FINANCE BILL

HC Deb 18 July 1969 vol 787 cc1097-166

Order for Third Reading read.

11.18 a.m.

Sir Cyril Osborne (Louth)

On a point of order. May I seek your guidance and help, Mr. Speaker, and ask you to be good enough to give a Ruling as to the scope of Third Reading of the Finance Bill? I sought the advice of the Clerk of the House, who referred me to page 825 of Erskine May, which states: Debate and amendment on the second and third reading of bills introduced on ways and means resolutions are governed by the ordinary rules of relevancy. I have always understood that Third Reading was confined very closely to what was in the Bill and that nothing outside it could be dealt with. This leads, however, to a sterile debate and it means that Third Reading is taken almost "on the nod" and loses its value.

This is the most important Bill throughout the whole year, affecting the lives of ordinary citizens. I submit for your consideration, Mr. Speaker, that a wider debate on Third Reading would be more helpful to the House and to the country. It would enable hon. Members to bring in other issues which affect the citizen. If you can help me, I shall be grateful.

Mr. Speaker

The hon. Member reminds me of the Merchant of Venice, in which the judge was asked to do a great right by doing a little wrong. I am, however, tied by the procedure of the House.

I am grateful to the hon. Member for his courtesy in letting me know that he proposed to raise this point of order. What he proposes, however, runs counter to the rules of order which have so recently been examined by the Select Committee on Procedure. The evidence given to the Select Committee in its Sixth Report of 1967 showed that the equivalent of about four and a half days per Session could be saved if the Question on Third Reading were to be decided without Amendment or debate. The Committee accepted the force of that submission in recommending that debate on the Third Reading of any Bill—that is to say, not excluding the Finance Bill—should be permitted only if there is a six-month or reasoned Amendment against it signed by at least six hon. Members. The rule of the House, which I must enforce, is that even on those occasions debate must be restricted to what is in the Bill.

I regard that as sound because at this late stage all opportunities for amendment have been exhausted and the only Question before the House is whether the Bill should be accepted or rejected as it now stands.

Therefore, I am not able to accept the submission of the hon. Member that I should widen the ruling governing the Third Reading of the Bill. I might remind the hon. Member that in looking up some of my earlier Rulings on this issue, I find that at col. 1829, on 4th July, 1968, he supported the point of view which I am putting to the House.

Mr. James Dickens (Lewisham, West)

Further to that point of order, Mr. Speaker. You have given a most important Ruling this morning. You have also drawn attention to the Ruling which you gave on 4th July last year when some of us were called to order for discussing the wider aspects of the economic situation, in which the Third Reading of the Finance Bill plays an integral part. When the Bill was debated in this House last year, the Chancellor and the right hon. Member for Enfield, West (Mr. Iain Macleod) both made wide-ranging speeches covering the entire economic situation. I make no complaint about that, but I submit to you, Mr. Speaker, that it is in the interests of back-benchers in all parts of the House that when we catch your eye we should be given the same rights and opportunities as Front Bench Members to debate the economy. So I hope that now you have made this Ruling this morning it will be applied as rigorously to Front Bench speakers on both sides, as you apply it to the rest of us.

Mr. Speaker

Order. I cannot recall how rigorously or non-rigorously I have applied it to the Front Benches in the past, but I recall to the House that the Chair when it makes a Ruling does treat all hon. Members equally, even if some are "more equal" than others.

11.22 a.m.

The Chancellor of the Exchequer (Mr. Roy Jenkins)

I beg to move, That the Bill be now read the Third time.

We have had a series of interesting and mainly constructive debates at the various stages of the Bill, as a result of which the Bill has, I believe, in many ways been strengthened and improved, but its essential structure has survived unchanged. From the Treasury Bench the main burden has certainly fallen to my right hon. Friend the Chief Secretary, ably assisted by my hon. Friend the Financial Secretary and my hon. and learned Friend the Minister of State.

My strong impression from the debates I have heard and the reports of those at which I could not be present, is that the balance of measures has stood up pretty well to intensive and detailed examination and scrutiny. It has certainly been subjected, as a Finance Bill should be, to detailed examination and scrutiny. Although in revenue terms we have had to be sparing in concessions, we have been able to make a considerable number of Amendments, especially on gaming and loan interest, which have had the effect of mitigating certain proposals which might otherwise have been over-severe, without doing any damage to the principle underlying them. The revised procedure this year has, I think, been generally regarded as an improvement.

I turn now, as is traditional when a Chancellor speaks on the Third Reading, to the main purpose of the Bill and its relation to our present economic position. This year's Budget, which the Bill en-shines in legislative form, was intended to accelerate our progress towards the substantial balance of payments surplus we need. It may be helpful if I indicate briefly to the House how I see the economic position at present and how this fits in with the object of the Bill. The latest available information suggests that there has been only a modest recovery in consumer spending since the first quarter. Sales of new passenger cars remained at a relatively subdued level, though export production has been very high, and indeed in May it was, for the first time in many years higher than home production. This shows that a vigorous export policy, as well as being of inestimable benefit to the balance of payments, can also help manufacturers to iron out temporary dips in home sales. Thus in May the increase in export production just offset a decline in home market production, making the total the same as in April.

The policy of restraining consumer expenditure through fiscal and monetary measures is also showing results in the field of instalment credit. Although new credit extended by durable goods shops has fallen very little since the end of 1968, there has been a more substantial fall in the new business of finance houses. I have no doubt that this fall is to a considerable extent due to the provisions on loan interest—Clauses 18 and 19 of the Bill—about which there has been so much debate and controversy during the passage of this Bill. There has also been an encouraging fall in bank advances to individuals other than for house purchase—from £616 million last November, to £562 million in May. Personal savings recovered in the first quarter of 1969 after the fall in the preceding quarter. This is also reassuring—and I hope the recovery will be reinforced when the Save-As-You-Earn scheme comes into operation in the autumn.

But although we have maintained the squeeze on private consumption, by no means all the burden has fallen on consumers. In the last 18 months public expenditure also has been rigidly controlled within published targets. It continues to run within those targets, and I intend that it should stay there. I know that there are worries about the level of investment, which arose on the Clause relating to corporation tax, and some weeks ago by a number of alarming predictions were made. Since then information has become available that the trend is still strongly upwards, even though less markedly so than at the end of last year.

So much for the home economy. I can also report reasonable progress on the balance of payments. The visible trade figures for March, announced on Budget day, were disappointing; the figures for April were even more so, though the current very high level of invisibles, together with the under-recording of exports, probably means that even in these two bad months, we were not far from balance on current account; and that is taking account of the separate and adverse item of U.S. military aircraft.

But if March and April were bad, May and June were both very good months. An average visible deficit of only £21 million before taking account of the under-recording, if it were to be maintained, would give us a very healthy current account surplus. Exactly how healthy depends of course on how invisible earnings keep up. In the first quarter they averaged £47 million a month. There is no reason to suppose that they will not continue at a very high rate. People who talk glibly of devaluation having failed, pay insufficient regard to the strong and progressive improvement in the invisible account since the end of 1967. This does not mean that we can disregard a deficit on visible trade: we need a surplus there too. But it does mean that in judging our progress we ought to look at the trade account as a whole, invisibles as well as visibles. This gives a much more realistic as well as healthier, picture of our true position than can be got by concentrating on the monthly trade figures.

Indeed I very much wish that it was possible to publish each month, at the same time as the trade figures, a statement of the invisible account during the same month. If we could do so, it would dispel a lot of gloom. Unfortunately it is not possible. The figures do not become available in time—indeed some of the components become available quarter by quarter rather than month by month. All one can say is that invisibles have responded particularly well to devaluation; that the invisible surplus in the first quarter was particularly high; and that there is no reason to believe that the trend will not continue to be very favourable.

But we ought not to go to the other extreme and put up with a still fairly sizeable visible deficit on the grounds that it is balanced by an invisible surplus.

Mr. Robert Sheldon (Ashton-under-Lyne)

In view of the importance of what my right hon. Friend has said about invisible earnings, could not an estimate, even if not up to date, be given together with the trade figures so that a more accurate perspective could be given?

Mr. Jenkins

It really would not be possible to make a meaningful estimate month by month. All that can be done is to keep in mind, as I think informed commentators do increasingly, the aver- age of the preceding quarter. This cannot tell us exactly what is happening in the actual quarter but it is the best guide that we have. I should say that there is the counter item—very much smaller—of the separate U.S. military aircraft transaction. Those are broadly the three components of the current balance—the visible deficit, the invisible balance, generally very favourable, and the U.S. military aircraft item.

Mr. John Nott (St. Ives)

In order to try to cut down the neurosis about the trade figures, may I ask the right hon. Gentleman whether he has given some consideration to a radical change whereby the figures themselves might be published quarterly together with the invisibles? Has this possibility been considered?

Mr. Jenkins

Yes, I have thought of that. There are considerations both ways. I am not sure that the advantages of moving to a quarterly system are as great as is sometimes thought. I would be doubtful about depriving ourselves, the country and the world of as much up-to-date information as can be given. I am not sure that this would be a wholly desirable move. At any rate, it is one which I and my right hon. Friend the President of the Board of Trade do not propose to make at the present time.

Because the visible deficit remains important it is encouraging that exports, which earlier gave some signs of being stuck on a ledge, even though a fairly high ledge, seem now to be surging upwards again, particularly to Europe. One cannot rely on an increase every month, but the flow of new orders has been and remains most encouraging.

This does not mean that we are through our difficulties, or that I shall shortly be able to announce the premature termination of the two years' sustained effort, or that the provisions in this Bill are not necessary. We have to ensure that we have the capacity and energy to deliver the export goods which the competitive edge of devaluation, which has by no means disappeared, has given us. There are still too many reports of firms failing to meet delivery deadlines, of poor workmanship and inadequate after-sales service. We have a lot to learn about aggressive export salesmanship, and too many industries Still think primarily of the home market and regard export sales as a sort of filler-in. Those which do so are remarkably shortsighted. Export markets have expanded and will continue regularly to expand a great deal more than the home market itself. That applies as far as all countries are concerned.

It is not a question of any relative rate of growth. Export sales add to the profits of a company, and, whether or not they are reckoned as more profitable than home sales, one can normally be pretty sure that total sales and total profits will be considerably increased by a successful export drive. I am, therefore, not at all despondent about our progress towards our balance of payments objectives which this Bill is designed to underpin.

Sir C. Osborne

Does the right hon. Gentleman maintain his hope of reaching a £300 million surplus during the current year?

Mr. Jenkins

Yes, I certainly make no variation from what I have said on that—the current financial year. I take it that the hon. Gentleman meant that.

It is only when we have secured and have shown ourselves capable of maintaining a sizeable balance of payments surplus that we can look forward with confidence to a period of sustained economic growth and prosperity. I have always emphasised that a balance of payments surplus is not an end in itself. We need it for severely practical reasons. We still have debts which are formidable but which are in no way unmanageable. We must not dismiss our indebtedness as though it were of no account. Equally we must not become obsessed by it. Nor should we over-estimate its size.

Some grotesque estimates have been made. The right hon. Member for Stafford and Stone (Mr. Hugh Fraser)—I let him know that I would refer to this matter this morning—speaking in the debate on the Letter of Intent, made some wild allegations about the figure of official borrowing other than from the I.M.F., given in Table 7 of the Budget Report. I am glad to be able to tell the House that the right hon. Gentleman was talking nonsense. The figure given in the Budget Report disclosed the whole position as it was at the date to which the Report referred. Of course, it is a very big sum, but it is not unmanageable, and since then the position has improved. So far this calendar year, our net repayments of external debt have been on a very substantial scale. They have amounted to very nearly one billion dollars—1,000 million dollars. There is still a long way to go, but this figure shows that there is no question of the problem being insurmountable.

The Government intend to continue with the present economic policy. This Bill is consistent with and essential to that policy. It lays certain further burdens on taxpayers, but does so in a way which I believe is fair and equitable. It helps those most in need. In several fields it makes a modest but worth while contribution to the reform of our tax system. It removes certain anomalies. It has stood up to the intense scrutiny of the House, and I now ask that it should be given a Third Reading.

11.36 a.m.

Mr. Terence L. Higgins (Worthing)

If I may take up the final point made by the Chancellor of the Exchequer, that the Bill has stood up to the scrutiny of the House, I feel bound to say that I totally disagree with him. The fact is that the Bill which we are now considering is very different from the Bill which was introduced on Second Reading. I think it is abundantly clear that the Bill has not stood up to the scrutiny of the House. It has, in fact, been radically altered in many respects.

When my right hon. Friend the Leader of the Opposition spoke in the Budget debate he described it as a dead-end Budget by a fag-end Government."—[OFFICIAL REPORT, 15th April, 1969; Vol. 781. c. 1045.] I do not think that at that time we had fully appreciated just how badly thought out was the Finance Bill which was to embody the Chancellor's Budget. If we look at the way in which it was ill prepared, we find that both in concept and in drafting it was quite clearly prepared by a Government who were completely exhausted both in ideas and so far as the implementation of those ideas was concerned. Therefore, when we look at the Bill on Third Reading, considering what is in the Bill, I do not have the slightest doubt that it is now a great deal better than it was at the time, but that it really ought never to have been as bad as it was in the first place. In almost every respect the provisions of the Bill have had to be altered. It is probably true that there have been few Finance Bills, if any, which have been more amended in Committee and on Report than has this present Bill.

There is a point here which ought to be made. A number of people on both sides of the House, and indeed outside the House, have said that there is a strong case for having a Select Committee, perhaps, or some other forum, where the proposed changes in taxation can be examined before they come to the House. I am not surprised that there is an increasing move in this direction, and I feel that it is an innovation which might well be considered with very great seriousness indeed. The matter of the actual rates and so on must be for the Chancellor himself, but it is glaringly apparent, particularly on the disallowance on interest Clauses, that there are a number of things which any Government ought to be able to see should never have been included in the Bill.

In my view, we have been somewhat fortunate in the way in which the debates have taken place. I still have some yearning for the traditional system under which the Bill is taken in Committee and on Report on the Floor of the House, but certainly the procedure that we adopted this year of having part of the Committee stage on the Floor of the House and part in Committee upstairs was a vast improvement on the situation last year. Remembering the detailed discussions on disallowance, and particularly the sitting which extended from 10.30 one morning till 5 o'clock the next morning, I think it is true that we made a very great deal of progress in discussing extremely detailed points.

