HC Deb 19 June 1968 vol 766 cc1116-82


Amendment proposed: No. 5, in page 8, line 36, leave out " 8s. 3d. " and insert "7s. 6d. "—[Sir G. Nabarro.]

Question again proposed, That the Amendment be made.

Sir Harmar Nicholls (Peterborough)

On a point of order, Mr. Irving. I am wondering why an Amendment which I tabled and which appeared on one Notice Paper amending Clause 13 does not appear on the current Notice Paper. I would have thought that it should have had preference over Amendment No. 7. In addition, I would have thought that Amendment No. 75 ought to have been included on the Notice Paper. It is a matter which was not discussed in Standing Committee, and it has a real bearing on the terms flowing from the Finance Bill. I think that some explanation as to why it has not been accepted is due to the Committee.

The Deputy Chairman (Mr. Sydney Irving)

Order. There has been a change in what I must point out is the provisional selection. Amendment No. 7 has been omitted, and Amendment No. 8 has been put in its place. But I cannot discuss questions on the Chairman's selection.

Sir Harmar Nicholls

With respect, that is not my point. I can understand the Chair not calling Amendment No. 7 and thinking that Amendment No. 8 would fill the bill. The Amendment to which I referred, in my name and supported by my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro), was a separate one and does not appear on the Amendment Paper. It proposed that there should not be any increase in the Corporation Tax for that part of any business which was export.

The Deputy Chairman

It would be helpful if the hon. Gentleman indicated to which Amendment he is referring.

Sir Harmar Nicholls

That is my complaint. It is not on the Notice Paper at all and does not have a number. It appeared in preliminary issues of the Notice Paper, but now it does not appear, and I wondered why.

4.0 p.m.

Sir Gerald Nabarro (Worcestershire, South)

Further to that point of order, Mr. Irving. Could we have an explanation of what has gone on in the last 24 hours on this extraordinary Recommittal stage? Certain selections were made yesterday and posted up in the Division Lobbies, as is customary. The selections comprised about 14 different debates. Yesterday, we covered about seven debates. There were about seven items not reached by the time the Committee rose at shortly after eleven o'clock last evening Some of those items which were not taken yesterday, because they were not reached, do not appear on the list of selections today. For example, the Corporation Tax Amendment which appeared yesterday does not appear today, although it was not reached.

I am now in a state of great confusion about how this selection—it is no good the Financial Secretary to the Treasury giggling. We are very concerned about this. Hon. Gentlemen opposite must not treat the matter with levity. I am inquiring how it is that we have got into this muddle. Items which were not reached yesterday, but which were definitely selected, do not appear today on the list of selections. May we have an explanation for our guidance, Mr. Irving?

The Deputy Chairman

I can only reiterate what I said to the hon. Member for Peterborough (Sir Harmar Nicholls). The list that was published yesterday was a provisional selection. It is open, as always, for the Chairman to alter the selection, and that he has done.

Concerning the original point of order, I am not clear what has happened, but I will look into the matter. If it was an Amendment that appeared earlier and we have now passed that stage, the question is already determined. However, I will look into the matter.

Sir Hairmar Nicholls

May I reserve my rights on that, Mr. Irving? If it is found that the Amendment has not been printed because of an understandable mistake on the part of those responsible, and we have passed Clause 13, can we come back to it, because I think that it is a point that the Chair and the Committee would wish to have discussed?

The Deputy Chairman

I should like to help the hon. Member. I cannot give any commitment. It is extremely unlikely, according to the rules of order, that we could return to an Amendment. The matter would have to be determined, first, by the selection by the Chairman. I will certainly look into that matter.

Sir Harmar Nicholls

I am sorry to pursue this, but that gives me no satisfaction. If, because of the rules of order, we cannot have it discussed because of somebody else's ommission, then a point that I consider to be of vital importance will not have been considered on this Recommittal stage. May I tell the Committee the point of the Amendment, because I think that it would be within the power of the Chair to accept it?

The Deputy Chairman

Order. Pro-cedurally, I can only inquire into this matter. I have to point out that the hon. Member cannot enter into a debate on this selection anyway. It is clear that if the Amendment was previous to the stage we are at now, it would be precluded from discussion even if the Chairman had been disposed to select it at the time. But the matter of selection is in the hands of the Chairman.

Sir Harmar Nicholls

I understand that, and I want to help. We have not yet passed Clause 13, and my Amendment was prior to Amendment No. 7 if it had appeared on the Notice Paper. My concern is that if by the time investigations have discovered whether or not it ought to have been on the Notice Paper, and by then we have passed Clause 13, I have lost my chance of submitting a powerful argument which, I am sure would have impressed the Committee and, indeed, the Government.

The Deputy Chairman

I can only say that I will pursue my inquiries with expedition. If they are not concluded in time, I am afraid that the hon. Member will have lost his opportunity.

Mr. John Hall (Wycombe)

This Ruling is a very understandable one, but it places the Committee in difficulty. It may well be that this Amendment has been omitted by mistake. Of course, if the Chairman has deliberately struck it off on reconsideration, this is another matter. However, if it has been omitted by mistake, and the debate proceeds before the mistake is rectified, this could mean, as my hon. Friend for Peterborough (Sir Harmar Nicholls) says, that the opportunity for debating an Amendment previously selected has gone. Is it not possible, within the next few minutes, to ascertain whether the Amendment has been deleted deliberately or by accident?

The Deputy Chairman

I will, as I have said, have the matter inquired into straight away to find out what has happened. Before we know that I cannot say anything further.

Sir G. Nabarro

Mr. Irving, I am not sure that you have yet comprehended the gravamen of the complaint—[HON. MEMBERS: "Oh."] I will not stand for the cacophony of jeers from hon. Gentlemen opposite. These are two related matters. Perhaps I may go forward in words of two syllables, so that everybody understands the issue.

On yesterday's published list of selections appeared an Amendment then numbered 7. It may have been provisional, but it was numbered 7 and it appeared on the list of selections in the Lobby. It dealt with Corporation Tax. It was not reached yesterday. The Amendment to which my hon. Friend the Member for Peterborough (Sir Harmar Nicholls) is referring—numbered 77, I believe—is also concerned with Clause 13, Corporation Tax. My hon. Friend's Amendment—his name was on it first and my name was on it second— dealt with the abatement of Corporation Tax in respect of exports. My provisionally selected Amendment, No. 7, dealt with reduction of Corporation Tax.

The two Amendments hung together and they were put on the Notice Paper for that purpose. Due to the fact that hon. Members in all parts of the Committee have no access to the Chairman of Ways and Means, we could not explain our mental machinations to him about the relationship between these very difficult matters, though they both related to Clause 13.

We hoped that the Chairman and his advisers would perceive that both Amendments dealt with Clause 13—my own with the reduction of Corporation Tax and my hon. Friend's with the abatement of Corporation Tax in respect of export performance—and we further hoped that they would be taken together. One was shown as selected. The other was not shown at all.

That was yesterday. Today, we have the extraordinary situation that the one selected yesterday has disappeared without trace and is not on the list of selections, though it was not reached yesterday, whereas my hon. Friend's Amendment has disappeared from the Notice Paper though we did not reach Clause 13 yesterday. So everybody is now in a muddle. That is really what the points of order are about.

The Deputy Chairman

I am grateful to the hon. Member for Worcestershire, South (Sir G. Nabarro). I think that I understood the point of order when it was first made. It is clear that this is a deliberate act of the Chairman in making a selection and changing what was the provisional selection.

On the point of order raised by the hon. Member for Peterborough (Sir Harmar Nicholls), we do not know how this matter has arisen. The Public Bill Office will inquire into it immediately and I will give some explanation, if possible, to the Committee. If the Committee will allow the debate to proceed, I think that would help everyone.

Dame Irene Ward (Tynemouth)

On a point of order. Everybody seems to be getting in a muddle. I should like to know whether we have to discuss some of these Amendments time and time again. Can I, as a back bencher, move the Closure, or has it to be done by the Government? There are masses of Amendments on the Notice Paper which I want to see discussed. I do not see how they will ever be discussed if we do not get on more quickly.

The Deputy Chairman

I cannot discuss selection—

Dame Irene Ward

I am not discussing selection.

The Deputy Chairman

—or the business of the Business Committee. The hon. Member for Tynemouth (Dame Irene Ward) can move the Closure, but the Chair, under the Standing Order, has to decide whether to accept it. If the Committee will allow the debate to go on, I think that we will make progress.

Dame Irene Ward

Further to that point of order. I am sorry, but I do not quite understand. I am not criticising the selection. What I am criticising is the time available for discussing certain Amendments which have been selected. Having regard to the extraordinary behaviour on the Finance Bill upstairs, I want to know whether back benchers have the right to move Amendments which hey could not move before because they were not on the Standing Committee. Now that the Bill has come back to the Floor of the House, will we be able to move such Amendments?

The Deputy Chairman

I should like to help the hon. Lady, but the matter has been decided by the House and I cannot give an)' further assistance.

Mr. Stanley Henig (Lancaster)

We now resume the debate on Amendment No. 5. I confess that at 11.15 p.m. yesterday I was all agog listening to the points which followed those-made by the hon. Member for Worcestershire, South (Sir G. Nabarro), but after this long interval it is a little difficult to pick up the threads of the debate.

We were discussing the proposal put forward by the hon. Member for Worcestershire, South, on what he no doubt though was sound economic sense, to reduce the standard rate of Income Tax by 9d. for this financial year. Although the hon. Gentleman seems to have founded some of his arguments on the economic aspects of the situation, I could not help feeling a slight suspicion that perhaps he was not unaware that it might appear outside the House to be rather popular for a person with no responsibility for the economic well-being of the country to suggest that this form of taxation should be reduced.

The central reason given by the hon. Gentleman for his proposal was that his party had pledged that if it happened ever again to be in a position of power it would move from direct to indirect taxation. That left me baffled, because barely an hour earlier the hon. Gentleman had proposed that the level of in- direct taxation should be reduced. It seemed that what the hon. Gentleman was saying was somewhat strange log rolling.

The hon. Gentleman said that the real trouble about excessive levels of direct taxation was that they were an impediment to incentive. He quoted a whole range of workers who might have their incentives removed, including people with an income of £92,500 a year. Some of us found his argument rather far-fetched.

Sir G. Nabarro

I appreciate that the hon. Gentleman does not have a copy of HANSARD to guide him. I do not trust his memory. Those of my hon. Friends who were here last evening know that I did not raise the matter of a gentleman being paid £91,300 a year. The hon. Member for Orpington (Mr. Lubbock) interpolated in my speech, "A person earning £100,000 per annum". I corrected him and said, "£91,300 per annum". I named the gentleman concerned as Mr. Aisher, Chairman of Mar-ley Tiles, and I dealt with his tax position. I then concluded that passage by saying that nobody in Britain was worth £91,300 per annum. I hope that the hon. Gentleman will at once withdraw the preposterous allegation that I advocated incentives for people earning £100,000 a year. As always, the hon. Gentleman's memory is utterly faulty.

Mr. Henig

If I attributed to the hon. Gentleman something that he did not say naturally I withdraw my remarks, and I look forward to receiving his support in due course for proposals for raising still further the level of Surtax, but I doubt whether I shall be lucky enough to get it.

It seems preposterous to argue the level of taxation is a disincentive to people earning salaries in excess of £5,000 to £6,000. If it is argued that someone with managerial responsibility will take one decision if taxation is at a certain level, and another decision if it is at a different level, we want to know more about that. I am not concerned with this small minority of people, or at any rate not nearly as concerned with them as I am with the much greater number of people who do not earn anything like that figure, but receive about £20 a week, which is what many of my constituents earn.

It is, of course, correct to say that people object to paying tax. There is nothing surprising about that. It is also true to say that people wish to receive the services which the Government provide out of the money received from taxes. People would like it both ways, but usually they are sophisticated enough to realise that that is not possible. It is not true that the present level of taxation is a disincentive to the extent that a man will say, "I shall not work any more because if I do 30 per cent. of my income will go in taxation".

If that were the case one would expect people to refuse to work overtime. Instead, there is a tremendous demand for the opportunity to work overtime. Discontent is magnified not because of the level of taxation, but because, on occasion, there is no opportunity for overtime to be worked. The facts of the situation run counter to the arguments advanced last night from the benches opposite.

Mr. Raymond Gower (Barry)

Has the hon. Gentleman no experience of working in factories? Has he no experience of the bitter complaints about the impact of taxation on overtime earnings? In some cases people are reluctant to undertake weekend work because of the impact of taxation.

4.15 p.m.

Mr. Henig

I am not disputing that people complain about taxation. What I am disputing is the contention of hon. Gentlemen opposite that the present level of taxation makes people less willing to work. Generally speaking, income levels are so low that people seize every possible opportunity to do more work. Far from the level of taxation reducing their desire to work more, it often acts the other way. If a man wishes to earn £20 a week net, and he works 10 or 11 hours' overtime to do so, and he then finds that the level of taxation is such that he receives only £19, he works for another couple of hours to earn what he thinks is necessary. That shows that any argument about the level of Income Tax being a disincentive is based on an erroneous assumption, and that we know nothing like enough about what constitutes an incentive.

I support the plea made last night by my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) for an inquiry, perhaps by the Treasury, into the exact effects of different levels of taxation on incentive. If that is done it will be possible for us to have a thorough discussion based on fact. At the moment, we have no idea of the facts about incentives. All that we have to go on are statements that complaints have been received about the adverse effect of taxation. It is not possible to make a scientific assessment on that kind of evidence.

Mr. Ted Leadbitter (The Hartlepools)

It must be understood that all taxes are bad, but that most are necessary. My hon. Friend must have no illusions about the matter. Many people quite rightly moan about the taxes they have to pay in so far as they affect their incentive to work overtime.

