FINANCE BILL

HC Deb 05 May 1970 vol 801 cc326-53

Question again proposed,That the Bill be now read a Second time.

Mr. Macdonald

The best of British luck to those Amendments when we get to them.

Mr. Michael Alison (Barkston Ash)

And to the knights of old?

Mr. Macdonald

I have often thought that we make a mistake if we come forward too readily with proposals to plug loopholes or remedy anomalies, though for the best of reasons, taking them in isolation in each case, when the accumulated effect is the harassment of industry and difficulty in understanding the tax structure. I know that these things have to be dealt with, but I would rather see one thundering bumper Finance Bill once in five years for such purposes, and leave the anomalies to some such occasion. I also note and support what the hon. Member for Colne Valley (Mr. Richard Wainwright) said when he referred to the evidence of the Estimates Committee about the difficulties which the Inland Revenue is facing. I accept that evidence, and it seems to me that it is an added reason why we should be cautious before we make alterations too readily.

If it is in order to refer to the actual Bill itself—for not everybody has—I think Clause 1 is a perfect example of the kind of thing I am criticising. That is the Clause which provides a certain amount of tax relief when there is a hedging bet. Of course, there are obvious questions which arise. What difference will this make to the Revenue, and why are we not discussing a real bet rather than a hedging bet—if I have understood the Clause correctly? However, that is not the point I want to make.

The reform proposed in the Clause is a quite obvious one. I have always understood that the reason why it was not brought in right from the beginning was an administrative one. Evidently, something has happened. Either the administrative difficulty has been overcome or else somebody in the Treasury has decided that justice must prevail over administrative difficulty.

Therefore, what I should really like to know is not why this reform is being brought in but why it is being brought in now. What is the significant thing which has happened now that makes it possible to bring in this reform which was apparently not possible at the time when the tax was introduced? If we could do it at all why was it not done at the beginning? Why are we tinkering with it at this stage? I make this point about that Clause because this reform is one of which I happen to approve. If the arguments I am advancing are valid at all then I think they must be valid in all cases, and are not just extra arguments, so to speak, which I can throw in if I want to oppose some alteration of which I disapprove ayway.

We can see the same thing in Clause 2, which proposes an alteration in the gaming licence duty. I do not propose to go through the whole Bill in this way, but in this case I know why this alteration was not proposed when the gaming duty was first brought in. It was because we were then waiting for the Gaming Act. The Finance Act, 1966, which introduced the gaming licensing duty, established it on the basis of rateable value, which was an odd thing to do because the connection between the rateable value of casinos and the amount of money staked was an entirely random one. However, we were waiting for the Gaming Bill to be introduced when that system was brought in. Now the opportunity has come, and instead of sweeping it all away we have tinkered with it and merely modified it and, in a sense, made it more complicated by introducing a principle which I can only call the principle of leverage.

The question which comes to my mind concerns not so much the effect of these changes on the Revenue, although naturally I should like to know about them, nor why these proposals come forward, but' why these particular and rather bizarre proposals come forward at this time. Is there any necessity for messing about in this way? I hope that in Committee we shall be able to explore these matters in more detail than we do usually. I should like to know whether these alterations, however desirable they may be in theory, and whatever arguments may be advanced in support of them, are worth the trouble. I should like to be told that in some detail, and I hope that that will be possible this year.

In previous years, when the Finance Bill has been a bulky document, the prevailing theme in Committee has been to get the Bill through. The question whether we got it right was apparently of secondary importance. Perhaps this year we shall be able to discuss the Clauses in question in detail and have the opportunity to which my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) referred of having a dialogue with the Treasury Ministers and getting them to explain their policies in more detail than they do usually.

The arguments which I am advancing are not arguments against the tinkering Amendments. I hope that they are arguments in favour of lessening the frequency of tinkering Amendments. If there were a five-year embargo, as I have suggested, on minor alterations, there might be more incentive, when the magic year came round, for us to take a great deal more trouble to make sure that we got the matter right without subsequent alterations being necessary.

That is the main point which I wished to make. There is, however, a further point on which I touch briefly. Clause 16 proposes an increase in initial allowances. It is no part of my function to criticise that proposal; on the contrary. But the implications of the Clause deserve a little thought. Although I could not agree with a great deal of what the right hon. Member for Taunton said, he was on a good point when he referred to the difficulty in which the National Savings Movement finds itself. His remarks need to be considered very seriously.

I cannot avoid feeling that the implication behind Clause 16 is that the investment which we greatly need is, in the Government's view, to come mainly from internal savings. If that is so, does it mean that the Government have abandoned the National Savings Movement and any idea of savings being raised from outside? Are we to assume that in future all savings necessary for industry will be generated within industry itself? Is that the implication of the Clause, coupled with the fact that the National Savings Movement is in difficulty and, therefore, other savings are in decline? Perhaps I am reading too much into the Clause, but I hope that the Government will not assume that all the savings that we require, whether through public or private enterprise, are to be found by internally-generated savings.

10.10 p.m.

Mr. Kenneth Baker (Acton)

I find this Finance Bill disappointing from a political point of view and alarming from an economic point of view.

Regarding my political disappointment, hon. Members may recall that before the Budget Statement there was considerable speculation about how much the Chancellor would reflate the economy—whether it would be £200 million, £300 million or £400 million. In the event he selected £200 million.