The trouble has been that the Government have given way on so many points that the pressure on the Chair, if I may say so, and its advisers as well as on the Opposition has been very great because of the considerable delay in the Government's putting down their own Amendments on Report consequent upon the proceedings in Committee.

I come now to the so-called concessions. The Chancellor says that measures have been taken which have altered proposals which were over-severe without damaging principles. In fact, the spec- tacle has been remarkable to behold. I entirely endorse what the Chancellor says about the tremendous amount of work which the Chief Secretary has done on the Bill, but the fact remains that the right hon. Gentleman has been in an extraordinary position. One could almost say, "You cannot flap Jack", but the Chief Secretary has never been at a loss for a new principle to replace the principle which he previously advocated, and he has never had the slightest hesitation in throwing the first batch into the wastepaper basket. Particularly on the question of disallowance of interest, once they had rightly excluded loans for business purposes and for house purchase, the Government could not find a stopping place at which they could settle on any principle enabling them to take a firm stand.

Under pressure from the Opposition, there have been several improvements in this part of the Bill. I enumerate them briefly: the question of loans for estate duty, which ought never to have been in the Clause; the question of loans for buying partnerships and machinery for partnerships; the question of existing loans already made on the basis of the previous legislation; the question of property companies; and then the defeat of the Government Amendment in Committee which was designed to tighten up some of the provisions of the Clause, on some of the absurdities of which, at least, the Government gave way.

The trouble is that these changes are heralded in the Press at a later stage as concessions, whereas, in fact, they were changes made to correct absurdities which ought not to have been there in the first place and on which the Government gave way as a result of pressure from the Opposition.

On these matters, it is our view that the Government's proposals are totally wrong in principle and ought never to have been introduced in the first place. If I may make a point on detail, I am concerned still about the question of interest paid on loans advanced for house purchase by insurance companies and the question whether payments are made gross or net. This means that people will have to find extra money until they receive the tax relief. I urge the Government to speed up the procedure for revising P.A.Y.E. assessments in order to remove that by-product of their legislation.

The complexities which ordinary accountants will have to deal with as a result of this part of the Bill, on top of all the other changes in corporation tax, capital gains tax, close companies and the rest, are quite terrifying. We started with two Clauses and a Schedule. Then we had six new Clauses tabled and vast Amendments made to the two original Clauses and the Schedule. Plainly, the Government came before the House with a fundamental change in the law without having thought the situation through.

The Chancellor said in his Budget speech that the intention was to help to cut bank advances. It is abundantly clear now that the tight credit policy which was originally adopted is becoming increasingly less necessary as a result of his adoption now of a tight money policy, that is to say, the Chancellor is restricting the credit base rather than trying to restrict advances. Thus, in the situation as it now exists, the need for that proposal, if that was the rationale behind it, has almost vanished, and it will become even less necessary in the future.

I hope, therefore, that the Government will have second thoughts about the entire matter, and, apart from the question of tax avoidance and gilt-edged which we fully appreciate, will entirely alter their approach. It is just loading the Statute Book with pages and pages of almost unintelligible gibberish to achieve a result which is no longer necessary and which is wrong in principle.

Now, the other so-called concessions. I take, first, the amusement tax. We were perfectly right in Committee to describe this as an annihilation tax. That is what it was. At the rates fixed, it was clear that those concerned would go out of business and not only would the Government fail to collect their revenue under that measure but they would not collect on selective employment tax, purchase tax or corporation tax which would otherwise be paid by such people.

I pay tribute here to the Financial Secretary for the great trouble he took to look into the accounts and to introduce new proposals. For many operators who diverge slightly from the average, how- ever, it will still be not so much an annihilation tax but a slow death tax. At the same time, there has been a change here, but, once again, the proposal should never have been in the Bill in the first place at the level of tax which the Chancellor proposed. If he had done the least homework beforehand, he would have realised that.

There have been other changes, for example, in the so-called "Beatles" Clause. There are some improvements there, but it is still far from perfect. In our debate yesterday, my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) emphasised the importance of the changes which the Government were proposing with regard to estate duty. In all those areas there have been improvements either because of the wrong drafting of the Bill in the first place or because the Government have at least seen sense on points which we have pressed upon them for a long time.

I come now to a major question on provisions of the Bill which have not been adequately changed, in particular, the question of selective employment tax. The selective employment tax is causing greater and greater concern not only outside the House but among right hon. and hon. Members. It is significant that on the relevant Budget Resolution the Government's majority slumped to no more than 28, and then, after a change of Chief Whip to improve the situation, it improved to only 29. That reflects the agitation which is felt throughout the House on this matter.

I shall not weary the House with further argument on the reasons why we consider that the selective employment tax ought to be abolished. I mention only two. The Chancellor completely gave way on the argument which he put in his budget speech about the effect of the selective employment tax on the cost of living, and he admitted that it largely resulted from the way in which the cost of living index is compiled, falling as it does on the lower income groups and concentrating upon them. He revised his estimate of only one-third being passed on to something more than half. I guess that that figure grossly underestimates the true extent to which the cost of living is affected by the S.E.T. increase which is still contained in the Bill and which continues to give grave concern.

Not least important is that the S.E.T. remains a tax which cannot be remitted on exports. The Chancellor made great play this morning of the importance of invisible exports, yet he is still imposing a heavy tax on many of those responsible for invisible exports, not only export houses, for example, which we sought to exclude from the tax in Committee, but also the hotel and tourist trade. If it is true that our balance of payments now is being greatly helped by invisible exports, and if it is true that those exports are going up, the Chancellor can take no credit for it. In fact, he is doing a number of things, in particular, in the selective employment tax increase, which are deterring the growth of invisible exports rather than encouraging them. He ought to be condemned for it. I repeat that we propose to abolish this tax with all its absurd anomalies.

Now, just a postscript on selective employment tax before I come to my peroration. In our debates on the tax over the years, the Government have gone to great lengths in drawing the Money Resolution as tightly as possible on each occasion in order to prevent the House debating the matter in detail. This is a deplorable procedure. We should have thought that this was a matter which should be discussed as freely as possible.

None the less, over the years, the Opposition have managed to get Amendments into order, so that these points can be debated. We started years ago by reducing the tax to ½d., rather than abolishing it, and a number of these devices have been necessary to get Amendments into order. This has become something of a game between the Opposition and the Government draftsmen. But people outside do not realise the extent to which discussion has been deliberately inhibited by the Government on these subjects.

This is reflected in the extraordinary fact that, recently, I have had a number of letters asking what my position is on selective employment tax. After four years debating it in the House, and I do not know how many speeches outside, it is a little hard to get letters asking what my position is on this tax. To some extent, this reflects the working of the Money Resolution. But what we were disturbed about—

Mr. Dickens

In replying to this entirely proper questions from his constituents, I hope that the hon. Gentleman will explain to them how he and his party will produce £600 million of revenue either from taxes on services or in some other ways.

Mr. Speaker

Order. The hon. Gentleman will not be able to do that this morning.

Mr. Higgins

As the hon. Member for Lewisham, West (Mr. Dickens) has made that intervention about nine times and is invariably told that I cannot reply, he might consider making it when we can reply, which would be an advantage.

Among the letters to which I referred, there have been great representations about the unfair competition which many retailers concerned with electrical or gas appliances have suffered because the nationalised industries at retail level have been exempt from selective employment tax. My hon. Friend the Member for Wanstead and Woodford was right to refer last night to the Chancellor's announcement that S.E.T. would be imposed on the nationalised industries as a sly manoeuvre. For years now, we have, inside and outside the House—my hon. Friend the Member for Bournemouth, West (Sir J. Eden) only a few days ago—emphasised the unfairness of this.

Why did the Chancellor not make the change in his original Budget speech—he must have been aware of this anomaly long since—or in earlier Budgets, instead of not even mentioning it throughout these debates? Then a Question is miraculously put down—perhaps that puts it a little high and I should say no more than "conveniently put down"—for Written Answer yesterday and the Chancellor mentions this matter, which is of great concern to retailers, on another Amendment, irrelevantly concerned with milk rounds-men. That is a deplorable device. We should have been able to discuss this in our debates.

It is not enough to say that our Amendment on this subject, to relieve other retailers rather than impose the tax on the nationalised industries, which was a better way of doing it—

Mr. Speaker

The Amendment to which the hon. Gentleman refers is not in the Bill, because it was defeated.

Mr. Higgins

No, Mr. Speaker, it was not defeated, it was not even called. This is a matter of dispute between the Chancellor and myself. I thought that it was in order and he thought otherwise. But he could have found an opportunity of debating this extremely important matter instead of resorting to that device.

This tax should be abolished. We do not think that, because Professor Reddaway's terms of reference are so circumscribed, there is any need to await a report on this subject before doing so.

The Chancellor touched on the economic situation. In our present situation, the balance of payments is gradually improving. We are all glad to see that, and hope that it will continue. The right hon. Gentleman says that people are wrong to say that devaluation has failed. That is the wrong way to put it, because it suggests that devaluation was a deliberate act of policy, which it clearly was not. But whether it has failed or not, it is no fault of the Government, because by their own measures they have done everything possible to frustrate devaluation.

It is interesting to see in The Times Business News today the headline: I.M.F. agrees to count 'lost' exports for £300 million target Not only do we abandon the £500 million target, but we then take this nice device of changing from the calendar year to the financial year. We will now include this amount of miscalculation in deciding whether the £300 million is achieved or not.

But these statistics reflect only part of the reality. The important question is whether we needed an improvement of £300 million in the existing situation. It is not valid to say that we will knock it off from both sides of the equation, because clearly the £300 million was the amount of improvement needed in the situation and not the amount needed, given what the statistics happened to say, and happened to say wrongly. Anyway, the figure is far below what the Chancellor advocated earlier. We hope that this will all prove all right, and that we shall get a significant improvement.

This Bill is yet a further massive increase in taxation—£954 million in last year's Budget, an autumn Measure which was bigger than any Conservative Budget, and now £315 million or so in this Budget, plus the further massive increases in National Insurance charges, which we now know to be much greater than was thought at the time of the Budget speech. All of these reflect a failure of policy which we can only deplore.

We believe that the Bill is better than it was, but it should certainly never have been as bad as it was in the first place. Therefore, while recognising that the Government must necessarily have a Finance Bill, we feel that this one it totally inadequate, that it reflects a poverty of policy and an inadequacy of implementation. Therefore, we cannot regard it as a Measure about which we can be enthusiastic, so far as the country and its economy are concerned.

Several Hon. Members

rose—

Mr. Speaker

Order. The House may perceive that there is a goodly number of would-be orators. Reasonably brief speeches will help.

11.58 a.m.

Mr. James Dickens (Lewisham, West)

The Finance Bill forms an integral part of the Government's economic strategy. In his speech this morning, the Chancellor dealt with the economy, and before I come to the details of the Bill I too should like to follow him in this respect. I find in debating these matters that my right hon. Friends all have certain characteristics in common. They are able, they are amiable, they are well-meaning, and they are also utterly wrong.

My right hon. Friend drew attention to certain apparent improvements in the country's economic position. He has discussed the target of £300 million surplus on current and long-term capital account in the current financial year. If one takes into the reckoning the under-recording of exports, and which, apparently, the I.M.F. will accept as part of the target for 1969–70, this may now be attained, but I draw the attention of the House to the cost of all this, which is prodigious.

This Bill is the sixth successive deflationary Measure which this Government have introduced since devaluation in 1967, and the total effect of these deflationary steps, either in cutting the level of public expenditure, in tightening credit restrictions, or in raising higher taxation—this Budget is designed to increase revenue by £340 million in a full year—has been to take out of the domestic economy, in one form or another, £2,500 million over the past 18 months.

Moreover, the effect of this on the rate of economic expansion has been such that, in the current financial year, we shall be roughly £1,000 million down, taking the gross domestic product at 1958 factor cost, than if we went for a higher and more sustained rate of economic growth, of 6 per cent. per annum, which the country could attain if we are prepared to take steps to protect the balance of payments. The effect of this, taking this year and next year combined, is roughly £3,000 million.

If we go further back and look at the position since 1966, since the deflationary measures of 20th July of that year, and compare the rate of economic growth attained between 1966 and 1969, add to that the estimated rate of economic growth this year and next and compare this figure with the National Plan forecast for 1966–68, plus the T.U.C.'s economic review forecast for 1969 and 1970 together, we find that over the five years in question the country will lose something like £6,500 million in lost national output as a consequence of all the deflationary steps taken over the past three years or so.

This Bill is the culmination of all that. The effect for the British economy has been that in the 1970s we shall have not only all the problems of funding the short-term debt which we have incurred in recent years, but the problems thrown up by the policy of low economic growth. The effect of this on long-term investment on imports and on the level of unemployment will, I think, be extremely serious.

Having said this about the general economic background to the Finance Bill, I should like to make one or two comments about some of the principles embodied in its Clauses. There is, I think, a clear and growing tendency on the part of the Government to regard increases in indirect taxation as being more politically acceptable than increases in direct taxation in one form or an- other. I think this is undesirable. I am not saying that all indirect taxation is wrong. What I am saying is that when we are faced with a situation in which people on average weekly earnings are paying roughly 20 per cent of their total household income in indirect taxation and, according to a recent article in the Treasury's Economic Trends, people earning £3,104 and above pay 17 per cent. of their total household income in indirect taxation, we have to have a regard to social equality.

I do not believe that there is any further justification for the sort of increases in indirect taxation contained, for example, in purchase tax and, in some respects, in selective employment tax in the Bill.

Mr. John Biffen (Oswestry)

When the hon. Member refers to household income, is that income net of direct taxation and national insurance contributions?

Mr. Dickens

I am quoting from Table E in the article in Economic Trends for February last, which produces figures of the effect of indirect taxation on household incomes as a percentage of income after direct taxation and welfare benefits. This shows the position that in 1967—and the position has worsened since then, relatively speaking—people on average weekly earnings were spending roughly 20 per cent. of income in indirect taxation whereas those on £3,104 and above were spending 17 per cent. of their income in indirect taxation.

