SURTAX RATES FOR 1969–70

HC Deb 12 May 1970 vol 801 cc1153-204

Mr. John Hall

I beg to move Amendment No. 7, in page 11, leave out lines 3 to 12 and insert:

			Per cent.
The first £500	…	…	Nil
The next £500	…	…	2.5
The next £1,000	…	…	7.5
The next £1,000	…	…	12.5
The next £1,000	…	…	17.5
The next £2,000	…	…	22.5
The next £2,000	…	…	27.5
The next £2,000	…	…	32.5
The next £3,000	…	…	37.5
The remainder	…	…	40

The Chairman

With this Amendment, we may discuss the following:

Amendment No. 5, in page 10, line 33, leave out Subject to subsection (2) below '.

Amendment No. 6, in line 37, leave out ' £2,000 ' and insert £2,500 '.

Amendment No. 8, in page 11, leave out lines 7 to 12 and insert:

			Per cent.
The next £1,500	…	…	25
The next £2,500	…	…	27.5
The next £2,500	…	…	30
The next £3,000	…	…	33.75
The remainder	…	…	37.5

Amendment No. 9, in line 13, leave out subsection (2).

Mr. Hall

I start with a statement which I am sure will be accepted by both sides of the Committee. It is that surtax in this country raises taxation on the incomes of people more steeply and to greater heights than in any other comparable country. No country can match our top marginal rate, which is now 91.25 per cent. On top of that, every now and again we impose a further burden on the surtax payer. Hon. Members will remember the 10 per cent. surcharge which was imposed in July, 1966, on surtax liabilities for 1965–66. They will remember the imposition in the Budget of 1968, when there was a special charge of 3s. to 9s. in the £ on investment income over £3,000. That was an additional surtax charge which resulted in some cases in the imposition of a rate in the £ of 27s. 3d. Those are just the odd additional burdens which have been put upon surtax payers who, compared with all international comparisons, are already very heavily burdened.

Nowhere in the Western world is initiative, drive, inventiveness, intelligence and willingness to work so severely financially penalised. Nowhere amongst our major industrial competitors is enterprise, risk-taking and saving so financially discouraged.

Even this Amendment leaves the top marginal rate at 81.25 per cent. Had the previous Amendment been adopted, the top rate would have been rather less. But even if this Amendment were accepted, our rate would still be higher than that of any other Western country. Sweden comes somewhere near us with something like 80 per cent. of the total which can be taken from the taxpayer in national or local tax, but it includes the net wealth tax which is imposed in that country. That contrasts with the United States of America, which I understand is now considering reducing its top marginal rate from 70 to 60 per cent. It also contrasts with the recommendations of the Canadian Royal Commission which reported last year and asserted that, on equity grounds, the marginal rate should never go above 50 per cent. We have not gone as far as that in this Amendment. But it is a move in the right direction which should commend itself to the Treasury Bench.

Although I have mentioned one or two comparisons with other countries, it is not easy to make accurate comparisons. There are other factors which affect the total tax taken, especially from the top income tax payers. There are the various forms of poverty tax, which differ from one country to another and which may affect personal tax. There may be a wealth tax, as there is in Sweden. There may be different forms of death duty which must be taken into account when looking at the total burden and impact of surtax generally.

Above all, I suggest that the comparison is affected by the treatment in other countries of the taxing of the joint incomes of husbands and wives, and also by their treatment of what we laughingly call unearned income.

I should like to give an example of the effect of our system, certainly in the surtax bracket, on insisting that husband and wife are taxed as one tax unit. Taking a husband and wife with the same earned income each, they would be slightly better off married under our system of joint assessment up to £5,000 of joint income. That is if they were both earning and their incomes were the same. Above that the difference becomes striking, so that a married couple would be much worse off than if they were living separately. For example, at £10,000—that is, each having an earned income of £5,000—they would be paying £1,032 or thereabouts more than if separately assessed. At £20,000 they would be paying £3.850 more than if assessed as individual taxpayers. But if, as is often the case, the husband's earned income and the wife's investment income are combined, again taking the case where they have an equal income, one derived from earned income and the other from unearned income, under our system the married couple would be worse off from a joint income of £1,000 upwards. So that if the wife has an unearned income the situation is very much worse under our tax system.

There is no doubt that at certain levels of income an agreed divorce would be profitable to both parties. I suppose that the only thing that saves the Treasury and enables it to go on gaining more revenue from married couples than it would get from them separately is the reluctance by most married couples, fortunately, to depart from the normal conventions. Perhaps against the present background of a more permissive society the Chancellor may have to look again at the way that he taxes married couples.

I suppose that one reason why it is always difficult to get changes in surtax rates is because there are few surtax payers. This is especially so now that the Chancellor has excluded those on the margin. There are probably well below 400,000 surtax payers at the moment. The out-turn from surtax payers in the last full year 1969–70 was £255 million. It is anticipated that this year we shall get £277 million, which is £3 million less than if we had not excluded the number on the margin. The Chief Secretary will correct me if I am wrong when I say that the number to be excluded is about 185,000.

Most of the increase between the out-turn of last year and the anticipated out-turn for the current financial year will be a tax on inflation which will leave the surtax payer worse off in real terms. Any surtax payer whose income is increased by only enough to take account of the increase in prices is pushed inexorably into a higher surtax bracket and, as a result, the real value of his earned income declines.

I will give examples of what I mean. Let us take a situation where prices are rising by 3 per cent. per annum. In recent months they have been rising faster than that, but I will take 3 per cent. If a man has an earned income of £10,000 it will be necessary for him to increase his gross earned income by more than 6 per cent. per annum to prevent a real fall in his purchasing power. With an income of £12,000 a man must increase his gross earned income by over 7 per cent. If a man has an income of E16.000 he must increase his gross earned income by 11 per cent. Going up to £19,000, which is rather less than we are now paying the heads of the nationalised industries, a man must increase his gross earned income by over 13 per cent. per year if he is to maintain the purchasing power of his income.

To take a more realistic increase in prices which we have experienced over recent months, a rise in prices of 5 per cent., at £10,000 a man would need to increase his gross earned income by 11 per cent. per year and at £19,000 by over 22 per cent. per year. I hope, therefore, that the Government have in mind increasing the salaries of the heads of the nationalised industries by amounts of this kind. If they do, they will be the only employers who are able to do it effectively.

It is very difficult for companies to give rises of the magnitude that I have mentioned to top income earners. It is difficult for a number of reasons—not only the reaction of the workers throughout the company, but throughout the country as a whole. Yet, if they do not give increases of this kind, they will be imposing a falling standard of living on top executives from whom they are asking increased responsibility and better results. This does not seem fair or equitable by any standards.

It is true that the few who get the high salaries which attract surtax tend to attract the envy of the many whose incomes are more modest. Envy is not only an unattractive trait in human nature, although very prevalent in most of us, I suppose; but, if it is translated into imposing unfair tax penalties, it can be positively economically harmful.

It is sometimes said that we live in the age of the common man. This may be so. But it is the uncommon man who provides the leadership, the inspiration, and the driving force which makes a country great in every sense of that word. It is economic nonsense to penalise the uncommon man and to rely on the other motive forces which impel him to work. We all agree that money is by no means the only reason why people work. It is sometimes the least of the reasons. We cannot go on relying on that indefinitely.

It is also true that the existing surtax levels tend to keep down the level of management and top management salaries. This also has the effect of lessening the differentials throughout the country. But worse, it creates problems, especially for companies operating internationally which have a base in this country. Any United Kingdom company with a number of overseas operations is constantly finding the problem of moving its people about if, by so doing, they change their tax structure. Certainly if we enter the Common Market, more attention will be paid by executives in this country to the salaries paid to their commensurate opposite numbers throughout Europe, and certainly within the Common Market area.

I have some experience of companies which have associated companies operating overseas. With increasing frequency I have drawn to my attention the comparison between salaries here and those of people doing the same kind of work overseas. Yet, if companies were to increase salaries here to a commensurate level in purchasing power, taking into account all the differences in the cost of living in other countries, they would merely be coming up against the surtax ceiling and a lot of the benefit of the increased salaries would be taken away.

The Chief Secretary is well aware that the present rates are unjust because they place our top men and women at a financial disadvantage compared with their overseas counterparts. I think that he will also agree—the Chancellor of the Exchequer has already agreed—that very high penal rates have a disincentive effect. The Chief Secretary, because of his professional experience outside the House as well as his experience as Chief Secretary, I am sure, will agree that the high rates are causing top executives and members of his profession to spend a great deal of time trying to find ways of limiting liability to surtax; time, energy, and thought which could far more profitably be devoted to the expansion of industry. I am sure the right hon. Gentleman will agree that a reduction in surtax, or a return from surtax arising from a cut in rates, would be more than made good within a short time. The effect of these high rates on those who are, and have been, living on fixed incomes from savings which are savagely penalised must be to discourage savings.

I have a feeling that the Chancellor —and the Chief Secretary. too—would he prepared to do something to relieve the burden on surtax payers, and to reduce the levels to something more in line with those which operate among our major industrial competitors, but he hesitates only because of the emotional reaction which one still gets from some members of his party, both inside and outside the House, against any action which is designed to restore equity in the treatment of high income earners. I think that that reaction is probably even greater among the less thinking members of the party opposite when it comes to dealing with the inequity of treatment of those living on incomes from savings.

If we want to keep this country moving, we must stop penalising so savagely those on whose leadership and enthusiasm we depend. If we want to get the growth which we have been talking about for so long but failing lamentably to achieve, we must stop preventing able men and women from getting the maximum advantage from the services they render to their companies. We must not stop them from accumulating worthwhile savings which enable them to have a real stake in the country. We must give the maximum encouragement to the best in this country to make the most of their abilities, in the knowledge that they are being fairly taxed. I suggest that as a start towards achieving that wholly admirable aim the Chief Secretary should accept the Amendment.

Mr. Boyd-Carpenter

It is difficult to have a debate about surtax without introducing, possibly on both sides, an element of emotion, or indeed of prejudice. But I think it is becoming more and more widely accepted that surtax at its present very high levels has a large number of adverse and harmful effects. Certainly taxation at this level, and particularly at the level at the top of the scale, gives every possible incentive to those concerned to resort to every lawful device to mitigate its effect. This leads to transactions of great complexity. In due course these are followed up by the Inland Revenue which produces Finance Bill Clauses of even greater complexity, and quite a large part of some of the best intellect of the country is concentrated on this warfare between—if the Chief Secretary does not mind once again the somewhat embarrassing gamekeeper analogy —between gamekeeper and poacher. I am not introducing Lady Chatterley. This is a product of the incentive given by taxation at these high rates to use any lawful device to avoid it.

It is curious that a tax which has these effects—and I think serious economic effects as well—is not, as the Chief Secretary knows, one of the major supports of the revenue. According to the Government's Red Book, the yield of the tax expected this year after the changes are made is £277 million. The Chancellor, in the most good natured way, rebuked me on an earlier Amendment for having suggested that a sum of £200 million was within the possible area of error in the Budget judgment. He made the most aggressive comment that he preferred the present Chief Secretary to his predecessor!

8.15 p.m.