The initial reaction to the Budget seemed to be that the Chancellor had been rather statesmanlike instead of playing the party politician. It appears from the opinion polls that the public have liked this. I hope that what is known on this side as "Macleod's iron law of Budgets" will operate—namely, that the initial reaction to the Budget is always reversed within three months. Indeed, I believe that it will be reversed more quickly, because I am beginning to get correspondence from constituents who realise that they get very little or no benefit from the Finance Bill, and in some cases have to pay more tax. It would require a financial genius of remarkable stature to discover a more secretive, obscure and private way of giving away £200 million. One could acquit the Chancellor of any political motive in doing it.

Great play has been made by the Chancellor, and by the Chief Secretary in his opening speech today, of the two million taxpayers who will be dropped out of the tax net. But those two million taxpayers are the yo-yo of the Inland Revenue. When the Chancellor can think of nothing else to put in his Budget, I feel sure that the Permanent Secretary to the Treasury says "Bring out the yo-yo", and the yo-yo is the two million who drop down, bounce back, and are pushed down again. I believe that a regular feature of every Budget will be the yo-yo, so the Chancellor can put his hand on his heart and say, "I have dropped them down again; I have dropped two million out of the net."

But this is what the Chancellor said a year ago. He said that he was going to drop 1.1million taxpayers. But we found that the number of taxpayers who were brought into the net last year had increased by 1 million. So this group is again going through the yo-yo procedure. The Government can take precious little credit for that.

I find the Bill economically alarming because, with the domestic surplus last year at £598 million and the estimate for the current year at £224 million, the Government basically cannot make any substantial reduction in taxation. When can they make a substantial reduction in taxation? The argument at the end of the 1950s and the beginning of the 1960s used to be that we could never reduce taxation because there was a large domestic deficit. But now there is a large domestic surplus.

I think that the mechanics of our tax collecting system in relation to economic control have got substantially out of gear. Indeed, the most important statements in the Budget are not in the Bill. The most important statements in the Budget were what targets the Chancellor set for the money supply and the domestic credit expansion for the current year. We might in future see a Budget which merely consists of these two figures being given. I dare say that the Chancellor will drag it out for two hours or so, but the nub of the Budget was those two key figures.

I should say in parentheses that those two figures have already been exceeded by what has happened through the Government's promotion of lending through the Giro and also the system announced today by Barclays Bank. In effect, we have seen the demotion of the Budget as the central economic lever of the financial year. Indeed, to some extent we have seen the demotion of the Chancellor as the person who can uniquely control that lever.

I believe that the Chancellor at the moment is a fugitive from economic management. By doing nothing in the Budget and nothing in the Finance Bill, he has acknowledged that other forces in society are in control. He cannot reflate the economy because Vic Feather, Clive Jenkins, Jack Jones, and Hugh Scanlon have decided to reflate the economy, and because every militant trade unionist and every non-militant trade unionist and every trade union negotiator has decided to reflate the economy.

These forces are not subject to any control from this House. They are what used to be called in mediaeval England "over-mighty subjects". The kings of mediaeval England realised that, in dealing with them, one had to do one of two things—decrease their powers or increase one's own. That is something which the Government have shirked. As a result, we have considerable inflation and, as the hon. Member for Ashton-under-Lyne (Mr. Sheldon) said, it is accelerating inflation. That is the really worrying factor: it is going up at a rate which none of us has ever seen before and which very few of us can really understand.

The Chancellor recognised this in his Budget speech, when he said, rather lightly and passing over it very quickly: Everyone concerned with wage settlements should understand that, if we are to achieve the reasonable stability of prices which is necessary for a sound economy and a healthy social framework. incomes cannot for long continue to rise at their recent rate"—{OFFICIAL REPORT, 14th April, 1970; Vol. 799, c. 1225.] The Chief Secretary made this point at the end of his speech today, in saying that the Budget does not add a penny to the inflationary spiral.

But in the same week as the Budget, the Chief Secretary will recall, there was a bill for £40 million from the Government for an increased health stamp contribution and a bill for £65 million from the Government for increased telephone charges. Once again, the public sector is the pace maker in this regard.

This is a disappointing Budget, because a great opportunity has been lost. It always used to be said that, when one does not have to do much in a Budget, that is a great opportunity to start simplifying or reforming the tax system. But the Bill does not simplify the system—it makes it immeasurably more complicated. There are 20 pages in the Bill on occupational pensions for a start. The change in surtax is not a simplification but a considerable complication.

The Chief Secretary may recall the speeches which he used to make in 1963 and 1964, saying that, when Labour came in, they would be a great reforming Government and that the two Measures which they would undertake above all were law reform, under Lord Gardiner, and taxation reform. In both these areas, their record has been dismal. There has been very little in the way of law reform and virtually nothing in the way of tax reform—indeed, an immense complication of the tax system.

The time for tinkering with reform of our tax system is past. The economic affairs of the country cannot be put right by taking 6d. off the standard rate or rounding down purchase tax rates. Something much more fundamental is needed. What we have at the moment is an immensely complicated structure. One goes into that building, one pays one's taxes and one passes through. As one comes out at the back, one collects something from the State through the social security system. The first step in reforming our tax system must be bringing the two doors of the body politic closer together by bringing together the tax collecting procedures and the cash distributing procedures.

The claw-back measures for family allowances introduced two years ago seemed to be a step in the right direction. I only hope that more steps are made in this direction. We should be more frank and perhaps slightly more explicit on this side of the House as to what we would do. We are not ashamed of our proposals because they involve an entirely new approach, a fundamental restructuring and reshaping of our tax system, not only moving it more away from direct to indirect taxation, but everything that is involved in social security payments as well. We cannot reform the tax system without reforming the social security system at the same time.

