Commons Sitting of 15 April 1969

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS
PRIVATE BILLS [Lords] (No Standing Order not previously inquired into applicable)
Mr. SPEAKER laid upon the Table,—Report from one of the Examiners of Petitions for Private Bills, That in the case of the following Bills, originating in the Lords, and referred after the First Reading thereof, no Standing Order not previously inquired into is applicable thereto, viz.:—
Corn Exchange Bill [Lords].
Phoenix Assurance Company Bill [Lords].
Salisbury Railway and Market House Bill [Lords].
Witham Navigation Company Bill [Lords].
Bills to be read a Second time.

NORTH EAST LINCOLNSHIRE WATER BILL
As amended, considered to be read the Third time.
BRITISH TRANSPORT DOCKS BILL [Lords]
  RYDE CORPORATION BILL [Lords]
  Read a Second time and committed.
GREATER LONDON LOCAL RADIO AUTHORITY BILL (By Order)
Second Reading deferred till Tuesday next.
WALSALL CORPORATION BILL (By Order)
  WEST BROMWICH CORPORATION BILL (By Order)
    WOLVERHAMPTON CORPORATION BILL (By Order)
    Second Reading deferred till Thursday.
ORAL ANSWERS TO QUESTIONS
  NATIONAL FINANCE

    Special Drawing Rights
    Mr. Barnettasked the Chancellor of the Exchequer if he will make a statement on discussions he has had with members of the United States administration on the implementation of the Special Drawing Rights scheme.
    The Financial Secretary to the Treasury (Mr. Harold Lever): We are in complete agreement with the new United States Administration on the desirability of early ratification and activation of the Special Drawing Rights scheme. On present prospects, ratification should be completed by mid-summer. Thereafter activation can follow as soon as the Fund so decides.
    Mr. Barnett: Will the Government be supporting the reported initiatives of the United States in wanting activation at a minimum of 5,000 million dollars to start with?
    Mr. Lever: I dare say that my hon. Friend in his exuberance made a slip of the tongue in talking of 5,000 billion dollars. This is a slight over-estimation of possibility. The figures canvassed are between 1 billion and 5 billion dollars per annum for the first five years of this scheme. We would naturally support proposals for as large an issue as possible. What the Fund ultimately decides is a matter for it.
    Mr. Wingfield Digby: Has the hon. Gentleman been assured of the support of the Common Market countries?
    Mr. Lever: The support of various countries is growing rapidly, and ratification and activation is expected in the manner that I have indicated.

    Bank Lending
    Mr. Barnettasked the Chancellor of the Exchequer if he will make a statement on the level of bank lending.
    The Chief Secretary to the Treasury (Mr. John Diamond): Yes, Sir. Lending by all the main groups of banks fell, after

    957
    seasonal adjustment, during the latest month for which information is available.
    Mr. Barnett: What action is the Chancellor proposing to deal with the situation whereby some financial organisations have completely rejected the Chancellor's advice, so affecting the policy which he is trying to implement?
    Mr. Diamond: The banks as a whole have co-operated well, and I am sure will continue to co-operate well with anything my right hon. Friend has in mind. That will be for him to disclose a little later on.
    Sir C. Osborne: Is the right hon. Gentleman aware that the bank squeeze has affected the small business man a great deal more than it appears to have affected the nationalised industries? Could he have a look at how much is being loaned in nationalised industries as against that being loaned to the small man?
    Mr. Diamond: Yes, but in the meantime I can say that the amount of lending to the nationalised industries rose by far less than the amount of lending to the private sector.

    Tax Liabilities (Changes)
    Mr. David Howellasked the Chancellor of the Exchequer what further consideration he has given to proposals for publishing in draft form all legislation dealing with new taxes and changes in existing taxation, except rates of tax, in advance of his Budget statement: and if he will make a statement.
    Mr. Diamond: Although my right hon. Friend's mind is not closed on this in all circumstances, he does not believe that, as a general rule a satisfactory discussion of changes affecting tax liabilities can be conducted, except in the context of the Budget as a whole.
    Mr. Howell: Would it not be to the benefit of all if these areas of administrative controversy were opened to the public? Would we not then avoid the kind of situation, which we may well have to endure within the next hour or two, of a half-baked tax being dumped on a bewildered public, without it having been fully thought out?
    Mr. Diamond: It would indeed be astonishing, and a complete departure from the experience of the past four years, if anything in the nature of a half-baked tax were put before the public. The hon. Gentleman will recollect, although it was before he came here, that many of his hon. Friends objected, and have since continued to object, when my right hon. Friend the Home Secretary put before the public as a whole proposals affecting Corporation Tax and Capital Gains Tax. He will recollect, of his own knowledge, that where I have disclosed discussions with private sectors of the community they have objected considerably.

    Public Expenditure
    Mr. David Howellasked the Chancellor of the Exchequer whether the public expenditure reductions announced on 16th January, 1968, for the financial year 1968–69 have now all been carried out.
    Mr. Diamond: As my right hon. Friend made clear to the House in his statement of 20th February, public expenditure in 1968–69 is within the target laid down in Cmnd. 3515.—[Vol. 778, c. 779–81.]
    Mr. Howell: With respect, does that really answer the Question? Has not the right hon. Gentleman noticed, for instance, that investment grants are now £100 million above the sum set out in the agonising cuts of 16th January last year, and that the saving on civil defence, which was supposed to be £20 million next year, will turn out to be £5 million? Do not all these examples make it clear that the whole agonising cut operation—[HON. MEMBERS: "Speech."]—was cynical and misleading, and utterly inadequate to what the nation then demanded?
    Mr. Speaker: Order. Questions must be reasonably brief.
    Mr. Diamond: I shall answer what I was able to hear of the hon. Gentleman's supplementary question. I am aware that investment grants have increased, as a result of an unexpected increase in investment, which we welcome. I am well aware of them, because I put a special figure to the House about them. The total figure is what the hon. Gentleman is interested in, and that has gone up by

    959
    less than the estimated figure given in Cmnd. 3515.

    Economic and Financial Forecasting
    Mr. Kenneth Bakerasked the Chancellor of the Exchequer whether he is satisfied with the methods of economic and financial forecasting currently used by his Department and if he will make a statement.
    Mr. Harold Lever: A continuous effort is made to improve the techniques of forecasting in use at the Treasury and I am satisfied that the best available are in use at the present time.
    Mr. Howell: Would not the hon. Gentleman agree that the Treasury forecasts over the past four years have been as reliable as horoscopes? Could I tempt him to make one more forecast this afternoon and tell the House the date later this year when the Government will introduce their next Budget?
    Mr. Lever: All methods of predicting the future have been liable to a margin of error, from the Delphic Oracle onwards. I do not accept that the Treasury forecasts have been unreasonably wide in their margin of error.
    Mr. Ian Lloyd: Have the Government paid close attention to the very sceptical analysis of forecasting given in the Stamp Memorial Lecture by no less a person than the Permanent Secretary to the Treasury?
    Mr. Lever: The Government always pay close attention to anything the Permanent Secretary to the Treasury says. I have no doubt that these comments, suitably interpreted, will have been observed and noted.

    Purchase Tax
    Mr. Kenneth Bakerasked the Chancellor of the Exchequer why Purchase Tax is to be charged upon the multiples that are exhibited at the Robert Fraser Art Gallery.
    The Minister of State, Treasury (Mr. Dick Taverne): Because they are within the statutory charge on ornamental articles produced in quantity for general sale.
    Mr. Baker: What is the intrinsic difference between the kinetic sculptures reproduced in quantity and therefore subject to Purchase Tax and such articles as lithographs, etchings and books that are not subject to Purchase Tax?
    Mr. Taverne: There is a special provision for works of art. Unique works of art are exempt from the tax, and those produced in quantity are not.

    Overseas Debts
    Mr. Martenasked the Chancellor of the Exchequer if he will now make a statement about rephasing the Government's overseas debts.
    Mr. Harold Lever: My right hon Friend will have something to say on this in his Budget Statement after Questions.
    Mr. Marten: Is it not true that the International Monetary Fund is to come to London tomorrow? Is it not also true that we are about to ask for stand-by drawing rights for a further 1,000 million dollars or more? If so, shall we be told beforehand what strings will be attached?
    Mr. Lever: The visit of the I.M.F. arises from the annual Article 8 consultations with all important countries. I am sure that the hon. Gentleman does not wish to spoil his enjoyment of the speech of my right hon. Friend the Chancellor by my advancing the comment he will make in that speech.

    Taxation (Incentives)
    Mr. Sheldonasked the Chancellor of the Exchequer what study he has made of the effects of taxation upon incentives.
    Mr. Diamond: I am writing to my hon. Friend about the results of my examination of previous studies of this matter.
    Mr. Sheldon: I shall look forward very much to receiving that information. Since nearly £13,000 million is being raised by taxation, my right hon. Friend must agree that it was about time we gave this matter the consideration that I hope he has now given it.
    Mr. Diamond: We have been giving it close consideration throughout.
    Mr. Doughty: Will the right hon Gentleman tell his right hon. Friend,

    961
    although it is a bit late in the day to do it, that incentives are very important for the purposes of earnings, and that earnings mean taxation? If by any chance they are here next year, will the right hon. Gentleman impress on his right hon. Friend the importance of remembering this very important but simple fact?
    Mr. Diamond: I wish that it were as simple as the hon. and learned Gentleman thinks it is.

    Taxation (Married Couples)
    Mr. Christopher Priceasked the Chancellor of the Exchequer if he will make a study, through the Government Social Survey, of the social effects of the compulsory aggregation of the incomes for Income Tax and Surtax purposes of married couples living together.
    Mr. Taverne: I do not think this would be a fruitful exercise.
    Mr. Price: Does my hon. and learned Friend realise that this involves a fundamental issue of women's rights? Is it sensible to put a married woman living apart from her husband—separated or divorced, or a woman who has not bothered to get married but is just living with someone—in a better tax position than a married woman living with her husband in marital bliss?
    Mr. Taverne: It is very important to get this point absolutely clear. The majority of married couples are more favourably treated under the present tax system if they are both earning than if they were taxed separately.
    Mr. Iain Macleod: With respect to the Minister of State, what he is saying is that an injustice does not matter if comparatively few people are affected by it, and we find that an intolerable reflection.
    Mr. Taverne: We obviously could not have married women treated differently depending on the amount they earn. The present position is that the majority of married women are better treated for tax purposes than if they were taxed separately, although the reverse is true of those earning more than £5,000 a year.

    Financial Statement
    Mr. Sheldonasked the Chancellor of the Exchequer what economic forecasts
    962
    he plans to publish in the Financial Statement.
    Mr. Taverne: I would ask my hon. Friend to await the publication of the "Financial Statement and Budget Report" later this afternoon.
    Mr. Sheldon: The initiation of the forecast last year was greeted with great pleasure by many of my hon. and learned Friend's hon. Friends. Is he aware that we hope that we shall see a yet further advance in this very happy progress?
    Mr. Taverne: It will not be altogether unexpected if these matters are referred to later.
    Mrs. Ewing: If the Financial Statement refers to Scotland, will the Minister try to avoid the type of inaccuracy in forecasting which led to a prediction of an increase of 30,000 jobs in Scotland when there was a decrease of 30,000?
    Mr. Taverne: The hon. Lady must await the later statements and discussions. As my hon. Friend the Financial Secretary has pointed out, it is in the nature of forecasts that they are not accurate in every individual respect.

    Savings (Interest Rate)
    Mr. Tom Boardmanasked the Chancellor of the Exchequer what is his estimate of the rate of interest that savers will need over the next 12 months in order to maintain the real value of their investment and yield a return of 3 per cent. after tax at the standard rate.
    Mr. Harold Lever: It is not the practice of Governments to make predictions of changes in the value of investments.
    Mr. Boardman: If inflation continued at the same rate as it has since October, 1964, would not the appropriate rate of interest be 12½ per cent.? Will the hon. Gentleman ask his right hon. Friend to make this figure clear before inviting the public to subscribe for further National Savings?
    Mr. Lever: Apart from the last part of his supplementary question, I am not clear what the hon. Gentleman wants me to answer. I cannot deal with complicated hypothetics unless they are explicitly put on the Order Paper. I know of no reason to change the Government's policy in relation to National Savings.

    Balance of Payments Accounts
    Mr. Maurice Macmillanasked the Chancellor of the Exchequer what plans he has for improving the presentation in the balance of payments accounts of the capital and monetary items.
    Mr. Harold Lever: I would refer the hon. Gentleman to the Answer I gave him to a similar Question on 1st April.—[Vol. 781, c. 223.]
    Mr. Macmillan: Will the hon. Gentleman accept that the present method of presenting the long-term balance does not give a guide to its effect on reserves, and that particularly the financing of overseas investment through the Eurodollar market is creating a false impression to an extent to which it is depleting the reserves? Will he consider a method of presenting these figures so as to distinguish between the effect on the reserves and the need for short-term Government finance?
    Mr. Lever: I accept in a general way some of the criticisms the hon. Gentleman has made. That is why the Government are looking at the matter and hope to deal with precisely the areas on which the hon. Gentleman commented.

    Overseas Investment
    Mr. Biffenasked the Chancellor of the Exchequer what plans he has to relax controls on overseas investment in the non-sterling area.
    Mr. Ridleyasked the Chancellor of the Exchequer what steps he plans to take to encourage direct investment overseas by British companies.
    Mr. Diamond: Any announcements to be made at this time about overseas investment will be made in the course of my right hon. Friend's Budget Statement.
    Mr. Biffen: As the bailiffs from the International Monetary Fund will be here later this week, does not the right hon. Gentleman think that the House should not be left in suspense lest we are disappointed by the Budget Statement? Will not he agree that the Government are bound by Article 13 of the Letter of Intent to M. Schweitzer to relax capital restrictions and capital movement at the earliest possible moment?
    Mr. Diamond: I am sure that the House should not be held in suspense. If my right hon. Friend the Chancellor of the Exchequer rises to catch your eye, Mr. Speaker, I hope that he will be fortunate.
    Mr. Ridley: Is the Chief Secretary aware that, to a large extent, foreign physical trade is being replaced by the making of goods in foreign countries based on foreign investment? Will the Chancellor therefore do everything in his power to stop killing the goose which has been laying the golden eggs in the past?
    Mr. Diamond: There is practically no evidence to substantiate what the hon. Gentleman says, and if he will be good enough to compare the experience of other countries with ours, he will understand why I say that.
    Mr. Cant: Will my right hon. Friend remind the hon. Member for Oswestry (Mr. Biffen) that it is more honourable to solve the problems with which we are faced by having controls on overseas investment than to do what the Americans are doing, which is to relax their foreign investment controls and make up the balance by raiding the capital markets of Europe for Euro-dollars?
    Sir Harmar Nicholls: In view of the evidence that 40 per cent. of our total exports are invisible and, of the 40 per cent., 60 per cent. is income from overseas investments, is not it ludicrous to give the impression that we are not prepared to encourage such investments?
    Mr. Diamond: I did not give that impression, nor is it the truth.

    Money Supply
    Mr. Bruce-Gardyneasked the Chancellor of the Exchequer what was the rise in the money supply in the fourth quarter of 1969 by comparison with the corresponding quarter of 1968.
    Mr. Diamond: I assume that the Question mis-states the years.
    The money supply rose by rather under 3 per cent., seasonally adjusted, in the last quarter of 1968, compared with a seasonally adjusted rise of rather under 2½ per cent. in the last quarter of 1967.
    Mr. Bruce-Gardyne: May I thank the right hon. Gentleman for correctly reinterpreting my figures. Is not it evident that the Government foolishly disobeyed the advice of the International Monetary Fund in failing to get a grip on the money supply last year, and is not the next dose of taxation due this afternoon as much due to the continued failure of the Government to heed this advice as to the present state of the economy?
    Mr. Diamond: I am not sure that the hon. Gentleman has sufficiently grasped the facts. The increase in the money supply in 1968 was only two-thirds of the increase in 1967, and it was rather less than the rise in G.N.P. over that period.

    Shaw v. Borrett (Costs)
    Mr. Channonasked the Chancellor of the Exchequer what was the cost to public funds of the legal proceedings in Shaw v. Borrett.
    Mr. Taverne: A final figure is not yet available, but the identifiable costs are not thought likely to exceed £265.
    Mr. Channon: Is the Minister of State aware that my constituent who was involved in this case fought his battle up to the Court of Appeal where, single-handed, he won on a point of law, and that he has been offered by the Inland Revenue for all these hours of labour costs of under £35, and does he think that is fair?
    Mr. Taverne: It is true that the gentleman in question lost his case previously and succeeded finally in the Court of Appeal on a different basis of fact than had been accepted for the earlier periods. The scale of costs he is being awarded is entirely normal for such legal proceedings.
    Mr. Channon: In view of the unsatisfactory nature of that reply, I beg leave to give notice that I will seek to raise the matter on the Adjournment at the earliest possible moment.

    Safety Clothing (Purchase Tax)
    Mr. Dudley Smithasked the Chancellor of the Exchequer if he will now exempt outer reflective clothing, used in road safety and post-accident work, from the imposition of Purchase Tax.
    Mr. Taverne: No, Sir. It is impracticable to provide relief from Purchase Tax for safety clothing generally, and it would be anomalous to deal with reflective clothing in isolation.
    Mr. Dudley Smith: Is not the Minister aware that fluorescent reflective clothing is used exclusively as a safety measure and is not suitable for normal wear, and is it not completely illogical for the Treasury still to refuse to grant Purchase Tax exemption?
    Mr. Taverne: The difficulty is to separate, on a logical basis, one kind of safety or protective clothing from another. If one tried to do so, one would find oneself in a quite impossible, anomalous and unjust situation.

    Surtax
    Sir C. Osborneasked the Chancellor of the Exchequer, in view of the fact that Surtax was fixed at £2,000 per annum in 1919, and the value of the £ sterling has fallen to 7s. 2d. in the intervening years, if he will increase the Surtax starting point to nearer £6,000 per annum, in accordance with the changes in the value of money.
    Mr. Taverne: I must ask the lion. Member to await my right hon. Friend's Budget Statement.
    Sir C. Osborne: Does not the Minister agree that there is some social justice in the suggestion?
    Mr. Taverne: The social justice of it will no doubt be considered later. I can tell the hon. Member that since 1919 the cost of living has risen by under three times and the earned income level on which Surtax starts being paid has been raised by two and a half times.

    P.A.Y.E.
    Mr. Eadieasked the Chancellor of the Exchequer what increase there has been in the number of representations from taxpayers about administrative matters concerning Pay As You Earn; and what annual figures of such representations are recorded for previous years.
    Mr. Harold Lever: No statistics are kept of representations from taxpayers on this point. I cannot, therefore, give the desired information.
    Mr. Eadie: Is my hon. Friend aware that his reply is most disappointing? Is he further aware that my Question is prompted by the fact that my mailbag shows this year an increase in the number of complaints from my constituents about the administration of P.A.Y.E.?
    Mr. Lever: I hope it will reassure the hon. Member if I tell him—exchanging mailbags—that my more representative mailbag shows a decrease in anxiety on this point.

    Tax Offices
    Mr. Eadieasked the Chancellor of the Exchequer what instructions he has issued to tax offices in order to expedite the handling of tax matters in their respective areas.
    Mr. Harold Lever: Staff in tax offices have standing instructions to deal with taxpayers' affairs as quickly as possible.
    Mr. Eadie: Is my hon. Friend aware that in many areas there are delays in dealing with tax matters and that the excuse of computers being to blame is wearing a bit thin?
    Mr. Lever: I am not aware of having used or heard the excuse of computers. There is a great number of arrears and we are anxious to handle taxpayers' affairs as speedily as possible. There is not always a universal reciprocal eagerness on the part of some taxpayers, but we get along as well as we can.
    Mr. Michael Shaw: Is the hon. Gentleman aware that one of the worst sources

    FINANCIAL RESULTS OF THE NATIONALISED INDUSTRIES

    Information is given below about the net income and return on capital of each of the nationalised undertakings during the periods of office of their present Chairmen. Figures are not readily available either for the latest complete financial years of the industries (in respect of which accounts have not yet been published) or for the years before 1962–63. No figures are given in respect of industries for which a complete year's financial results during the present Chairman's term of office are unavailable. The Gas Council was not a trading concern before 1968–69 and is also omitted.

    Date of Appointment of Chairman

    Return on Capital*

    Net income at Current Prices†

    Net Income at Constant Prices‡

    Per cent.

    £ million

    £ million

    NATIONAL COAL BOARD

    1. 2.61

    1962–63

    5·2

    45·4

    52·4

    1963–64

    6·7

    58·1

    66·2

    1964–65

    4·9

    42·9

    47·5

    1965–66

    0·1

    0·5

    0·5

    1966–67

    3·7

    29·0

    29·6

    1967–68

    4·6

    35·3

    35·3

    SOUTH OF SCOTLAND ELECTRICITY BOARD

    1. 4.67

    1967–68

    5·6

    19·4

    19·4

    of delay is the Share Valuation Department where accountants frequently experience delays of up to six months?
    Mr. Lever: That is a separate question, but if the hon. Member would like me to look into it, I certainly will.

    Nationalised Industries (Finance)
    Mr. Brooksasked the Chancellor of the Exchequer what have been the annual net profits or deficits of each of the nationalised undertakings during the periods of office of their present chairmen; what are the equivalent figures expressed in constant prices; and what do these yields represent in terms of annual return on capital.
    Mr. Taverne: With permission, I will circulate the required information in the OFFICIAL REPORT.
    Mr. Brooks: Leaving aside our curiosity on that for the moment, will not my hon. and learned Friend agree that it is not satisfactory for the National Board for Prices and Incomes to discuss the levels of responsibility in nationalised industry without giving us some measure of the efficiency with which this responsibility is exercised? Will he quite simply say whether the productivity criteria are applied to senior executives?
    Mr. Taverne: This matter was fully gone into when my right hon. Friend the First Secretary made her statement on 3rd April, and in the debate which followed.
    Following is the information:

    Date of Appointment of Chairman

    Return on Capital*

    Net Income at Current Prices†

    Net Income at Constant Prices‡

    Per cent.

    £ million

    £ million

    CENTRAL ELECTRICITY GENERATING BOARD

    1. 1.65

    1965–66

    6·3

    141·1

    149·7

    1966–67

    5·7

    143·8

    147·0

    1967–68

    5·4

    151·2

    151·2

    SOUTH-EASTERN ELECTRICITY BOARD

    1. 4.66

    1966–67

    3·2

    2·9

    3·0

    1967–68

    6·7

    7·1

    7·1

    SOUTHERN ELECTRICITY BOARD

    1.12.54

    1962–63

    8·8

    7·5

    8·7

    1963–64

    8·5

    8·1

    9·2

    1964–65

    5·3

    5·6

    6·3

    1965–66

    7·5

    9·0

    9·5

    1966–67

    3·8

    5·2

    5·3

    1967–68

    7·7

    11·7

    11·7

    SOUTH WESTERN ELECTRICITY BOARD

    1. 3.56

    1962–63

    6·7

    3–0

    3·5

    1963–64

    4·7

    2·4

    2·7

    1964–65

    3·9

    4·5

    5·0

    1965–66

    7·8

    5·2

    5·5

    1966–67

    4·3

    3·2

    3·3

    1967–68

    10·2

    8·5

    8·5

    EASTERN ELECTRICITY BOARD

    1. 4.63

    1963–64

    9·6

    10·6

    12·1

    1964–65

    4·7

    5·7

    6·3

    1965–66

    8·3

    11·6

    12·3

    1966–67

    5·1

    7·8

    8·0

    1967–68

    8·9

    15·2

    15·2

    EAST MIDLANDS ELECTRICITY BOARD

    1. 1.65

    1965–66

    8·4

    8·3

    8·8

    1966–67

    4·4

    4·8

    4·9

    1967–68

    6·8

    8·3

    8·3

    MERSEYSIDE AND NORTH WALES ELECTRICITY BOARD

    8. 2.62

    1962–63

    6·0

    3·0

    3·5

    1963–64

    7·6

    4·5

    5·1

    1964–65

    8·7

    5·7

    6·3

    1965–66

    6·2

    4·4

    4·7

    1966–67

    4·3

    3·3

    3·4

    1967–68

    6·0

    5·0

    5·0

    YORKSHIRE ELECTRICITY BOARD

    25. 2.62

    1962–63

    2·9

    2·7

    3·1

    1963–64

    7·6

    8·0

    9·1

    1964–65

    7·8

    9·4

    14·0

    1965–66

    9·4

    12·4

    13·2

    1966–67

    4·7

    6·8

    6·9

    1967–68

    7·6

    11·9

    11·9

    NORTH WESTERN ELECTRICITY BOARD

    1. 4.64

    1964–65

    6·5

    6·6

    7·3

    1965–66

    6·9

    7·9

    8·4

    1966–67

    1·9

    2·4

    2·5

    1967–68

    5·5

    7·9

    7·9

    SOUTH EASTERN GAS BOARD

    1. 1.60

    1962–63

    3·9

    3·3

    3·8

    1963–64

    5·6

    4·9

    5·6

    1964–65

    6·7

    6·3

    7·0

    1965–66

    5·4

    5·6

    5·9

    1966–67

    2·3

    2·7

    2·8

    1967–68

    2·1

    2·9

    2·9

    SOUTH WESTERN GAS BOARD

    1. 5.64

    1964–65

    5·5

    2·5

    2·8

    1965–66

    4·4

    2·1

    2·2

    1966–67

    5·4

    2·9

    3·0

    1967–68

    5·3

    3·4

    3·4

    EASTERN GAS BOARD

    1. 5.59

    1962–63

    5·7

    2·5

    2·9

    1963–64

    5·3

    2·5

    2·9

    1964–65

    5·9

    3·1

    3·4

    1965–66

    6·0

    3·5

    3·7

    1966–67

    4·5

    3·2

    3·3

    1967–68

    3·8

    2·9

    2·9

    NOTES:
    * Capital for this purpose is defined as average net assets.
    ‡ Net income is gross income before charging taxation and interest on borrowings but after charging depreciation at historic cost and forseeable obsolescence.
    ‡ Revaluation to constant prices is based on the consumer price index, taking 1967=100.

    Anguilla (Medallions)
    Mr. Gurdenasked the Chancellor of the Exchequer if he is aware that thousands of medallions made in precious metals, including gold, are on sale for export which have been minted in Great Britain, commissioned by the Government of Anguilla commemorating its independence in 1968; and why he has given authority for the export of this precious metal.
    Mr. Harold Lever: No authority has been given for these medallions to be manufactured in gold in the United Kingdom. The use of other metals for manufactures of this kind is not subject to restriction.
    Mr. Gurden: Is the hon. Gentleman aware that Mr. Lee said that there was Government approval for the manufacture of this mark of Anguilla's independence?
    Mr. Lever: If the hon. Member is referring to approval for a gold medal to be struck, the answer is that no such approval has been or will be given.

    Nationalised Industries (Foreign Borrowing)
    Mr. Ridleyasked the Chancellor of the Exchequer how much foreign currency has already been borrowed by the nationalised industries; and how much he expects to be borrowed by the end of 1969.
    Mr. Diamond: B.O.A.C. has outstanding about £21 million of foreign currency debt, almost all U.S. dollars, the Gas Council is borrowing about £30 million in Deutschemarks and B.E.A. has borrowed about £7 million in Swiss francs. I hope that further foreign borrowing by nationalised industries will be possible during the rest of this year, but it is not possible to estimate the amount.
    Mr. Ridley: If the Government insist on plunging the country deeper into foreign debt by means of borrowing through the Trojan Horse of the nationalised industries, will they at least avoid borrowing in West Germany, in view of the Chancellor's known feeling that the Deutschemark should be revalued upwards, thereby causing us grievous loss?
    Mr. Diamond: The hon. Gentleman is, I am afraid, mistaken. The borrowing will not result in an increase in net United Kingdom overseas indebtness.
    Mr. Emery: Does the Minister realise that there has to be a Government guarantee for a very considerable part of this foreign indebtness, and should not it be recorded as Government foreign indebtedness and not just hidden away as indebtedness to the nationalised industries?
    Mr. Diamond: There is no question of hiding away; I have given the figures to the hon. Gentleman.
    Mr. Higgins: Will the right hon. Gentleman clarify his answer to the Question asked him by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley)? Would there be an increase in indebtedness in terms of sterling if there were a revaluation upwards of the Deutschemark?
    Mr. Diamond: That speaks for itself.

    Farmers and Horticultural Growers (Income Tax Assessment)
    Mr. Hastingsasked the Chancellor of the Exchequer what consideration he has given to the question of allowing farmers and horticultural growers to be assessed for Income Tax over a three-year period; and if he will make a statement.
    Mr. Diamond: I cannot anticipate my right hon. Friend's Budget Statement.
    Mr. Hastings: Is it not time that the Government took this seriously? Would not such a measure make for an increase in agricultural production, which is what they say that they want, and is it not all the more necessary in view of inflation, rising costs to farmers, and a totally inadequate Price Review?
    Mr. Diamond: I do not accept any of the hon. Gentleman's comments. This
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    matter has been looked at seriously over the years. But I cannot go further than that at this moment.

    Public and Private Expenditure
    Mr. Pavittasked the Chancellor of the Exchequer what is the total cutback in public and private expenditure planned in accordance with Budget statements and other statements by Her Majesty's Government since 1st January, 1968; and what percentage of this sum is represented by the income estimated to accrue in a full year from prescription charges.
    Mr. Diamond: On public expenditure, I would refer my hon. Friend to the statement by my right hon. Friend the Prime Minister on 16th January, 1968, and as regards private spending to the statements by my right hon. Friend the Chancellor of the Exchequer on 19th March, 1968 and 22nd November, 1968, and by my right hon. Friend the President of the Board of Trade on 1st November, 1968. As regards income from prescription charges I would refer my hon. Friend to the Answer by the Minister of State for Social Services to the hon. Member for Falmouth and Camborne (Dr. John Dunwoody) on 4th November—[Vol. 756, c. 1577–93. Vol. 761, c. 251–302. Vol. 773, c. 1790–7. Vol. 772, c. 345. Vol. 772, c. 459.]
    Mr. Pavitt: Does the very low percentage revealed by all those Answers include the £7 million increase in the Civil Estimates for 1969–70 in respect of pharmaceutical services and other hidden charges? Is it not time that the Treasury yielded to the demands of 95 per cent. of hon. Members on the back benches on this side of the House for the removal of prescription charges?
    Mr. Diamond: No, Sir. My hon. Friend is wrong if he thinks that the estimates which have been given and which have been proved so far to be fairly accurate do not take all these matters fully into account.

    Wealth Distribution
    Mr. Hugh Jenkinsasked the Chancellor of the Exchequer in view of the fact that the increase in the number of millionaires over the last five years is greater than for any similar period

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    hitherto, what steps he is taking to reduce this number and achieve a wider distribution of wealth.
    Mr. Taverne: My hon. Friend will not expect me to anticipate my right hon. Friend's Budget Statement.
    Mr. Jenkins: Does my hon. and learned Friend agree that the growth and proliferation of multi-millionaires is incompatible with an acceptable prices and incomes policy, and will he explain that to his right hon. Friends?
    Mr. Taverne: I do not think that my hon. Friend has the facts quite right. The best comparison that one can make is on calculations based on the amount of investment income. These show no major change in recent years and, looking at the overall distribution of wealth, there is no doubt that, over the years, it has become more widely distributed.

    Sterling Balances
    Sir C. Osborneasked the Chancellor of the Exchequer what are the total sterling balances he guaranteed to repay in dollars and which would automatically increase in the case of further devaluation; and in which countries they are mainly held.
    Mr. Harold Lever: I assume the hon. Gentleman's Question refers to the balances guaranteed under the sterling agreements concluded last summer, although these do not include any obligation to repay in dollars. The amount of sterling guaranteed varies, but at end-December it was of the order of £1,750 million. The largest holders of sterling are Australia, Brunei, Hong Kong, Ireland, Kuwait, Malaysia, New Zealand and Singapore.
    Sir C. Osborne: If the sterling balances were guaranteed last year and the hon. Gentleman says that they were not guaranteed in terms of dollars, in what currency were they guaranteed?
    Mr. Lever: I did not say that they were not guaranteed in dollars. I was saying that they were guaranteed as to value in relation to dollars. The guarantee was not an obligation to repay in dollars. That has always existed in terms of sterling balances.

    Overseas Indebtedness
    Mr. J. H. Osbornasked the Chancellor of the Exchequer what was the total overseas indebtedness as at 5th April, 1969; what has been the change since December, 1968; what is the total of interest payments that have now been waived; and what interest repayments and capital repayments are now budgeted for the current year.
    Mr. Harold Lever: The total overseas indebtedness at 5th April, 1969, was £3,354 million; a decrease of £141 million since December, 1968. No interest payments have been waived but, since 1956, interest amounting to £93 million has been deferred. The interest payments and capital repayments due in the current financial year are £86 million and £447 million respectively. These sums exclude central bank transactions.
    Mr. Osborn: I thank the hon. Gentleman for his interesting reply, but can he say what will be the figure towards the end of this year and can he tell the House what exactly is the difference between "deferring" and "waiving" these payments? When does he propose to make the payments which have been deferred?
    Mr. Lever: The House will know of my reluctance to engage in necromancy, so I will not attempt to predict the future. As for the difference between "waiving" and "deferring", I could refer the hon. Gentleman to the Oxford English Dictionary. However, briefly, "waiving" means abandoning the claim. "Deferring" means delaying the point at which it becomes due.