So I must make it clear that I am not underrating the significance of a sum of £277 million. But against the background of a yield of income tax foreseen for this year at £5,653 million, or an estimated yield of taxation in excess of £15,500 million, it is fair to say that this is not one of the major supports of the Revenue. Indeed, I do not think that the Chief Secretary will quarrel with me when I say that much of the origin of this tax and of many of the increases which have taken Place in it derive more from social and political than from strictly fiscal considerations.

Indeed, fiscal considerations point the other way. The Chief Secretary will recall the admirable article in the Economist on 11th April, just before the Budget, in which that wholly impartial journal suggested that if, for political reasons, a relief in company taxation, which was its first choice, was not given in the Budget, the second best choice would be the abolition of surtax. It said: If surtax was totally abolished "— I hate to criticise the Economist's grammar, but I should have said " If surtax were abolished "— the addition to consumption would be much less than 200 million a year because a lot would go in savings and the prospects for risk-taking and executive mobility in the enervated British economy would be transformed ". It added a wise comment that that would not happen, either.

It is clear that we start this discusison on the basis, first, that though surtax makes a contribution to revenue, it is not a great one against the background of total revenue, and that the fiscal arguments for it, certainly at present rates, are somewhat dubious. One then comes to the question, does it positively do damage? Here we are to some extent in the realm of opinion, although it seems front my judgment of human nature that if we tell a man that we propose to take 91.25 per cent. of what he earns above a certain level in taxation we diminish in some considerable degree any financial inducement to him to undertake extra work or extra responsibilities.

The next and significant point is that in this respect we differ enormously from the practice of foreign countries. In the earlier debate the Chancellor rebuked my right hon. Friend the Member for Enfield, West (Mr. Ian Macleod) in the context of his proposal to reduce the share of the national product taken in taxation. The right hon. Gentleman said that he was troubled because my right hon. Friend was setting himself against the current practice of every civilised country in the world. I think that the Committee will recognise the Chancellor's always agreeable phraseology, but I call this argument in aid, because in respect of surtax this is exactly what the Chancellor is doing.

The Committee may remember that in my speech on the Budget I referred to the Question which the Financial Secretary answered in a Written Answer on 12th February, but as it is germane to this issue I should like to call it to the attention of the Committee once more. I asked the Chancellor what percentage of the next £1,000 of his earnings above £5,000, £8.500, £10,000 and £15,000 a year is now retained by a married man with two children under eleven years of age; and what are now the comparable figures at current rates of exchange for a similar man after payment of direct taxation in the United States of America, France, West Germany and Japan based upon information he derives from international organisations."—[OFFICIAL REPORT. 12th February, 1970;Vol. 795, c. 394–5.] The figures which the Financial Secretary gave in his reply are extremely significant. I shall not quote all of them. This is all earned income. All the examples predicate a married man with two young children under 11 years of age. It is obvious that he will be a young up and coming man earning big money because, obviously, he is considered by his employers to be a man of great ability: he is a key man.

At the level of £5,000 a year, which was the figure quoted in the earlier debate, the Englishman retains 57.3 per cent. of his further earnings, the American retains 73.5 per cent., the Frenchman 75.4 per cent., the West German 63.3 per cent., and the Japanese 48.4 per cent. So it is fair to acknowledge that at this level the Japanese are worse than we are.

I will not weary the Committee by reading the intervening figures. Going straight up to £15,000 a year—that is a level of earnings equivalent to three-fifths of what the Government pay the Chairman of the Iron and Steel Board—the Englishman retains 15.7 per cent. of his further earnings, the American 47.8 per cent., the Frenchman 61-3 per cent., the West German 49 per cent.—more than three times as much—and even the Japanese 30 per cent.—nearly twice as much.

I am glad that the Chancellor has returned, because I can tell him that a little while ago I quoted to the Committee his very eloquent passage of rebuke to my right hon. Friend the Member for Enfield, West during our earlier debate, when he accused my right hon. Friend of setting himself against the current practice of every civilised country in the world. In the matter of surtax at the top rates, that is precisely what the Chancellor is doing.

I need no further argument. I merely ask the Chancellor to apply his sound regard for the principles of every civilised country and accept an Amendment which, even if accepted, would not put an Englishman in these income brackets in as favourable a position as his counterpart in most of our more formidable competitors, but it would at least diminish the gap.

Sir Gerald Nabarro (Worcestershire, South)

I apologise to the Committee for the fact that, though I have my name to Amendments concerning income tax which were debated earlier, I was not present to speak to them, due to the misfortune that the first day in Committee on the Bill on the Floor of the House coincided with an engagement entered in my diary 15 months ago to address business men in the Top Rank Suite in Birmingham at 2.15 p.m. today. As I fulfilled that engagement, and as I could not catch a train to London earlier than 3.15 p.m., I missed the income tax debate. I apologise to the First Secretary for having done so. I hope that I shall be forgiven. I am privileged to speak on this equally important subject of surtax, to an Amendment moved so ably by my hon. Friend the Member for Wycombe (Mr. John Hall).

I was thought to be rather a crank and out of step with the remainder of my regiment in 1966 when I moved an Amendment to bring about a reduction in surtax, and the Labour Party laughed it to scorn. I moved identical Amendments in 1967 and in 1968 and spoke to one in 1969.

It has been very satisfactory for me to observe that the whole of the Conservative Party now conforms to the view which I expressed four years ago, with scant support from behind me—only one or two aberrationists in my party con- formed at that time—that surtax in Britain was vastly too high and should be abated.

Nearly all the reasons have already been given for a relief of the inordinately high levels of surtax which exist in Britain. I do not regard the Chancellor's modest relief of the lower level of surtax payers between £2,000 and £2,500 a year as in any way an expression of solicitude towards them. On the contrary, he did it this year only because of the impossibility of collecting the small sums involved with the number of staff available to him in the surtax office.

This point was brought home to me very forcibly in my constituency when a university professor came to me a few months ago and brought me a surtax demand showing that he had been assessed for four years simultaneously. The demand had been made that he paid four years' surtax— that is, the previous year, then due, plus three earlier years— all in one lump sum. I inquired whether he had made his tax returns punctiliously and was told that each one had been rendered on the due date by his accountants.

The fact is that the surtax office has gradually in recent years been falling farther and farther behind in dealing with assessments and within the last 12 months it has developed into an intolerable position of arrears with no hope of recovery. The only reason why the Chancellor has dealt with the lower level of surtax payers in this Budget is simply the position of the bureaucracy. I hope that the Chancellor or his spokesman will be honest enough to confess that when he winds up.

There are two classes of persons calculated to raise the anger at once of Socialists, Fabians and Left-Wing spokes- men, everywhere, if these two classes of persons should have the temerity to ask either for more pay or for relief in the form of higher allowances or lower taxes. The first are Members of Parliament. The second are surtax payers. Members of Parliament I shall not deal with in the course of this speech.

Surtax payers ought to be dealt with penetratingly by every member of my Party. The Conservative Party should go very much further than it has gone. We should say that we shall precipitate this issue at the General Election and regard it as a major feature of our policy. Today it is necessary to pay a top executive about £20,000 a year to leave him with a net income of comparable purchasing power to an income of £10,000 in 1960. In the space of a short 10 years both inflation and increased taxation have caused the gross income and the cost to the company paying the executive concerned to double.

For example, let me take the endearing case of the right hon Aubrey Jones, formerly a member of my party. He has been paid £15,000 a year as the Chairman of the Prices and Incomes Board. It is said that he is to be paid £18,000 a year as the Chairman of the Commission for Industry and Manpower. People tend to criticise an increase of £3,000 in his gross income. He is a public servant. The net sum accruing to Mr. Aubrey Jones as a result of his increase will be of the order of £280—£3,000 gross in order to give him an increase of £280. This is quite ludicrous.

8.30 p.m.

I am sorry that the Chancellor has ostentatiously walked out, thereby dissociating himself from any reference to surtax. What we should all do is to recognise that every advanced industrial nation pays its leaders on a scale scores and scores of times greater than its artisans and best skilled men, and those top leaders of industry, trade, commence and the professions are generally the nation's best brains. There is no cacophony of protest from the Labour benches.

Even the Labour Party, notwithstanding its protestations of egalitarianism on the hustings, has now embraced that principle; even the Labour Government has been prompted in recent months to raise from £12,500 a year to £20,000 by easy stages the sums they pay the chairmen of nationalised industries. " Oh but," they say, " we cannot otherwise have the Lord Melchetts of this world running our steel industry." I am not, of course, suggesting that Lord Melchett is one of the nation's best brains, but he is the person selected by the Labour Party to run the British Steel Corporation. There is also the case of Lord Robens as the Chairman of the National Coal Board.

They must be paid £20,000 a year because it is the market rate, says the Labour Party, and because it is necessary to reward those men as blue-chip leaders, outstanding fellows—and of course to furnish sinecures for worn-out Labour politicians put out to grass from time to time. So the Labour Party accepts the principle for members of the party and others of its own choice within the ambit of its professional patronage, but denies it when the same principle is applied in private industry, trade, commerce and the professions.

My view is approximately this, and it has often been stated in the House before. I believe that it is impeccable, unexceptionable and incontrovertible that if this nation, as a leading industrial power and a sophisticated and advanced nation of West, wishes to set up in competition with the United States of America it had better have taxation arrangements for its top executives comparable to, and in hot competition with, the taxation rates paid in the United States. Fleetingly, my hon. Friend the Member for Wycombe (Mr. John Hall) referred to this point.

The highest-paid full-time professional man in the United States of America is probably the President of General Motors. I suppose that his income is of the order of the equivalent of £250,000 a year. On the last dollar he earns he pays 70 cents in taxation and retains 30. That is the equivalent in this country of saying that in the last pound an Englishman earns he should be allowed to keep 6s. and pay no more than 14s. in tax.

I would prefer a system under which income tax at the standard rate was 6s. 8d. in the and the top level of surtax on incomes over £15,000 a year was also 6s. 8d. in the £, so that the highest earner paid 13s. 4d. in the £ on every £ earned over £15,000 a year. In other words he pays £2 out of £3 in taxation and retains £1 out of the last £3.

I would regard it as too sharp a change to advocate the removal in one step from 18s. 3d. in the pound where the aggregation of the standard rate of income tax and top level of surtax is at present, down to 13s. 4d.;namely a re- duction of 4s. 1ld. in the pound. I have therefore today contented myself, with many of my hon. Friends, by setting down Amendments in harness on the Notice Paper, the earlier Amendment to reduce standard rate of income tax to 7s. 6d. in the pound and Amendment No. 8 to reduce the surtax gradations in such a fashion as to make them acceptable step by step up to a maximum level of 7s. 6d. so that the top level paid by any earner would be 15s. in the pound or £3 out of the last £4 and £1 would be retained.

Later I would hope that my party would go on to the principle of £2 out of £3 maximum taxation and £1 out of £3 retained, which I regard as entirely equitable and comparable to the system practised in the United States of America and widely practised elsewhere.

What the Chancellor has done this year makes no progress whatever towards these principles. The Chancellor's measure this year is a measure of expediency. He has reduced the amount of surtax to be collected by a miserable £3 million, from £280 million to £277 million, thereby—so he says—removing 185,000 surtax payers in the bracket between £2,000 a year and £2,500 a year from liability to assessment to surtax.

