Commons Sitting of 13 May 1969

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

  RYDE CORPORATION BILL [Lords]
  [Queen's Consent, on behalf of the Crown, signified]—
  Read the Third time and passed, with Amendments.

  PHOENIX ASSURANCE COMPANY BILL [Lords]
  Read the Third time and passed, without Amendment.
  SAINT MILDRED, BREAD STREET BILL [Lords]
  Read the Third time and passed, with an Amendment.
  SALISBURY RAILWAY AND MARKET HOUSE BILL [Lords]
  Read the Third time and passed, without Amendment.
  CARDIFF CORPORATION BILL
    LONDON TRANSPORT BILL
    As amended, considered; to be read the Third time.
  PORTSMOUTH CORPORATION BILL [Lords]
  Read a Second time, and committed.
  GREATER LONDON COUNCIL COUNCIL [MONEY] BILL (By Order)
  Second Reading deferred till Tuesday next.
  ABERDEEN CORPORATION (FISH MARKET) ORDER CONFIRMATION BILL
    EDINBURGH TRADES MAIDEN FUND ORDER CONFIRMATION BILL
    Considered; to be read the Third time Tomorrow.

STANDING ORDERS (PRIVATE BUSINESS)
The Chairman of Ways and Means (Mr. Sydney Irving): I beg to move,
That the Amendments to Standing Orders relating to Private Business hereinafter stated in the Schedule be made:—

STANDING ORDERS (PRIVATE BUSINESS)

  Schedule
  Table of Fees, page 100, line 3, leave out "6—10—6" and insert "7—16—6".
  Line 5, leave out "7—14—6" and insert "9—5—6".
  Line 7, leave out "2—3" and insert "2—8".
  Line 8, leave out "3—2" and insert "3—10".
  These Amendments would increase the fees paid to the Shortland Writer to the House so as to bring them into line with these received for official work by outside shorthand writers. The increases have been approved by the Treasury. They do not apply to all the services of the Shorthand Writer and are designed to give an average increase of 14 per cent. over fees which have stood since November, 1964.
  Mr. Maxwell-Hyslop: The Chairman said that it was an average of 14 per cent. By my figuring it is an average of 20, 20, 18·5 and 20 per cent., which is higher than the norm laid down by the Government in this incomes policy. This should be pointed out before the House accedes to it.
  The Chairman of Ways and Means: Some fees remain unchanged. This does not apply to all fees.
  Question put and agreed to.

ORAL ANSWERS TO QUESTIONS
  WALES

    Llantrisant New Town
    Mr. Arthur Pearsonasked the Secretary of State for Wales if he will indicate what is his policy regarding the development of a new town at Llantrisant now that the Buchanan Report has been published.
    The Secretary of State for Wales (Mr. George Thomas): As my hon. Friend the Minister of State said in the House on 22nd April, the Report will need most careful study before any decisions are reached, and there will have to be consultations with all the local authorities and other interests concerned.—[Vol. 782, c. 397–421.]
    Mr. Pearson: Is my right hon. Friend aware that Llantrisant is a growth area which is developing apace without any master plan, and that this is causing some anxiety? Therefore, is it not important to give full weight to paragraph 116 of the Buchanan Report so that the new town may proceed as rapidly as possible in the circumstances?
    Mr. Thomas: I shall give consideration to all relevant issues.
    Mr. Gower: In view of the fears which have been expressed in Cardiff, Newport, Barry and elsewhere that the development of the new town may accelerate the loss of industry to the Welsh development area, will the Minister give an assurance that that aspect of the matter will also be considered?
    Mr. Thomas: It is one of the important aspects to consider. I should like to make it clear that I see no advantage in damaging in any way the old-established communities which we have around us.

    West Wales (Railways)
    Mr. Donnellyasked the Secretary of State for Wales what representations he has received from local authorities and other bodies in West Wales regarding the social need to maintain the railway lines west of Swansea; and what has been his answer.
    The Under-Secretary of State for Wales (Mr. Ifor Davies): My right hon. Friend is aware of the importance which local authorities and other bodies in West Wales attach to the railway lines west of Swansea. Decisions on railway services are the responsibility of my right hon. Friend the Minister of Transport but my right hon. Friend is consulted before decisions are taken. The Welsh Council is also given the opportunity of making its views known to my right hon. Friend the Minister of Transport.
    Mr. Donnelly: Is the hon. Gentleman aware that his Answer does not meet the point that it is the Government's policy to encourage industry to West Wales and yet the Government are responsible for a situation in which difficulties are being placed in the way of anybody who is considering establishing industry in West Wales? What steps do the Welsh Office intend to take to deal with this hiatus?
    Mr. Davies: My reply was to the point, in that the hon. Member had asked what representations had been made and I indicated the representations. But I assure him that my right hon. Friend is aware that both the railway lines involved, Swansea—Milford and Whit-land—Pembroke Dock, are vital to West Wales and he is giving the matter close attention.

    South Wales (Transport Passenger Boards)
    Mr. Arthur Pearsonasked the Secretary of State for Wales what further steps are planned in establishing transport passenger boards in South Wales; and if he will make a statement.
    The Minister of State, Welsh Office (Mrs. Eirene White): My right hon. Friend has asked the Passenger Transport Co-ordinating Committee for Wales to undertake a detailed study of public passenger transport in South-East Wales and to consider whether there is a need to establish a passenger transport authority for the area.
    Mr. Pearson: When will greater urgency be shown in overcoming the present wasteful passenger transport set-up in South-Wales, especially South-East Wales?
    Mrs. White: I am sure that my hon. Friend will agree that it would be unwise

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    to give such an undertaking without a full study in the first place.
    Mr. Pearson: Push ahead.

    Royal Gwent Hospital, Newport
    Mr. Roy Hughesasked the Secretary of State for Wales when he will authorise the next main phase of development of the Royal Gwent Hospital, Newport, Monmouthshire; and if he will make a statement.
    Mrs. White: Planning is proceeding on a further three phases of redevelopment, two of which it is hoped to start in the period up to 1971–72 and the third in the period following. The first of these phases consists of residential accommodation for medical and nursing staff; an x-ray department and multi-discipline training school will follow and clear the way for the third phase, a new ward block providing 270 acute beds and supporting facilities.
    Mr. Hughes: But will my hon. Friend appreciate that there is great pressure on this hospital, and ask her right hon. Friend to review major capital investment schemes at hospitals in Monmouth-shire to see that they are more directly related to economic trends in the area, particularly the movement of population?
    Mrs. White: My hon. Friend will be aware that considerable developments have already taken place at this hospital. We shall proceed as rapidly as possible with the further developments which I described.

    Leasehold Reform Act, 1967
    Mr. Roy Hughesasked the Secretary of State for Wales if he will now seek to amend the Leasehold Reform Act, 1967, in order to further clarify the basis of determination of the charges for enfranchisement following the recent decisions of the Land Tribunal; and if he will make a statement.
    Mr. George Thomas: I would refer my hon. Friend to the replies my hon. Friend the Joint Parliamentary Secretary to the Ministry of Housing and Local Government gave to him and to my hon. Friend the Member for Woolwich, East (Mr. Mayhew) on 28th April.—[Vol. 782, c. 173–4.]
    Mr. Hughes: Will my right hon. Friend appreciate, nevertheless, that the great expectations raised by the passing of this Act have not been realised? Particularly in view of the recent Lands Tribunal decision, would he seek to amend it soon to assist those leaseholders, particularly in South Wales—many of whom are in the autumn of their lives—who are finding it very difficult to cope with these matters?
    Mr. Thomas: I am well aware of the facts to which my hon. Friend has drawn my attention and I can assure him that the Government are also aware. I ask him to be patient for a little longer, when I hope that he will have good news.
    Mr. Gower: In view of the prominent part which the right hon. Gentleman played in this Measure, and in which he always had my support, can he amplify his assurance to say that he will press his right hon. Friend the Minister of Housing to bring in the necessary Amendment? Would he also consider the analogous problem of difficulty in the sale of certain flats?
    Mr. Thomas: I will look into the latter question. On the first, I hope that the hon. Gentleman will, if the Government table the necessary Amendment, ensure the support of his own side.
    Mr. E. Rowlands: Is my right hon. Friend aware that many leaseholders have already managed to take advantage of the terms of the Leasehold Reform Act, and that, as a result of the Lands Tribunal decision, there are some difficulties over the question of whether leaseholders are bidding in the open market for their freeholds and whether they should pay market value? Would my right hon. Friend consider this when reviewing the legislation?
    Mr. Thomas: Those are major considerations, and I would ask my hon. Friend, who has also played a prominent part in this leasehold agitation, to be patient a little longer.

    Local Government Reorganisation
    Mr. E. Rowlandsasked the Secretary of State for Wales whether he will make a statement on the progress of his discussions regarding the reorganisation of local government in Wales.
    Mr. George Thomas: Consultations with the local authority associations have been in progress for some months on a wide range of issues which will require to be dealt with in legislation on this matter. The talks which have been detailed and helpful are continuing.
    Mr. Rowlands: Would my right hon. Friend confirm that the so-called "shadow plan" published in the Western Mail recently was an accurate account of an alternative which my right hon. Friend had rejected? Would he not reconsider at least one aspect of that plan, the radical reform of local Government in South Wales, which would not be done under the present proposal?
    Mr. Thomas: Fortunately, I do not have to confirm or deny what is in the Western Mail. It is a very interesting newspaper, and I am a faithful reader, but I cannot go any further than that.
    Mr. Birch: Is the right hon. Gentleman aware that district councils seem to have sustained a different impression of what their powers are to be under the new legislation than the one put forward by the Minister of State? Would it not be better if the right hon. Gentleman issued a statement of exactly what the proposals for those powers were?
    Mr. Thomas: The statement of my hon. Friend was entirely accurate, and consultations with the local authority associations are making this clear.

    North Wales (Hunt Committee's Recommendations)
    Mr. Birchasked the Secretary of State for Wales what representations he has received from the Council for Wales and Monmouthshire and other interested bodies, regarding both the Government's decision not to accept the Hunt Committee's recommendations concerning Merseyside and its failure to relieve North East Wales and the North Wales coastal strip from the difficulties resulting from that area's exclusion from the development area or any other grey area proposals.
    Mr. George Thomas: I have received representations from Flintshire County Council. The Welsh Council will be meeting shortly to consider the Report and various matters arising from the
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    statement made on 24th April by my right hon. Friend the Secretary of State for Economic Affairs.
    Mr. Birch: Is the right hon. Gentleman aware that the north-east corner of Wales is particularly badly affected by this, because it is sandwiched between the Welsh development area and the Merseyside area, and Wirral is bursting at the seams? Unemployment in the Rhyl and Colwyn Bay areas is much higher than in large parts of the Merseyside area. Cannot something be done about this? Was not the Hunt Committee right?
    Mr. Thomas: The unemployment rate in the Merseyside development area was 3·9 per cent. in March. It is much too early to consider de-scheduling this area. I am keeping under close review the question of the areas to which the right hon. Gentleman has referred.

    Welsh Office (Staff)
    Mr. Birchasked the Secretary of State for Wales if he will detail, by grade, the numbers employed in the Welsh Office at 31st March, 1967, 1968, and 1969.
    Mr. Ifor Davies: The total numbers employed in these three years were 483, 532 and 547, respectively. I will circulate details in the OFFICIAL REPORT. There has been a general increase in the level of work, as the House will be aware.
    Following are the details:

    1967

    1968

    1969

    Administrative

    16

    22

    24

    Executive

    154

    168

    181

    Clerical

    132

    143

    150

    Professional

    52

    63

    64

    Technical

    29

    30

    29

    Other

    100

    106

    99

    483

    532

    547

    Welsh Council
    Mr. Tudor Watkinsasked the Secretary of State for Wales whether he will indicate the key topics which have been discussed by the Welsh Council since its inception; whether he is satisfied with the work of the three Panels; and whether he will make a statement.
    Mrs. White: Industry and employment, communications, finance and environmental matters. My right hon. Friend maintains close touch with the work of

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    the Council and its Panels, which represent an important source of advice on these issues.
    Mr. Watkins: What is the reason for the fact that, despite the great deal of publicity and Press comment at the inception of this Council, we now do not hear about it? Can we have periodic reports, apart from the annual Report or White Paper?
    Mrs. White: I am sure that my hon. Friend will appreciate that the Panels are investigating matters of major importance. They have not yet submitted reports to the Secretary of State. When they do, it will be for consideration by the Council and the Secretary of State whether those reports should be published.
    Mr. Gower: Does the right hon. Lady agree that there is a fairly widespread impression that the Welsh Council is not doing anything of great consequence? Can she disabuse us of that opinion?
    Mrs. White: I repeat that it has not yet published reports, but it has been giving constant and valuable advice to my right hon. Friend on a wide series of topics.
    Mr. Gwynfor Evansasked the Secretary of State for Wales how many meetings the Welsh Council has had to date.
    Mr. George Thomas: The Welsh Council has met six times since it was appointed in April, 1968.
    Mr. Evans: Has the Council considered the urgent matter of the threatened closure of the Central Wales line? If it has, why not lift the shroud of secrecy from its report? Did it bring to the right hon. Gentleman's attention the fact that, when British Railways publishes alleged losses, they do not include the income from goods traffic?
    Mr. Thomas: I assure the hon. Gentleman that the Welsh Council has been considering transport services in Wales since before he came to this place.

    Usk and Senni Valleys, Breconshire (Reservoirs)
    Mr. Tudor Watkinsasked the Secretary of State for Wales whether he will indicate the date when he is likely
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    to give a decision following the public local inquiry at Brecon at the end of January last into an application for an order by the Usk River Authority to enter land in the Usk and Senni Valleys, Breconshire, for the construction of reservoirs.
    Mr. George Thomas: The Usk River Authority's application for an Order under section 67 of the Water Resources Act 1963, sought power to enter on land in the Usk and Senni Valleys for the purpose of sinking bore holes and carrying out geological investigations of the sites. The inspector's report is being considered urgently and a decision will be given as soon as possible.

    Roads
    Mr. Gowerasked the Secretary of State for Wales if he will state the total estimated new commitments in 1969–70 in respect of new construction and major improvements for trunk roads and for principal roads and loans to highway authorities, respectively.
    Mr. Ifor Davies: Provisional totals for new commitments on road construction and improvement in 1969–70 are:

    £m.

    Trunk Roads (including Motorways)

    22·7

    Principal Roads

    4·9

    Total:

    27·6

    Mr. Cower: Would the hon. Gentleman consider whether it might not be wise, in the interests of the Welsh economy, to give a rather higher priority to the importance of the major roads and trunk roads than has been the case in the past?
    Mr. Davies: I would remind the hon. Gentleman that the total expenditure on Welsh roads last year was £32 million—£11 million more than in 1964, the last year of Tory administration.

    Heads of the Valleys Area
    Mr. Probertasked the Secretary of State for Wales what proposals have now been made as a result of investigations into the development of the heads of the valleys area as a major growth point; and if he will make a statement.
    Mr. Ifor Davies: No specific proposals have been made for the development of

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    a major growth point in the heads of the valleys area.
    Mr. Probert: But would my hon. Friend not agree that, in view of the strategic importance of this area, development here would help to relieve many adjacent areas of their high unemployment? Would he assure us that close examination will be given to this?
    Mr. Davies: The needs of the heads of the valleys area are not being overlooked. I would remind my hon. Friend of the recent announcement in his area of an advance factory of 25,000 sq. ft.

    Caerphilly Miners' Hospital
    Mr. Fred Evansasked the Secretary of State for Wales whether he is now in a position to make a statement on the future of Caerphilly Miners' Hospital.
    Mrs. White: No, Sir. Tentative proposals have now been prepared by the hospital authorities but they have not yet sought the authority of my right hon. Friend to start local consultations. No decision on the future of the Caerphilly Miners' Hospital will be taken until proposals have been put to him which will be considered in the light of representations made by local interests.
    Mr. Evans: Would my hon. Friend accept that the people of this area, like those of many other areas of Wales, are seriously concerned about the closure of local hospitals? Would she also accept that serious emotional tension is developing in the area? Would she use her influence to see that a decision is made as soon as possible?
    Mrs. White: It will not be possible, of course, for my right hon. Friend to consider proposals which have not yet been put before him. When they have been, I am sure that he will consider them as rapidly as possible.

    Official Forms (Welsh Language)
    Mr. Fred Evansasked the Secretary of State for Wales what is the total number of official forms available in Welsh at present; and how many will be available by the end of 1969.
    Mr. George Thomas: 146 forms are available, 87 more will come into use on 1st June. Beyond this, I cannot predict
    1202
    how many more will be available by the end of 1969.
    Mr. Fred Evans: Will my right hon. Friend give some consideration to the general economic needs of Wales and examine the cost of production of these forms, the number used and their value to the general public in Wales as a whole?
    Mr. Thomas: We try to publish in Welsh versions those forms which are used extensively and which have the greatest impact on the daily life of our people.
    Mr. Gwynfor Evans: Is the right hon. Gentleman aware that there is widespread disappointment in Wales that the Government have not pursued a policy of bilingualism with more determination and that, even in their declared policy of equal validity, they have been dragging their feet?
    Mr. Thomas: The hon. Gentleman realises that the principle of bilingualism would mean that all our official business in Wales would have to be conducted in both English and Welsh. Since eight out of ten of the Welsh people do not speak Welsh, that would be grossly unfair.

    Ely Bridge, Cardiff
    Mr. E. Rowlandsasked the Secretary of State for Wales what progress he now expects in the repair of Ely Bridge, Cardiff.
    Mr. George Thomas: With the co-operation of the Cardiff City Council which is making land available, I am arranging temporary relief by erecting three Bailey bridges across the river. These will take all vehicles within the Construction and Use Regulations and should assist the flow of traffic and enable permanent repairs to be expedited. The Bailey bridges will be brought progressively into use over the next two months after which repair work can start.
    Mr. Rowlands: Would my right hon. Friend accept that this is very good news for harassed motorists and commuters in Cardiff who have suffered great irritation on a main road and an important key bridge in the city's communications? As a result of these Bailey bridges, when will permanent repairs to Ely Bridge itself be completed?
    Mr. Thomas: I am hoping that within six months we shall be able to return to normal.

    Rural Development Board
    Mr. Gwynfor Evansasked the Secretary of State for Wales what are his plans in regard to the future of the Rural Development Board.
    Mr. George Thomas: I cannot at present add to the statement which I made in reply to the hon. Member on 2nd April.—[Vol. 781, c. 117.]
    Mr. Evans: Is the right hon. Gentleman aware that in the report of the Aberystwyth inquiry it was stated that, in its early stages, the Rural Development Board had been "wise, patient and forbearing" in its public relations? For how long are these early stages to continue? Is it to be for one year, two years or longer? For how long will the Board have to be wise, patient and forbearing?
    Mr. Thomas: The answer is, "For as long as necessary".
    Mr. Gower: Would the right hon. Gentleman ensure that the very real anxieties which have been expressed in many of the counties affected will be carefully considered by him and the Board?
    Mr. Thomas: We, of course, take into full consideration all public feelings that are expressed.
    Mr. William Edwards: Will my right hon. Friend ensure that, when the period of wisdom and forbearance comes to an end, the Board will not be invested with the sort of powers which the hon. Member for Carmarthen (Mr. Gwynfor Evans) would like it to have; namely, that it should be a Tennessee Valley type of organisation for the whole of Wales?
    Mr. Thomas: Yes, Sir. I gladly give that assurance because we are determined to protect the interests of the farmers.

  NATIONAL FINANCE

    External Short-term Debt
    Mr. Maurice Macmillanasked the Chancellor of the Exchequer, in view of the fact that nationalised industries are allowed to borrow long term from
    1204
    abroad, what steps he is taking to reduce the Government's short-term debt.
    The Financial Secretary to the Treasury (Mr. Harold Lever): I am well aware of the desirability of funding our external short-term debt over a longer period. Long-term borrowing in foreign currencies by nationalised industries has a useful part to play in this process.
    Mr. Macmillan: Can the Financial Secretary give an idea of the extent to which he hopes to use this process and the rapidity with which he hopes to develop it?
    Mr. Lever: That will depend on the state of the market. [Interruption.] I can inform the hon. Gentleman that we have so far obtained £30 million for the Gas Council and £7 million for B.E.A.; but what future borrowings will take place will depend very much on market conditions.
    Mr. Birch: Is the hon. Gentleman aware that while Western Germany is the only place where money can be raised, we are at the same time pressing the Germans to revalue their currency, which means that this borrowing is likely to be very expensive indeed?
    Mr. Lever: The point raised by the right hon. Gentleman does not hit me with a shock of novelty. The state of the currency markets is one of the factors which is taken into account when borrowing money; and, of course, the rate of interest and the length of the loan are other factors which play a part in judging whether it is dear or cheap money. The right hon. Gentleman's view is by no means final and conclusive in this matter.

    Borrowing Requirement
    Mr. Maurice Macmillanasked the Chancellor of the Exchequer whether his calculations on the size of the borrowing requirement include the effect of net changes in the swap arrangements between central banks.
    Mr. Harold Lever: No, Sir. The size of the Central Government's borrowing requirement, or surplus, is not affected by these arrangements.
    Mr. Macmillan: Can the hon. Gentleman say if there is any relationship between borrowing overseas and the borrowing requirement at home? Can he

    1205
    also say whether this money is being used to finance the Bank of England's purchases of sterling in support of sterling or simply to replenish the reserves?
    Mr. Lever: The answer to the first part of the hon. Gentleman's supplementary question is that there is no relationship between borrowing abroad and the Government's borrowing requirement. This is a somewhat complex matter which I should be glad to discuss in detail with him on another occasion. As for the use of this money, it eventually falls into the country's general reserves and, as such, is put to the best possible use.

    Bank Lending
    Mr. Barnettasked the Chancellor of the Exchequer if he will make a statement on the level of bank lending.
    The Chief Secretary to the Treasury (Mr. John Diamond): Yes, Sir. There was a further fall, after seasonal adjustment, in lending by the main groups of banks, during the latest month for which information is available.
    Mr. Barnett: Will my right hon. Friend assure the House that in the letter of intent to the I.M.F., which is at present apparently being composed, the Chancellor of the Exchequer will not agree to any greater squeeze than he planned in his Budget strategy on the banks, on money supply or on anything else?
    Mr. Diamond: That supplementary question goes a long way from the original Question, which was about bank lending.

    Incentives (Taxation)
    Mr. Sheldonasked the Chancellor of the Exchequer if he will now make a statement on his studies of the effect of taxation upon incentives.
    Mr. Diamond: I wrote to my hon. Friend on 29th April outlining my conclusions.
    Mr. Sheldon: While I am grateful to my right hon. Friend for sending me that letter, which I read with interest, may I ask him to reflect that it did not take the matter much further since it did not
    1206
    show that the Government are themselves carrying out the researches and studies mentioned in the Question, which is the point with which I am particularly concerned? Is he aware that when raising so much money by way of revenue, the least he should do is to carry out some research into the effectiveness of raising that money?
    Mr. Diamond: My hon. Friend will recall that in the long letter which I wrote to him I described the results of seven pieces of research.
    Mr. Sheldon: But none of them by the Government.
    Mr. Diamond: I indicated the preliminary research that the Government had done and I told my hon. Friend—I repeat it now—that we were not aware of any method of selecting, dissociating or finalising the various effects to which he referred; in other words, of separating all the various effects of taxation on a man's employment, his level of wages and the various other incentives that exist. If my hon. Friend has a precise method of doing this work, I should be glad to hear about it and I assure him that I would follow it up.
    Mr. Patrick Jenkin: Will the right hon. Gentleman place in the Library the correspondence which he has had with his hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) so that all hon. Members may study what appears to be an extremely interesting document?
    Mr. Diamond: I would be delighted to do so, after consulting my hon. Friend.
    Mr. Sharples: Has the right hon. Gentleman's attention been drawn to the views of the C.B.I. on this matter? Has the expression of those views led to an officially sponsored call by the Labour Party for the dismissal of the Director-General of the C.B.I.?
    Mr. Diamond: That supplementary question has no bearing whatever on the main Question. [HON. MEMBERS: "Answer."] I am aware of the views of the C.B.I. and, as far as I know, the C.B.I. has no means of conducting further research which is likely to throw up the essential information which we would all like to have.

    International Monetary Fund (Talks)
    Mr. Martenasked the Chancellor of the Exchequer if he will make a statement on his latest round of talks with the representatives of the International Monetary Fund.
    Mr. Harold Lever: No, Sir. These discussions were confidential, as usual.
    Mr. Marten: In view of the further standby, can the Financial Secretary say how frequently the I.M.F. will be examining our economy? Have not the Government now got themselves into the classic position of all defaulting bankrupts, of not being master in their own house?
    Mr. Lever: I can best answer the hon. Gentleman by stating three facts: first, the Government is not a defaulter; secondly, it is not bankrupt; and, thirdly, it is master in its own house.
    Sir W. Bromley-Davenport: Oh, dear. Write that down!
    Mr. Dickens: Is my hon. Friend aware of the deep anxieties that are felt by many people about rumours of negotiations that are going on in Washington which may have extremely far-reaching repercussions on the future of the British economy and the well-being of the British people? Will he undertake to give to the House at the earliest possible opportunity a clear statement, if possible during this week, on the progress that is being made in those negotiations?
    Mr. Lever: I understand perfectly the anxieties of my hon. Friend and other hon. Members. I have already given a firm pledge that any letter of intent will be published. I invite my hon. Friend to show a little patience and to wait until he has some facts, rather than excited newspaper headlines, on which to judge the matter.
    Sir G. Nabarro: At a time when the British people are being subjected to appalling hardships of credit squeeze and additional taxation, is it right that the hon. Gentleman's visit to Washington should have been conducted in conditions purporting to be of the greatest secrecy and without any public announcement having been made, so that one must read the newspapers to learn of his movements?
    Mr. Lever: The answer to the first part of the hon. Gentleman's supplementary question is that the British people are enjoying the highest standard of life in their experience—
    Sir G. Nabarro: That's a good one.
    Mr. Lever: —as well as the best public services in their experience.
    The answer to the second part is that it was not a secret visit. It was an unannounced visit, which is quite a different matter. [Interruption.] There was nothing secret about my movements I moved about freely in Washington without any attempt at concealment. The reason why no announcement was made was because of the exceedingly sensitive state of the currency markets and because it might have been thought that my visit was for purposes other than those on which I was actually engaged.
    Mr. Iain Macleod: The Financial Secretary referred to "excited newspaper headlines". Is he aware that a Treasury spokesman was quoted on the one o'clock news as having said that there had been discussions abcut "appropriate undertakings from the British Government"? In that event, why could not the House of Commons be informed of the position? Will he give the clearest undertaking that a full statement will be made by the Chancellor of the Exchequer to the House at the earliest possible moment?
    Mr. Lever: Had I not been otherwise engaged, I might have heard that news bulletin and the quotation from the wireless to which the right hon. Gentleman referred, although it does not sound to me like a precisely accurate transposition of the words that a Treasury spokesman would use. I therefore do not consider that any undertaking is required in that respect.
    I have already given a pledge that the House will have the letter of intent and that it will be published as soon as it is appropriate to do so. [Interruption.] I assure hon. Members that the newspaper headlines which they have been reading do not bear an accurate relationship to reality.
    Mr. Michael Foot: In view of the strong opposition that existed to a previous letter of intent that was issued by the Government, and in order to protect

    1209
    the supremacy of Parliament, cannot my hon. Friend give a clear undertaking that there will be a debate in the House on any undertakings before any letter of intent is dispatched?
    Mr. Lever: My hon. Friend is assuming that there are undertakings in the letter of intent. I am, of course, not free to discuss the discussions which are being undertaken with the I.M.F. These are, and always have been, confidential and could not be satisfactorily conducted on any other basis. I can only add that nothing that takes away from the Chancellor's judgment has been or will be undertaken to any outside body and that the supremacy of Parliament is not in question. [HON. MEMBERS: "It is."] Neither the Chancellor nor any Treasury Minister has any authority to do anything save with the assent, approval and support of the majority of this House.
    Mr. Lubbock: Meanwhile, before the letter of intent is published, may we know if any undertakings have been given to the I.M.F. about the sacking of the Home Secretary from the Inner Cabinet?
    Mr. Lever: While juvenile inference prevails, it might as well extend to that area, too, for those who like juvenile inferences.
    Mr. Barnett: Would my hon. Friend now give the assurance which his right hon. Friend would not give—that no undertaking will be given for there to be a further squeeze other than that which the Chancellor himself outlined in his Budget strategy?
    Mr. Lever: I assure the House that any strategy undertaken by the Chancellor will be the strategy of the Chancellor, in consultation with his Treasury Ministers and the Government, and not a strategy undertaken from any other source whatever.

    Balance of Payments
    Mr. Bruce-Gardyneasked the Chancellor of the Exchequer what is his latest forecast of the annual rate of balance of payments surplus or deficit likely to be achieved by the end of the current calendar year.
    Mr. Ridleyasked the Chancellor of the Exchequer what is his estimate
    1210
    of the out-turn of the balance of payments for 1969.
    Mr Harold Lever: I have nothing to add to the forecasts published in "The Financial Statement and Budget Report, 1969–70".
    Mr. Bruce-Gardyne: In view of today's appalling trade figures, is it not now apparent that we are heading for a massive balance of payments deficit this year? In view of this, would it not be more sensible for the Government to publish the letter of intent as rapidly as possible and assure the world that the I.M.F. is now taking responsibility for the management of our economy, instead of telling us that the Chancellor is to pursue his own strategy, which is rubbish?
    Mr. Lever: I am not in the habit of being untruthful to the House. I again deny what it suits the hon. Gentleman to publicise—the suggestion that the I.M.F. is about to take over our strategy and, presumably, impose some dreadful squeeze on the British economy. The hon. Gentleman is continuing with his merely empty demagogy, with the result that the rest of his supplementary quesis not appropriate.
    Mr. Ridley: Will the Financial Secretary confirm that to get the balance of payments right is the main objective of his right hon. Friend the Chancellor of the Exchequer? Since it is clearly not succeeding, what new policies will the Government lay before the country which might have some chance of succeeding?
    Mr. Lever: The prime purpose of the Government's economic strategy is, of course, to get the balance of payments right. International financial co-operation does not restrict the choice of the Government, but enlarges it to enable them to take the longer and more constructive view in these affairs. I do not accept that on one month's—
    Mr. Ridley: Three months'.
    Mr. Lever: —or three months' perhaps disappointing trade figures, not up to what we should like to have seen, any of the exaggerated conclusions drawn by the hon. Gentleman should be drawn by the House.
    Mr. Higgins: Is it not a fact that the Budget was quite irrelevant to our

    1211
    balance of payments problems? Will the Financial Secretary publish the figures for his forecast both before and after the Budget changes so that we can ascertain what view the Government have about the matter?
    Mr. Lever: The Budget was directly relevant to our balance of payments problems. There was continuation of the Government's strategy, as outlined by the Chancellor of the Exchequer. I will consider the request by the hon. Gentleman in the latter part of his question.
    Mr. Heffer: Is it not clear that the time has now come for the Government to change their economic strategy? Is it not clear that the time has come for the first time seriously to consider the idea of import quotas and controls?
    Mr. Lever: I do not believe that my hon. Friend should be panicked by comment opposite into suggesting that our situation needs any such devices.

    Sterling (Speculative Movements)
    Mr. Bruce-Gardyneasked the Chancellor of the Exchequer what plans he has made against the repetition of large scale speculative movements out of sterling into Deutschemarks.
    Mr. Harold Lever: The hon. Member will have seen that the central bankers meeting in Basle announced on 11th May their agreement to take action to recycle the speculative flow of recent weeks, and to remain in contact in order to decide upon further measures if they should prove necessary.
    Mr. Bruce-Gardyne: I am sure that the Financial Secretary has no more faith in that arrangement than anybody else. Will the hon. Gentleman tell us whether any loans that we receive as part of the recycling arrangements will be denominated in dollars and, therefore, not subject to the revaluation of the Deutsche mark? Has his right hon. Friend considered imposing discriminatory quotas on German exports to this country meanwhile, and urging his colleagues in the I.M.F. to do likewise?
    Mr. Lever: On the first part of the Question, it may suit the hon. Gentleman to trumpet the calamity of some international monetary co-operation and to
    1212
    deny the effectiveness of others. The fact remains that this is a valuable international co-operative action, for the benefit of the whole world, to prevent our economic plans being pushed aside by these vast speculative movements.
    I think that it is both unwise and unjust to make a judgment upon the German Government, which has its own particular democratic difficulties with its own people. I think that the hon. Gentleman's comment is too superficial to warrant any answer.
    Mr. Tinn: Will the Financial Secretary accept from me, as a Member not given to panic based on Press rumours, that it will be very difficult for many Members representing development areas to support the Government in any measures which give priority to safeguarding the balance of payments and the exchange rate at the expense of the development areas?
    Mr. Lever: I recognise my hon. Friend's anxieties, but I find it difficult to know on what basis, other than newspaper headlines, he brings them to us. But let me assure him that the anxieties that he has outlined are entirely without foundation. The development of the regions and our policy towards them is not in question.
    Mr. Maudling: In brushing aside the comment of my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) the Financial Secretary ignored his very important question. Can he assure us that any recycling loans coming to this country from Germany will be denominated in dollars, not Deutsche marks?
    Mr. Lever: I can assure the right hon. Gentleman that the recycling arrangements will be to the advantage of this country as well as other countries. [HON. MEMBERS: "Answer."]—I do not know whether right hon. and hon. Gentlemen opposite really think that international financial negotiations of this kind are best conducted on the Floor of the House. I do not.
    Mr. Thorpe: Will the Financial Secretary agree that the events not only of the past few weeks, but of the east few months, show how extraordinarily fragile and artificial is the whole basis of the international monetary system? Should not the first priority of the Government

    1213
    be to press towards greater flexibility in exchange rates and the possibility of a new European reserve currency?
    Mr. Lever: The lesson that I read from recent events internationally in the monetary sphere is that there is now a greater degree of co-operation between nations than has ever been seen in world history, and much to the advantage of the world. I am not able to adopt the latter part of the right hon. Gentleman's suggestion.
    Mr. Heath: The House recognises that negotiations of an international nature must often be carried on in confidence. But this afternoon the Financial Secretary has deliberately pursued a course of evasion in answering Questions which deserved answers. Have not he and the Government yet learned that far more damage is caused to currencies and to international trade by such a deliberate policy of evasion instead of telling the House what the true position is?
    Mr. Lever: There has been no evasion on my part. I have been asked particulars about discussions which are, always have been, and necessarily must be, confidential. In my anxiety to please and and inform the House, I cannot give way, as I gladly would, and remove many doubts which are causing anxieties in the minds of my hon. Friends, because these discussions are confidential. But when the due time arrives, they will be fully discussed and all these points will be fully answered.
    The only thing which I have refused to do is to go into details of what currencies and recycling takes place. I will be asked next what amount is involved, who is lending, who is taking, and the like. I must refuse, in the national interest, to answer such Questions.
    Mr. Bruce-Gardyne: On a point of order. In view of the unsatisfactory nature of that reply, I beg leave to give notice that I will seek to raise the matter on the Adjournment at the earliest opportunity.

  BUILDING REGULATIONS
  Mrs. Renée Shortasked the Prime Minister (1) if he will arrange for the transfer of the responsibility for the drafting, revising and administration of
  1214
  the Building Regulations from the Minister of Housing and Local Government to the Minister of Public Building and Works;
  (2) if he will now seek to set up a Ministry of Construction to co-ordinate and be responsible for all departmental responsibilities at present divided between the Ministry of Public Building and Works and the Ministry of Housing and Local Government.
  The Prime Minister (Mr. Harold Wilson): No, Sir. I would refer my hon. Friend to my reply to a Question by the hon. Member for Worcestershire, South (Sir G. Nabarro) on 3rd December, 1968.—[Vol. 774, c. 436.]
  Mrs. Short: Does my right hon. Friend accept that work in connection with the Building Regulations falls within the competence of professional engineers? While appreciating that the Ministry of Housing and Local Government has recently increased its establishment of professional engineers by 100 per cent.—it now has two—may I ask whether he thinks that he should look at this again and transfer this work to a Department which is better equipped?
  On the setting up of a Ministry of Construction, does my right hon. Friend accept that every other advanced country in Europe has one Ministry to co-ordinate all the building work and all the work on building materials?
  The Prime Minister: On the first part of the Question, this has been a very difficult decision which successive Governments have faced. I think that there have been three changes of responsibility in the last six to seven years. When I announced the transfer of this function to the Ministry of Housing and Local Government in 1966, I explained the considerations which were in my mind. The Minister of Housing and Local Government has fully adequate sources to advise him on the technical aspects of his responsibilities. I could go further and describe them.
  The idea of amalgamating the two Departments has often been considered. I made some transfers from the Ministry of Public Building and Works to the Ministry of Housing and Local Government. But my hon. Friend will realise that the Ministry of Housing and Local

  1215
  Government now faces a tremendous job, in addition to its normal responsibilities, arising from the Maud Report. It would be wrong to load it further with the very wide responsibilities of the Ministry of Bublic Building and Works.
  Sir Knox Cunningham: Has not the Home Secretary been freed to co-ordinate these responsibilities?