    Overseas Investment
    Mr. J. H. Osbornasked the Chancellor of the Exchequer if he will now take steps to increase overseas investment, at the expense of overseas aid and expenditure on defence, following the meeting of the United Nations panel on Foreign Investment in Developing Countries.
    Mr. Diamond: No, Sir.
    Mr. Osborn: Was the Treasury represented at the United Nations conference, did it take note of the recommendations, and is it aware of a recommendation to

    977
    the effect that overseas investment is a good way of providing aid?
    Mr. Diamond: I am aware of that, of course, but the point of the conference was that it concluded, as opposed to what the hon. Gentleman put in his Question, that investment and aid should go hand in hand.
    Mr. Patrick Jenkin: Have the Government had a report from the representative of this country who attended, Sir Duncan Oppenheim, and would it be possible for his report to be made public?
    Mr. Diamond: I am not informed about the intentions of making it public, but I will look into the matter and let the hon. Gentleman know.

    Newcastle (Government Bookshop)
    Mr. Milneasked the Chancellor of the Exchequer if, in view of the difficulties being experienced in the North-East in obtaining copies of In Place of Strife and other Government publications, he will set up a branch of Her Majesty's Stationery Office in Newcastle.
    Mr. Taverne: The possibility of opening a Government Bookshop in Newcastle has been examined several times, but there is insufficient demand for Government publications in the Newcastle area to justify the opening of a Government Bookshop, which would be required to pay its way.
    Mr. Milne: Is my hon. and learned Friend aware that his reply is not only a disappointing one but a wrong one? If he examines closely the situation in the North-East, he will find that there is a growing demand for Government publications which remains unsatisfied. On top of that, is he further aware that one of the leading firms in the city had to borrow a copy of In Place of Strife" from the Department of Employment and Productivity and had to return it after examining it because no other supplies were available?
    Mr. Taverne: I am aware that for various reasons there has been a brisk demand for the document "In Place of Strife". But neither the Stationery Office nor its Newcastle agent has been aware of any difficulty in getting copies. Generally speaking, to justify a Govern
    978
    ment bookshop which would pay its way, it would have to have a turnover of at least £35,000 a year, and at present demand falls short of that.
    Mr. Doughty: In view of the difficulty in getting copies of "In Place of Strife", the hon. Gentleman may be interested to know about a better publication called "Fair Deal at Work" which can be obtained from Conservative Central Office.
    Mr. Taverne: Yes, and I recommend that pamphlet to some of my hon. Friends who may not be aware of its full implications.
    Mr. Heffer: That is a cheap and stupid answer.
    Mr. Milne: On a point of order, Mr. Speaker. In view of the unsatisfactory nature of that reply, I beg to give notice that I shall seek to raise the matter at the earliest possible moment on the Adjournment.

    Sanctions and Cancelled Military Orders (Cost)
    Mr. Biggs-Davisonasked the Chancellor of the Exchequer what is his latest estimate of the cost to the Exchequer and to the balance of payments of sanctions against Rhodesia, and of the forfeiture of orders for warships, aircraft and military equipment obtainable in Portugal and South Africa.
    Mr. Harold Lever: The cost to the Exchequer of maintaining sanctions against Rhodesia, including contingency support for Zambia, was £36·8 million between I.D.I. and 28th February 1969. The cost to the balance of payments cannot be precisely estimated. In 1968 as in 1967 the cost, excluding any effect of the Rhodesia situation on the price of copper, was probably not very different from the figure of £40 million for 1966, given by my right hon. Friend the Prime Minister to the House on 16th March, 1967.
    On arms sales it is not the practice of Her Majesty's Government to publish the confidential exchanges with other Governments. Nor is it possible to compute the hypothetical benefit to the balance of payments of any arms sales to Portugal and South Africa not permitted under

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    the policies of Her Majesty's Government.
    Mr. Biggs-Davison: In view of the persistent imbalance in our trade and the very serious economic situation, will the Government now restrain their ideological hatred of indispensable allies and stop subverting by their policy our economy and strategy?
    Mr. Lever: The hon. Gentleman will not expect from me a full statement on Government policy in this area in reply to a supplementary question.
    Mr. Molloy: Will my hon. Friend take note, in relation to this question, that the price that humanity has often paid for giving in to authoritarianism is much more than the answer that he has given, and that neither the Government nor any other decent Member should take notice of the policy advocated by the hon. Member for Chigwell (Mr. Biggs-Davison).
    Mr. Lever: That will be noted.

  HOUSING

    Housing Programme (Newham)
    Mr. Arthur Lewisasked the Minister of Housing and Local Government whether, in view of the difficulties caused by and resultant upon the Ronan Point disaster, which are making the Newham Council curtail and reduce their housing programme, he will now state what action he proposes to take to ensure that the Council's housing programme does not suffer as a result of this disaster.
    The Joint Parliamentary Secretary to the Ministry of Housing and Local Government (Mr. James MacColl): The Newham Council has suggested a future housing programme of 1,234, 1,502 and 1,506 units for the years 1969, 1970, and 1971, respectively. These figures show an increase on the council's past performance and officers of the Department are co-operating fully with the local authority to help deal with any problems which may affect the programme as they arise. I warmly commend the way in which the council is pushing ahead with their programme.
    Mr. Lewis: I, too, should like to congratulate this progressive council. Is the Minister aware that if it were not for the
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    hold-up incurred because of Ronan Point, there could be even further houses if the council could have financial help and were not expending time, energy and money doing the necessary strengthening of the structures? Will the Minister do something to help the council in this connection?
    Mr. MacColl: The Government have accepted the principle that the cost of strengthening existing buildings should rank for special assistance.

    Housing revenue account (Greater London)
    Mr. Silvesterasked the Minister of Housing and Local Government if he will take steps to increase the rate support grant for Greater London to offset the increased deficit imposed on its housing revenue account.
    The Minister for Planning and Land (Mr. Kenneth Robinson): No, Sir. The Greater London Council has no need to make good a deficit in the housing revenue account larger than it had previously envisaged. In any case Exchequer assistance to that account is outside the scope of the rate support grant system.
    Mr. Silvester: Does the Minister agree that his refusal to allow the increases in rents of G.L.C. houses, for which it asked, will cost that council about £2 million to £3 million, which will have to be borne in addition to the subsidy already put into the housing revenue account? Does he feel no obligation to help it in that situation?
    Mr. Robinson: No. The decision to reject the Greater London Council's proposed rent increases does not place an extra rate burden on London ratepayers. We suggested to the council that a greater amount of the capital expenditure on housing now met from revenue should instead be charged to loan. If this is done there is, in my view, no need for a rent increase in 1969–70, nor for a greater rate fund contribution than the council was already prepared to make.
    Mr. Macdonald: Before the figures quoted by the hon. Gentleman are accepted, may I ask my right hon. Friend to cause an inquiry to be held, for example, into the apparent enormous increases in the cost of administering the G.L.C. housing account in recent years?
    Mr. Robinson: I can assure my hon. Friend that all relevant factors were taken into account by my right hon. Friend in reaching this decision.
    Mr. Boyd-Carpenter: Does the right hon. Gentleman realise that his first supplementary answer means that he is asking the Greater London Council to pursue financial policies which it regards as unsound, and are not London ratepayers being asked to find money to support policies which they emphatically rejected at the last council elections?
    Mr. Robinson: No. The expenditure in question relates to capital works for which it would be entirely proper to spread the cost. Restricting capital met from revenue is one method for avoiding rent increases which my right hon. Friend has consistently recommended to local authorities generally.

  LOCAL GOVERNMENT

    Ipswich (Expansion)
    Sir Dingle Footasked the Minister of Housing and Local Government when he expects to arrive at a decision on the expansion of Ipswich; and what are the reasons for the delay.
    Mr. K. Robinson: The decision will be announced as soon as possible. Proposals of this size and importance raise complex issues which need very careful consideration.
    Sir D. Foot: Does my right hon. Friend appreciate that it is now over nine months since the public inquiry was held? Does he also appreciate that this inordinate delay is causing great difficulties both to business and to employment? Can the Minister give some indication when we may expect a decision?
    Mr. Robinson: On the last part of my right hon. and learned Friend's supplementary question, I can only repeat "as soon as possible". But I fully recognise the need to decide this matter as soon as a decision can be reached.

  DEPARTMENTS (MERGERS)
  Mr. Laneasked the Prime Minister what further proposals he has for mergers of Departments.
  The Prime Minister (Mr. Harold Wilson): None, at present, Sir, though the Question is kept under review.
  Mr. Lane: As since 1964 the gross national product has risen by only 24 per cent. while the number of Ministers concerned with economic, financial and industrial matters has risen by 80 per cent. and their salary costs by 180 per cent., could the Prime Minister at least assure us today that his mind is not closed to the advantages of merging the D.E.A. with the Treasury?
  The Prime Minister: I have said that some of these questions will be kept under review. The increase in Ministers has been mainly in connection with the long overdue requirements of regional development and catching up with 13 years of drift in industrial policy.
  Mr. Brian Parkyn: Will my right hon. Friend look carefully again into the areas of responsibility of the Board of Trade and the Department of Economic Affairs on the one hand and of the Board of Trade and the Ministry of Technology on the other?
  The Prime Minister: I think that, despite a number of comments three or four years ago, there is now widespread acceptance of the great job that the Ministry of Technology has done—[Interruption.]—I thought it was fairly universal—in relation to the modernising and restructuring of a considerable number of industries, including shipbuilding and machine tools, which are now in a far better position to contribute to our balance of payments, in consequence, than they were five years ago.
  Mr. Maudlin: May we take it that the Government intend this afternoon to continue halting the 13 years' drift towards lower taxation?

  MIDDLE EAST
  Mr. Henigasked the Prime Minister if he will make an official visit to the Middle East.
  Mr. Hamlingasked the Prime Minister what consultations he has now had with Heads of Government with a view to bringing about a settlement in the Middle East.
  The Prime Minister: I have no plans to visit the Middle East at present. Since the beginning of this year I have discussed the Middle East situation with a number of Heads of Governments, including President Nixon, King Hussein, and Chancellor Kiesinger, and during the meeting of Commonwealth Prime Ministers in January and with senior representatives of Middle East states below Head of Government level.
  Mr. Henig: Can the Prime Minister say at what point in the Big Four talks now going on the various parties to the Middle East conflict will be consulted? Whilst recognising that those parties will have to make some concessions in the interests of peace, may I ask my right hon. Friend to confirm that there is no question of dictation on one side or the other?
  The Prime Minister: On the first part of the question, I think that my hon. Friend can assume that the four nations involved in these very important talks at the United Nations are very fully apprised of the position of the various Middle East countries concerned and that there are facilities for continuing contact to deal with any changes in the situation.
  The answer to the second part is that there is certainly no question of dictation. The purpose of the four-Power talks is to strengthen the initiatives taken by Dr. Jarring over the past year and a half since our Resolution at the United Nations and to bring these initiatives to fruition.
  Mr. Hamling: Does the Prime Minister agree that one of the difficulties of the United Nations' observers in all this, and the United Nations, is the failure of some of the great Powers of the world to support the United Nations in this area?
  The Prime Minister: We made very clear our attitude to the treatment of the United Nations' observers at that critical time just before the Middle East war of 1967 began. We shall be ready, and I am sure that other great Powers will be ready, to give full support to the United Nations' observers, recognising the difficult task that they now have in seeking to prevent outbreaks of fighting and the even more difficult task that they might have to police any settlement which comes out of the four-Power talks and
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  the negotiations between the States concerned.
  Sir C. Osborne: As the Soviet Union is likely to be the greatest influence in preserving peace in the Middle East, is the right hon. Gentleman in close touch with Moscow on this issue?
  The Prime Minister: Yes, Sir. The hon. Gentleman will be aware that we welcomed the initiative of the Soviet Government about bilateral talks and four-Power talks. We are in close touch with them, and my right hon. Friend the Foreign and Commonwealth Secretary has maintained close contact with the embassy in this country, and I have exchanged messages with Mr. Kosygin.

  NIGERIA
  Mr. Henigasked the Prime Minister if he will make a statement on his recent official visit to Nigeria.
  The Prime Minister: I have nothing to add to what I said in the House on 2nd and 3rd April.—[Vol. 781, c. 485–500, 651–4.]
  Mr. Henig: First, as General Gowon and Colonel Ojukwu have both now said that they are prepared for negotiations without any preconditions, has my right hon. Friend any idea of how those negotiations might start, and why they have not so far started? Second, does my right hon. Friend have any further plans for stepping up the flow of economic and food aid which is going direct to the area presently within Biafra?
  The Prime Minister: On the first question, my hon. Friend will remember that one of the clear assurances that I brought back to the House from my talks with General Gowon was his willingness for unconditional talks. The answer to the question about how these should best be pursued must lie in the O.A.U. Consultative Committee now gathering at Monrovia. I discussed these matters with the Emperor of Ethiopia, who plays such an important part here.
  On the question of economic aid, again I reported to the House on this and not only on my own discussions with relief agencies, but on the work of Lord Hunt who accompanied me on this visit.
  Mr. St. John-Stevas: Does the right hon. Gentleman agree that well-intentioned visits are no substitute for a right policy? Can the right hon. Gentleman make it clear to the House whether this unconditional offer of negotiations by the Nigerians is subject to the acceptance by Biafra of a unitary state?
  The Prime Minister: Well-intentioned visits in support of the right policy are very different from what the hon. Gentleman was seeking to criticise, and that is what it was.
  With regard to the statement by General Gowon and his Government about this, it was an unconditional willingness to sit down in talks to settle this problem. He made it clear to me, as I reported to the House, that at the end of the day, before a settlement was reached, there would be insistence on a unified Nigeria, but he was unconditionally willing to sit down for the talks.

  PRIME MINISTER (SPEECH)
  Mr. Bruce-Gardyneasked the Prime Minister if he will place in the Library a copy of his public speech at Prescot on 14th March regarding industrial relations.
  The Prime Minister: As the hon. Gentleman will be aware from my reply to a Question by my hon. Friend the Member for Bedfordshire, South (Mr. Gwilym Roberts) on 24th March, I have already done so. Sir.—[Vol. 780. c. 223.]
  Mr. Bruce-Gardyne: I am most grateful to the right hon. Gentleman. In a characteristic phrase the Prime Minister said that the Government meant business with their White Paper, "In Place of Strife". Can the right hon. Gentleman now say when they mean business, and whether the White Paper is still regarded as a basis for discussion, or should that question be addressed to the Home Secretary?
  The Prime Minister: The White Paper is a statement of policy. The Government's decision on this matter, which has been taken, will be announced to the House in the appropriate way and at the appropriate time.
  Hon. Members: When?
  The Prime Minister: Hon. Gentlemen opposite will not have too long to wait.
  Mr. Ashley: is my right hon. Friend aware that hon. Gentlemen opposite are less concerned with reforming the trade unions than with crippling them, and that their hostility has seriously damaged the prospects of improving industrial relations? Can my right hon. Friend assure the House that despite the difficulties created by hon. Gentlemen opposite and by some of my sincere but misguided hon. Friends, the Government will as soon as possible implement the proposals in the White Paper?
  The Prime Minister: I think that unwittingly my hon. Friend was a little unfair to Her Majesty's Opposition in this matter. I do not think that they are really as vicious as all that. I think that perhaps what they are responsible for is the fact that they did nothing to deal with the problem of strikes, and the then Minister of Labour, now the Leader of the Opposition, by refusing to set up a Royal Commission when pressed by his back benchers to do so, has held up the matter for several years.
  Mr. Thorpe: Would the Prime Minister be surprised to know that, although the House is grateful to him for placing a copy of his speech in the Library, the courtesy of Transport House is such that copies of his speech are readily available to those who, like myself, have asked for copies for the sake of greater accuracy?
  In view of the fact that the opposition to the contents of that speech has forced the Prime Minister, very rightly, to give a lecture to his colleagues on the doctrine of collective responsibility, may I ask whether he is satisfied that another important doctrine, namely, that of Cabinet secrecy—[HON. MEMBERS: "Too long.")—which is equally important, has been maintained in this case?
  The Prime Minister: I think that it would not be inappropriate to respond to the courtesy of the right hon. Gentleman—and it would not be too far out of order—by expressing the congratulations of the House to the right hon. Gentleman on another event which is not covered in the White Paper, but which might be covered in this supplementary.
  With regard to the second part of the right hon. Gentleman's question, if the Cabinet in any situation decides that

  987
  there shall be publicity for any matter which has heretofore been secret, there is no breach of the principle of secrecy.
  Mr. Dickens: Will my right hon. Friend make it plain whether the Government have taken a decision to introduce in the present Session of Parliament a Bill giving us the so-called penal clauses outlined in the White Paper "In Place of Strife"? If they have, may I ask my right hon. Friend whether he is aware that he will meet the most widespread opposition on this side of the House and in the country?
  The Prime Minister: I applaud my hon. Friend's patience in these matters, but I ask him to show a little more patience for a little longer, and then he will have his answer.
  Sir Knox Cunningham: When?
  The Prime Minister: In due course. My hon. Friend, in perhaps rather crystallising his views in that question, will not be unaware of the serious effect of unofficial strikes in this country. He will be aware that in the four and a half years since October, 1964 15 million working days have been lost through strikes.
  Mr. Dickens: This is not the way to deal with them.
  The Prime Minister: That is far too many, even though it compares favourably with the figure for the four and a half years from 1956 to July, 1960, when the right hon. Members for Enfield, West (Mr. Iain Macleod) and Bexley (Mr. Heath) were Ministers of Labour, when not 15 million but 21 million working days were lost.
  Mr. Doughty: Is the right hon. Gentleman aware that all the lady Members sitting with him, including the right hon. Lady next to him, are dressed in blue, a colour well chosen by them?
  The Prime Minister: I am glad that my right hon. and hon. Friends' sartorial tastes impress and please the hon. and learned Gentleman. But this has no more political significance than the colours next to the hon. and learned Gentleman, nor the bright red of the Scottish Nationalist Party.
  Mr. Heffer: Would not my right hon. Friend agree that it is a gross exaggeration to talk of industrial anarchy in this country? Is it not clear that the answer to our industrial problems in relation to unofficial strikes is to have greater emphasis on the question of conciliation rather than legislation which is going to antagonise the trade unions and not solve the problem at all?
  The Prime Minister: We need both. We need the positive parts of the White Paper so warmly welcomed by my hon. Friend. We need legislation as well. We also need what I am convinced we shall get, the full co-operation of the Trades Union Congress and of the C.B.I. in doing all they can to improve industrial negotiating procedures.
  We are proud of the system of industrial relations in this country. Nevertheless, it still leaves a lot to be improved, and when one considers not only Girlings and Vauxhalls but the fact that even this week in South Wales 400 unofficial strikers have put out of work 8,000 people who are not parties to the dispute and threatened the employment of up to another 20,000 people, I do not think that that is a reason for complacency or for any lack of urgency.
  Mr. Roebuck: Is my right hon. Friend aware that there has been a great deal of misrepresentation in the country about the White Paper, not least in the Tribune's stable companion, the Daily Express, this morning, which published a long and wearying letter? Will my right hon. Friend consider producing for publication a short pamphlet explaining what the Government are trying to do?
  The Prime Minister: It is certainly the case that many of the commentators on the White Paper are either misrepresenting it or, more charitably, have not even taken the trouble to read it.
  The suggestion of producing a short paper explaining the Government's proposals in a more popular form is being considered. Indeed, it is being worked on today. As I have already made clear, a short paper explaining what the Opposition did in 13 years in this matter of industrial relations could be written in one word, "Nothing"—although I could find a non-Parliamentary expression which would extend to three words.
  Sir Harmar Nicholls: Is the right hon. Gentleman aware that it is a misnomer to talk in terms of producing a popular explanation of this legislation? In view of the great difference of view that exists among hon. Gentlemen opposite on this question, is there any significance in the fact that the Minister of Public Building and Works could not be sitting further away from the Government Front Bench?
  The Prime Minister: No, Sir. The hon. Gentleman is obviously finding it difficult to make points. Of course there are differences of view among my hon. Friends on the subject of industrial relations. This is inevitable when a Government decide, and show the necessary courage, to tackle what is a difficult problem. If there were no differences of view among hon. Gentlemen opposite it was because the right hon. Gentleman who was responsible at the time would not even set up a Royal Commission.
  Mr. Shinwell: I understand that at a recent meeting with the T.U.C. Council my right hon. Friend made the suggestion that the T.U.C. might, if it objected to legislation on this subject, present alternative proposals. Has there been any response from the T.U.C.? Is there any indication that it will be able to submit alternative proposals within a reasonable time?
  The Prime Minister: My right hon. Friend is quite right. My right hon. Friend the First Secretary and I said to the T.U.C. representatives last Friday that if they were able to produce a scheme for dealing particularly with the problem of unofficial strikes and their effect on the employment of other workers who were not directly involved we would be prepared to consider it if it appeared likely to be as effective—I did not say 100 per cent. effective; none of these things can be—as the Government's legislative proposals.
  The T.U.C. did not, in reply, indicate that it had anything in prospect or could get the necessary degree of control over the individual unions and over unofficial strikers to produce such a scheme. However, the T.U.C. is certainly considering the matter. We shall welcome any proposals, and I hope to have a further meeting with the T.U.C. later this week.
  Several Hon. Members rose—
  Mr. Speaker: Order We must get on.
  Mr. Bruce-Gardyne: On a point of order. Mr. Speaker. In view of the ambiguous nature of the Prime Minister's replies, I beg to give notice that I shall raise this matter at an early opportunity.
  Mr. Speaker: Order. Notice must be given in the conventional form.

ORDERS OF THE DAY
  WAYS AND MEANS

    BUDGET STATEMENT
    Mr. Speaker: Before I call Mr. Chancellor of the Exchequer, it may be for the convenience of hon. Members if I remind them of the procedure which was introduced last year and which is to be followed again today.
    At the end of the Chancellor's speech, copies of the Budget Resolutions will not be handed round in the Chamber but will be available to hon. Members in the Vote Office.
    The first Resolution will be one to apply the provisions of the Provisional Collection of Taxes Act, 1968, to certain of the proposals to be contained in the subsequent Resolutions. Under Standing Order No. 90(1), I am required to put the Question on this Resolution forthwith.
    When the first Resolution has been disposed of, I shall propose the Question on the second Resolution, which I understand will be a general Resolution entitled, "Amendment of the Law". On this Resolution the Budget debate will take place today and on the remaining days allotted to it.
    Finally, when that Resolution has been agreed to next Monday evening, it will be my duty under Standing Order No. 90(2) to put successively the Questions on each of the remaining Budget Resolutions without amendment or debate, but with the possibility of a Division in each case.

  I. INTRODUCTION
  3.35 p.m.
  The Chancellor of the Exchequer (Mr. Roy Jenkins): Introducing last year's Budget, I said that my major task was to deal with the consequences of devaluation. This year I am able to report that we have achieved some progress in making the changes in the structure of our economy which are essential to the movement from a heavy deficit on the balance of payments to a substantial surplus.
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  But there is clearly still a long way to go.
  I have always made it plain that the strengthening of our economic position is bound to take time. The improvement has been a good deal slower than we hoped. In spite of the price advantages of devaluation, our share of world markets declined further in 1968, and we failed to substitute home produced goods for imports on anything like the necessary scale. Our competitive position has been damaged by irresponsible industrial action, and 1968 was a particularly bad year for unofficial strikes.
  I therefore cannot report to the House today that we have yet succeeded in our objectives, or that without further corrective measures we can now expect a sustained surplus to appear. The task last year was to create a massive turn-round in the economy; the task this year is to make sure that this turn-round does not peter out before it has gained full momentum.
  While I shall not have to propose measures as stringent as those in the last Budget, it remains essential that we should continue to do everything necessary to put our balance of payments on a secure and healthy basis—not because a balance of payments surplus is an end in itself, but because it is an essential means to the sustained growth and prosperity we all want.
  I have framed this Budget accordingly, and it is therefore with the balance of payments and our external position that I start my economic survey.

  II. EXTERNAL POSITION

    International monetary situation
    In the last year there have been further disturbances in foreign exchange markets, which have led to concern about international monetary arrangements. I welcome constructive discussion about these matters, but it is misleading to talk as though the system had broken down or was about to do so. 1968 was a year of monetary tension, but it was also a year of vigorous growth of output and trade in the world economy. When strains in the system have appeared, international co-operation has been successful in resolving them. The Basle arrangements

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    for stabilising the official balances of the sterling area stood secure against the strains of last November and December. In March this year, renewed fears about the French position caused tension in the exchange markets for a few days only, and did not prevent the month from being a good one for sterling. And Central Banks have agreed to take steps to neutralise the impact on reserves if speculative currency movements recur.
    The most urgent improvement which is needed is to bring into operation the scheme for Special Drawing Rights in the International Monetary Fund. I hope that the first S.D.R.s will be created and distributed, on a substantial scale, before the end of this year.

    Outlook for world trade
    But the growth of world trade cannot be ensured simply by international co-operation in the monetary field. Individual countries, both those in deficit and those in surplus, must play their part by adopting the right domestic policies. This is all the more important now, when some recoil from last year's exceptionally fast growth must in any case be expected.
    The American authorities have taken action to moderate the expansion of their economy. But since the United States has in recent years provided the mainspring of the growth in world trade, it is imperative that other countries, not constrained by excessive demand or by a weak external balance, should now take on that role. It is to the surplus countries of the European Economic Community that the world must look now for the main impetus to continued trade expansion. The correction of deficits cannot be achieved without some balancing reduction of surpluses.

    The United Kingdom balance of payments in 1968
    Within this world setting the United Kingdom balance of payments has continued in deficit. Inevitably there was an initial adverse effect after devaluation. Improvement has occurred—although later than I had hoped—and the overall 1968 deficit of £458 million masks a striking difference between the two halves of the year. The really bad period was the second half of 1967 and the first half of 1968, each with deficits of more than
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    £400 million. In the second half of 1968 the deficit fell to £31 million. In the third quarter, with large inward capital movements, we had an overall surplus of more than £100 million, although we were in deficit again in the fourth quarter. However, it would be no more sensible to see a change of trend between these two quarters than to suggest—as of course we did not—that we had achieved an underlying rate of surplus of £450 million in the third quarter. Indeed, the overall balance, heavily dependent upon capital transactions, is bound to show erratic movements from quarter to quarter. Although it is vital that capital transactions should not be allowed to frustrate our efforts, it is to the current account that we should devote our main attention. It is certainly the best guide to our current economic performance.
    The current account improved considerably between the two halves of 1968. It has benefited from a strong rise in our exports and from the high level of our invisible earnings. Both were encouraged by devaluation, the effects of which on our exports have still not been fully seen. In the last three months, exports have been 13–14 per cent. greater in volume than in the summer before devaluation—a rise of 9 per cent. in dollar terms. The visible trade deficit was cut from around £80 million a month in the early months of 1968 to about £40 million a month in the last quarter of that year and the first quarter of this year.
    The March trade figures, announced this morning, are disappointing, especially after the poor results for February. We all know that the pattern of figures for individual months is variable, and that this can obscure an improving trend. It is necessary to take a somewhat longer view. There has been real progress since a year ago. This is true despite these recent disappointments. The apparent slowing down in exports in recent months may largely be attributable to the distorting effects of the U.S. dock strike. The underlying trend of our exports has remained upwards, and in the next few months we may hope to see our American sales recover again. Thus it is possible to take the view that our trade balance will now again improve rapidly. Nevertheless, these recent

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    figures are disquieting. I regard them as reinforcing the case for measures which I shall shortly be outlining.

    Capital Account
    I now turn to the capital account. During 1968 the net effect of the capital account on the balance of payments was a debit of only £39 million. But the make-up was complicated. Our official capital transactions showed a small surplus, despite the aid loans we have provided. But this surplus resulted from drawings on the U.S. aircraft loans, which will soon give way to net repayments; and we took a bisque on the North American loans.
    Private capital transactions were in moderate deficit. Both inward and outward investment increased. There was a large inflow of inward direct investment. The outflow of private portfolio investment to Australia was very large in the first half of 1968, though it has since declined. There was also a large amount of both direct investment and portfolio investment in the non-Sterling Area, almost all financed either by reinvested overseas profits or by overseas borrowing, not all of which shows statistically as helping the published balance of payments.
    It is therefore not the case, as is sometimes suggested, that in the past year, or in the two or three years preceding it, the capital account has been responsible for a large part of our difficulties. Indeed in the second half of 1968 it helped to bring us close to the elimination of the deficit.
    The Government's policies on private overseas investment are as follows. Broadly speaking, we allow overseas direct investment which can be arranged so as to impose no burden for any significant period on our reserves. In transactions with the non-Sterling Area, we allow official exchange for investment only under the special arrangements introduced just over a year ago to assist certain projects directed to promoting immediate export sales. These have met an important need, and the scale and cost has been a little less than we expected.
    On a much larger scale, we permit investments which can be financed by
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    foreign borrowing—usually from the international markets—on terms which can be met from the earnings of the investments. We allow within limits reasonable plough-back of retained profits from existing investments.
    In transactions with the Sterling Area, there is under the Voluntary Programme a standing request for retraint by British companies and institutions in their direct and portfolio investment in Australia, New Zealand, South Africa and the Irish Republic. The effects, though irksome, have been of great value. Companies and institutions have responded loyally throughout. I ask that they should continue to abide by the Voluntary Programme.
    The continuation of the Voluntary Programme has been explained to the Governments of the four Sterling Area countries concerned. I am glad to express my appreciation of the understanding way in which they have received this necessary but unwelcome news.
    I can, however, make one change in the Voluntary Programme, which will be welcome to certain investment trusts and similar institutions, and which can be made without cost to our reserves. Until now, in addition to the provisions of the Programme which apply to investment in the four Sterling Area countries, and which all remain in force, investment institutions have also been requested not to increase above the level of 3rd May, 1966, their portfolio holdings of foreign currency securities, that is, securities denominated in a currency of the non-Sterling Area. From today this part of the Voluntary Programme is abolished. Investment trusts, pension funds, and other institutions concerned with portfolio investment, may consider themselves free to acquire foreign currency securities within the normal rules of Exchange Control, irrespective of the level of their holdings in May, 1966. Details of this change are being communicated to those concerned. Investment in foreign currency securities by United Kingdom residents, including institutions, is in> any case permissible only through the investment currency market, or with special permission in certain cases by overseas borrowing. These arrangements will continue to ensure that there is no net call on our reserves for this purpose.
    With this exception, the current policies on overseas investment must continue. Whatever rate of return overseas investment may provide in the long run, we cannot at present afford significant initial outflows of funds from our reserves to finance it. Our policies are not, and are not intended to be, totally restrictive of overseas investment. Their object is to avoid immediate burdens on the reserves. As a result of our policies this country is maintaining a high level of direct overseas investment, with its undoubted future benefits, and doing this with minimal call on the reserves.

    External Financing
    In concluding this section of my speech, I must add a word about external financing. I have had prepared for the Financial Statement and Budget Report a table which rearranges the published figures in the balance of payments to illustrate what we have borrowed and why over the last five years. We need to repay these debts by earning overseas surpluses, aided by the reflux of funds which our improving balance of payments can bring. The figures are large. They are a measure of the transformation necessary in our economy. But we are making progress. In each of the first three months of this year we made substantial debt repayments accompanied by small additions to our reserves. Provided that we maintain this progress there is nothing insuperable in the problem of our debts. Other countries have achieved greater turnrounds in their balance of payments and have done so faster than we have so far managed.
    Meanwhile we shall be discussing as appropriate with our creditors, including the International Monetary Fund, the phasing of our total debt.

