FINANCE BILL

HC Deb 20 April 1972 vol 835 cc770-890

Order for Second Reading read.

4.24 p.m.

The Chancellor of the Exchequer (Mr. Anthony Barber)

I beg to move. That the Bill be now read a Second time.

My first task is to congratulate the right hon. Member for Leeds, East (Mr. Healey) on becoming the principal spokesman on economic and financial affairs for the Opposition. The right hon. Gentleman held high office in the Labour Government. Both sides of the House know that he will present forcefully the views of his party. We welcome the right hon. Gentleman to our debates.

It is in no sense a derogation from those sentiments nor any reflection on the right hon. Gentleman to add that with the departure from the Opposition Front Bench of the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), the right hon. Member for Manchester, Cheetham (Mr. Harold Lever), and the hon. and learned Member for Lincoln (Mr. Taverne), the House and the country recognise that the Labour Party have lost three Front Bench spokesmen who are universally regarded as men of great ability in those matters for which they had responsibility. However, I think it will be generally agreed that they are not lost to the Front Bench for ever, because once we have joined the European Community I do not doubt that they will all be back again.

Following the precedent of more recent years, I do not propose to go through every Clause in this long Bill, a fact for which hon. and right hon. Gentlemen on both sides of the House will no doubt be duly grateful. There will be time at the later stages for detailed scrutiny. Today I propose to concentrate on some of the main features of the Bill in the context of the aims which are set out in my Budget statement. There are three broad objectives.

Our first objective is that as we set out on our European venture British industry should have every ecouragement to be efficient and forward-looking. To that end the Bill contains the detailed provisions for the reform of corporation tax which will come into operation with effect from April next year. This change will get rid of the present discrimination between retained and distributed profits, which tends to misallocate resources.

The Bill contains provisions to encourage approved share option schemes in order to stimulate management enterprise, and also, as a powerful stimulus to productive investment, it provides for free depreciation of plant and machinery and for a 40 per cent. initial allowance for industrial buildings—in both cases applicable throughout the whole country. In addition, there are the new regional investment incentives which will be the subject of separate legislation.

The second objective is that the economy should grow at a sustained and faster rate and so bring a permanent improvement to both employment and living standards. Looking to the year immediately ahead, our aim is that output should grow at an annual rate of 5 per cent. between the second half of last year and the first half of next year. The House will recall that my Budget judgment was that, in order to achieve this, output in the first half of next year needed to be 2 per cent. higher than it would otherwise have been.

This Bill therefore provides for the biggest increase in personal tax allowances ever made and for the reduction of the two top rates of purchase tax to 25 per cent. at a combined cost of £1,100 million in 1972–73 and nearly £1,400 million for a full year. The reductions in purchase tax have already brought down the price of goods in the shops and the reductions in income tax will be reflected in the pay packet in two or three weeks' time. In addition, there is a major increase in pensions and other benefits.

Our third objective is to make further progress with the reform of taxation. Tax reform is not a narrow concept. It is not simply a matter of better rules and regulations. Our objective is to create a framework in which our economy can work more efficiently, in which industry can be more progressive and enterprising and in which the individual can be encouraged to work and to save. Our aim is to create a progressive society, a prosperous society, and a society with the will and the means to help the poor, the elderly and those in need.

Free depreciation, to take one example, is not simply a matter of changing the tax rules to help industry. It is an active policy to equip industry to face the challenge of Europe. The tax-credit system is not only a way of simplifying the administration of tax and social security it is a positive measure to help the poorer members of the community.

Last year we made a start. We legislated on unification and published Green Papers on corporation tax and the value-added tax. This year we propose legislating on the corporation tax and on VAT. We have issued a Green Paper on an inheritance tax and we have promised a Green Paper on the tax-credit system. There is no slackening in the momentum. Two years ago we were one of the most heavily taxed communities in the western world, with one of the most complex tax systems. I think it fair to say that we have made great progress since then. There is obviously still further progress to be made, and we are determined to make it.

In this matter of taxation reform, the Inland Revenue and the Customs and Excise are frequently caricatured as old hat, stick-in-the-mud departments, which have been fighting passionately to maintain their status quo but which have been subjected to change by an iron Chancellor. Nothing could be further from the truth. My Ministerial colleagues and I can testify that under the leadership of Sir Arnold France and Sir Louis Petch, the two Revenue Departments have tackled the reform of taxation with both dedication and enthusiasm.