  FOREIGN CURRENCY (SPECULATION)
  Mr. John Smithasked the Prime Minister whether he is satisfied with the allocation of Ministerial responsibility for countering speculation by United Kingdom residents in foreign currency; and if he will make a statement.
  Sir F. Bennettasked the Prime Minister if he will appoint a Minister with special responsibilities for the prevention of currency speculation by United Kingdom citizens or institutions.
  The Prime Minister: I have no plans to alter the existing arrangements.
  Mr. Smith: If the Prime Minister is satisfied, and well he may be since Treasury Ministers, questioned in this House, over the past five months have failed to find a single instance of speculation in foreign currency by United Kingdom residents, will he please act responsibly and not continue hinting and saying that such speculation can or does take place?
  The Prime Minister: The position has always been clear in this respect, and has been made clear by my right hon. and hon. Friends and myself. British residents are not free to speculate in the sense that there has been this speculation in recent months. They can, of course, hedge their positions in relation to leads and lags, and have done so over many years and under many Governments. What I referred to—and what may have led to the Questions being tabled—in my statement following the fantastic events of last December in the City of London was not speculation undertaken by British residents. But every city editor's report on that speculation and the full investigation done by
  1216
  "Insight" of the Sunday Times made it clear that that speculation was sparked off by a lot of utterly stupid rumours from the City of London, particularly from the Stock Exchange. The thorough investigation by the Sunday Times found that there was no better origin for this rumour than the fact that I had a sore throat at Question Time, which is the right of every Englishman in December.
  Sir F. Bennett: The right hon. Gentleman has once again diverted attention from what he said in November to what he said or did in December. My hon. Friend's Question and mine refer to what the Prime Minister said in November, when he condemned United Kingdom speculators in foreign currency. Will the Prime Minister now make it clear that when he made that condemnation all he was talking about were the legitimate activities of those engaged in legitimate international trading operations who do not choose to believe one word of what the Prime Minister or any of his colleagues say about the future of sterling?
  The Prime Minister: The hon. Gentleman will recall that he and I have had considerable correspondence on this question, because owing to illness he was not able to ask in the House a Question which he had had on the Order Paper for some months. I fully dealt with that point then, and again this afternoon. Individual British residents are free, within the limits I stated—the leads and lags situation—to speculate, and many of them have done so. I should not say in every case, as the hon. Gentleman does, that it is a legitimate trading interest. What I referred to in November and December was the unpatriotic action of people in this country selling sterling short, with the alarmist rumours which they spread abroad, rumours which it was clear in the December case had no basis whatsoever in fact.
  Mr. Cant: While one would accept that leading, lagging and hedging by international corporations is a sort of patriotic duty on behalf of their shareholders, will my right hon. Friend negotiate with the central bankers of Europe to prevent commercial banks offering credit to their nationals to speculate against sterling in crises of this sort?
  The Prime Minister: This is one of the many aspects of inter-bank co-operation to which my hon. Friend the Financial Secretary referred in answer to a Question earlier this afternoon, and the success of this was amply demonstrated by the central bankers at Basle this weekend. There has been a tremendous amount of unwarrantable speculation, not in Britain, not against sterling necessarily, but, for example, over the last weekend in the mark. This is beyond the power of anybody to contradict, and what the central bankers have done is to make very clear their reaction against this unwarrantable and damaging speculation.
  Sir F. Bennett: Not by the United Kingdom.
  Mr. Hordern: As it seems likely that the International Monetary Fund will be responsible for our obligations, will the Prime Minister agree to appoint a Minister directly responsible to that organisation?
  The Prime Minister: My right hon. Friend the Chancellor of the Exchequer is responsible within the Government and to this House for the conduct of all British negotiations and other transactions with the International Monetary Fund. I have nothing to add to what my hon. Friend the Financial Secretary said this afternoon. When my right hon. Friend is in a position to make a statement, he will certainly do so. Meanwhile, I advise some of my hon. Friends not to get unnecessarily alarmed at the prospects, because I assure them that a great deal of the speculation—and here I refer not to financial speculation but to philosophical speculation—on this matter is entirely without foundation.
  Mr. Dickens: Given that my right hon. Friend was correct in December last, does he now agree that steps should be taken to prevent short-term capital deposits in the City of London attracted here by high rates of interest and subsequent early withdrawal?
  The Prime Minister: I do not think that that was the problem in December. The trouble is that all of us have underestimated the extent to which speculation is a force in the world. I am quoting some wise words of the right hon. Member for Barnet (Mr. Maudling) in his comments on the position last November
  1218
  when he was broadcasting on this question. It would be impossible, and indeed, in my view, wrong, to seek to impose any limit, even if one could do it, on the alarmist rumours and messages which some people in this country like to send abroad at moments of difficulty for this country. The real answer is that they should be more responsible in their statements and check their facts. Admitting that my sore throat was a serious problem, it did not justify a run on sterling.
  Mr. Iain Macleod: Referring to the Prime Minister's answer to my hon. Friend the Member for Horsham (Mr. Hordern), will the right hon. Gentleman recognise that the anxieties expressed earlier from both sides of the House centre round the fact that if we are to wait until a letter of intent is published it will be too late for the collective wisdom of the House to impress itself on the Government? That is the point which was pressed from both sides of the House on the Financial Secretary this afternoon.
  The Prime Minister: The right hon. Gentleman should at least welcome the fact that this Government in 1967, and with the promise in respect of this letter of intent, have at any rate published letters of intent. That was not done by the right hon. Gentleman's Government at the time of Suez, when money was borrowed because of the Suez operation, or on subsequent occasions. Surely the right hon. Gentleman does not expect us to publish the letter before it has been signed?

  GREEN PAPERS
  Mr. Sheldonasked the Prime Minister if he will define the extent of the commitment of the Government to proposals published in the form of a Green Paper.
  The Prime Minister: As my right hon. Friend the then Secretary of State for Economic Affairs explained to the House on 5th April, 1967, at the time of the publication of the first Green Paper, this is intended as a means of putting forward proposals for full consultation and public discussion, while policy is still in a formative stage.—[Vol. 744, c. 245.]
  Mr. Sheldon: Does my right hon. Friend agree that one of the main aspects

  1219
  of the usefulness of a Green Paper is that Government Ministers are uncommitted and so the debate can be extremely full and thorough? If there is any commitment by the Government, this will reduce very seriously the value of a Green Paper. Can my right hon. Friend deny that there is this tightening of the commitment of the Government to the proposals?
  The Prime Minister: There is no change in the situation from the date which I have mentioned. A Green Paper is put forward to set out the Government's views on how the matter might be tackled, to invite views not only of hon. Members but of all experts and interests in that field all over the country. This means that we then have their collective wisdom, to use a right hon. Gentleman's phrase, and we can decide what the policy ought to be. In the case of one Green Paper put forward on this basis, as a result of consultations the Government decided not to proceed further on the lines indicated. In the case of the Green Paper on roads, it is of value that there should be discussions by economic planning councils, by local authorities, and by road users all over the country. That is the basis of a Green Paper. Clearly, individual Ministers do not enter into public and contentious discussions about it, if that is what my hon. Friend was asking.
  Mr. Biffen: Does not the Prime Minister think that it would have been more prudent to have published "In Place of Strife" as a Green Paper rather than as a White Paper?
  The Prime Minister: No, certainly not. "In Place of Strife" was published as a White Paper because it was a statement of the Government's decision on how this matter should be handled in legislation and other ways, and it remains our position. We are having consultations with the T.U.C., but I think that it would have been regarded as an act of cowardice, similar to that of the Conservative Party which did nothing at all in 13 years and even refused an inquiry, if, after Donovan, all we had produced was a Green Paper.
  Mr. Thorpe: We read in the Press that arising out of the 3rd April Cabinet meeting the Prime Minister indicated that Green Papers must bind Ministers as
  1220
  much as White Papers. Do we take it that that was the decision that was taken in the Cabinet and also that that was one of the matters to which the Cabinet agreed that publicity should be given?
  The Prime Minister: The answer to the first part of the supplementary question is, "Yes, Sir". The right hon. Gentleman has an obsession about this meeting and, indeed, has yet another Question relating to it on the Order Paper, which we may or may not reach. In relation to Green Papers the position is this. There is no collective obligation on the Government that a Green Paper put forward will be the basis of legislation. It is put out for discussion and for consultation. This is a useful exercise in having full discussion by all concerned in the matter. On the other hand, that public discussion should not get to the point where individual Ministers take up different sides in that discussion.
  Mr. Boyd-Carpenter: Is not the substance of the right hon. Gentleman's answer that the contents of a Green Paper are no more likely to be acted on than the contents of the Government's election manifestos?
  The Prime Minister: The contents of a Green Paper are issued, as I have said, for consultation, unlike right hon. Gentlemen's opposite who, without putting out a Green Paper and in defiance of their election pledges, introduced the Rent Act.
  Mr. English: If a Green Paper is issued for the purposes of consultation, as at one time a White Paper used to be, what is the object of a White Paper?
  The Prime Minister: A White Paper indicates the broad lines of the legislation the Government intend to introduce and, very often, of executive action that will be taken. Many of the details of the legislation should be a matter for consultation. They are indeed in the matter of the White Paper published in January of this year, to which reference has been made.
  Sir Knox Cunningham: House of Lords reform?
  The Prime Minister: We have certainly dealt with the question of the responsibility of the Opposition for the

  1221
  House of Lords White Paper. I referred on that occasion to hon. Members on both sides of the House and to the voting record of the Leader of the Opposition, who was committed to the proposals.
  Several Hon. Members rose—
  Mr. Speaker: Order.

INTERNATIONAL MONETARY FUND
Mr. Marten: On a point of order. I beg to ask leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
"negotiations with the International Monetary Fund".
I will deal with this very briefly, because it was touched upon yesterday by the hon. Member for Lewisham, West (Mr. Dickens). The matter is urgent, because negotiations are nearing completion, if they are not already completed, and the House is obviously extremely anxious about the whole affair.
The matter is specific, because it relates to a specific standby credit of about 1,500 million dollars and, as has already been pointed out, it will be too late if the letter of intent is issued before the matter is debated.
Finally, it is a matter of public importance, because this letter of intent could, if it is not subject to the view of the House, gravely affect the whole strategy of the Government's economic policy which, in turn, could affect the lives of everyone in this country.
Mr. Speaker: The hon. Gentleman the Member for Banbury (Mr. Marten) asks leave to move the Adjournment of the House for the purpose of discussing a specific and important matter that he
1222
thinks should have urgent consideration, namely,
"negotiations with the International Monetary Fund".
As the House knows, under the revised Standing Order No. 9 Mr. Speaker is directed to take into account the several factors set out in the Order, but to give no reason for his decision. I have given careful consideration to the representations the hon. Gentleman has made and, indeed, to all that has taken place in the House, but I have to rule that the hon. Gentleman's submission does not fall within the provisions of the revised Standing Order.
I cannot, therefore, submit his application to the House.
Mr. Dickens: On a point of order—
Mr. Speaker: Order. I hope that the House will not create a bad habit. Mr. Speaker is given a very difficult task to do. When he rules on Standing Order No. 9, he does it to the best of his ability and after great thought. He is forbidden to defend himself. We ought to be able to move on when Mr. Speaker has ruled.
Mr. Dickens: Mr. Speaker, I have no wish to embarrass either you, the Government, or the House. I have nothing but the most lasting respect for the standing of the House. It is for that reason that I raise this point of order with you now.
I am asking you for your guidance, Mr. Speaker. Some of us tried yesterday and today in a variety of ways to raise in the Chamber the question of the important negotiations now known to be proceeding in another country before an unelected body, and—
Mr. Speaker: Order. With all respect, what the hon. Gentleman is seeking to do again is to criticise the decision Mr. Speaker has made. Mr. Speaker has made that Ruling. We cannot go any further than that.

PROTECTION OF OTTERS
3.37 p.m.
Mr. Edwin Brooks: I beg to move,
That leave be given to bring in a Bill to provide for the protection of otters.
My proposed Bill, which is very short and simple, would prohibit the hunting and killing of otters otherwise than under licences issued in circumstances where it appears that they are damaging fisheries, crops, or river banks. The object of the Bill is simply to conserve a wild creature of our countryside.
The House may recall that 1970 is to be European Conservation Year, and it is, therefore, timely to remind ourselves that our natural environment is under deadly assault. Everywhere wild life is in retreat, declining and dying from concrete, pollution, pesticides and sheer thoughtlessness. Unique and delightful species face extinction. A living heritage could all too swiftly become a dead fossil record.
Fortunately, and at the eleventh hour, the danger seems to have been recognised. Only yesterday details of the 300 birds and mammals in greatest danger throughout the world were published and the alarm has also been sounded by the World Wildlife Fund. During recent months the House has been urged to set up a national wildlife control authority in Britain.
My Bill to save otters would be a much more limited measure. Yet it could be a useful and possibly significant step towards the wider objective. Indeed, if, by our indifference, we permit this delightful and intelligent animal to vanish from our rivers, I would despair of our ever holding the line against the depredations of sheer selfishness and stupidity.
My interest in the otter was aroused long ago, when I won my first and, as it proved to be, my last school prize, the book "Tarka the Otter". Williamson's classic gave me a lasting affection for the animal which Gavin Maxwell's more recent "Ring of Bright Water" has confirmed. It is hard not to see our better human qualities in the otter's great sense of play, and in the exemplary maternal instincts of the female.
1224
Jeremy Harris, who has recently published the outstanding definitive account of the otter family, describes how he
"was once woken in the middle of the night by a terrific banging and thumping from the inside of one of my otter's sheds. On investigation, he proved to have taken to bed with him a large wooden ball from his pool and to be now engaged in a midnight game of 'fives'."
Yet this engaging and playful animal has been persecuted for at least eight centuries in Britain. It was regarded as a pest, a vandal of the river. Against such a background of ignorance about the creature's ecological rôle, it was understandable that it became an outlaw of the riverbank fit only to be hunted for pleasure, and killed in the sacred cause of fishing rights. Today, with greater scientific knowledge, there can be no excuse for such persecution.
Harris affirms that
"otters will not as a rule kill merely for the sake of killing."
Gavin Maxwell points out that
"their principal food consists of species in direct competition with game fish,"
and it is known that otters eat a lot of eels, which, in turn, eat a lot of salmon and trout eggs. The "rogue" otter can be a menace to a trout hatchery, but such a deviant is unusual and presents only an infrequent necessity for the animal's capture or death. Overwhelmingly, the weight of evidence is on the side of the otter.
In a debate in another place on 13th March, successive noble Lords with great practical experience testified in its defence. Furthermore, I have just received a letter from Mr. Peter Scott, a most distinguished naturalist, who says that
"the argument that the otters are dangerous vermin which do great damage to salmon and trout rivers is almost wholly spurious."
Now, even if the otter were a pest, to hunt it remorselessly for hour after hour would be a deplorable and savage sport. But when it is known to have a beneficial effect upon the balance of nature, the hunters themselves stand revealed as the pests who need to be chased away. Moreover, to continue killing the otter when its numbers show a steep decline, and then to suggest importing more otters to keep up the good work of hunting and killing them, is to insult the name of homo sapiens.

1225
I accept that the slaughter of the otter is not just by the hunt. Its pelt is also a source of danger for it. On 5th March, I was informed by the Minister of State, Board of Trade, that between 2,000 and 5,000 otter skins are imported into Britain annually. My hon. Friend went on to say that
"British-produced skins are negligible in quantity."—[OFFICIAL REPORT, 5th March, 1969; Vol. 779, c. 120–1.]
In relative terms this may be so, although the evidence is tantalisingly sparse. Nevertheless, there are firms whose names I possess which purchase and advertise extensively for otter pelts in this country. I am informed on good authority that £8 per pelt has been paid within the last year or two.
My Bill would make the killing of an otter, whether for pleasure or for pelt, an offence. Any firm which advertises for British pelts, or accepts them, would be liable to prosecution. In this way I hope that the animal will be enabled to survive extensively in Britain, protected from the only carnivorous animal—man—which threatens it.
But the decline in the otter numbers, which seems an undoubted feature of the past decade, is also due to other factors less easily overcome, such as severe winters and pollution. Since these threats will largely persist, it is all the more essential and urgent that the direct killing by man of the otter should be stopped. Indeed, otter-hunting, by destroying between 50 and 100 otters a year, may well be playing the decisive marginal rôle in wiping out the species for ever.
The evidence for the otter's decline is most strikingly illustrated in the statistics of otters killed in hunts. Up to the late 'fifties, the annual take was over 200. In each successive year the number killed has fallen. By 1967 the number being killed was barely a quarter of that in the late 'fifties. Moreover, there had been a steep rise in the number of hunting days taken to kill one otter.
Whether hunting is the major factor in this decline may be questioned. What cannot be denied in simple logic, is that the catastrophic decline in numbers suggested by these figures, is still further worsened by each otter hunted to death. And if a bitch dies, so do her pups. When a species is approaching the point of no return, it cannot afford to lose a single
1226
member unnecessarily. We cannot afford to wait for the more elaborate five-year survey proposed by the Mammal Society; nor should he be content with the very limited and largely specious curtailment of hunting voluntarily decreed by the hunters.
The future of the otter is not the business of those who kill it most cruelly; it is the business of those of us who respect wildlife as a trust we hold for the future. The issue is a simple one of conservation buttressed by compassion. As Gavin Maxwell states:
"This is as far as I know the only blood sport in which the entire 'field' of humans, besides a pack of hounds, is deployed in the destruction of one animal, and to triumph in that animal's needless death is to my mind degrading."
Sportsmen who force the otter on remorselessly with steel-tipped staves, or even dig the terrified animal out of the holt where it has sought refuge, have a queer idea of fun.
My Bill would stop these mediaeval antics. Needless to say, I am supported by both the R.S.P.C.A. and by the League Against Cruel Sports. I am also supported by at least 185 local authorities, whose views were sought in recent weeks, and by many naturalists and conservationists who have written to me in often forceful and pungent terms. Hon. Members will themselves have received the valuable background paper from "Wildlife", which elaborated the conservation arguments.
This, then, is what my Bill is all about. It is a belated rescue operation for a threatened species.
May I conclude by again quoting the words of Jeremy Harris:
"It must be remembered that we cannot look to zoos to make good the follies of our depredations; there is not a single pair of European otters in any British zoo, nor in private ownership in this country."
And he asks this question:
"The fact that otters are found almost everywhere in the world may well indicate that they occupy an important ecological niche. Is it wise to risk hounding this animal out of existence?"
I believe that there can be only one answer to this question, and I therefore commend my Bill to the House.
Question put and agreed to.
Bill ordered to be brought in by Mr. Edwin Brooks, Mr. Burden,

1227
Mrs. Joyce Butler, Mr. Donald Dewar, Mr. William Edwards, Mr. Gwynfor Evans, Mr. Gresham Cooke, Mr. Leslie Spriggs, Dr. Shirley Summerskill, Mr. Richard Wainwright, and Mr. Ben Whitaker.

PROTECTION OF OTTERS
  PROTECTION OF OTTERS
  Bill to provide for the protection of otters, presented accordingly and read the First time; to be read a Second time upon Friday 16th May, and to be printed. [Bill 155.]
ORDERS OF THE DAY
  FINANCE BILL

    (Clauses 7, 8, 36, 38, 43 and 44, and Schedule 6)
    Considered in Committee.
    [Mr. SYDNEY IRVING in the Chair]

    Clause 7

      CHARGE OF INCOME TAX FOR 1969–70
      3.48 p.m.
      The Chairman: The first Amendment selected is Amendment No. 1. Henry d'Avigdor-Goldsmid.
      Mr. John Pardoe: On a point of order. I am sorry to take up the time of the Committee at this stage, but I have two points of order that I particularly want to raise.
      The first relates to the Clauses at the head of the Order Paper—Clauses 7, 8 36, 38, 43 and 44, and Schedule 6. I am aware that we have already voted on their being committed to a Committee of the whole House, and that one speech was allowed against, but, as a humble back bencher, I still have no idea as to how the decision was reached, and I would like to have an explanation.
      The Bill has 53 Clauses and 21 Schedules, which include many of great importance to my constituents. Of a total of 74 Clauses and Schedules, only seven have been selected for debate in Committee on the Floor of the House—
      The Chairman: Order. The hon Gentleman is seeking to argue the Motion already disposed of in the House. The House has resolved that these Clauses and Schedule 6 shall be taken on the Floor of the House. They are in the Orders of the Day, and we must proceed with them now.
      Mr. Pardoe rose—
      The Chairman: Order. I hope that the hon. Gentleman will not enter into argument on this point.
      Mr. Pardoe: I merely seek enlightenment, Mr. Irving, for the benefit of my constituents. If I do not know how the

      1229
      decision was reached—and we have never have a word of explanation—how can they know?
      The Chairman: Order. The hon. Gentleman cannot seek the answer in Committee.
      Mr. Pardoe: On my second point of order. I am well aware that I am not entitled to question your selection, Mr. Irving. But I seek enlightenment as to how it happens that when there are 12 Amendments on the Notice Paper to Clauses 7 and 8, six in the names of myself and my hon. Friend the Member for Colne Valley (Mr. Richard Wainwright) and the rest in the names of Conservative Members, the Conservative Amendments have been selected and the Liberal Amendments have not. I realise—
      The Chairman: Order. We cannot discuss this matter in Committee. A number of the hon. Gentleman's Amendments are out of order. If he would care to consult me privately, I shall try to help him.
      Mr. Pardoe: Further to that point of order. I have already taken the advice of the Table Office, which is the only office to which a back bencher has access. I am reliably informed that that is very much open to dispute.
      The Chairman: Order. The hon. Gentleman is really challenging the selection of the Chair. If he wishes to consult me privately, I shall be happy to see him.
      Sir Henry d'Avigdor-Goldsmid: I beg to move Amendment No. 1, in page 13, line 39, leave out '41.25' and insert '38.75'.
      I am grateful to the representative of the Liberal Party for allowing me to open the debate.
      The Amendment is in the names of my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), some of my hon. Friends and myself. By this cabalistic means, the party to which I am happy to belong wishes to indicate its desire that the rate of income tax should be reduced by what is commonly known as 6d.
      When the Chief Secretary to the Treasury announced on 6th May the decision that some Clauses were to be taken on
      1230
      the Floor of the House, as reported in c. 408–409 of HANSARD for that date, I felt that his statement did not receive the consideration it deserved. I was rather surprised that my hon. Friend the Member for Cities of London and Westminster (Mr. John Smith) found it necessary to object, and divided the House against the Motion. If he had won that Division the effect would have been to return the entire Bill upstairs.
      Despite the many very interesting interventions he made last year, I am surprised that my hon. Friend wishes to revert to the conditions upstairs, which at times I found comparable to a magistrates' court in Calcutta a century or so ago, and just as likely to produce a bad result.
      In his speech of 6th May, my hon. Friend had his adverbs a bit wrong. I do not comment on where he received his education. He referred to
      "… a Committee of 30, of which perhaps 12 will be Opposition Members. They will consist of a Whip, three Front Bench spokesmen and four crypto-Front Bench spokesmen …"—[OFFICIAL REPORT, 6th May, 1969; Vol. 783, c. 409.]
      I suppose that I come under the last of those headings, but my hon. Friend has his adverbs wrong. He is a crypto-Front Bench spokesman although at present he sits on the back benches—
      The Chairman: Order. I am having difficulty in relating the hon. Gentleman's remarks to the Amendment.
      Sir H. d'Avigdor-Goldsmid: I would like to make it clear that I am a crypto-back bench Member, resting temporarily on the Front Bench. I would say that I was a pseudo-Front Bench spokesman, were it not for the fact that the transparency of my disguise would deceive no one.
      The theme for our debate on income tax is best set by an item I saw on the Exchange Telegraph tape on 8th May, headed:
      "Wife threw tax forms on the fire".
      A gentleman who found himself in trouble in the bankruptcy court had said:
      "I just don't understand the forms they send me and my wife throws them on the fire. It's no use getting angry with her: she just throws a tantrum and makes things worse."
      I do not want to draw any parallels, but I cannot help feeling that some of

      1231
      the troubles with which we are now beset, to which reference was made at Question Time, might owe something to the Chancellor, whom we are pleased to see here, perhaps throwing a tantrum in Bonn last autumn. I gather from the Answer given by the hon. Gentleman at Question Time that the price we are to pay for that will be hard and disagreeable.
      In moving that we should take 6d. off income tax I am aware that this involves a notional liability of £280 million to £300 million. This would include the consequential reduction on the allowance rates. It may seem a very large figure, but I hope to satisfy everyone that, in view of the wide range of the Chancellor's forecasts, and the wide range of error which they contain, a mere reduction of £300 million is really nothing to speak of. In Table II of the Financial Statement and Budget Report 1969–70, we see that there is a transfer to the credit of the National Loans Fund of £2,457 million, which is a staggering figure.
      I would be more impressed with it were I not also conscious of the forecasting errors, which have been conveniently summarised for us in Table 12 of the some document. For instance, last year the Inland Revenue fell short by £126 million on its forecast whereas the Customs and Excise was no less than £589 million in error. I am aware that of that £589 million. £330 million represented import deposits, which, although they had been in print, were not included in the right hon. Gentleman's Budget Statement.
      4.0 p.m.
      Still, the discrepancy is very large and it suggests that something is wrong with Government forecasting. As the right hon. Gentleman, in his Budget last year, took no less than £923 million from the taxpayer, to which he added a further £250 million on 22nd November, and as he now proposes to add a further £340 million, it suggests that we need attach no great weight to his Budget judgment. No doubt he has to worry about whether he should extract £300 million or £350 million, but I am not impressed by the fact that this Amendment would deprive him of about £300 million of notional revenue.
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      I say "notional revenue" because I see no reason to suppose that we will not have a shortfall this year as we did last year. If we look at the results for 1968–69, both income tax and surtax show a considerable shortfall. Against an estimate for that year of £4,401 million the out-turn was £4,337 million, which is £64 million difference, that is about 1½ per cent. Some people may say that beating the income taxpayer is flogging a dead horse. I would not use that language, because it is one thing to flog a dead horse, which is a harmless perversion, although the noise may irritate the neighbours, but it is quite another thing to flog a dead-beat horse. This is not only cruel, but it is also useless, because it may irretrievably damage the horse for the future.
      Finally, if anyone indulges in that habit, he gets into trouble—if he is a jockey with the stewards, or if he is not competing in races, with the R.S.P.C.A., and very properly. In continuing the ridiculously high indirect taxation rates the Chancellor is flogging not a dead horse but a dead-beat horse, and the consequences are not always the best that can be devised.
      Why has this situation developed? If we compare 1964, the last year of Tory rule, with 1968, about 2 million more people have now been brought into taxation. During the years of Tory government we were able to relieve a number of people of tax, but now 2 million more have been brought in since 1964. Direct taxes on personal income which represented only 9·7 per cent. of expenditure in 1964, have risen to 12·9 per cent., that is, they are about one-third higher.
      If we include the employees' contribution to insurance schemes they have gone from 14·7 per cent. to 18·9 per cent., an increase of about 30 per cent. As 2 million more people are brought into the Chancellor's net, it is no wonder that there is very wide resentment. Further, and these are the really damning figures which were brought out by my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) in the Second Reading debate, the proportion of rates and taxes and contributions paid in the domestic product has risen from 33·8 per cent. in 1964 to 42·3 per cent in 1968. It will be higher this year,

      1233
      because we do not yet know what contribution is to be exacted in consequence of the rise in pensions forecast for the end of the year.
      No accurate forecast can be made for 1969, because we are still without that information, but I am confident that it will certainly not show any reduction on the 1968 figures, but will be higher. In other words, we may well be in a situation where 45 per cent. of the gross domestic product will go in rates, taxes and contributions. This is a fantastic sum for a Western nation.
      What is the reaction? The effect of this has been that very large numbers of taxpayers have gone overseas. I am more concerned with the lot of those who stay at home and pay the taxes. I find that a study of the financial advertisements sometimes gives one quite a good idea of what people are doing with their money. Clearly, financial advertising in the Sunday papers is not cheap; clearly, it is worth while incurring the expense of these very large, full-page advertisements to gather the various crumbs from the taxpayers.
      These advertisements are not directed to surtax payers. They are directed more to the more unsophisticated element. Some of these advertisements are really grotesque. Only 10 days ago there were several advertisements in one very important paper. One offered, as its main attraction, spread over a half page, an improvement in the capital value of the £ of 125 per cent. since 1st January, 1967. In very small print it advertised a yield of 1·2 per cent. This was a very respectably presented appeal. There were others which, to my mind, were less respectable. Another sought to protect one's £ in a growth equity plan. This advertised no yield whatever.
      There was a third which simply said that if one had invested £100 with the firm on 6th March—
      Sir Gerald Nabarro: On a point of order. As this speech is to set the tone and the tenor of the debate, and, I fancy, the rules of order for the remainder, can you rule, Mr. Irving, whether it would be in order for me to follow my hon. Friend on the intricacies of investments in unit trusts and their presentation in Sunday newspapers?
      The Chairman: Order. I think that the hon. Gentleman probably realised that I was listening with particular care to his hon. Friend. I am having a little difficulty in relating the hon. Gentleman's remarks to the Amendment, which deals with a reduction in the rate of income tax. He may well be producing the link in the moment. Perhaps he would help me.
      Sir H. d'Avigdor-Goldsmid: I am grateful to you. Mr. Irving, because despite what my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) thinks, this is very germane to my argument, which is that the mounting weight of taxation has made people, particularly the relatively modest earners, feel desperate. They are, therefore, particularly prone to accepting the lures of what I would say is less than scrupulous financial advertising. This theme is worth developing, whatever my hon. Friend thinks, and I hope that you will bear with me for a few minutes while I do so.
      The particular item to which I was animadverting, spoke of an opportunity in the U.S.A. and indicated that £100 invested on 6th March, 1964, would have been worth £238 on 1st May, 1969. There was no price to put on units and no yield advertised. This is something approaching the technique of the South Sea Bubble.
      There was another which, in my opinion, put all the rest into the shade. This was headed:
      "How to make a small fortune on the stock market."
      It said that the equity unit had increased in value 226 per cent. in less than six years. No yield was indicated, for the good reason that none was offered. Unsophisticated investors are being invited to put their funds, and modest funds at that, into the keeping of those who do not see any obligation to offer investors any income. My information about this advertisement is that these so-called units were sold by high-pressure methods—
      The Chairman: Order. The hon. Gentleman is not making the link between what he is saying and the Amendment very clear. I think that he ought to come more clearly to the Amendment
      Sir H. d'Avigdor-Goldsmid: The point I am trying to make is that some very

      1235
      expensive advertising is being carried on, to appeal to small investors, and it is being done because these investors feel that they do not have a chance under present taxation of accumulating any funds. I do not see that that is at all divorced from the Amendment which has to do with the growth of taxation, and income tax. I am suggesting that a market for these attractions is found because the small investor with some funds, seeking financial independence has no encouragement to find it within the confines of our present taxation system.
      That is why they are driven to pursue illusory, in many cases, capital gains. I hope that you, Mr. Irving, will allow me to complete the point. It will not take long. I should like to have the opportunity of making it clear that this is the sort of distortion in the economy which comes from a very high and unrelenting tax system.
      My information is that the loading charge—the amount taken by the promoters—is 85 per cent. of the first year's premium, 39 per cent. of the second year's premium and 25 per cent. per annum thereafter. This advertisement appears in a reputable paper No yield is advertised, and, therefore, I have no comments to make about that, but it suggests to me that people must be greatly pressed to think that they will make money out of a scheme sold in that way.
      This is the distortion which comes into the economy through high taxation for people who live here. Some people move, and on international comparisons, which are always misleading, but which still stand up to pressure, a married man with two children under the age of 11, which is a reasonable unit to work on, earning £2,500 pays 22·1 per cent. of his income in taxation in the United Kingdom and 8 per cent. in the United States. If he is earning £5,000—and he is still not in the surtax range but is an income tax payer—he pays 28 per cent. in the United Kingdom and 14·9 per cent. in the United States.
      It is not worth dealing with the situation in other countries—there are always balancing factors—but the fact remains that, for the rising young man with a career to make, there
      1236
      are great attractions in being subject to United States and not United Kingdom tax procedures.
      Professor Henry Johnson—
      The Chairman: Order. General references may be made as incidental to the main argument, but by his Amendment the hon. Gentleman seeks to reduce the standard rate of income tax. He is a long way from it.
      Sir H. d'Avigdor-Goldsmid: I am directing my argument, Mr. Irving, to the taxpayer who pays the standard rate. I have kept away entirely from the taxpayer who pays above the standard rate—in other words, the surtax payer. I respectfully submit that that is perfectly fair.
      Professor Henry Johnson, in his inaugural lecture at the London School of Economics—it goes back a year or two, but it was quoted by Samuel Brittan in an article in the Financial Times—said:
      "'In the modern world a university education is an internationally transferable item of human capital; but in Britain educational policy makes the State bear the cost of it, while the country relies on a combination of state administration of low salary scales for educated people, and steeply progressive income taxation, to recoup the cost'. But the cost is only recouped from those who stay."
      The brain drain is very difficult to analyse, but, according to the Jackson Report, quoted in The Times of 12th January, 6,200 engineers, technologists and scientists left in 1966 with 2,000 to 3,000 doctors and teachers. I hesitate to suggest that the brain drain has dried up since. I should have thought that if figures were available they would show that its intensity was being maintained—in other words, youngish people with a career to make are seeking it abroad.
      This is not confined simply to the managerial classes. I was told by someone who is intimately connected with a very large vanadium works in South Africa that he is having no difficulty in recruiting welders here. We know the extent to which our own nuclear energy programme is held up and distorted by the absence of welders. Welders are not suratax payers, and they are going to South Africa. This is the sort of distortion caused in our economy by continuously high taxation.

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      4.15 p.m.
      I do not need to rub in too hard today's wretched trade figures. The Financial Secretary had a fairly tough time at Question Time, and I should like to leave him in peace for a little longer. However, the badness of the trade figures reflects the fact that there is no improvement in the financial condition of the country, despite the vast efforts which have been made for the betterment of our balance of trade. I am sure that this goes back to the question of incentive and taxation.
      I have suggested that we are losing people to overseas countries who would make a great contribution to our economy. Estimates have been quoted that the people who have gone overseas would have contributed £50 million a year in taxation to our economy. I know that this point falls more under a later Clause and I will not develop it, but in this country the income tax payer finds it impossible to acquire a financial independence for himself. He does one of two things: either he is tempted to go in for the hairbrained financial schemes which are so widely advertised, or he decides to go overseas, a decision being taken all the time. The many individual decisions which are taken add up to the sort of trade figures with which we are confronted monthly.
      We suggest in the Amendment that the rate of income tax should be reduced by 6d. not because there is any real hope of the Government's accepting it, but as an indication of the view of our party that the present punitive rate of taxation are the main obstacle to the growth and development of our country and that to maintain these rates indefinitely can do us no good. It has done us no good over the five years that the Labour Party has been in office. It shows no sign of having solved any problems for us.
      The poet whose name I share said:
      "Ill fares the land, to hast'ning ills a prey,
      Where wealth accumulates, and men decay".
      Perhaps I shall be allowed to add to that: That land fares worse in times like these, where taxes mount and men go overseas.
      The Chairman: May I point out to hon. Members, although no doubt they know it already from the list of selection,
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      that we are taking at the same time Amendment Nos. 2, 3 and 4.
      Mr. Robert Sheldon: We have heard from the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) a further extension of the mythology of high taxation and the supposition that this is one of the main rather than one of the minor aspects of the brain drain. There are so many areas in which misconception arises that I have been tempted very strongly to ask my right hon. Friend the Chancellor of the Exchequer to conduct the kind of research into taxation that I have been pursuing for some time. I should like to refer to this point in my remarks.
      One matter which I wish particularly to take up at the beginning of my speech is the effect on risk taking which is so often stated to be one of the damaging effects of high rates of income tax. Like most hon. Members, I agree that the level of good risk taking is probably lower in this country than it should be.
      The argument is used that a person who spends £1 in trying out a risk has only 1s. 9d. in the £ left to him if he pays income tax and surtax if he is successful in his venture, whereas if he is unsuccessful he will lose the £1. According to the argument, the odds are weighted against him. If that were the only factor, it would be a serious one and one which, despite any commitments we might have to our philosophy of taxation, we would have to take note of and change drastically.
      In my view, however, that is a false comparison, because the person who pays high rates of taxation is able to balance out the risks in which he is unsuccessful against the income which he receives. It is very rare to find somebody gambling with the whole of his wealth on one venture. To do so would in nearly all cases be an example not of good risk-taking, but of foolish risk-taking.
      The ordinary person with a modicum of prudence takes his risk with the kind of money that is related to his income. From what I see of what goes on among those who take this risk, they take a risk which is balanced by a similar kind of income which is taxed in the same way. Therefore, any risk capital which is unsuccessful is a taxable loss. That is

      1239
      what happens in the real world in nearly all cases.
      Clearly, income tax, like any other Government measure, cannot satisfy every case, but it satisfies the most important and the most frequent cases. That should be our aim. Therefore, I do not think that as a result of the Clause the amount of good risk-taking will be much less than it should be. There are, of course, other reasons, but I do not regard that as a particularly valid reason.
      Sir Tatton Brinton: The hon. Member's argument seems to me to be that there are circumstances in which a capital loss made by a private individual can be set off for tax purposes against his annual income. I am not aware of any such circumstances. Will the hon. Member elaborate, or have I misunderstood?
      Mr. Sheldon: The hon. Member will surely be aware that any entrepreneur who undertakes an associated business, or even a particular kind of transaction or deal, or who shows initiative in his ordinary business, would be able to offset that loss against the income derived from a similar kind of profit. This possibility would be open to him
      Sir Cyril Osborne: The hon. Member says that a man who risks £1 to gain the extreme 1s. 9d. profit is, therefore, betting against himself to the extent of about 11 to 1. He then said that the person in question was making profits on another deal to offset the loss on the first deal. How can the hon. Member assume that someone who is stupid enough to make a loss on one deal will make a profit on another?
      Mr. Sheldon: I am talking about the real world, in which a person who pays income tax and surtax at this kind of level does not risk all his capital on one venture. This does not happen frequently in the real world. What is necessary is to quantify for each individual the level at which he takes the kind of good risk which one hopes that he will take, which can be of benefit both to the individual and his firm and, ultimately, to the country.
      The point made by the hon. Member for Walsall, South about the need to encourage the young man is something to
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      which we all pay lip-service, but it must be remembered that one feature concerning that young man is that his income is not very great. In these debates we tend frequently to overlook this. If his income is not very large, the tax which he would pay would not be likely to be large. Therefore, when he takes the risk that we hope he will take if he has a good idea or a new method of manufacture, distribution or anything else, it must be remembered that the operation of the income tax lever such as I have described does not harm him so much because his income tax is not so high.
      Mr. John Hall: Would not the hon. Member agree that the young executive in, say, the £2,500 a year middle rank or above is likely to be taxed more heavily in income tax alone in this country than in comparable industrial countries overseas? That is one reason why he would go abroad. Is not the second reason that the young man who believes his potential earning power to be considerable would not stay here when he knows that he would be heavily penalised by realising that potential?
      Mr. Sheldon: He may go abroad for all sorts of reasons—to get advantages in terms of the work he is doing or because organisations abroad might appear to him to be better than those in this country—but the Jones Report showed that he is not likely to do it for income tax reasons. I thought that knowledge of the level of income tax in other countries had become so diffused in the House of Commons and in this country that we would not be having the same discussions as we had last year and the year before.
      We now have the figures. In the highest surtax levels—although we are not concerned with surtax in this debate—the argument that we are highly taxed is true, but in the middle range we are not so heavily taxed. It would be a great help to improve the quality of debate by understanding some of the obvious things that we should by now have absorbed, so that we may then discuss some of the more important and possibly more controversial matters which occupy our attention at this stage on taxation.
      For the young man the income tax disadvantage of taking risks is very much

