Commons Sitting of 13 May 1970

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

  NORTH RIDING COUNTY COUNCIL BILL [Lords]
  WILLIAMS & GLYN'S BANK BILL
  Considered; to be read the Third time

  TEESSIDE CORPORATION (NO. 2) BILL [Lords]
  Read a Second time and committed.

  BRITISH TRANSPORT DOCKS ORDER CONFIRMATION BILL
  COATBRIDGE BURGH ORDER CONFIRMATION BILL
  Read the Third time and passed

ORAL ANSWERS TO QUESTIONS
  AGRICULTURE, FISHERIES AND FOOD

    Retail Food Prices
    Mr. Dempseyasked the Minister of Agriculture, Fisheries and Food if he will take steps to appoint a liaison unit with retail distribution with a view to preventing unjustifiable increases in prices; and if he will make a statement.
    The Joint Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. James Hoy): We keep in close touch with food distribution through our Advisory Group on the Retail Food Trade. The trade also co-operates in
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    the Department's weekly survey of retail food prices which forms part of the arrangements for price surveillance.
    Mr. Dempsey: Is my right hon. Friend aware that, in spite of the good work he is doing, prices are being increased substantially day by day, in many cases most unjustifiably? Will he consider the possibility of taking some more effective control over such retail prices?
    Mr. Hoy: The fact to which my hon. Friend draws attention has not escaped our notice. My right hon. Friend is giving urgent attention to this matter.
    Mr. Evelyn King: Are not rapidly increasing prices, as well as the £11 million deficit announced a few hours ago, a direct and foreseeable result of Government policies designed not in the national interest but to win a snap General Election?
    Mr. Hoy: We are doing our very best to look after the interests of the consumer as well as those of the producer. The hon. Gentleman should have learned that lesson long ago.
    Mr. Godber: If the right hon. Gentleman is seeking to look after the interests of the producer and those of the consumer, will he explain why prices to the consumer are now rising faster than ever before—by 1s. 3d. in the £ in the last 12 months—although the producer is getting such an unsatisfactory yield that he is protesting by keeping stock from the market?
    Mr. Hoy: Last year, according to official figures, food prices rose by 5·5 per cent. while wage rates rose by 10·9 per cent.
    Mr. Joplingasked the Minister of Agriculture, Fisheries and Food from what organisations he has sought in the last year undertakings to stabilise prices for a stated period of time.
    The Minister of Agriculture, Fisheries and Food (Mr. Cledwyn Hughes): My Department is in regular contact with a wide range of organisations throughout the field for which I am responsible. Discussions concerning possible price increases are confidential, and I cannot, therefore, say which bodies or firms have been involved.
    Mr. Jopling: Why does the Minister evade answering the Question when he knows that the president of the feeding stuffs manufacturers' organisation made a speech in his presence in which he said that he did not see why that industry should be bullied into stabilising prices when most of the factors which were causing rising prices in that industry were the fault of the Government alone?
    Mr. Hughes: There was no reason why the feeding stuff manufacturers should not put that point of view to me. As their president said publicly, we had perfectly friendly discussions. They gave their opinions, but I took another view and we agreed to differ. At Question time on 15th April the hon. Gentleman made a dishonourable statement to the effect that the Government had sought to blackmail certain organisations. I then asked him to withdraw that statement. He was not sufficiently gracious to do so, and I no longer ask it of him.
    Mr. Arthur Lewis: Can my right hon. Friend say to what extent the British Food Manufacturers Association is being helpful in keeping down prices? Has it not refused to co-operate? Secondly, would he say to what extent the tea manufacturers, Brooke Bond, consulted him before they put up the prices of tea?
    Mr. Speaker: Order. There is a Question on the Order Paper about the second point.
    Mr. Hughes: There are two Questions on this subject later.

    Potatoes (Supplies)
    Mr. Joplingasked the Minister of Agriculture, Fisheries and Food whether in view of the shortage and high price of potatoes to the public, he will take steps to increase supplies from the 1970 crop.
    Mr. Hoy: The great bulk of planting for the 1970 crop has now been completed. I have no reason to suppose that supplies will not meet the demand.
    Mr. Jopling: Does not the right hon. Gentleman remember that over a year ago some of us on this side warned him about the danger of a shortage of potatoes this year, with consequent high prices, because his Government agreed to a quota acreage of 90 per cent. for last
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    year's crop, which has been partly responsible for the high prices? Are not these high prices partly the Government's fault?
    Mr. Hoy: No. The acreages are agreed in consultation with the Potato Marketing Board and the N.F.U. The hon. Gentleman will remember that at the period he was complaining about 36,000 acres were not taken up because of bad weather.

    Agricultural Support Policy
    Mr. William Hamiltonasked the Minister of Agriculture, Fisheries and Food what is his estimate of the increase in the cost of food per week for an average family of four consequent on the abolition of the present system of financial aid for agriculture.
    Mr. Hoy: The immediate abolition of all agricultural support would have such radical and unpredictable effects on the existing pattern of home production, supplies and prices, that it is impossible to assess what the increased cost of food might be.
    Mr. Hamilton: Is it not the case that the Tory Party policy is precisely this?
    Hon. Members: No.
    Mr. Hamilton: We should like to know the Tory Party policy very much. Is it not the case that if there was complete abolition of this kind of support, the average increase for a family of four would be in the region of 8s. a week? Is this the way to keep prices down?
    Mr. Hoy: I do not think that there is any doubt that if the support programme was abolished it would be bound to have a reaction which would mean very expensive food indeed.
    Mr. Godber: Would the hon. Gentleman explain to his hon. Friend that this is not what the Opposition are proposing and that they are proposing the elimination of deficiency payments, which is only one part of this, which is a very different matter, and which the Minister has said will put only between 4 per cent. and 7 per cent. on the price of food?
    Mr. Hoy: I do not think that it is for me to explain the policy of the party

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    opposite. As the right hon. Gentleman knows, a meeting in the constituency of Banffshire has a motion on the agenda asking the Tory Party to state its policy on this matter. Apparently it does not have one.

    Historic Sites (Protection)
    Mr. Peter M. Jacksonasked the Minister of Agriculture, Fisheries and Food whether he will liaise with the Minister of Public Building and Works to protect sites scheduled under the Historic Building and Ancient Monuments Act 1953 and the Ancient Monuments Act 1931 from the depredations of ploughing, particularly deep ploughing.
    The Joint Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. John Mackie): Under longstanding arrangements, the Ministry of Public Building and Works notifies my Department of all scheduled ancient monuments situated on agricultural land and we take steps, in connection with any application for grant-aid, to remind the applicant of his obligations under the Ancient Monuments Acts.
    Mr. Jackson: While thanking my hon. Friend for that reply, may I draw his attention to the recent report by Sir David Walsh on his inquiry into the arrangements for the protection of ancient monuments and in particular to paragraphs 19 to 24 suggesting that many ancient monuments are coming under threat by new agricultural techniques? Will he ask members of the National Agricultural Advisory Service to advise owners of the fact that they are operating in areas where there are such monuments?
    Mr. Mackie: We have this arrangement as I explained, but I will look into the matter of the new techniques which my hon. Friend has mentioned.

    Dutch Elm Disease
    Mr. Peter M. Jacksonasked the Minister of Agriculture, Fisheries and Food whether, in view of the recent outbreaks of Dutch elm disease, he will instruct the Forestry Research Station at Alice Holt to undertake work on the pathology of Dutch elm disease.
    Mr. Mackie: As I believe my hon. Friend is aware, there has already been a great deal of research on Dutch elm disease both at home and abroad. The Forestry Commission is now concentrating on testing and selecting strains of elm which are resistant to the disease, since the planting of resistant strains appears to offer the most satisfactory solution to the problem in the long term.
    Mr. Jackson: May I congratulate my hon. Friend on that reply? May I ask him whether he will, when the survey has been undertaken—and I hope that it will be done with a sense of urgency—make the findings known to as many interested parties as possible?
    Mr. Mackie: I will see that that point is noted.
    Sir D. Renton: Is the hon. Gentleman aware that the strongest and most beautiful of all elm is the Huntingdon elm and that this is resistant to the Dutch elm disease? Will he invite the attention of all concerned to this fact?
    Mr. Mackie: Yes.

    Weedkiller 2,4,5-T
    Mr. Crouchasked the Minister of Agriculture, Fisheries and Food if he is satisfied that weedkillers containing 2,4,5-T present no hazard to human life; and whether he will ban the use of such products while doubt remains in scientific opinion regarding the side-effects of this chemical.
    Mr. Woodnuttasked the Minister of Agriculture, Fisheries and Food in view of the ban imposed by the Forestry Commission on the use of the weedkiller 2,4,5-T, if he will take steps to ban its distribution and use throughout the United Kingdom until the results of the investigations of his advisory committee on pesticides and other toxic chemicals are known.
    Mrs. Joyce Butlerasked the Minister of Agriculture, Fisheries and Food if he will ban the use of 2,4,5-T in weedkillers, pending results from the advisory committee's inquiry into its safety so far as human beings are concerned.
    Mr. Cledwyn Hughes: New evidence from the United States of America is

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    under consideration by the Advisory Committee. Preliminary study has not revealed anything to enable me to add to my reply of 22 April, but I will make a further statement very shortly when the committee has completed its consideration of the evidence.—[Vol. 800, c.113–4.]
    Mr. Crouch: I am grateful to the right hon. Gentleman for that careful answer. Would he bear in mind that there is a feeling in the country that the extensive use of weedkillers can lead to dangers, particularly to human life, and that there is the thought that 2,4,5-T may produce this danger? Will he ensure that manufacturers and users observe careful control of this dangerous chemical?
    Mr. Hughes: I appreciate what the hon. Gentleman has said and the concern of hon. and right hon. Gentlemen throughout the House about this. The House will agree that I have not been slow in taking action where I have had the evidence clearly before me. In this case, I feel that my committee should be enabled to look at the voluminous evidence coming from the United States, and I have asked it to report as quickly as possible.
    Mr. Woodnutt: As the Forestry Commission has seen fit to ban this chemical, and as it has also been banned in the United States, would the Minister not be wise, while his investigation is going on, to ban its complete use until the result of the investigations is known?
    Mr. Hughes: It would be wrong for a Minister to ban a weedkiller or anything else without having the advice of British scientists and Government committees. This could lead to general public alarm without necessarily any justification. I seek to take a balanced view of these things after proper consideration. As for the Forestry Commission, the hon. Gentleman knows that it suspended the use of 2,4,5-T as a management decision following special representations from the unions. It has made it clear that its decision was not made on grounds of safety.
    Mr. Woodnuttasked the Minister of Agriculture, Fisheries and Food if the ban imposed by the Forestry Commission on the use of the weedkiller 2,4.5-T
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    will result in a reduction in the proposed redundancies of manual workers employed by the commission.
    Mr. Cledwyn Hughes: The Forestry Commission has not imposed a ban on the use of 2,4,5-T, but has temporarily suspended its use at the request of the unions pending the result of the review to which I referred in my reply to my hon. Friend the Member for Fife, West (Mr. William Hamilton) on 22nd April. This suspension will have no effect on redundancy.—[Vol. 800, c.113–4]
    Mr. Woodnutt: Bearing in mind what I have been told by the Forestry Commission, that this is the most economical way of dealing with this wood weed, does this not mean that if it has to be dealt with manually more men will be required? Is it not ridiculous to cut a force of 28 men down to a low figure such as 12?
    Mr. Hughes: These are matters which we shall have to consider, as I said in my Answer to the previous Question, when the report of the committee is before us. At the moment, the redundancy question is unaffected. If a ban is effected we shall have to consider the position in the light of the new situation. I appreciate the hon. Gentleman's concern for his constituents, and I shall be glad to discuss it with him if it becomes necessary to impose any sort of ban.

    Agriculture (Capital Investment)
    Mr. Wigginasked the Minister of Agriculture, Fisheries and Food what yardstick he uses for assessing capital investment in agriculture during the rest of this year.
    Mr. Mackie: There can be no single yardstick for assessing levels of future capital investment in agriculture. This is influenced by the availability of cash and credit, the expected return, and other factors, but previous trends provide an important guide.
    Mr. Wiggin: With regard to the part of the Price Review devoted to deficiency payments, is the hon. Gentleman aware that it is revealed almost daily that farmers have so little left to invest in capital enterprises that in the coming year agriculture will suffer? Bearing in mind this long-term aspect, will the hon.

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    Gentleman consider either an emergency Price Review or other action to deal with this part of the Price Review problem?
    Mr. Mackie: My right hon. Friend has heard the last part of the hon. Gentleman's supplementary. As to the first part, there is no indication that this is taking place. The applications for farm improvement schemes are going ahead. There is no sign of a slowing down in the buying of tractors. There was a little recession in January but registrations went up 27 per cent. in February. For the first quarter of 1970 new investment is up 9 per cent.

    National Agricultural Advisory Service
    Mr. Wigginasked the Minister of Agriculture, Fisheries and Food what plans he has for the future of the National Agricultural Advisory Service; and if he will make a statement.
    Mr. Cledwyn Hughes: I would refer the hon. Member to my reply to my hon. Friend the Member for Brecon and Radnor (Mr. Tudor Watkins) on 9th April.—[Vol. 799; c.126–7]
    Mr. Wiggin: While thanking the right hon. Gentleman for that reply, may I ask him if he will take great pains in the reorganisation to ensure that the advisory and administrative functions of the new service are kept quite separate and are seen to be kept separate?
    Mr. Hughes: I take the hon. Gentleman's point. I think that he is referring to what has been called the integrity of the N.A.A.S. I take this opportunity to repeat willingly my unequivocal assurance that those engaged in advisory work will have a duty to give completely impartial advice. I attach great importance to that.

    Feeding Stuffs, Northern Ireland (Price Differential)
    Lord Hamiltonasked the Minister of Agriculture, Fisheries and Food what is the differential in the price of feeding stuffs in Northern Ireland compared with Great Britain.
    Mr. Hoy: The differential in 1969–70 is estimated at some £1 million.
    Lord Hamilton: Will not the right hon. Gentleman agree that this is a very serious
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    disparity, which has been allowed to drift owing to the ineptitude of the Government, in spite of the fact that a detailed analysis of this problem was carried out in 1968?
    Mr. Hoy: We have noticed the gap, but it has nothing to do with ineptitude. The gap is narrowing a little. I should have thought that the hon. Gentleman would have remembered that there are also disparities even within Great Britain itself.
    Sir Knox Cunningham: Can the right hon. Gentleman give his estimate of the increased costs of feeding stuffs in Ulster if the United Kingdom enters the Common Market?
    Mr. Hoy: No, I should not like to hazard a guess.

    Farm Amalgamations
    Lord Hamiltonasked the Minister of Agriculture, Fisheries and Food if he will now review the scale of incentive in the Farm Amalgamation Act, 1967.
    Mr. Mackie: We have increased the rate of grant under the Farm Amalgamations and Boundary Adjustments Scheme to 60 per cent. for the next two years, and the scheme will be made more attractive by the proposals in the Agriculture Bill, particularly the reduction from 40 to 15 years in the period for which the amalgamated unit must be kept together and in agricultural use.
    Lord Hamilton: Would the hon. Gentleman not agree that the response to this scheme has been disappointing and that, owing to inflation running at supersonic speed, the so-called " golden handshake " has dwindled in value to a meagre handshake, which will have no appeal to the outgoing farmer?
    Mr. Mackie: No, Sir; that is not the case. There have been about 3,500 applications in the United Kingdom; in Northern Ireland there were 270 amalgamations and 227 payments to outgoers. We did not get the supersonic speed which the hon. Gentleman would like, but we hope the new conditions will help.
    Mr. Peter M. Jackson: When the Bill was introduced in 1967, were any projections made of the trend in amalgamations over the succeeding three, four or five

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    years? Have these expectations been met by the scales which were then introduced?
    Mr. Mackie: No projections were made. There were two reasons for the scheme—first, to increase amalgamations and, second, to help people who wanted to retire. There has been a tremendous amount of help, particularly to elderly people, to get out of the industry.

    Wool Clip
    Mr. Buchanan-Smithasked the Minister of Agriculture, Fisheries and Food what will be the reduction in income to hill flocks of sheep as a result of the 1970 wool clip prices announced by the Wool Marketing Board.
    Mr. Hoy: This will depend on the farm, the flock and the season. I understand, however, that on average the prices in the board's schedule are around 5 per cent. lower.
    Mr. Buchanan-Smith: Could the right hon. Gentleman direct himself particularly to the problem of the hill and upland farmer? Is he aware that the 1970 wool guarantee is exactly the same as it was 10 years ago and that this is particularly hard for the upland farmer, because he does not benefit directly from the increase in the fat lamb guarantee price?
    Mr. Hoy: It must be remembered that the Government have maintained the wool guarantee at a high level in relation to the market price, and this accounts for about one third of the producer's return on wool. I do not agree with the latter part of the hon. Gentleman's question. He must know that the incomes of owners of hill flocks should benefit from the substantial increase in the guarantee for fat sheep of 3d. a pound, which was the highest since 1947.
    Mr. Hooson: Will the right hon. Gentleman not agree that it is a matter of national concern that the sheep flock is going down and that there has been particular hardship in the hill areas? Is this matter being kept under review this summer, in view of certain undertakings given by the Minister at the time of the Review?
    Mr. Hoy: Yes, but it is true that the flock is not going down in the uplands. We thought that it was right to put up
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    the end price, as all farmers have asked. The flock is going down in the lowlands, and we hope by these means to increase it so as to increase the flock overall.
    Sir J. Gilmourasked the Minister of Agriculture, Fisheries and Food what estimate he has made of the net value to the producers of the 1970 United Kingdom wool clip; and if he will make a statement.
    Mr. Hoy: I am advised by the British Wool Marketing Board that it estimates the return to wool growers from the 1970 clip, net of their marketing costs and based on a forecast clip of 65 million lbs., to be over £12·25 million.
    Sir J. Gilmour: Would the right hon. Gentleman not agree that there is a reduction in the return from wool? Why was no cognisance taken of this during the Price Review to safeguard the production and marketing costs increases which have happened?
    Mr. Hoy: It certainly was taken into consideration. That is why, as I said in reply to a previous question, we decided to put 3d. per pound on the end price for fat sheep.

    Potato Marketing Board (Levy)
    Sir J. Gilmourasked the Minister of Agriculture, Fisheries and Food what representations he has received about the proposals made to him by the Potato Marketing Board for increasing its levy; and if he will make a statement.
    Mr. Hoy: My right hon. Friend has received two representations. Amendments to the scheme, providing for this increase and other changes, were submitted yesterday to my right hon. Friends. Statutory procedures governing this matter will now be followed.
    Sir J. Gilmour: In view of rising costs to potato producers, would the right hon. Gentleman not agree that this is a serious addition to potato growers' costs?
    Mr. Hoy: We got these representations only yesterday. There have been intimations to my right hon. Friend, but, of course, there are certain procedures, of which the hon. Gentleman is well aware, which we must follow.

    Livestock Haulage
    Mr. Buchanan-Smithasked the Minister of Agriculture, Fisheries and Food what assessment he has now made of the effect on livestock haulage of the restriction on drivers' hours as a result of the Transport Act, 1968; and if he will make a statement.
    Mr. Mackie: As the hon. Member will know, the regulations provide concessions in respect of the haulage of livestock. As I said in my reply to the hon. Member on 15th April, we have received only one representation about the difficulties arising in England and Wales.—[Vol. 799, c.239]
    Mr. Buchanan-Smith: But would the hon. Gentleman please appreciate that the farming industry, on top of the extra costs which the Transport Act has brought, is suffering considerable inconvenience through the working of that Act in relation to hours, which in some cases causes suffering to animals? Would he consider this urgently and recommend the Minister of Transport to give exemption on hours for livestock haulage similar to that enjoyed already by fish traffic?
    Mr. Mackie: I am aware that the Minister of Transport and the Secretary of State for Scotland have received representations about this which are being studied. There are some concessions to livestock transport which help.
    Mr. Godber: Would the hon. Gentleman please make special representations to the Ministry of Transport? Is he aware that the animal welfare societies are becoming increasingly concerned about the hardship, pain and suffering being caused to animals because of the difficulties imposed by the Act? Would he get together with the Ministry of Transport to try to solve this problem?
    Mr. Mackie: I will certainly look into that point.
    Mr. Wellbeloved: Can my hon. Friend give any information about the payment of wages to transport workers who are not working this week because of the irresponsible ban by the farmers on the movement of livestock to market?
    Mr. Mackie: That is a question for my right hon. Friend the Minister of Transport.
    Mr. Monroasked the Minister of Agriculture, Fisheries and Food what discussions he has had this year with the agricultural industry relating to the haulage of livestock to and from auction markets.
    Mr. Mackie: None, Sir. My right hon. Friend has not been asked for any.
    Mr. Monro: The key point is the time that transport drivers spend waiting at an auction mart. Is it included in the working day or not?
    Mr. Mackie: It depends on the waiting time. In general, drivers of goods vehicles are restricted to 10 hours' driving time out of an 11-hour working day. Some relaxation has been allowed for work in connection with the carrying of animals. The daily duty can be spread over 14 hours provided that the actual on-duty time, including waiting time, is limited to 10 hours. Any time waiting in marts could be included in the 14.
    Mr. W. Baxter: Will my hon. Friend give this matter further consideration? It is causing consternation in many of the marts in Scotland where it is necessary to hold stock over to the following day. A slight adjustment here could be beneficial not only to farmers but also to haulage contractors without doing anyone real harm.
    Mr. Mackie: As I have said, my right hon. Friends the Minister of Transport and the Secretary of State for Scotland are discussing this matter with the Scottish N.F.U.

    West European Fishing Conference, Aberdeen
    Mr. W. H. K. Bakerasked the Minister of Agriculture, Fisheries and Food by whom he will be represented at the West European Fishing Conference in Aberdeen in September of this year.
    Mr. Hoy: I understand this will be a private meeting of European trawler owners, and the question of Ministerial representation does not, therefore, arise.
    Mr. Baker: If it does not arise on the Ministerial plane, would the right hon. Gentleman not consider sending an official to the meeting?
    Mr. Hoy: I am afraid that this is a private meeting among the trawler owners themselves. Since we are not invited to it, we can hardly ask them to invite an official to a private meeting. If they want to have one, we shall be delighted to co-operate.
    Mr. Hector Hughes: Does my right hon. Friend realise that it is very important that he should be represented by an expert and authoritative person, having regard to the various problems in the North Sea which are outstanding, such as poaching and the safety of life at sea?
    Mr. Hoy: All I can say is that I would be delighted to go, but I have not been invited.

    Eggs Authority (Appointsments)
    Mr. W. H. K. Bakerasked the Minister of Agriculture, Fisheries and Food when he will announce the appointment of the Chairman and Vice-Chairman of the Eggs Authority.
    Mr. Hoy: We shall be making an announcement as soon as possible.
    Mr. Baker: The right hon Gentleman will realise the anxiety in the poultry-industry as a result of the Government programme in the Agriculture Bill. Would he give an assurance that the Government will look again at the case for subvention, by means of support buying, for eggs?
    Mr. Hoy: That would hardly arise from this question. I said that we hoped to make an announcement about the appointments very soon.
    Sir A. V. Harvey: May we be assured that " jobs for the boys " will not be found before the dissolution of Parliament?
    Mr. Hoy: I can remember some of the jobs found for some of the other boys when they departed.
    Mr. Rankin: When my right hon. Friend is considering the two appointments, will he direct the attention of those who are appointed to the continuing diminution in the size of eggs? Is he aware that the diminution in size is not being accompanied by a diminution in price and that this is a most important matter to housewives? Will he take it into consideration and see what can be done?
    Mr. Hoy: At the end of the day, I shall have to leave it to the hen. But what my hon. Friend has said will be taken note of.

    Hill Cow Subsidy Payments, County Antrim
    Mr. Henry Clarkasked the Minister of Agriculture, Fisheries and Food what percentage of land in County Antrim has been approved for the payment of hill cow subsidy; and whether he is satisfied that all farmers who are eligible are receiving the grants.
    Mr. Hoy: Approximately 26 per cent. of the total areas of agricultural land in County Antrim has been approved as eligible hill land for the payment of hill cow subsidy. We are satisfied that all farmers who have claimed and are eligible are receiving the subsidy.
    Mr. Clark: Is the right hon. Gentleman aware that authorities in a position to judge the situation in Scotland as well as Northern Ireland are of opinion that if the same criteria were applied in Northern Ireland as in Scotland to define hill land the acreage might be doubled?
    Mr. Hoy: I have no proof of that statement. When land is inspected we are guided by experts. If the hon. Gentleman reflects on the figures I have given, I am sure that he will conclude that the area has been well treated.

    Hill Ewe Flock
    Mr. Monroasked the Minister of Agriculture, Fisheries and Food if he now anticipates an increase in the hill ewe flock in 1970.
    Mr. Mackie: It is too early to make a reliable forecast of hill ewe numbers for 1970. However, I am confident that the additional measures announced at the Annual Review provide the means and encouragement for greater productivity and growth in the hill sheep industry.
    Mr. Monro: Does not the hon. Gentleman agree that the price of wool has a significant effect on the increase or decrease of the hill ewe flock? Does he also agree that in the price review the Minister gave different increases in income for dairy farmers and so on,

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    together with different acreage calculations? What will be the decrease in income for hill sheep farms with two, four and six hirsels in the coming year?
    Mr. Mackie: My right hon. Friend answered the point about wool in a previous Question. I will try to give the hon. Gentleman the estimate he asks for.

    Sugar Beet
    Sir D. Rentonasked the Minister of Agriculture, Fisheries and Food whether he will make a further statement on this season's sugar beet crop; and what sugar import substitution is expected to take place during the current season.
    Mr. Hoy: The British Sugar Corporation now reports that 87 per cent. of the authorised acreage of sugar beet had been drilled by 2nd May and that drilling was virtually completed last week. The season has undoubtedly been a late one but prospects in most areas now seem no worse than they did at this time last year and in some areas look rather better. It is, of course, too soon to make any prediction on the likely output of sugar.
    Sir D. Renton: Does not that reply show that there is a serious risk of the yield from home sugar production being below what the Government have planned and what is required? Would it not be better in future years to have a margin of safety in terms of a larger permitted acreage?
    Mr. Hoy: It is difficult to predict what the sugar content will be, as the right hon. and learned Gentleman knows. If we get weather like today's, it can improve it tremendously. It would be difficult for anyone to predict accurately what the outcome was likely to be.
    Mr. Costain: Is the right hon. Gentleman aware that a number of Kentish farmers are advocating the growing of sugar beet in Kent? What is his attitude towards extending sugar beet production to that area?
    Mr. Hoy: I will not deal with that area in particular but I can tell the hon. Gentleman that work is at present going on which will give us a considerable increase in capacity.

    Tea Prices
    Mr. Arthur Lewisasked the Minister of Agriculture, Fisheries and Food whether the 8d. per pound increase in the price of Brooke Bonds P.G. Tipped tea was made with his consent; why this was not referred to the National Board for Prices and Incomes; and whether he will make a statement.
    Mr. Cledwyn Hughes: I was not given information to enable me to consider whether the increase was justifiable against the criteria set out in Cmnd. 4237. In view of this, and of other increases in tea prices similarly made without giving me advance information, my right hon. Friend the First Secretary of State and Secretary of State for Employment and Productivity and I are referring the industry to the National Board for Prices and Incomes.
    Mr. Lewis: I thank my right hon. Friend for that reply. Is he aware how pleased we are to see that he and his Ministry are doing something positive to try to prevent what would appear to be quite unnecessary increases and the very high-handed attitude which has been adopted by some of these big businesses?
    Mr. Hughes: I note what my hon. Friend has said.
    Sir G. Nabarro: Would the right hon. Gentleman bear in mind that, from the statement on the front page of the Daily Mail yesterday, 16,500 individual price increases have now been notified since devaluation, and that wholesale grocers say that they are in the position of not being able to notify the Minister within the 28 days required simply because costs are rising so fast as to overtake any possibility of giving that notice?
    Mr. Hughes: Perhaps the hon. Gentleman will await the statement which I hope to make on the general issue at the end of Question Time. As he and the House know perfectly well, the figure of 16,500 increases produced by the Grocer was totally misleading.

    Meat and Livestock (Home Production)
    Mr. Wolrige-Gordonasked the Minister of Agriculture, Fisheries and

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    Food what representations he has now received from the Meat and Livestock Commission to improve home production; and what reply he has sent.
    Mr. Hoy: We have had no recent representations from the Meat and Livestock Commission on home production generally. My right hon. Friend and his right hon. Friend the Secretary of State for Scotland have received the commission's views on sire licensing, which are being considered along with those of other interested organisations.
    Mr. Wolrige-Gordon: I thank the right hon. Gentleman for that reply. Is he aware that, in view of the capital position in the industry at the moment, this proposal, particularly for the abolition of bull licensing, seems incredibly complacent?
    Mr. Hoy: As the hon. Gentleman has heard, we have had this represented to us, and it and other representations will be considered.
    Mr. Paget: Is my right hon. Friend aware that fattening livestock is becoming so unprofitable that for the first time since the war keeping is not selling in the Welland Valley?
    Mr. Hoy: That is a rather different question, but I note what my hon. and learned Friend has said.

    Imported Agricultural and Horticultural Produce (Chemicals)
    Sir J. Langford-Holtasked the Minister of Agriculture, Fisheries and Food whether agricultural and horticultural products consumed in Great Britain have been grown abroad using chemicals which are either prohibited or restricted in the United Kingdom.
    Mr. Mackie: My right hon. Friend cannot exercise surveillance over the detailed agricultural operations in the numerous countries from which we import agricultural and horticultural produce, but the food we import is safeguarded by the provisions of the Food and Drugs Act, 1955, and the Imported Food Regulations, 1968.
    Sir J. Langford-Holt: Can the hon. Gentleman, in his Ministry of Food hat, say whether he is satisfied that in no
    1234
    circumstances is food consumed in this country having been grown in conditions which would not be allowed in this country? Secondly, is he, wearing his Ministry of Agriculture hat, aware that in certain circumstances it is possible that the farmers in this country have to maintain standards higher than those maintained by our suppliers overseas and that they are, therefore, at a disadvantage?
    Mr. Mackie: The answer to the first question is " No ", and the answer to the second " Yes "; and it is difficult to avoid.
    Mr. Snow: Does not my hon. Friend remember that there are provisions in the Medicines Act, 1968, whereby World Health Organisation regulations were anticipated and the covering provisions of our own legislation were embodied? Has that part of the Act yet been put into operation?
    Mr. Mackie: It has not been put into operation, but I am glad that my hon. Friend has reminded the House of it.

  HOUSE OF COMMONS

    Members (Names and Titles)
    Mr. Arthur Lewisasked the Lord President of the Council whether he will move to refer to the Select Committee on Procedure the rules and procedure by which hon. Members are referred to by name and their constituencies with an instruction to the Committee to make proposals to enable any hon. Member to select and adopt any name or title to which he may lawfully and legally be entitled, and to be so referred to in Parliament.
    The Lord President of the Council and Leader of the House of Commons (Mr. Fred Peart): Such a matter is already within the terms of reference of the Committee.
    Mr. Lewis: I thank my right hon. Friend for that exciting reply, but cannot he go a step further and refer the matter to the Committee, as he has done other important subjects, and no doubt ask the hon. Member for Berwick-upon-Tweed (Mr. Lambton) to give evidence on this very important issue?
    Mr. Peart: Although my reply may not have been exciting, it was precise and I cannot go beyond it.

    Self-Seal Envelopes
    Mr. Crouchasked the Lord President of the Council if he will now provide self-seal envelopes for the use of Members.
    Mr. Peart: If there is evidence that Members generally would like these envelopes to be stocked, I will certainly make the necessary arrangements.
    Mr. Crouch: The House will appreciate the great anxiety felt about what is rather a sticky question. Will the right hon. Gentleman bear in mind that I have calculated that I could save myself half an hour a day—extended over 50 weeks, that is 10 working days—in this way, which perhaps would allow me to ask 16 more Oral Questions a year? Does he not think that this should be taken into account?
    Mr. Peart: On that evidence, I might have wished to give a different reply. I am anxious to help hon. Members and save their time. I will make the necessary arrangements.
    Mr. George Jeger: While my right hon. Friend is looking into that matter, will he also look into the question of the printed postcards of acknowledgement? If they had " official paid " printed on the reverse side, it would save the use of an envelope.
    Mr. Peart: I will look into that suggestion.

    Security
    Mr. William Hamiltonasked the Lord President of the Council if he will initiate an inquiry into the question of security within the Commons part of the Palace of Westminster.
    Mr. Peart: The problems of safeguarding classified documents in the Palace of Westminster are being reviewed by the authorities of the House in consultation, as necessary, with the security authorities, to determine whether any changes in present procedures are required.
    Mr. Hamilton: I thank my right hon. Friend for that reply. Has he considered,
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    or will the appropriate authorities be considering, the need for the appointment of a full-time security adviser for the House rather than leaving the matter to the House authorities, who are not as experienced in the matter as perhaps they might be expected to be?
    Mr. Peart: I note what my hon. Friend has said. In view of my answer, I think this point should wait until we have the consultations.
    Mr. Kenneth Lewis: Is the right hon. Gentleman aware that on 24th July, 1968, when this House was considering, on a Privilege Motion, the case of an hon. Member providing information to the Press from one of our Select Committees, the hon. Member for Fife, West (Mr. William Hamilton) supported that hon. Member? Is he further aware that I accordingly declined to sit under the chairmanship of the hon. Member for Fife, West on the Estimates Committee and resigned from that Committee? What right has the hon. Member, therefore, to raise a question of security when he himself condones the provision of information to outside bodies from within this House?
    Mr. Peart: In view of what I have said in reply to the Question on the Order Paper, my hon. Friend the Member for Fife, West (Mr. William Hamilton) has a perfect right to ask me about this matter, which is one of interest. In view of my reply, let us leave it at that.
    Mr. Hamilton: On a point of order, Mr. Speaker. The hon. Member for Rutland and Stamford (Mr. Kenneth Lewis) has made an attack on me which is quite unjustified. If he reads in HANSARD the speech I made on the occasion he referred to, he will see what a distortion of it he has just made.

    Sessional Printed Papers (Demand Form)
    Mr. Sheldonasked the Lord President of the Council if he will arrange to have published a daily Demand Form for Sessional Printed Papers and affix it to the front page of the Vote.
    Mr. Peart: I am asking the Services Committee to look into this matter.
    Mr. Sheldon: Is my right hon. Friend aware that many hon. Members receiving this form have some difficulty in finding it at times? Very often it is mislaid or an hon. Member drops it, with the result that important matters are not brought to Members' notice as they should be.
    Mr. Peart: I have said that I will look into this with the Services Committee.

  SCOTLAND

    Economic Growth Points
    Mr. Sillarsasked the Secretary of State for Scotland how many economic growth points there are in Scotland.
    The Minister of State, Scottish Office (Dr. J. Dickson Mahon): The Government's investment incentives policy and programmes of infrastructural investment are designed to benefit the country as a whole rather than a limited number of favoured growth points.
    Mr. Sillars: Would not my hon. Friend agree that the Government's attitude is infinitely preferable to the limited growth which we should get from the limited growth point philosophy of the Conservative Party? Would he not further agree that it is essential now in the run-up to the General Election that the Conservative Party should clearly determine those parts of the country which would be in growth areas and those which would not?
    Dr. Mabon: I agree with my hon. Friend. The best example that I can give from recent months has been the publication of the Gaskin Report, in which two so-called growth points are identified. This caused a great deal of controversy locally. Our attitude is that areas as such and zones as such should be encouraged in accordance with industry moving in.
    Mr. Buchanan-Smith: Is the hon. Gentleman aware that the General Secretary of the T.U.C., speaking in Glasgow last weekend, urged that in Scotland we should consider a return to the growth area principle which was worked so well by the previous Conservative Government?
    Dr. Mabon: It was not worked well by the previous Conservative Government, as is exemplified in many counties in Scotland, including my own. I am not
    1238
    aware of what the General Secretary said. [HON. MEMBERS: " Why not? "] He is the Chairman of the Regional Committee of the Scottish Economic Planning Council, which wholeheartedly supports the present policy of the Government.

    Industry (Government Assistance)
    Mr. Sillarsasked the Secretary of State for Scotland what representations he has received from organisations to reduce total Government assistance to industry in Scotland; and what replies he has given.
    Dr. Dickson Mabon: None, Sir.
    Mr. Sillars: Is my hon. Friend aware that both he and the hon. Member for North Angus and Mearns (Mr. Buchanan-Smith), on Question No. 45, mixed up Mr. James Jack, the General Secretary of the Scottish T.U.C., and Mr. Victor Feather, General Secretary of the T.U.C.? Is he also aware that I have read Mr. Feather's speech in Scotland last week and that it did not coincide with Tory Party policy in any way whatsoever?
    Dr. Mabon: It is not the first time that the hon. Member has been tripped up by a feather.
    Mr. MacArthur: Will the Minister agree that what matters in the end is the success of the policy? Will he not agree that under the regional policies operated by the Conservative Party employment in Scotland increased by 30,000 jobs over our last four years and that under the regional policies of the Labour Government there has been a loss of 41,000 jobs?
    Dr. Mabon: Under the present Government the rate of supplying new jobs to Scotland has doubled, is on target, and is well over 120,000. Under this Government the slimming-down of the older industries has gone faster than expected by anyone, including right hon. Gentlemen opposite.
    Mr. Maudling: The hon. Gentleman was asked a simple question. Why does he not answer it?
    Dr. Mahon: I answered it. The hon. Gentleman does not like the truth.

    Ore Terminal, Clydeside
    Mr. Edward M. Taylorasked the Secretary of State for Scotland what

    1239
    recent discussions he has had with the Scottish Economic Planning Council regarding the proposed construction of an ore terminal in Clydeside.
    Dr. Dickson Mabon: I would refer the hon. Gentleman to the answer given to the hon. Member for Ayr (Mr. Younger) on 16th July, 1969. There was a public inquiry between 17th November, 1969, and 13th February, 1970, into the rezoning of land at Hunterston for various industrial purposes, including an ore terminal. My right hon. Friend awaits the report on that inquiry and cannot comment on the physical planning issues meantime. No recent discussions have taken place in the Scottish Economic Planning Council.—[Vol. 787, c. 110–11.]
    Mr. Taylor: Would not the hon. Gentleman agree that it is a long time since the Clyde Port Authority offered to build this terminal at its own expense? Would he not agree that it is urgently required? Who makes the decision whether the ore terminal goes ahead? Is it the Board of Trade, the Scottish Office, or the Ministry of Transport? How many Ministries are involved, and who will sort it out?
    Dr. Mabon: I am sorry that the hon. Member is so ignorant of these important matters concerning Scotland. Without planning consent by the Secretary of State, this development could not take place. The Secretary of State's decision can be founded only on the evidence given at the inquiry. But that does not mean that various points of view—some, by the way, contradictory, including some from the Conservative Party—on this issue at Hunterston do not have to be taken into consideration by the Secretary of State.
    Mr. Rankin: Does my hon. Friend agree that with the tendency of the shipbuilding industry to run down in Clyde-side other industries of even greater importance would be highly welcome there to meet the coming deficiency?
    Dr. Mabon: I quite agree with my hon. Friend, but I am sure that hon. Members on both sides will realise the difficult position that my right hon. Friend the Secretary of State and I are placed in, owing to the quasi-judicial function of our office. We are considering a public inquiry. Certain persons
    1240
    have laid objections to certain proposals, and these must all be considered properly. When the reporter submits both sections of his report my right hon. Friend can make his decesion. In the meantime, it would be wrong for Parliament to lead me into making pronouncements of one kind or another, however tempting it may be to do so.

    Part-time Education
    Mr. Edward M. Taylorasked the Secretary of State for Scotland how many children were receiving part-time education in Scotland at the most recent date for which figures are available; what percentage was in Glasgow; and what were the comparable figures in each of the past four years.
    Dr. Dickson Mahon: The figures for January given in the replies of 22nd January and 10th February to the hon. Member for Perth and East Perthshire (Mr. MacArthur) are the latest available, At that time 46 per cent. of the children concerned were in Glasgow schools. The total for January 1969 was 7,191 and 55 per cent. of the children concerned were in Glasgow schools. I do not have January figures for earlier years.—[Vol. 794, c.190; Vol. 795, c.317]
    Mr. Taylor: Does the Minister agree that this is a rather serious situation in which Glasgow is carrying far more than its fair share of the load? What plans have the Government to relieve the situation in Glasgow and, more important, to try to obtain more regular and up-to-date statistics?
    Dr. Mabon: We are very concerned about the matter. We have asked for a regular return of the numbers of pupils in part-time education not only in January but also in May and September of each year. The supply of teachers for the primary teaching qualification courses —and it is in the primary schools that the fundamental shortage mainly lies—has risen from 2,049 in 1964–65 to 3,213 in the current session.
    Mr. Hugh D. Brown: Since mal-distribution of teachers is the real problem, were any representations made during the recent salary negotiations on behalf of primary teachers to have the £100 rise increased to £200 in special areas?
    Dr. Mabon: I would not like to answer that question off the cuff. I should like to consult my hon. Friend and my right hon. Friend the Secretary of State.
    Mr. MacArthur: Is the Minister aware that while the grave shortage of teachers is particularly serious in the primary sector, the shortage is spreading and widening in the secondary sector? Is he aware that this comes immediately before, and in addition to, the very large shortage of teachers that there will be in the secondary sector in 1972? Will he recognise that this is a very grave matter requiring the most urgent attention?
    Dr. Mabon: I recognise the gravity of the situation, which has been with us for a considerable time. Fortunately, the Government have made some progress, though I agree that it is not as much as we would like.

    Midlothian (Employment)
    Mr. Eadieasked the Secretary of State for Scotland if he is aware of concern for employment prospects in Midlothian as a consequence of the contraction of coal-mining and paper making; and what steps he will take to provide more job opportunities.
    Dr. Dickson Mabon: Along with my right hon. Friends the Minister of Technology and the Secretary of State for Employment and Productivity my right hon. Friend keeps in close touch with employment problems in Midlothian. The Government will continue to encourage new industrial growth and expansion in the area.
    Mr. Eadie: Whilst I thank my hon. Friend for his answer, is he aware that there is great anxiety in my constituency about the continued contraction of the older, dying industries, particularly those that provide male employment? Will he give an undertaking that a meeting could be held between representatives of the Ministry of Technology and Midlothian County Council to try to resolve the problem, which is perturbing us?
    Dr. Mabon: I share my hon. Friend's concern. I met the Greater Livingston Group, which comprises West Lothian County Council, Midlothian County Council and the Livingston New Town Development Corporation on 24th April,
    1242
    when we discussed the Greater Livingston Plan. We also discussed the question of industrial promotion and the need for more industry for Midlothian. I am certain that out of that meeting will come initiatives which should help us to improve the situation in the county of Midlothian.
    Mr. Edward M. Taylor: Has the Minister given any consideration to what would be the future of the coalmining industry in Midlothian and elsewhere in Scotland in the event of Britain's joining the Common Market?
    Dr. Mabon: I would not be bold enough to try to answer that question without notice.
    Mr. Willis: What steps have been taken to promote the growth of industrial development to the south-east of Edinburgh, which is in Midlothian, as was proposed in the development plan in 1965?
    Dr. Mabon: If my right hon. Friend, who has a great deal of knowledge about the matter, looks again at the Greater Livingston Plan, coupled with the recent study of the area carried out by HeriotWatt University, and consults Midlothian County Council about the recent meeting I have mentioned, which was held in the county council buildings, he will see that we are pursuing this very matter.