This is the task of the 'seventies and it will have to be faced by our Government. It will throw up exciting possibilities for restructuring our whole fiscal, economic and financial set-up. I am glad that my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) is in the House, because he will have heard the many suggestions from hon. Members on this side of how this can be done. That is what the country wants to hear and what the Opposition are prepared to tell it.

10.21 p.m.

Sir Brandon Rhys Williams (Kensington, South)

I am grateful for the opportunity to contribute to this debate. I apologise to hon. Members who have borne the heat and burden of the night when I have not been able to be present in the Chamber. As the hour is late I shall make very few observations.

I wanted to speak on this Finance Bill because I think that it represents the culmination—I certainly hope it does—of a process which has been in evidence since the days of Gladstone. That is the increasing dryness and emptiness of the Finance Bill. All politics is an aspect of the relationship between the one and the many. Where the financial relationship of the individual with the State is concerned, there is no reason why it should be accompanied by the trappings of legalistic incomprehensibility and a total absence of fresh thinking. But that is the case with this Bill. To read it fills one with a sense of emptiness and almost of despair. There is so much which could have been done and so little which has, in fact, been attempted.

I feel that this is a Budget which was dictated largely by the administrative convenience of the Inland Revenue department. All the innovations in it are bred from a need to simplify the processes before the machine breaks down. That approach is not the making of a happy relationship between the individual and the community. The object of the Budget should be the consummation of a union between the individual and the community, or at any rate an exchange of Easter cards. Instead, the Budget is something to which people look with anxiety and fear and from which they obtain less and less comfort and satisfaction.

The other force which has dictated the style of the Budget is the preoccupation of the I.M.F. with making tidy balances of payments between its members, one fears to the exclusion of serious considerations about the long-term interest of the world economy. It is not edifying to see one country after another, under the influence of the International Monetary Fund, attempting to build up surpluses by drawing resources from its neighbours. In the West we should try to create the greatest wealth we can in the world. We should not simply pursue the building up of surpluses for prestige or for some Election advantage.

One might have hoped that the Budget would be based on a theme so that one could see running through it the Government's sincerity in some objective, whatever it may be, right or wrong. Whether hon. Members on this side might have liked that or not, it would have been a better Budget if it had an objective which was clear and could be defined. The objective which suggests itself is the one which arises from the change in the cost of living.

The Government have admitted that there was a 5 per cent. rise in the cost of living in the last financial year. I do not like the cost of living to be expressed in terms of percentages because all of us have to live. It would be better if it were expressed in terms of so many shillings on the basic income. Let us look at what that might mean. Putting it at its lowest, if the cost of living increase over the last year was 5s. per person that would mean 10s. per week for a married couple, £1 a week for an average family with two children, and 30s. a week for a married couple with four mouths besides their own to feed. For people at the lower end of the income scale these are extremely serious changes.

I have often tried to point out that the services we provide to people who are poor are mainly available to those who have no income at all or who for one reason or another are temporarily out of employment or perhaps in retirement. We have not got to grips with the problem of people who have a regular income but who do not find it enough to keep them abreast of what society feels is a basic minimum standard of life.

We must tackle this problem by a drastic reform of the social services, or by a drastic reform of the tax system, or, as several hon. Members have said tonight, and as many people besides myself have felt for a long time, by a complete reconstruction of the cash relationship between the individual and the State. It is no good regarding the Budget as a one-way movement of cash from the individual to the community without realising that ultimately money circulates through the community as the blood circulates through the body. We cannot consider movement in the one direction without considering movement in the other.

What does this Budget do about child poverty, a problem which is preoccupying hon. Members on both sides of the House—child poverty where it affects a man who is in work but cannot earn more? The Government have shown themselves completely barren of ideas in this respect. Having, as it appears, £200 million to give away, they have given it primarily to single people and to married couples without children. This is an extraordinary priority to have chosen. It arises from the administrative difficulties of the Inland Revenue rather than from anything else.

I listened with great interest to the Chief Secretary's remarks about negative income tax. "Negative income tax" is an unpleasant phrase. I try to avoid using it, because the system which is designated "negative income tax" is neither negative nor a tax. I have always been convinced, since it first began to be recommended, that it was administratively completely unworkable and was merely an interesting laboratory exercise. However, the Chief Secretary has put his mind to it seriously, and we must take his objections to it seriously too.

Although negative income tax is not an ideal solution to the cash relationship between the one and the many, it is one which has received a great deal of attention lately. I noted, before I had to leave the Chamber, the four points the Chief Secretary mentioned as being insuperable difficulties in the way of a negative income tax system or something of the kind.

As I understood them, they were, first, its inability to respond quickly to new needs. Our present tax system, under the creaking old war-time Pay-As-You-Earn system which has survived into the seventies, can change week by week in relation to a man's earnings. It cannot be too difficult to devise a system which changes even from week to week in relation to other circumstances as well. That system may not yet have been devised, but to say that it is impossible to devise it is like the attitude of people who have given up trying to improve the efficiency of their companies and are unconsciously waiting for a take-over. I think that the Chief Secretary is waiting for a take-over in regard to his responsibilities in this respect, sincerely though he spoke.

Then the Chief Secretary mentioned the complexity of any system which might be devised. I think he balanced it with inequity. There has to be either complexity or inequity. Our relationship as a community of 50 million living together is bound to be a complex one. We should not seek any quick or super-simple solution; that would be like trying to put all truth into one sentence, and it is not possible.