      1241
      reduced, because he is likely to have neither much capital nor income. Therefore, the disincentive effect for him of taking risks, because he has a low or modest level of income tax as compared with the surtax payer, is much less of a disadvantage in taking the risks that we hope he will take.
      On the other hand, the wealthy man who has sources of income—I do not say in 100 per cent. of instances, but in the large majority of cases—is able to offset his losses against his other income. For these reasons, we must understand that although there are certain big disadvantages of income tax, this does not happen to be one of them.
      It is just as well that this argument should be conducted on a rather higher level than sometimes we have had in the past and that some of the important contributions to this study should be absorbed by Members of the House of Commons, otherwise we will never improve taxation as we would all like to do.
      That leads me to the rôle of the Treasury in carrying out the further investigations. If I believed that those investigations were no more to be understood than the investigations of the past, I would see no case for urging my right hon. Friend the Chief Secretary to carry out the kind of research activities which I am encouraging him to undertake. There would be no point in it. If the results of the investigations did not enter our heads, there would not be the improved level of discussion which could result in decisions beneficial not only to those who pay tax, but to the country generally. It is only by absorbing some of these elementary facts that we can make progress in our understanding of the value, as well as the limitations, of the use of income tax as a tool for raising revenue.
      I believe that there is a legitimate area of research into income tax. The Treasury has shown itself to be very slow in understanding how it should become involved. A large number of private research efforts have been carried out with modest budgets, nothing like the kind of budgets that my right hon. Friend, if he felt more seriously about this than has been felt about it in the past, could bring to bear. He has great resources not of money alone, but of experience.
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      The P.E.P. report on personal taxation incentives and tax reform by Brown and Dawson was a useful study, but its value is limited by the personal experience and understanding of the people concerned The Inland Revenue has the great advantage that it has an experience which is unrivalled in the country. No one can match the Inland Revenue in its depth of understanding of taxation and the rôle of income tax. If the Inland Revenue saw it as its duty to explain to the country how disincentives operate, then we should be able to have much more informed debate. This has been done by other people who have not had the resources of the Department of my right hon. Friend.
      I will refer briefly to the letter which I have received from the Chief Secretary, and which I have his permission to quote. I wish to express by gratitude for the full reply. This is the first document to take the argument substantially further forward, and for this I am very thankful. After quoting six other kinds of research and saying that they are subject to certain limitations, which I accept, the Chief Secretary, referring to the results of previous research, says this:
      "This is all very discouraging: it does not get us very far. Nevertheless, we have felt it worthwhile to spend some time on a feasibility study of our own, to see if we could find a way out of the difficulties which have beset previous investigators."
      My right hon. Friend then goes on to say how the feasibility study was carried out. I am grateful for this; it is more than any previous Chancellor of the Exchequer or Chief Secretary to the Treasury has ever undertaken in the past.
      4.30 p.m.
      Mr. Patrick Jenkin: The hon. Gentleman will have heard the exchange between the Chief Secretary and myself at Question Time. May we assume that the hon. Gentleman has no objection to the letter being made available to the Committee? Would it be possible for it to be duplicated quickly so that hon. Members in all parts of the Committee may have the benefit of the Chief Secretary's wisdom?
      Mr. Sheldon: I have explained to my right hon. Friend the Chief Secretary that I have no objection. I would be happy to see the letter placed in the Library, or made available to hon. Members, as

      1243
      it takes the argument a little further forward, which is valuable.
      The Chief Secretary goes on to say:
      "My conclusion, therefore, on the basis of the results of previous studies and of our feasibility study is that there is little point in commissioning further research work, until a way can be found of isolating the effects of taxation from other factors which condition the behaviour of taxpayers."
      I had hoped for something better. A feasibility study suggests that a junior civil servant was given the task—and I do not say this disparagingly—of trying to find out his own opinion on the extent of the further information and understanding which could be obtained. I am thinking of more than this. We need to bring in people who have carried out this kind of investigation. I am not saying that the right people are those who started the feasibility study. May I ask when the feasibility study got under way?
      I may be doing my right hon. Friend an injustice, and, if so, I apologise, but I am not fully convinced that it was much more than a one-man effort rather than organised teamwork to discover the relationship between incentives and taxation, which my right hon. Friend the Chancellor of the Exchequer used so prominently last year in his Budget speech as one of the main reasons why he had to make an encroachment upon indirect taxation instead of on direct taxation.
      When making a decision involving the use of many thousands of millions of pounds, even although the arguments may not be conclusive, even marginal assistance from research work is of value. We should be trying to understand how the system operates, and it is worth spending a tiny fraction of that vast sum of money to try to get such an understanding. I plead once again with my right hon. Friend to make an examination of the possibilities for further research on the incentive effects of taxation.
      The common criticism, which I am sure we shall hear ad nauseam from hon. Gentlemen opposite, is that the Labour Party is the party of high taxation—
      Sir G. Nabarro: Very true.
      Mr. Sheldon: The hon. Gentleman says that it is very true, but he makes the allegation without understanding the causes
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      behind the rise in income tax from 7s. 9d to 8s. 3d. in the £.
      The Labour Government is a different kind of Government from a Tory Government, with different objectives. One objective which is not shared by hon. Gentlemen opposite is that we think that in an expanding society public expenditure commands a high place. Had we been able to rely on the general buoyancy of revenue caused by inflation and growth, more revenue would have come from income tax without it being necessary to raise the rates. With general rising prosperity producing a greater amount of revenue, there is no difficulty in raising the amount of money needed for increased public expenditure.
      We are committed to increased public expenditure. This is one of the distinguishing factors between us and the Tories. There are not too many important points of principle—not as many as I would like to see—dividing the two parties, but this is still one important area of difference between us. One factor behind the rise in income tax is that we have given high priority to public expenditure, and the other is that the growth rate has been slower than we had hoped for.
      If either of those factors had been absent there would have been no need to increase income tax. With slow growth income tax rate could have been maintained with less public expenditure. A much higher level of taxation was necessary to cover the slow growth and the need for greater expenditure on the public services. It is because we have not had both these items that we have had to increase income tax.
      Ideally, we want a prosperous economy so that we can get back to the idea that income tax provides by far the greatest bulk of the revenue. Income tax is the fairest tax. It is only when one gets to such levels as they are at present that one needs to think seriously about other forms of taxation. We have therefore been forced to consider all sorts of other forms of taxation, whether it be S.E.T., value-added tax, or whatever it may be, because we are not getting enough by income tax and because the economy is not sufficiently buoyant.
      One reason, among many, why we need growth in this country is that we

      1245
      need growth for public expenditure so that we may reduce taxation. We should depend more on income tax as the fairest kind of tax that exists, without having excessively high rates which themselves lead to problems. Another reason is that when one gets to the situation that one is not relying upon income tax quite so heavily as on other taxes, just because the level is high, then one starts to take into account other kinds of taxation which are not so fair and which do not redistribute income in the way in which I should like to see it redistributed.
      One of the results over the past three or five years is that, so far from there being a redistributive effect due to taxation, it has gone the other way. There has been an increase of wealth at the higher levels and a reduction at the lower levels. This is directly attributable to being unable to make income tax the main redistributive weapon which it ought to be.
      To take the figures between October, 1964, and October, 1968, the situation has changed a little since then, but not sufficiently to vitiate the figures which I shall seek to give. We see from the Financial Times index, in relation to 500 shares during that period, that there was an increase of 52 per cent. With capital gains tax at the highest level of 30 per cent., there was a capital increase of 37 per cent. The ordinary person, during those four years, could make 37 per cent. tax-paid. During the same period average earnings rose in real terms by 28 per cent., retirement pensions by 33 per cent.
      As I have said, average earnings rose by 28 per cent. and retirement pensions by 33 per cent. They are not the best investment. There are better investments in such things as chattels, artistic properties and real estate.
      The importance of this is that it shows that in a period where the Government were committed to greater redistribution there was not the extent of redistribution which was to be expected since we were unable to use the redistributive effects of income tax because the levels of income tax were so high. This is the interesting happening over the last four years. All the other measures brought in by the Government which were of value in trying to increase the redistribution of wealth were not sufficient to compensate
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      for the lack of redistributive effect caused by the inability to use income tax in the way in which it should have been used.
      One great hope is that during a period of greater growth we can once again come to place reliance upon income tax, which is a fair tax in its redistributive effect as being the best kind of taxation open to us in a society in which, unfortunately we still need to raise large sums of money so as to provide services for people who require them.
      [Mr. HARRY GOURLAY in the Chair]
      4.45 p.m.
      Sir G. Nabarro: My Amendments Nos. 2 and 4 have been linked with Amendments Nos. 1 and 3, which have been set down by my right hon. Friend (Mr. Iain Macleod). The essential difference between us is that my right hon. Friend seeks a reduction in the standard rate of income tax from 8s. 3d. in the £ to 7s. 9d. in the £, or from 41¼ per cent. to 38¾. per cent. I seek a reduction from 41¼ per cent. to 37½ per cent. I am a little more "bullish" in my approach to direct taxation than is the remainder of my party.
      This is the fourth consecutive year in which I have been privileged to set Amendments on the Notice Paper to reduce direct taxation. In 1966, I was rather a pariah in that the majority of my party did not come with me. In 1967, the majority of my party were with me and in the ensuing two years they were with me although there were marked differences in effect.
      What every speaker in ever debate on income tax places insufficient emphasis upon is the extraordinary buoyancy of the tax to raise more and more money every year. My hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), in opening the debate, alluded to the yield of income tax in 1968–69 at £4,437 million and seemed to be a trifle disconsolate that it was £64 million short of estimate, and ought to have been £4,401 million I do not castigate the Chancellor for that. It was an extremely accurate estimate, having regard to the amount raised by the income tax.
      What appeals to me at the moment is the incredible buoyancy of the income tax which is to be expected in the fiscal

      1247
      period which we are dealing up to 5th April, 1970. The year 1969–70 is estimated to increase by a further 12½ per cent. or £544 million to £4,881 million. And it is only a couple of years ago that, in a debate on the Finance Bill, I alluded to a figure of £3,600 million.
      Although the Chancellor says that he keeps the rates of income tax constant he always neglects to observe—as has every Chancellor to whom I have ever listened over the last 20 years—that whereas wages rise apace, and more and more wage and salary earners are brought into the income tax net progressively at the higher rates of tax taking year with year, he will always get a big upsurge in income tax collected without moving the rates upwards.
      I come to the speech of the Member for Ashton-under-Lyne (Mr. Sheldon). His speech was characteristic and not dissimilar to his annual speech on the income tax, notably on two grounds: first, for its longevity and, secondly, for its muddleheadedness. He is the leader of that back bench school of thought which has groped for office in Labour Governments, but which has never achieved it. It is the school which says that there is no relationship between levels of direct taxation and incentives.
      Whatever may be said about the right hon. Gentleman the Chancellor of the Exchequer, he has enough commonsense to know that that argument is quite false. I have followed for many years the Chancellor's speeches on the influence of income tax and surtax and have always been impressed that the one member of the Labour Cabinet since 1964 who understood that there was some relation between direct taxation and incentives was the Present Chancellor of the Exchequer.
      No doubt that derives from the fact that he has much personal experience, not of business or commerce or trade or industry but of authorship, from which he has earned large sums of money—
      Sir Derek Walker-Smith: And from jolly good books.
      Sir G. Naborro: I agree: splendid books. I always recommend "Mr. Balfour's Poodle" to any serious student of politics—
      The Chancellor of the Exchequer (Mr. Roy Jenkins)indicated dissent.
      Sir G. Nabarro: I am sorry that the right hon. Gentleman dissents. He should rise in his place, prinking and preening that I recommend his authorship. I earn royalties for him in this respect, since I am not ashamed to say that I recommend his authorship. It is splendid. He has earned a lot of money from it in in his time and he understands the influence of direct taxation.
      The right hon. Gentleman brought it out in a curious way in his Budget speech this year. In a passage dealing with income tax, he said:
      "I referred last year to the fact that, whatever the evidence or lack of it, high direct taxation is widely believed to be disincentive, and that this could have a stultifying effect on the development of the economy. That was one reason why, with considerable difficulty, I avoided increases in direct taxation last year, and why I am not proposing any now. Indeed, I have carefully considered whether, even in a year as difficult as this, it would be justifiable, for incentive reasons and for the encouragement of savings, to mitigate slightly the rates of tax on high earned income."—[OFFICIAL REPORT, 5th April, 1969: Vol. 781, c. 1031.]
      That is the lie direct to the speeches year after year of his back bench friends. The right hon. Gentleman concedes, though not as powerfully as I plead, that there is a relationship between the levels of direct taxation and incentives, throughout our competitive society.
      I hope that the Committee will not waste too much time on this letter written by the Chief Secretary to the hon. Member for Ashton-under-Lyne, trying to search out those imponderables, said to be incentives or otherwise, connected with levels of taxation. They cannot be established, any more than it can precisely be established why people emigrate. Some emigrate because they want a sunny clime, some because they think that their children will get a better schooling in South Africa or Australia, some because they prefer the societies being established there. Many go because levels of taxation are less onerous, but not, by any means, the majority. Studying why people emigrate—their personal idiosyncrasies and preferences—seems an unrewarding theme and a waste of the time of Treasury officials. Although I shall read the letter alluded to by the hon. Member with great interest as an

      1249
      academic exercise, I do not attach much importance to it.
      I want to make two major points, the first of which stems from the speech of my right hon. Friend the Member for Enfield, West, which I have often read in the intervening years, because it is an excellent speech, on 6th June, 1967. In considering income tax, the Committee should have some regard to what my right hon. Friend said two years ago. He began:
      "We come now to what we regard as the most important Amendment."
      My right hon. Friend was quite unequivocal about it. They were the Amendments about income tax and surtax. My right hon. Friend has been utterly consistent in everything that he has said in the House, at party conferences, in speeches in the country and in his newspaper articles in supporting the belief that, as a first priority in dealing with taxation when we resume the reins of Government, we must reduce the rates of income tax and surtax.
      My right hon. Friend went on:
      "The first question is whether there is a need for a reduction in personal direct taxation such as we propose. The Chief Secretary, speaking on the Second Reading of the Bill on 2nd May, addressed himself directly to this point. He gave the figures of total taxation, and he included social service contributions and local rates, as a percentage of the G.N.P. at factor cost. That is fair enough. He then used the average figure for three years—1963–65. But this enabled him to use two Tory years to counterbalance the additional taxation which was imposed in 1965.
      If we look at the individual years, we clearly see why an Amendment such as we propose is necessary. Taking the Chief Secretary's points alone, in 1964 the percentage figure for the United Kingdom"—
      that is, the added effect of the aggregation to tax gathered as compared with the G.N.P.—
      "was 32·3; in 1965, 34·6; in 1966, 37·6; and estimated for 1966–67, 38·2, and for 1967–68, 39·1."—[OFFICIAL REPORT, 6th June, 1967; Vol. 747, c. 877–8.]
      I have no further figures for 1968–69. I am told that it is now well past 40 per cent.
      Mr. Patrick Jenkin: I believe that the figure is now 42·8 per cent.
      Sir G. Nabarro: I did not have that figure, and I am grateful to my hon. Friend. It is 42·8 per cent., no doubt due to the fact that, in March, 1968,
      1250
      in a full year taxes were raised by £923 million and, in November, 1968, by a further £250 million; although those figures did not apply in total to the year 1968–69, they would undoubtedly have had an influence in raising the level to 42·8 per cent.
      So we have succeeded—if "succeeded" may be used ironically—in raising the relationship between total taxation and gross national product from 32·3 in 1964 to 42·8 in 1968–69—a rise of 10 points in five years. I hope that the Chancellor will contradict me if I am wrong, but these are published figures and they give the lie direct to the hon. Member for Ashton-under-Lyne, who seemed to contradict the Tory propaganda—propaganda based on fact—that the Labour Party is eternally the party of increased and increasing taxation, whereas Tories have demonstrated, over all the years that they have governed, that they are the party of reduced and reducing taxation.
      Of course, throughout all those—[Interruption.] The hon. Member for Ashton-under-Lyne will have noted that I listened to him in complete quietness. If he wants to conduct a conversation, perhaps you, Mr. Gourlay, would ask him either to conduct it in whispers, or to leave the Chamber and hold it in the Lobby—
      Colonel Sir Walter Bromley-Davenport: Does my hon. Friend realise that the hon. Member is so thick-headed that he did not even hear what my hon. Friend just said? Would he shout it and hammer it home into the hon. Member's head?
      Sir G. Nabarro: I do not propose to raise my voice, but merely to appeal to the hon. Member's good manners.
      Of course, we are pleading, first of all, for a reduction of direct taxation, but it would be apposite to point out the levels by which other forms of taxation have risen pari passu with the increase in direct taxation in recent years. I am not solely concerned with the rate of income tax, but with the revenue from the income tax and the fact that that has gone up by £1,200 million per annum in less than three years. Since 1964, purchase tax and petrol, tobacco and alcohol duties have risen by £1,200 million a year, vehicle licences by £180 million

      1251
      a year, gambling revenue by £80 million, S.E.T. by £615 million a year, corporation tax by £500 million a year, estate duty by £15 million a year, and capital gains tax by £130 million a year. So every form of taxation has shared this advance.
      I say that direct taxation should be the first to be made the subject of reduction. Inevitably, the Chancellor replies, year after year, "Oh, but I cannot afford to reduce taxes in any sphere without a reduction in public expenditure." I remind the Chancellor and all my right hon. and hon. Friends, in case the figure has escaped their memories, that, between 1969 and 1970—three years—the steel industry will have cost the taxpayers £1,500 million as an aggregation of, first, compensation paid for steel assets, second, loans to the steel industry, third, the payment for steel industry losses, and, fourth, alleged investments for the future. All that was totally unnecessary. Had the industry not been nationalised, it would have cost the taxpayers nothing. I go no further than that today, because that is an incontrovertible argument.
      I am deeply divided from my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) about the place of savings in our national economy, and I fancy that most of my hon. Friends are as well. I had expected that, due to the extremities of our national economy this year, there would have been really imaginative proposals to collect much greater savings from every section of the community. Savings are very debilitating at present. Last year, National Savings showed a surplus of about £70 million.
      I take the Financial Secretary's point in my adjournment debate on this matter a few weeks before the Budget, that perhaps we did not get as much from National Savings as we might have done because there was such a tremendous upsurge in subscriptions of funds to unit trusts, but my point today is that, from the date that the Tories came in, October, 1951, until the date when they went out, October, 1964, there was a splendid upward curve in the aggregation of savings from all sources, personal, corporate and the remainder.—Before you interrupt me, Mr. Gourlay, I shall relate this directly to the income tax.
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      Every Chancellor since the beginning of time has claimed that he could have savings or tax revenue. It goes against the grain to quote from one's own speeches, but it is important for the Chancellor to note what I said in 1967. I declared:
      "In parenthesis, I would refer to every Chancellor since Sir John Anderson, which is a quarter of a century ago. Mr. Hugh Dalton, Sir Stafford Cripps, Mr. Hugh Gaitskell, Mr. R. A. Butler, Mr. Harold Macmillan, Mr. R. A. Butler, Mr. Derick Heathcoat Amory, my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd)—they should all be my right hon. Friends, of course, in the last three or four creations—and then my right hon. Friend the Member for Barnet (Mr. Maudling), were all unanimous in one material regard, and this policy has been enunciated by the present Chancellor since 1964."
      I was referring to the right hon. Gentleman who is now the Home Secretary—if he still is the Home Secretary—and I went on:
      "He has always said, 'If I cannot have direct taxation revenue, I will accept savings as an effective substitution'. His predecessors all said the same thing. But does this Chancellor practise it? Of course not."—[OFFICIAL REPORT, 6th June, 1967; Vol. 747, c. 886.]
      We were then debating the Finance (No. 2) Bill and what I said then still stands.
      Savings have stagnated during the last three years and the Blue Book "National Income and Expenditure, 1968" illustrates the position clearly. When the Tories came to power in 1951 the aggregation of all savings—personal, company, public corporation, central Government, local authority and the rest—as delineated in the table on page 8, were £2,794 million.
      For the information of the House I will give all the figures up to the present time, and they are listed in millions of pounds. In 1952, savings totalled £2,219; 1953, £2,320; 1954, £2,688; 1955, £3,182; 1956, £3,607; 1957, £3,737; 1958, £3,628; 1959, £3,925; 1960, £4,760; 1961, £5,026; 1962, £4,993; 1963, £5,412; 1964—when the Tories left office—£6,502; and then, for three years, there was a plateau under Labour, with the figures running at £7,294 in 1965, £7,390 in 1966 and £7,122 in 1967. The figure for last year is not yet available.
      That plateau in savings is the reason why direct taxation cannot be reduced. Public expenditure has been rising apace. We are budgeting this year for £16,500

      1253
      million, the biggest in history. Savings have stagnated at a plateau for the last three years and the only way we will get off that plateau is by having a General Election.
      I believe that this is the principal reason why there has been no reduction in direct taxation, though it is the inclination of the Chancellor to do something about this. I believe that instinctively he wants to do so, and I only hope that he has not got a trick up his sleeve; for example, the use of the Budget surplus next year to reduce income tax and surtax in the hope that, by taking that step before the next General Election, it will save his party from the chopper. It will not.
      Mr. Samuel Brittan, economics editor of the Financial Times, wrote on 7th November, 1968:
      "The level of personal taxation has become a major political issue in this country in a way it has not been for many years. The Conservatives are pledged to bring it down and as Mr. MacLeod's Conference speech indicated, Conservative plans are in practice based on a switch to indirect taxation …"
      I am proud to quote that view of my right hon. Friend and I am delighted and gratified to be identified with him. There is not a twitter of discord between us this afternoon, although I have always tried to be a little ahead of him as part of my duty as a back bencher. I recall Mr. Butler, now Lord Butler, saying, in effect, in 1950, "The rôle of the hon. Member for Kidderminster," as I then was, "is eternally to scout ahead of his party." That is what I am doing
      I hope that my right hon. Friend will be the Chancellor of the Exchequer before this calendar year is out. I repose the utmost confidence in his sagacity, perspicacity and financial skill. I leave him with the thought that 9d. is eternally better than 6d. to the hard-pressed taxpayer of this country.
      Mr. Joel Barnett: The hon. Member for Worcestershire, South (Sir G. Nabarro) showed, by his typical arrogance and extravagance as well as by his inability to distinguish the truth, that he does not deserve to be taken seriously in the Committee on this or any other topic.
      Sir G. Nabarro: Arrogance and extravagance?
      Mr. Barnett: That one cannot take the hon. Member seriously is illustrated by his reference to a Treasury document which, on a previous occasion, he described as a Budget leak. His exaggeration does however help to expose the irresponsibility of the Opposition Front Bench, the occupants of which have expressed views which are not only irresponsible but dishonest and economically disastrous. [Interruption.]
      The policy of hon. Gentlemen opposite is dishonest because they must appreciate that in current circumstances their alternative proposals would merely substitute increased prices for taxation. That would occur by one means or another They know this to be true, and I should be glad to hear the right hon. Member for Enfield, West (Mr. Iain MacLeod) attempt to deny it. Their proposals are, therefore, dishonest. They would be economically disastrous because the right hon. Member for Enfield, West must know that to reduce direct taxation now, at a time when consumption at home should not rise, would mean economic disaster.
      Worse still is the manner in which hon. Gentlemen opposite debate the general question of direct and indirect taxation. The Conservative Party is debating the subject in the country in a way which is doing the maximum possible harm to public life.
      Mr. Julian Ridsdale: Is it not perfectly fair to refer to reductions in taxation if, at the same time, one refers to one's intention to reduce Government spending, which is the biggest factor in consumer expenditure?
      Mr. Barnett: I will leave the hon. Gentleman to pursue that argument in the company of his hon. Friend the Member for Worcestershire, South, because it is a level of argument which suits them both.
      5.15 p.m.
      The main trouble with the argument being adduced by the Opposition, both here and elsewhere, about the levels of direct and indirect taxation is that it tends to distort the position and make a responsible and reasonable discussion of the subject impossible. It obscures the real problem. This is particularly so when the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) and

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      some of his hon. Friends constantly reiterate the claim that direct taxation is the cause of emigration from these shores, a trend which most hon. Members would like to stop.
      One would hope that when discussing an important topic like emigration hon. Gentlemen opposite would refer to the relevant documents. I particularly have in mind the Blue Paper, Cmnd. 3417, "The Brain Drain"—known as the Jones Report—a non-party document which dealt with the whole question of emigration and why it occurs. The Jones Committee was not a party body. It was comprised of distinguished people like Dr. F. E. Jones, Professor J. G. Ball, Dr. E. F. Brookman and Professor Lord Jackson. They discussed the matter rationally and quietly and arrived at some interesting conclusions.
      Sir Arthur Vere Harvey: Would not the hon. Gentleman agree that the emigration avalanche has occurred because the Prime Minister gave an election pledge that there would not be a general increase in taxation?
      Mr. Barnett: That question is typical of hon. Gentlemen opposite.
      Sir A. V. Harvey: It is also true.
      Mr. Barnett: I shall quote from the Jones Report to prove to the hon. Gentleman that there are many other factors. The Jones Committee considered the reasons why people emigrate, and, contrary to what the hon. Gentleman said and to what others have tried to pretend, it did not find that taxation was the major, or even a substantial, reason for this trend. For example, one major reason was the level of gross salaries. Paragraph 74 of the Jones Report pointed out, after quoting various salaries paid both here and in the United States:
      "Thus, the qualified man starting his career in the United States is paid around three times as much as his counterpart with similar qualifications and in a similar post in the United Kingdom."
      Perhaps hon. Gentlemen opposite are not interested in that reason why people emigrate in view of their party interest in taxation matters.
      The Report brought out another important factor, which is the bias in America towards younger executives. It said in paragraph 75:
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      "The United States salary structure is, by comparison, heavily biased towards the younger man. There the final salary is often no more than double the starting salary, partly because the starting rate is high, but largely because progress depends more heavily on merit measured by results and there is less of a long, slow climb up an incremental ladder which is fairly common in the United Kingdom."
      That is another reason why there is emigration.
      In paragraph 83 the Report said:
      "It is popularly believed that income tax plays a dominant part in the decision to emigrate from Britain. This is a half-truth."
      I have never denied that there is some truth in the taxation argument. I merely stress that those who suggest that the whole problem revolves around the question of direct taxation are doing a disservice to a reasonable discussion of this matter.
      Mr. Michael Noble: Is the hon. Gentleman suggesting that people in the income brackets he has in mind and who realise that they may get three times their present gross salaries by emigrating are not also capable of calculating the other relevant statistics?
      Mr. Barnett: Of course they are capable of doing that, but if the right hon. Gentleman will read the Jones Report he will find in the 22 recommendations that the question of taxation does not ener into the argument. However, that is not to say that the levels of taxation—I shall come to this matter in more detail later—at the highest margins are not a factor.
      I am trying to point out that distorting the case and pretending that emigration is substantially due to the level of taxation wilt ensure that we never get a realistic review of the taxation system and never find precisely what we need to do and what the Government have done about these recommendations in the Jones Report. This constant reiteration that emigration is due to the level of direct taxation is not doing any good either to the country or to the young executives that we are losing. I have never argued that the high level of taxation may not be a disincentive.
      It is difficult to be unemotional about direct taxation. For example, we are not the highest taxed country in the world, although hon. Gentlemen opposite

      1257
      would probably not accept that. However, I am sure that the right hon. Member for Enfield, West will accept it, because it happens to be a fact.
      Equally, the constant argument is put that as a nation our public expenditure is more than that of any other nation. This, again, is not true.
      When considering direct taxation opposed to indirect taxation, we need to consider, first, whether it is a disincentive, and, second, to what extent it is a disincentive against any alternative. It is no use saying that all we need do is knock 3d. or 6d. or even two shillings off the standard rate of tax to solve the great economic problems of the nation. This is not so, but this is the emphasis that is being given in this debate and throughout the country.
      Mr. John Hall: The hon. Gentleman is being a little unfair. The Amendment merely suggests a certain decrease in taxation so that we can have a wide-ranging debate on the effect of tax as a whole. No one suggests that merely reducing the rate by 3d. or 6d. in the pound will have all the desirable effects that we would wish.
      Mr. Barnett: If the hon. Gentleman is saying that the impression given to the country and in this debate is to give a more direct emphasis to the Amendment and not a proper and serious argument on the lines on which we are led to believe the Conservative philosophy is based, I am prepared to accept it, but I am not sure that it is true. I do not wish to be unfair to the hon. Gentleman. Some hon. Gentlemen opposite have not been terribly fair either to my right hon. Friend the Chancellor or to the Labour Party's philosophy on taxation, so I hope that the hon. Gentleman will forgive me if occasionally I am a little unfair. It is because I have been treated unfairly so frequently by hon. Gentlemen opposite.
      When discussing the problem of disincentive, we must consider how much of a disincentive is the present level of direct taxation or any feasible alternative.
      My hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said that there has been inadequate research on the subject. That is true. In a debate in 1967 I referred to the Report of the British Royal Commission on Taxation of 13 or 14 years ago which found that
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      the high level of taxation was not a disincentive. The right hon. Member for Enfield, West, having a copy of a more up-to-date Report of the Canadian Royal Commission, quoted a passage from it to show me that it had found that there was a disincentive. He obviously had not had time to read the whole report. The right hon. Gentleman quoted from page 163, which related to the conclusions of the Royal Commission. If the right hon. Gentleman cares to go through the whole of the Canadian report, he will find that wherever it talks about disincentives it says that it "thinks" or it "believes" that there is a disincentive, but it has not based it on any kind of research. Indeed, the only evidence to which it refers is on page 78:
      "What evidence there is suggests that taxes have relatively little impact on the size, skill and industriousness of the labour force."
      I do not know whether the right hon. Gentleman would like to reconsider the extract that he quoted from that report. I do not say that in an attempt to prove that there is no disincentive in the level of direct taxation. I am saying that there is inadequate research so far to show the level of disincentive.
      My hon. Friend the Member for Ashton-under-Lyne referred to the P.E.P. Report by Brown and Dawson in January, 1969. That report considered most of the research that there had been and analysed it. It did not do its own research; it analysed all the research that there had been. This is a very good pamphlet which I certainly recommend. The only conclusion it could reach was one of agnosticism. At best it decided that any feasible alternative system of direct taxation would or might bring about an increase of 1 per cent. in total output. But it is a guess.
      Mr. John Nott: I think that the hon. Gentleman is guilty of the same error of which he wrongly accused my right hon. Friend; namely, misquoting a particular P.E.P. pamphlet which he has in front of him. The 1 per cent. to which he refers was derived from the American survey on top salaries in the United States. It is right that he carried on and drew his own conclusions on the 1 per cent., but that 1 per cent. was related to top salaries in the United States. Therefore, the hon. Gentleman is not quite accurate in what he said.
      Mr. Barnett: The survey on top salaries in the United States estimated the amount of increased output to be higher than 1 per cent. Taking all the various pieces of research, including one on pay-as-you-earn when it was first brought in, the report found—and it was no more than a guess—that it was about 1 per cent. Certainly 1 per cent. is worth having, but the report made clear that it could not be obtained by a simple reduction in the level of direct taxation. Something much more fundamental is needed.
      The Canadian Royal Commission found that by reducing the average level of taxation—not just the marginal rate of taxation—there could be a positive disincentive to work by people wanting to take more leisure. There was no evidence from any research that a simple reduction in direct taxation, such as the Amendment seeks or as has been suggested generally, would produce the incentive which is so frequently suggested in this House and elsewhere.
      If we were to go for a simple reduction in the highest levels of direct taxation, the only alternative being to cut public expenditure by the methods suggested by the Opposition Front Bench, we should increase costs to many sections of the community, or increase indirect taxation, which would equally increase costs. To do it in that way could have harmful effects on equality, which is certainly vital to me, on getting even the tiniest amount of incomes policy, and it would have a most serious inflationary effect on the economy generally. If there were a reduction in indirect taxation by means of a price increase along the lines suggested, whether by a value-added tax or by reduced Government expenditure, the net result would be what I have described.
      5.30 p.m.
      From all that I have read, and from the research which has been carried out, it is by no means clear how much of a disincentive it will be but it is pretty clear that there will be some disincentive at the highest marginal level. When I say "pretty clear", I am falling into the error of making a statement without having the evidence to support it, because I know many people at the highest level of taxation who work just as hard as they ever worked, and equally one knows of others who do not.
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      But that is not necessarily due to the level of taxation. It may be for other reasons. It may be because people have reached the age at which they feel they want to take things much easier, or because they do not want to move from one part of the country to another, or to another part of the world, often because their families do not want them to make such a move. There are many reasons for what they do, but I start from the assumption that at the highest level there is probably some disincentive. We cannot deal with this problem within the context of equity merely by making a simple cut in the level of direct taxation. I refer again to the P.E.P. document which discusses a proposal for a negative income tax, and I hope that we shall be able seriously to consider this. Under this proposal welfare payments would be combined with P.A.Y.E. Surtax would be abolished, and the income tax and surtax structures would be amalgamated. It would do away with earned income relief, and there would be a lower level of tax for earned income, which would result in a simplification of the tax structure.
      In that way we could begin to devise a tax system which would be a reasonabl and feasible alternative to the present system. It could be an equitable system, and it could provide for sufficient incentives to enable us to get that 1 per cent. increase in output—more than £300 million a year—which is not to be sneezed at.
      There is a strong argument for setting up a Select Committee to consider the whole question of negative income tax, because there are many aspects of it which need to be examined, and which could be examined, much more closely in a Select Committee than they can be on the Floor of the House. It would be much better to discuss what is involved in that way rather than have to listen to the exaggerated arguments so frequently advanced by hon. Gentlemen opposite about the difference between direct and indirect taxation, which means that we are not able to have the sort of rational discussion which will lead us towards a system of taxation which will provide some incentive and at the same time be fair.
      Mr. John Boyd-Carpenter: The hon. Member for

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      Heywood and Royton (Mr. Barnett) began his speech in a somewhat irrascible vein, as I think he subsequently admitted. He used the oldest, and I think most ineffective, of Parliamentary techniques, that of setting up a complete distortion of the other side's case and then showing great skill in knocking it down. So far as I know no one has suggested that a high rate of personal taxation is the sole cause of the brain drain, or the sôle disincentive operating in our economy. Our contention is that it is one of those, and a substantial one, and, perhaps more important, the only one which it is in order to discuss on this Amendment. This is all that it is necessary for us to argue.
      Again, having accused, somewhat arrogantly my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) of arrogance, the hon. Gentleman went on to say that it was irresponsible and dishonest of my right hon. and hon. Friends to put down this Amendment because in the present state of the economy we must know it to be impracticable. This approach shows the difference between the hon. Gentleman and his colleagues and those of us on this side of the Committee. It is because the economic situation is so bad, and because we believe that excessive rates of personal taxation have contributed to that badness, that it seems to us not only right but necessary to press this contention this afternoon.
      We are, after all, not, as the hon. Gentleman was suggesting, only doing this irresponsibly in Opposition. It is on record that Conservative Governments reduced the standard rate of income tax from 9s. 6d. to 7s. 9d., and the modest Amendment moved by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) is wholly in line with the consistent approach of hon. Members on these benches that excessive personal taxation is damaging to the economy, and that the worse the position of the economy the more urgent it becomes to put it right. It ill becomes the hon. Gentleman to accuse us of irresponsibility and dishonesty when the increase in taxation for which his right hon. Friends have been responsible is a plain violation of the pledges on which they were elected. I do not know whether I am allowed to quote the Home Secretary today, but he was, after all, Chancellor
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      of the Exchequer for three years, and he was Chancellor within forty-eight hours of this quotation which I propose to give the Committee. At Cardiff on 14th October 1964 he said:
      "The whole basis of our case is that in creased social expenditure"—
      and it was increased social expenditure-about which the lion. Member was talking—
      "will be financed out of the growing expansion of British industry."
      If we are bandying charges of irresponsibility and dishonesty across the Floor of the Committee, they might more properly be addressed to those who, having obtained power on the basis of a pledge of that kind, proceed to violate it, rather than to those who urge consistently in opposition what they achieved consistently in Government.
      The hon. Gentleman went on to cite foreign practice and dispute the statement, which so far as I know no one had made, that we were the highest taxed people in the world. On this Amendment there is no argument, even if we believed it, which it would be open to us to deploy on that issue, but where there is a distinction between our practice and that of the rest of the world is precisely in the field of this Amendment—the degree, intensity, and progressiveness of our system of personal taxation. And here we are undoubtedly right out ahead—or right behind, according to one's point of view—of our competitors in the rest of the world.
      I rely for that proposition on an Answer which the Minister of State to the Treasury was good enough to give me on 28th January of this year, following on one which one of his predecessors had given me about three years previously. I asked what proportion of his income above certain quite high levels was retained by a married man with two children, earned income only, in the United Kingdom and in four of our principal competitors. The Answer is to be found in the OFFICIAL REPORT for 28th January.
      The right hon. Gentleman, who is a member of the Cabinet, will appreciate the significance of £8,500 a year. No right hon. Gentleman on the Treasury Bench can regard that as an excessive salary. Take, first, the level of £8,500 a year for a married man with two children,

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      earned income only, in the United Kingdom. On his income above that level he retains 39·9 per cent., whereas his United States opposite number retains 63·2 per cent., and his French opposite number retains 66·9 per cent. In fairness, I must point out that the Japanese are slightly worse off at 36 per cent., but in the other countries a considerably higher proportion is retained. But when we get to the figure which the Chancellor has thought it appropriate at this moment for the chairmen of nationalised industries—£15,000, I understand, is the present figure, though only on an interim basis, because it is due to rise—
      Sir G. Nabarro: It is not good enough for Lord Melchett.
      Mr. Boyd-Carpenter: As my hon. Friend says, it is not good enough for Lord Melchett, but it is the figure applicable for the rest of them. I again quote the figure. I do not think that it is an excessive one for a chairman of a nationalised industry. The point is that the Government cannot say that it is an excessive salary for a man in a responsible position. An Englishman retains 15·5 per cent. of the tranche of his income above that level, whereas his American opposite number retains almost exactly three times as much at 45·6 per cent., the Frenchman 58·6 per cent., the German three times as much at 48·6, and even the Japanese twice as much at 31 per cent.
      As our practice is so out of line with that of our major competitors, at least the onus of proof lies on those who say that what we are doing is right and everybody else is wrong. The Chancellor can hardly dispute that on our economic performance over the last few years it would not look to an objective observer as if our system was noticeably more efficient; it would not look as if our own economy had progressed because of our progressive system of taxation better than the economies of the other countries I have mentioned. The point is not the totality of the burden of our taxation, though we are in the higher brackets, but the extreme penal levels of taxation on the higher brackets of personal incomes.
      Though to the great majority of our fellow countrymen figures of this sort seem enormous, these high salaries are earned for only a limited part of a
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      man's life. They are almost certainly the sequel to a prolonged and arduous educational training process. They generally involve a very high intensity of work, which is difficult to maintain to an advanced age. They are, therefore, not the income a man will enjoy throughout his life. They are the income of his prime, though he has to provide out of them for his retirement and perhaps pay for the liabilities incurred during his training. These tax rates are dangerously high and indubitably quite different from those imposed by other countries.
      The Chancellor, in the passage which has been quoted, prided himself in his Budget speech on not increasing direct taxation. In real terms in an inflationary situation, if the existing levels are simply maintained, it is raised every year. A great many people maintain their income in real terms, which means increasing it in money terms. But as our graduated tax system is expressed solely in money terms, straight inflation, leaving a man in money terms no better off, exposes him year after year to actually higher taxation.
      Therefore, the Chancellor must face the fact, that, despite his generous protestations, by his inaction he has in fact maintained direct taxation on incomes at a level higher than last year. A good deal of thought is being given to this in other countries. I do not know whether the Chancellor has studied the proposal now being put forward in Holland. One of the parties in the Dutch Government—I think it is the Liberal Party—
      Mr. Pardoe: Hear, hear.
      Mr. Boyd-Carpenter: The Liberals in Holland have this great difference from the hon. Gentleman—they are in government.
      Mr. Pardoe: If the right hon. Gentleman would study the Amendments which are on the Notice Paper in my name he would see that I go even further than he and his right hon. and hon. Friends in my effort to lower direct taxation.
      Mr. Boyd-Carpenter: In that case, I welcome the hon. Gentleman with the enthusiasm with which anybody welcomes a lost sheep returning to the fold. The hon. Gentleman would be more effective in doing this if, like the people of the same name in Holland, he was in office.