If, then, it is asked why even those reforms which are now universally applauded were not made in previous years, the explanation is two-fold, and it may be of some help to any prospective reforming Chancellors of the Exchequer who may be listening today if I state the two essentials.

The first essential for the Revenue Departments is that the Chancellor of the day, after weighing up the inevitable problems which are inherent in change, should take clear and firm decisions, and that once those decisions have been taken there should be no back-tracking. The second and equally important essential is that those clear and firm decisions should be taken at a stage which is sufficiently early to enable the Revenue Departments to deploy their unrivalled expertise to implement them.

I turn to the provisions of the Bill. The proposals in the Bill fall into four main groups; first, the introduction of VAT and the abolition of purchase tax and SET; second, the changes in personal taxation, including the increase in the tax allowances, and the provision for the higher rates of personal taxation and the investment income surcharge for next year; third, the new reliefs for estate duty and capital gains tax; fourth, the reform of company taxation and the greatly improved capital allowances for investment in plant, machinery and buildings.

I start with the value-added tax. Clauses 1 to 50 and Schedules 1 to 6 provide for the introduction of a value-added tax on 1st April, 1973. Clauses 53 and 113 provide for the abolition of purchase tax and selective employment tax after 31st March, 1973. I suspect that there will be few mourners at the funeral of SET.

Subject to the power of variation provided in the Bill, VAT will be charged at the single standard rate of 10 per cent. on all supplies by taxable persons of goods and services other than those zero-rated under Schedule 4 of the Bill or exempted under Schedule 5.

As hon. Members will be aware, suppliers of zero-rated items do not charge tax on their sales and are able to reclaim from Customs the tax incurred on their purchases. Exempt suppliers are effectively outside the scope of the tax: they do not charge tax, they need keep no VAT records, but they incur tax on their purchases without recovery from Customs.

The principal zero-rated items are food—other than food subject to purchase tax and meals out—fuel, fares and the supply of new houses. Our objective has been to relieve from tax many items which are important in the expenditure of low-income families.

Mr. Hugh Jenkins (Putney)

The Minister of State was asked whether he would include the theatre among the zero-rated items, but he was unable to give a firm assurance on this. I under- stood that he proposed to discuss the point with the Chancellor of the Exchequer. The Chancellor is well disposed towards the theatre, and I am sure that if an Amendment could be devised to apply zero-rating to the theatre the Chancellor would be well disposed towards it. Will he confirm this?

Mr. Barber

I have a great deal to say; this is a very long Bill. There will be plenty of opportunity in Committee to discuss all these matters. It is much better and more convenient to leave it at that.

Mr. Jenkins

The right hon. Gentleman does not deny it.

Mr. Barber

Our objective has been to relieve from tax many items which are important in the expenditure of low-income families. In addition, zero-rating will also apply to books, newspapers and periodicals, newspaper advertisements and news services, water charges and some other items and, as was expected, to exports and to some services to exports.

There will also be provision to relieve local authority expenditure from tax. The major exemptions will be for rents, health, education and postal services, financial transactions such as insurance and banking and small traders; that is to say, traders with a taxable turnover of less than £5,000 a year.

I will digress at this point to make two general observations about the particular VAT that has been designed for the United Kingdom. We have deliberately designed the tax with the interests of low-income families in mind and, by zero-rating such items as food and fuel—that is to say, gas, electricity and coal—and bus fares and tram fares, and by relieving housing as far as practicable, we have set out to achieve that result.

At the same time, there will be the benefit from the abolition of SET. I need hardly remind hon. and right hon. Members that both food and new housing have suffered from the burden of SET. I shall have something to say later about the effect of SET on housing. Of the total net yield from SET about 10 per cent. entered into the cost of food.

Of course, it is still possible to point to items bought by low-income families which have not been taxed in the past and which will be taxed under VAT, but that does not demonstrate that the change is regressive overall. There are in fact no grounds for such a view. The task we set ourselves with VAT was to devise a broadly-based tax which was also socially equitable overall and, by international standards, a tax which was simple in structure and therefore relatively easy to administer, and I think we can claim to have done that.

Mr. Tam Dalyell (West Lothian)

On a question of fact, if VAT is designed for low-income families, what is the Treasury estimate of the percentage increase that VAT will cause in the price of children's clothing.