Those who have slide-rules in their pockets or who are good at mental arithmetic will divide 185,000 into £3 million and arrive at the conclusion that the average relief accruing to this lower band of surtax payers is of the order of £16 4s. each, a very small sum. It is not due in any way to the solicitude of the Chancellor of the Exchequer to surtax payers but simply to try to relieve the bureaucracy, so the Chancellor tells us, by having 320 bureaucrats translated to more rewarding work this year and 360 translated to more rewarding work in a full year, subject to this proviso or caveat. I enter it now. He is guilty of the most violent and wishful thinking. It will not come off, not for a moment. Inflation will kill it.

It is instructive that the Chancellor of the Exchequer went out of his way in his Budget speech to point out that had he not taken this step this year there would have been 600,000 surtax payers in 1970–71 whereas in 1960–61 there were fewer than 300,000 surtax payers.

Mr. Roy Roebuck (Harrow, East)

One of the reasons for that was the prosperity of the country under Labour, with more people being paid better salaries.

Sir G. Nabarro

Perhaps the hon. Gentleman would allow be to pursue my speech and I will deal with his point about wages and inflation in a moment.

In his Budget Statement, the Chancellor made this point very clearly: Over the past seven or eight years, the total number of surtax payers has almost doubled, and if nothing was done there would be nearly 600,000 surtax payers for 1970–71 compared with 286,000 for 1961–62. As things stand, it would cost £850,000 to collect £4 million of surtax from those with surtaxable incomes between £2,000 and £2,500, a collection cost of no less than 21 per cent. This compared with an average collection cost of 1.5 per cent. for Inland Revenue receipts as a whole."—[OFFICIAL REPORT, 14th April 1970;Vol. 799, c. 1248.] In other words, what the Chancellor omitted to say—had I been Chancellor, I should have used the figure at once—is that it was costing 14 times as much to collect this modicum of surtax from the lower band of surtax payers between £2,000 and £2,500 a year as it cost to collect revenue over the whole field.

Obviously, that position is untenable, but it arises not from the increased prosperity of the nation, as the hon. Member for Harrow, East (Mr. Roebuck) would have us believe, but from vicious inflation. The nation is no better off as a result of continuous increases in wages and sal-arises, because prices rise as fast. But even discounting this fact, the fact is that the Chancellor continuously increases for all of us the amount of tax which we have to pay. Every time wages rise—this applies to the dockers, for example—those wage earners are brought into increased sums of income tax and surtax to be paid.

I remember a controversy, which would interest the Chief Secretary, on the eve of the poll in the Kidderminster Town Hall at the 1959 General Election, when I stood on a platform in front of 200 electors and said, " If you return me again for Kidderminster, the first thing I propose to do in the House of Commons is advocate the reduction of surtax," and I did. The Labour crowd at the back of the hall broke out into their usual cacophony about " reduction of taxes for the rich." I singled out one of them, a broadloom carpet weaver, he was, with his wife working on the back of the loom. I knew them both and what their wages were approximately, and I knew that both of them, in that year, with their incomes aggregated, would be earning about £2,600 and would receive a surtax assessment of £600, as it was in those days. Of course, today it would be much more.

The fact is that the ordinary London docker today, had the Chancellor not put up the commencing point for surtax to £2,500, would have had a surtax assessment. My hon. Friends may think this a good thing—

Mr. Roebuck

Hear, hear.

Sir G. Nabarro

I am glad that the hon. Member thinks that it is a good thing that the dockers should pay surtax. Perhaps he would go down to the Albert Docks and explain that to them—

Mr. Roebuck

I did not say that—

Sir G. Nabarro

The hon. Member said " Hear, hear "—

Mr. Roebuck

What I meant was that it was a good thing that the dockers were well paid for the excellent work which they do for the community and that this party has rid them of the curse of casual labour.

Sir G. Nabarro

I have never objected to the ending of casual labour. All I am trying to say to the hon. Gentleman—it is very difficult to drive it into his thick head—is that wage inflation, proceeding on the chronic scale of the last few years, brings into surtax assessment vastly more wage-earning and salary-earning men and women than we ever intended should pay surtax.

This is indisputable. The fact that only 286,000 men and women paid surtax in 1960–61, whereas 10 years later it is 600,000, is only partially due to the improvement in wage conditions and is most largely due to inflationary tendencies, and notably due to the violent inflation which has occurred since 1964.

I do not want the nation to feel that the Chancellor of the Exchequer has indulged in a kind of solicitude for surtax payers. All he has had to do, after pressure by the Commissioners of Inland Revenue, is relieve the lower band of surtax payers simply because Inland Revenue are so far behind with their assessments.

My principle—I am glad it is now embraced by the Front Bench and shortly to be implemented by the Tory Party in office--is that no more than 15s. of the last pound earned by the highest salary earner in Britain should be taken in tax, as an aggregation of income tax and surtax;7s. 6d. in income tax and 7s. 6d. in surtax. I shall remind my right hon. and hon. Friends sitting on the back benches behind me, when they are in office, of these admirable principles, as a first step towards the 6s. 8d. and 6s. 8d. provisions I have related tonight, a maximum of 13s. 4d. in the £, enabling £1 out of every last £3 earned to be retained by the earner, and only £2 of it to go in tax.

I warmly support this surtax Amendment, and I hope that if an unsatisfactory answer is forthcoming from the Chief Secretary, then my right hon. and hon. Friends will take the matter to a Division.

[MR. CAROL JOHNSON in the Chair]

8.45 p.m.

Mr. Roebuck

The hon. Member for Worcestershire, South (Sir G. Nabarro) is never reticent about bringing his peculiar financial problems to the attention of either the House or of Committees of the House, and we have heard from him this evening a further plea for very high surtax payers. The hon. Gentleman put his plea in such eloquent terms that one was bound to have a little sympathy for him. However, whatever sympathy first came to one, one then pondered. One reads that the hon. Gentleman is also rather profligate in as much as he has been betting money on a Conservative Party win at the next election. If the hon. Gentleman is so profligate and foolish as to do that, he deserves little sympathy when he brings his other problems to the Committee of the House. I understand that tomorrow's Gallup Poll will show that the Labour Party is seven points ahead.

When the hon. Gentleman spoke about wage inflation I fear he overlooked a most significant fact—that over the period since 1964 wages have gone up by 10 per cent., taking account of the increase in the price of goods. It would therefore be possible for me to argue, without interruption from the hon. Gentleman opposite, that the nation is much more prosperous now as a result of having a Labour Government, and that this is why a number of people have moved into surtax. I am sure that, in his heart of hearts, the hon. Member for Worcestershire, South, being, as he often says, a good Tory, has no objection to high wages, to people earning high money as distinct from people getting a great deal of money from interest payments.

The hon. Member for Wycombe (Mr. John Hall) opened the debate in a gloomy frame of mind. He listed all sorts of things that he felt had gone wrong. But one of the good results from the surtax policies which have been pursued by successive Chancellors in this Government is the big turn round in the balance of payments. The hon. Gentleman complained particularly about the 10 per cent. which was added at one time, but this was a contribution to deal with the very difficult situation inherited by the present Government from the previous Administration.

Mr. John Hall

I do not think that I was complaining exactly. I was pointing out the additional imposition placed upon already hard-pressed surtax payers, and did so merely for the record.

Mr. Roebuck

I take the point. If the hon. Gentleman wants to argue why it was necessary to make this additional imposition, I am sure that we on this side would be happy to take him on. All I am saying is that it was necessary because of the state of the country, and that it is an indication of the success of our policies that the nation is now in a very happy position from an economic point of view.

Mr. Hall

Was it in the same state in 1968 when the Government imposed a special charge of 3s. to 9s. on personal dividend income?

Mr. Roebuck

All these things fit into the necessary pattern of very tough measures which the Government had to impose to get the country out of the difficulties into which the Conservative Government had plunged it. The proof of the effectiveness of those measures is shown by the Finance Bill. It is shown by the fact that the balance of payments is running at a record £550 million surplus compared with the deficit of £800 million when the Conservatives were thrown out of office. I do not think that it is yet the time to slacken off on this policy. It would be foolish for my right hon. Friend to accept the Amendment because the time is not right. We need to keep these clamps on for some time yet in order to ensure that the prosperity which the nation has now achieved is deep seated.

I have some sympathy with the point the hon. Member for Wycombe made with regard to married couples with high incomes being lumped together for the payment of taxation. This is an anomaly and it has a disincentive effect, particularly with regard to women with young children, who also have to employ child minders or nannies and then pay selective employment tax. I have some sympathy with that view, and if as the year progresses it is possible to make some easement, that should be my right hon. Friend's first priority in this field. But the time is not yet. The Amendment should be resisted.

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

Our annual debates on surtax are not usually well attended. I cannot say that this year is an exception. I suppose that this is because the speeches follow a certain predictable pattern. However, it is still something worth debating because, clearly, the net results of the tax make so little difference to the Exchequer that we should really think a little about the cost of it and also about the cost of collecting it.

I have the greatest sympathy for people like Mr. Aubrey Jones who are in positions of great responsibility and whose earnings after tax enable them to keep a roof over their head and their children at school. They do not enjoy any job security and it is most unlikely, when we have had our General Election, that Mr. Aubrey Jones will find that he has job security, unless he has taken the precaution to get a good service agreement, and I am not in a position to express a view on that.

Leaders of industry suffer a special degree of insecurity which they have no means of removing. The hon. Member for Worcestershire, South (Sir G. Nabarro) I see has taken the trouble to equip himself with the Financial Times. We cannot open any paper these days without reading about chairmen of companies biting the dust for one reason or another. They fail to administer the company to the satisfaction of the shareholders and they are out. They may get a golden handshake but not a large one.

Is there any point in charging surtax at all? I used to make this speech when there very very few surtax payers. Now there are an increasing number, more people this year than ever before. Next year I daresay that I shall be speaking and that there will be even more such people. It is clear that these penal rates of surtax are the exception rather than the rule. That is why there is such an enormous struggle involving not only the best brains of the Bar but the best brains of the Inland Revenue in a contest, usually long drawn-out and unsatisfactory. There is this fantastic difference between a capital gain and a gain subject to income tax.

One of the advantages of sitting as a back-bencher is that one can deliver one's own opinion without committing anyone else to it, and in my own eccentric way I should have thought that we ought to have a much closer aggregation between capital gains tax and the top surtax, which would drive a lot of artificiality out of our transactions. People who enjoy a high standard of living in this country are not basically those who earn huge sums but those fortunate to have private fortunes. If a visitor from Mars were to be given the job of Chancellor he might very well suggest that our country would run a great deal better if surtax did not exist and to take its place we had a modest capital tax of some sort—although we have had quite enough taxes from the present Government. Such a tax would not be difficult to collect and justice would be seen to be done. Those who took the risk and kept companies going would have the rewards which in other countries go with those positions. They do not go with those positions here, and that is one reason why our economy is suffering. I am not talking about a brain-drain; it is not a fashionable phrase. But it is something with which we must live—the fear of a brain-drain of people without capital who can earn in another country a salary which gives them a living standard which is not obtainable here.

9.0 p.m.

I know that all hon. Members are too honourable and too single-minded to think of financial reward. It is obvious that they would not become Members of Parliament if they were obsessed with financial reward. But when people take huge responsibilities and big risks there should be a reward which they can measure in financial terms, and that is not the case today.

Mr. Roebuck

Is the hon. Gentleman suggesting the old capital levy, a wealth tax, or what?