    Health Services (Reorganisation)
    Mr. MacArthurasked the Secretary of State for Scotland whether he will now make a further statement about the reorganisation of health services in Scotland.
    Dr. Dickson Mabon: I would refer the hon. Gentleman to the reply given on 18th March to the hon. Member for Galloway (Mr. Brewis).—[Vol. 798, c. 396–7.]
    Mr. MacArthur: Is the Minister aware that there is considerable concern in Scotland about the apparent delay in making a further statement? Can he give us any indication when a statement can be expected?
    Dr. Mabon: We must take into account the views of the doctors, and being a doctor I would naturally like them to be considered in this matter. The White Paper on the reform of local

    1243
    government in England, published in February, has suggested that the health services will not be run by local authorities. That is not necessarily to be the case in Scotland. We are still discussing the matter, and we shall issue a statement as soon as we can.
    Mr. David Steel: Will the Minister give an undertaking that consideration of the reorganisation of the health services will in no way hold up the Government programme of local health centres in different towns in Scotland, which does not seem to be going at the speed originally intended?
    Dr. Mabon: I do not see the connection between the second Scottish Green Paper and the progress in health centres, which has been remarkable in the past five years. There were three health centres when we came to office, and now there are 22 built, under construction, or scheduled.

    Agriculture (Capital Resources)
    Mr. MacArthurasked the Secretary of State for Scotland what estimate he has made of the capital resources available to Scottish farmers in 1970–71.
    Dr. Dickson Mabon: No precise estimate can be made but the recent Annual Review settlement is designed to augment the resources available.
    Mr. MacArthur: Is the Minister aware that capital should come very largely from farmers' income? Is he aware that incomes are already low and are being constantly and rapidly eroded by rising costs?
    Dr. Mabon: The hon. Gentleman is as expert in agriculture as I am—[Laughter] Normally he is not the spokesman on agriculture, and neither am I. I accept the first part of his statement as very true. As to the second part, I will consult my hon. Friend.
    Mr. Maclennan: Whilst I welcome the substantial increases in capital grants to both crofters and farmers in the recent Price Review, will my hon. Friend keep a close watch on the rate of take-up of the increased grants with a view to studying whether the necessary injections of capital are being made for the modernisation of Scottish farming?
    Dr. Mabon: Certainly, Sir

    North-East Scotland (Migration)
    Mr. Wolrige-Gordonasked the Secretary of State for Scotland whether he will give the net migration figures from the North-East of Scotland for 1969 as compared with 1967–68.
    Dr. Dickson Mabon: The Registrar General estimates that the net loss by migration from the North-East of Scotland in the years 1967–68 and 1968–69 was 2,500 and 2,000.
    Mr. Wolrige-Gordon: What impact do the Government think the massive unemployment throughout the country has on this serious problem of migration from certain districts?
    Dr. Mabon: The hon. Gentleman will be glad to know that for the rest of Scotland the net emigration figure has been halved since the present Government came to power. We have seen it drop from an all-time high of 47,000 in the country as a whole to about 20,000. In the North-East, which I agree was one of the most badly-affected regions, it is a welcome fact that that loss is also being reduced steadily.
    Mr. Buchanan-Smith: Is the Minister aware that in the North-East of Scotland, as elsewhere, there is a steady decline in the number of men in employment? This is causing great worry. When will the Minister give effect to the growth point policies put forward in the Gaskin Committee Report?
    Dr. Mahon: They are being acted upon quite rapidly. Hon. Members opposite did nothing about the matter for the North-East when they were in office. We have authorised the erection of six Ministry of Technology advance factories, and we have an extensive building programme by the Scottish Special Housing Association in support of industry. Assistance has also been obtained from the Development Commission. and within that assistance there is to be an advance factory at Keith, which I had hoped to announce personally in March.
    Mr. Dewar: Will the Minister accept that the news of evidence of a drop in emigration will be very welcome, and that the tremendous break-through of the

    1245
    announcement of the factory which will provide jobs in Aberdeen gives enormous hope for the future of the area?
    Dr. Mabon: I agree, and I am only sorry that hon. Gentlemen opposite did not trumpet forth the good news as they should have done.

FOOD (PRICE INCREASES)
The following Question stood upon the Order Paper:
31. Mr. STAINTON: To ask the Minister of Agriculture, Fisheries and Food as from what date the system of voluntary notification of proposed price increases by food and allied manufacturers, with a 28 days' scrutiny period, ceases; and whether he will make a statement on the new arrangements.
The Minister of Agriculture, Fisheries and Food (Mr. Cledwyn Hughes): With permission, I will now answer Question No. 31.
I have discussed the voluntary notification of future price increases with the Food Manufacturers' Federation. It has undertaken to advise its members to continue to observe the principles of the prices policy, limiting increases to cases where unavoidable cost increases cannot be offset, or where necessary to provide capital for investment. It will advise its members to notify intended price increases, together with the justification for them, in time for me to be adequately informed before changes are announced.
I have made it clear that I shall have to decide, in the light of the information and opportunities for discussion available, whether, in any case, intended increases are consistent with the principles of the prices policy, or whether reference to the National Board for Prices and Incomes is necessary.
Mr. Stainton: There is something more fundamental in my Question than what the Minister has touched on. However these prices rises have come about, the rate of return on capital in food manufacturing has been seriously declining, and is now between 11 and 12 per cent., whereas the 10 top food chains, the supermarkets, last year showed a return on capital of 25 per cent.
1246
This disparity, and the concentration of buying power in food distribution, is very serious. Will the Minister please direct his attention to this and the relative position of the manufacturer?
Mr. Hughes: This matter was discussed when I met the Food Manufacturers' Federation, and the point was put strongly to me. In spite of that, the federation has accepted that certain costs can be absorbed, and has undertaken to adhere to this new arrangement which, although more flexible than the last, nevertheless retains the principles of the prices policy.
Mr. Arthur Lewis: Will my right hon. Friend bear in mind that many food manufacturers claim that one reason why they will have to put up prices is the increase in the price of tin and tinplate, yet the Metal Box Company has stated that there is no need for prices to go up by as much as the manufacturers threaten. Will the Minister look at this matter and ensure that the increase in the price of tin and tinplate is not used as an excuse?
Mr. Hughes: Certainly. This was one of the factors discussed during the last 10 days with the Food Manufacturers' Federation.
Mr. Godber: Will not the Minister face up to the real problem, that he and his Government have brought about conditions in which costs have risen enormously in the food industry, that these costs have to be passed on, and that the housewife is suffering the most savage increase in prices since 1951?
Mr. Hughes: The right hon. Gentleman, unfortunately, is exaggerating, and this does not help. I recognise that increased costs which cannot be absorbed, including increased wages, may have to be passed on in the form of higher prices. It is important that this should be acknowledged by all concerned. The right hon. Gentleman's agricultural policy would further substantially increase food prices.
Mr. Wellbeloved: Does not the fact that some large retail distributors in the food trade are making 25 per cent. dividend declarations indicate that there is considerable room for drastic price cuts at the retail point of sale of large retail distributors?
Mr. Hughes: I am obliged to my hon. Friend. I recognise that the size of retail price margins is an important factor, and I am giving very careful attention to it.
Mr. Maudling: To enable him to give his Answer the Minister must have made an estimate of the rate at which costs are rising in the food industry. Will he share that estimate with the House?
Mr. Hughes: The right hon. Gentleman will know that in 1969 expenditure on food went up by 5·5 per cent., but earnings went up substantially more. The present position is that food costs are increasing, but earnings are increasing at a more rapid rate, and that is fundamental.
Mr. Maudling: The Minister has not answered my question. I did not ask about 1969. He must have an estimate to enable him to give the Answer he has given about what is happening now. If he has an estimate of the way food production and sales costs are going up, will not he give it to the House?
Mr. Hughes: There are several factors here—
Hon. Members: Answer!
Mr. Hughes: —as the right hon. Gentleman must know. The question of retail price margins has just been mentioned by my hon. Friend. There has been an increase in the cost of food, but I cannot give a more precise and up-to-date figure at present.
Mr. Brooks: Does not my right hon. Friend agree that, if there is an obvious and overwhelming case for an increase, this can be demonstrated during the scrutiny period? The inference, therefore, is that if manufacturers are not prepared to submit to this, they have something to hide. Will my hon. Friend give the House an assurance that if the manufacturers are determined to hide things he will automatically refer such matters to the N.B.P.I.?
Mr. Hughes: This is precisely what the Food Manufacturers' Federation has now undertaken to advise its members to do, namely, to give me reasonable notice of any price increase. This will enable the Ministry of Agriculture to scrutinise the matter very carefully and decide whether there is aprima facie case for reference to the N.B.P.I.
Mr. Prior: If the Minister has done his sums correctly, will not he confirm that under his Government the cost of living has increased by over 5s. in the £, whereas our agricultural policy would result in an increase in the price of food of Id. in the lb.?
Mr. Hughes: I do not disagree that the cost of food has gone up. What I am saying is that earnings have gone up more, and that people are more prosperous today than when the Conservative Party was in power.

UGANDA (MR. BRIAN LEA)
The Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Maurice Foley): With your permission, Mr. Speaker, and that of the House, I would like to make a statement about the kidnapping of Mr. Brian Lea.
My right hon. Friend, in his statement on 8th May, informed the House that he would be in communication with the Uganda authorities about the Commission of Inquiry set up by President Obote to look into the circumstances of the disappearance and reappearance of Mr. Brian Lea, and he undertook to keep the House up to date with information on this matter.
As a result of discussions with the Uganda Government, Her Majesty's Government have decided to agree to the request of the Uganda Government that we should co-operate with the Commission of Inquiry. We have accordingly agreed to waive diplomatic immunity to the extent of allowing Mr. and Mrs. Lea to attend the inquiry and answer questions relating to the facts of Mr. Lea's disappearance.
Before informing the Uganda Government of our agreement to co-operate, we established that Mr. Lea would be permitted to be represented for the whole of the inquiry by counsel of his choice, and Mr. Desmond Ackner, Q.C., has gone to Kampala to represent Mr. Lea at the Commission's hearings. The High Commissioner will be represented by counsel, Mr. Robin Auld.
Mr. and Mrs. Lea themselves have expressed their desire to give evidence before the Commission.

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Her Majesty's Government trust that the full facts about these events will now be clearly established. In the circumstances, the House will not expect me to comment further.
Mr. Braine: I am sure that the whole House would wish me to thank the hon. Gentleman for making that statement. Does not he agree that, for the sake of all concerned, the real truth of this strange affair must be established without doubt as soon as possible? Will he confirm that he conveyed this view to the Uganda High Commissioner recently, and will he also say when the Kampala inquiry will start and when it is expected to finish?
Mr. Foley: Clearly, it is in our interests and those of the Uganda Government that the real truth is discovered; this is the object of the inquiry. It is not a trial or a prosecution and, as the Attorney-General of Uganda said this morning, in opening the inquiry, this does not and will not affect the good relations between our two countries. The inquiry opened this morning and was immediately adjourned until Monday, at the request of Mr. Lea's counsel.
I confirm that the High Commissioner was summoned this morning and was informed of the mind of Her Majesty's Government on this matter.
Mr. David Steel: Will the right hon. Gentleman accept, in the interests of maintaining good relations between our two Governments, that the steps taken by Her Majesty's Government are correct? Also, will Mr. Lea's legal representation be paid for by the Government?
Mr. Foley: Yes, Sir.

SOUTH AFRICAN CRICKET TOUR
Mr. Philip Noel-Baker: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
the proposed South African cricket tour and the need for action by this honourable House to persuade the Cricket Council to withdraw its invitation and the further need, if necessary, for action by Her Majesty's Govern-
1250
ment to ensure that the tour shall not take place, in view of the grave effects on Commonwealth relations which it would produce, the serious racial tensions which it would cause in this country, and the intolerable burden which it would impose upon the police".
This matter is urgent, Mr. Speaker. Soon after the Whitsun Recess the South African team will be here, if the invitation to it is not speedily withdrawn. Tomorrow is the last day when any useful discussion can take place.
The matter is specific. About 18 months ago the Prime Minister of South Arica forbade a cricket tour by an England team in his country on the sole ground that there was a coloured player in the England side. He thus brought politics into sport, politics in its most explosive and uncivilised form.
Mr. Speaker: Order. The right hon. Gentleman must not debate in detail the points that he would be able to make if his application should be successful.
Mr. Noel-Baker: I am trying to give the facts on which I base my appeal for leave to adjourn the House, Sir.
The South Africa team which has been invited is chosen on the principle of apartheid, which violates the fundamental basis of world co-operation in international sport. If the tour goes forward it will mean that Britain accepts the principle of apartheid in respect of cricket, which has been the greatest game in the Commonwealth for many years.
The matter is important. Last week, the Government of India officially announced in both Houses of its Parliament that no Indian team would come to the Commonwealth games in Edinburgh, if the tour takes place. India has since been joined by Malaysia, Ceylon and Singapore, while Pakistan has cancelled a tour of under-25 cricketers who were to visit this country in a few weeks' time. Last week, Jamaica announced that it would boycott the Edinburgh Games if the tour went on. Jamaica has since been joined by Barbados, Trinidad and Guyana.
Ten or 13 African Members of the Commonwealth have announced that they will send no teams to Edinburgh if the invitation to the South African cricketers is not withdrawn. This was officially confirmed this week by the Nigerian

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chairman of the Supreme African Council on Sport.
I submit that these decisions not only would destroy the Edinburgh Games but, if the tour goes on, would have a most disastrous long-term effect on Commonwealth relations.
The results in this country would be no less important and no less disastrous. Few people speak with such authority and few are so persuasive on race relations as the Bishop of Stepney.
Mr. Speaker: Order. The right hon. Gentleman is entering into a debate on the issues of the matter on which he is asking for a debate.
Mr. Noel-Baker: I am submitting, Mr. Speaker, that the tour will cause grave racial tension in this country and I quote the authority of Bishop Trevor Huddleston. Finally, I submit that the tour will impose an intolerable burden on the police.
I say, in conclusion, that if the Cricket Council was to listen to Parliament's appeal, that would be no humiliation. Indeed, everybody would honour it for accepting even at the last moment the necessity to face the facts.
Mr. Speaker: The right hon. Member for Derby, South (Mr. Philip Noel-Baker) was courteous enough to inform me that he might seek to ask leave to adjourn the House under Standing Order No. 9.
The right hon. Gentleman asks leave to move the Adjournment of the House for the purpose of discussing a specific and important matter that he thinks should have urgent consideration, namely,
" the proposed South African cricket tour and the need for action by this honourable House
1252
to persuade the Cricket Council to withdraw its invitation, and for the further need, if necessary, for action by Her Majesty's Government to ensure that the tour shall not take place in view of the grave effects on Commonwealth relations which it would produce, the serious racial tensions which it would cause in this country, and the intolerable burden which it would impose upon the police."
I am satisfied that the matter raised by the right hon. Gentleman is proper to be discussed under Standing Order No. 9. Does the right hon. Gentleman have the leave of the House?
The leave of the House having been given—
Mr. Speaker: The Motion for the Adjournment of the House will now stand over until the commencement of public business tomorrow, when a debate on the matter will take place for three hours, under paragraph 2 of Standing Order No. 9.
The Motion stood over under Standing Order No. 9 (Adjournment on specific and important matter that should have urgent consideration) until the commencement of public business Tomorrow

BILL PRESENTED
  COUNCIL TENANTS' CHARTER
  Mr. Robert Edwards, supported by Mr. Roy Roebuck, Mr. Edward Milne, Mr. Leslie Huckfield, Mr. John Horner, Mr. Peter Archer, Mr. Stan Newens, Mr. Geoffrey Rhodes, Mr. Eric S. Heller, Mr. Alfred Morris, and Mr. Laurence Pavitt presented a Bill to establish a charter of rights for council tenants: And the same was read the First time; and ordered to be read a Second time upon Friday 12th June and to be printed. [Bill 185.]

  HUMANE CAPITAL PUNISHMENT
  3.48 p.m.
  Sir Richard Glyn: I beg to move,
  That leave be given to bring in a Bill to provide for the abolition of execution by hanging or shooting for those offences in respect of which capital punishment is in force, and to provide for the introduction of a humane method of execution; and for connected purposes.
  To remove any possible misapprehension, I wish to make it clear—[Interruption]
  Mr. Speaker: Order. We are on a very serious topic. I hope that the House will listen to the hon. Gentleman.
  Sir Richard Glyn: I wish to make it clear that my Bill is concerned solely with a humane method of execution for those offences which are still the subject of capital punishment and is in no way concerned with increasing the number of capital offences.
  On the day after the House voted on the abolition of hanging for murder, several newspapers pointed out that the gallows were to be retained at Wands-worth Gaol for executions which might be ordered for those offences for which capital punishment has been retained. It was clear that these executions could not take place until the next war, which seems unlikely to occur for many years. One newspaper published a report of an interview with the common hangman, whose appointment apparently has not been terminated.
  These facts go to underline the importance of the recommendations of the Royal Commission on Capital Punishment, which had been specially directed to consider systems of execution. After analysing the five methods of execution then in use in different parts of the world, and two suggested new methods, the Commission recommended that hanging be retained until a better system could be found on the ground that, when carried out by an expert executioner, hanging was the most suitable method then in use.
  It pointed out that, with an expert hangman, hanging was humane in the sense that no pain was caused and that the interval between the entry of the executioner into the condemned cell and
  1254
  the moment when a condemned man became unconscious was less than half a minute.
  It also quoted examples of other countries where, with inexperienced executioners, the interval was normally as long as six minutes, and it quoted one ghastly example of a condemned man who had to be reprieved after an untrained executioner had made three unsuccessful attempts to hang him. This horrible episode lends weight to the question that aDaily Telegraph representative asked a Home Office spokesman, that is, what would happen if the next war were so many years ahead that, when the remaining gallows was required, there was no experienced hangman available to operate it? The Home Office spokesman replied that this difficuly would be met when it arose.
  That reply directly conflicts with the advice of the Royal Commission on Capital Punishment, which recommended " unanimously and emphatically " that methods of execution in Britain should be periodically examined with a view to a change in the system. Had the Royal Commission foreseen any possibility of hanging having to be carried out by inexperienced hangmen, no doubt it would have used even stronger language.
  It is difficult to estimate how many executions might be ordered during the next war. We can only be guided by what happened in the last one. During and just after the last war, 15 persons were hanged for espionage and two for treason. On 11 December, the Secretary of State for Defence told the House that, in addition to those 17 executions, there were 49 executions for mutiny and other Service offences during and after the last war, the last being in 1953. It is true that the great majority of the executions took place abroad, but they were ordered by British military courts and carried out, after the sentences had been confirmed, under the British Service discipline Acts.
  The great majority of these Service executions were carried out by firing squads, but 14 were by hanging which, with the 17 spies and traitors, gives a total of 31 executions by hanging and rather more by firing squads, all for offences which would still be capital offences if another war were to break out. The Royal Commission mentioned a

  1255
  number of countries which had reintroduced capital punishment for war time offences during and after the last war, although in some cases these countries had abolished capital punishment for every offence many years before.
  Incidentally, the Royal Commission considered and rejected execution by firing squad on the grounds that it was neither certain nor humane. In plain words, it meant that the condemned man was not always killed outright. It also pointed out the disadvantage of having a number of executioners.
  The new system of execution in the Bill which I seek leave to introduce depends on the fact, long known to scientists, that man cannot live without oxygen and that, if carbon dioxide is removed with the oxygen, no pain or discomfort is involved. Present-day technology enables this to be done in a way not considered by the Royal Commission, because the necessary apparatus did not then exist. Now it can be done by attaching a commercial air-conditioning plant with both input and extractor fans, designed for a large workshop of many cubic feet, to a small execution chamber containing far fewer cubic feet.
  This proposed system of execution has the support of leading doctors and anaesthetists. It is not in any way a theoretical proposition because, while investigating the causes of black-outs in aircraft, the Royal Air Force Institute of Aviation Medicine has for many years experimented with the expulsion of both oxygen and carbon-dioxide from a confined space which has been, in its technical term, " over-ventilated " with pure nitrogen.
  Nitrogen is not a poisonous or harmful gas. It comprises over three-quarters of the air that we breathe. But nitrogen alone cannot sustain life even for a moment. In this process, it is used solely to expel the oxygen on which life depends.
  Experiments have been conducted on volunteers who have been reduced to unconsciousness by " over-ventilation " with nitrogen. When they became unconscious, the nitrogen was turned off and air and oxygen were turned on, so that they revived. Had that not been
  1256
  done, eventually they would have died without regaining consciousness. Published reports show that the volunteers suffered neither pain nor discomfort, but only giddiness and faintness, before they blacked out, which occurred between 17 and 20 seconds from the moment when the nitrogen was turned on. I have spoken to one volunteer who breathed nitrogen until he became unconscious and who confirms that there was no discomfort, but only giddiness and faintness.
  One unique feature of this proposed new means of execution is that no trained executioner is required. My Bill provides for the abolition of the post of common hangman. The nitrogen can be turned on by an electric switch operated by an official, or even by an electric timing device.
  Experienced prison officers take the view that some condemned men would wish, for religious reasons, to know when their end was approaching, and obviously, their wishes should be respected, and this could easily be done. Other prisoners might prefer to know nothing, in which case they could be offered sedation and taken to the execution chamber in a drugged sleep from which they would not awaken. This system would obviously be more humane than either firing squads or hanging, especially hanging by inexperienced hangmen.
  I realise that many hon. Members find the whole question of executions so extremely distasteful that they prefer not even to contemplate the subject—
  Mr. Russell Kerr: The hon. Gentleman is enjoying it.
  Sir Richard Glyn: But as long as the Wandsworth gallows remain, and British firing squads are liable to be ordered to execute their fellow Servicemen, I hope that many hon. Members will accept the unanimous advice of the Royal Commission on Capital Punishment as to the need for a new humane system of execution and will feel able to support my Motion for leave to bring in a Bill which would do away at one blow with inhumane firing squads, with the last remaining gallows, and with the common hangman.
  Question put, pursuant to Standing Order No. 13 (Motions for leave to bring

  1257
  in Bills and nomination of Select Committees at commencement of Public Business):—
  The House divided: Ayes 29, Noes 186.

  Division No.[126]

  AYES

  [14.0 p.m.

  Allason, James (Hemel Hempstead)

  Longden, Gilbert

  Russell, Sir Ronald

  Biggs-Davison, John

  McAdden, Str Stephen

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

  Cordle, John

  MacArthur, Ian

  Taylor, Frank (Moss Side)

  Cunningham, Sir Knox

  McMaster, Stanley

  Thatcher, Mrs. Margaret

  Doig, Peter

  Maginnis, John E.

  Tilney, John

  Galbraith, Hn. T. G.

  Montgomery, Fergus

  Wells, John (Maidstone)

  Gilmour, Sir John (Fife, E.)

  More, Jasper

  Williams, Donald (Dudley)

  Glover, Sir Douglas

  Orr-Ewing, Sir Ian

  Glyn, Sir Richard

  Page, John (Harrow, W.)

  TELLERS FOR THE AYES:

  Kimball, Marcus

  Pearson, Sir Frank (Clitheroe)

  Sir Gerald Nabarro and

  Lewis, Arthur (W. Ham,)

  Rhys Williams, Sir Brandon

  Mr. Edward M. Taylor.

  NOES

  Alldritt, Walter

  Gray, Dr. Hugh (Yarmouth)

  O'Halloran, Michael

  Allen, Scholefield

  Greenwood, Rt. Hn. Anthony

  Orbach, Maurice

  Ashton, Joe (Bassetlaw)

  Grey, Charles (Durham)

  Oswald, Thomas

  Atkins, Ronald (Preston, N.)

  Griffiths, Eddie (Brightside)

  Owen, Dr. David (Plymouth, S'tn)

  Atkinson, Norman (Tottenham)

  Hamilton, William (Fife, W.)

  Paget, R. T.

  Bagier, Gordon A. T.

  Hamling, william

  Pannell, Rt. Hn. Charles

  Balniel, Lord

  Hannan, William

  Pardoe, John

  Barnett, Joel

  Harper, Joseph

  Parker, John (Dagenham)

  Bell, Ronald

  Harrison, Walter (Wakefield)

  Pavitt, Laurence

  Bennett, James (G'gow, Bridgeton)

  Haseldine, Norman

  Pearson, Arthur (Pontypridd)

  Bidwell, Sydney

  Hattersley, Roy

  Peart, Rt. Hn. Fred

  Biffen, John

  Heffer, Eric S.

  Pentland, Norman

  Biggs-Davison, John

  Herbison, Rt. Hn. Margaret

  Perry, George H. (Nottingham, S.)

  Binns, John

  Hooley, Frank

  Price, Christopher (Perry Barr)

  Bishop, E. S.

  Hughes, Hector (Aberdeen, N.)

  Probert, Arthur

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

  Hynd, John

  Randall, Harry

  Buchan, Norman

  Iremonger, T. L.

  Rankin, John

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

  Jackson, Colin (B'h'se & Spenb'gh)

  Rees, Merlyn

  Butter, Herbert (Hackney,C)

  Jackson, Peter M. (High Peak)

  Rhodes, Geoffrey

  Carmichael, Nell

  Jenkins, Hugh (Putney)

  Richard Ivor

  Chapman, Donald

  Johnson, Carol (Lewisham, S.)

  Roberts, Rt. Hn. Goronwy

  Coe, Denis

  Jones, Dan (Burnley)

  Robertson John (Paisley)

  Coleman, Donald

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

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

  Concannon, J. D.

  Jones, J. Idwal (Wrexham)

  Rodgers, William (Stockton)

  Craddock, George (Bradford, S.)

  Jones, T. Alec (Rhondda, West)

  Rose Paul

  Cronin, John

  Judd, Frank

  Rowlands,E.

  Crossman, Rt. Hn. Richard

  Kelley, Richard

  St. John-Stevas, Norman

  Dalyell, Tam

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

  Shaw, Arnold (Ilford, S.)

  Darling, Rt. Hn. George

  Kerr, Russell (Feltham)

  Sheldon, Robert

  Davidson, James(Aberdeenshire, W.)

  Latham, Arthur

  Shinwell, Rt Hn E

  Davies, E. Hudson (Conway)

  Lee, Rt. Hn. Frederick (Newton)

  Silkin,Rt Hn John(Deptford)

  Davies, Dr. Ernest (Stretford)

  Lestor, Miss Joan

  Silkin, Hn, S C(Dulwich)

  Davies, Ifor (Gower)

  Lipton, Marcus

  Silfars J

  Davies, S.O. (Merthyr)

  Loughlin Charles

  Slater, Joseph

  de Freitas, Rt. Hn. Sir Geoffrey

  Lubbock, Eric

  Small, William

  Dell, Rt. Hn. Edmund

  Lyons, Edward (Bradford, E.)

  Snow, Julian

  Diamond, Rt. Hn. John

  Mabon, Dr. J. Dickson

  Snow, Julian

  Dickens, James

  McBride, Neil

  Spriggs, Leslie

  Dobson, Ray

  McElhone, Frank

  Steel, David (Roxburgh)

  Dunn, James A

  McGuire, Michael

  Strauss, Rt. Hn. G. R.

  Dunwoody, Mrs. Gwyneth (Exeter)

  McKay, Mrs. Margaret

  Taverne, Dick:

  Eadie, Alex

  Mackenzie, Gregor (Rutherglen)

  Thomson, Rt. Hn. George

  Edelman, Maurice

  McMillan, Tom (Glasgow, C.)

  Tinn, James

  Edwards, Robert (Bilston)

  McNamara, J. Kevin

  Wainwright, Richard (Coine Valley)

  Edwards, William (Merioneth)

  Mahon, Simon (Bootle)

  Walden, Brian (All Saints)

  Ellis, John

  Mallalieu.J.P.W(Huddersfield E)

  Walker, Harold (Doncaster)

  English, Michael

  Mapp Charles

  Wallace, George

  Evans, Fred (caerphilly)

  Marsh, Rt. Hn. Richard

  Watkins. David (Consett)

  Evans, loan L. (Birm'h'm, Yardley)

  Maxwell, Robert

  Watkins, Tudor (Brecon & Radnor)

  Fernyhough, E.

  Mellish, Rt. Hn. Robert

  Weitzman, David

  Finch, Harold

  Mendelson, John

  Wells, William (Walsall,N)

  Fletcher, Ted (Darlington)

  Mendelson, John

  Whitaker, Ben

  Foot, Rt. Hn. Sir Dingle (Ipswich)

  Millan Bruce

  Whitlock, William

  Foot, Michael (Ebbw Vale)

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

  Wilkins, W. A.

  Ford, Ben

  Morgan, Elystan (Cardiganshire)

  Williams, Aian Lee (Hornchurch)

  Forrester, John

  Morris, Alfred (Wythenshawe)

  Williams, Clifford (Abertillery)

  Fowler, Gerry

  Morris, Charles R. (Openshaw)

  Wilson, William (Coventry, S.)

  Fraser, John (Norwood)

  Moyle, Roland

  Winnick, David

  Freeson, Reginald

  Murray, Albert

  Wright, Esmond

  Garrett, W. E.

  Newens, Stan

  Wyatt, Woodrow

  Ginsburg, David

  Noel-Baker, Rt. Hn. Philip

  Golding, John

  Norwood, Christopher

  TELLERS FOR THE NOES:

  Gordon Walker, Rt. Hn. P, C.

  Oakes, Gordon

  Mr. Stanley Orme and

  Grant-Ferris, Sir Robert

  Ogden, Eric

  Mr. Richard Crawshaw.

ORDERS OF THE DAY

  FINANCE BILL
  (Clauses 13, 14 and 35, and new Clauses relating to the matters referred to in the Order of the House [5th May])
  Considered in Committee [Progress, 12th May]
  [Mr. HARRY GOURLAY in the Chair]
  Motion made, and Question,
  That after Clause 13, the Bill be considered in the following order:
  New Clauses, Clause 35 and Clause 14.—[Mr. Diamond]—
  put and agreed to

  FINANCE BILL
    Clause 13

      CHARGE OF CORPORATION TAX FOR FINANCIAL YEAR 1969
      4.7 p.m.
      Mr. Patrick Jenkin: I beg to move Amendment No. 10, in page 11, line 26, leave out ' 45 ' and insert 42·5 '.
      I begin by expressing the thanks of the Opposition to the Chief Secretary for the procedural Motion which we have just accepted. I am sure that this will be for the convenience of both sides of the House.
      Yesterday, we were debating personal taxes—income tax and surtax—and today we have the opportunity to debate company taxation. I am aware that this matter never rates quite as many column inches in the popular Press as do debates on income tax and surtax, but I suggest that this debate is every bit as important as that which we had yesterday, because of its influence on the economic health of the country.
      It is said that companies have nobody to be kicked and no soul to be damned. But the simple fact is that companies and those who manage and work for them are responsible for the overwhelming proportion of the process of wealth creation which goes on in Britain today. If companies are hampered by too heavy a burden of taxation, or by the wrong kind of taxation, the effect on the national
      1260
      effort will be serious and all our objectives will be frustrated.
      We on this side advance two contentions. We believe that grave damage was done when the new system of corporation tax was introduced in 1965, partly because of the manner of its introduction with the minimum of consultation, the minimum of preparation and the maximum of confusion and muddle, and partly because the form in which it was introduced, with its double taxation of distributed profits greatly increasing the bias against distributions, has driven a wedge between the company and its shareholders.
      Mr. Joel Barnett: Is it the policy of the official Opposition, then, to reverse this procedure and have the distributive tax working the other way?
      Mr. Jenkin: The hon. Gentleman must learn to contain his soul in patience: all will be made clear. I said in the Budget debate what we are proposing to do, and I will refer to it again today.
      Our second contention is that even accepting—which we do not, the existing shape of corporation tax, we think that the rate is too high and must be reduced. The Amendment will reduce it from 45 per cent. to 42½ per cent. and goes no further than reversing the increase which the Chancellor made last year.
      In the Budget debate—and I hope that I have the attention of the hon. Member for Heywood and Royton (Mr. Barnett) —I said that my party will aim to reform corporation tax so as to reduce the bias against distribution, and that our currently preferred reform—I emphasise that no final decision has yet been reached—would be to move to the French-Belgian system, which they call avoir fiscal, whereby the withholding tax on distributions is allowed as credit against the company tax paid by the corporations.
      In that debate, the Chief Secretary drew attention to the recent report for the European Economic Commission by Professor Van Den Tempel, recommending, in effect, that the Commission should aim to harmonise on what he calls the " classical system ", which is the system which we have in this country at present. At that time, I must confess that I was not aware of the Van Den Tempel report,

      1261
      and, on further reflection, that was hardly surprising: it is not available in this country, and, so far as I know, there has been no mention of it in the columns of the British Press. However, the Chief Secretary has been kind enough to supply me with a copy, for which I am grateful.
      Like so many Common Market reports, it is a formidable document and it gains as little in readability in the translation from the original Dutch as did the Finance Act of 1965 gain in its translation from the original Hungarian—
      Hon. Members: Oh, no.
      Sir Douglas Glover: Credit where credit is due. It was a very good crack.
      Mr. Jenkin: I am grateful to my hon. Friend.
      I cannot claim to have made an exhaustive study of the Van Den Tempel report, but from a brief look at it, and from consultations with people who follow these matters in this country, I have the gravest doubt about whether the E.E.C. countries will ever wish to adopt its recommendations. The French Government abandoned the classical system of corporation tax two days before we adopted it—one of the greater curiosities of the party opposite's fiscal reforms.
      In Germany, the Social Democratic Party, before the last general election, tabled in the Bundestag a draft Bill to move from the German split-rate system to the French-Belgian avoir fiscal system. Two years ago, the Segré Committee, also under the aegis of the Community, said that the French system would be acceptable as the basis of Community legislation, but only if the bias against non-resident taxpayers was removed. The present French system has a particular impact on foreign investors.
      But the Segré Committee went further —the French have since accepted this—and said that the French-Belgian system could become the basis for international taxation within the Community. It is of interest to note that the recent Franco-German and Franco-American double taxation conventions have clearly been drawn up with this in mind.
      Therefore, despite what may be said by the learned professor—a Dutchman who, I agree, enjoys a considerable
      1262
      reputation within the Community—the Community will, in the end, I believe, harmonise around the French-Belgian avoir fiscal system. Therefore, I am not in the least dismayed by the Van Den Tempel report which the right hon. Gentleman flourished briefly during the Budget debate. The recommendations of this eminent but academic Dutchman will not carry much weight on the other side of the Channel and they are unconvincing for this side of the Committee.
      4.15 p.m.
      Our second contention is the main subject of the Amendment—that the rate of taxation on companies is now too high. We propose a cut of 2½per cent. I estimate the cost—it must be an estimate, since we have not the machinery on this side—at between £100 million and £120 million. When, last year, the Chancellor increased the rate from 42½ per cent. to 45 per cent., the yield was estimated at £120 million in a full year, but, as he knows, profits are somewhat reduced in the current year and are likely to be for some time ahead. Therefore, the cost of our Amendment may be a little less than £120 million.
      My argument in favour of a cut is twofold. Since 1965, the weight of taxes on corporate profits has increased sharply and is now heavier than in most comparable countries. Second, as a consequence, both the incentive to invest and the resources for investment are now too low for economic health. By cutting corporation tax, we should make British industry more competitive and give a new, badly-needed stimulus for investment.
      On the argument that the weight of company taxation has increased, I will begin with the statement by the Chief Secretary on Second Reading on 5th May:
      "… companies are paying no greater proportion of their income in tax now than they did ten years ago. In 1960 the proportion of companies' gross income taken by tax was 25·1 per cent. The provisional figure for 1969 is 23·1 per cent. If tax on dividends is included, the 1969 figure was exactly 34 per cent. compared with 34·7 per cent. in 1960."—[OFFICIAL REPORT, 5th May, 1970; Vol. 801, c. 227.]
      I recognise that the right hon. Gentleman was there concerned to repel attacks from two fronts. The T.U.C. had argued in its Economic Review that company

      1263
      taxation as a percentage of profits had declined since 1960. It spoke of " the downward trend in the proportion of profits taken in taxation over the past 20 years " and quoted a number of figures to support that contention.
      On the other hand, of course, in its Budget representations, the C.B.I. had made an exactly contrary proposition, talking of " the increased burden placed on corporate profits in recent years ". It went on to say that the current rate of corporation tax was much higher than in pre-corporation tax days and was significantly higher if judged by international standards. The C.B.I. said:
      "…although several comparable countries impose a higher tax on retained profits, the aggregate tax on distributed profits is almost without exception much less than that in the United Kingdom; this applies even when it is not a feature of a tax system that distributive profits should be taxed, as in Germany, at a lower rate than retained profits."
      I hope that it will be accepted on both sides that, when we talk about taxation of corporate profits, we mean the combined effect of corporation tax plus the Schedule F tax on distribution. [HON. MEMBERS: " No."] Hon. Members may say " No ", but the Chief Secretary and the T.U.C., as well as the C.B.I., have produced figures on that basis and I am perfectly happy to argue it in that way.
      Why do these conclusions differ so widely? The T.U.C. says that there has been a reduction; the Chief Secretary says that it is much the same; and the C.B.I. has said that the burden is increased.
      Let me deal, first, with the T.U.C. In its table—and I do not necessarily criticise this as a manner of presentation—it has made the figures represent successive three year periods. The last such period is 1965–68, during which it claims that the tax on corporate profits declined from 33·1 per cent. in the previous three year period to 30·9 per cent. By taking a three-year period it has effectively concealed the rising trend that took place during those years.
      More important, the T.U.C. has adopted the Treasury basis of calculation of profits. I have never understood, perhaps someone can explain, why the Treasury adopts a very curious and idiosyncratic definition of profits in all the national income accounts. It takes
      1264
      the gross trading profit before depreciation including rent, non-trading income and income from abroad. This is a concept of profits which businessmen simply do not understand and never use.
      A very much fairer and more realistic definition of profits is what the businessman understands by pre-tax profits, net profits after all deductions including depreciation except tax. If company tax is taken as a percentage of profits on that basis a study of the Financial Times Analysis of Industrial Profits shows two things. Before 1965–66, there was a fairly steady decline in the tax burden on companies. That is not disputed. After 1965–66, the burden has risen quite sharply.
      The figures taken from the Financial Times analysis formed the basis of a study by Mr. Stuart Mansell and his conclusions were given in a recent article in the Investors Chronicle of 24th April. He said:
      " As a percentage of pre-tax profits…corporate tax has increased from about 41 per cent. to 45 per cent. since 1966."
      Of course it has. The Government have put up corporation tax. Hon. Members will remember how we argued in the 1965 Finance Bill on the basis of a 35 per cent. corporation tax rate and how often the Chief Secretary and the then Financial Secretary would argue that the weight would be no heavier compared with the previous system. Already, we have had an increase of 6d. in the rate of the withholding tax, 7s. 9d. to 8s. 3d. When the 1966 Budget came along, we were told that corporation tax was to be not 35 per cent., but 40 per cent. In 1968, it went up to 42½ per cent. and last year the right hon. Gentleman put it up to 45 per cent.
      The weight of corporate taxation has increased during the past three years and it is sheer nonsense to argue to the contrary. How does the Chief Secretary reconcile that with what he said in the debate on Second Reading? I ask the Committee to look carefully at his actual words. He said:
      ".…companies are paying no greater pro-portion of their income in tax than they did 10 years ago."—[OFFICIAL REPORT, 5th May 1970; Vol. 801, c. 277.]
      That was a very cunning form of words, because it wholly conceals the fact that companies paid less and less tax in the first years—there was a steady reduction

      1265
      in tax between 1960 and 1964—while there has been a steady increase from 1965 to 1969.
      How were we able to reduce the rate of tax on corporate profits? Here again, Mr. Mansell's article makes it quite clear. He says:
      "It is true in a crude sense that in the postwar years there has been a steady decline in tax which companies pay as a proportion of their profits…this decline has come about mainly because an ever increasing proportion of corporate profits has been spent on new plant and equipment.…."
      He went on to say that there
      " has been an increase in total fixed capital formation as a proportion of gross corporate income rising from under a quarter to about a third over the period."
      This makes it doubly clear what nonsense it is to talk about corporate tax profits before allowing for depreciation because if we are dealing with more and more depreciation year by year then, naturally, to leave that out would give a wholly distorted effect of the weight of taxation on corporate profits. So let us hear no more about the declining burden of tax on company profits, or even such misleading statements as " the burden is no greater than it was in 1960." Under this Government the taxation of company profits has risen sharply whereas under their predecessors it fell steadily.
      Let me turn to the consequences of this increase in the last four or five years upon investment. If rising corporate taxation were merely part of the general political argument on tax it would be an issue of importance. It achieves a much greater significance if it is looked at as a significant impediment to investment. It cannot be stated too often that the weight of tax on corporate profits enters directly into a company's appraisal of its investment projects. This has always been so and it has become more acute since more and more companies, under pressure from the N.E.D.C. and other sources have turned to using discounted cash flow techniques.
      Under that technique it is the net-back after all taxes and deductions which shows up in the return on a proposed investment. If the taxes go up, the point at which it ceases to be worthwhile to invest goes up, too. Therefore, rising taxation must inevitably lead to lower investment—lower than it would otherwise have been. There are many other
      1266
      factors which influence levels of investment, but taxation is without any doubt among the most significant.
      Let us see what is happening to investment. It is common ground that there has been a mild upswing in investment from about mid-1968 following the rise in export demand occasioned by devaluation. There are no surprises about that. However, the C.B.I. survey published last February showed quite clearly that this upswing is now ending. It said:
      " For the first time since June, 1967, the balance of respondents expect to authorise less investment in plant and machinery in the next 12 months than in the previous 12 months. If the relationship which has generally held between the C.B.I. series and the change in actual investment continues, we can expect the growth of investment to slacken by the end of 1970…."
      The rest of the report goes on to try to analyse some of the reasons for this. In part, the sheer shortage of cash occasioned by the credit squeeze has undoubtedly imposed a barrier to investment. In part—and I am sure that every hon. Member whose business it is from time to time to look at investment projects will agree—the profitability estimates now being thrown up simply do not encourage boards to release funds for investment.
      Rising wages are already squeezing profit margins and prices are rising rapidly in consequence as companies struggle to maintain a reasonable level of return on their capital. Where competition or Government interference through the prices and incomes policy precludes rises, then it is investment which becomes the victim. We all agree that investment in Britain is far too low and has been for too long. It is significantly lower than overseas.
      The Guardian put it well last October when it wrote:
      " Unless industry increases the rate at which it adds to and improves the efficiency of its productive capacity, then before long there will be a relapse in the balance of payments. Consistent and accelerating economic growth provides the only real guarantee of a healthier balance of payments. And there can be no growth without a real increase in the allocation of resources to investment."
      If that was an accurate statement of the position as of 23rd October of last year —and it certainly was—how much more serious is the situation today?
      One way for the Government to break the vicious circle of declining profit

