HC Deb 15 April 1969 vol 781 cc1042-122

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—

  1. (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;
  2. (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 (Bexley)

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 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 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 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 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 (Salford, West)

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 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 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 (Blyth)

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.

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.

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, 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 (Kidderminster)


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 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 (Kidderminster)

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.

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 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 (Isle of Thanet)

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 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 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 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 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 (Huddersfield, West)

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 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 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. 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 (Manchester, Exchange)

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 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 (Isle of Thanet)

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 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 (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 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 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 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 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 (Brentford and Chiswick)

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 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 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.

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 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 (Dudley)

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 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 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.

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 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 (Stoke-on-Trent, Central)

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 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 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 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 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 (Holland with Boston)

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 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 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 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 (Willesden, West)

I disagree profoundly with most of what the hon. Member for Holland 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. 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 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 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, 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 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 (Horsham)

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 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 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 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 (Oswestry)

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 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 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, 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 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 (Chislehurst)

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 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.

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.

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 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 (Kensington, South)

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 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 (Hamilton)

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 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 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 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- 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 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 (Harrow, East)


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 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 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


Mr. Roebuck

I can think of no one to whom I could give way with greater pleasure, because I have in mind the 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 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 (Canterbury)

Is not the hon. Gentleman misleading the House? Is he aware that my right hon. Friend the Leader of the Opposition did 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 (Glasgow, Cathcart)

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 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 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 (Bebington)

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 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 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 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 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 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.