It is clear that a wide range of items on which purchase tax is payable bear very heavily on the lower-paid in our community. I hope we should aim at the abolition of purchase tax on all essential household goods, for example, in the lower and medium ranges.

If one argues that case, and if it is argued, as, for example, hon. Members opposite are likely to argue during this debate, that we should review the incidence of S.E.T., one is bound to postulate what the alternatives are for the Government in broadening the tax base. My right hon. Friend the Chancellor has taken steps, both in the present Bill and in last year's Bill, to seek to do this. In 1968 we had the special contribution, which was a step in the right direction. I submit, however, that we should be looking increasingly at taxation on capital as to one source of income.

Mr. Speaker

Order. We cannot amend the Bill at this stage. The hon. Member may denounce what is in it. He must not suggest that other things should be in it.

Mr. Dickens

I leave it at that, Mr. Speaker. I simply make the point in passing that in the Finance Bill which the House considered in 1939, 30 years ago, taxation on capital raised roughly 8 per cent. of all the revenue derived through that Bill which Sir John Simon presented to the House. Today, the proportion is 4 per cent. There is obviously considerable room for improvement here.

I turn next to what I regard as the Chancellor's correct step in raising the exemption level for estate duty to £10,000. I hope that in the course of future Finance Bills, we will be able to raise this level still further. I very much believe that one of the great defects of our tax system and our tax structure generally is that we spend far too much time trying to collect comparatively small amounts of money from far too many people. This applies not only to the level of estate duty, but also to the level of income tax.

I am glad that in this year's Budget my right hon. Friend was able to raise the lower levels in both those respects. I look forward to further developments in this direction. I hope, too, that we shall be able to increase the incidence of estate duty at the higher levels to take account of the massive capital accumulation in recent years.

I think that the effect of this year's Finance Bill will be to the country's long-term detriment. I have no doubt that my right hon. Friend will find, in the course of the current financial year, that he will obtain a balance of payments surplus of between £200 million and £300 million. If he is seeking to do that, he must bear in mind the long-term consequences of this. Those consequences are as I have described them. I was powerfully reinforced by the arguments of my right hon. Friend the Financial Secretary in recent speeches which he has made outside the House, where he has argued for the funding of the country's short-term debt and not for its re- payment, in part at least, from Budget surpluses.

Having made those few comments, I fear I cannot give the Bill a welcome. I have criticised it in accordance with the Rules of Order. I hope that in the course of the next 12 months the Government will change to an economic policy which will put economic growth, full employment and a higher level of investment before a bookkeeping surplus in the balance of payments.

12.9 p.m.

Sir Cyril Osborne (Louth)

You said a few moments ago, Mr. Speaker, that the hon. Member for Lewisham, West (Mr. Dickens) could denounce what was in the Bill.

Mr. Speaker

That is a statement of a very obvious truth on Third Reading.

Sir C. Osborne

To cover myself, that was what I proposed to do.

Your other instruction to us, Mr. Speaker, was that we should have short speeches. I thought that this debate could run until 4 o'clock, and since this is—

Mr. Biffen

Some of us have to catch trains.

Mr. Speaker

Order. The hon. Member for Louth (Sir C. Osborne) is not getting many murmurs of approval from those around him who also want to speak. It is true that the hon. Member himself could speak until 4 o'clock. All I was pointing out was that other hon. Members wanted to speak.

Sir C. Osborne

In justification of what I would like to do, I regard this as the most important Bill of the year. It touches the ordinary people in their pockets at home, in every family, more than any other Bill. Therefore, discussion within reason should not be curtailed.

My complaint is this. First, I would like to vote against the Bill. My constituents do not understand a good deal of the hifalutin argument that goes on in this Chamber, but they certainly understand the taxes they have to pay. They regard this Finance Bill as imposing upon them the greatest burden of taxation which they have ever had to bear in war or in peace. On their behalf I protest against these enormous taxes which are being imposed by the Government on the ordinary people whom I have the honour to represent. [Interruption.] My people would not take very kindly to that sneer.

The total burden being imposed by this Bill amounted to £14,464 million, last year under the finance legislation it came to £12,888 million. So that there is an increase in this Finance Bill as compared with last year of £1,576 million. These are colossal figures, and when looked at in terms of the tiny items which people have to buy in grocery shops, drapery shops, and so on, it hurts the people who have to pay.

If I may give the House a few figures, the last Tory finance budget in the year 1963–64 totalled £6,649 million—far less than half the figure now being imposed by the Government. In the 1964 Budget the figure amounted to £7,070 million. It is costing the taxpayer of this country twice as much in taxes to live under a Labour Government as it did under the Tory Government. My constituents would like to see the good old Tory days back again when taxes were not so high. I am entitled to make this protest on their behalf.

The heaviest Finance Bill even during the war in 1944–45 was only £3,135 million. The nation fought a war against Hitler and also met its civilian requirements on a sum only a quarter of the figure the Government are now extracting from the pockets of ordinary people. Today we have nothing more to fight, our three fighting services have been reduced to skeletons. But this Government are taxing the ordinary people by these colossal sums and people feel that money is being wasted and they are not getting value for what is being taken away from them.

What makes it worse for the ordinary people is that they read in the Press all the time that even these large sums are not enough and that we have to keep on borrowing from abroad. They cannot understand it. Why is it all these colossal sums which are taken from the pockets of ordinary people do not meet our needs? What are the Government doing with the money?

To break down these sums so that ordinary people can understand them £14,464 million, which the Bill imposes on them, represents about £40 million every day—Saturday, Sundays, Bank Holidays, Good Friday and Christmas Day. It is a colossal burden. Instead of arguing all the niceties of taxation, we are saying that this tax should be reduced. We want it down very considerably. The people I represent hate paying taxes, they hate this Government for imposing so many heavy taxes upon them, and they will be glad to get rid of this Government on that ground alone.

It is said from time to time from the Government Benches, "But these taxes are not that great. Other nations are taxed more heavily than we are." The people in my constituency do not believe this. Even if it were true, it is no comfort to them when they have to pay their taxes to be told that other people are taxed more heavily than we are. They argue that these taxes, which they abhor, should be reduced. I deeply regret that we are not able today to vote against the Bill. I regret that this stage is now taken as a formality.

I should like to give one or two examples affecting ordinary people. Let us take the duty on spirits, beer and tobacco. Although no increase is contained in this Bill, it consolidates the 10 per cent. increase which was imposed last November so that it is relevant that we should discuss it now. Under the last Tory Finance Act the tobacco duty was £3 17s.1½d.; last year it went up to £4 11s. 8½d.; and this year by this Bill it is up to £5 0s. 10d. That means that every time the ordinary man or woman buys a packet of cigarettes today he or she is paying 4s. 9d., as against 4s. 4d. last year, and 3s. 8½d. under the Tories. It was bad enough then, but 4s. 9d. is a monstrous amount of tax.

Every time a man or woman smokes a cigarette he or she is paying nearly 3d. in tax. It is a wonder they do not "chuck its". Again I protest on their behalf. After all this is what the House of Commons is for, to protest on behalf of our constituents, especially when we have such an incompetent Government. The total tobacco tax under this Bill amounts to £1,125 million—a colossal sum. Last year it was £1,105 million, and in 1964 under the Conservatives £982 million. It is an enormous increase over that period of time.

Let us take the whisky drinkers as a further example. They have no idea how much they are having to pay. [An HON. MEMBER: "The hon. Member can say that again!"] The duty on a bottle of whisky today is 44s.; last year it was 40s.; under the Conservatives it was 30s. I am not an expert in these matters, but I am told that there are 16 "doubles" to a bottle of whisky. This means that every "double" costs nearly 3s. in duty. It is almost like drinking gold. It is quite extraordinary. If the ordinary people realise this they would revolt as I am sure they will at the next General Election. It will not be because of international considerations, but because of these things that touch their pockets. This is what will cause them to turn this Government out.

A great deal more wine is now being drunk in this country. The duty on light wine under the Conservative Government was 2s. 6½d. per bottle; last year it was 4s. 3d; now under this Bill it will be 5s. 4½d. On heavy wine the duty in 1964 was 5s. 1d.; in 1968 8s. 3½d; and today it is 9s. 0½d.

I come lastly to the working man's beer—the one thing he claims as his luxury. In 1964 the duty under the Tories was 8.4 pence a pint; last year 10.3 pence and this year it will be 11.3 pence under the Bill. The working man is paying nearly a shilling duty to a Socialist Government every time he has a pint of beer. By heaven, they will vote against the Socialists on that! I am telling you that!

That is the side of the Finance Bill that the ordinary man in the street will understand. He may not have been able to understand the high falutin arguments we have had so far, but he understands this, because it affects his pocket. The total tax on spirits, wines and beer under the Bill is £844 million. That is a tidy increase on last year, when it was £778 million. In 1964, under the Conservatives, it was £576 million. Now people are saying "How much higher is it going?"

My last example is petrol. The motor car is no longer the rich man's luxury. Anyone who employs a large number of people in a factory knows that the first thing he must do is to provide a car park for the workers to bring their cars. They come either singly, or club together to get to work. In 1964 the petrol duty was 2s. 9d. per gallon. Last year it was 4s. 4d. Under the Bill it is 4s. 6d. The total duty in respect of hydrocarbon oils and petrol in 1964 was £674 million. Last year, it was £1,123 million. This year, under the Bill, it is £1,309 million. These are colossal figures for the ordinary people to have to find. They hate paying these sums, and they would like to be rid of the Government who impose them upon them.

The other thing that affects the ordinary people is purchase tax. The range of purchase tax five years ago was from 10 per cent to 25 per cent. It has now been increased to 13¾ per cent. to 55 per cent. Under this heading I remind the House that the Chancellor tried to slip through unnoticed in his Budget Speech the new tax on textiles, soft furnishings, tissues, sewing threads and knitting wools. Only next day was it discovered that that tax would be imposed. That tax affects the poorest of our housewives. It is a disgrace that such a tax should be imposed upon poor people and that this House should make no protest about it and cannot vote against it. I am utterly against it.

Mr. Nott

We did vote against it.

Sir C. Osborne

Not today. It is today that I want to vote against it.

Mr. Nott

Why should you not do so?

Sir C. Osborne

Because we have not the leadership on our Front Bench. That is the reason. If three or four back benchers on this side vote against it it will look ridiculous—half a dozen votes against such an important Bill. I protest against this enormous taxation.

Finally, as a businessman I must say how much I oppose corporation tax, income tax and surtax. Taken together, in an extreme case where profits are all distributed, 84 per cent. would go in those three taxes. I go to Communist Russia quite a lot. There, the highest earnings attract income tax and surtax at the rate of 13 per cent.—and the Russians pay very high salaries to their top people. We impose a tax of 84 per cent. on our people. The 16 per cent. that is left for the businessman is not enough to encourage him to take risks and do his best. This tax will help to destroy incentive and hinder the working of the economy.

Mr. Dickens

Is the hon. Gentleman arguing that our businessmen should migrate to the Soviet Union in order to take advantage of lower taxation?

Sir C. Osborne

There are one or two other considerations to bear in mind—but at least we should get away from a Socialist Government to a Government who believe in rewarding those who work hard. If I could take my liberties there as well—but that is a big "if". The Financial Secretary is a first-class businessman and he knows that this combined direct taxation is a great hindrance to an improvement in our economic position.

Like many other hon. Members, I receive an enormous number of letters from my constituents complaining about the effect of S.E.T. The little shopkeeper and businessman say, quite rightly, that between S.E.T., the high Bank Rate and the difficulty of obtaining bank overdrafts, they are being squeezed to death. Many of these small businessmen are being driven to the verge of bankruptcy. They complain quite justifiably that this Bill taxes them unreasonably. They ask for these taxes to be reduced. I am voicing their views. I wish that I could carry my vote with my voice.

12.26 p.m.

Mr. Robert Sheldon (Ashton-under-Lyne)

Unlike the hon. Member for Louth (Sir C. Osborne) I do not believe that the importance of the Bill is due to its effect on the drink trade. I consider its importance to be due to the fact that it represents a fundamental change in our economic thinking, and gives voice to that new thinking. To me the importance of the Bill is the acceptance of a new principle—the principle of money supply. We see this in a number of Clauses. My right hon. Friend the Chief Secretary, both in Committee and on Report, introduced many principles. I do not wish to denigrate them; indeed, they had a great deal of sense, and they helped the understanding of many of the Clauses. But the principle of domestic credit expansion underlines the Clause on loan interest in particular as well as other aspects of the Bill.

One passage in the speech of my right hon. Friend the Chief Secretary on 15th July shows this clearly. Speaking about the reason for introducing Clause 18 he said that: the main argument put forward when the Chancellor announced these proposals is the demand effect, which was expected to be considerable. That was the major argument in the proposals, and we see no reason to change our views about that aspect."—[OFFICIAL REPORT, 15th July, 1969; Vol. 787, c. 481.] We see this throughout the Bill. The question was how the Bill would reduce the amount of money available and would affect domestic credit expansion—how the principles enunciated in the May issue of Economic Trends could be brought into effect. I do not expect a change of this magnitude to be made, on so insufficient a basis, for such an important economic change-over. We know that domestic credit expansion omits anything to do with building societies, the vast debt of hire purchase and the vast increase in importance in finance houses. Under Clause 18 and other provisions the rôle of the finance houses will greatly increase, but all of this is outside the concept of D.C.E.

We see ourselves committed to a theory which we are not sure will work. Although the right hon. Member for Leeds, North-East (Sir K. Joseph) showed his approval of our ready acceptance of new economic theories and pointed out, by contrast, how slow we are to understand the importance of some of them, I suggest that that is not the real problem we face. The problem we have is our too ready acceptance of the latest economic theories and our failure to appreciate when, and the limits within which, they can he of use.

The Treasury should, of course, always take an interest in economic theory, but acceptance of any new theory should come after close examination of certain aspects of it and only then should it commit itself. We have seen an extension beyond this. We have seen that the Government are prepared to accept a precise evaluation in advance not only of a full understanding of the theory but also in advance of the theory being worked out as it applies to this country.

I am grateful that the Bill has sent us back to our textbooks to find out what these theories are all about. The Bill is based fundamentally on the D.C.E. theory, and our acceptance of that theory results from two major articles which appeared in I.M.F. staff papers. Polak in November, 1957, and Polak and Boisonneault in April, 1960, tried to show how the theory of credit expansion would work. They made some assumptions and tested them out in Latin America. They found that the theory worked quite well there; and that is fundamentally why we are committed to D.C.E.