  III. GENERAL ECONOMIC PROSPECT AND BUDGET JUDGMENT

    Review of 1968–69
    I turn now, Mr. Speaker, to the general economic prospect which forms the basis of my Budget judgment. In the Financial Statement last year I published economic forecasts for the 18 months period from the second half of 1967 to the first half of 1969. This was the first time that any Chancellor had published
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    in anything approaching such detail the full forecast of the components of demand on which his Budget judgment was based. I realised that there were bound to be substantial deviations from the forecast.
    As I warned the House last year, economic forecasting cannot, except by chance, ever be wholly accurate. But I do not regret the innovation. Nor do I propose to be deterred from publishing a forecast this year. Its availability contributes greatly to the development of informed opinion, and its exposure to public criticism and comment should also help us to improve our forecasting techniques. I would far prefer to have to explain where and why the outcome has differed from the forecasts, than take refuge in an obscurantism which would make my decisions, directly affecting the living standards of everyone in this country, seem both opaque and arbitrary.
    In 1968, after two sluggish years, the economy grew at a rate of 4 per cent., compared with a main forecast of 3½ per cent. The various components of demand diverged from the forecast to varying extents and in different directions. In some ways we did better than we expected. Exports, which were estimated to increase by 13·1 per cent. at constant prices in the main forecast, and by 14·8 per cent. in the possible "higher case" forecast, in fact rose by 18·5 per cent. This reflects hard effort by some industries and some firms. But we should not congratulate ourselves too warmly on the outcome. We were floated up more by the buoyancy of world trade than by our own efforts.
    If world trade had grown only in accordance with our expectations, the probability is that we should have been below the main forecast, let alone the higher one. If every firm with a potential export market had done as well as the best, this would have been far from the case. On the contrary, we should have had no trouble with the balance of payments. But they did not. As a result, despite the unexpected buoyancy of world trade, we experienced a slight decline—smaller than for some years past—but nevertheless a slight decline in our share of world markets. Competitively we must do very much better than that in the next 12 months, especially as we cannot

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    expect world trade to grow as fast as it did last year.
    Another helpful result was that the consumption of public authorities declined by 0·4 per cent. instead of rising as forecast by 3·0 per cent. I hope that the House will take that in, as it is in such marked contrast to the impression which is steadily propagated.
    The other component of demand which rose by less than estimate was fixed investment, both private and public. Both were down, although the shortfall was greater in the public than in the private sector. For fixed investment as a whole the estimate was a rise of 5·7 per cent., the outturn was somewhat lower. In the narrow sense of relieving pressure on resources this may be counted as a help. In the context of the future prospect of the economy, it was a disappointment, certainly in so far as it was productive investment that was sluggish. But there has been a substantial improvement since the middle of last year.
    Private consumption, on the other hand, went up by 1·2 per cent., compared with a forecast fall of 1·9 per cent. This may seem a relatively small discrepancy, but the absolute amounts involved are very large. Looking back, I believe—not that the objective of a squeeze on consumption was wrong; it is indeed one which must and will be continued if the balance of payments is to be put right—but that it was over-ambitious to expect that consumption could actually be reduced at a time when the national product was growing fast.
    It does not follow from this that budgetary measures are ineffective in containing consumption, or that in future we should give up the struggle. Judged by any standard other than the exceedingly stringent one which I applied last year, a growth of only 1 per cent. in personal living standards, combined with a growth of 4 per cent. in G.D.P., is a considerable and unusual achievement. It has to be seen against the background of the 18 per cent. increase in exports over the same period. The contrast between this and the last previous Periods of relatively rapid growth·1958–59 and 1962–63—is striking. In both these periods private consumption grew substantially faster than exports. Despite its other disappointing features, 1968 was therefore
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    the one year of export-led growth which we have experienced in the past decade and a half.
    But the result, as the House knows, would have been a great deal better for the economy had the level of consumption not exceeded the forecast. Why did this excess occur? Not, contrary to a belief widely propagated at the end of last year, because of significant dis-saving or a "flight from money". As a result of anticipatory purchases, the personal savings ratio was bad in the early months of 1968, and again towards the end of the year; but for 1968 as a whole, according to the latest available information, the ratio was at a level only slightly below that of 1967. What then were the causes? First, the level of consumption and incomes in the latter part of 1967 turned out to be higher than was provisionally estimated in March. Second, earnings grew faster in relation to prices than was expected. Had earnings been more restrained during 1968 this Budget could have been an easier one. The nation cannot have it both ways.
    Partly, but by no means wholly, because of this higher level of consumption, imports have been much higher than forecast. Between the second halves of 1967 and 1968 they rose in volume by 8 per cent. as against a forecast rise of only ½per cent. There were a number of special factors which inflated this figure, but even when these are removed it is clear that the post-devaluation propensity to import is higher than was expected, and that the ability of our producers to recapture the domestic market from overseas suppliers has so far been disappointingly slow.
    It would therefore be blindly partisan—on either side—to describe 1968 as either a wholly good or a wholly bad year. Private consumption, after a rapid rise in 1967, largely as a result of which the consumer was by the end of last year 6 to 7 per cent. better off than in the last quarter of 1966, rose unusually slowly, but did not fall. Public consumption was firmly under control. Progress on the balance of payments was disappointingly slow in relation to our needs, even though the improvement between the two halves of the year was greater than between any two half-years in the past

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    decade. And this was combined with a substantially above average growth rate.

    Outlook for 1969–70
    Turning to the year ahead, that is the period between the first half of 1969 and the first half of 1970, the central forecast is that on the basis of present policies and levels of taxation, output will grow by about 3½ per cent. This figure is made up of relatively slower growth in the earlier part of 1969, followed by a quicken towards the end of the year as world trade, and hence our exports, pick up after some levelling-off. I describe the estimate of 3½ per cent. as "central" because there is necessarily a substantial range of possibility on either side of that figure. It is based on the expectation that the main sources of expansion in 1969 will be exports and investment. Some limited growth in private consumption is allowed for. Public consumption, reflecting the decisions which were presented to the House in the White Paper in February, will show only a very small increase, within the totals laid down by the Government in January 1968.
    If the economy developed in accordance with this forecast, the outcome would be neither intolerable nor totally satisfactory. Output would grow slightly in excess of productive potential, and there would be some further decline in unemployment. Private fixed investment as a whole would rise significantly, and investment by manufacturing industry in plant and equipment still more strongly. There would be a further vigorous growth in exports. Imports would benefit from the absence of last year's special factors, and would rise only moderately. Taking current and long-term capital transactions together, the balance of payments should cross the line from deficit into surplus fairly soon, but in the absence of further action it is unlikely that within the next year we would attain the substantial rate of surplus which is essential.
    Although the trend is right, this is not a result which we can or should accept. There is no magic about a particular figure for a surplus. But that it needs to be substantial and continuing is beyond doubt. I therefore regard it as essential to take measures to fortify our progress.
    I must therefore limit the growth of home demand so that there is room for a substantial and continuing balance of payments surplus to develop. The continued growth of exports and the process of import substitution just will not take place if, as is already happening in a number of vital sectors, we allow ourselves to be pressed close to the ceiling of our productive capacity. The opportunity of increased exports is there. Particularly in the case of capital goods, a considerable part of the stimulus of devaluation has not yet worked its way through. And even in the case of consumer goods, there is considerable evidence that long delivery dates, a lack of sustained determination to sell abroad, and inadequate after-sales service, are still inhibiting the full success of our national efforts. As for import-substitutution, it has hardly yet begun.
    Nor should we be too much influenced by recent indications that consumer demand may be losing strength. If that is so, it is in our present circumstances a very good thing. But it may only be temporary. Without further action, there may well be a subsequent revival. We have to remember that in the second quarter of last year consumption was very much below the admittedly inflated level of the first quarter, and almost exactly in line with the forecast. That did not prevent it moving significantly out of line in the third and fourth quarters. There is no magic about a once-for-all adjustment of the economy at the time of the annual spring rite of the Budget. It may always he necessary to make subsequent changes, either up or down. But it is nonetheless the case that a Chancellor at Budget-time ought to make the best judgment he can for the ensuing twelve months. My judgment is that, to give us the full possibility of seizing our balance of payments opportunities, further measures to restrain consumption are necessary.
    The resulting prospect for the economy, after the changes I have to propose, is a rate of growth on the basis of the central forecast of almost 3 per cent. But that forecast could be exceeded either for good or bad reasons. It could be exceeded for bad reasons if real incomes, and consequently consumption, were to grow more quickly than expected. It could be exceeded for good reasons if exports were to do better than

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    we have allowed for. What I must ensure is that there is certainly room for movement in the right direction, and that even a deviation in the wrong direction would not leave us in an intolerable balance of payments situation. The principle I am following is therefore the same as that of a year ago when I said that "the rate of growth … must be left to a large extent to depend on the way in which exports respond …". Last year that helped to bring us a rate of growth well above target. This year it could do the same.
    This Budget is therefore designed, not to change the balance of payments strategy we have been pursuing, but to continue and to strengthen it. It is, of course, the case that after a year of progress, real but disappointingly slow, no-one in my position could dismiss without thought the views of those who urge some entirely different strategy—a siege economy, an expansion in home demand, a floating pound, or whatever it may be. It is always tempting, whenever the going is difficult, to seek an alternative, easier course. It is always attractive to believe that some method which has not been tried will be the panacea. Before they were introduced a lot of very different people were inclined to endow import deposits with this quality. Useful though they have been, they are certainly not that. Nor, I believe, are any of the other apparently easy ways out. The hard truth is that there is no painless cure to a stubborn balance of payments deficit. All the other courses urged upon me, apart from their other disadvantages, have one thing in common. They would all be almost certain to worsen our balance of payments over the crucial next six months. In any long struggle—and I never said this one would be less than two years—there is always a moment when it is most tempting and most wrong to switch strategy. We are now at almost precisely that moment. I do not propose to weaken, or to switch our main strategy.

  IV. INCOMES POLICY AND INDUSTRIAL RELATIONS
  I come now to incomes policy and industrial relations.
  The achievement of the objectives we have set ourselves, and the avoidance
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  of further difficulties, must depend upon restraint in the growth of incomes. The measures I have to propose are not called for by the very small growth in public expenditure. That could have been looked after quite comfortably by the natural buoyancy of the revenue. They are occasioned by the need to restrain private consumption, and a vital further consideration here is the rate of growth of incomes.
  The question of how this rate of growth can best be moderated is one which has commanded the attention of successive Governments now for twenty years or more. In this period we have experienced voluntary restraint, compulsory restraint of varying degrees of severity, as well as statutory and non-statutory prohibitions of increases. None of these methods has been free from difficulty or disadvantage. A completely voluntary policy places too great a burden of responsibility on individual negotiators, and represents an abdication by the Government from a rôle which they should properly fill.
  On the other hand, a rigorous compulsory policy such as we had during the standstill and have been applying under the 1968 Act is viable only in exceptional circumstances and then as a short-term measure. It was for these reasons that when I announced the current policy in my Budget statement last year I said that it could have only a limited life.
  In the wake of devaluation it was entirely right to place a special emphasis on the need to take extreme powers to moderate the growth of all forms of income and all prices. There was bound to be a strong upsurge in prices, and without restraint incomes would almost certainly have accelerated much more than in the event they did. Confronted as we were with the possibility of a vicious price-wage spiral we felt it right to take steps which we knew would be unpopular.
  The serious spiral dangers which the policy was designed to guard against have not occurred, and there is reason to believe that the price increases which stemmed from devaluation have now largely worked their way through the economy. We have reached a situation, therefore, where the Government can contemplate moving to a policy which can offer a long-term solution to the problem of moderating the rate of growth of prices

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  and incomes without resort to stringent statutory powers.
  To continue to rely on stringent statutory powers would, in the long run, have prejudicial effects on industrial relations and thus be prejudicial to our industrial performance. A long-term policy must involve a considerable measure of public acceptance and of voluntary application. Moreover, no observer of the British economy can doubt that the present climate of industrial relations is a serious obstacle to the attainment of our economic objectives, and that the improvement of that climate should be a major aim of policy.
  When, therefore, the present powers expire at the end of this year we propose to rely instead on the provisions of Part II of the 1966 Prices and Incomes Act. These provisions will enable the Government to refer proposed pay increases to the Prices and Incomes Board, and to defer their implementation for three months, so that the Board can complete its report on a reference in time for its recommendations to have influence on the parties proposing the increases.
  The Government have no intention of abandoning the many gains that have been achieved by their policy over the past four years. Over this period great changes have been achieved in the attitudes of those concerned in collective bargaining, in particular by encouraging the establishment of links between increases in pay and increases in productivity. This has brought to the bargaining table for the first time considerations which are vital to our national economic performance.
  The momentum of this process of reform must be maintained and the Government will issue guidance to negotiators and to those responsible for the determination of prices on the scale of appropriate increases and the circumstances under which they can properly be made. Consultations will be held with the T.U.C., the C.B.I., and the N.B.P.I. with a view to the publication of a White Paper later in the year. In the meantime, however, the present policy and powers will remain in effect.
  The reforms and changes in attitudes that the policy is bringing about will do much to improve our industrial performance; it is essential that this be con
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  tinued But it is equally important that we reinforce this by bringing about more orderly arrangements in industrial relations generally. In particular we need to facilitate the smooth working of the process of collective bargaining in industry and to help to prevent the occurrence of unnecessary and damaging disputes, of which we have seen all too much recently, and which are totally incompatible with our economic objectives. The Government have, therefore, decided to implement without delay, during the present Session, some of the more important provisions incorporated in the White Paper "In Place of Strife". My right hon. Friend the First Secretary will be intervening later in this debate to explain the provisions which the new legislation will embody.

  V. GOVERNMENT FINANCE: OUT-TURN AND PROSPECTS
  I propose this year to deal very briefly with the Government's financial accounts. The essential figures are set out in the Financial Statement and Budget Report, as it is now called, which I have expanded and re-arranged in a way which I hope will be helpful to the House. The out-turn figures are given in the Blue Paper. I think it is easier for hon. Members to study them there than for me now to go through them in the traditional but largely incomprehensible way.
  But there are a few figures which I should like to draw to the especial attention of the House. First, the borrowing requirement of the Central Government in 1968–69 was minus £281 million. That is to say, on all our accounts we were in credit, and we repaid substantial debt to the market. So much for all the fuss about my predecessor's Letter of Intent.
  In 1969–70 the prospects are for an even greater repayment of debt by the Government. Indeed, the accounts of the whole public sector show that not only is the borrowing requirement of the Central Government substantially negative, but that the aggregated borrowing requirement of Central Government, local authorities, nationalised industries and other public corporations will also be negative.
  This means that the public sector will be making no net demand at all on

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  private savings in the coming year. Even if I had no increases in taxation to propose, the repayment by the Central Government would be £537 million. But as I have just told the House, it is necessary to take further measures to restrain consumption, as a result of which the repayment of debt will substantially exceed this figure. I will shortly give the House details of my proposals, but before doing so I should like to say something about monetary policy, since this provides an essential support to fiscal policy.

  VI. MONETARY POLICY
  The reason I attach the greatest importance to monetary policy is not my sudden conversion to some obscure foreign cult. Important but arcane arguments go on among professional economists about the nature of the causal relationships between the money supply on the one hand and demand on resources on the other. No doubt these arguments will continue, but it would in my view be over-optimistic to believe that they will quickly lead to a consensus.
  There will, however, be little dispute that fiscal policy and monetary policy will both be more effective if each is working in harmony with the other. The increases in indirect taxation which I made in the autumn were, therefore, accompanied by the import deposit scheme designed partly to help syphon off some of the excess liquidity in the system, as well as by a further tightening in the credit field.
  Since these measures came right at the end of 1968, they had very little effect on the monetary outturn for that year. During 1968 the money supply rose by £986 million, an increase of 6½ per cent. and more or less in line with the rise in G.N.P. over the period. Even so, this was a pretty big increase. Moreover, it occurred in spite of an adverse balance of payments of nearly £460 million which itself, because a balance of payments deficit is financed either by borrowing from overseas or by drawing down assets, is in this sense an extension of credit to the domestic economy. Such an increase in credit at a time when we are striving to switch real resources into the balance of payments was a great
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  deal more than we could afford. We cannot allow credit to be supplied on anything like this scale in the coming year.
  For these reasons, I am especially concerned that the improvement we need in the balance of payments over the next twelve months should be accompanied by restraint in the provision of bank credit at home—not only to the private sector, but to the public sector also.
  With regard to the private sector, bank credit increased in 1968 by £753 million, considerably higher than I hope it will be in 1969. Indeed, as part of the autumn measures, I asked the London clearing and Scottish banks to reduce their lending to the private sector by March, 1969, to a level two percentage points lower than at the time of devaluation in November, 1967.
  When I met the representatives of the banks on 27th February, it was clear that they were unlikely all to be able to reach the target which I had set them by mid-March. While acknowledging their difficulties, I left them in no doubt of my determination not to run the risk of allowing failure here to undermine the effectiveness of other policies. The March figures showed that they had made some progress, though not enough. If the April figures do not show a satisfactory further improvement, I shall have to consider very early action to reinforce the pressure on the banks to bring their lending within the ceiling.
  Bank lending to the public sector rose by only £54 million in 1968. Lending to the local authorities and nationalised industries amounted to about £194 million, but the Central Government repaid £140 million debt held by the banking system.
  The Government were able to reduce their borrowing from the banks last year in spite of needing to finance substantial debt repayments to the public outside the banks. But it was a difficult period for gilt-edged, especially towards the turn of the year. Rising interest rates in the United States and other overseas markets, together with continuing uncertainty about the international monetary system, combined to depress the market, and over the year the non-bank public sold net some £200 million of gilt-edged.

  Capital gains tax: exemption for gilt-edged market
  Prospects for the gilt-edged market are much better than they were this time last year, primarily because the public sector as a whole will be repaying debt. I propose to fortify this better prospect by a Capital Gains Tax concession in respect of gilt-edged securities. The gilt-edged market is unique in that the Government are once the issuer of the securities and a large scale dealer in the market; and because the way in which the market is managed has consequences for the management of the whole economy.
  I therefore propose that from 3.30 p.m. today disposals of marketable securities issued by the Government, and marketable securities issued by public corporations and guaranteed by the Government, which are to all intents and purposes gilt-edged securities, will not be chargable to longterm Capital Gains Tax or, in the case of long-term gains of companies, Corporation Tax. As a corollary, losses on Government and Government-guaranteed securities will not be allowable for capital gains purposes. Short-term gains on these securities, including gains realised within twelve months by companies, will continue to be taxable as at present. A list of the securities which will qualify for exemption appears in the Budget Report. This measure should make gilt-edged more attractive to investors and will encourage a more active market in gilts—a necessary condition for a successful selling policy.

  VII. MINOR MEASURES
  Before I outline my major proposals, there are a number of minor matters which I should mention.
  VII. MINOR MEASURES

    Family Allowances
    First, I have to report to the House on the operation of the scheme which I introduced last year under which improvements in family allowances were confined to those without sufficient income to pay tax at the standard rate. The long-term aim was to arrange matters in such a way that people who are not in real need of family allowances do not draw them at all.
    I have come to the conclusion that it would not be right to do this by extend
    1010
    ing the claw-back arrangements so as to extinguish altogether the value of family allowances to standard rate tax-payers. To do so would involve in effect a substantial increase in the tax burden on families with two or more children relative to that on tax-payers with one child or with no children. Until, therefore, some satisfactory overall solution can be devised I intend to leave the arrangements introduced last year as they stand. It is, however, necessary to adjust the claw-back for 1969–70 so as to reflect the fact that the 3s. extra on family allowances, which was paid for only half a year in 1968–69, will be paid for a full year in 1969–70. I therefore propose that the £36 reduction in tax allowances per child which applied last year, shall become £42 this year. A £42 reduction has already been announced and taken into account in fixing P.A.Y.E. code numbers for 1969–70.

    Parent/Child aggregation: reduction in the age of majority in consequence of Latey, etc.
    1969–70 will see the implementation of a new tax rule under which the unearned income of children who are not married, or in regular full-time work will be aggregated with the income of their parents for tax purposes. In last year's debates on the Finance Bill some points arising on this were left over for consideration, and I am bringing forward proposals this year to meet a number of them.
    The Government's acceptance of the basic proposals of the Latey Committee for reducing the age of majority under general law to 18 means that corresponding changes should be made in the new tax rule introduced in last year's Finance Act. I therefore propose that the age limit for aggregation of the unearned income of children with their parents' income should be reduced from 21 to 18. this automatic reduction to 18 will not apply to covenants, settlements or gifts by parents for the benefit of their children, the income from which will, unless the child has begun its full-time working career, continue to be treated as the parents' income till the child is 21. These changes will come into effect as from 6th April this year.
    I also propose two exclusions from the new rule for "parent/child" aggregation.

    1011
    Income from lump sum awards by the Criminal Injuries Compensation Board for personal injury will, like income from actual awards of damages, be excluded from aggregation; and I also propose to exclude affiliation payments received by an unmarried mother in respect of her child.

    Accumulation Trusts
    I propose to repeal the existing provision under which a beneficiary for whom income has been accumulated under a will or settlement contingently on his attaining a specified age or marrying may, when the contingency occurs, claim repayment of Income Tax on account of personal reliefs for the years of accumulation as if the income had been his all along. This is an anomaly which even the most single-minded devotee of tax loop-holes would find difficult to defend. I propose that the repeal of this relief should be effective as regards income accumulated in the current year 1969–70 and later years.
    Painters and Sculptors
    The tax position of artists is at present open to criticism because those who have been engaged on a single work of art for a long period—by which I mean a period of over 12 months—are at some tax disadvantage when compared with authors who take a similar time. I propose therefore to introduce a provision which would allow a receipt for any such work to be spread for Income Tax purposes over the period during which it was being made, subject to certain limits. This will make the tax position of painters and sculptors closer to that of authors.

    Capital Gains Tax
    I propose a number of changes in the law relating to the Capital Gains Tax, in addition to the one I have already described.
    The most important of these is designed to implement the undertaking we gave last year to provide a measure of relief from the tax on gains, arising from devaluation, on the overseas investments of certain financial institutions in so far as these investments were acquired under the "portfolio investment borrow
    1012
    ing facility"; as a corollary some relief is also proposed for devaluation gains on the investments of Lloyd's American Trust Funds. The cost of these proposals is given in the Budget Report as £4 million in 1969–70; this is not a surrender of revenue in any real sense since it represents a sum which ought not to be within the scope of the charge.

    Avoidance
    The Finance Bill will contain provisions to counter tax avoidance in three fields. The first relates to the profits arising from land, where the provisions of Sections 21 to 26 of the Finance Act, 1960, have been found to be inadequate to deal with some ingenious schemes for avoiding a charge on dealing although it is abundantly clear that dealing has in fact taken place. The second provision will deal with the practice, current among many people enjoying high earnings, particularly in the entertainment world, of selling their future income for a capital sum. The third provision is directed against the purchase of the shares of a company to get the benefit of the accumulated trading losses. It will make it clear that such losses will not be available for relief against future profits if a change in the nature of the trade carried on by the company is accompanied by a change in its shareholding control.
    Interest on arrears of tax
    The rate of interest charged on unpaid taxes has been 4 per cent. since 1967. This is too low in present conditions to provide a real deterrent to tax-payers who might be tempted to delay payment of their taxes. I propose therefore to raise the rate from 4 per cent. to the more realistic level of 6 per cent. The appropriate Treasury Order, under Section 40 of the Finance Act, 1967, will be laid today. The change will apply to interest from 19th April, the day on which Income Tax deducted from dividents and annual payments next becomes due and payable.

    Repairs to farmhouses, and transfer abroad of assets
    In recent weeks, two decisions of the House of Lords have overruled certain interpretations of the law which have

    1013
    long been followed by the Inland Revenue and accepted as reasonable and equitable.
    The first concerned the allowance to be made for the expenses of a farmhouse in calculating a farmer's profits, and here I propose to restore the position to that which everybody has understood it to be for many years, so that the deduction allowable will in future be limited to the expenses incurred in the business use of the premises only.
    The second dealt with the circumstances under which the Revenue may continue to assess to tax under Section 412 of the Income Tax Act, 1952, income arising from assets which have been transferred abroad. This legislation is an important bulwark against the ingenious efforts of some wealthy individuals to escape their share of the common burden of taxation by sending their assets abroad though all the time retaining real control of the money: here, again, I propose to restore the basis of liability which prevailed before the adverse court decision. But I propose to go further. Certain countries, attracted by the idea of setting themselves up as "tax havens", have had the idea of modifying their trust legislation so as to try to make impossible the application of Section 412 as it was meant to be applied. I shall bring forward provisions in the Finance Bill to counter these manoeuvres.

    Independent Television Levy
    The Television Acts of 1963 and 1964 provided for two kinds of rental to be paid by programme contractors. Rentals in the first category were to cover the costs of the Independent Television Authority. Those in the second, known as "additional payments", were to provide a return by the contractors for the valuable public concessions which they enjoy. The additional payments were related to net advertising receipts, and the rates introduced in 1964 have remained unaltered ever since. These were: nil on the first £1½ million of advertising receipts; 25 per cent. on the next £6 million; and 45 per cent. on the remainder. The proceeds, currently about £26 million a year, are paid into the Consolidated Fund.
    The Independent Television Authority has estimated that profits before tax in the past three years have averaged well
    1014
    over 40 per cent. on capital employed. In my view the community should have a bigger share in the value of these publicly created concessions. I therefore propose that the rates of levy should be increased from 1st July this year to provide an additional yield of about £3 million in the first full year.
    My right hon. Friend the Postmaster-General will shortly be laying an Order to introduce the new rates. The Order will provide for the following rates of payment: nil on the first £500,000 of advertising revenue; 7 per cent. on the next £1 million; 25 per cent. on the next £2½ million; 35 per cent. on the next £6 million; and 47½ per cent. on the remainder.

    Pensions
    I now turn to two matters which are certainly not minor, but which do not belong to my major taxation proposals either. First, pensions. As the House knows, there is to be an uprating of social security benefits in the autumn. I am now able to announce that, as from early November, the basic single person pension rate will be increased by 10s. from £4 10s. 0d. a week to £5. The rate for a married couple will go up by 16s. from £7 6s. 0d. to £8 2s. 0d., and corresponding increases will be made in the other rates, which will be announced later. This increase will restore the value of the pension to a level some 20 per cent. higher in real terms than when this Government took office.
    All this has to be paid for. The cost to the National Insurance Funds of the increase will be about £250 million in a full year, but substantial extra provision will have to be made on top of this, to take account both of the existing imbalance between income and expenditure of the main National Insurance Fund, and of the continuing increase in the number of pensioners in relation to the working population. We will ensure that the burden of the increase is distributed as fairly as possible amongst contributors.
    The Government have also decided to make certain changes—[Interruption.] My right hon. Friend will answer. [HON. MEMBERS: "Oh."]
    Mr. Deputy Speaker (Mr. Harry Gourlay): Order. I am sure that the

    1015
    House would like to hear the rest of the speech.
    Mr. Jenkins: I am sure that right hon. Gentlemen opposite will recognise that I have no desire to hide behind my right hon. Friend. I indicated that we will ensure that the burden of increases is distributed as fairly as possible amongst contributors. This means that the matter must be worked out and laid before the House in a Bill.

    Betterment Levy
    The Government have also decided to make certain changes in the incidence of the betterment levy. These will help, in particular, the small owner, in many cases completely exempting him from the levy. The changes will, however, leave unaffected the main principle of the levy—that a substantial part of the development value created by the community should be returned to the community. That principle we reaffirm.
    I shall not attempt to give more than the broad outline of the changes, but full details will be given in a White Paper to be laid later this afternoon by my right hon. Friends the Minister for Planning and Land and the Secretary of State for Scotland.
    The main changes will be as follows. Subject to certain safeguards against avoidance, there will be an exemption from levy in cases where the market value of the land does not exceed £1,500. This will provide complete exemption from levy in about half of all cases at present giving rise to liability under the Act. These cases account for about one-tenth only of total levy. The Capital Gains Tax law will be amended to bring the full disposal proceeds into account. But as an owner-occupier's principal residence is exempt from Capital Gains Tax, the effect will be to remove many small cases from charge altogether. Provision will also be made to deal with possible hardship arising from charging levy on full development value on a single plot of land which has been received as a gift and on which the recipient is building a house for his own occupation. Third, some relief, though not exemption, will be given to owner-occupiers selling small and medium-sized properties. Fourth, appropriate professional fees incurred in
    1016
    the disposal of land will be allowed as a deduction in assessing a liability to levy.
    These changes will cost the revenue £1½ million in 1969–70 and £3½ million in a full year.
    Mr. Peter Emery rose—
    Mr. Jenkins: I have a great deal of ground to cover. I ask the hon. Gentleman to wait for the White Paper which will be available later this afternoon.

  VIII. MAJOR MEASURES
  I now approach my major taxation proposals. First, however, I would like to say something about my attitude to taxation reform. I hold to the view that novelty for its own sake should not be a Chancellor's aim. There is a great deal to be said for preserving some stability in our taxation system. Otherwise far too much time and energy is devoted to adjusting from the old to the new. Second, I must continue to give great attention to the overstrain which persists in the Inland Revenue. The two major and worthwhile changes of 1965 were a heavy meal to digest, and the process is still not complete. I could not in these circumstances justify measures, possibly desirable in themselves, which would involve great administrative tasks, particularly of valuation, for little revenue, as in the case of a gifts tax or, even if the revenue were greater, as in the case of a wealth tax, for little demand effect. The result would have to be either an attempt at very heavy new recruitment; or a deteriorating service to the public, with a less efficient collection of existing taxes; or, worst of all, a combination of the two.
  Within the existing framework, however, I am constantly urged to produce simplification. I am instinctively sympathetic to such pleas. The present system is undoubtedly complicated. It involves a lot of work for taxpayers and their professional advisers as well as for the Revenue. It also leaves many people mystified as to what they are paying, and why. [Interruption.] The Inland Revenue is not my creation or that of my right hon. Friend. But this complication springs primarily from two considerations. First, the need to be as

  1017
  equitable as possible. It is an illusion to think that simplicity and equity are natural allies. They are much more often rivals. And second, the need to combat the ever more ingenious search for loopholes through which tax-avoiders can escape. Nor would any remotely practicable tax reduction obviate this search. Sweeping measures of all-round simplification are therefore not easily to hand. Even apparently straightforward changes, such as the amalgamation of Income Tax and Surtax, which I would certainly favour in principle, bristle with difficulties. I do not say that none of these can be overcome. But there is no single, complete solution which can be achieved at the stroke of a pen.
  This being so, it is the more important to ensure that additional difficulty and delay is not caused by unnecessary administrative procedures. The Inland Revenue now collects over £6,000 million a year. There is a great burden on all tax offices, and I am glad to have this opportunity to pay tribute to the way it has been tackled. But inevitably organisational structures have grown up which may no longer be appropriate to modern conditions.
  A panel of the Bellinger Committee is at present examining the work of the Inland Revenue to see whether there are any processes that can be cut out; and the Estimates Committee is once more reviewing the whole Department this Session. When we have these reviews I shall consider whether a further study by outside management consultants would be helpful—both to the Inland Revenue itself and also to taxpayers and their professional advisers.

  VIII. MAJOR MEASURES

    Estate Duty
    The main field I have chosen for reform and rationalisation this year is Estate Duty, and I start with a substantial recasting of the charge of Estate Duty on settled property.
    A central feature of the Estate Duty law is the charge under Section 2(1)(b) of Harcourt's Act of 1894 on property in which the deceased person or any other person had an interest ceasing on the deceased's death—that is, broadly, the charge on the death of the life-tenant of settled property. Over the years, the law has become a patchwork of provisions as successive Chancellors have
    1018
    sought to counter avoidance of the original charge. The time has come to restate the law, and at the same time to provide against the possibility of other avoidance measures.
    I propose that the existing charge on settled property should be replaced by one expressed to be on the death of any person who in the seven years before his death was entitled to a beneficial interest in the property. The new provisions will not affect the charge in the ordinary case of the death of a life-tenant, but will go wider so as to impose a new charge on the capital of settled property on the death of a person who had a beneficial interest in property settled for a fixed term or during the life of someone else, including persons to whom such an interest or a life interest has been assigned. I can assure the House that that is both a good deal simpler and a good deal shorter than the patchwork of existing provisions.
    At the same time, I propose to put an end to the existing freedom from Estate Duty on the death of a beneficiary under a discretionary trust. Under this type of trust, no beneficiary is held to have a measurable interest in the settled property; and no claim for duty arises on the death of a beneficiary under the trust even if he has been receiving the whole income, provided the discretionary trust continues in favour of two or more beneficiaries. These trusts offer a substantial means of avoidance of duty. I propose, therefore, that there should be a charge on the capital of such a trust on the death of a beneficiary. It will be calculated on the proportion which the income he has received over the time he was a potential beneficiary bears to the whole income of the trust property over that period.
    These changes will affect existing settlements, but in the case of existing discretionary trusts, since the new charge will require reference to records of the disposition of the trust income in the past, it will not have regard to any income of the trust which arose more than six years before today.
    The yield from these changes will be about £10 million in a full year, but negligible this year.
    I turn now to the rates of Estate Duty. At present, duty is charged on estates of over £5,000 at graduated rates, rising

    1019
    to 80 per cent. on the whole estate. I do not think it right in this Budget to reduce the yield from estate duties as a whole, but I am anxious to find room for some lightening of the burden of duty in the smaller cases. The exemption limit of £5,000 is now too low. It has stood since 1963. It may mean that duty is payable when a man dies leaving little more than a modest house, and can thus present a real burden, especially to his surviving widow. I propose therefore that the exemption limit should be raised to £10,000. This will take out of duty 40,000 estates a year, approximately 55 per cent. of the total. The cost will be about £8 million in a full year and £5 million this year: this will be roughly balanced by the settlement proposals which I have described.
    I have decided also to recast the Estate Duty scales, which are expressed in terms of a rate on the whole estate depending on the value of the whole estate—the "slab" system as it is somewhat lugubriously described—and to introduce instead a "slice" system under which duty is charged at increasing rates on successive slices of the estate. This will provide a smoother progression, and, in particular, remove a difficulty of the present system in dealing with marginal cases where the value of an estate is just above a change point in the scale. In these cases at present, the whole of the estate above the change point may be taken in duty, together with duty on the rest of the estate at the lower rate, instead of charging the whole estate at the higher rate. This was intended as a relieving provision, but it looks very much like the expropriation of the top part of the estate, and is understandably so regarded.
    The new slice scale has been devised in such a way that the change to a slice system will itself involve no net loss to the revenue—whilst not recovering any of the cost of the increased exemption limit. In the result, some estates will bear rather more duty than they would under the present system, and some will bear rather less. This is inevitable if we move to a smoother progression. It has not been my objective to increase the duty at any point for its own sake. Details of the new scale are set out in the Budget Report.
    I also propose to adjust the rules for Estate Duty relief for works of art. At present, exempt works of art are left out of account when the estate is assessed, and if they are later sold they are charged at the rate already calculated on the general estate. This rate in some cases is very much lower than the rate that would apply if the works of art had been included in the general estate. In an extreme case, a substantial purchase, shortly before death and with a view to its subsequent sale, can be a major means of avoidance. In future, qualifying works of art will remain exempt if retained in the beneficiary's possession; but the exemption allowed for any work of art will be cancelled if it is sold within three years of the death. If it is sold later than that, the rate of duty on it will be calculated by adding the proceeds of sale to the general estate plus the value of other works of art sold in the three years after the death. This will in no way make more difficult the position of a family which wishes to maintain intact an outstanding collection. But the pursuit of art for loophole's sake will become less worthwhile.
    All these changes will have effect in relation to deaths occurring after today.
    I turn next to betting and gaming, the one area in which last year I had to explain why I had not done more. The increase to 5 per cent. in the rate of General Betting Duty which I then introduced has produced the expected revenue, though there are signs that a further general increase now would endanger the return. I therefore propose no change in the present percentage, but I nevertheless think it reasonable to seek more revenue from this source. I propose a new supplementary duty, in the form of an annual licence duty measured at three times the rateable value of off-course betting premises, both cash and credit. This will introduce some discrimination, which I believe to be justifiable, in favour of on-course betting. The yield should be £7 million a year.
    The existing licence duty on bingo, attracted on the rateable value of the premises, bears no direct relationship to the volume of gaming and is, therefore, unfair in its incidence. I propose to abolish the present duty and to replace it by a new duty at the rate of 2½ per cent. of the stakes. There will be an exemption

    1021
    for small scale bingo. A general review of casino taxation must wait until next year and the full operation of the recent Gaming Act. But it is reasonable to look this year for an increased contribution from the larger establishments. The rates of duty for those with rateable values exceeding £1,500 will go up by one-third in each case. These changes will operate from 1st October and will together yield about £1 million a year extra revenue.
    The gaming machine licence duty will also bear an increase. I propose that the annual rate of duty for 6d. machines should be raised from the present duty of £75, to £100 for the first machine, and £300 for any other machine in the same club. If a club can afford more than one machine, this is evidence of high turnover, and the differential is, I think, justified. The rate for machines charging 3d. or less a time will be half these rates, and there will also be provision for half-yearly licences at rather more than half the full-year rate.
    So far, the licence duty has been confined to gaming machines of the jackpot type. I now propose to bring in machines provided for gaming by way of amusements with prizes. These are the machines, at amusement arcades and elsewhere, for the provision of which a permit granted by the local authority is required. They are essentially no different from the jackpot machines of the kind found in clubs. Gaming by means of such machines is increasing, and there is no reason in equity why they should not be liable for duty. The annual rates for 6d. machines in this category will be £25 for the first machine and £150 for each other machine on the same site. Here, too, there will be provision for lower rates for machines charging 3d. or less a time and for half-yearly licences. All these changes on gaming machines will operate from 1st October, and will yield an additional £4 million a year. I thus hope to get an extra £12 million from betting and gaming in a full year. The extra revenue in 1969–70 will be £9 million.