Mr. Barber

With great respect, the hon. Gentleman was, clearly, not listening to what I said. I said—because I wanted to put the point fairly—that of course it is possible to point to individual items bought by low-income families which hitherto have not been liable to tax but which will be liable to VAT. That in itself does not demonstrate that the change is overall a regressive change. There are no grounds for such a view, taking into account the changes we are making with regard to food and housing, for example, and the other matters which I have mentioned.

My second general observation about VAT is this. My hon. Friend the then Minister of State referred during the Budget debate to the possibility of Amendments in Committee to exclude this or that specific item, and the hon. Member for West Lothian (Mr. Dalyell) referred to one particular proposal. Since the Green Paper on VAT was published last year, we have had time to consider and to consult on the coverage of VAT in great depth. Whatever views may be held about the principle of the tax, the overall structure of the tax shows that the preparation for VAT has been both intense and thorough. Nobody would pretend that there was any such careful preparation for SET. But, just because the VAT has been put together after prolonged deliberation, it has been possible to construct the tax as a consistent whole. It follows that, as far as the coverage of VAT is concerned, the consequence of further exceptional treatment is likely to result not in the improvement of the tax but in the very opposite.

Mr. Patrick Cormack (Cannock)

I hope that my right hon. Friend in saying that is not ruling out completely the consideration of any future concession.

Mr. Barber

Whether or not any proposals for changes which are put down for discussion in Committee are considered is a matter for the Chair and not for me. In all honesty, after the very full consideration that we have given to this matter, in a way which has not been undertaken hitherto for any other new taxes which have been introduced, I thought it right to point out what I believe our general approach should be and what would be the consequences of diverging from that general approach.

Mr. Denis Healey (Leeds, East)

This is a most important matter, and hon. Members will be very concerned about the Chancellor's view upon it. First, it is for the Chair to decide what Amendments are in order, and any Amendment to add to the number of commodities which are zero-rated would be in order as they would in any other similar Bill.

But the Chancellor of the Exchequer is arguing that the Government will not accept any Amendments on the ground that there have been discussions with interested parties. With great respect to the right hon. Gentleman, it must be remembered that the most important party here is the House of Commons of the United Kingdom. If the right hon. Gentleman is concerned about the total yield of the tax, a concern which I quite understand, he has given himself the power in the Bill to increase the rate by up to 2½ per cent. Therefore, he has no excuse whatever for refusing in principle to consider variations in coverage.

Mr. Barber

I do not wish to be discourteous to the right hon. Gentleman, but it is significant that in his very first intervention as shadow Chancellor of the Exchequer the point he has made is that it is possible to increase the rate of VAT. I can only say that I very much hope that it will not be necessary to do this. The right hon. Member said that it is for the Chair to decide which Amendments are selected and no doubt many Amendments will be selected on this matter. He is also right to say, as I too acknowledge, that it is for the House of Commons and not for anybody outside—not for the Chancellor or for the Government but for the House of Commons—what it proposes to do about these various matters.

The point I was making was that for the reasons I have given, in regard to the very important question of the coverage of VAT, the consequence of further exceptional treatment is likely to result, not in an improvement of the tax, but the very opposite. These are all matters which can be discussed—and no doubt many of them will be—in Committee.

I should like to mention car tax for which provision is made in Clause 51 and Schedule 7. This will be introduced at the same time as the value-added tax, but will be charged at 10 per cent. of the wholesale value only. It is important to recognise that, taking VAT also into account, the taxation on cars on 1st April next, when the changes come into operation, will be slightly less than it is now after we have cut, in this Budget, the rate of purchase tax on cars from 30 to 25 per cent.—and, of course, considerably less than it was when we took office when the purchase tax on cars was 36⅔ per cent.

I am conscious of the need, as I was before I made my Budget statement, for the motor industry to have a stable basis on which to plan the expansion of its output. This is why the car tax will not be subject to any regulator power. It will be distinguished in this respect from all other Customs and Excise revenue duties.

Some hon. Members have wondered why other articles which might be regarded as luxuries have not been subjected to some additional charge. This shows a misunderstanding of our broad approach towards the simplification of indirect taxation. I would have liked to be able to introduce the same tax treatment for all consumer durables, but I was not able to go as far as that. As I explained in my Budget statement, there were revenue considerations which were overriding.

The proposals I have announced for dealing with the problem of purchase tax paid stocks on the transition to VAT were set out in paragraph 27(a) of the White Paper. They do not require legislation except to the limited degree which I shall mention in a moment. What I set out to do was to provide a reasonable measure of relief, but relief of a kind which would entail as little extra work as possible for all concerned. The arrangements have been widely recognised as constructive and helpful.