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      margins and declining investment would be for them to cut the rates of corporation tax. This would both increase company liquidity and give a great boost to morale in industry. The Government would, in effect, be saying to industry, " We recognise that it is on faster industrial investment that all our policies depend. By cutting tax on profits we are giving tangible proof not only that we want to encourage more investment, but that we regard higher profits as the best way of getting it."
      Unfortunately, I cannot see hon. Gentlemen opposite ever saying anything like that. The Chancellor, let alone the Chief Secretary, could never bring himself to strike such a note. It is because the next Conservative Government will do just that that I confidently commend the Amendment to the Committee.
      Mr. Barnett: The hon. Gentleman will recall that I asked him a question earlier and that he promised to answer it.
      Mr. Jenkin: I specifically called the hon. Gentleman's attention, by referring to his constituency, to the point in my speech at which I answered that question, but he was so busily engaged in conversation with his hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) that he did riot hear me.
      Sir Gerald Nabarro: I congratulate my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin)—[Interruptionl]—and I note that the Chancellor of the Exchequer again ostentatiously leaves the Chamber, as he ostentatiously left yesterday, immediately the Chair calls me to speak. Indeed, this is the third occasion on which he has done that. I suppose that he has been called to urgent Cabinet duties.
      I congratulate my hon. Friend the Member for Wanstead and Woodford on a splendid speech, which embraced all the technical aspects of corporation tax and the dreadful implications of the increases in company taxation which have occurred since corporation tax was inaugurated in the Finance Act, 1965.
      All my hon. Friends were unanimous, at the onset of this form of taxation, in pressing for a rate not higher than 35 per cent. which was, in our view, con-
      1268
      stant with the required liquidity of companies of all kinds to which corporation tax would apply. If the correct rate was 35 per cent. then, we deem that the correct rate today should certainly not be higher than 40 per cent. In seeking a reduction to 42½ per cent., the Amendment is a token to signify that we regard the rates of corporation tax as being excessive and how, in present industrial and commercial circumstances, it is essential that they be reduced.
      I approach my duties this afternoon from a different angle from which my hon. Friend approached his, admirable though his approach was in every way. I wish, first, to consider the yield of this form of taxation, so far as we are aware, since its inauguration. In 1968–69, corporation tax yielded £1,346 million. In 1969–70, it yielded £1,687 million. In 1970–71, it is estimated that it will yield £1,900 million. It is difficult, with changing rates of corporation tax—the original rate was 40 per cent., which was increased to 42½ per cent., and last year further increased to 45 per cent.—to know when the increased rate will be translated, in monetary terms, to increased revenue, due to the great variation there is in the calendar span of the chargeable accounting periods of companies of all kinds.
      It is, therefore, difficult to relate an increase in the charge of corporation tax to the revenue yield year with year. The fact is, however, that when corporation tax was 40 per cent. the yield was estimated to be £1,346 million. Now that it is 45 per cent. the yield is thought to be £1,900 million. Thus, an increase of one-eighth in the tax, if applied pro rata to the earlier figure of £1,346 million, would have given a yield of corporation tax of the order of £1,545 million. But it is not £1,545 million. It is £1,900 million. This suggests that the yield of the tax from company profits has increased, apart from the advance in the rate of corporation tax, by £355 million in a short period of two years.
      This suggests to me that extracted from the liquidity—from gross profits, if one prefers it that way—or diminished from the cash flow of companies is an additional £355 million on account of the increase in corporation tax and the huge enlargement of the rate from this form of taxation, which is today very much

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      bigger than was originally anticipated by the Treasury.
      My hon. Friend the Member for Wan-stead and Woodford applied himself largely to the impact of these excessive rates of corporation tax on investment in the private sector of industry. He made only a passing reference—not because he attaches less importance to it than I do, but because he could not give an encyclopaedia of references to all aspects of corporation tax in a short speech—to the effect of the rates of this form of taxation on prices, and he said that prices were rising very rapidly.
      It is this aspect of the problem to which I particularly wish to refer. We had a controversy just over an hour ago with the Minister of Agriculture, Fisheries and Food about the rise which has occurred in food prices. This is the gravest aspect of inflation today. I just do not believe the Minister when he says that in 1969 food prices rose by only 5½ per cent., or by just over 1s. in the £. I do not believe him.
      Mr. John Nott: Nor does any woman.
      Sir G. Nabarro: I will willingly give way to my hon. Friend if he wishes to intervene.
      Mr. Nott: I was mumbling words to the effect that I support my hon. Friend. I am, of course, not a housewife, but I occasionally go into shops. It is easy to see that it is totally wrong to say that food prices have increased by only 5½ per cent.
      Sir G. Nabarro: I am grateful for that support.
      Sir Ian Orr-Ewing rose—
      Sir G. Nabarro: I willingly give way to my hon. Friend.
      Sir Ian Orr-Ewing: There cannot be an hon. Member who has not been beset by his wife to raise the housekeeping money by certainly more than 5½ per cent. in the last year as a result of increased food prices.
      Sir D. Glover rose—
      Sir G. Nabarro: Would my hon. Friend like to comment on this aspect, too?
      Sir D. Glover: My hon. Friend is, perhaps, not aware that I am quite an expert on this subject. My wife was not well for about 12 months and I had to do the household shopping. I know from practical experience by how much goods have increased in price in the last year, and they have increased by a jolly sight more than 5½ per cent.
      Sir G. Nabarro: I am grateful to my hon. Friend the Member for Ormskirk. Does my hon. Friend the Member for Salisbury (Mr. Michael Hamilton) wish to intervene?
      The Chairman: Order. I think that we must limit interventions and have some speech as well as interventions.
      Sir G. Nabarro: I am sorry. I will give way to my hon. Friend the Member for Salisbury and then—
      The Chairman: Order. We cannot have three interventions in a row.
      Mr. Michael Hamilton rose—
      The Chairman: Order. I have ruled and the hon. Member for Salisbury (Mr. Michael Hamilton) will have to wait.
      Sir G. Nabarro: I am sorry, Mr. Irving, but I was led away by the exuberance of my hon. Friends. The Member for St. Ives (Mr. Nott) in Cornwall, my hon. Friend the Member for Hendon, North (Sir Ian Orr-Ewing), my hon. Friend the Member for Ormskirk (Sir D. Glover), in Lancashire, and my hon. Friend the Member for Salisbury, in Wiltshire—all parts of the United Kingdom—are at one with Worcestershire, South in finding that food prices are rising precipitately and that 5½; per cent. inflation of food prices in 1969 announced by the Minister of Agriculture, Fisheries and Food in his statement earlier this afternoon was a gross understatement. May I give way to my hon. Friend now?
      Mr. Michael Hamilton: I hope that my hon. Friend will point out that currently food prices are now rising by 12·6 per cent.
      Sir G. Nabarro: I am grateful for my hon. Friend's prompting and support.
      My case is that the projection of food prices upwards is caused very largely by

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      the fact that wholesale and retail distributors of food work on tiny margins of profit. When corporation tax is levelled at the excessive rate of 45 per cent. in order to maintain reasonable profits from their enterprises it is quite imperative that food distributors raise their general level of prices for the increased corporation tax is an essential and direct item of cost.
      It is costed into the price of the food in the same way as the tin plate referred to by an hon. Member opposite at Question Time is included in the price of tinned food or any other ingredient in the business. Tax is an essential element in cost, especially corporation tax. Whereas the Tories maintained company taxation at a much lower and generally declining level of incidence throughout their period of office, a declining level of application for company taxation which had the effect of stabilising food prices and much less inflationary impact on food prices than is the case today. I believe that the huge increase we have suffered in the last year or two is very largeley due to the Labour Government's policy of increasing year by year the amount of direct company taxation.
      Of course, there can never be direct proof or otherwise of this statement; it is a matter of opinion, but every businessman is with me on this. I do not expect Labour accountants to agree with me. The benches opposite are strewn with chartered accountants who have joined the Labour Party. They are really neither business nor professional men. They have never earned a jot nor tittle in trade and commerce. I prefer real Tory capitalists.
      Mr. Richard Wainwright: I am sure that the hon. Member, in the midst of his exuberance—
      Sir G. Nabarro: Not exuberance, enthusiasm.
      Mr. Wainwright: On reflection, the hon. Member will agree that one of the great drawbacks in this House is the appalling shortage of chartered accountants on either side.
      Sir G. Nabarro: I do not think that I can reply to that assertion. I do not wish to be rude to the right hon. Member for Gloucester (Mr. Diamond) this afternoon,
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      as he has lost the Chancellor's aid and support.
      My attention was riveted on this matter yesterday by the front page of the Daily Mail, but the Daily Mail missed the point. It quoted the effects of an important conference and confrontation with the Minister of Agriculture, Fisheries and Food on food prices, but did not mention the impact of taxation. I wonder why that was left out. The newspaper reported:
      " Grocers Warn of Big Rise in Food Prices."
      Food prices are bound to increase dramatically soon, grocers warned yesterday. Higher wages and transport costs have already eroded recent price rises.… The grocers are finding it almost impossible to hold back increases for as long as 28 days in order to give the early warning of 28 days to the Minister that he is trying to insist on, so fast are costs increasing"
      I suggest to the right hon. Member for Gloucester that this rate of increase in food prices is not dissociated from the fact that as between 1969–70 when the yield of corporation tax over the whole field of companies was £1,687 million and has advanced to £1,900 million in 1970–71, an advance of no less than £213 million in a single year, that the advance in these food prices is directly related to that huge increase in the collection of corporation tax, a large part of which goes on to food prices.
      4.45 p.m.
      I go further. The whole of the £213 million is put on the retail prices by manufacturers, wholesalers, retailers, distributors and others to try to maintain their profit margins. Does the Treasury think that businesses can absorb—repeat, absorb—the selective employment tax or the increased duty on petrol or oil for distribution or the increased corporation tax and all these other vast increases in direct and indirect taxes to which I referred on Second Reading of the Bill? Of course they cannot. They go straight on to prices and the inflation we suffer today in food prices and elsewhere is directly related to the rise in corporation tax of 2½ per cent. last year, 2½ per cent. the year before, and the fact that the Labour Government had deliberately escalated the corporation tax from 40 per cent. two years ago. [Interruption]
      Is the hon. Member for Heywood and Royton (Mr. Barnett) mumbling? I shall happily give way if he wishes to

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      intervene so that he may stop mumbling. This big corporation tax is the principal contributory cause of rising prices. That is the complement of what my hon. Friend the Member for Wanstead and Woodford said about the decline in investment by private industry and the sad omens for the future.
      The Chief Secretary to the Treasury (Mr. John Diamond): I have followed the hon. Member's speech with great care. I am not asking him anything about his argument, but, purely on a matter of fact, do I understand him to say that in the companies of which he has first-hand knowledge and responsibility it is now their practice, when costing the goods they put on the market, to include in the costing, just as much as the metal—he referred to tin containers —corporation tax at its then current rate?
      Sir G. Nabarro: First, it is the practice of all companies to include in their costings the incidence of direct taxation and all indirect taxation when calculating the net return or earning capacity of their investments as my hon. Friend the Member for Wanstead and Woodford said. Secondly, in calculating price levels they include taxation provision in their margins of profit. Both are equally applicable and the higher the corporation tax goes then the higher retail prices will rise. The higher the selective employment tax on food, transport and distribution goes, the higher the retail prices will go.
      Mr. Diamond: I am most grateful to the hon. Gentleman for giving us that information. I was not asking him about that. I was asking him to be good enough to give me first-hand evidence—I have no right to ask him to do it; if he wishes to do it, I shall be grateful—of what happens in the company where he is responsible and has first-hand knowledge.
      Sir G. Nabarro: All companies take into account in their costings the incidence of direct taxation. I see the hon. Member for Heywood and Royton indicating dissent. He has never been the managing director of a company and has no knowledge of these matters other than auditing the accounts of companies. He has no right to criticise.
      Mr. Sheldon: Nonsense.
      Sir G. Nabarro: Did the hon. Member for Heywood and Royton say " Nonsense "?
      Mr. Barnett: My hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said " Nonsense ", but I would have said it.
      Sir G. Nabarro: Both the dreadful twins say " Nonsense ". I aver—I have no doubt that I shall be supported by every hon. Member on this side—that every company that costs its products properly will take fully into account the incidence of direct taxation.
      The Financial Secretary to the Treasury (Mr. Dick Taverne): No.
      Sir G. Nabarro: If they were not to do so, the inference of the Financial Secretary's reply would be that the greater the taxation on the profits of a company the less the margin of net profit is to become. With the degree of increase in taxation levied by the Labour Government profits would by now have disappeared altogether had companies not increased their profits to allow for additional taxation, year by year.
      I hope that the hon. and learned Gentleman follows me. [Laughter] The hon. and learned Member may laugh in scorn, but he, again, is one of those who have never run a whelk stall in his life. He has never run anything at a profit. He is merely a lawyer who picks on capitalists for fees. He picks on capitalists' earnings in the form of fees. [An HON. MEMBER: " Battens."] " Battens " is the word. The hon. and learned Gentleman is one of these legal parasites. Now I am being led from my major argument.
      Sir D. Glover: Leech, bloodsucker.
      Sir G. Nabarro: The plain fact of the matter is that all direct taxation is inflationary; and the higher corporation tax on the profits of companies is forced by the Labour Government, the greater will be the increase in wholesale and retail prices. The Government have themselves to blame most largely for the degree of inflation which we are suffering today.
      As the Prime Minister wants to fight the forthcoming election on the record of the Labour Government, I will happily join issue with him on their record on

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      taxation, their record on inflation, and their record on the cost of living; for corporation tax is a major culprit—one of the causes of these huge increases in prices. On that, the Labour Government will founder.
      Mr. Sheldon: The hon. Member for Worcestershire, South (Sir G. Nabarro) gave us his usual entertaining quarter of an hour.
      Sir G. Nabarro: Not " entertaining ".
      Mr. Sheldon: It was very entertaining. I am paying the hon. Gentleman a compliment, and I hope that he will take my remark in that way.
      I must take up the hon. Gentleman's point about firms including the effect of corporation tax in their costing, because it may well be that there are some misguided people who, on reading an account of this debate, will feel that they had got the matter wrong before the hon. Gentleman's intervention.
      I am sure that the hon. Gentleman knows that what happens is that at the end of the day what determines the price is the competitive position. Although it is undoubtedly true that many firms are not in such a competitive position, I was assuming that the hon. Gentleman was directing his remarks to those that were particularly so, because he illustrated at some length the case of the supermarkets and the groceries.
      It is here that we have had very high levels of competition indeed. It is a travesty of the facts to assume that these people go round charging what they think will leave them with the desired net profit after they have taken account of corporation tax and other direct taxes. Being supremely competitive, they try to work to the finest possible margins. The taxation they have to pay is the result of their profitability.
      Sir D. Glover: The hon. Gentleman is not disproving the argument advanced by my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro). The hon. Gentleman says that traders work to the finest possible margin, but in arriving at those finest possible margins they take into account the on costs which they must incur, which include taxation.
      Mr. Sheldon: We are talking about " costs ". When traders work out their costs, because they are working in an extremely competitive position they try to add up all the various costs they incur in producing their articles; and their profit is a result of that. Out of that profit comes the taxation.
      Mr. David Howell: Is not the hon. Gentleman confusing pricing policy and investment policy? When it comes to project evaluation, the level of taxation is taken into account. That is done in private industry, although it seems that the Government's project analysis and evaluation is rather less effective.
      Mr. Sheldon: I thought that it was clear that I was referring to pricing policy. When I was giving illustrations of what goes on in supermarkets, I was giving the pricing policy and the way in which prices are established. When I pointed to the case of uncompetitive industries, I conceded that the hon. Member for Worcestershire, South might have some such point. Then the hon. Gentleman referred particularly to supermarkets, where competition, although not as great as it used to be, is still very large; and in such pricing policy direct taxation has little, if any, effect.
      Sir G. Nabarro: I was not referring only, or even notably, to supermarkets. I was trying to demonstrate that the three branches of taxation—that is, selective employment first, purchase tax second, and corporation tax third—all have a dynamic bearing on the price of food and that the increased cost of food is directly a result of the increase in those three forms of taxation brought about by a Labour Government.
      Mr. Sheldon: When the hon. Gentleman says " the cost of food ", he means " the price of food ". We are talking about prices. The effect of direct taxation upon prices is insignificant. Of course, there will be some remote connection, but in pricing policy the connection is very little, if any.
      I will not go into the question of other taxes. We are not discussing those other taxes. The hon. Gentleman should bring that question up at the suitable time.
      The effect of corporation tax on prices in a supermarket is as far remote as anything can be found in analysing the

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      various components of the prices that are charged.
      Mr. Nott: Will the hon. Gentleman congratulate my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) on the originality of his accounting procedures?
      Mr. Sheldon: I distinctly noticed that when the hon. Member for Worcestershire, South turned round to survey the benches behind him in search of support, as he tried to find support on another matter, on this matter he signally failed to get any support save, alas, for that of the hon. Member for Ormskirk (Sir D. Glover).
      Sir G. Nabarro: The hon. Gentleman is being rather unkind. You, Mr. Irving, prevented further hon. Members on these benches from rising to support me.
      Mr. Sheldon: You, Mr. Irving, prevented the hon. Gentleman from getting support, not on the question of pricing policy, but on the cost of living. The hon. Gentleman had no support on the question of the pricing policy. It is obvious that the hon. Gentleman has no support in this matter, because this Committee is usually fairly well-informed. The hon. Gentleman is the sole member of the Committee to have a lapse of judgment on this occasion.
      The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) sought to show that Britain had a higher level of tax on companies than other comparable countries.
      Mr. Patrick Jenkin: A higher level of tax on corporate profits.
      Mr. Sheldon: I accept the hon. Gentleman's qualification, because clearly he is taking into account the fact that, although we may have a high level of corporate taxation, the amount that we give back to industry makes the total burden upon industry much less. In view of the very large sums given by way of investment grants as well as other aids to industry, the net cost to industry of corporation tax is much less than what might otherwise appear to be the case from a study of the Financial Statement.
      One can argue about the way in which this is done; whether it is right that we should discriminate; whether having taken money in one form we should give
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      it back in another; but to argue that the burden on industry is great is a misconception. One can argue about the method, but not about the burden.
      The hon. Member for Wanstead and Woodford said that Schedule F was a tax on companies. I differ from him on this—
      5.0 p.m.
      Mr. Patrick Jenkin: If the hon. Gentleman contests what I said, he must get it right. It is a tax on company profits. Clearly, it is not a tax on companies. That is what I said, and if the hon. Gentleman disagrees perhaps he will spell out why.
      Mr. Sheldon: Of course it is a tax on company profits. I see no real distinction on which I particularly wish to dwell. I am prepared to accept the hon. Gentleman's interpretation, but he must understand that it is a tax on company profits which are utilised in a specific way, and that is not quite the same thing. If a company decides to do certain things with its profits, it will be subject to certain taxes. If it decides to do otherwise, it will not be so subject, and it is this which is important, because the company, as an entity, can go on expanding in a way which will eventually yield large profits if it decides that for a certain time it will reduce the levels of distributed profits.
      One of the problems has arisen because we have not had the expansion that we expected. I am sure that in future years we can expect that expansion as a result of the Government's policies. Once we get into this level of high, sustained growth I expect that the distribution policies which have been set in a mould because of the unadventurous rate of growth that we have had may be reassessed, as will be the policy on investment, and then there will be an opportunity to survey again the relationship between Schedule F and the rates of income tax, corporation tax and other matters. At the moment, we are set in a mould, and that mould may not be with us for ever.
      Mr. Nott: Schedule F affects the directly distributed, and not retained, profits. A private company which is growing fast cannot finance its expansion purely out of retained profits, and

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      Schedule F is a serious and damaging tax on the ability of fast growing companies to raise capital.
      Mr. Sheldon: I find that argument difficult to understand. The hon. Gentleman is saying that a company trying desperately to obtain money should make great distributions.
      Mr. Patrick Jenkin: My hon. Friend the Member for St. Ives (Mr. Nott) is right. How does the hon. Gentleman think that a company will ever be able to raise capital in the market unless it is prepared to offer investors a reasonable return on their money?
      Mr. Sheldon: Not when it is expanding at its greatest rate. Perhaps the hon. Gentleman will consider some of the highest fliers in the United States. One such company—I shall not name it, but I am prepared to do so if requested—grew at an enormous rate. For nine years it did not make a distribution, and the value of the stock rose from 1 dollar to 130 dollars because of a sophisticated investing public who knew what the company was about. The company was at the forefront of modern technology, and people knew that it would yield great profits in the years to come.
      In this country we have an over-obsession with the systems of the past. We fail to recognise that companies are growing at such a rate that the old dogmas, the old methods of learning by rote, do not apply in some of the most interesting situations that we are facing today.
      Mr. Nott: To say that people invested in that American company for nine years is irrelevant. The hon. Gentleman must mean that they were buying shares from those who were selling them. If the company raised new capital, the point is different. This American company clearly did not raise new capital.
      Mr. Sheldon: It did, based on an understanding of the company's prospects, and an acceptance by the banking houses of the assessment by those who knew what it was all about. What appals me is that we do not have this sophisticated understanding of how companies need to operate, and the value of operating in a particular way.
      Mr. Peter Hordern: I do not think that the hon. Gentleman appreciates how the stock market works. The price of this American company increased not because its retained earnings improved, but because of the expectation of shareholders of a higher pay out eventually.
      Mr. Sheldon: That is the whole burden of my argument. I should not have thought that that intervention was necessary. The shareholders were sophisticated enough to understand the technology in which the company was involved, and its prospects. As a result money, was pouring in to such an extent that the company could expand without making a distribution.
      Sir Ian Orr-Ewing: The hon. Gentleman has not named the company; perhaps he would. I cannot help feeling that it must have been a company which made a technological break-through in some area, and, therefore, was not subject to the normal price competition and could finance itself on expectations. That is the case with a new invention, but it is not true when there is the price mechanism to which the hon. Gentleman referred earlier.
      Mr. Sheldon: It is Recognition Equipment, and it is at the forefront of technological progress. There are a number of competitors now, and there were then.
      Nevertheless, the sophistication was such that people were able to make an assessment which was of benefit to the firm, to the industry, and to themselves. It is this kind of sophisticated approach which we seem to be lacking. We seem to be lacking in the approach which enables a firm with good ideas to be financed profitably and properly.
      Mr. Patrick Jenkin: The hon. Gentleman is deluding himself if he thinks that that wholly exceptional case represents the sort of pattern which one could expect to operate across industry generally. We have that sort of case here, but it is a rare bird.
      Mr. Sheldon: Of course, I am not saying that, in general, companies can go for years without making a distribution. I have cited an extreme case. There are many examples between that and the stagnant run-down company which the

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      hon. Member for Worcestershire, South was detailing. There are many modern progressive industries which could be helped by a different approach from that which is now taken. That is my only point, and I hope that as a result of the various interventions I have been able to make clear what I am trying to say.
      Mr. Peter Bessell: The hon. Gentleman has been extremely generous in giving way, and I thank him for doing so again. I want to follow his argument. Is he really suggesting that the American system of marketing products in advance of production by floating shares on the Stock Exchange and obtaining large sums of money, very often on nothing more than ideas, it is a sound method of business? Does he not agree that it is far better to adopt the system used in this country, which is based on a proven record before money is obtained? Is not that better than the American system which the hon. Gentleman seems to be advocating?
      Mr. Sheldon: If the hon. Gentleman had been listening he would have realised that I was not advocating a general adoption of the situation relating to this American company. It was obviously an exceptional company. I detailed it to show the kind of pattern which can emerge between this company at one extreme, and companies such as that mentioned by the hon. Member for Worcestershire, South at the other.
      I was trying to show that between the two there is a whole spectrum of industries which the hon. Gentleman has not considered. There is a whole range of experience, ways of doing business, and of conducting operations from which we can learn. This run-down, shattered old industry which the hon. Member for Worcestershire, South detailed is by no means the kind of typical industry which we should be considering.
      Sir G. Nabarro: I did not, from the beginning of my speech to the end, mention a run-down, shattered, or old industry. The whole of my speech was directed to the simple, perfectly honest and straightforward proposition that the whole of the increase in corporation tax finds its way into inflationary increases in wholesale and retail prices, and that is an unexceptionable doctrine accepted by all good businessmen.
      Mr. Sheldon: It was not accepted by the hon. Gentleman's hon. Friends. He must remember that the firms operating in that kind of way well qualify for the description of run-down, shattered old firms. A firm operating in that peculiar way in its levels of costings of raw materials, labour and taxation, and doing its pricing in that way is heading rapidly towards that end if it is not run down already.
      I now turn my attention to some other aspects of the introduction of corporation tax about five years ago. I was one of those, and I think that they included a number of hon. Gentlemen opposite, who welcomed this as a broadening of the base. One of the unfortunate aspects is that it is of little value for economic management. We cannot expect perfection from every tax, but we must be aware of its limitations. It cannot be used for economic management largely because of the time lag. By the time the corporation tax becomes due the economic situation for which any change in the rate of the tax was devised has tended to change considerably. So it does not have the direct effect on the economy that we might wish and which is obtainable from other forms of taxation.
      The importance of the tax is that we have increased a yield under the profit tax system of 5·8 per cent. of total tax revenue to a level of 10¾ per cent. raised by corporation tax; the figures were 5·8 per cent. in 1965 under profits tax and 10¾ per cent. from corporation tax in 1969. Those figures are not directly comparable, but they give us some indication. I am grateful for the table produced in reply to the hon. Member for Worcestershire, South, which I have used.
      We have seen that the tax has produced a large sum of money—£1,900 million—with very little political disadvantage. [Laughter] That is important, because this is a political place and to be able to make the changes in that way can sometimes be the only way they can be made.
      What we must consider against that is the cost to industry in efficiency, modernisation or lack of it, and so on. My own view is that the effect of corporation tax upon incentives is very small and probably insignificant. This is very important, because to say that we had a

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      level of taxation that struck at the very heart of the industry of this country and its need to modernise and expand would be one of the most serious charges that could be levelled against any tax.
      But I do not see it like that. If I were given the choice of how I would like to see corporation tax move up or down in relation to other taxes, if there is a relationship between income tax and corporation tax, I would like to see a rather greater burden on corporation tax and a rather smaller one on income tax. We could obtain money to reduce income tax in other ways, but I believe that those managing industries would be more susceptible to reductions in income tax and increases in corporation tax.
      Therefore, what we are left with is the possible disincentive effect of corporation tax upon investment. Clearly, this is a matter of some concern, if only for the cash flow. But we have seen that in regard to cash flow the tax is by no means as burdensome because of the large numbers of aids the Government give in investment grants and other forms of assistance.
      Sir D. Glover: The hon. Gentleman has spoken about these things balancing. He said that the Government give money back. There is a great fallacy in what the hon. Gentleman says, because the tax is collected generally, over the whole of industry, and the benefits go back in a very specialised direction. It is just as big a burden on 75 per cent. of industry. Therefore, there is not very much in the hon. Gentleman's argument.
      5.15 p.m.
      Mr. Sheldon: We can argue that the way in which the money goes back to industry is not as it should be, or that industry should be left freely to decide. These are respectable arguments, but I have come to very different conclusions. I believe that there are certain matters on which central Government can take a wider, more comprehensive view. Other countries, like Japan, France and possibly even Germany, are coming to that kind of conclusions. The hostility between Government and industry in this country is almost unique. It is special to the United States and Britain, and is found in hardly any other countries,
      1284
      mainly because industries there derive from Government.
      There is not the bitter hostility between Government and industry that we have, as industry looks upon Government as an outside body that tries to regulate it rather than a body that tries to assist it. Because of that basic difference in attitude, we do not have that relationship which I hope will develop over the years as a consequence of my right hon. Friend's policies in taxation and other matters.
      It can be argued that investment grants and the other aids to industry are not being channelled in the best possible way. We all have our views on the precise way in which these sums of money should be given to industry for purposes that the Government can understand in certain different ways—not necessarily better—from industry. As a result, I do not consider the burden to be great. I consider the cost of collection to be very reasonable, and I look forward very much to seeing corporation tax retaining its important place in the taxation system.
      Sir Ian Orr-Ewing: We are discussing a very important part of a Budget which increased taxation revenue by £1,200 million. It would have increased it by £200 million more if there had not been a slight cutback.
      I support the Amendment to cut corporation tax from 45 per cent. to 42½nt. The tax has a substantial effect on investment. The hon. Member for Ashton-under-Lyne (Mr. Sheldon) touched on this, but he did not develop the matter in depth, and I hope to go rather further than he did. The Chancellor recognised early in his Budget speech just how important investment was to the country. He said:
      " The second requirement is an improved and sustained growth of industrial investment."
      Later, he said:
      " We cannot put this right overnight, but it must be an essential aim of economic policy to increase manufacturing investment…."— [OFFICIAL REPORT, 14th April, 1970; Vol. 799, c. 1224.]
      This is not being done.
      The Financial Secretary took rather a complacent attitude the next day. He said:
      " What I can tell the House, and what is universally accepted, is that the rate of increase in manufacturing investment in 1969 over 1968

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      was 11 per cent., which is a very healthy rate of increase."—[OFFICIAL REPORT, 15th April, 1970; Vol. 799, c. 1411.]
      If he had been speaking about such a percentage increase in real terms, that would have been healthy, but he was not. In real terms it amounts to 5·7 per cent. Moreover, when we look at the record over the past four years of the expansion of industrial investment we see that our rate is very disappointing. I compare the percentage with the figures given in Table 13 of the White Paper, " Preliminary Estimates of National Income and Balance of Payments 1964 to 1969."
      It is right to point out here that one plans industrial investment at least a year ahead. All companies produce their capital budgets at least a year in advance, so that figures for 1965 which I shall quote were planned and put into operation in 1964. It is, therefore, realistic to quote the 1965 capital investment as being for the last year of Conservative policy. In 1965, the capital expenditure was £1,309 million. By 1969, the latest year for which figures are available, this had expanded to £1,428 million. Thus, in four years, capital investment in real terms had expanded by 10 per cent., or only 2½per cent. per annum. This is not enough for a competitive industrial nation dependent on advanced products for its livelihood.
      I will give the figures for plant and machinery. In 1965, a total of £2,226 million was spent on these, and in 1969 this had risen to £2,401 million—an expansion of 9 per cent. in four years, or 2¼ per cent. per annum. A lot of that machinery has to come from West Germany and Switzerland in the form of machine tools. [An HON. MEMBER: " Why?"] Because in Switzerland, for example, they have great expertise, and have had for a long time, in the small machinery which the electronics industries use. We need them for solid state transistors technology and integrated circuits. This machinery was developed for the watch industry, in which Switzerland has been pre-eminent. I agree that it is a shame that we have to get our machinery from abroad but one must buy in the best market. Devaluation has meant that more British £s have had to be spent so that the actual investment in plant and machinery is less than the figures I have given.
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      I want to compare our performance with those in Western Europe. I shall use the figures of what is being spent on manufacturing investment as percentages of gross national product. The figures are for 1967, the last year for which they are available. In the United Kingdom, it was 3·9 per cent., a reduction from 1965; in France it was 5·6 per cent. and in West Germany, 5·8 per cent. The Prime Minister used to love to quote the case of Sweden when he was Leader of the Opposition—a position which he will shortly be occupying again. The percentage in Sweden was 5·2 per cent. But Sweden has had a Socialist Government for a long time and one has always to pay a price for that in the amount of cash available for investment. Sweden is low in the league table. The United Kingdom's figure was 3·9 per cent. and the figures of our West European competitors considerably higher. This is disturbing to any Government. It certainly disturbs my right hon. Friends who will soon take over responsibility.
      The Board of Trade was over-optimistic in the last analysis it published on 21st January. It said, talking of manufacturing investment, that it would rise about 10 per cent. in real terms between 1969 and 1970. This is a gross and optimistic exaggeration of the position. The C.B.I. took its survey rather later and published its analysis on 19th February. It noticed that there had been a considerable turn round. The Board of Trade survey was conducted in November and December. The C.B.I. survey was conducted later. It said:
      " There is no marked change since October in the general degree of optimism about the business situation. Orders and output are on fairly buoyant trends, but two disturbing features of the present Survey are the replies to the questions on investment on the one hand and on costs and prices on the other.
      For the first time since June 1967 the balance of respondents expect to authorise less investment in plant and machinery in the next twelve months than in the previous twelve months."
      That is a more realistic picture. I have grown up in the light engineering industry and among my contacts in it I find considerable uncertainty about the future. All of us are being forced to cut our programmes by shortage of cash and the continuing squeeze which has gone on for a long time.

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      I want to quote the case of a large company with 15,000 employees in electronics to give the measure of just how much money the Government are siphoning off from industry and which inevitably forces industry to cut back on research and development and investment programmes because the money just is not there. I give a list of some of these levies: employees P.A.Y.E., £2 million a year; purchase tax £0·7 million; national insurance contributions, £1·2 million; graduated pensions £400,000; selective employment tax not recovered £200,000; rates, £0·4 million; import duties £1 million; corporation tax—almost the largest in the list—£1·6 million; import duty on finished goods, £1·9 million—exceptionally high that year because the firm was bringing in colour cathode ray tubes for television sets. The import deposits scheme cost the firm £1·2 million. The whole amounted to £9·7 million siphoned off by the Government. On a per capita basis, for every person employed by the firm, £600 per annum is being siphoned away in different forms of levy by the Government.
      Mr. George Brown: I notice that the hon. Gentleman includes a lot of interesting things, even the rates. Can he tell me what is the capital employed in that anonymous business and what the return on that capital was at the end of that year?
      Sir Ian Orr-Ewing: I have not those figures. I can give the right hon. Gentleman the total sales for 1968, which were £60 million. The Government siphoned off £10 million, and that is relevant.
      Mr. Brown: The hon. Gentleman must recognise that, at the end of the day, the interesting factor is how much capital is employed and what return the firm is getting on it, even after, to use his phrase, these things have been siphoned off. Can he tell me the return? Was it 6 per cent., 7 per cent., 10 per cent., 15 per cent. or 25 per cent.?
      Sir Ian Orr-Ewing: The company is Mullards, which is part of the Phillips Group, and I have not its permission to quote the figure, but no doubt the right hon. Gentleman can look it up in the Library. I know of no company in this highly competitive industry which
      1288
      is making a post tax 10 per cent. on capital employed. If any company is doing so, it is doing very well, because competition in the industry is severe and sophisticated.
      I come back to the necessary cutback as a result of the Government's policies. I cannot believe that this is a good thing. I think that it is particularly bad because the engineering industry is responsible for so much of our exports, as the right hon. Gentleman recognises. It is there that we see the profits turning down and getting much slimmer while all the time wages and costs go up precipitately. One only has to read the Sunday newspapers to see the turndown in profit margins and to look at the shop advertisements to realise that costs are going up. Massive wage settlements are going to make these profit margins even slimmer.
      How do we compare in taxation policy with other countries? One thing is clear. We do not give any help to small companies. We should be more generous to them because they are often the innovators. The Holloman Report in the United States made it clear that new inventions and innovations often come from small and medium sized companies much more quickly than from big companies.
      Mr. George Brown indicated dissent
      Sir Ian Orr-Ewing: The right hon. Gentleman shakes his head. Does he contradict the Holloman Report?
      Mr. Brown: It really is not true of large parts of British industry—for example. textiles, of which I know something. To argue that innovations come from small companies is to stand all our knowledge on its head. It is not the case.
      5.30 p.m.
      Sir Ian Orr-Ewing: That also applies to the chemical industry, but I said that I was concentrating on the engineering industry, which is responsible for so much of our exports. It is certainly true in engineering that much of the innovation comes from small companies, and this has been borne out by the many who have surveyed the position. We give no sort of incentive to the small company. The Labour Government have done exactly the opposite with their close company legislation.

      1289
      In the United States, for instance, corporation tax is paid at only 22 per cent. on the first 25,000 dollars of profits and at 26 per cent. above that figure. Then there is the Sub-Chapter S arrangement in the United States whereby young engineers, young inventors, can form a partnership with a rich man who wants to invest his money. Any losses can be set against the entrepreneur's income over five years. This is another way of getting partnerships going and getting small companies going in specialist areas, companies which may later become worth while, " go public " and add to the prosperity of the nation at large.
      In Japan, 28 per cent. is paid on the first £20,000–3 million yen. Above that, the rate is 35 per cent. In Germany, on undistributed profits the rate on the first £1,000 is only 39 per cent. and over £5,000 profits a year it is only 49 per cent. In Germany, as we all recognise and praise, for this helps to create the market, one pays only 26½ per cent. on distributed profits compared with 42½ per cent. in this country. In all these areas not only is lower taxation paid, but there is greater incentive for small companies to grow into something worth while.
      For these reasons, I hope that the Committee will support the Amendment and seek to reduce the burden of taxation on the companies which are the wealth creators for the nation.
      Mr. Bessell: Before coming to my main comments on the Amendment, I should like to refer to the argument advanced by the hon. Member for Worcestershire, South (Sir G. Nabarro).
      I realise that, in the considerable debate which took place across the Floor of the Committee, it appeared that the hon. Member for Worcestershire, South was advancing a rather unusual form of accountancy. Nevertheless, he has experience of the management of companies, as I have, and there was a point in his argument which appeared to have been missed by both sides of the Committee.
      If a company or corporate body is about to produce an article for sale, it does not cost it out in the sense that it says that this is the amount of the cost of the tin, this is the amount of the cost of the components, this is the amount
      1290
      of the cost of the labour, this is the selling margin, and this is to account for corporation tax, adding corporation tax to its direct costs, as the hon. Member suggested. I agree with the Chief Secretary that that is not what is done.
      On the other hand, the object of running a company is to produce a profit for those who have invested in it. In reaching a net as opposed to a gross profit, it is necessary to take account not only of the cost of raw materials, the cost of components, the cost of labour and the cost of overheads, but, for example, selective employment tax and, if one is involved in direct transportation, the cost of petrol, which also means a tax, and perhaps purchase tax, although that is rather exceptional. In arriving at a net profit, one takes into account the cost in terms of corporation tax, certainly if one is arriving at a dividend figure.
      Therefore, the hon. Member for Worcestershire, South was advancing an argument not quite as remote as some hon. Members appeared to think. Perhaps he did not express himself as clearly as he might, but he was pointing to a crucial point which certainly carries weight with me, and I say that as one who, as has the hon. Member for Worcestershire, South, has experience of running a business direct.
      There is a feature of the Amendment which I should like to make clear. It is that the Amendment which appears in the names of the right hon. Member for Enfield, West (Mr. lain Macleod) and his hon. Friends is identical with that tabled in the names of my right hon. Friend the Member for Devon, North (Mr. Thorpe), the Leader of the Liberal Party, and my hon. Friends and for convenience, quite correctly, the Table Office put the two together. I should not wish it to be thought that there had not been separate, yet identical, thinking.
      Looking back over the attitude of my party towards corporation tax, I found that I made some reference to this subject in my maiden speech on 12th November, 1964, when we were in Committee on the emergency Budget. I look back on it with some nostalgia, for, as some hon. Members are aware, I am not seeking reelection at the forthcoming General Election. Not surprisingly, perhaps, I looked to see what I had said on the

      1291
      subject of corporation tax when I first entered the House. I said:
      " A curious feature of the Budget proposals is the fact that the Chancellor has announced measures which will form part of the annual Budget proposals next April."
      That would be 1965
      " He has given advance notice of a capital gains tax and a corporation tax which, in principle, we welcome—".—[OFFICIAL REPORT, 12th November, 1964; Vol. 701, c. 1231.]
      The Liberal Party has always maintained that, within the framework of our taxation system, a corporation tax is essential.
      As the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) has done, I looked through our lengthy debates which we had in 1965. I recall supporting the hon. Member and his hon. Friends in the proposal that the initial tax should be at the 35 per cent. level. Having looked at that and the answers then given by the Government, I thought it wise to contrast the situation in 1965 with the current situation. I do not think that I can do better than quote from the Chancellor of the Exchequer making his Budget Statement on 14th April. He said:
      " Our policies on taxation and public expenditure have transformed the accounts of the public sector as a whole. A borrowing requirement of £1,956 million in the financial year 1967–68 was reduced to one of £450 million in 1968–69 and then replaced by a surplus of about £600 million in the financial year just ended. There has thus been a turn-round in the public sector accounts of about £2,550 million in these two years."
      I accept that the Chancellor would have been a very bad politician if he had not used his Budget speech as an opportunity to congratulate himself and the Government on the reversal of fortunes in Britain's financial position. But, having said that—[Interruption] Invisibles are part of it, but we have a surplus on invisibles, too, which we cannot ignore and I shall not try to ignore it.
      Sir Ian Orr-Ewing: Not today.
      Mr. Bessell: I do not know what evidence the hon. Gentleman has for saying that, but I do not want to argue it.
      Having made that confident statement to the House and to the country, it is strange, when expansion is clearly desirable to maintain the impetus of exports and productivity so that we can have the growth which is necessary to
      1292
      enable us to compete in export markets, to look at a later part of the speech of the Chancellor of the Exchequer in which he said:
      "It will be apparent from what I have already said that the Resolutions to be put before the House "—
      those were the ordinary tax Resolutions—
      " will provide that the standard rate of income tax should be renewed at 41·25 per cent. and that the same surtax rates should apply for 1969–70 as for 1968–69; but, like the standard rate of income tax, the surtax rates will now be expressed as percentages. The Resolutions will also provide "—
      and this the crucial point—
      " for the renewal of corporation tax at its present rate of 45 per cent."—[OFFICIAL. REPORT, 14th April, 1970; Vol. 799, c. 1214 and 1252.]
      I understand and accept why the Chancellor felt it necessary last year to announce an increase in corporation tax before the current year. It was obviously necessary to give that warning. I understand, too, why in the financial condition of the country in which the right hon. Gentleman had to make his Budget Statement in 1969 it was wise to anticipate that he would need to make a greater call on taxation to provide income for the Government's expenditure programme.
      But, in today's very much brighter conditions which the Chancellor took pride in explaining to the House at such length, I should have thought that this would have been a golden opportunity to give industry a shot in the arm and to say to the people who, after all, have been responsible for Britain's economic recovery, " You have done well. We want you to do better. As an incentive for higher productivity, investment and growth in industry and towards our export programme, I have decided to ignore my proposal made in 1969 and, instead of making the level of corporation tax 45 per cent., I shall keep it at 42·5 per cent." That is something to which industry and the country were entitled.
      I do not believe—and this is where I take issue with the Chancellor—that his loss of revenue in a full year would have been as great as he perhaps expected. For example, I do not believe that, given that kind of encouragement, industry would not produce a great deal more and that the consequence in the long term would have been to have given him

      1293
      a greater revenue even than by increasing corporation tax.
      I looked f1294
      speech made by my hon. Friend the Member for Colne Valley (Richard Wainwright), who leads the Liberal Party so admirably in debates on the Finance Bill.
      Mr. Diamond: I endorse entirely what the hon. Gentleman says about the hon. Member for Colne Valley (Mr. Richard Wainwright), but express a little surprise about what the hon. Gentleman says about maintaining and not increasing the rate of tax. The rate of tax went up last year. What we are proposing now is the rate of corporation tax for the financial year 1969–70.
      5.45 p.m.
      Mr. Bessell: I may not have expressed myself very well, and I am glad of the opportunity to clarify the point. The rate was at 42·52 per cent, last year, but the Chancellor in his 1969 Budget Statement announced an increase for the year 1969–70 to 45 per cent. Am I correct?
      Mr. Diamond: My right hon. Friend announced an increase for the year 1968 —that is, the year ending 31st March, 1969—on which the tax would be payable during the following 12 months, depending when the accounting period ended.
      Mr. Bessell: I misunderstood. I accept the correction, and I am grateful for it. I should not want to mislead the Committee or to go on record making an error of that kind. However, it does not detract from my argument that it would have been a considerable boost to industry if the Chancellor had felt it right to make a reduction this year. That is the purpose of our Amendments.
      I turn to the speech of my hon. Friend the Member for Colne Valley—and I note with gratification the Chief Secretary's comments about the way in which he leads the Liberal Party in these debates. My hon. Friend spoke during the Committee stage of the Finance Bill on 7th June, 1967, when he advocated a reducation in corporation tax. He made the point at the end of his speech—and I should have hoped that after a three-year lapse it would have been noted by the Chancellor in the light of the opti-
      1294
      mistic picture which he presented in his Budget:
      " I hope that if there is to be a degree of reflation, as I believe there should be, its first fruits will go to those business concerns which are successfully jumping over the enormous hurdles, both in the shape of obstacles to foreign trade and the difficulties of trade at home, because they deserve it."—[OFFICIAL REPORT, 7th June, 1967; Vol 747, c. 1159.]
      That is the burden of what I am saying. Not merely do they deserve it, but they must have it.
      I could not agree more with the comments of the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) and other hon. Gentlemen that the incentives necessary for industrial expansion are simply non-existent. I do not say that the Government have not given a great deal of assistance to industry in the development areas in recent years. I paid tribute to it last night and I was glad of the opportunity to do so. But, when it comes to whether money will be invested in industry for that essential expansion, I return to my first point. I do not think that the hon. Member for Worcestershire, South was far wrong. Corporation tax is a factor which must be taken into account, and it is absurd to suggest that it is not. It affects industrial investment and consequently industrial expansion. Therefore, whether or not industry deserves it, it must have it.
      Last night, the Chief Secretary said that if an employee had said to him that he was not prepared to work harder unless he had a tax incentive he would not employ him. He was not as blunt as that, but that was the implication of his remarks. I am entirely with the Chief Secretary. If a person who is employed in a company in which I have any say told me that he was not prepared to work longer hours or to make any additional effort which would result in an increase in his wages, because he was afraid of the tax he would have to pay, I would make certain that that man was not on the payroll for any longer than I could help, because this attitude would show a total lack of responsibility towards the company for which he was working. I am with the Chief Secretary on this, but I am not so sure when it comes to industrial investment.
      A person investing money in industry or in commerce inevitably looks to see what will be the return after taxation.