    Alcoholic Drink and Tobacco
    I turn to alcoholic drink and tobacco. For tobacco, spirits and beer, I propose to incorporate the Regulator surcharges into the substantive rates of duty, but to make no other increases. In the case of tobacco and spirits, I am satisfied that further increases now would endanger
    1022
    the revenue. In the case of beer, an increase would have a disproportionately heavy effect on the retail price index. There will, however, be certain minimum alterations to take account of international commitments. Details of the new rates are given in the Budget Report. There is nothing in them to justify any increase in prices, or to affect the revenue in any significant degree.
    Very much against my own personal inclination, however, I have decided that these considerations against a further increase do not apply to wine. Consumption has grown at a remarkable rate. Between 1960 and 1968 it rose by 125 per cent. for imported light wine, and 48 per cent. for imported heavy wine. The comparable figures are 35 per cent. for whisky, 10 per cent. for other spirits, and 18 per cent. for beer. Not all wine is imported, but 76 per cent. of it is, and the consumption even of the 24 per cent. which is not has been more buoyant than other alcoholic drinks. Our import bill, on wine account, has more than doubled since 1960—from £21·7 million to £44 million. I therefore propose to replace the surcharge, from today, by an all-round increase—above the pre-surcharge rates—of 9s. a gallon. This will mean an increase, above the present rates, of about 1s. 1d. a bottle for table wines, and about 9d. for most heavy wines such as sherry. This reverses the normal pattern that, when increases have taken place, heavy wines go up more than light; but I think that this is sensible in relation to the pattern of consumption. The additional revenue will be £10 million and the effect on the retail price index very small.

    Purchase Tax
    I come now to Purchase Tax. The present rates, inclusive of the Regulator surcharge, are 13¾ per cent. on clothing, furniture, and certain other household goods; 22 per cent. on confectionery, soft drinks, and ice cream; 36¾ per cent. on cars, household durables, and various other goods; and 55 per cent. on a range of luxury or other less essential goods such as furs and jewellery.
    For all these rates I propose no change. The Regulator surcharge will simply be incorporated into the standard rates. This obviously has the disadvantage of leaving

    1023
    us with awkward fractions for two of the rates. Had I been able to afford the revenue, I would have rounded them down. But this would have cost £23 million, more than twice the yield of the wine increase, without much noticeable effect in the shops. The alternative would have been to round them up, but this I rejected even more firmly, despite the revenue temptation. This year, we have been mercifully free of anticipatory buying. I wish to fortify this display of good sense on the part of the public. They should not be encouraged to expect an automatic increase as Budget Day approaches. In fact, I was more likely to make a slight reduction of these two rates this year. But, on a balance of all the considerations, I decided to go for rate stability, despite the slight arithmetical inconvenience which this involves.
    I do not, however, believe that these considerations apply to some broadening of the base of Purchase Tax, particularly as there are at present considerable anomalies in the coverage of the tax. Some goods are not charged which are closely analogous to others which are. Plastic wall covering, the use of which has grown rapidly, is not taxed but wallpaper is. Paradoxically, paper handkerchiefs are not taxed but linen and cotton ones are. To put the point more generally, I do not think that the distinction between floor coverings, mattresses, cushions, furniture and clothing—which are taxed—and household textiles and cloth—which are not taxed—is a valid one. I therefore propose to bring in the latter category, as well as plastic wall-covering, knitting wool and sewing and dressmaking requisites, and paper table-ware and handkerchiefs, at the lowest rate of 13¾ per cent. Full details are given in the Budget Report. The yield will be £30 million in a full year.
    Household textiles and cloth were exempted from Purchase Tax in 1955 and 1958 in the interests of particular regional industries. But this was at best a crude way of fostering regional development—expensive to the revenue and uncertain in its effects—and we now have more direct and appropriate ways of doing this. It is also the case that much of the benefit has gone to imports.
    Confectionery, soft drinks and ice cream are now taxed at 22 per cent. I propose
    1024
    to extend this rate to potato crisps, as well as salted or roasted nuts. I also propose to bring prepared pet foods—widely advertised, no doubt apreciated, but not an essential means of feeding a pet—into tax at the same rate. These two groups, details of which are also set out in the Budget Report, are estimated to bring in an extra £22 million in a full year.
    For administrative reasons the extensions of coverage will not operate until 27th May. The effect of all these changes in Purchase Tax will be an increase in revenue estimated at £26 million in 1969–70 and £52 million in a full year. I must not disguise from the House that I have been attracted by the revenue and not merely by the prospect of ending some anomalies.

    Vehicle Taxes
    I now come to Vehicle Excise Duty. For commercial vehicles, I propose no increase. This brings me to the car licence duty, a subject which has attracted some attention over the last few months. A Select Committee has found no evidence whatsoever for the allegations made by the hon. Member for Worcestershire, South (Sir G. Nabarro) that there had been a Budget leak about my alleged intention to raise the vehicle excise duty on cars. I must tell the House that I knew from the start that no such leak could conceivably have taken place, and that claims that it had must be, shall we say, colloquialisms.
    I propose no increase in the car licence duty, or any of the associated vehicle duties. No doubt the hon. Member, as he has so often announced, and indeed indicated this afternoon, would like to claim that as a victory for his campaign. But I am afraid that I cannot allow him that consolation.
    Sir Gerald Nabarro: I will take it. Do not worry.
    Mr. Jenkins: Almost the first firm decision which I took about this Budget was not to increase the car licence duty, and my decision was communicated to the Treasury in a minute dated the 31st December, 1968.
    Sir G.Nabarro rose—
    Mr. Jenkins: I think I had better get on, with the hon. Gentleman's permission.

    1025
    Since then the possibility of such an increase has been ruled out of my thinking and that of my Department. But the Select Committee nevertheless performed a valuable task. If the hon. Member's allegations had not been investigated, a few others might have been encouraged to use similar methods to create pressures on future Chancellors, either to refrain from increasing particular taxes, or to disclose their Budget intentions prematurely. The House owes a debt of gratitude to the Select Committee for dealing so thoroughly—and unanimously—with the hon. Gentleman's allegations and with his tactics. Members of the public who have turned in car licences before they expired, in the fear that the duty would be increased in the Budget, may not be quite so grateful to the hon. Member.
    I am not, however, able to avoid some further contribution from road users. Consumers' expenditure on motoring has been rising very sharply in recent years. Further evidence of this trend is given in last week's National Income White Paper, which showed that expenditure on cars and motor cycles, after allowing for price increases, was the fastest growing of all the major consumption components in 1968. Furthermore, I have been impressed by the great volume of correspondence I have received saying that it taxes on motoring had to be increased the petrol duty was much the fairest way of doing so. I therefore propose that on petrol and other light oils, and on heavy oils used in road vehicles, the duty shall be raised from the present rate, including the surcharge, of 4s. 3·7d. a gallon to 4s. 6d. This will apply to oils leaving bonded warehouses and refineries from six o'clock this evening. This will yield an additional £45 million in a full year. Many garages, I believe, rounded up the November increase in this duty by the extra 0·3d. It is reasonable to expect that they should round down the present increase of 2·3d. and therefore that their prices at the pumps ought to go up by no more than 2d. Even with this increase we will still have cheaper petrol than many European countries. My right hon. Friend the Minister of Transport has decided to arrange for stage service bus operators to be relieved of the increase by means of additional bus fuel grants under Section 33 of the Transport Act of
    1026
    last year. The cost will be about £2 million in a full year.
    On heavy oils not used in road vehicles the present level of duty, including the surcharge, is 2·42d. a gallon. With a view to decimalisation, I propose to reduce this marginally to 2·4d. a gallon. This will cost the revenue about £800,000 a year.
    This covers the list of duties affected by the Regulator. As is now routine practice, the Regulator power will, of course, be renewed, for use either up or down, for 1969–70.

  COMPANY TAXATION

    Corporation Tax
    I now come to company taxation. In the Budget Speech last year I explained the reasons which led me to conclude that it would not then be right to make a further increase in Corporation Tax beyond the level to which my predecessor had raised it at the time of devaluation. This year, however, after a very buoyant rise in company profits, I cannot exclude companies from some further contribution. Company profits in 1968 rose by 10 per cent. I do not regret the rise in profits. I believe in a healthy level of company profits, properly applied. But I also believe that companies should make their fair contribution to our budgetary needs. And if this means a somewhat less buoyant Stock Exchange, I would not regret that either. There is undoubtedly a relationship between a Stock Exchange boom and the level of consumption.
    I therefore propose to increase the rate of Corporation Tax by 2½ per cent. to 45 per cent. in respect of profits arising from 1st April, 1968. After taking account of the consequential reduction both in the cost of overspill relief and in the amount of Income Tax under Schedule F on company distributions, I expect the increase to yield £75 million in 1969–70 and £120 million in a full year.
    At the new rate our Corporation Tax will be in no way out of line with the rates in force in the main trading nations of the world. The United States and Canada, Australia and New Zealand, France, Germany, Belgium and the Netherlands all charge tax at 45 per cent. or more on undistributed company profits. The increase does not therefore put our

    1027
    own companies at a disadvantage compared with their principal trading competitors. Equally, there is no reason why the increase should have a serious effect on the welcome rise which is taking place in the level of industrial investment and modernisation. The additional tax which I propose is small by comparison with the growth in gross company profits; by comparison with the amounts which companies as a whole distribute as dividends to their ordinary shareholders it is even smaller—only 7 per cent.
    One of the points brought out in the Brookings Report on the British economy was that, although our investment ratio has historically been rather low by comparison with other industrial countries, company liquidity has been rather high. Additional force was given to the point by the experience of the last part of 1967 and the beginning of 1968. Liquidity was then very high, and investment low. The evidence is that factors other than the availability of retained profits are crucial to the determination of company investment. I believe that these other factors are favourable, and will remain so.

    Close Companies
    This increase in Corporation Tax makes it doubly necessary for me to give special consideration to the position of close companies, which in any event I had thought ready for review. Some of these companies are, and will remain, static. But others are the soil in which major industrial and commercial initiative may develop. I am persuaded that they have some legitimate grievances. The most important is the amount of directors' remuneration which can be allowed against Corporation Tax. This bears little relationship to realistic salary levels. I have been strongly pressed by hon. Members on both sides of the House to agree to an increase. But an increase would involve a difficult, and almost inevitably arbitrary, judgment as to what is the right level of remuneration. The answer would vary widely from company to company and from one individual director to another. I therefore think it better to remove the restriction altogether. The salaries paid will, of course, be subject to the full rigour of Income Tax and Surtax. They will simply escape attracting Corporation Tax as well. The cost is not small. It
    1028
    will be £20 million in a full year, although very little in 1969–70. But any worthwhile extension would have been almost equally expensive. I believe that, bearing in mind the general increase in Corporation Tax, this is a reasonable price to pay.
    I also propose to allow a deduction from Corporation Tax in respect of reasonable interest paid by a close company on a loan from one of its directors. I believe it to be highly desirable to give these companies the opportunity to grow to their full potential.

    Selective Employment Tax
    Mr. Speaker, I have now raised a substantial amount of additional revenue, but clearly not enough on the assumptions on which I think it right to work. I need more than £100 million more, and I need it in a form with a substantial demand or resource releasing effect. Broadly speaking, there are only three sources from which I would meet this need. The first would be an increase in the standard rate of Income Tax. Sixpence on the standard rate would yield £167 million in a full year. For reasons which I gave in detail last year, and which I believe to apply equally strongly now, I do not believe this would assist the effective working of the economy.
    The second would be to have gone for a further rise in the traditional forms of indirect taxation, or for a further broadening of the Purchase Tax base, which would almost certainly have meant a wide incursion into the food field. This would have considerably increased the cost of living impact of the Budget. This I have been determined, so far as was compatible with the other objectives, to keep down. This year in particular, after the heavy price increases associated with devaluation, greater stability in the value of money is highly desirable.
    The third possibility is some further taxation of services. They still escape very lightly compared with goods. S.E.T. at its present rate represents a services tax of the order of 5 to 6 per cent.—less than half the lowest rate of Purchase Tax, less than one-sixth of the rate on the main range of durable consumer goods. I do not suggest that we should necessarily tax services as heavily as goods. Still less do I suggest that services have not an important even an essential rôle to play in the economy.

    1029
    But the disparity in tax rates between the two sectors is still very great. I therefore think it right to look for some substantial further contribution from the service industries. I have explored the possibilities of some new specific tax upon defined consumer services, but the base would almost inevitably have been so narrow as to produce a disproportionate burden, and the administrative expense would certainly have been unjustifiable.
    I therefore decided it was better to use the method we have, which is the Selective Employment Tax. I propose that the rate of S.E.T. for adult male employees should be increased from 37s. 6d. to 48s. a week as from 7th July, and the other rates in proportion. This represents an increase of 28 per cent., a good deal less than last year, but nevertheless substantial. The increase, like the existing tax, will be repaid to those employers who are entitled to refund. The additional tax will be payable in Northern Ireland, but the revenue accruing in that country will, like the existing yield from the tax in Northern Ireland, be paid to the Northern Ireland Exchequer, which is responsible for its own refunds.
    The effect of this increase upon the retail price index will be about one-third of that of raising an equivalent amount of revenue from Purchase Tax or the other excise duties. I must not anticipate Professor Reddaway, but all the evidence available to me suggests that S.E.T. has had a smaller effect on the cost of living and a bigger effect on productivity than was expected at the time of its introduction. In retail distribution, for instance, productivity increased by 8.8 per cent. between 1966 and 1968, against a trend expectation, based on the previous five years, of only 4.2 per cent. There may have been other factors, but S.E.T. undoubtedly made a contribution, and such a resource releasing effect can be most valuable in allowing us to run the economy at a somewhat higher level of output, compatibly with our balance of payments objectives, than would otherwise be possible.
    I also propose to make some changes in the incidence of S.E.T. There are bound to be hard cases at the borderline. Many of these have already been resolved administratively and through
    1030
    appeals to industrial tribunals and the courts. There are certain other steps which we can take, either in the Finance Bill, or, where appropriate, by Order. First, the latest edition of the Standard Industrial Classificaton will be adopted as the basis for the tax. One of the features of the new edition is that milk processing is classified as a manufacturing activity. Second, scrap metal and waste paper processors and industrial photoprinters will effectively be removed from the tax-bearing sector. I also propose to remove the anomaly whereby some book publishers are treated less favourably than others, as well as a similar anomaly in relation to overseas cable companies, and to extend relief from the tax to all stages of film production. These concessions in S.E.T. will reduce the revenue by about £3 million in 1969–70, and £6 million in a full year. The total effect of the S.E.T. changes will be to increase the net yield of the tax by £123 million in 1969–70, and £130 million in a full year.

    Income Tax
    I turn to the incidence of direct taxation upon individuals. As last year, I propose no change in the standard rate of Income Tax or in the Surtax rates. I do, however, propose to make a change in the way the standard rate is expressed. This would in any event have been necessary as from next year, because of decimalisation. To do it this year will help us to acclimatise, and will also enable me to stress a point to which I attach considerable importance. The standard rate of 8s. 3d. will therefore become 41·25 per cent.—its exact equivalent; and the 6s. reduced rate will become 30 per cent. As part of this change I would greatly have liked to separate off the effective earned income rate, that is to say to show the actual percentage of tax paid on earned income. This would be a good deal easier to understand than the present system under which the effect of the standard and reduced rates is substantially lessened by the earned income relief. Unfortunately, despite intensive effort, this proved to be quite impossible without imposing a very considerable administrative burden on the Inland Revenue. This is because of the complicated impact upon allowances—of which there are many—of incomes which are partly earned and partly—perhaps

    1031
    only in very small part—unearned. This I fear is typical of many aspects of our tax system. An apparent simplification, unless allowed to be either expensive or unfair, cannot be achieved except at an unacceptable administrative cost.
    I nevertheless believe that it is desirable to use the decimalisation change-over to express more forcefully to most people what is their real rate of Income Tax. Many are convinced that they pay much more than they do, believing the rate on overtime, for example, to be at least 8s. 3d. in the £, if not more. This is not the case. Up to an earned income of £4,005 a year, or £77 a week, the standard rate is abated by the two-ninths earned income allowance. This brings the standard rate of 41·25 per cent. down to just over 32 per cent.·32·08 per cent. to be exact. So long as his total earned income does not exceed £77 a week, it is therefore impossible for the ordinary man to pay as much as a third in tax on any part of his earnings, whether regular or overtime. If he thinks he is, he is deceiving himself. Apart from some special cases, this is the maximum marginal rate of tax for earned income up to that level. The average rate is of course lower—it may be much lower. At £35 a week for a married man with two children under 11, it is 18 per cent. I would like to see these rates of tax lower, but this is not a reason for exaggerating the present burden.
    I referred last year to the fact that, whatever the evidence or lack of it, high direct taxation is widely believed to be disincentive, and that this could have a stultifying effect upon the development of the economy. That was one reason why, with considerable difficulty, I avoided increases in direct taxation last year, and why I am not proposing any now. Indeed, I have carefully considered whether, even in a year as difficult as this, it would be justifiable for incentive reasons, and for the encouragement of savings, to mitigate slightly the rates of tax on high earned incomes.
    I have come to the conclusion that, desirable though such a reduction would in many ways be, I must concentrate this year on more vulnerable sections of the community. I would emphasise, however, that I regard an increase in one of
    1032
    the earned income allowances as a high priority for a later Budget.
    I follow this by saying that the first income tax concession I have to announce is one which I foreshadowed last year, the desirability of raising the threshold. I believe that the level of income at which tax starts to be paid is too low. In present circumstances I cannot afford to pay too high a cost for a threshold change, and this rules out a straight increase in personal allowances with benefits all the way up the scale.
    I have, therefore, decided on a scheme which will take 1,100,000 people out of tax altogether, and significantly reduce the tax liability of another 600,000. Of the 1,100,000 who will be taken entirely out of tax, about 185,000 will be married men, about 500,000 will be earning wives, and about 415,000 will be single persons.
    To achieve this result I propose to increase the single person's allowance—and, with it, the wife's maximum earned income allowance—by £35, from £220 to £255, and the married man's allowance by the same amount, from £340 to £375. At the same time, I propose that the two bands of income at present taxed at the reduced rates of tax—£100 at 4s. in the £ and £200 at 6s.—should be replaced by a single band of £260, all taxed at 30 per cent.
    The maximum relief for those who remain liable to income tax will be £6 18s. For people who at present pay tax on more than £36 a year the benefit will taper off rapidly to 10s. People on the standard rate will be liable to a nominal increase of 1s. 3d. a year, or just over 1d. a month. This is not, I need hardly say, a result I have sought for its own sake. It is an inevitable result of concentrating limited benefits where they are most needed.
    The cost of these changes will be £14 million in a full year and £10 million in 1969–70.
    There are certain other concessions I am able to make. First, I propose to increase from £75 to £100 the additional personal allowance which is given to widows and widowers and to certain other people who have single-handed responsibility for a young child resident with them.
    Second, in view of the increases in National Insurance retirement pensions which will be payable this autumn, I propose again to increase the income limits up to which elderly people of 65 or over qualify for age exemption. The income limits were last year increased to £415 for single persons and £665 for married couples. I propose to raise them for 1969–70 to £425 for single people and £680 for married couples; this will be broadly in step with the pensions increases which will be payable in 1969–70.
    I propose a similar consequential change in income limit of a dependent relative up to which dependent relative allowance is given in full. The full allowance for maintaining an elderly or infirm relative is given at present if the dependant's income does not exceed £235. This income limit is based on the standard National Insurance retirement pension of £4 10s. a week, so that an individual maintaining an elderly relative whose only income is the standard retirement pension is entitled to the full dependent relative allowance. I propose to raise the dependant's income limit for 1969–70 to £245, broadly in step with the increased pension which will be payable this year.
    I propose a further concession on what is called age relief to help elderly people living on a fairly modest income from their savings. This relief enables a taxpayer aged 65 or over whose total income does not exceed £900 to claim relief equivalent to the two-ninths earned income relief on his investment income. I propose to raise the £900 income limit to £1,000. I think it right in a Budget which as I shall show in a moment is designed to encourage saving to help people over 65 who are living on a modest income from past savings.
    Taken together, these concessions will have a significant effect on the living standards of people who are particularly vulnerable to increases in taxation and the cost of living. The total cost in addition to the threshold scheme is £6 million in a full year, and £3 million in 1969–70.

  IX. OTHER MEASURES
  I have now come to the end of what I may describe as my traditional taxation measures. Reflecting on our problems
  1034
  this year, however, I have come to the conclusion that while I must resist the temptation of devising ingenious new taxes, the needs of the economy would not be fully met without some further measures; and that these were of such importance that I should be justified in taking some slight risk in attempting to achieve them. I therefore have two further major measures to put to the House. The general subject of the first, which is savings, will come as no surprise; the second has been canvassed less widely.

  IX. OTHER MEASURES

    Savings
    I have explained that the main purpose of the Budget is to restrain current consumption. This the measures already announced will help to do. But it would be wrong to deal with the matter simply by fresh taxation, and not also by the stimulation of savings. I propose to use both approaches, putting no less a weight on one than on the other. It would, of course, be much more popular to attempt to rely almost exclusively on the savings weapons. But it would not be wise. It would be a classic example of counting chickens before they are hatched.
    Unfortunately, except for the purposes of weekend speeches by those who do not have responsibility, savings measures and additional taxation are not direct and immediate alternatives to each other. It is not possible to calculate the response to any savings scheme accurately in advance. And even if it were, it would still be uncertain how much of this response would come from genuine new savings, and how much from switching. Any Chancellor who in advance made the most optimistic assumptions on both these points, and used them as an excuse to opt out of his other responsibilities, would be indulging in wishful thinking of the most dangerous kind. I have not done that.
    Hope is not a substitute for reality. But nor need we proceed without hope. [Interruption.] We can proceed with a combination of the two. The prudent approach is this: to the extent that we see a good continuing response to the savings measures, it should be possible in later years to impose correspondingly less taxation. That is the reality behind the slogan, "A pound saved is worth a pound taxed". We have to show people

    1035
    that this is of benefit to themselves as individuals as well as to the country as a whole. It is, therefore, now justifiable to offer more generous inducements than previous Chancellors have thought right.
    My new proposals will in no way detract from the importance of more traditional forms of savings, and I turn first to improvements in some of the existing national savings facilities.

    National Savings Certificates
    The limit on individual holdings of the current 12th Issue National Savings Certificate will be increased from £1,000 to £1,500 with effect from Friday. I also propose that limits on total deposits in each department of the Trustee Savings Banks and in Ordinary and Investment Accounts in the Post Office Savings Bank should be increased from £5,000 to £10,000.
    British Savings Bond
    The terms of the British Savings Bond need to be improved. A new issue will, therefore, be available from 28th April carrying an interest rate of 7 per cent. instead of the 6 per cent. rate on the current issue. All the other terms and conditions will be as for the current issue, including the 2 per cent. tax free maturity bonus. Holders of maturing issues of Defence and National Development Bonds will be offered conversion into the new 7 per cent. bond.
    Premium Savings Bond
    The response to the changes which I made to Premium Bond prizes last year has been excellent, and I propose no further changes.

    Contractual Savings
    I come now to a new scheme for contractual savings. In working this out I have been greatly assisted by contributions from a number of bodies to which I am very grateful. In particular, I would like to express my thanks to the National Savings Committees, with the devoted support of many voluntary workers, and under the leadership of Sir Miles Thomas and Lord Birsay, for their efforts in sustaining the work of their Movement as well as giving their time and knowledge to the study of new incentives.
    It is, of course, immensely desirable to encourage those who already have the habit of saving to increase their rate. But still more important is the need to swell the numbers of savers, to tap that vast reservoir of people who at present save little or nothing, and to tap it in as habit-forming a way as possible. My new incentives are, therefore, directed primarily to this group.
    At first I thought the best approach would be to give tax relief at the point of saving. Superficially this certainly looks the method with the biggest pull. But there are compelling objections, which have not merely to be put in the balance, but also undermine a large part of the attraction itself. I would like to explain these objections to the House.
    First, the concession would have to be very closely supervised, with every possible attempt made to ensure that it only attracted genuine new savings and not switching. From the point of view of demand management it is no use giving a generalised concession which could not, even in theory, bring in more new savings than had been given away in tax, and in practice would almost certainly bring in a great deal less. Otherwise, at the end of the day, purchasing power and consumption would have been increased, rather than the reverse. The exercise would be worse than self-defeating.
    Second, substantial P.A.Y.E. re-coding and continued and detailed surveillance by the Inland Revenue would be needed. The administrative cost of the scheme would be very high, and the recruitment—even assuming they could be obtained—of substantial numbers of additional Inland Revenue staff would be unavoidable.
    On top of that there would be no incentive at all to those outside the tax range, and relatively little to those paying at the reduced rate. It would be quite wrong to exclude these people from the attractions of the scheme.
    And even for those paying tax at the full rate, the weekly psychological pull of a realistic tax remission scheme can be greatly exaggerated. For example, if relief were given as for life assurance premiums, a proposal which I examined hopefully, a married wage earner with two children on £30 a week, who contracted to save £1 a week would find his weekly income tax deduction cut by little

    1037
    more than 3s. out of a total of £4 16s. I doubt whether this would be a very dramatic incentive.
    Last, while the essence of a contractual scheme is that the great majority should be persuaded to stay in for the full period, some provision has to be made for those whose circumstances change and who therefore have to draw out the money earlier. In this event a loss of a future bonus is reasonable. But if the bonus is given at the point of saving, it would have to be clawed back in the event of premature withdrawal. The saver would thus find himself with less money than he thought he had accumulated, having to encash his savings at less than their par value. I think this would arouse widespread resentment.
    I have concluded, therefore—and this is strongly the view of the National Savings Movement—that it would be best to give the actual reward in good sized tax-free lump sums at the end of the period of contract. I believe that this will make the greatest appeal to the kind of new saver I am especially anxious to attract.
    The new scheme of contractual savings which I propose will be operated by the Department for National Savings; and I am glad to appropriate for it the title "Save As You Earn". The scheme will, however, differ from some of those which have been put forward under that title. It will offer a generous reward on contracts to save regularly monthly amounts in deposits with the D.N.S. over a five-year period. Everyone over 16 will be able to make savings up to a maximum amount of £10 a month. The D.N.S. will accept savings through deductions from pay, by standing orders on banks and the Giro, or in cash over Post Office counters. But I attach particular importance to securing regular savings by means of deductions from pay. I hope that with the co-operation of employers and trade unions, which I am sure will be forthcoming, the new scheme will attract a useful volume of new savings through such voluntary and regular deductions.
    The reward for a completed five-year contract will take the form of a terminal bonus completely free of all tax. I propose to make this bonus £12 at the end of five years for every £60 saved over the period through subscriptions of £1 a month. This bonus will be doubled
    1038
    to £24 if the savings are left in for a further two years without any further subscriptions by the saver. In other words, people saving under this scheme will have two options: their money back, with a bonus equivalent to an extra year's savings after five years, or with double that bonus after seven years.
    Those who are contemplating a firm commitment to save over five years will naturally ask what is likely to be the real value of their bonus and repayments at the end of the period. This is not a simple calculation to make because, although some of the money contributed in the early years will be outstanding for some time, money contributed towards the end of the period will only be invested for a short time before it is repaid. If this scheme had started five years ago the bonus today would have compensated fully for changes in purchasing power over the period, and in addition would have given a positive tax free return of over 4 per cent. a year on the money subscribed. In fact the proposed bonus properly calculated by reference to the period for which each monthly subscription lies invested, is comparable to a grossed up rate of return of 12 per cent. a year to the standard rate taxpayer by the end of a five-year contract, and higher still by the end of the seven-year period. This is a very high rate indeed, but I am satisfied that it is right to make this offer in order to create new habits and get the new scheme off to a good start.
    We must, as I indicated earlier, make some allowance for those who find themselves obliged to terminate their contracts prematurely. Participants will therefore be able to withdraw their contributions during the period. If they do they will receive interest at the rate of 2½ per cent. tax-free on withdrawals after the first year of the period.
    Some further particulars of the scheme are being given in a Press release today. Full details will be incorporated in a prospectus and regulations in due course. I am determined to get the scheme started quickly, though this cannot be until October at the earliest. But we shall take advantage of the interim to perfect the scheme, and in particular to discuss ways of making the pay-deduction method as attractive as possible to employers and workpeople.
    I also hope that the Trustee Savings Banks will be able to co-operate fully in promoting the "Save As You Earn" scheme. The £10-a-month limit for the scheme would, however, apply whether the savings were made through a T.S.B. or through the D.N.S. In addition, I am prepared that the tax reliefs should be extended to a similar contractual scheme run by the building societies. In their case I would propose a separate and additional amount, again up to a maximum of £10 a month, which the individual could subscribe. I think that this is much the most practical help that I can give to the building societies in the present difficult circumstances. But it will be necessary to hold talks with the representatives of the building societies about the exact form in which they would operate such a scheme. And in the course of these talks I would need to be assured that the societies would apply the benefit arising from this substantial tax concession in the best interests of house purchasers.
    I shall seek powers in the Finance Bill to exempt interest and bonuses on these new contracts from Income Tax, Surtax and Capital Gains Tax.
    I hope and believe that there will be a good response to the opportunity of these new savings inducements, and that over the next few years we shall see a very substantial amount of new savings. But I propose to measure the response when I see it—and not before. It is difficult to over-estimate the benefits that the scheme could bring, both to the economy as a whole and to the amounts of direct and indirect taxation we all have to pay. The personal savings ratio fell slightly in 1968. We have to halt this decline, and reverse the trend. If we can achieve that, I see no reason to grudge the high rate of interest which I am now proposing to pay.