Mr. Henig

I am not denying that people complain about the level of taxation. I have had complaints on this score, as have other hon. Members, and I have no doubt that from time to time the Chancellor of the Exchequer receives complaints about the level of taxation. What I am saying is that one cannot, at this stage, on the basis of the knowledge that we have sustain the argument that the present levels of taxation are a disincentive, with the related implication that if we reduce the rate of Income Tax people will work harder. The facts are not complete, and until they are it is not possible to make a case on the incentive argument for a particular level of tax. We must consider other factors, too. I should not dream of suggesting that Income Tax is popular.

Mr. F. A. Burden (Gillingham)

Does the hon. Gentleman dispute that the more tax people have to pay the harder they have to work to obtain the same income?

Mr. Henig

I do not take that view. For the last time—otherwise, I am sure that you will accuse me of tedious repetition, Mr. Irving—I shall make my position clear. I say that tax levels can affect incentives in a variety of contradictory ways. At this stage of economic knowledge nobody knows the exact effect of any level of Income Tax, including the present level.

On this basis, therefore, it is quite impossible to say that people will work harder if taxation is reduced by 9d. Perhaps they will be happier. I do not dispute that. Perhaps they will have more money in their pockets at the end. That seems obvious. But there is no direct evidence that the result of reducing the taxation level in accordance with the terms of the Amendment will cause people to work harder. That was the specific point, and I have answered it.

I now move to another point made by the hon. Gentleman and supported by his hon. Friend, concerning the so-called brain drain, the implication being that talented and trained people were leaving this country because of the level of taxation. We do not know enough about this, although there has been a report on it. More needs to be known. But in comparing this country with the United States the level of taxation, even marginal taxation, is not the main factor; the level of salaries is the factor to be taken into account. A young person with a university degree, trained in a special field, will, in gross, net, or any other terms, earn a great deal more in the United States than in this country. Even if taxation levels were the same that would still be the case. No change proposed in this Bill can get round that point.

In putting forward his Amendment it seems to me that the hon. Gentleman must have been moved by one of two considerations; either somewhere along the line he will suggest to the Chancellor that the necessary money should be raised in other ways, or that less money is needed. No speaker has yet disputed the fact that a considerable amount of money needed to be raised this year. That makes nonsense of the actions of hon. Members opposite who, every time we discuss a financial provision for raising more revenue, put forward proposals not to raise revenue in the way suggested. Somewhere along the line they must put forward alternatives.

If the Financial Secretary were thinking of reducing the level of taxation to 7s. 6d., I would suggest to him that a much higher priority ought to be given to thinking in terms of whether we can bring about a state of affairs in which people who are now liable to Income Tax but perhaps pay only about £5 a year or £6 a year ought to be exempt altogether. This would save a tremendous amount of money. It would reduce hardship to some extent, and provide a much more sensible change, in the context of what can be achieved, than the course advocated in the Amendment.

I turn, finally, to the argument about savings. It is true that money raised in taxation, and especially direct taxation, must reduce the amount of money left over for people's consumption and, therefore, for saving. To that extent we are not increasing overall saving in the public and private sectors. None the less, we cannot sustain the argument that if £100 million is raised in taxation all of that sum must, of necessity, come from the section which would otherwise provide savings. It is not enough to look at one sector of savings—National Savings Certificates, or piggy banks under the bed; we must look at the whole sector.

We must also consider the effect of this kind of increase in taxation. It may not increase overall saving by an amount close to the amount of the increase in taxation, but there must, nevertheless, be an increase in the overall amount of money saved by public and private sources, and to that extent it cannot be attacked on the ground chosen by the hon. Gentleman.

This Bill aims at raising a considerable amount of money because of our economic circumstances and nobody has disputed that about the right amount is being raised in total. That being so, it follows that to accept the Amendment and so reduce the amount of revenue raised by £170 million, would create a position in which the Chancellor, or somebody, would have to put forward alternative proposals for raising the £170 million or, alternatively, for making the appropriate cuts in expenditure. If the future course of this Committee's proceedings are to be taken up with a series of suggestions by hon. Members opposite for reducing taxation we should like to hear some mention of what the alternatives are.

They must either tell us where the extra revenue is to come from or state precisely in what respect expenditure is to be cut. Unless they do this we can only conclude that this Amendment and others like it have been put down for purely political reasons, so that hon. Members opposite may go back to their constituencies and preen themselves on having been in favour of reducing certain taxes although the truth of the matter is that they have put down their Amendments simply to have a good time, and without any serious thought—and probably praying that the Government would do the right thing by them and reject them out of hand.

4.30 p.m.

Captain Walter Elliot (Carshalton)

I thought that last night both sides of the Committee had reached some agreement that it would be useful to consider the disincentive effect of high taxation. I do not dispute the importance of the contribution made by anybody working in industry, at whatever level, but this country relies for its prosperity to a tremendous extent on a comparatively small number of clever, industrious and courageous men. I am convinced that even those men have to weigh the risk they take against the gain that they are likely to make. I am also convinced that levels of high taxation are a great disincentive to risk taking, and that the nation loses as a result.

My hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) made a sustained and powerful speech in support of the Amendment, and I am glad to be able to support what he said. It is generally agreed that the Budget is designed not only to raise cash to pay the bills but also to regulate the economy. At the time of devaluation all Government pronouncements gave weight to the belief that the financial sacrifices which we were warned we would have to shoulder were designed to regulate the economy.

We were told that we must cut consumption so as to make room for exports. In his Budget speech the Chancellor pointed out that in comparison with other countries home consumption formed too high a proportion of our gross national product, and that we ought to change it. In the Budget, to my astonishment and that of many other people, I find that Government expenditure is rising by about £1,000 million—rather more than the increased burden of taxation that is being placed on the nation.

Therefore, in spite of what the Government said at the time of devaluation, the increase in taxation was not to regulate the economy but to raise cash for these additional bills. The Chancellor confirmed this in his Budget speech, when, referring to Income Tax, he said: In the context of this year's Budget needs, a reduction will of course be out of the question. He added: It has required great effort to avoid an increase."—[OFFICIAL REPORT, 19th March, 1968, Vol. 761, c. 296.] Shortly before the Budget, we had Supplementary Estimates of over £500 million, and, with the vast Budget increase of £1,000 million, the impression was given that Government expenditure was out of control. At the time of devaluation and the Budget, the country was ready to accept financial austerity, even hardship, if at last we were getting out of our difficulties. They might even have accepted Income Tax at 8s. 3d. But it is unacceptable if this impression is given.

The argument has been advanced that it is unrealistic to reduce taxation now. The Chancellor said that in his Budget speech. It is always difficult, within our procedure, to consider these as a whole and we must always argue on comparatively small points related to particular Amendments. But I do not accept that reducing Income Tax, in particular, is out of the question. One of the main criticisms which has grown up since the Budget is that it completely neglected positive and dynamic methods of raising savings. I have made a speech recently about this.

My hon. Friend the Member for Worcestershire, South pointed out yesterday to the hon. Member for Lancaster (Mr. Henig) that the more savings we had, the less we had to be taxed. The Chancellor said in his Budget, referring to the great effort needed to avoid an increase in Income Tax: … for reasons I gave in the passage introducing my measures I believe this effort to be worth while. No earned income … will therefore be subject to higher direct taxation. This I believe to be justified on the ground of incentive. I do not know if this was what he was referring to, but in his introductory remarks he had said: But our direct taxation on earned incomes is comparatively high. It may, indeed, be too high…."—[OFFICIAL REPORT, 19th March, 1968; Vol. 761, c. 296, 276.] I appreciate the dilemma of the hon. Member for Loughborough (Mr. Cronin) yesterday in saying that it harmed the Socialist Party to be labelled the party of high taxation. It reminded me of a useful survey published in one of last Sunday's newspapers, showing that 95 per cent. of those who had been tattooed wished that they had not been, but that they had it for the rest of their lives. In the same way, with Socialism, high taxation is unavoidable—

Mr. John Cronin (Loughborough)

Am I following the hon. Gentleman's argument? If one is tattooed, it is possible to have it excised, and it is possible that the Labour Party will be converted to my ideas of lower direct taxation.

Captain Elliot

If that did happen, Socialism as we know it would be dead.

Income Tax is not comparatively high: it is far too high. If the Chancellor had made determined efforts to stimulate savings by methods like high pressure advertising and making it worthwhile, a reduction of taxation would have been possible. That is why I support the Amendment.

Mr. Laurence Pavitt (Willesden, West)

The hon. Member for Carshalton (Captain W. Elliot) fairly picked up the point of my hon. Friend the Member for Lancaster (Mr. Henig) that, if taxation is reduced, something must be substituted for it, and said that, if public expenditure, which is being increased by £1,000 million, were reduced, taxation could be reduced. I refute his argument, because public expenditure is not an end in itself. It is necessary because we are seeking to do things in common which, individually, we are not powerful enough to do. I should like to increase public expenditure because there are many things which I want done and what cannot be done otherwise.

There are primary schools in my constituency which were built in Queen Victoria's time and should have been pulled down 30 years ago. Some were bombed in the war but others remain; I want more expenditure on schools. Some classes are too large and there is a wide immigration problem. Because of language problems, more money is needed for teachers for more teachers mean smaller classes. I would like to increase the pay of nurses, who are grossly under- paid. The recent Mental Health Week, in which many of us took part, showed that, unless there is more expenditure on mental health, our claim to be civilised will be challenged simply because we are not doing our duty by those who, in the stresses of modern civilisation, are unfortunate enough to need some care from the Health Service for mental illness or subnormality.

Therefore, I oppose the Amendment because I refute the argument that one could decrease public expenditure to compensate for lower taxation. Precisely the reverse is the truth if one wants a community to be more effective. Even in the recent cuts, we still made some increases over the areas of social welfare which are so important; where there were cuts they were only in the level of increase and not directly a reduction in the expenditure on the Health Service or education.

The basic question in the debate on the Bill and particularly this Amendment is the constant feeling which has grown up in the last two years, aided by the Press and public debate, that direct taxation is bad, and indirect taxation is good. It has been implied that we have reached such a point in our direct taxation arrangements that when the Government seek to raise such sums as the £923 million contained in the Finance Bill they must choose goods and services to bear additional tax.

Whatever views hon. Gentlemen opposite hold, my hon. Friends and I have always believed that we should tax people according to their ability to pay. If the Amendment were accepted, and a decrease in the standard rate of Income Tax occurred—this is the next argument, because I have rejected the solution of reducing Government expenditure on worthy social services—the result would be an increase in indirect taxation.

Although increases in indirect taxation may appear minute in terms of many goods and services, old-age pensioners, members of the lower income groups and people on small fixed pensions must pay precisely the same for their goods and services as the millionaire. I have, therefore, always rejected the idea of high indirect taxation to replace the standard rate. One should pay according to one's means, spread right across the board, so that the less well off are not penalised.

The indirect taxation argument has gained ground in the Committee and elsewhere mainly because increases in that form of taxation are not so noticeable. Compared with the system that operated before the war, P.A.Y.E. is not as simple, but it demonstrates to the taxpayer precisely what deductions are being made each week from his wages. He can observe the amounts that are deducted from his pay packet for various items, he is conscious of what he is paying and, as hon. Gentlemen opposite have said, often he resents having to pay.

At the same time, of course, he is being taxed to a greater extent on a wider number of articles and commodities; and now, with S.E.T. extending to an even wider range of services, it seems that what one does not observe is not necessarily bad if the Government can get away with it. This is bordering on dishonesty. We are raising taxation in a hidden and subtle fashion by placing a little extra here and there so that people do not notice what they are paying.

Because of the tremendous campaign conducted by the C.B.I. and others— they have done their stuff in articles in learned newspapers, on the radio and on television—people have become brainwashed into thinking that indirect taxation is the best way to solve this problem. We are saying to the Chancellor, in effect, "If you must raise money, please raise it as painlessly as possible and, if possible, arrange things so that we do not notice the increase".

This approach may be acceptable to hon. Gentlemen opposite—remembering that their opinions are different from ours and that there is a wide gulf between the two sides of the Committee about how the economy should be run—but is it all right for the people in general? My hon. Friends should not be too ready to fall in with this general consensus about indirect taxation.

Mr. Gower

Does the hon. Gentleman appreciate that there is another computation, in the sense that the wage earner whose tax is deducted from his pay has no selection since, whatever he may think, Income Tax is deducted from his earnings in any event? Selection is available in relation to indirect taxation, since if one does not wish to smoke or drink alcoholic beverages one need not pay the tax that is levied on those items.

4.45 p.m.

Mr. Pavitt

That is a current argument. It is easy to say that if one has half a crown in one's pocket one can elect how to spend it. I agree that one need not drink or smoke, but can one avoid buying clothes? So many commodities are taxed nowadays that when the Chancellor finds it necessary to raise more revenue he must spread his taxes as widely as possible. As this tendency has been increasing over the years—it has been part of the exercise during the last two or three years—the area of selection is reduced.

I do not smoke and I can avoid indirect taxation by not smoking. The same can be said of the luxury items covered by the first few Clauses of the Bill, but when one considers the articles covered by Clauses 46 and 47 one sees that there is little selection or option, along with the fact that S.E.T. must be taken into account, which means that everybody is paying for that together with the other new taxes.

The need for financial incentives is another theme which always runs through Finance Bill debates. All too often hon. Members argue that if only workers can be shown that they will receive more money for more work, all our problems will be over. Things do not work out this way in a complex society like ours. One need only consider the way in which the pay packet of the average American trade unionist is arranged to see that the "more money for more work" argument is not the best one. The trade union movement in America has organised things in such a way, particularly for automobile workers, that the general standard of living of workers has tended to increase in the last 15 years or so. The unions there are concerned more with fringe benefits than with financial rewards to ensure that workers have a good life.