      1295
      With the present level of corporation tax, which has jumped from 35 to 45 per cent. compared with 1965, if the incentive has not been taken away, it has been seriously endangered. The Amendment seeks to do no more than to reduce the level to 42·5 per cent. In the light of the optimistic statements of the Chancellor and the change in the economic situation—and I am the first to pay tribute to that—and in the light of the effort which has been made by industry to bring about that change, I should have thought that a reward was due to industry. But, much more important, if we are to have the expansion and development on which the future world trade of this country is to depend, incentive must be given.
      There comes a point when taking away incentives, reducing incentives or failing to provide incentives has an effect upon people who are engaged in business and industry and they begin to wonder if their effort is worth while. It is at that point that the country runs into grave difficulties and dangers.
      I have looked again nostalgically at the maiden speech I made on 12th November, 1964. I recognise that at any moment we may find ourselves plunged once more into a General Election—
      Sir G. Nabarro: The sooner the better.
      Mr. Bessell: Although I am not a contender for a seat at the forthcoming election, I agree with what the hon. Member for Worcestershire, South said—the sooner the better. This may well be the last speech I shall have the privilege of making—
      Mr. Nott Mr. Nott:rose—
      Mr. Bessell: I would rather not give way.
      Mr. Nott: I was about to say something nice about the hon. Member as a fellow Cornish Member. The hon. Member for Bodmin (Mr. Bessell) has been an admirable Member in Cornwall, although he is not a member of my party. This is the last opportunity I shall have of saying that to the Committee.
      Mr. Bessell: I am grateful to the hon. Member for St. Ives (Mr. Nott). I did not want the rest of my speech to be interrupted, but for that kind remark I was glad to give way.
      Mr. George Brown: Before the hon. Gentleman gets to the last part of his speech, which will not be interrupted by me as I do not share this generous view, may I question something which he said that struck me as being rather odd? He said that he thought it was wrong for a workman to work out what he would receive after paying tax if he worked overtime, and that such a man would not appear on his payroll for long. He then said that he expected an investor like himself to work out what he would receive from an investment after paying tax, and he thought that was quite proper. Will the hon. Gentleman explain to me—
      Sir D. Glover: On a point of order. Is it necessary for the right hon. Member for Belper (Mr. George Brown) in intervening to make another speech? Cannot he make his own speech if he catches your eye, Mr. Irving?
      The Chairman: All interventions should be brief. I will bring this intervention to a conclusion when I think it is appropriate to do so.
      Mr. Brown: I am just asking the hon. Gentleman why he differentiates between the workman and the investor. They both apply the same process. Why is it right for the investor and wrong for the workman?
      Mr. Bessell: I said that some time ago, but I will come back to the point. It is interesting that the right hon. Member for Belper (Mr. George Brown) should raise it. He has of course misunderstood—that goes without saying. I was agreeing with a comment made by his right hon. Friend the Chief Secretary last night. The right hon. Gentleman was referring to the speech of an hon. Member on the Opposition benches in which he said that an employee might refuse to do overtime or additional work if the incidence of tax is too high. I felt, as the Chief Secretary did, that if a person genuinely looked at it only in that way and was not prepared to give any extra effort to the company and earn more money even though it was taxed, he clearly had not got an eye to business and was not the kind of person who would make a good executive. The average investor is the trustee of other people's money and has to consider what

      1297
      he is doing on behalf of other people. This is certainly true of merchant banks and others. The private investor looks to see what his net profit and his tax liability will be, and an employee who is looking at a job will see what his tax level will be. I accept that it is the same thing, but I am sure that the right hon. Member for Belper would not wish investors to withhold money or workers to withhold labour. Yet we could reach a point where both could happen. It has not happened yet with income tax, but it could happen with corporation tax, and that is the point I am making.
      To return to my earlier speech. I concluded by saying:
      " I have crossed Jordan."
      That is what I felt like, I was very nervous.
      " If I have landed safely on the other side it is only because of the courtesy of hon. and right hon. Members of this Committee. I wish to thank them for their forbearance."—[OFFICIAL REPORT, 12th November, 1964; Vol. 701, c. 1233]
      I shall shortly cross back over Jordan and should like to take this opportunity, if you will allow me to do so, Mr. Irving, to thank hon. and right hon. Members on both sides of the Committee for their indulgence towards me while I have been on their side of the river.
      6.0 p.m.
      Mr. John Cronin: The hon. Member for Bodmin (Mr. Bessell) made an interesting speech, finishing on a graceful note which must have been agreeable to every hon. Member. I am sure we are all sorry that he is to leave us in the near future.
      I am in some difficulty in following his arguments in support of the Amendment. He referred to incentives, but the effect of incentives is difficult to assess because so much depends on the psychology of the person who is paying the tax. There may be some disincentive when a person does something involving personal effort and is paid for the total time spent. But I cannot see how there can be any disincentive in the case of a corporation when such a circumstance does not arise. The Royal Commission on the Taxation of Profits and Incomes, which reported about 12 years ago, went into the matter of incentive and found no real evidence of disincentive in taxation in regard to individual effort. Taxation must work
      1298
      both ways as an incentive or disincentive. It may be argued that a man will work less hard, or a corporation less effectively, because some of the wages or profits accruing will be taken away by tax. But equally it could be argued that the more taken away in taxation, the harder the person or persons would work in order to gain in the long run after taxation.
      The hon. Member for Worcestershire, South (Sir G. Nabarro) made an interesting and entertaining speech with his customary panache. He produced the rather exotic argument that the effect of corporation tax was to increase prices, particularly food prices. He suggested that corporation tax was costed into prices by firms when they were assessing costs. I am sure that he was pulling our legs. Prices surely must be based on the competitive situation.
      Sir G. Nabarro: The hon. Gentleman must not accuse me of pulling his leg. Any cost accountant responsible for fixing retail prices on behalf of companies will tell him that the return on capital employed is first calculated net after the incidence of corporation tax, and second in regard to retail prices on the incidence of all forms of tax. The first consideration is S.E.T., then purchase tax, and then corporation tax, which are taken fully into account in assessing retail prices.
      Mr. Cronin: I accept that S.E.T. and purchase tax would be taken into account, but I cannot see that corporation tax, which is a direct tax on profits, should be taken into account. Any well-run business—and I am sure that any business with which the hon. Gentleman is associated is well-run—will take into consideration primarily the competitive situation.
      Sir D. Glover: Of course, a competitive element is involved. If my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) and myself are in competing enterprises, we both have to take these matters into account in calculating our costs. Our competition starts when we have taken those matters into account.
      Mr. Cronin: The hon. Gentleman is making an assertion, but is not introducing any new argument. Surely in any well-run business prices are based on getting the maximum profit consistent with the competitive situation. There can

      1299
      surely be no other way of running a business.
      I notice that the hon. Member for Worcestershire, South did not rise to the fly cast to him by my right hon. Friend the Chief Secretary. He was wise not to do so.
      Sir G. Nabarro: The hon. Gentleman must observe the niceties of customary parliamentary procedure. In this Committee we never talk about any individual's tax liability and we never talk about the private financial affairs of individual companies or their liability to taxation. That is a well accepted rule in all quarters of the Committee.
      Mr. Cronin: I am interested to hear what is almost an admonition from the hon. Gentleman. But I seem to recall some years ago, when I took part more regularly in the Committee stages of Finance Bills—
      Sir G. Nabarro: We miss you very much.
      Mr. Cronin: —the hon. Gentleman himself talking in an extroverted way about his own tax affairs.
      Sir G. Nabarro: I am sorry to intervene again, but the hon. Gentleman is confusing the issue. I did what I did in 1961 to demonstrate that the tax inspector had allowed me to charge the cost of painting white lines on my tennis court at home against the maintenance of the court for the purpose of calculating my liability to Schedule A. I was poking ridicule at the law. And, what is more, I won.
      Mr. Cronin: I wish to treat the hon. Gentleman with the utmost courtesy, but if I pursue the question of his tennis court much further I am sure I shall be called to order.
      I shall turn to some other arguments. It has been suggested that corporation tax is a heavy burden on the companies concerned. It is noteworthy that the Amendment of the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) reverses the increase in corporation tax which took place last year. The Chief Secretary last year said that the increase in taxation from 42·5 to 45 per cent. would bring in an increased return of £120 million. There was in that year a
      1300
      total increase in profits of £500 million. With that sort of increase in profits, companies surely can bear an additional burden of £120 million.
      I hope that my right hon. Friend will be able to give some figures to show the extent to which profits have increased during the last year. But unless there has been a large decrease in profits in the last year, which is quite impossible to contemplate, it can hardly be suggested that the burden is too severe for companies to bear.
      Mr. F. A. Burden: What worries me about the hon. Gentleman's argument is that he is confining his remarks to very big companies. He must remember that both last year and this year there have been more bankruptcies and insolvencies than have occurred for many years. This is an important factor, particularly in regard to small businesses.
      Mr. Cronin: That is an interesting point, but surely the hon. Gentleman is not suggesting that these bankruptcies and liquidations are brought about by the 2½ per cent. increase in corporation tax.
      Mr. Burden: It is the straw that breaks the camel's back.
      Mr. Cronin: In view of the figures I have advanced, one can hardly say that the 2½ per cent. increase in corporation tax constitutes a severe burden, or even a moderate burden, for the companies concerned.
      I could not follow the hon. Member for Wanstead and Woodford when he said that corporation tax drives a wedge between shareholders and companies. Surely there is already a gap between them. The amount of influence shareholders have in their companies' affairs is very small unless a catastrophe occurs to the company. I cannot believe he puts that point forward as an important argument.
      One interesting argument which the hon. Gentleman advanced was that corporation tax has an adverse effect on investment. If that was the case, it would be a serious reason for advocating its reduction. But does he seriously suggest that, when a board of directors considers investing in a new venture, it decides that it must not do it because the rate of corporation tax is so high?
      Mr. Patrick Jenkin: As the hon. Gentleman has asked me a question, perhaps I might answer it. No, of course it does not. However, I do not know whether the hon. Gentleman has ever studied a discounted cash flow appraisal of an investment project. There is always one column of it showing the amount of tax which will be paid on the profit, and that can then be discounted. If the required rate of return is not reached because the tax payment is too high, the company will not proceed with the investment project.
      Mr. Cronin: Obviously a board of directors will consider all relevant factors, but I suggest that this would be a minimal factor. I am a director of a successful electronics company. I cannot recall anyone saying at a board meeting that we should not invest in this or that direction or enter this or that market simply because corporation tax is too high. This is a patent absurdity. I cannot imagine that any board of directors—
      Mr. Patrick Jenkin: I answered the hon. Gentleman's question and said that no board of directors asks itself in that form and answers the question in that way. However, any company which is properly run is bound to take tax deductions into account when working out the net return on a proposed investment.
      Mr. Cronin: I do not think that there is any disagreement between us. Obviously, tax deductions are taken into account, but they are not a major factor in making an investment decision. I think that the proportion of investment decisions affected by corporation tax considerations is very small.
      Sir Eric Errington: The harm that corporation tax does is exemplified in close companies working with the shortfall. That is where the real effect of it is seen.
      Mr. Cronin: I accept that corporation tax has an adverse effect on close companies. However, that is an argument for reducing its incidence on close companies. It is no argument for a general reduction.
      The important point to bear in mind is that, if this corporate taxation were reduced, it would have to be made up by taxation from another source. If we accept that the country at the moment is having the right amount of taxation
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      in accordance with the general balance of trade situation, I suggest that hon. Gentlemen opposite should consider carefully what taxation they would apply to make up for the shortfall as a result of the reduction proposed in the Amendment. I suggest that the companies can best carry the burden of taxation and that there is no case for reducing that burden in a way which inevitably will increase the burden on other people who are less able to afford it.
      [SIR RONALD RUSSELL in the Chair]
      6.15 p.m.
      Mr. David Howell: I regret that the debate seems to have drifted away from the sharp focus on industrial investment provided by the hon. Member for Bodmin (Mr. Bessell) and my hon. Friend the Member for Hendon, South (Sir H. Lucas-Tooth). They concentrated on what is, after all, the key issue, industrial investment. I am sorry that there were not more hon. Members on the back benches opposite to hear their contributions. I do not know where all the Government supporters are. No doubt they are in other rooms planning new and ambitious ways of spending taxpayers' money. I am only sorry that their plans will be disappointed.
      Industrial investment has been the Achilles heel again and again in the country's economic programme and recovery. We have to face the fact. Now that we have a balance of payments surplus, we are in business if we can keep it right and get the rapid rate of increase in industrial investment—and in the output investment ratio—that is essential.
      It is not just a matter of a good balance of payments by itself. It is important to keep in mind that with it must go a sound underlying investment trend. If that trend is weak, static or negative, we are no more in business than we were back in the wasteland days of Government two or three years ago. We shall be back to square one. All the gloss and glitter and huffing and puffing about our wonderful economic recovery will turn to dust and ashes in our hands.
      That is the key issue. I would be the first to concede that not all the wisdom and answers to the problems of industrial expansion and a rapid rate of investment

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      of new plant and equipment are contained in this Amendment. The impact of the tax rate on the motivations of people who make investment decisions is not the whole story.
      I read a recent very interesting U.S. submission to the O.E.C.D. on industrial investment in the United States. It made the point that at least half the energies and motivation lying behind the rapid rate of investment in the United States and the high output investment ratio come from a general group of motivations which the Americans call the " management alertness ". It is the management alertness of the American manager which provides this markedly high output investment ratio and this continuing high rate of manufacturing investment.
      Behind this management alertness there lie a number of causes. Pride in the prestige of the firm and the profit potential: the availability of stock options that is very important to drive management forward to make good investment decisions. I feel that this latter point should be catered for in a Clause of the Finance Bill. It is one of the sad-nesses of this now ending period of Socialist rule that right hon. and hon. Gentlemen opposite decided to knock out stock options in the 1965 Finance Act. It was pointless and a major blow to our efforts to increase investment.
      The other point made in the United States submission was this. If we want a high rate of investment and high quality investment, it is essential for those who make the decisions to feel that, if they are pushed too hard by their companies, they can start their own businesses, accumulate capital rapidly and not be hampered in building up their businesses by legislation forbidding stock options or by excessively high company tax rates. That is an important part of the psychological pattern leading to a high rate of investment. All those points were made in that submission, and they are extremely relevant to our investment situation.
      The United States submission made another point which seems to be essential to industrial expansion in this country. It said that these are the motives which lead to a high rate of investment and a
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      high output investment ratio. But it talked also of the size of the area in which profit-motivated investment decisions can be made. By this, it meant that the larger the public sector or the public area of the economy or the area covered by investment decisions which are not made primarily on profit criteria and the smaller the area of the private enterprise sector, the weaker will be these motivations and the less successful, overall, the investment performance.
      This, of course, is another way of describing the size of the resources taken by the Government and put into the public sector as against that left in the private sector pocket, either for consumption or for saving or for investment. But it is saying more than that, as the American report emphasised. I was not here last night, but I read that the Chancellor said that we on this side should not worry too much about the public sector, because it was not large by comparison with other countries and there were certain community needs which had to go on being fulfilled, and that our line of argument was therefore wrong.
      It is the right hon. Gentleman who is wrong. It is not just the quantitative size of the public sector which is at issue but the quality of the decisions taken in the public sector. It is the type of decisions which. instead of being taken in the private sector, are taken in the public. It is on these issues that there is such a startling difference between this country and the United States or many other countries. It is these issues where we have the circular process which my hon. Friend mentioned, of taking money in taxation, churning it in the bureaucratic machine into services of various kinds or subsidy by all kinds of agencies and aids and handing it back to industry. It is as it passes through this process that all the half-baked decisions and impact of a departmental bureaucracy play upon it and all the weaknesses in the policy analysis and policy making machine in Government are allowed to influence it. That is where we get the dangerous influence on investment decisions and the dangerous restriction of investment which marks us out from other countries.
      The things which I have in mind are too much Government control of commercial research or of the information

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      handling processes or of advanced industrial design. I mean the Government tendency to use the majority of in-house consultants or to dominate the data handling world or to provide more and more industrial advisory services at below cost—which are financed out of taxation in the first place. These may not sound the fashionable areas of the 1950s or 1960s, but they are the high growth points of the 1970s. If the Government dominate these areas and believe that they must spend taxation on these things, and that decisions on these issues must be made in the public sector, they are making sure that investment decisions will be dominated in the 1970s by the ethos of the public sector and by the ethos of Government Departments, rather than of profit-driven decision-making.
      This applies, of course, to these new areas, which I believe are the important ones. But it applies just as much to the whole vast traditional area of capital use and capital evaluation and capital programmes in the public sector. The bigger this sector, the more it covers these vital areas of decision-making, the smaller the area left in which profit-driven decisions can be made.
      It is not just a question, as the Chancellor said, of measuring the size and the proportions of investment and the proportions of income generated in the private or public sector. Perhaps, on that alone, reasonable comparisons can be made—not with West Germany or Japan, but with France and Italy—perhaps. In quantitative terms, their public sectors may be about the same as ours.
      But it is when we come to the type of decisions being made and the type of areas being dominated and influenced that we see the difference.
      The more that our Government are in research and consultancy and data handling—the explosive growth areas of the 1970s—the more the decisions in these areas and the more investment decisions generally will be weak, inefficient and based on bad policy analysis.
      It is that great public " soft centre " of our economy—not its size but its nature—which makes us so desperately vulnerable and liable to have an overall bad investment decision performance. It is the philosophy of believing that one must
      1306
      take the money in taxation through high corporation tax, as suggested in the Clause, transfer it, process it in the great Departments of State into advisory services or into grants and subsidies and then hand it back. It is that belief which is eating at good industrial investment decision and rapid investment expansion.
      I turn now to the other way in which the present high level of corporation tax is sometimes justified by Government. They say—the hon. Member for Ashton-under-Lyne (Mr. Sheldon) has already said it today—that the money may be taken away in high taxation, but it is given hack in grants and subsidies, particularly in investment grants, in very large quantities. That of course is true, but it begs the main question—what is the method by which it is given back? Who gets the grants? Are they the right people? Are the decisions by the bureaucratic machine for reallocating grants here, there and everywhere, in the development areas or the non-development areas as good as the decisions which would have been made if the money had been left with the taxpayer—in this case, the companies?
      There is room for argument on either side on this. Even if the resources must be reallocated by the Ministries and the machines, there is room for argument about the method by which it is done. There certainly is, in the reasonable and open mind of the hon. Member for Ashton-under-Lyne. He admitted that the present method of distribution of investment grants and other development subsidies and aids leave a great deal to be desired. This is a point which my right hon. and hon. Friends on the Front Bench have put again and again—that the method is ineffective and does not produce the results at the right cost which the taxpayer would have the right to demand. When it comes to producing new jobs and accelerating development in development areas, we propose better, more sophisticated and more effective methods of doing so.
      Every time we bring that forward, many people in industry listen to us. The Prime Minister will not listen to us, because any suggestion that the method is wrong is immediately distorted by him into a proposition that we are attacking the whole idea. But this sort of thing gets less and less surprising from the right

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      hon. Gentleman when one sees his latest dubious taste in advertising technique. This is something which we have learned to live with, I hope not for very much longer.
      But the method is wrong. The hon. Member for Ashton-under-Lyne said it, and the right hon. Member for Middlesbrough, West (Dr. Bray), a former member of the Government, has commented even more graphically on the large-scale waste arising from the various methods of re-channelling and re-diverting money taken from industry and the taxpayer back into industry, and on the lack of effect it has in achieving what is supposed to be the policy goal—which is more jobs.
      It is, I suppose, regrettable that, after 15 months of waiting, we still do not have the real study which the Government have promised us again and again on the effect of these grants, subsidies and investment incentives. It is more than regrettable: it is a shocking thing. If the Government are going to do a study on a large chunk of public funds of this size, amounting to £600 million per annum, it is little short of incredible that the Ministry of Technology cannot organise itself to produce this study in less than two years, as it will be in the end. The study will not be available, as the Minister told us the last time we questioned him, until the end of the year.
      I am told that the Ministry of Technology is a shambolic place to work and that decisions are taken in odd ways there. But even so it is incredible that they should take so long to come forward with a reasonably analytical study of how these vast sums are taken from industry and handed back in various ways.
      Perhaps I should not go too far here, because, in the end, I have doubts about relying on analysis for the answers to these questions. Yesterday, the hon. Member for Ashton-under-Lyne, in an excellent speech—much better than his speech today— called for analysis of the effect of income tax on incentives.
      6.30 p.m.
      He was saying that this would produce answers. In the same way, I suppose, several of us have been guilty of calling for an analysis of the effect on investment incentives and investment decisions.
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      I think that we can rely too much on this sort of behaviouralist analysis. In the end these matters are highly debatable, highly subjective, and they depend on the prejudice and instincts of the politician putting forward the argument. It would be scarcely credible if this study of income tax incentives or investment incentives under a Government from the benches opposite came out with arguments against their own prejudices, or with arguments which were watertight against their prejudices. Similarly, if the analysis were done under a Conservative Government we would take the points which reinforced our prejudices, and reject those which did not. In the end someone must have a good honest prejudice and force it into policy-making machines. That is what needs to be done about investment incentives.
      That is what we must do. I believe that,inter alia, the right hon. Member for Middlesbrough, West is right; that the present system is wasteful and incompetent and takes too much in tax and gives back too much in inefficient waste; that the whole system could, first, be more selective—that is our case against the present system of grants—and, second, be conducted at a lower level in the sense that less should be taken in taxation, and less handed back. There could be lower taxes and a more selective distribution of subsidies and grants. That would be a major contribution to better industrial investment decision-making, and that would be totally in line with the Amendment.
      The third and final means by which the Government can influence the rate of industrial investment is company liquidity. We know that the Government's monetary policy and their decision this year to have another whopping great surplus on central Government account is part of their tight money strategy. Obviously it is having, and will throughout the year continue to have, a telling effect on company liquidity. Many company reports and comments of company chairmen are showing it.
      The Government have decided to run yet again this year this huge Budget surplus. It is necessary for the Government to operate this forced saving on this large scale because, if they release this money into the economy, it will not go into investment, but will be gobbled

      1309
      up in higher wage increases as more and more wage earners struggle to maintain their living standards as prices bubble up beneath them and they try to maintain their position. This is the psychological climate which has been created by the Government's mistakes, and it means that the Chief Secretary and the Chancellor live daily, and I trust not too uncomfortably, on the horns of a dilemma which restrain them from reducing this large Budget surplus.
      The philosophy of the Labour Government, which we have known over the years, is that forced savings are necessary. The theory is that individual saving will not come about, or is undesirable anyway. But forced saving must be established and a high Budget surplus—the new thing for the Labour Party—must be obtained year after year so that any additional spending can be undertaken by the Government rather than be left to private enterprise and industry.
      A high Budget surplus also enables the Chief Secretary to come to the House —for two years running now—and say with a smile, or perhaps with a serious look, " Public expenditure is under control. Look at this wonderful surplus. Everything is all right ". The right hon. Gentleman is using words and language in a completely different sense from the sense in which I use them. I do not regard public expenditure as in any sense under control. I shall never regard it as under control until there is proper and systematic scrutiny of a whole range of public programmes, certainly in the Treasury, and ideally by the House, a systematic running critique as Peter Jay called it in The Times. When we have such a system, and the House has placed on record its wish to have it, we shall have public expenditure under control.
      It has nothing to do with a Budget surplus, or with the success of the Chief Secretary or the Chancellor in raising so much in taxes and maintaining tax rates so high that they can cover even their enormous public expenditure programmes and still have something left over. Whether one goes with the strategy or not, the price that is paid is low investment, as it must be. A tight money policy restrains company liquidity, prevents savings, and ensures that we have low investment.
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      The trick or challenge for the Government now, perhaps in the last few weeks of their existence, I do not know, is to see whether they can break out of this familiar pattern. There is a balance of payments surplus, but always with low investment, always with a feeble and dwindling trickle of new investment. If they can change that pattern, and have a rapid growth of investment, they will earn my respect and good wishes, but if it is just the old story we do not want to hear it.
      We on this side of the Committee coined the phrase, or brought it into public debate, that in Britain we needed a high investment, high wage, high research economy. That is what we argued for way back from 1964–65. I admit I sometimes feel that we have not kept that goal of policy as sharply in focus as we might. But the Amendment is in line with that goal, whereas the resistance to it and the determination to keep the levels of company taxation as they are are dead against it.
      Mr. George Brown: I shall be brief. I have thoroughly enjoyed listening to this discussion, and I find myself exceedingly puzzled. The high wage, high research, high investment goal about which the hon. Member for Guildford (Mr. David Howell) spoke most certainly did not exist when we came to power in 1964. None of the three things existed then.
      As I understand the argument, although it has wandered a bit, as the hon. Gentleman rightly said, it is that if corporation tax were fixed at some lower level than 45 per cent.—42½ per cent., 40 per cent., 37½ per cent.—we would achieve this high investment, high wage, high research goal. There is no evidence at all for that. In fact, during the years when this Government have been in power all three things have been happening.
      Mr. Hordern Mr. Hordern rose—
      Mr. Brown: No. I have only just got to my feet. Nobody will argue that we have not got a higher wage economy. I can understand hon. Gentlemen opposite always complaining about this. Nobody will argue that we have not got a higher research programme. Part of my life nowadays is spent looking at what is done

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      in research. We have a much higher research programme going on private enterprise-wise, private enterprise-cum-public enterprise-wise, and public enterprise-wise only, than we had in 1964. With respect to hon. Gentlemen opposite, we also have a much higher investment programme now.
      As I listen to this discussion I think back to the situation in October, November and December 1964, to my discussions with industrialists—admittedly most of them Tory, but some of them Liberal—and asking them what I should do. I think back to how we got the National Research and Development Council, the N.E.D.C., and the " Little Neddies " going, and how we got them started on a programme of increased investment.
      I think that some hon. Members in this House must be so completely out of touch with what has happened as to be almost totally blind. We have a much larger investment programme going on now. I am thinking at this moment of the large companies. I will come to the smaller companies later.
      Mr. Hordem: Concerning investment, the right hon. Gentleman must realise that what he says is absolute nonsense. Not only have we the lowest proportion of the gross national product devoted to manufacturing industry of any of the E.E.C. countries, but the rate of growth of investment is·2 per cent. under this Government whereas it was plus 2 per cent. every year under the Tory Government.
      Mr. Brown: One problem has been to persuade capitalists to understand the importance of investing. It has been an uphill job. The odd thing is that the hon. Gentleman can sit on the Front Bench as a proponent of private enterprise —of capitalism—and actually take it as a point in his favour that the Conservatives failed to do what they should have done as a matter of course.
      When we came in we had to find some way to stimulate—[Interruption.]—I wish that hon. Gentlemen opposite would listen. We had to find some way of stimulating private enterprise—" capitalism ", if hon. Gentlemen like the word—to realise that industrial investment was the most important thing. The hon. Member
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      for Gillingham (Mr. Burden) grins and thinks that he is scoring a tremendous point.
      Mr. Burden Mr. Burden rose—
      Mr. Brown: With respect, let me develop my argument.
      Mr. Burden: I ask the right hon. Gentleman not to get personal.
      Mr. Brown: With respect, let me develop my argument.
      If it is still so bad, all right, somebody is being so bad. But the large companies are being very good. The large industrial complexes in this country are investing. I could mention one which last year put £70 million into new investment. Our problem is that so much of our industry is small scale. So much of it is taking out instead of putting in and is not high wage, high research and high investment conscious at all.
      I am not making a case for more public enterprise. I could not be more bored by any argument than talk about whether it is more public or more private. In the end the balance works out. In the end we go public where public investment is needed. We have partnerships. I have been a great advocate of partnerships in my day. This is an outworn argument whether it is public or private. It is a question of the scale, the size, and what matches what requirements.
      No matter what we do about taxation —the large public companies apart, the public sector apart—too few of our businesses attend to the job of investing and replacing outworn machines.
      Mr. Burden: Why?
      6.45 p.m.
      Mr. Brown: Because I do not think that they are up to the job. If two, three or four big private enterprise companies had not come to the rescue, let us face it, Lancashire would be dead. The whole of the textile industry of this country would be dead. The tax system being what it is, being what hon. Gentlemen opposite attack, it is still true that a handful of companies rescued Lancashire by replacing the machines and putting in new capital investment. The hon. Member for Colne Valley (Mr. Richard Wainwright) knows as well as

      1313
      anybody that mills and machinery that had been written off years ago have now been replaced with new investment worth 100 times as much. This is what has rescued Lancashire. This has been done with increasing success between 1964 and 1970, despite the taxes which hon. Gentlemen opposite attack. My point is that it has been done in that climate.
      Mr. Burden rose—
      Mr. Brown: I will go on. Somebody said that taking the money away and handing it back bureaucratically was very bad. Oddly enough, it has turned out to be very good. I am not a great admirer of bureaucrats. I have had my fights with them. But if we want to get it down selectively, it has turned out to be the best means we know of doing it.
      Mr. Patrick Jenkin rose—
      Mr. Brown: I must go on. I have listened patiently and not interfered. There is something here which needs to be said. The hon. Gentleman has not been here for a large part of the discussion.
      I am not, like the hon. Member for Bodmin (Mr. Bessel), announcing my valedictory speech and proposing to leave the place, but as I look back on five most fascinating and interesting years, because I have been able to play a small rôle, I realise that what changed the situation in the regions of this country was when we deliberately took a hand and said, " We will not have this old business of tax reliefs ". The argument was that if somebody made a profit he got a tax relief and somehow, by the grace of God and all the rest, it would get to the right place. We said: " No, we will not do that. We will raise the money from everybody and then we will try, God helping us, to make the best decision that we can as to where it should go ". This is what has changed the situation in the regions.
      Hon. Members have referred to the polls and introduced into their speeches references to the coming General Election. If hon. Gentlemen opposite do not realise what has hit them, they had better start thinking about it now.
      I have shown that the situation has changed in the regions—not as much as I would have liked and not as firmly
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      as it might have changed—and boards of directors and great corporations are nowadays making their investments based on a number of issues, one of them being where they will get the largest grants for developing their businesses. Do people go to Skelmersdale or Ulster because they like those areas? Do firms establish branches in the North-West and elsewhere because they like those places, or because 40 per cent. grants are available? When hon. Gentlemen opposite talk about the bureaucrats interfering, that is the sort of interference they must bear in mind.
      We raise money overall so that we can redistribute it in certain areas and in certain other ways. Perhaps it is about time that we adopted a more sophisticated approach. It is time that we had a little more money for Swadlincote. These all involve bureaucratic decisions, and it is these decisions against which hon. Gentlemen opposite are arguing.
      Since 1964 things have changed. These changes have improved investment decisions and people now sneak freely about discounted cash flows. I recall the first meeting of the N.E.D.C. that I chaired, at which Fred Catherwood, the director, discussed the question of discounted cash flows, and the C.B.I. faces there looked extraordinarily confused. It was almost the beginning of the use of the term for most of them. Now it is understood.
      The hon. Member for Bodmin referred to a problem which I wish to discuss, though from a somewhat different angle. It is the problem caused by a large number of small businesses being inadequately staffed and being unable to understand, take into account and assess all the changes of which I have spoken. If I were still in the Government I would be asking myself if the time had not come for us to establish some sort of organisation, or perhaps a number of bodies, to develop the present climate of thought of the great corporations, now that we have regional industrial planning really under way.
      We now need to discover how we can produce some organisations which will bring small and medium-sized firms into this area of thinking. The C.B.I. does a first-class job in its own way, but it is too big for what I have in mind. We need

      1315
      a federation or association to which the smaller firms can belong.
      The hon. Member for Hendon, North (Sir Ian Orr-Ewing) spoke about small firms doing the inventing. I agree that many bright ideas begin in small firms, but the problem in Britain is that while we are marvellous at having bright ideas and doing research, we are not awfully damn good at developing them, and we certainly lose out on commercial exploitation.
      I do not want to get rid of small family firms, force amalgamations or even force partnerships between the private and public sectors, though there is a lot to be said for that. We must find a way to enable small, medium-sized and family firms with ideas to develop and exploit those ideas.
      If this is to be done, access to funds and brains is necessary. I do not see how that will be achieved except by the actions of those whom hon. Gentlemen opposite scornfully describe as bureaucrats. It will come from something that we will have to produce nationally. And to do that we will need finance. In other words, we must take the finance from where we can get it and use it for the best possible purposes.
      Sir Ian Orr-Ewing: The right hon. Gentleman is absolutely right in his broad argument. Is he aware that there is a way of doing what he wants to do and that it has been done by a small business centre alongside Aston University in Birmingham, where it has been possible to bring together and test products and have expertise in finance so that managements may be advised on how best to get their invents more broadly based and so how to get them off the ground?
      Mr. Brown: As a member of the Convocation of Aston University—it happens to be my university—I accept what the hon. Gentleman says, and I have had the honour to play a small part in that process. We are proud of what is being done there, but I do not believe that any of us at Aston would claim for what is being done as much as the hon. Gentleman is claiming for it.
      Having listened to most of this discussion, I suggest that hon. Gentlemen
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      opposite are wrong and that the level of corporation tax is not a deterrent factor. The money that the nation gets from it is used for purposes which would otherwise not get financed, and I reinforce what my hon. Friend the Member for Loughborough (Mr. Cronin) has said on this issue.
      Hon. Gentlemen opposite keep on pressing us to reduce this and that while keeping up expenditure on this and that. If we do not raise money we cannot use it for any purpose, so that their equation does not add up. I do not believe that the level of corporation tax has hurt anybody very much—[Interruption.] Somebody is bound to be hurt a little, obviously—but the money that is raised is being redistributed in a useful way, including for the improvement of every under-used region of the nation.
      When I think of the position in the regions when we came to power in 1964 and compare that with the position today, it is obvious that they are benefiting from the selective use we are making of the moneys that we raise.
      7.0 p.m.
      Mr. Michael Shaw: This has been a fascinating debate. I am sorry that more hon. Members were not here to hear the opening speech of my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) and other very thoughtful speeches. Those who have been here, as we heard from the right hon. Member for Belper (Mr. George Brown), came to hear and stayed to speak. This testifies to the interest in the general debate.
      The right hon. Gentleman rather put me off early in his speech by claiming that an increase in investment had taken place, for which he took some credit under this Government. When my hon. Friend the Member for Horsham (Mr. Hordern) repudiated this claim and showed that the contrary was the case, instead of taking the opprobrium the right hon. Gentleman blamed the businesses themselves for not having continued to expand their investment programme under a Socialist Government. I parted company with the right hon. Gentleman there. I also parted company with him when he claimed great credit for investment grants as against investment allowances. Every evidence seems

      1317
      to show that even the Government themselves are having considerable doubt as to the wisdom of the change they made.
      Such is the length of time that these changes in regional policy take that I believe it is only now that we are beginning—and only just beginning—to get the full effects of what my right hon. and learned Friend the Member for St. Marylebone (Mr. Hogg) did for the North-East in 1963–64. Both parties are as keen as each other to see that the regions return to prosperity. I very much regret what is happening in certain parts of the development areas. Socialists are trying to infer that we will get rid of development areas when we get back to power. My right hon. Friend the Member for Leeds, North East (Sir K. Joseph) has said on many occasions that that is not the ease. We shall not alter the boundaries until the conditions are right for such an alteration and prosperity has returned to those areas.
      Much has been said this afternoon on the subject of investment. I believe it right that that should have been the main target of the debate, but as it has been so well covered I wish to look at a different aspect of the corporation tax burden, or, to take it more widely, the burden of taxation on companies. It was well set out by my hon. Friend the Member for Wanstead and Woodford in his opening speech, and I believe it is felt very keenly by companies throughout the land. The hon. Member for Ashton-under-Lyne (Mr. Sheldon) did not go along with him when my hon. Friend claimed that in looking at company taxation one should include the withholding tax of Schedule F. He said that Schedule F could be regarded as a tax only if the profits were used in a certain way. Inherent in this is a difference in philosophy. The divorce of companies from their shareholders which has taken place since this Government came to power is for the bad.
      Shareholders are treated very differently from the way in which taxation-wise they were treated before. They find that when considered as a separate entity from the company from the taxation point of view they are treated much worse than debenture holders or other such debtors. The introduction of corporation tax and withholding tax took place in 1965, when. I fully accept, I was temporarily absent
      1318
      from the House. When the first Conservative Budget is introduced and the great change comes about, I am confident that I shall not be absent. When the full complexity and full import of what was done in 1965 first came through to the public and to industry and commerce, there was a general feeling of horror and bewilderment. The history of the taxes, although we have learned more or less to live with them, in general has proved that first reaction to be right.
      My big theme in this debate is that the introduction of these taxes has led to a great change in the relationship of directors, shareholders and debenture holders. This aspect has not been touched on this afternoon. That is why I am developing it to the exclusion of others. Dividends are now much more expensive in relation to salaries than they were under the old system. Dividends are now much more expensive in relation to interest payable than they were under the old system. The enlargement of these differences is harmful to our commercial and industrial life. The larger these differences become the more restricted become the methods of financing businesses. The means of financing businesses should be chosen as far as possible on commercial and financial requirements of the situation rather than on the taxation implications of those means.
      I know of private companies where directors were wont before the war to pay themselves modest salaries and for the rest, because they along with other shareholders had a stake in the company, to rely on their dividends to make up their income. Because of the incidence of taxation and the differences built up between earned income and savings income, investment income, they were forced more and more—so were their companies—to pay more of their income by way of salary and to look with not much favour on increases in dividends. This meant that over the years the interests of the directors and the shareholders became more divergent. Today in such a company—this happens many times in varying degrees throughout the country—directors maximise their salaries and are not very interested in maximising the dividends because of the great cost of doing so. Today equity capital is very expensive to service.
      In 1964, under the old system of company taxation, to pay a gross dividend of

      1319
      £100 to shareholders, a company had to earn £133. Today to pay a gross dividend of £100, a company has to earn £182. To pay the same dividend they have to increase profits by 37 per cent. No wonder companies are short of money in these difficult times for profit-making. It may be argued that companies should not pay out all their profits by way of dividends. Let us look at the situation. Take the case of a company that regards it as a reasonable cover when its dividend is covered one and a half times by its net profit. In 1964 to pay a gross dividend of £100 the company would have to earn £199. In 1970, with the same retention—not the same proportion but the same retention as in 1964—for a gross dividend of £100 the company would have to earn £253. It would have to increase its profit by 27 per cent. to pay the same dividend.
      This shows the true cost to companies in holding their position compared with previous years. It shows how difficult it must be if they have, merely to maintain their dividend, to increase their profits, in the case I have quoted, by 20 per cent. If they want, as they should, to plough back money for additional investment, the situation becomes very difficult. Costs are rising all the time. Not only are costs of servicing capital, in the sense of servicing the dividend to shareholders, rising, but also with the credit squeeze and high interest rates the cost of servicing borrowed money has risen.
      Would a reduction in corporation tax as envisaged in the Amendment increase consumer spending? The hon. Member for Loughborough (Mr. Cronin) implied that it would; he suggested that the whole climate is that we do not want to increase consumer spending. The answer to the hon. Gentleman is that a reduction in corporation tax would not increase consumer spending. If there were a reduction in corporation tax, the consequent saving would go in easing the credit position at the bank and in increased investment. I do not believe that it would have an undesirable effect on the economic situation if such an easement were made. The Amendment should be supported on every possible ground as a first stage in further reductions.
      Mr. Burden: I am sorry that the right hon. Member for Belper (Mr. George
      1320
      Brown) has departed. He assumed when I was smiling that I was making fun of him. In fact, I was smiling because he was referrring to a company with which we are both rather closely associated.
      The right hon. Gentleman, in company with other speakers, made some interesting points. However we may argue, the higher the taxation on companies the less possible is it for them to put aside money for investment. Whatever may be argued, it is right that people who invest in companies should have a reasonable return on their money in terms of dividends. Some companies do not in the early years pay out good dividends. It is obvious that in the present situation companies which are paying low dividends, but whose prospects are excellent, may find it very difficult to obtain money on the open market to enable them to expand.
      The Government, if they came clean on this question, would admit that there comes a point at which company taxation at a very high level limits and restricts company expansion, to the detriment of the economy generally.
      The right hon. Member for Belper dealt with the importance of small companies. He glossed over this point in an unfortunate way by saying that Britain has a peculiar inventive genius; we have ideas; we produce new things, but for some reason we do not exploit and develop them as well as we should.
      7.15 p.m.
      Many of the new inventions which originate in Britain are made in small, privately owned companies. It may be that those who make them do not develop them themselves because they do not have the necessary knowhow, equipment and cash. But Britain gets a big reward from the patent rights and overseas development. When people with inventive ability who are capable of introducing new elements into industry are absorbed into a giant company, they may lose their impetus, because in many instances they are denied opportunity to give expression to it.
      Far from discouraging small firms where these inventions might develop, we should do much more to encourage them. I believe that larger companies and corporations will be able to help small companies that might make these developments.