    Disallowance of tax relief on interest
    I come now to my final proposal. The new savings scheme I have just described is designed to encourage people to save rather than spend some of the money that they have earned. But it is also important, as part of the same approach, to discourage people from spending money they have not earned, or do not
    1040
    even possess. This, I fear, is too easy and cheap at the present time; and the main reason why it is cheap is that a large part of the expense is met by the public. Because of tax relief on loan interest, it pays anyone with a substantial taxable income to borrow as much as he can from his bank or from some other financial source.
    We have been endeavouring, for the past year and still more stringently for the past five months, as I described earlier, to cut back on inessential overdrafts. So far, as I also described, we have met with some, but by no means complete, success. It is paradoxical, in these circumstances, that we should leave a large part of the cost of these overdrafts, and of other personal borrowing, to be met by the Exchequer. But this is indeed the case so long as the interest on personal borrowing is an allowable expense against tax.
    Even at the present very high nominal cost of borrowing, a standard rate taxpayer who pays interest out of investment income pays an effective rate of less than 6 per cent. on his bank borrowing. For Surtax payers the effective rate is still lower. At an income of £10,000 a year it is not much over 2 per cent. At £20,000 it is less than 1 per cent. This sets market forces against the achievement of our object to a ridiculous extent. Moreover it is unfairly discriminatory and regressive in its effect. Hire purchase does not attract tax relief, but bank overdrafts and credit sales do.
    I therefore propose that, in future, bank interest, and interest on other comparable personal borrowing, shall not be allowed as a charge against tax.
    There will be certain exceptions to this general rule. First, interest which is a proper business expense will continue to qualify for relief; this means that bodies liable to Corporation Tax will only be affected by the new provisions in special cases. Second, we shall exempt the owner-occupier who is buying his house, though I think the exception should go somewhat wider than house purchase. Relief will therefore continue for interest on money borrowed for the purchase or improvement of any land or buildings, whether owner-occupied or let, in the United Kingdom or in the Irish Republic.
    So far as existing loans are concerned, I think it reasonable to allow borrowers a short time to adjust to the new conditions. On existing loans, the interest on which is payable under deduction of In come Tax; relief will continue for the current year and will cease at 5th April 1970. Thereafter, the interest on such loans will be payable in full without deduction of tax, except where the interest is paid by a company or to a non-resident.
    Bank overdrafts and other bank loans the interest on which is payable in full are mostly variable from day to day and within a ceiling arrangement. I propose that relief for interest here should be allowed only up to 30th June of this year.
    In the case of new loans made after today, where under present rules the interest would be payable under deduction of tax, disallowance of relief will operate immediately and the interest, unless paid by a company or to a nonresident, will be payable in full without deduction of tax.
    I estimate the tax yield from these proposals at £7 million in the current year and £25 million in a full year. But the benefits are not to be measured by the tax yield alone. By attacking the problem of loans for personal expenditure at both ends, discouraging borrowers as well as lenders, I expect to secure a substantial reduction in consumer demand.

  X. CONCLUSION
  Mr. Speaker, I have now completed my measures. The increase in revenue is considerable—about £340 million in a full year and £270 million in 1969–70. This should make the Central Government a net re-payer of debt in this fiscal year to the extent of £807 million.
  But that result is incidental, although beneficial. The main purpose of the Budget is to continue the balance of payments improvement, but to do so in a way compatible with the maintenance of economic growth and the requirements of social justice. The Budget continues the squeeze on consumption and the shift of resources into exports. It lays its burdens fairly. It gives some worth-while concessions to the less well-off. Compatibly with not impairing incentives by increases in personal taxation, it makes
  1042
  the minimum impact on the cost of living—about one half of 1 per cent. It encourages saving and discourages spending, and by so doing it offers the prospect of lower taxation in the future. But whether by Budgets or other means, Governments cannot and should not attempt to do everything. They cannot solve the balance of payments problem on their own. Only the nation as a whole can do that. The Government must provide the essential framework. That I have endeavoured to do.

  PROVISIONAL COLLECTION OF TAXES
  Resolved,
  That pursuant to Section 5 of the Provisional Collection of Taxes Act, 1968, provisional statutory effect shall be given to the tollowing Motions—

  (a) Spirits (Excise and Customs)
  (motion No. 2).

  (b) Beer (Excise and Customs) (motion No. 3).

  (c) Wine (Customs) (motion No. 4).

  (d) British wine (Excise) (motion No. 5).

  (e) Tobacco (Customs and Excise) (motion No. 6).

  (f) Hydrocarbon oils (Customs and Excise) (motion No. 7).

  (g) Gaming (Excise Licence Duty) (motion No. 10).

  (h) Purchase tax (motion No. 12).

  (i) Customs and Excise Duties and Purchase Tax (Termination of Surcharge) (motion No. 13).

  (j) Income tax (charge and rates for 1969–70) (motion No. 16).

  (k) Income tax (surtax rates for 1968–69) (motion No. 17).

  (l) Income tax (alterations of personal reliefs) (motion No. 18).

  (m) Income tax (child relief, settlements, aggregation and family allowances) (motion No. 19).

  (n) Disallowance of interest (income tax and corporation tax) (motion No. 23).

  (o) Selective employment tax (motion No. 35).

  —[Mr. Roy Jenkins.]

  AMENDMENT OF THE LAW
  Motion made, and Question proposed,
  That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance, so, however, that—

  (a) without prejudice to any authorisation by virtue of any Resolution relating to purchase tax, selective employment tax or selective employment payments, this Resolution

  1043
  does not extend to the making of amendments of the enactments relating to either of those taxes so as to give relief therefrom;

  (b) this Resolution does not extend to making amendments of the provisions of the Customs (Import Deposits) Act 1968 so as to give relief from the import deposits required by those provisions to be paid, other than amendments making the same provision for all goods on which such deposits are so required to be paid.—[Mr. Roy Jenkins.]

  5.58 p.m.
  Mr. Edward Heath: The Chancellor of the Exchequer has delivered a speech for two-and-a-half hours, showing remarkable stamina and covering a vast canvas in great detail. He did so with very great lucidity of exposition. He was elegant in expression, except for one temporary break on Estate Duty. He was sometimes aided by flashes of humour and his speech was classical in form although at times sombre in approach.
  No one, and certainly no one with any experience of Government, would underestimate the problems of the Chancellor of the Exchequer in settling the contents of his Budget. But, that done, the organisation of such a speech, even with all the resources of Whitehall at his command, is a formidable operation. Thence to clothe it with felicity of prose and to hold the House with clarity and force over such a long period is to stamp the personality of the Chancellor himself upon it. All this he has achieved this afternoon, and I should like to offer him the sincere congratulations of the House upon the style and delivery of his second annual Budget speech.
  I am delighted also that I can welcome some of the changes which the right hon. Gentleman has announced. In particular, I would welcome the announcement of the new savings scheme. He rightly paid acknowledgment to many who had put forward such schemes, and perhaps I may claim it also for this side of the House and even thank him for taking the title which we ourselves proposed.
  Naturally, we will study the details of the scheme carefully. I make one suggestion. It was obvious to the House as it listened that this is a somewhat complicated scheme, as all such proposals are, and I hope, therefore, that we will take the earliest opportunity of explaining the advantages of this approach in
  1044
  very simple language to all who may be involved, particularly those on the factory floor.
  We also welcome changes in the betterment levy, which have been pressed on the Government from all sides of the House recently and which we ourselves pressed when legislation was going through the House. The number of horrifying cases which have been brought to public notice recently will surely justify the Chancellor in what he has done. Then, relief on small estates, which again will be generally welcomed as will also the spreading of the earnings of artists and sculptors over the period of creation of the work of art.
  Then we come to the proposals for close companies. I am glad that the Chancellor has rejected the attitude of his predecessor, now the right hon. Gentleman the Home Secretary, because this point was brought very forcibly to his notice and that of the Chief Secretary to the Treasury, not only in 1965 when Corporation Tax was first introduced, but also annually in the debate on the Finance Bill. It is true that removing all restrictions on directors' remuneration and also allowing for reduction of interest will be of considerable help to close companies, but I am not yet certain that this goes far enough to achieve the purposes which the Chancellor himself has described as to allow firms having a major contribution to make to the economy to be able to achieve this with their resources; but we are grateful for what he has done.
  Then the changes in allowances which the right hon. Gentleman has announced, in direct taxation are also warmly to be welcomed. Having welcomed these proposals, let me say that it required all his lucidity and elegance to disguise some of the other aspects of the situation. Before I come to those, let me also welcome one other major project—that for the increase in pensions. But how could the Chancellor of the Exchequer come to the House on such an occasion as Budget Day and announce to the cheers of all his supporters, and indeed of the whole House—[HON. MEMBERS: "No."]—yes, welcomed by the whole House—that pensions should be increased but not be able to tell us what is involved in contributions, either by the Exchequer itself or in contributions by employers and by employees? Once again, the Government

  1045
  are adopting an attitude of cheer now, pay later. I suggest to the Chancellor that it is hardly worthy of a Budget Day speech that he should not tell the House and the country what the obligations are at the same time as he tells them the benefits.
  Now we come to the elegance and lucidity he used, probably to evade rather than disguise the situation with which we have been dealing. For the rest of it, in order to find a solution to these problems, he resorts not to new ideas, not to imaginative ventures, not to incentives but to the old story of heavier and heavier taxation. This, underneath the lucidity and elegance, is what the Chancellor's proposals amount to—heavier taxation by another £340 million a year. It is a dead-end Budget—heavier taxation. It is a dead-end Budget by a fag-end Government.
  What did the Chancellor fail to tell us? He gave an account of 1968 but who, listening to that elegant and lucid style, would have been able to deduce that 1968 was without any doubt or fear of contradiction, economically the worst year for Britain in our history? Unemployment higher for longer than at any time since 1940—over half a million now for 20 continuous months. Bank rate higher for longer than at any time in history—7 per cent. or higher now for 12 months continuously. The visible trade deficit, the largest in our history, at £796 million, higher than in 1967, including the American aircraft. Overseas debt, the largest in our history. We shall look with interest at the figures the Chancellor is to publish, but the current estimate is now £3,700 million, the highest in our history. Tax increases last year, the largest in our history, £1,173 million. Prices rose by more than in any year since the Labour Government of 1951, 6·2 per cent.
  How strange it was that the Chancellor of the Exchequer in two and a half hours did not tell us the real story of 1968. Where, now, may we ask, is the Prime Minister's economic miracle? I believe that the Chancellor really found himself in a dilemma in making his judgment. What he did was to examine the situation which some people have described as being a slackening economy at home and the evidence; that the falling trend in unemployment has been
  1046
  arrested; that there was a rise of 17,000 in March over February—a rising trend in unemployment; a drop in industrial production in January and other indicators—cars bought on hire purchase and retail sales backing this up; and a suggestion that the growth this year would be only 2½ per cent. and not the 3½ per cent. on which the Chancellor has made his forecasts. These are the indicators of a slackening economy at home; but at the same time the Chancellor is faced with a deteriorating situation in our balance of payments overseas; and no one can regret this more than the House itself.
  The Chancellor emphasised in his opening words that last year we had a falling share of world trade, and, whatever other figures may be produced, surely this is the key one, that despite devaluation and therefore an immense gain over other countries at the time of devaluation, and despite everything else which has been done from the point of view of high interest rates and heavy taxation, we got a falling share of world trade. Then, we got a failure to substitute for imports. Is it not therefore surprising that in this Budget, with a falling share of world trade, there is not one single incentive to anyone in this country to make a greater effort to get exports? Is it not strange that there is not one suggestion in this Budget to deal with substitution of imports? Surely the most obvious case is agriculture which has been constantly pressed upon the Government from all quarters. It is acknowledged that the Price Review is not going to achieve expansion of the British agricultural production in order to replace imports.
  Judged, then, by the two points which the Chancellor of the Exchequer first made—the whole question of increasing exports which requires incentives and substitution of imports which requires a new policy—this Budget must be condemned as a failure; and he has once again continued the policy of increased taxation. The third part was on the question of industrial relations. Again, how could the Chancellor come to the House and say he was going to rest a considerable amount of his policy on the improvement of industrial relations and not be prepared to tell us what the Government are doing about it? We have

  1047
  constantly urged on the Government that they should take urgent action to deal with this. It was after the speech in Swansea last November when I put forward a three-point policy for a simple Bill, that the Government got to work on the White Paper and now apparently they are to implement part of it. This again we welcome. [HON. MEMBERS: "Oh."] And let me tell hon. Gentlemen that we would welcome an even more comprehensive scheme. But, of course, the Chancellor's lucidity and elegance could not disguise the fact that what he has presented to the House today is a double somersault in Government policy.
  The Government have abandoned the compulsory incomes policy because it has been a failure. If it had been a success would the Chancellor have come here today and said, "I am giving it all up"? Not for one moment. It is because it has been a failure, as we always said it would be, that the Chancellor has now announced that he is abandoning it. Why—in order to try to improve the climate of industrial relations. But who warned him year after year through the long debates on the Prices and Incomes Bill that what the Government were doing was creating friction and putting extremists in control of the trade unions? [Interruption.] I am prepared to share some of the glory with the hon. Gentlemen opposite below the Gangway. I should have given them even more credit if they had gone into the Lobby with us. But would they ever go into the Lobby and bring their Government down? Not for a moment. [Interruption.]
  Mr. Speaker: Order. We cannot get on by shouting.
  Mr. Heath: Then there has been the great fight which the Prime Minister has been putting up to get this legislation through the Cabinet—
  Mr. Stanley Orme: Shame on both of you.
  Mr. Heath: —and against the opposition of nine hon. Members opposite below the Gangway, perhaps ten with the hon. Member for Ebbw Vale (Mr. M. Foot).
  The Prime Minister has been "abrasive", "thrusting" and "forceful". He has stood up to the nine of them, to the trade unionists, the foreigners, the specu
  1048
  lators, the storms—every conceivable thing. To do what? To prevent his Government from being brought down. Who imagines that this group of demoralised, deteriorating hon. Members opposite will bring his Government down and risk a General Election? This has just been a paper war fought by his Press attachés against paper tigers.
  What has the Chancellor of the Exchequer done about taxation? He has put up Corporation Tax—additional taxation on companies. He has put up Purchase Tax—additional personal taxation. He has thereby increased the cost of living. Showing a remarkable degree of political inadequacy, he has heavily increased the most unpopular tax of modern times—and every hon. Member behind him knows it—the Selective Employment Tax, which is discriminatory, distorts the economy, and increases the cost of living. That is what he has been able to achieve. He has imposed £340 million of additional taxation on the people of this country.
  At the time of the last General Election, the Prime Minister said that he would achieve his policies without any general increase in taxation. From time to time the Prime Minister has said that there has been unfair criticism of him because he was very careful to say, both in the manifesto and in speeches, that they would be achieved not in one session, but over the whole of a Parliament. I wish to be perfectly fair to the Prime Minister. He has one annual Budget left in this Parliament—April, 1970.
  What has the right hon. Gentleman done so far? Before today income from taxation rose by nearly £7,000 million under this Government—nearly 100 per cent. If the Government had been able to content themselves with a 95 per cent. increase, they could have reduced Income Tax by 6d. After today, the total of increased taxation per annum under the Government will be £2,790 million. What will the Prime Minister do to show that he has achieved his policies without any general increase in taxation over five years?
  Let me tell the Chancellor of the Exchequer what he has to do in April, 1970, to fulfil the Prime Minister's prophecy. He must cut Purchase Tax by £352 million. He must take 6d. off Income Tax, 1s. 9d. off petrol, £10 off

  1049
  road fund licences, 3d. off beer, 13s. 11d. off whisky, 3s. 6d. off port, 2s. 10d. off wine, 1s. 1d. off cigarettes, £11 million off Estate Duty and £5 million off short-term Capital Gains Tax, and save £615 million on S.E.T.
  When the Chancellor gives the hint that as the election draws nigh there will be something for the taxpayer to oil the works and to ease the way for his right hon. Friend to try to return to power, let him tell the people what he will do to fulfil the Prime Minister's promise made at the last General Election. The Government are still as far from keeping their national promises as they are from achieving their international objectives. They are in a groove. They are persisting in policies which have failed to produce a healthy, balanced economy. The Chancellor of the Exchequer said that people were mystified as to what they are paying and why. My God, they are, and they will continue to be.
  We shall vote against the major provisions for increased taxation in this Budget. I am not referring to the little things about gambling which the Chancellor of the Exchequer produced, especially concerning the 6d. machines. The sixpenny piece will disappear with his own decimal coinage. We shall vote against the major items of increased taxation, for the simple fact is that the Government are still pursuing the old policy of trying to achieve their aims by heavier and heavier taxation and they are not prepared to adopt a fresh approach. The answer to this country's problems is a fresh approach under a fresh Government.
  6.17 p.m.
  Mr. Edward Milne: We have listened to a remarkable Budget speech which ranged over the entire economy and demonstrated some of the changes taking place in the economy. We have listened to an even more remarkable speech from the Leader of the Opposition. It is obvious that the bracing effect of launching a ship at the weekend has carried him into new and possibly less stormy waters than those he has hitherto experienced. However, many of the measures which he jubilantly claims as his own could have been introduced when his party was in power and when he was enjoying the fruits of office.
  1050
  The Leader of the Opposition laid stress on the Chancellor of the Exchequer's reference to industrial relations, with which he has been closely connected in the past. I well remember the disastrous effect on industrial relations which occurred during his period of office and the accumulated effect which we inherited.
  I was surprised to hear the Chancellor of the Exchequer setting out to deal with this question. I would rather that the question of industrial relations were dealt with at a later stage in our Budget deliberations by the Minister responsible and, moreover, at a considerably later stage in the lifetime of this Parliament. When the White Paper "In Place of Strife" was published we were assured that no decision would be made or Bill introduced until towards the end of this Session, if not until next Session. The Prime Minister and the First Secretary said that debate and discussion would take place not only in Parliament but throughout the country. Aided and abetted by right hon. and hon. Members opposite, there has been a mounting Press campaign against the trade union movement, designed to bedevil the situation. The question of industrial relations will not be solved by legislation. It can be solved only by ensuring that better relations prevail between the respective elements in industry and in the economy. I shall pass now from the question of industrial relations. I touched on it only because my right hon. Friend the Chancellor chose to introduce it.
  One of the more far-seeing aspects of the Budget proposals is the proposal to deal with the betterment levy under the Land Commission Act. This proposal will bring a great deal of joy to many people. The Leader of the Opposition, in speaking about the countless numbers who were affected by this levy, gave way to his normal weakness to exaggerate. A number of cases have arisen which have revealed the anomalies in the Act, but my experience in my constituency and throughout the country convinces me that for political purposes those cases have been exaggerated out of all proportion. As the White Paper was issued too recently for me to have had the opportunity to study it, I will leave consideration of that point to a later date.

  1051
  My right hon. Friend's proposal in relation to Income Tax reflects the battle which is raging in economic, political and industrial circles on the question of direct or indirect taxation. I was sorry that the Chancellor did not come down more heavily in favour of direct, as against indirect, taxation. It is not true that the higher income groups are already taxed to the maximum and that there is no longer any room for manoeuvre here. The Leader of the Opposition keeps talking about a reduction of 6d. in Income Tax.
  On the basis of direct taxation, I believe that we should have extended the threshold, as my right hon. Friend described it, to an even higher rate than he has risked doing. Despite all the figures given by the Chancellor, the fact remains that the new commencing level for the payment of Income Tax by workers with one or two children will be £12-£14 per week. As my speech follows so closely upon the Chancellor's exposition of his proposals, I have not been able to work the figures out in detail. We welcome the raising of the threshold, but there is a very strong case for raising the threshold even higher and excluding a further 600,000 workers. Many of my hon. Friends would have been prepared to take three or four million wage-earners out of the tax bracket altogether, without any disadvantage to the economy.
  To compensate my right hon. Friend for the revenue that he might have lost from such a venture, consideration could be given to increasing tax at the higher levels. Although my right hon. Friend did not completely turn his back on a wealth tax, I am sorry that he seemed to edge a little away from it. There are still a considerable number of people who should be contributing far more to the economy in terms of tax.
  Consideration should have been given to measures designed to deal with the sunshine seekers—to those who are lifting the resources that they have earned in Britain or that, in many cases, have been earned for them here, and taking them to the sunnier areas of Europe, to the Bahamas, and elsewhere. It is monstrous that whereas genuine holidaymakers are limited to spending £50 abroad, with certain concessionary extras,
  1052
  these sunshine seekers can buy villas or other luxury dwellings in tax havens, thus avoiding their tax responsibilities in the country where their wealth was earned.
  The Selective Employment Tax is possibly the major item which will cause concern in many quarters. The Chancellor advanced reasonably sound arguments why the tax should be imposed on the service and distributive industries. The main argument he used to justify the original imposition of the tax and the necessity to increase it this year was that productive industry was taxed to a much greater extent than the service and distributive industries and that something must be done to redress the balance. This is not precisely the case, nor are the types of tax levied on the productive trades similar to the imposition of S.E.T. on the service and distributive trades.
  In the main, in the productive trades the tax is on the articles produced, but S.E.T. is on the numbers and types of people employed. The original intention of S.E.T. was supposedly to have a shakeout in the service and distributive trades so that people would move into manufacturing. Without having all the figures at my disposal, it is impossible for me to say how much effect the tax had in that respect, but after a lifetime's experience, both as an employee and trade union official, in the distributive trades, with which I am still in close contact, I see no real sign that it has had any.
  Sir Tatton Brinton rose—
  Mr. Milne: I should like to develop this point. The hon. Gentleman can make his speech later.
  The shake-out and the transfer of labour from one industry to another has not occurred. Moreover, S.E.T. has been passed on to the consumer in many of our service and distributive trades. I ask my hon. and learned Friend the Minister of State to press the Chancellor and the Treasury for a much greater check on the way in which the tax is being raised. Too many organisations, firms, and parts of the hotel and catering industry are not paying S.E.T. as the Chancellor intends but are passing on as much as the full amount to the consumer.
  In some ways the Budget is good in parts. It shows a forward-looking trend

  1053
  in many directions, but it is disappointing that in our brief remarks we have to concentrate to some extent on what we think to be its shortcomings.
  I have not dealt with the question of the development districts. My right hon. Friend referred in opening to the state of the economy. If he is looking for the expansion of production that the country needs, for an increase of exports, and increased effort and growth, the unemployment rate—particularly the very high rate in the development districts—must be tackled by the Ministries concerned as soon as possible, so that as a result of my right hon. Friend's measures which are to be put into effect in the next four to six months we shall see an intensification of effort and better economic returns and results than in the past.
  Mr. Speaker: Order. If speeches are reasonably brief, I should be able to call every hon. Member who is trying to catch my eye tonight.
  6.34 p.m.
  Sir Tatton Brinton: I congratulate the hon. Member for Blyth (Mr. Milne) on the lucidity of his speech, which he delivered without, apparently, any notes. I envy his ability.
  I sought to intervene in the hon. Gentleman's speech to support his point about the effects claimed for S.E.T. when the tax was introduced and its failure to achieve them. During the first year of its operation there was a substantial fall in the number of people employed in the manufacturing industries, which it was supposed to benefit. It would be an illusion to imagine that the tax has diverted labour from the service industries into manufacturing. This has not happened, though it was suggested that the tax should have this effect when it was introduced.
  I join the hon. Gentleman in expressing surprise that the vital announcement of the future of the Government's industrial policy should have been wrapped up in the middle of the Budget speech. One would have expected it to come from another source. Evidently we are back to 1966, when we had the original Prices and Incomes Act. The concession that the Government made through the mouth of the Chancellor is more apparent than real.
  1054
  I now come to the main points of taxation which the Chancellor has imposed today; I shall leave out the small items. There are two major tax increases which bear on capital and two which bear on consumption.
  I begin with the two which bear on capital. First, one of the heaviest imposts is the increase to 45 per cent. in the rate of Corporation Tax. When the tax was introduced in the 1965 Budget, it was suggested that the rate might be about 35 per cent. or 37½ per cent. Ministers speaking in the Budget debates then repeatedly used those two figures to illustrate the probable effects of the tax. We calculated at the time that to replace the then system of company taxation and produce the same yield a rate of about 36 per cent. was required. It has taken only four years for the tax to come up to 45 per cent. It is illusory to say that the rate of Corporation Tax in other countries, applied in a very different tax context, is in some cases substantially above 45 per cent. I believe that in the United States it is usually about 52 per cent. This may be so, but other forms of taxation are very much lower, especially personal taxation on the distribution of dividends.
  The Chancellor suggested that the context of his Budget was the need for a reduction in personal spending, a restraint on demand. That is what he aimed at, according to him. But what restraint on demand is achieved by a large increase in company taxation when for a considerable time there have been substantial statutory restraints on dividends? I think that the increase was limited to 3½ per cent. last year. If the money is not paid out by companies there is only one destiny for increased profits as long as dividends are restrained, and that is to be ploughed back into the capital of industry. Incidentally, I was surprised to hear that profits increased by about 10 per cent. last year. That was the figure the Chancellor gave. Surely, the ploughing back of profits is one of the things the Chancellor must be aiming at? He is aiming at a very large Budget surplus to restrain demand, but one thing he cannot be aiming to do is to restrict industrial investment.
  Industrial investment can come from only four main sources—the ploughing back of industrial profits, the investment

  1055
  of private individuals, the investment of institutional investors, or taxation and Government investment. In these circumstances, it seems very odd to restrain at least one of those sources to the extent of £100 million. It is not apparent to me what effect this can have on the general position of demand and the inflationary effect of demand in our economy, as long as dividends are restrained. I hope this may be made clear by Treasury Ministers during the debate.
  The other tax placed on capital is effectively the disallowance of interest on overdrafts. Certain concessions were allowed, notably for the acquisition for houses. I should like to know whether that includes, for instance, bridging loans—
  The Minister of State, Treasury (Mr. Dick Taverne)indicated assent.
  Sir T. Brinton: I see the Minister nodding, and I am glad. This is a very big moment in anyone's life, whether rich or poor. Normally he has to acquire a new house before moving from the old one.
  Mr. W. R. Rees-Davies: I wonder whether my hon. Friend would also pose, as part of his question, whether it would be necessary for someone to switch from a bank to an actual mortgage when he is receiving bridging finance for the purchase of a home? As he will appreciate, it is a rather substantial matter for people to have to undertake a special mortgage when the purchase is being covered through an overdraft by the bank, as is the case with so many young people at present.
  Sir T. Brinton: I understood the Minister's nod to mean that a bank loan for bridging purposes or for a house purchase would be allowable against income. We shall see later.
  I should like to draw attention to a fallacy which I have heard in connection with loan interest allowed against income. It is suggested that it costs a man with a high income substantially less to borrow money than it does a man with a very low income. I suggest to all hon. Members, because I have heard this fallacy enumerated on both sides of the House, that this is merely an application of what was so felicitously named, during
  1056
  the 1965 Finance Bill deliberations, MacDermot's Law—a phrase which I must acknowledge belongs to the Leader of the Opposition. MacDermot's Law was that the higher one pays taxes, the higher one should be taxed. It was at that time applied when the then Financial Secretary to the Treasury suggested that the reason for putting Capital Gains Tax at a very high rate was that direct taxation on incomes was at a very high rate and the two must match.
  The fact is that the only reason why a mortgage or a loan costs a man less if he has a lot of money is that his rate of taxation is enormous. It presupposes—it may be the doctrine of the other side of the House—that all incomes belong by right to the State and that people should be allowed back only such proportion as the Government propose to give them. I do not subscribe to that view and hope none of my hon. Friends does. A man's income, whether earned or investment income—and I resent and deplore the expression "unearned income"—is his own, and out of it he naturally has to contribute to the maintenance of the country and society. But when we do not tax him we do not give him anything; we merely take less from him.
  The figures given by the Chancellor in his argument on this question, when he said that a man with £20,000 a year paid only 1 per cent. loan interest on present borrowing rates, did not show that the reason why it is only 1 per cent. is that he paid Income Tax on the top slice of his income at the rate of 18s. 3d. in the £. If that is a matter for congratulation, I am surprised, although in view of the speech of the hon. Member for Blyth I take it that he still thinks that such rates are not excessively high. I realise that many people say that incomes ought to be limited to certain levels and that no one should have any more. It is not the system under which other nations as well as ours became rich, or one which encouraged the ablest means of our community to earn and accumulate.
  I wish to draw the attention of hon. Gentlemen opposite to the fact that we no longer live in a British vacuum with the Channel as our economic and financial boundary. Many of our ablest people are perfectly able to hop that

  1057
  boundary and go to countries where they are better rewarded. It is essential for our economic health that this should be realised. When rates of tax on personal incomes in most of the rest of the world are very much smaller than they are here, especially at the higher levels, it is crazy for the hon. Member for Blyth to go on assuming that there is a bottomless reservoir of taxpaying capacity among people better off than himself.
  This is no longer true. It must go with a society in which riches are increasing and being more widely distributed—I have no quarrel with it—that the burden of tax will at the same time become more widely spread. Since differences in income become less, differences in treatment for tax must also become less. This might be regarded as one of the signs of a healthy and flourishing society. The reason why I believe this to be a tax on capital is that by definition those people fortunate enough to be able to borrow large sums of money from their banks must have some capital substance behind them to assure the banks that they will get their money back. All that they have to do in future, and maybe this is what the Chancellor wants, is to realise that reserve of capital, pay off their overdrafts, and they are back to square one.
  The Chancellor will not be any better off by the change; a certain amount of capital will be thrown on to the market. Who will buy it?—someone who would otherwise have provided capital for new ventures. Every time we put capital into the hands of government by any form of taxation, we are, to that extent, reducing the amount of savings available.
  These are two taxes on consumption, granted that the Chancellor's context was that of a reduction of consumption. What did he do? He increased the two worst taxes ever invented. S.E.T. is entirely the responsibility of this Government. It was a bad tax when it was introduced and it is getting worse with every increase, because it is selective, because it differentiates arbitrarily between different forms of enterprise with an unforeseen end result. I agree with the hon. Member for Blyth in deploring this bad tax.
  Purchase Tax is also a discriminatory tax, between different products, and I deplore it for that reason. This was not
  1058
  the invention of this Government; we have been saddled with it ever since the war. No one has ever been able to get rid of it. The more we increase these taxes, the more we land each successive Chancellor with a vast income from them—which, if he is ever to alleviate them, has to be replaced by some other tax—and the more certain we make it that these two bad discriminatory taxes will be extremely difficult to remove in the long term.
  It is all right to criticise our taxes, but one has to produce an answer as to what sort of tax ought to be applied by future Chancellors and should have been applied by this Chancellor. My answer is that we have to develop a tax on value added or some similar general payroll tax. Until we do, these two taxes will distort our economy first one way and then another. First, they will arbitrarily favour one trade and penalise another or favour one person and penalise another. The moment we introduce discriminatory taxation this is what happens. What we require is a broad-based tax at a universal level which can be used as one of the main elements in a taxation policy which will bear evenly in all ways and help trades, industries and individuals to compete in a natural and free manner instead of constantly having the rules of the game changed for or against them at each successive Budget.
  That is the sort of tax we require. To go on merely increasing bad taxes instead of trying to move in that direction is retrograde. If we join the Common Market, and it is the policy of all three parties, we shall have to adopt some form of value-added tax. No progress has been made towards it. Why? Because the Chancellor says that the Inland Revenue is incapable of adjusting itself to any new taxes at present. We know where to look for the reason for that. It is because it has been asked to deal with several new taxes since this Government came into office and this has so overloaded the service that it is standing as a barrier to taxation progress.
  The real crime of this Government against the country is that for over four years, to give rein to envy and un-charitableness towards the taxpayer, they have introduced taxes which produce little revenue and prevent the establishment of a simple system. I pray that

  1059
  when we have a new Government the first thing they will tackle is the mess we have and substitute for it a logical and sensible taxation system by scrapping the taxes which have been introduced solely for motives of envy.
  6.50 p.m.
  Mr. Kenneth Lomas: The hon. Member for Kidderminster (Sir T. Brinton) argued his case authoritatively, and was well worth listening to, especially about an added-value tax, which could well be considered. All the same, I trust he will forgive me if I do not shed any tears about Corporation Tax being increased to 45 per cent. I welcome this, but I am prepared to view with a sympathetic eye the feelings expressed by the hon. Member for Blyth (Mr. Milne) and the hon. Member for Kidderminster about the increase in Selective Employment Tax. I wish that some other way could have been found to raise the necessary £100 million. On the other hand there is no doubt that there has been a movement of people from the service industries into the manufacturing industries. I concede that the main purpose of the tax is a fund-raising device, but it will hit the Co-operative Movement and many small shopkeepers who are today finding life very difficult, but this is the price one has to pay to get money for what the country needs.
  The Chancellor in a lucid, and at times humorous, speech showed clearly that we are moving in the right direction to achieve economic solvency. In spite of the rather knockabout performance by the Leader of the Opposition and his hon. Friends, I would have thought they would have welcomed wholeheartedly the increase in growth in terms of the gross national product and the 18 per cent. increase in exports. That the increase is not more is not always the fault of the worker on the shop floor or the Government. Management has a big responsibility, especially on delivery dates. We need to look more closely at the way in which management fulfils its obligations.
  I welcome the statement by the Chancellor that in November the 8 million pensioners will have a fairly substantial increase—10s. for a single person and 16s. for a married couple. This puts the
  1060
  pension no less than one-fifth higher in real terms than when the Government came to power in October, 1964. It is true that that has to be paid for, but we on this side of the House think that the pensioner is entitled to this increase and the money to pay for it must be found.
  I regret, as did my hon. Friend the Member for Blyth, that the Chancellor was unable to introduce a wealth tax, although I appreciate that it would have been difficult, and I am glad that my right hon. Friend has not completely dismissed it from his mind.
  Another long-overdue source of taxation is on advertisements. Over £1,000 million is being spent on advertising, and this represents a tremendous potential revenue.
  I am much concerned about the growth of amusement arcades, which the new measures may help to curb. There is a difference between amusement arcades which allow young children to enter with or without their parents, and clubs, whether Labour, Conservative or Liberal, where only adults are allowed, and to jump, as the Chancellor does, from £100 for the first machine to £300 for the second is a bit steep. I would have preferred that to have been more gradual. There should have been a distinction drawn in respect of amusement arcades which are open to children and to the general public, and those which are in a recognised club. This would have made it possible to ensure that people exploiting young children would have had to pay the price, but if it is necessary to do this, why must we wait until October before introducing it?
  The hon. Member for Worcestershire, South (Sir G. Nabarro) was certainly clobbered by the Chancellor on the petrol tax. Although the hon. Member for Worcestershire, South calls himself a propagandist, I hope that in future he will be recognised for what he is, a purveyor of stories that get him on television and in the national Press. If there had to be an increase, it is right that it should fall on petrol.
  Sir T. Brinton: I trust that the hon. Gentleman warned my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) that he would make a personal attack on him.
  Mr. Lomas: No, I must apologise. I will certainly do so, although the hon. Member is not keen on notifying hon. Members on this side when he makes scathing remarks about them, and he will be able to read my remarks in HANSARD. If there had to be an increase, it is right that it should be on petrol, since the user of the road, the man who takes his family for an outing in his car, or uses it for his job, will have to pay the increase. A motorist doing 10,000 miles a year in a family car which gives 30 miles to the gallon will have to pay rather less than £3 a year more.
  Taken by and large, what has been said by the Chancellor is an indication that we are moving in the right direction. The over-riding necessity is for the Government to balance the books, to get into surplus, and to make a base from which to build a solid future. Politics do not come into this. Until we, as a country, obtain economic solvency we can never have economic independence, and we cannot have true political independence when we are in debt to international financiers. I urge some of my colleagues on this side of the House to understand that, although the Government have been forced to take unpopular measures, those measures are in the long-term interest of the nation to ensure a sound economy with a solid base.
  After a Tory Government have been in power for 13 years, or however long it may be the electorate turns to a Labour Government and expects an economic miracle in three or four years' time. We are just ordinary human beings. Nye Bevan said that we cannot afford the luxury of a Tory Government until we have had a Labour Government in power for 20 years. We on this side of the House must understand, in spite of the differences we may have among ourselves from time to time, that our fight is not against ourselves, it is against hon. Gentlemen on the other side of the House and the views which they represent.
  Just as the electorate expects an economic miracle from a Labour Government, it expects nothing from a Tory Government, and gets precisely that. This is why they can stagnate and drift. But when right hon. and hon. Gentlemen opposite make hysterical hyena-like cries for cuts in public expenditure, they say it
  1062
  as if public expenditure is a luxury. But it is not. Housing, education, hospitals and roads are not luxuries. They are absolute necessities for the age in which we live.
  The difficulty that this Government have faced since 1964 is that we have been paying the price of providing the services which the Tory Party did not provide when it had the opportunity. On 21st February, the Financial Times gave estimates of public expenditure from 1968–69 to 1970–71. In doing so, it showed the real difference between the two parties. It showed the kinds of increased provisions which the Government are intent on making in terms of spending. We intend to spend more on roads, public lighting, assistance to employment in industry, research councils, housing, law and order, education, health and welfare, and social security, and we intend to reduce our spending in terms of defence and other military expenditure, and so on. Before right hon. and hon. Gentlemen opposite criticise the Govenment for any increase in taxation, let them say categorically what they would cut to save the money. They have never come up with a true alternative to the policies which this Government have been pursuing.
  Perhaps I might mention prices and incomes, because it is a subject which is tied in closely with the whole Budget Statement. It can be shown without doubt that wages have increased far more than prices. Between October, 1964, and February, 1969, there was an increase in the weekly wage rate of 24·2 per cent. In the same period, the increase in the hourly wage rate was 29·5 per cent. In that time, food went up by only 18·7 per cent., and the cost of other retail services increased by about 20 per cent. I accept that this could be an argument that the prices and incomes policy of the Government has not been as successful as it might have been, but it is an argument which is the direct opposite to that which we hear from right hon. and hon. Gentlemen on the other side of the House. It has partially failed because wages have risen more than prices, and not the other way round.
  Some of my hon. Friends occasionally join with right hon. and hon. Gentlemen opposite in pointing out that the Government have kept down wages, that they have restricted advances, and so on.