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      The Liberals in Holland are considering a plan to relate the grading in their personal taxation system to the cost of living so that when the cost of living rises the point of graduation in the tax rises moves automatically up in accordance with that. Therefore, in real terms there would not be an automatic increase as there is here when the rates are kept stable.
      5.45 p.m.
      That is complicated. It is obviously much easier to use a judgment and to lower the standard rate, which is what the Amendment proposes. That a country like Holland with a noticeably successful record in economic management ever since the war—it is one of the success stories of Europe—should be contemplating this is an indication that the idea embodied in the Amendment is well worthy of the Chancellor's consideration.
      Finaly, it is very sad that the Government should, despite all they said, have raised taxation either openly in some years or in effect in others. They did this despite their fine words, and I ask the Committee to note the elegance of the language:
      "The commitments of the Labour Party's policy, provided they are not all rushed through in the first year, which nobody has ever suggested"—
      that is true—
      "can be carried out comfortably without any question of an increase in the tax burden. On the contrary, they should leave room for substantial tax reductions."
      That comes from the Chancellor's book "Labour's Case", Chapter 8.
      Sir D. Walker-Smith: It is a pleasure to speak in support of the Amendment so persuasively moved by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) and so powerfully reinforced by my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter). I am not without a certain warmth of sympathy for the Amendment so forcefully and characteristically spoken to by my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro), who is never one to do things by halves.
      Sir G. Nabarro: What the hell does that mean?
      Sir D. Walker-Smith: It is meant kindly, I assure my hon. Friend.
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      It is characteristic and deplorable that in this fifth year of Labour government there is no suggested remission in the Finance Bill of the standard rate of income tax. It is characteristic and wholly deplorable that in the fifth year of Labour government the standard rate is higher than when Labour came to power.
      It is significant and sad, though wholly comprehensible, that the surmises that people made before this year's Budget, in the fifth year of a Labour Government, were not at all directed to the possibility or extent of any tax remission, but wholly directed to the possibility of an increase in the standard rate of income tax. So abject in spirit have some taxpayers become under the repeated punishment that they suffer from successive Labour Budgets that in some quarters there was relief and even, I believe, gratification that things were no worse—relief and gratification that there was not an increase in the standard rate, rather as if the prisoner on the scaffold said, "Thank you" to the executioner on learning that he was not to be drawn and quartered as well as hanged. I believe that the people should never get themselves into this abject and apologetic position. It is getting perilously near the attitude of the mental patient who, when asked why he hit himself so hard and repeatedly on the head, said that it was so nice when he abated the vigour of the blows.
      The British people have a long and not very enviable reputation for cheerfulness and placidity under heavy burdens of taxation. It goes back two thousand year, to Tacitus's description of the Ancient Britons in his "Life of Agricola". He said that the Britons "were a people who cheerfully complied with the imposition of taxes". It is a characteristic on which Chancellors of the Exchequer—and I am bound to say in fairness not only of the Socialist persuasion—have traded for many years. It is a good thing to be cheerful but not to be passive or complacent under the burden of taxation, still less fatalistic or masochistic. Taxpayers and those who represent them should be vigorous and vigilant, inquisitive and interrogatory. They should press for the answers to fundamental questions. Is the level of

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      taxation justified? Is its incidence sensibly balanced? Does the return to the taxpayer remotely compensate for the exactions to which he is subjected? Is the severity of the tax self-defeating in its effect on production? Those are not very difficult questions in the present context, and I offer no prizes for the answers. The answer to the first three questions is "No" and the answer to the last "Yes".
      Two propositions stand out: first, whether or not we are the most highly taxed country, we are certainly a greviously over-taxed society; and, second, direct personal taxation is unduly burdensome. An overtaxed society is a devitalised society, and a devitalised society is a demoralised society, a society robbed of "the native hue of resolution", and of the vigour and creative energy requisite for production and expansion.
      The hon. Member for Ashton-under-Lyne (Mr. Sheldon) said that the inability to reduce taxation was in part due to the failure of the economy to expand. But it might be put the other way round. There is a clear link between them. Surely part of the reason for the failure of the economy to achieve the requisite rate of growth under this Government and of the failure to expand or even maintain our share of world markets is linked to the taxation system, and particularly to direct taxation.
      For a Government in time of peace not to reduce direct taxation is a clear sign of failure. For a Government in time of peace to increase direct taxation should be unthinkable, and I am not thinking merely in terms of the breach of faith which the Government's action in raising taxation has constituted. One attaches perhaps a little less importance to that than one would otherwise do because only a very naïf elector would have believed such a pledge, considering the source from which it emanated and the background against which it was given. [Interruption.] Not all the electors, unfortunately, have the perspicacity of my hon. Friend. There is a large proportion of naïf electors.
      Mr. Roy Roebuck: What about those in Hertfordshire, East?
      Sir D. Walker-Smith: They are sagacious and consistent. Three hon.
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      Gentlemen opposite and one member of the Cabinet can testify as defeated Labour candidates in Hertfordshire, East to the sagacity of the electors there. A static position—and a fortiori an increase—in direct taxation contradicts the fundamental assumption of an expanding economy that such money as is necessary for public purposes should be obtained, without tax increases, from the growth of the economy. It goes further than that. As my right hon. Friend the Member for Kingston-upon-Thames said so well, in times of inflation, to maintain the level of taxation is to increase it, in fact if not in form.
      The Government cannot justify their taxation rates on the ground of value for money, certainly not in the three primary fields of public expenditure—on the repayment of debt, on defence, and on the Welfare State. In the repayment of debt, because it is a bad Government, it has to borrow more and borrow dearer. In defence, although we pay so much, the Government are in full retreat everywhere from their responsibilities. In the Welfare State, anybody who thinks that every penny of hard-pressed taxation which goes in the payment of student grants in the contemporary context is value for money is pursuing a very peculiar process of thought.
      The Government are wholly incapable of containing taxation, and they appear to be completely indifferent to the need to minimise direct taxation. That need primarily arises in its most peremptory context among executives, managers, foremen and skilled workers in industry. But it does not stop there. In a sophisticated society, for growth in the economy we need a firm infrastructure of the services which can be provided by professional and self-employed people—by engineers, surveyors, architects, chemists, geologists, and so on. The burdens on these people are even heavier than the burdens on those directly employed in industry because they have less alleviation from pension schemes or what are called fringe benefits.
      Some help was given by the Conservative Government in Section 21 of the Finance Act, 1956, but much of the benefit of that Act has been eroded by the processes of inflation. The Financial Secretary gave the figures in answer to a Question of mine on 18th March; in effect

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      inflation has already lowered the ceiling of benefit by over 25 per cent. in little over a decade. I am told that a self-employed man may have to earn twice as much as an employed industrialist to fare as well, having regard to the superior pension arrangements of the industrialist. I mention the self-employed man simply because he is a particularly striking example, and his case is not often made. But the case is a general one, the stultifying effect of uncurbed direct taxation on creative energy and economic effort.
      There seems to be in the corridors of power in Whitehall all too little awareness of the necessity of fashioning taxation so as to minimise the burdens on production. One has the impression all over the world of finance ministries bending their energies to the dual basic tasks of keeping taxation as low as possible and of extracting the minimum of taxation required with a view to the minimum burden which can be imposed on productive industry. But that is not the impression which one gets of the approach of the troglodytes in Treasury Chambers. Even under Conservative Chancellors of the Exchequer a reminder of this basic truth is necessary, and I ventured to give one in the debates on the Finance Bill of 1961.
      Under Labour Chancellors of the Exchequer, alas, the position is much worse and at times seems to go beyond hope, even with so basically able and confident a Chancellor of the Exchequer as the present one. At any rate, he started with a certain obstinate confidence. The obstinacy remains but the confidence is perhaps less conspicuous than it used to be.
      6.0 p.m.
      I remind the House of one of the more colourful predecessors of the right hon. Gentleman in his high office who, like him, was at home in the literary world—Sir Francis Dashwood, who, in the eighteenth century, was a very incompetent Chancellor. However, he had the saving grace of modesty. He went on record as saying, "People will point at me and say, 'There goes the worst Chancellor of the Exchequer who ever appeared.'" If the right hon. Gentleman goes on as he is now, he will challenge Dashwood for that dubious distinction—
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      always assuming that the position has not been pre-empted by his right hon. Friend the Home Secretary, if he is still his right hon. Friend. The right hon. Gentleman can emulate Sir Francis Dashwood in his modesty and make a sincere, if tardy avowal, of error and failure, and render the signal service of resigning and taking all his colleagues with him. If he cannot bring himself to do that, he can render a more immediate, if lesser, but still significant service by accepting the Amendment.
      Mr. Roy Jenkins: I hope that it will not be thought that if I say a few words now it is an indication that I wish to bring the debate to an end; far from it. I think that it would be reasonable if I were to take up at this stage some of the points which have been raised.
      I enjoyed listening to the right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith), whose insults were couched in a most agreeable manner. I am not sure whether he will take my intervention as a sign of obstinacy, or confidence, or modesty. It is merely a sign of a desire to help the House.
      The hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) moved the Amendment in an extremely engaging and interesting speech. He began with a strong attack on his hon. Friend the Member for the Cities of London and Westminster (Mr. John Smith), but he moved from that on to a thoroughly relevant, though perhaps not totally developed, argument about advertisements in newspapers which indicated that, as a result of high rates of taxation, people were being gulled into investing theft money in very doubtful schemes.
      I do not wish to pronounce on the advertisements, which I have not studied as closely as the hon. Gentleman; I am prepared to accept his view of them. But I am very doubtful whether a reduction in the standard rate of income tax, from 8s. 3d. to 7s. 9d.—and I am not as familiar with the decimal figures as I should be to use them completely freely—would mean that such advertisements had no appeal. The hon. Gentleman made his point by saying that these schemes reminded him of the South Sea Bubble. Whatever else caused people to invest in the South Sea Bubble, it was not

      1271
      a penal rate of income tax. It cannot be argued that gullibility necessarily goes in this way.
      Referring to the total effect of the Amendment, the hon. Gentleman said that a reduction of £300 million was nothing to speak of. There are variations in estimates. I have always been the first to tell the House that in putting forward more detailed forecasts—and forecasts are different from estimates—than have ever been put forward before I was aware that there would be wide margins of error.
      There are margins of error in estimating the yield of taxation. The hon. Member for Worcestershire, South (Sir G. Nabarro) pointed out that the margins of error in relation to the total yield of income tax had not been very high in the past year. If, on this basis, the Opposition were to take the view that "a mere reduction of £300 million" is nothing to speak of then I do not think that this would inspire great faith in their financial administration.
      I do not believe that that is the view of the right hon. Member for Enfield, West (Mr. Iain Macleod). He wishes to approach these matters carefully, although with all the commitments that he is building up, it will need more than care to bring them into line with each other.
      The cost of the Amendment would be very substantial. The hon. Member for Walsall, South gave it in broad terms. The 6d. reduction in the standard rate would cost £177 million. The reduction in the reduced rate, which I suppose would be intended to go with this, would cost £135 million and the reduction in the rate of surtax, covered by an official Opposition Amendment to Clause 8, which I will mention for the purposes of arithmetic only, would cost £28 million, making a total of £340 million An Amendment tabled by the hon. Member for Worcerstershire, South and the hon. Member for Dudley (Mr. Donald Williams) would, as usual, be a good deal more extravagant.
      This figure of £340 million would be a very sizeable amount to put into consumption. I know that the whole of it would not go into consumption, but a very sizeable part of it would undoubtedly swell total consumption. I take great
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      note at present of the need to increase the total of savings and I endeavoured to explain in my Budget speech and in the winding-up speech my attitude on this point. I believe it to be a sensible one and I am not sure how far the right hon. Member for Enfield, West would disagree with me.
      Savings are very valuable. Savings, when we can get them, are a substitute for taxation. It would be running contrary to all sense to assume in advance that a high proportion of taxation remissions would find their way into savings. Some proportion might do, but it would be a fairly small proportion, and there can be no doubt that a large part of this £340 million would find its way into consumption.
      I know of no Government, trying to deal with a balance of payments problem, prepared to tackle the problem in this way. The United States Administration, committed to dealing with inflation and balance of payments problems, came in hostile to the surcharge on taxation, yet has felt it necessary to keep that surcharge and to increase the squeeze. I know of no Government in the world which believes that the balance of payments problem can be cured by increasing consumption. That is what the Amendment in the name of the official leaders of the Opposition asks us to do.
      Mr. Michael Alison: Would the Chancellor not admit that he proposes, with his revenue surplus, to hand back to lenders, through maturing gilt-edged securities, at least as much money as we suggest he should give back to the taxpayer?
      Mr. Jenkins: The hon. Gentleman knows that this is an extremely complicated matter, how to make the best use of a Government surplus so as to maintain an effective monetary policy. I intend to use it in a way which will maintain such a policy, and not in a way which would defeat the objectives of taking money out of the economy by fiscal means.
      My hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) raised the question of detailed research into the effect of direct taxation upon incentives, about which he has had an interesting correspondence with my right hon. Friend the Chief Secretary. I am all in favour

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      of research, and of being informed as closely as possible on all these matters. However, I am bound to say that I think my hon. Friend exaggerates the potentialities of research, social and economic, if he thinks that it will provide us with a final and definite answer to the problem of taxation.
      Most of the inquiries which have been conducted, starting with the Radcliffe Commission, and going on to other subsequent inquiries, have tended to shine a little light into what were previously dark corners, but they have certainly not been able to illuminate the whole scene. They always give inconclusive results and that is because all human beings operate under a mixture of motives.
      It is never possible to say whether a man's action is determined by questions of taxation incentives, and if so to what extent. It may be a contributory factor, it may be a large or a small factor. We will never get an answer from research which will enable us to construct a profile of taxation on which any Chancellor could put before the House a scientifically correct profile of taxation, with which all sensible men would agree, leaving no room for rational disagreement.
      It would be a very bad and dull thing for the House of Commons if this was so. This will always have to be settled on the basis of a balanced judgment, on the basis of conflicting considerations, and there will always be a good deal of argument between the two sides, whoever is sitting on this side, as to exactly what is the right balance.
      [Mr. GEORGE ROGERS in the Chair]
      Mr. Sheldon: I accept that there is unlikely to be a complete answer, but my right hon. Friend did say that there had been some shafts of light as a result of certain investigations. All I am asking is that that kind of shaft of light should also come from within the Treasury.
      Mr. Jenkins: The Treasury always sends out clear beams of light, in all directions, on all issues. I am anxious that the Inland Revenue, which is more directly concerned with this matter, should contribute to these shafts of light. It would be a great pity, a great mistake, for us to think that we can ever get a clear answer which solves all our problems in this way. There will still be a
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      substantial area of dispute and of human judgment; this is inevitable and right.
      On the general level of taxation, I noticed that the right hon. Member for Enfield, West, in a commendable article in the April issue of The Banker, disposed of one or two illusions which may still be prevalent among those few hon. Members opposite who do not read all numbers of The Banker. Putting a somewhat different point of view from his hon. Friend the Member for Worcestershire, South he said:
      "We started from the premise"—
      he was referring back to an earlier part of his argument—
      "that in order to achieve a vital economy, taxation must be cut. But let us be clear what this does and does not mean. It does not mean that by international standards, the proportion of income taken by taxation in the United Kingdom is above average. On the contrary, if anything, it is below average. It does mean that we tax the wrong things in the wrong way."
      The right hon. Gentleman was committing himself, fairly and honestly, to the proposition that what he wants is a redistribution of the tax burdens, possibly a marginal lowering if he can secure it. The remarks of some of his hon. Friends on public expenditure are not very helpful to this point of view. Broadly speaking, he was accepting the point of view that we do not devote an excessive proportion of our national income to taxation nor do we devote an excessive proportion to public expenditure. That is an important proposition to establish, and I am glad that he put it so clearly.
      Sir G. Nabarro rose—
      Mr. Jenkins: I was dealing with the right hon. Member for Enfield, West who, it may surprise the hon. Member to know, I regard as a more responsible spokesman of the party opposite than is the hon. Gentleman—
      Sir G. Nabarro rose—
      Mr. Jenkins: —and who has a slightly greater respect for facts, and perhaps a slightly different approach to them.
      This is a different approach from that of the hon. Member, to whom I will give way as I am about to refer to him. He said, "Let us have direct taxation reductions as the first priority, but let us accompany them with every possible

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      indirect taxation reduction as well." If the hon. Member means what he says—unless he wishes us to be a country with a notably lower level of public service across the whole range than other comparable countries—he means a redistribution of the burden of taxation.
      Sir G. Nabarro: Selective quotation is an old trick of the Chancellor's—I have known him long enough to realise that. [HON. MEMBERS: "Oh."] it is an old trick. Of course, the proposition he has put to the Committee is correct, if the gross national product remains fairly static. But the effect of Tory policy would be to cause the economy to grow, and in those circumstances, the percentage taken in taxation would not show the continuous upward curve that I demonstrated in my speech. That is what the Chancellor conveniently left out.
      Mr. Jenkins: I am interested to hear the hon. Member talking about old tricks. I think we know what he means by that—
      Sir G. Nabarro: I know what the right hon. Gentleman means.
      Mr. Jenkins: I am also interested to see that the right hon. Gentleman did not rise to his feet, because I do not think that this is really a relevant point. All economies grow at different rates, some faster some slower. The right hon. Gentleman was not talking about a particular position, he was taking a broad view of how we compared with other countries. He made a fair point which I have quoted, and I do not wish to carry it any further except to say that the right hon. Gentleman was clearly dealing with a big shift in direct taxation and not with some sudden panacea for escaping from our difficulties.
      The right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) took account of that point. He went on to say that on the basis of international comparisons, our direct taxation rates were appallingly high.
      Mr. Boyd-Carpenter: Not only appallingly high, but excessively progressive.
      Mr. Jenkins: The hon. Member for Walsall, South made a comment with
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      which I agree, broadly speaking. He said that international comparisons are always misleading. Those were his exact words, and as a general rule there is something in that. International comparisons can be pushed too far. I am not suggesting to the right hon. Member for Kingston-upon-Thames, or to the Committee, that our direct taxation rates are not, in some respects, more progressive and heavier than those in other countries. It is certainly possible to exaggerate this picture.
      It is easy to pick out different statistics. The Leader of the Opposition did this two or three months ago. It is possible to get a more balanced picture by looking at certain other things. I agree that figures are bound to some extent to be selective, but we have had great use made of selective figures inside and outside the Committee by hon. Members opposite, and it is necessary to give certain figures now to put the matter in slightly better perspective.
      Let us take the marginal rate of tax applying to a married man with two children under 11, all of whose income is earned, which I think is exactly the type of individual whom the right hon. Gentleman chose for his comparisons. It is relevant to take the marginal rate of tax because if one is dealing specifically with the incentive point the marginal rate of clearly of great significance in determining how a person reacts. Taking the marginal rate first for a person with what one might regard as above middle executive income of £5,000 a year, and with these family circumstances, one finds that the United Kingdom, so far from being way out on its own in charging higher marginal rates of tax at £5,000 a year, is at the lower end of the scale.
      At £5,000 the marginal rate of tax for the individual I have defined is 36·7 per cent. in the United Kingdom. In Sweden, it is 57·1; in Holland, 53·3 per cent.; and in Australia, 56·4. In South Africa, which the hon. Member for Walsall, South specifically mentioned as a beckoning country from the point of view of taxation, though perhaps not from all other points of view, it is 44·9 per cent. In New Zealand, it is 66 per cent., and in the United States, with which I will deal more fully in a moment, it is 28·2 per cent.; it is significantly lower in the United States. In Germany, it is

      1277
      36·4, which is only 0·3 per cent. lower than in the United Kingdom, and in Canada it is 36·1 per cent. The one economy in which it is strikingly lower is France, where it is 22 per cent.
      But it is also worth noting—
      Sir T. Brinton: Has the right hon. Gentleman the corresponding figure for Italy?
      Mr. Jenkins: I have not. I agree that the Italian figure would probably be at the lower end of the range, and significantly lower than ours.
      Mr. Pardoe: These are interesting figures, but, so that we may get the statistics right, is the £5,000 comparison in the various countries merely worked out by relating the exchange rate to £5,000, or is it on the basis of how many people are above this figure and how many below it in the economy?
      Mr. Jenkins: It is worked out on the basis of relating the exchange rate. That is one reason why these comparisons are not totally satisfactory, and why I began by saying that I had a good deal of sympathy with the hon. Member for Walsall, South, who said that one could push the comparisons too far. But they have been pushed very far by many hon. Members opposite, and it is therefore necessary to provide a good deal of corrective information.
      I am grateful to the hon. Member for Cornwall, North (Mr. Pardoe) for raising precisely this point, because it will lead me in a moment to discuss the United States position, which is significant in this context.
      But, first, I shall briefly look at the other end of the tax scale—not the £5,000 level but the level of a man on £700 a year—and shall give the figures for the same countries. In the United Kingdom the marginal tax rate at £700 a year for an individual with the family circumstances we have discussed is nil. In Sweden, it is 17·5 per cent.; in Holland, nil; in Australia, 11·1; in South Africa 1·2; and in New Zealand 21. In the United States, Germany, Canada and France it is nil. We find that there are a number of countries above us, while there could be none below us. This shows that looking not merely at the £5,000 position, but the position of a
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      relatively lowly-paid worker, one can also greatly exaggerate the position.
      I now turn to a comparison with the United States on a somewhat different basis, because I believe that it is misleading to do exchange rate comparisons with the United States without having any regard to the different purchasing power of money in the United Kingdom and United States, or the different pattern of incomes between the two countries. An income of £5,000 in this country clearly does not correspond to £5,000 translated into dollars at 2·40 dollars to the £. It is not the sort of income one would earn in the United States for doing the same work.
      The interesting comparison is at the point at which in this country one enters the top 10 per cent. of income earners. There one finds that one's tax rate is 11·2, while in the United States it is 13·8 per cent. Those are average tax rates, not marginal. At the point at which one enters into the top 1 per cent. here it is 24·1 per cent., and in the United States it is 24·8 per cent. Because we have much more steeply progressive rates, as one goes up within the 1 per cent. the British rate becomes substantially above the United States' rate.
      I am sorry to put these figures to the Committee at some length. I do not think that they prove the whole position; they do not prove that we have nothing to worry about as regards tax, but they show that we have listened to many selective figures from the other side of the Committee, and that one might put some other figures. [HON. MEMBERS: "Selective".] All figures in this matter are selective. I admit that absolutely frankly. But one would not gain that impression when figures are quoted by right hon. and hon. Members opposite with absolute authority, as though they dispose of the whole problem once and for all. I am putting figures forward to introduce a balance into the debate, and not to suggest that they prove the whole case. Had I thought that they did, and that our taxation system was perfect, I would not have acted as I have previously.
      Hon. Members can argue as to the reasons, but it happens that it has fallen to me in the position in which we have found ourselves after devaluation to introduce one very heavy Budget and one

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      fairly heavy Budget. In neither case did I make any increase in the rates of tax on earned income. I thought that right not because one can prove that it is essential on incentive grounds, but, because on balance of judgment, I thought that it was probably best for the working of the economy.
      I would certainly not say that I regard it as a desirable aim of policy in all circumstances to preserve the present high rates of tax. Far from it, certainly on earned incomes. There would be much to be said for a reduction, but it is not a reduction which should be carried out rashly without regard to the country's financial and balance of payments circumstances, or to equity and the distribution of income and purchasing power throughout the community. It was clear that this year, with limited amounts of money at my disposal, I was right to concentrate the benefits I could give at the lower end of the taxation scale. That I did, and although there are difficulties about present tax rates I do not regret doing it.
      I ask the Committee, when hon. Members vote—and I am not asking them to do so—to reject the Amendment.
      6.30 p.m.
      Mr. Iain Macleod: I rise because it is frequently convenient for the Committee that the Shadow Chancellor should follow the Chancellor, and sometimes vice versa, and in no way, as the right hon. Gentleman made clear, to close the debate. There are many points that hon. Members still wish to make.
      Some people might say that in one sense today's appalling trade figures make the Amendment less persuasive. We have seen the Government's cherished three-monthly running average turn against us for the fourth month running. These are extremely serious matters, which cause the Chancellor, as they cause me, great anxiety. But I take the view that far from reducing the value of the Amendment the position today emphasises the need for a change of direction, a fresh start, and, in particular, for real attention to be given at last to incentives. With the advantage of devaluation all but gone, it is vital that we
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      should have new thinking from the Treasury Bench.
      My right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), in an excellent speech, said perfectly clearly that whether we are right or wrong on this matter, we have put it forward consistently in and out of office. It is a matter of fact and not of debate that during nine out of our 13 years in power there were reductions in personal direct taxation, which is the subject of the Amendment. It is a matter of fact, and not of debate, that the rate came down from 9s. 6d. to 7s. 9d. We are not, therefore, putting a new doctrine before the Committee. We are putting one in which we believe firmly and in which we have shown that we are prepared to practise in office what we preach out of office.
      The Chancellor said in his Budget speech, and he took pride a moment ago in saying, that he took 1 million people out of tax by concentrating—he was right to do this—the amount that he thought appropriate at the lower end of the scale. He did not mention, however, that 3 million had been added to the income tax list since October, 1964. Therefore, even after the present Budget, 2 million more people are now paying income tax.
      The point has been made in many speeches—it was made first by my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) and it was referred to in a number of other speeches—that the buoyancy of the income tax is crucial in this regard. The simple fact is that unless we regularly reduce the rates of income tax, as we did, the total burden of income tax is bound to rise. That is what we are now seeing. That in itself is justification for the Amendment.
      In any event, however strong, there is probably one point which is a little less formidable. Because this is our method of debate in the House of Commons, as it is the method of common law in this country, it is fair enough for the Chancellor, as I will show he has done, to try to pick on this point. It it rather as if one argued that last week's local elections on the basis of Sheffield alone were a great triumph for the Labour Party.
      We have just heard the Chancellor say, "The figure which we are most concerned about is £5,000 a year, and what

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      we are concerned about is the marginal rate."He went on to describe the position in the league of this country and a number of other countries.
      It would have crossed the mind of anybody to ask why the Chancellor took the marginal rate and why he took £5,000. I will tell the Committee, because this is the only point and the only method that suits the argument which he has put before the Committee. There is a hiccup in the scale at this point and, because of earned income relief, the Chancellor of the Exchequer has just been able, in the most amiable way, to put over a piece of sleight of hand of which Tommy Cooper would have been ashamed.
      I will fill in the picture that the Chancellor put before us. His figures were accurate. I do not dispute them—indeed, I have them before me. I thought that he would take this line, because it is the only conceivable one left to take, and I have some regard for the Chancellor's debating ability. So I worked out beforehand my answer to the speech that I knew he would make.
      First, let us take the same figures for a married man with two childen under the age of eleven. My figures, as the Chancellor will know, are quoted from replies in HANSARD. Let us take the total tax paid in the four countries, the United Kingdom, West Germany, France and the United States. Let us not bother with this marginal relief point. What is the total amount which that man has to pay? In France it is £633, in the United States of America £745, in West Germany £1,063 and in the United Kingdom £1,401. So much for that.
      Ah, but what is the percentage? In France it is 12·7, in the United States 14·9, West Germany 21·3 and the United Kingdom 28. But let us even take the Chancellor's point. Let us talk at £5,000 and ask what happens—this is the true question of marginal relief—to an extra £1,000 at that level. The Answer was given on 28th January, 1969, at col. 285–6, of the percentage taken in income tax and surtax or their equivalents from a married man with two children under the age of eleven: in France 27, the United States of America 28, West Germany 38 and the United Kingdom 43. Therefore, taking every point that the Chancellor has put before us, I can
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      destroy, as I have done, every one of them.
      Mr. Roy Jenkins: I made clear that one can bandy these figures back and forth. Will the right hon. Gentleman now explain why he deals exclusively with those four countries and does not take the others which I have mentioned, which are normally regarded as extremely successful, thrusting countries—Australia. The Netherlands, which the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) singled out as an example of a very successful economy, New Zealand and Sweden, all of which show that on the basis put by the right hon. Gentleman, this country comes out as having a lower rate than they have?
      Mr. Macleod: Only if the Chancellor takes the specific point which he has made. On the marginal rate—the Chief Secretary made this point a year ago and gave precisely these figures upstairs on 13th May, 1968—it is perfectly true that New Zealand is 60 per cent. at that point. What matters, however, is the total paid, and that I have already dealt with.
      Mr. Roy Jenkins: The right hon. Gentleman is wrong. The disposable income left after taxation—this is not a question of the marginal taxation—at £5,000 is quite a little higher in this country than in Australia, The Netherlands, Sweden and New Zealand, which follow afterwards. Indeed, the same thing applies not merely at £5,000, which, the right hon. Gentleman said, I deliberately chose because it was the only point of use to my argument, but at £7,000, too
      Mr. Macleod: The Chancellor is picking again the countries—Australia and New Zealand—which seem to suit his argument at precisely that point. It is exactly this of which I am complaining. The main point is the amount of disposable income which is left in the countries to which I have referred.
      We have heard from both the hon. Member for Heywood and Royton (Mr. Barnett) and the hon. Member for Ashton-under-Lyne (Mr. Sheldon) about the mythology which surrounds some taxation matters. I have made a point of saying in the article which the right hon. Gentleman quoted—I said it a year ago in the debate upstairs—that it is not

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      true that we are the most heavily taxed country. I have often said this and I am happy to repeat it. I hold the view that the levels of personal direct taxation are far too high.
      The Conservative Party takes great care to keep up to date with public opinion, and employs one of the nationally known polls to study the anxieties that people have. What has been fascinating to watch, and I assure the Committee that this is true, is that, whereas two or three years ago the question of taxation ranked about ninth out of ten, now it is right at the top. This is not a case of hon. Members on this side of the Committing, running after the people; if anything, it has been the other way round. We have punched this argument for a long time as hard as we can, and that shows that the argument is beginning to tell in the country.
      There is clear evidence that the Chancellor recognises some of these points. In a speech to the London Labour Party conference on 13th May, 1967, which has often been quoted, he said:
      "… we cannot be indifferent to the disincentive effect which very high taxation on earned incomes might have. The Labour Party is a party with an appeal to all income and occupational groups."
      No doubt that it tries to be, as we also try to be. But there is now a concern about taxation which did not exist five years ago, three years ago, perhaps even two years ago, and those who ignore this are political coelacanths and are entirely out-of-date and out of touch with the thinking of ordinary people.
      May I give one more quotation from an article in the Daily Mirror by someone who will not be regarded as an authority by everybody on the other side of the Committee, although he is a colleague of theirs, the hon. Member for Bosworth (Mr. Wyatt). Talking about the disincentive effects of high taxation, he says:
      "But we cannot blame big business for the idiocy. We must blame the Government and our own envious attitude towards those who are successful and make the nation's wealth."
      Mr. James Dickens rose—
      Mr. Macleod: I will give way to the hon. Gentleman in one moment; I wish first, to add this footnote.
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      The key words in what is said there refer to envy. The politics and the policies of envy are now completely out-of-date, and I believe, as the hon. Member for Bosworth says, that there is a new attitude towards wealth in this country.
      Mr. Dickens: The hon. Member for Bosworth (Mr. Wyatt), the Daily Mirror and the right hon. Member for Enfield, West (Mr. Macleod) share one thing in common. They have supported economic policies which have made a rapid increase in the rate of taxation inevitable over the last four years or so. I put it to the right hon. Gentleman that the only way forward for this country is to broaden the tax base and to put a much higher rate of tax on capital.
      In the Budget of 30 years ago, introduced by Sir John Simon, direct taxation took up 43 per cent. of all Exchequer revenue—
      The Temporary Chairman (Mr. George Rogers): Order. Interventions must be brief.
      Mr. Dickens: Sir John Simon's Budget of 1939—
      Sir Douglas Glover: On a point of order. We are in Committee and the hon. Member for Lewisham, West (Mr. Dickens) can try to catch your eye, Mr. Rogers, and make his speech. I do not see why my right hon. Friend should have to sit down for five minutes while he makes it.
      The Temporary Chairman: I am sure that the right hon. Gentleman can defend himself.
      Mr. Dickens: Sir John Simon's Budget of 30 years ago raised 43 per cent. of all Exchequer revenue from direct taxation. This year my right hon. Friend is raising less than 40 per cent. This is the case for broadening the tax base.
      Mr. Macleod: It is something a little more than that. I will not take up all the hon. Gentleman's points. Unlike the Daily Mirror, I am in fierce opposition to the Government and to the Government's policies. The only point on which I agree with the hon. Gentleman is that we must have a wider base of taxation. I wish that I could take this point further without going out of order. He goes on to

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      say that he would tax capital, but he knows very well that at this point he and I part company. This is a perfectly valid point, and one which I would have been happy to develop could I have done so without going out of order.
      6.45 p.m.
      The question of cost is always an inevitable problem for Oppositions. An Opposition of any party, in putting their point of view before the House in any year, would put forward commitments which they recognise in total are more than they could meet if they were in power. It is only fair to make that point, and it is not made for the first time. But it is right to press individual points one by one. The cost of this Amendment, to interpret it in the sense in which I interpreted a similar Amendment a year ago, would be £170 million. If we interpret it as running through the bands it would he roughly twice that amount, and that was the interpretation put on it by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid).
      I am not committed to the Chancellor's approach in the Budget any more than I am committed to his arithmetic, but if I were faced by a position in which I wanted to make the sort of reduction which I am now commending to the Committee, I would have preferred—and the Chancellor made this point absolutely fairly—a switch to indirect taxation if I had thought it necessary to cover that revenue. I think that is an honourable answer to the question of cost, which is always a difficult one for an Opposition.
      What we wish to do is to put forward a marker. During nine out of the 13 years, either through the rates or through the allowances for eight years, and through surtax on one occasion, we made reductions in personal direct taxation. It is part of our plans that we shall do so again. For the purposes of this Amendment we have to work within the framework of the income tax system as it is, but we believe that there is a disincentive attendant upon the high levels of personal taxation. We believe that the amounts of personal direct taxation once one gets above a very low figure, are genuinely far too high.
      We differ from the Government as to the economic effects of the incentives,
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      but we hold our view at least as strongly as they hold theirs, and we would argue that all the events, including the trade figures this morning, show how desperately necessary it is to return to incentives, and so I recommend my right hon. and hon. Friends in due course to divide on the Amendment.
      Mr. Pardoe: I support the Amendment, perhaps with a little reluctance, although with less reluctance having heard the speech of the right hon. Member for Enfield, West (Mr. Iain Macleod). Following the trailers in The Times that positively whetted one's appetite for Conservative tax reforms, I had hoped to hear announced today some radical and progressive measures, but all we have in the Amendment is a return to 1964, which does not seem to be a great step forward. This is not good enough. The difference between my attitude and that represented by the right hon. and hon. Members on the Conservative Front Bench is that they want to reduce the standard rate whereas I want to abolish it. I want to reform our direct taxation system. Present direct taxes are incomprehensible, are a hindrance to economic growth and are too high.
      I believe that any tax should first of all raise revenue without unreasonable disturbance to taxpayers, industry and Government; it should be useful in steering the economy, particularly in regard to savings and investment, and helpful in its inevitable influence on social trends, and it is legitimate to use income tax for that purpose. It should, of course, be clear and should allow little opportunity for dishonesty.
      What is wrong with our income tax is not only that it is too high, but that the taxes are divided into five incomprehensible schedules. We preserve the fiction that there is a standard rate of tax which applies to all the five schedules and which provides a common level of taxation. We know in fact that it does not do this, and we have to overcome all the problems created by this fiction by introducing a large and complicated array of allowances.
      As a result, very few people actually pay the standard rate. The Amendment would reduce the standard rate from 8s. 3d. to 7s. 9d. But just as nobody who is earning his income pays 8s. 3d.