The use of sale or return arrangements will ensure that a substantial range of goods which are listed in the White Paper will if unsold at the changeover not be liable to purchase tax, but only to VAT.

The supply of goods under such arrangements is, as the House knows, already normal commercial practice in a number of trades, but registered purchase tax traders who, with the transitional problem in mind, intend to negotiate such arrangements with their customers, would be well advised to consult the Customs and Excise before putting them into operation. Clause 53 provides for the making of the necessary regulations which will be framed to accord as far as possible with the usual trade arrangements. This is highly desirable.

For other goods, purchase tax will be ended by Treasury Order a short time before the introduction of VAT, so as to help traders to dispose of existing tax paid stocks and to restock ready for VAT. A similar solution will deal with the problem which would arise in the case of duty paid stocks of alcoholic drinks, tobacco, matches and mechancial lighters, if the duties on these goods are reduced when they become liable to VAT. Any such reductions would be made by order under the temporary powers provided by Clause 59.

I turn to income tax——

Sir Gerald Nabarro (Worcestershire, South)

Before my right hon. Friend turns to another subject, will he allow me to ask him two short questions on the abolition of purchase tax? Will he give the longest possible notice of his detailed intentions for the abolition of this tax to prevent dislocation among manufacturers in the supply and demand for their goods? Secondly, I am sure that my right hon. Friend realises that hon. Members have always had the prerogative of pleading for purchase tax relief on Adjournment debates, and that the purchase tax rate and its scope could be changed by Statutory Instrument. In relation to VAT, does my right hon. Friend intend to deny to Members of the House of Commons the opportunity to make such changes and to cause any alteration in VAT to be subject only to Amendments to a Finance Bill?

Mr. Barber

I should like to consider my hon. Friend's second point, and I shall do so. On his first point he is absolutely right. It is incumbent on the Government, and on myself in particular, to take all reasonable action to prevent the occurence of the sort of problems to which he refers, not only in respect of manufacturing industry but also in regard to the many wholesalers and retail traders. This matter has been very much in our minds. Inevitably when making a major change in the form of indirect taxation there will be some problems which it is extremely difficult to deal with in a wholly satisfactory manner. However, I assure my hon. Friend that I shall do everything I can to avoid the sort of dislocation to which he refers. Now that we have published our proposals I shall be ready to hear from any of my hon. Friends, or from any other hon. Member in the House, about proposals they have to smooth this transition—which is a major problem.

Mr. John Gorst (Hendon, North)

Could my right hon. Friend confirm that if there is a change in VAT rate, upward to 12½ per cent. or downward to 7½ per cent., all the rates will change and that we shall not face a situation in which some rates will be at 7½ and some will remain at 12½ per cent. so that effectively there will be two rates of tax?

Mr. Barber

This power to vary the rate in advance of the coming into operation of the tax next year is a once-for-all power. This will apply right across the board.

I turn to income tax. It is fair to say that my proposals for raising the single and married persons' tax allowances by a higher amount than ever before have—not surprisingly—been generally welcomed. Some 2¾ million people who were otherwise liable to tax will, as a result of the change, be wholly exempt and all those who remain liable will have their tax bills reduced by £1 a week.

Mr. Michael Meacher (Oldham, West)

The right hon. Gentleman has many times mentioned a cut of £1 a week. Will he acknowledge that the man earning £1,000 a year with two children will get a tax cut of about 35p a week, whereas the man on £20,000 a year will get a tax cut of about £17. Therefore will he change his statement, since it is in accurate?

Mr. Barber

I disagree entirely with the hon. Gentleman about his second example. As for his first example, I have always made it clear that everyone who still pays income tax, after the raising of the thresholds, will benefit to the extent of £1 a week. That is the case, and it has been made quite clear. All this has been commented on extensively, and it needs no further elaboration from me. I have no doubt that it will be discussed again when we debate these Clauses in Committee.

Our proposals in the Bill are in line with the pledge that we made in our election manifesto to reduce the burden of taxation and to make … progressive and substantial reductions in income tax. Clause 63 provides for the single person's allowance to be raised to £460 and the married couples to £600. It also makes corresponding alterations in the allowances which will be due when the unified system of taxation comes into effect next year. The single person's allowance will then become £595 and the married allowance £775. It is one of the great advantages of the new unified tax system over the existing system that these figures will then represent the actual minimum income at which those concerned will become liable to tax.