The same applies to the nationalised industries in France, which, I am pleased to see, are returning to normal working after their enforced holiday. The worker's pay packet in, for example, the nationalised Renault factory is only a part of his remuneration, the company gives holidays for workers' children and many other fringe benefits. The same can be said of most Common Market countries, in which there is a wide range of rewards in addition to wages. If productivity is to be increased, fringe benefits are often more important than money incentives.

My hon. Friends should be thinking more seriously about the road along which the Finance Bill is leading us. I urge them not to entirely accept the blandishments of hon. Gentlemen opposite or the amusing way in which the hon. Member for Worcestershire, South (Sir G. Natoirro) is able to adduce his arguments. Nor should they accept the blandishments of the C.B.I. and those who write learned articles in the Economist and other publications. "According to one's ability to pay" is an excellent maxim. The standard rate of Income Tax is based on this principle; I hope that it will remain and that the Amendment will be rejected.

Mr. Geoffrey Hirst (Shipley)

We have just listened to an interesting speech from the hon. Member for Willesden, West (Mr. Pavitt), whom I can only call one of the high priests of Government expenditure. I urge him to accept that if the Government are to argue against the Amendment intelligently they must get their priorities right. The economic difficulties in which we find ourselves are due largely to the demand which the Government have made on the economy by way of public expenditure. They have squeezed the productive end of industry to maintain their case, although they have been arguing on a false premise.

I have no doubt that all hon. Members could quote instances of desirable public expenditure. For example, there is a school in my constituency which needs to be replaced. It should be given as much priority as any other school, but I would not think of pressing for it to be given priority if I thought that it would injure the economy. We must get our priorities right.

There is nothing particularly political about the Amendment except that we are all politicians. If this has not occurred very much in earlier years it is substantially because, under the Tory Party, taxation was continuously reduced. There were a few exceptions, but the trend was towards reduced taxation, just as under the Labour Party the trend has been towards increased taxation.

Mr. Burden

Would my hon. Friend agree that in 13 years the Conservatives reduced taxation by £2,000 million, whilst the Socialists have increased it by that sum?

Mr. Hirst

The Labour Government have increased the rates of taxation so substantially that those are the mathematical sums involved. If, in the one or two years when they had the opportunity, they were not wise enough to seek reductions of taxation of this character, it is because they do not like hearing it. Incidentally, the Financial Secretary does not like hearing it. The Labour Party is a high tax party. It likes high taxes because they are synonymous with the Labour Government's excessive demands on the economy—

The Financial Secretary to the Treasury (Mr. Harold Lever)

I hesitate to interrupt the hon. Gentleman, but I am not sure what it is he said that I do not like to hear.

Mr. Hirst

The Financial Secretary does not like to hear it said that the Labour Party is a high tax party. If he wishes, I can refer him to what he has said on the subject, but he may remember it. When I say this, I am not making a dig at the hon. Gentleman. I said it because he was sitting there, and I happened to recall what he had said earlier.

The Conservative Party is not being unrealistic in once more putting forward, as it has done in each of the last two years, an Amendment of this kind. Last night, the hon. Gentleman the Member for Loughborough (Mr. Cronin), in an interesting speech, with the latter part of which I found myself in some agreement, made the point, as no doubt will the Financial Secretary, that this Amendment is unrealistic in the present state of the economy. It is the present Government that have raised taxation to its present heights, which may account for the present state of the economy, but what I ask is whether, given the need for collection, we would have adopted the same method. The answer, quite clearly, is that we would not. We believe that high rates of taxation are bad for the economy, for the industrial health of the nation and for the incentive to the individual, and they add very much to costs.

Mr. Cronin

I take the hon. Gentleman's point that during the 13 years of Conservative Government there was some substantial reductions in taxation but, in fairness, he should bear in mind that as the result of the continuous inflation that took place during that time, more people paid Income Tax than ever before, and more people paid more Income Tax than ever before.

Mr. Hirst

The hon. Gentleman must really think things out before he starts to speak. Does anybody who goes about the country dispute the fact that people were then, in terms of spending and wages, infinitely better off under a Conservative Government than they are now? The whole point is that we kept ahead of the situation, and we were, in fact, expanding the situation. High rates of taxation always make for a stagnant economy, and that we have. We have to free the situation, and give the economy a chance to grow. That is not done by putting on all sorts of taxes, repressions, and interferences, and calling for all sorts of reports and surveys, but by giving people the chance to use their initiative.

We shall no doubt have the usual reply from the Financial Secretary—I can nearly work out the answer beforehand. I do not blame the hon. Gentleman in the slightest. Every Treasury brief has always been marked in the same way, " This will cost so much." That is not an answer, because it assumes that we accept the situation into which the present Government have got the country. It is their job to get us out of the difficulty and it is our job to jog them on. This Amendment is put forward as one means of doing that. Whether or not the figure is right is not all that important. My hon. Friend the Member for Worcestershire, South would not argue particularly about a specific figure. Anyone can always start knocking figures about. But the principle behind the Amendment is right.

We have just been told by the hon. Member for Willesden, West (Mr. Pavitt), as we were told last night, and as we were told by the Financial Secretary on 20th June, 1966, when he and I took part in a similar debate from our respective back bench places—we are always being told—that the broader backs must bear the burden. We have been told that about half a dozen times, and it bores me stiff because no one doubts it. But if the burden on the broader backs is too great we get a disincentive which not only affects the broader back of the person who is burdened, and lowers his interest and enthusiasm for his job but this goes right through industry. It is some of the top earners—to get to the Surtax aspect—who have the necessary courage and experience, and an ability acquired by the great majority of them, from working their way up through industry. We know that, and the Government acknowledge it by trying to get some of those men to run the nationalised industries. They have had extreme difficulty in persuading them to do so, though some have agreed at great financial loss. Those are the people to get the economy cracking. They have the know-how to bring in the business—

Mr. Henig rose

Mr. Hirst

No, I do not want another professorial effusion. The hon. Member will do better to give it to his Fabian colleagues.

The people to whom I refer are the very essence of the economy. Right at the other end of the scale there is the worker, whose incentive is disadvantaged all the time by taxation.

I do not necessarily consider that every time a downward adjustment is made to taxation it must follow on all the way through to every single grade of lower rates. Basically, I agree that that principle is right, but when the crying need is to get the economy going—and there certainly now is a greatly growing need —one has to adjust one's arguments a little. Present taxation is such that many workers, and particularly the skilled workers, working overtime run into considerable liability of taxation at the standard rate. We have to say that that rate may have to be altered this year but that the compensating alterations all down the scale must come later.

I know that one of the factors in the argument against the Amendment will be the cost of the follow-through to the lower rates of tax.

5.0 p.m.

I remind the Committee and the Financial Secretary of the interesting conclusion to the speech of the hon. Gentleman on 20th June, 1966, to which I have referred. He ended: I have never quite overcome my childhood experience in relation to the Income Tax some 40 years ago when my father first informed me that there existed such a tax. I learned of this fact with some horror, a horror which was not at all mitigated by the further fact that my father informed me that the gentlemen who collected it were the only licensed burglars permitted by the Government. I have only partially recovered from that instruction, but never wholly."—[Official Report, 20th June, 1966; Vol. 730, c. 69.] This Bill publishes the name of the Financial Secretary as the deputy chief licensed burglar.

Several Hon. Members rose

The Temporary Chairman (Mr. Grant-Ferris)

Mr. Harold Lever.

Mr. Eric Lubbock (Orpington)

On a point of order, Mr. Grant-Ferris. There were five hon. Members standing up on this side of the Chamber and about three on the other side. Surely the Financial Secretary has risen too soon.

The Temporary Chairman

I think that the hon. Member knows the custom of the House of Commons well. If a Minister rises, he is entitled to be called.

Mr. Lubbock

Yes, Mr. Grant-Ferris, but I wonder whether the Financial Secretary would like to hear me before he makes his reply.

Mr. Gower

On a point of order, Mr. Grant-Ferris. Surely a new principle has now been enunciated. It has never been a principle of the House of Commons that if a Minister rises he is automatically called.

The Temporary Chairman

I did not say that it was a principle of the House of Commons. I said that it was a general custom of the Chair that when a Minister rises he is entitled to be called.

Sir G. Nabarro

Further to that point of order, Mr. Grant-Ferris. The prerogative is entirely yours as Chairman as to the moment at which you accept the Closure to the debate. As we are debating matters which influence the collection of taxation in the current year of £4,651 million, may we have your assurance that you will not accept the Closure until any hon. Member of this Committee who was disfranchised from sitting on the Standing Committee has been heard?

The Temporary Chairman

Again, I think that the hon. Gentleman knows very well that I have no power to accept a Motion for the Closure. Only the Chairman of Ways and Means or his deputy can accept it. In that case, I cannot see that there is any substance in the hon. Gentleman's point.

Mr. Lever

It is not my wish, particularly in the circumstances of this debate, which is intended to give the maximum ventilation to the views of back benchers, to act contrary to the manifest desires of the Committee. I was not in any way seeking to wind up the debate. That is not in my power, and it is not my wish to do so. But it seemed to me that this was a moment when I might usefully put forward the Government's point of view.

However, if hon. Members prefer, as appears to be the general wish, that I should defer doing so for a moment, I shall be perfectly happy to do so. I should just like to make it plain that in rising at any point I have neither the wish nor the power to wind up the debate. Since it appears to be the general wish that other hon. Members should address the Committee further before hearing the Government point of view, I shall yield to that wish.

The Temporary Chairman


Mr. Lubbock

I think that we should congratulate the Financial Secretary on his reasonable attitude. It is obviously for the convenience of the Committee. About eight speeches remain to be made, and there may be fresh points which the hon. Gentleman may wish to answer in his reply.

Sir Douglas Glover (Ormskirk)

On a point of order, Mr. Grant-Ferris. To be fair to the Committee, I think that I should point out to you that I feel that as the Financial Secretary to the Treasury intervened and then sat down the Labour Party has lost a speaker.

The Temporary Chairman

Again, that is entirely in the prerogative of the Chair. The Chairman will call hon. Members as he thinks best. I (have called Mr. Lubbock.

Mr. Lubbock

I think that the Financial Secretary has enabled the Committee to save some time. If he had later had to listen to the other eight speeches and fresh points were raised, it would have meant that he would have had to rise again to answer them. So he is to be congratulated on his sensible attitude.

I take up an extraordinary point made by the hon. Member for Willesden, West (Mr. Pavitt) in arguing whether Income Tax should be replaced by some other taxation which one does not notice. He gave a most bizarre example, mentioning Selective Employment Tax. I always thought he was a staunch Co-operator, and my understanding is that the Cooperative Party does not like the Selective Employment Tax much. It has sent memoranda to hon. Members opposite protesting vigourously against it. It does not like it as an alternative to direct taxation.

Mr. Pavitt

The hon. Gentleman must have misheard me. What he is saying is contrary to what I said. I voted against the Selective Employment Tax in Committee.

Mr. Lubbock

I thought the hon. Gentleman said that people do not notice the Selective Employment Tax. If that was his proposition, it cannot be pretended, because everybody notices it. If one notices that prices in a shop have gone up and asks why, the shopkeeper will say that one of the main reasons is the Selective Employment Tax. If the suggestion were that the Selective Employment Tax was an alternative to direct taxation, I should rebut it immediately.

The hon. Member referred to this as part of his general argument that we should transfer some of the burden from direct taxation to indirect taxation. He produced all the usual arguments about the regressive effect of direct taxation, and said that if the taxes on commodities were increased the people who suffered were those with the least ability to pay because they have not the wide choice that some may say applies in respect of alcohol and tobacco.

Thus, if one broadens the base of taxation, such people cannot help paying. That was the sense of the hon. Gentleman's proposition, and he argued as a result that one should not have any increases in direct taxation to enable one to reduce the standard rate of Income Tax. If that argument were carried to the extreme, we should not have any direct taxation at all. One might say that Purchase Tax is regressive, but that one should increase it to raise the revenue which we are raising at present by indirect means.

Mr. Pavitt

I was arguing the precise opposite to what the hon. Gentleman is saying, in favour of direct taxation and against indirect taxation. He seems to be putting words into my mouth that I never uttered.

Mr. Lubbock

I think that I understood this part of the hon. Gentleman's speech even if I misunderstood him about the Selective Employment Tax. He is arguing against indirect taxation because he says it is regressive. I merely say that if one accepts that as a general principle one goes much further than we have done even under the Labour Government in increasing direct taxation—Income Tax, in particular—so that one can sweep away Purchase Tax and other indirect taxes.

I suggest that one can then go further. For instance, old-age pensioners and other people on fixed incomes use trains and buses, electricity or gas, and pay rates. It might be suggested that we should freeze all these costs and say that if those who impose them incur any losses—for example, if the gas or the electricity industry has a substantial deficit—all the cost must be financed out of increases in direct taxation because it would be wrong to make people pay any more for gas or electricity. I am not saying that I approve the increases that have been imposed, because there are other arguments, but I am drawing attention to the alternatives which there might be in respect of the question of how much direct taxation we should have.

Much argument has been advanced about the disincentive effects of direct taxation. I do not think anyone has the answer to it. The most sensible contribution yesterday was made by the hon. Member for Ashton-under-Lyne (Mr. Sheldon), who proposed that we should carry out some research into the disincentive effects on particular classes of the population. The hon. Member for Worcestershire, South (Sir G. Nabarro) has drawn attention, in particular, to the plight of the higher executives who are receiving what we would consider astronomical salaries, but I do not think that this is the crux of the problem.

But perhaps we could find out whether these people are not doing their jobs properly because of the crippling effects of Income Tax. If that is so, let us know about it by making suitable inquiries through the universities or some other means of research. It is incredible to me that, after Income Tax has been going for so long, no one really knows the answer to this question. Perhaps it was not so important when the rates were at much lower levels, but surely someone should have been interested enough in the Treasury to find out what is the effect. on a person's ability and willingness to work of a given level of taxation.