They found that in certain Latin American countries there was a degree of constant velocity of money, and a similar assumption was made for Britain. This has been utterly misleading and if one studies Economic Trends one finds that the velocity of money has moved by between 2.5 per cent. and 3 per cent. I will not go into this matter technically, except to say that this movement can have an effect of hundreds of millions, if not thousands of millions of £s. What was acceptable for certain Latin American under-developed, very limited, small-scale economies cannot be transplanted on to one of the most highly sophisticated financial centres of the world. But this is exactly what has happened.

The absence of debate before acceptance of these proposals is to be deplored. Although I accept that there is some justification for D.C.E. in that taxation is not sufficient to reduce inflation, and that one must have some control over money supply, this attempt by the Government to quantify it and commit us excessively and with precision to the theory should not have been accepted so far in advance of the theory being widely tested and examined.

If one reads the articles by Polak one sees the crucial points which have become attractive to the I.M.F. and to certain elements in the British Treasury. I refer to "certain elements" because I do not think that the Treasury is fully convinced of the arguments. This is shown by an article in Economic Trends in which it is said, in a footnote concerning D.C.E.: It should be noted, however, that given the size of money G.N.P., a change of 0.1 per cent."— it has varied and the change has been as high as 0.5 per cent.

in the G.N.P. money supply multiple is at present arithmetically equivalent to a change of some £500 million in the money supply. That is the theory to which we are committed, and are also committed to the I.M.F. The way in which this has formed a basis of the Bill has not been sufficiently examined, either in the House or elsewhere.

The Government and the I.M.F. have found the D.C.E. theory particularly interesting as it has applied to Latin America, which is the I.M.F. test bed where these theories are worked out because the Latin American countries are not only close to Washington but have a wide range of peculiar economies which can be examined in the way that a botanist likes to examine lush byways where all sorts of things are growing. They found in certain countries that there is a ratio between money supply and—

Mr. Speaker

Order. I hope that the hon. Gentleman will not pursue this Latin American argument too far.

Mr. Sheldon

I appreciate your ruling, Mr. Speaker, and I was merely attempting to point out the reasoning behind the Bill.

The ratio of money supply to imports is the crucial factor which they claim to have discovered. Naturally this is attractive to Her Majesty's Government, for if one can find a way of cutting down imports—which many people consider to be one of our most important tasks—that will mean that Eldorado is not too far away. It is more important than import quotas, but it is not as realistic. I will not develop the import quota argument, partly because I have adduced it on many occasions.

This was one of the most important reasons why the Government were attracted to the money supply and D.C.E. theories. Thus, under Clause 18 and elsewhere in the Bill they have tried desperately to cut down the volume of money available, simply because they were attracted to this theory.

Mr. Michael Alison (Barkston Ash)

I suggest that the hon. Gentleman is not drawing a sufficiently clear distinction between D.C.E. and money supply. Is he aware of the point the Chancellor made; that if exports are increased one gets an increase in money supply? That is what the Government are trying to do.

Mr. Sheldon

I accept that D.C.E. is, in certain respects, more sophisticated than money supply, but the hon. Gentleman should appreciate that D.C.E. alone is a bit of a nonsense because it omits the factors of building societies, hire purchase and finance houses. The finance houses in particular comprise the sector where the great growth is coming; and to have omitted these elements—there are many others and I have mentioned only the most obvious—is to omit what is extremely important.

The result is that we have an imperfect theory imperfectly applied. In other words, we are compounding an error. Moreover, we are compounding an error which we cannot understand because it has not been worked out from the point of view of its application to this country.

There are two questions I wish to put to my right hon. Friend. First, what is the relationship between D.C.E. and the growth of the economy? Second, what is the rôle of D.C.E. in our economic policy? We must know how far we are committed to the new system and at which stage we pull out if the predictions are not fulfilled. At what stage do we pull out or reduce our dependence on the theory?

The Treasury have regarded themselves as being very modern in their outlook—and justifiably so, for there are some outstanding economists in the Treasury. But we should not give them ready approval for the way in which they have suddenly gone overboard for the latest theory without a full understanding of it. It needs further examination.

May I turn to a question which has arisen throughout the discussions on the Finance Bill—the difference between capital and income. We have faced this problem before and we shall face it increasingly every year, for it becomes more difficult as the ingenuity of various people is set to work to transmute income into capital. We see in the Bill, particularly in Clause 25, the latest episode in the continuing saga, and obviously it is not the last episode.

The trouble is that even with capital gains tax we are in a situation in which taxes on capital are utterly different from taxes on income. I recall the brave words spoken on the 1965 Finance Bill when the then Chancellor of the Ex- chequer, the present Home Secretary, stated that what was important was to tax increases in wealth. He earned my whole-hearted approval, and I am sure that of many other hon. Members, for that statement, because this is the point to which taxation should be related—increases in wealth. The capital gains tax then introduced was a means of bridging the gap between profits made on capital and income. To me, as well as to almost everybody else, the two represent increases in wealth; whether wealth is increased by one means or by the other is irrelevant. What we then saw was a narrowing of the gap between the taxation of the one and the taxation of the other.

What we have seen recently has certainly not been a narrowing of the gap. Indeed, in some instances there has been a widening of it as people have been less and less prepared to accept the high taxation on income at marginal levels and have sought, with the help of their taxation advisers, means of paying the lower taxes on capital gains. That is one of the big changes. We have had a peculiar situation in that at a time when incomes have been rising all over the country, the yield in surtax has been falling—and it has been falling because people are not prepared to pay the marginal rate of tax of 18s. 3d. in the £on their income and instead have tried to find other ways of handling their money. We have had the flotation of companies by which people can make millions of pounds and pay tax at a rate of 30 per cent. without, of course, paying tax at the highest rate of 18s. 3d. in the £. That will continue.

I welcome the capital gains tax as a means of bridging the gap between the 91¼ per cent. rate of tan on income and the 30 per cent. rate on capital. I should like to see an increase in capital gains tax over a period of time and a reduction in the high levels of surtax to bring the two rates nearer to each other so that we do not face this problem again and again. Among the most important elements in the Finance Bill is that of trying to discourage the transfer of income to capital. So complex is the situation that over the long period the Inland Revenue would always be some paces behind those who advised new methods for transmuting income into capital.

I congratulate my right hon. Friends on the Treasury bench on the very great patience which they have shown to me and to many other hon. Members who have, perhaps, not been wholly satisfactory back-bench Members from the Government's point of view. They have shown us patience throughout our discussions. I also thank them for the changes which they have made. I think that they are right to call them concessions, in that they were changes in the considered and accepted view of the Front Bench, on Clause 18 in particular. There were a number of elements in Clause 18 which caused serious worry. My concern has not been completely put at rest, but the Government made genuine concessions for which I am thankful.

The Finance Bill is in rather better shape than at the beginning of our debates. I commend the method by which we conducted our affairs this year and look forward to the Bill going through the House as satisfactorily and as well next year.

12.45 p.m.

Sir Charles Mott-Radclyffe (Windsor)

I will not follow the hon. Member for Ashton-under-Lyne (Mr. Sheldon) very far in his interesting speech except to comment that he apparently discovered that those who have high earnings react violently against punitive taxation. Surely the first priority for any Chancellor of the Exchequer is to try to increase the nation's wealth in both the public and private sectors. Having done that, he can argue afterwards how to carve it up. To impose punitive taxation on the man of exceptional capacity three-quarters of the way up the ladder of his career seems a very unwise policy for any Chancellor of the Exchequer, of whichever party, to pursue. Nothing could have brought out more clearly the difference between our attitude and that of the Government than did the speech of the hon. Member for Ashton-under-Lyne.

I agree with my hon. Friend the Member for Worthing (Mr. Higgins) that this is a hastily drafted Finance Bill. It is one of the most hastily drafted Finance Bills I have seen since I have been in the House. Amendments have succeeded each other with almost kaleidoscopic rapidity and at times it was difficult to discover what was going on. Frequently Amendments were tabled which appeared almost to cancel each other out, as we discovered in the late night sitting on Wednesday.

I was not a Member of the Standing Committee, but I read the reports of the debates in Committee and I have, of course, read the Clauses. I formed the impression that the Chancellor and his colleagues were like a crew on a ship in a very rough sea when most of the controls had been lost because of the gales. They did not agree about the port to which they were trying to steer and none of them knew how to set a compass.

The themes in the Finance Bill have, of course, gone overboard. First, there was the theme that there would be a restriction of credit. That was accompanied by the theme that at all costs the cost of living was to be held. The third theme was an attempt, not very successful, to bluff the I.M.F. There was an admirable phrase used by the Chancellor in the Budget debate about trying to simplify the tax system, but that proposal went into the wastepaper basket long ago.

As hon. Members know, I am not an expert in these matters, but it seems to me that if we want to restrict credit and to hold the cost of living, the last thing to do is to increase S.E.T. By increasing S.E.T. we are bound to increase the demand for credit, for the simple reason that the employer who pays increased S.E.T. on behalf of his employees is bound to ask for extra facilities from the bank to carry him over the intervening months before he gets a repayment—if he qualifies for a repayment. That is certainly the case in agriculture. Where the industry or the business does not qualify for repayment, the extra S.E.T. is passed on to the consumer, and that, in turn, results in increasing the cost of living in the various commodities in respect of which prices are raised. By the Clauses on loan interest, the Government have created a field day for the legal profession and the chartered accountants. I think that aspirin does not carry purchase tax but wet towels do, and these Clauses will bring in a fruitful yield of purchase tax in this respect from the professional societies.

One cannot draw a rigid line between an overdraft and a loan or mortgage, and if one tries one gets into a maze of anomalies. Nothing more clearly brought this out than the very shallow and rather shabby answers which the Chief Secretary gave on the agricultural Amendments. It was clear that he did not understand the problem. If one finances maintenance from an overdraft on an agricultural estate—

Mr. Speaker

Order. We have had that debate, which I recollect, and we cannot have it again.

Sir C. Mott-Radclyffe

I am talking about what is in the Bill, Mr. Speaker. If one finances maintenance from an overdraft and improvements out of other capital, one gets no tax relief, but if one does it the other way around one is all right. On the repayment of a long-term mortgage by 1975, with perhaps 20 years to run, great upset will be caused, particularly for agriculture, which may result in the fragmentation of agricultural units—exactly what the Government say, in their next breath, that they are trying to avoid.

The Bill's whole attitude is negative. It does not create a single extra £ of weath. It only adds several hundred thousand man hours of unproductive work for the professional societies and for the Inland Revenue inspectors, in a kind of ghastly all-in wrestling match, trying to weave their way through a series of unintelligible, anomalous and ambiguous provisions.

It does not increase incentives and it discourages the investment of any risk capital. It has encouraged ingenuity in many undesirable ways. If one cannot save, one spends, which is inflationary, and if one cannot retain a reasonable amount of one's salary, the extra burden of responsibility on promotion is not worth it, and that is a very dangerous trend.

The Government have produced a situation over the last five years by which the black marketeer and the spiv are laughing but the man who has worked honestly and hard all his life now finds, on his retirement, that his savings have been eroded and his pension is inadequate. This is thoroughly undesirable, and the Government know it. The sooner that they put their policy into reverse or we succeed them, the better.

12.54 p.m.

Mr. Charles Fletcher-Cooke (Darwen)

The Chancellor gave us one of his optimistic speeches today. Whenever I hear them, my heart sinks to my boots. They are very effective—much more so than those which the right hon. Member for Belper (Mr. George Brown) used to make, because they are less ebullient—but, so far as they are effective, they are very dangerous. Today, we had another in the series. The right hon. Gentleman took great comfort from the fact—this is perhaps a reflection on the affairs of our times—that there was a fall in the new business which the finance houses were doing. I understand why, in the modern world, that is taken as a sign of success, but it is a pretty fair commentary on the state of affairs in which we are that it should be so.

Last year, the Chancellor predicted that domestic consumption, which must be his main consideration, consumer expenditure, would fall by 1.9 per cent., and, of course, it rose by 1.2 per cent. He expected that imports would rise by 0.6 per cent., whereas they rose by 7.9 per cent. I suggest, and indeed he suggested, that the Budget strategy was framed to prevent this happening again. We must ask ourselves whether this Bill will do better than the last Budget to secure this absolutely essential task.

Although exports are good, or much better than they have been, one cannot help feeling that we are going up against the ceiling in exports—not only in absolute terms, but also as regards the North American market, where we are clearly in some very choppy water. Therefore, all has to he concentrated on the question of reducing our imports and on reducing domestic consumption if we are to continue with the figures, which are not all that good, but are at least not as bad as they used to be.

On these very high figures for imports it is clear that the fiscal policy which has been adopted in previous Budgets has done nothing to meet the problem of domestic consumer expenditure. First of all, have these imports, which have risen so considerably in value, according to the recent trade figures, also risen in volume, or does it mean that the terms of trade are beginning to turn against us? If it is the latter, the strategy which was much attacked by the only two Government back benchers who have spoken today cannot do any good at all.

Is it that the advantages which both this Government and its predecessor have had for 10 years, of cheap raw material prices, are beginning to change, and that we shall see—I believe that there are indications—that that advantage will soon be going? As a subsidiary point, has not the time come for us to dispense with the generosity by which, in the past, we have given prices well above the market prices to those who supply us with raw materials? The Chief Secretary will remember the article in a learned financial journal fairly recently, which showed that we pay for our raw materials far above the market rate under various international agreements.

Sir C. Osborne

Sugar, for instance.

Mr. Fletcher-Cooke

My hon. Friend mentions sugar and I believe that the same applies to copper. He has instanced the example of Canada, which pays almost half the price for her copper for her industries that we do, and there are various international agreements into which we entered in the days when we were flush. If we are to help the raw material producing countries, we should do it obviously and by means of the Ministry of Overseas Development, rather than conceal it in the trade figures in this way.

Mr. Speaker

Order. We cannot proceed to modify international agreements on the Third Reading of the Finance Bill. There may be some other opportunity.