Sir H. d'Avigdor-Goldsmid

I am pleased to see the hon. Gentleman in his place. I am talking about the undesirability of charging surtax at the current rate. If the hon. Gentleman wants a seminar on economic thought, I am sure that that can be arranged for him, but I am not here to provide it.

Mr. Roebuck

The hon. Gentleman referred to what he called a capital tax. I am asking him to elaborate. Does he mean the old capital levy which was suggested by Sir Stafford Cripps in the 1930s, or is he thinking of the form of wealth tax advocated by some of my hon. Friends in the Tribune group? Would the hon. Gentleman enlighten us?

Sir H. d'Avigdor-Goldsmid

I see no reason to enlighten the hon. Gentleman. He is much better read than I am. He reads Tribune: I do not. The hon. Gentleman's intervention is irrelevant. We have had numerous forms of capital tax. They have always been described as once-for-all. I leave it to the hon. Gentleman's imagination and his reading of Tribune or some other publication to make up his mind. I am addressing myself to the question of surtax.

Surtax as charged on the earner is an anomaly. I am glad that my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) went so far in our debates last year as to say that when a husband and wife earned substantial income it was an anomaly that the earned income allowance should apply only to the husband. This would be a minor concession, and I am hopeful that when there are two earners in a family they will both benefit when we take office.

But that does not go far enough. Earned income should be free of surtax for any reasonable figure. I agree that that might lead to the anomaly which happens that people try to translate so-called investment income into earned income. I therefore come nearer and nearer to the conclusion that we should do without surtax altogether.

My right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) said that it brought in £277 million. It causes the most enormous complication at Somerset House. It is a fantastically difficult tax to collect. We would function as efficiently, with just as much revenue being collected, if we had self-assessment. Our economy would do a great deal better if there was a high limit of freedom from surtax on earned income. I should have thought that this was possible of introduction.

My hon. Friend the Member for Worcestershire, South made some rather sneering remarks about some heads of nationalised industries. I do not regard them as in any way inefficient in the work that they do, nor, I think, does my hon. Friend. But no reward for those jobs has any meaning in current terms. People do that work because it attracts them and, if they fail in their task, they lose their jobs, and without any compensation that I am aware of. So this seems to me to be an overwhelmingly strong argument for taking another look at the whole of this farrago of surtax.

As I say, one can make speeches of this sort from the back benches without in any way committing one's party, but I very much hope that the Government will show some willingness to consider adopting my views to a modest extent, and I hope that my right hon. Friends, when they in their turn come to office, will think them worth considering, too, and will consider raising very substantially indeed the earned income exemption from surtax, exemption which should in any case be given to both husband and wife when they are working and living together, and will seek in some way to give people reward for taking these great responsibilities and great risks which go with high office in great companies today. Who are the surtax payers? They are, to a great extent, the big salary earners. I feel that those who do not earn big salaries but have investment funds on which they pay tax are not so hardly hit by this imposition. In that spirit I recommend the Amendment to the Committee.

Mr. Percy Grieve (Solihull)

I support the Amendment moved by my hon. Friend the Member for Wycombe (Mr. John Hall) as being a modest mitigation of a situation which is not only unjust to surtax payers but frequently today cruelly unjust, and, to take up the closing observations of my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), most cruelly unjust most frequently to elderly retired people and single women living alone on investment incomes. It is really not good enough on this side of the Committee to recommend the mitigation of the cruel impact of surtax today and the penal impact of surtax and then limit only to earners the observations which we make, because there is a powerful case for mitigating and remedying the injustice which there is to those who receive investment income of many classes and at many levels.

The truth of the matter is that the levels and rates of surtax and the starting point of surtax, which date back to the 'twenties and 'thirties, when money had an altogether different value from what it has today, and when £2,000 a year, the then starting point of surtax, was not an unhandsome income, are unjust today, and have utterly failed to take account of the galloping inflation which we have had particularly since the Labour Government came into office in 1964. If anything were designed to illustrate this I would suggest to the Committee that we should look at comparative figures of the purchasing power of incomes after tax in 1939 and today.

For that reason, at the end of March, I put down a Question to the Chancellor of the Exchequer. There was a Written Answer on 6th April. The Question was: what income is necessary today for a married man with two dependent children to produce the equivalent purchasing power, after tax, of an income in 1939 of £500, £1,000, £2,000, £3,000, £5.000, £7,000, and £10,000 a year, respectively, on the basis in each case that the income is wholly earned, wholly investment, and half earned and half investment, respectively."—[OFFICIAL REPORT, 6th April, 1970;Vol. 799, c. 16.] I think the members of the Committee who may not have seen this at the time will agree with me when I read out the figures that they are quite devastating in the light they throw on the effects of the present surtax level and in particular on the fact that the starting point for surtax on investment incomes remains still, until the slight concession made by the Chancellor of the Exchequer in the present Bill, what it was in the 1930s. These are the figures.

To give a married man with two dependant children the equivalent purchasing power of an income in 1939 of £500 a year, if his income is all earned he needs today £2,450;if it is all from investment he needs today £2,700;and if it is half and half he needs £2,570 a year. To have the equivalent of £1,000 a year in 1939, he needs today to earn £4,620, more than four times as much, and to have from investments £5,990, and, half and half, £5,250.

Then comes perhaps the most revealing figure of all. It is at the more modest level of income that the effect is the most devastating. To have the equivalent of a pre-war income of £2,000 a year, a man needs to earn now £10,400 a year. If his income were ail from investments he would have to have £24,800 a year and, half and half, £11,200.

I pause at that £2,000 figure for a moment because, taking the investment income figure to produce an income of £2,000 a year at 5 per cent., a man in 1939 would have had to have a capital of £40,000. To have an equivalent income now to £2,000 a year of £24,800 a year, he would have to have well over £1½ million. These figures make absolute nonsense of the cry on the Government side of the House for a tax on wealth, which is said to be so unequally distributed. If there is to be that wealth tax for which hon. Gentlemen clamour, there will have to be either a drastic reduction or a complete abolition of surtax, which my hon. Friend the Member for Walsall, South was tentatively suggesting to the Committee as one possible solution.

As the figures go up, we go almost into the realms of fairyland. To have the equivalent of a pre-war income of £3,000 a year, a man today needs to earn £26,400 a year, more even than Mr. Aubrey Jones. From investments he would require £49,300 a year and, half and half, £26,400.

9.15 p.m.

Then we come to £5,000 a year, the salary which before the war was considered proper for Her Majesty's judges to maintain them in a state of independence—a salary which, if my memory is right, they had been drawing since the year 1831, when the £ was worth even more than it was in 1939. To have the equivalent of £5,000 a year today, judges would have to be paid £68,000 a year. The other day judges' salaries were raised to a figure in the region of £12,000 per annum. If a man were to seek the same purchasing power for his investments as an income of £5,000 a year would have given him before the war, he would now have to have £90,900 a year, and at half and half £68,000.

I will quickly pass over the next group of figures. Taking the figure of £7,000 before the war, the equivalent figure of earned income now would be £102,000, £125,000 would be its equivalent in unearned investment income, and at half-and-half £102,000.

At that very high level, according to these figures, the distinction between investment income and earned income almost completely disappears. It is precisely on the lower levels of investment income on which many retired people and single women have to live that the cruel burden of these crushing and penal taxes bears most hardly.

Finally, to get the equivalent of a pre-war income of £10,000—we are now perhaps in the realms of fairyland, or in the group of a few great tycoons—£146,000 is required in the way of earnings, and £169,000 a year income from investments.

I said that these figures graphically illustrated the fact that levels and rates of taxation designed for a different period in the life of our country and different money values were the result of galloping inflation. The effect of inflation and high taxes imposed by the present Government can be illustrated by comparing those figures in the matter of investment income with similar answers that I received on 20th May, 1968, in col. 43 of the OFFICIAL REPORT, from the then Financial Secretary to the Treasury. I asked the same Question then but with regard only to investment income. The answer was given for a married man with no children. The Committee will note that a married man with two children would be slightly more favourably treated.

The figures then are very interesting because they show what taxation and inflation have done in the intervening two years. The figures then were for the equivalent of £500 a year and a man required £2,190, compared now with £2,700;for £1,000 he required £4,900, compared now with £5,990;and for £2,000 he then required £18,000, compared now with £24,800. I shall not weary the Committee by going on with these figures. The comparable figures at all levels show what the further crushing burden of taxation and galloping inflation have done to peoples' incomes.

Perhaps the prejudice of hon. Members opposite when this subject is discussed is shown by the small attendance. At present there are on the other side of the House five hon. Members, of whom two are Front benchers. There has been only one intervention from the other side. This shows that the Socialist Government have completely closed their mind to a grave injustice in our tax system, a grave injustice which they have mitigated only slightly this year as a matter of mere convenience and not as a matter of righting injustice. But the effects of surtax at these levels not only bear heavily and hard upon people; they do harm to the country, in more than one way.

First, I want to make one plea about the hardship which it imposes. Living in my constituency there are a large number of retired people who built up prosperous but frequently small businesses in the Midlands and who, when retirement age came, sold their businesses hoping to live on the proceeds in their old age. In many cases, their businesses were sold for £50,000 or perhaps even £100,000. When invested, that sort of sum yields an income of £2,500, £4,000 or £5,000. Their standard of living suffers a crushing blow unless they are to spend capital indefinitely, not knowing how long they will live. Having done a lifetime of service to the country and to industry by building up their businesses, such people are no better off than persons would have been in 1939 with incomes of £500 a year or thereabouts. That is no way to reward energy, initiative, ambition, and the qualities which go to make a country great.

There are ill effects upon the country itself. One of the ways in which people can avoid this crushing burden when they retire is to leave the country, take as much of their assets with them as they can, and get themselves domiciled abroad. I regret to say that that is happening today on a scale which the country can ill afford.

I have seen another aspect of this problem in my travels abroad. In the Far East, there are many people who have built up flourishing businesses or earned and put away capital in the exercise of their professions. In another age, they would have looked forward to retirement in their home country in their old age and their not so old age, since often they are in a position to come home when they are far from old. When asked what they intend to do when they give up the Bar in Hong Kong or retire from plantations in India, they say that they cannot afford to come home. The capital which they would have brought with them and which over many centuries has helped enrich this country and sustain it is lost to us when they retire to somewhere else in the Commonwealth or Europe—in fact, anywhere in the world—where they will be better off than if they come here.

Finally, it is impossible to measure the effect which taxation at these levels has upon savings. We are urged by Treasury Ministers to save. They know that it is only by the saving and reinvestment of money that our financial and economic position can be improved, yet they refuse to take the elementary measure which my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) suggested. If surtax were abolished, it would merely reduce the revenue by some £277 million a year, which would enable the very people who are in a position to save and reinvest in industry to do so. I hope that the time will not be long delayed—I am confident that it will not—when we shall right what has become a scandal and a disgrace.

Mr. Peter Bessell (Bodmin)

We have had an extremely useful debate this evening on the whole issue of surtax. We have also had some very able speeches in support of the Amendments. I was particularly interested in the figures given to the Committee by the hon. Member for Wycombe (Mr. John Hall), and the usual and normally able way that he moved the Amendment came very close to convincing me.