The other changes in the personal reliefs have attracted rather less attention. But they are very important and they should not be overlooked. The income limits for both age exemption and small income relief are to be raised. I shall not weary the House with the figures. The details are in Clause 63. These changes ensure that those who are entitled to these reliefs will benefit as a result of the increase in the personal allowances.

I am sure that hon. Members on all sides of the House, recollecting the debate that we had last year, will welcome the decision to fix this year the rates of unified tax which are to apply for 1973–74. These rates will still be provisional, because they can be varied in next year's Finance Bill. Nevertheless, by taking action this year we shall greatly assist those who have to prepare for the change to the new system.

The rates are set out in full in the table in Clause 64. Tax at the basic rate will be charged on the first £5,000 of income—that is, after deducting the taxpayer's personal allowances—and, as I foreshadowed last year, this basic rate will be 30 per cent. This is broadly equivalent to the present standard rate of income tax less earned income relief, which is 30.14 per cent. The tax rates on slices of income above £5,000 a year will rise by steps until a maximum of 75 per cent. is reached for those with incomes over £20,000.

The starting point for the investment income surcharge and the rate of surcharge are also fixed in Clause 64. As hon. Members will know, it is an essential feature of the new system that the first slice of investment income should be taxed at earned income rates. The first £2,000 of investment income will qualify for this treatment. The rate of surcharge on investment income above this amount will be 15 per cent. My hon. Friend the then Financial Secretary explained why these figures have been decided on in his speech during the Budget debate. I shall not go over that ground again.

The hon. Member for Heywood and Royton (Mr. Joel Barnett) attacked these proposals as regressive. To my mind, this is completely misconceived. To the extent that they benefit those with investment income, in my view they are a much needed corrective to the present gross imbalance in the impact of taxation as between earned income and investment income.

After all, in these matters there is no absolute method of measuring or judging what is fair and what is not. But when one is constructing, as we are, a radically new tax structure and system, the sensible course is to produce a logical, coherent and straightforward system of rates. This is what we are doing.

To argue, as some hon. Members opposite sometimes appear to do, that any change from the existing incidence of taxation is inevitably unfair is to condemn the British taxpayer for ever to remain imprisoned in the maze of haphazard decisions of the past and to remain imprisoned in the jungle of an incoherent and in many cases wholly illogical tax system. That is a conclusion which we on these benches reject.

During our forthcoming debates, we can argue about the new scales of tax. I have no doubt that arguments will take place. But it is inherently more likely than not that a logical and straightforward scale is fair and just and that any so-called "benefits" to certain taxpayers merely underline the excessive burdens that they have been carrying under the existing complicated system.

At this stage, I should like to bring together the measures in the Budget and in this Bill which are designed to promote a higher level of personal saving for the longer term. If we are to achieve and sustain a faster rate of economic growth we must invest a higher proportion of our national income. In the long run it is essential that this should be financed by a higher proportion of personal saving.

First, there is the exemption from the investment income surcharge of the first £2.000 of investment income. This means for anyone in the country who is in the process of building up a modest accumulation of capital that the income from his savings is taxed in exactly the same way as earned income—[Interruption.] I realise that the Labour Party is opposed to these proposals, and we shall argue them out in Committee. At the moment, I am explaining the consequences of them. In future, for the overwhelming majority, the income from savings which are so essential to build up a widely spread property-owning democracy and to build up the wealth of the nation will be taxed in exactly the same way as earned income and will no longer be penalised.

Secondly, there are the changes in estate duty, to which I shall refer in a moment. I have no doubt that the previous burden of estate duty has had a discouraging effect on savings. It has been one among admittedly many factors which in the post-war era have helped to spread a feeling that there is little point in saving and building up wealth for the future.

Thirdly, there is the important change that we are making in the taxation of unit and investment trusts. This is just one more development in the promotion of a "capital owning democracy", which we on this side believe is both advantageous for the individual citizen and good for the nation as a whole.

Mr. Ray Carter (Birmingham, Northfield)

Can the right hon. Gentleman explain precisely what he means by a "modest level of capital"?