Mr. Fletcher-Cooke

What I was hoping to do was to show that all the strategy of the Finance Bill is likely to be set at naught—because it is directed, and rightly directed towards reducing the import bill—if the terms of trade are moving against us. If so, the Government will have to find some means other than the fiscal weapon and the monetary weapon for doing that. I hope that they will do so urgently.

As to the two weapons which the Finance Bill uses, it is a pity that the Government have now really shot every single possible bolt in their locker, in the sense that we are using every theory and not merely the theory that the hon. Member for Ashton-under-Lyne (Mr. Sheldon) so particularly suspected—that of restricting domestic credit. We are using that old fiscal weapon which has failed to work in the past, and there is really nothing else left. That being so, it seemed to me that the Chancellor's optimism today was even more misplaced than it has been in the past.

The Chancellor is quite frank about these things. He said that he did not need for expenditure purposes any of the additional money he is raising. In his Budget speech, he said: The measures I have to propose are not called for by the very small growth in public expenditure. That could have been looked after quite comfortably by the natural buoyancy of the revenue."—[OFFICIAL REPORT, 15th April 1969; Vol. 781, c. 1004.] This additional taxation, to which my hon. Friend the Member for Louth (Sir C. Osborne) so rightly objects, is not being used because the Government are spending the money on the social services or anything like that. But it is simply being used for what I hoped had become the exploded theory that by using the fiscal weapon and taxing people's expenditure unnecessarily we reduce demand.

The whole history of the last four years shows that that is not so; that the result of the reduction of incomes by high taxation, and particularly by S.E.T., merely produces irresistible wage demands. When one looks at the figures of successful wage demands over the last months it is quite clear that they have considerably outstripped any hope the Government might have of reducing consumer expenditure by means of the fiscal weapon. In spite of that, the fiscal weapon is still being used by the imposition of very heavy new taxes. Let me repeat, at the risk of boredom that merely, to use the old expression, to cream off excess purchasing power never has worked.

Sir C. Osborne

Cripps's mopping up.

Mr. Fletcher-Cooke

Mopping up—creaming off; whatever it may be.

This year, we have the additional weapon of Clauses 18 onwards in an attempt to reduce domestic credit and to reduce money supply. This is at least a novelty. The hon. Member for Ashton-under-Lyne thought that it was too much of a novelty. He said that the Government did not know what they were doing, and had not thought it out; that it was a passing fashion derived from some visiting economists to South America, and would not be applicable to this country. I do not agree with him there so much. I think that in this case, although it is clumsily and inequitably done, the Government may be right. Anyhow, it is better than the old fiscal policy which has been proved year after year to be wrong.

My own view is that we should get back as soon as possible to the theory that Government revenue should be used to meet Government expenditure and not used for the mopping up process at all; that we should rely more and more on the monetary weapon to restrict consumer demand and, if necessary, take the consequences.

The Budget strategy as it emerges in the Bill is weak and variegated. It is variegated because it relies on too many weapons, and it is weak because it has abandoned any attempt to rely on the restraint of consumer demand through legislation in the sphere of labour. The one weapon which, in his Budget statement, the Chancellor said was the most important of all, has been lost, and sunk without trace, between 15th April and today. It would never, of course, have appeared in the Finance Bill so I cannot expatiate on the point, but such legislation was undoubtedly the weapon on which he placed most dramatic emphasis on 15th April. Where is it now? It has sunk beyond trace.

All we have now is the fiscal weapon, on which I do not rely because it has failed in the past, and a new essay into the monetary field. It is a feeble essay, because it does not deal with the institutions which the hon. Member for Ashton-under-Lyne listed and which are the great creators of credit. All it does is to hit at a few people who have been using their overdrafts more than the Chancellor likes. It is a very small essay into this field; as it stands, so small that I do not think that it will have the optimistic effect which the right hon. Gentleman once more has indicated it will have.

The Government are drifting into the use of higher and higher imports. In spite of the measures they are taking, they are drifting once again into higher and higher consumer expenditure—in spite of some figures relating to the car trade which the Chancellor produced as an example that the squeeze was working. If that process goes on, the Government will eventually be driven, if they cannot take their courage into their hands over labour relations, to do what they do not want to do, what we do not want them to do and what the world does not want them to do but which will inevitably happen, and that is to impose import controls. They have made one little foray with import deposits, and we should like to know how those are working. But what they will be driven to is the sort of thing that most hon. Members would deplore. To judge from his earlier speech, the hon. Member for Lewisham, West (Mr. Dickens) might applaud import controls, but all right-thinking members would deplore them. That is where the Government will go unless they do something about the import bill, and I do not think that at present they know quite what to do or how to do it.

1.8 p.m.

Mr. Emlyn Hooson (Montgomery)

I am very conscious of the fact that the speech I make will really be the speech that would have been made by my hon. Friend the Member for Colne Valley (Mr. Richard Wainwright). He was the sole Liberal member of the Committee, and made a very valuable contribution to its debates. He would have been glad to have been here today to speak on behalf of the Liberal Party, but is prevented from doing so by a longstanding constituency engagement.

This Bill is presented against a background of a tremendous backlog in our tax offices. It must be a matter of concern to all hon. Members that when we have this very complicated Bill we have, at the same time, evidence of an unprecedented scale of resignations in the overburdened top grades of the tax inspectorate. That being so, it is certain that this Bill can be guaranteed to add to the existing delay and chaos in the tax offices, and that must be a very serious matter for the whole country. A friend of mine, who is probably as skilled as anyone outside the Inland Revenue Department—and, perhaps, also inside it—is in despair over the structure of the Bill and the burdens which it will add to those who have to advise on tax matters. It is a matter of great social concern, and should be for the country, that on an ever-increasing scale so many people are occupied full time in advising on tax matters.

It has been rightly said that the Government have been extremely accommodating to their critics over the Bill and have fulfilled promises made in Committee. That is right, but they had a great deal to be accommodating about. It must be unprecedented for a Government to have moved 87 new Clauses in Committee and on Report to have six long Government new Clauses and 129 Government Amendments. That shows that the Bill was originally presented in a thoroughly undigested form. The Bill's main provisions, whether they were right or wrong in intent, are classic illustrations of the mess which results from inadequate prior consultation.

It is necessary for the whole House to consider whether there ought to be a Select Committee to deal with the impending provisions of a Finance Bill before they are presented so that we could have adequate prior consultations and not get into the mess the Government have been in throughout discussions on this Bill. It seems the oddest way of going about things to have provisions in the Bill for S.E.T. increases without the Government even waiting for their own Reddaway Committee's Report on the structure and changes of selective employment tax.

Although the Government have given way greatly, and rightly, on provisions for disallowance of loan interest as a deduction from income, we and the country are left with a very considerable mess, and that one of extreme complexity. Enough thought had not been given, and still has not been given, by the Treasury Department to these very important provisions which will so change business habits in the country in future.

It seems that considerable improvements have been achieved by amendment in the provisions for catching sales of income from personal activities in return for capital sums to avoid the manifest unfairness which would have resulted from the earlier drafting. The first provisions had to be hastily withdrawn and I grant that they are now much less offensive, but this again shows the inadequate consideration given to many aspects of the Bill before it was presented.

Then there has been the last-moment improvement regarding Clauses 30 and 31 with reference to the new estate duty on discretionary trusts. Otherwise executors and trustees would be involved in impossible feats of memory. The Revenue would have had quite arbitrary powers. This has been a last-minute change; a change which is welcome nevertheless. It underlines the great concern of the majority of rather detached people who perhaps had expected to see a change in Government intent or strategy on the financial side but who have been greatly dismayed at the apparent lack of adequate consideration given by the Government to the effect of the changes. Professional people have been dismayed by the apparent incompetence and the tax Bar has been greatly concerned. The Chief Secretary's profession, the accountants, have been greatly concerned about the lack of consultation on these matters.

With the new provisions for betterment levy on land transaction, how can even experts comprehend these changes? I am not an expert, but I am told by those who are experts that these provisions are very difficult to comprehend and it is difficult at the moment to estimate what the effects of the provisions will be.

So we end with a Bill which has been greatly changed and modified. The team at the Treasury have shown a welcome attitude towards their critics and everyone has been grateful for that. We are still left with a Bill of which very few people can estimate what its consequences will be. It imposes a vastly increased strain on the already over-taxed departments. It is a Bill which, if there was to be a Division, I certainly would vote against on Third Reading.

1.15 p.m.

Mr. David Howell (Guildford)

I confess that of the speeches we have had so far in this debate the one to which I was most attracted was that by my hon. Friend the Member for Louth (Sir C. Osborne), who has now gone to lunch but who told us that he will come back.

Although he would be the first to recognise that his speech did not attempt to grapple with the complexities of money supply or domestic credit expansion, it reflected with a sort of salty tang the realities of incompetent finance, incompetent economic policy and poor financial legislation as they impinge on ordinary citizens. His speech was a graphic protest at the way in which taxation is rising. It was a protest which my constituents would certainly echo.

I know it is said again and again that in general terms and taking a global figure, compared with other countries taxation here is not too high, but in the minds of those who say that there should be at least a question mark to why that is so. There is a very general feeling in this country of widespread protest at the way in which taxes are levied and paid. This Finance Bill, if it does no more, will stand as an answer to that query, an answer simply given by noting that it is a Bill of labyrinthine complexity but yet of only marginal relevance to the economic problems we face.

I have not had the pleasure of attending all the debates on the Bill. I am told that some of the debates could not be exactly described as a pleasure in Committee. What is clear is that at every point from the beginning to Third Reading it is the almost suffocating complexity and complications being introduced into legislation by the reforms proposed by the Government which have been the chief feature. The plea for simplification is not one which arises merely from a desire to have everything neat and tidy, because behind that plea lies also the plea for administrative reform. One cannot follow without the other.

Unless we move in the direction of tax reform and go towards a much more simplified system based much more squarely on the one hand on direct income and personal tax and transactions with the State and, on the other, consolidation of indirect taxes into something like value-added, we cannot begin thinking about the crucial question of reform of administration of taxation. With complicated and varied rates and the vast range of different levels of assessment, with a situation in which very few citizens are in a position to assess their own tax liability or even their taxable income; we have a situation in which no electronics machine however subtly designed, can come to grips with the varieties and levels of taxation and thus the reform of the administrative system of tax collection simply cannot be tackled.

I can only succumb to the temptation to repeat at this point that we must look in tax reform to the staggering comparisons between our staff requirements in tax collection and those in the United States.

We must note that in the United States a staff of about the same size as the staff of the Inland Revenue here—that is, headquarters and branches throughout the United States—managers to collect ten times as much Revenue and manages not only to collect revenue on the income tax side, but to do also Customs and Excise work, which occupies another enormous department over here, whose work will be greatly multiplied by the Bill. The American staff manage to do this, I think I am right in saying, in dollar terms, at slightly under three times the cost of the Inland Revenue budget but only about twice the budget of the Inland Revenue and the Customs and Excise combined. Those figures are a sobering comparison from which to start in understanding the desperate need to go for simplification rather than complication as the Bill has done.

I should like to say a word on the two aspects, touched on by the Chancellor, of effects on the home economy and effects on the external side. As my hon. Friends have said, there is no point of contact in the Bill—this is no new feature—with the key problem of the British economy, the slow, inadequate rate of wealth creation. There is no point of contact, except of a negative kind, with the need to encourage the accumulation of wealth, to stimulate innovation and to bring the young management cadre, which exists and has great ability, into the position where it can apply all its abilities and its capacity to innovation and investment in new processes techniques and methods.

The only negative point of contact is in Clause 18, where, as a result of a lot of to-ing and fro-ing, as a result of the complex Amendments introduced by the Government, the one certain fact is that men and women who would like to buy a small share in some way in the enterprise in which they are involved—by "small" one means much less than 5 per cent., unless it is a very small concern—are to be further penalised. This, the one negative point of contact with the process of innovation in the economy hits it sharply on the head.

The second point where the important effect on the home economy needs to be noted arises from the question of the size and level of public spending and the contribution which it makes to demand and to the Chancellor's calculations. There is something of a mystery, or, perhaps, a misunderstanding, here about what we mean by the level of public spending being too high.

The Chief Secretary is wont to say that it is under control and on target. He has said so many times. It is true that if one is a money supply fanatic and thinks entirely in terms of credit expansion, the level of public expenditure is under control in the sense that as a result of zero borrowing requirement and repayment by the Government, the level of public expenditure is under control in not aggravating the money supply problem. That, however, is not what one necessarily means in saying that public expenditure is too high.

It is an interesting but rather irrelevant fact that the level of public expenditure is such that it is all covered by taxation. The proposition that my hon. Friends and I have advanced, and will continue to advance, is that the level of public expenditure as a percentage of gross national product and the size of the public sector which gives rise to decisions which generate public spending is far too big. Not only is it too big, but, despite the assurances about slow 1 per cent. growth rates, and so on, there is fairly clear evidence that it is beginning to creep up again.

There is fairly clear evidence that the inevitable lack of proper management control and data about the cost of Government activities is leading to the inexorable bubbling upwards in the cost of Government activities which pushes the Estimates up and up. The signs are all there. If the signs are not enough on the Whitehall front, we hear at the same time rather sinister noises from Transport House about the new plans for increasing public expenditure still more rapidly in the near future should the party which have its headquarters there get the chance.

The public sector side of the demand calculation and the contribution that the appetite of the public sector makes to the overall strategy towards economic stability is far from being settled by our being told by the Chief Secretary that the matter is under control. It is under control only if one thinks entirely in money supply terms. While it is right that we should, perhaps, be more concerned with money supply questions than were the economic policy thinkers and debaters a few years back, the formal doctrinaire approach to the problem—the import from Chicago—is not one of my favourite United States imports. We should be wary and aware of the need to temper these highly formalised theories which have been tried out in laboratory conditions and which simply do not exist in an economy of the kind in which we live. We should be wary of adopting them too readily and rapidly and be careful to modify them and mix them in with other factors which are having an influence.

I conclude on the public sector side by saying that the claim that it is all under control and that we need not worry is a conjuring trick, a diversion or sleight of hand which hypnotises those who think only in terms of money supply. The public sector is not under control. It is too big and it is increasing once again at a rate which is under nobody's control.