      1321
      The right hon. Member for Belper spoke about what has happened in Lancashire. It is fair to point out that much rationalisation in the Lancashire cotton industry was undertaken by the last Conservative Government. This cleared the way for much of the new investment that has taken place, particularly in the company with which the right hon. Gentleman and I are associated and which has led the way in investment in recent years. But this is only one company.
      My hon. Friend the Member for Wan-stead and Woodford (Mr. Patrick Jenkin) pointed out that, whereas investment during the five years of Labour government has been at the annual rate of ·2 per cent., it was at 2 per cent. during the 13 years of Conservative rule. Nothing that the right hon. Gentleman said led me to believe that the companies to which he referred would not have made just as much investment in the last five years if there had been a Tory Government. As the total figure during the last three years has been at an average of ·2 per cent., the implication is that under a Conservative Government it would have been much more generally across the board and certainly would not have dropped below 2 per cent.
      Much has been made about the way in which corporation tax has enabled the Government to redistribute quite a lot of the money they have raised in this and other taxes in development areas, to encourage new industries in Scotland and in other places. A few days ago my right hon. Friend the Leader of the Opposition pointed out—he was not challenged—that every new job that has been provided in Scotland since the Labour Government came in has cost no less than £72,000. There is something wrong here. The whole question should be re-examined. I am sure that the Chief Secretary, with his inquisitive accountancy mind, will be looking into this matter in the near future. No doubt the right hon. Gentleman will be able to give us an answer at some time, in the future, if the present Government are still in office.
      The whole situation is serious when compared with the situation in countries overseas. We must have investment in the highest technological know-how and in the most modern and up to date machinery if we are to improve our
      1322
      economic position. I was greatly interested in figures recently produced by the E.F.T.A. countries. The figures are illuminating, but at the same time disquieting.
      Those figures show that from 1959 to 1968 the growth rate in the E.F.T.A. countries was 4·7 per cent In this country it has averaged only 3·2 per cent. Industry in those countries has expanded much more rapidly than ours. The gross national product in the E.F.T.A. countries is £880 and in this country it is £100 less. In addition, from 1959 to 1968 the exports of those countries work out at about 9·8 per cent. and imports 9 per cent., whereas the growth in imports and exports in this country has been at a rate of about 6 per cent.
      These disquieting figures show that we are beginning to fall behind in the race for overseas markets and in the expansion of our industries in markets overseas. This applies particularly to the E.F.T.A. continental countries with which we have had the closest possible association and for which area we have been the principal manufacturing country.
      May we be told how our investment compares with the continental E.F.T.A. countries and whether they suffer the same savage rate of company taxation as we do? Whatever the Government spokesman may say, the only way in which the standard of living of our people can be assured at its present level, and indeed to rise above it, is if we are able to compete in the world markets with our exports. Unless we invest in industry, in new machinery and in new techniques, in which we are sadly lacking under the present Government, there is no real economic future for this country or possibility of any great advancement in our living standards.
      Mr. Tom King: I wish to make only a brief intervention. I believe that I can claim to be the latest recruit to this House from full-time work in industry and the latest person to have had more than a part-time interest in the problems which lie at the heart of the issue which this Amendment attempts to tackle.
      I strongly agree with the words written in a recent article by my right hon. Friend

      1323
      the Member for Leeds, North-East (Sir K. Joseph) when he stressed the importance of the Government providing the right climate in which industry can be encouraged to do its job. All Governments—this applies to both parties—tend to make excessive claims for the contribution Governments make to the progress of industry. One of the most offensive claims made in recent years is the Prime Minister's claim about the restructuring of British industry. He made one speech to the T.U.C. in which he laid great stress on the efforts this Government had made to get industry going. From my own observations I know that industry started to wake up in the period 1958–60 when the first impact of the new management techniques started to operate. The development of our industry and expansion of our exports has been a progressive and gradual trend since then.
      So in the development area the growth pattern is continually being refined. We on this side are suggesting further refinements. It is a developing policy and it would be outrageous if this Government were to claim all the credit for recent improvements in the development areas.
      In an article celebrating its fifth birthday, The Times Business News said that the conclusion it would draw from its first five years was that things had generally happened more slowly in the first five years than it had predicted; that the bad news had happened more slowly and the good news had been slower in coming. Surely this is the lesson of the past five years, that the Government have expected things to happen more quickly than in fact has been the case. There is a considerable lag built into the system. This happened after devaluation. When at first the results did not come, there were fears that the benefits had been dissipated. When were the results supposed to show? Anybody with experience of booking export orders knew that we were on a three or four years' haul before the real benefits would come.
      Mr. Burden: Would my hon. Friend not agree that the great improvement in the balance of payments last year was due in great measure to the capital goods ordered then being read for delivery and that last year was probably the important
      1324
      year in regard to benefits flowing from devaluation?
      Mr. King: If I carry on my thesis not only would I agree with my hon. Friend but I feel that this process will go on for longer than is expected. These benefits tend to happen slowly. We are getting better at predicting effects, but we must not forget that results come rather more slowly in market terms.
      We recognise in the Amendment the need for more incentive, whether personal incentives to leaders of industry or incentives to shareholders, in order to recognise the need for capital investment. We do not predict that doom is just around the corner if the Government fail to take up our suggestions. We are setting the scene for something for which we shall have to pay the penalty in five or ten years' time. This is a plan for the future, not a matter of imminent change or collapse. It involves prudent steps which might be taken now to establish the right climate in which to give real investment incentive and to enable us to build on a sound foundation on which our balance of payments, not next year but in ten years' time, and in 20 years' time will be built.
      [Mr. GOURLAY in the Chair]
      Mr. Diamond: I appreciated that short but relevant intervention from the hon. Member for Bridgwater (Mr. Tom King), who comes freshly to our scene and who rightly claims that he can make a rather special contribution. I share with him the view that there is a lag in new economic development which neither we nor the United States have understood. I also share with him the view that this is a new phenomenon to which we must pay careful attention.
      I share the view that the important thing is to develop a basic system and a climate in which everyone will feel that it is possible to move ahead and invest. We have had a very long debate and I would say on behalf of the Government that no minute spent discussing investment, is a minute wasted. We all know that it is a most important part, if not the most important part, of possible growth in our economy and growth in the standard of living of us all. None of us knows the whole answer to this. A number of people are trying hard to

      1325
      understand the myriads of motivations which go into it. Discussions on these matters are most welcome and I have listened carefully to all that has been said.
      We are of course concerned with corporation tax. The Amendment proposes a reduction of corporation tax of £120 million in a full year, as the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) correctly estimated, and about £60 million in the current year. To put that into context the total amount estimated to be raised at the 45 per cent. rate for the financial year 1969 is £1,900 million. The more relevant figure is the total of dividends for 1969, because corporation tax can fall on retained profits and on dividends or partly on one and partly on another. Total profits distributed by way of dividend in 1969 was £1,800 million. If the whole of the £60 million for the current year came off that one source, and I do not for one second say that it would, it would reduce it from £1,800 million, supposing it were to be the same figure, to £1,740 million or, in a full year, from £1,800 million to £1,700 million.
      This is a very small proportion of the total distributed during the year. To say that liquidity is determined by the increase in the rate of corporation tax is an argument I do not find wholly persuasive. The hon. Gentleman raised the problem of the decrease in company liquidity over the last year. This is true, but it was preceded by two years of net increase in company liquidity. The figures show an increase in 1967 of £305 million and in 1968 of £106 million making a total of £411 million and a decrease last year of £357 million. There is a net increase in financial assets over the last three years of £54 million. I did not quote these figures to demonstrate that £54 million was not so very different from £60 million, but it so happens that it is not.
      The lack of liquidity has not been demonstrated. On the contrary company liquidity has improved over the last three years and in relation to an alternate source from which additional corporation tax of 2½ per cent. could be found, we have a fund of £1,800 million with which to provide either for £60 million this year or £120 million in a full year. I do not believe that there is any argu-
      1326
      ment on the basis of liquidity which determines whether companies, by virtue of the increase in the rate of corporation tax last year and which the Opposition are seeking to reduce, are prevented from making investments and from increasing their rate of investment.
      It is also claimed that the rate of corporation tax is heavier here than in other countries—
      Mr. Patrick Jenkin: We must get this right. No one has ever advanced that and manifestly it would be rubbish. The rate of taxation of corporate profits is heavier here than elsewhere.
      Mr. Diamond: The hon. Gentleman says that the point I first made has not been advanced and clearly it would be rubbish. That is a relevant, clear and entirely acceptable comment. I will gladly read out the rates of corporation tax applying to a number of countries. The hon. Gentleman is saying that what he has in mind when he refers to corporate profits and the tax which they have to bear is both the tax which the company has to bear and the tax which the shareholder has to bear on his income. We are right back at our original argument and have made no advance. I am sorry because I have made the position clear over the years and the hon. Gentleman usually takes a good point very fast.
      We are back at the old argument that a company need only pay 45 per cent. or whatever the rate is, on its profits tax and nothing else if it does not distribute dividends. The fact that it distributes dividends means that it puts income into the hands of an individual and our tax system is such that we tax individuals on their income. The company, under the tax on the distributed profits is acting with a song in its heart as an unpaid agent of the Inland Revenue, collecting taxes from the shareholder and handing it over to the collector of taxes. I cannot accept that we should talk about corporation profits taxation as meaning the tax borne both by the company and individuals deriving income from the company.
      The hon. Member for Guildford (Mr. David Howell) in a most interesting speech talked about the United States position with approval. I am not sure whether he had in mind the United States rate, but he was talking with approval of

      1327
      the attitude to investment in the United States where the standard rate of corporation tax is 48 per cent. There have been surcharges in each of the last two years so that for 1969 the rate was 52·8 per cent. and for 1970 54·4 per cent. The basic rate, I admit, is 48 per cent.
      I am not, therefore, persuaded that the inadequate increase in investment in the private sector—an inadequate rate of replacement—which we all recognise, is due to a small increase in the rate of corporation tax or even to the absolute rate. That cannot be demonstrated. What, then, is it due to? All of us wish that we knew the whole story. The right hon. Member for Enfield, West (Mr. kin Macleod) has come in. I was bold enough to say before he came in, on behalf of the whole House, that not one of us knew the whole story and wished that we did.
      The Government have tackled this situation in a number of ways. We have gone on to investment grants. The hon. Member for Wanstead and Woodford has made it clear that when companies—he had in mind sizeable and knowledgeable companies and we all know that if we could bring up the level of the less efficient to that of the more efficient in this matter we would not have problems with the economy—consider investment proposals one of the criteria they use is discounted cash flow. He said in that connection that one takes account of how much cash one is going to receive, not surprisingly, and that one's cash is affected by the amount of tax one pays. That is true. But one also takes into account the investment grant.
      Not only does one take into account investment grant. One takes into account the variations of investment grant in different areas. One puts all this on paper before one. Part of the whole process of changing from investment allowances to investment grants was to make the position clearer. My right hon. Friend the Member for Belper (Mr. George Brown), who made an interesting and valuable speech, is very well informed on this topic. The hon. Member for Bridgwater knows that this is going on and told us so. He is our most recent recruit. Perhaps he left it a bit late but there we are. He just managed to get in and give us the benefit of his recent.
      1328
      fresh and informed knowledge of this topic.
      This is one of the ways in which one brings the matter home. If we are to believe the hon. Member for Bridgwater, it was necessary to do so because this new kind of thinking and calculation did not go on in earlier days. He suggested 1958 or 1960, I believe. At any rate, it is a comparatively recent development, as all of us recognise. Therefore, the Government have not done a bad job in drawing the matter to people's attention in business and pursuing it in terms of regional development.
      Mr. Terence L. Higgins: The Chief Secretary's argument really only applies in the case of people who do not know how to take into account discounted cash flow. If they do not know how, they pay more attention to allowances than to grants.
      Mr. Diamond: It is not my habit to be unduly discourteous and point the finger at anyone. That is a nice way of saying that I agree with the hon. Member for Worthing (Mr. Higgins) but need not necessarily particularise. If people are not going to need encouragement to do it, all well and good, but we reached the conclusion that there was need for encouragement to firms to be a little more up to date in their assessment and measurement of the benefits of investment and the most recent recruit opposite, the hon. Member for Bridgwater, has just confirmed this.
      Mr. Higgins: The right hon. Gentle. man has not taken the point. If a firm thinks in terms of discounted cash flow, it will truly evaluate the value of allowances. It is only if one believes that firms are incapable of doing this that one thinks that they pay more attention to grants than to allowances.
      7.45 p.m.
      Mr. Diamond: I am coming to allowances now. No doubt the hon. Gentleman has in mind policy discussions which have been going on in the Opposition with regard to investment allowances, and I have in mind what the right hon. Member for Enfield, West, said about it in a recent discussion. He gave us to understand that the Conservative Party was giving serious thought to switching

      1329
      to investment allowances rather than having investment grants. I would say not that it is impossible to have a regional bias in investment allowances but that the Conservative Government never had that bias.
      The difficulties are clear and obvious. The Conservative Government, under whom there were investment allowances, did not introduce into those allowances any regional bias. Free depreciation was a way of avoiding dealing with regional bias in investment allowances. Of course one can have a regional policy based on direct subsidies of a variety of other kinds. What we have done has been of great help in encouraging firms to look at the real value of their investments, and I hope that they will continue to do so and will attach far more importance to the figures and to their attitudes with regard to investment.
      The hon. Member for Guildford quoted to us a United States report which said that a lot of importance was to be attached to the altertness of management. What that report was saying and what I believe—although I repeat that none of us knows the whole story—is that what is at the root of the willingness to invest and replace more frequently is an attitude of mind more than a financial inducement. We in this country are very conservative —" conservative " with a small " c ". There has been no poll on that topic. My experience and unsupported theory in more recent years is that there is an attitude of mind in which we depart very considerably from the American attitude for example. They are much more ready to scrap and reinvest and because of that only to have regard to propositions which are more attractive in terms of return on capital. There is much to be said for being much more selective about it.
      My right hon. Friend the Member for Belper said something very similar when referring to small firms and their investment habits. He said that we did not think that they were up to the job. That is another way of saying, " Alertness of management ". I do not think the two are very different. If we could get at that attitude of mind, we should be doing great service to our people and the economy in encouraging much greater readiness to scrap and invest in something newer, after going to great care, of course,
      1330
      to do all the measurements in all the forms that have been indicated.
      Mr. George Brown: There is something that I wish I had said at that point and perhaps my right hon. Friend will agree with me. Companies small or big should be more willing to scrap and replace sooner. Does my right hon. Friend agree with what I think I should have said at that point—that workers must, therefore, be more willing to work machines to death as soon as they can?
      Mr. Diamond: My right hon. Friend the Member for Belper knows that there are a few topics about which I know a tiny bit, but that which he has raised I know nothing about. What is more important when speaking from this Box, I have no Departmental responsibility in that respect. However, I readily admit that reinvestment often involves expensive machinery and for that expensive machinery to be used sensibly requires new attitudes to double shift or treble shift working. We all recognise that it brings many social and other difficult problems which management has to learn to tackle.
      I welcome any contribution which anybody has to make from anywhere in the Committee on this important, interesting and not wholly understood topic of the motivation of new investment. I cannot think that what determines that, or what has a measurable effect on that, is this 2½ per cent. in corporation tax, for that is what we are discussing. As I said yesterday, we are in the position where we have to exercise a priority in deciding whether we can relieve the burden of taxation within this modest £200 million in financial terms, not in resources, but in financial terms.
      My right hon. Friend explained in his Budget statement the kind of priority which we would adopt. The Opposition are now suggesting that the first claim on that and the first claim as to £120 million in a full year should be made by companies. I have explained already that the burden of company taxation, measuring like with like, that is to say, corporation tax alone, or corporation tax plus Schedule F, or gross or net—I cannot measure net after depreciation, but I can measure net after fixed capital replacement, which is very much the same thing —has not been greater in the past year than ten years ago.

      1331
      Hon. Members opposite say that it is not a straight line but is saucer-shaped. I confirm that it is saucer-shaped. I supplied the figures on which the arguments have been based. There is nothing to hide about this. Surely it is not suggested that we have not let anybody know that the rate of corporation tax has gone up from 40 per cent. to 42½ per cent. and from 42½ per cent. to 45 per cent. We have not hidden that. But the net impact is such that, although saucer-shaped, the two edges of the saucer are level and there is broadly the same burden of taxation—in fact, it is slightly less —on company profits as there was ten years ago.
      So it is not the excessive burden which has caused the inadequate investment. It is certainly not the 2½ per cent. This is why I was rude enough to interrupt the hon. Member for Bodmin (Mr. Bessell), who was taking the view that we were effectively putting up the rate 2½ per cent. this year. The proposal before the Committee is for a reduction. If the Government are asked for a reduction, responsibly they must say that this is not the first priority, and I cannot recommend the Committee to accept the Amendment.
      Mr. Hordern: I should like to start by congratulating the hon. Member for Bodmin (Mr. Bessell) on his valedictory speech. I had the good fortune to listen to his maiden speech. I should like to say only that he has passed back over Jordan, as he described it, as gracefully as he crossed it in the first place.
      This has been an interesting debate and the number of speeches have been rather greater than first appeared likely. One of the most worthwhile contributions, as always, came from my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro). He talked about the effect of taxation on the economy and in particular on the wholesale and retail trade. He said that wholesale and retail distributors worked on very fine margins and he said that it was right to draw attention to increases in taxation which inevitably resulted in higher prices. This point was taken up by many of my hon. Friends to whom my hon. Friend was courteous enough to give way. The effect of high prices is becoming ever more apparent in the economy and to the
      1332
      people, and it will become increasingly apparent over the coming weeks.
      However, the point that my hon. Friend was making was that the Labour Party believed in a high taxation economy. He said that the retail and distributive trade understood and wanted higher profits and less tax. Labour Members prefer the system of investment cash grants because, as the right hon. Member for Belper (Mr. George Brown) said, they prefer a system by which the civil servant hands out the cash to allowing the money to be retained by the companies which can make up their own minds about whether to invest.
      The right hon. Member for Belper made an extraordinary intervention. He claimed that the Government had succeeded in raising the level of investment since the Labour Party gained office. I remind the Committee that this increase in the level of investment in the last six years has been 0· 2 per cent., whereas the increase in industrial investment averaged 2 per cent. over the 13 years that we were in power.
      Mr. Sheldon: As the hon. Member believes that firms should be allowed to decide their own investment without guidance from the Government, can he explain why his party had an investment allowance system?
      Mr. Hordern: I will come back to that. We are now dealing with a reduction in the rate of corporation tax and I propose to concentrate on that.
      Mr. George Brown: As the hon. Member has misquoted me, let me get it quite clear. I did not at any stage say that I thought it better for the civil servants to hand out the money. What I said was that, under our system, the money was used selectively to better results. That is quite different.
      Mr. Hordern: I do not know what the right hon. Gentleman thinks he has said now, but it is perfectly clear that the meaning is that the civil servant knows better than public companies how to invest. That is the meaning of what he said.
      Mr. George Brown rose—
      Mr. Hordern: No
      Mr. George Brown: On a point of order, as the hon. Member does not give way. If he wants to assert—
      The Deputy Chairman: Do I understand that the hon. Member for Horsham (Mr. Hordern) has given way?
      Mr. Hordern: Yes.
      Mr. Brown: It is free for the hon. Member to assert that a consequence of what I am saying is what he suggests. What he must not do is to put words into my mouth. I did not say that and I do not believe it to be true. I believe that our method of running it is tremendously superior to anything the Opposition would put in its place.
      Mr. Hordern: Let us agree that the consequences of what the right hon. Gentleman said remain the same.
      The Chief Secretary spent some time in discussing the reduction in the rate of corporation tax which we are proposing. It is very modest compared with the amount by which corporation tax has been increased since the old system of income and profits tax on companies in 1964.
      When corporation tax was introduced we were told that the rate should be about 35 per cent. and that this was equivalent to the standard rate of income tax in the old form at 8s. 3d. in the £ which had itself been increased by the Government from 7s. 9d. But the rate was not 35 but 40 per cent. It was raised to 42· 5 per cent. in 1968 and to 45 per cent. in 1969. I suppose that we should be relieved that it has not been increased again this year on the Pavlovian principle that if one stops being beaten over the head one feels a lot better. But an increase of almost 30 per cent. in company taxation is large by any standards, even for this Government.
      8.0 p.m.
      The real disadvantages of our system of corporation tax are well known and have been debated in this Chamber for many years. But I refer again to the emphasis on retentions rather than on distributions, the bypassing of the capital market, and the damaging effect of the close company legislation. All the arguments have been well ventilated and I do not wish to repeat them. My right
      1334
      hon. Friend the Leader of the Opposition warned when corporation tax was introduced that it would make the fat companies fatter—or words to that effect. No doubt the fatter companies are thinner than they were, thanks to the Government. But the way in which corporation tax works is still a positive disincentive to distribute.
      It does not necessarily follow, however, that because there is a disincentive to distribute, the money thereby retained is necessarily invested. What is happening is that some companies are actively lending money to other companies and bypassing the banking system altogether. This is a new phenomenon. There is now a very active market in such loans.
      I do not think that the corporation tax was designed with that end in view, but that is what is now happening. It will last at least as long as the credit squeeze lasts and possibly longer, partly because there is no incentive to distribute earnings under the corporation tax and no particular incentive to invest them in new plant and machinery. Of course it is true that it is partly due to the very high level of interest rates. When a company of the standing of Imperial Tobacco has to pay 10½ per cent. in the market, clearly it must be a very attractive investment to justify that sort of rate.
      Sir G. Nabarro: Would my hon. Friend complete the sentence and go on to say that to guarantee 10½ per cent., 1990 to 1993, which must surely represent, not only in the longevity of the fixed term loan but the record high level of interest, an entirely new departure in lending arrangements in the whole of our history?
      Mr. Hordern: I agree. Who knows, we may even see higher rates, and for longer periods, judging by the way in which the gilt edged market is going because of the credit squeeze.
      The C.B.I. made the point in a recent publication that the average return on capital fell from 14· 7 per cent. in 1964 to 12 per cent. in 1968. If 12 per cent. is the average return on capital now, there is not much margin between that and the real cost of borrowing even to prime companies. Therefore, in talking about the form of the corporation tax, it is clear that there is little or no incentive to

      1335
      invest. When this is combined with the other difficulties which have been put in the way of companies, such as high interest rates, higher petrol duties, the forced loan through selective employment tax and the absurd distinction between manufacturing and service companies, it is not surprising that one of the most lamentable failures of the Government has been to secure an inadequate total level of investment.
      It may not be easy to prove that there is a direct causal relationship between investment and output, but the fact is that our increase in investment and our output is low both in historic terms and in relation to other countries, and it is difficult to see how output can increase without higher investment.
      Let me take our position in investment first. We know that gross domestic fixed capital formation by all industries, except dwellings and public services, increased by ·2 per cent. between 1964 and 1969—that is, at one-tenth the rate of the previous 13 years. We know that actual expenditure on plant and machinery was lower in 1969 than in both the two previous years, 1967 and 1968, although manufacturing investment as a whole was 6 per cent. higher last year and not 11 per cent., as the Financial Secretary said during the Budget debate.
      That does not sound much like recapturing the lost dynamic with which the Prime Minister regaled us in 1964. It is one thing to compare what has happened in investment with the Prime Minister's promises. That is altogether too easy. The word has no meaning for him. He might just as well have given a pledge. What is more important is to compare the respective records of the two parties. The Labour Party's is one-tenth as good as ours, and I hope that that goes into its election manifesto.
      What is most important is to compare this country's recent performance with that of other countries—what one might call the " seed corn stakes ". As a proportion of G.N.P. gross fixed asset formation is 18· 2 per cent. in the United Kingdom, 22· 9 per cent. in France, 23· 1 per cent. in Germany and 34 per cent. in Japan. So we start from a lower base. It is true that we are getting the usual encouraging noises about investment in-
      1336
      tentions from the Government. We were told recently by the Ministry of Technology that industrial investment is due to increase by 10 per cent. this year, but other bodies, notably the C.B.I. and the Financial Times,are a great deal more cautious in their prognostications for this year.
      The prospects for the machine tool industry—and this is the test—appear to be very uncertain. The Government expect no more to be invested in machine tools than was invested last year—£145 million. What is worse is that the figures for total net new orders have been dropping sharply since last October, both for home and for export. This is very discouraging for the outlook for our investment performance and for future production. When combined with the already low level of investment which we have experienced during the last five years, our international export performance is bound to be affected and will suffer.
      All that is in the future, and the Government are not worrying too much about the seed corn right now. But what about the present? What about production? We were promised that there would be no stop-go, and there was not: we had a grinding halt instead. In the last six years of Tory Government, manufacturing production rose by 4· 6 per cent. per annum. In the first six years of Socialist government it rose by 2· 9 per cent. So much for Socialist dynamism, It was by far the worst performance in the last six years of any of the 18 O.E.C.D. countries. The figures from 1963 show that there is not one country in the 18 O.E.C.D. countries which does not have at least a 50 per cent. better record in industrial production than we have. So what price league tables now?
      We have had the lowest increase in G.N.P. per head since 1964 of any of the E.E.C. or E.F.T.A. countries. Industrial production has been acutely disappointing, and with a low level of industrial development and a high level of unemployment it is unlikely to get much better. Let us suppose, however, that demand picks up because of increasing consumer expenditure.
      Mr. Diamond: The hon. Gentleman keeps on talking only about " investment ". Would he make it clear that all the figures that he has given relate to

      1337
      private sector investment, not to total investment, and certainly not public sector investment?
      Mr. Hordern: I am perfectly happy to make that distinction because it is from the private sector that the majority of our export trade must come. Let us suppose, however, that demand picks up because of increasing consumer expenditure. Where will the goods come from? There we have to look at the total stock position. After two years of declining stocks in manufacturing industry, stocks rose last year by £208 million. This compares with an increase of £411 million in 1964, so, if there is a revival of demand, for which we all hope, is not it all too likely that it will have to come from abroad? Are not we up against capacity constraints already? What has happened during the last six years? What has happened to the restructuring of industry which we were to get, and of which the Prime Minister boasted so recently at the Scottish T.U.C. Conference? What is the Ministry of Technology doing about it?
      The Prime Minister was very eloquent about this in 1964. In the Budget debate in that year he spoke of the measures necessary to encourage the creation of efficient competitive industries instead of having to rely so much on importing from overseas at a high cost to our balance of payments. He referred to the import of manufactured goods. He said —and this is a strong point—that in 1953 our import of manufactured goods was a total of £650 million, but, he said, 10 years later in 1963 it was £1,568 million, a rise of over £900 million in 10 years. The position now is that from £1,568 million it has risen to £4,137 million—not an increase of £900 million but of over £2,500 million in manufactured goods in only 6 years.
      The Prime Minister said that by 1963 imports of manufactured finished goods had risen in 10 years by 234 per cent., a very high figure, but the figure in 1963
      was £651 million. It is now £ 1,834 million, so what has he done about restructuring?
      The Prime Minister said that he could not believe that this was something this country can do nothing about. So he has done something. He has applied the import surcharge, and the figures have continued to break record levels. What else could the figures have done? Because of the high level of corporation tax and the other difficulties which industries have to face, the level of investment has been relatively and absolutely far too small, and there is no sign that it will be anything like adequate in the future.
      The trouble is that, even if investment does pick up by 10 per cent. this year, we shall have to rely on imports for a substantial proportion of our investment expenditure, and this is bound to have a harmful effect on our balance of trade. It is no good thinking that the solution to this problem lies in the system of investment cash grants which are given regardless of whether or not profits are earned. What the industry requires is a higher return on capital employed, and this means earning higher profits.
      One of the troubles about this Government is that their whole philosophy is against earning higher profits. They are always talking in terms of a " fair " profit as if there is something evil in earning higher profits. The Government do not seem to understand that it is this attitude which accounts for the lack of confidence in industry which has persisted for so long. One way to restore confidence would be to reduce the rate of corporation tax from 45 to 42· 5 per cent., to show that the Government are not entirely inimical to profits. An even better way would be to get rid of this Government altogether, and for that reason I ask my right hon. and hon. Friends to divide the House.
      Question put, That the Amendment be made:—
      The House divided: Ayes 152, Noes 221.

      Division No. 127.]

      AYES

      [8.15 p.m.

      Alison, Michael (Barkston Ash)

      Batsford, Brian

      Brown, Sir Edward (Bath)

      Allason, James (Hemel Hempstead)

      Bell, Ronald

      Bryan, Paul

      Amery, Rt. Hn. Julian

      Bessell, Peter

      Buck, Antony (Colchester)

      Archer, Jeffrey (Louth)

      Biffen, John

      Burden, F. A.

      Astor, John

      Biggs-Davison, John

      Campbell, B. (Oldham, W.)

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

      Blaker, Peter

      Carlisle, Mark

      Awdry, Daniel

      Brains, Bernard

      Chataway, Christopher

      Baker, Kenneth (Acton)

      Bromley-Davenport, Lt.-Col. Sir Walter

      Chichester-Clark, R.

      Clark, Henry

      Hordern, Peter

      Pike, Miss Mervyn

      Clegg, Walter

      Howell, David (Guildford)

      Prior, J. M. L.

      Craddock, Sir Beresford (Spelthorne)

      Jenkin, Patrick (Woodford)

      Pym, Francis

      Crouch, David

      Johnson Smith, C. (E. Grinstead)

      Ramsden, Rt. Hn. James

      Crowder, F. P.

      Kaberry, Sir Donald

      Rees-Davies, W. R.

      Cunningham, Sir Knox

      Kershaw, Anthony

      Renton, Rt. Hn. Sir David

      Davidson, James(Aberdeenshire, W.)

      Kimball, Marcus

      Rhys Williams, Sir Brandon

      Dean, Paul

      King, Evelyn (Dorset, S.)

      Ridsdale, Julian

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

      King, Tom

      Scott-Hopkins, James

      Dodds-Parker, Douglas

      Kitson, Timothy

      Sharples, Richard

      Eden, Sir John

      Knight, Mrs. Jill

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

      Elliot, Capt. Walter (Carshalton)

      Lancaster, Col. C. G.

      Sinclair, Sir George

      Elliott, R.W.(N'c'tle-upon-Tyne, N.)

      Langford-Holt, Sir John

      Smith, Dudley (W'wick & L'mington)

      Emery, Peter

      Lawler, Wallace

      Smith, John (London & W'minster)

      Errington, Sir Eric

      Legge-Bourke, Sir Harry

      Speed, Keith

      Eyre, Reginald

      Longden, Gilbert

      Stainton, Keith

      Farr, John

      Lubbock, Eric

      Stoddart-Scott, Col. Sir M.

      Fisher, Nigel

      McAdden, Sir Stephen

      Summers, Sir Spencer

      Fletcher-Cooke, Charles

      MacArthur, Ian

      Tapsell, Peter

      Foster, Sir John

      Maclean, Sir Fitzroy

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

      Fraser, Rt. Hn. Hugh(St'fford & Stone)

      Macleod, Rt. Hn. Iain

      Taylor, Frank (Moss Side)

      Fry, Peter

      McMaster, Stanley

      Temple, John M.

      Gibson-Watt, David

      Macmillan, Maurice (Farnham)

      Tilney, John

      Gilmour, Sir John (Fife, E.)

      McNair-Wilson, Patrick (NewForest)

      Turton, Rt. Hn. R. H.

      Glover, Sir Douglas

      Maginnis, John E.

      van Straubenzee, W. R.

      Glyn, Sir Richard

      Maude, Angus

      Vaughan-Morgan, Rt. Hn. Sir John

      Godber, Rt. Hn. J. B.

      Maxwell-Hyslop. R. J,

      Waddington, David

      Goodhart, Philip

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

      Wainwright, Richard (Colne Valley)

      Gower, Raymond

      Mitchell. David (Basingstoke)

      Walker, peter (Worcester)

      Grant-Ferris, Sir Robert

      Montgomery, Fergus

      Walker-Smith, Rt. Hn. Sir Derek

      Grieve, Percy

      More, Jasper

      Ward, Christopher (Swindon)

      Griffiths, Eldon (Bury St. Edmunds)

      Morrison, Charles (Devizes)

      Wells, John (Maidstone)

      Hall, John (Wycombe)

      Mott-Radclyffe, Sir Charles

      Whitelaw, Rt. Hn. William

      Hall-Davis, A. G. F.

      Munro-Lucas-Tooth, Sir Hugh

      Wiggin, Jerry

      Hamilton, Michael (Salisbury)

      Murton, Oscar

      Williams, Donald (Dudley)

      Harrison, Brian (Maldon)

      Nabarro, Sir Gerald

      Winstanley, Dr. M. P.

      Harrison, Col. Sir Harwood (Eye)

      Noble, Rt. Hn. Michael

      Wolrige-Gordon, Patrick

      Harvie Anderson, Miss

      Nott, John

      Wood, Rt. Hn. Richard

      Hawkins, Paul

      Onslow, Cranley

      Worsley, Marcus

      Heald, Rt. Hn. Sir Lionel

      Orr-Ewing, Sir lan

      Wright, Esmand

      Heseltine, Michael

      Higgins, Terence L.

      Page, John (Harrow, W.)

      TELLERS FOR THE AYES:

      Hiley, Joseph

      Peel, John

      Mr. Bernard Weatherill and

      Hogg, Rt. Hn, Quintin

      Percival, lan

      Mr. Hector Monro.

      Holland, Philip

      Peyton, John

      NOES

      Abse, Leo

      Coleman, Donald

      Gardner, Tony

      Albu, Austen

      Concannon, J. D.

      Ginsburg, David

      Allaun, Frank (Salford, E.)

      Craddock, George (Bradford, S.)

      Golding, John

      Alldritt, Walter

      Crawshaw, Richard

      Gordon Walker, Rt. Hn. P. C.

      Allen, Scholefield

      Dalyell, Tam

      Gray, Dr. Hugh (Yarmouth)

      Anderson, Donald

      Darling, Rt. Hn. George

      Greenwood, Rt. Hn. Anthony

      Archer, Peter (R'wley Regis & Tipt'n)

      Davidson, Arthur (Accrington)

      Grey, Charles (Durham)

      Armstrong, Ernest

      Davies, Dr. Ernest (Stretford)

      Griffiths, Eddie (Brightside)

      Ashley, Jack

      Davies, S. O. (Merthyr)

      Griffiths, Will (Exchange)

      Ashton, Joe (Bassetlaw)

      de Freitas, Rt. Hn. Sir Geoffrey

      Hamilton, William (Fife, W.)

      Atkins, Ronald (Preston, N.)

      Dempsey, James

      Hamling, William

      Atkinson, Norman (Tottenham)

      Dewar, Donald

      Hannan, William

      Bacon, Rt. Hn. Alice

      Diamond, Rt. Hn. John

      Harper, Joseph

      Barnes, Michael

      Dickens, James

      Harrison, Walter (Wakefield)

      Barnett, Joel

      Doig, Peter

      Haseldine, Norman

      Baxter, William

      Driberg, Tom

      Hattersley, Roy

      Beaney, Alan

      Dunn, James A.

      Henig, Stanley

      Bence, Cyril

      Dunnett, Jack

      Hilton, W. S.

      Bennett, James (G'gow, Bridgeton)

      Dunwoody, Mrs. Gwyneth (Exeter)

      Hooley, Frank

      Bidwell, Sydney

      Eadie, Alex

      Houghton, Rt. Hn. Douglas

      Binns, John

      Edwards, Robert (Bilston)

      Howarth, Robert (Bol'on, E.)

      Bishop, E. S.

      Ellis, John

      Hynd, John

      Blackburn, F.

      English, Michael

      lrvine, Rt. Hn. Sir Arthur

      Blenkinsop, Arthur

      Evans, Albert (lslington, S.W.)

      Jackson, Peter M. (High Peak)

      Boston, Terence

      Evans, Fred (Caerphilly)

      Janner, Sir Barnett

      Bottomley, Rt. Hn. Arthur

      Evans, loan L. (Birm'h'm, Yardley)

      Jay, Rt. Hn. Douglas

      Bray, Dr. Jeremy

      Fernyhough, E.

      Jeger, George (Goole)

      Brooks, Edwin

      Finch, Harold

      Jenkins, Hugh (Putney)

      Brown, Rt. Hn. George (Belper)

      Fitch, Alan (Wigan)

      Jenkins, Rt. Hn. Roy (Stechford)

      Buchan, Norman

      Fletcher, Ted (Darlington)

      Johnson, James (K'ston-on-Huil, W.)

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

      Ford, Ben

      Jones, Dan (Burnley)

      Butler, Herbert (Hackney, C.)

      Forrester, John

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

      Butter, Mrs. Joyce (Wood Green)

      Fowler, Gerry

      Jones, J. ldwal (Wrexham)

      Callaghan, Rt. Hn. James

      Fraser, John (Norwood)

      Jones, T. Alec (Rhondda, West)

      Castle, Rt. Hn. Barbara

      Freeson, Reginald

      Kelley, Richard

      Cos, Denis

      Galpern, Sir Myer

      Kenyon, Clifford

      1340

      1341

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

      Neal, Harold

      Silkin, Rt. Hn. John (Deptford)

      Kerr, Ruesell (Feltham)

      Newera, Stan

      Silkin, Hn. S. C. (Dulwich)

      Latham, Arthur

      Norwood, Christopher

      Sillars, J.

      Lawson, George

      Ogden, Eric

      Slater, Joseph

      Leadbitter, Ted

      O'Halloran, Michael

      Small, William

      Ledger, Ron

      Orbach, Maurice

      Snow, Julian

      Lee, Rt. Hn. Frederick (Newton)

      Orme, Stanley

      Spriggs, Leslie

      Lee, John (Reading)

      Owen, Dr. David (Plymouth, S'tn)

      Steele, Thomas (Dunbartonshire, W.)

      Lewis, Arthur (W. Ham, N.)

      Padley, Walter

      Swain, Thomas

      Lewis, Ron (Carlisle)

      Palmer, Arthur

      Symonds, J. B.

      Lomas, Kenneth

      Pannell, Rt. Hn. Charles

      Taverns, Dick

      Loughlin, Charles

      Parker, John (Dagenham)

      Thomas, Rt. Hn. George

      Lyon, Alexander W. (York)

      Parkyn, Brian (Bedford)

      Tinn, James

      Lyons, Edward (Bradford, E.)

      Pavitt, Laurence

      Tommy, Frank

      MacDermot, Niail

      Pearson, Arthur (Pontypridd)

      Tuck, Raphael

      Macdonald, A. H.

      Pentland, Norman

      Urwin, T. W.

      McElhone, Frank

      Perry, Ernest G. (Battersea, S.)

      Walden, Brian (Alt Saints)

      Mackenzie, Gregor (Rutherglen)

      Perry, George H. (Nottingham, S.)

      Walker, Harold (Doncaster)

      Mackie, John

      Prentice, Rt. Hn. Reg.

      Wallace, George

      McNamara, J. Kevin

      Price, Christopher (Perry Barr)

      Watkins, David (Consett)

      MacPherson, Malcolm

      Price, Thomas (Westhoughton)

      Watkins, Tudor (Brecon & Radnor)

      Mahon, Peter (Preston, S.)

      Price, William (Rugby)

      Wellbeloved, James

      Mahon, Simon (Bootle)

      Probert, Arthur

      wells, William (Walsall, N.)

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

      Randall, Harry

      White, Mrs. Eirene

      Marks, Kenneth

      Rankin, John

      Whitlock, William

      Marquand, David

      Rees, Merlyn

      Wilkine, W. A.

      Marsh, Rt. Hn. Richard

      Rhodes, Geoffrey

      Willey, Rt. Hn. Frederick

      Mellish, Rt. Hn. Robert

      Roberts, Rt. Hn. Goronwy

      Williams, Alan (Swansea, W.)

      Mendelson, John

      Rodgers, William (Stockton)

      Williams, Alan Lee (Hornchurch)

      Millan, Bruce

      Roebuck, Roy

      Williams, Clifford (Abertillery)

      Miller, Dr. M. S.

      Rogers, George (Kensington, N.)

      Willis, Rt. Hn. George

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

      Rose, Paul

      Wilson, William (Coventry, S.)

      Molloy, William

      Rowlands, E.

      Woodburn, Rt. Hn. A.

      Morgan, Elystan (Cardiganshire)

      Ryan, John

      Woof, Robert

      Morris, Alfred (Wythenshawe)

      Shaw, Arnold (llford, S.)

      Wyatt, Woodrow

      Morris, Charles R. (Openshaw)

      Sheldon, Robert

      Morris, John (Aberavon)

      Shore, Rt. Hn. Peter (Stepney)

      TELLERS FOR THE NOES:

      Mulley, Rt. Hn. Frederick

      Short, Rt. Hn. Edward(N'c'tle-u-Tyne)

      Mr. Neil McBride and

      Murray, Albert

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

      Mr. R. F. H. Dobson.

      Clause 13 ordered to stand part of the Bill.

    New Clause 1

      SAVINGS: OWN AS YOU EARN
      (1) Where, in accordance with the provisions of this section, a special banking account (hereinafter referred to as an Employee's Saving Account ') is opened on behalf of an individual, he shall be entitled, on making a claim in that behalf, to such relief from income tax as is provided in this section.
      (2) An Employee's Saving Account shall be an account deposited with a joint-stock bank or with a trustee savings bank or such other institution as the Commissioners of Inland Revenue may on application approve, and the Commissioners shall on application approve an institution which is in their opinion capable of handling such an account, bearing in mind the conditions hereinafter provided, the interests of persons on whose behalf accounts are opened and the need to protect Her Majesty's revenue.
      (3) An Employee's Saving Account shall be operated subject to the following conditions—

      (a) it may be opened by an employer on behalf of his employee;

      (b) sums of money, stocks and shares or other securities may be placed in an account by an employer on behalf of the holder of the account;

      1342

      (c) the total value of any moneys or shares or securities so deposited in an account shall not exceed in any year of assessment the sum of two hundred pounds;

      (d) without prejudice to paragraph (f) below, no other money may be paid into an Employee's Saving Account, nor any other shares or other securities deposited there;

      (e) any moneys or shares or other securities deposited in an account shall thereby become the sole property of the individual on whose behalf they have been deposited and this shall not in any way be affected by any subsequent change of his employment;

      (f) any individual on whose behalf an account has been opened may at any time at his own discretion sell shares or other securities held in this account, may withdraw or leave in the account the money raised by such sale, may purchase new shares or securities with funds standing to his credit in the account, or withdraw any money standing to his credit in the account;

      (g) any joint-stock bank or other approved institution may offer and pay interest on moneys deposited in an account; and

      (h) no person may have more than one Employee's Saving Account opened on his behalf.