Mr. Barber

If the hon. Gentleman and his colleagues are really saying that they believe in all the circumstances that it is inequitable, apart from the economic consequences, to relieve investment income up to £2,000 a year entirely from discrimination between earned and investment income, most people in the country will disagree with him. The very fact that there will be many people who will not have investment income of that degree does not establish that what we propose is inequitable. I believe that this is the right way to proceed.

The House will not expect me at this stage to go into the details of the provisions relating to Estate Duty. They are set out in Clauses 111 and 112 of the Finance Bill. However, I should like to take this opportunity to deal with one point which was raised in the Budget debate by Mr. Boyd-Carpenter, the then right hon. Member for Kingston-upon-Thames.

He suggests it is anomalous to set a limit of £15,000 on the amount that can be left free of estate duty for widows while exempting charitable bequests up to £50,000. The answer is that we have had to approach the limits for these two reliefs from quite different points of view.

We shall be giving further consideration to the whole question of bequests to widows and widowers in connection with the wide range of discussions we hope will be prompted by the Green Paper on a possible inheritance tax. But I came to the conclusion that it was right to take some action straight away. In considering what could be done here I had to bear in mind that if a limit of £15,000 had not been set, the cost of the relief would have been unacceptably high.

The result of the change is that an estate of up to £30,000 can now pass to the widow wholly free of estate duty. There will be considerable reductions in the burden further up the scale; if an estate of £50,000 is left wholly to the widow, there will now be only £6,000 to pay compared with £15,500 under the old law. This is a considerable measure of relief and will be widely thought to be fair.

The relief for charitable bequests is designed to encourage the flow of funds to charities. The cost of this concession is modest, and in deciding whether or not there should be a limit and what the limit should be I was not constrained primarily by considerations of cost. The reason for the limit is, quite simply, that, without it, there would be serious risks of abuse. I came to the conclusion that a limit of £50,000 would be appropriate to deal with this.

I should next say a word about the capital gains of authorised unit and investment trusts. As the law stands, these are charged at 30 per cent., and the net gains are apportioned to the unit holders and shareholders so as to reduce their own capital gains liability.

There can be no doubt that this arrangement puts the investor of modest means at a disadvantage if he invests through the trusts instead of on his own behalf, since the rate appropriate to his own capitals gains may be much lower—15 per cent. for a basic rate taxpayer after this year. Moreover, the apportionment arrangements are cumbersome and in many cases almost completely perplexing.

Sir G. Nabarro

And time wasting.

Mr. Barber

And time wasting, as my hon. Friend says.

Under Clause 88, the effective rate of tax on the gains of the trusts will therefore be reduced in effect to 15 per cent. from 1st April this year.

Clause 107 then provides for a non-repayable tax credit of 15 per cent. to be set against the unitholder's or shareholder's gain on the disposal of units or ordinary shares in the trust. If his personal capital gains tax rate is 30 per cent., he will therefore pay 15 per cent. net after allowance of the credit, so that the full tax will have been collected in two stages—15 per cent. from the trust and 15 per cent. from him. If his personal capital gains tax is calculated on the alternative basis under which half the gain is exempt and the other half is charged at his income tax rate, the basic rate taxpayer after this year will have nothing to pay.

The new system will therefore be fair to the trusts and to those who invest through them. It will also enable the cumbersome system of apportionments to be discarded, and this will be a welcome simplification.

A large part of the Finance Bill—indeed, more than a third of it—is taken up with the reform of corporation tax. This is a very large Finance Bill and I apologise to the House for speaking at some length. I will be as brief as I can, but I think it is very important at this initial stage, before we come on to the Committee stage—I shall not be referring to many proposals in the Bill—to deal with some of the main proposals which will be helpful to later debates.

I can spare the House an exposition of the details of the Bill at this stage, because we explained its principal features during the Budget debates, and since then we have issued a White Paper with the Finance Bill which gives not only a general account of the new system, but deals with the individual Clauses.

I shall therefore confine what I have to say to more general comments. For the benefit of those who have no great appetite for Finance Bill reading, I commend Clauses 79 to 82, which set out the essence of the new structure and introduce its basic concepts.

The change we have introduced gives effect to views about the shape of company taxation which we have held ever since 1965. Right from the beginning, from those early debates on the new corporation tax in 1965, we made it clear that in our view dynamic growth could not be secured by encouraging companies to sit on their funds. That merely led to the survival of the fattest, as we put it then. Nothing has happened to cause us to change our views on this matter.