Sir Harmar Nicholls

The hon. Gentleman asks for some research into the effect of high taxation. I would have thought that he would have known, as the Treasury does, that the effort spent on tax avoidance and on how to get the best out of the present horrible system wastes so much time and brain power that it retards the forward movement of the country.

Mr. Lubbock

I agree that it is a qualitative argument that the fact that people spend so much time, effort and money on finding means of avoiding tax shows that direct taxation is highly obnoxious to the vast majority of the population, but as we have to have tax at some level the question is at what point taxation becomes self-defeating in its objective, which is to raise revenue with the least possible disruption to the economic life of the community. I do not suppose that, if we were to decrease Income Tax as suggested in the Amendment, people would suddenly stop trying to find ways of avoiding paying tax. They might not put so much effort into it, however. But we want to know what is the effect of a given level of taxation quantitatively as well as qualitatively.

We do not just want to know whether Mr. Aisher finds it a great burden—I quote his name only because it was mentioned last night—but does it cause him to work less hard than he would effectively do to pay less tax than he does? Does it cause the hon. Member for Worcestershire, South to contribute less to the community because he has to pay 18s. 3d. in the £ on every £ he earns—or is it on the final £ he earns? I do not think that it does in the hon. Gentleman's case, because I am a great admirer of his work and I think that he puts in a tremendous amount of time in the House and no doubt gives equally effective attention to the affairs of his business.

But the hon. Member may not be typical. There may be others in this category who say, "What the hell ! If the Government are to take all this money from me, I shall spend the maximum amount of time I can in the South of France, or at Ascot, and shall not give the proper attention to the affairs of my business as I should."

Sir G. Nabarro

Would the hon. Gentleman depart from the £91,300 per annum involved in Mr. Aisher's case and also from my case and apply himself to what I emphasised last night—the case of the salaried executives and skilled technologists and craftsmen earning between £1,200 and £4,000 per annum? I said that, over £1,200 and up to £4,000 per annum, there was a plateau. Over £1,200, they suddenly start paying one-third of the extra £ they earn in direct taxation. This is disastrous to increasing national prosperity. Leave me and Mr. Aisher out of it. I am the most untypical character in the world.

Mr. Lubbock

I do not intend to pursue the question of high-salary earnings. I made these remarks only to show how little we know about the situation and to reinforce the plea of the hon. Member for Ashton-under-Lyne that the Treasury should do research on this. But I agree with the hon. Member for Worcestershire, South that the vast majority of people who might be affected adversely by the standard rate of Income Tax are not those in the £91,000 category, of whom there are very few. If there are disincentive effects of taxation the harm that is done is where the hon. Gentleman mentions it as being—between £1,200 and £4,000 per annum, where the vast majority of standard rate of Income Tax payers are concentrated.

They include also many skilled workers as well as executives, and we must consider whether the standard rate is a disincentive to them. Such people as skilled engineers are probably earning over £1,200, and if they get a rise or do a certain amount of overtime they know that Income Tax will be deducted from it at the standard rate.

5.15 p.m.

My hon. Friend the Member for Colne Valley (Mr. Richard Wainwright) raised a point in Committee to which I ask the Financial Secretary to give further attention. Have we not got a psychological defect in our tax structure when we speak of the standard rate of 8s. 3d. in the £? The people whose income is wholly earned never pay such a rate, since they qualify for two-ninths earned income relief, so that the effective marginal rate is 6s. 5d. in the £.

My hon. Friend suggested that, to make the estimate much simplier, one should call it 6s. in the £, and he proposed an effective reduction of 5d. in the standard rate so that everyone would know that, if they earned another £, 6s. of it would be taken by the Chancellor. The present system is a complicated piece of arithmetic for most people, who still imagine that they are paying 8s. 3d. in the £.

When people come into my advice bureau and say, "I earned X amount last week in overtime and I pay 8s. 3d. in the £", I point out to them that, while I agree that tax rates are too high, they pay 6s. 5d., taking into account the two-ninths earned income relief.

We should think about the way we present these taxes so that the standard rate would apply to earned incomes, but then we could have a supplement or something to bring it back to the existing level of earned incomes rather than the other way round. We should add on for unearned incomes rather than earned incomes.

Mrs. Freda Corbet (Peckham)

I hear workers say that they would actually lose at least half of the extra money they would be earning. Does not that confirm what the hon. Gentleman is saying about the need to inform people properly of what they lose?

Mr. Lubbock

I agree that one of the anomalies may be that, if one moves into a higher tax bracket by doing a certain amount of overtime, one finds in any particular week that the amount taken is far higher than 6s. 5d. I have mentioned this as a detailed point which the Treasury might have a look at in its construction of the tax tables.

But I want to return now to the general position of those most affected by the Amendment—those earning between £1,200 and £4,000 a year—and to the question whether we should try and discover their motivations and whether the present level of direct taxation is a disincentive. There is evidence on both sides and I do not know the answer.

It may be argued that because people are willing to do the immense amount of overtime which has been done in this country for many years, taxation does not have any direct disincentive effect and that although the Englishman grumbles, which is his traditional right, he will go on working overtime and demand it, and in some industries, such as building, accept a job only if overtime is provided. I suppose that those who disagree with us will say that it proves that there is no disincentive effect when in the building industry the working week was 56 hours when I last looked up the figures.

Conversely, there are people who do not do overtime, and certainly it is the case that whenever employers have presented trade unions with agreements by which overtime could be reduced or almost eliminated, such agreements have proved broadly acceptable. For example, such arrangements have been made in the electricity supply industry. I do not think that workers want to do an enormous amount of overtime. They would prefer a basic working week, with an adequate salary for it, not having to go on for 56 hours a week as some of them do.

Last night, the hon. Member for Worcestershire, South mentioned the Jones Report. I want to refer to it, because it gives at least some evidence of the effect of Income Tax rates on the decision of those who consciously decide whether to go abroad, especially to the United States. Dr. Jones says that Income Tax does not play quite such a dominant part in the decision to emigrate as might be imagined. He says that it is the difference between the salary structures of this country and the United States which causes people to emigrate.

Whereas people in this country start at a level which is only a third or a quarter of their final salary, in the United States they might get as much as half their final salary on first leaving university or technical college, so that the differential is much more marked in the age range of 25 to 35, when people are still reasonably free to move around, when they do not have family ties, when their children are still not at school, and so on, whereas later they have settled down and struck roots in their home country. This is a more important factor than the level of taxation in persuading people to emigrate.

But Dr. Jones went on to say that once people had taken the plunge and gone to the United States and one was trying to persuade them to return, as the Government have from time to time—Government agencies, the Atomic Energy Authority, for instance, have sent teams to the United States to try to persuade British graduates to return and take up employment in the United Kingdom— people started to look at tax rates in the United Kingdom, and taxation was then one of the factors which caused them to say that they preferred to remain in the United States.

Sir Harmar Nicholls

So it is a factor.

Mr. Lubbock

It is a factor in that direction, but not in the decision whether to emigrate. I mention this because it reinforces my plea for much further research, and the Treasury is probably the only body which can undertake it. The Jones survey was extremely welcome, but it covered only one element in the problem which has to be tackled.

Finally, I want to introduce a slight note of controversy. While it is perfectly legitimate for me to argue for reductions in taxation, it is hypocritical of the Tories to do so, because of the vast increase in spending which they have demanded in other debates.

Mr. David Webster (Weston-super-Mare)

Did not the hon. Gentleman lead the Liberal Party into the Lobby last week in support of the Government giving an extra £1,200 million to the Gas Council?

Mr. Lubbock

As the hon. Gentleman knows, that was not an expenditure which would have to be met in the current financial year. It would be out of order to pursue that matter in any detail, but the £1,200 million capital expenditure required by the Gas Council will be immensely beneficial to the country and will result not only in profits for the Gas Council, which will result in a benefit to the Treasury through dividends, but a substantial decrease in the cost of gas to the consumer. The hon. Gentleman is wrong if he suggests that this expenditure is not fully justified and has not been fully justified by the figures which Sir Henry Jones has submitted.

I was saying that I could not see how the Tories could argue for substantial reductions in direct taxation when, especially in defence debates, they have been calling for enormous escalations in cost. I have some examples and I hope that I shall not bore the Committee by mentioning a couple. For example, the Leader of the Opposition said about the deployment of our forces in the Far East: What I have always said is that I believe we ought to maintain a presence in Malaysia and Singapore and the Gulf and that we are capable of doing this".—[OFFICIAL REPORT, 5th March, 1968; Vol. 760, c. 257.] That would represent about £300 million per annum.

Mr. Angus Maude (Stratford-on-Avon)

That would not be an extra expenditure in the current year, or even next year. It would be carrying on current expenditure beyond 1971, which is very different.

Mr. Lubbock

That is a very specious argument. The hon. Gentleman knows perfectly well that it is expenditure which would still have to be met if the Government had not decided to withdraw our forces east of Suez and it would have had to have been paid out of the taxes of the people. I know that this is unpalatable to the hon. Gentleman and that he does not like to hear it, but he will have to listen to it for a few minutes more.

The hon. Member for Hendon, North (Sir Ian Orr-Ewing) said: Like my right hon. Friend the Member for Wolverhampton, South West, I still believe that the carrier fleet should have been carried on well into the 'seventies … That would have meant building new carriers at a cost of £100 million apiece, maintaining them and having vast dockyard facilities to do so and buying the aircraft to fly from them and paying the wages and salaries of the crews and maintenance staff.

The right hon. Member for Wolver-hampton, South-West (Mr. Powell), who was then the Opposition spokesman on defence, said of nuclear submarines: It seems no exaggeration to say that the nuclear-powered submarine has worked a revolution in maritime warfare comparable with the supersession of sail by steam."— [OFFICIAL REPORT, 11th March, 1968; Vol. 760, c. 1002–23.] He was arguing for more nuclear submarines which, if we were to have a fleet equivalent to that of the Soviet Union or the United States, would cost, according to the Secretary of State for Defence, £800 million to £1,000 million.

The right hon. Member for Mitch am (Mr. R. Carr) said: What cannot be denied is that on the testimony of the Government the Services are now doomed in the 1970s to be without items of equipment which only a month or two ago the Government said were absolutely vital to their needs. Two of the most outstanding examples in the Royal Air Force are the F.111 … and the A.F.V.G."—[OFFICIAL REPORT, 5th March, 1968; Vol. 760, c. 346.] Right hon. Gentlemen opposite have also asked for the Type 82 destroyer and more maritime reconnaissance aircraft and more VTOL aircraft.

Outside defence, the hon. Member for Isle of Ely (Sir H. Legge-Bourke) wanted this country to go into the 300 GEV nuclear accelerator and C.E.R.N. at a total of £370 million, and the Tories voted against the Government for postponing the school leaving age which, of course, we all regret on educational grounds.

It is indefensible and hypocritical of the Tory Party to argue for substantial reductions in direct taxation when the Tories are not only not prepared to agree to cuts in Government spending, but in every other debate have consistently advocated increases. I wish that hon. Members would try to be honest about matters of taxation. I know that it is very difficult to put together a debate on one subject, about which one might feel strongly, and one's views on taxation. I agree with what has been said about mental health and I should not like there to be any reduction in spending on mental health, but we could pay for the whole of mental health research and treatment in this country out of the cost of one or two nuclear submarines.

What hon. Gentlemen on this side of the Committee are asking for is immensely expensive, and would place a burden upon the economy from which it would never recover. I hope that next time we talk about reductions in Income Tax they will be a little more modest in their demands and try to reconcile them with those made in the defence debate.

5.30 p.m.

Mr. Leadbitter

I am glad that the hon. Member for Orpington (Mr. Lubbock) ended his carefully prepared speech in the way he did, because it has been clear for many months now that hon. and right hon. Members opposite have taken each debate in isolation, purely to produce arguments against the whole philosophy of taxation. There have been repeated demands from them for expenditure on defence and cries about the public expenditure undertaken by the Government on the social services. This is a contradiction from which they must extract themselves.

All taxation is bad; most of it is necessary. Its purpose is to provide revenue to meet the commitments of a Government. No taxation is liked by those who have to pay it—it is necessary but unpopular. It is never liked by the party in opposition. I am on record as having said that the Selective Employment Tax was a half-baked, ill-thought-out measure which could have taken another year of discussion with commerce and industry before taking legislative form. This is not to say that S.E.T. is unacceptable as a principle.

What is important is that it is not as selective as we would have liked. It could have done a better job, but to dispose of it as hon. Members opposite have said they intend to do, to reduce indirect taxation, as the hon. Member for Worcestershire, South (Sir G. Nabarro) said he wanted to do yesterday evening— [Interruption.]—is not better. The hon. Member put on an excellent theatrical performance last night and argued for a reduction in one of the bands of indirect taxation. He talked in terms of a 33⅓ per cent. tax being reduced to 25 per cent. and of a reduction in the 50 per cent. tax.

Sir G. Nabarro

I must correct the hon. Gentleman who no doubt was not here throughout my speech. I was pleading for uniformity in the application of Purchase Tax, without prejudice to aggregation of yield. That is not a reduction of indirect taxation. As usual the hon. Gentleman does not understand the simplest fiscal argument.

Mr. Leadbitter

And as usual the hon. Member was not as observant as he might have been in performing to a captive audience last night. I was here during the whole of his speech. He said in effect that there should be a reduction in one of the indirect taxation bands. He was complaining about the upper band of 50 per cent. Perhaps he wishes to qualify that and talk in terms of aggregate of taxation, but he was careful not to make that clear.

Sir G. Nabarro

The hon. Gentleman is now adding to his earlier mistakes by lack of observation of Parliamentary procedure. I had to correct Lancaster yesterday for telling me that it is out of order during the Committee stage of the Finance Bill to seek to increase any rate of tax. The only way I could make progress towards the uniformity, which I have described, was to take one Amendment as a paving Amendment. It was the paving Amendment selected out of the 15 Amendments following in my name. Had they all been put together they would have led to uniformity in Purchase Tax.