      (4) Where the total income of an individual for the year of assessment includes, or would but for this section include, any sum deposited in an Employee's Saving Account by his employer on his behalf, or any sum equal to the value of shares or other securities so

      1343
      deposited, such sum shall be disregarded for all the purposes of the Income Tax Acts other than the furnishing of information:
      Provided that in the event of any individual withdrawing any money or securities from his account an amount shall be chargeable to Schedule E income tax upon him for the year in which the withdrawal takes place equal to the amount of the money withdrawn from the account or, in the case of shares or other securities, their original value at the time at which they were so deposited.—[Mr. Richard Wainwright.]
      Brought up, and read the First time.
      Mr. Richard Wainwright: I beg to move, That the Clause be read a Second time.
      The Deputy Chairman: I think that it would be convenient to discuss at the same time new Clause 3, Contractual investment schemes.
      Mr. Wainwright: This Clause is based on an approach which has inspired a number of Amendments and new Clauses on Finance Bills moved from this Bench since 1956. Each time there has been both support and opposition from hon. Members of both other parties. Most of the opposition has been confined to matters of relative, although often important, detail, and in successive years, in drafting further new Clauses, we have tried to take account of the criticisms made— not that we claim, as a band of purely amateur draftsmen, to have achieved anything like perfection in the drafting of the present new Clause.
      The Clause would provide only one form of incentive for forms of new saving and personal investment compared with the twin and, in our view, expensive incentives required, for instance, by the S.A.Y.E. scheme, which offers a very high rate of interest to those who suffer a standard rate of income tax— 12 per cent. merely on the five year period of savings and a higher rate on the longer term— and almost astronomical rates of interest for surtax payers. That is why so much of the scheme consists of savings which must undoubtedly have been switched, or would at any rate inevitably have been saved, even without S.A.Y.E.
      The Clause offers only one form of incentive, namely, the tax incentive. It offers incentive in the following ways. First, it offers relief from income tax at the time of saving. My right hon. and hon. Friends and I regard this as of great importance. We believe that an incen-
      1344
      tive at the time that the saving is made will attract at any rate a large number of people who are not prepared to wait for what they may regard, perhaps wrongly, as pie in the sky. The claw-back in our case, which is very real, comes if and when the item is spent by the owner of the employee's saving account which we propose. I stress that, at any rate during the lifetime of the owner, we propose what can be in certian tax circumstances a very severe claw-back as a penalty for spending.
      The second branch of our incentive is exemption from any capital gains which may accrue while an invested item is in the custody of an employee's saving account. We regard this as a proper incentive, but, given expert draftsmanship, we would have wished to include in the new Clause some safeguards against abuse of the scheme by those who were using it over a very short time simply to avoid capital gains tax. This, simply owing to lack of drafting skill, is an omission from our new Clause.
      These twin tax reliefs are all within a strict upper limit of savings per year through the employee's saving account. For the purpose of the new Clause we have pitched the limit at £200 in any one year, but clearly—we deliberately intend this—the maximum is entirely flexible. If and when a scheme based on these lines is adopted, we would expect the upper limit to be varied over the years.
      At times, which it is difficult to envisage at the moment but which are certainly within the memory of certain hon. Members present now, when it would be important to release spending power, the upper limit could be appropriately raised.
      8.30 p.m.
      An employee's saving account as provided for in the Clause would be operated by the employer. He would be responsible to the Inland Revenue, rather in the same way as he is under the P.A.Y.E. regulations, for the proper ordering of the scheme, and such banking institutions as are approved by the Inland Revenue would be the responsible custodians. In that connection, I am glad to see that one of our largest clearing banks has in the last few days introduced its own savings scheme which is deliberately intended to attract a very large number of small depositors who hitherto have not been

      1345
      catered for by the large clearing banks. I think that it is safe to say that at any rate the more progressive of our great banks at last realise in one way or another they have to offer a service to the relatively small saver. I hope, although I have no warrant for saying this, that they will co-operate in operating a scheme of this kind.
      It will be apparent to the Committee that the sort of savings that we provide for in the Clause are not limited to cash. We provide for these employee's saving accounts to operate with securities of almost any kind. Chattels, naturally, are excluded.
      Perhaps the most important consideration guiding our minds is that the scheme is an employment-based scheme, being factory, mill, office and shop-based. I shall return to the reasons for this shortly.
      For tax purposes, the scheme distinguishes between the different uses to which income is put. It relieves temporarily from tax income which is definitely saved. To that extent, it is discriminating against income in the hands of another tax payer who might otherwise be in similar circumstances. I refer, of course, to income which is spent.
      There is nothing new in this. The life assurance reliefs for income tax are almost as old as the tax itself. But such discrimination seems to be contrary to the views reached by the most recent of the Royal Commissions on taxation. In the third chapter of the majority report, it seems to advocate that as far as possible in future the development of the tax system should be on neutral lines. It comes down specifically against discrimination in favour of saving.
      Since the publication of the Royal Commission's Report, I am glad to say that its purist ideas seem to have been repudiated by tax thinkers of almost every political colour, and they now look distinctly old-fashioned. That is partly due to the great success of tax-exempted investment schemes amongst our principal industrial competitors, notably the United States and West Germany. Admittedly in America there are limits which I regard as excessively generous. But the abandonment of a purist approach to income tax and the linking together of tax incentive and investment is paying off handsomely in national economic terms by giving a real boost to
      1346
      the small wage-earner investor for the first time.
      I said that one of the main features of the Liberal scheme is that it is employment-based, and we have two distinct reasons for introducing it. First, the new, fresh, genuinely additional savings reason. We believe, after consultation with colleagues and advisers in various industrial centres, that new savings are to be found from people with money to save whose whole habits of life do not lead them anywhere near banks, Post Office Savings Bank counters, or other traditional places where other thrifty people have been used to invest. We believe that the success of works savings schemes of the traditional kind point the way to the advantages of having a realistic savings scheme based on the place of work, so that the terms and conditions, for instance, can be discussed in the canteen, the company's sports pavilion, the drawing office, and in various ways associated with the employment where often the natural leaders of men, the natural wiseacres, the natural sages. are listened to and could stimulate a great interest in modern methods of saving. We believe that the opportunities at the place of work have been seriously neglected by savings agencies.
      The second and distinct reason why we want to see an employment based scheme is that at the moment the way is heavily blocked for ordinary, considerate, thoughtful, perhaps rather cautious, employers to give their employees an opportunity of becoming shareholders either in the concern where they work or in other industrial concerns. Even today, despite all the tax obstacles, an ebullient employer full of confidence and perhaps abnormally bold is, of course, quite free to recommend to his work people shares in his or some allied company, but on condition that they are sold at full market value if the employees wish to avoid a tax assessment. We believe that the number of employers and company directors who really would feel confidence in trying to influence their employees to buy shares in the company at full market value is strictly limited, because most of them are only too well aware of the hazards of the market and of the possibility that, within a short time of selling the shares to their employees at full market value,

      1347
      they might feel unable to look them in the eye because those shares might have slumped to a mere fraction of the figure at which they had been sold.
      We want to see an opportunity provided for employers to offer shares to work people at some kind of discount or as ex gratia bonuses, so that no question of paying full market value shall arise. It is only under those kind of conditions, as experience in other countries has shown, that we can look for a desirable, widespread increase in employee shareholding.
      This is not simply some Liberal notion which the new Clause seeks to propagate. I could quote many authorities miles away from the Liberal Party in their origin. But I content myself on this occasion with the Third General Report of the National Board for Prices and Incomes issued in July, 1968, Command 3715. In the course of that report, after outlining the difficulties of trying to control wage levels, the National Board for Prices and Incomes specifically
      " asked the Government to explore schemes for giving workers a share in the capital growth of industry."
      Here is a body, set up by this Government, under very distinguished leadership, which specifically asked the Government to explore schemes of employee share ownership. Although it is not strictly within the Chief Secretary's Departmental responsibility, I hope that he may be able to give us some indication tonight of what the Government have been doing since July, 1968, in response to that clear and specific request.
      The Clause would go a long way to answering the board's request because it would make it far easier for conscientious employers to offer employee shareholding to their employees. This is not a matter which, if left alone, will quietly go away. My colleagues and I—and I think that our experience is shared by other hon. Members—have found in recent weeks, when talking to people in our constituencies about the election, that the one thing about which shrewd voters have already made up their minds is that whichever Government are returned they will quickly impose some kind of clamp-down on wage increases. This has been said to me several times in my constituency by people of various
      1348
      political attitudes, and I think that it is a realistic prospect to face.
      One question which should be in our minds tonight as we consider this and the other new Clause is whether, if there is to be another clamp-down on wages, maybe in the interests of social justice, possibly in the interests of Socialism itself, we are to go through that whole difficult business without a few new weapons in our armoury? What sticks in the throat of the wage earner when he is told that wage increases must be strictly controlled is the total injustice of the amount saved by paying lower wages simply augmenting company reserves.
      If there is to be any justice in some future wage control system, some answer must be provided to this obvious injustice. At the moment it is the long-term shareholder, the shareholder who is interested in reserves, who benefits from the restraint, compulsory or voluntary, of the wage earner, because the money goes into company reserves. Let us hope that it goes into plant, or research, but, wherever it goes, on the other side of the balance sheet the workers' restraint is reflected in higher shareholders' reserves.
      To our mind the only overall way to deal with this inequity is to foster employee shareholding, not necessarily in the company for which a man works, but over the broad face of industry, whereby the worker would also be the person interested in company reserves.
      Before I conclude I should like to say something about the wider share ownership Clause which is being debated with the Liberal Clause. In our view there is nothing inconsistent in the two Clauses and, as I have said before, we on this bench give a warm welcome to that Clause, not least because it is in no way limited to operations by the National Savings Movement. The scheme very shrewdly devised and set forth in new Clause 3 would be available to anybody willing to satisfy the Board of Trade about certain necessary conditions, and, as it provides a free-for-all, under proper safeguards, we are particularly glad to welcome it.
      One final point occurs to me as an objection which may be raised by some hon. Members. It is a common experience among members of the Liberal

      1349
      Party when we hold forth about the importance of more and more wage earners becoming shareholders and having a stake in industry to be told that this is quite possible at the moment, that to become a shareholder the worker has only to see a stockbroker and give him a cheque, and why he should have any kind of concessions to induce him to do so.
      8.45 p.m.
      At present acquiring a small parcel of shares through the Stock Exchange, or in any other conventional way, is a relatively expensive process. The only way to cheapen share transactions for the small man is to create conditions in which a mass market can develop. It is absurd that the small wage earner should depend on the sheer altruism of certain stockbrokers, who are willing to do a number of small transactions at a loss, to get his transaction through at a reasonable cost. So long as we have antiquated stamp duties with clerical and administrative costs, including S.E.T., to put up the Bill to the small investor—and I fear that his bill may increase further as costs go up in the coming months— it is humbug to talk airily about wanting to encourage the small investor. The cost of making small investments in the present system is a powerful argument for the tax system to be relaxed so that a mass market can be created and the stock market can have conditions in which it would be able to reduce costs.
      These two Clauses taken together, the one providing for employees and the other relating to the Wider Share Ownership Council, remove the serious barriers which at present obstruct a growing tide. This is not a do-good proposal which has been thought up to impose upon people. It is made in response to a growing demand by people of all sorts and all political attitudes, by those who want to be modern, up-to-date investors starting in a small way.
      What is the purpose of educating not merely future business graduates but a large section of our young people in economics, which is now taught in schools in comparatively low forms, if at the end of the day we can only offer as a receptacle for their spare cash—and young, unmarried people often have a bit of spare cash—an outworn and limited choice in what are called national savings?
      [Mrs. LENA JEGER in the Chair]
      Mr. Patrick Jenkin: I am grateful for the opportunity to follow the hon. Member for Colne Valley (Mr. Richard Wainwright) since his new Clause is coupled with our new Clause 3, which stands in the names of both Liberal and Conservative hon. Members. We welcome the fact that in this matter their name is coupled with ours.
      I should like to comment on what the hon. Gentleman said in moving the Second Reading of his new Clause. I agree with what he said about difficulties in the way of members of the public with limited means who wish to invest directly in the stock market. There is no doubt that the whole stockbroking system has grown up and developed for substantial investors—on the whole, it serves them very well—and that it is totally unsuited to the needs of the small investor. For this reason the unit trust movement and other avenues for small investors have flourished mightily in the last decade and a half.
      Stamp duty is undoubtedly a disincentive. It is the oldest tax in the book. It was the first tax, apart from import duties, to be relied on over the years by Governments and it has become an anachronism. On another provision which we will be considering in Committee upstairs, a start is being made to get rid of this inhibition to normal financial transactions.
      I agree with the hon. Member for Colne Valley that there is no inconsistency between the two alternative forms of encouraging savings; the scheme in new Clause I promoted by the Liberal Party and that in new Clause 3. They are different and they approach the problem from different angles. They have many features which differ from each other, but they have in common a genuine desire to increase the savings ratio by providing new and attractive opportunities to savers to put aside, rather than spend, a part of their income.
      A feature I particularly like about the Liberal scheme is that it would give tax relief when the saving was made. Hon. Members will be aware that my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) had argued for years for a save-as-you-earn scheme. This

      1351
      name was taken last year by the Government, with the blessings of my hon. Friends.
      Mr. Diamond: And with acknowledgements from the Government.
      Mr. Jenkin: With acknowledgements from the Treasury Bench which we greatly appreciated. Under the S.A.Y.E. scheme tax relief, such as it is, accrues at the end of the contractual period and not when savings are made. The same would apply under new Clause 3.
      Another feature I like about the Liberal scheme is that it would link the machinery of saving with the saver's place of work, and I agree with what the hon. Member for Colne Valley said about this being one of the points of contact between the individual and the possibility of his saving, a point which has, perhaps, not been fully tapped in the past.
      I was somewhat less enthusiastic about the idea of employees' savings accounts being a principal vehicle by which employees could become shareholders in the concerns for which they work. I have always felt that there are considerable risks in this. One appreciates the desire to achieve a unity of interest between shareholders and employees—the share option scheme has a great part to play, but unfortunately it was severely hampered by legislation passed by the Government three years ago—but there are risks in asking people of limited means to tie up substantial parts of their savings by investing in the companies on which they rely for their employment. It means, for example, that if a company gets into serious difficulties and workers face redundancy, they could also face the loss of their savings.
      One must approach with great caution the argument that employee shareholdings can be a way of improving industrial relations. Considerable weight must be given to the experience of many firms and bodies which have advised on this matter. Experience shows that if one is to have what used to be called coownership—co-partnership or employee shareholdings—these must primarily be a reflection of good relations that already exist rather than a means of trying to improve relations which are at present strained.
      1352
      The hon. Member for Colne Valley foresaw the reluctance of employers to seek to sell shares to their employees because of animosities which might arise if the shares did not perform as anticipated. I always think of the story of an employer, no doubt great-hearted and benevolent, who was able to persuade his employees to buy shares in his company. Within six months the shares had depreciated very considerably in value. They came to him and demanded that the directors should buy back the shares at the price originally paid. The employer, being great-hearted and benevolent, finally agreed to do this. Six months later the shares had doubled above the value at which they had been orginally purchased. Then the employees came back and said, " We always thought you were a rogue; now we know you are." That is the sort of danger one could get into.
      I turn to new Clause 3, to which I wish to devote the greater part of my speech. Before dealing with the details, I shall say a word or two about savings in general. I regret very much the unavoidable absence of my hon. Friend the Member for Harrow, Central (Mr. Grant). As an active and enthusiastic member of the Wider Share Ownership Council he has done more than most hon. Members to promote saving by small savers. He had the support of my hon. Friend the Member for Farnham (Mr. Maurice Macmillan), who will wind up in this debate for the Opposition, as well as the hon. Member for Colne Valley, the right hon. Member for Sowerby (Mr. Houghton) and other hon. and right hon. Members who have served as members of the Wider Share Ownership Council. He is unfortunately unable to be with us this evening. He asked me to tender his apology to the Committee and to the Government because he would like to have participated in this debate.
      Mr. Eric Lubbock: Canvassing?
      Mr. Jenkin: On the contrary, he is attending the annual dinner of his contituency association.
      Few people would disagree that many of the problems of our economy would be a great deal nearer to solution if we could persuade more fellow citizens to save more and spend less. I think there was a tendency in the first years of the

      1353
      present Government to recognise that the high level of private consumption was one of the weaker aspects of our economy, but they saw the remedy rather in the form of increasing public consumption and shifting the balance from private to public consumption. Therefore, taxes were increased and public spending increased but private consumption, of course, continued very much as before. There has been little evidence of a turndown in it, and savings have taken the brunt.
      It is nothing other than the simple truth that the percentage of after-tax incomes which have been saved has fallen since 1964– 65. If one goes back to the years since the war, one finds that in 1951 the percentage of after-tax income saved was 1· 5 per cent., by 1959 it had risen to 5·1 per cent., by 1965 to 8·5 per cent. and there was a steady increase in the proportion of incomes saved. Since then it has fallen back steadily and is now only 7·7 per cent. Had savings in those first years after the 1964 election stayed at the level that was achieved in 1964–65, this year personal savings would be £300 million higher than they are. Had they continued to rise at the rate achieved in 1951, they would have been many hundreds of millions higher.
      9.0 p.m.
      In such a happy event the taxation which the Labour Government would have had to levy would have been much less and we should have been in that virtuous circle to which my right hon. Friend the Member for Enfield, West referred yesterday of lower taxation, leading to higher savings, in turn leading to still lower taxes. The Tories achieved this. Under the Socialists the circle as it were tailed off within a matter of months. This is no accident. Yesterday my right hon. Friend the Member for Enfield, West referred also to the work done by Mr. Brian Reading and Mr. David Lomax—
      The Temporary Chairman: Order. I appreciate that the hon. Gentleman is giving the background to his argument, but it would be for the convenience of the Committee if he could come a little nearer to the new Clause and give the Committee some more information about the contractual investment schemes which are the subject of the new Clause.
      Mr. Jenkin: I apologise if I have strayed out of order, Mrs. Jeger, but I thought that it was desirable to develop the argument as to why it is necessary at this stage to give a new thrust. It is difficult to argue this unless one has set the context. I will try to deal with this as briefly as possible.
      Yesterday my right hon. Friend dealt with the Reading and Lomax thesis which shows that changes in savings can offset up to a half of the change in the real disposable income level relative to its long-term trend. In other words, Chancellors who can achieve entry into the virtuous orbit can confidently expect that, over a period of years, tax reductions will turn into increased savings to a very substantial extent. On the other hand, Chancellors who fail to achieve re-entry will continue to orbit in perpetuity in a disastrous spiral of rising taxes and falling savings. It is an undeniable fact that Tory Chancellors have achieved the happy state with monotonous regularity. No Socialist Chancellor in Great Britain has ever succeeded in doing so.
      I come to the new Clause. We need an initial thrust to break out of the present vicious circle into the virtuous one. As major tax reductions are ruled out by this Government—we have had debates now for nearly two days on this subject—we must start at the savings end. If all savings could be made more attractive by hacking away at the disincentives to savings, that would be fine. It would be fine if we could do something about the higher rate of tax on savings income, if we could do something about the capital gains tax, one of the highest rates of capital gains tax in the world, and if we could do something about estate duty, which has virtually doubled in effect in the last 20 years. But we cannot do that. The Government have ruled ail this out.
      Therefore, we turn to new ways of attracting new savings—not just a switch from existing media, but genuine new savings. What we propose in new Clause 3 is a modification of S.A.Y.E. to give it, as it were, an equity link.
      Most new schemes have been aimed at infusing new life into the National Savings movement. The premium bonds have perhaps been the most outstanding and successful example of this, and now

      1355
      £700 million or £800 million remain invested in premium bonds. The recently announced 9 per cent. development bonds are also going well.
      However, it is undeniable that the National Savings Movement is at the moment very much in the doldrums. 1969–70 saw a net fall in National Savings of £129·4 million and, excluding net accrued interest of £136·8 million, the total fall was £266·2 million. The truth of the matter is that, in a year of accelerating inflation, there is little attraction for small savers.
      Indeed, one of the ironies of the National Savings Movement's efforts is that its educational programme, to which it attaches great importance, may actually be turning savers to other media—to building societies, life assurance, unit trusts, and others. I could quote figures; but, Mrs. Jeger, in view of your anxiety that we should concentrate on the Clause, I will forbear from doing that.
      It is true, as I am sure that the Chief Secretary will agree, that National Savings are uniquely valuable to Chancellors of the Exchequer. In that case, a £1 saved is £1 less in taxes. When we think of the need to finance nationalised industries the importance of this cannot be over-rated. We want to link our scheme with lending to the Government and the device which has been adopted by the Wider Share Ownership Council is to have a 50–50 split of the sums invested by savers, broadly on the lines of the Trustee Investments Act, 1961. Part will go into fixed interest and half into a selected range of equities. We go further. Because we want to make sure that the Government derive considerable benefit from our new equity-linked S.A.Y.E., the 50 per cent. that is to go into fixed interest is to be confined to the Government stocks, the same ones which are exempt from capital gains tax and are set out in the Schedule to last year's Finance Act.
      The other half would go into the wider range securities as defined in the Trustee Investments Act. The contractual saver would then save on exactly the same terms as apply to S.A.Y.E. at present. We would not have the seven-year term but would confine it to five years. The saver has to agree to save a certain
      1356
      amount each month for a minimum period of five years. The money saved would then go into the fund and would be divided into the two halves, fixed interest and the wider category fund. Income would be accumulated and the saver would become entitled to the units allocated to him on the monthly subscription basis precisely in accordance with the normal unit trust practice.
      At the end of five years he would be entitled to withdraw. The limits are the same for S.A.Y.E. There would be a maximum of £10 a month although lesser amounts could be contracted. Like S.A.Y.E., the main attraction is that—
      Mr. Diamond: The hon. Gentleman said that the limits would be the same as for S.A.Y.E. and instanced £10 a month. The limits under the S.A.Y.E. scheme are £10 a month, to both of the two schemes only. Would the hon. Gentleman tell me how he proposes to deal with that?
      Mr. Jenkin: This may not be fully spelled out in the new Clause but we would envisage this as being additional to the two. A person may have only one of the equity-linked schemes at a time when the existing S.A.Y.E. and the building society S.A.Y.E We see no difficulty in policing that There is no more difficulty than the Government already face in policing the difference between the building society scheme and the National Savings scheme. Presumably there is a spot check. There is no other way. We see this as additional to the other two.
      I was about to come to the tax advantages of the equity-linked S.A.Y.E. scheme. In the first place the Government stock fund would be charged to tax not at the standard rate but the life insurance rate of 37·5 per cent. This would put it on the same basis as investments in life funds. Secondly, there would be no Schedule F tax on income from investments in the Government Stock Fund, but Schedule F would inevitably be deducted from dividends paid to the equity fund and there would be no way of avoiding that. There would be no capital gains tax charged on the fund on gains or losses, either in the Government stock fund or the wider range fund. We regard this as one of the most important of the tax advantages. Similarly, there would be no capital gains tax or income tax

      1357
      charged on the investor in the disposal of the units after the five-year period had elapsed.
      It is interesting to see how one parallels this, although it is from a different approach. Like the Liberal scheme, we have to impose quite a severe disincentive on withdrawals before the five years are up, or of course, to prevent the fund going into breach of the terms approved by the Board of Trade. If the saver chooses to withdraw his units in those circumstances, all he will be entitled to is his money back, plus 2½ per cent. interest, exactly like S.A.Y.E., or the value of his units as they stand at the date of withdrawal if that is less. tie cannot get more than his money back plus 2½ per cent., but if the investments have fallen so that his money would be worth less, that is all he gets—the actual value.
      This seems a necessary precaution, just as the S.A.Y.E. scheme has to have a precaution to ensure that savers adhere to the principal purpose of the scheme, which is to save by contract over a period of years. We have tried to make this scheme as nearly similar to S.A.Y.E. as we can, while at the same time importing the equity element.
      We envisage that the scheme would be run by a variety of bodies. The hon. Member for Colne Valley suggested that it could be run by the National Savings movement, but I am not sure that that movement would wish to become involved in as big a departure as this from its normal activities. From discussions which I have had, I am satisfied that that movement would be perfectly happy that schemes should be run by such bodies as unit trust managers, trustee savings banks, and perhaps the public trustee could be persuaded to set up a scheme for this kind of saving.
      Anyone who was going to run this would, of course, require the approval of the Board of Trade and any charges and expenses—this is spelled out in the Clause—which the managers of the scheme would want to make would have themselves to be borne as approved by the Board of Trade.
      The Wider Share Ownership Council believes—I very much endorse its view—that a contractual investment scheme on these lines would have a powerful attraction for the modern saver, the saver who
      1358
      is perhaps a little more sophisticated than he was a generation ago, who wants the tax advantages of S.A.Y.E., is not prepared to go into a fixed interest situation, but feels that, in the current state of the economy, as it is likely to be for the foreseeable future, he wants a hedge against inflation.
      Certainly, some extra spur is needed and some new stimulus has to be provided. No one can be satisfied with the level of savings. S.A.Y.E. has attracted only about £6 million in 1969–70, although by the time that it has built up on the basis of existing contracts, represents a commitment of just under £100 million. But no one would disagree that this is only a modest and unexciting start. The simple truth seems to be that a contractual obligation plus a fixed interest return does not tempt savers, whatever the tax advantages. I believe that a contractual obligation, plus an equity element, could well do the trick and attract substantial additional savings which are not being found at present.
      Anyway, we are encouraged to try and we think that the Government should try. I hope that Treasury Ministers will look favourably upon what I might describe as this " tuppence coloured " version of their own " penny plain " scheme last year.
      Mr. Wallace Lawler: It is obvious that the place of employment is the best and most effective venue for the promotion of any new savings. I can speak on this aspect of the Amendment with some authority, because for about 30 years I have been closely connected with the shop floor in one of our largest industrial areas. I could give an example of the way in which savings can be encouraged by industry and I go a long way to support my hon. Friend the Member for Colne Valley (Mr. Richard Wainwright) in saying, rightly, that the ordinary employee, certainly in the Midlands, is not too familiar with the joint stock banks. He has a hesitation about having a cheque book for the most part. This was shown by the considerable resistance and suspicion that accompanied the proposal for the payment generally of wages by cheque in the Midlands. Similarly, many workers shun the Post Office, perhaps for reasons not altogether connected with what we are talking about, until they

      1359
      reach the age when they go to a post office with their books to draw the basic pension.
      9.15 p.m.
      The shop floor and industry generally is, then the right place. My hon. Friend the Member for Colne Valley spoke about the atmosphere of the canteen that exists in about 95 per cent. of industry—the place where men and women can talk together and which, indeed, is the only communal place where they can talk about interest in group savings.
      A memory of 30 years ago was brought back to me rather painfully this week. In Birmingham, a small firm which started with about 80 employees grew to have over 1,000 through a mutual savings scheme operated by the employer and very happily enjoyed by the employees. The scheme was centred on the purchase of a canteen by the company on behalf of the employees and a share in the canteen and its profits was put into a savings account for each employee every month. That scheme stopped a few years ago when the firm was taken over by a large public company. Only this week the closure of the firm was announced. It is important to be prepared to recognise that if we want to see a substantial increase in new savings industry and the shop floor for the most part are the best place to start.
      The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) reminded us of something that might have applied to the mentality of 20 or 30 years ago on the subject of the issue of shares to employees. There are rises and falls in the share market all the time which must be taken into general consideration, but again I was reminded only this week, and the Committee should be reminded, that where there is no contact at board room or share-owning level between employer and employees one can often reach a stage, which an important company in Wolverhampton reached this week, when closure was announced overnight and every employee faced the loss of his job within a few days by the sudden appointment of an official receiver.
      Of course there should be a move towards co-ownership and every possible support for any sensible move that helps
      1360
      to give the employee a limited and active participation in the ownership of the company for which he works. Firms are quite accustomed to savings schemes. It is interesting to remember that practically every firm has to operate one unofficially at the moment. In order to pay its holiday credit each year each week it has to go through the administrative process of putting aside one-fiftieth of the employee's earnings in order to enable the employee quite rightly to have the money to enjoy his holiday. We would therefore not be asking for any great new administrative task in suggesting that the employer could play an important part—and some would do so happily—in the promotion of employee savings accounts. I hope that the Committee will not too readily dismiss some of the strong arguments in justification of the Amendment.
      Sir Brandon Rhys Williams: I am grateful to you, Mrs. Jeger, for giving me the opportunity of intervening, I hope at not too great length, before the Chief Secretary allows us to hear his observations. It so happens that new Clause 1, which I read only this afternoon, seems to run with thoughts which have been developing in my mind for a considerable time. I am only too happy to give my support to the ideas contained in new Clause 1, and particularly to congratulate the hon. Member for Colne Valley (Mr. Richard Wainwright) on moving it so ably and convincingly.
      For a long time I have felt that the most dramatic need hanging over the economy was an increased propensity to save in the private sector. The Government have solved the shortage of savings to some extent through a method which is entirely unacceptable to the Opposition, that is to say by raising taxation and achieving a form of compulsory saving—it might be known as the nationalisation of savings. New Clauses 1 and 3 are an atempt to show that the private sector is not finished where savings are concerned; but it needs encouragement from the Government.
      A very good principle is involved in the slogan, " Save now, pay tax later " or, considering the terms of new Clause 3, " Pay less tax later ", or even, " Save now, pay no tax later ". But before

      1361
      the Government consider giving concessions to the private sector to encourage savings, it would be useful to do an exercise, as a businessman might, and decide what is the target, what are the roles of the various parties involved, and to set the plan in the context of the economy as we see it today.
      First, what is the target? How much savings are we trying to obtain by means of the sort of concessions which we are now considering? It would not be unrealistic or too ambitious to say that what we ought to be saving in this country is about 20 per cent. of the national product, but I am told that the actual figure is now between 5 per cent. and 7 per cent. That is plainly not enough; it is probably not enough simply to replace the existing stock of capital and certainly not enough to enable us to compete with, for instance, the Japanese in the 1970s and the 1980s. My view is that the target for saving in the private sector should be about 20 per cent. I do not know, but I am inclined to doubt whether either New Clause 1 or New Clause 3, if adopted precisely as they stand, would achieve as much as 20 per cent. saving within a measurable time.
      If one is to think of this type of saving as arising automatically from employment, it may not be out of place to consider some slogan such as, " Ten minutes in the hour ". There are 60 minutes in the hour and one might allow oneself, say, 50 minutes for current consumption and 10 minutes for the future, 10 minutes against 50 gives 20 per cent., which seems probably the minimum at which we should aim.
      Of course, a great deal of saving is now going on in the private sector and one must particularly take into account contractual savings and savings in occupational pension schemes. What exactly is the employers' rôle? In New Clause 1 it is clearly intended that these schemes should be adopted at the instigation of employers. Suppose that the employer and employee are equally responsible for putting money aside for the future. The employer should therefore aim to reach 10 per cent. out of the 20 per cent. The National Superannuation and Social Insurance Bill makes it incumbent on employers to put about only4¾ per cent. towards the provisions of
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      pensions, and that only on a band of earnings up to £1,900 a year.
      I was extremely surprised and disappointed to find that under that Bill the percentage which employers were expected to put into savings schemes was under 5 per cent. But one cannot load too many burdens on to employers all at once; they are staggering under the weight of the burdens which they are carrying now. One perhaps might hope that employers should have it made incumbent on them that over a span of years—perhaps five or six years— their contribution to employees' savings funds should rise progressively from, say, 5 per cent. in the first year to 10 per cent. after the passage of time.
      That may seem to some people a wild or excessive suggestion. But all good employers are already doing at least that through their occupational pension schemes. A generous occupational fund aimed to give a pension of, say, two-thirds of final earnings on retirement is likely to require 15 per cent., or thereabouts, in current contributions as time goes by.
      Neither of the proposed schemes places sufficient emphasis on the obligation of the employer to contribute to some savings device; but if the best employers are already paying 10, 15 and, in some cases, 20 per cent. per annum into savings schemes on behalf of their employees, I do not see why over a period the State should not make it part of the contract of employment that all employers should do so. At present the best employers are putting themselves voluntarily at a disadvantage in competition with employers who do not honour this aspect of the contract of employment.
      So much for the employers' rôle which, I am not ashamed to suggest, should gradually become obligatory. What about the rôle of the employees? Do we feel that the national emergency demanding a transfer of resources from current consumption to savings and investment is so dire that we must make it obligatory on employees to give, say, 10 per cent. from their earnings from employment to some kind of savings fund? It can be argued that the need for saving and investment in the private sector is indeed so great that we should envisage it, but I would not wish to do so. If we are

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      on the way to a property-owning democracy—and that is not a slogan which one hears only on this side of the Committee —it must be one in which a man has arrived at a state of ownership of savings by his own endeavours and not by compulsion.
      In passing, may I deliver myself of a sentiment about occupational schemes which contain a compulsory element of contribution from employees? I know that there are arguments in favour of employers obliging employees to set money aside in this way. It is, not universal, but very common to find compulsory contributions to savings of 4 and 5 per cent. in well managed and reputable occupational schemes. Nevertheless, we should stick to the voluntary principle. I hope that in due course there will be a phasing out of the contributory occupational pension scheme, although in general my heart is in favour of encouraging to the maximum employees to put something aside out of their earnings for personal saving. I am not attracted by the theory that the employer has the right to compel an employee to dispose of his earnings in any specific way, and there are particular objections to employers obliging their employees to put their savings into occupational schemes which are final-salary related. A final-salary related scheme means that the value of the man's savings are ultimately determined not by himself or the market but by the employer's estimate of the man's earning capacity in his last few years. This introduces an arbitrary factor which is not appropriate in any compulsory savings scheme.
      Under the new principle embodied in new Clause 1 and new Clause 3, how are we to induce the new savings at the rate we want? We should aim to give tax concessions of the most seductive kind, to make savings so attractive and so interesting that the savings habit will rapidly become universal. It is not easy to pick upon a form of taxation concession which is likely to achieve the desired result all at once. New Clause 1 suggests the simple principle of the tax not becoming payable until the money is eventually drawn out of the fund. New Clause 3 suggests that there should be no tax at all provided the man is willing to tie up his money for at least five years. This
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      is similar to the principle of the Government's Save-as-you-earn scheme. Neither of those proposals says the last word on tax concessions. Will the Chief Secretary tell us how the Government's thinking is developing? He too must be aware of the need to stimulate saving in the private sector.
      Apart from tax concessions, one needs freedom to invest in equities or property or in an asset in which people still have confidence after years of inflation. The equity market at present may not give people too much confidence that their assets will retain their value in face of depreciation of the currency; yet over a period of years the equity market has given a considerable degree of protection, and more than protection, against changes in the value of money. The relative lack of success of the Government's save-as-you-earn scheme shows that if money has to be invested in a fixed interest security the scheme will not catch the attention of the public. I therefore commend the intention of new Clause 1 to allow any class of security to be deposited in, and presumably to be purchased by, this type of scheme.
      If, however, the money is allowed to go into equity investment, it must be admitted that the money will go into speculative investment. It would be disastrous for timid people who are embarking for the first time on accumulating new savings, especially through a Government induced scheme, to find that their savings, either through misadventure or, in an extreme case, misappropriation, were being lost. I therefore do not accept what appears to be the intention of new Clause 1, that any class of fund would automatically attract the approval of the Inland Revenue for the purpose. We should go much nearer the type of restriction that the 1956 Act placed on occupational savings for self-employed persons and have a tightly drawn-up list of approved funds to which public savings could go under this type of tax concession.
      There is a vexed problem in the withdrawal of savings from these schemes. The 1956 Act has not succeeded in creating a large flow of savings from self-employed people. It gives the attraction of total freedom from income tax and from capital gains, but it has apparently a fatal flaw in the fact that money once

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      subscribed under the 1956 Act cannot be withdrawn. People setting money aside for retirement are often afraid that business fluctuations, or some accident in the home, or problems of an unforeseeable nature, will place upon them the urgent need to mobilise their savings and all the assets they can lay hands on. The relative failure of the 1956 Act is not so much due to the upper limit that is built into it, but due to the problem that if a man requires to withdraw his savings unexpectedly, he is stuck. He is either penalised or he finds that the rules do not permit it.
      I am not too happy with new Clause 1 in this respect, because the incidence of tax on savings might be variable. If a man were to accumulate a fund of £5,000 or £10,000 with the passage of time and was then to draw it all out in one year, it seems to me that the clause would make him liable for income tax on that sum and surtax, too. This would be an insuperable obstacle to people accumulating large sums in these funds because they would recognise the danger of the whole amount disappearing in surtax all at one time.
      In occupational schemes in the private sector there has been a great deal of dispute over a number of years over what happens to a man's own contributions if he chooses to change his job and draws out his own contribution. I support what the Government have done in sticking to the existing freedom of an employee to withdraw his savings from occupational schemes when he changes his employment. But we need to have a longer look at the tax concession, which I feel is too generous in regard to schemes under section 379.
      One possibility is that one might apply to sums withdrawn from tax-concession saving schemes of all kinds the composite rate of tax used for Building Societies. I understand that this annually-negotiated composite rate is an attempt to arrive at the average true rate of income tax paid by the average person. I know that this is one of the most technical fields of tax, but the standard rate of tax appears to be inappropriate and if a man's own circumstances made him liable for surtax at the time when he withdrew his savings, that would not be appropriate either.
      There is an alternative which might commend itself to the Chief Secretary.
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      In occupational schemes we are working our way towards the idea of a lump sum which would be more or less automatic. Nobody is more enthusiastic about that idea than I am. The entitlement to a lump sum at the end of a career is one of the great attractions of the Civil Service occupational scheme. If it becomes normal in all occupational saving schemes for superannuation purposes that a 25 per cent. lump sum should be permitted, the concept will grow in the mind of the public that within each fund is a lump sum element building up as well as an entitlement ultimately to an annuity. It will be assumed that the fund is split between lump sum provision and money accumulating for the purpose of an annuity. If the lump sum is available on the attainment of the age of 65, it would not be inappropriate to consider allowing people to take out this lump sum at any time, particularly in the event of an emergency.
      The tax considerations are rather knotty and I realise that the British public contains people who are ingenious in devising ways round their tax obligations. People might soon learn to take their 25 per cent. lump sum every three or five years in order to evade tax. Some sort of tax no doubt would have to be paid on the 25 per cent. lump sum. But the more generous the tax concessions given in a scheme of the kind suggested in new Clause 1 or new Clause 3, the more necessary it will be for the Government to give serious attention to the circumstances applying when, for one reason or another, the owner of the savings decides that he wishes to withdraw a part of them.
      There are a couple of other considerations which are relevant. For example, what about an upper limit on the amount which people can put into these schemes every year? I suggested just now that our slogan should be, " Ten Minutes in the Hour ". I stand by that. But if " Ten Minutes in the Hour " is good, some people may say that " Twenty Minutes in the Hour " is even better. People like authors or actors with highly fluctuating earnings might try to take advantage of such a scheme to hide large parts of their incomes from the clutches of the Revenue.
      New Clause 1 is especially ungenerous here, so much so that it is likely to make

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      the scheme of little value in that it suggests an upper limit of only £200 in any year. One of the criticisms of the 1956 Act is that its upper limit is set too low at £750. The proposed £200 seems to make this altogether too tentative a beginning, and I would not agree to it in the long run, though that does not alter my support for the Clause in general.
      I would prefer the upper limit to be not an absolute sum but a percentage of the relevant year's income in total. Possibly it might be advisable to spread it over an average of two, three or five years and calculate the upper limit as a percentage moving over a period. However, that is a matter which would need to be given further study.
      I come finally to the question of when a reform of this kind should be introduced. I do not think that the Chief Secretary will recommend tonight the acceptance of new Clause 1. However, I urge him to accept that this idea is not just a kite or an interesting way of speculating in the course of an evening. It is a serious contribution, and so is new Clause 3, to a solution of the national emergency now arising through the shortage of savings. The time to introduce an imaginative scheme to stimulate the interest of the public in saving is now.
      The solution to our inflation problems is to invest our way out of inflation. The old classic description of inflation is, " Too much money chasing too few goods ". The Government have tried to reduce the amount of money, but they have done it in a way which has reduced the supply of goods as well. They have, at any rate, acted in a very unfriendly way towards investment both by raising interest rates to astronomical heights and by placing curbs on bank advances for investment purposes.
      A Government initiative to encourage private savings on a very large scale should have two principal objectives. The first is to reduce demand for the current supply of goods and services. The second is to increase the supply of a large number of goods and services in the long run by making available very much larger volumes of money for the capital market. Let the surplus of money which is troubling the economy at the moment be
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      converted into a superfluity of goods in the future.
      9.45 p.m.
      Mr. Diamond: I do not want to limit the debate, Mrs. Jeger. If any hon. Member is anxious to speak I will sit down after I have said the one thing that I am most anxious to say. I think that I can say, on behalf of the whole Committee, that we feel extremely privileged that we are the first to have the enjoyment of seeing you occupying the Chair with such grace and charm.
      Having said that, I will give way.
      Mr. Kenneth Baker: Such gallantry.
      I was rising only to express rather less enthusiasm for new Clauses 1 and 3 than some of my colleagues. None the less, these two new Clauses are being moved in the context of a declining level of National Savings both in the public and private sectors. I do not think that hon. Members on either side, even in election year, can take any joy from the fact that National Savings last year declined by about £125 million.
      We are also faced in the private sector with a considerable degree of disinvestment to the unit trust movement and also, to some extent, to the investment trust movement. This is a depressing and discouraging trend, because the economic growth that we all want—better factories, better machines and expansion—will only come from the small savings of relatively modest people. These savings are not being invested as they should be, constructively and effectively, in industry. Our savings ratio is one of the lowest in the developed countries. It is between 6 and 7 per cent. at the moment. Hon. Members have quoted repeatedly in the debate that in Japan it is over 20 per cent., and it is much higher in many Western European countries than the rate we are achieving. This is the context in which the new Clauses are being discussed.
      I believe that the only effective way to stimulate savings is for a Government, over a period of years, to do something to stop the rate of inflation. When the underlying value and purchasing power of money is being eroded at the present rate, why bother to save? When inflation is increasing this year at, I estimate, about 8 per cent.—I doubt whether the

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      Chief Secretary will deny that figure—it is ridiculous to invest, for example, in gilt-edged securities, which yield only 9 per cent., because one is worse off at the end of the year.
      Mr. Sheldon: In calculating the figure that the hon. Gentleman gives for inflation, we must deduct from the increase in costs through wages the actual increase in productivity. Assuming that wages may increase by as much as 10 per cent., a 3½ per cent. increase in productivity would mean a price increase of 6½ per cent. We are seeing figures of that kind on the Continent.
      Mr. Baker: That is a most interesting point. Taking the basic figures of the hon. Member for Ashton-under-Lyne (Mr. Sheldon), one gets 6½ per cent. But I suspect that the real wage inflation, allowing for wage drift towards the middle and latter part of the year, will probably exceed 10 per cent. I suggest that it is likely to be about 12½ per cent. If we achieve an increase in productivity of 3½ per cent., which would be a record for the six years of Labour Government, having started with 12½ per cent., it would be 9 per cent. Perhaps the Chief Secretary in winding up will give his view on what it will be this year.
      The Prime Minister was repeatedly asked at Question Time on 7th May by my right hon. Friend the Member for Barnet (Mr. Maudling) for his estimate on inflation this year. The Prime Minister refused to answer that question on three sperate occasions, referring my right hon. Friend to the Budget Statement. But there is nothing in the Budget Statement which specifically states what the rate of inflation will be this year. I have hazarded a guess of 8 per cent. The hon. Member for Ashton-under-Lyne thinks that it may be a maximum of 6½ per cent.
      Mr. Sheldon: I was not giving my view of the rate of inflation. I was saying that, given the hon. Gentleman's most pessimistic figures, it would be 6½ per cent. I think that it will be considerably less than that.
      Mr. Baker: I hope that when the Chief Secretary replies to the debate he will give us his view, because it is awaited with interest. Until my view is refuted I maintain that it forms the basis for argument. When inflation is as high as that,
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      ordinary people are discouraged from saving, and rightly so. The most important thing is to get the climate right for saving and to persuade people that it is worth-while saving, because when money is being eroded someone might as well spend it on almost anything, preferably on something which will retain its value, but which is not very productive. Old pictures, old furniture, and things like that are almost certain to go up in value, but money spent on those items will not increase productivity by any per cent. at all.
      I have some reservations about the two new Clauses, because I think that they are rather gimmicky. Both would set up funds which would have special investment positions. They would be exempt from capital gains tax, and to some extent exempt from corporation tax and Schedule F. When it is necessary to produce gimmicks of that sort to stimulate savings, it reinforces my earlier argument that people have lost the saving habit, and it is only from savings that our growth can come.
      New Clause 3 contains one of the most unattractive features of any fund— a split fund between Government stock and equity shares. The House of Commons Members' Pension Fund is invested in this way, and its rate of growth is a disgrace. It would be much better if the trustees of the fund had decided to invest in the equity market and not in gilt-edged at all. We would all be better off in our old age if this decision were made as quickly as possible.
      Mr. Lubbock: Would it not be better if we had the money to invest ourselves instead of having somebody else to do it for us?
      Mr. Baker: I could not disagree with that at all. I do not want to go far beyond the point, but I think that our fund needs a great deal of looking into and investing in a more attractive way.
      I draw the Chief Secretary's attention to the rather interesting scheme written about in the Economist only a fortnight ago to try to stimulate small investors to invest in Government stock. Basically, small investors do not invest in Government stock, but if a Government stock could be issued with an interest rate which grew as the gross national product grew we would get a degree of growth