As I made clear both this year and last, our original preference was for a two-rate system of corporation tax, because we thought that that would be the easiest to introduce and, indeed, under stand. But we also made it plain that we felt strongly that, where possible, major tax changes should take place only after full and careful public sonsultation. It was for this reason that a Select Committee was appointed. As the House knows, we were happy to accept the proposals which it made in this particular regard.

There will, if course, be those who, harking back to the economic arguments which were advanced in 1965, may assert that the change we are making may affect adversely the level of industrial investment because it removes the disincentive to distribute. The answer to this is threefold.

First, we are introducing a dramatically improved system of direct incentives to invest. [Interuption.] If right hon. and hon. Gentlemen opposite do not think after all these years of pressure on them and on previous Conservative Governments that the introduction of free depreciation is not a—[Hon. Members: "Grants."]—I am talking about the whole country—the introduction of free depreciation is a dramatically improvde system of direct incentives, all I can say is that they are wholly out of line with the thinking of management in this country.

Clause 65 of the Bill gives free depreciation on investment in plant and machinery and, as I have explained in my Budget statement, there are the additional regional incentives which will be provided for in a separate Industry Bill which is to be introduced by my right hon. Friend the Secretary of State for Trade and Industry. This means that overall we can claim with justifiable pride that we have the most favourable system of incentives for investment ever known in this country.

Second, looking at the generality of larger companies, the case for the change is, in essence, that, by removing the present discrimination between retained and distributive profits, it will take away impediments to the raising of new equity capital, promote the better allocation of investment resources and encourage a tauter and more efficient company sector. In this way it will play its part in gaering up our economy to meet next year the challenges and opportunities of the Common Market.

Finally, I have accepted that special treatment is needed for the small company which is peculiarly dependent on its retained profits to finance the investment it needs for expansion and development.

I cannot emphasise too strongly that, as a result of my proposals on this point, small companies—that is to say, 90 per cent. of all the companies in this country—will not only benefit from the corporation tax change in respect of their distributions, but will, at the illustrative rates I used in my Budget speech, pay no more tax on their retained profits than they do now.

Mr. Joel Barnett (Heywood and Royton)

They are no worse off than now.

Mr. Barber

The hon. Gentleman intervenes to say that they are no worse off than now, but they are five percentage points better off than they were when his Government were in office. All we had year after year when the Labour Government were in office were increases in taxation. Quite apart from these changes which we are making this year, since we have been in government in the last two years, we have at least reduced corporation tax on two successive occasions, and this has been welcomed.

I remind the House that the rate is five percentage points lower than when we took office. Taken together with the relaxations for close companies in both last year's and this year's Budget, this means a very considerable easement of the position as we found it for these companies.

Mr. Joel Barnett

Will the right hon. Gentleman confirm that close companies with the highest profits will pay 25 per cent. more in corporation tax?

Mr. Barber

I certainly do not propose to confirm that. [Interruption.] If the hon. Gentleman wants to bandy about figures he will get an answer, but in Committee. I do not propose to confirm or deny figures like that off the cuff. [Hon. Members: "Answer."] Do hon. Gentlemen opposite want me to speak for another two hours answering such questions? This is a very long Finance Bill and I am trying to cover as many of the important points as I can.

Mr. Barnett rose——

Mr. Barber

I will not give way. Nor do I intend to be stimulated by the hon. Gentleman into answering questions about figures such as the one he asked me.

I can sum up in this way the main decisions which will be of particular advantage to small companies. First, we are giving special relief to small companies from the new rate of corporation tax. This will benefit about 350,000 companies. As I have said, that is more than 90 per cent. of all companies.

Second, we are getting rid of a vast amount of the burden and administrative complication of the Labour Government's legislation on close companies. As a result of last year's Budget and this year's Budget, some 80 per cent. of the trading companies which suffered from this excessive work burden will now be very considerably relieved.

Third, on the new value added tax, we are exempting all traders whose taxable turnover does not exceed £5,000 a years. This is a considerably higher exemption level than in other European countries.

Finally, there are the two other tax changes which, as the Bolton Committee on small busineseses pointed out, are of immense importance to small companies. These are the reduction of estate duty and the reallowance of interest. Even with the special relief which does exist there is no doubt that the increasingly heavy burden of estate duty has discouraged the building-up of family businesses. I will quote one short passage from the Bolton Report: My Committee wish to emphasise again that what is needed is a taxation policy which will restore initiative, encourage entrepreneurial activity and improve the liquidity position of small businesses. We believe that continued reduction in taxation of personal incomes and of estates would be most likely to achieve this result. The Government have gone a very long way to meet that request.