If we accept that a change of the kind I recommend may be needed to be brought in over 10 or even 20 years, one can at least make a start. Where one makes a start is in the obvious places. Once the public and the machinery have become accustomed to the new ideas, one will also become accustomed to degrees of complexity which would seem overwhelming if they were introduced all at one stroke.

It is not necessarily inequitable to make changes in line with public opinion. It is necessary to devise machinery that will follow public opinion and not dictate to it simply because the machine appears to demand a particular course of action. We must allow the new relationship to develop gradually, using the machine as its servant. The matter deserves fuller study.

The right hon. Gentleman talked about the great cost. There is no net cost at all if a system can be devised in which everybody is left with the same spending power as he has now. This is not impossible. Bat if we introduce such a change we hope that it will also lead to an improvement in the conditions of the people whom society wishes to help. There is no reason why it should not. If we are willing to give £200 million to help the poorest people it might be said that to introduce the system costs £200 million, but the £200 million is already there to give, so there is no extra cost, provided we see that the people who gain are the people we wish to gain. We have then already made the expense a moral commitment of society.

Finally, the right hon. Gentleman mentioned incentives, a matter that we could argue at much greater length. It is most appropriate to ask about incentives in connection with our existing system. Although it may be true that the great majority of wage earners pay marginal income tax of 6s. 5d. in the £, it did not need Professor Prest's interesting document to show that the true marginal tax rates the individual consciously or unconsciously suffers in his relationship with the community at large are often much higher than that. It is, indeed, our obsolete social security and tax systems that are having this disincentive effect.

There is no reason why anyone should pay a very exceptional marginal tax rate in the future provided we can get rid of the anomaly left over from William Pitt, that the great majority of taxpayers pay no tax at all on the initialtranchesof their income—in fact, no taxpayers do. That means that to raise any substantial sum through income tax it is obligatory for the State to set marginal rates at points which have undoubted disincentive effects.

I did not mean to speak too long on this subject. There are one or two other things that I hope will be discussed in Committee in connection with occupational pensions. We welcome the tidying-up of the complexities that have grown up since the 1952 Act. However, one or two points must be made in the middle of our general welcome for what the Government are trying to do here. Their concept of the proper treatment for death in service has already been badly received. It is obviously one of those things that must be reconsidered. Every wise Chancellor includes in his Budget one point on which he has already decided to give way when pressure mounts. Perhaps this is such a point, because it is certainly one that needs to be revised.

The other point is the tragic omission of any reference to the self-employed, those pitiful gipsies who have been gradually alienated and driven out of our society because we force them to feel that they do not really fit in, they no longer belong. The 1956 Act was an attempt to provide the self-employed with a way of providing pensions for themselves which would not be out of line with the sort of pensions people provide for themselves in normal employment.

We had the figures not long ago. The total amount subscribed since the passing of that Act to self-employed people's occupational pensions is only about £200 million, whereas in case of people in employment, who work for another man, the figures have risen in the private sector to over £7,000 million. Those figures alone must be shouting out that something needs to be done about the 1956 Act to make self-employed pensions more attractive. I hope that we shall have an opportunity to consider this later.

To summarise briefly, it seems to me that this dry and unloving Budget is the Budget of a party that has run out of ideas and exhausted its compassion.

10.35 p.m.

Mr. Patrick Jenkin (Wanstead and Woodford)

I shall be brief, as the hour is late and as the debate has been brief, having regard to the debate earlier today.

It is a slightly wry thought that the House should have been packed for three hours this afternoon discussing a matter which, important though it undoubtedly is, does not basically and directly affect the people of this country as this Finance Bill emphatically does. We have had a rather empty House for this debate.

I am sorry that there were not more hon. Members present to hear the Chief Secretary make his remark about the tax system working so smoothly and so well, saying that there was only one case in a million of maladministration, to use his own word. I find that a frightening complacency and can only believe that since the right hon. Gentleman's translation to the Treasury he has had no direct experience of the tax system as a consumer. I imagine that someone else must do his tax returns, because his statement simply does not match the experience of every person with whom I have talked about this.

Let me make it clear where the blame lies. It lies not with the hard-working, often grossly overworked officials in the Inland Revenue, but fairly and squarely with right hon. and hon. Gentlemen opposite who, by their ill-judged tax reforms and complications, have thrown such enormous burdens upon the machinery. My right hon. Friend the Member for Taunton (Mr. du Cann) and other hon. Members have called for a great simplification of the tax system. The hon. Member for Chislehurst (Mr. Macdonald) seemed to discount this and said that this tended to be tinkering, and he welcomed the Bill with its very few changes.

The right answer is that one can satisfy my right hon. Friend and the hon. Member by saying that there is no doubt whatever that what needs to be done to our tax system is to have a radical structural simplification—then leave the damned thing alone for a number of years. This is what we really need. That this will be the policy of my party is now clear. It is a policy to which we have devoted several years of intensive study. [Interruption.] I am glad to have the attention of the hon. Member for Heywood and Royton (Mr. Barnett), because I think that he may find himself supporting us. It is the sort of work that can properly only be done by a party in opposition, which has the opportunity to study the thing in sufficient detail.

There are two points I want to deal with before coming to the main part of the debate. The first concerns the interesting announcement which the Chief Secretary made about mineral royalties. We welcome this alleviation. We will await the new Clause for the details and I hope that the Government will feel able to put it down as early as possible. We must know tonight from what date the new arrangements are to operate. I appreciate that in dealing with existing contracts and leases there are bound to be complications. This is really the parallel of the Chancellor making an announcement in his Budget Statement, when he is extremely punctilious to make perfectly clear the date from which any tax change will operate. I hope that the Minister of State can give more information about this.