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      now, so nobody under the Conservative scheme would pay 7s. 9d. or, indeed, paid that sum during the Conservative Administration.
      I was not entirely surprised that the array of Amendments which I tabled were not selected, because they may well have seemed to be new taxes. They may look new but the figure of 32·08 per cent. is equivalent to 6s. 5d. in the £, which is what people pay on earned income.
      The Chancellor said that he was not over-familiar with the new swinging percentages. Indeed, it is rather like looking at the "Miss World Contest" with metric sub-titles. The 4s. in the £ which we now state as being the rate of taxation at the lower level is 3s. 1⅓d. on earned income—15·55 per cent. The rate of 6s., which appears on my income tax return, is 4s. 8d. on earned income and represents 23·33 per cent. It is the high standard rate which makes our system so totally incomprehensible.
      We propose to sweep away the whole of this gobbledy-gook and replace the existing five schedules of income tax and surtax by a system of income tax under four headings. They are not new taxes; it is simply a way of dividing them up. They are personal employment tax, personal business tax, personal property tax and company tax. The important point is that one would then be able to have different rates of taxation on each, instead of trying to maintain the fiction of the standard rate across the whole board.
      The advantages are that the replacement of the standard rate with a whole system of complicated allowances by a gradual rate of tax related to income would allow tax returns to be simplified and made understandable, and would give greater flexibility, since we should be able to have different rates of taxation on all the different tax headings.
      It follows that under this system there would be a clear separation between taxation on earnings, whether from employment or business, and taxation on investment income. I do not necessarily argue that taxes on unearned income should be higher than taxes on earned income. In one sense I should like to say that they should not, but we cannot make that break immediately. Therefore,
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      we should begin at the lower level to attract small savers.
      I recognise that there are disadvantages in the limitation which I have mentioned. It is likely that it is the very few people in the upper income groups who have the greatest proportion of their income surplus to their immediate requirements, which might be diverted into savings, and it must be made worth their while to save just as much as it must be made worth while for the lower income groups.
      Under this scheme income tax on income from personal employment and business employment—that is from wages, salaries, pensions, and an individual's income from his profession or business—should be stated as the actual rate which we would pay. I should know what I had to pay on any extra £ earned. The Chancellor was right to stress the rate on the marginal income, the extra £1 that I earn by working overtime or by writing an extra article. That is where the disincentive creeps in and it is at that point we must make our reforms.
      I believe that we should not start below the level at which it is economic to collect the taxes. But if one takes the Government's present lower level, the increase from that point is too rapid. It should not be by large steps since it is the large steps which provide the disincentives at the margins. It should be by not more than 5 per cent. at any stage. This would greatly diminish the slope or incline of the progressive tax scale.
      The tax scale, after being increased by 5 per cent. at various levels, should reach a plateau. At the level at which 6s. 5d. now applies, the rate should remain the same up to perhaps £4,000, and perhaps even as high as £5,000. From then on there could be an increase of 5 per cent. at various stages. I do not wish to go into surtax since the Amendment is not concerned with that. These proposals would imply that men and women should be taxed separately. I realise the disadvantages and difficulties involved in that suggestion but these would at least be possible.
      What about the tax on so-called unearned income? I repeat my reservation about referring to unearned income. A large amount should be treated as earned income. Beyond that

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      stage there would have to be larger increases than is the case with earned income. Perhaps increases of as much as 10 per cent. at various stages.
      I turn to the problem of the disincentive of direct taxation. Obviously, most hon. Members would accept that there must be some disincentive inherent in any direct tax system. But although most of us believe that taxes are too high, nevertheless, it would not cure the economic malaise from which the country has suffered for far too long if we reduced our total level of taxation. A comparison with other countries shows that in many cases the amount which is absorbed by the Government is lower as a proportion of this country's gross national product.
      Anyone who promises substantially to reduce the total level of taxation in this country is a charlatan. He is more than a charlatan when he refuses to follow that promise by saying what public expenditure he will cut. The right hon. Member for Enfield, West was extremely sweet and reasonable. Far more than many of his colleagues, who are already giving the impression that they will knock 1s. off here and 6d. off there and will easily finance east of Suez escapades and return to the Persian Gulf and that they will pay for all this by having no subsidies for agriculture.
      7.0 p.m.
      This will not do. This kind of action by irresponsible Conservatives is disastrous for their party and the level of political debate. I would remind the Conservative Party that there is some conflict between what they now promise and what they accomplished when in power. Speaking in Ayr on April 12th, 1955, when he was Chancellor of the Exchequer, Mr. Harold Macmillan said:
      "We believe in lower taxation. We believe in men and women keeping a larger share of what they earn … This is Conservative policy and this is a Conservative party."
      That is one firm statement of their tax policy, but it is far removed from remarks made by the right hon. Member for Barnet (Mr. Maudling) in London on 5th March, 1964, when he went out of his way to warn his audience that the cost of modernising and creating a more prosperous Britain meant
      "… raising substantially increased sums from the taxpayer."
      The right hon. Gentleman went on:
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      "I must remind you that the cost is a heavy and a growing one. It would be idle, and indeed dishonest, to pretend that the money we need for houses, schools and hostels can be found without people having to pay more in taxes."
      That was said not from the Liberal or the present Government benches, but by the right hon. Gentleman who was then the Chancellor.
      I agree that international comparisons may be odious or odourous, but if we compare one year with another when considering the Conservative record, we again see remarkable divergences between their promises now and what they achieved. I hope that the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) can throw some light on this. A single man who, in 1960, earned less than £1,250 and who had become richer to the average extent was actually paying a higher proportion of his income in tax in 1961–62 than in 1949–50. A family man with three children under 11 in that same situation, as long as his income was below the 1960 level of £2,500, also paid a greater proportion of income in personal direct taxation in 1961–62 than in 1949–50.
      A large number of people with three children under eleven were earning less than £2,500 in 1960, yet they were all worse off in terms of direct taxation than when the Conservatives came to power. Even in 1962, under the Tories, direct taxes on individuals was still a very high proportion of total tax revenue. In the United Kingdom it was then 29·2 per cent., in Germany only 26·8 per cent., and in France—I know that there are special considerations there, such as the "money under the bed"—it was 10·8 per cent. That shows that, even in 1962, under the Tories, the percentage of total tax revenue from direct taxes was much higher than in some other countries.
      I would also remind hon. Members of the Conservative Party that, far from having reduced the total level of taxation, particularly that on individuals, when they were in office taxes on personal income rose from £1,170 million in 1952 to £3,523 million in 1964, an increase of £2,353 million, or 200 per cent.—
      Mr. John Hall: Perhaps the hon. Gentleman would say what was the percentage of the gross national product in both cases.
      Mr. Pardoe: It is true that the percentage of the total taxation revenue as a proportion of the gross national product was lower, but that is not my point. I am supporting the Amendment.
      I am merely talking about anyone who gives the impression that it is possible to reduce the total level of taxation, as many of his hon. Friends do round the country. I have been faced in recent weeks by a prospective Conservative candidate in my constituency who has promised the constituents of North Cornwall that no one earning under £1,000 will pay income tax at all under the next Conservative Government.
      Mr. Nott: Coming back to the hon. Gentleman's original point, the reason that the Conservative Administration could reduce the standard rate of income tax from 9s. 6d. to 7s. 9d., which we did in 13 years, was the buoyancy of tax revenue. The reason that tax revenue was buoyant was that we had such high economic growth. This is an incontrovertible fact, so the hon. Gentleman must not mislead the House.
      Mr. Pardoe: It is not I who is misleading the House. Conservative Members have been giving the impression that they, and they alone, are the elect of God in the matter of taxation. They are not. It may hurt hon. Gentlemen—particularly the hon. Member for St. Ives (Mr. Nott)—to be told this. He had better look at what some of his colleagues are saying in that part of the country and judge whether he can justify it.
      The level of direct taxation today is too high and it should be reduced, by a transfer of the total burden from direct to indirect taxation. That means that we must have much better indirect taxes. It is one of the tragedies for any Chancellor who wishes to reform our tax system on these lines that he is equipped with such appallingly blunt weapons in indirect taxation, so that even when he invents new ones, they are even worse.
      I am sorry that we could not debate the line of argument contained in the sweeping and radical Amendments which I have tabled, but they were based upon a report, whose words I would commend to the Minister of State. He may not be particularly keen on having his right hon. Friend quoted, but the right hon. Member for Sowerby (Mr. Houghton),
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      Chairman of the Parliamentary Labour Party, in assessing the Liberal plan on taxation, said:
      "The bold and comprehensive sweep of this plan leaves one somewhat breathless. I regard this as the most significant outline of major tax reforms published in recent years."
      It is a great pity that the Government have not been able to vote on that in this debate.
      [Mr. SYDNEY IRVING in the Chair]
      Mr. Michael Alison: I thought the charming and perhaps significant thing about the speech of the hon. Member for Cornwall, North (Mr. Pardoe) was that he was shooting the first rounds of the General Election in North Cornwall. The Committee will have noticed that the enemy there is the Conservative Party and not the Labour Party. Indeed, the lie was given to all his speech when he introduced the prospective Conservative candidate there.
      Let me back up that candidate in this respect at least—what he said about no taxes for those earning under £1,000 is already correct. The latest figures given in Economic Trends for February, 1969, on the incidence of taxes and social service benefits in 1967, show that the income after direct taxes and benefits as a percentage of original income for incomes up to £988—admittedly marginally less than £1,000—represents 106 per cent., so that one is a net gainer at £1,000 already.
      Therefore, how much more likely is it that when the Conservatives return to power this process will be extended? So, on this point, I say good luck to the Conservative candidate—
      Mr. Pardoe: That entirely depends upon how many children one has and also takes into account all the social benefits. This is not what the prospective Conservative candidate for North Cornwall said. And if the hon. Gentleman says that the major opposition in North Cornwall is the Conservative Party, I would only answer that if all his friends had managed to get rid of the Labour vote in their constituencies as I have done in mine, there would be no danger of Socialism.
      Mr. Alison: I must confess that I echo those concluding words, but the hon. Gentleman is wrong on the earlier part,

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      because my example referred to all households in the sample including all variations of adults plus children. It came from the comprehensive Table B of the latest issue of "Economic Trends", and it backs up what the Conservative candidate said. Good luck to him: I have no doubt that he will win. It is significant that the Liberal Party now reckons the people that it has to fear in the next election—as do the Socialists—are the Conservatives.
      I should be grateful if the Minister of State would convey to the Chancellor my view that his right hon. Friend was in his most frustrating and tantalising rôle today—that of the broody hen which refuses to lay the egg. In this issue of direct personal taxation, he keeps making the most encouraging clucking noises about his sane and progressive views, but never settles down on the bed of straw and delivers the nest egg.
      In his last Budget speech, in 1968, the Chancellor offered these remarkable words about direct taxation:
      "… our direct taxation, on earned incomes is comparatively high. It may, indeed, be too high …"—[OFFICIAL REPORT, 19th March, 1968; Vol. 761, c. 276.]
      That was a polite way of saying that it was too high. He also said that it actually had a "stultifying effect" on the economy. He was thinking then not of taxation overall but of direct personal taxation.
      Furthermore, as though to emphasise that this was not just a casual impression which he had received on arriving at the Treasury, in this year's Budget speech he again used the same remarkable word "stultifying" about the outcome in economic terms of the present high level of direct taxation. He made this broody hen speech this afternoon. Having made it clear that he thinks that personal taxation is too high and stultifies the economy, he prances up and down again on the bed of straw but he will not lay the egg. When will he do something about the level of direct taxation which he thinks is too high and stultifying?
      I do not know whether the Chancellor has taken sides in the great debate about whether incentives one way or another really can be affected by the level of direct personal taxation. The Minister of State will know that there is a school
      1294
      of thought which alleges that, it direct personal taxation is on the high side, some people, to maintain their standard of living, will actually work harder. There is the countervailing case, that they will not bother to work harder, and that is not proven. I hope that the Government will make it plain which side of the argument they support.
      7.15 p.m.
      I believe that there can be no doubt, on the basis of the international comparisons that we have been considering, that it really is a disincentive to have such high levels of direct personal taxation. If one is to make a comparison, West Germany is perhaps the best country to take, since it must be our marker. It has had remarkable bouyancy in its economic performance, starting from a base much lower than ours in the post-war years.
      In a booklet produced by the Industrial Policy Group a comparison is given in table 8 between marginal and average tax rates in a number of different countries, and the figures tally almost exactly with those quoted by the Chancellor today.
      At every level of earned income above the level of £1,250 per year—which is about the average level of earnings in this country, which were running at about £23 a week at the latest count in October—and including the starting figure of £1,250 itself, the German average and marginal rates of taxation for a married man with two children are lower, and they are substantially lower the higher one goes. This must be a pointer, since Germany is our greatest economic competitor.
      However misleading international comparisons may be one can nevertheless hardly avoid the general impression that incentives count for something, particularly when one considers the achievements in some continental countries. We need to conduct a serious investigation into the possible effects of incentives; an investigation in greater depth than that represented in the Chief Secretary's letter to one of his hon. Friends. My misgiving about the sort of investigations so far carried out by the Government is that they are extremely academic and relate to studies of incentives internally in various countries but do not relate to the comparative study of incentives across international boundaries.

      1295
      It might be worth selecting a large international company for this study. Such an organisation must face the problem of adjusting its salaries and rewards to younger executives in a number of different countries. A firm like I.B.M. must undertake this type of operation, and must be well placed to judge comparative tax disincentives in countries using different tax structures. I do not believe that such a study has been conducted. There must be a relationship between the enormous buoyancy of some of these countries across the Channel and the comparatively low levels of taxation in those countries compared with our direct personal average and marginal rates of taxation.
      The Chancellor asserted blithely in his second Budget speech—I have quoted the giveaway line in his first speech—that:
      "So long as"—
      a man's—
      "total earned income does not exceed £77 a week, it is … impossible for the ordinary man to pay as much as one third in tax on any part of his earnings, whether regular or overtime."—[OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 1031.]
      There must be as much comfort for the ordinary man in that assertion as there is in telling a life prisoner that it is unusual for a life sentence to exceed 25 years.
      The shocking thing about the Chancellor's assertion is that the possible level should be anywhere near as high as one third; that he should regard anything approaching one third of a working man's income as a tolerable amount to pay in taxation, which was the implication of his statement.
      I remind the Committee that if one goes downwards from the level of income quoted by the Chancellor when giving international comparisons—namely, from an income level of £5,000 a year—one finds that while at that level a married man with two children under 11 in the United Kingdom is paying substantially over one third in tax, if one goes down the scale to as little as £1,250, which is about the average wage, one finds that such a man is still paying one third, while his German counterpart is paying only 18 per cent. or less than one fifth. Thus the level of one third—which, for the
      1296
      lower income groups is too high—starts extraordinarily low down in the scale in the United Kingdom for personal earnings; it is not approached in, for example, Germany until one reaches the income brackets about £4,000 per year. That is why I say there is not much comfort for the working man in this country in the Chancellor's assertion that he cannot pay more than one third of his income in tax.
      In considering the extremely serious effect that our high rates of taxation have, particularly on younger executives, it is interesting to note what Professor Merrett wrote in The Director, a magazine which is widely read by hon. Members, in the issue of February, 1968:
      "… a relatively low net of tax remuneration (like relatively low wages in a factory) must be expected to result in a weakening of discipline."
      By that he meant people having a "why bother" attitude. He went on, when discussing incentives, to say that the argument cannot be deployed—to use the Army analogy—which says that if a soldier is paid a little more he will fight a little harder. The incentive argument is really that if one raises the whole scale of salaries or the pay of recruits, the sort of people one will attract into the Army will be of a higher calibre, which is what we want throughout industry in the country generally.
      This is the real argument about incentives. We are really discussing the sort of people we can recruit into highly responsible and difficult posts. We are discussing the levels of necessary rewards, not only at the managerial level but indeed at the skilled level throughout industry.
      Some suggest that it is irresponsible of the Opposition to be proposing a reduction in taxation which might cost the Chancellor as much as £350 million. This bring me to the point I made in an intervention when the Chancellor was speaking; that it is standing the argument on its head to say that when the Chancellor is acquiring a revenue surplus which by the end of March, 1970, will be £800 million—a large proportion of which will be applied to meet maturing gilt-edged securities held by the public—he cannot spare a bit for the taxpayer.
      We have been told that a little of the surplus is to be drawn off to stoke up

      1297
      the sterling capital of the exchange equalisation account—which should, we hope, be run down as a result of taking in gold and foreign currency. That does not now look likely to happen rapidly; but in any case we know that a large proportion of the Revenue surplus will go to pay for maturing gilt-edged securities, particularly electricity stock and other issues which will be falling in this year.
      We may thus assume that, say, £300 million to £500 million is being taken from the taxpayer explicitly to be handed back to the holders of gilt-edged stock which is maturing Some of that may be reinvested, but it is equally possible that if the money were instead handed back to the taxpayer he would not blow it all. If it is possible, therefore, to hand back millions of £s worth of taxpayers' money to those with gilt-edged securities which are maturing, it must in theory be possible to leave some of that money instead in the hands of the taxpayer.
      The Conservatives are suggesting that £300 million or £400 million should be left in the hands of the taxpayer. And this makes sense. If when the gilt-edged securities fall in the Chancellor hopes to make some conversion issues—in other words, to persuade some of those with maturing securities immediately to reinvest in conversion stock—he will have to offer a much higher rate of interest. I suspect that the going rate, to be effective, will have to approach what the Chancellor proposes to offer to those who are prepared to start saving under his new contractual savings scheme, for which the grossed up rate for the standard rate taxpayer over a five-year contract will be 12 per cent.
      If the Government had done the sensible thing they would have reduced the standard rate of taxation, as a result of which the grossed up return on, for example, the contractual savings scheme would then have to be very much less to make it attractive—because the lower rates of taxation would have affected the grossing up scale. For this reason we see no reason why we should not remit taxation, lower the standard rate, and not hand quite so much back to those whose gilt-edged stock is maturing. The Government could borrow instead.
      This shows that it is a perfectly feasible proposition to cut back some
      1298
      of the money which has been taken from the taxpayer and, instead, to borrow money to pay back the maturing stock. Do not let us hear any more about tax remission being irresponsible or impracticable in a year with such an enormous Revenue surplus. The time has surely come to turn to incentives to meet some of our difficulties.
      In an intriguing debate with Professor Galbraith in a television programme on 2nd July, 1968 the right hon. Gentleman said in relation to the 1968 Budget:
      "The increase in taxation was very substantial indeed. This mainly arose out of the need to put, produce, the swing-round on the balance of payments which we were discussing earlier."
      It is clear that with the enormous increase of taxation in 1968 there was no such swing-round in the balance of payments which was the justification for the operation.
      That being so, let us try an alternative. Ours is to lower rates of direct taxation, and to provide greater incentives so that the people of Britain may have a chance to pull on their boots and get the Government off their backs.
      Mr. Nott: I regret that the hon. Member for Cornwall, North (Mr. Pardoe) is not in his place, because I intend to refer to him. His argument was completely demolished by my hon. Friend the Member for Barkston Ash (Mr. Alison) and I thought it a pity that a fellow Cornish hon. Member should have been made to look so foolish. Perhaps that is just retribution to the electorate of Cornwall, North for having returned a Liberal to represent them. I was interested to hear the hon. Gentleman refer to the Conservative candidate in his division. I would consider myself to be on a very slippery slope if I were ever to mention my political opponent in this House, or elsewhere for that matter.
      We are considering today the effect of direct taxation upon incentives—how hard people are prepared to work, to save, to take risks and to accept promotion. In doing this one or two simple facts need to be mentioned before we start.
      First, we ought to recognise that for over 95 per cent. of the population a far higher proportion of their earnings are taken from them in contributions, in rates

      1299
      and in indirect taxation than in direct taxation on their income. Any serious debate on average rates of tax cannot really be conducted without considering the total levies by the State upon its citizens. It is only at the margin that the effects of direct taxation so predominate. Thus, throughout my speech I will distinguish between the average and the marginal rates, concentrating on the latter.
      I am glad to see that the hon. Member for Cornwall, North has now returned. Were it not out of order, I should repeat what I said at the opening of my speech.
      Mr. Pardoe: I am sorry to have missed the hon. Gentleman's insults. They are always a delight. I had gone out to gather "Economic Trends" to prove that what his hon. Friend the Member for Barkston Ash (Mr. Alison) said was a load of codswallop.
      Mr. Nott: I will not follow the hon. Gentleman by using an unparliamentary term of that nature.
      Mr. Pardoe: It is not unparliamentary. It is Cornish.
      Mr. NottIt is interesting to note that his speech was loaded with inaccuracies. He now returns to the Chamber to express another view in thoroughly unparliamentary language.
      I want to get back to my second point,—which has not so far been mentioned in this debate. It is often said that direct taxation in this country incorporates a highly progressive system. This is just not true of 98 per cent. of incomes. We have an income tax system which is only mildly progressive and an indirect taxation system which is highly regressive. The net result is that overall our taxation system, apart from that on the highest incomes, is generally regressive, not progressive as is normally claimed. It is the cash transfer payments, the tax allowances, the family allowances and the welfare benefits which make our global system so progressive in its incidence. It is virtually impossible to have a really meaningful debate on any real tax reform of tax reduction unless we consider the whole question of welfare benefits at the same time as direct taxation.
      Thirdly, there is the favourite statement of the Government that many other
      1300
      Western countries—we heard this from the Chancellor today—are more heavily taxed than us. Though this may be true of certain countries and of average tax rates—indeed, in some cases, of total taxes, too—the point is none the less irrelevant. Britain could have the lowest taxes in the world and still be overtaxed in the important meaning of the term. The important question to be asked has to be a purely national one: have taxes in this country reached a level where they have become quite self-defeating? This, as the Chancellor said, is a political question which must ultimately depend on judgment.
      The answer to the question can only be related to the peculiar characteristics and attitudes of the British people at one point of time. International comparisons are worthless in seeking an answer to this question. It revolves around the preferences of the British people and the opportunity cost of a different mix of policies. What is the nation's attitude at this point of time to saying, to consumption, to inflation, towards the rich and the poor? These attitudes are a by-product of our environment and of our history. It is completely pointless to my mind to compare our tax rates with the Germans. Therefore, I disregard the argument that marginal tax rates on our higher incomes appear to be the highest in the developed world, because it would be intellectually inconsistent to use this argument for the higher incomes and reject it on the issues as a whole.
      Broadly, there are two schools of thought on incentives. First, there is the empirical approach which tries to deduce from studies of behaviour how the attitudes of people are affected by taxation. Secondly, there is the approach which is largely used by Professor Merritt and Mr. Monk—this is the approach of the Conservative Party—which adopts a logical attitude to the substitution effects of high taxation. Indeed, pure observation and aspects of the surveys mentioned by my right hon. Friend support the Conservative belief that our taxes have become quite self-defeating. Anyone who has looked at the many studies to which reference has already been made by the hon. Member for Ashton-under-Lyne (Mr. Sheldon), the hon. Member for Heywood and Royton (Mr. Barnett) and by the Chancellor, studies which ranged from

      1301
      the Royal Commission on the Taxation of Profits and Income onwards, is bound to conclude that the studies do not show—I think this must be admitted—that high taxation and disincentive go hand in hand. Indeed, many of the surveys are a real boon to a high-taxing Socialist Chancellor. But where the surveys contradict the comments made by the Chancellor are in four particular areas where both schools of thought—the surveys which have been made and also the attitudes of the Conservative Party and of Professor Merrett—come together and indicate agreement.
      First, the surveys show that nearly all people in this country believe themselves to be more highly taxed than is the case. A major proportion of the working population probably believe that they pay the standard rate of 8s. 3d. on any increment of income while, astonishingly enough, the managerial class, if I can call it that, is even more mistaken on this point than the average factory worker. Secondly, it is also clear from surveys that jumps in marginal rates are frequent in our system and that people recognise a jump in marginal rates when and where it hits them.
      Thirdly, the surveys show, and pure observation confirms this fact, that where disincentive really does occur is on the very highest incomes where marginal rates are very great indeed and also, finally, on the very low incomes where, for reasons connected with the present cash transfer and welfare benefits system, the marginal rates are also very high.
      I want to deal then with these four major areas. First, how people can be made aware of what their actual average tax rate is. Secondly, how artificial jumps in marginal rates can be removed from out the system. Thirdly, how the greatest marginal rates on high income earners can be eliminated. Fourthly, how the high disincentive element in welfare payments which are all wrapped up with the income tax system, can be reformed. In choosing these four areas I do not mean to claim that it is not important for us to reduce the average rates of tax. Of course it is, and it can be done. But the four points that I have mentioned are of major priority.
      It is hardly surprising, as the hon. Member for Cornwall, North rightly said,
      1302
      that people are confused about their average rates of tax since all the published rates relate to unearned income. It really is quite ludicrous that the standard rate of tax of 8s. 3d. is only relevant to the 1 per cent. of taxpayers whose income is entirely of an unearned nature. About 80 per cent. of the population, which has earned income only, never pay a marginal rate of 8s. 3d. It really was fantastic for the Chancellor in his Budget statement to claim that although this is a necessary reform it cannot be made for administrative reasons. One has to ask, who is running the country? Is it the Government or the Inland Revenue and the I.M.F.?
      The Minister of State, Treasury (Mr. Dick Taverne): The hon. Gentleman is right in saying that administrative reasons should not dictate these matters, but one must have regard to the number of civil servants who would be required to implement such a major administrative reform
      Mr. Nott: I shall come to an even more radical administrative reform which would remove one-third of the Inland Revenue tomorrow. If the hon. and learned Gentleman allows me to get to it, I shall cover his intervention.
      If we recognised that 6s. 5d. is the standard rate of tax on earned incomes the position would be made immeasurably clearer. It is the rate which applies to the massive proportion of our population. If all incomes were taxed at 6s. 5d. we would have a proportional system in this country, and a very good one at that. It is the allowances and the reliefs for children, for life insurance, for mortgages, and the rest, which make our system progressive in its incidence.
      Coming next to the question of jumps in marginal rates, the fact is that the reliefs to which I have referred, children's allowances, mortgage rates, and more particularly the earned income reliefs, come in at special levels, and I agree with my right hon. Friend when he holds the Chancellor responsible for quoting the only income which it was possible to quote to support his case. At £4,005 half the earned income relief is lost, and the marginal rate suddenly jumps to 7s. 4d. At £5,001—and that is why the Chancellor chose £5,000—the marginal rate jumps to 9s. 1d. as surtax begins to bite, and thereafter there is a heavy jump

      1303
      to a marginal rate of 14s. 9d. at an income level of £9,945, where the remainder of earned income relief is lost. This, I think, is the second major area which needs reform—jumps in marginal rates.
      At the highest income level the marginal rates are catastrophic. The law makes it virtually impossible for a person who has only earned income to receive an after tax income of over £10,000. That may not sound bad to hon. Gentlemen opposite, but when one goes on to consider that the only way in which someone can receive an after tax income of over £10,000 is if his income is unearned, then it is very strange indeed that a Socialist Chancellor should perpetuate a system which makes it possible to have a very high income only if one is in possession of inherited wealth.
      Finally, I come to the poorer sections of the community whom our so-called progressive system of taxation is meant to favour. Of course it does not, because one cannot consider the income tax system in isolation from social benefits. What happens is that the lowest income earners can pay a proportionately equal marginal rate upon their increment of income to that paid by a man who is chairman of an international corporation. The lowest income earners can pay an effective tax at the equivalent of 15s. in the £, and I shall demonstrate how this arises.
      Let us consider a man who receives £15 a week. I think the Chancellor took the example of £700 a year, which is about £14 a week. I shall take the example of a man earning £15 a week, as this is the average wage in my constituency. Although this man may not know it, he could be entitled at this level of income to a range of means-tested benefits, and he probably is. If his income were to rise from £15 to £18 a week, first he would lose 15s. worth of school meals, 13s. 4d. in rent rebate, if he happens to be in his own house he will lose 15s. in rate rebate, and have to pay an additional 2s. 10d. in the £ in graduated contributions. That is a total of 46s. a week on an extra income of 60s. a week, equivalent to 15s. 4d. in the £. In fact, some of the highest marginal rates of taxation are upon the lowest income earners.
      1304
      The hon. Member for York (Mr. Alexander W. Lyon) is grinning. If he goes round his constituency, as I go round mine, he will find that there is widespread disenchantment among the best of our working population with the social welfare system. He will also find a growing tendency among the best people who are earning £15 to £18 a week to substitute extra leisure for extra work. I am only making the point that if someone is in receipt of social welfare benefits, and if on additional income he has to pay a marginal rate of transfer of 15s., that must have a highly disincentive effect.
      It seems that our tax system has reached the end of the road, and that it is only the politicians who fail to recognise it. It convinces people that they pay far more in tax than is the case. It penalises the pace-makers of our society who earn the higher amounts, and also those who earn the middle range incomes, and it makes a mockery of wage-earners who genuinely have a desire to work.
      I know the answer to this. It does not come from tinkering around with the standard rate of income tax, shifting the burden from one tax to the other. The only answer lies in a radical change in our whole tax and welfare benefits, system, so radical that the whole weight of British conservatism, with a small "c", will be against it, and against it, too, will be the vested interests of administration and of those who are rightly suspicious of simplicity.
      Because the debate is drawing to a close I do not have time tonight to go into all the details, but the hon. Member for Heywood and Royton touched on the subject. The solution lies in either a guaranteed minimum income, or in a sensible form of negative income tax. For those who throw up their hands in horror and say that we cannot have a guaranteed minimum income or negative income tax, I would only say that we have both already but they are highly inefficient ones. In fact, we have a guaranteed minimum income through the social welfare system, and we have a negative income tax in the form of family allowances. The trouble is that these systems are badly organised, they are complicated, and administratively highly expensive.

      1305
      I conclude by saying to the Minister of State that if he abolished the standard rate of income tax of 8s. 3d., which is relevant only to unearned income, and if he were to abolish all reliefs and allowances and have a proportional rate of 6s. 5d., and if he were then to pay out to every member of the community one single cash payment in order to make the system progressive, the whole of our tax system would be transformed. I do not want to minimise the huge complications of this problem, but unless this is done by a Government within the next few years, our tax system will get more and more complicated and more and more burdensome and the people will have more and more disincentive loaded on them by the method which we wield.
      I hope that in due course some further thought will be given to this by both parties in the House.
      Mr. Ridsdale: I support what was said by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) and my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro), who have respectively suggested reductions of 6d. and 9d. in the rate of income tax.
      The Chancellor of the Exchequer accused the Opposition of being irresponsible in suggesting reductions in income tax which might amount to anything from £177 million to £340 million. When he said that it went through my mind that those who are in the dark and irresponsible are the Chancellor of the Exchequer and the Government, who have increased Government spending by no less than £5,000 million and have got our economy into a straitjacket. Having done that they now accuse the Opposition of being irresponsible for suggesting a decrease of 6d. in the rate of income tax. Such a queer way of arguing must stem from a feeling of guilt.
      I come to the question of to what extent income tax should be reduced. I was delighted that my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) said that the proposals of 6d. and 9d. were mere pointers. If we are to make our system of capitalism work and not have the system of Socialism in which the economy has been strait-jacketed for so long, there will have to be greater reductions in income tax, than have been pointed to.
      1306
      I could not help thinking of the speech made last year at Morecambe by my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell), in which he proposed a reduction of 4s. in the £, and of Mr. Paul Chambers's suggestion of a reduction of 4s. in the £. There are two ways in which such a reduction could be achieved. One is the method proposed by my right hon. Friend the Member for Wolver-hampton, South-West—of reducing Government expenditure. However, my right hon. Friend did not propose cutting the social services. My right hon. Friend visualised the reduction being achieved by reducing investment grants, development area grants, the Industrial Reorganisation Corporation's activities, housing subsidies, the levy system, and the number of civil servants to the tune of 60,000.
      Another way of achieving the reduction would be, as Mr. Paul Chambers proposed, to hold Government spending at its present level and gradually to increase production so as to reduce taxation. This was the method employed by the Conservative Government.
      I want such proposed reductions greatly to be improved upon, because the proposals of 6d. and 9d. are mere pointers. Britain must face the reality that we cannot continue with these vast increases in Government spending, because with these vast increases we cannot raise through the capital market the money needed for investment in manufacturing industries. When investment is made by the Government in manufacturing industries, the Government's choices are wrong. Until, by reductions in taxation greater than the mere pointers of 6d. and 9d., the investor is allowed to be responsible for choosing his own investment and to use the market as a guide, we shall not get the investment going into the right manufacturing industries.
      Sir H. d'Avigdor-Goldsmid: Despite your great vigilance, Mr. Irving, and that of your successors, we have had what can be described as a far-reaching debate. You did your best to curtail it, but perhaps your successors were less successful.
      The great value of the debate has been that it has shown the difference in philosophy between the two sides of the Committee. We on this side are convinced

      1307
      that one of the things that is wrong with the economy is the absence of incentives We think that a reduction in taxation would produce a useful incentive. Hon. Members opposite who have spoken did their best to pretend that there is a strong argument against the giving of incentives by a reduction in taxation.
      The hon. Members for Heywood and Royton (Mr. Barnett) and for Ashton-under-Lyne (Mr. Sheldon) made rather heavy weather of this and did not achieve any worthwhile result. We have a slight convert to our views in the Chancellor,
      who is prepared to admit that there is an incentive quality about a reduction in taxation.
      As this is the firm view of the Conservative Party, a view which, as my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) has stressed, we have pressed year in, year out, we think it right to divide the Committee on this and to vote in favour of the Amendment.
      Question put, That the Amendment be made:—
      The Committee divided: Ayes 166. Noes 223.

      Division No. 212.]

      AYES

      [7.57 p.m.

      Alison, Michael (Barkston Ash)

      Gower, Raymond

      Morgan, Geraint (Denbigh)

      Allason, James (Hemei Hempstead)

      Grant, Anthony

      Morrison, Charies (Devizes)

      Astor, John

      Grant-Ferris, R.

      Mott-Radclyffe, Sir Charles

      Awdry, Daniel

      Gresham Cooke, R.

      Munro-Lucas-Tooth, Sir Hugh

      Baker, Kenneth (Acton)

      Gurden, Harold

      Murton, Oscar

      Bennett, Sir Frederic (Torquay)

      Hall, John (Wycombe)

      Nabarro, Sir Gerald

      Bennett, Dr. Reginald (Gos. & Fhm)

      Hall-Davis, A. G. F.

      Noble, Rt. Hn. Michael

      Berry, Hn. Anthony

      Harris, Frederic (Croydon, N. W.)

      Nott, John

      Bessell, Peter

      Harris, Reader (Heston)

      Onslow, Cranley

      Biffen, John

      Harrison, Col. Sir Harwood (Eye)

      Osborn, John (Hallam)

      Birch, Rt. Hn. Nigel

      Harvey, Sir Arthur Vere

      Osborne, Sir Cyril (Louth)

      Black, sir Cyril

      Hastings, Stephen

      Page, Graham (Crosby)

      Blaker, Peter

      Hawkins, Paul

      Page, John (Harrow, W.)

      Boardman, Tom (Leicester, S. W.)

      Heald, Rt. Hn. Sir Lionel

      Pardoe, John

      Boyd-Carpenter, Rt. Hn. John

      Higgins, Terence L.

      Percival, Ian

      Boyle, Rt. Hn. Sir Edward

      Hiley, Joseph

      Peyton, John

      Braine, Bernard

      Hill, J. E. B.

      Pounder, Rafton

      Brewis, John

      Hirst, Geoffrey

      Powell, Rt. Hn. J. Enoch

      Brinton, Sir Tatton

      Holland, Philip

      Prior, J. M. L.

      Bromley-Davenport, Lt.-Col. Sir Walter

      Hordern, Peter

      Pym, Francis

      Brown, Sir Edward (Bath)

      Hunt, John

      Quennell, Miss J. M.

      Bruce-Gardyne, J.

      Hutchison, Michael Clark

      Rees-Davies, W. R.

      Buchanan-Smith, Alick (Angus, N & M)

      Iremonger, T. L.

      Renton, Rt. Hn. Sir David

      Buck, Antony (Colchester)

      Jenkin, Patrick (Woodford)

      Ridley, Hn. Nicholas

      Bullus, Sir Eric

      Johnson smith, G. (E. Grinstead)

      Ridsdale, Julian

      Burden, F. A.

      Jones, Arthur (Northants, S.)

      Royle, Anthony

      Campbell, B. (Oldham, W.)

      Jopling, Michael

      Russell, Sir Ronald

      Carlisle, Mark

      Joseph, Rt. Hn. Sir Keith

      Scott-Hopkins, James

      Clark, Henry

      Kaberry, Sir Donald

      Sharples, Richard

      Clegg, Walter

      Kershaw, Anthony

      Shaw, Michael (Sc'b'gh & Whitby)

      Cooke, Robert

      Kimball, Marcus

      Silvester, Frederick

      Corfield, F. V.

      Kirk, Peter

      Sinclair, Sir George

      Craddock, Sir Beresford (Spelthorne)

      Knight, Mrs. Jill

      Smith, John (London & W'minster)

      Crouch, David

      Lambton, Viscount

      Speed, Keith

      Cunningham, Sir Knox

      Lancaster, Col. C. G.

      Stodart, Anthony

      Dalkeith, Earl of

      Lane, David

      Stoddart-Scott, Col. Sir M.

      Dance, James

      Lewis, Kenneth (Rutland)

      Summers, Sir Spencer

      Davidson, James (Aberdeenshire, W.)

      Lubbock, Eric

      Taylor, Frank (Moss Side)

      d'Avigdor-Goldsmid, Sir Henry

      MacArthur, Ian

      Temple, John M.

      Deedes, Rt. Hn. W. F. (Ashford)

      Mackenzie, Alasdair (Ross & Crom'ty)

      Thatcher, Mrs. Margaret

      Donnelly, Desmond

      Maclean, Sir Fitzroy

      Turton, Rt. Hn. R. H.

      Doughty, Charles

      Macleod, Rt. Hn, Iain

      van Straubenzee, W. R.

      Drayson, G. B.

      McMaster, Stanley

      Waddington, David

      du Cann, Rt. Hn. Edward

      Maddan, Martin

      Walker, Peter (Worcester)

      Elliot, Capt. Walter (Carshalton)

      Maginnis, John E.