I very much doubt whether it will be brought under control again until we have two things. One is a Government who are prepared to question the whole range of Government activities which are now carried on with a view to stopping them or transferring them from the public to the private sector. The second requirement is a change in the form of financial planning and control, at present operating in our Whitehall system, of a kind which will begin to provide, possibly inside the Treasury or alongside it, the sort of Bureau of the Budget mechanism which is familiar in the American Federal Government and which would provide the degree of control over the real costs of Government activities which we simply do not at present possess. It is that kind of Treasury reform of a radical kind towards which the minds of those who wish to bring the public sector again under control should be turning.

The Chancellor's most frequent reference on the overseas side was to the marvellous way in which invisibles have performed. The Government have made a tremendous discovery about what goes on in invisibles. Every speech now is larded with much-deserved praise for the performance of this part of the private sector. This is all very encouraging, because it shows that the dangerously wrong-slanted emphasis which Government spokesmen seemed to be giving in the past to the balance of payments and the way in which they appeared to see the problem is now giving way to a more realistic understanding of the balance of payment components which matter and which do not matter and take us away from the obsession which Treasury Ministers at one time seemed to have with the narrow export/import balance.

I do not know whether this has yet come across the Chief Secretary's desk, but I see that the Committee on Invisibles has commissioned a study on world invisible trade, a copy of which reached me this morning. A very interesting table—admittedly, the figures are only up to 1966—gives an enormous list of the balance of trade, invisible and visible, of 31 countries during that year.

No. 1 by far on the list is the United States. No. 2 is Italy and No. 3, just by a short head, is the United Kingdom in a list of the 31 leading economies. This is the balance of invisible and visible trade added together. This highly favourable position for Britain arises from the enormous balance of invisible trade. If there is an economic miracle in the making it is that despite this very favourable situation and despite the fantastic performance of the commercial sector and the vast strength and buoyancy of our invisible earnings, there has, nevertheless, persisted an atmosphere of no confidence and doubt about the British economy. What this shows is that if we are worried as to why the British economy seems such a poor investment, and why it has become such an object of derision around the world, the answer is not to be found by blaming the basic ability and energies of the commercial sector, or the merchandising sector of the economy. The miracle is that these sectors have performed so marvellously well, despite the aura of gloom and doom and the persistent clobbering of management by the Government of this country, and despite the attempt to enlarge and build upon the tax base provided by the selective employment tax legislation which, of course, discriminates against the service sector from which most invisible earnings spring.

This, again, is a strong argument—the strongest of all, in a way—why we must move on from the consolidation of S.E.T. as embodied in the Finance Bill, to the kind of indirect taxation which allows remission for exports and points the way to a tax on value added. I should like to know what addition to the revenue the proposals to extend S.E.T. to the nationalised industries will bring. I share the views of my hon. Friend the Member for Worthing (Mr. Higgins). This seems an odd way in which to spring this proposal on the House and on the public. But I suppose it would be churlish not to recognise that at least it evens out a grossly unfair situation which existed beforehand in regard to competition between private retailers of electrical equipment, gas appliances and so on, and the nationalised industries. At least that is remedied and, although we have not had a chance to discuss it, it would be nice to know what addition to the revenue that will lead to.

The point about the balance of paymants side of the equation is that, because of the past obsession with current visible trade, there has been this danger that somehow everything must be solved by urging people to export more and by preventing people from importing, and that the real issues, the real components of the balance of payments about which we should be worried, get neglected. The most fundamental issue, and the one which the Finance Bill understandably neglects, is the problem of external exchange rates and the movement throughout the financial world towards the realisation that we shall have to come to some system of managed rates, and the danger in believing that we do not have to face that issue. The real danger is that this problem, if neglected, will lead to a settlement of the world's exchange rate difficulties between the United States and Germany over our heads, and will place us in a position where our action finally has to spring from other people's views and decisions which may be even more painful than many of the remedies already applied.

Having sounded thoroughly critical, and feeling thoroughly critical, in protesting about the approach behind this Bill, I confess that as one goes around the country things are certainly not all black. The ability is there. The energy and readiness to go ahead on new designs, new investments and new methods is there. The ability to apply vast ingenuity to further expansion on invisibles and to provide the world with an even larger proportion of the total invisible earnings than the United Kingdom does already, is there. It is rather like the workers of Hamburg or Hanoi after the bombing. The able people of England creep out from the rubble of Government incompetence and go about their work.

But, of course, this is the tragedy. It is unnecessary. It could be transformed by an entirely different tax framework and an entirely different attitude of central government policy which would restore the greatness, viability and richness of this country.

1.35 p.m.

Mr. John Nott (St. Ives)

I should like to begin with a short quotation from Blackstone, because it seems to me to be appropriate both to the contents and the handling of this Finance Bill during the current year. In his commentaries, which in their time were the favourite reading of the British public, Blackstone claimed that No subject of England can be constrained to pay any aids or taxes even for the defence of the realm or for the support of the Government but such as are imposed by his own consent or that of his representatives in Parliament. My first comment is that this constitutional principle which has stood the test of time has, to my mind, been eroded further during the proceedings on this Bill.

I should like to comment on the Chancellor's remark that, in his view, the revised procedure—referring to the procedure of dealing with the Bill this year—has been generally considered as an improvement. Although the procedure this year was an experiment, and we all recognise it has having been worth while as such, I think that the method of splitting the Bill into two halves and not requiring the author of the Bill to answer in Committee and in detail for his measures, has diluted the capacity of hon. Members to speak their part, and has also lightened the constitutional obligation upon the Executive to answer in detail and in substance for their taxing of the subject. Parliament and its procedures are more important than the convenience of the great. I make that remark without any heat but just in passing.

I also make no criticism of the Chief Secretary, who at all times has been courteous and fair—sometimes in the face of provocation, perhaps, from hon. Members like myself—and I can assure him that those who are new to this House admire very much the way in which he has managed to steer a vast Bill through the House. We do not agree with what he says and there is, of course, a great unbridgable gulf which exists between his philosophy and my own. Nevertheless, he has been courteous and fair, and I wanted to say that in my opening remarks.

I make no criticism either of my right hon. Friends because I think they were right to agree to a very useful experiment this year in taking the Finance Bill in a different way. It was a useful experiment. As for my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), he has sat through every speech on Second Reading, in Committee, on Report and Third Reading, and I know that my hon. Friend the Member for Acton (Mr. Kenneth Baker) and all those who served on the Committee admire him very much for the way in which he has listened intentively to every word that has been spoken on the Bill. It contrasts, I am afraid, rather strangely with the attitude of the Chancellor.

If we take this Finance Bill in this way and we split it once again—I am not saying that I am against the procedure that we adopted; I make this point for my right hon. Friend—I think we need to have a larger Committee than we had this year. Taxation is not only a matter for the so-called experts, even on the arbitrarily chosen technical subjects of the Bill. It is a subject for those more normal and, perhaps, more admirable souls who can give a judgment as to its comprehension to the ordinary man. Although my hon. Friend the Member for Louth (Sir C. Osborne) is an expert in this field and many others, the Committee would have had great benefit from the type of speech which he made today on Third Reading. I do not believe in a Committee of experts upstairs considering the technical details of the Bill. Parliament should have a healthy scepticism towards the expert.

The failure to understand and the failure to discuss are two instances of the way in which the theoretical assent of the taxpayer through his representative in Parliament may be made unreal. My hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) on Second Reading, I think, referred to last year's proceedings on the Finance Bill as being rather like a magistrate's court in Calcutta 100 years ago. He had a valid point there, but I make the contrary remark that it was a feature of the British Raj that, although its quarters may have been over-heated and unduly cramped, it was nevertheless noted for its well ordered and conducted administration, and its justice which was seen to be done on every occasion.

My hon. Friend the Member for the Cities of London and Westminster (Mr. John Smith) is a director of one or two of our most important companies, but, because of the size of the Committee, he could not serve upon it. As a director of some of Britain's leading companies, he should have had the right to speak about corporation tax. Because we did not have a corporation tax debate on Report, however, his only opportunity was either on Second Reading or on Third Reading, neither of which is a really appropriate occasion to speak in detail about an increase in corporation tax. I make that point also in support of my view that the Committee should be widened.

I come now to the two measures which have been the most controversial, the Clauses concerning interest on borrowing and the anti-avoidance provisions of Clause 25. For £20 million to £25 million of additional revenue a year and a marginal reduction, perhaps, in the size of personal borrowing, the area of uncertainty in our tax system has been unnecessarily extended. The boundary between allowable and disallowable borrowing will choke the Revenue with work, with a further bad effect on the Revenue's efficiency. Quite arbitrarily, business has been raised into a privileged position over the personal borrower. One type of individual borrower will be approved—for instance, the man raising a second mortgage on a new house—while another type of individual borrower—the man raising a second mortgage on his present house—wil not be allowed to offset his interest against taxation. Likewise, a loan for the purchase of shares in a close company will be allowable but not in a non-close company. A man will be deemed a privileged proprietor for borrowing purposes where he holds 5 per cent. of a close company but an unprivileged proprietor if he holds 4 per cent.

With all this muddle and the anomalies which are being put on the Statute Book, the two categories of person for whom one might expect from any Government a privilege rather than a discrimination, namely, the employee who wishes to buy, or who has already bought, a small stake in his own company and the holder of an insurance policy undertaken as a means of saving against old age, sickness or the education of his children or just to meet a rainy day, are specifically singled out for discrimination because they are inhibited from borrowing. It is the strangest notion, unintentional originally, perhaps, on the part of the Chancellor, which has led to these measures in the Bill which, on the face of them show a lack of foresight and preparedness.

Now, Clause 25 and, in particular, Amendment No. 204 inserted by the Government yesterday. The Amendment is in terms which give the Revenue the power to probe into a taxpayer's moral intentions when it says (c) the main object, or one of the main objects, of the transaction or arrangements was the avoidance or reduction of liability to income tax. The Chief Secretary told me that the Amendment's purpose is to safeguard the taxpayer. It is no such thing. The only reason for its insertion was that the Government found it essential because of the wide-ranging nature of the original Clause. An important point is raised here. Is it avoidance of tax or the Government's anti-avoidance measures which are the greater evil in this country? When I speak of avoidance of tax, I do not mean evasion. I am not referring to those who break the law. I refer to avoidance, the arrangements made by those who legally conduct their tax affairs so as to reduce their liability to tax by the maximum amount.

The worst that can be said against avoidance of tax is that there are instances in which it offends against the spirit of the law even if not against the letter. But, since the Revenue presses home its demands according to the letter of the law and without regard to its spirit, the odds are fairly even on that score. The law reports are laden with cases in which the Revenue has pressed its case, against all equity, right up to the House of Lords. I cite Abbott v. Philbin and Inland Revenue v. Luke as two cases in which the Revenue pursued its point up to the House of Lords although one would not have thought that the spirit of the law was being transgressed.

The balance as between the Executive, the Inland Revenue and the taxpayer in this country is not right. I take the doctrine of discovery, which is closely relevant to the Bill. The law entitles an inspector of taxes, even where the taxpayer has made a full and accurate return, to make a new assessment even when he, the inspector, has failed to take note of a fact or a relevant proposition of the law. More and more, and notably in this Bill, the weight of legislation passed by the House is burdened against the taxpayer rather than set in his favour.

At best, anti-avoidance measures are a proper exercise of the power of the Legislature, but in practice, on the presumption that avoidance is inherently evil and the needs of the Revenue are paramount, anti-avoidance has become an instrument for the erosion of the law. This ought to be noted by the House.

Although he is not a popular man, the avoider of tax, the man who legally so arranges his tax affairs to reduce his liability is under our Constitution an upholder of the rule of law. I think that the Financial Secretary will understand my point. I am referring to the tax avoider, not the evader. He upholds the rule of law, arranging his tax affairs by the strict letter of the law. Moreover, what he does underlines the policies of confiscation which we have been seeing in the past four years' Budgets, with taxation of people's incomes up to and over 90 per cent., and last year over 100 per cent.

It is worth recalling Lord Clyde's judgment in the context of Clause 25: No man is under the smallest obligation, moral or other, so to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest shovel into his stores. That judgment is still the law of the land. Lord Atkin has said: The subject, whether poor and humble or wealthy and noble, has the legal right so to dispose of his capital and income as to attract upon himself the least amount of tax. That is the law of the land, and in proposing an Amendment yesterday which referred to the main object, or one of the main objects, of the transaction or arrangements being the avoidance or reduction of liability to income tax, the Chief Secretary went wholly contrary to that cardinal principle of our Constitution.

I come, finally, to the Chief Secretary's claim that every man has access to appeal to the courts. That sounds convincing, but it is less and less related to reality. I do not know whether the Financial Secretary can comment, but yesterday, quite by chance, I received a letter from a very reputable accountant in my constituency which said: I understand that the Clerks to the General Commissioners for Income Tax have received a letter from the Chancellor of the Exchequer stating that they must make every endeavour to reduce the number of outstanding tax appeals. The General Commissioners are supposed to be an impartial body of men standing between the taxpayer and the Revenue, and if my information is correct, it would appear that the Chancellor is trying to unduly influence the Commissioners so that the statistics relating to income tax appeals for 1968 and 1969 can be improved. I have put down a written Question to the Chancellor about this, but perhaps the Financial Secretary could say whether the Chancellor has sent such a letter to the Clerks to the Commissioners for Income Tax. This is a most important constitutional point.

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

Is this what I am being asked—has the Chancellor encouraged the Commissioners to deal as speedily as possible with outstanding appeals? Is that the gist of what has been said?

Mr. Nott

No, the allegation is being made—I have no means of knowing whether it is true or not until I receive an answer to my Question—that a letter has gone from the Chancellor to the Clerks to the General Commissioners saying that they must make every endeavour to reduce the number of outstanding appeals—

Mr. Lever

It is the same point.

Mr. Nott

I think that it is a very different point and if the Financial Secretary—

Mr. Lever

Would the hon. Gentleman make it clear what he is complaining about? What does he think is improper in seeking to reduce the number of appeals? I am not quite clear.

Mr. Nott

If the hon. Gentleman is saying that all that is being asked is that the outstanding appeals should be hurried along, which was the point of his earlier intervention, and that the whole process should be speeded up, there is, of course, no objection to that. No, what I am saying is that, if the Chancellor is asking that the tax inspectors should try to persuade people not to go to appeal, then that, of course, is wholly wrong.