The other point has to do with what the Chief Secretary said about the Bill dealing with injustices in the system. I mentioned an injustice when I spoke in the Budget debate. I mentioned the injustice done to wholesalers by their subjection to S.E.T. when they are in competition with industrialists who do their own wholesaling and who are exempt from the tax. It is the most glaring anomaly and injustice, to which the Reddaway Report drew attention. I have led a deputation to the Minister of State, but no reply was given by the Financial Secretary, the Minister of State, or the Chancellor to the criticism I made in the debate about the omission of any remedy for this anomaly. The Minister of State owes the House and the trade an explanation of why it has not been possible to relieve wholesalers of this anomaly.

The Chief Secretary dwelt at some length on the reliefs granted in the Bill, amounting in a full year to £220 million and this year to about £179 million. One should recognise what this is relief on. The estimated yield for taxation for 1970–71, eliminating the repayment of import deposits and allowing only for the net yield of S.E.T., is £14,653 million.

Compared with the previous year, calculated on the same basis, which was £13,183 million, that is an increase of £1,470 million, or 11.1 per cent. This is after allowing for the reliefs given in the Budget.

The figure for income tax and surtax alone is even more striking. It is up from £5,155 million in 1969–70 to £5,930 million in the current year, an increase of £775 million, or 15 per cent. in the anticipated yield from income tax and surtax this year. I am glad to see the Chancellor of the Exchequer has joined us. I am grateful for his message. How does he reach the estimated increase of 15 per cent. in the yield of income tax and surtax, even after his reductions of £150 million a year applying to that figure, when he has a 3½ per cent. growth of G.N.P. and a 3.9 per cent. growth in consumer expenditure? How come the 15 per cent. increase in the yield of personal direct taxation? Surely, the only answer can be soaring inflation. We know that with a progressive system inflation produces a buoyant revenue. I hope that the Minister of State will deal with this, because it is very important. The Government must come clean on this.

The estimates in the Red Book postulate a severe inflation, and we need to know the rate of inflation which the Government have assumed in that 15 per cent. increase in the yield of direct personal taxation. Perhaps the most glaring gap in the Chancellor of the Exchequer's strategy was that he gave no indication of the rate of inflation he expected in the year ahead.

Mr. John M. Temple (City of Chester)

Would not it be a generous offer to suggest to the Prime Minister that he might have the help of the Conservative Research Department in working out the rate of increase in inflation?

Mr. Jenkin

I dare say it would be a generous offer, but the Prime Minister would find it an embarrassing gift.

The yield of all taxation is 11.1 per cent. up on last year. During the six years since right hon. Gentlemen opposite have been in charge of our affairs. the tax yield has gone up from £7,431 million to £14,653 million. It has virtually doubled in six years. For every £ people were paying in tax in 1964–65 they now have the dubious pleasure of paying £1 19s. 5d. Part of this is the natural buoyancy of the revenue.

Mr. hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) said that increases by Socialist Chancellors of the Exchequer. even after this year's Budget, amount to over £3,000 million. The figure of £3,064 million was given in a Parliamentary Answer. Direct taxes accounted for £800 million. indirect taxation for about £1,600 million and selective employment tax for about £600 million—all this after allowing for the reductions this year. This is from a party which put in its 1964 election manifesto: The general effect of our tax changes will be to stimulate enterprise, not penalise it. The real answer is that the party opposite does not believe in stimulating enterprise. As the Chief Secretary has made clear again and again, he does not know or understand the meaning of the word "incentive".

The objectives of the Labour Party are entirely different, and I support that by quoting again my favourite passage from a speech of the Chief Secretary in the House during the Committee stage of the 1967 Finance Bill. The right hon. Gentleman said: This Government believe in intervention by the State and taxation is better described as the level of intervention—[HON. MEMBERS: ' Oh.] Oh, yes. Taxation does not disappear into thin air. It is collected and is spent on a whole variety of social, economic and military services.… We believe that most of the things which the individual wants are best and most economically satisfied by the community. …."—[OFFICIAL REPORT, 6th June, 1967; Vol. 747, cc. 958–9.] If I may say so, those few words from the Chief Secretary, by now engraved on my heart, are the quintessence of Socialist philosophy.

I accept that right hon. and hon. Gentlemen opposite genuinely believe it. The hon. Member for Chislehurst is indicating his vigorous assent. I accept that that is why they have steadily, remorselessly and deliberately raised the level of taxation. Again, I quote the figures referred to by my hon. Friend the Member for Worcestershire. South: 32 per cent. of the gross national product in 1964; 44 per cent. in 1969–70. I accept, too, that that is why the public sector as a whole has risen from 42 per cent. in 1964 to over 51 per cent. in 1970.

What sticks in my gullet and in those of my right hon. and hon. Friends is that the Prime Minister told the nation in 1964 that his programme could be carried out without any general increase in taxation. It is high time that the Labour Party came clean about what it intends to do in the future. Do right hon. and hon. Gentlemen opposite aim to reduce taxation, or do they, in the words of the Chief Secretary, … believe that most of the things which the individual wants are best and most economically satisfied by the community …"? It is now abundantly clear that they cannot have it both ways.

The truth is that the Labour Party has always been and always will be the party of high taxation. By 1964, millions of our citizens had forgotten this, and refused to heed our warnings of the result of electing the Labour Party. They have had to learn the hard way, and they will not be fooled again.