      Walker-Smith, Rt. Hn. Sir Derek

      Emery, Peter

      Marples, Rt. Hn. Ernest

      Wall, Patrick

      Errington, Sir Eric

      Marten, Neil

      Ward, Dame Irene

      Ewing, Mrs. Winifred

      Maude, Angus

      Whitelaw, Rt. Hn. William

      Eyre, Reginald

      Mawby, Ray

      Wiggin, A. W.

      Farr, John

      Maxwell-Hyslop, R. J.

      Williams, Donald (Dudley)

      Fisher, Nigel

      Maydon, Lt.-Cmdr. S. L C.

      Winstanley, Dr. M. P.

      Fortescue, Tim

      Mills, Peter (Torrington)

      Wood, Rt. Hn. Richard

      Foster, Sir John

      Mills, Stratton (Belfast, N.)

      Wylie, N. R.

      Glover, Sir Douglas

      Miscampbeil, Norman

      TELLERS FOR THE AYES:

      Godber, Rt. Hn. J. B.

      Monro, Hector

      Mr. Timothy Kitson and

      Goodhart, Philip

      More, Jasper

      Mr. Bernard Weatherill.

      Goodhew, Victor

      NOES

      Albu, Austen

      Grey, Charles (Durham)

      Newens, Stan

      Alldritt, Walter

      Griffiths, David (Rother Valley)

      Noel-Baker, Rt. Hn. Philip

      Anderson, Donald

      Griffiths, Rt. Hn. James (Llanelly)

      Oakes, Gordon

      Archer, Peter

      Griffiths, Will (Exchange)

      Oram, Albert E.

      Ashley, Jack

      Hamilton, James (Bothwell)

      Orbach, Maurice

      Ashton, Joe (Bassetlaw)

      Hamilton, William (Fife, W.)

      Orme, Stanley

      Atkins, Ronald (Preston, N.)

      Hamling, William

      Oswald, Thomas

      Atkinson, Norman (Tottenham)

      Hannan, William

      Page, Derek (King's Lynn)

      Bagier, Cordon A. T.

      Harper, Joseph

      Paget, R. T.

      Barnes, Michael

      Harrison, Walter (Wakefield)

      Palmer, Arthur

      Barnett, Joel

      Hart, Rt. Hn. Judith

      Pannell, Rt. Hn. Charles

      Baxter, William

      Hazell, Bert

      Park, Trevor

      Beaney, Alan

      Healey, Rt. Hn. Denis

      Parker, John (Dagenham)

      Bence, Cyril

      Heffer, Eric S.

      Parkyn, Brian (Bedford)

      Bidwell, Sydney

      Hilton, W. S.

      Pavitt, Laurence

      Binns, John

      Hooley, Frank

      Pearson, Arthur (Pontypridd)

      Blackburn, F.

      Horner, John

      Peart, Rt. Hn. Fred

      Boardman, H. (Leigh)

      Houghton, Rt. Hn. Douglas

      Pentland, Norman

      Booth, Albert

      Howell, Denis (Small Heath)

      Perry, Ernest G. (Battersea, S.)

      Boyden, James

      Hughes, Rt. Hn. Cledwyn (Anglesey)

      Perry, George H. (Nottingham, S.)

      Bray, Dr. Jeremy

      Hughes, Hector (Aberdeen, N.)

      Price, Christopher (Perry Barr)

      Brooks, Edwin

      Hughes, Roy (Newport)

      Price, Thomas (Westhoughton)

      Brown, Hugh D. (G'gow, Provan)

      Hunter, Adam

      Price, William (Rugby)

      Brown, Bob (N'c'tle-upon-Tyne, W.)

      Hynd, John

      Probert, Arthur

      Brown, R. W. (Shoreditch & F'bury)

      Irvine, Sir Arthur (Edge Hill)

      Richard, Ivor

      Buchan, Norman

      Jackson, Peter M. (High Peak)

      Roberts, Albert (Normanton)

      Janner, Sir Barnett

      Roberts, Rt. Hn. Goronwy

      Buchanan, Richard (G'gow, Sp'burn)

      Jay, Rt. Hn. Douglas

      Robertson, John (Paisley)

      Butler, Herbert (Hackney, C.)

      Jenkins, Hugh (Putney)

      Robinson, Rt. Hn. Kenneth (St. P'c'as)

      Cant, R. B.

      Jenkins, Rt. Hn. Roy (Stechford)

      Rodgers, William (Stockton)

      Carmichael, Neil

      Johnson, Carol (Lewisham, S.)

      Roebuck, Roy

      Carter-Jones, Lewis

      Jones, Dan (Burnley)

      Ross, Rt. Hn. William

      Conlan, Bernard

      Jones, J. Odwal (Wrexham)

      Rowlands, E.

      Corbet, Mrs. Freda

      Jones, T. Alec (Rhondda, West)

      Shaw, Arnold (Ilford, S.)

      Craddock, George (Bradford, S.)

      Kelley, Richard

      Sheldon, Robert

      Crosland, Rt. Hn. Anthony

      Shore, Rt. Hn. Peter (Stepney)

      Davidson, Arthur (Accrington)

      Kerr, Mrs. Anne (R'ter & Chatham)

      Short, Mrs. Renée (W'hampton, N. E.)

      Davies, Ednyfed Hudson (Conway)

      Kerr, Russell (Feltham)

      Slater, Joseph

      Davies, G. Elfed (Rhondda, E.)

      Lawson, George

      Small, William

      Davies, Dr. Ernest (Stretford)

      Lee, Rt. Hn. Frederick (Newton)

      Spriggs, Leslie

      Davies, Rt. Hn. Harold (Leek)

      Lee, Rt. Hn. Jennie (Cannock)

      Stewart, Rt. Hn. Michael

      Davies, Ifor (Gower)

      Lee, John (Reading)

      Stonehouse, Rt. Hn. John

      Davies, S. O. (Merthyr)

      Lewis, Arthur (W. Ham, N.)

      Strauss, Rt. Hn. G. R.

      Delargy, Hugh

      Lewis, Ron (Carlisle)

      Taverne, Dick

      Dell, Edmund

      Lipton, Marcus

      Thomas, Rt. Hn. George

      Dempsey, James

      Loughlin, Charles

      Thornton, Ernest

      Dewar, Donald

      Luard, Evan

      Tinn, James

      Diamond, Rt. Hn. John

      Lyon, Alexander W. (York)

      Tomney, Frank

      Dickens, James

      Mabon, Dr. J. Dickson

      Tuck, Raphael

      Dunnett, Jack

      McCann, John

      Urwin, T. W.

      Dunwoody, Mrs. Gwyneth (Exeter)

      MacColl, James

      Varley, Eric G.

      Dunwoody, Dr. John (F'th & C'b'e)

      MacDermot, Niall

      Wainwright, Edwin (Dearne Valley)

      Eadie, Alex

      Mackenzie, Gregor (Rutherglen)

      Walden, Brian (All Saints)

      Edwards, William (Merioneth)

      Mackintosh, John P.

      Walker, Harold (Doncaster)

      Ellis, John

      MacMillan, Malcolm (Western Isles)

      Wallace, George

      English, Michael

      McMillan, Tom (Glasgow, C.)

      Watkins, David (Consett)

      Ensor, David

      McNamara, J. Kevin

      Watkins, Tudor (Brecon & Radnor)

      Evans, Fred (Caerphilly)

      MacPherson, Malcolm

      Weitzman, David

      Faulds, Andrew

      Mahon, Peter (Preston, s.)

      Wellbeloved, James

      Fernyhough, E.

      Mahon, Simon (Bootle)

      Wells, William (Walsall, N.)

      Finch, Harold

      Mallalieu, E. L. (Brigg)

      Whitaker, Ben

      Fletcher, Rt. Hn. Sir Eric (Islington, E.)

      Mallalieu, J. P. W. (Huddersfield, E.)

      Wilkins, W. A.

      Fletcher, Raymond (Ilkeston)

      Mapp, Charles

      Willey, Rt. Hn. Frederick

      Fletcher, Ted (Darlington)

      Marquand, David

      Williams, Alan (Swansea, W.)

      Foley, Maurice

      Mason, Rt. Hn. Roy

      Williams, Clifford (Abertillery)

      Foot, Michael (Ebbw Vale)

      Mayhew, Christopher

      Williams, Mrs. Shirley (Hitchin)

      Ford, Ben

      Mellish, Rt. Hn. Robert

      Williams, W. T. (Warrington)

      Forrester, John

      Mendelson, John

      Willis, Rt. Hn. George

      Fowler, Gerry

      Millan, Bruce

      Wilson, Rt. Hn. Harold (Huyton)

      Fraser, John (Norwood)

      Miller, Dr. M. s.

      Wilson, William (Coventry, S.)

      Freeson, Reginald

      Mitchell, R. C. (S'th'pton, Test)

      Winnick, David

      Gardner, Tony

      Morgan, Elystan (Cardiganshire)

      Woodburn, Rt. Hn. A.

      Garrett, W. E.

      Morris, Alfred (Wythenshawe)

      Ginsburg, David

      Morris, Charles R. (Openshaw)

      TELLERS FOR THE NOES:

      Gordon Walker, Rt. Hn. P. C.

      Murray, Albert

      Mr. Ioan L. Evans and

      Gray, Dr. Hugh (Yarmouth)

      Neal, Harold

      Mr. Neil McBride.

      Gregory, Arnold

      Clause ordered to stand part of the Bill.

    Clause 8

      SURTAX RATES FOR 1968–69
      8.0 p.m.
      Sir H. d'Avigdor-Goldsmid: I beg to move Amendment No. 6, in page 14, line 4, at end insert 'less 10 per cent".
      The Chairman: We can take at the same time Amendment No. 50, in page 14, line 2, leave out from '£2,000' to end of Clause and add:
      'at the following higher rates in respect of the excess, that is to say—

      On the first £2,000 of the income chargeable to surtax—Nil.

      On the next £500 of the income chargeable to surtax up to £2,500 at 2s. 0d. in the £.

      On the next £500 of the income chargeable to surtax up to £3,000 at 2s. 6d. in the £.

      On the next £1,000 of the income chargeable to surtax up to £4,000 at 3s. 6d. in the £.

      On the next £1,000 of the income chargeable to surtax up to £5,000 at 4s. 6d. in the £.

      On the next £2,500 of the income chargeable to surtax up to £7,500 at 5s. 0d. in the £.

      On the next £2,500 of the income chargeable to surtax up to £10,000 at 5s. 6d. in the £.

      On the next £2,500 of the income chargeable to surtax up to £12,500 at 6s. 0d. in the £.

      On the next £2,500 of the income chargeable to surtax up to £15,000 at 6s. 9d. in the £.

      On the remainder of the income at 7s. 6d. in the £'.

      Sir H. d'Avigdor-Goldsmid: In our previous debates, hon. Members opposite expressed a good deal of doubt about the disincentive effect of taxation. In particular, the hon. Member for Heywood and Royton (Mr. Barnett) quoted at length the Jones Report, as if it were conclusive. It is not conclusive. The Jones Report states that
      "tax may well sway high quality senior academic staff and industrial specialists and may influence some people who are deciding whether to come back or not."
      I take that quotation from the Financial Times of 23rd October, 1967. The Times on 4th November, 1967, said:
      "The Jones Report showed that Britain is now a net loser both of talent and of the capital invested in its trained manpower."
      I take as the text for my remarks a quotation from The Times of 12th August, 1968:
      1312
      "The high marginal rate of tax on larger earned income is probably the single most important obstacle to long term industrial growth in this country."
      I wish to devote my remarks to that.
      Comments about whether taxation is a disincentive can be overdone. Disincentives are like deterrents. Deterrents may stop one doing things. Disincentives also stop one doing things. There is no satistical method of which I am aware of keeping a record of what people are stopped doing. However, there is virtually a unanimity of opinion about surtax.
      In the past there has often been a clash of opinion between the economists and businessmen. This may be due to the fact that the economists tend to earn substantially less than the businessmen. Here we have very good support for bringing to the attention of the Committee the disincentive effects of the high rate of surtax. I agree that the modest Amendment will not do much to remedy the situation, but it is an earnest of our opinion and intention. The Chancellor of the Exchequer said that the cost of our Amendment would be £28 million. Although I got into trouble for saying that £300 million could very well be found from the errors of the Chancellor of the Exchequer and his colleagues, this is too small an amount to be caught by that net. Therefore, we are not discussing money.
      The Times published a table on 25th October, 1967. The interest of The Times in this matter is curious. I suppose that it is entirely divorced from proprietorial considerations. The table clearly showed that, after the first £10,000, the next £10,000 is taxed at 88 per cent. in the United Kingdom, and anything over £20,000 is taxed at 96¼ per cent. That is a staggering figure. No comparable rate of tax is charged in any of the countries quoted in the table. I dare say that the Chief Secretary will say that a higher rate is payable in New Zealand. I do not have the comparable figures for New Zealand. At this level, there is no direct benefit to the receiver of income.
      It is fair to compare the situation in this country with the situation in the United States and Canada, because we are discussing the effects of high taxation in this country and people are most likely to transfer their energies to another part

      1313
      of the English-speaking world. The Times of 4th November, 1967, stated:
      "Top executives in American companies are paid salaries at these levels to maintain differentials throughout the corporation, and they are not deterred from doing so by crippling rates of marginal taxation. In Britain the position is very different. For a married man with no children a £50,000 gross salary is worth only a little over £10,000 net, while the same gross level in the United States leaves the executive with more than £25,000".
      Whatever adjustments we make for rates of exchange, the earner of these large sums is much better off in the United States than the earner in the United Kingdom. The article continues:
      "Our marginal rates of taxation mean that there is a ceiling for net salaries at the £7,000 level, and that increases in gross salary are almost nominal over the £10,000-a-year mark".
      Then comes the important point:
      "Chief executives have little incentive to raise their own gross rates of pay, thus restricting the range of salaries at lower levels".
      I stress that point, because this is where the argument about high taxation applies. Not only does high taxation affect the man who pays the top rate; it affects earnings all the way down the scale. Also, it makes the ladder of promotion seemingly very steep and very slow to climb.
      8.15 p.m.
      This again is a contributory effect to what is called the brain drain. In an article in The Times on 12th January last year, Dr. John Treasure, who is a very high officer with the important international firm of J. Walter Thompson, wrote
      "A highly and steeply progressive tax system affects our economic performance in three ways. One through its effect on management emigration …"
      I do not want to talk too much about that, because we have talked about it in a previous debate. The Chief Secretary cannot deny that there is a continuous movement out at the lower management level, and it is not surprising.
      Second, Dr. Treasure says it affects the tax system through its effect on management allocation. This is a much more interesting point and a slightly more obscure one. What it really implies is that there should be much tougher criteria for management than we are prepared to set here as a general rule; that is to say, that managers who fail should be penalised. This is entirely contrary to our
      1314
      thought, and it is unrealistic in the sense that no good employer will cast into the street the manager who has not come up to the standard he has set and leave him with virtually no capital of his own and very little chance of obtaining future employment.
      It is unrealistic to talk about management allocation when we live in an economy such as ours, where the salaried man finds it virtually impossible to acquire enough capital to give him any degree of independence. His main hope of independence is in the provision made for him in a pension scheme, which at the moment is not invariably transferable. Some of my hon. Friends are particularly interested in this, and I will not take it further now. Here the manager who does not reach the highest grade continues in his post very much longer in this country, for the reasons I have given, than he would in the United States.
      The third category to which Dr. Treasure refers is what he calls the management incentive. He talks of the impact of tax on the efficiency and drive of managers in performing the jobs they are actually being employed to do. He goes on:
      "This question can be analysed in three ways: what are the effects of our tax system on (a) the choice between work and leisure; (b) the choice between safety and risk; (c) the choice between discipline and ease".
      As to the choice between work and leisure I found a useful comment by Mr. Peter Wilsher in the Sunday Times of 22nd October, 1967, in which he says:
      "Some jobs, even at high salary levels are secure, carried on in reasonably pleasant surroundings, in not unduly demanding nine-to-five conditions. Others, like putting rundown shipyards or derelict textile mills back on their feet, are rough, demanding, nerve-wracking, ulcer-creating—though often far more important and useful to the country."
      He goes on to say that:
      "… the tax situation is equally clear. A £10,000 a year man might be quite prepared to take on the stickier assignment for an extra £1,000 net of tax. But to give him this relatively modest encouragement it would mean at least an extra £4,000 at pre-tax level. In fact, it is extremely expensive to persuade established people to move at all."
      This therefore is a direct example of how the tax system causes a degree of inertia in management. The choice between safety and risk comes down to this. What is the point of taking a chance

      1315
      which, if it goes wrong, will mean that the person has to take the can back, and, which if it goes well, will bring no direct results upon his situation or standard of living? Therefore, the desire to play for safety will be uppermost, and we are all aware of that. For most of the time in this country the exercise of judgment means doing what was done last year. If this attitude goes all the way through industry it is not conducive to the sort of growth that we need and that we must have. This is directly traceable to the high incidence of taxation.
      The choice between discipline and ease is a very interesting point. I found a very interesting article in The Director of February 1968 by Professor Merrett of the London Graduate Business School. The point of discipline has very great relevance to this debate. Professor Merrett says:
      "The extent to which individuals are prepared to accept … exacting standards of discipline, particularly since they involve risk to career prospects affecting the whole family unit must be expected to depend critically on the extent to which companies can offer sufficient net of tax compensation to offset these obvious disadvantages. Relatively low net of tax remuneration (like relatively low wages in a factory) must be expected to result in a weakening of discipline. In the context of management making the major economic decisions of a company such indiscipline must obviously have substantial adverse economic effects. … The critical importance of the standard of management discipline highlights the naïveté"—
      and I stress "naïveté"—
      "of considering 'incentives' in terms of asking individuals whether or not they would volunteer to work harder.
      The important issue in incentives is not what they would induce individuals to volunteer but what incentives would enable the company to impose and lead individuals to accept in terms of quantity and direction of effort and conditions of employment.
      In sum, considering incentives in terms of whether or not individuals would 'work harder' is like asking whether or not a soldier would volunteer to fight harder if soldiers were paid more. The real issue is whether or not higher pay would (a) recruit better men to the profession of arms and (b) whether or not it would produce a higher standard of efficiency by enabling the army to impose and causing soldiers to accept higher standards."
      I apologise for inflicting this lengthy quotation upon the Committee but it is particularly relevant. This is something upon which we might ponder, because it is very common today. I pray in aid the
      1316
      hon. Member for Bosworth (Mr. Wyatt), who has already been quoted today from his Daily Mirror article in which he said:
      "It is not Socialist to crucify the enterprising with such fantastic taxation. Otherwise they would do it in Russia."
      I do not know what they would or would not do in Russia and I do not know whether the fact that they would do it in Russia is a guarantee of acceptance by right hon. Gentlemen opposite. It seems that there is no particular point in the very high rate of taxation which we have. Today managerial ability and skill and the technological skills are passports around the world. People with these special aptitudes will tend to go to the countries where they can best fulfil them. It would be quite wrong for me to suggest that every person considering leaving the country is doing his arithmetic and has gone to his accountant and consulted Whitaker's to see what rates he actually pays.
      That is not my suggestion, but we do know that in very many cases we cannot offer facilities to the research chemists and the research scientists comparable with those offered in many places in the U.S.A. On the other hand, we can do something about taxation, and we must. We live in the shadow of dire times. The clouds are not lifting. The one thing that we need is some new thinking. If the Chief Secretary and his friends continue on the path that they seem to have adopted the next step will be to put very great obstacles indeed in the way of the emigration of people whose presence here would benefit the country. I am not suggesting that this is the case now, but it is the logical conclusion of, on the one side, this penal taxation, and, on the other, the lack of opportunity which goes hand in hand with it.
      I am sure that in moving this Amendment we shall be derided as pandering to the rich, and no doubt someone has made some calculations. I do not care about these calculations. I am interested in the future of the country. Unless the Government show some sign of waking up to these things that they can do instead of harping on the things that they cannot do, unless they show some willingness to meet our views about taxation, then the country will undoubtedly choose, very soon, the party that in this matter is so much on its side.
      [SIR HARRY LEGGE-BOURKE in the Chair]
      Sir G. Nabarro: I support amendment No. 6 so ably moved by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), and apply myself to Amendment No. 50 in the names of my hon. Friends the Members for Dudley (Mr. Donald Williams), St. Ives (Mr. Nott) and myself.
      My Amendment No. 50 is a replica of an Amendment moved last year, and it seeks rather different purposes and objectives from, though it is the same in principle as, Amendment No. 6. My Amendment should be read in conjunction with the two income tax amendments, Nos. 2 and 4, which were debated earlier this afternoon along with amendments Nos. 1 and 3.
      The reason I make that statement at the outset is that Amendment No. 50 seeks to reduce the highest level of surtax to 7s. 6d. in the £. Amendments Nos. 2 and 4 of mine sought to reduce the standard rate of income tax to 7s. 6d. in the £, so that the aggregation of income tax and surtax in the case of an individual with the largest earning capacity in this country would be at a level not exceeding 15s. in the £, instead of 18s. 3d. in the £ as at present.
      In addition to reducing the top level of surtax to 7s. 6d. in the £, Amendment No. 50 would reduce each of the lower levels of surtax so as to give a correct and progressive escalation—if I may use that dreadful term—between the lowest levels at which surtax is levied up to the highest levels.
      Here, I am sure that I shall be allowed to pause and reflect in a historic and nostalgic sense on what has occurred in the matter of surtax in recent years. It was thought for a long while that no Government would ever have the courage to reduce surtax; its reduction was thought to be the rich man's charter. But in 1961 a Tory Chancellor of the Exchequer, my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd), decided to grasp the nettle, for most of the reasons so cogently expressed this evening by my hon. Friend the Member for Walsall, South, but notably the dreadful disincentive effect at that time—I emphasise "at that time"—of surtax commencing in respect of
      1318
      both earned and so-called unearned income at a level of £2,000.
      I shall not go into the complications, but my right hon. and learned Friend lifted the commencing level for surtax on earned income to £5,000 a year, but left the commencing level for so-called unearned income at £2,000 a year. That is one of the matters I want to deal with tonight.
      That is the only downward change which has been made in the surtax since 1921 when it was introduced as the supertax.
      Sir C. Osborne: It was introduced during the First World War and the commencing level was reduced from £2,500 to £2,000 in 1919.
      Sir G. Nabarro: My hon. Friend, who was a First World War soldier, goes back a little farther than I. I am glad to see him wearing his Gunner tie this evening. He will recall that it was, I believe, a special levy in the First World War, and that it was first called the super-tax in 1921.
      For the purposes of this debate I am still dwelling in a nostalgic and historic sense on the fact that the only time super-tax, or surtax, was effectively reduced was in 1961, by my right hon. and learned Friend, and he, sadly, dealt only with earned income. He left at the commencing level of £2,000 per annum what is so fallaciously called unearned income.
      Today, the surtax has become badly warped and disjointed in relation to money values. During the eight years since 1961, so largely have money values changed that an income of £10,000 per annum earned in 1961 today requires an income of £16,000 per annum to leave the worker—I use the term deliberately—the same residual sum after tax, or net income, having adjusted for a depreciated value of money, first, and, second, the increases in all forms of taxation—from £10,000 up to £16,000 in just eight years. Yet we go on living with surtax at the same rate.
      This creates the most extraordinary difficulties. I shall not go again over what my hon. Friend the Member for Walsall, South had to say about men and women of great talent, knowledge, experience and qualifications emigrating at an early age because of the evil effect of surtax.

      1319
      It is partly true—it is not entirely true—notably with young scientists and technicians.
      I want to relate this to something which happened a few weeks ago in the instance of Lord Robens. I like Alf Robens. A sturdy type is Alf Robens. We all knew him in the House of Commons for many years. His salary as Chairman of the National Coal Board was £12,500 a year until he got a rise. The rise recommended for him by Mr. Aubrey Jones, of blessed memory in the House of Commons, was a £7,500 a year increase to £20,000 a year. The Government jibbed at that one.
      Mr. Iain Macleod: Too little.
      Sir G. Nabarro: Did my right hon. Friend say "Too little"? He is tempting me.
      I do not want to go into the sanctity, the probity or the wisdom or otherwise of recommending £20,000 a year. That is not my purpose this evening. My purpose is to point to the great difficulty which the Government have in recruiting for nationalised industries men of requisite capacity, skill and experience to run these gargantuan public corporations such as the Coal Board.
      Mr. Eric S. Heffer: Too large.
      Sir G. Nabarro: I quite agree. They are too large to manage. By giving Lord Robens £7,500 a year gross, he was left with less than £1,000 per annum net.
      Mr. Heffer: Terrible.
      Sir G. Nabarro: Yes, terrible.
      A few weeks ago, a famous public corporation offered me a seat on its board in an advisory capacity—[Interruption.] I am glad that the hon. Member for Harrow East (Mr. Roebuck) approves of an approach of that kind—and offered me a fee of £1,000 a year for attending 12 board meetings a year. But I said to them, "Come, come. This means 12 mornings a year, each of four hours, 48 hours a year, and I am being paid £1,000 a year gross. This is worth to me a thousand times 1s. 9d., so it is worth £87 10s. a year to me for a great deal of work and responsibility that I do not want." But if I put 100 guineas on the Tory candidate
      1320
      to win in the Newcastle-under-Lyme by-election at 7 to 2 against—and it is coming up soon—I get 350 guineas and it is taxed at only 5 per cent., more than I could earn from that directorship over a period of three years.
      That is how warped our values are, because whatever the hon. Member for Liverpool, Walton (Mr. Heffer) may think of my capacity, skills and experience, I know as much about my stock-in-trade as he does about his joiner's bench.
      Mr. Simon Mahon: But he would not get £1,000 for it.
      Sir G. Nabarro: No, but I am much more highly developed and sophisticated than he is.
      The Temporary Chairman (Sir Harry Legge-Bourke): I would remind the hon. Member that there are rules of the House about self-advertisement.
      Sir G. Nabarro: I was endeavouring only to put into correct perspective what is earned net by Lord Robens and myself, and that is exactly apposite in the context of the Amendment. The surtax rates are undoubtedly ridiculously high. Surtax is a purely political form of taxation—
      The Chief Secretary to the Treasury (Mr. John Diamond): I would not dream of interrupting the hon. Gentleman had he not been courteous and kind enough to say that he would be unable to stay for the whole of the debate, and I shall therefore have no opportunity of asking him this question. He has described to us in an interesting way the incentive effects of certain jobs, taking into account the time spent and the remuneration paid As we all know, he is well disposed to disclosing his financial affairs. Will the hon. Gentleman tell us how much he earns per hour net for the many hours which he puts in in the House of Commons?
      Sir G. Nabarro: I have written a passage for publication shortly which demonstates that I pay my constituents in South Worcestershire £750 per annum for the privilege of representing them. I demonstrate that the expenses which I incur wholly, exclusively and necessarily in the performance of my duties as Member of Parliament and in my constituency exceed the sum paid to me, which is

      1321
      £3,250 a year, by £750 a year, and, therefore, I pay my constituents £750 a year for the privilege of representing them.
      The Temporary Chairman: I would remind the hon. Gentleman that we are here concerned with what surtax citizens should pay.
      Sir G. Nabarro: Quite right, Sir Harry, I was led astray by the diversions of the Chief Secretary. He started it, the wicked chap.
      I was saying that surtax is a highly political form of taxation. It is a form of taxation which is born of envy among uninitiated and ignorant people, who think that it is a sin for a man to earn by long hours of work and great capacity and ability a high salary. That is what is wrong with this country today. There is too much mediocrity. I see it on the benches opposite, strewn everywhere. We do not pay our top brains enough after taxation because of the incidence of surtax in its present form.
      Relatively, there are very few surtax payers. I estimate that there are probably 330,000 out of about 24 million who pay direct taxes, perhaps one in 75. The sum raised relative to our total revenue is very small. In 1968–69 the estimated revenue from surtax was £250 million, the Treasury made a mistake of £26 million, and the net out-turn was £224 million. In 1969–70, before Budget changes, the same as after Budget changes, there being no Budget changes, the yield is to be £240 million out of an approximate aggregation of tax revenue of about £16,000 million. It follows that something slightly above 1 per cent. is the yield of surtax.
      I not only want the rates changed with special reference to the top rate being reduced to 7s. 6d., but, when added to my optimum highest level of income tax at the standard rate of 7s. 6d., the two together would aggregate 15s. in the £ at the maximum.
      Before the 10 per cent. premium on all taxation in the United States of America, the comparative highest level of taxation on earned income on the last dollar which the richest and highest paid American earns—perhaps the President of General Motors—is 70 cents in the dollar. Ten per cent. on to that is 77
      1322
      cents, which is slightly over 15s. in the £ at present.
      During all the disputations an hour or so ago between my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) and the Chancellor of the Exchequer as to comparative levels of direct taxation in this country and other countries, the most sensible comment was that the proper comparison is between the United States and this country. They are the largest and most affluent of the industrial nations of the West. We should compare ourselves with them, not with distant New Zealand.
      Sir H. d'Avigdor-Goldsmid: What about Germany?
      Sir G. Nabarro: I do not consider Germany to be more affluent than the United States, nor do I consider Sweden to be more affluent than the United States. I discount New Zealand, much as I love her, because she has 1½ million people mostly aggrarian in their pursuits, not industrial. The proper valid comparison is with the United States.
      The United States taxes its highest earner today at 77 cents on the last dollar earned. That man may keep 23 cents in his own pocket, and he is happy to do so. I am saying that we should allow him to keep 5s. out of the last £ which he earns. There is not much difference between the two.
      Mr. Simon Mahon: The hon. Gentleman is deploying an interesting argument. But does he not feel that in a world of both riches and poverty it would be more appropriate to make the comparison not as between the rich of one country and the rich of another, but as between the rich and the poor in the world?
      Sir G. Nabarro: I will deal with that matter on the appropriate section of the Bill, namely, the S.E.T. provisions and things of that kind. I am now dealing with the payment of rewards to our nation's best brains and the men who are the leaders of industry in this country. All the trade unionists in the world would be like a flock of Gadarene swine unless they were properly led.
      Mr. Hugh Delargy: Who led the Gadarene swine?
      The Temporary Chairman: Order. We cannot have a dialogue between one hon. Member standing and the other sitting.
      Mr. Delargy: I thought that the Gadarene swine were the leaders. That was the whole point.
      The Temporary Chairman: Order. The hon. Member for Thurrock (Mr. Delargy) can only intervene if the hon. Member for Worcestershire, South (Sir G. Nabarro) gives way.
      Sir G. Nabarro: As always, Sir Harry, I am most grateful for your protection in my predicament. I do not propose to give way to the hon. Member for Thurrock (Mr. Delargy), who entered the Chamber only a few seconds ago. If he had been seated there throughout my speech and had heard the whole argument about industrial leadership and rewards, I should have been happy to give way.
      I now propose to deal with two further gross anomalies in the surtax system—
      Sir C. Osborne: Oh, no.
      Sir G. Nabarro: Oh, yes. This is my one opportunity in the year to do so and I am taking it.
      Sir C. Osborne rose—
      Sir G. Nabarro: Is it on the two anomalies?
      Sir C. Osborne: I would remind my hon. Friend that he has made one speech this afternoon and at least a dozen of his hon. Friends would like to take part. He might have some regard for others who would like to make a point, on the two anomalies.
      Sir G. Nabarro: I rebuke my hon. Friend the Member for Louth (Sir C. Osborne) at once. His name does not appear on either of the Amendments on surtax. Mine leads those on one. I framed it, I put it on the Notice Paper, when my hon. Friend was occupied elsewhere. If he wants to take the time of the Committee, let him be diligent and industrious like myself, in putting down an Amendment and his name to it—
      Sir W. Bromley-Davenport rose—
      Mr. Roebuck: One of the country's best brains.
      Sir W. Bromley-Davenport: I cannot think of anything in order to answer to that one.
      1324
      May I ask my hon. Friend to go on speaking as long as possible, because he is a very fine speaker and he is knocking the morons opposite for six—
      The Temporary Chairman: Order. We are not debating how long an hon. Member holds the attention of the Committee. We are debating surtax. May we please come back to it?
      Sir G. Nabarro: I pass to the two anomalies to which I wish to allude on surtax. The first is the unfortunate dichotomy between earned and unearned income, as it is styled by the Inland Revenue. Here are the facts. If a man spends 25 or 30 years building up a business and then sells it in order to retire and invests the proceeds and lives on the income from that capital, which he has carefully accumulated over the years, the income is classified by the Inland Revenue as unearned income. That is wholly wrong. By the sweat of his brow, he has put together the savings. By his own thrift and sobriety and good investment sense, he has accumulated the capital. He proposes to live on it and the income should properly be regarded as earned, and not unearned, income. In the context of surtax, it would mean that such income would not be taxed until it exceeded £5,000 a year.
      Now take his counterpart, a man who spends his life in industry, perhaps as a manager, finishing in the board room, where he enjoys a substantial income properly related to his responsibilities. He has a considerable occupational pension scheme and when he retires, perhaps at 60, he draws that pension. At 65, he gets a State pension, which can aggregate, and the whole lot is regarded as earned income. Why should that form of retirement pension be classified as earned income, when exactly the same type of work is done by his counterpart, who throughout his life has chosen to be self-employed and who, on selling his business, is severely mulcted by surtax because his retirement pension is in the form of income on his investment and is regarded as unearned income?
      I am glad that my right hon. Friend the Member for Enfield, West is listening. He knows that point very well. I hope that this anomaly will be dealt with by a Tory Government at the first opportunity

      1325
      after they secure a majority in the next General Election.
      The second anomaly is the wholly bad system of aggregation of incomes, in this case professional incomes, between spouses. The Daily Express is always spot on in these matters. The most patriotic and switched-on of newspapers is the Daily Express—[Interruption.] I am not on the staff of that newspaper and I have no shares in it. Wakening in the Carlton Club at seven o'clock this morning, I sent for the Daily Express. It was brought to me by the valet. I call it switched-on, because its third leader today, headed "Reform", said:
      "Today the Finance Bill is debated in Parliament. Here is a reform which should be introduced in the system by which the incomes of husband and wife are added together for tax purposes. There is little incentive for a married woman to take a job when her earnings merely push her partner's salary into a much higher tax bracket. Husband and wife should be assessed separately. The Government says it wants more women, such as trained teachers, to go back to work when their families have grown up. The way to achieve this is to restrain the greed of the Inland Revenue."
      In his exuberance for the cause which I am espousing, the leader writer has made a mistake. Had I been writing that article, I should have said,"… restrain the rapacity of Her Majesty's Treasury Ministers"—"rapacity", not "greed"; "Treasury Ministers", not "Inland Revenue".
      A large number of professionally qualified women whose families are growing up or have grown up are returning to their professions in teaching, medicine, the law, architecture and so on. Many of them are married to men who are already surtax payers. These women are intelligent creatures and they are likely to be married to intelligent creatures. Both sets of intelligent creatures are likely to be surtax payers in their own right, but when they are joined together for tax purposes, as in holy matrimony, the effect is to put them into an astronomical tax bracket in which they pay such a high level of surtax that it is no longer attractive for the female spouse to return to the profession in which she was qualified before her marriage.
      I do not know why hon. Gentlemen opposite appear to be pointing in the direction of my hon. Friend the Member
      1326
      for Petersfield (Miss Quennell), who is a spinster. She nevertheless knows all about it. [HON. MEMBERS: "Oh"] That is not an improper remark—
      Miss J. M. Quennell indicated assent.
      Sir G. Nabarro:—and I am glad to see that my hon. Friend agrees with me.
      Mr. Eric Lubbock: It was an ambiguous remark.
      Sir G. Nabarro: Nothing of the sort. It was straightforward and honest.
      I am recording the perspicacity of the Daily Express in having discerned that we would be debating direct taxation. The leader writer noted my Amendments and no doubt noted the effect that they would have on the aggregation of the income of professional women, which was the real motive for the third leader in that newspaper.
      I am glad that my right hon. Friend the Member for Enfield, West is in his place to hear these remarks because when he becomes Chancellor of the Exchequer, which will be soon, I will constantly draw his attention to this matter. These two anomalies must be tackled. We must separate the incomes of spouses for both income tax and surtax purposes, an important principle which is practised in Australia. I hope—
      9.0 p.m.
      The Temporary Chairman: Order. I would be grateful if the hon. Gentleman would relate his remarks to the terms of the two Amendments before the Committee. He may deal with the proposal to add the words "less 10 per cent." or with the Amendment which stands in his name, which sets out various graduations of surtax.
      Sir G. Nabarro: Before delivering this speech I took the precaution, Sir Harry, of consulting the Chair on the two matters of the aggregation of incomes and the dichotomy which exists between earned and unearned incomes. I pointed out to the Chair that my Schedule on surtax rates had been framed by the Public Bill Office so as to cover these points. I was informed by your predecessor in the Chair, Sir Harry, that I would be quite in order in raising these two matters, as I have raised them on

      1327
      previous occasions. I hope, therefore, that I will be allowed to continue.
      The Temporary Chairman: Order. I was not objecting to the hon. Gentleman adducing those arguments. I was warning him that his speech was developing into a Second Reading speech covering the whole Bill.
      Sir G. Nabarro: I was about to resume my seat, Sir Harry. I was approaching my peroration.
      I trust that my right hon. Friend the Member for Enfield, West appreciates the need—if it is not already done so far the next Tory Government to do it—to deal with the non-aggregation of spouses' incomes and the need to end the dichotomy which exists between earned and unearned incomes for income tax and surtax purposes, starting at £5,000 per annum, along with the general reduction in surtax rates so that nobody who is paying direct taxation ever pays more than 15s. in the £1. That is at least £1 in every £4 earned is allowed to fructify in their pockets for wise distribution and spending or investment.
      I trust that if my hon. Friends do not receive a forthcoming reply from the Minister they will divide the Committee on this issue.
      Sir Charles Mott-Radclyffe: My hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) rarely fails to enliven our debates, and his contribution tonight was no exception to that rule.
      The speech of the hon. Member for Ashton-under-Lyne (Mr. Sheldon) on the previous Amendment illustrated the real difference of approach to the problem of the incidence of taxation between the two sides of the Committee. He referred to the slow growth of the economy and the need for buoyancy. He seemed to argue that high rates of taxation were necessary because the economy was not buoyant enough.
      The vast majority of my hon. Friends take the opposite view. We believe that there is some relationship between the two and that one reason why the economy is not buoyant enough and why our growth rate is so slow is that the levels of personal taxation, and particularly the level of surtax, are so high that they act
      1328
      as a distinct disincentive. I defy any hon. Member to deny that the present level of surtax is a direct disincentive. It does not encourage people in the top salary brackets to work harder because so little of what they earn is allowed to remain in their pockets, as my hon. Friend the Member for Worcestershire, South pointed out.
      This not only cramps incentive but does not take inflation into account. With the runaway inflation that we have suffered since the Labour Party came to power, the incidence of surtax has been operating far more severely in real money terms, on those who find their incomes lower down the scale than that set out in the relevant Schedule to the Bill.
      My right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) and the Chancellor compared rates of tax in the different industrial countries of the world—the United States, France, Germany, ourselves and so on. I agree with my right hon. Friend that £5,000, marginally plus or minus, was about the most favourable figure that the Chancellor could take. Once we get into the higher bracket there is a different story. But the Government Front Bench have conveniently forgotten something else. It is not just a question of income tax and surtax put together. When, on top of that, there is added capital gains tax, where appropriate, and estate duty, where appropriate, there is not the slightest doubt that the sum total of the burden of tax on any individual in this country is by far the highest in the world.
      This is a happy breeding ground for tax evasion. The higher the direct level of personal taxation, the more there is the urge to evade it. This often goes, as I think we all know and admit, into undesirable channels. There is always some new loophole. Every Chancellor in every Finance Bill produces some new Amendment or new Clause which stops up some old loophole. In the next year some fresh loophole is found and it bubbles up like a rash of measles. Then in the next Finance Bill another new Clause is produced stopping up that loophole. This is all because the general rate of personal taxation, particularly surtax, is too high. It is beyond the wit of man to stop up all the evasion loopholes.