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  However, one should look at the figures. In 1968, no less than 11 million workers in this country got an increase. From 1959 to 1968, that was the highest number of workers getting an increase, with the exception of the years 1960, 1962, and 1967. The lowest number of workers getting an increase in any of those 10 years occurred under the Tories. In 1959, only 4½ million got an increase. That was almost half the number who got an increase in the so-called freeze year of 1966. That makes nonsense of the argument that the Government are deliberately restricting wages. It is not true.
  We have to try and do something about it on the lines suggested by the Chancellor, and this is where the trade union movement and individual members of it are really involved with the Budget judgment and with our attitude to public expenditure and to taxes. The trade unions have a tremendous responsibility, not only to their members, not only to the Government, but to the nation. I regret to say, although I am a sponsored hon. Member, of N.U.P.E. that sometimes that responsibility has been pushed on one side in favour of short-term gains with a view to increasing trade union membership.
  Mr. Will Griffiths: My hon. Friend has been telling us, quite rightly, about wage increases which have been won over the last year or two, and he has made the point that they have exceeded price increases. But is it not also true that he supported a policy which was designed to do the opposite? Certainly it was not intended to achieve the result which we see today. Has he any comment to make about that?
  Mr. Lomas: There are a number of comments which I could make, but I am sure that Mr. Speaker would rule me out of order if I attempted to follow that point. I supported the policy because I believed that it was in the interests of the lower-paid workers, especially those in my own union. I believed that members of the National Union of Public Employees would benefit by a prices and incomes policy, and I challenge anyone to question that they did not.
  Mr. Will Griffiths: It was my hon. Friend who reminded us that 11 million workers won wage increases in a single year.
  Mr. Lomas: Among the 11 million there were a great many people working in local authorities and the National Health Service.
  It is important for the Government to keep control of the situation, and the Chancellor anticipated what I intended to say. Before I came into the Chamber, I made a few rough notes, one of which was to the effect that the Government, in the light of the current situation, should consider dropping that particular part of the Prices and Incomes Act at the end of this year. I am glad that the Chancellor has decided to do that. However, on the other hand, we have what in many instances is the festering sore of unconstitutional, unofficial, strikes. The Government have to deal with them in some way, disregarding whether or not it is a popular move at the moment.
  I cannot understand why some of my friends in the trade union movement take the view that everything must change except the trade union movement. Mr. Speaker, I know that you will not want me to go into the merits of the White Paper, but the Chancellor said that my right hon. Friend the First Secretary would be introducing some kind of legislation in the near future and would indicate to the House what that would be in the course of this debate. If that is to be done, perhaps I might make a passing reference to what I hope my right hon. Friend will say and what will be in the legislation which she proposes. I think that I am entitled to say a few words about that—
  Mr. Speaker: Order. What the hon. Gentleman proposes to say is in order; but I have appealed for reasonably brief speeches.
  Mr. Lomas: I am grateful for that indication, Mr. Speaker. It has been argued from this side of the House that the State is intervening in industrial affairs. What is not understood is that the "State" is the "people", and that the people as a whole have a right to be considered in these matters. They should not be used, as they have been used in some strikes, for politically motivated purposes

  1065
  against this Government and against the economic recovery of Britain.
  When my right hon. Friend makes her statement and when she brings forward her Bill, I hope that it will include those good provisions which we want, such as safeguards against unfair dismissal, the right to join a trade union, the right to have workers on the boards of undertakings, and the setting up of the C.I.R. on a statutory basis. I hope, too, that my right hon. Friend will retain the conciliation pause, because that is one way in which we can get people to sit down and try to resolve a dispute after it has gone on for some time. As long as we still write in the proviso that the grievance which has caused the strike is withdrawn then the men go back to work on the basis of a victory, I see nothing wrong in it. However, I suggest that my right hon. Friend drops the idea of a compulsory strike ballot at this stage.
  I believe that the Chancellor has introduced a Budget that is not as tough as many people expected it to be. It is realistic. It is imaginative. It can take us a long way along the road to achieving economic solvency. The further that we go towards that objective, the sooner we can start to build the better society and the more just society that we on this side of the House want to see.
  7.10 p.m.
  Mr. W. R. Rees-Davies: I do not propose to make a speech entitled "In Place of Strife". Enough strife has been delivered this afternoon by the Chancellor. If my right hon. Friend's speech was a knockabout speech, the Chancellor's was a knock-out speech. One thing that he did not realise was how desperately vindictive his performance this afternoon was. If he had realised it, I think that even he would have tempered it somewhat.
  This tax—and it is a very substantial tax—on personal overdrafts is a direct attack upon the living standards of small business people. I address myself to this matter in particular.
  In the Isle of Thanet there is a large number of boarding house keepers, guesthouse keepers and small traders of all kinds. During a large part of the year they live upon overdrafts which often become quite substantial—they may amount to between £2,000 and £5,000. I can think of nothing more absolutely
  1066
  damnable than to tax a person's loss and not permit it to be called, in the ordinary way of life, part of the loss of his ordinary business. The Government now propose to interfere with people's methods of employment, money and business. The Government are attempting to say that what is in fact a loss shall not be a loss. It is the A. P. Herbert situation in which what have always been regarded as losses in the past are not to be allowed to be treated as losses in future.
  Mr. Taverne: I am not sure that the hon. Gentleman is directing himself to what the Chancellor said. My right hon. Friend specifically mentioned that loans for business purposes would be excluded from the disallowance.
  Mr. Rees-Davies: No, not to that extent. I take the point about personal loans which are made for the purchase of property. I followed that. But let us consider a man running a small business—a guest house keeper, a tobacconist, or someone like that—whose income is derived almost entirely in the high season, the summer months, but not at other times. Surely a man like that may have a large personal overdraft. Nothing I heard this afternoon in any way showed that the interest on that money would continue to be deductible for Income Tax purposes. I will withdraw with great pleasure if I am wrong. Nothing would give me greater pleasure. I merely point out that now the interest on any bank loan is not deductible if it cannot be shown to be part of the loss of a trade or business. If it is not part of a man's trade or business he cannot or ought not to be able so to deduct it. It seems to me that this proposal is of fundamental importance. I do not think that it is something which—
  Mr. William Wells Mr. William Wells (Walsall, North) rose—
  Mr. Rees-Davies: I will give way in a moment. I do not think that it ought to be treated as a method of taxing the rich. If a man has a substantial overdraft of £5,000, or even £10,000, which may be in connection with his business or occupation, surely it is a loss. The Chancellor brought this in by the back door at the end of his speech as in some way suggesting that, as a quid pro quo, people having contractual savings schemes to save money should not benefit from tax

  1067
  concessions on interest on overdrafts. As I see it, they are quite separate matters. However, I think that it would be proper to make a provision, if it was thought right, that no one could enter a contractual savings scheme if he has a claim on a personal overdraft. That would be perfectly fair. But the real purpose is to prevent people having overdrafts for business or otherwise by saying that they shall receive no deduction at all.
  Mr. William Wells: I am sure that the hon. Gentleman is not confused in his own mind, but his words might lead to confusion, because I think that many of the avid readers of his speech in his constituency will infer that the Chancellor has made some interference with the provision for remission of taxation where there has been a busines loss. Surely the concept of the overdraft is different from that of the business loss?
  Mr. Rees-Davies: I think not. It is quite plain that it relates to personal overdrafts. Most people are in business on their own account. I am not dealing with the part of the Chancellor's speech relating to company losses and, indeed, losses on sales of companies. They are legitimate matters for the Chancellor's intrusion. But it is not right in 1969, for the first time in the history of Britain, that a personal overdraft should now be treated for tax purposes. It will have a considerable impact. It will mean that people who pay tax on the basis of about £1,000 a year, as a result of having to carry the interest on, shall we say, £10,000, would be paying Surtax although only having an income of about £1,200 a year. It is £1,000 on every £10,000 borrowed at present rates—at any rate, in excess of 9 per cent. It is very substantial.
  I want to be brief, so I now turn to two other matters. It is plain that the same section of the community, to a large extent, pays Selective Employment Tax—hoteliers, guesthouse keepers and other small employers. What is the position there? Another 10s. 6d. a week for every man employed—£26 a year. This iniquitous tax is now increased by another £120 million. It is the unfortunate middle-class, the entrepreneur running a small business, who again carry the burden of Selective Employ
  1068
  ment Tax, where they employ one or two people to assist them in their trade.
  I now turn to the thinking in relation to the betting duty. First, I wholeheartedly agree with the principle that the Chancellor put forward for trying to do something to draw a differential between those who go to the races and pay a tax upon the racecourse contrasted with those backers who stay at home and watch the racing on the television. It is certainly a little unusual to say that we will assist those who go to the races by putting an additional tax on those who do not. I hope that the Chancellor will go somewhat further and recognise that if he is to assist this industry the only effective shot in the arm that he can give it is a reduction of the tax on the course.
  It has always seemed odd that the Government should on the one hand assist the Levy Board to promote the interests of racing, and on the other do the maximum possible harm by taxing the industry on the course so that people find it not worth their while to spend their money there but rather to stay at home. I hope that we shall be able to table Amendments which the Government will be able to accept to reduce the differential between the tax to be paid off the course by those who merely want to bet as opposed to the tax paid by those who go to the races with the legitimate object of betting on the course and thus supporting the racing industry.
  It is not good enough for the Government to say that they are not ready to deal with the problem of taxes on casinos. The Gaming Act has been in operation for about a year. It is due to take effect this year and to come into effect completely next year. It would therefore be satisfactory to introduce an appropriate tax to come into effect on 1st October. I shall seek to set out changes which ought to take effect from 1st October to replace the present absurd system of an increase in taxation by one-third on the rateable value of all gaming clubs. It would be far better to switch to a tax on a percentage of the turnover, to take effect at the end of this year.
  The Government completely misunderstand the different purposes of the amusement machine business. I raise no objection to a tax being imposed on a one-armed bandit in a club. I raise no objection to a moderate increase in the

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  present rate of tax of £75. What I object to is the vindictive attitude of the Government to those who want to pursue this pleasure in a club, which is something I do not. The Government's attitude is shown by the method of taxation they have adopted. Instead of raising the tax from £75 to, say, £150, they have raised it from £75 to £100 and then, to try to annoy, because they know it teases people, they have raised the tax on the second, third, fourth, and fifth machines to £300. This is a prohibitive rate, but they say disarmingly, "If you want more than one machine, why should you not pay six times the rate?"
  If anybody adopted that attitude to his child, or in his home, or in his business, or in his dealings with a friend, he would be told what a thoroughly dishonest and fraudulent person he was. In fact the language would be unprintable, but because the Chancellor does it it is regarded as right and proper. I regard it as intolerable to have a rate of tax five times as great for the second one-armed bandit as for the first one. The rate for all the machines should be the same.
  The same is true of the Government's attitude to amusements with prizes, which represent a harmless flutter. They are designed for public houses to enable people to win either a packet of cigarettes or to play the game again. A tax of £25 is a lot, but to charge £150 for the second machine is a sheer farce, and is completely indefensible. It is merely a method of outlawing these games. If the Government want to outlaw them, they have the Home Office and the House of Commons to help them do so. To try to do it by this thoroughly unprincipled method is disgusting.
  The Government are unprincipled when they deal with betting. They are inhuman when they deal with S.E.T. They fail to have regard to the rights of people to use their own money as they see fit in relation to the tax on overdrafts. I find the whole Budget typical of this Chancellor. It is vindictive, it is cunning, at times it is clever. It was brilliantly presented. I go entirely with my right hon. Friend in saying that. It was clever in that it left out everything that it ought to have included. It was dishonest in that it twisted and perverted the truth in every direction. It was dishonest because it failed to recognise that what is essential for this
  1070
  nation is a totally different attitude to work and to productivity. Almost everything that the Chancellor has done will discourage what it is his task to promote.
  For those reasons, I hope that as the Bill goes through the House we shall be able to improve it in many ways. Above all, I hope that it will not be long before we get rid of the present sorry Government and start to reduce taxation by what will amount to no less than £3,000 million to get back to the state of affairs which existed when the Tory Government left office some years ago. When we have done that, we may be able to create an atmosphere which is not one of trying to set one man against another, or one of class hatred. We shall get rid of this attitude of vindictiveness towards man, which to my mind is as thoroughly un-Christian as was the Chancellor's speech.
  7.26 p.m.
  Mr. Michael Barnes: I find it impossible to follow the references of the hon. Member for the Isle of Thanet (Mr. Rees-Davies) to my right hon. Friend's speech. I think that few Chancellors in recent years have had to present two consecutive Budgets in such difficult circumstances and have raised such large sums of money as skilfully and as compassionately as my right hon. Friend has done. I say "compassionately" because of the fears which many of my hon. Friends may have had about the possible effect on low income families of some of the measures which the Chancellor might have had to announce this afternoon. In the main these fears have proved unfounded because of the skilful and careful way in which my right hon. Friend dealt with the question of indirect taxation. An example of this is the way in which, by increases in Purchase Tax, he has managed to raise the large sum of £50 million in a full year with so little effect on the budget of the average family.
  Last year the Chancellor said some interesting and important things about indirect taxation. He drew our attention to the paradox that we are not the most heavily taxed country in the world; yet we often feel that we are because of the incidence of direct taxation. My right hon. Friend said that indirect taxation was much less regressive than in the past. He referred to the widespread desire of

  1071
  many people to have less pay docked at source from their pay packets, even if they had to pay more tax at the point of purchase or wherever they spent their money. This year my right hon. Friend has illustrated brilliantly how those principles can be applied, and in addition he has managed to raise the tax threshold to take 1,100,000 people out of the tax range. My right hon. Friend said that he did not propose to weaken or switch his strategy. Indeed, he has held steadfast to the strategy that he announced last year, and, in my view, he is warmly to be congratulated on doing so.
  There is one thing which my right hon. Friend said last year he might do this year, but which he has not done. I am referring to the claw-back of family allowances. My right hon. Friend said last year that he might expect to claw back the whole of the family allowance so that those families who did not need it would not get it. The reason he gave this afternoon why it was not possible to do that was that it would work unfairly for some families, and that it could not be done until a more satisfactory system could be found.
  When my right hon. Friend referred to this claw-back last year he called it an opening of the door to selectivity in a civilised and acceptable form. In my view such a form of selectivity remains an urgent priority, because it is only by this kind of selectivity that adequate benefits can be paid to those low income families who need them.
  We must consider the size of the problem. There are about 140,000 families comprising about half a million children—these figures appeared in the survey "Circumstances of Families" published two years ago—living below the supplementary benefit level or poverty line, even though the head of the family is in full-time work. Despite family allowances having been increased by 10s. last year, I believe that today there are just as many families in this position as there were in 1966, when the field work for that survey was done.
  Big increases in family allowances on a selective basis remain an urgent need for families living below the supplementary benefit level, and the same can be said of families living just above that
  1072
  line. If there is this difficulty about our present system of family allowances—if this claw-back or if this form of civilised selectivity cannot be extended to family allowances overall—the Government must consider alternative forms of income maintenance.
  One such form of income maintenance in which I have taken a close interest—it is a specialised matter and I apologise in advance for going into it in some detail—has received unsatisfactory discussion in Britain. I refer to negative income tax. In the United States an experiment is running among 800 poor families. This experiment, in New Jersey, is being operated on the basis of federal money by the Office of Economic Opportunity. The experiment will proceed over a period of three years.We in this country must consider negative income tax more seriously not only because it is being experimented with in America but because the core of the poverty problem in our respective countries is much the same. It is the problem of poverty among families in which the head of the family is in full-time employment. In other words, it is the problem of low wages.
  Negative income tax should be seen as a family allowance which is related not only to family size, as are our family allowances, but also directly to earnings. Two important central confusions which have not been properly sorted out have caused the discussion of negative income tax in Britain to be confused. People are confused, first, because they have seen negative income tax being advocated by people on the extreme Right and extreme Left. Not unnaturally, they do not know what to make of it.
  People on the extreme Right, like Professor Dennis Lees or, in the United States, Milton Friedman, Right-wing economists, have advocated negative income tax primarily as a means of saving public money. Some of these advocates have made the incredible claim that it would abolish poverty at the same time.
  On the other side, it is seen in the United States by people like James Tobin and Robert Lampman, and in this country by some of my hon. Friends, as being a means of redistributing wealth from the richer to the poorer more effectively than is possible under our present system.

  1073
  The second confusion which makes it difficult for people to grasp the meaning of negative income tax has arisen, both here and in the United States, because of two schools of thought about its scope. One sees it as a sort of sweeping social dividend which, in a civilised way, would gather in a lot of means-tested benefits which are at present lying about and perhaps even replace supplementary benefit. This is claiming far too much for negative income tax.
  The other school of thought sets its sights more modestly and sees negative income tax simply as a means of supplementing low wages. What has confused people further in this country is that when some people have argued against it, as Professor Peter Townsend in a Fabian pamphlet did last year, and when they have been dealing with the mechanics and payments, they have selected as an example the Right-wing economist's concept of negative income tax and have argued rightly, against it. When they have dealt with the scope of it they have selected the scope advocated by the school of thought which sees it as an all-embracing social dividend and have argued, rightly, against that, too.
  What has not been argued in this country is what negative income tax could do simply as an earnings-related family allowance designed to supplement low wages and redistribute wealth. I urge my right hon. Friend and his Treasury colleagues to give more consideration to this question of negative income tax because if the strategy in the future is to be that we shall have more civilised selectivity in those areas where it is acceptable, and if the trend is to be towards carefully selected indirect taxation perhaps less direct taxation and a raising of the tax threshold; from what my right hon. Friend said, this is his strategy—I believe that negative income tax would fit more logically into this framework than our present system of family allowances.
  It would give greater protection to those on low incomes from price increases and from any indirect taxes which might be imposed. It would certainly give better protection than our present system of family allowances can ever do. It would also add to our tax system what I believe could be a radical means of reredistributing
  1074
  wealth, which in future years could be used to eliminate much of the inequalities that still exist in our society.
  I said that this was a specialised matter. I have referred to it because I have taken a close personal interest in the subject. I apologise if I have detained hon. Members who are more interested in the wider issues raised by the Budget. On those wider issues, my right hon. Friend is to be warmly congratulated.
  7.38 p.m.
  Mr. Donald Williams: I hope that the hon. Member for Brentford and Chiswick (Mr. Barnes) will not expect me to follow him into the realms of negative Income Tax, a subject which I can confidently leave to my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams), who has made a great study of the matter.
  Like many of my hon. Friends, I and great difficulty in debating any Socialist Budget. The words of Jonathan Swift explain what I mean, for he said:
  "It is useless for us to attempt to reason a man out of a thing he has never been reasoned into."
  As I listened to the Chancellor today I was convinced that he did not understand many of the matters about which he was speaking. One such matter is bank interest, to which my hon. Friend the Member for the Isle of Thanet (Mr. Rees-Davies) referred. The right hon. Gentleman has taken what seems to be particularly vindictive action without explaining how it will operate. He mentioned in passing that interest on loans for business purposes would be allowed to rank for tax relief. I understand him to say that special loans for house purchase would also be allowed.
  So many matters are bound up with bank interest that this whole issue will need close further examination. Another factor is that if bank interest is not to be allowed for tax purposes, those good people who leave money on deposit with their banks should receive interest free of tax to make the whole thing equal.
  The addition of some £35 to the personal allowances will delight taxpayers; but one must not forget that the Chancellor has added considerably to the cost of living through increases in Purchase Tax and S.E.T. The result will be that

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  many of the people who would be excluded from the payment of Income Tax because of such a provision will now be applying for increases in wages to pay for the increased cost of living, which will bring them quickly back into taxable brackets of Income Tax.
  Hon. Members who sat through the debates on the Land Commission and the betterment levy will be very pleased to hear that at last a step is being taken to remove lower valued properties from the imposition of betterment levy. Those of us who have been pressed to deal with cases involving betterment levy will welcome this move. It may sound strange, coming from these benches, to register a plea that in this case the Chancellor will make his provisions retrospective to enable people who have suffered from this tax to get repayment of the sums which they have already paid.
  The hon. Member for Huddersfield, West (Mr. Lomas) welcomed the fact that the increase in taxation for the motor vehicle owner would fall on petrol. Most people would say that this is a direct charge on the use of a vehicle. Why is not the pattern taken much further? To reduce substantially, or even eliminate, the road fund licence and put the whole of the cost on petrol would be a much more realistic method, if the argument is valid, and I am sure would appeal to many people.
  The increase in Corporation Tax will hurt many small companies. A figure of 2½ per cent. may not sound a great deal, but it represents a vast sum of money which could have been used for further investment in the companies which are now to be involved. The withdrawal of these sums of money will inevitably cut the investment programme which this country needs in order to promote ever-expanding industries.
  I should like finally to touch upon the savings scheme, which came in at the end of the Chancellor's speech. Many of us found difficulty in following exactly what he was trying to say. I believe he said that it would provide a return of something over 4 per cent. free of tax on a five-year contract. But surely he must know that already building societies have a build-up share account which produces 5 per cent. free of Income Tax. It sounds to me to be a rather better
  1076
  move than that which the Chancellor is to introduce for the benefit of the small saver.
  What frightens me more than anything else is that the message which is coming from outside this Chamber has not been heard. It is that the people of this country are quite sure in their own minds that they are being crushed by penal rates of taxation. It is no answer to quote statistics and say that we are suffering a little more direct tax than France or Germany, but much less by way of indirect taxation. This does not satisfy the people outside who are trying to improve their standard of living, which, after all, is what they are working for. One sees from the statistics that a man in this country with skill and ability who works hard might suffer a direct rate of tax amounting to no less than 91·25 per cent. I use that figure deliberately, since the Chancellor seems to think that from now on we ought to stop using terms like 8s. 3d. in the £ or 6s. in the £, and start to talk about 41·25 per cent. and 30 per cent.
  One factor which was not touched upon this afternoon is the loss of the high morality in the payment of taxation, which was a record enjoyed in this country for many years. Once upon a time "tax evasion" was a dirty word. Today as many people as possible are beginning to participate in tax evasion. It is significant that recently the Inland Revenue advertised for more staff for this very purpose, in order to chase people who are evading taxation. This may do something to solve the problem, but it does not tackle the cause. The cause lies in workers and management alike feeling that they no longer have any confidence in the way this country's economy is being run.
  The Chancellor in his opening remarks spoke about the slow pace of the economy. I say that it is a snail's pace, despite the agonies of the colossal burden of taxation which has been imposed in the last two Budgets. When employees apply for wage increase as a result of further increases in the cost of living, it must be realised that a man with a family will need an increase of £3 rather than £2 because £1 of it will be taken away in direct taxation and graduated pension. If we wish to keep the economy competitive, we must keep down these ever-increasing costs.

  1077
  In the debate on this subject last year the Chief Secretary to the Treasury mentioned seed corn. He said that he wanted the seed corn to grow. In order to get seed corn to grow it has to be given encouragement and must have the correct temperature, a temperature in which it will fructify. But if the economic temperature is wrong, the only people who feel sad and disillusioned are the managers and the entrepreneurs, who are left out in the cold. It is strange that during last year's great spending spree, and despite the increase in money supplied, there were more applications for liquidation and bankruptcy than have been seen for many years.
  We all know what is desirable, and high on the list of priorities must come, as the Chancellor has said, a further increase in world trade with, at the same time, a reduction in the barriers which prevent the expansion of world trade. In order to achieve this we must restore at home confidence at all levels. I am sure that hon. Members opposite were delighted to hear about the reduction in barriers which will be brought about through the loss of compulsory powers in relation to prices and incomes. These powers have been merely abrasive. They have caused totally unnecessary irritation at all levels. If some of my agricultural friends were here they would appreciate the truth of Gibbon's words—that, in the end, all taxes fall on agriculture. But that was a long time ago. Today the incidence of taxation falls far too heavily on the skilled, the hard worker, the able people in the community.
  I have practised as an accountant in taxation for many years, and I say to the Chancellor that the result of high taxation is a negative. It stops people from exerting themselves to greater efforts and has not produced wealth because it is only out of a surplus of wealth that, in the ultimate, we can increase our standard of living.
  The Chancellor rightly said that he found simplification of taxation an extremely difficult subject. Anyone who has anything to do with taxation will agree with him. I think that we all appreciate the problems he faces. But I can give him one or two quick ideas which might help: first, abolish short-term capital gains tax; second, abolish
  1078
  the Land Commission, third, reconsider the anomalies which come about on part disposals or disposals in a series of transactions for capital gains tax purposes; fourth, fully reconsider the definition of a close company, in particular those people who are deemed to be associated members; fifth, review the total position as between people who pay tax under Schedule D as opposed to Schedule E and particularly the anomalies which arise when some people are paying tax under both Schedules; finally, revise the whole schedule of items of expenses which are allowed for Income Tax purposes.
  7.52 p.m.
  Mr. R. B. Cant: As I was listening to the Chancellor of the Exchequer, I thought of the leader in The Times yesterday which said:
  "A chancellor worthy of the fiction writer's imagination is supposed to unfold a concoction which is at once so simple that all can understand it, so ingenious that no one can have guessed it, so elegant that all must applaud it, so just that none will be aggrieved by it, and so sound that none can doubt it."
  I would not like to hazard a verdict that my right hon. Friend succeeded under all these headings, but I think, on balance, that he did a remark able job.
  Despite the fact that it is rather early in the day—because we expect that, to some extent, enchantment and euphoria will still be with us in this select group of people who make their speeches on the first evening—I feel that a little bitterness has crept in, particularly from the hon. Member for the Isle of Thanet (Mr. Rees-Davies). I thought that the hon. Member was less than just. I do not want to make any imputations at this stage but, as one who himself has an overdraft, I felt that his disillusionment, his rancour, must stem from the fact that he has an overdraft very much greater than mine and which he perhaps feels he may have to repay.
  I think that this is a brilliant Budget. To my mind, the Chancellor has tried to combine many elements, including that of humanity. I think that he has made concessions not only to those he might be expected to give concessions to but concessions to others by removing anomalies which seem to have offended his sense of justice, even though those

  1079
  suffering from them no doubt will not vote for us at the next election.
  I think this a good Budget in the sense that my right hon. Friend managed to take out of the economy in extra taxation that X-hundreds of millions of £s required without giving too much offence, yet doing it with a great deal of efficiency. I think that the verdict tomorrow in the Press will be that he has earned very high marks. All taxation is unacceptable—of course it is. If the level of taxation were cut by half this year or next year, in the year after that people would still be saying, "We are over-burdened. Taxes are too high." All these things are relative. I think that my right hon. Friend has laid the foundations for what I think in a sense will be a genuine economic recovery in the next 18 months to two years.
  I do not want to empty the House any more rapidly than it is emptying but I want to take up another slightly esoteric point. About half way through his speech—and I am sure that you will share my feelings on this, Mr. Deputy Speaker—my right hon. Friend was very disrespectful to economists. He made some rather critical, almost sarcastic remarks about those people who are now beginning to be influenced by the views of certain Chicago economists on money supply.
  My right hon. Friend said that, however long we waited and however much these people argued, we would never reach a consensus. He brushed the whole thing aside. This may have been because he is suffering a little from pique in the sense that some people have been arguing—some of those terrible financial journalists in the Financial Times particularly—that he is a shot-gun convert to the money supply theory of the Federal Reserve Bank of St. Louis and so forth. My own position is that, whilst one might be and should be sceptical, we may in fact—and we should realise this—be at the end of an epoch in economic thinking and at the beginning of another which may well last a generation, just as Keynesianism has done.
  Many people said, when Lord Keynes wrote in the 1930s and produced his seminal work, that this was so much a departure from classical economic thinking that it was totally unacceptable
  1080
  to the hierarchy in the Civil Service, the Government and amongst economists generally. Yet this heresy soon began to dominate the thinking of most people, including the Treasury and the Bank of England, and now, of course, it has become the new orthodoxy.
  All I am suggesting to my right hon. Friend is that we may be at that point in time when precisely the same sort of thing is happening. It may be that we shall look back on these great events and mark them as the end of an epoch when some new doctrine took over. Without spending too much time on it, I want to make one or two points about this theory, because we are in some danger now that we are all going to believe that Professor Friedman as the new apostle of this way of thinking about monetary affairs, must be right. We may, therefore, be in danger of drawing some wrong conclusions. Hon. Members opposite are particularly prone to that. They are linking this theory of money supply to a rather vicious attack on public expenditure which is going slightly awry. I believe one of the things we have to emphasise is that there need be very little link between these two things.
  It may be that excessive deficit financing can produce an inflationary situation, but it is not a necessary condition of it; and it may be that in saying with great confidence, and obviously enjoying the success of the situation, the Chancellor now agrees, "I shall have a Budget surplus this year. I shall have an even bigger Budget surplus next year which will make my net borrowing requirement negative." These things might in themselves mark the end of our Keynesian approach to this question of public finance. But if we tried to argue—and I mention this only because the International Monetary Fund whose representatives are coming here this week use the same kind of argument, the kind that is used in its extreme form by the right hon. Member for Wolverhampton, South-West (Mr. Powell)—that inflation is derived solely from public expenditure then we shall be making a very big mistake.
  There are those who argue, including many on the other side, that inflation is fed inexorably by a balance of payments deficit—and the Chancellor