Right hon. and lion. Gentlemen opposite put forward many reasons for the soaring increase in taxation that we have experienced. It is said, for example, to be part of a deliberate policy for the redistribution of wealth. However, there is a double fallacy in that argument. and I shall attempt to explain it.

First, there is no evidence that there has been any acceleration in the redistribution of wealth since 1964, despite the enormous increase in taxation. If I am asked for evidence of that, I turn to two obscure tables at the end of the very valuable volume of Inland Revenue Statistics for 1970. There is given there the estimated wealth of individuals between 1960 and 1968. It is made clear in the notes that the figures have to be accepted with a good deal of caution.

The basis on which they are compiled is open to some degree of error. They are based on the estates of deceased people and "blown up" by using the mortality rates. They may not be fully representative of the population as a whole. But they are put forward as giving a guide, and the Department has gone on to attempt to measure the changes in the degree of inequality in the wealth of our citizens. It uses a mathematical device with which some hon. Members will be familiar, the Gini co-efficient of concentration. I will not attempt to explain that, but I will read two short sentences from the Inland Revenue's explanation. On page 209, it states: It provides a simple measure of the degree of inequality in the distribution of wealth. If all the wealth were owned by one individual the co-efficient would be 100 per cent.; if the wealth were all equally shared it would be 0 per cent. The larger the co-efficient the greater the degree of inequality. What the figures show, using the Gini coefficient of concentration is that in the last four years of the Conservative Government the decline from inequality was from 76 to 72 per cent.; in the four years 1964–68 the trend continued at an identical rate. It went down from 72 to 68 per cent. In other words, there is no evidence that the penal rates of taxation, the additional burden of taxation which has been imposed by this Government, have had any effect on the rate of reducing the inequalities of wealth. It would be futile to imagine that they ever would have such effect.

What the figures also show is that the growth in net personal wealth was a great deal faster under the Tories than under Labour, and very much faster indeed if adjustments are made for changes in the value of money. I will quote one or two more figures taken from the table at the back of the statistics volume. Total net personal wealth in 1960 is put at £51.6 billion, rising to £71.8 billion by 1964, an increase of £20.2 billion in those four years—39 per cent. up at current prices and 21 per cent. up if allowance is made for changes in the value of money. In the Labour years, however, the increase was from £71.8 billion in 1964 to £88 billion in 1968, a rise in four years of only £16.2 billion—22.5 per cent. up at current prices, as compared with the 39 per cent. of the four Tory years, and an increase of under 5 per cent. at constant prices because the rate of inflation was somewhat faster.

Therefore, not only do we say that this high rate of taxation has had no effect in changing the rate of reducing inequality, but has brought about a drastic cut in the real growth of personal wealth. It demonstrates, as nothing else probably could, the truth of what we have said—that the way to reduce inequality is by levelling up and not by levelling down. The best way to achieve redistribution of wealth is not to tax wealth heavily, but to create a situation where people can acquire wealth.

The encouragement of savings, of home ownership and of investment all do far more to reduce inequality than penal taxation of the rich. Looking at the figures for savings, one can see the real fall—a fall which the Budget and the Bill do nothing whatever to remedy. As recent Parliamentary Answers have shown, there are devastating figures in the annual average increase in personal savings per head at constant prices. In 1946–51, which were Socialist years, savings were minus 19.9 per cent. per annum; in 1951–64, which were Tory years, they were plus 17.4 per cent. per annum. In 1964–69, again Socialist years, they were again minus 0.1 per cent. per annum.

A number of hon. Members opposite demanded in the Budget debate, that the Government should make a tougher attack on the wealthy, but it is futile for the Government to do so. The National Plan rightly said that the more rapid the rise in the ratio of savings to disposable income the lower would be the taxation required. The converse is also true. The lower the level of taxation, the greater the propensity to save. That is why the Conservatives place such high priority on reducing the levels of direct taxation, for it is savings which generate personal wealth, and it is creation of new personal wealth which is a vastly more worth while objective for any Government to pursue than the rather sterile redistribution of existing wealth.

I am sure that in their hearts many hon. Gentlemen opposite know this to be true, but the policies which they support lead always in precisely the opposite direction.

I turn next to one specific matter mentioned in the Bill, and the point mentioned by my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams) about occupational pension schemes. We welcome the provisions for putting different kinds of pension schemes under the same general rules. We welcome the tidying-up which the Bill contains, but we deplore those provisions which cut down the maximum allowable pension which an occupational pension scheme can make to take account of the Crossman scheme. We shall probe these Clauses, and I am delighted to be able to tell the House that my hon. Friend the Member for Somerset, North (Mr. Dean), who is an expert in these matters, will be by our side to help us.

I have three points which perhaps the Minister of State will be able to answer. Like my hon. Friend the Member for Kensington, South, I very much regret that the opportunity has not been taken in the Bill to bring up to date the Sections of the 1956 Finance Act which deal with the self-employed. The House will remember that the Millard Tucker Report, which was issued before that Act, recommended that some pension provision should be made for the self-employed. It recommended that they should be allowed to set aside out of their gross income before tax sums by way of provision for retirement, and a new right to spread their incomes earned over their working lives over the whole of their lives, but limits were imposed. The maximum was 10 per cent., with an upper limit of £750, and no provision was made for commutation to provide a small capital sum on retirement. Fourteen years later these provisions remain exactly as they were in 1956, and they are crying out for a change.