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      into that stock. It was an attractive scheme, but I see some bugs in it. Nevertheless, it contained an interesting germ, and perhaps the Chief Secretary could talk about the germ when he replies to the debate.
      I do not believe that any effective increase in savings will ever be achieved unless the Government are prepared, over a series of years, to commit themselves wholeheartedly to checking runaway inflation. During the last six years we have had a Government who have encouraged inflation at double the rate when we were in power. This leads me to the almost irrefutable conclusion that there will be no real rise in the savings ratio as long as the Labour Government are in power.
      Mr. Diamond: I am sure that there is no need for me to say that what does not divide the Committee is the desire to see savings increased and the savings habit being formed and encouraged. First of all, therefore, as evidence of the earnestness which the Government apply to this, I should like to say something about the Government's' savings scheme, Save-As-You-Earn, the success which it has achieved so far and the thinking which went into it. This may have some relevance to what I would then say about the two schemes before us.
      The total amount committed to date over the five years to the Government scheme under the three bodies under which it can arise—the Trustee Savings Bank, National Savings and building societies—is about £178 million. The hon. Member for Wanstead and Wood-ford (Mr. Patrick Jenkin) was good enough to say that it has gone up. It has gone up, and it is going up, and I very much hope that it will continue to go up. It is going up very satisfactorily. That is based on contracts received in the first five months and it is a very encouraging start.
      As to our thinking behind the scheme, first was the desire not only to encourage savings but to encourage new saving, to find a system which was not only a switch of savings but would encourage a new savings habit. Two things seemed absolutely essential for that purpose. The first was that, in order to encourage the habit, there had to be some kind of contractual savings scheme, under which
      1372
      there were contributions by the saver over a period.
      The second thing which seemed to me at all events to be essential was that not only should the saver have the right to withdraw at any time if he needed to but that under no circumstances could he make a loss. The kind of saver whom we are looking to, the small saver, the new saver, not the switcher, has not got anywhere near the stage at which he can contemplate and understand the reason for a loss and not be wholly deterred from future saving if, after saving a given amount over a given period, he had to take it out, perhaps because of a misfortune in the family, and could recognise a loss.
      So those are the two essentials to building up a savings habit of the kind which we are all seeking to establish and encourage. I have not said in that a word about income tax, because the incentive was not intended to be a tax incentive. It was a contractual savings scheme with a very good guarantee in return, particularly if the seven-year period was awaited. But, as one was looking to small savers, to those to whom a tax benefit would be of no immediate benefit because they were not standard rate taxpayers necessarily, one did not want to burden them with the need to make an income tax return which they would not otherwise have to make in respect of the income or other benefits derived from the scheme.
      Therefore, it was right, mainly for administrative reasons and only incidentally by way of incentive reasons, to have a scheme under which there was freedom from taxes of all kinds. That is the way in which we approached it. It has started very recently and it is going well. We all wish it well and none of us, therefore, wishes to put too much of a competitor against it until it well established. It is against that background that I now wish to consider the two proposals which we are discussing.
      10.0 p.m.
      There is no contractual element in the scheme proposed by the hon. Member for Colne Valley (Mr. Richard Wainwright). That is a lack of merit, if I may come to the one point where I think that there is a lack of merit. I do not think that the savings habit can

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      be encouraged by a once-for-all or voluntary arrangement of that kind.
      There are one or two other difficulties. They have been discussed before, because the scheme has been discussed before, but one strikes me as particularly important. It is that the ability to save in a scheme like this would depend on the co-operation of the employer. Therefore, there would be some who would save in this beneficial way, particularly beneficial to them, and others who would' not have the same facility. This would be haphazard and perhaps a little unjust. What I am saying is that our scheme of Save-As-You-Earn is to be preferred, for the reasons I have given. For the time being, at all events, one should not look towards another scheme which is less attractive, but which would be intended to compete and which would inevitably involve a good deal more switching than does the Save-As-You-Earn scheme.
      I cannot tell hon. Members how much switching goes on with the Save-As-You-Earn scheme. It is not possible to make any analysis and give a precise indication. The likelihood is that the switching is considerably less than the likely switching under the Liberals' scheme, but I am not saying anything more than that. I am certainly not closing my mind to savings schemes in general. I am considering what are the best at the moment and how much one can take on at the moment.
      I come now to the Conservative scheme. One of the difficulties is that it does not have safeguards against loss. To indicate my anxiety about this, I go back five years. The amount by which the Financial Times all-share index has varied over the last five years up to today or yesterday is, for all practical purposes, nil. Whatever the cause may be, the fact is that it is nil. Therefore, anybody investing would have as the benefit of the investment in equities, assuming them to correspond with the Financial Times index, nil. I understand that dividends are to be ploughed back, but there would be nil benefit on capital accumulation, and that is one of the main incentives of the scheme.
      Mr. Kenneth Baker: It is nothing to be proud of.
      Mr. Diamond: We are all considering how we may best promote further sav-
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      ings. The hon. Member may feel proud and may invite me not to feel proud, but that is not what is at issue. The issue is how best we can get together to promote savings schemes. The hon. Member is interested in doing that and I am. The Committee is asking me to consider savings schemes and the hon. Gentleman and his party have put forward a scheme. I am jobbing backwards to see what would have happened if the House of Commons had had the benefit of the hon. Members' membership five years ago and we had entered into a scheme then when his party was in power.
      The Financial Times index this time last year was 428 as against 358 yesterday. Anyone who entered the scheme a year ago and had need to draw out his investment after a year would find himself making a substantial loss. I do not think that we have reached a stage where a savings scheme which had the possibility of a saver making a loss would commend itself to the Committee. Certainly it would not commend itself to the Government at present. I do not want to close the door to any kind of scheme such as that put forward by the Wider Share Ownership Council, but we have to encourage new savings. We have to encourage the saving habit and we shall discourage it if we subject a possible saver to a possible consequence of that kind. So I do not propose to the Committee that we should at present consider expanding our savings scheme. We have a very good scheme which has got off to a good start. Let us encourage it on the right road. I am grateful for what has been said by every hon. Member who has spoken in this debate. I think that what we are doing is the maximum that we can reasonably do at present.
      [Mr. GOURLAY in the Chair]
      Mr. Maurice Macmillan: The Committee has become so accustomed to the degree of specialisation from this bench almost matching that of the Front Bench opposite that I should perhaps apologise for this intrusion of health into finance. However, I do so as in some sense representing the efforts since it was founded 12 years ago of the Wider Share Ownership Council to which my hon. Friend the Member for Wansted and Woodford (Mr. Patrick Jenkin) so kindly referred. A great deal has been

      1375
      achieved to encourage both spending and investment, particularly equity investment in those years. The growth of the unit trust movement among other things shows clearly the change of view and of heart among many people apparently not served tonight at any rate by the Chief Secretary.
      From various sources and with the work and help of hon. Members on the Liberal benches and also on the Labour benches we put forward from time to time to successive Governments ideas very much on the pattern of these two Clauses. One was the forerunner of the Save-As-You-Earn scheme, which was turned down with very much the same arguments that the Chief Secretary has put forward today. I was absolutely fascinated by the line of argument he took from the Financial Times share index. It appeared to me to indicate that all these wicked capitalists who have to be treated with capital gains tax and concentration of wealth in the hands of fewer and fewer people which we on this side of the Committee are seeking tonight to alter is an illusion and that owners of equity shares have not made any profit or capital gains at all. I find this extremely hard to believe.
      I do not think the Committee will pay—I hope it will not—too much attention to the somewhat narrow, technical and selective arguments put forward from the Treasury Bench tonight. They reflected arguments which have been put forward in the past which happily slowly and inevitably have been overcome. The schemes put forward in these two Clauses are the last of a larger package including such suggestions as started in the Post Office Savings Bank, the equivalent of the special investment department of the trustee savings bank and others, all of which were opposed by the Government of the day—I am not blaming the right hon. Gentleman's Government specifically on this—and they have now eventually been brought into being.
      What I am blaming the right hon. Gentleman for is the fact that the change of heart and attitude which many members of his party have had, an attitude which has been shown by both Liberal and Tory speakers tonight, does not seem to have penetrated the Treasury Bench. The small saver is still constrained. The
      1376
      tax system encourages him to lend mainly to the Government at fixed interest. It is still difficult for him to invest in equities. He is in some ways thereby unfairly disbarred from the hedge against inflation which one at least of these Clauses would provide for him.
      Both of these Clauses seek to remedy just this situation. In doing so, they are not alternatives, as the hon. Member for Colne Valley (Mr. Richard Wainwright) pointed out; nor, still less, are they mutually exclusive. They are, rather, complementary.
      In the same way, in the matter of saving and investing his savings in the growth of industry and of production, the small saver is at a disadvantage. He is virtually forced to be a lender and all but prevented by our present system from becoming an owner. These Clauses go a little, and only a very little, way to putting this right. We must all be very disappointed that the Chief Secretary cannot go with us this very little way, especially as I believe—this was hinted at from the Treasury Bench, as well as by other hon. Members—that part of the difficulty that the Government in particular have in getting new savings is that new savings do, as the Chief Secretary admitted, require new media with new attractions and new concepts more in line with the needs of the modern world.
      But the right hon. Gentleman did not admit that part of the attractions and part of the new need is a guard against inflation, which seems to be endemic in the whole world and in the United Kingdom under this Government to have reached chronic and alarmingly high proportions. Because for most people, without some such chance of guarding their savings against erosion by inflation, goods are far more valuable than money. To most people spending can well be a great deal more advantageous than saving, particularly spending on durable consumers. I think that the pattern of recent years shows this extremely well. This is the situation which we, in putting forward our Clause, are trying to safeguard by bringing an equity element into contractual saving and investment.
      Most important of all are the political and social implications underlying both these Clauses. There is the need for the small investor, the small saver, the

      1377
      new investor, to be able to invest directly in industry, with some safeguards, which we have provided.
      The Secretary of State for Social Services once said that private investment was irrelevant. However, as the hon. Member for Colne Valley reminded us, the National Board for Prices and Incomes did not agree with that Secretary of State and was anxious, as long ago as two years, that the ordinary worker on the shop floor should be able to share in the capital growth of industry and thereby become a long-term shareholder, for his profit, his benefit and his security; but also, I suggest, for a sense of participation that only a share in the benefits of industry can bring—participation in the growing wealth of the country. For surely, without such participation, increasing affluence means simply an increase in materialism and might well lead to the charge of a candy-floss society.
      10.15 p.m.
      Unless more people can share in the benefits and responsibilities of ownership thereby safeguarding their freedom, pride and independence, this will happen. We need growth, yes, but surely towards a responsible society. The increasing attribution of the growth in real wealth to machines and their work requires a spread of share ownership which is slightly helped by these Clauses so that everyone can have a share in the rising income as well as the capital growth of industry. I am sorry that the Chief Secretary appears to reject these arguments. I wish that in putting forward technical and perhaps professional objections to these new Clauses he had had something to say about the principles underlying them.
      I know that he must feel a need to protect his new system. I have heard that argument time and again inside and outside the Treasury and have never yet been totally convinced that a new scheme such as is put forward in these new Clauses will damage the S.A.Y.E. plan unless he is not confident that the plan gives a good bargain to those subscribing to it. If he is frightened of fair competition then let him look to the details of the scheme or take ours in its place. We are confident that there is room for all three.
      In what he did not say rather than what he did say the Chief Secretary im-
      1378
      plied a willingness to accept a form of society where the share in rising income and capital growth of an expanding industry is available to most people only through the Government control of investment and wages, savings and pensions, the product of investment. It is for this reason that we on these benches will be happy to support the Liberals although it is only fair to make it clear that we are not seeking a separate Division, not because we do not wish to support our own Clause but because it is easier for the Committee if we say now that we are voting for new Clause 3.
      Mr. Lubbock: I am extremely grateful to the hon. Member for Farnham (Mr. Macmillan) for his kind remarks about the new Clause tabled by my hon. Friend the Member for Colne Valley (Mr. Richard Wainwright) and for the arguments he put forward in support of it. In recommending my hon. Friends and his colleagues to vote in favour of our new Clause we are in no way derogating from the force of the arguments that he has put forward in favour of that tabled by the Wider Share Ownership Council.
      I agree with everything that he has said. I understand his point when he says that the arguments we have deployed this evening have been put forward on numerous occasions in the past. When the Chief Secretary and his colleagues have disputed with us the merits of this new Clause they have used arguments based on the conventional wisdom of the Treasury and those who support financial orthodoxy rather than those who are concerned, as we are, to support new kinds of savings which will benefit the economy as a whole.
      The hon. Member rightly pointed out that our tax system at the moment encourages savers to lend to the Government at a fixed interest. We must make a distinction in the incentives we give to savers between the person who is a member and the person who is an owner of the enterprise in which he invests. That is one of the most important elements of new Clause 1.
      The other, which again has been emphasised by the hon. Member for Farnham, is that we need to provide, in any mechanism of savings, some kind of ledge against inflation, which is uppermost in the minds of most people who are considering putting some money aside. Of

      1379
      course any new scheme is bound to affect those moneys which are deployed in existing savings, but I will try to produce a counter argument of some importance in a moment.
      The Chief Secretary made a perfunctory speech. He rightly said that what does not divide the Committee is the need to increase savings. He spoke in unwarrantedly flattering terms of the results so far of the S.A.Y.E. scheme, saying that £178 million had been committed over the next five years, as though this were something of an achievement. But if one looks at the amounts actually invested in the six months that the scheme has been in existence—we have figures only up to the end of April—one finds that the total amount of payments comes to £6 million and not to the £178 million he quoted, which may be committed over the next five years if all those who have invested so far continue to put their money into the scheme over the whole period.
      The right hon. Gentleman said that the point of the S.A.Y.E. scheme was that, under no circumstances—[Interruption.] It is rather difficult to make a speech against the background of conversation which is going on opposite. [Interruption.]
      The Deputy Chairman: Order. Perhaps the Committee meeting at the end of the Chamber would remove itself.
      Mr. Lubbock: It is rather difficult to deploy this type of argument when hon. Members at the end of the Chamber are discussing something quite different.
      The right hon. Gentleman said that an important element of the S.A.Y.E. scheme was that no one could make a loss and that that was to be commended. But people can make a loss in other forms of investment, such as bingo and football pools, and I do not suppose that the Chief Secretary is saying that no one should put money into bingo or football pools. This is a matter of free individual choice. Although there is an incentive in S.A.Y.E., in an extremely good and guaranteed rate of return that is not necessarily what the saver is looking for. As we know from the Premium Bond scheme, he is also interested in a large capital return which is free of
      1380
      income tax and provides a great incentive to investors.
      The Chief Secretary also said that our proposals depend on the co-operation of the employer, as though that were a disadvantage. As my hon. Friend said, when this was last debated, the trade unions are not powerless. If these proposals have any value, then of course the representatives of the workpeople can demand of the bosses that they should co-operate in such a proposal.
      My hon. Friend pointed out that, as soon as the thing had caught on, many other people would wish to join and it would be very difficult for any sizeable employer to stand out against a demand from his workpeople to provide these facilities.
      Then the right hon. Gentleman rather suggested that S.A.Y.E. should not have any kind of competitor. I think that is a defeatist attitude. I am coming to the S.A.Y.E. scheme, but I must say that if he has as little confidence in it as that I am disappointed with him. I would have thought that after rather less than a year of operation—it did not come into force immediately after the Finance Act, 1969—he would have been slightly more optimistic about its future than he appears to be.
      Finally, the right hon. Gentleman pointed out that the Financial Times index has dropped in the last year and that if employees had been induced to join such a scheme as we propose they might have become disillusioned with it because they would have lost part of their money. In any such scheme there must be a fixed interest element. We are not suggesting, as I am sure he realises, that the whole of the money invested on behalf of the employees should go into equity stocks, although if one looks at the situation over a period of years the employees would have benefited if the entire amount of their subscriptions had been thus invested. If he is taking the last year as an example, it is not particularly illustrative of the trend over a period of years.
      The hon. Member for Acton (Mr. Kenneth Baker) pointed out that our savings ratio has been one of the lowest of any industrialised country, quoting the case of Japan where, he said, 20 per cent. of the gross national product has gone into fixed investment. He said that this

      1381
      was an example we might try to emulate. But why should any saver bother to put money aside when inflation is galloping at the rate of about 8 per cent. a year? He said that perhaps during the current year wage inflation might reach as much as 12 per cent. whereas productivity would only improve by as much as 3 per cent. Although he had some argument with the right hon. Gentleman about the precise details, I think that most of us would agree that the value of money is likely to decrease by something like 7 to 8 per cent. during the current year. That is not an unrealistic figure, although the right hon. Gentleman may dispute it.
      We must look at this aspect when we consider the sort of returns offered by S.A.Y.E. and equivalent schemes. If the right hon. Gentleman says that he does not agree with these figures, what is his explanation of the dis-saving which has occurred in recent years and the reluctance of potential savers to join even such apparently attractive schemes as S.A.Y.E.?
      I turn now to the question of savings in general. Why is it in the doldrums? On 11th April, The Economist commented on the Report of the National Savings Movement for the last financial year:
      " National savings had such a rum time in 1969–70 that even Sir Miles Thomas, chairman of the National Savings Committee, described it as a ' very difficult year '. The movement has not been notable for dynamic growth since the mid-1960's, but last year even undistributed interest—which in 1968– 69 tipped the scales for a small net gain—could not save it from a £60 million net disinvestment."
      The Chancellor and the Chief Secretary may claim that the S.A.Y.E. scheme has not had time to produce its full effect.
      10.30 p.m.
      I daresay that the right hon. Gentleman, who did not adduce this argument, was being modest and would have done so if he had thought that it would carry weight with hon. Members, but at least he came part of the way along the road with us in having a scheme for contractual savings of any kind, even though it could not be claimed that the S.A.Y.E. scheme is likely to make a significant contribution to the total volume of savings.
      I return to the statistics which I quoted from the Monthly Bulletin of Statistics and Economic Information. This shows
      1382
      that during the first six months we have received only £6 million from this source compared with the £178 million which the Chief Secretary quoted.The Times of 2nd February, 1970, said:
      "It seems that it will take more than S.A.Y.E. to reverse this trend."
      That was the trend towards dis-saving which was discussed in the remainder of that leader, especially the non-realisation of the ideal mentioned by the Chancellor in his 1969 Budget—that direct taxation and, for that matter, indirect taxation, might be reduced to the extent that the private saver could be encouraged to put more money aside.
      Yet, unless we can reverse this decline in personal saving, the scope for tax reductions, as the Chancellor anticipated in 1969, is that much more limited. When a Liberal new Clause dealing with much the same principle was debated in 1967, the hon. and learned Member for Derby, North (Mr. MacDermot), then Financial Secretary, adduced several arguments against it. Some have been rehearsed again this evening, but it is interesting to see which have been left out.
      First, the hon. and learned Member mentioned the difficulty, which is common to all schemes for the encouragement of savings by way of tax relief, that no one has yet succeeded in making sure that the benefit goes to the new saver. We accept at once that if a new form of savings is more attractive than others already on offer, a great deal of the money flowing into that new scheme must come from withdrawals from other methods of saving.
      Mr. Diamond indicated assent.
      Mr. Lubbock: I see the Chief Secretary agreeing. But it is important to bear in mind that the relative permanence of the investment in different types of schemes may be very different. For instance, if money is withdrawn from the Post Office Savings Bank in order to cover contributions which an employee may make under our new Clause, it is likely that that money will be retained as an investment for many years. The withdrawals from the Save-As-You-Earn scheme, and this is one of its advantages which I give to the Chief Secretary, it he wants to use it, have been negligible in the first six months of its operation.

      1383
      The same would be the case for savings invested under the Liberal new Clause.
      There is the argument used by the Royal Commission on Taxation, that tax relief on savings is inequitable as between one taxpayer and another, although it was said that it was reasonable to have the exceptions for life assurance already provided. But the S.A.Y.E. scheme is a fresh departure from the principle and, having made the breach, we can no longer pretend that this principle is of major importance in our taxation system.
      Thirdly, the hon. and learned Gentleman who replied to the debate pointed out that if savings are withdrawn in large lump sums and taxed in the year of withdrawal, the saver would find himself in a higher tax bracket and might even be elevated into the surtax bracket. I am interested that the Chief Secretary did not advance this argument tonight, and there are two very obvious answers to the question which must have occurred to the Government since that date. The first is that if the reasoning of the hon. and learned Gentleman were correct it would deter savers from making large withdrawals so as to avoid suffering the penalty of these very large tax deductions and thus there would be an increase in the total amount saved because of this deterrent. The other argument is
      that one cannot say in the same breath, as the hon. and learned Gentleman did, that the cost of the scheme would be disproportionate to the volume of savings if at the same time one is claiming that this disincentive exists.
      Finally, the criticism was made that the Clause favoured only one of many different kinds of savers. In our view, this is the essential merit of the proposal, because Liberals want to spread the ownership of shares as widely as possible, as does the hon. Member for Farnham. We are eager to use fiscal means of encouraging this kind of saving. If in doing so it is necessary to have discrimination as between one kind of taxpayer and another, we are happy to accept that. This is a very important principle which fits in with the Liberal idea of spreading ownership of industry among as wide a section of the population as possible.
      In view of the Chief Secretary's discouraging reply to our proposal and that sponsored by the Wider Share Ownership Council, we recommend our hon. and right hon. Friends to carry the new Clause in the Division Lobby.
      Question put,That the Clause be read a Second time:—
      The Committee divided: Ayes 152, Noes 221.

      Division No. 128.]

      AYES

      [10.37 p.m.

      Alison, Michael (Barkston Ash)

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

      Hordern, Peter

      Allason, James (Hemel Hempstead)

      Dodds-Parker, Douglas

      Hornby, Richard

      Amery, Rt. Hn. Julian

      Eden, Sir John

      Howell, David (Guildford)

      Archer, Jeffrey (Louth)

      Elliot, Capt. Walter (Carshalton)

      Hunt, John

      Astor, John

      Elliott, R. W. (N'c'tle-upon-Tyne, N.)

      Iremonger, T. L.

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

      Errington, Sir Eric

      Jenkin, Patrick (Woodford)

      Awdry, Daniel

      Eyre, Reginald

      Johnson Smith, G. (E. Grinstead)

      Baker, Kenneth (Acton)

      Farr, John

      Kaberry, Sir Donald

      Batsford, Brian

      Fisher, Nigel

      Kershaw, Anthony

      Bennett, Dr. Reginald (Gos. & Fhm)

      Fletcher-Cooke, Charles

      Kimball, Marcus

      Biffen, John

      Foster, Sir John

      King, Evelyn (Dorset, S.)

      Biggs-Davison, John

      Fry, Peter

      King, Tom

      Birch, Rt. Hn. Nigel

      Gibson-Watt, David

      Kirk, Peter

      Blaker, Peter

      Gilmour, Sir John (Fife, E.)

      Kitson, Timothy

      Boyle, Rt. Hn. Sir Edward

      Glover, Sir Douglas

      Knight, Mrs. Jill

      Bryan, Paul

      GorJber, Rt. Hn. J. B.

      Lancaster, Col. C. G.

      Buck, Antony (Colchester)

      Goodhart, Philip

      Lane, David

      Burden, F. A.

      Gower, Raymond

      Langford-Holt, Sir John

      Campbell, B. (Oldham, W.)

      Grant-Ferris, Sir Robert

      Lawler, Wallace

      Carlisle, Mark

      Grieve, Percy

      Legge-Bourke, Sir Harry

      Chataway, Christopher

      Griffiths, Eldon (Bury St. Edmunds)

      Longden, Gilbert

      Chichester-Clark, R.

      Hall, John (Wycombe)

      MacArthur, Ian

      Clark, Henry

      Hail-Davis, A. G. F.

      Maclean, Sir Fitzroy

      Clegg, Walter

      Hamilton, Michael (Salisbury)

      Macleod, Rt. Hn. Iain

      Cordle, John

      Harrison, Col. Sir Harwood (Eye)

      McMaster, Stanley

      Crouch, David

      Hawkins, Paul

      Macmillan, Maurice (Farnham)

      Crowder, F. P.

      Heart, Rt. Hn. Sir Lionel

      McNair-wilson, Patrick (NewForest)

      Cunningham, Sir Knox

      Heseltine, Michael

      Maginnis, John E.

      Davidson, James(Aberdeenshire, W.)

      Higgins, Terence L.

      Marples, Rt. Hn. Ernest

      Dean, Paul

      Holland, Philip

      Maude, Angus

      Maxwell-Hyslop, R. J.

      Pym, Francis

      Tilney, John

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

      Ramsden, Rt. Hn. James

      Turton, Rt. Hn. R. H.

      Mills, Stratton (Belfast, N.)

      Renton, Rt. Hn. Sir David

      van Straubenzee, W. R.

      Miscampbell, Norman

      Rhys Williams, Sir Brandon

      Vaughan-Morgan, Rt. Hn. Sir John

      Mitchell, David (Basingstoke)

      Ridley, Hn. Nicholas

      Waddington, David

      Monro, Hector

      Ridsdale, Julian

      Wainwright, Richard (Colne Valley)

      Montgomery, Fergus

      Scott-Hopkins, James

      Walker, Peter (Worcester)

      More, Jasper

      Sharpies, Richard

      Walker-Smith, Rt. Hn. Sir Derek

      Morrison, Charles (Devizes)

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

      Ward, Christopher (Swindon)

      Mott-Radclyffe, Sir Charles

      Sinclair, Sir George

      Weatherill, Bernard

      Munro-Lucas-Tooth, Sir Hugh

      Smith, Dudley (W'wick & L'mington)

      Wells, John (Maidstone)

      Murton, Oscar

      Smith, John (London & W'minster)

      Whitelaw, Rt. Hn. William

      Nabarro, Sir Gerald

      Speed, Keith

      Wiggin, Jerry

      Neave, Airey

      Stainton, Keith

      Williams, Donald (Dudley)

      Noble, Rt. Hn. Michael

      Steel, David (Roxburgh)

      Winstanley, Or. M. P.

      Nott, John

      Stoddart-Scott, Col. Sir M.

      Wolrige-Gordon, Patrick

      Page, John (Harrow, W.)

      Summers, Sir Spencer

      Wood, Rt. Hn. 'Richard

      Peel, John

      Tapsell, Peter

      Worsley, Marcus

      Percival, Ian

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

      Peyton, John

      Taylor, Frank (Moss Side)

      TELLERS FOR THE AYES:

      Pike, Miss Mervyn

      Temple, John M.

      Mr. Eric Lubbock

      Prior, J. M. L.

      Thorpe, Rt. Hn. Jeremy

      and Mr. Peter Bessell.

      NOES

      Abse, Leo

      Edwards, William (Merioneth)

      Lewis, Ron (Carlisle)

      Albu, Austen

      Ellis, John

      Lomas, Kenneth

      Allaun, Frank (Salford, E.)

      English, Michael

      Loughlin, Charles

      Alldritt, Walter

      Ennals, David

      Lyon, Alexander W. (York)

      Allen, Scholefield

      Evans, Fred (Caerphilly)

      Lyons, Edward (Bradford, E.)

      Anderson, Donald

      Evans, loan L. (Birm'h'm, Yardley)

      McBride, Nell

      Archer, Peter (R'wley Regis A Tipt'n)

      Femyhough, E.

      McCann, John

      Armstrong, Ernest

      Finch, Harold

      MacDermot, Niall

      Ashley, Jack

      Fletcher, Raymond (Llkeston)

      Macdonald, A. H.

      Ashton, Joe (Bassetlaw)

      Fletcher, Ted (Darlington)

      McElhone, Frank

      Atkins, Ronald (Preston, N.)

      Foot, Rt. Hn. Sir Dingle (Ipswich)

      Mackenzie, Gregor (Rutherglen)

      Atkinson, Norman (Tottenham)

      Ford, Ben

      Mackie, John

      Bagier, Gordon A, T.

      Forrester, John

      Maclennan, Robert

      Barnes, Michael

      Fowler, Gerry

      McNamara, J. Kevin

      Barnett, Joel

      Fraser, John (Norwood)

      MacPherson, Malcolm

      Baxter, William

      Freeson, Reginald

      Mahon, Peter (Preston, S.)

      Beaney, Alan

      Galpern, Sir Myer

      Mahon, Simon (Bootle)

      Bence, Cyril

      Gardner, Tony

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

      Bennett, James (G'gow, Bridgeton)

      Ginsburg, David

      Marks, Kenneth

      Bid well, Sydney

      Golding, John

      Marquand, David

      Binns, John

      Gray, Dr. Hugh (Yarmouth)

      Marsh, Rt. Hn. Richard

      Bishop, E. S.

      Greenwood, Rt. Hn. Anthony

      Mellish, Rt. Hn. Robert

      Blackburn, F.

      Grey, Charles (Durham)

      Mendelson, John

      Blenkinsop, Arthur

      Griffiths, Eddie (Brightside)

      Millan, Bruce

      Boston, Terence

      Hamilton, William (Fife, W.)

      Miller, Dr. M. S.

      Bottomley, Rt. Hn. Arthur

      Hamling, William

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

      Bray, Dr. Jeremy

      Hannan, William

      Molloy, William

      Brooks, Edwin

      Harper, Joseph

      Morgan, Elystan (Cardiganshire)

      Brown, Rt. Hn. George (Belper)

      Harrison, Walter (Wakefield)

      Morris Alfred (Wythenshawe)

      Buchan, Norman

      Haseldine, Norman

      Morris, Charles R. (Openshaw)

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

      Hattersley, Roy

      Morris John (Aberavon)

      Butler, Mrs. Joyce (Wood Green)

      Henig, Stanley

      Mulley, Rt. Hn. Frederick

      Callaghan, Rt. Hn. James

      Hilton, W. S.

      Cant, R B.

      Hooley, Frank

      Murray, Albert

      Castle, Rt. Hn. Barbara

      Howarth, Robert (Bolton, E.)

      Neal, Harold

      Coe, Denis

      Huckfield, Leslie

      Newens, Stan

      Coleman, Donald

      Hynd, John

      Norwood, Christopher

      Concannon, J. D.

      Irvine, Rt. Hn. Sir Arthur

      Oakes, Gordon

      Craddock, George (Bradford, S.)

      Jackson, Colin (B'h'se A Spenb'gh)

      Ogden, Eric

      Crawshaw, Richard

      Jackson, Peter M. (High Peak)

      O'Halloran, Michael

      Crossman, Rt. Hn. Richard

      Janner, Sir Barnett

      Orme, Stanley

      Dalyell, Tam

      Jay, Rt. Hn. Douglas

      Oswald, Thomas

      Davidson, Arthur (Accrington)

      Jenkins, Hugh (Putney)

      Owen, Dr. David(Plymouth, S'tn)

      Davies, Dr. Ernest (Stretford)

      Johnson, James (K'ston-on-Hull, W.)

      Palmer, Arthur

      Davies, S. O. (Merthyr)

      Jones, Dan (Burnley)

      Panned, Rt. Hn. Charles

      de Freitas, Rt. Hn. Sir Geoffrey

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

      Parker, John (Dagenham)

      Dempsey, James

      Jones, J. Idwal (Wrexham)

      Parkyn, Brian (Bedford)

      Dewar, Donald

      Jones, T. Alec (Rttondda, West)

      Pavitt, Laurence

      Diamond, Rt. Hn. John

      Kelley, Richard

      Pearson, Arthur (Pontypridd)

      Dickens, James

      Kenyon, Clifford

      Pentland, Norman

      Doig, Peter

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

      Perry, Ernest C. (Battersea, S.)

      Driberg, Tom

      Kerr, Russell (Feltham)

      Perry, George H. (Nottingham, S.)

      Dunn, James A.

      Latham, Arthur

      Prentice, Rt. Hn. Reg.

      Dunnett, Jack

      Lawson, George

      Price, Christopher (Perry Barr)

      Dunwoody, Mrs. Gwyneth (Exeter)

      Leadbitter, Ted

      Price, Thomas (Westhoughton)

      Eadie, Alex

      Lee, Rt. Hn. Frederick (Newton)

      Price, William (Rugby)

      Edelman, Maurice

      Lee, John (Reading)

      Probert, Arthur

      Edwards, Robert (Bilston)

      Lewis, Arthur (W. Ham, N.)

      Randall, Harry

      1386

      1387

      Rees, Merlyn

      Slater, Joseph

      Wellbeloved, James

      Rhodes, Geoffrey

      Small, William

      Wells, William (Walsall, N.)

      Roberts, Albert (Normanton)

      Spriggs, Leslie

      White, Mrs. Eirene

      Roberts, Rt. Hn. Goronwy

      Steele, Thomas (Dunbartonshire, W.)

      Whitlock, William

      Robertson, John (Paisley)

      Strauss, Rt. Hn. John

      wilkins, W. A.

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

      Swain, Thomas

      Willey, Rt. Hn. Frederick

      Rodgers, William (Stockton)

      Taverns, Dick

      Williams, Alan (Swansea, W.)

      Roebuck, Roy

      Thomas, Rt. Hn. George

      Williams, Alan Lee (Hornchurch)

      Rogers, George (Kensington, N.)

      Tinn, James

      Williams, Clifford (Abertillery)

      Rowlands, E.

      Tuck, Raphael

      Willis, Rt. Hn. George

      Shaw, Arnold (Llford, S.)

      Urwin, T. W.

      Wilson, William (Coventry, S.)

      Sheldon, Robert

      Walden, Brian (All Saints)

      Woof, Robert

      Shore, Rt. Hn. Peter (Stepney)

      Walker, Harold (Doncaster)

      Wyatt, Woodrow

      Short, Rt. Hn. Edward(N'c'tle-u-Tyne)

      Wallace, George

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

      Watkins, David (Consett)

      TELLERS FOR THE NOES:

      Silkin, Rt. Hn. John (Deptford)

      Watkins, Tudor (Brecon & Radnor)

      Mr. Alan Fitch

      Silkin, Hn. S. C. (Dulwich)

      Weitzman, David

      and Mr. R. F. H. Dobson

      Sillars, J.

    Clause 35

      SAVINGS BANKS INTEREST RATES
      Question proposed,That the Clause stand part of the Bill.
      10.45 p.m.
      Mr. Higgins: We have already had a wide-ranging debate on savings, and I do not wish to go over the same ground in speaking on the Question, " That the Clause stand part of the Bill ". As the Chief Secretary has rightly pointed out, it is common ground that savings are vital to the good health of the economy. The difference between us is over the policies which are likely to encourage or discourage savings.
      One has only to look at the figures for the period 1959– 64 showing the annual average change in constant prices per head per cent. to see that in that period the figure was plus 13·8 as compared with the figure for 1964– 69 of minus 0·1. That is a fitting commentary on the value of money under a Conservative Government as compared with the situation under a Labour Government.
      Having said that, there are some more specific points we wish to raise on the Clause and two specific questions we wish to ask the right hon. Gentleman. We have recently debated Trustee Savings Banks on two occasions, the Trustee Savings Banks Bill in 1968 and the Trustee Savings Banks [Lords] Bill in 1969. This Clause alters the procedure which was set out in those Measures. In particular, they set out limits on the rates of interest which were to be paid, first, by the Trustee Savings Bank to its depositors— this is altered in paragraph (b) of Clause 35— and, secondly, the rate which the Government paid to the Trustee Savings Bank movement through the fund for the banks' savings.
      That being so, on a former occasion we sought to raise the limits, because we felt that the rates of interest were unrealistic. We appreciate that the Chancellor of the Exchequer should feel that they need to be raised in order to continue to attract savings in the Trustee Savings Bank and the Savings Bank movement. Clearly when we have a rate of inflation of over 5 per cent. per annum it requires a rate of interest which is a
      1390
      good deal higher than that for any real return to be obtained by savers. Under this Government, the Exchequer has paid a rate of interest which in real terms is often negative.
      We appreciate the Chancellor's point in his Budget Statement, though he phrased it in terms of the rate not being immutable. But we cannot understand why the limits are now being eliminated both on the rate which can be paid by depositors and the limit on the amount the Government pay to the Trustee Savings Bank movement through the fund for the banks' savings.
      The second figure was intended to be a differential reflecting the cost of operation of the Trustee Savings Banks, and quite rightly a limit was imposed on it so that they should remain cost-effective. Apparently this is no longer to apply, and I hope that the Chief Secretary will tell us why that should be so and why the principle should be changed in that respect. We appreciate the point about the change in the limit on the deposit rate that the banks can pay to their depositors.
      The second point that we want to raise concerns the timing. We are rather concerned at the Chancellor's statement that the change in the rate would be a major administrative exercise and that the earliest point at which it could now become operative would be in respect of interest credited for the year 1971. That expression, " credited for the year 1971 " is somewhat ambiguous, and we would be grateful if the Chief Secretary could say what it means.
      As we understand it, there is a difference in the way in which interest is calculated on the one hand by the National Savings Bank and on the other hand by the Trustee Savings Banks. The National Savings Bank, whose year runs from 1st January to 31st December, calculates its interests in arrears. On 31st December, 1971, it would add interest at the new rate on accounts which were operated during the previous 12 months. The Trustee Savings Banks, whose year runs from 21st November to 20th November, calculate interest in advance. On 21st November, the interest for the ensuing year is calculated on the current balance, and an adjustment is made on 20th of

      1391
      each month to allow for a change in the balance.
      Given the difference between the two systems, this may give rise to difficulties unless the Government make clear what they propose by at least November, 1970. If an announcement is not made until the end of 1971, which is what the Chancellor's statement suggests, the Trustee Savings Banks will lose a whole year's interest at the new rate unless a complicated readjustment on their procedure takes place, and then they will have to brief staff, draw up new interest tables, and so on.
      While we appreciate that it will not be the present Government who will need to make the decision, it is important that the Government now should give an undertaking to inform the Trustee Savings Banks of what is intended in adequate time for them to carry out their procedures and ensure that both the Trustee Savings Banks and the National Savings Bank can make the necessary adjustments to the interest payable.
      We believe that we are entitled to an explanation from the Chief Secretary on those two points.
      Mr. Diamond: I am only too happy to give the hon. Gentleman the explanation for which he asks, and I thank him for accepting the general purpose of the Clause.
      I will deal, first, with the second point which relates to dates. What my right hon. Friend the Chancellor of the Exchequer said was right, but perhaps in shorthand form, because 1971 is precisely accurate in relation to the National Savings Bank, but not precisely accurate in relation to the Trustee Savings Bank. The Trustee Savings Bank starts its year, as the hon. Gentleman correctly said, on 21st November, 1970, so there will be a lag of five weeks, which is not an important matter.
      We are now in touch with both organisations and arrangements will be made in adequate time for any necessary increase to be made. If the new rate is approved by the House—it is subject to negative Resolution—it will apply for the year 1971 in the case of the National Savings Bank and the year commencing 21st November, 1970, in the case of the
      1392
      Trustee Savings Bank. The fact that one bank chooses to do it at the start of the year and another chooses to do it at the end of the year—let us assume that the two years are coterminous and there is no five weeks difference—does not alter the fact that the rate applicable for that particular year in both cases will be the rate which is agreed by the House. Whether the bookkeeping is done at the start, during, or at the end of the year, does not affect that fact. I hope that I have answered that question to the hon. Gentleman's satisfaction.
      I gather that the hon. Gentleman recognises that there may be a need to raise the rate paid by the Savings Bank on deposits in ordinary accounts, but he has difficulty in recognising the need for the rate paid by the National Debt Commissioners to the Trustee Savings Bank to be altered. But that is merely the costs, the overheads, plus the basic rate. Therefore, if the basic rate at the moment of 2½ per cent. goes up, the £3 13s. per cent. per annum may need to go up. It may not need to go up by the same proportion or by the same absolute difference, but there will be a need for it to go up if the major element within it goes up. All that we are saying is that the Order that we put before the House will cover both rates.
      Mr. Higgins: We debated this point at considerable length in Committee in 1968. The argument put forward was that the £3 13s. limit, which was then established, was essential to ensure that the costs were only just covered. I concede that it could have been argued at that time that there was no need for the limit, but that was not what the Government argued. The right hon. Gentleman now, under Clause 35(2), is arguing that there should be no limit whatsover. I appreciate that he can argue this, but it is a change of policy.
      Mr. Diamond: It is just to give the same flexibility in the second rate that is required in the first rate. I do not think it right at this stage to say that it will necessarily be the same figure or the same proportion. It will be for the House to decide at the right time. This is only an empowering Clause. I am glad to note that it meets the general view of both sides of the Committee that the

      1393
      time may have come when 2½ per cent. is no longer a sensible rate.
      Question put and agreed to.
      Clause 35 ordered to stand part of the Bill.
      To report Progress and ask leave to sit again.—[Mr. Diamond.]
      Committee report Progress; to sit again Tomorrow.