Mr. Lever

indicated dissent.

Mr. Nott

Well, if the hon. Gentleman can give an assurance, that is fine.

Under Section 28 of the 1960 Act, the Revenue can impose income tax without stating its grounds. The taxpayer may state his case, saying why he thinks that the Section does not apply to him, but only then does the Revenue state its case to the tribunal, the taxpayer has no right of reply, and the tribunal then adjudicates. This is the type of Measure which is going on the Statute book, so I do not accept the Chief Secretary's answer yesterday, that a man can simply go to appeal.

I should like to end with four questions relating to Clause 25, which have been asked in an excellent article in the British Tax Review by Mr. Monroe, one of our leading tax counsel. First, Is the departmental ruling today an inevitable development alongside the departmental concession?". Second, Must fiscal legislation become so obscure that inevitably, the executive has a wide discretion as to its scope and operation? Third, Is the only practicable way to deal with tax avoidance to accept a curtailment of constitutional liberties? I have referred to that, and I think that that is what is happening in Clause 25. Last, 'If a wider discretion in the executive is inevitable in the twentieth century, can the taxpayer be given more adequate opportunities to confront the executive, to ascertain his position and to plead his case? My last quotation is another from Blackstone: The third absolute right inherent in every Englishman is that of properly; which consists in the free use, enjoyment and disposal of all his acquisitions without any curtailment or diminution save only by the laws of the land. I believe that it is in fiscal policy and in the type of legislation which we find in Clause 25 and in the wider and wider discretionary powers given to the executive and the Inland Revenue that the traditional liberties of the subject are being infringed.

I do not want to exaggerate the point, but it is a trend which we should speak up against. It is in conformity with the decline in the traditional freedoms of the subject, which is characterised also by the removal of passport rights from citizens under the Commonwealth Immigration Act and the removal of their rights to exercise their vote in the manner recommended by an impartial commission under the Parliamentary Redistribution of Seats Bill. I hope that, when my right hon. Friends come to power, they will reform and simplify the whole taxation system and, more important still, will create a system of detailed and open scrutiny of new taxation proposals, so that their application and its fairness may be studied before they are introduced.

1.57 p.m.

Mr. Hugh Jenkins (Putney)

We have just heard two extremely interesting speeches from hon. Members opposite. It seems that hon. Members of the Conservative Party who have joined the House recently are even more traditional in their outlook than the older Members. The association which the hon. Member for St. Ives (Mr. Nott) drew between liberty and property is an extremely old Conservative doctrine. One understands that, for them, property is liberty and liberty is property, but to hear that proposition enunciated so clearly in this debate by an hon. Member opposite is extremely interesting. We do not take that view, which stems from about 1645, at the time of the English Civil War.

My view about the Bill is that it fails further to intervene in the maldistribution of property. What needs to be done is that property should be more effectively distributed. I also criticise the Bill because it does not go far enough in tackling income redistribution.

The hon. Member for Guildford (Mr. David Howell) also made an interesting point, drawing a distinction between the American taxation system and our own. I have failed to discover, among my American acquaintances, that admiration for the American taxation system to which he gave voice. American citizens, staggering as they frequently are under state taxation, federal taxation and city taxation—all of them sometimes both direct and indirect—find complexity in their tax laws, and not the simplicity which the hon. Gentleman affected to discover.

The complexities of our system are for the purpose of creating greater fairness. I would look very carefully at any changes in the Bill which sought to give greater simplicity to our tax laws only at the cost of making them more unfair. There are two lacunae in the Bill, two points which I wish were in it but which are not there. One is the question of political contributions. I understand that it is not in order—

Mr. Deputy Speaker

Order. I think that the hon. Gentleman knows what the rule of order is on Third Reading.

Mr. Jenkins

I was about to say that it was not in order to say anything about the subject. It is, however, with your indulgence, Mr. Deputy-Speaker, proper for me to express a simple statement of regret that it is not there, and to pass straight on.

I understand that the reason is that it was not felt proper in a Finance Bill to deal with a matter which should properly be dealt with in a Companies Bill. However, there is reference in the Bill to selective employment tax. It is technically possible to introduce into the Bill references to selective employment tax, which might be said to be properly referrable to the Selective Employment Payments Act rather than to this Bill. So in some circumstances it is proper to change a Bill by means of Clauses in a Finance Bill.

I welcome the changes which are being made with a view to making selective employment tax more selective. The great advantage that the selective employment tax has over the value-added tax which is so popular amongst hon. Members opposite but under which I hope that our citizens will never have to groan is that that tax is a bludgeon as compared with the selective employment tax, which could, if my hon. Friends chose to be a little more rapid about it, be shown to be a rapier, a tax which could be utilised very selectively.

I repeat that I welcome the steps which the Bill makes towards making selective employment tax more selective. In so far as the Bill fails to deal with the glaring anomaly of the maintenance of selective employment tax on theatres, I deplore it. I hope that it will be proper for my right hon. Friend the Financial Secretary to indicate that it is the Government's intention to proceed rapidly to rectify the other anomalies which are occurring in the implementation of the tax.

The Finance Bill is a Bill which, generally speaking, refines, furthers and maintains our present broad taxation system. It does not greatly improve it, nor does it worsen it to the degree that hon. Members opposite wish to do. To this extent I give a modicum of reserved congratulations to the Government.

2.3 p.m.

Mr. Kenneth Baker (Acton)

I find the diffidence of the hon. Member for Putney (Mr. Hugh Jenkins) agreeable. He said in one throw-away line that there is a reference in the Bill to the selective employment tax. There certainly is: the Bill increases the burden of the tax by 28 per cent., as everybody who has to pay it has known from last week. The hon. Gentleman went on to call the tax a rapier. It is indeed a rapier: like the rapier, it has the effect of killing what would otherwise be useful activity. Like so many supporters of the selective employment tax on his own side of the House, as soon as it affects his own interests in his own industry the hon. Gentleman throws up his arms in horror and says that his industry must have a rebate.

Mr. Hugh Jenkins

Is the hon. Gentleman defending the continued imposition of the tax on the theatre?

Mr. Baker

The attitude of my right hon. and hon. Friends to the tax is well known: we intend to abolish it at the first opportunity.

I am particularly worried about one aspect of the Bill that partially concerns selective employment tax. Under Clauses 44 and 45 relating to the tax, and under Clause 9 which concerns corporation tax, the penalty put upon business activity is about £200 million a year. In addition, although it is not part of the Bill, industry will have to bear a substantial extra burden from October as a result of the higher national insurance contributions.

This is very worrying, but it is all part of the Government's policy. I am sure that the effect will be depressant upon industrial activity later this year and early next year. I know from my own businesses and from my connections with colleagues and friends that people are concerned about the sluggish volume of trade in a wide variety of industries. If the Government live, they will live to regret this Budget and its strategy.

I turn now to the question of the legislative method used in the Bill. The Bill makes three major changes in our tax law. The first relates to the disallowance of interest, the next is the very complicated change in estate duty, and the third is the complicated series of changes in capital gains tax.

I know that these are technical matters, but they have a wide general effect. There will hardly be any person in Britain who will not feel some effect—a long, wide-reaching, ripple effect—from these three groups of tax changes. Yet we have devised a complicated and inefficient method of bringing in such changes. The Chancellor, in a ringing Budget speech, said that various things would be done in these areas. He was not present in Committee to hear the arguments as to how difficult it would be to implement the intentions within our tax laws. As a result, the Bill was badly drawn and it has been fundamentally changed on Report.

Last Friday and this Monday was the first opportunity that many of us had to study the fundamental and wide-ranging changes made in the Bill by the Government. We had little time to consider them. I have little doubt that these changes and new Clauses are as badly drafted and as confusing as the original parts of the Bill. The way in which they were introduced by Treasury Ministers on Tuesday and Wednesday was staggering. Ministers came as repentant sinners expecting the gratitude of the House for appeasing the hardship which they had previously inflicted.

I could not help recalling the words of Sydney Smith, the eighteenth century cleric: The liberality of ministers"— he said "churchmen"— is like the content of matter in a cone. The higher they go the less it becomes. The so-called concessions made by the Government are not very wide or deep. They are certainly inadequate. One lesson from the Bill is that when established tax procedures are to be changed, such as the disallowance of interest or the provisions relating to estate duty, it should be done by publishing a green paper first so that people can comment upon it; possibly a Select Committee should consider the proposed change. In that way we could get better tax laws and not the mess we have had this year.

Clause 18 is the most important Clause in the Bill. It introduces the principle of the disallowance of interest. I know that the Treasury was concerned to stop some very obvious abuses of this principle, but it cast its net so wide that it caught in its net, and will continue to catch in its net, many small and medium-sized people and businesses. The very rich will be able to evade the Clause. Suggestions have been made to me, not that I am very rich, as to how it can be done.

The whole effect of the Clause and of such legislation is to widen the gap between the very rich and the rest of us. The Financial Secretary, of all Ministers in this Government, appreciates the truth of what I am saying.

The basic difference between the Tory Party and the Labour Party is highlighted by Clause 18, because what justice can there be in a Clause which allows somebody to borrow as much as he wants to build a swimming pool, to lay out a croquet lawn, or to establish a deer park, but does not allow a young executive to borrow money to buy a small stake in his business. This shows the difference between the attitude of the Labour Party and that of the Conservative Party. We are concerned with the creation of wealth and with oiling the wheels to create wealth. The Labour Party is not so concerned and is proud of it.

I believe the Treasury and Treasury Ministers are preoccupied with tax avoidance to the point of paranoia. The Clauses on tax avoidance in the Bill were debated for many hours, but the amount of money involved is very small. This continues the battle that goes on each year between a huge army of private accountants and a huge army of tax experts in the Treasury and the Inland Revenue. It is a battle without honour in which only wounds can be won and it is about time we decided upon a truce.

The Treasury Ministers should take their eyes from the small print and realise with a broader vision that a fundamental tax reform is needed in the country. The rulers of this country in Tudor times built mazes and hedges. We in our age build our maze with tax laws. In Tudor times mazes were an ingenious diversion. In this age they are an expensive and tiresome pursuit. The broad body of people in this country see a need for tax reform. Any Government or Party which offers the prospect of a reform will deserve well of the electorate and will do well by the country.

2.12 p.m.

Mr. Michael Alison (Barkston Ash)

I wish to reinforce the eloquent and acid comments of my hon. Friend the Member for Acton (Mr. Kenneth Baker), particularly in regard to Clauses 18 and 19 of the Bill. The way in which the proposals of the Government on disallowance of interest on borrowed money have been handed out will go down in history as a classic example of how not to handle an admittedly difficult financial situation and how not to react to an emergency.

The sad and worrying thing is that they have played disallowance of interest as though it is some sort of tragi- comedy, in the same way as the Government have acted over a whole range of other emergency situations which have arisen. The way in which they have reacted on this occasion reminds me most of all of their reaction to a different situation, the Anguilla crisis. It was a shot in the night.

The sudden realisation seemed to float across the Government's mind that the fact that people were borrowing for relief of taxation was the clue, the vital new discovery, as to how we could get out of all our economic difficulties. There is a sudden, massive over-reaction to a situation, a mobilisation of everything and everybody in one enormous gargantuan proposal to deal with the economy. The whole thing is followed by a clumsy, piecemeal, extravagant costly, and in some ways humiliating, withdrawal to a position into which they should never have got themselves in the first place.

This over-reaction, this panic measure, without any serious thought behind it, is seen most clearly when one works out the financial implications of the toing and froing of the Government over Clauses 18 and 19. One must remember that this year the net yield from these Clauses on disallowance of interest, as announced by the Chancellor of the Exchequer on 15th April, is £7 million and he said that it would be £25 million in a full year. But it is not the full year which is of relevance in the disallowance of interest. It is this present financial year in which the fight is to take place.

It is this financial year in which we are committed by the I.M.F. letter of intent to secure a surplus on balance of payments of £300 million. It is this financial year in which consumption has to be restricted and next year, the full year, in which £25 million might accrue is not strictly relevant in this context. Taking the full year involving £25 million as the estimated yield, one must take into account all the further offsets which will occur since public expenditure in this period is scheduled to increase quite considerably. This is a panic measure with all the subsequent ludicrous fiascos involved in withdrawals in all sorts of different sectors in order to produce an in-flow of £7 million.

The provision is all the more questionable when one recalls that on 15th July, a few days ago, the Chief Secretary came to the House to announce concessions, part of the withdrawal from Anguilla, part of which will cut the yield of the disallowance of interest by £3 million. This is 50 per cent. of the figure which he hopes to obtain in the full year. Pro rata it reduces the total yield from £25 million to £12 million.

There could never have been an occasion when a serious and significant change has been proposed in our taxation system, involving major fiscal reforms, in which a concession has been advanced two days before Third Reading to cut by 50 per cent. the expected yield of this major change, which reduces inflow by £3 million. As we know from the Budget speech, this is only part of the story. The concession relates only to the concessions made in respect of estate duty and close companies.

The Chief Secretary explicitly stated that the concession he was making of £3 million did not include his proposals in relation to the five-year extension of bank lending and overdrafts. One does not know what the full concession may be. It could be as much as 50 or 75 per cent. of the precise yield. If that is the fact, what is the point of this whole proceeding?

The situation is made even more ludicrous when one considers the rational justification made by the Chief Secretary for this proposal and the series of concessions. In order to appreciate this matter, one must reflect on the extraordinarily bizarre transformation of the Chief Secretary from what one might call "fiscal practical man" into "philosophic man". The Financial Secretary may not be able to visualise the transformation of the Chief Secretary from practical man into pholosophic man. It is as if he were transformed from his normal grey suit into the garb of an astronaut, inflated suit, helmet and the rest. That is his philosophic guise and it is so ludicrous as to defy description.

The Chief Secretary, in his rôle as philosophic man, tried to justify this change in the taxation system by the distinction he drew between expenditure for business purposes and expenditure for personal purposes. I leave aside the fact that he immediately introduced into what at first sight was rational distinction a colossal exception in regard to expenditure in connection with the acquisition or development of land straddling business and private expenditure, which therefore must be discounted. We must also discount the colossal exception to the exception that he made when, having allowed development and acquisition expenditure, he disallowed maintenance.