The usual percentage in employment must be about 15 per cent. Some more generous schemes go to 20 per cent. of the employee's wage or salary as the contribution to a scheme, but for the self-employed the limit is 10 per cent., and that is inadequate. Employees are not subject to any upper limit at all, but the self-employed have this figure of £750 as the maximum tax-free contribution that they can make.

Why is there no commutation? Civil servants get their lump sums on retirement. Employees in pension schemes get lump sums. The Inland Revenue said in paragraph 21 of its White Paper on Occupational Pension Schemes: The Chancellor has considered whether to set an absolute limit of amount on tax-free lump sums, so that where a lump sum, although within the formula described above, exceeds the limit the recipient would be charged to tax on the excess, but has decided not to introduce such a charge in connection with the current revision of the rules for occupational schemes. Yet the self-employed have no right to commute any part of their retirement benefits under the 1956 Act. It is a great pity that the self-employed are not covered by the Bill, and it may be that we shall seek opportunities to try to put this right.

In a number of cases the Bill is markedly less favourable than the White Paper. Perhaps I might quote one example, and that is the treatment of widows when the pensioner has died. Paragraph 26 of the White Paper says: A widow's pension may be paid equal to two-thirds of the maximum pension … which would be approvable for the husband ", whereas paragraph 4 of the Fifth Schedule to the Bill says: The annual amount of any pension payable to the widow of an employee who dies after retirement must not exceed one-half of the employee's pension. Has there been a change of mind, or will there be a discretion which will allow the payment of widow's pension up to two-thirds? This is a matter of some importance to many people.

Finally, there is the question of the deductibility of contributions to the Crossman scheme. The Chancellor will remember that the White Paper left this open. It said that this would be reconsidered for the future, but there is an obvious anomaly if contributions to an occupational pension scheme are to be deductible but contributions to the State scheme are not. The basic rule which is adhered to throughout the White Paper and Chapter II of the Bill is that one exempts the building up of pension schemes, but taxes the benefit.

This was expressly approved by the Millard Tucker Report, whereas the Crossman scheme is in contravention of it. We are told that it will be reviewed later. I hope that during our debates on the Finance Bill we will have a clear answer on this issue and will be told what is the Government's intention about it. In a way, however, this is an academic exercise because it is part of the Crossman scheme, which will be repealed by the next Parliament.

Hon. Members have found it difficult to say much about the Bill. While I do not believe that a Finance Bill need be exciting legislation, it should offer some hope, some encouragement and some inspiration, certainly more so than this rather tepid Measure.

The Government's policy would have been more credible had the major threats facing the nation been faced in the Chancellor's Budget statement. They are outside the terms of the Bill, although everybody knows what they are. It is well known that we are embarking on a runaway cost and price inflation which will wipe out, within a few weeks, any tax advantage given by the Bill.

More serious, this inflation represents the gravest possible threat to the future stability and solvency of the economy. Despite that, nothing is being done, simply because the Government hope to surf to electoral victory on a tidal wave of wage increases far in excess of what the Chancellor knows can be afforded. And the Government want to do this before they are swamped by the tidal wave of price increases which will follow, as sure as night follows day.

The Chancellor has sought a reputation for financial integrity, but his supine inaction in the face of this soaring inflation will condemn him utterly.

11.2 p.m.

The Minister of State, Treasury (Mr. William Rodgers)

Lest this genial hour finally give way to weariness, I shall resist the temptation to follow the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) through the more philosophic and partisan parts of his speech. Nor will I attempt to answer all his detailed questions. [Interruption.] I said "all" of them. If the House is prepared to hear me till, say, midnight, I shall be happy to answer them all, but in my judgment that is not what hon. Members most desire.

In 1968, the right hon. Member for Enfield, West (Mr. Iain Macleod) claimed in a similar debate that two days should have been provided, and. winding up for the Opposition, he spoke for 31 minutes. In 1969, the right hon. Gentleman said that Second Reading debates on the Finance Bill were often dull and that they were occasions with which we might well dispense. Then, he spoke for 15 minutes. In the debate this year the right hon. Member has contracted out altogether. Despite the excellent speeches that have been made today, I have some sympathy with his developing position.

Although it seems that this debate is a conventional necessity, I have listened with the greatest interest to the various speeches and suggestions that have been made, and I assure the House that we will take account of them. I am left feeling that I more fully understand than I did before the debate some of the views that have been put forward; for example, the suggestion of my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) about a Select Committee on Economic Affairs, even if I will not comment further on that matter tonight.

I was also interested in the suggestion of my hon. Friend the Member for Chislehurst (Mr. Macdonald) that there should be one big Finance Bill every five years. He might like to amend that by deleting the work "big". The House might be content to have merely one such Measure that often. We have, therefore, had a gentle and, on the whole, constructive debate.

My hon. Friend the Member for Heywood and Royton (Mr. Barnett), supported by my hon. Friend the Member for Ashton-under-Lyne, spoke particularly about the need for a radical upheaval in the tax system. I was glad that my hon. Friends made it clear that they were expecting us to take note of their remarks and bring forward proposals before long. I can make no promise, but I can say that we shall certainly be thinking of these matters, and when we present next year's Finance Bill my hon. Friends can judge whether they have been listened to adequately or not.

I must say this also to the right hon. Gentleman the Member for Taunton (Mr. du Cann). He was fertile in suggestions. I am grateful to him. We shall take full account of them, and he will see the result in due course.