      1329
      We all know that it is impossible to stop the biggest tax evasion of the lot. This, of course, applies more to income tax than to surtax. I refer to the hundreds of thousands of man-hours worked in the summer evenings by people fixing an old lady's greenhouse, clipping somebody else's hedge, mending the motor mower, and other jobs, provided that the money is paid in cash and not declared for tax. It is impossible to prevent this form of tax evasion. I do not condone it. It is there, and it is directly due to the disincentive of the high rate of taxation.
      The second thing about the high rate of surtax is that it is impossible to save. This is very serious. The object of saving is to acquire some capital—I know that this is often thought a dirty word by the party opposite, but it is not—to enjoy retirement after a hard working life. But, at the present rates of surtax in the middle or upper bracket, who can put by enough for his old age retirement? As was said by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), the surtax payer only enjoys, if that is the right word, the highest rate of surtax for a comparatively small period of his working life. His hands, if he is surgeon or an author, or his brain, if he is an inventor, only operate in top gear for a comparatively short period of his working life. This is an important factor.
      The Government have produced the extraordinary anomaly that the spiv and the gambler are directly encouraged by the taxation system, whereas the thrifty and the industrious are discouraged.
      Mr. Simon Mahon: I begin to wonder whether we are living in the same world. I and some of my hon. Friends represent the great Port of Liverpool where thousands of people have lived and worked very hard all their lives. It has been impossible for them to save, and they are dependent upon the Government providing adequate pensions. It is only by taxation of certain categories of wealthier people that we can provide for the poor and the sick.
      Sir C. Mott-Radclyffe: I am grateful to the hon. Gentleman for reinforcing my point. If the general level of taxation, both income tax and surtax, was lower it would make it easier for the hon. Gentleman's constituents to save
      1330
      and thereby be less of a call on the nation's resources in other respects.
      I was saying that it is a curious paradox, which produces some very undesirable results, that the spiv and the gambler have an edge on the industrious and the thrifty. Somehow we have got our priorities wrong somewhere.
      A couple of months ago there was a row over the proposed increase in the salaries of the chairmen of some of the nationalised boards, to which reference has been made. The salary of Lord Robens and other was quoted. It was proposed to pay an extra £7,500 a year making a gross salary of £20,000, but that has been deferred. If Lord Robens or anybody else in that category was already a fairly high surtax payer, all that he would keep of the extra £7,500 would be £636. I am bound to ask myself, the House, and the Minister what sort of a crazy system is it by which to give somebody an extra £636 per year for taking on very considerable extra responsibilities he has to be paid a gross increase of £7,500?
      The real trouble with right hon. Gentlemen opposite is that they have fundamentally the wrong approach to how to reward those who are earning a considerable portion of the nation's wealth. They act on the principle that if A is cleverer than B, or if he is more industrious, or luckier, or a combination of all three, once he becomes more successful than B, for any of the reasons which I have mentioned, and perhaps many others, there comes a moment when the Chancellor clobbers him with penal taxation and brings him down to the same level as B to make certain that there is not a wide gap between the two.
      To do that is to try to run the economy, which is a very difficult and delicate position in a highly competitive world, almost on the basis of proceeding at the rate of the slowest ship in the convoy. In our present delicate economic state, fighting as we are for markets in the world, unless the tax system is altered so that it does not discourage the man of considerable ability who may be halfway up the ladder in his career, but encourages him to go ahead, in the long run we shall not be able to compete with our competitors. They have not the same complex as the Government have

      1331
      about profits and the need to keep something of what one earns.
      9.15 p.m.
      Sir C. Osborne: The hon. Member for Bootle (Mr. Simon Mahon) said very wisely and very humanely to my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) that instead of comparing the rich with the rich, he should compare the rich with the poor. That is a human plea, and it ought to be met.
      Unless those who are endowed by fate, or by God, whichever the hon. Gentleman likes, use their extra talents—it is no credit to them if they have them; they were born with them—for the good of others and the common wealth as a whole the poor cannot share in the country's prosperity because there is nothing to share. It is not possible to make the poor richer by making the rich poorer. Only in so far as the unusually gifted are encouraged will there be a greater fund from which to help the poor, about whom the hon. Member for Bootle is so concerned.
      Mr. Simon Mahon: What does it do for the poor to make the rich richer?
      Sir C. Osborne: I support the Amendment which would reduce surtax by 10 per cent., though I much prefer the Amendment which would reduce the total of surtax and income tax to 15s. Today can be called, economically, "black Tuesday". It is the 13th. We have the worst trade figures for a long time. The Cabinet is split. The Government cannot give the country a lead. We have an economy which has no leadership. We are living beyond our means and are going on our hands and knees again to the I.M.F. to borrow another 1,500 million dollars. This is the background to the debate.
      The question is: how far would a reduction in surtax increase the country's efficiency and help us to get out of our difficulties? Or would it make our difficulties greater? If, as I believe, it would help to increase our prosperity and help us to get over our national troubles, from the national point of view and for the benefit of the poor in Liverpool it would be a good thing.
      Mr. Simon Mahan: What about the poor in Bombay?
      Sir C. Osborne: I have enough to do dealing with the poor in England without dealing with the poor in Bombay. The efficiency of the economy will be decided not by politicians but by the businessmen and the trade union leaders who work with them. It is common knowledge in industry and trade that the present high rate of income tax and surtax, especially surtax, deters men from taking on added responsibilities and working harder.
      Mr. Neil Marten: Is not this whole question put into perspective by the fact that, although hon. Members opposite scream at the thought of a chairman of the board of a nationalised industry being apparently paid £7,500 extra, in fact he is being paid only £630 extra?
      Sir C. Osborne: This is true. If by reducing the amount of surtax the most gifted people can be persuaded to make the special extra effort from which the whole country benefits, it is a wise thing to reduce the tax. The concept underlying what used to be called super tax but is now called surtax was to take from the rich to give to the poor, to give greater equality of income. There was much to be said for that. Some hon. Members opposite retain the old prejudice that came from the evil days that somehow it was wicked and anti-social to be rich and that to be successful in business a man must cheat. The old slogan was that wealth was stealing. We must fight against this blind prejudice for the good of all people in the country. The standard of living of all of us depends upon the efficiency of the economic machine.
      We should try to rid ourselves of prejudice against the successful man in business. We honour the successful man in sport, and the successful man in politics. The Prime Minister has the finest job in politics. He deserves it.
      Mr. F. A. Burden: Not this one.
      Sir C. Osborne: Until recently, he was regarded as being head and shoulders above his colleagues. They followed him and they owed a lot to him. He deserved the key to No. 10 Downing Street and

      1333
      all that went with it. His colleagues honoured him; they held on to his coat tails. They would not be in the position that they are in without him.
      Why should not the same principle apply in trade industry? Why should men who have given of their best and worked for their fellows be regarded as evil-doers? Why should they be taxed to death? [Interruption.] The hon. Member for Dunbartonshire, East (Mr. Bence) should stand when he addresses the House and not remain seated. The honour given to successful men in other spheres of public life should not be denied to those employed in industry who make money. There is nothing wicked in making a lot of money, as long as it is made honestly. Our country will never prosper until this stupid prejudice is eradicated from public life.
      There are still some hon. Members opposite who feel that surtax should be used to the nth degree to take money from the very rich in order to give it to the very poor. They would like income tax and surtax to be increased. I should like to give one or two figures taken from the national income and expenditure document recently issued by the Government. On page 35 we see that incomes over £10,000 a year net account for £14 million a year. If the whole of that £14 million were confiscated, and if it were redistributed among the remaining 27,700,000 taxpayers, they would each receive 10s. a year, or 2½d. a week. That is the amount in the top pool for redistribution. I beg hon. Members to get out of their minds the idea that the national income can be redistributed merely by increasing surtax or opposing its reduction.
      In 1966, which is the last year given in the Blue Paper, personal income, net after tax, amounted to £22,964 million. It was distributed in this way. Incomes between £5 and £10 a week took £2,683 million; incomes between £10 and £15 a week took £3,541 million; incomes between £15 and £20 a week took £4,188 million; incomes between £20 and £30 a week took £7,089 million; incomes between £30 and £40 a week took £2,537 million. The amount in respect of those with incomes of less than £5 a week and those with incomes above £10,000 a year was £2,936 million.
      1334
      If everything were taken from men who enjoy a net income of only £3,000 a year—and that would include every Minister and many professional Members on the benches opposite who do very well in private industry—£40 a year would be left for redistribution to the rest of the taxpayers—about 16s. a week. Taking those in the higher group earning £5,000 a year net there would be left only £12 a year—a mere nothing.
      I remind the Committee of what Sir Winston Churchill used to say: "Equality is the enemy of quality". That is true. I believe that equality is the enemy of efficiency. The prosperity of the poorest depends on the efficiency of the nation. The standard of living of the ordinary working people will not be improved—
      Mr. Simon Mahon: We know all about that; we are the workers. Look at the workers' union on the benches opposite!
      Sir C. Osborne: Here is my card.
      Mr. Cyril Bence: That is a wallet.
      Sir C. Osborne: The demand for greater equality must ultimately make us all poorer. Unless we reward those who are specially endowed we shall not get the maximum effort from them, and we shall suffer as a consequence. It is because I believe this so fundamentally that I support the Amendment.
      I was hoping that the Chancellor would be here, and I hope that the Chief Secretary will pass my remarks on to him. I have here a book written by the President of the Board of Trade. I hope that hon. Members opposite will take note of what he said about surtax, taxation and efficiency. The book is called "A Programme of Radical Reform for the 1960s." It is so full of Tory wisdom that I should bore the Committee by repeating it all. It is a magnificent book and I commend it to hon. Members.
      The President says on page 33, talking about the marginal rates of taxation, and it is the marginal rates that really matter:
      "If these are too high and too steeply progressive they must reduce the incentive to additional effort"—

      1335
      This is what I am saying and this is what the President of the Board of Trade says. He goes on:
      "… (as well as putting enormous premiums on tax avoidance rather than on earnings)."
      We all know this to be true. This is why this is the best argument—from a Socialist President of the Board of Trade—which could support my right hon. Friend's Amendment. He goes on to say:
      "Equally, however, we must probably exclude, save in national emergency, any significant increase in the present marginal rates of direct taxation."
      That was in 1960 when Income Tax was 7s. 9d. in the £. It is 8s. 3d. now, and we are arguing for a reduction to what the President of the Board of Trade then said was the maximum which should be imposed.
      9.30 p.m.
      Mr. Diamond: As the hon. Gentleman has asked me to refer the book to my right hon. Friend, would I not be right in saying that he has not quoted the title correctly? Is it not "The Conservative Enemy"?
      Sir C. Osborne: It is both. It is a subtitle. I thought it would please the right hon. Member, instead of being petty and spiteful, to put the constructive side. I am sorry that he has such a narrow little mind.
      On page 32 the President of the Board of Trade says:
      "The process began with Stalin's famous speech in 1931 in which he denounced 'equality-mongering'."
      Hon. Members opposite are tied to this, and we are protesting against it. We are arguing that surtax should be reduced, I am sorry that he is not here but I warned him that I would use these quotations. The President of the Board of Trade said to me:
      "You tell them as much as you can about it, because it will increase my circulation."
      On page 28 he said, and I address this to the hon. Member for Bootle:
      "It does not, however, follow by analogy that every individual, regardless either of need or of what he contributes to the common pool, has a right to complete equality of wealth … it would conflict with the observed fact that the successful production of wealth requires some differential rewards for talent and ability."
      This is why I am supporting a reduction in surtax. I have the support of the
      1336
      President of the Board of Trade. If he were here he would have to vote for the Amendment. He ends by saying:
      "… and justice here must be tempered with efficiency."
      There cannot be a bigger cake unless there is an efficient man to produce it.
      Lastly, I pass this on from the President, from page 15:
      "Now there must be some economic limit to the taxation of individuals in any free society which relies on monetary gain as an incentive."
      If hon. Members opposite condemn the profit motive, which is the mainspring of the capitalist system I say that they must produce a better motive. So far they have failed to do this, but have given us far too much taxation. [Interruption.] I should have thought that hon. Members opposite would like to know what the President of the Board of Trade had to say.
      Mr. Roebuck: It is old hat; it is ten years ago.
      Sir C. Osborne: I agree with what the President of the Board of Trade says. No one on his side has read it, and that is why his sales are so poor. I have the support of the President of the Board of Trade. I want to drive this home as hard as I can—[Interruption.]—even though the Liberals are getting bored.
      Mr. Pardoe: I am.
      Sir C. Osborne: At the next election the Liberals will not be here, so they had better make the most of it while they have the chance. It is for these sound and sensible reasons that I support the Amendment to reduce surtax, because I believe that in so doing we shall increase the efficiency of our economic machine and makes things better for everyone.
      Mr. Heffer: I have never heard such irrelevant rubbish spoken in this Chamber since I came to the House. Two of the hon. Members concerned have now left the Chamber, but one has consented to stay. It would be very difficult to reply to all their points, because some of them were totally irrelevant. I can sum up their speeches in two words—utter tripe, especially from the hon. Member for Worcestershire, South (Sir G. Nabarro) who, unfortunately, has departed.
      Let me put the hon. Member for Louth (Sir C. Osborne) right on one or two

      1337
      facts. He has his philosophical background wrong. It has never been Socialist philosophy that property is theft. It was Proudhon who developed that argument that property was theft, and he was never a Socialist; he was an anarchist. That may be the same thing to the hon. Gentleman, but there are differences. The greatest Socialist thinkers always argued at great length with Proudhon on precisely this point.
      I do not want to become involved in arguments of this kind, which have very little to do with what we are debating, but it is important that when hon. Members make such statements they get their facts right. If they are to delve into the philosophy of Socialism they should read about it, and not only read the book by my right hon. Friend the President of the Board of Trade. Other books were produced a little earlier. Some people in the Socialist movement regarded my right hon. Friend's book as a revisionist document, and I was one. I thought that perhaps it was a little too geared in the direction of the thinking of the hon. Member for Louth. There was a big argument then about the matters he has mentioned.
      I found some of the arguments tonight fascinating. I think that it was the hon. Member for Worcestershire, South who said that the people who paid surtax were our best brains. I am not suggesting that some of the best brains do not belong to those who pay surtax, but is the hon. Gentleman genuinely suggesting that those all those who pay surtax are necessarily the best brains of the country? Plenty of people with very good brains do not pay surtax. I imagine that some who pay it are absolute nincompoops, complete idiots. But they pay surtax possibly because their fathers had good brains. I do not know. They may have inherited an immense amount of wealth and not themselves have made a real contribution to the society in which we live.
      There are people who have worked hard all their working lives and make a great contribution to the country's wealth, and who retire on the old age pension and perhaps have to apply for supplementary benefit to live decently, but whose contribution to this country and its wealth has been magnificent.
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      It is not a question of envy. If hon. Members opposite believe that the working people are envious of those who pay surtax, let me tell them that plenty of our people do not ask for anything except that when they retire they should have just sufficient to live decently. They are not looking for wealth. They are not wanting wealth. Many of them do not accept the philosophy of wealth.
      If people pay surtax, they must be earning the money in the first place or getting it through unearned income to pay it, and they can live fairly decently even after paying surtax. These are the facts from the Report of the Commissioners of Her Majesty's Inland Revenue, at page 40. On an income of £8,000, a married couple entitled to allowances for three children, two of them under the age of 11 and one over 11 but not over 16, will pay in income tax and surtax £2,745 Os. 5d., effective rate 6s. 10d. Even assuming that they pay £3,000, which, of course, they do not, they are still left with £5,000. They can live comfortably after payment of tax on £5,000. They will not starve. They will not apply for supplementary benefit. They will run a motor car and live in a decent house.
      Sir C. Osborne: Why not?
      Mr. Heffer: No one is saying that they should not. The hon. Member, however, is saying that they should have far more and that they should not make their contribution in that way, and that the worker who earns £15 a week should pay relatively a higher rate of taxation on the basis of his income and the contribution which he makes.
      I have said many times, but I will say it once again, that hon. Members opposite do not preach the class struggle. They practise it. When they get into office—God forbid that they ever should again—
      Sir C. Osborne: A dead cert.
      Mr. Heffer: —they will do what they have said before and make the position much easier for the very wealthy and the rich whom they represent and much more difficult for the people whom I and hon. Members on this side represent.
      Sir C. Osborne: Rubbish.
      Mr. Heffer: I am glad to hear the hon. Member say that, because it means that I am hitting right at the heart of what he thinks.
      Hon. Members opposite defend their position in these matters every time we have a Finance Bill because their interests are involved. My one regret is that my hon. Friends on this side do not defend our people's interests in the way that hon. Members opposite defend those of their people. I hope that my hon. Friends will do that on other occasions.
      I hope that we do not have any more of this nonsense here tonight—
      Mr. Barnett: We will.
      Mr. Heffer: Yes, I suppose so. There is a whole galaxy of untalent getting up to make speeches defending the proposition put forward by hon. Members opposite.
      One hon. Member opposite said that we should help those who create the nation's wealth. Hear, hear; I am all for that. I am all for helping those who really create the nation's wealth. I am all for giving the working people of the country a decent living and the best possible wages and conditions. They are the people who create the nation's wealth. All those who pay lip-service to this ideal, particularly those with unearned incomes on the basis of what has been created over the years, are living on the work and the sweat of the people who really created the nation's wealth, the working classes.
      [Mr. SYDNEY IRVING in the Chair]
      9.45 p.m.
      Mr. Pardoe: To dare to step into a debate of such fantastically high quality needs a great degree of intrepidity. I wish to make a few brief comments on the problem of the disincentive which applies at the surtax level. It is at the margin, as the Chancellor pointed out this afternoon that we have to consider disincentive in relation to surtax. In the middle surtax brackets there is a substantial disincentive to earning more. It is possible at this level of income for a man who is being taxed at the average rate of 40 per cent. across his income suddenly to step into the arena where his marginal extra income is taxed at the rate of 80 per cent. I am sure that no hon. Member could deny that this is a substantial
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      disincentive. Indeed, the rate goes as high as 91¼ per cent.
      Is high taxation a disincentive? Certain sorts of taxation might even be considered an incentive. The only answer one can make to this fundamental question is that it is a disincentive to some people in some jobs and in some circumstances. For instance, it is clear that the Parliamentary salary is not the incentive which draws the hon. Member for Worcestershire, South (Sir G. Nabarro) into this Chamber. I would not like to go into the environmental or psychological studies that would be needed to discover the motivation of all those who sit in the Chamber, but it is clear that it is not money.
      Professor Galbraith has said that at the executive level of American industry it is not money but a whole array of other factors which provide the real satisfactions of the job, and that money is a secondary point. Herzberg, in what is probably the most detailed study of the problem of incentive in his book "The Work and the Nature of Man", puts recognition, responsibility and a sense of achievement as being far more important than sheer money rewards.
      I accept the argument that research cannot tell us everything about this, but such research as we have indicates that money is probably more important as an incentive at the lower level of the executive range in industry than at the higher level.
      There are other disadvantages to high taxation of a surtax nature apart from the incentive argument. There is the disadvantage of having to pay very large gross salaries to people at the top of industry. We have seen in the British Steel Corporation the problems that Lord Melchett had. I do not for one moment suppose that it was Lord Melchett's desire to have this astronomical gross salary that caused him to seek it. It was the problem of differentials lower down the scale, the problem of how to recruit people at the £10,000, £12,000 and £15,000 a year mark.
      Lord Melchett would perhaps like to solve the problem in the way in which some Americans have solved it by becoming dollar-a-year men. They say "You can lump your cash; we do not want it. We will do the job out of sheer

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      satisfaction." It may be that certain people could take a job of that sort. But one hates to think what social historians will say about us when we take eighteen shillings and a little more of the pound of a person's income, particularly a person who is paid out of the public purse—and a number of people paid out of the public purse are paying eighteen shillings in the pound on a large part of it. It seems to be a form of economic madness.
      Then there is the problem of the brain drain. I have rarely found anybody who has left this country to go to the United States who has said, "I went because of high rates of taxation". Such research as has been done does not bear out the fact that high tax rates have created the brain drain. It suggests that people go there in search of facilities and opportunities for research and to take on more responsibilities. This is what leads them to cross the Atlantic.
      The Amendments which I had on the Order Paper, but which we are not discussing, would have changed substantially the whole structure of super tax. The main point is that we should have a plateau at the entry after reaching the standard rate of income tax for a considerable time before surtax begins to bite. That plateau should be much larger than it is at the moment.
      Furthermore, the increase in surtax must be gradual, for it is at the margin that the disincentive occurs. The increase in surtax should never be more than 5 per cent. at a time. The highest level of surtax is certainly too high. This may appear to be going against the egalitarian concept, but it is not. I consider that a rate of 91¼ per cent. is ridiculously high and that something between 60 and 70 per cent.—in other words between 12s. 0d. and 15s. 0d. in the pound—is probably high enough for anyone to pay on earned income. I accept that these proposals are not strictly egalitarian, but they are proposals for growth. We ought to think more about a taxation policy for growth.
      I am as concerned as hon. Members opposite about the poor. But they can be helped far more through the social services, family allowances, and a minimum income than through the taxation system. The Chancellor was the first person to
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      bring to my attention the fact that income tax and surtax are not an efficient way of redistributing income.
      This was brought home to me some years ago in a review by him in The Guardian of a book by Professor Titmus. He showed quite clearly that there was a substantial incentive and opportunity to minimise one's income at the higher level, and any figures taken from the Inland Revenue tables as to the distribution of income were not meaningful.
      The Chancellor probably accepts the argument that if we want to redistribute wealth, as I passionately do, and to ensure that the poorer people get more it can best be done through the social services rather than through the taxation system and the particularly punitive levels of taxation at the higher end.
      Mr. John Smith: I am afraid that I was unavoidably prevented from being present earlier by less important business, but I understand that I was mentioned both by my Front Bench and by the Chancellor. I should, therefore, like to explain my point of view: I am against the Committee stage being split. Splitting the Bill gives everyone, except the Chancellor and his team, the worst of both worlds. We have had an illustration of that today. This has not been a Committee stage. We have had simply a parade of speakers on two Clauses; there has been no urgency to get on with or to amend the Bill.
      I am not a particularly high surtax payer. I looked it up before coming here and find that over the last five years I have paid, on average, £130 per annum in surtax.
      Mr. Roebuck: The hon. Member has a good accountant.
      Mr. Smith: I am greatly in favour, however, of reducing this tax. The yield of surtax compared to the total tax revenue is triflng; it is less than the average margin of error in the annual Revenue Estimates.
      Much has been said about redistribution. We think that it is better to enable people to acquire, rather than to take away from those who have; but even if one took away everything, if one confiscated all of everyone's income over £10,000 a year, it would still produce

      1343
      only £13 per head of the population, of which £10 is being redistributed anyway, with surtax at the present level. Even with the annual rate of growth which this Government can achieve, that amount of redistribution can be given to those who do not have it without taking it away from those who do.
      But if it is necessary to redistribute, why do it in this enormously cumbersome way? It is true that there is redistribution within income groups, but there is no noticeable redistribution from the top to the bottom. The small redistribution which there is, is created at an enormous administrative expense.
      Many economists believe that pay and tax are not incentives and disincentives. If they did think that they were, they would have given up being economists and got better-paid jobs. On the whole, being an economist is not well-paid: it is more of a vocation. Therefore, their views on this are not necessarily right.
      At present, the maximum that it is possible to earn net as an executive is only about five times the minimum. It is, therefore, no incentive to anyone to change from a reasonably safe job to one with a smaller but more risky company, which might have a good future for the country. To offer a man already earning £10,000 a year another £2,000 net to switch to an uncongenial job, one would have to offer him a gross salary of £23,000 a year. In consequence, people inevitably choose leisure, safety and ease—or fail to make the contrary choice. They choose safety in their actual jobs and in the policies which, in their executive positions, they persuade their companies to pursue.
      10.0 p.m.
      If a man who is already earning a high rate is offered an extra £1,000 a year for added responsibility, he has a choice: he can either take the £1,000 and do the work and accept the responsibility, or he can seek to avoid tax of £37 10s. a year. He is in exactly the same position whichever he does. There is an incentive there—to find tax loopholes. We have the degrading spectacle of successive Chancellors bending their energies to the bunging up of loopholes and passing Bills of great complexity and obscurity which do nothing but wing the innocent. At
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      the top rate, a taxpayer is working for himself only for 18 minutes out of every eight-hour day; for the rest of the time he is working for the State.
      As has been constantly said, the level of tax in this country as a percentage of the gross national product puts us about in the middle of the league, but the tax on higher incomes is immeasurably higher here than in any other country. The next one below us is the Netherlands, with a top rate of 70 per cent.
      It is instructive to note that France, which takes the highest proportion of G.N.P. in taxation, has the lowest top rate of tax. It is also noteworthy that Western Germany, whose tax scale on earned income is most different from ours, has a system under which every taxpayer earning more than £1,000 a year, right up to the top level, is better off than he is in this country.
      Much has been said about the brain drain. Perhaps people do not leave because of our rates of taxation, but it would nevertheless have been nice to have made an effort to keep them here. After all, the loss of brains in this way means a loss of future tax revenue. Indeed, it is calculated that the 2,200 managers who emigrated in 1965—I am excluding scientists, technologists, and so on—would, had they stayed here, have contributed about £500 million in taxation during their lives.
      Moreover, the highest earners of all in Britain are international commodities, so to speak. People at the top of industrial firms, in Britain—particularly industries which earn us foreign exchange—are constantly receiving offers from comparable companies in other countries, notably in America.
      Inflation makes these effects of high taxation even worse and had not my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) raised the starting level of surtax on earned income from £2,000 to £5,000 when he was Chancellor of the Exchequer, the Government would find themselves in great trouble from a great many of their supporters who would now come within the surtax range.
      High surtax encourages wasteful activities. I dare say that it is a counterproductive tax. For example, the Chancellor recently made farm losses not

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      allowable in certain circumstances for tax. There are, however, plenty of farms which make a profit but which, were it not for high surtax rates, would be making infinitely greater profits still; and what applies to farms applies to many activities which people pursue partly to earn their livelihood and partly because they like doing it.
      Further, direct taxation on exports is not repaid whereas indirect taxation is, which means that high levels of direct taxation—they are higher in this country than in most others—put us at a great disadvantage in foreign trade.
      Finally, high rates of surtax on unearned income have the effect of pushing the investor out of income-earning assets. It cannot be good for Britain that those with the most to invest should be investing in paintings, silver and land abroad simply to avoid having a taxable income, thereby reducing the amount of capital available for industry and putting up the price which industry must pay for the capital that is available to it. It is unhealthy that return on income as a criterion of investment should be so eroded. For all these reasons, I hope that, if not on this occasion then at a later date, the Chancellor will listen to the voice of reason.
      Sir W. Bromley-Davenport: One word is always cropping up in our Finance Bill debates. During the many years that I have been in the House of Commons the word "incentive" has constantly been used, and today is no exception.
      "Incentive" means keeping more of what one earns. If taxes are too high, people in the top salary brackets and those with brains will leave the country, will not try or will not take risks. It is fair to say that if taxes are too high, people with brains will emigrate.
      Mr. Bence: What is the hon. and gallant Gentleman doing here?
      Sir W. Bromley-Davenport: I remember the Socialist Iron Chancellor, Mr. Philip Snowden, who during the 1931 General Election said, in effect, "I have always been in favour of taxing the very rich, but if you tax them too much you will kill the goose that lays the golden eggs and then you get no more eggs and, ultimately, disaster". [Laughter.] I am surprised that hon. Gentlemen oposite
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      find that amusing, particularly when I am referring to a man who was a fine Socialist Chancellor. [HON. MEMBERS: "Get on."] I promised the Chair to brief. I beg hon. Gentlemen opposite to give me a fair hearing, although I am ready to knock back and go on all night if necessary, even though that would earn me a raspberry from the Chair.
      How much should a man or woman be allowed to keep out of what he or she earns? My view is that no man or woman should have more than 75 per cent. of his or her income confiscated. In other words, they should be allowed to earn and keep 5s. in the £. Unless man and wife are assessed separately, we know what will happen—I hope it has not happened to anyone in this Chamber.
      Divorces can be arranged and people will come together and live in sin—a thing which is highly infra dig. How much would it cost the Exchequer if no one paid more than 15s. in the £ tax? My right hon. Friend, the recent Conservative Chancellor, said that it would cost the country about £18 million. That is a fleabite compared with the total revenue.
      This brings me to leaders. No country, no army, can survive without leaders. Perhaps I may give one example. One of the best kept secrets in the Korean war was that not one American prisoner escaped. The Chinese, in their cunning way, found the answer. They would watch the prisoners for two or three days, pick out the leaders, and separate them from the rest. They guarded the leaders very carefully. The rest were left unguarded to go where they liked. Because they had no leaders they could accomplish nothing. I suggest that if the leaders leave this country we shall not survive.
      What is the solution? The reason for the crisis in our economy is a very simple one and the approach is equally simple. With each month that passes Britain becomes a less attractive place in which to put money, to keep money, to take risks and to earn money. So long as this state of affairs continues, and so long as there is such a strong prejudice against those with money, against those making and keeping profits, and those earning and keeping a fair share of their incomes, money and people will flow steadily out

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      of the country. It has been the experience of every country in the world, without exception, that increased restrictions, unless they are widely accepted as just by those affected, serve only to accelerate the outflow of money and people.
      If we start now to make Britain an attractive place in which to invest and earn money, our economy will be sound. But if investors and people with brains are penalised or hampered at every turn, we shall move steadily towards disaster. This will hurt the poor more than the rich, even if we have a full scale Leftwing tyranny. Redistribution of properly is no solution.
      When the politicians of all parties, including my own, realise the overwhelming importance of tempting business into this country, rather than frightening it away, and when they speak and act as if they mean it, we shall have a happier and more prosperous country for everyone, rich and poor alike.
      10.15 p.m.
      Mr. Diamond: I assure the hon. and Gallant Member for Knutsford (Sir W. Bromley-Davenport) that there is no prejudice of the kind that he imagines, no prejudice against investment, and no prejudice against earning high incomes. Equally, I ask the hon. and gallant Gentleman to realise that we would want there to be no prejudice of the kind based on an assumption that all those who have high incomes have high talents and high brains and a high contribution to make to this country. I know that the hon. and gallant Gentleman will forgive me for adding that I say that having listened to his speech and in the full knowledge that he is, so I believe, a very well-to-do individual himself.
      Sir W. Bromley-Davenport: If the right hon. Gentleman is going to be personal, perhaps I might in fairness point out two things. First, the richest Gentleman in this House sits on the right hon. Gentleman's own Front Bench. Second, if we were all on a desert island and were given ·1,000 the hon. Gentleman to whom I have referred would collar the lot.
      Mr. Diamond: I think that the hon. and gallant Gentleman has entirely misunderstood what I said. I am bearing in mind that the whole of the debate—
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      and perhaps the hon. and gallant Gentleman was not here to listen to it all—has concentrated on the assumption that high levels of taxation are a deterrent, a disincentive, that they are a disincentive on those who earn high incomes, and that it is on those who earn high incomes that the whole of the welfare and prosperity of this country depends. I am going to challenge each of those propositions.
      First, I hope that a large number of right hon. and hon. Members were here when the hon. Member for Worcestershire, South (Sir G. Nabarro) made his speech. The hon. Gentleman has apologised for the fact that he is not able to be here at the end of the debate. The hon. Gentleman made a most interesting and candid speech, and gave us two examples precisely of how incentives work.
      The first example was when the hon. Gentleman was offered a directorship. He worked it out in terms of so much per hour net of income tax and surtax. He said that it was work and responsibility which he did not want, and he then went on to say that, having regard to the level of net remuneration, he would turn it down.
      I then asked the hon. Gentleman what net benefit he got in terms of money through his membership of this House. He replied, as one knew, that he got no net benefit at all, that in fact it cost him £750. I fully accept every word of what the hon. Gentleman said. He is a candid and straightforward hon. Member. He was saying therefore that he attends this House with great regularity, participates frequently in our debates, goes to enormous trouble, and spends an enormous amount of time to earn minus £750.
      Here is a simple example, which is known to everyone, which shows that it is not dealing with even a small part of the problem to regard the money incentive as the sole incentive for doing a job. Here is an hon. Member who gets great satisfaction, in a variety of ways, from carrying out his functions as a Member of this House and pays no attention whatsoever not only to the rate of tax but to the rate of remuneration itself. We know that time and again this applies to all those who have well-paid jobs. What almost always goes with a well-paid job is a high level of responsibility and great interest and great stimulation.