I was even more interested in the speech by the hon. Mmber for Worcestershire, South (Sir G. Nabarro). He has rightly reminded us that for many years he has been a pioneer of the reduction of surtax. Indeed, he has advocated, and still does, the eventual abolition of a tax which clearly has a most inhibiting effect upon the growth of talent and the exploitation of the best brains in Britain.

The hon. Member for Worcestershire, South was about to quote from today's issue of the Financial Times. Unfortunately, he was not able to do so before resuming his seat. He has passed that paper to me. The point that he was going to make is worth noting. The letter in question reads: Sir, last year wages and salaries rose by 7½ per cent., after tax disposable incomes by 5½ per cent., prices by 5 per cent., leaving only ½per cent. increase in real living standards. Fifteen steps forward and 14 steps back.

Sir G. Nabarro

Hear, hear.

Mr. Bessell

The only thing which could be said in mitigation of any policy which produces that result is that it is better to go 15 steps forward and 14 steps back than to go 14 steps forward and 15 steps back. Beyond that there is little that one can say.

I am concerned about the effect on surtax at its present level, even allowing for the concession which the Chancellor has given—I recognise that a concession has been made to those in the surtax bracket at the lower level—on investment in this country. I had an experience recently which is worth recounting briefly to the Committee. I was engaged in persuading an overseas corporation to establish a factory in this country. We had reached the point in our discussions where it was apparent that the overseas company intended to proceed. I may add that it would not have done so had it not been for the Government's development aid programme in the development areas. I do not hesitate to take this opportunity of paying tribute to the Industrial Development Act, 1966, which was the determining factor. But when we had reached the point in the negotiations where it was clear that it was going ahead, the accountants representing the company—a major international firm of accountants —raised the question of how many of the company's employees would be required to live in this country on a permanent basis. It was discovered that 18 would be the minimum, because of the advanced nature of the technology used by that company. The accountants pointed out to the directors of the company that there would be a considerable loss of income in real terms to those executives, although living costs would be lower, because we have a much higher tax structure.

9.30 p.m.

At that moment, although I was well aware of the argument that was taking place and the correctness of the accountant's figures, my heart missed a beat because I thought that the efforts which I had made to get this company to come to this country might, after all, be frustrated. In the event, the decision was to go ahead anyway, and I am glad that that decision was reached, but I thought that it served to underline the stupidity of a policy which seeks to penalise those whose brains and ability are greatest by making them pay a very much higher rate of tax.

It is almost true to say that we have reached a point in our taxation system where the more stupid a man is, the lower his ability, the less he is likely to be penalised by the State; the greater his ability, the greater his brain-power and training, the worse will be the deal that he will get from the Inland Revenue. We know the effect of a high level of taxation is to cause many of the best brains in this country to seek occupation overseas, where they will enjoy more favourable rates of taxation.

In addition, as was said by the hon. Member for Wycombe, a great deal of time and a vast amount of money are expended each year by some of the best accounting brains in this country, including, no doubt, my hon. Friend the Member for Colne Valley (Mr. Richard Wainwright), in seeking ways—

Mr. Richard Wainwright

No.

Mr. Bessell

My hon. Friend denies it. I was going to suggest that he was one of those distinguished accountants who seek ways of relieving the burden of tax on their clients. My hon. Friend says that he does not do that. I am almost inclined to be glad that I am not one of his clients, but I know, as does the Chief Secretary, that the time of many accountants is literally devoted to finding ways of relieving the burden of taxation upon their clients and upon the client companies which they serve. A high level of taxation, particularly of surtax, has a genuine disincentive effect upon the output of those in the brackets of income which attract surtax.

Earlier on I mentioned the speech of the hon. Member for Worcestershire, South. I have looked carefully at the Amendment moved by the hon. Member for Wycombe, Amendment No. 7, and at Amendment No. 8 in the name of the hon. Member for Worcestershire, South. With respect to the Member for Wycombe, I think that the Amendment tabled by the hon. Member for Worcestershire, South is more realistic.

Sir G. Nabarro

Hear, hear.

Mr. Bessell

I am glad that the hon. Gentleman agrees with me. I expected that he might. If we are saying that the problem with a high level of surtax is that it acts as a disincentive to those in the medium and lower brackets of income, rather than those in the higher brackets, then clearly a concession of the kind envisaged by the hon. Member for Worcestershire, South would be more appropriate than that suggested by the hon. Member for Wycombe. If we were to have a vote on Amendment No. 8, I should find myself torn in deciding into which Lobby I should go, because I think that it is a realistic and important Amendment.

I have no doubt that if the Committee were able to accept that Amendment it would be very popular in the weeks or months of electioneering that lie ahead. If all that one hears is true, it is likely to be weeks rather than months. It would certainly be popular with a certain group of people; a group which contains a large and growing number. As the Chancellor reminded us in his Budget speech, it contains about three times the number that it did a couple of decades ago.

However, these Amendments must be considered carefully and realistically. I wish our financial condition were such that the Government could accept the Amendment in the name of the hon. Member for Worcestershire, South. I emphasise that that is the Amendment that I prefer. I recognise, too, as the hon. Member for Harrow, East (Mr. Roebuck) correctly stated, that this moment in time, when, happily, the nation's balance of payments is at last in a favourable position, is not the moment to make a concession of this kind. Moreover, if there are to be concessions in tax, I am convinced that they should be made first to those who are paying the standard rate—those who are, after all, the lowest wage earners. I should like a reasonable concession to be made to them in next year's Budget. I should like to see some improvement made in the small concession made in this Clause.

Although there is a grave effect upon incentive, although there is an underlying danger to investments from overseas, and although the broad principle of the reduction of surtax is right and should be pursued, in this year, when we have passed through so many difficult months and emerged into a very much greater and much more hopeful position fiscally, I believe that the Chancellor would be right to resist the Amendment, however tempting and worthy it may be in other respects.

I hope that the Chief Secretary will be able to give an assurance that at some future date he will be able to make this concession. I say that in no partisan sense. The hon. Member for Wycombe has already made it clear, that, if the Conservatives are returned as the Government at the next General Election, they will make a concession. Therefore, we already have an undertaking from this side. I should like a similar undertaking to be given by the Government.

Sir B. Rhys Williams

I am glad to have the opportunity to make a brief contribution to this discussion. However, I rise with some trepidation. The Chief Secretary was very flattering about my earlier contribution; I am afraid that he will be disappointed by my contribution this time and, if he were to say so, I should be wounded.

I want briefly to touch on four arguments which the Government should bear in mind in connection with their surtax policy. One is the obvious economic argument. Of the total of £5,930 million brought in by surtax and income tax combined, it is estimated that in 1970–71 surtax will account for only £277 million, or less than 5 per cent. of the total.

I have argued before, and no one has ever gainsaid what I have said, that if surtax were to be remitted there would be no loss of revenue, because the money would come back to the Inland Revenue in the form of a higher yield of income tax. I am not saying in a snide way that in such conditions people would declare their incomes in a more ready way than they do now. I am saying that they would be prepared to earn more, and that would be better for the economy as a whole.

Even if I am wrong about that I do not think that I am—it would still be possible to allow for a remission of taxation, because there would be a sharp increase in the arisings of savings. As quite a large part of the Budget surplus is aimed at creating savings which are not forthcoming from the private sector, it would be possible to reduce taxation pound for pound with the extra amount of savings which would result from the reduction of surtax.

I want to talk about the disincentive effects of surtax. It is very difficult to adduce positive evidence on this point. An examination of the motives and careers of those at the top of industry who are earning between £30,000 and £50,000 a year does not constitute a properly selected sample of all those affected by surtax. Interviewing those people, one can learn that many of them have fought their way to the top of their companies and to these salary levels in spite of the fact that they do not really gain any commensurate material reward. But this is not to argue that surtax does not have a disincentive effect, because the people one should be meeting to get a representative sample are the people who have not fought their way to the top of any business because they realise that it is not worth while.

My evidence on this is partly personal in that I spent a number of years in an employment agency, where it was part of my work to interview people who were seriously thinking of taking jobs at much higher salaries. I know that there is no question that surtax is one of the most serious factors which a man takes into account when deciding whether or not to make a move to a new company.

But it is not only then that surtax is important. One of the problems which are very well known in personnel management is the difficulty of getting a man at the head of a function in a company, through which he has risen during his career, to move into general management. It is not too difficult to have young men working under one who are doing what one has done oneself, but the risk for a man approaching the top of his career in industry comes when he has to give orders to men who are doing something which he has not done himself. This is the crucial problem. When a man has reached the top of a particular tree, in production, research or the commercial functions, he has to decide whether he will make a final move, at which point surtax has its most biting effect. If he does, he is moving into a much higher risk area, because he is no longer at the top of his own function but in general management.

The fact that it is difficult in this country to get men to take serious responsibility in general management is a direct reflection. I am convinced, of the incidence of surtax. A man who moves into general management is moving into the limelight, and if something goes wrong with a firm for which he has taken responsibility, he is named and may lose his job. If he remains, however, in a relatively cosy position as head of a department, he knows he is not exposed to that risk.

I said that this was a well known fact in personnel management, but it is commented upon by outside observers as well, who talk about the dearth of suitable people in management in the British economy. I implore the Government to take seriously what I am saying. One of the principal reasons for the shortage of men ready to take risks in general management on salaries is surtax.

Another problem which arises from personal experience in personnel management is the problem of the extinction of what one might call the " self-winding " manager, or the man of independence in the middle of his career. It is common place that many companies have a bigger requirement for young men than they have for old men on their staffs. They face the problem of what to do in a situation in which, perhaps they have two men reaching 40 for every one who retires.

What one wants to find is that a large number of men in industry, by the time they have worked 20 years, have accumulated enough savings to be independent and to make their own plans and not have to leave their plans in the hands of others because they are anchored to one employer. Many people in this country —I suppose tens of thousands—begin to wonder where their career is leading them at the age of 40 or 45, because then they realise that there are not enough vacancies for them in their organisation for them to continue a satisfactory career trajectory. They should have enough savings, through direct savings, putting aside their own earnings—that is, not being liable for surtax—or through some system of stock options, for them to be able to decide for themselves and float off into some other career.

But while we have this continual punishment parade for the more successful in the form of these exceptionally high marginal rates of taxation on men who are trying to contribute the most in an industry, we shall find this problem of the man of 40 who suddenly loses speed and initiative.

9.45 p.m.

Mr. Barnett

I entirely take the point about the very highest levels of surtax, but surely of the thousands of people that the hon. Gentleman is talking about at the age of approximately 40, the younger executive type of persons, there would not be that many who would have above £5,000 a year anyway. So very few of them will be paying surtax.

Sir B. Rhys Williams

That appears to be a useful contribution, but it is not so. [Laughter.] I am making a serious point. By the time he is 40 or 45, the person I am speaking of should be earning a high salary but also getting unearned income from his own investments. The concession to which the hon. Member has referred is one which allows him to draw his earned income without incisions from surtax.

I will say a few words on what seems to be the moral relationship in the State's use of this surtax weapon. If I differ from my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), whose Amendment has been selected for discussion, it is because it does not go far enough. Let us examine whether the State has a right to take any man's income in this way. All politics is an aspect of the relationship between the one and the many, and surtax is the particular aspect we are considering.