Mr. Alfred Morris (Manchester, Wythenshawe)

On a point of order. Is it in order for the hon. Gentleman to refer to my hon. Friend the Member for Lancaster (Mr. Henig) as "Lancaster", as if he were some humble hereditary peer?

The Temporary Chairman

That is not a point of order for me.

Mr. Leadbitter

I do not think it would be wise to allow the hon. Gentleman to deflect me from my argument. If he wishes to exercise himself in lectures on Parliamentary procedure, that is for him to decide. I will stick to the subject of the debate. The hon. Member for Orpington pointed out the fallacy in the arguments of hon. and right hon. Members opposite. It is quite impossible, and unacceptable to the people that a res- ponsible party should make out a case for a reduction in taxation, direct or indirect or in any other form, while at the same time failing to attend to questions of public expenditure.

It is right that we should ask hon. Members opposite, if they are sincere in what they ask, why they do not put before the Committee the manner in which their requests would be put into practice. What is the area of public expenditure which they would select to make this reduction in revenue? Would it be housing, the hospital programme, the Health Services, or important capital projects of local authorities? Where in public expenditure are they prepared to declare that they will make reductions without at the same time harming social requirements and services?

Mr. Lubbock

Since no Tory Member is prepared to answer this question, could I help the hon. Gentleman? As was pointed out to me in an intervention, the Tories voted against the Gas and Electricity Bill which would enable the Gas Council to introduce natural gas, with very great benefit to our people. They did not want the Gas Council to spend that money.

Mr. Leadbitter

For many months we have talked of the great benefits which will accrue from the exploitation of North Sea gas. It was odd to find that the Opposition were making out a case for refusing the Gas Council the means to exploit this as early as possible. This is something vital to our fuel policy.

Sir Harmar Nicholls

The record ought to be put right over the intervention of the hon. Member for Orpington (Mr. Lubbock). This side of the House did not vote against the borrowing powers Bill. What it suggested was that the amount of the Vote should be reduced so that the Government should come back next year to justify a further amount.

Sir D. Glover

On a point of order. May we be informed of what the Gas Council has to do with reductions in the direct rate of Income Tax?

The Temporary Chairman

I have no doubt that that will become apparent as we go along. So far, what the hon. Member for The Hartlepools (Mr. Leadbitter) has said has been in order.

Mr. Leadbitter

I was answering an intervention made, quite rightly, by the hon. Member for Orpington (Mr. Lub-bock). To follow the theme that an argument about taxation must carry with it a declaration of what one means—

Mr. Gower

The hon. Gentleman will appreciate that a party in opposition cannot easily formulate what it would do concerning taxation if it were in office. If a vehicle is running downhill, one does not stop it straight away. However, it was possible for Conservative Governments over the years to effect substantial reductions in taxation.

Mr. Leadbitter

When, during that period, there was apparently some reduction in taxation, there were also reductions in many other things. For example, in 1962 or 1963, the right hon. and learned Member for St. Marylebone (Mr. Hogg) visited the North and, as a consequence, made an appeal for an increase in house building from 18,000 to 25,000. One was an admission of a poor house building record; the other was an expression of hope. Having produced his report, the right hon. and learned Gentleman did not give us the financial means to implement it. Today, more house building is going on in the North than ever before. During the period when taxation was reduced by hon. Members opposite, only 33⅓ per cent. of houses being built were of Parker Morris standards whereas today the figure is 84 per cent.

I repeat that if hon. Members feel that tax reductions are necessary they must say in what sectors of public expenditure they would make reductions. The question which must then be asked is what harm would result to the social infrastructure. Members on the Government side may feel that they have to make out a case that taxation is good and is justified at a particular level. Members on the Opposition side may feel that they have to criticise it. It is desirable that taxation should be kept at a sensible level compatible with the needs of the country, or reduced. Men and women are concerned about taxation and the way in which it affects their overtime. Any Government or party in opposition which blinks its eyes to this fact does not understand the realities of the situation.

5.45 p.m.

Let me put a simple question to my hon. Friend the Member for Lancaster (Mr. Henig); it does not follow that he need answer it. A man may work overtime in order to earn sufficient to meet normal domestic commitments. The breadwinner or earner complains bitterly, saying, "Why should I have to do this when men who do not want to work and who are drawing social security allowances are as well off as I am?". That is the kind of philosophy which exists.

Sir G. Nabarro

Tell Lancaster.

Mr. Leadbitter

I should point out that I am talking about the psychological effect, not on the man who is out of work but wants a job and is willing to take a job, but on the man who is working and who wants to work but whose earnings, even with overtime, do not take him much beyond what a man gets simply by reporting at the dole office.

Mr. Henig

I have not argued and I am never likely to argue that taxation is popular. I accept my hon. Friend's point that people grumble, often bitterly, about taxation. I was saying that no evidence of a concrete and definite nature had been adduced to suggest that the existing level of taxation was proving a disincentive to people working.

Mr. Leadbitter

My hon. Friend must not be unhappy if I disagree entirely with him. If we adopt an academic approach to this problem, we will never get the answer to it. [Interruption.] I am not trying to make the hon. Member for Worcestershire, South happy. All he has to do is to get his wind for the next leg. I hope he will allow me to get on with my speech.

One does not have to indulge in an academic exercise to discover that poverty and discontent result from the relationship of one's net income with social security allowances paid to those who do not want to work. One has only to listen to the men in the pubs and clubs and to the women with their shopping baskets in the shops to know that, because far more common sense comes out of the mouths of these people than from academics.

Sir G. Nabarro

That puts the professor in his place.

Mr. Leadbitter

It is not right for one hon. Member to say to another hon. Member, as happened earlier, that the Amendment is purely a political exercise. We are in the House to make political points, and to argue politically across the Floor. We are here to ensure that the philosophies of both parties are seen for what they are in the cut and thrust of debate so that the public may know about them. Therefore, it is proper to recognise that it is right to make a political point. The interesting thing, however, is that once one makes a political point, one is exposed. The party opposite are not justified in putting down an Amendment which they could not put into practice.

The party opposite are not in order in terms of assessing the value of this kind of discussion on tax unless they have the courage to say, on the other side of the balance sheet, how they would make up for the loss of revenue involved by the measure which they propose. It is in that sense, having made the political point, that the party opposite have exposed themselves and shown their inevitable weakness.

Finally, I want to say a word about S.E.T., because it affects—

Sir D. Glover

On a point of order. I have already raised this point, Mr. Grant-Ferris, when an hon. Member referred to S.E.T. I cannot see how S.E.T. can be brought into an argument about the standard rate of Income Tax.

The Temporary Chairman

So far, the hon. Member has only threatened to speak about it. As soon as he speaks about it, I shall call him to order, because he would not be in order in doing so on the Amendment.

Mr. Leadbitter

I shall make a valiant attempt to keep in order. I am sure that if I fail to do so, you will quickly pull me up, Mr. Grant-Ferris, and you can be certain that I will respond quickly.

I take the view that the standard rate of tax, which would be affected by the Amendment, could be, and possibly would be, altered in one direction or another. I am not prepared to talk about the upward direction because the hon. Member for Worcestershire, South has told us about the Parliamentary procedures in that respect. Nevertheless, I submit that without S.E.T. the level of tax would be different. It is because it would be different and because it is an indirect tax that I submit that I might be in order in making one or two comments about it in that sense, provided that I am brief and that I refer to it, as it were, only in passing.

I suggest to the Government that the standard rate of tax, in this sense a direct tax, is a far better instrument to deal with the country's fiscal policy than would be an overweighting of the tax system by placing upon indirect taxation a new form of tax such as S.E.T., which, in effect, is causing great harm throughout the country.

As my hon. Friend the Member for Willesden, West (Mr. Pavitt) said earlier, and as an hon. Member opposite said before him, the co-operative societies, for example, have to pass on to the housewife the full consequences of this measure of indirect taxation in terms of increased prices.

I hope that when we talk in terms of taxation to-day, the Government will listen to their friends behind them and that they will use the months ahead to provide the modifications which are necessary in this tax to remove the harm so that it can be selective and effective in the manner in which, I am sure, it was first envisaged.

With that final request on a matter which must concern most hon. Members, on both sides, with the proviso that we on this side seek modifications whereas hon. Members opposite seek to abolish the tax, although they do not tell us what they would put in its place, I hope that the Committee will not divide on the Amendment. I have regarded this as a suitable opportunity for a constructive debate and, therefore, not an excuse for dividing flippantly without the party opposite first saying what they would do concerning public expenditure should their Amendment be carried.

Mr. Michael Shaw (Scarborough and Whitby)

We should be grateful to my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) for this important series of Amendments. Were he successful in having them carried, the effective rate of tax paid on incomes over £17,000 would be a maximum of 15s. in the £ instead of the present 18s. 3d. Clearly, underlying that reasoning is not only an incentive to everyone who earns or is in receipt of income from savings, but a benefit to everyone, irrespective of his level of taxation, with an income of over £1,200. The arguments which have been put forward are telling. We as a party support them and will do our best to work along those lines when we get back into power.

It has been said that it is not proved whether people seek to emigrate, particularly to the United States, because of the different levels of taxation. It has been said that, possibly, the difference in the level of salary in the early years in the United States has a bearing on attracting people, although that argument was qualified by the hon. Member for Orpington (Mr. Lubbock). It was said in defence that later in life those who had emigrated would find that the differences between their salary levels in America and what they would have been in this country would not be as great as the differences in the earlier years of their careers. That does not invalidate the argument because as one moves up the salary scale, both in this country and in America, one has to look at the net salary and not the gross salary.

The significant aspect is that in America, as one moves up the salary scale, the level of tax moves up less dramatically than it does in this country, because in America a married man is allowed either to have his tax assessed separately for husband and wife or to make a return of the total income of himself and his wife, to halve the total salary, to work out the tax on that half and to pay that amount of tax twice over. One sees immediately that that results in a much lower rate of tax being paid by a man and his wife in America than in this country. Therefore, in talking about remuneration, one must look at the net, and not the gross, remuneration when considering the question of incentives and disincentives.

6.0 p.m.

My experience is that there is a real disincentive. Those people who are engaged in small family businesses and close companies are very much restricted in the amount of expansion they can achieve by the high level of taxation of their firms and themselves. The close company legislation insists that a great deal of the income goes to the proprietors, many of whom are working proprietors, and therefore they are very much concerned with the tax that they themselves have to pay when they are considering the well-being of their company. Such companies, and the people who own, control and work in them have been restrained by increasing frustration ever since the Government came into power.

There has been the lack of growth in the economy which has been apparent ever since the Government came into power, certainly since 1965. There has been an almost continuous credit squeeze, which inevitably hits the small expanding company harder than the established one. There is the further factor of the crippling and stifling burden of taxation. The result is that people are not putting their hearts and souls into building up their businesses, working out new processes and ideas and taking chances. Instead, they work out what will be the profit if they are successful and what will be the effect if they fail. If things go wrong, they cannot offset the loss against other ventures. If a man who puts everything into the venture succeeds, he has to pay out in one form or another a great deal of the money achieved by his success. If he loses, he loses the lot. As soon as a successful businessman reaches the age of approximately 50, instead of working out how much more he can expand his business, he works out how he can pass on his enterprise to his children or other relatives.

Sir D. Glover

Or he retires.

Mr. Shaw

He realises that, no matter how much more he earns, there is a virtual cut-off in the amount of money he receives, as a result of our taxation system.

Sir Harmar Nicholls

Since my hon. Friend is dealing with the excessive rate of taxation, and since the Chancellor has made one of his rare appearances on the Treasury Bench, could my hon. Friend ask the Chancellor why we have to pay £923 million in taxation today? Before the Budget, no economist thought that we needed to go beyond £700 million to meet our commitment to international financiers and to maintain our position in the world. Why do we have this extra £200 million? The savings produced by the Amendments for which my hon. Friend is arguing would be just about £200 million. This question should be put to the Chancellor before he runs away again.

Mr. Shaw

I have no doubt that the right hon. Gentleman has heard the words of my hon. Friend.

Bound up with the high level of personal taxation is the increasing Government expenditure. Before the Government came into power, we were assured that this country would enjoy a period of rapid expansion and, with no increase in taxation, we would be able to enjoy additional social benefits. Exactly the opposite has happened. We have had stagnation and continual bursts of Government expenditure before we have been able to earn the money to pay for it. The British people perhaps do not understand this but feel most strongly in their bones, and with an unerring instinct, that this is the indictment against the Government. The level of personal taxation must be lowered and, at the same time, there must be discipline over Government expenditure. I fully support and welcome the initiative of my hon. Friend in putting forward these Amendments.

Mr. Harold Lever

I feel that a reply from the Treasury is expected at this point in the debate. I have said before, and I repeat, that it is not for me to decide the allocation of time in the debate; it is for hon. Members to decide. I am not presuming to wind up, nor to stop any hon. Member from speaking; that is a matter for hon. Members and not for me.

The hon. Member for Worcestershire, South (Sir G. Nabarro), in good voice, stamped upon the well-trampled ground of taxation and high incentive. Nevertheless, in spite of his ebullient manner, the hon. Gentleman has clearly done his homework and given a great deal of systematic thought to the expressions of opinion which, however dogmatic and unqualified, represent firm views that ought to be considered. He has done the Committee a service in initiating what I think he called a wide-ranging debate— sometimes ranging more widely than one would have supposed was possible. However, the Committee has had the benefit of the debate, on a very important sub- ject, and no one can complain about that.

The question which has always troubled hon. Members is the taxation of income. I will deal first with the Surtax Amendments, which affect higher ranges of income, and then deal briefly with Income Tax.

In dealing with high earned income, or with any high income, it would be conceded on both sides of the House that there is reasonableness in a general egalitarian tendency which seeks to exact from those in the best position to pay money which can be used to the advantage of those less well circumstanced. There is another aspect, that sometimes this egalitarian principle might seem to be merely one sided, in that it reduces very high level incomes without producing the advantage to the less well circumstanced.

