SURTAX RATES FOR 1968–69

HC Deb 13 May 1969 vol 783 cc1311-62

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: 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 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 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 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 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 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. 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 (Liverpool, Walton)

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 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 (Bootle)

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 £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 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 (Thurrock)

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.

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 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 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 (Petersfield)

indicated assent.

Sir G. Nabarro

—and I am glad to see that my hon. Friend agrees with me.

Mr. Eric Lubbock (Orpington)

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 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 (Windsor)

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 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.

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 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 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 (Banbury)

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 (Gillingham)

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 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.

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 (Dunbartonshire)

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"— 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 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 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.

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 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 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 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 (Cities of London and Westminster)

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 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 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 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 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 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— 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. 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 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 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 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 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 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 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 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.]