I have had the good fortune to know more than one man who regularly earns more than £100,000 a year on the Stock Exchange. Those who earn that amount are very ingenious and hard-working individuals. One wonders, however, what sort of contribution they would be able to make if they were suddenly transported to a desert island where every mineral and natural resource was available but they were the only persons there.

Suppose that the climate is ideal and to hand there is gold, silver, iron, all sorts of precious metals, vegetation and animal life, but they are left to their own devices to make the best they can of that. Suppose that once a month a ship calls at the island to collect what these marvellous characters produce, and to sell in the market that produce at the highest possible price. It is inconceivable that such a man could earn £100,000 by his sole endeavours, even in the most ideal natural surroundings.

If a man is able to earn £100,000 on the Stock Exchange he is not alone in creating that wealth. He is able to create it in an environment which we are providing. Therefore, we too are entitled to some of that £100,000. [HON. MEMBERS: " Hear, hear."] I am glad to notice the relief among hon. Members opposite, who perhaps began to wonder whether there was any moral basis for taxation at all. They now realise that there is a certain moral justification for continuance of a tax system.

Sir Douglas Glover (Ormskirk)

If my hon. Friend's description of the island is right, I am willing to go and live there any time he likes for far less than £100,000.

Sir B. Rhys Williams

If it is true that very high salaries are earned partly by the man who takes the initiative and risk but partly by all of us together, there must be a fair division of that newly-created wealth which results from the endeavours of the individual.

The question I am bound to ask is: how can society's share in the creation of this fresh wealth which arises from the endeavours of one man be more than half the total amount of that wealth? How can it be said that if a man has created £100,000 of fresh value, society gave £60,000, £70,000 or £80,000 and his contribution was less than half?

I support what is done in the United States of America and other countries. A provision should be brought in that in no circumstances should a man have to pay more than half of the wealth he creates by his own endeavours. On the marginal £, tax should never be more than 10s. This is something the Government should anchor to.

Mr. Gwilym Roberts (Mid-Bedfordshire)

I am trying with some difficulty to follow the hon. Gentleman's arguments. It seems to me that he is suggesting that by these entrepreneurial activities the gentleman he is talking about is entitled to half the wealth created. But it may well be that the result of his initiative is borne into fruit by the work of a hundred others. On that argument, since they have equally made a contribution, he should receive only one part in 101 of the additional wealth.

Sir B. Rhys Williams

I congratulate the hon. Gentleman. He is stumbling towards the great economic truth about the division of labour. Those others who contribute in that way may also have salaries, capital gains or whatever it may be. We hope that when the Government have transformed our tax position everyone in our society will be earning £100,000 a year. If we could clear away our mental blocks, there is no reason why that should not happen.

I want to conclude with a word of warning to the Government. If tonight for some reason they are hoping to form another Government in due course, they will have to choose their re-entry slot just right or they will go into outer space and remain there for the rest of their time. The way in which they must do it is to convince the British public that what they do is morally sound, and they will not be able to do that if they continue the class war. Surtax is simply an aspect of the class war. If they want to show that they have evolved from that and are worthy to lead the nation again, they should start by accepting the Amendment.

Sir D. Glover

I listened fascinated to my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams). I have a feeling that the delicious island he has described is probably part of the Virgin Islands, and I can assure the Committee that that is no place for me. With any of these Eldorados there is always a snag, and I think my hon. Friend has produced it here. I am prepared to stay in this country and pay the great rates of tax that I do, and not be in the situation he describes on that island surrounded by gold, jewels and so on but with no use for them and no one to turn them into a useful product.

I now turn to the Amendment, and I want to be very angry. My hon. Friend was right when he said that surtax was one of the last vestiges of the class war. I am not objecting to taxation on its present basis, but it is absurd that our society is governed in this way. I say to the House and my right hon. Friends, who will shortly have the responsibility of dealing with our affairs—

Hon. Members

They will not.

Sir D. Glover

I am not at all disturbed. [Interruption.] That is one seat I shall not win, anyway. Whichever party is in power, there is another point that we must begin to take into account. It was that great, erudite person, Sir Paul Chambers who, during the last war, produced P.A.Y.E., which altered the whole of our taxation structure. As a result of P.A.Y.E., the bulk of the nation pay their taxes before receiving their income. If we ask any so-called working man—the chap on the shop floor, or the middle executive, anyone drawing up to about £4,000 or £5,000 a year, what he earns, he never replies that he earns f3,000, £4,000 or whatever it is a year. He immediately replies that his take-home pay is such-and-such a figure. This is a problem that both sides of the Committee will have to take into account.

Although in a strange way the burden of taxation weighs on those people and is a great disincentive to effort, overtime and so on, the fact that the money paid in tax is never in their hands before they pay it has a traumatic effect and influences the way they react. They somehow do not realise that they are paying that amount of money. The person who does realise that he is paying tax is the chap who writes a cheque for £50 in surtax, because when one is in the surtax bracket one has to pay the tax direct oneself, and it becomes real; or the money was in one's bank account before one signed the cheque. Under the P.A.Y.E system, however, the money to pay tax is not in one's bank account. It never gets there and one never handles it, so somehow it is not in one's possession.

On both sides of the Committee, we accept that a good deal of irresponsibility is growing up in our society. The average person today, with our Welfare State and so on, goes home knowing that his health, unemployment and retirement are all taken care of. He knows that all he has to do is to put in the jam jar—many people, funnily enough, still keep them today—£5 for rent, £2 for rates, £6 for housekeeping, and ten bob for the gas. Having done that, he has £10 left and he says to his wife, " Let's go out and spend it ". This has a great deal to do with why our society, per capita, in real terms spends a higher percentage of its income on consumer goods than anywhere else in the world. Because of this atmosphere, the average person has no other responsibility, and therefore what is left after he has done those few little transactions is just spending money.

The Government have never succeeded in getting any of that spare money into savings. When we Conservatives were in power, we increased savings from £100 million a year to £2,000 million a year. This shows that were we in office we could achieve such a result again. My right hon. Friends are being very moderate in their suggestions about surtax. Since the present Government came into power—I am not trying to make a cheap party point—the value of our money has gone down by 25 per cent.—in other words, the cost of living has gone up by 25 per cent. When we were in office, I thought the level of surtax was absurd. It was equal then to a person in 1939 being asked to pay surtax on an income of £300 or £400 a year. Anybody in 1939 would have thought it crazy if a person on that sort of income had been made to pay surtax. But even the figure of £2,000 a year, which applied when we were in office, is now worth £1,500, so we are now taxing people as being wealthy and privileged who, in pre-war terms, are earning the equivalent of about £300 a year. This is absolutely crazy. Whichever Government are in power, if we are to get initiative and drive, will have to push up this figure to much nearer £4,000 or £5,000 for the whole community and not just for the earned income group.

10.0 p.m.

We must take account of the gradual erosion of the value of money that occurs—and again I do not want to be party political—in the Welfare State. It goes on gradually year by year. Even under the Tories it went on, although at a much lower rate. Now we are very nearly reaching galloping inflation and, indeed, when my hon. Friend said, in humorous vein, that we would all be on £100,000 a year, my reaction was that it might well come true. When I was a schoolboy in the 1920s, my brother was in Paris. During the German inflation, he sent me a bill for 10 million German marks. Two years previously, that bill had been worth £1 million, and yet by the time he sent it to me it was not enough to buy a box of matches. I am not suggesting that this is going to happen here, but our rate of inflation is going on at a sufficient rate which should worry every responsible politician in the country.

When we get inflation going on at a rate faster than the manufacturers and producers can assess their prices for the season, we are in trouble, but we have reached that point under the present Government. For example, people in the clothing industry want to fix prices at which to sell their goods for the next six months, but with rising costs and inflation they are finding that the prices at which they start a season mean that, if maintained, they will be running at a loss at the end of it.

The other day in the House we heard the pathetic story of Cammell Laird. That situation came about because of wage increases and other increased costs. The firm accepted contracts only two years ago at a value of money which no longer exists today. It is therefore running at a loss, and unless the State does something about it it will go bankrupt. Surely both sides of the Committee must realise the problem we have to face.

Let us get away from the idea that, with the debased currency we are dealing with, an income of £2,000 is wealth beyond the dreams of avarice. It is nothing of the sort. The hon. Member for Harrow, East (Mr. Roebuck) knows this perfectly well. He is a journalist. He knows that the chaps who produce the articles he writes—if they ever get published—are earning £3,000 to £4,000 a year. They are surtax payers. Do they think that they are amongst the wealthy? Of course not. Their high salaries are only because of inflated and debased currency. They should not be paying surtax. They should be excused from it altogether.

I am not quite certain that I agree with my hon. Friend who talked about someone earning £100,000 on the Stock Exchange. I wish that he would introduce me to that person. I would have a go myself, although on a much smaller scale. In any case, I do not think that to earn £100,000 in that way is most desirable in the national interest. This man must be a very clever person, but he is an exception.

The number of people paying surtax has doubled in the last four years, not because the real earnings of the people have gone up but because of inflation and the devaluation of the standard of money. I am perfectly prepared to serve as a Member of this House for £3,250 a year, but I now discover that half my colleagues want a rise because their income is no longer buying what it did in 1964, when we got the last rise. But it is not their salaries which have gone down. The value of their money has eroded. This applies to other people in industry and commerce.

The Chief Secretary is no fool in these matters and he would be wise to advise the Committee to accept the Amendment. It goes a limited way in the direction we should like to go because it would bring a little more realism into the whole process of the valuation of money in real terms. A pound note or a 2s. piece have only a certain purchasing power and if that purchasing power goes down that coin has been debased. It does not mean that I have got more pay if I get an increase merely to try to keep in balance with that debasement. All parties must accept that we have a debased currency as compared with 1945. One of the most pressing and important matters is to reassess the whole basis of surtax on a much more brutally realistic basis than this Amendment proposes, so that we should not tax ordinary people who have shown incentive and who have worked hard, while at the same time catching the sort of person who makes £100,000 on the Stock Exchange. When I first came into the House we always talked about bachelors with an income of £100,000. But nobody ever met him.

Mr. Roebuck

Ted Heath.

Sir D. Glover

No, I do not think so. He is a little below that. But I do not want to weary the Committee at this late hour. I hope that my right hon. Friends have taken note of what I have said. Whichever party is returned to power at the next election must tackle this problem. It is no use our closing our eyes to it and pretending that it does not exist. It is a real problem and the sooner we face the issue the sooner we shall get some respect in the nation.

[Mr. SYDNEY IRVING in the Chair.]

Mr. Terence L. Higgins (Worthing)

I intervene briefly since we have had a wide-ranging debate. It is right that the emphasis should have been on the whole question of the effect of surtax on incentives. My hon. Friend the Member for Kensington, South (Sir B. Rhys Williams) was right to point out that the effect was especially severe on a particular group of people, namely those who are just changing their job and may be coming within the surtax range, and the so-called self-winding managers. This group of people is the most affected and is a group on which the country relies to a great extent for the economic growth which we must have to achieve our objectives.

I should like to put one or two questions to the Chief Secretary. But unless he feels able to accept this Amendment right hon. and hon. Members on this side of the House will feel it right and proper to vote on the Amendment. May we have from the Minister an estimate of the actual cost of the Amendment? It would be true to say that the figures will only be one-thirtieth of the tax reductions the Government would have to carry out to fulfil the Prime Minister's pledge not to increase taxation over the life of the Parliament.