  1081
  made this reference this afternoon—because a balance of payments deficit must be financed by borrowing or a running-down of reserves. Again, if we say that this is the thing that produces inflation then we may well be misleading ourselves. It may produce inflation. What it is more likely to do is to prevent adequate disinflationary adjustment from taking place; and I believe that the I.M.F. members are quite right in stating that when we define money supply we must not only define it in terms of currency in circulation and bank deposits but must also add to it the extent of the balance of payments deficit.
  Here I am trying to argue quite simply that the greatest inflationary pressures which arise in this country arise not from excessive public spending or from an overseas balance of payments deficit but from below from the excessive growth of incomes which have the spiralling effect which has already been referred to. The position in this country has become so acute that we are faced with a rather difficult situation. There is general acceptance that there is truth in what is called the Phillips curve which relates the tradeoff between unemployment, wage rates and perhaps also prices. But unfortunately in this country, because we have failed to control money supply, we have a situation in which in 1968 this Phillips curve became very aggravated, so that if we are not very careful we shall need a much bigger increase in unemployment in order to restrain wage rates and prices than we have ever had to have in previous years
  That is why I would say to my right hon. Friend the Chancellor of the Exchequer that money supply is more than a very good debating point. It may be a new-fangled idea and as Professor Samuelson says, "Do not be oversold on it." But there is a measure of truth in it because if we permit money supply to grow disproportionately, this makes it difficult to get a fiscal policy which is effective. It makes it almost impossible to run a monetary policy in terms of bank squeezes, increased hire-purchase restrictions and so on, and, moreover, it makes the attempt to introduce an incomes policy almost bound to be completely useless.
  I know there are problems here. Obviously, these problems exist in the gilt-edged market and they exist in that market in this country in a far more
  1082
  aggravated form than in the United States. We should look at the United States gilt-edged market for we might learn something from it. But the Chancellor can handle this particular problem of the gilt-edged market because he will be repaying debt—I always seem to get disturbed by the Financial Secretary being present but he does not need to listen—and more than that, we are living in a world of high interest rates which are being imposed on us by the United States of America. All these things make it possible for him to have an effective policy of open-market operations in this year and next year. Although I am a Socialist, I am very glad that the Chancellor has taken the step of removing the Capital Gains Tax and Corporation Tax in certain gilt-edged operations. I believe that this will help.
  The other point to which he must pay a good deal more attention is the situation in the banking sector, because it is quite obvious that the import deposits scheme—of which the presence of the Financial Secretary reminds me—and many other of the things we have tried to do in the field of monetary restraint, have been made so much more difficult because we have had a system in which the growth of the supply of money in the conventional banking sector, and the secondary sector, has been quite disparate. Until we in this country learn more about this whole problem of what I believe the Americans call disintermediation, we will find that our monetary policies are less effective than they might be.
  All I say, quite simply, is that I believe that my right hon. Friend the Chancellor of the Exchequer was a little scathing in his remarks about some people who now pay some attention to these Chicago doctrines of money supply. We are sorry that it has been necessary for the hierarchy to have needed to be coerced into accepting these. We would rather it had been a gentle process of intellectual conversation. But it is a useful step forward. I believe this was a brilliant Budget. Some of it will be unpopular on this side; some undoubtedly will be unpopular on the other side of the House. But I believe it adds up to a very reasoned and statesmanlike contribution to the improvement of our economic fortunes in the next year or two.
  8.9 p.m.
  Mr. Richard Body: Although I am not a recruit to the Chicago school, I join issue with the hon. Member for Stoke-on-Trent, Central (Mr. Cant). The Budget, like too many of its predecessors, is based on a fallacy, which can be stated quite simply. It is that you and I, Mr. Deputy Speaker, and other consumers, are spending too much money. We are told that incomes are rising too quickly, that that would be tolerable if we saved the extra money we received, but that as we are failing to do so we must be taxed for our sins. We have just heard the hon. Gentleman argue that the real reason for inflation is the excessive growth of incomes. It is the private sector, therefore, that is blamed for both the inflationary pressures and the adverse balance of payments. That would be fair if the private sector were making undue demands on the economy as a proportion of the gross domestic product, but it is not doing so.
  Before the hon. Gentleman takes me to task, I tell him that I realise that we must also take imports into account. But when we add the value of our imports each year to the value of the gross domestic product we have a figure which is the value of our total resources. It is to this total figure that the Government should address their mind rather than to the G.N.P., to which the Chancellor referred at least two or three times this afternoon, as did Treasury Ministers at Question Time. The two put together—gross domestic product and imports—make up the total supply that exists to meet the total demand. By total demand, I mean expenditure by the public sector, plus expenditure by the private sector, plus exports. Total supply as I have defined it is always the same as those three outgoings.
  It is significant that the private sector is making fewer demands year by year upon those total resources. Going back first to 1948, a year of austerity, we find that the private sector spent £8,171 million, when the total value of our resources—gross domestic product plus imports—was £12,716 million. That works out at 64·3 per cent. In the same year, the public sector took 18½ per cent. In 1964 the private sector took out £21,530 million. Total resources had gone to slightly more than £35,500 million, so that in that year the pro
  1084
  portion taken out by the private sector had gone down to 60·4 per cent. while spending by the public sector had risen to 22·4 per cent.
  The figures for last year are startling. Total resources were almost £45,000 million. The private sector took out 55·8 per cent., whereas the public sector took out a far greater share than ever before, 25·4 per cent. It follows, therefore, that last year the private sector—you and I, Mr. Deputy Speaker, and consumers generally—had 10 per cent. less in real terms than we had in the austerity year of 1948. The present Chancellor is allowing the private sector 10 per cent. less of total resources than Sir Stafford Cripps did. That is 2s. in the pound less in real terms. So that you and I are getting each year a smaller slice of the so-called national cake, while the spenders in Whitehall, the town hall, and the other branches of the public sector are gobbling up a bigger slice every year. Yet it is the man in the street who is getting all the blame and being told once more, as the Chancellor told him this afternoon, that he must be punished by being taxed more.
  As I am sure every hon. Member now recognises, in the past four years expenditure in the public sector has soared from a little less than £8,000 million a year to nearly £12,000 million, an increase of about half. That increase would be justified, and I would not quarrel with it, provided the gross domestic product had gone up by the same proportion. But it has risen by only about a quarter.
  That appalling increase in public sector expenditure in the past four years is highly inflationary for several reasons. First, it means that public spending now takes slightly more than a quarter of all our total resources. Second, most of that spending is paid for by taxation on the private sector; and the smaller the proportion of the resources the private sector has, the more difficult it is for it to enlarge the gross domestic product and thereby combat inflation. Third, a large part of that expenditure is not met out of taxation, because Government income has not equalled Government spending. The Government have been over-spending in the past four years, with the result that they have had to borrow, and the borrowings have not been genuine. On many occasions they have had to inflate the

  1085
  economy wilfully by putting into circulation money which was not matched by any increase in the real wealth of the country. In other words, our currency was debased.
  Here I propose to join the Chicago school. As the hon. Member for Stoke-on-Trent, Central will acknowledge, the Government have put into circulation £3,000 million more than the value of the increase of our wealth. It is therefore nonsense to say that they have pursued a policy of deflation. Deflation is the forcing down of total demand. It is true that the Government have tried to force down demand in the private sector, and it has succeeded. In doing so, they have transferred spending in the private sector to spending in the public sector. The total amount of spending and the total pressure of demand has not gone down by a brass farthing. In fact, it has risen.
  What the Government fail to realise is that their own spending tends to be more inflationary than spending by members of the public. In whatever way we as individuals spend our money, some part of it eventually, if not immediately, goes into capital investment or other means whereby the gross domestic product is made bigger.
  The greatness of our national wealth is dependent upon people spending more money in the private sector. For this reason an increase in public expenditure is more inflationary than the same amount spent in the private sector. Therefore, public spending should be allowed to rise only in proportion to the gross domestic product. In those circumstances, there is no harm in the Government taxing us more, and spending more of our money on our behalf. However, industry and commerce cannot increase our national wealth, the yardstick of which is the gross domestic product, unless we, the customers, are spending more of our money.
  It is also arguable that any increase in public expenditure has a more adverse effect upon the balance of payments than a similar increase in the private sector. This I know is complete heresy to the Treasury and the pundits who sit in Fleet Street. To them there is a correlation between consumption and imports. If consumption goes up, then imports must also rise, unless, of course, the increase in consumption is matched by an
  1086
  increase in productivity. That was the theme of the first part of the Chancellor's speech. Is this not an over-simplication? It pays insufficient regard to the fact that we remain consumers whether our incomes come from the public sector or the private sector.
  At least 500,000 more men, women and children derive their spending power from the State than was the case four years ago. It is not only the number of civil servants and unemployed which has increased under this Government, but every branch of the public sector. It cannot be over-emphasised that spending in the public sector has gone up at the expense of spending in the private sector. Putting it another way, the Government have been taking a greater share of our national resources, which is the total supply available, to meet total demand. Total demand is the gross domestic product plus imports. If the gross domestic product does not get bigger to meet that extra demand, then imports must make up the difference.
  We know that the gross domestic product has not risen by the same proportion as spending in the public sector. It has gone up by only half as much. As the private sector has not increased its share of the national resources, it must follow that public sector spending has had the effect of increasing imports, directly or indirectly.
  If this logic is right two conclusions follow. First, public sector expenditure should be limited to a certain proportion of the gross domestic product. A macro-economic decision should be made as to what that percentage should be. Once that decision has been made, expenditure over which the Treasury has control should not be allowed to increase unless there is a proportionate increase in the gross domestic product.
  The second conclusion is that this annual ritual of clobbering the consumer should cease. It has failed its purpose. The Chancellor should lay off the P.B.C.—the poor bled consumer. More money in his pocket leads to a larger gross domestic product and the larger that is, the smaller the bill for imports.
  8.25 p.m.
  Mr. Laurence Pavitt: I disagree profoundly with most of what the hon. Member for Holland

  1087
  with Boston (Mr. Body) has said, but I resist the temptation to follow him, because it would be very time-consuming I also resist the temptation to talk about some of the more important strategies which the Chancellor has outlined, and some of the very important points in the Budget about which I am interested. Instead, I want to concentrate on S.E.T., about which I feel very keenly. I am known in this House as a fairly equable and mild Member, and have been over many years. Tonight I speak with bitterness and anger. S.E.T. has come up for the third occasion. It is a totally ill-conceived tax which has not yielded the results it was thought it would yield in the first place. It is one of the rare occasions when the Chancellor has failed to exercise the judgment with which I usually associate him.
  This is the tenth Budget speech to which I have listened as a Member of this House. Each Chancellor has brought forward ideas whereby alleviation can be given to those who are already prosperous, in order to provide incentives. In this case my right hon. Friend has increased S.E.T. to save altering Income Tax and direct taxation levels, but at the expense of the housewife and the consumer. I recall in 1961 the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) introducing a slashing Budget. On that occasion he gave £83 million back to the surtax payers as an incentive, because the country desperately needed exports. Since then every Chancellor has been doing a similar kind of job, but in 1969 we are still looking for the increase of exports.
  S.E.T. marks the first time that any Government has ever put an indirect tax on food. Differentiation between service industries, especially the distributive trades, and production is a false diversion. It is economic nonsense to divide production and distribution. The House knows that I have an interest, that I speak as a Co-operative Member, one of the 18-strong Co-operative Group. This Budget measure, this penal clause, affects me just as much as the other penal clauses in the proposed policy "In Place of Strife" affect my trade union colleagues in other respects. We are only 18-strong compared with 130 of my hon. friend's who are in the trade union group.
  1088
  We have consistently sought to be constructive and have tried to help, we have never asked for special concessions for the Co-operative Movement compared with other service industries; but the fact remains that the Government have persistently produced an ill-balanced economy by trying to separate services from production. Services are the other half of the coin, and the coin cannot be split down the middle without both sides being affected.
  Last year, in spite of all the evidence that had been put to him by the "Little Neddy" responsible for the distributive trades, the Chancellor doubled the Selective Employment Tax. At the same time, he said that he was not commited to this tax, which had been introduced by his predecessor, and that he was setting up a special inquiry conducted by Professor Reddaway to examine its incidence, after which he would finally make his judgment. Several of my hon. Friends and I interviewed the Chancellor to see whether this was a stalling device, and we were assured that this was a genuine attempt to obtain an objective viewpoint on S.E.T. Although the Reddaway inquiry has been continuing for a year, no mention was made in the Chancellor's statement this afternoon of whether this will have an effect ultimately upon his taxation policy or of its relevance to his consideration.
  I wish to ask my hon. Friends on the Front Bench a specific question arising from the Budget Resolution. Last year, when the tax was doubled, the Chancellor recognised the problem of part-time workers, and there was an exemption from the increase for those working for less than 21 hours a week. No mention has been made of that exemption this year, although all the other rates have risen. Does the new rate apply specifically to those who work for under 21 hours a week?
  One method of useful utilisation of manpower is the utilisation of womanpower. What has happened in the distributive trades is that the male has had to be replaced by the female, and nine times out of ten the female is a part-time worker. The distributive trades have already been cut to the bone to absorb the first impact of S.E.T. After 1966 there was a great reorganisation and a changing over to self-service, and

  1089
  everything possible was done to absorb the increased cost. When the tax was doubled last year the impact was such that it could not be completely absorbed, and the increase in some measure had to be passed on. Having over the last three years achieved as much economy as is reasonable, and having now reached rock bottom, the distributive industry has nothing more to cut, and the increase from 37s. 6d. to 48s. will cripple the distributive and service industries.
  I give credit to the Home Secretary, as Chancellor of the Exchequer in introducing this tax in his Budget speech in 1966, for the fact that although he made the proposition that S.E.T. would result in diverting labour from distribution to production, after further examination he never again attempted to repeat that proposition. Anyone with any knowledge knows that the distributive trades are the cinderella of employment. People are not anxious to work in a shop if there is a possibility of working on the production line in a factory in the same area, for the simple reason that the money paid by the factory is so much better. The members of the Union of Shop, Distributive and Allied Workers are among the most lowly paid of all workers, and the impact of this increase will have a disastrous effect upon their employment.
  I am in favour of the prices and incomes policy, but the only way in which sense can be made of it is by containing prices. Yet here, deliberately, by Government action, we are making sure that prices will increase. This is politically inept. The increase in prices will not be attributed to any fault of shopkeepers, wholesalers or manufacturers but solely to the fault of the Government. To give Government incentives for prices to rise makes nonsense of the prices and incomes policy. I cannot understand why the Government, after having introduced the tax, heard all the resistance to it from all quarters, having doubled it last year and having gone through all the other alternatives, have come back again this year with a swingeing increase. I dread to think of the political consequences. After a relationship for over 50 years between the Co-operative Movement and the Labour Party, this one single act will bring that relationship to breaking point. The Co-operative Party was established in 1917. The agreement was reached
  1090
  in 1926, that co-operators would not contest against the Labour Party, and there are now 18 Labour Co-op. Members of Parliament. They are also members of the Labour Party and accept the Labour Whip. Never since 1926 has there been any attempt at an alternative approach, although there is in effect a coalition in which the majority of the Labour Party are thinking in terms of producers and wage-earners whereas the Co-operative Members of Parliament are thinking in terms of consumers.
  The voice of the consumers is a very small one. We have great difficulty in explaining to the Co-operative Movement how we are effectively sustaining the rights of consumers when, despite our best efforts, the result is that in successive Budgets once again the consumer pays the bill.
  There seems to be a lack of understanding in the Government of the way in which the ordinary person runs his domestic economy. A recent survey shows that many housewives do not even know what their husbands earn. A housewife normally is given a sum of money weekly on which to manage. Immediately the Government take action to increase prices in the shops, it is the housewife who has to make ends meet the best way she can on the housekeeping allowance, which remains fixed. Again it is politically inept because there are just as many women voters as male voters. Why do the Government go out of their way to antagonise this important sector of the community? We praise women for their efforts in war time, but when the country's economy is facing a problem, it is the housewife who is in the front line.
  The political consequences are formidable, and that is why I speak tonight with so much frustration. Almost every speech from the benches opposite has condemned S.E.T. However, I do not think that it would be any better for the consumer if, by some mischance, right hon. and hon. Gentlemen opposite won the next General Election. I am certain tint no Chancellor of the Exchequer will willingly forgo £600 million of revenue. What will happen if right hon. and hon. Gentlemen opposite have to face the problem is that they will replace S.E.T. with a tax on value added. As a result,

  1091
  20,000 more tax inspectors will be required to collect the same money, which, once again will fall on the consumer but in a more clumsy and inelegant way.
  In his 1961 Budget, the right hon. and learned Member for Wirral talked about introducing a payroll tax. Referring to the right hon. and learned Gentleman, my right hon. Friend the Prime Minister said in the course of his own speech:
  "Does not he feel that the workers will consider themselves to have been cheated when they think that employers can afford, or can be made to afford, to pay the labour tax to the Government—while, at the same time, those same employers are refusing to give them wage rises? Does the right hon. and learned Gentleman really think that this measure will be effective? Does he really feel that 4s. a week in this form of taxation will secure an economy in manpower?"—[OFFICIAL REPORT, 18th April. 1961; Vol. 638, c. 986.]
  The figure in 1961 was 4s. At the moment, we are discussing the sum of £48s., or more than ten times as much, which an employer has to find as his proportion towards helping to raise the necessary taxation.
  I realise that the Budget Resolution is drawn very tightly. I was a member of the Standing Committee which considered the Finance Bill last year. I fought the increase last year, trying to put up a small voice on behalf of the consumer. I voted against my own Government, which I rarely do. Again, I feel that I shall be unable to support the Resolution this year, in whatever form it comes.
  I ask the Government to look again at the whole impact of this proposal. We cannot afford to ignore the realities of the political struggle which is going on in the country. The Government cannot continue to upset and annoy different sectors of the community, each for very differing reasons.
  I make no apology for what I say. I speak on behalf of a movement whose membership includes one in four of the population. Since 1844, it has had a considerable record of service to the ordinary people of this country. The movement is providing a service covering all parts of the country in a comprehensive manner. The S.E.T. is an urban and industrially orientated tax. It ignores
  1092
  the fact that in rural areas it is not enough to have a department store or supermarket in the centre of a town. Villages have to be served. Butchers, bakers, milkmen and coalmen have to take their goods to those villages. The Government seem to think that the only criterion is profitability and that, therefore, the tax can be absorbed; but if the criterion is service, in order to get the milk and bread to people in the villages in the Highlands of Scotland and elsewhere in the winter time, one must pay to do it. The whole concept of the Selective Employment Tax is wrong. Since when has service been something to be penalised? The increase last year was disastrous. This penal increase this year is—I cannot find words adequate to say how disgusted I am that this has occurred. I hope that, even at this late hour, the Government will have second thoughts rather than pursue a policy which I believe is economically wrong and politically unacceptable.
  8.40 p.m.
  Mr. Peter Hordern: I am glad to follow the hon. Member for Willesden, West (Mr. Pavitt) and to congratulate him on his speech. He fought very strenuously the increase in the Selective Employment Tax in last year's Budget and we all followed with admiration his opposition to that measure during the course of the Finance Bill. We look forward to hearing what he will have to say when the Finance Bill is debated on the Floor of the House in further all-night sessions, because it will certainly be firmly opposed from this side of the House.
  It has been an embarrassing experience listening to hon. Gentlemen opposite trying to support the Chancellor's Budget and at the same time trying to support the Government's prices and incomes policy. The hon. Member for Huddersfield, West (Mr. Lomas) was congratulating the Government on withdrawing Part IV of their prices and incomes policy and at the same time saying how lucky people were that the policy had completely failed. This point was picked up by one of his hon. Friends. The hon. Gentleman also said that it was unreasonable for people to expect an economic miracle. The point is that they were promised an economic miracle by the Prime Minister, amongst his many other

  1093
  promises, of which one has just been quoted. But quoting the Prime Minister's promises in his earlier speeches is an easy affair. All I should say about the Prime Minister's promises is that they have completely failed to be fulfilled and that has meant a substantial difference in the outlook of people to any measures which the Chancellor may try to impose upon the economy. This experience of 13 years of fractious and irresponsible opposition on the part of the Prime Minister has had a much more serious effect than is generally recognised.
  I could not help but feel that this was in some ways a "phoney" Budget. Although it was properly and very well presented by the Chancellor, the real audience is not hon. Members of this House but our creditors who are due here tomorrow. It is a good thing that Mr. Goode and his colleagues have at least had the courtesy to arrive a day after the Budget. But I fear that this is merely one of those old-world banking courtesies rather like one experiences from one's bank manager when he signs himself, "Your humble and obedient servant."
  This team from the I.M.F. is coming to deal with a Government which have blown our portfolio investments, worth over £500 million, have borrowed over £3,500 million, have devalued the £, have secured the worst trading deficit ever and the worst balance of payments deficit on current account since the war.
  This team is coming to deal with a Government which have failed in their handling of every part of the economy. Even the increase in exports, to which the Chancellor rightly referred, of about 13 per cent., allowing for the 1967 dock strike, was smaller than the increase in the volume of world exports of manufactured goods, so our share of world trade has fallen yet again.
  The import figures are almost incredible, and perhaps I might serve to illustrate that by giving one example. In a year in which total sales of champagne in France fell, consumption of champagne in Great Britain increased by 10 per cent. to make us the largest consuming country of champagne in the world. We are no longer in a candyfloss economy. We have a Champagne Charlie as Chancel
  1094
  lor instead, but now at least he has had the sense to tax it.
  We must recognise that 1968 was a year of disaster. It was, of course, run quite close by 1966 with its July measures, and by 1967 with its devaluation. But 1968 was peculiarly disappointing because it had the advantage of devaluation and the advantage of a new Chancellor. The increase in taxation last year of £923 million in the Budget, and £250 million in November, made it look as though the Chancellor was taking the situation very seriously even though we all said that he should have acted before he did.
  But the plain truth is that despite these unprecedented increases nobody appears to have taken the Chancellor seriously at home. I think that this is rather a new feature of our economic condition, but is also the most disturbing one with which we have to contend, for the assumption is that it does not matter how much the Chancellor takes out by way of taxation because it will be more than satisfied by increases in earnings. There is no point, therefore, in thinking in terms of handling the economy by a touch on the tiller when the whole rudder has gone, and it is a fact that the gap between what the Government hope will happen and what happens, this credibility gap, becomes wider and wider.
  One would have thought that with unemployment at over 2¼ per cent. hourly earnings would have been held in check instead of rising by about 7 per cent. last year. Following the hon. Member for Stoke-on-Trent, Central (Mr. Cant), it seems as if the Phillips curve and the Paish thesis will have to be redrawn to allow for that. Is it possible that the index of unemployment of skilled workers is more realistic than the index of unemployment, on the basis that it is the demand for skilled labour which sets the trend for the home market? Certainly the improved redundancy and social security payments have taken some of the sting out of unemployment, and that is welcome.
  If unemployment of 2¼ per cent. and additional taxation of nearly £1,200 million did not curb the growth in earnings last year, why should additional taxation of £340 mllion this year have any greater

  1095
  effect? What is likely to be the result on wage negotiations in a few weeks' time? What is going to happen when the statutory control on prices and incomes is removed in September? It has been of very little practical use in restraining incomes, but it has been a major irritant for the unions in wage negotiations, and they are not likely to forget it. Nor are they likely to be any more enchanted by the Chancellor's strange announcement this afternoon—I thought that he ought to have left it to somebody else to make it—that the Government are shortly to bring in a Bill on trade union reform.
  Mr. John Biffen: Will my hon. Friend reflect on the fact that we are seeing, not the removal of statutory control on prices and incomes, but merely a return to the controls implicit in Part II of the 1966 Act? Does my hon. Friend think that it would be beneficial if we refreshed our minds by reading what was said about Part II of the Act, both from the Conservative Front Bench, and by many hon. Members below the Gangway opposite, including the hon. Member for Ebbw Vale (Mr. Michael Foot)?
  Mr. Hordern: I would not congratulate the Government for carrying on with Part II of the Prices and Incomes Act. I have been an outright opponent of the whole of that legislation.
  I was referring to the attitude and atmosphere in which negotiations are now being handled with the trade unions. Even though they may be somewhat sweetened, which I doubt, by the abolition of Part IV of that Act, I scarcely think that the announcement of trade union reform, even in the outlined form in which it is likely to reach the House, will please them.
  The Government have promised to increase old-age pensions later in the year. The import deposits scheme is due to come to an end at the same time. This means that, with the most crucial time to come, in six months, the Chancellor has chosen this time to take £340 million out of the economy when the experience of the last 12 months has shown that this will be ineffective. It is certain that wage demands in the next few months will tend to nullify the increases in prices brought about by increases in Purchase
  1096
  Tax and S.E.T., and I believe that the Chancellor knows that this is true.
  Whether or not he likes it, the Chancellor must rely far more on monetary policy than he would like us to believe. It will not be the right hon. Gentleman who will set the real tone in deciding whether we should follow a monetary policy, That will depend on our visitors who will be among us tomorrow. Our creditors will not be fooled. Nor will they be satisfied with talk of a negative total borrowing requirement. They are certain to examine, for example, the effect of the operation of the exchange equalisation account on money supply. Between October, 1964, and June, 1968, the central Government debt increased by £2,382 million, Treasury bills for that amount were created as collateral for the liability in foreign currencies and they were transferred to the credit of the Exchequer's account with the Bank of England. Thus, this financial deficit overseas of £2,382 million was used to help finance the Government's deficit at home of £2,709 million in the same period.
  This was not the only method of increasing money supply. The hon. Member for Stoke-on-Trent, Central referred to this briefly. The real failure of the Government has been the inability to sell any Government debt to the non-bank private sector. In three-and-three-quarter years, between 1965 and the third quarter of 1968, only £14 million of debt was sold to that sector. In these circumstances, it is surprising that the gilt-edged market has been so orderly; and credit for this must go to the authorities concerned and, in particular, to the Government broker.
  Naturally, the Government broker sees, as the Bank of England Quarterly describes it, his rôle as that of preserving market conditions favourable for maximum official sales of Government debt, particularly sales to investors outside that banking sector. However, as there have been virtually no such sales, he has had to prop up the market as best he could, and this has meant taking another £230 million of gilt-edged from the bank and discount houses in the third quarter of last year alone. He has given cash in return for paper and, in doing so, has

  1097
  increased money supply, so that in carrying out his vital rôle he has pumped more money into the economy.
  It may be—I have heard this said—that the Government broker has some personal difficulty in distinguishing between Milton Friedman and Marty Feldman. Be that as it may, if Government financial policy had been such that there was real confidence in the stability of money, he would not have had to distinguish between the two at all. As it is, the Government broker's activities are rather like tuning a Bentley when the rest of the field is half way along the road to Monte Carlo.
  In any event, money supply increased by 6½ per cent. last year; and this, taken in conjunction with an adverse balance of payments position of about £450 million, meant that it rose by 10 per cent. more than it should have done, and that surely is what the visitors from the International Monetary Fund will be concerned with.
  Is there any alternative to a further rise in interest rates? I do not believe that there can be. If we have inflation of 4 per cent. to 5 per cent. every year, which we have had under Labour Administration, borrowing money at 10 per cent. to 11 per cent. falls to 6 per cent., and people are becoming increasingly aware of this. If the Government broker does not intervene in the gilt-edged market, as he may well not do by I.M.F. policy, that is where interest rates are likely to go. It does not so much matter what the level of Bank Rate is in the circumstances, because, in the end, it will have to conform to the real level of interest rates in the gilt-edged market. One can imagine with horror the effect on local authority borrowing, building societies and house purchase of all this, as well as on those who have invested in the gilt-edged market.
  The full penalty of inflation has yet to be exacted. The chief cause is Government expenditure itself, coupled with failure to get growth. The position has been reached where the private sector is operating from too small a base compared with the public sector and is discouraged from enlarging it by having to pay such a large part of Government expenditure and by the Government's attitude to the profit motive itself. Now,
  1098
  of course, industry has been still further discouraged by the increase in the Selective Employment Tax and in the Corporation Tax.
  We have yet to be told clearly what the Chancellor meant by allowing tax relief on overdrafts for businesses but not for individuals. I hope that tomorrow this position will be cleared up. What is the position to be of those who are self-employed—for example, accountants, barristers and others—who are conducting businesses on their own account? Will they be exempted in the way companies are to be exempted? What is to be the position of partnerships? This matter will obviously cause great concern amongst all those who have to provide their own support.
  But, of course, it is the profit motive which the Labour Party will never understand. It is no good trying to apply ideological motives to this concept. "Fair profit" is a meaningless term. The only point of profit is as a yardstick of efficiency and as a use for resources. Until this is accepted investment will not increase, and this has been the experience of the Government ever since they came to office.
  Nor is it necessary to hold ideological views about nationalisation and Government intervention in industry. Observation will do. One need only observe that nationalisation does not function efficiently and would not function at all without massive support from the taxpayers. We are consuming a large part of our national resources in propping up older industries which should be allowed to contract. I refer particularly to the coal, ship-building and textile industries. Indeed, if we apply a tariff on imported textiles, as is recommended, we shall be paying out overseas aid to countries like India and Pakistan without giving them an opportunity to trade with us on equal terms. That is hypocrisy. If we did not have to prop up older industries and support such things as the Government's useless investment grants, or pay for housing subsidies for those who do not need them, there would be less burden on the private sector and more investment would follow.
  In any case, we should look at the experience of other countries. In Germany, for example, there is a policy of

  1099
  active de-nationalisation applied not only to the steel industry but to Volkswagen and Lufthansa. There is no reason in principle why we should not only denationalise the steel industry but also B.O.A.C., B.E.A. and the commercial section of the Atomic Energy Authority.
  We should follow the axiom that no Governments are competent to intervene in industry, because they cannot apply real commercial tests and considerations. What I find so alarming about the present Government is that there is no appreciation of the remarkable change that is taking place in the industry and trade of other advanced countries. No account is taken of the new international scene or the trend in international investment—the multi-national companies, for example, which divide the world into manufacturing units. We simply cannot afford to exclude ourselves from this process, but if we continue to tax our executives and our inventors as highly as we have, and if we continue to discourage foreign investment, this will be the inevitable result. As it is the brain drain last year was the worst ever, and this Budget will only accentuate it.
  This Budget is wholly inappropriate to the country's fundamental economic condition. The Chancellor will soon be negotiating with our creditors an extension in time to repay the debts for which the Government are responsible. It will be a Conservative Administration which will have to repay them. Let this Budget be the last act of a discredited Administration and let them go to the country now.
  9.1 p.m.
  Mr. A. H. Macdonald: I was alarmed at the beginning of the speech by the hon. Member for Horsham (Mr. Peter Hordern) to find myself agreeing with much of what he said, but towards the end I found myself disagreeing with him. There was a great deal in his remarks about money supply, although I agree more with my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant) that Government expenditure is not the sole cause of inflation. There may be other causes as well.
  The hon. Gentleman was being a little ingenuous when he referred to my right hon. Friend's Budget last year. Accord
  1100
  ing to the hon. Gentleman's memory, the advice of the Opposition was that the Chancellor should have acted much earlier. My distinct memory of remarks from the benches opposite at that time was that they contained a good deal of stuff about over-kill. Therefore, there is some difference of opinion between us.
  In the later stages of his remarks the hon. Gentleman appeared to be getting wilder and wilder. How can we possibly regard the whole of the public sector from the point of view of the profit criterion being the one and only matter to be considered? Let the hon. Gentleman try to provide the sewers underneath his house by the profit motive. Does he suggest that the courts of justice should be operated by the profit motive? The hon. Gentleman seemed to feel that money taken and spent by the public sector is somehow money lost to the consumers which they never get back in benefit. But money spent on schools or hospitals is of definite benefit to the consumer and is part of his real standard of living in a necessary and tangible sense.
  I cannot understand the constant complaint that taxes are spent on such items, nor the complaint that the number of people engaged in the public sector grows year by year. I am glad, not sorry, that we have more school teachers. These things should be said.
  I join with my hon. Friend the Member for Stoke-on-Trent, in regarding my right hon. Friend's Budget speech as brilliant. There was so much in it with which I agreed. I agreed for example with the proposals to increase taxes on gaming, although I follow the hon. Member for the Isle of Thanet (Mr. Rees-Davies) in feeling that the method by which taxes are imposed on casinos is not entirely equitable. I was interested to hear him say that he hopes to come forward with some Amendments. I wish him success. This time last year I myself tried to introduce some Amendments to readjust the tax on casinos on a more equitable basis, but I found myself clobbered by the Budget Resolutions, with my Amendment being ruled out of order. I hope that he will have better success than I had. The principle behind my right hon. Friend's proposal to increase taxes on gaming is entirely proper.