But we must allow the Chief Secretary, as philosophic man, to have this little distinction between business and personal expenditure. I hope that the Financial Secretary will appreciate how crazy this philosophy is if we work out its real implications. The Chief Secretary justifies the discrimination between business and personal expenditure, or expenditure by way of borrowing, on the ground that it was quite legitimate that personal borrowing of money should bear a differential rate of interest—a slightly higher rate. I am sure that the right hon. Gentleman will appreciate that the corollary to that is that we wish to encourage business expenditure by giving it a relatively lower rate of interest.

If we extend the logic and encourage rates of interest throughout the whole economy to drop—I am sure that the right hon. Gentleman would wish avidly to see the Bank Rate fall by ½ per cent. or 1 per cent. and to have a lower rate of interest to encourage businesses—we see the ludicrous nature of the Chief Secretary's differentiation.

Table No. 29 shows that the volume of bank advances outstanding to the end of March this year amounts to about £17,000 million. Let us imagine that the public were paying 10 per cent. on that, or £1,700 million. If we cut the rate of interest by 1 per cent. we should save the economy about £150 million.

The Government are making a massive sea-change of fiscal policy designed to produce less than £3 million in savings, and the logic behind it is the need to encourage investment in the business sector. This will almost certainly give a bonus to borrowers of every sort of probably over £100 million a year, in other words, ten or 15 times as much as is saved on this Measure. The whole thing is ludicrous. I cannot imagine why the Government do not scrap the whole thing and reintroduce at least a measure of sanity into the Bill.

At all times I found the Chief Secretary to be an extremely agreeable and lucid exponent of Government fiscal policy—in this I echo what was said by my hon. Friend the Member for St. Ives (Mr. Nott)—but he must not allow himself to be diverted into philosophic ways in trying to justify some of the nonsense that we have had in the Bill.

2.24 p.m.

Sir Henry d'Avigdor-Goldsmid (Walsall, South)

Having sat through the three months or more during which this Bill and its associated matters have been through the House, and being conscious of the fact that I have contributed as much to these discussions by my silences as by my speeches, I do not intend to spoil my record at this late stage. I am conscious that the House wants to hear my right hon. Friend and come to a decision on this matter, and I do not propose to delay proceedings. But when I compare what happened on Budget day—when, to crowded benches, the Chancellor adumbrated the proposals on which we are now coming to a final decision—with the scene today, I remember the words of T. S. Eliot: This is the way the world ends Not with a bang but a whimper. This year we tried a procedure which, to those most experienced in Parliamentary matters, seemed to be likely to prove the most desirable, namely, a divided Committee stage, partly on the Floor—in respect of Clauses on which there was most political mileage, if I may put it that way, and partly upstairs—where the more technical matters were dealt with. It was partly successful. It made for a much better atmosphere at all stages, and was conductive to the proper conduct of business. I wonder whether, in the end, business was properly conducted, however, considering that the Bill has been in front of us for three months and that nevertheless many of the most important Clauses came before the House for the first time only a day or two ago. One is tempted to ask, "What have we been up to?"

I would have thought that an extension of the principle of pre-discussion was useful. This extremely involved disallowance of interest question could have been dealt with much more advantageously if there had been previous dis- cussion. There could have been no question of hon. Members beating the gun it the subject had beers discussed in Committee or on the Floor of the House on the basis of a Green, Paper, where both sides could have consulted the kind of authorities that are necessary in these matters. We have not yet evolved the perfect procedure. This years' was an improvement on previous years, but we could go a long way further yet.

My right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) suggested that the question of estate duty could have been discussed in advance. I wish that the ingenuity of Ministers, instead of being bent to the defence of indefensible causes and new principles, had been turned to methods of procedure. It that had happened we would have got on better and would also have served the interests of the country much better. We would have had adequate discussion instead of a bang followed by a whimper.

2.28 p.m.

Mr. Iain Macleod (Enfield, West)

I shall be brief. Apart from a few traditional remarks at the end of the Third Reading debate on the Finance Bill, I shall concentrate on one important matter—the question of disallowance. My hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) commented on our procedure this year. I like to think that I hold most of my views fairly consistently, but I have changed my view over the years as to the proper conduct of Finance Bills—not depending on which side of the House I sit but purely on the question of the best way to serve the House of Commons.

With one or two reservations, I believe that the procedure this year—by which, in effect, the Opposition had four economic Supply Days on the Floor of the House to put forward their views followed by a detailed discussion in Committee, followed by the Report stage—while not the perfect answer was a great improvement on anything that had happened before.

The two reservations are these. First, I agree with my hon. Friend the Member for St. Ives (Mr. Nott) that the Committee was too small. Looking back, that is clearly so, and my hon. Friend mentioned a number of hon. Members—for example, my hon. Friend the Member for the Cities of London and Westminster (Mr. John Smith)—who would have been very much welcomed to our counsels. A Committee of 30, meaning that with the present representation in the House the Conservative Party has 12, is too small for this operation.

Secondly—this is important, particularly when, as this year, a large number of concessions, or whatever one cares to call them, were made—there must be more time between the end of the Committee stage and the consideration by the whole House of the Bill on Report. I emphasise that by this I am not referring to more time for the Treasury to think out what it is going to do. I mean more time for the House to consider the results of the Treasury thinking, for it is clear that it was at this point that this year's procedure became difficult for hon. Members, and particularly for my hon. Friends who naturally must hoist in complicated new Clauses but who wish to consult interests outside the House who are enormously affected by the proposals of the Treasury.

In an idle hour in the middle of the night recently I counted up the Government Amendments on Report and I reached the total of 134. While some are put together, each one must be put individually by the Chair to the House. Some of them were not particularly important, but some were of vast importance and it is vital that more time should be given for consideration.

We, the Opposition and the Committee, achieved a great deal during the time we considered the Bill. For example, in Clause 25 the Chancellor originally set out to shoot the Beatles, probably not a particularly estimable thing to do since the Beatles make a lot of money for this country, much of it in foreign exchange. Whatever the merits of the operation, it was abundantly clear that the Chancellor, aiming at a fairly narrow target, had scattered his shot so widely that a whole range of ordinary business activities became affected.

The Chief Secretary was wrong about this. Even yesterday, when attempting to justify new Amendments, he said that the situation was now plain to the layman. I rarely criticise the civil servants' pride in authorship, but I found it rather puzzling and not conducive to the conduct of good business in the House. After all, there are people outside the Government Service who are just as well informed and able in their legal judgments as those inside it. There can be no doubt that Clause 25 was extremely badly drawn and that, as a result of our investigations in Committee, it has been vastly improved.

Before leaving these traditional observations I wish, apart from expressing my gratitude for the civilised conduct of these affairs by the Treasury Ministers, to pay particular tribute to my hon. Friend the Member for Worthing (Mr. Higgins) and my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) who has borne so much of the burden of opposition. I also pay tribute to my hon. Friends who joined me in Committee upstairs.

I come to the only matter on which I shall comment today: the major innovation of the Chancellor on disallowance. Linking these remarks to my previous comments, it is clear that we were right not to take disallowance as one of the economic Supply days on the Floor of the House but to have first given it the most detailed turning over in Committee. That we certainly did, for we had a morning, an afternoon and an evening followed by an all-night session on the subject. We were much helped by the sympathetic understanding of the Chair, which appreciated our wish to make our main demonstration on this point. The proof of the pudding is in the Bill, with all the new Clauses that were inserted on Repot.

I was criticised a little for welcoming these new Clauses—on the ground that, when in opposition I suppose, one should never welcome anything that appears from a Government. I do not take that view. I believe that there is more joy in the Parliamentary heaven over one Socialist sinner that repenteth than ninety and nine just Tories who need no repentance. I therefore welcome what was done.

I tried at all stages of the Bill to consider the difficult problem of disallowance from the point of view of equity, as did the Government, up to a point; but the point came when we parted company. We are naturally pleased that, as a result of our pressure in Committee, so many Amendments have been made. However, nobody who listened to our debates—for example, on estate management and on borrowings against insurance policies—could conclude that the position can be left as it is. Indeed, the position now is more confused and less logical than it was before the new Clauses were tabled.

The Chief Secretary told us that the Government had looked at the experience and legislation of other countries, notably the United States, Canada and Australia. So have we. There may be, as some countries have concluded, an argument for looking at cases where money is borrowed for the purposes of an artificial transaction, and I think it right that we should reserve our position on this.

However, the principle of these Clauses is not acceptable to us. We believe, as all other previous Chancellors have held, that the charge to tax should be made on net income after allowing expenses necessary to obtain it. We believe that relief should be available, as in the past, for interest on borrowings for all normal personal, family, professional and business purposes; and, accordingly, when we form a Government we shall repeal these Clauses.

When I made some preliminary remarks on this matter the Chief Secretary said that this was a point of view which he found entirely respectable. Indeed, he could say no other from the experience of some of the countries I have quoted. Thus, while I may not have his agreement, I have his understanding. The Financial Secretary has been mute on this matter, not of malice but perhaps of embarrassment, and I have a feeling that he may have raised a silent cheer as I spoke a moment ago.

My hon. Friend the Member for Louth (Sir C. Osborne) made an excellent speech. It is entirely right to question the effects of the Bill on the ordinary citizen. As a senior Parliamentarian, my hon. Friend knows that a vote against Third Reading is a vote against everything in the Bill, including not only the things one dislikes but some of the things one may like and some of the machinery of Government. It is well understood, however, that when, as last year, we had a formidable weight of taxation added—it was over £900 million—then, even with that reservation, it was not possible for us to give a silent hearing to the Third Reading, and we voted against it. This year, the position is different and I think that, in the statement which I have just made, I have been able to remove one considerable anxiety of my hon. Friends. I must make it clear that the fact that we do not vote against the Bill does not mean that we view it with approval. I agree very much with my hon. Friend the Member for Guildford (Mr. David Howell), that we must move towards a vastly simpler method of legislation on Finance Bills.

Mr. Speaker, you have a copy of the Bill and in a few moments you will hold it up and suggest that it be now read a Third time. There are 200 pages in it. Some of it is consolidation—Schedule 20, for instance—and that is welcome. Some of it is useful. Some of it is an addition—an ill-digested and, for all our work over the last three months, still ill-considered addition—to all the mass of legislation which has gone before. Could I invite your attention to the very last page of this Bill, which contains the words: "Ordered, by The House of Commons, to be Printed, 26th July, 1969."? We have not yet reached the 26th of July. The Government cannot even get that right.

I am not sure whether, on a point of order, I cannot ask for the Bill to be thrown out at this stage. The Chancellor is checking. He will find that I am right. The date of 26th July, incidentally, is a Saturday, when very few Bills are printed—or it will be, when we reach it. They mean, I suppose, 26th June, but it is a pleasing thing to see that, as an epitaph among the last words on the Bill, it comes from a Government who do not know what day of the week it is, or which month it is. I suppose that we should be grateful that they have got the year right.

Mr. Speaker

I do not know whether the hon. Gentleman is raising a point of order, and, if so, whether it was "indefeasible" or "indefensible".

2.42 p.m.

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

I must leave the Opposition to make what mileage they can out of misprints in the Finance Bill and other documents produced by the Stationery Office. This is a perfectly legitimate method of argument.

It would be churlish if I were not, in winding up the Third Reading debate, to acknowledge, on the Government's behalf, the great courtesy, the great intellectual effort and the great contribution made by the Opposition throughout our debates in helping to improve the Bill. It is a little unfortunate that, when we take note of what they say and respond to what is said, not merely from that side but from critics on our own side, in order to perfect the original proposals put before the House, this is taken as a ground for criticism of the Government. No one is asking for gratitude for making these concessions. It is simply what one would expect from an intelligent Government that they should be responsive to intelligent criticisms, and nothing should be said which discourages this virtue, which is not to be taken for granted in Governments.

I am glad that we have made progress in our discussions, greatly helped by Front Bench and back bench Opposition speakers, in Committee and on the Floor of the House. They are entitled unreservedly to these tributes. They were a first-class Opposition on the Bill and I have not the least difficulty in envisaging many years of success for the Opposition in a similar capacity on future Finance Bills, and much to the public advantage. One could anticipate that with reasonable confidence.

On our methods of procedure, now that the Chancellor has returned, I have to repress my own heretical tendencies. I feel that we must look again at some of the procedures which we have adopted on Finance Bills always seeking to make an improvement. I agree with the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) that we feel the need increasingly, as legislation on Finance Bills gets more and more complex, to seek a means for protracted study, where possible, and where nothing secret is involved, in advance of the more formal decisions, in discussions of a more restricted character, upstairs and downstairs. How we achieve that is a matter on which we must take counsel together. I also see the difficulty created by the short gap between the end of the Committee stage and the beginning of the Report stage. We operate on a very short time scale, which has circumscribed the time available.

I do not propose to attempt to turn over again the arguments on the Finance Bill, and I do not think that any hon Member will think me discourteous, because no one expects, on Third Reading, that an argument of special novelty is likely to be uncovered. All the points raised have been thoroughly discussed it previous stages and many hon. Members made their points again today more by way of demonstration than in a desire for a detailed response at this late stage.

The main purpose of the Bill was the economic purpose outlined by the Chancellor in his Budget statement and in his speech today. I think that it has been successful in its main purpose. The alarmists who thought that it was too much, the pessimists who thought it was too little, seem, as events unfold, to he increasingly discounted. More and more is it becoming obvious that the Chancellor's broad strategy in the Bill was right.

The hon. Member for Walsall, South complained that the Budget begins with a bang and ends with a whimper, but this is partly inevitable because of our style of handling these things, in which the Chancellor is cast, in making his Budget speech, by the Press and organs of publicity, rather in the rôle of Moses descending from Sinai to find the Israelites making merry before a golden calf and obliged to take appropriate action. My right hon. Friend, cast somewhat surprisingly in this patriarchal rôle, fulfils it dutifully in his opening statement and thereafter we can, through the more routine processes, give calm and detailed consideration to all the Finance Bill proposals.

We have done so, and we have come to the end of our labours. Whatever differences of opinion we may have had on different items, both sides have contributed to the anxious and detailed discussion and we can now put the Bill to bed, so to speak, with an agreed Third Reading.

Question put and agreed to.

Bill accordingly read the Third time and passed.