My hon. Friend the Member for Willesden, West (Mr. Pavitt) made clear what he had in mind in demanding high taxation of large incomes. It cannot be said that in our society we have no need for more welfare services, mental health services, and so on, which he sought to finance in large part by maintaining high levels of direct taxation. Nobody has argued that we should impose high levels of tax on high incomes simply because we resent those high incomes. We have to see on which side the rate of tax now applying to high earned income falls. Does it fall on the side of reasonable egalitarian propensity, or does it fall into the negative category of a rate of tax which, on balance, defeats the purpose by not yielding enough to justify the effect that it has on the taxpayer? In relation to tax on high earned incomes, which reaches above the rate of 90 per cent., the reduction to 75 per cent., as has been pointed out by the hon. Member for Worcestershire, South, could be accomplished at a cost of something under £5 million, and it is for consideration on which side of the line that falls.

Many hon. Members have mentioned the disincentive effect of tax. I may be over-simplifying the matter, but the disincentive effect of tax, if there is one, is, quite simply, the effect of reducing the material reward for labour. I do not think that there is any special disincentive or less incentive in withdrawing money from a man's wages or earnings by the tax system or by any other means.

If we start from the proposition that there are two incentives driving people along—the psychological and even spiritual incentive and the material incentive —it cannot be denied that, taking away part of a man's wages or salary results in some diminution of the material incentive. However, the relevant effect of that will depend upon whether he is a university professor or politician, where the rewards, the satisfying character of the work and the status that goes with it may be sufficient to overcome the interference with the material incentive, or whether he is running a chain of hire-purchase shops in Wolverhampton where the status and psychological factors may not play so large a part.

I think that we ought to consider the quantity and quality of the effort which is affected by the rate of tax. It is not merely a question of the amount of effeort that a man will put in, but the quality of the effort and the atmosphere in which he is likely to do his work.

My hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) was anxious that we should have a sociological or social survey investigation to determine the effect of different rates of tax in terms of incentive—

Mr. Robert Sheldon (Ashton-under-Lyne)


Mr. Lever

I thought that that was what my hon. Friend wanted.

Mr. Sheldon

I was more concerned with the whole subject of incentives. We had long discussions as to the incentive and disincentive effects of tax. I wanted the Government Social Survey to do an investigation here.

Mr. Lever

I thought that my hon. Friend was addressing himself to the Amendment, because the Amendment deals with the disincentive effect of taxation. That is what I understood him to say. If I did not reproduce it fairly, I regret it.

The only difficulty that I see is that, although this may be an interesting subject, tax and its effects upon incentive make up a subject which has been with us and with other countries for a long time. In no country has there been a dispassionate scientific analysis of the effects. I fear that, in the end, one of two things will happen. We will merely get an expression of opinion rather than the ascertainment of fact, or we will get the kind of elaborate sociological investigation of the type that was conducted in the medical world into the effect of mother love on children. In that case, after several years of intensive research, those conducting it burst upon the world with the assertion that it is scientifically proved that children benefit from mother love. I dare say that after a period of scientific and detailed investigation in this case, someone would come up with a number of opinions as to the effect of taking part of a man's wages from him by taxation or other means.

Mr. Joel Barnett (Heywood and Royton)

I would have thought that my hon. Friend would have seen the 1954 Report of the Royal Commission on Taxation in which there were some objective surveys referred to. In addition, when I raised the matter last year, it became clear that the right hon. Member for Enfield, West (Mr. Iain Macleod) had taken the trouble to look at the Report of the Canadian Royal Commission, which came out last year. Both had some dispassionate review of the incentive and disincentive effects of taxation.

Mr. Lever

I have read the 1954 Royal Commission Report more than once. All that it did was to record a number of opinions on the matter, rather than ascertaining scientifically the effect of tax incentives. I doubt whether we shall get a final answer guiding us as to what rates of tax should be on incomes by a detailed scientific investigation.

6.15 p.m.

Mr. Lubbock

If the hon. Gentleman is not willing to commit himself to a full-scale study, will he at least think in terms of a feasibility or pilot study which might attempt to set out the terms of reference for a full-scale exercise and discover to what extent one could ask valid questions about the effect of taxation on human behaviour?

Mr. Lever

We live in a world which is fortunate enough to have a number of philanthropic institutions amply endowed with funds and as well able to undertake this kind of research as the Treasury. However, it appears that these university and other institutions have not thought fit to pursue this line of inquiry. If as a result of our debate one of them thinks that it would be a useful line of inquiry to undertake, I am sure that hon. Members will be gratified. I cannot commit the Treasury to undertake either a pilot or detailed study of it.

Mr. Sheldon

Government Departments are making use of the Government Social Survey in undertaking sociological investigations, and many people will deplore the attitude of the Treasury in finding special excuses not to undertake the same kind of investigation, when it is raising large sums of money and not making use of the methods being used so successfully by other Departments.

Mr. Lever

My hon. Friend is entitled to his own opinion that we should repair the omission which has become apparent here and in other countries by an investigation of this kind. I fear that, in the end, the result will be a series of opinions on well-established facts. The facts are pretty well known. One has to form a wise judgment upon them. In forming that judgment, regard must be had to international comparability of tax systems. One cannot ignore what happens in other countries, because one's employees do not ignore it. Regard must be had to the general atmosphere in which the tax bites, how it affects the spirit of constructive emulation, and the like.

I can see attractions in offering a few glittering prizes to those whose achievements, efforts and talents cause them to make outstanding contributions to the community. But these are all matters of opinion, and they will not be improved or made worse by scientific investigation.

It is sometimes said that there are few high earning gentlemen affected by high taxation rates, and, indeed, that there are fewer pools winners, but that if fewer prizes were available in pools, it would have a disincentive effect on those taking part in them. One has to have regard not only to those who win glittering prizes but to the many other people who are concerned to make their best efforts in the hope that they may achieve those prizes.

Sir G. Nabarro

I do not want to interrupt the hon. Gentleman, because I hope to reply to his speech later, but it is a singularly unfortunate analogy to compare the nation's top brains, who are the men taxed at 18s. 3d. in the £ on their earned income, with the winners of football pools, who do not contribute one jot or tittle to the national treasure save only the tax which is collected.

Mr. Lever

The hon. Gentleman is being less than his brightest self in not following my argument. I was not comparing these people with football pool winners. I was trying to explain that, since we have a few glittering prizes in industry, the argument is that there are only a few really high earning people, anyway. By my analogy, I am not comparing the effort of the winner of a football pool with that of the top man in industry. I am saying that a few glittering prizes inspire many people to make an effort or sacrifice, as is evidenced in the case of a football pool, where there is only a handful of glittering prizes. Society restricts itself to only a few glittering prizes of that sort, and it allows talent and effort in industry similar glittering prizes in similar circumstances to the extent that other factors from the taxation point of view permit.

I am not opposed to glittering prizes for talent and effort, nor do I equate them with football pools winners. The existence of a relatively few glittering prizes can have a much wider industrial, economic and sociological effect in stimulating others to constructive emulation and improving the atmosphere of effort and talent. One must not have regard to these matters merely by the few people occupying these top jobs at present. One has to have regard also to the possibility of replacing them and attracting others who will put up their best efforts to win the highest industrial jobs in this country.

I detect some evidence in this country that the highest jobs in industry, and in nationalised industry, are not sought after as keenly as they might be because the rates of tax bearing upon the salaries that they carry are such as to make no material difference to incentive. I am sorry that this can be no substitute for a scientific investigation, but I conclude that high tax rates on earnings affect the material incentive involved. Material incentive is not the only incentive. At both low and high levels there is a psychological and, indeed, a spiritual incentive which also operates. To the extent that one takes away a man's earnings one weakens the material part of the incentive. Therefore, we should consider this matter.

If we were to pursue the matter further, two points arise for consideration. First, who is to meet the cost of making this concession to the Surtax payers? I could not conceivably support the notion that the cost should be borne by the general fund of lower earning taxpayers. If we do look at it again, as I think that we should—I will come to whether we can look at it again this year in a moment—it should be in terms of some rearrangement of the burden between different classes of wealthy people. I do not think it right that we should look to the relief of high earning surtax to low earning work people. We should look to other sources which exist —property ownership, Corporation Tax, and other forms of taxation on wealth— to bring in the relatively modest sums which would be required to reduce, if thought desirable, the high rate of tax on earned income. My right hon. Friend, in his Budget speech, made it clear that these matters were to be considered in the course of the coming year. He was not at all unsympathetic to an open-minded review of the matter, even though it would not necessarily be done by a sociological survey.

The proposals on Surtax put forward by the hon. Member for Worcestershire, South would cost about £25 million. The cost of reducing the highest rate of Surtax from about 90 per cent. to 75 per cent. would be under £5 million, but the Amendment would cost in the region of £25 million.

The hon. Gentleman's proposal relating to Income Tax would cost £427 million in a full year—[Interruption.] I am giving the information. I am not saying that hon. Gentlemen opposite should not throw away the odd £400 million if they are so minded. I have not said a word against the hon. Gentleman's Amendment on Income Tax yet, but 9d. off the standard rate would cost £211 million in a full year.

Is the standard rate of Income Tax too high? All this is—

Sir G. Nabarro

Will the Financial Secretary enlighten us on the difference between £211 million and £427 million?

Mr. Lever

These are the consequential and unintended effects of the hon. Gentleman's Amendment.

Sir G. Nabarro

That will not do.

Mr. Lever

I have given the hon. Gentleman the figures and they are correct. The hon. Gentleman can please himself whether he wants his full undiluted Amendment costing £427 million in a full year or 9d. off the standard rate, which, for convenience, will cost £211 million in a full year.

There have been complaints about the way in which our Income Tax is graded. The hon. Member for Stratford-upon-Avon (Mr. Maude) and my hon. Friend the Member for Lancaster (Mr. Henig) made this complaint. I have a good deal of sympathy with it. Our Income Tax tends to go in jumps instead of being graded smoothly. When we get to £5,000 a year earned income and move into the Surtax rate, another kind of jumping occurs. I would welcome another look at the whole system of graded rates of tax to simplify and to unify them. But the Committee must be left in no doubt that this is an immense administrative change which no Government have so far felt able to undertake. I hope that this will not be ruled out for all time, but it cannot be undertaken at present.

The hon. Member for Orpington (Mr. Lubbock) complained about the presentation of our tax papers. I will look into that point. It is not the first time that it has been raised. Everybody has complained, but nobody has yet found the remedy for presenting these tax papers more clearly and effectively to the taxpayer showing the effect of his earned income relief.

A reduction in the standard rate of tax must be ruled out in the context of the Budget. We could not make a reduction in the standard rate of tax of 9d. or anything of that order to reduce the tax rate to £211 million. That must also apply to the reconsideration of Surtax. This is not a year in which we should seek to add complications to the tax machine. To deal with Surtax along the lines that I have suggested, namely, that we cannot expect readjustments in the rate on high earnings to be borne by extra tax on people of low earnings which is what it would mean, we shall have to wait for a more favourable context.

I repeat, the Chancellor has been very understanding about the weight of tax borne by all Income Tax-payers and all Surtax-payers, both high and low. I am not sure that the worst victims of high rates of tax are not the lower rate Income Tax-payers. I am sure that there are some right hon. and hon. Members who feel that at the earliest date circumstances permit we should seek to take out from the direct Income Tax system as many of the low paid taxpayers as possible. But all these things must wait for a more favourable context. In the meantime, my right hon. Friend has been at considerable pains to ensure that no additional tax burden was placed upon earned income, which effectively refutes any argument that there is any lack of understanding on his part, even if only in terms of affecting the atmosphere of energy and effort, on the possible disincentive effects of direct tax on income. Nothing better could have been hoped for in present circumstances. We will always be prepared, in the more favourable years ahead when the nation has met the task set before it by the Chancellor in his Budget, to look, on the lines that I have indicated, at various improvements in our direct system of taxation.

Mr. Patrick Jenkin (Wanstead and Woodford)

In the course of a short but attractive speech the Financial Secretary has said so many things with which I felt I could agree that I felt I almost need not say anything at all. But there is an immense gap, as he will be the first to appreciate, between all the desirable goodies which he trailed before our eyes and the reality of the Budget that we are debating in the context of the Amendment moved by my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro).

I agree with three things. I agree that this has been a wide-ranging debate, and I do not intend to take unduly long in making my contribution. I agree with what the hon. Gentleman said about the possibility of a survey to try to ascertain the disincentive effects of taxation. I have been surprised by the extent to which right hon. and hon. Members on both sides have concentrated their attention on the effect that tax will have whether a man will work any harder, will do a bit of overtime, will be prepared to spend time in the office, and so on. This is important, but I emphasise that it is not the only aspect of disincentives, and I dare say it is perhaps not the most important aspect of disincentives affecting someone paying a high rate of tax. I thought that my hon. and gallant Friend the Member for Carshalton (Captain W. Elliot) put his finger on it when he said that the high rate of taxation operates principally as a disincentive to take risks, as a disincentive to the entrepreneur to be enterprising. How on earth can a survey be expected to produce any meaningful result on the question?

6.30 p.m.

Mr. Cronin

Surely the entrepreneur can take his reward from capital profits, on which there is a low percentage of taxation?

Mr. Jenkin

I was interested in what the hon. Gentleman said in his speech, to which I shall return in a moment, but he must appreciate that Capital Gains Tax, and the new form of Corporation Tax are massive disincentives to the results which he hopes to achieve.

In replying to the hon. Member for Orpington (Mr. Lubbock) about the confusion which arises because of the effective rate of tax on earned income the Financial Secretary said that nobody had ever found a method of making this clear, of surmounting the confusion. In recent years my mind has been drawn more and more to the conclusion that what we really must examine is the outdated differential between unearned and earned income. At a time when earned income was infinitely more precarious than unearned income there may have been some social justification for a difference, but I question how much longer that position will obtain.