Our overall attitude has already been clearly expressed today by my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod). There is one analytical point I would take up. In regard to surtax payers it is wrong to suppose that the effect in purely financial terms—that is to say the cost to the Revenue—is the same as the effect on the level of demand in the economy. It is likely to be the case that a high percentage of the tax relief given to surtax payers would be saved.

But in many ways the Chancellor's intervention this afternoon, when he seemed to be speaking on the surtax rather than the income tax Amendment, was extraordinary. We should not count on possible savings in taxation when estimating a particular tax change, but it is surely the case that this matter should be taken into account in the overall economic strategy. Therefore, I hope the Chief Secretary will refute the impression in the Chancellor's statement that no such calculation is made in making the Government's economic assessment. If so, we are in the hands of a Government acting very irresponsibly.

The second question is: what is the Chief Secretary's view of the effect which the Amendments would have in terms, not merely of the loss of revenue, but of aggregate demand in the economy?

An examination of the figures for income tax and surtax in the Red Book suggests a very peculiar situation. There is implicit in the figures given for expectation of revenue from both taxes an estimate of what will happen to income. The implication from the expected change in the revenue for income tax seems to be that the Government expect incomes subject to income tax to rise by about 9 per cent. The revenue is expected to rise by about 18 per cent., but the normal relationship concerning buoyancy and the increase in prices is about two to one. When one looks at the surtax level, the figure appears to be only about half that amount. In other words, the Government seem to be assuming that income tax incomes will go up at roughly twice the rate of surtax incomes. Is that the case? If it is, it has very important implications for the sake of the economy.

Overall, we are concerned primarily with the question of incentive and, to some extent, the question of the brain drain. We are still losing a considerable number of highly skilled executives overseas, although some may be coming back from America and then, faced with our surtax structure, going to work on the Continent. But the main reason why we must move towards a reduction in the surtax level for incentive purposes is that it is the only way in which we can hope to get the economy moving.

The Government's concessions are not adequate or well thought out. Probably about 90 per cent. of the people who will gain from them are not the whizz kids or the thrusting executives but, to a large extent, people who have a small amount of unearned income. Therefore, the Government's measures are not adequate. The marginal rate of tax between about £5,800 and £6,000 is astronomical. The first £182 of income at that level liable to surtax is taxed at 72 per cent. on earned income and 81.25 per cent. on unearned income. This is bound to have a disincentive effect for people moving from just below the surtax level to above it. This means that business must pay a considerable amount more.

The only answer to the problem is to move towards a reduction in general surtax levels. The Government's measures are wrong in principle, and I hope that my right hon. and hon. Friends will join me in supporting the Amendment in the Lobby.

Mr. Diamond

The hon. Members for Kensington, South (Sir B. Rhys Williams) expressed anxiety lest he should fall in my high esteem. He should have had no such anxiety. I said on an earlier occasion that he could be relied on to express a novel thought in a fresh way. Listening to his self-winding man in that delightful island of his, none of us was disappointed. The hon. Gentleman asked a question to which I will turn at the end of my intervention—whether what is proposed is morally sound. That is the test, and I gladly accept that it is the test.

Let me start by saying, on the assumption that the Committee will not require further discussion of the Clause on the Question, That the Clause stand part of the Bill, what it is the Government are proposing to do and what the Amendments suggest in its place.

10.15 p.m.

What the Government are proposing to do I am bound to refer to, because the impression I got from the speech made by the hon. Gentleman the Member for St. Ives (Mr. Nott) was that it was not fully understood, and if one gets that impression from the speech of such a knowledgeable man as the hon. Member far St. Ives one can reasonably assume that there are many of his colleagues who have not fully taken the point. What the Government are doing is raising not the level at which income becomes taxed but the level at which surtaxable income becomes liable to surtax, which is quite a different thing.

For example, in the normal case of a married man with two children and possibly a fraction, a very small amount, of mortgage interest payable, he would not start to be liable to surtax on an earned income under £6,000 because, as the hon. Member knows, he gets his allowances. Whereas previously it has been about £5,500 for such a person, or £5,100 for a person with no special allowances attributable to surtaxable income, the increase will affect the man, and I reckon that what we are proposing is a measurable benefit for those in that level of earned income.

I cannot define the level of earned income of a whizz kid. Nor can anybody else. I think it is fair to say one was thinking of encouraging the go ahead managerial types of the kind the hon. Gentleman the Member for Kensington, South was referring to, and to whom other hon. Members have referred; we are thinking of this kind of level of income. The Government are, therefore, making a measurable contribution towards that point of view. I thought I ought to mention that because I thought the point had not been fully taken.

The Government are doing it for the reasons the Chancellor gave, not only because of the effect of assisting those who are liable to surtax, and as a real token, if I may refer back to a discussion we had on a previous Amendment, of his view that some marginal relief ought to be applied where possible to higher earned income, but also because of the need to have regard to the vastly increasing number of small surtax payers, the cost of collecting these small amounts, and the wisdom, therefore, of giving a concession which has its beneficial effects, which costs £4 million to £5 million, and removes a large number, 185,000, from liability to surtax.

Coming to the Amendment, I was asked what would be its cost. The cost in a full year would be £115 million. The cost in this year would by £92 million. The estimate of the income arising for this year is exactly three times that. So what the Opposition are proposing is, in one Amendment, the reduction of surtax by one-third. That would produce a substantial benefit to the average surtax payer; if one simply takes the number of surtax payers and divides it into the amount proposed to be saved, it would be £324 on average for each such surtax payer. That is a substantial sum. The argument has been that the starting point is too low and that it compares unfavourably with the levels of total tax payable in other countries—

Mr. Higgins

Will the Chief Secretary tell us what the effect is likely to be on the demand in the economy?

Mr. Diamond

I cannot give an answer to that without notice. I was asked what the cost in resources was. Every one of the costs which one takes into account for Budget purposes is costed both for financial and resources cost. I cannot give the resources cost without notice. I can either write to the hon. Gentleman or, if he will put down a Question, I will give him the Answer. I take his point that it is not the full financial cost; nobody would suggest that it is for surtax.

I recognise that the levels of tax payable, including income tax and surtax, are high at high levels of income and, above, say, £7,000 a year uniquely high. I do not attempt to duck those figures. One gets a better comparison than a simple translation at the ruling exchange rate by taking a comparison based on the proportion of the income bracket in the country concerned and converting it on the basis of the income bracket, that is, by taking the first 10 per cent. or the second 10 per cent. and converting on that basis. That is a more realistic comparison and it has been attempted by economists. But it does not matter. We are agreed on the essential, that at high levels of income, and certainly above £7,000 a year, our rates are high, indeed uniquely high.

The justification which I am putting to the House is not that the rates are not high for surtax at those levels—not at low levels but at those levels. What I am putting to the House is how do we exercise our priorities and what should we do first on any basis of morality which would appeal to all hon. Members, and that is what the hon. Member for Bodmin (Mr. Bessell) was arguing when he was saying " not this year ". The question presents itself to any Government, not as a consideration of what should be done in absolute terms, but as a choice of what one does first. Given my right hon. Friend's Budget judgment, I say unhesitatingly that it would have been morally wrong—and I hope I carry with me the hon. Member for Kensington, South—in advance of and instead of the modest relief which we have offered to those at the bottom of the scale, to introduce an amendment which would have extinguished the liability of a large number of surtax payers, saved them the amounts of money which I have indicated and reduced the total burden of taxation by one-third in one year. I rest on that argument. It cannot be said that the rates are not high, but I am not satisfied, nor could anybody be satisfied, of the disincentive effect. We each have our individual views, but nobody can prove this.

As for the hon. Gentleman who interviewed the managers who would not be prepared to remove from departmental responsibility to overall responsibility in view of the surtax effect, I hope that he came to the conclusion that that was a good test whether the man ought to be given that kind of responsibility. I would reach that conclusion immediately. A man who is afraid of responsibility, whose desire to make a contribution to a company is limited because his surtax will start at 2s. in the £ or whatever, is not a man on whom responsibility can be placed. It is something outside my experience, and outside the experience of anyone who has ever sat on these Benches, that a person considers his surtax liability before taking on responsibility.

On the subject of incentive, what the Opposition are proposing is the disincentive of giving a higher benefit, but higher relief to those with unearned incomes than to those with earned incomes. I do not say that was the major purpose of the proposal but it is built into it. This is what they will vote on if they press the Amendment.

Sir G. Nabarro

Before the right hon. Gentleman sits down, he has listened painstakingly to the whole debate and will know that several speeches have expressed approval for the gradation in Amendment 8. The right hon. Gentleman says that the cost of Amendment No. 7 is £92 million this year and £115 million in a full year, the £92 million being approximately one-third of the total surtax yield of £277 million this year. Would

he now apply himself to the Schedule in Amendment No. 8, which should be seen and not heard, and give me the figures in response to that Amendment, a preference for which was expressed by many of my hon. Friends? If it were more convenient, I would, of course, table a Parliamentary Question for this Friday, having regard to the current circumstances.

Mr. Diamond

That is a reasonable request and I am sorry that I did not answer earlier. I heard what the hon. Gentleman heard, namely, the measure of approval for his Amendment, which is a much more responsible Amendment than that put forward by his own Front Bench. The cost of the hon. Gentleman's Amendment would be £85 million for a full year and in the current year £60 million.

Question put, That the Amendment be made:—

The Committee divided: Ayes 150, Noes 229.