      THE MIDLANDS (REMAND HOME ACCOMMODATION FORM WOMEN)
      Motion made, and Question proposed, That this House do now adjourn.—[Mr. Armstrong.]
      11.0 p.m.
      Mrs. Jill Knight:I am initiating a debate on the subject of Brockhill for the second time, and I am doing so because my hon. Friend the Member for Bromsgrove (Mr. Dance), who had intended to raise the matter, has met with an accident and has sustained several broken ribs. Many times in this House my hon. Friend and I have raised the question of the untimely closure of Brockhill remand home to women and the effect that this has had in the Midlands area. Brockhill is in Bromsgrove, which is my hon. Friend's constituency, and he has been tireless in his efforts to remedy the situation with regard to this remand home.
      The facts of the matter are that years of experience in the Midlands courts convinced magistrates, Home Office officials and the police that it was necessary to provide remand home accommodation for women in the Midlands. In May, 1965, a special wing for females was opened at Brockhill. One would have thought that that would have been the end of the matter, but with the Home Office one never knows. Two years later someone nameless, in some anonymous corner in the Whitehall mausoleum, perhaps on a slow day, in a fit of boredom or pique, decided that Brockhill remand centre should close to women.
      The decision was taken, but not because anything was wrong with it. In fact, during a debate in the House on 22nd July, 1968, the Minister said:
      1394
      " It is…a purpose-built establishment providing first-rate accommodation and medical facilities…".
      It was not closed because anyone locally was dissatisfied. It was closed solely because not enough nurses could be found to go to Brockhill. In fact, however, this was never a problem, because three doctors were always available, experienced prison staff were on duty all the time, and any woman in Brockhill who was sick was sent to hospital at once.
      The staff at Brockhill, who bore the responsibility if any woman was ill, were themselves most anxious for Brockhill to be kept open, and they were not the only ones. So were the police, the probation service, the Magistrates' Association, the Birmingham City Council and other local authorities, the Birmingham Law Society, the National Council for Women, the Chairman of Worcestershire Quarter Sessions, and the Chairman of the Visiting Committee of Brockhill. But, alas, it was not to be. In the same debate on 22nd July, the Minister said:
      " In view of our inability to retain the necessary nursing staff, there was no alternative but to close the wing."—[OFFICIAL REPORT, 22nd July, 1968; Vol. 769, c. 233–4]
      The next instalment of this gripping drama came when we discovered that Brockhill need never have been closed at all. There was no rule in existence which said that nurses should be present. Some of us who were anxious to find out the truth of the matter got in touch with no less an authority than the University of Cambridge Institute of Criminology, and the Professor said in his letter:
      " I have been looking into the question of the State Registered Nurses at remand centres. I am still looking, but so far I can find no provision which expressly refers to S.R.N.s. The relevant statute is the Prison Act 1962, Section 7, which merely says ' every prison in which women are received should have a sufficient number of women officers…' "
      The rules say quite clearly that only that part of a prison used for women
      " shall be in charge of a woman officer ".
      It is not surprising that there has been a steady stream of Parliamentary Questions on this matter ever since. On 7th November, 1968, I asked:
      " Will the hon. Gentleman admit that there was absolutely no statute and no rule which forced him to close Brockhill to women? Bearing in mind the need for accommodation and the grievous suffering inflicted on women without this accommodation being available,

      1395
      will he now say that he was wrong and will consider reopening it to women? "
      The only answer that I received was:
      " We were forced to close it not by statute but by circumstances."—[OFFICIAL REPORT, 7th November, 1968; Vol. 772, c. 1068.]
      I know no more now about these circumstances than I did then. After constant badgering and a resolution passed by the Magistrates' Association the Government, I think, now agree that there is a need for remand home accommodation for women in the Midlands. In a letter to my hon. Friend the Member for Dudley (Mr. Donald Williams) last week the hon. Lady intimated that while the need existed the matter may not perhaps be treated as urgent. This is possibly because she has been lulled into believing that all is well by the most recent report of the work on prisons. On page 7 the report says:
      "The problem of staffing female establishments, particularly those in isolated locations, continued to be felt and during 1968 it became necessary to close the women and girls' wing at Brockhill remand centre owing to the impossibility of recruiting sufficient nursing staff.… In an attempt to ease the burden of long escorts which have to be undertaken by women's establishments separate overnight accommodation has been set aside for women prisoners and their escorts at Swansea, Exeter, Shrewsbury and Birmingham."
      It would seem from this that all was well—they need not make the long trip to Holloway or anywhere else because they would be looked after in Birmingham. There is accommodation in Winson Green prison. It is in " G Wing " of the old hospital block where padded cells and two strong rooms have been converted for women prisoners. I do not know what the cost was. Incidentally, one bathroom and one lavatory were made specially for the prisoners and one bathroom and lavatory specially for the staff. There have been three women there in the last two years.
      I spoke today to a leading magistrate in Birmingham, Lady Burman, and when I asked her whether Winson Green accommodation was used as a remand home she said that it was no use whatever because there were no women staff. Whatever the report says, it is not true to imagine that the problem has been solved by the provision of accommodation at Winson Green. The only people who use it are women
      1396
      on trial for murder who have to be in court daily. If a woman is remanded too late in the day at Birmingham to go to Holloway she has to be put into Steelhouse Lane police lock-up, which is a very unsatisfactory state of affairs, because the cells which the women use are adjacent to the men's cells, which are constantly used by drunks and layabouts.
      Since the closure of Brockhill in June, 1968, until March of this year, 681 women and one baby have been shunted to and fro from Holloway or Shrewsbury. The round trip from Birmingham to Holloway is 220 miles and to Shrewsbury 86 miles. The House will agree that this is a waste of time and money and a thorough nuisance for everyone. Incidentally, of these 681, 327 women plus the baby stayed overnight in Steelhouse lock-up.
      If a woman is on a murder charge she is always in custody. If this happens she is sent down to Holloway, probably, and must travel up every eight days simply to be remanded, which takes only a few minutes. That is rather annoying to all concerned. Another point is that reports are brought up with the remanded woman and are not available until the day of the hearing. The probation officer does not see them in advance and really cannot conduct the case properly since the documents have only just become available.
      At Brockhill the probation officers visit regularly and were up to date with the reports. The Brockhill women's wing lay empty for one year after it was closed to women. It was purpose-built for women and cost a great amount of money. It is now used by boys. I do not know how much it cost to reconstruct it or whether that was necessary. It is true that the boys were crowded in the other part of Brockhill and from that point of view they are less crowded now. The women should be considered too. Boys are marginally better off, but women are very much worse off. The journeys are tiring, especially at a time of emotional stress, and usually they must make an early start to be in court on time. Many of the women are needlessly worried because they are too far from home to receive visits from their husbands or relatives. Their children are often cared for by the local authority and women are often not able to get news of them.

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      Concern over this matter has been expresed by hon. Members in all parts of the House. Midlands hon. Members of every party are united on this issue. There is an impressive weight of outside opinion to the effect that the Brockhill decision was wrong and that it should be reversed. I do not know if that is possible. It is worth bearing in mind that Birmingham has always been a city which has taken hostels very much under the wing of the local authority and is an area in which there are many big old houses which could be used to overcome this problem. Could the difficulty be solved in this way?
      Not one body, association or individual connected with or used to dealing with women on remand in the Midlands is happy with the present situation. Not one thinks that nothing should be done. Not one denies the urgency of the matter. I trust that the Minister takes the same view.
      I have been brief because I know that some of my hon. Friends are anxious to speak on this issue, if only for a moment or two. I have had time only to place the bones, as it were, of the matter before the House and I hope that I may leave it to the Minister to do something to overcome this urgent problem.
      Mr. Donald Williams: Only last week I spent a considerable time with the police in my constituency, and they wholeheartedly support every word my hon. Friend has said about the need for such a remand home in the West Midlands.
      Mrs. Knight: I am grateful for that. The Minister will recall that the Magistrates' Association recently expressed exactly that view. I beg the hon. Lady to give the matter her most urgent consideration.
      11.13 p.m.
      Mr. Fergus Montgomery: I am grateful to my hon. Friend the Member for Birmingham, Edgbaston (Mrs. Knight) for allowing me a couple of minutes in which to comment on this important subject, the facts of which she ably put forward.
      I am sure that all hon. Members will endorse what she said about the campaigning which has been done by my hon. Friend the Member for Broms-
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      grove (Mr. Dance) on the subject of this remand centre, which is in his constituency. It is regrettable that, because of his recent accident, he cannot be here tonight.
      The attitude which the Government have taken on the closure of this remand centre has been disgraceful. All we have had from the Government in reply to Questions on this issue is a lot of pious promises, and the present Government are very good at making promises of that kind.
      I feel sorry for the Minister tonight because while I have the greatest respect for her—she is one of the few hon. Members opposite for whom I have any respect—she is on a sticky wicket if she tries to defend the Government's action in closing this centre.
      Like my hon. Friend the Member for Dudley (Mr. Donald Williams), I spent a couple of days with the police in the West Midlands during the Easter Recess. I endorse what he said about the police being unanimous in feeling strongly about the closure of Brockhill remand centre and urging that something should be done urgently.
      My hon. Friend the Member for Edgbaston pointed out what a tremendous waste of time and money is involved in sending women on remand to all parts of the country, since escorts must be sent with them. Recently in my constituency a woman on remand was in great emotional distress because she was remanded at Risley, near Manchester, and this involved her in a great deal of travelling, which I suppose made it difficult for her family to visit her.
      In view of these difficulties, I hope that the Minister will give us some good news, and perhaps announce that the Government intend to do something to remedy the situation which exists in the West Midlands.
      11.15 p.m.
      The Minister of State, Home Office (Mrs. Shirley Williams): This is not the first time by a long chalk that the House has discussed the question of remand accommodation for women in the Midlands. I am nevertheless grateful to the hon. Members for Birmingham, Edgbaston (Mrs. Knight) and Brierley Hill (Mr. Montgomery) for their concern about the matter, which is equally our concern.

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      I recognise that it has aroused the interest and concern of a number of organisations in the Midlands, including the Magistrates' Association, since my right hon. Friend the Home Secretary decided in the first half of 1968 that he could no longer continue to use the women's wing that formed part of Brockhill remand centre. I recognise the concern that has been expressed about the present situation and I shall explain some of the reasons connected with considerations which no responsible Government could ignore.
      I want to emphasise first that perhaps the greatest problem, although in some ways it is perhaps a favourable aspect of the problem we face, is that there are at any one time a very small number of women and girls in custody. At any time that number would vary between 200 and 250 in the country as a whole, which is rather less than one-thirtieth of the men. This arouses particular problems because women have proportionately rather more specialised needs than men. Because of the peculiar nature of remands for women we find that a far larger proportion need one form of medical or psychiatric care than another compared with the number of men on remand.
      The hon. Lady was perfectly correct in saying that there is no rule laid down about this, but in practice there is a requirement laid upon the Home Office about a woman who might be disturbed. It is reckoned that at any one time up to one-third of the women on remand are seriously disturbed. We would feel very irresponsible were we not to provide the remand cover which such a person requires. Because of the difficulty of providing adequate staff and specialised staff whatever may be done about the Midlands, we have to provide only a limited number of remand centres. There are women remand prisoners from areas such as East Anglia, the South and Wales for whom it would be impracticable to provide specialised local remand accommodation because we should be dealing with perhaps only half a dozen women prisoners at a time.
      It is true that, as the hon. Lady said, there was a remand centre in the Midlands opened in 1965 so that for three
      1400
      years thereafter provision was made without the travelling required by the present arrangements. Women and girls now have to travel either to Holloway or Risley, near Manchester, or, in the case of those remanded by courts in Worcestershire and elsewhere, to Puckle-church, near Bristol. I will explain why my right hon. Friend in 1968 reached the decision he did. I go back to the early sixties when the then Government decided that they should improve remand accommodation for men and women. They were concerned in particular about women under 21 and felt that they should not be kept in ancient Victorian prisons and not crowded together with adult prisoners. They looked for suitable sites, which was not easy for that Government as it is not for us. It will be appreciated that sometimes the most suitable sites are objected to on local planning grounds.
      I do not think that anyone would say that Brockhill was the idea situation, but it was chosen because it was on land owned by the prison authority and would not have the objections made if it were private property or land owned by other public authorities. It was a perfectly suitable choice for a remand centre for young men, but we found it difficult— I am sorry to stress this point, as the hon. Lady said I would—to find cover for adequate nurses at Brockhill.
      I have not the time to go into detail, but I want to stress, because I believe that this is not fully appreciated by hon. Members who have raised the point, that the Home Office is peculiarly responsible if any woman prisoner commits suicide, does damage to herself, or in any other way is harmed while held in remand. This is why it is crucial for us in the case of somebody who is mentally disturbed or physically unwell to have adequate nursing cover, because we could not defend the position if we did not provide such cover.
      In the period of time that we had a remand centre at Brockhill, which was approximately two and a half years, no fewer than seven nursing staff resigned, mostly on the grounds that the centre was too remote and that they could not easily get to shopping centres and elsewhere. Nine women and girls had to be transferred in a matter of hours to Holloway or Risley because we could not provide

      1401
      adequate medical cover. We strongly felt that we must provide such cover, and it was because we simply could not satisfy ourselves that we could get it that we abandoned Brockhill.
      The decision over that establishment was unavoidable. This was partly because it was an isolated spot. We feel increasingly in the prison service that we must move from the concept of the prison, particularly for women, to the concept of something which is much closer to a hospital. This is why we are redesigning and replanning Holloway, our main women's prison, to be in effect what will be a secure hospital; because we find that emotional and mental disturbances are much more often at the bottom of women who fall outside the law than any other explanation. That was broadly why we closed the centre at Brockhill.
      For some of the areas that Brockhill covered, though admittedly not Birmingham, Risley is an equally convenient centre. I recognise that there are serious problems about travel. I recognise that for many women the strain of doing so adds to their already existing very considerable worries, another worry which is perhaps one which we should not ask them to undertake.
      I want to refer to two questions that the hon. Lady asked before turning to what I hope might conceivably be a solution. The first—I mention this only for the facts of the case and not because I think that it is a crucial part of the argument—is simply the additional cost that there will be from the closing of Brockhill. Our estimate suggests that this is about £10,000 a year, though in saying that I am referring to the extra time involved for police and prison staff.
      On a financial basis—but I stress that I do not believe that this is the central issue—there is no doubt that the extra costs involved in escorting women from Holloway and Risley is much less than that involved in running Brockhill. I accept what hon. Members opposite will say if I press this argument—which is a perfectly fair point—that one does not measure human concern or even human suffering in terms of pounds, shillings and pence. I say that only because there has been some dispute about the facts.
      The second point I want to make is about the overnight accommodation
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      available at Winson Green prison. The hon. Lady is right about the fact that this accommodation has not been very much used. Her colleague who commented to her that it is not used because there are no women staff has not quite got the right end of the stick, because the staff come with the prisoner. Any prison officer or nurse who may be required will be financed by the Home Office to travel up with the woman remand prisoner to the accommodation and spend the night there. So this is not an objection.
      We have said that in any case where a medical officer recommends that on medical grounds a woman prisoner should travel up and stay overnight at Winson Green this will be done. If there are any individual cases that the hon. Lady would like to raise with me, I shall be more than happy to look into them, because we have made it quite clear that that is the rule under which such overnight accommodation will be used.
      Mrs. Knight: Would the hon. Lady reassure me about the nurses? Does she think that anyone going there would have a nurse in attendance all the time and an escorting officer? Would there be two people or more? Where would they be brought from?
      Mrs. Williams: Any woman staying overnight at Winson Green would have with her a woman prison officer, who would be sent from Holloway, Risley or Pucklechurch according to which remand centre she was permanently remanded to. In addition, if there were medical grounds for her attendance, she would be attended by a nursing officer. It would depend on the individual case and she would bring with her one member of staff, and in some cases two.
      The re-starting of a full remand centre for the number of women that Midlands courts produce as remands would be financially difficult to accommodate. It is this that I must stress because, at present, if we are to convert part of Winson Green for a women's remand centre, we reckon that we would have to lose at least 40 male cells, which, owing to the present overcrowding at Winson Green would mean the loss of about 120 places.
      We do not feel, in terms of the effect on the male prisoners and the Birmingham Prison that we could justify such a

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      step, so we are thinking in terms of a different solution. The right sort of solution for the relatively small demand from the women's courts might be that, while we cannot justify immediate priority for a remand centre because of its heavy demands on professional staff and finance, we would be and are willing to consider a different solution.
      The one which we have in mind was mentioned by the hon. Lady. That is, if we could find a suitable property, possibly in Birmingham or in the general West Midlands conurbation, which might house 20 or 30 women in secure hostel conditions, which means the conversion of a suitable house, this might give us an answer much more rapidly than by trying to provide a purpose-built remand centre for the very small number of remand prisoners.
      This means that we must recruit a number of nursing staff—the problem which we have had at the Brockhill centre—but if we could find such a house for conversion relatively near the centre of Birmingham or another Midlands town, it would be much easier to recruit nursing staff than when it means either a long time spent on travelling or removal of the entire family. We are now looking for suitable premises which could be adapted in this way. No violent or dangerous woman prisoner could be kept in such a hostel, but the great bulk of them—the vast majority—do not fall into that category, and there would be nothing for West Midlands people to worry about in such a home.
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      We would need the co-operation of local authorities in the West Midlands to establish such a hostel. We need to get at least the agreement of the local community but, as the hon. Lady said, Birmingham has an outstanding record in this respect. In the after-care of prisoners, it has shown liberalism which the Home Office should pay tribute to, as should those concerned in assisting prisoners after they leave prison.
      Therefore, if I can count, as I am sure I can, on the support of West Midlands Members and we can find suitable premises, which can be economically adapted and satisfactorily used for this purpose, and if we can get planning clearance—I am sorry to apply all these conditions—we would be willing to give such a scheme early and sympathetic consideration.
      Mr. Donald Williams: We should all like to know when the Home Office had this change of heart and for how long it has been looking for such accommodation.
      Mrs. Williams: I am not sure that a change of heart was required. It was with regret that the Brockhill centre was closed and it was because we face insuperable problems of staffing, especially medically qualified staff—
      The Question having been proposed after Ten o'clock and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
      Adjourned at half-past Eleven o'clock.

      Second Reading Committee
      Wednesday, 13th May, 1970
      [MISS HARVIE ANDERSON in the Chair]

      The Committee consisted of the following Members:

      Miss Harvie Anderson (Chairman)

      Albu, Mr. Austen (Edmonton)

      Ginsburg, Mr. David (Dewsbury)

      Allaun, Mr. Frank (Salford, East)

      Gray, Dr. Hugh (Yarmouth)

      Bennett, Sir Frederic (Torquay)

      Griffiths, Mr. Eldon (Bury St. Edmunds)

      Biggs-Davison, Mr. John (Chigwell)

      Hazell, Mr. Bert (Norfolk, North)

      Braine, Mr. Bernard (Essex, South-East)

      Herbison, Miss Margaret (Lanarkshire)

      Conlan, Mr Bernard (Gateshead, East)

      Luard, Mr. Evan (Joint Under-Secretary of State for Foreign and Commonwealth Affairs)

      Davies, Mr. Ifor (Gower)

      Dodds-Parker, Mr. Douglas (Cheltenham)

      Faulds, Mr. Andrew (Smethwick)

      Marten, Mr. Neil (Banbury)

      Fisher. Mr. Nigel (Surbiton)

      Walters, Mr. Dennis (Westbury)

      Fitch, Mr. Alan (Wigan)

      Wood, Mr. Richard (Bridlington)

      Miss J. Beston,Committee Clerk.

      DIPLOMATIC PRIVILEGES AND INTERNATIONAL ORGANISATIONS BILL
      10.30 a.m.
      The Joint Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Evan Luard): I beg to move,
      That the Chairman do now report to the House that the Committee recommend that the Diplomatic Privileges and International Organisations Bill be read a Second time.
      It would be rash ever to suggest that a Bill on privileges and immunities is wholly uncontroversial, because I know that this is a subject which arouses strange passions in the breasts of some hon. Members, but I think it is true that this Bill is of an unusually uncontroversial nature. It supplements our present legislation in regard to the privileges and immunities of diplomatic missions and international organisations. Two of the three main Clauses—Clauses 1 and 3—
      1406
      simply tidy up the existing situation. In fact, they merely put on a statutory basis some financial reliefs which are already being given administratively.
      The need for Clause 2 has arisen because of the establishment of the Caribbean Development Bank, of which the United Kingdom has become a member. We require statutory authority in the Bill to enable us to confer on the Bank privileges and immunities of broadly the same kind as those which have been accorded to other similar international organisations.
      Clause 1 provides for the refund of the customs duty paid on hydrocarbon oils— that is, petrol and fuel oils for heating systems—bought by diplomatic missions and certain persons connected with them

      1407
      and by the Commonwealth Secretariat. If these persons or bodies imported hydrocarbon oils directly for their own use, exemption from customs duty would be accorded under existing law—that is, the Diplomatic Privileges Act, 1964 and the Commonwealth Secretariat Act, 1966. However, in practice it is obviously not convenient for them to claim and demand exemption each time the oil is imported. Therefore, they have been obtaining refunds for the amount of the duty.
      At present, the authority for these refunds is through the Appropriation Acts alone. The main purpose of this Clause is to substitute for these individual Appropriation Acts a general statutory authority for making refunds of this kind. When the Consular Relations Bill was before Parliament in 1968, the then Under-Secretary of State told the House that it was the intention to seek specific statutory authority for refunds to diplomats for customs duty paid on hydrocarbon oils.
      This Clause fulfils that assurance. It amends the Diplomatic Privileges Act 1964 and the Commonwealth Secretariat Act 1966, so as to bring them into line with the Consular Relations Act 1968 and the International Organisations Act 1968.
      Refunds are at present made by the Foreign and Commonwealth Office. When this Clause becomes law, it is proposed to change the system and to transfer the administration of all these funds to the Department of Customs and Excise. Refunds will then be made out of revenue instead of out of voted money.
      I must emphasise that the privilege of duty-free petrol is one which is already given to our diplomatic missions and consular missions abroad. Under Clause 1 it will be possible for us to withdraw the privilege from the mission of any country which fails to give similar privileges to our diplomats abroad.
      Clause 2, as I said, is necessary because of the establishment of the Caribbean Development Bank. If the members of the Bank included foreign States it would not be necessary for us to include this Clause in the Bill, because it would have been covered in other legislation. As at present all the members of the Caribbean Development Bank are Common-
      1408
      wealth countries, it is necessary for us to include a special provision in the Bill to give them the appropriate privileges and immunities of an international organisation.
      The purpose of the Bank is to provide capital for the economic development of Caribbean countries and to improve the standard of living of their people. The British Government have supported this project from the outset, along with other States and territories within the Commonwealth. We ratified the Caribbean Development Bank agreement on 23rd January. This enabled us to be represented at the inaugural meeting of the Governors of the Bank, when important decisions about the future of the Bank were taken.
      The Agreement contains provisions for the reciprocal granting of privileges and immunities, but these are of a relatively restricted character. They are not the full privileges and immunities which are often accorded under other arrangements or for diplomats in general.
      I must point out the obvious fact that the Bank will not have its offices permanently established in London. Therefore, to a large extent, this is a theoretical provision to cater for certain contingencies— for example, for meetings which might be held here. The privileges and immunities will apply mainly in the territory where the Bank is situated.
      We had hoped to be able to confer the privileges and immunities on the Bank by means of an Order in Council under the International Organisations Act, 1968; but, because there are at present no foreign countries as opposed to Commonwealth countries which are members of the Bank, it is necessary to introduce this Clause into the Bill.
      When we ratified the Agreement, so that we did not cause any unnecessary delay we entered a reservation that
      " none of the immunities, exemptions and privileges conferred in the Agreement shall be granted in the United Kingdom until such time as the necessary legislation shall have been enacted."
      This is the necessary legislation to which we were then referring.
      Clause 2 therefore seeks to extend Section 1 of the International Organisations Act to make it applicable to the Bank and to enable an Order in Council to be made to give effect to the Agreement. If

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      the Clause becomes law, we will lay before Parliament a draft Order in Council conferring the necessary privileges and immunities. This will require a Resolution of each House, and will provide an opportunity for hon. Members to debate the details of the privileges and immunities in the Agreement.
      I repeat that the privileges here granted are more limited than in the case of other comparable regional organisations, largely through the efforts of the United Kingdom delegation in the negotiations. It is also relevant to note that the Bank is operating in the Caribbean area and is not expected to have either offices or staff in Britain. The practical effect of the Clause in terms of granting new privileges and immunities to people based in London will be very small.
      Clause 3 has the effect of amending Section 2 of the International Organisations Act, 1968 to provide statutory authority to grant exemption from vehicle excise duty to the senior staff of I.M.C.O. —the Inter-Governmental Maritime Consultative Organisation—a U.N. specialised agency which has its headquarters in London. In fact, it is the only specialised agency which has its headquarters in London and, therefore, is of particular concern to us as regards the according of privileges and immunities.
      This Clause is a logical corollary of the special privileges for these officers which were given by Parliament in Section 2 of the 1968 Act. It was the general intention of that Section to confer diplomatic financial privilege on those staff of I.M.C.O. whose rank is comparable to that of a diplomatic agent, but at present it makes no provision for exemption from vehicle excise duty, although such an exemption is a normally accepted element in the privileges and immunities of people of that rank. This Clause remedies that omission.
      I.M.C.O. was led to understand that the privilege would be given, and in fact it has been accorded administratively until now. The amount of duty involved is comparatively small—about £625 a year at present. If the Clause becomes law, the Headquarters Agreement between the United Kingdom and I.M.C.O. will be amended to include a reference to vehicle excise duty, which is not at present included, and a draft Order to give effect
      1410
      to the amendment will be laid before Parliament.
      I commend the Bill to the Committee as a useful Measure making necessary adjustments in our legislation.
      10.40 a.m.
      Mr. Richard Wood: Until recently—in fact, until the Bill was ordered by the House of Commons to be printed on 22nd April—I and a number of my hon. Friends were naturally rather apprehensive that there had been a breakdown in the production of these regular biannual diplomatic privileges Bills, which this Bill purposes to supplement.
      The Under-Secretary explained that, necessary though this Bill may be, it is not a particularly solid or weighty piece of legislation. The hon. Gentleman suggested that it, perhaps, is not acutely controversial. On the whole, we would agree with him. Indeed, if the Bill had been acutely controversial, it might not have been remitted to this Second Reading Committee.
      It seems to me to be certainly sensible that the refund of customs duty on hydrocarbon oil should not only be made by the Department of Customs and Excise, as I believe it is at present, but that the Foreign and Commonwealth Office and the Department of Customs and Excise should be made " honest " Departments, as it were. The Bill fulfils the pledge which was given in a Committee on which I served, by one of the hon. Gentleman's predecessors.
      Second, it would be illogical to oppose the eligibility of the Caribbean Development Bank for the privileges and immunities which we have earlier agreed to confer on comparable organisations.
      I do not think that we can decently haggle over the proposed additional exemption from the vehicle excise duty which is provided for in Clause 3. I have, perhaps to no one's surprise, no unanswerable objections to Clause 4.
      Therefore, I am conscious that I am giving more or less enthusiastic consent to each of the Clauses. However, I am left with a general feeling of anxiety about Bills of this type which, I suspect, is shared not only by some members of this Committee, but by many others outside Parliament. I speak of the conviction which I think is held by many people

      1411
      that diplomatic privileges have already gone far enough, if not too far.
      In spite of this conviction, it is always very difficult to argue against granting them in a particular case. It seems rather fussy and, to coin a word, parvanimous— the opposite of magnanimous—to suggest that the process should be stopped at any particular point. In fact, it is difficult to suggest any particular point at which the process should be stopped.
      One principle on which earlier Committees have generally been agreed, and to which the Under-Secretary gave tacit assent, is that of reciprocity. My hon. Friends and I are very anxious to know whether we are giving under the Bill any privileges to members of the specialised agencies or diplomatic missions or members of the Caribbean Development Bank which are not completely universal.
      Section 3(1) of the Diplomatic Privileges Act, 1964, which is one of the parents of this Bill, enshrines the principle of reciprocity and expresses very clearly the willingness of the people of this country to grant privileges in Britain to the extent, but only to the extent, that those privileges are matched in other countries by similar privileges to comparable British representatives abroad. That Section allows for the withdrawal of privileges in this country if those conditions are not fulfilled. Therefore, before my own approval of the Bill, and the extension of privileges that it contains, can be as wholehearted as I should like, I would be grateful if the hon. Gentleman could answer two questions.
      Under Clause 3, have there been occasions when privileges which we have granted have been withdrawn? If the answer is, as I suspect, that there have not been, will the hon. Gentleman assure us that the absence of any occasions when privileges have been withdrawn means that complete reciprocity exists in all cases?
      If the Minister is able to give us satisfactory answers, I will willingly ask my hon. Friends to support the Bill.
      10.45 a.m.
      Dr. Hugh Gray: My reservations are similar to those which have ben expressed by the right hon. Member for Bridlington (Mr. Wood). My experience of inter-
      1412
      national organisations—as an employee of them—goes back to the five years which followed the last war. However, from conversations that I have had with friends who are still employed by such organisations, I have no reason to think that the situation has changed in relation to diplomatic privileges. Therefore, I hope to hear from my hon. Friend some clear definition of the way in which one arrives at a rank comparable to a diplomatic agent.
      In the post-war period, far too many employees enjoyed diplomatic immunity when they were not performing any kind of diplomatic job. International organisations generally have two categories of employees: those recruited locally, and others recruited in their countries of origin. These differences of category can always be stretched, and many people are recruited in the countries in which they will be working and treated as though they had been recruited in their countries of origin. It is often held out to such people as an additional attraction that diplomatic immunity will go with the job and that they will enjoy certain privileges. In my view, we should look into who exactly in international organisations is given diplomatic immunity, and why. I should like, for example, to hear why certain officials in the Caribbean Development Bank are to be given diplomatic immunity. Why is their rank considered to be comparable or equivalent to that of a diplomatic agent?
      There have been extensions of diplomatic privileges since the war which are quite unjustified, and these multiply in time. Often it is decided to establish a new post in a mission of a United Nations agency in a given country, and it is thought that diplomatic privileges should go with it. Negotiations take place with the Government of the country in which the post is to be established. Once that Government has agreed that the United Nations agency has a strong case, if the mission is then transferred to another Country it says to the Government of the new country that the post carried diplomatic privileges in London and obviously it should continue on the same basis. In this way a multiplication takes place which is not justified. I hope to hear that close scrutiny is given to any official of an international organisation to whom it is proposed to grant diplomatic privileges,

      1413
      and I repeat my hope that my hon. Friend will say how rank comparable to that of a diplomatic agent is established.
      10.48 a.m.
      Mr. Eldon Griffiths: Miss Harvie Anderson, may I seek your advice? I am not familiar with the procedure in Second Reading Committees. Are Clauses taken one by one? Some of my points would be more conveniently expressed when we consider individual Clauses.
      The Chairman: Our procedure is comparable with that of a Second Reading in the House. The Committee will not go through the Clauses individually. There will be a vote at the end of the debate in the normal way.
      Mr. Griffiths: Do I take it that the Clauses will be considered afterwards?
      The Chairman: No. The Committee stage will follow later, and Clause points would be more appropriate then. However, it is unlikely that the hon. Gentleman will be out of order in making passing references to them at this stage.
      Mr. Griffiths: I am much obliged.
      Like my right hon. Friend the Member for Bridlington (Mr. Wood), I give a general welcome to the Bill since, having benefited from the hospitality and help of our missions abroad, I accept the principle that we must afford to the diplomatic and other missions of other countries and international organisations the same facilities in Britain as our missions are afforded abroad. I welcome the Bill on that ground alone.
      I also welcome the fact that we seem to be succeeding in attracting to this country a number of international organisations. We have the wheat organisation, and mention has been made of I.M.C.O. this morning. I am sure that the trend is a good one. As British power recedes from some parts of the world, it is slightly comforting to know that London remains a world capital in the sense that there are a number of international organisations represented here. Nor am I blind to the fact that the presence of these international organisations in Britain provides us with valuable foreign exchange. It is well worth while to attract them here.
      As the Minister rightly said, the principal purpose of Clause 1 is, to put it
      1414
      rather crudely, to make the Foreign Office " an honest woman ". During the Second Reading of the Consular Relations Bill, I drew the Minister's attention to Clause 8, and we discovered that the concesssion on hydrocarbons being made to foreign consulates in this country arose from the fact that the House gave general approval to the Foreign Office Vote. But there was no specific approval in that Vote for the concession. The hon. Gentleman's predecessor gave an undertaking at that time that the matter would be put right. I am glad that this Bill puts it right. However, it underlines the necessity for Committees considering even small Bills of this kind to show diligence towards detailed points. It is good that this detailed point, which was recognised by my right hon. Friend and others at that time, is now put right in legislation.
      The Minister said that he was seeking here to put the Caribbean Development Bank and various other international organisations on exactly the same kind of footing as the other organisations which benefit under the Diplomatic Privileges Act and the Consular Relations Act. I have studied those measures carefully, and the fact is that under our law we do not treat diplomats or consuls in this country in the same way under the various Acts. There are considerable technical differences in our approach to them.
      I have examined the four relevant Acts —the Commonwealth Secretariat Act, the Consular Relations Act, the Diplomatic Privileges Act and the International Organisations Act. I can assure the hon. Gentleman that a study of the Sections and Schedules shows that there are marked differences in our approach to the employees and agents of the various organisations in this country. A time should come one day when we consolidate in a single Bill all the rules and regulations concerning foreign agents and diplomats in this country.
      I will give one example. The Schedule to the Diplomatic Privileges Act, which is at the heart of this Bill, says specifically in Article 36 that there shall be relief from taxation on

      " (a) articles for the official use of the mission;

      (b) articles for the personal use of a diplomatic agent or members of his family forming part of his household…"

      1415
      That is a clear power in the Diplomatic Privileges Act.
      In the Commonwealth Secretariat Act, however, the concession is confined to an exemption from duties on
      "…goods necessary for the official use of the Secretariat and directly imported by it…".
      That is a much narrower power than that contained in the Diplomatic Privileges Act. I mention that by way of illustration and to suggest that a time should come when we should consolidate the various provisions.
      I have a number of other points, but it might be better to make them when we consider the Clauses.
      10.56 a.m.
      Mr. Douglas Dodds-Parker: Clause 1 refers to hydrocarbons and the repayment of duty on them, and that brings one to the position of the drivers and junior staff in diplomatic missions.
      As time goes on, I find that public opinion, and certainly my own, is adverse to what, when it started, was a reasonable concession. A very wide group of individuals are granted diplomatic privileges especially those employed as chauffeurs, who need not be privileged at all. I am thinking mainly of those from the Soviet bloc countries and others who are here, to put it bluntly, probably as spies in one form or another. The huge size of the Eastern European embassies has annoyed public opinion. I know that the Foreign Office has tried to cut them down on a number of occasions: I hope that the Minister will be able to say with what success.
      We all know that reciprocity is the basis of these arrangements, and we want to protect our people in those countries against undue discrimination and, possibly, harsh treatment if they commit driving offences. However, a great number of the drivers employed in those countries are recruited locally. In this country, we find a great many " imported " drivers using these large quantities of hydrocarbon oils who, if they are involved in road accidents in these increasingly dangerous days, get away Scot free. Can the Minister say the extent to which protests have been successful in cutting down the staffs required
      1416
      to use these large quantities of hydrocarbon oils?
      Like my hon. Friend the Member for Bury St. Edmunds (Mr. Eldon Griffiths) I regret that we do not have more international organisations in London. Obviously, we must give them the same privileges as those given in other countries if we wish to attract them here. I hope that this will be another of those Bills which encourages the right sort of international organisations to come here, and that we will give these bodies reasonable treatment. At the same time, this is another case where it should be made clear to the public that a lot of undesirable people are not getting away with it.
      10.58 a.m.
      Mr. Luard: The right hon. Gentleman the Member for Bridlington (Mr. Wood) asked a number of general questions about whether diplomatic privileges had gone too far, whether the time had not come to call a halt, and, in particular, whether there was reciprocity in every case. The whole principle on which such legislation is based is reciprocity. It is open to us to withdraw privileges and immunities from representatives of a country which is not providing them on the same scale for us. On certain occasions we have withdrawn privileges on those grounds. We have a list of the countries which have failed to provide particular kinds of privileges and immunities, and certain action has been taken by us against representatives of those countries.
      It is the aim of the international community as a whole to try to establish a regular practice on matters of this kind. One of the purposes of the two Vienna Conventions on Diplomatic and Consular Relations was to try to establish a considerable degree of uniformity in this respect among all nations. There is much greater uniformity in the granting of privileges and immunity today than there has been at any time. The time when there was a large number of bilateral agreements between individual Governments granting certain scales of privileges to each others' diplomats is to a large extent now at an end. The purpose of the two Conventions and the legislation introduced to implement them has been to create a large degree of uniformity.

      1417
      My hon. Friend the Member for Yarmouth (Dr. Gray) asked how certain officials of international organisations were assessed for the right to particular privileges or immunities. The main point here is that only an officer who is the equivalent of a diplomatic agent is qualified to enjoy these immunities, and it depends on the individual organisation how many people it appoints to a sufficiently senior rank to qualify in this way.
      Schedule 1 of the International Organisations Act talking about privileges and immunities, says that a member of the official staff " who is recognised by Her Majesty's Government in the United Kingdom as holding a rank equivalent to that of a diplomatic agent" shall be entitled to the privileges and immunities set out in Section 2(2) of the Act. I have already explained that it is not expected that the Caribbean Development Bank will have staffs based in London: it will not have its headquarters in London. Therefore, it will be very unusual for any of the privileges and immunities we are talking about to be granted by the British Government to officials of that organisation, though this could happen if there were a conference or something of that kind in London.
      Mr. Griffiths: The hon. Gentleman earlier made it clear that the Bank will not have its headquarters here. Therefore, the provision is really quite modest. He is virtually saying that officials will have concessions during the time they happen to meet in London. There are all kinds of international meetings in London lasting for two or three weeks. There is a question here whether there might logically be a request that the privileges extended to members of the Caribbean Development Bank coming here for meetings be extended to those who attend other kinds of international meetings here. There is a logic here that needs to be considered.
      Mr. Luard: Examination of the text of the Agreement shows that the privileges and immunities apply only to the official acts of officials of the organisations. Therefore, their coming here for a meeting of another kind would not entitle them to privileges and immunities. Similarly, they will get no personal privileges or immunities. For example,
      1418
      immunity from proceedings will concern only acts done by them in an official capacity.
      I wanted in further reply to my hon. Friend to point out how limited on the whole are the number of those belonging to organisations based in London who qualify. There are only 10 " high officers " based in London of the various organisations such as N.A.T.O., I.M.C.O., Western European Union and so on. Such privileges and immunities are given because they are based in London Of those 10, three are of British citizenship and therefore do not qualify. There are 35 senior officers and 271 other officers, making a total of 316, so that is a fairly limited number. In Paris there are 669 members of staff of international organisations who qualify for the privileges and immunities in Rome 246; in Geneva 7,440; in New York, 5,500, and in Brussels 8,000. This comparison of international capitals shows that it cannot be said that we have extended very lavishly to members of the staff of international organisations privileges and immunities of this kind.
      Mr. Wood: My hon. Friend the Member for Bury St. Edmunds (Mr. Eldon Griffiths) made a point which the Minister has not satisfactorily answered. He has explained that although the Caribbean Development Bank will not have its headquarters here its members or representatives might be here on official business from time to time. In the sense that the Bill aims to protect them, he raised the point of other organisations which do not have their headquarters in London but whose members might be here on official business, and suggested that there might be considerable pressure for an extension of these privileges to those members here on their official business. The hon. Gentleman has explained that they would not be protected if they were here for some other purpose. But if they were here for an official purpose, though their headquarters is in another country, is there not likely to be pressure to extend the concession now being given to the Bank a good deal further to many other organisations?
      Mr. Luard: There is nothing new in these privileges and immunities. They are on a very restricted scale. They are a much smaller set of privileges and immunities than are given, for example, to diplomats

      1419
      in embassies in London. Therefore no precedent is being set that would be particularly dangerous in regard to any other international organisation. There is nothing in the Bill that will provide new privileges and immunities for members of other organisations, whether coming here for a meeting or for any other purpose. Clause 2 relates entirely to the Caribbean Development Bank, and that Bank alone.
      Mr. Griffiths: I am sorry to pursue this point, but it seems relevant. Let us consider how this would work in practice. An official of the Bank, not normally resident in London but possibly resident in Kingston, may come to Britain for three or four weeks to take part in meetings of his Bank, or any agency of it, with particular reference to this country. The Minister is saying that during the three or four weeks he is here he will not be taxed on his petrol. I should have thought that that would be rather difficult administratively to achieve, but let us suppose that it can be achieved. How can we reasonably say to officials of Western European Union, which also has its headquarters in London, or to officials of N.A.T.O. or any other organisation, that when they come to a meeting in London arising from W.E.U. they shall not be given the same privileges?
      Mr. Luard: The position in relation to officials of W.E.U. or N.A.T.O. is not affected in any way by anything laid down in the Bill. This might already be the case. Members of the Caribbean Development Bank would acquire these rights only if they were here on official business for a meeting of the Bank. There is nothing in the Bill that will extend the rights which a member or official of N.A.T.O., W.E.U. or any other organisation might acquire. Those organisations with offices of a kind in London already benefit in a much more material sense from the according of particular privileges and immunities than any official of the Caribbean Development Bank.
      Mr. Wood: The point worrying my hon. Friend and me is: on what basis will the Foreign Office refuse to extend the privileges to people who will be in a position very comparable with that of the people in the Bank visiting London for three or four weeks? What is the basis
      1420
      on which this extension of privileges would be refused?
      Mr. Luard: I repeat that the basis would not be changed in any way by anything in the Bill. Under the existing legislation, such as the International Organisations Act, which covers organisations such as W.E.U. and N.A.T.O., it might be possible for officials if they were here on official business to claim privilege and immunity. There is nothing in the Bill that will alter the position concerning other organisations.
      I should like to try to answer some of the points which the hon. Member for Bury St. Edmunds (Mr. Eldon Griffiths) raised earlier. He said that there are different scales of privileges and immunities laid down in different legislation, or sometimes in different agreements. It is a fact that the Government have entered into specific agreements with particular Governments in regard to diplomats. If those agreements were entered into before the Vienna Convention on Diplomatic and Consular Relations, and before the legislation resulting from it in this country. it may be that some of the privileges and immunities afforded are not exactly in line with those laid down in that Convention. It is also the case that there are variations in the privileges and immunities accorded, for example, to consular personnel and staff of particular organisations.
      The hon. Gentleman pointed out that that can be seen from the text of some of this legislation. This will remain the case. It has never been suggested that every official who qualifies for privileges and immunities qualifies for exactly the same scale. What is now beginning to come about is a considerable degree of uniformity in the scale of privileges and immunities accorded by different governments to officials of a similar level and scale, or of a similar organisation. In this respect Her Majesty's Government have, by implementing legislation such as that which we have been discussing, joined in the process of regularising the according of privileges and immunities and bringing about a greater degree of uniformity.
      The hon. Gentleman suggested that consolidating legislation might be desirable at some stage; legislation which

      1421
      laid down in very general terms the kinds of privileges and immunities that would be accorded to officials of different kinds and of different organisations, and presumably he also meant diplomats and consular staff. This might be possible at some time in the future, but there is inevitably still quite a considerable variation in the privileges and immunities accorded. Recent legislation, such as the International Organisations Act and the Diplomatic Privileges Act, has gone a considerable way towards the kind of aim the hon. Gentleman has in mind of laying down in statutory form what privileges and immunities should be awarded in particular cases.
      The hon. Gentleman the Member for Cheltenham (Mr. Dodds-Parker) spoke of his general concern at the increase in privileges and immunities accorded, and particularly in regard to exemption from tax on hydrocarbon oils and the fact that certain embassies had very large staffs and benefited from this very considerably. The Government are concerned about the size of the staffs of some embassies in London, and we have indicated our desire to see some of them reduced. In so far as they are diplomatic staff, they must clearly benefit from the same scale of immunities and privileges as other comparable staff. The only way in which the problem can be solved is by trying to ensure that all the staffs of embassies, and of international organisations which bene

      THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:

      Anderson, Miss Harvie (Chairman)

      Gray, Dr.

      Albu, Mr.

      Griffiths, Mr. Eldon

      Allaun, Mr. Frank

      Herbison, Miss

      Braine, Mr.

      Luard, Mr.

      Dodds-Parker, Mr.

      Wood, Mr.

      Fitch, Mr.

      fit, should be kept down to reasonable numbers.
      I hope that I have answered most of the points raised during this brief debate. On the whole, the proposals in the Bill are not of a controversial character in the scale of privileges and immunities which they cover in respect of the Caribbean Development Bank. The Bill covers only privileges and immunities of a restricted kind and should not be of great concern to hon. Members. It will be possible, as you, Miss Harvie Anderson, have pointed out, for the scale of privileges and immunities to be discussed at the Committee stage, but I hope that there will be no disagreement on the general principles laid down in the Bill which, I hope, will receive a Second Reading.
      Question put and agreed to.
      Ordered,
      That the Chairman do now report to the House that the Committee recommend that the Diplomatic Privileges and International Organisations Bill be read a Second time.
      The Chairman: Perhaps before our proceedings end, hon. Members will allow the Chair to go outside the rules of order to the extent of remarking that for the first time this Committee has had a woman as its Chairman and a woman as its Clerk.
      Committee rose at sixteen minutes past Eleven o'clock.