The Minister said that one of the things which he hopes to aim for is the removal from the lowest end of the tax-paying scale a large number of taxpayers who now pay small sums of tax. That falls strangely from the lips of a Financial Secretary who is a member of this Government who, in this Finance Bill, have brought no fewer than 300,000 additional taxpayers into the tax-paying net because of the change in the rate of child allowance.

However, it is on this question of disincentives that a great deal of the debate has turned, and on which most hon. Members have made their views known. It is interesting to recognise that the Financial Secretary, perhaps in common with his right hon. Friend the Chancellor of the Exchequer, now recognises, and is prepared to say, that high rates of tax can act as a material disincentive to greater effort and risk taking.

My hon. Friend the Member for Worcestershire, South was absolutely right when he drew attention to the difference in attitude on this topic between the present Chancellor and his predecessor. The present Chancellor showed his attitude, not so much in his Budget speech, as when he broadcast to the nation on the same night as he introduced his Budget. After saying that one of the choices open to him to raise this additional tax was to raise the rate of Income Tax, he said that he decided to reject this suggestion. I decided this "— he said— because I was determined not to impair incentives …". Not to increase taxation in order not to impair incentives is the other side of the coin to reducing taxation to increase incentives, which is what we aim to do, and what we succeeded in doing.

One must, however, contrast that with the attitude displayed in Committee by the Chief Secretary to the Treasury when he said: I want to make it clear—I know that this is a view which I hold perhaps more strongly than do some of my colleagues—that in my view there is no reliable evidence whatsoever that a high standard rate of tax is a deterrent to earning incomes."—[OFFICIAL REPORT, Standing Committee A, 13th May, 1968; c. 767.] There is the dichotomy which we see ever increasing on the Government benches. This is the split between the traditional attitude that high direct taxation is not harmful, and the attitude which we now have from a number of hon. Gentlemen that there is something in the argument which we have always advanced that it can be a disincentive. More and more hon. Gentlemen are at last coming to see the light on this important aspect of financial policy.

I was much attracted by an interview which the hon. Member for Birmingham, Northfield (Mr. Chapman) gave to Mr. Ian Trethowan, and which was reported in The Times last March. I have given the hon. Gentleman notice that I was proposing to quote him. He said: We are all taxpayers now. This is an important truth about Income Tax nowadays, and the Labour Party must face up to it. The article went on to say: … by 1970 he"— that is the hon. Member for Northfield— thinks Mr. Jenkins should aim to cut at least a shilling off the Income Tax. ' People', he says, ' want the real incentive and spur of the money left in their pockets to spend as they like'. I look forward to the hon. Member for Northfield joining us on this side of the Committee—

Sir G. Nabarro

And the hon. Member for Loughborough (Mr. Cronin).

Mr. Jenkin

—and, as my hon. Friend says, the hon. Member for Loughborough too, because he made a most interesting speech last night during one of his rare appearances, which we welcomed very much. It comes somewhat oddly from the hon. Gentleman that he should tax —and I use that word in its non-fiscal sense—this side of the Committee, when we move Amendments to reduce taxation, of doing so only out of interest for our banker friends, but when he makes the same plea to the Financial Secretary that is something laudable.

The hon. Gentleman called for lower direct taxation. I am quoting from the un-corrected HANSARD Report in the Library because his speech has not yet appeared in print, and if I am misquoting the hon. Gentleman no doubt he will correct me. He said: … the most important thing is the actual disincentive effect of high rates of direct taxation on the desire to work, as opposed to the desire to have leisure". The hon. Gentleman is right. He went on to say: It does not require any investigation to come to this conclusion. It obviously must reduce the incentive to do overtime and extra work. The hon. Gentleman went on to commit himself to what I should have thought was the self-evident truth which some hon. Gentlemen, including the hon. Member for The Hartlepools (Mr. Lead-bitter), are beginning to realise, that the Labour Party being tarred with the brush of high taxation is bound to make it unpopular. I can understand the rising dismay on the part of many hon. Gentlemen opposite when they see their Government inexorably year by year increasing: taxation. That is their reputation, and with excellent reason.

It was very well summed up in an article by Mr. Martin Jacomb who for 10 years was the taxation correspondent of the Financial Times. When he severed his connection with that paper recently he was invited by the editor to write a farewell article commenting on the period of his service. He surveyed the period since 1951 and perhaps I might give the House three short quotations because they put pithily what I believe to be true. He said: The period falls into two distinct parts: the Conservative era until 1964, and the Labour Government's, tenure of office since. The Conservatives had a sound record of reducing taxes both direct and indirect. The standard rate of Income Tax went down from 9s. 6d. in 1951–52 to 7s. 9d. in 1959–60, the only sustained reduction since World War II. … The post-1964 era has a different complexion. Increases in the rates of tax and numbers of taxes have been the order of the day … The stage is being reached where taxpayers are encouraged to save their earnings but penalised when they do so. I remind the House of the figures which I gave during the Budget debate. During the 13 years of what many are now coming to regard as the golden years of Tory Government—and one has only to look at the recent election results to realise that—taxes were cut by £2,000 million a year, but in a short space of 3½ years since hon. Gentlemen came to office they have put up taxes by £2,000 million a year. Indeed, if we exclude the temporary taxes—the temporary charge on imports, the 10 per cent. charge on Surtax and now the special levy—it comes to £2,312 million. This is indeed a calamitous record and it is entirely right that the party opposite should be stigmatised as the party of high taxation.

They seek to explain this away by saying that this was essential to ensure recovery and economic solvency—but they failed to save the £. High rates of taxation were explained as being necessary as an alternative to unemployment, but we have had the highest rate of unemployment since 1940. They said at one stage that this was necessary to prevent wages becoming the subject of intolerable legal restrictions, but we now have prices and incomes legislation of unparalleled severity. They said that it was necessary to put the balance of payments right. Yesterday's figures are no cause for joy in that connection.

The truth is that we not only have all these evils but also have these very high rates of taxation. The Budget—and Income Tax and Surtax are very much a part of it—is two and a half times as large as any Budget before. Hon. Members opposite must now be beginning to have a glimmer of awareness that their economic failure may have some connection with the high and rising rate of taxation which they have imposed on the country. They may begin to suspect that there is a link between the sluggish response—which they have all too often criticised—of the industrial and commercial world and the disincentives which they have slapped upon its shoulders.

The suggestion made by the hon. Member for Ashton-under-Lyne (Mr. Sheldon) that personal taxation should be left as it is but that Corporation Tax should be increased, after which we should seek to restore incentives by increasing grants and subsidies, seems to be a recipe for utter disaster. There would not be any real incentive, and it would further destroy the operation of the market economy.

Mr. Sheldon

That is not what I said. I said that there should be a move from direct, personal taxation to Corporation Tax and other taxation. That is something which many hon. Members agree with.

Mr. Jenkin

I am content to let the Committee judge what the hon. Member said by his intervention just now.

Then, not surprisingly from him, the hon. Member for Orpington criticised the Opposition for moving tax reductions without saying where the cuts in expenditure should come from, and he accused us of demanding increased expenditure.

Mr. Lubbock

Hear, hear.

Mr. Jenkin

The hon. Member approaches these matters with great sophistication. He must have noticed the difference between the records of the two parties, in terms of growth achieved. There was the triumph of the Tory years, when we managed to achieve not only a rising standard of living of the people and rising public expenditure but, at the same time, falling rates of taxation. If we get an adequate rate of growth of the economy we can achieve this. The failure of the Government is that they have maintained their rising levels of public expenditure—indeed, public expenditure this year is ahead of the targets in the National Plan—but there has been no growth out of which to pay for it. That is why the Government now have to demand a cut in the standard of living of the people. It is in no way inconsistent for us to insist that the public sector should be able to fulfil its requirements and, at the same time, to call for taxation reductions.

My party's position has been made clear over and over again. When we are next in office we aim at what we were able to achieve when we were last in office, namely, progressively to cut taxation, progressively to switch the burden from direct to indirect taxes, to do far more to encourage saving, to restore incentives to work and to save and to take risks. In the last resort the success of this country depends on the enterprise, drive and initiative of people—ordinary men and women who are subject to the normal motivations of human beings, with a laudable desire for self-improvement, and a desire to improve the quality of their lives and hand on better lives to their children. If they are stiffled by crippling taxation an atmosphere of "couldn't care less" will be created, and the whole nation will suffer.

6.45 p.m.

This year the Chancellor is having to take a great deal of money out of the economy to make devaluation stick. Can it be agued that we can have a tax reduction of the size that my hon. Friend has proposed—£211 million off Income Tax and £25 million off Surtax? We agree that after devaluation—and that should never have been necessary—there was a need for a sharp deflation. Mv right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), when discussing an Amendment to reduce Income Tax by 3d., in Committee, said that it would be entirely right that we should make some token reduction in Income Tax even this year in order that there should be some light at the end of the tunnel.

But it would be irresponsible for us to insist on a larger reduction than that which we moved in Committee upstairs. We pressed our Amendment to a Division then. This was in line with our general strategy of cutting the increased rates of indirect taxation by half and making token reductions in direct taxation.

My hon. Friend's Amendment goes very much further. It proposes to take 9d. off the standard rate and also to make a cut in Surtax. It could even be interpreted as making cuts in the reduced rates. My hon. Friend has performed a signal service in giving us an opportunity to debate these important matters on the Floor of the House, reiterating our emphasis on the damaging effects of high taxation.

I am sure that he will recognise that it would be wrong to commit our party at this stage to a cut in direct taxation of this magnitude. [Interruption.] I do not know why the hon. Member for Lancaster (Mr. Henig)—who made a singularly undistinguished contribution to our debate—should choose to jeer when the Opposition show themselves as responsible. It would be the easiest thing in the world for me to ask my hon. and right hon. Friends to divide, but it would be a highly irresponsible thing to do, and I do not propose to do it. A cut of this magnitude would prejudice the response of the economy to the needs of the moment and the stimulus offered by devaluation. I hope, therefore, that my hon. Friend will feel it right not to press his Amendment to a Division—although I see no reason why he should withdraw it.

Mr. Alfred Morris

I hesitate to interrupt the interesting hostilities which are taking place on the other side of the Committee. The hon. Member for Orpington (Mr. Lubbock) launched an extremely bitter attack on Conservative Members. He used a word to which they are extremely sensitive. He accused them of hypocrisy, and of course, they have never liked the word since Disraeli described the whole Conservative Party as organised hypocrisy. The hon. Member for Orpington made an important contribution to the debate, in that he documented inconsistencies on the part of those who have argued for a reduction in direct taxation without offering to tell us how they would raise the money.

This has been a long, discursive and important debate, to which my hon. Friend the Member for Willesden, West (Mr. Pavitt) made a notable contribution. Those who argue against indirect taxation have prehaps allowed their case to go somewhat by default. My hon. Friend argued that indirect taxation has been increasing, is increasing and should be brought under much stricter control. Because certain forms of indirect taxation are taxation of needs and not of means, I can well understand the liking of the Confederation of British Industry for reducing direct taxation and increasing indirect. But what I find difficult to understand is the apparent preference of many Socialists for taxing needs in preference to means.

Over recent years, we have heard a good deal about working people preferring to hear the jingle of half crowns in their pockets through paying less of their earnings in direct taxation. Some very rich people have sought to instruct us in the changed attitudes of the working-class taxpayer. Of course working people like the jingle of half crowns, but only until they and their wives find that the value of their money has been depreciated by rising prices. I remember the argument about mending the hole in the housewife's purse when I first stood for Parliament in the General Election of 1951. It was repeatedly used by Mr. Victor Raikes, my opponent in the Garston Division of Liverpool. But members of all parties now seem to feel that they must place an increased burden on the housewife.

As my hon. Friend said, there are those who argue that indirect taxation is good and direct taxation is bad, but I cannot subscribe to that argument. While it may be good for the C.B.I., I cannot agree that what is good for the C.B.I, is necessarily good for Britain.

Trying to discover one important reason for this increasing preference for indirect taxation, I have been studying speeches like that made at Perth recently by the right hon. Member for Enfield, West (Mr. Iain Macleod), when he made it clear that we should have to accept more indirect taxation from a Conservative Government. He and many of his hon. Friends are saying that we shall have to condition ourselves to this. As some hon. Members are aware, I am no great enthusiast for the way things are ordered in some West European countries. But the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) and many of his hon. Friends argue that we must rapidly adjust ourselves to the ways of the E.E.C. In particular, they want to see a tax on value added. Were we members of the E.E.C, we should have to introduce and operate such a tax by 1st January, 1970. This would be required under directives already approved by the Common Market authorities. But this is classically a tax on consumption, which could, in my view, have many regrettable—including seriously inflationary—consequences.

As I have emphasised, the argument against taxing consumption more and reducing direct taxation has been allowed to go seriously by default. The hon. Member for Worcestershire, South (Sir G. Nabarro) did us a service in tabling this Amendment. He often tries to be fair, according to his lights, but I hope that he will at least try to indicate where the money would come from. We heard from his hon. Friend the Member for Wanstead and Woodford that he could not support his hon. Friend's Amendment in today's circumstances.

Nevertheless, he prefers less direct taxation and it is remarkable for a party which wants drastically to increase public expenditure to talk about reducing the standard rate of Income Tax. [Interruption.] The right hon. Member for Enfield, West, looks puzzled at my suggestion that his party want to increase public expenditure. All I can say is that he has not read the articles by " C " in The Times, and he may even have been the author— [An HON. MEMBER: "HOW do we know? "] We know he was not the author because he would not look so puzzled at my suggestion. There was a most penetrating comment in one of those articles on the inconsistencies and indeed non-credibility of the alternative Government, who would increase defence expenditure by hundreds of millions of £s while also getting rid of the £500 million raised by the Selective Employment Tax, and at the same time reduce Income Tax.

