginsburg, David	Mallalieu, E. L. (Brigg)	Swain, Thomas
Gordon Walker, Rt. Hn. P. C.	Mal1alieu, J. P. W. (Huddersfield, E.)	Swlngler, Stephen
Gourlay, Harry	Manuel, Archie	Symonds, J. B.
Gray, Dr. Hugh (Yarmouth)	Marks, Kenneth	Taverne, Dick
Greenwood, Rt. Hn. Anthony	Marquand, David	Thomas, Rt. Hn. George
Gregory, Arnold	Marsh, Rt. Hn. Richard	Thomson, Rt. Hn. George
Grey, Charles (Durham)	Maxwell, Robert	Thornton, Ernest
Griffiths, David (Rother Valley)	Mayhew, Christopher	Tinn, James
Griffiths, Eddie (Brightside)	Mellish, Rt. Hn. Robert	Tuck, Raphael
Griffiths, Rt. Hn. James (Llanclly)	Mendelson, J. J.	Urwin, T. W.
Griffiths, Will (Exchange)	Mikardo, Ian	Varley, Eric G.
Hamilton, James (Bothwell)	Millan, Bruce	Wainwright, Edwin (Dearne Valley)
Hamling, William	Miller, Dr. M. S.	Wallace, George
Hannan, William	Milne, Edward (Blyth)	Watkins, David (Consett)

Watkins, Tudor (Brecon & Radnor)	Willey, Rt. Hn. Frederick	Woodburn, Rt. Hn. A.
Weitzman, David	Williams, Alan (Swansea, W.)	Woof, Robert
Wellbeloved, James	Willliams, Alan Lee (Hornchurch)	Wyatt, Woodrow
Wells, William (Walsall. N.)	Williams, Mrs. Shirley (Hitchin)	Yates, Victor
Whitaker, Ben	Wilson, Rt. Hn. Harold (Huyton)
White, Mrs, Eirene	Wilson, William (Coventry, S.)	TELLERS FOR THE NOES:
Whitlock, William	Winnick, David	Mr. Joseph Harper and
		Mr. Ernest Armstrong.