I was interested in the speech of the hon. Member for Worthing (Mr. Higgins) in so far as he talked about prices and incomes, because I thought it an interesting refinement of the attitude of the Opposition to this question. In the Budget debate on 15th April the hon. Gentleman referred to the need for considering when in economic terms giving an increase is justified, but the system had failed, he believed, because the Government have failed to take a tough line in the public sector…"— [OFFICIAL REPORT, 15th April, 1970; Vol. 799, c. 1506.] He then went on to refer to the need to take a firm line in the public sector. The third time he said: It is in the public sector that we need to take a firm line.…"-[OFFICIAL REPORT, 15th April, 1970; Vol. 799, c. 1507.] Then, this evening, in the main part of his speech, the hon. Gentleman said that we should not discriminate against the public sector. Then, in an intervention later, he said that we should look at each case on its merits. I think that that is a distinctive softening of the attitude of the Opposition as we have heard it. I have noted what the hon. Gentleman has said. I welcome it, but I must say that in making it more explicit he has confused even further what the Opposition would in practice choose to do if they were given the chance.

Mr. Higgins

I said before that we must deal with each case on its merits.

Mr. Rodgers

I looked at the hon. Member's speech, and, as I said, he mentioned on two occasions the need to take a firm line and on the third occasion he mentioned a tough line. I thought that tonight he modified that speech and I had rather hoped for his sake that he might have done so.

My hon. Friend the Member for Manchester, Wythenshawe (Mr. Alfred Morris) had some fair and reasonable remarks to make about the handicapped and went on to say he would put down an Amendment on this question. As he knows, and as he fairly mentioned this evening, there are real problems of definition involved here. We wish very much that they should be solved and, of course, we shall scrutinise carefully any Amendment my hon. Friend puts down, because if we can overcome the administrative problems, we, like him, would like to do whatever we can for those who find themselves in these exceedingly difficult circumstances. I thought he summed it up very well when he said it is not only a question of physical handicap, but of social handicap, too.

The hon. Member for Worcestershire, South (Sir G. Nabarro) had something to say about, among other things, tobacco substitutes. As he implied, this is something which we, no doubt, can pursue to the general profit in Committee.

As for old-age pensioners, I think that he made a mistake in referring to the speech I made on 15th April, because I made none. He also made a mistake when he claimed that only 400,000 people with retirement pensions paid tax. I think that he would see, on reflection. that there are many people who have income in addition to their pension. The facts are that about 1.6 million people on retirement pension have sufficient other income to pay tax.

Sir G. Nabarro

On the two points on which the hon. Gentleman imputes a mistake to me, first, I definitely said the Minister, Treasury—[HON. MEMBERS: "That is the Minister."]—on 15th April. I am sorry: the Financial Secretary; I quoted the correct column, at all events. Second. the figure I quoted of 400.000 came from the Inland Revenue this afternoon to the research librarian of the House and so to me. I have no doubt at all that the figure is correct. Of course, I did not mean maximum incomes. What the Chancellor said in his Budget Statement was that 400,000 people would be relieved by the increase in the allowance for elderly people. That was the figure I employed this evening: 5.7 per cent. of State retirement pensioners—confirmed by the Inland Revenue this afternoon. Perhaps the hon. Gentleman will withdraw his remark that I made a mistake.

Mr. Rodgers

I have no need to withdraw. I am not disputing the figure of 400.000, as the hon. Gentleman described it. The point that I was making, and. I think, made clearly, was that whereas this figure is correct, there are many more people in receipt of retirement pensions who, because of additional income, in fact pay tax.

The hon. Member for Colne Valley (Mr. Richard Wainwright) fairly asked whether anything had occurred since the Budget which would give cause for alarm. I think that he had in mind, in particular. the growth of domestic credit. He will remember that my right hon. Friend. opening the debate, said that nothing had happened since the Budget debate which affected the Chancellor's Budget judgment. I can assure the hon. Gentleman that nothing has happened in this sphere which need cause concern.

The hon. Member for Wanstead and Woodford asked about minerals and S.E.T. Concerning minerals, I regret that I cannot go farther than my right hon. Friend went this afternoon. There are real problems about the date. We shall. as soon as we possibly can, put the in formation before the House. I think that it was right and, in the view of the House, correct for my right hon. Friend to indicate our broad intention in this sphere.

The hon. Gentleman's second main question was about S.E.T. I am sure that he did not intend to say that there had been no reference to it in the course of the Budget debate. My right hon. Friend the Chancellor, in his speech, dealt with S.E.T. and referred to the possibility of anomalies, but he said that this year it seemed better not to take action.

There are a number of further matters upon which I should like to speak. I should particularly like to deal with savings, a subject touched on not only by the hon. Member for Wanstead and Woodford, but also by the right hon. Member for Taunton and I could speak happily on the Finance Bill for another hour. It is an excellent Bill, which I am sure commends itself to the House. I do not believe that the House will now dissent from that view.

Question put and agreed to.

Bill accordingly read a Second time.

Ordered,

That the following provisions, namely—

1. (a) Clauses 11, 12, 13, 14 and 35, and
2. (b) any new Clause first appearing on the Order Paper not later than Friday 8th May, and relating wholly or mainly to corporation tax, or amending Chapter II of Part I of the Income and Corporation Taxes Act 1970 (personal reliefs), or relating to the tax treatment of savings schemes,

be committed to a Committee of the whole House:

That the remainder of the Bill be committed to a Standing Committee: That, when the provisions of the Bill considered respectively by the Committee of the whole House and by the Standing Committee have been reported to the House, the Bill be proceeded with as if the Bill had been reported as a whole to the House from the Standing Committee.—[Mr. Diamond.]

Committee Tomorrow.