But where will the money come from? I am slightly helped in this by the right hon. Member for Grantham (Mr. Godber), who has not joined this debate. He gave one indication when he said, as reported in The Times of 4th June, that his party was now committed … to switch the greater part of the cost of agricultural support from the taxpayer to the consumer… by the imposition of levies on food imports", and he reckoned that this would add five or six per cent. to the cost of food. I hope that his absence means that he is now working for the Conservative candidate in Nelson and Colne. I hope that he is explaining to the mill workers there that his party would not merely increase defence expenditure and public expenditure in other ways, but would, if now in office, immediately increase food prices by 6 per cent. [An HON. MEMBER: "Rubbish."]

The Chairman

Order. We are discussing the rate of Income Tax.

7.0 p.m.

Mr. Morris

Those who wish to reduce direct taxation are in favour of large increases in indirect taxation. If not, the hon. Member for Worcestershire, South must say how the loss of revenue would be made up. And I hope that he will not be too harsh on his right hon. Friend the Member for Grantham, who at least had the decency to say that the Tories would save money by scrapping the system of agricultural support and increasing food prices to the housewife. If he is not already there, I challenge the right hon. Gentleman to go to Nelson and Colne and defend his statement that there would be an increase of 5-6 per cent. in food prices. I also—

The Chairman

Order. The hon. Gentleman must relate his remarks to the question of the rate of Income Tax.

Mr. Morris

I regret having strayed from the path of order, Sir Eric, and perhaps I have said enough to make my point. Hon. Members will be aware that I have taken a keen interest in agricultural matters over the years. If I had time and it were in order, I could demonstrate that, from the point of view of that agricultural subsidies can very much affect the argument about the balance between direct and indirect taxation.

In its 1966 General Election manifesto, the Labour Party said, on the subject of taxation: In an age when taxation is bound to be substantial, it is essential that the tax system should be fair and intelligible. This has not been true of Britain for many years. Among the worst injustices has been the heavy weight of taxation on the average citizen and the very light burden which, as a result of tax avoidance and other devices is borne by those best able to shoulder it. The average citizen will not be helped if less emphasis is placed on ability to pay and more is placed on taxing needs. Some people are so fanatically committed to our joining the E.E.C. that they believe we should adjust our institutions now, even while we are excluded from membership. My right hon. Friend the Chief Secretary gave in Committee upstairs a comparison of the marginal rates of income tax here and in France. He was referring to salaries of £5,000 a year. My right hon. Friend said: Whereas our marginal rate … is 36.7 per cent., in France it is 21.6 per cent.…"— [OFFICIAL REPORT, Standing Committee A, 13th May, 1968; c. 766.] I concede to the C.B.I, and hon. Gentlemen opposite that direct taxation is much lower in France. The reason is because even the Archangel Gabriel could not collect all the direct taxes that should be collected in France. It has always proved difficult for French Governments to collect direct taxes. Englishmen, on the other hand, are prepared to pay direct taxes and I advise hon. Members to take a long, cool look at the balance between direct and indirect taxes in France and the comparative stability of the two countries. I am sure that, having done that, they will agree that it is time that we started talking about limiting rather than increasing indirect taxation.

Sir G. Nabarro

Faced with the calamity of my personal exclusion from the Committee upstairs—thus my dis-franchisement from discussing detailed matters of direct and indirect taxation— I pondered six weeks ago precisely what my strategy would be to attract the greatest possible attention to my fiscal philosophy. When I learned of the facilities available to hon. Members for a Recommittal stage, I thought that I would demonstrate at once the crass fatuity—HANSARD reported me yesterday as referring to " crass fortuity"—of the Recommittal process because it entails largely a. repetition of arguments adduced when discussing Amendments in Committee upstairs.

I decided, when pondering these matters six weeks ago, that irrespective of anything which my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), the Shadow Chancellor, and his competent team decided to do upstairs, I would set down a large number of Amendments on Recommittal; and I could not have believed that you would be so kind, Sir Eric, as to select all my major Amendments. I refer to my major proposals on motor spirit, on Purchase Tax, my Amendments ranging over a wide area to encompass the whole ambit of indirect taxes, and now this critically important Amendment, the discussion of which I am winding up, seeking a reduction in the standard rate of Income Tax and a reorientation and reduction of the various levels of Surtax. I made representations to you, Sir Eric, in the hope that my two Amendments on this subject —covering Income Tax and Surtax— would be taken together, and I am glad that you complied with my request.

My objective has been to cause on recommittal a wide discussion to take place of indirect taxation—that occurred on my Purchase Tax Amendment yesterday—and a wide discussion of direct taxation, and this has occurred late last evening and today. There is a fundamental cleavage between the two parties on these matters, and I hope that that cleavage will be aggravated and accentuated in the short remaining period between now and the next General Election.

I support a lessening of direct taxation and the broadening of the base of indirect taxation, in direct contradiction to everything said by the hon. Member for Manchester, Wythenshawe (Mr. Alfred Morris). I understand his arguments well. They have always been Socialist arguments. For this reason they have always been fallacious [Interruption.] I am waiting for the hon. Member for Ebbw Vale (Mr. Michael Foot) to erupt. I have always embraced pure Tory philosophy in these matters: incentives to work harder and longer, to create successful enterprise, to enlarge businesses and to sell more at higher and better profits. This is the pure milk of capital- ism which I espouse, in which I believe and which I support. I love profits better than all else—[Interruption.]—in business. And why not? It is a noble cause, when approximately 70 per cent. of all business profits go back to the Treasury in taxation. I am fortifying the Financial Secretary's revenue in a devious fashion. But, these are the deep cleavages on taxation policies between the two major parties.

I wind up this debate very shortly by saying that I am delighted that my right hon. and hon. Friends and myself have reached a broad measure of agreement in these debates on the Finance Bill, 1968, as to three principal policy matters. The first is that personal direct taxation in Britain is worse than in any other country of comparable stature; is much too high, and should be reduced. The second is that the basis of indirect taxation is insufficiently broad—it was to that that I directed my speech yesterday on Purchase Tax. The third is that in these debates we have not dealt with the agregation of married women's incomes, which is intolerable, especially in the matter gi Surtax—

Mr. Michael Foot (Ebbw Vale)

Will the hon. Gentleman give way?

Sir G. Nabarro

I always give way to the hon. Member for Ebbw Vale with pleasure.

Mr. Foot

Can the hon. Gentleman tell us whether he made the same speech about profits to the No-Nail shareholders?

Sir G. Nabarro

I should not speak here of individual companies, other than to say that after earning millions of pounds of profits in that company since I created it, I should not have thought that the shareholders of the company would have anything to grumble about. As I was myself a shareholder in the company, I found myself substantially fortified. The trouble with the hon. Member for Ebbw Vale, as I told him in 1962, is that his knowledge of industry could be accommodated on the back of a fourpenny stamp.

My concepts in relation to taxation are not new. They have not been evolved during the last 48 hours for the purposes of this Amendment, with which we have been dealing last night and today. As part of the strategy to which I have alluded I went into print nearly three weeks ago in a national newspaper with a circulation of about 1½ million—namely, the Weekend Telegraph. I wrote these words on 31st May, in the leading feature contribution, "Opinion" and entitled "Attack Tax". Under the heading "Personal (Direct Taxation)", I said that I would … replace Income Tax, Surtax, Capital Gains, Duty, Estate Duties, Betterment Levies… by a single system of direct taxation: The top rate for both earned and unearned income would be 13s. 4d. in the £. Income of spouses and children would be Non-aggregated. I proceeded: Sumptuary (Indirect Tax): An Added-Value Tax, as evolved in France and West Germany, totally rebated on exports. It should be spread on a broad base, replacing all present Customs and Excise duties, Selective Employment Tax, Purchase Tax, Betting Duties and Road Fund Licences. It would be a flat rate tax and un-cognisant of so-called luxury. It would raise more than present indirect taxes, which would allow a reduction of direct Personal Taxation. Lower income groups not paying direct taxes would be compensated through social welfare benefits and pensions, for any increased living costs caused by the Added-Value Tax. I claim that those sentiments are unexceptionable and are in the interests of the broad mass of the working population of the country.

7.15 p.m.

Generally I agree with the hon. Gentleman the Member for The Hartlepools, (Mr. Leadbitter) in almost nothing. But I found myself applauding him today as a horny-handed son of toil, a true Labour man—he might almost wear a cloth cap coming to and from the House —castigating the professorial type from Lancaster, who impressed his academics on the House yesterday—and the fact that he had no working knowledge whatever of what causes men and women in industry, trade and commerce to produce the nation's wealth.

I cannot, of course, take this Amendment to a Division tonight. Of course I cannot. In order to get it selected at all I had to seek a different reduction from that in the Amendment moved by my right hon. Friend the Member for Enfield, West in the Standing Committee—a Com- mittee from which I was excluded —[Interruption.]—the Chancellor of the Exchequer excluded me—not my right hon. Friend. The Chancellor of the Exchequer does not like me—

Mr. Harold Lever

I wish that the hon. Member had said that before. The Chancellor of the Exchequer had nothing whatever to do with his exclusion. The hon. Member must attribute that elsewhere—presumably to his right hon. Friend. I do not, of course, criticise his right hon. Friend.

Mr. John Pardoe (Cornwall, North)

The hon. Member for Worcestershire, South (Sir G. Nabarro) should beware of being picked next time, because in The Times newspaper his right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) has said that next time he will pick a weaker team.

Sir G. Nabarro

On the contrary, my right hon. Friend was very kind in what he wrote in that newspaper. He did not mention a single Tory backbencher, save only myself. What did my right hon. Friend say in his splendid article in The Times entitled "Failure of the Finance Bill Experiment"? He wrote: The voice may be the voice of Jacob but the hand is the hand of Esau and, to revert to my original metaphor, I think that although we will have doughty assistance from Sir Gerald Nabarro and a few others who were not on the Committee the Players will be called upon to bat. The fact is that I was not selected as a member of the Standing Committee.

But I want to make the following point in all seriousness. We know very well the rules in connection with the Finance Bill. This year we embarked on a new procedure. This Recommital stage I regard as a failure. For the reasons I have already endeavoured to demonstrate, I hope that it will never be repeated. But in the Standing Committee my right hon. Friend gave effect to the views of the Tory Party on matters of direct taxation. He took to the vote an Amendment to reduce the standard rate of Income Tax from 8s. 3d. to 8s. in the £. Subsequently, he took to the vote an Amendment to reduce the Surtax rates by 10 per cent. These were votes on principle, but there was not much publicity associated with these debates, for they were hidden in that Committee upstairs from which the general public, for reasons of accommodation and ventilation and other factors, were largely excluded. [HON. MEMBERS: "Oh."] So moved was I by the conditions in the Standing Committee that I set a Motion on the Order Paper of the House, signed by hon. Members of all parties, to draw attention to the situation. As the two Motions that I have mentioned did not receive much publicity, I have brought the matter to the Floor of the House to achieve much greater publicity.

We have now had a very wide-ranging debate on this critically important matter. Had I not put this Amendment on the Order Paper in terms different from that of the Amendment in the Standing Committee, we should have been denied this debate. Does any hon. Member seriously believe that we ought to have neglected to apply ourselves to the biggest single tranche of revenue that the Chancellor is claiming this year— £4,651 million from Income Tax and Surtax in 1968–69? I have sought to reduce it by nominal sums and have precipitated a long debate in which a large number of hon. Members have taken part. I believe that we should have been lacking in our duties as Members of Parliament, irrespective of party, if this far-reaching debate had not been allowed to take place. I am glad to see a Parliamentary Private Secretary sitting behind the Government Front Bench nodding assent.

Mr. F. P. Crowder (Ruislip Northwood)

My right hon. Friend—

Sir G. Nabarro

Not "right honourable".

Mr. Crowder

Well, very soon perhaps.

Sir G. Nabarro

I hope so.

Mr. Crowder

I wonder whether my hon. Friend, having mentioned these gigantic figures, has taken into consideration a rather more sinister aspect of the situation, the business of fraudulent prospectus. At the Old Bailey recently we have had the cases of Savundra, de Courcy and Grunwald. What about these cases? What were the shareholders told by the Prime Minister on 15th September, 1964? My hon. Friend will remember that the Prime Minister was asked on television just before the election whether Labour's proposals would involve increased taxation. The Prime Minister's reply was: No. Over a period of a Parliament I believe we can do it, certainly without any general increase in taxation. We are going to be responsible about this, and we shall tell the nation frankly what we think is required. My hon. Friend will remember—

The Chairman

Order. There must be some limit to interruptions. This interruption has gone beyond the limits.

Mr. Crowder

It is my complaint that there is no limit on the other side.

Sir G. Nabarro

My hon. and learned Friend—I am most grateful to him for drawing that quotation to my attention —has largely made the peroration of my short speech for me.

I mentioned the aggregation of revenue of £4,651 million from Income Tax and Surtax during 1968–9. That figure shows a net increase of £602 million in those two forms of taxation comparing 1968–9 with 1967–8—£584 million increase in Income Tax and £18 million increase in Surtax. So, though the Chancellor has not increased the rates of Income Tax and Surtax, he will be collecting from the hard-pressed, overburdened taxpayers £602 million more in Income Tax and Surtax this year than he did last year.

My hon. and learned Friend could not have been more apposite in his intervention or in his choice of words. There was a false prospectus in 1964 which beguiled and bewitched the unthinking section of the electorate and caused just sufficient misguided men and women to vote Labour. That was what the Labour Government's precarious majority in October, 1964, rested on. The Labour Party will not put that confidence trick a third time, I promise the Financial Secretary.

Amendment negatived.

Question, That the Clause stand part of the Bill, put forthwith pursuant to Order [11th June], and agreed to.

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