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      Any number of us who have the privilege of doing responsible jobs would, if we were challenged, say that we would far rather do those jobs at a much lower rate of remuneration than forgo the opportunity and satisfaction of doing the job.
      It is not starting to look at the truth of the matter to try to pretend, as Conservative speaker after Conservative speaker has done, that the whole of the incentive—I am not denying that there is an element—is that part of the remuneration which depends on one level or another level of tax—the difference between the level of taxation.
      So I say, first, that it just is not the case that the incentive effect is either wholly important or mainly important in terms of the level of taxation. We were told that there was a brain drain. Although the Jones Committee has found that the level of taxation was not an element entering into it, although several hon. Members have been good enough to recognise and to state that those leaving Britain did so for reasons other than the level of taxation, and although it is obvious common sense that the level of remuneration to be sought in the country to which one is emigrating is far more important than the level of taxation, we are told that the emigration is largely due to the high level of taxation. There is no evidence to support this. There is a good deal of evidence to the contrary.
      I ask hon. Members to consider for one moment the argument the other way round, because that is often a helpful test. Look at the case of the immigrants who would be here in very much larger numbers if they were not prevented from coming in larger numbers, practically all coming from countries where the level of taxation is tiny compared with the level of taxation here. They are coming here because they are concerned with a higher standard of living. That is what attracts the movement to this country; and that is what attracts the movement from this country to another country.
      I am saying straight away that there is no evidence whatsoever that the level of taxation is a real determinant either in terms of incentive for a highly paid and important job or in terms of the brain drain.
      Mr. John Smith: If high pay is not an incentive and high tax is not a deterrent, why is it necessary to pay the chairmen of the State boards such high salaries?
      Mr. Diamond: I am very glad that the hon. Gentleman has asked me that question, because it is necessary for a number of factors. My point is that it is a number of factors which enter into this.
      The hon. Gentleman's argument is that there is no point in chairmen of nationalised industries asking for this higher remuneration or being paid it. That is the hon. Gentleman's argument. [HON. MEMBERS: "No."] The argument throughout the debate has been that there is no incentive effect in additional remuneration because the whole of the additional amount goes in tax. That is the argument which has been advanced from the other side time and time again. It was the argument advanced by the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid).
      I say that it is one of the elements, but only one, and that there are many others to be considered. One of the reasons why people accept high remuneration is not merely for the net advantage in terms of remuneration. There is a whole host of other financial advantages—for example, pension rights, which are most important. Everybody on high remuneration is very anxious that he should be retired at a point when his remuneration is at its highest; and within the pension rights there are tax-free capital sums available which are also what the prospective pensioner is looking at.
      There is a whole host of other considerations. There is the acceptance of a level of responsibility. There is the honour that goes with having a high remuneration. There is the capacity for a person to advertise the fact that he is doing an important job because he is being paid well for it. There is also the esteem of one's neighbours, and there are all the elements to which the hon. Member for Cornwall, North (Mr. Pardoe) referred to a speech which perhaps not every hon. Member opposite heard.
      I am not moved in the slightest by the arguments that the difference in the levels of surtax affects incentives in such a way as to have any important effect on our economy. I remember very well when

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      the right hon. and learned Member for Wirrall (Mr. Selwyn Lloyd) introduced his very substantial surtax reliefs—£85 million to a very small body of men. That is the kind of disincentive I think about. It is not one that the hon. Gentleman has thought about for one moment. He has not thought about the men my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) spoke about, any number of whom receive very modest remuneration. He has not thought about the sense of injustice they would feel when they realised that only those receiving £20,000 to £40,000 a year are given benefits.
      I shall not go over all the figures again, but shall give the House the simplest explanation I can, which is fully supported by all the information we have of comparative tax weights. As compared with other countries, we certainly have a tax structure under which those with incomes above £18,000 a year pay the highest combined rates of income tax and surtax. I am talking about a very small number of people—0·05 per cent. of the number of taxpayers. But it is also the case that those at the bottom of the scale are more heavily taxed in this country than in most others. If our pattern of taxation is out of true by comparisons with other countries we must look for a reduction in taxation at the very bottom of the scale, up to about £1,250, and a reduction of taxation over £18,000. What hon. Members opposite are saying is that the first call on our help in giving relief from taxation should go to those earning at the very top.
      I am very glad that my hon. Friend for Walton intervened to try to put the matter in context, because from the way the debate was going one would have thought that there were no ordinary workingclass people in this country earning ordinary salaries and wages.
      There is no proof of a disincentive effect of the present levels of surtax. The real incentives to work are the interest and stimulation to which I have referred, and to which the hon. Member for Cornwall, North referred. By comparison with other countries, we are certainly out of gear at the very bottom and very top, and that is one of the reasons why my right hon. Friend made a very
      1352
      small contribution this year to help those at the bottom of the scales.
      Therefore, the debate is not about the levels of taxation. The right hon. Member for Enfield, West (Mr. Iain Macleod) several times acknowledged that the burden of taxation in this country is about average compared with other countries. What the debate is about is whether those at the very top of the scale should continue to make their high contribution, or whether we should have a redistribution of the present burden so that those at the top of the scale have a lighter burden and those at the bottom have a heavier one. It is nonsense not to look at the matter realistically and to pretend that one can do one without doing the other.
      The Conservative Party has made its policy on this quite clear. The Opposition propose to increase the cost of food in their farming policy, to increase rents in their house subsidy policy, and to increase the cost of living of every ordinary person in their value-added tax policy.
      By doing all those things they can relieve some of the burdens on those with the broadest shoulders. I hope that I have made it clear that that appeals neither to my morality nor to my tax sense, and I hope that the Committee will oppose the Amendment.
      10.30 p.m.
      Mr. Patrick Jenkin: The question which the Committee will want the Chief Secretary to answer is, if he should be sitting on that Bench next year, and if the Chancellor, by a miracle realises his hopes of reducing the levels of direct taxation at the higher levels, which is the hope he held out today, will he be able to support him in that move? The whole tenor of his speech was that any reduction in the level of direct taxation at the higher levels of income is bound to increase the burdens at the lower level, and we utterly repudiate that.
      The right hon. Gentleman made some other errors, too. No one on this side has ever argued that money incentive is the sole incentive which actuates people. We are surrounded by many hon. Members who would be able to earn substantially more were they not Members of Parliament. This ignores the basis of commerce, of industry, of the wealth-creating sectors of the community, where

      1353
      the vast majority enter it for the money they make, whether by salaries, profits wages or whatever. It is about those people whom we are talking, when we speak of the disincentive effect of the high rates of surtax. But the Chief Secretary said that this would be our first call. No one has ever said that. On the contrary, my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) has always regarded it as a high priority, but by no means necessarily the first call.
      In the previous Amendment we dealt with income tax, where it was common ground that the average level is not wildly out of line with other countries. This Amendment deals with surtax, and it is commonly accepted that this country is at a serious disadvantage here. This was well spelled out in an article in The Times last August, dealing with surtax in the context of management incentives. It said:
      "For anyone concerned with rewards for senior industrial executives, the picture which emerges of the United Kingdom is deeply disturbing. Already at £5,000 a year the British executive faces a higher tax rate than in the United States, Germany or France. Then, from £5,000 to £10,000, he faces the sharpest rise in marginal tax rates in any of the countries."
      It goes on to say that when someone is improving his income from £10,000 to £15,000 a year, in the United Kingdom, out of the extra £5,000 he is left with £1,100, in Australia, which the Chief Secretary quoted as being a country with as high a rate of tax as ours, it is between £1,500 and £2,000 a year. In Germany it is £2,500, and in the United States and France he is left with over £3,000 a year. These differences are vast.
      There are many consequences, and many were canvassed during the debate. One point that I do not recollect being made was that made by the C.B.E.—which may not be the most popular organisation on the other side of the Committee. It was a point also made by Professor Merrett. The C.B.I. said that the United Kingdom has the highest marginal rate of tax at the upper end of the scale of all developed countries in the world. This, combined with the fall in the value of money, has resulted in a serious situation, where a man with an income of over £10,000 a year needs to have an annual increase of at least 7 per cent. to prevent his net income from
      1354
      being reduced. This is the effect of these very high marginal rates of surtax.
      Many people do not get the 7 per cent. and they are worse off. No doubt, the Chief Secretary takes comfort in that this is part of the redistribution which he wants to see. Many get it, however, and the gross salary increases which they have to have to maintain, let alone improve, their net income position are of a size which causes understandable indignation among many people, not least among hon. Members opposite. The effect of this on the costs of those industries, particularly industries with a very high technological content and a high proportion of scientists, engineers and technologists on their staffs, represents a significant cost disadvantage to the country.
      That is not all. A number of my hon. Friends have made the point that the Government have in the last few years added penalties to the already high rates of tax by closing loopholes, the 10 per cent. surcharge of two years ago, the virtual disappearance of stock options and, in this Budget, the disallowance of loan interest. These are all disadvantages which do not affect other countries. In this country, however, they will have the effect of making a system which may have been just tolerable into one that is becoming wholly oppressive.
      I think that it was Professor Wheat-croft who said some while ago that a high tax rate system could only breathe through its loopholes. The Government are now busy blocking up all the loopholes. Many Socialists often express astonishment that the system seems to work despite these very high rates of marginal taxation, and from that they are encouraged to persist or even to intensify.
      My answer to that would be on two points. By closing the loopholes, the Government may stifle the gasping patient until he eventually expires. Secondly, and perhaps more serious, do they really contend that the system is working properly? By any test that one chooses to make, and here I pick up a point made by my hon. Friend the Member for Windsor (Sir C. Mott-Radclyffe), whether of growth, balance of payments—and after today's figures, which can only be described as shattering, he would be a bold man who could say that that was working—by investment, savings, the

      1355
      restructuring of the economy, our system is manifestly not working.
      We are struggling, we have devalued the £ and the economy is labouring under a welter of interventionist measures. A main reason—not the whole reason—why we appear to be stifling the enterprise and smothering the initiative of the men on whose enterprise we expect the economy to work is that we impose upon them rates of taxation substantially higher than those which operate in any of our competitor countries. In too many ways our economy is sluggish, our management is uninspired and our markets are unresponsive because of the pillow of disincentive which is represented by high rates of taxation.
      In the Chief Secretary's letter to his hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) he said that it was impossible to provide statistical or motivational proof that high levels of taxation operate as a disincentive. I do not believe that such proof could ever exist. Here I agree with the Chancellor of the Exchequer. Perhaps in a limited field of overtime, one might be able to disentangle some nexus, but how can one measure risk-taking? How can we measure the incentive to change jobs or the willingeness to assume responsibility? These do not seem to me to be amenable to logical proof. I do not need logical proof, however, to prove that a system in which the rates of tax go up to over 90 per cent. operates as a disincentive. This is widely accepted throughout the country, and even the Chancellor of the Exchequer is now beginning to accept it.
      My hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) in opening made a shrewd point on this. One cannot measure what does not happen. One cannot measure the risks not assumed, the jobs not changed, the responsibilities not accepted, the investments not made or the savings not accumulated. Yet these are the true costs of punitive rates of taxation. This is the price which the nation has to pay for imposing penal rates. The price is paid in terms of the loss of economic growth, the absence of enterprise, the lack of economic success, and it is a grievous one.
      Hon. Members opposite positively assert and believe that the economic difficulties from which this country is suffering and has been suffering owe nothing to
      1356
      the high levels of surtax which apply, nothing at all. There is no argument that this country is in economic difficulties, perhaps more so than any of our competitors, and there is no argument that the rates of surtax are seriously out of line with those of our main competitors. I have become completely convinced that there is a direct connection the one with the other, and that we shall not solve our economic problems until we have the courage to deal with the high rates of surtax.
      Why do not we do this? We had one answer from the hon. Member for Liverpool, Walton (Mr. Heffer), who rose like a dinosaur from a previous age to give us the pure milk of ancient Socialism. Another reason was given in an intervention by the hon. Member for Bootle (Mr. Simon Mahon). Thousands of his constituents, he said, had never saved anything. They relied on State benefits, and these had to be provided by high surtax payers.
      Elsewhere in the Bill we shall have an opportunity to deal with those at the lowest income level, when we come to deal with reliefs, allowances and S.E.T. If we followed the logic of the hon. Members case we should spend the whole time talking about supplementary benefits. We are not talking about supplementary benefits; we are talking about surtax.
      Mr. Simon Mahon: The hon. Gentleman is talking about the rich people and the marginal effect which they have on the economy. Would not it be wiser to deal with the difficulties of the workers? Would not that produce the economic situation we need?
      Mr. Jenkin: I do not know what distinction the hon. Member draws between the rich people and workers, but the problems of the lower-paid workers are not neglected by the House of Commons.
      In the Budget increases in pensions amounting to £250 million were announced, and we are still waiting to know what the cost will be. We must all accept that the real prosperity of every man, woman and child depends upon the wealth-creating process of the whole nation. We live in an economy which is still substantially in the private sector. In a private sector economic success depends upon incentives, incentives to save, to

      1357
      earn, to invest, to take risks, to export and to do all the things that are necessary to build our wealth. Here the Socialists suffer from a schizophrenia from which they appear never to be able to escape. They accept that we operate a mixed economy, and that a substantial part of the economy is a private enterprise economy in the private sector, yet they will not accept the conditions which will allow it to work successfully. If half the ingenuity which they devote to inventing new taxes to penalise the rewards of success were devoted to inventing new incentives
      to promote success, then indeed would our troubles be over.
      So much depends upon giving real hope and real encouragement to the leaders of industry and commerce. The Amendment would go some way to offering them a glimmer of hope for the future, and I hope that my right hon. and hon. Friends will feel it right to vote in favour of the Amendment.
      Question put, That the Amendment be made:—
      The Committee divided: Ayes 170, Noes 223.

      Division No. 213.]

      AYES

      [10.44 p.m.

      Alison, Michael (Barkston Ash)

      Gurden, Harold

      Noble, Rt. Hn. Michael

      Allason, James (Hemel Hempstead)

      Hall, John (Wycombe)

      Nott, John

      Astor, John

      Hall-Davis, A C. F.

      Onsloy, Cranley

      Atkins, Humphrey (M't'n & M'd'n)

      Harrison, Col. Sir Harwood (Eye)

      Orr-Ewing, Sir Ian

      Awdry, Daniel

      Harvey, Sir Arthur Vere

      Osborn, John (Hallam)

      Baker, Kenneth (Acton)

      Hastings, Stephen

      Page, Graham (Crosby)

      Bennett, Sir Frederic (Torquay)

      Hawkins, Paul

      Page, John (Harrow, W.)

      Bennett, Dr. Reginald (Gos. & Fhm)

      Hay, John

      Pardoe, John

      Berry, Hn, Anthony

      Heald, Rt. Hn. Sir Lionel

      Percival, Ian

      Bessell, Peter

      Higgins, Terence L.

      Peyton, John

      Biffen, John

      Hiley, Joseph

      Pink, R. Bonner

      Birch, Rt. Hn. Nigel

      Hill, J. E. B.

      Pounder, Rafton

      Black, Sir Cyril

      Holland, Philip

      Powell, Rt. Hn. J. Enoch

      Blaker, Peter

      Hordern, Peter

      Prior, J. M. L.

      Boardman, Tom (Leicester, S. W.)

      Hunt, John

      Pym, Francis

      Boyd-Carpenter, Rt. Hn. John

      Hutchison, Michael Clark

      Rees-Davies, W. R.

      Boyle, Rt. Hn. Sir Edward

      Iremonger, T. L.

      Renton, Rt. Hn. Sir David

      Braine, Bernard

      Jenkin, Patrick (Woodford)

      Rhys Williams, Sir Brandon

      Brewis, John

      Johnson Smith, G. (E. Grinstead)

      Ridsdale, Julian

      Brinton, Sir Tatton

      Jones, Arthur (Northants, S.)

      Rossi, Hugh (Hornsey)

      Bromley Davenport, Lt.-Col. Sit Walter

      Jopling, Michael

      Royle, Anthony

      Brown, Sir Edward (Bath)

      Joseph, Rt. Hn. Sir Keith

      Russell, Sir Ronald

      Bruce-Gardyne, J.

      Kershaw, Anthony

      Scott-Hopkins, James

      Buchanan-Smith, Alick (Angus, N & M)

      Kimball, Marcus

      Sharples, Richard

      Buck, Antony (Colchester)

      King, Evelyn (Dorset, S.)

      Shaw, Michael (Sc'b'gh & Whitby)

      Bullus, Sir Eric

      Kitson, Timothy

      Silvester, Frederick

      Burden, F. A.

      Knight, Mrs. Jill

      Sinclair, Sir George

      Campbell, B. (Oldham, W.)

      Lancaster, Col. C. G.

      Smith, John (London & W'minster)

      Carlisle, Mark

      Speed, Keith

      Clark, Henry

      Lane, David

      Stodart, Anthony

      Clegg, Walter

      Lewis, Kenneth (Rutland)

      Stoddart-Scott, Col. Sir M.

      Cooke, Robert

      Longden, Gilbert

      Summers, Sir Spencer

      Corfield, F. V.

      Lubbock, Eric

      Taylor, Edward M. (G'gow, Cathcart)

      Crouch, David

      MacArthur, Ian

      Taylor, Frank (Moss Side)

      Cunningham, Sir Knox

      Mackenzie, Alasdair (Ross & Crom'ty)

      Temple, John M.

      Dalkeith, Earl of

      Maclean, Sir Fitzroy

      Thatcher, Mrs. Margaret

      Dance, James

      Macleod, Rt. Hn. Iain

      Tilney, John

      Davidson, James (Aberdeenshire, W.)

      McMaster, Stanley

      Turton, Rt. Hn. R. H.

      d'Avigdor-Goldsmid, Sir Henry

      Maddan, Martin

      van Straubenzee, W. R.

      Deedes, Rt. Hn. W. F. (Ashford)

      Maginnis, John E.

      Waddington, David

      Drayson, G. B.

      Marples, Rt. Hn. Ernest

      Wainwright, Richard (Colne Valley)

      du Cann, Rt. Hn. Edward

      Marten, Neil

      Walker, Peter (Worcester)

      Elliot, Capt. Walter (Carshalton)

      Maude, Angus

      Walker-Smith, Rt. Hn. Sir Derek

      Emery, Peter

      Mawby, Ray

      Wall, Patrick

      Errington, Sir Eric

      Maxwell Hyslop, R. J.

      Ward, Dame Irene

      Ewing, Mrs. Winifred

      Maydon, Lt-Cmdr. S. L. C.

      Whitelaw, Bt. Hn. William

      Farr, John

      Mills, Peter (Torrington)

      Wiggin, A. W.

      Fisher, Nigel

      Mills, Stratton (Belfast, N.)

      Williams, Donald (Dudley)

      Fortescue, Tim

      Miscampbell, Norman

      Wilson, Geoffrey (Truro)

      Foster, Sir John

      Munro, Hector

      Winstanley, Dr. M. P.

      Galbraith, Hn. T. G.

      More, Jasper

      Wood, Rt. Hn. Richard

      Glover, Sir Douglas

      Morgan, Geraint (Denbigh)

      Woodnutt, Mark

      Godber, Rt. Hn. J. B.

      Morrison, Charles (Devizes)

      Wright, Esmond

      Goodhart, Philip

      Mott-Radclyffe, Sir Charles

      Wylie, N. R.

      Goodhew, Victor

      Munro-Lucas-Tooth, Sir Hugh

      Gower, Raymond

      Murton, Oscar

      TELLERS FOR THE AYES:

      Grant, Anthony

      Nabarro, Sir Gerald

      Mr. Reginald Eyre and

      Grant-Ferris, R.

      Nicholls, Sir Harmar

      Mr. Bernard Weatherill.

      Gresham Cooke, R.

      NOES

      Albu, Austen

      Hannan, William

      Murray, Albert

      Allaun, Frank (Salford, E.)

      Harper, Joseph

      Neal, Harold

      Alldritt, Walter

      Harrison, Walter (Wakefield)

      Newens, Stan

      Archer, Peter

      Hart, Rt. Hn. Judith

      Noel-Baker, Rt. Hn. Philip

      Ashton, Joe (Bassetlaw)

      Hazell, Bert

      Oakes, Cordon

      Atkins, Ronald (Preston, N.)

      Healey, Rt. Hn. Denis

      Ogden, Eric

      Atkinson, Norman (Tottenham)

      Heffer, Eric S.

      Oram, Albert E.

      Bacon, Rt. Hn. Alice

      Henig, Stanley

      Orbach, Maurice

      Bagier, Cordon A. T.

      Herbison, Rt. Hn. Margaret

      Orme, Stanley

      Barnes, Michael

      Hilton, W. S.

      Oswald, Thomas

      Barnett, Joel

      Page, Derefe (King's Lynn)

      Baxter, William

      Hooley, Frank

      Paget, R. T.

      Beaney, Alan

      Horner, John

      Palmer, Arthur

      Bence, Cyril

      Houghton, Rt. Hn. Douglas

      Pannell, Rt. Hn. Charles

      Bidwell, Sydney

      Howell, Denis (Small Heath)

      Park, Trevor

      Binns, John

      Huckfield, Leslie

      Parker, John (Dagenham)

      Boardman, H. (Leigh)

      Hughes, Rt. Hn. Cledwyn (Anglesey)

      Parkyn, Brian (Bedford)

      Booth, Albert

      Hughes, Hector (Aberdeen, N.)

      Pavitt, Laurence

      Boston, Terence

      Hughes, Roy (Newport)

      Pearson, Arthur (Pontypridd)

      Boyden, James

      Hunter, Adam

      Peart, Rt. Hn. Fred

      Bray, Dr. Jeremy

      Hynd, John

      Pentland, Norman

      Brooks, Edwin

      Irvine, Sir Arthur (Edge Hill)

      Perry, Ernest G. (Battersea, S.)

      Brown, Hugh D. (G'gow, Provan)

      Jackson, Peter M. (High Peak)

      Perry, George H. (Nottingham, S.)

      Brown, Bob (N'c'tle-upon-Tyne, W.)

      Janner, Sir Barnett

      Price, Christopher (Perry Barr)

      Brown, R. W. (Shoreditch & F'bury)

      Jay, Rt. Hn. Douglas

      Price, Thomas (Westhoughton)

      Buchan, Norman

      Jenkins, Hugh (Putney)

      Price, William (Rugby)

      Buchanan, Richard (G'gow, Sp'burn)

      Jenkins, Rt. Hn. Roy (Stechford)

      Probert, Arthur

      Cant, R. B.

      Johnson, Carol (Lewisham, S.)

      Richard, Ivor

      Carmichael, Neil

      Jones, Dan (Burnley)

      Roberts, Albert (Normanton)

      Carter-Jones, Lewis

      Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)

      Roberts, Rt. Hn. Goronwy

      Conlan, Bernard

      Jones, J. Idwal (Wrexham)

      Robertson, John (Paisley)

      Crosland, Rt. Hn, Anthony

      Jones, T. Alec (Rhondda, West)

      Robinson, Rt. Hn. Kenneth (St. P'c'as)

      Davidson, Arthur (Accrington)

      Kelley, Richard

      Rodgers, William (Stockton)

      Davies, Ednyfed Hudson (Conway)

      Kerr, Mrs. Anne (R'ter & Chatham)

      Roebuck, Roy

      Davies, G. Elfed (Rhondda, E.)

      Kerr, Russell (Feltham)

      Ross, Rt. Hn. William

      Davies, Dr. Ernest (Stretford)

      Lawson, George

      Rowlands, E.

      Davies, Rt. Hn. Harold (Leek)

      Lee, Rt. Hn. Frederick (Newton)

      Ryan, John

      Davies, Ifor (Gower)

      Lee, Rt. Hn. Jennie (Cannock)

      Shaw, Arnold (Ilford, S.)

      Delargy, Hugh

      Lee, John (Reading)

      Sheldon, Robert

      Dell, Edmund

      Lestor, Miss Joan

      Shore, Rt. Hn. Peter (Stepney)

      Dempsey, James

      Lewis, Arthur (W. Ham, N.)

      Short, Mrs. Renée (W'hampton, N. E.)

      Dewar, Donald

      Lewis, Ron (Carlisle)

      Silverman, Julius

      Diamond, Rt. Hn. John

      Lipton, Marcus

      Slater, Joseph

      Dickens, James

      Loughlin, Charles

      Small, William

      Dunnett, Jack

      Luard, Evan

      Spriggs, Leslie

      Dunwoody, Mrs. Gwyneth (Exeter)

      Lyon, Alexander W. (York)

      Stonehouse, Rt. Hn. John

      Dunwoody, Dr. John (F'th & C'b'e)

      Lyons, Edward (Bradford, E.)

      Strauss, Rt. Hn. G. R.

      Mabon, Dr. J. Dickson

      Taverne, Dick

      Eadie, Alex

      McBride, Neil

      Thomas, Rt. Hn. George

      Edwards, William (Merioneth)

      McCann, John

      Thornton, Ernest

      Ellis, John

      MacColl, James

      Tinn, James

      English, Michael

      MacDermot, Niall

      Urwin, T. W.

      Evans, Fred (Caerphilly)

      Macdonald, A. H.

      Varley, Eric G.

      Faulds, Andrew

      Mackenzie, Gregor (Runtherglen)

      Wainwright, Edw'n (Dearne Valley)

      Fernyhough, E.

      Mackintosh, John P.

      Walker, Harold (Doncaster)

      Finch, Harold

      MacMillan, Malcolm (Western Isles)

      Wallace, George

      Fletcher, Rt. Hn. Sir Eric (Islington, E.)

      McMillan, Tom (Glasgow, C.)

      Watkins, David (Consett)

      Fletcher, Ted (Darlington)

      McNamara, J. Kevin

      Watkins, Tudor (Brecon & Radnor)

      Foley, Maurice

      MacPherson, Malcolm

      Wellbeloved, James

      Foot, Michael (Ebbw Vale)

      Mahon, Peter (Preston, S.)

      Wells, William (Walsall, N.)

      Ford, Ben

      Mahon, Simon (Bootle)

      Whitaker, Ben

      Forrester, John

      Mallalieu, E. L. (Brigg)

      White, Mrs. Eirene

      Fowler, Gerry

      Wilkins, W. A.

      Fraser, John (Norwood)

      Mallalieu, J. P. W. (Huddersfield, E.)

      Willey, Rt. Hn. Frederick

      Freeson, Reginald

      Mapp, Charles

      Williams, Alan (Swansea, W.)

      Gardner, Tony

      Marquand, David

      Williams, Clifford (Abertillery)

      Garrett, W. E.

      Marsh, Rt. Hn. Richard

      Williams, Mrs. Shirley (Hitchin)

      Ginsburg, David

      Mason, Rt. Hn. Roy

      Willis, Rt. Hn. George

      Gordon Walker, Rt. Hn. P. C.

      Mayhew, Christopher

      Wilson, Rt. Hn. Harold (Huyton)

      Gray, Dr. Hugh (Yarmouth)

      Mellish, Rt. Hn. Robert

      Wilson, William (Coventry, S.)

      Gregory, Arnold

      Mendelson, John

      Winnick, David

      Griffiths, David (Rother Valley)

      Millan, Bruce

      Woof, Robert

      Griffiths, Eddie (Brightside)

      Miller, Dr. M. S.

      Griffiths, Will (Exchange)

      Mitchell, R. C. (S'th'pton, Test)

      TELLERS FOR THE NOES:

      Hamilton, James (Bothwell)

      Morgan, Elystan (Cardiganshire)

      Mr. Charles Grey and

      Hamilton, William (Fife, W.)

      Morris, Alfred (Wythenshawe)

      Mr. Ioan L. Evans.

      Hamling, William

      Morris, Charles R. (Openshaw)

      Clause ordered 'to stand part of the Bill.
      To report Progress and ask leave to sit again.—[Mr. Diamond.]
      Committee report progress; to sit again Tomorrow.

      HOUSE OF COMMONS (SERVICES)

      Mr. Frank Hooley discharged from the Select Committee on House of Commons (Services); Mr. Eddie Griffiths added.—[Mr. McCann.]

  MAIN DRAINAGE, DATCHET
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. McCann.]
  10.57 p.m.
  Mr. Ronald Bell: I wish to raise the case of the refusal of grant under the Rural Water Supplies and Sewerage Act, 1961, for putting in main drainage at Datchet, in my constituency. Datchet is in Eton rural district and until this case arose, places in a rural district were given grant under the Act as such, that is, as being in a rural district. The result of the Minister's refusal is a cost of approximately £500,000 to the local rates, raising them by as much as 2d. in the £, or rather more than 8 per cent. for 30 years.
  The former practice under this Act was set out in Circular 15/61 which laid down the payment of grant in respect of any place which was a rural district and so tended to give certainty to district councils which had, before 1961, suffered from not knowing whether they would get the grant or not and from not knowing how much they would receive. That is well illustrated by what happened, in this case, to Eton Rural District Council because of the change in Ministerial policy in 1967 by Circular 75/67. The Minister changed the rules and made the grant a matter for discretion.
  Paragraph 3 of that circular said:
  "The Act of 1944 authorises contributions from the Exchequer towards expenses incurred in serving rural localities. Experience shows that areas and schemes in rural districts are occasionally far from characteristically rural. Location in a rural district will not, in future, therefore, necessarily mean that a locality will be accepted as rural for the purposes of the Acts."
  It is the effect of that on the Datchet scheme to which I draw the attention of the House.
  The scheme originated in 1960 and the district council, after assessing the project, put it to the Department for a ruling, as this was before Circular 15/61 had made the grant automatic. The Minister ruled that the project was eligible for grant. That was stated in a letter dated 24th January, 1961. The Minister will be aware of that piece of
  1364
  correspondence. Indeed, he may be uncomfortably aware of it.
  The letter said:
  "Datchet Main Drainage.
  I am directed by the Minister of Housing and Local Government to say that he has considered the Council's application for grant under the … Acts towards the cost of this scheme, and is now able to give some indication of the assistance which may be expected. The Minister has necessarily based his forecast of grant on the estimate of cost at present before him and on all the other current circumstances which are relevant. This forecast is not a formal undertaking to pay grant and only remains valid for a limited period. When loan consent is given the Minister will take a final decision about grant in the light of all the circumstances at that time. Subject to these reservations the Minister has in mind half-yearly payments of £1,400 for thirty years."
  As the Minister knows, that would be matched by a payment of equal amount from the county council. That was a clear indication to the rural district council, under the old rules—it was at that time a matter of discretion on the part of the Ministry—that this case was considered to deserve grant.
  After that, matters ticked along gently, held up occasionally by credit squeezes and similar events, culminating in the full scheme being submitted to the Ministry in April, 1965, with a request for authority to invite tenders. The Ministry asked for various pieces of further technical information, which it received by August, 1965.
  Then the Ministry asked to be assured that one small piece of land that was concerned could be acquired at a reasonable price. This meant that the district council had to serve a compulsory purchase order before getting final approval and grant. The council submitted the compulsory purchase order to the Minister in July, 1966. Time was passing, but it was not until June, 1967, that the Minister confirmed the order.
  During the previous year or two I had written to the Minister asking for these procedures to be speeded up and, finally, in June, 1967, when confirming the order, the Minister, rather like a negotiator from behind the Iron Curtain, asked for yet further technical details before tenders could be sought. I am bound to feel that the Ministry might have thought of that during the 11 months while the district council had been waiting for the

  1365
  compulsory purchase order to be confirmed. In any event, the Ministry had earlier said that it had all the technical information it wanted. That took until the end of August.
  Then at long last, when the bills of quantities and specifications were being finished and the scheme was on the point of going out to tender, the Minister put out Circular 75/67 in December, 1967, and brought down the chopper on Datchet as the first victim of the new rules.
  Since the Department had already explicitly approved the project for grant in 1960, subject only to the conventional saving words that go in every such letter, and the Datchet project was caught by the change of rules so narrowly, it is surprising that the Minister has persisted in his refusal to reconsider the refusal of grant. As the Minister knows, I have both written to him and seen him about this.
  Finally, the Minister wrote to me saying that it did not seem that the Datchet scheme had so narrowly, in point of time, missed the grant after all. He said:
  "The council appear to have accepted the tender for the work on 25th June, 1968, and this is more than six months after 7th December, 1967, the date when new arrangements were introduced by Circular 75/67."
  But the Minister knows quite well that, as soon as Circular 75/67 came out, the rural district council wrote to him asking for confirmation that this would make no difference and received, fairly quickly, a reply that it made all the difference in the world.
  Then, not surprisingly, because this mattered very much to the council—and I must say that it had been badly dealt with—the district council asked the Minister to receive a deputation. That took a little while. I do not complain about that, because I know that Ministers have deputations in considerable number to receive. The Minister saw the deputation in May. After that, he told the council that if it would submit the proposal in final form he would reconsider it. That is why it was submitted in that final form in June.
  In the circumstances, it is hardly fair of the Minister to say in his letter to me
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  that the Datchet scheme missed the grant by six months when the application could have gone in more quickly. But he had already brought the chopper down and it was natural to take time to ask him, first, to see a deputation. Therefore, I am not impressed by the remark that there was a lapse of six months. There was no near miss in this case.
  But we must look at the underlying claim of merit which the Ministry makes. In changing the scheme it said that some places in rural districts were, in fact, not all that rural. The new circular refers to
  "where the development is urban or suburban in character, in particular, where it is near a town."
  The example given is of a town, or a place, or a neighbourhood where the suburbs have been built out and across the boundary of a rural district, and it would be artificial to treat that case as being a rural district within the meaning of the Rural Water Supplies and Sewerage Act. On the independent merits one can see the force of that argument, but I wonder how it could apply to Datchet.
  In reply to me, the Minister said that it was just such a place, it was near to the towns of Windsor and Slough. That was one leg of the attack on it. When I saw the Minister I told him that to describe the village of Datchet as not rural because it was close to Windsor and Slough was rather an extraordinary misconception. It is separated from Windsor by no less than the River Thames, and after the Thames by Windsor Great Park, two barriers not merely very relevant to drainage—one could hardly imagine draining across the Thames—but also impassable areas from the point of view of development. Nobody will develop Windsor Great Park. Nobody will develop the Thames, and, therefore, the proximity of Windsor is irrelevant.
  The proximity of Slough is almost equally irrelevant, because Datchet is separated from it by a green belt which again cannot be developed or impinged upon unless the Minister himself allows that to be done, which is most unlikely. It is a belt of farm and green belt use of land. Therefore, to describe this as in any way pertinent to either Slough or Windsor is to get an entire misconception.

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  The Minister has said that it is a built-up area of about 4,000 people, and likely to grow. The total population of the parish of Datchet may be about 4,000, but it is not proposed to "sewer" 4,000 people, and it is not very relevant to count those living in outlying farms and homesteads. Nor is there any likelihood of Datchet growing, because it is a completed green belt village, and it cannot grow any further.
  It is a little surprising that a village in the green belt, insulated all round by a green belt, except on the south side where there is the River Thames, and then on the other side of it Windsor Great Park, should be compared with a developing suburb which has crossed a rural district boundary, or with a residential area which is so much under the wing or shadow of a neighbouring town that it ought really to be considered as an extension of it from the point of view of grants uinder this legislation.
  I was disappointed with the Minister's reply. I realise the difficulty in dealing with transitional cases, but the point which I must put to the Minister again this evening is that this is a transitional case in a more exact degree than he realised when he last wrote to me, because that interval of six months between Circular 76 and the date of the application is to be explained by the deputation to the Minister, or to his predecessor. Secondly, on the merits it is surprising, or at any rate marginal, that Datchet should ever have been treated as a locality as disqualified for this grant.
  That being so, I hope that the Minister will not just give me—I am sure that he has no inclination to do that—a purely Departmental answer written out for him and expected to be read at a later hour of the night than we have been fortunate enough to strike.
  I hope that he will take into account what I have said and will offer to consider this matter again, because £450,000 to £500,000 is a very considerable burden for a rural district. It must not be thought that 2d. is not very much. Two-pence is being added to a rate of 2s. 4d. That makes a substantial relative proportionate increase in the burden on the ratepayers.
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  I therefore hope that the Minister will give careful thought to what I have said and will not shut any doors tonight but will say that he will look at this matter again to see whether this case, which so narrowly missed the date and which, I must say with all respect to his Department and without imputing any malice to it, was played along by his Department for two or three years, is not one to which he should give the most careful consideration.
  11.16 p.m.
  The Minister for Planning and Land (Mr. Kenneth Robinson): I feel almost like expressing gratitude to the hon. and learned Gentleman for raising a subject with me on the Adjournment that does not concern the Land Commission. The hon. and learned Gentleman has put the case for Eton Rural District Council very moderately, although I know that it is a matter on which he feels strongly. I do not think that he has adduced any further arguments this evening over and above those that he very persuasively argued when he came to see me some months ago. The council has run into financial difficulties with one of its most costly schemes because it has been refused grant following a change of policy at a late stage, in circumstances which might have induced me to pay grant despite the change of policy.
  This picture which the hon. and learned Gentleman has given quite fairly gives one aspect of the position, but it is not the complete picture. We must look at it against the background of the purposes for which grants are paid. One of the basic terms of the legislation is that the work which is grant-aided should serve a rural locality, an expression which is not defined in the Act because I do not think it could be satisfactorily defined. It was contemplated from the outset that a rural locality in a borough could get grant for a scheme under the Act, and indeed grants have been awarded from time to time to schemes which are located in boroughs. The important thing is to recognise a rural situation when one sees it. This can only be for the Minister to judge, and it is not always easy, because it is often a matter of degree. If the Minister cannot agree that the situation is rural, strictly speaking he has no power to pay grant. The idea of "rural locality" is

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  a matter of judgment and not tied to the status of the council concerned.
  Back in 1944 everybody thought, quite reasonably in the conditions of those days, that any part of a rural district would automatically be a rural locality. But circumstances change and it became clear that there are parts of rural districts which are not rural at all. Sometimes a town spreads across its boundaries and the adjoining part of a rural district becomes a suburb. In other cases, a compact and populous locality has grown up, perhaps round a traditional village nucleus, and becomes a sizable residential area. Datchet is, I submit, an example of this.
  With new development going on, it became clearer with the passage of time that the practice of automatically accepting all localities in rural districts as rural localities would have to be looked at again. The change came with the latest revision of the general terms and conditions for grant set out in the circular from which the hon. and learned Gentleman quoted the relevant passage. Appendix 1 to the circular said:
  "Most localities in rural districts will be accepted as rural; but exceptions may be made where development is urban or suburban in character, in particular, where it is near a town."
  The circular was issued on 7th December, 1967, and came into effect for all schemes which had not reached a certain point of progress by that date. This point was the submission of tenders to the Ministry or, where that was not required, the date of the council's resolution to accept a tender or a direct labour estimate. The date of the Eton Rural District Council's resolution to accept the tender for the Datchet scheme was, I understand, 25th June, 1968, so that there can be no doubt that the terms of the circular, including the withdrawal of automatic acceptance, applied to this scheme.
  The hon. and learned Member made some play of a section of a letter which I wrote to him. This was in reply to a specific assertion on his part that they only just missed the old scheme. In fact, a grant application is made only when the scheme is ready to proceed, and that is tender stage, and I am informed that the scheme could not have qualified on any premature application before June 1968.
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  It was, I admit, unfortunate that the scheme had hung fire for a number of years, for reasons outside the council's control. But to plead for special consideration on that account would be to argue for a return to the practice of automatic acceptance of all localities in rural districts when this practice had for some years past become increasingly unrealistic. It would involve ignoring the merits of the case entirely.
  I said earlier that Datchet is an example of an urbanised locality in a rural district. The population exceeds 4,000 and will probably increase, because while the scheme will, I understand, serve 1,370 existing properties, it is designed ultimately to serve 1,750. Evidence given in support of the scheme at a public local inquiry in March, 1967, spoke of Datchet having become an area of development with the characteristics of urban and part-urban congestion. In the face of facts such as these, arguments about the one-time village character of Datchet and its location in the green belt do not carry the weight which the hon. and learned Gentleman attached to them.
  Mr. Bell: With reference to the traffic congestion, of course.
  Mr. Robinson: Possibly, but there are other factors about Datchet which deny the normal characteristics of rurality.
  The point has been made, although the hon. and learned Member did not mention it tonight, that the cost of the scheme at more than £600 per property is so high that it shows the typically high cost of a rural scheme and should be assisted on that ground. But the primary consideration is that grant is payable where the locality is rural. It happens in most cases that the cost per property is high because low-density development requires long average lengths of main or sewer, and the current terms and conditions for grant take this into account. But a high-cost scheme for urban conditions would not attract grant simply because it was high-cost, while a cheaper scheme for an undoubtedly rural locality might well do so.
  It has been suggested that the Minister has contributed towards the misfortunes of the council in that one of the reasons for the slow progress of the scheme was the time taken to deal with

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  a compulsory purchase order on one of the pumping station sites. That this took a long time is true, but much of the delay occurred because it proved difficult to make progress with the objector and to get an agreed date for the public local inquiry.
  In the end, we achieved progress by enforcing a date. But I do not think that the consideration extended for so long to a person whose land, after all, would be taken from him by the compulsory purchase order, if made, should render the Minister culpable for delay in a quite different context.
  Reference has been made to the way in which the grant arrangements under Circular 75/67 came into force on a particular day, that is, 7th December of that year, without due regard to schemes such as this which were in the pipeline. The hon. and learned Gentleman implied that such schemes ought to be given special consideration because hopes of grant would be dashed by a rigid deadline. That sounds easy and fair, but, in fact, it would be neither.
  The great merit of a firm starting date for new arrangements, or, rather, revised arrangements, for that is what the circular mainly comprised, is that it is intelligible and clear. Most important schemes are years in preparation, and they are all at one stage or another in the pipeline. It
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  would be extremely difficult to make judgments, or to try to make them, as between one case and another; and one would have not revised arrangements so much as a series of controversies as to whether they should apply in this or that case.
  As regards fairness, the new arrangements introduced on 7th December, 1967, were more beneficial in some respects and less beneficial in others. It would hardly be fair as between the Exchequer and the local authorities if the new arrangements were applied when they gave the local authority some benefit but were not applied where there was some disadvantage to the local authority. That would be a case of, "Heads the local authorities win, and tails the Exchequer loses".
  The hon. and learned Gentleman, I accept, has done a service to his constituents and to the council in giving us an opportunity to debate this matter, about which, I know, he feels very strongly. But, in view of the quite explicit nature of the Department's circular, I do not see how I could exercise a discretion in favour of the Eton Rural District Council on this scheme, for the reasons which I have given to the House.
  Question put and agreed to.
  Adjourned accordingly at twenty-seven minutes past Eleven o'clock.