  1101
  I was glad to hear the Chancellor's suggestion about a measure of tax relief upon sales of gilt-edged. I felt that it was to be a preliminary compensatory proposal, and imagined that he would come down more definitely on the side of the Chicago school than in the event he did. If we were to adopt the full rigour of the Chicago school doctrines, the effect on the gilt-edged market might be somewhat deleterious. I thought that the proposal to offer tax relief was compensatory, but evidently I was mistaken.
  Having praised one or two particular items in the Budget may I come now to a particular criticism? My right hon. Friend the Chancellor and several speakers on this side of the House, and I believe on the other side, felt that if there are to be additional taxes on users of motor vehicles, increasing the tax on petrol is a fairer, more acceptable way of doing it than increasing the actual tax on motor vehicles. I find some difficulty in agreeing with that point of view. It appears to me that the tax on petrol is an increasing cost on those who actually use their motor vehicles, as opposed to those who simply have them parked; and this will bear very heavily on those people in remote rural areas and the Highlands of Scotland who rely particularly on motor vehicles where public transport is poor. It will not bear nearly as heavily as perhaps it ought to do on those who drive round in crowded cities and clutter up the streets by parking cars on the public highway. I confess that if there is to be additional taxation on motor vehicles I would have preferred a tax on the vehicles themselves rather than an increase in petrol tax.
  With the general strategy of my right hon. Friend's Budget I entirely agree. I was impressed by the evidence recently given to the Select Committee by the Association of Tax Inspectors about the difficulty they would have in assimilating any new taxes at the present stage. I believe that to be entirely just evidence and I am glad to think that this year, at any rate, my right hon. Friend has not ventured into any new fields. There are certainly a number of new fields, a wealth tax not least among them, where it would be interesting to see developments, but for the present he is entirely right in sticking to existing measures.
  1102
  May I at this stage refer to one measure that is not in the Budget and which, frankly, I had thought would be; and I am very alarmed by its absence. This is in relation to the whole question of consumer spending, because I heard nothing at all in my right hon. Friend's Budget speech dealing with the ever-growing practice of adopting devices to evade the effect of hire-purchase controls. One method after another is being dreamed up and coming into existence to provide new forms of borrowing that are not affected by the existing hire-purchase controls. We have seen the development of budget accounts, personal loans and provident check trading, and recently there has been a commercial link through which holdings of members of unit trusts can be pledged as security for a loan which can then be used for the purchase of consumer goods.
  Apart from the relatively limited field of personal loans from banks, my right hon. Friend, it seems to me, has hardly operated at all in this field and yet if we accept his general thesis—as I myself most certainly do—that there needs to be some moderation of consumer expenditure this year, I would frankly have expected that some measures would have been included in his Budget to exercise the same degree of control and restraint on these devices as is now effected by Board of Trade controls on the hire-purchase industry generally. This is a gap in the Budget that might well have been filled. I fear that it is a weakness that my right hon. Friend may regret.
  I am a little sorry to see what I must regard as the end of the prices and incomes policy. I was always a supporter of that polcy, but I recognise the circumstances in which my right hon. Friend finds himself and can understand his decision. I always tried to support the policy, unlike some of the crypto-Tories associated with Tribune. But if the prices and incomes policy is to be replaced by some proposals based on the White Paper, "In Place of Strife", I earnestly hope that we shall have a complete package and not a series of little, itty-bitty proposals on selected items taken out of the White Paper. My right hon. Friend seemed to foreshadow the latter course of action, but it seems to me that if we are selective in taking items from the White Paper to replace the prices and incomes policy we shall get the worst of all possible

  1103
  worlds. I trust that I am misinterpreting my right hon. Friend's remarks, and that if there is to be legislation on the White Paper it will be on the document as a whole, and not selected portions of it.
  9.12 p.m.
  Sir Brandon Rhys Williams: One of the most interesting references by the Chancellor this afternoon, which has not, I think, been picked up by any other speaker, was to the possibility that business-efficiency consultants might be brought in to examine the work of the Inland Revenue. Having spent my entire life in industry before I had the good fortune to be elected last year, I pricked up my ears at that, particularly as the Chancellor seemed to refer to the possibility in connection with reforms of Pay-As-You-Earn and the technique of Income Tax collection, which have been a particular study of mine for a number of years.
  I have been reflecting how different the Budget would have been if it had been approached as a business efficiency exercise from the beginning, instead of being the work of a Balliol scholar, a historian and an economist. If we were to tackle the problem of the annual Budget from a strictly business-efficiency angle, our priorities would be very different, and the shape of the Budget would also be totally different.
  I believe that a business-efficiency expert would say that our first priority in shaping the annual Budget should be to promote the creation of wealth. Anything in the relationship between the State and the community which serves to reduce the individual's tendency to create wealth must be adverse to the health of our whole society. A business-efficiency expert would feel that we were hag-ridden and totally preoccupied with the problem of the balance of payments, to the exclusion of a number of considerations which are, in the long run, of much greater importance for the health of the British economy.
  I cannot help feeling that full employment should be one of the targets we should never lose sight of in framing the annual Budget. Month upon month we have had the tragic total of over half a million people unemployed. I admit that among that half a million there may be
  1104
  a number who are virtually unemployable. But I should think that at least half of that total must be people who are ready, anxious and able to contribute to the creation of wealth in society. Yet because of the way our economy is being managed they cannot do so. They are kept as useless mouths, unable to add to the wealth of the community in the way that they should.
  Mrs. Winifred Ewing: Would the hon. Gentleman comment on the effect of the increased Selective Employment Tax in Scotland, where unemployment is already almost double that in England, where the service industries are of much greater importance, and where a man who is displaced cannot say that he will get a job in a manufacturing industry, because usually there is none available for him?
  Sir B. Rhys Williams: In the short time available to me I hope to say something about S.E.T., but I am not competent to speak about the effect of S.E.T. in Scotland. I hope that we shall hear from the hon. Lady. I entirely agree with what she says.
  A business-efficiency consultant would say, after full employment, that our most important priority should be full investment, so that the economy would be able to take the maximum advantage of the facilities which capital gives us for reducing the cost of production and increasing the total creation of commodities and goods for consumption. Yet systematically in recent years the Government have been making it their business to depress investment by the contraction of the credit base and by pushing up interest rates.
  Today we find niggling little tax increases are to limit the extent to which private individuals are able to take advantage of the credit system. No doubt there will also be further pressures on the banking system to reduce the total of bank lending. These two obvious priorities, full employment and full investment, have been forgotten, and instead the Chancellor, as he said in his winding-up, is preoccupied with the balance of payments, and that is the primary objective of everything in his Budget.
  My view is that if he would look after the prices the pounds would look after themselves. If people could recognise

  1105
  sterling as a store of value in which they could have confidence, they would not be interested in our current account, because there would be a rush of capital into London again as one of the centres where people knew that financial stability could still be found.
  I believe, secondly, that an efficiency consultant looking at the Budget would say that what we have to do urgently is to end the class war. Budget after Budget has been presented in recent years with a highly political flavour. The object of the Budget now is only partly economic and commercial. It is also an instrument of Government policy, with the coming Election constantly in mind.
  It is one of the dangers of democracy that Governments are inclined to pursue the average voter and be hard on the minorities who are not able to make themselves felt through the ballot box.
  Once again this year we find ourselves with a Budget pursuing the average man, but hard on those at the top and bottom of society, whose voices are not sufficiently loud to influence Government policy from the political point of view. We find ourselves still in the atmosphere of class war, an atmosphere of social friction, bound to cause loss of production and efficiency, mistrust in industry between management and men, a generally unhappy climate for the whole economy.
  We heard today that the Budget is to exclude wholly from Income Tax 1,100,000 people and that 600,000 people will have their liability reduced. The Chancellor presented this as a political point; but it is, in fact, an administrative one. The Inland Revenue is so overburdened that it cannot handle the number of people brought into the tax system by inflation.
  We have a system of Income Tax which excludes from liability a large number of people at the bottom of the income scale, but as they get increases in wages they rise into the P.A.Y.E. system, rendering it virtually unmanageable, and in Budget after Budget since the war we have seen Chancellors having to exclude one million, two million people, simply because the system cannot handle them. Each change is presented to the House and the country as a special measure of mercy for people at the bottom of the scale. However, today
  1106
  we find that there will be increases in the flat-rate contributions to National Insurance—a step right back into the Middle Ages. It is easy to collect a poll tax and more difficult to collect a graduated tax. Everyone can see the fairness of graduating tax to the man's income, and everyone can see the regressive effect of a poll tax and the way it damages the interests of the people at the bottom of society. National Insurance was brought in as a way of ending family poverty, but the contribution is now so high that it is actually one of the causes of family poverty. This effect will now be made worse as a result of today's Budget.
  There will also be swingeing increases in S.E.T. Selective Employment Tax is particularly hard on people in the low income groups, because those are for the most part the casual workers, part-time workers and unskilled workers in the service trades. It is no good pretending that S.E.T. is paid by the employer and has no effect on wages. Ultimately a tax of this kind depresses wages, and it depresses the wages of the problem families. I am glad to see the hon. Member for Brentford and Chiswick (Mr. Barnes) resume his place; he spoke eloquently on this point.
  We have a social problem of magnitude with these minority groups at the bottom of society where the wage-earner is unable to earn enough to keep his family above the level we consider to be the poverty line. Increasing S.E.T. and flat-rate National Insurance contributions adds to the problems of the very people we want to help; but the Chancellor can afford to neglect them because numerically they are not sufficiently strong to count at election time.
  If we were to look at the Budget from the point of view of sheer business efficiency, we should divide it into the redistributive element and the arrogatory element. The Government have two objects in raising revenue; one is to find enough money for their own purposes and the other is to take money from those who have it and to redistribute it to those who have not. The redistributive element now accounts for about £10,000 million a year. This offers scope for a business efficiency exercise on the grandest possible scale; it is shaming to see how badly we handle this whole

  1107
  cash relationship between the individual and the State. In spite of the money we lavish on welfare, there are still pockets of people who are a millstone round our necks, a blot on our society. A business efficiency exercise could find an answer to this problem without adding to the total cost of the welfare State if the money could be directed to the place where it ought to be spent.
  Let us look at the cash relationship between individual and State, this great redistributive system. There are Income Tax, Surtax and the vast National Insurance contribution, bringing in over £2,000 million a year. What is the State doing on the paying-out side? Of course there are National Insurance benefits, but we all know that they are not enough to live on. Anyone having to depend on National Insurance benefit, with no other source of income, has to apply for supplementary benefit, with all the individual casework which this involves. There is the system of family allowances, which does not fit anywhere else in the system. There is the system of truck—that is to say, health, education, housing subsidies, and so on—where people get their money back out of the redistributive system not in terms of cash but in the form of essential services which otherwise they somehow would have to pay for themselves. Finally, there is the secret, forgotten Welfare State, the negative allowances in the Income Tax system.
  That is the oldest Welfare State of all, going right back to the eighteenth century, when no doubt it was impossible in administrative terms to differentiate between those in need and those not in need in any way except in the way in which they were treated for tax purposes. But it is quite wrong that we should keep into the latter half of the twentieth century a system devised to meet the problems of the eighteenth. It is as if the welfare services are being offered to the public on a plate which has not been washed since the eighteenth century. This is the problem which business-efficiency should be tackling.
  The hon. Member for Brentford and Chiswick said a good deal about negative income tax. I am glad that I was in the House at the time because it is one of my personal preoccupations. Al-
  1108
  though it may now be a private hobby of his and mine, the time will come when all hon. Members will be studying the American solutions and the solutions of this type being tried in other countries, because it is the inevitable follow-up to the business-efficiency approach which the Chancellor adumbrated in his Budget today.
  It has been said that negative income tax is neither negative nor a tax. It is true that it is, in fact, a hand-out. If it is proposed to introduce a new system of hand-outs, business-efficiency demands, first and foremost, the elimination of casework. This has not, I believe, been made a priority in the American systems of negative income tax that have been tried so far.
  My view is that the stone which the builders rejected should be made the head of the corner: the family allowance system, which is seen to be an anomaly, and which has been the unloved element in the welfare State almost since it was introduced at the end of the war, provides us with the cheapest and most obvious method of introducing negative income tax. Ultimately, efficiency in the redistributive system is going to depend on flat-rate benefits and graduated contributions. To put it another way, "from each according to his capacity, to each according to his need". If we wish to achieve selectivity in the way we distribute public resources up and down society, we should achieve it through the operation of Income Tax, and not through differentiating between one man and another in their entitlement under the social insurance system. In other words, Income Tax should be the means test to end all means tests.
  Lastly, I propose to say a few words about those people who seem to be the forgotten element at the top of our society; that is to say, the 300,000 people caught by Surtax. I understand that Surtax was introduced 60 years ago this year. These have been 60 years of financial decline for this country, and I think Surtax has had something to do with the decline; though our troubles are not due entirely to the operation of Surtax, nevertheless I believe it has been a real factor.
  I realise that I shall arouse wrath and despair amongst some of my hearers, but I shall press on briefly if I may. Surtax

  1109
  is expected to increase in the coming year to bring in £240 million out of a total in taxes of £6,719 million. That has to be compared with a Budget of ultimately £19,979 million. Thus Surtax is a tiny element of the whole Budget picture; but in the creation of wealth, and in its effect on the economy, it is an enormously important element. In some ways it is psychologically the most important element in the Budget. It is the factor behind the brain drain. It is the factor behind all the tax evasion that goes on. It is the factor behind the disincentive which men feel at the top of their careers to take bigger risks and responsibilities.
  One should not say that £240 million is a tiny amount, but it is tiny relative to the whole Budget. I believe it would be infinitely in the national interest to dispose of Surtax altogether. I realise that in saying this I shall be regarded as a madman and an extremist; but I ought rather to be regarded as a man who has studied this problem from the point of view of business consultancy.
  Suppose that Surtax were removed altogether. In theory there would be a loss to the Revenue of £240 million; but much of that would come back for the use of society immediately in the form of increased savings, and I believe that within a matter of months the rest of it would come back to the Revenue in the form of an increased yield through Income Tax, because, once the punishment of the Surtax is reduced, people will be willing to push up their earnings and pay Income Tax at the standard rate on those extra earnings. If we were sufficiently audacious and sufficiently open-minded to tackle Surtax in the way I am suggesting—that is to say, to eliminate it altogether—everybody would gain and nobody would lose.
  I realise that what I have been saying will be regarded as extreme and revolutionary measures, but extreme and revolutionary measures are what we require if the Government are to save the country's economy. If they are not prepared to contemplate measures of this kind, they should go, and go at once, for Britain's sake.
  Mr. Speaker: Mr. Roy Roebuck.
  9.29 p.m.
  Mr. Roy Roebuck rose—
  Mrs. Ewing: On a point of order, Mr. Speaker. Is it in order, on such an important debate as this, which widely affects the future of Scotland, not to mention other parts of the United Kingdom, that so few hon. Members are present?
  Mr. Speaker: That is a matter for hon. Members representing Scotland, England and Wales, but not for Mr. Speaker.
  Mr. Roebuck: It is not surprising, considering the gloom——
  Mrs. Ewing: Further to that point of order, Mr. Speaker. I have no doubt that you will give me excellent guidance. In effect, I am trying to call your attention to the fact that there is not a quorum in the House.
  Mr. Speaker: The hon. Lady should have done so more specifically. The hon. Lady is calling attention to the number of Members present. I shall proceed to count the House.
  Notice taken that 40 Members were not present;
  House counted, and, 40 Members being present—
  Mr. Roebuck: I am grateful to the hon. Member for Hamilton (Mrs. Ewing) for securing me a bigger audience than I expected, but I regret that I shall be unable to refer at great length to Scottish matters.
  It is not surprising that the House should have been so ill-attended considering the chorus of gloom which we have had from hon. Gentlemen opposite. The hon. baronet the Member for Kensington, South (Sir B. Rhys Williams), in the course of his speech, displayed his considerable talent for misery. He was particularly unfair to my right hon. Friend the Chancellor of the Exchequer when he said that the Chancellor had ignored minorities in his Budget. My right hon. Friend had gone out of his way to look after minorities. He has looked after the pensioners very well, for he once again announced a further substantial increase in pensions. Some of us remember when pensions was an issue in the 1964 General Election. The hon. Member for Kinross

  1111
  and West Perthshire (Sir Alec Douglas-Home) referred to this pressure and said, "We will give them a donation if we get in." I suggest that this Government, at any rate, are looking after the pensioners.
  In addition, my right hon. Friend referred to those who look after aged parents. The allowance for that minority has been increased. That is another example of a minority being looked after by this benevolent Government.
  Another minority referred to by my right hon. Friend was the artists. He has altered the tax arrangements for artists which, under the previous Administration, were very unfair. I know that will not appeal to hon. Gentlemen opposite. When my right hon. Friend referred to this concession I noticed that they were all reaching for their revolvers. It was something to do with culture and we know that that frightens the Opposition even more than the arguments of some of my hon. Friends.
  I am sorry that the hon. Member for Horsham (Mr. Hordern) has deserted us. He made what I think might be regarded as the classical Opposition speech of "Woe, woe." But he later lifted the veil a little when he informed us that sales of champagne had increased tremendously since this Government of adventurous hope came to power. I can only think that down on the shop floor the chaps have been celebrating with champagne.
  The hon. Member for Horsham, as have a number of hon. Gentlemen opposite, has been guilty not only of misrepresentation and misinterpretation, but of completely falsifying the record. For example, the hon. Gentleman said that the Prime Minister had promised an economic miracle. The hon. Gentleman has got it muddled. The economic miracle to which he referred was that written about in United States newspapers by a group of American journalists who came over here and saw with perceptive eyes—far more perceptive than the Opposition—the work being done here to restructure industry, an aspect of national policy which was disgracefully ignored for so long by the Opposition.
  Hon. Gentlemen opposite should study the speech made a few days ago by the High Commissioner for Australia, which was given prominence in the Daily
  1112
  Express which also devoted a leading article to it. In that speech the High Commissioner said, in effect, to a young man coming from Australia, "If you listen to a large number of people talking here you will think that the country is down and out, but if you go round and see what is being done you will get a completely different impression."
  When the hon. Member for Horsham speaks of irresponsible opposition by my right hon. and hon. Friends during the period when the party opposite was in power, he ought to look at what has been going on in the Conservative Party, and the constant knocking of efforts which have been made by this Government to build a better life for all our people. Whatever the Government do, right hon. and hon. Gentlemen opposite try to knock it down for party purposes, and I think that the electors are at last beginning to become sick of it.
  A fundamental issue was raised by the hon. Member for Holland with Boston (Mr. Body), and it was referred to in passing by my hon. Friend the Member for Chislehurst (Mr. Macdonald). The hon. Gentleman painted a grim picture of the Government constantly spending more and more on the public sector of the economy, and he felt that this was very bad. The picture that he tried to draw was that of a Government constantly putting in money so that more grey men in Government offices could drink tea and be a drug on the economy.
  That is not true at all. When I think of public expenditure, I think of more hospitals being built which ought to have been built by right hon. and hon. Gentlemen opposite during their 13 years in office. I think of the immense amount more that this Government is spending on education. I think of the many miserable schools which were built almost a century ago in many parts of our land and on which the Government are spending more money so that they can be rebuilt and so that they can train our children for the modern age. I think of the many more roads which have been constructed——
  Mrs. Ewing rose—
  Mr. Roebuck: I can think of no one to whom I could give way with greater pleasure, because I have in mind the

  1113
  immense amount of public investment going on in Scotland. Scotland is taking rather more than England, but we do not begrudge it.
  Mrs. Ewing: Is the hon. Gentleman aware that only 2 per cent. of Scottish revenue is spent on education, and is he satisfied with that proportion?
  Mr. Roebuck: I am sure that the whole House will agree that the hon. Lady is a great tribute to Scottish education——
  Mrs. Ewing: That is no answer to my question.
  Mr. Roebuck: I hope that I have answered it. The hon. Lady will have an opportunity to make her own speech about Scotland later on. I confess that I am not an expert on Scottish education, though my wife was educated there and, therefore, it was with trepidation that I gave way to the hon. Lady. No doubt she will make a powerful speech should she succeed in catching Mr. Speaker's eye.
  My hon. Friend the Member for Willesden, West (Mr. Pavitt) complained about the proposed increases in the Selective Employment Tax. I do not go along with him on this. In my view, the S.E.T. is a very fine tax. Among its attractions for me is that it is easy and cheap to collect.
  My hon. Friend argued that it would bear heavily on the co-operatives. However, I believe that the co-ops should be treated differently from other commercial organisations when it comes to taxation. The Co-operative Movement does not exist to make private profits for a small number of people. The idea of it is for people to get together, buy goods and distribute them. It is not motivated by profits; and, in view of that, a different form of taxation is logical and proper.
  Among the many good features in my right hon. Friend's Budget Statement was his proposal to alter the Estate Duty provisions. I am particularly pleased about that, because a constituent wrote to me recently pointing out that it was very difficult at the moment where someone died leaving only a small house and his widow was faced with an unbearable demand for Estate Duty. Having sent the details of this case, along with a
  1114
  powerful plea on behalf of my constituent, to my right hon. Friend, I am glad that this change has been made.
  I was also delighted to hear of the new savings scheme which the Chancellor is introducing. At one time I had a nightmare at the thought of a scheme being introduced along the lines of that being advocated by the Opposition. That was a system designed to enable people to buy shares. Had it been introduced, we would not have benefited the people we most want to encourage to save; namely, those receiving low and middle incomes.
  I am equally delighted that my right hon. Friend has organised the new savings scheme in such a way that it takes proper account of the part played by building societies in encouraging savings. I am particularly pleased because, with some of my hon. Friends, I had an Early Day Motion on the Notice Paper on this subject. Perhaps it proves that Early Day Motions can have an effect.
  Although my right hon. Friend has decided not to increase the betting tax in respect of certain aspects of betting, it is worth noting that this tax has proved to be a great success. I hope that in a future Budget it will be possible to increase it because, of all taxes, a betting tax is perhaps the only one which is non-inflationary. When this tax was first introduced the right hon. Member for Enfield, West (Mr. Iain Macleod) poured scorn on it and said that it would not work. Instead, it has exceeded even the expectations of the Treasury. My right hon. Friend and his predecessor are to be congratulated on having discovered this new form of taxation, which is all the more important because it is non-inflationary.
  As I said at the outset, we have had nothing but talk of misery from hon. Gentlemen opposite. Prior to the Budget all sorts of gloomy forecasts were being made by them. They were saying that it would be a miserable Budget and that the public would be bowed down under its weight. Their gloomy prognostications have not been fulfilled and it is odd that they are not expressing joy at that.
  Mr. David Crouch: Is not the hon. Gentleman misleading the House? Is he aware that my right hon. Friend the Leader of the Opposition did

  1115
  not preach gloom two or three weeks ago, but suggested to the Chancellor that he should seek to give incentives? My right hon. Friend spelled out what could be done by way of tax reductions. We have not had such reductions. Perhaps that is why the hon. Gentleman is sensing some gloom on these benches.
  Mr. Roebuck: The hon. Gentleman's recollection of what his right hon. Friend said two or three weeks ago and my recollection of his words are different. In any event, the Leader of the Opposition will say various things on various occasions. He is supposed to be a man of principle, but whose? Sometimes he will borrow the principles of the right hon. Member for Wolverhampton, South-West (Mr. Powell). Sometimes he will borrow the principles of other hon. Members. Perhaps tomorrow he will borrow the principles of the hon. Member for Canterbury (Mr. Crouch).
  The gloomy prognostications of hon. Gentlemen opposite have proved unfounded. Instead, we have had a hopeful Budget. In his previous Budget Statement my right hon. Friend spoke of two years' hard slog. He has given the public a tune to whistle while they are proceeding with that slog.
  9.43 p.m.
  Mr. Edward M. Taylor: The hon. Member for Harrow, East (Mr. Roebuck) said that there had been nothing but misery from the Opposition. I suggest that the main trouble is that we have had nothing but misery since the Labour Party came to power.
  This Budget follows precisely the same pattern as previous Labour Budgets. One outstanding fact is that in every Conservative Budget except one taxation of some sort was reduced. Under Labour, taxation has been increased in every Budget, and we have had more than an average of one such increase in each Budget. This is a long, miserable, depressing and dreary Budget.
  I wish to be brief because many hon. Members wish to speak. It is of paramount importance to reflect that this Budget will have a particularly harsh effect on Scotland. Had the Chancellor looked at every permutation to see which
  1116
  tax he could increase with the idea of hurting Scotland the most he could not have picked a tax which more adversely affects Scotland than S.E.T.
  The Chancellor must know that S.E.T. bears particularly harshly on Scotland because we have a higher percentage of working people engaged in the service industries. It being clear that S.E.T. discriminates against Scotland, this increase will be bitterly resented in Scotland.
  In addition, of vital important to Scotland is the cost of transport. Great distances must be travelled from factory to market, and every additional penny placed on the cost of transport has a particularly harsh effect on Scotland.
  I thought that not a penny would be added to the cost of transport by the Budget. In 1964, when the Government came to power £750 million were taken from the road users, which is a considerable sum. What has happened in the four intervening years? According to the Chancellor's recent estimate, if there had been no increase in the Budget this year the amount taken from the road users in Britain, from freight haulage and the rest, would have been over £1,500 million. That would have been the cost on transport imposed by the Government, which has increased by more than half in those four short years.
  It is crazy to put an extra 2d. on petrol. In these four short years what has happened to the price of petrol? We have already seen increases total-ling 1s. 7d. a gallon, and now there is to be an extra 2d. What has happened to Road Tax? This has gone up by £10 to private road users. Purchase Tax has soared. Every single form of taxation on the road user has increased. Scotland has been harshly discriminated against, and this will be duly noted.
  What will inevitably result from the Budget is a massive increase in prices. The burden is being put upon the shopkeepers. There will be an increase in the insurance stamp because of the increased pension, and also the S.E.T. addition, which will hit them hard. I wonder whether the Government appreciate what a nightmare it has become to be a small shopkeeper in these days. Such people have borne increases in local rates and S.E.T. and all the other burdens imposed

  1117
  upon them by the Government. These burdens are now being made more onerous.
  The Chancellor has said that one of his problems is to try to bring in a prices and incomes policy. I plead with the Government to think seriously before they go ahead with all the nonsense which they are proposing. The Chancellor said that he wanted to stop strikes because they are so damaging. Has he asked himself why we have strikes? If one remembers the Government's interventions in recent instances, one might find the answer. There was the recent B.O.A.C. dispute when a claim was made, then rejected, there was a strike and there followed a big concession. Then in the case of the overseas telegraphists again a claim was made, then a strike and again there followed a major concession. If the Government bring in a hundred laws about prices and incomes and trade union practice and the rest, it will not make the slightest difference so long as strikes are so clearly seen to pay. The Government, as one of the biggest employers, have a clear duty. if the Government create circumstances in which the strikes pay handsomely, then every trade unionist in the country will take the view that the only way to get what he wants is to go on strike at the most damaging time.
  We are looking to the wrong solution if we try to find a way out in White Papers, Bills and all the rest. But if there were a strike and a stand were made with not a penny more given, one would end the chaotic unrest which exists in certain industries at present.
  I plead with the Government to realise what savage further burdens they are imposing on Scotland. I hope that they will reconsider what they have done and realise the adverse effect upon Scotland. I hope that the Government will think again. If they do not do so, they will very soon find themselves without the ability to make any decisions at all.
  9.50 p.m.
  Mr. Edwin Brooks: It is an unusual event for me to find myself apparently winding-up the debate on Budget Day, and in the few minutes available I am sure that I shall not do justice to the marathon speech of my right hon. Friend the Chancellor of the
  1118
  Exchequer. Inevitably on a day such as today, the speeches from hon. Members on both sides are bound to be fragmentary. It is difficult for us to have digested in the time available the implications of a far-ranging and important series of proposals. I shall concentrate therefore on only one or two aspects.
  In the first place, we must all recognise that the strategy of devaluation cannot be allowed to fail. This is the stark fact which faces the country. It is a matter which transcends the fortunes of this Government. It creates problems which will undoubtedly be experienced during the early 1970s and it is vitally necessary that the struggles and efforts made in recent years shall not now be made null and void.
  It is, therefore, important that we, as far as possible on such occasions as this, should try to understand the inescapable tasks which my right hon. Friend had to fulfil today. On balance, as many of my hon. Friends have said, my right hon. Friend has produced a Budget which balances financial realism with radical compassion. This is a combination which in present circumstances is not to be decried.
  My right hon. Friend has produced some imaginative proposals—proposals which undoubtedly are commensurate with the tasks the economy faces in the critical months ahead. There is little doubt that the country is on a knife-edge. This is a situation which is deeply rooted and goes back decades, if not in some respects a century or more. It is foolish to expect that suddenly, by waving some magic wand, we shall overcome these deeply rooted difficulties.
  It has been said that the problems of strikes are problems which have been provoked, as it were, by the Government's recent economic policy. Anyone who studies the statistics of days lost as a result of strikes during the early 1960s will see that there has been no spectacular increase in recent years compared with then and that what we are looking at is symptomatic of a far greater and deeper malaise than anything which has arisen in the past 12 months or two years.
  There are certain aspects of my right hon. Friend's speech which, on first hearing, I have some reservations about. I

  1119
  was never an enthusiast for the Selective Employment Tax. It has always seemed to me a crude sledgehammer of a weapon which fails to discriminate in a sufficiently refined fashion between those industries genuinely part of the "candyfloss" and those integral to a modern productive economy. No doubt many of the anomalies created produced a justified sense of resentment and undoubtedly in its early stages the tax was harmful in many ways.
  Nevertheless, with that one proviso, I think that, in general, the way in which the Chancellor has sought to raise revenue is sound. I wonder at times whether our problem of consumer demand is one which we fully appreciate. It seems to me that perhaps one must relate part of our propensity to consume and the inescapable difficulty we seem to have of a high level of internal consumption to the great advertising barrage which daily and nightly assails the public. I sometimes think that we have failed to understand the implications of commercial television or of the glossy colour supplements which also bring us the delights of spending at regular and frequent intervals. There is a case for looking again at the way in which many firms can off-load their advertising costs against the public purse.
  Then there is the wider problem, to which I wish to devote my remaining remarks. This is the backcloth against which the Chancellor made his speech. It is to some, I suppose, a Sword of Damocles hanging over our economic future. It is a matter politically explosive and fraught with economic menace. I refer to the decision, which my right hon. Friend announced and which was presumably made by the Cabinet yesterday, that the Government will rapidly introduce during the forthcoming weeks certain legislation arising out of the White Paper, "In Place of Strife". I hope this will not be out of order, because it seems to me that, without saying something about this part of the Government's economic strategy, it is impossible to evaluate the likely success or failure of the Budget strategy itself.
  For example, many of us have felt that the prices and incomes policy was in its
  1120
  time justified and necessary. Some of us—and I speak personally—saw it as an essential ingredient for a Socialist Commonwealth. It never seemed to me to make sense that the Government should not intervene in the process of economic production and distribution. But I am bound to say I have been worried—and it gives me little comfort to say this—to have found in recent weeks evidence that one of the basic justifying principles behind the Government's prices and incomes policy, that is, the urge to social justice, seems to have gone somewhat by default.
  When, as happened recently, my borough Labour Party was informed that the prices and incomes policy was not even a satisfactory means of introducing social justice I am bound to ask what all the fuss was about. But it still can be a means of redistributive justice, and I would hope that, although the Government may well be right in the decision they have announced about the future of the statutory policy, they will nevertheless consider very carefully the danger of throwing out the baby with the bath-water.
  It is particularly because of this ambiguity at the heart of the prices and incomes policy that we are now facing difficulties in implementing trade union reform. If the trade unions have come to the conclusion that the policies they were sold months and years ago on the basis of certain principles were, in the event, not pursued, then one can understand why they are a little suspicious today of policies which are also dressed up as necessary instruments of the Socialist Commonwealth. We have had three so-called penal clauses or proposals included in the White Paper. I presume these and perhaps no more than these are the important pieces of legislation which are to be brought forward. I am bound to say—and I was one of those who certainly urged rapid implementation of the recommendations of the Donovan Commission—that two of the proposals seemed to be in general either unworkable or positively damaging.
  I see no merit whatever, because it is unworkable, in the proposal for attachment of earnings. I see little merit in the proposal for ballots before official strikes. There are enormous difficulties in practice and the same objections which

  1121
  make us, as a House of Commons, rebut the value of referendum-based decisions are equally arguments against eroding the power of official trade union leaders to determine their own course of action in a considered way.
  We come to the crux, the problem of unofficial disputes. We have a proposal that there should be a cooling-off period. I am bound to say that if this can be shown to be workable, then certainly it would be improper and foolish for anyone on this side to oppose it; because the unofficial dispute today and the kind of irresponsible action which occurs and causes great damage throughout industry is damaging not just to the economy of the country, and that is serious, or to this Government, but—a point which should not be forgotten—it is equally damaging to the trade union movement.
  I should like to see the Government look afresh at the problem of mobilising the support of the accredited official trade union leadership, not, as it were, regarding them with suspicion, as seems to arise in the case of the ballot proposal. I would also ask them to look again at the proposal of the Donovan Commission—and I believe that Commission was a very serious and responsible body—for tackling the problem of unofficial disputes in a different legal framework but one which
  1122
  nevertheless, in its proposals relating particularly to Section 3 of the 1906 Trade Disputes Act, might well have the result that all of us want to achieve but would then have the merit that it would have been backed by the weight and authority of the Donovan Commission itself.
  Debate adjourned.—[Mr. Fitch.]
  Debate to be resumed Tomorrow.

  AGE OF MAJORITY (SCOTLAND) BILL [Lords]
  Order for Second Reading read.
  Motion made, and Question put (pursuant to Standing Order No. 62 (Public Bills relating exclusively to Scotland)), That the Bill be committed to a Scottish Standing Committee.—[Mr. Fitch.]
  Question agreed to.
  Bill (deemed to have been read a Second time) committed to a Scottish Standing Committee.

  ADJOURNMENT
  Resolved, That this House do now adjourn.—[Mr. Fitch.]
  Adjourned accordingly at Ten o'clock.