Division No. 125.]	AYES	[10.28 p.m.
Alison, Michael (Barkston Ash)	Glyn, Sir Richard	Mawby, Ray
Allason, James (Hemel Hempstead)	Godber, Rt. Hn. J. B.	Maxwell-Hyslop, R. J.
Archer, Jeffrey (Louth)	Goodhart, Philip	Mills, Peter (Torrington)
Astor, John	Gower, Raymond	Miscampbell, Norman
Atkins, Humphrey (M't'n & M'd'n)	Grant, Anthony	Mitchell, David (Basingstoke)
Awdrey, Daniel	Grant-Ferris, Sir Robert	Monro, Hector
Baker, Kenneth (Acton)	Grieve, Percy	Montgomery, Fergus
Baker, W. H. K. (Banff)	Griffiths, Eldon (Bury St. Edmunds)	Morrison, Charles (Devizes)
Balniel, Lord	Gurden, Harord	Nabarro, Sir Gerald
Bennett, Dr. Reginald (Gos. & Fhm)	Hall, John (Wycombe)	Neave, Airey
Biggs-Davison, John	Hall-Davis, A. G. F.	Nicholls, Sir Harmar
Birch, Rt. Hn. Nigel	Hamilton, Michael (Salisbury)	Noble, Rt. Hn. Michael
Boardman, Tom (Leicester, S.W.)	Harrison, Brian (Maldon)	Nott, John
Body, Richard	Harrison, Col. Sir Harwood (Eye)	Onslow, Cranley
Boyd-Carpenter, Rt. Hn. John	Hawkins, Paul	Orr-Ewing, Sir Ian
Boyle, Rt. Hn. Sir Edward	Heald, Rt. Hn. Sir Lionel	Osborn, John (Hallam)
Buchanan-Smith, Alick(Angus, N & M)	Heath, Rt. Hn. Edward	Page, John (Harrow, W.)
Burden, F. A.	Higgins, Terence L.	Pearson, Sir Frank (Clitheroe)
Campbell, B. (Oldham, W.)	Hiley, Joseph	Peyton, John
Carlisle, Mark	Hogg, Rt. Hn. Quintin	Pike, Miss Mervyn
Cary, Sir Robert	Holland, Philip	Powell, Rt. Hn. J. Enoch
Chataway, Christopher	Hordern, Peter	Price, David (Eastleigh)
Clegg, Walter	Hornby, Richard	Prior, J. M. L.
Cooke, Robert	Howell, David (Guildford)	Pym, Francis
Cordle, John	Hunt, John	Rawlinson, Rt. Hn. Sir Peter
Corfield, F. V.	Hutchison, Michael Clark	Rees-Davies, W. R.
Costain, A. P.	Jenkin, Patrick (Woodford)	Renton, Rt. Hn. Sir David
Crouch, David	Jennings, J. C. (Burton)	Rhys Williams, Sir Brandon
Crowder, F. P.	Kaberry, Sir Donald	Ridley, Hn. Nicholas
d' Avigdor-Goldsmid, Sir Henry	Kimball, Marcus	Ridsdale, Julian
Dean, Paul	King, Evelyn (Dorset, S.)	Royle, Anthony
Dodds-Parker, Douglas	Kirk, Peter	Russell, Sir Ronald
Elliot. Capt. Walter (Carshalton)	Lane, David	Sharples, Richard
Elliott, R.W.(Npc'tle-upon-Tyne, N.)	Legge-Bourke, Sir Harry	Shaw, Michael (Sc'b'gh & Whitby)
Emery, Peter	MacArthur, Ian	Silvester, Frederick
Errington, Sir Eric	Maclean, Sir Fitzroy	Sinclair, Sir George
Eyre, Reginald	Macleod, Rt. Hn. Iain	Smith, Dudley (W'wick & L'mington)
Farr, John	McMaster, Stanley	Smith, John (London & W'minster)
Fletcher-Cooke, Charles	McNair-Wilson, Michael	Speed, Keith
Foster, Sir John	McNair-Wilson, Patrick (New Forest)i	Stainton, Keith
Fraser, Rt. Hn. Hugh(St'fford & Stone)	Maddan, Martin	Stoddart-Scott, Col. Sir M.
Galbraith, Hn. T. G.	Maginnis, John E.	Summers, Sir Spencer
Gilmour, Ian (Norfolk, C.)	Maude, Angus	Tapsell, Peter
Glover, Sir Douglas	Maudling, Rt. Hn. Reginald	Taylor, Edward M.(G'gow, Cathcart)
Taylor, Frank (Moss Side)	Walker, Peter (Worcester)	Wolrige-Gordon, Patrick
Temple, John M.	Walker-Smith, Rt. Hn. Sir Derek	Wood, Rt. Hn. Richard
Thatcher, Mrs. Margaret	Walters, Dennis	Woodnutt, Mark
Tilney, John	Ward, Christopher (SWindon)
Turton, Rt. Hn. R. H.	Wells, John (Maidstone)	TELLERS FOR THE AYES:
van Straubenzee, W, R.	Wiggin, A. W.	Mr. Timothy Kitson
Vaughan-Morgan, Rt. Hn. Sir John	Williams, Donald (Dudley)	and Mr. Bernard Weatherill
Waddington, David
NOES
Abse, Leo	Fraser, John (Norwood)	Marquand, David
Albu, Austen	Freeson, Reginald	Mason, Rt. Hn. Roy
Allaun, Frank (Salford, E.)	Galpern, Sir Myer	Mellish, Rt. Hn. Robert
Alldritt, Walter	Gardner, Tony	Mendelson, John
Archer, Peter (R'wley Regis & Tipt'n)	Garrett, W. E.	Millan, Bruce
Armstrong, Ernest	Ginsburg, David	Mitchell, R. C. (S'th'pton, Test)
Ashley, Jack	Golding, John	Moonman, Eric
Ashton, Joe (Bassetlaw)	Gray, Dr. Hugh (Yarmouth)	Morgan, Elystan (Cardiganshire)
Atkins, Ronald (Preston, N.)	Greenwood, Rt. Hn. Anthony	Morris, Charles R. (Openshaw)
Atkinson, Norman (Tottenham)	Gregory, Arnold	Moyle, Roland
Barnes, Michael	Grey, Charles (Durham)	Mulley, Rt. Hn. Frederick
Barnett, Joel	Griffiths, Eddie (Brightside)	Murray, Albert
Baxter, William	Griffiths, Will (Exchange)	Neal, Harold
Beaney, Alan	Hamilton, William (Fife, W.)	Newens, Stan
Bennett, James (G'gow, Bridgeton)	Hamling, William	Norwood, Christopher
Bessell, Peter	Hannan, William	Oakes, Gordon
Bidwell, Sydney	Harper, Joseph	Ogden, Eric
Binns, John	Harrison, Walter (Wakefield)	O'Halloran, Michael
Bishop, E. S.	Haseldine, Norman	Orbach, Maurice
Blenkinsop, Arthur	Healey, Rt. Hn. Denis	Orme, Stanley
Booth, Albert	Heffer, Eric S.	Oswald, Thomas
Boston, Terence	Henig, Stanley	Padley, Walter
Bray, Dr. Jeremy	Herbison, Rt. Hn. Margaret	Paget, R. T.
Brooks, Edwin	Hooley, Frank	Palmer Arthur
Brown, Rt. Hn. George (Belper)	Houghton, Rt. Hn. Douglas	Pannell, Rt. Hn. Charles
Brown, Hugh D. (G'gow, Provan)	Howarth, Robert (Bolton, E.)	Parker, John (Dagenham)
Brown, Bob (N'c'tle-upon-Tyne, W.)	Hoy, Rt. Hn. James	Parkyn, Brian (Bedford)
Buchan, Norman	Hughes, Rt. Hn. Cledwyn (Anglesey)	Pavitt Laurence
Buchanan, Richard (G'gow, Sp'burn)	Hughes, Roy (Newport)	Pearson, Arthur (Pontypridd)
Callaghan, Rt. Hn. James	Hynd, John	Pentland, Norman
Cant, R. B.	Jackson, Colin (B'h'se & Spenb'gh)	Perry, George H. (Nottingham, S.)
Carmichael, Neil	Jackson, Peter M. (High Peak)	Price, Christopher (Perry Barr)
Carter-Jones, Lewis	Janner, Sir Barnett	Price, Thomas (Westhoughton)
Coleman, Donald	Jay, Rt. Hn. Douglas	Price, William (Rugby)
Concannon, J. D.	Jenkins, Hugh (Putney)	Probert, Arthur
Crawshaw, Richard	Johnson, James (K'ston-on-Hull, W.)	Randall, Harry
Cronin, John	Jones, Dan (Burnley)	Rees, Merlyn
Crosland, Rt. Hn. Anthony	Jones, Rt. Hn. Sir E1wyn(W. Ham, S.)	Rhodes, Geoffrey
Dalyell, Tam	Jones, J. Idwal (Wrexham)	Richard, Ivor
Darling, Rt. Hn. George	Jones, T. Alec (Rhondda, West)	Roberts, Albert (Normanton)
Davidson, Arthur (Accrington)	Judd, Frank	Roberts, Gwilym (Bedfordshire, S.)
Davies, E. Hudson (Conway)	Kelley, Richard	Robertson, John (Paisley)
Davies, Dr. Ernest (Stretford)	Kerr, Russell (Feltham)	Rodgers, William (Stockton)
Davies, Rt. Hn. Harold (Leek)	Lawler, Wallace	Roebuck, Roy
Davies, Ifor (Gower)	Lawson, George	Rose, Paul
Davies, S. O. (Merthyr)	Leadbitter, Ted	Rowlands, E.
de Freitas, Rt. Hn. Sir Geoffrey	Lee, Rt. Hn. Frederick (Newton)	Ryan, John
Delargy, H. J.	Lee, Rt. Hn. Jennie (Cannock)	Shaw, Arnold (Ilford, S.)
Dell, Edmund	Lee, John (Reading)	Sheldon, Robert
Dempsey, James	Lewis, Ron (Carlisle)	Shore, Rt. Hn. Peter (Stepney)
Diamond, Rt. Hn. John	Lipton, Marcus	Sillars, J.
Dickens, James	Lomas, Kenneth	Silverman, Julius
Doig, Peter	Loughlin, Charles	Slater, Joseph
Dunn, James A.	Lubbock, Eric	Small, William
Dunnett, Jack	Lyon, Alexander W. (York)	Snow, Julian
Eadie, Alex	Lyons, Edward (Bradford, E.)	Spriggs, Leslie
Edelman, Maurice	Mabon, Dr. J. Dickson	Steel, David (Roxburgh)
Edwards, Robert (Bilston)	McCann, John	Steele, Thomas (Dunbartonshire, W.)
Edwards, William (Merioneth)	MacColl, James	Swain, Thomas
Ellis, John	MacDermot, Niall	Tavern, Dick
English, Michael	Macdonald, A. H.	Tinn, James
Ennals, David	McElhone, Frank	Tuck, Raphael
Evans, Albert (Islington, S.W.)	McKay, Mrs. Margaret	Urwin, T. W.
Evans, Fred (Caerphilly)	Mackenzie, Gregor (Rutherglen)	Wainwright, Richard (Colne Valley)
Evans, loan L. (Birm'h'm, Yardley)	Mackie, John	Walden, Brian (All Saints)
Faulds, Andrew	Maclennan, Robert	Walker, Harold (Doncaster)
Fernyhough, E.	McNamara, J. Kevin	Wallace, George
Finch, Harold	MacPherson, Malcolm	Watkins, David (Consett)
Fitch, Alan (Wigan)	Mahon, Peter (Preston, S.)	Watkins, Tudor (Brecon & Radnor)
Fletcher, Raymond (Ilkeston)	Mahon, Simon (Bootle)	Weitzman, David
Fletcher, Ted (Darlington)	Mallalieu, J.P.W. (Huddersfield, E.)	Wellbeloved, James
Ford, Ben	Mapp, Charles	Wells, William (Walsall, N.)
Forrester, John	Marks, Kenneth	Whitlock, William
		Wilkins, W. A.

Willey, Rt. Hn. Frederick	Wilson, William (Coventry, S.)
Williams, Alan (Swansea, W.)	Winnick, David	TELLERS FOR THE NOES:
Williams, Alan Lee (Hornchurch)	Winstanley, Dr. M. P.	Mr. R. P. H. Dobson
Williams, Clifford (Abertillery)	Woodburn, Rt. Hn. A.	and Mr. Ernest G. Perry.
Wills, Rt. Hn. George

Clause 12 ordered to stand part of the Bill.

Mr. Diamond

I beg to move,

That the Chairman do report Progress and ask leave to sit again.

Mr. Iain Macleod

I accept the Motion. However, for the convenience of the Committee I should like the Chief Secretary to confirm that he has been able to table a Motion to meet the point of order which I raised at the beginning of our sitting today so that we may take the Clauses tomorrow in the order of Clause 13, followed by the new Clauses on savings.

Mr. Diamond

I am grateful to the right hon. Gentleman. I shared his view that that would meet the general convenience of the Committee, and such a Motion has been tabled.

Question put and agreed to.

Committee report Progress; to sit again Tomorrow.