I come to the provisions governing share options. If the House passes the Motion on the Order Paper concerning the split of the Bill for debate on the Floor of the House and upstairs, this matter will be debated in Committee of the whole House. I will, therefore, say only that apart from the familiar arguments for and against the proposed treatment of share options, it is one of the facts of commercial and industrial life today that there is an increasing international market for able and experienced executives in industry. And in a situation where United States corporations, for instance, are in a position to offer share options and British companies are not, the American corporations are able to offer much more attractive incentives to good executives.

The provisions of this Bill modify the 1966 legislation, which charged to income tax and surtax all gains from share options given by a company to its employees or directors. In making the change in this Bill, it is necessary to bear in mind that the grant of options over unreasonably large blocks of shares or on exceptionally favourable terms can militate against the interests of the general body of shareholders and may be little more than tax avoidance arrangements.

We have, therefore, thought it right to remove the 1966 charge on gains from share options only where they are granted under schemes which are approved by the Inland Revenue as meeting certain conditions.

These conditions are set out in Schedule 12. Schemes will have to be adopted by the ordinary shareholders and will be open only to full-time directors and employees. The options must not run for more than seven years and must be for the acquisition of shares which are generally available.

The price at which the shares may be acquired must not be less than the market value of the shares when the option is granted, and the scheme must not permit the grant of options to any individual to exceed stated limits related to his salary. Where these and other conditions are satisfied, gains on the exercise after 5th April, 1972, of the options will be chargeable only to capital gains tax. There are also provisions governing share incentive schemes.

Formal approval of schemes will be possible only after they have been adopted by the companies' ordinary shareholders. Once the Finance Bill has become law, however, the Inland Revenue will be ready to discuss draft schemes with companies' advisers, in much the same way as they have done during the last few years, with a view to giving provisional approval in appropriate cases.

The legislation is complicated, but companies which wish to introduce straightforward schemes should have no difficulty in obtaining approval and I hope full use will be made of the opportunity of assisting employees to acquire shares in their companies.

Clause 71 provides for the restoration of relief from income tax for payments of annual interest and interest on bank overdrafts, subject to disallowance of the first £35 of interest paid by an individual. I explained the reasons for this threshold in my Budget statement.

As a practical matter, some such threshold is essential. The threshold does not apply to loans, as distinct from overdrafts, for the purchase or improvement of houses or land or for the purchase of plant or machinery to be used in the business of a partnership or employment.

The size of the reductions in taxation which I have made in this year's Budget, and which are reflected in this Bill, took some people by surprise. I would not have been in a position to make tax cuts of such magnitude if we had not made substantial progress during the past year in reducing the rate of price and cost inflation.

A number of factors have contributed to this. There has been a much greater recognition of the severe economic and social damage which was being caused by the headlong pace of pay increases a year ago. The more moderate increase in prices has helped to bring about more moderate pay settlements.

But there was one particular development which played a major part in this progress. That was the initiative taken by the CBI on prices. Indeed, it is no exaggeration to say that without that initiative, and the encouraging response it achieved both in the undertakings given and in action, I would not have been in a position to make such large tax cuts in the Budget without incurring unacceptable risks both in terms of inflation and of the balance of payments.

The present scheme is due to end in July, but talks are already going on with the objective of an extension for a further period. I recognise that the price restraint of the past year has not been achieved without problems for many companies, especially when they have been under the pressure of excessive pay claims. On the other hand, the containment of prices has enabled me, both last July and in the recent Budget, to introduce measures designed to run the economy at a higher level of activity than would otherwise have been possible, and this development has had, and will increasingly have, a favourable effect on companies' profits.

Looking ahead to a possible extension of the scheme, it is right and proper that managements should consider the direct and more obvious consequences for their profits. But I am sure that they will also bear in mind that if the scheme were not renewed the prospects for success in the battle against inflation would be reduced, and there would consequently not be such a good chance of achieving a high rate of sustainable growth, on which the longer-term financial performance of companies crucially depends.

What is more, if the private sector were not prepared to continue with price restraint, the nationalised industries could not continue with the limitation on price increases which they have observed, and this would obviously have important implications for industrial costs.

When, therefore, company managements are considering the effects of a further period of price restraint, I hope they will bear in mind that the alternative could well be less, not more, financially attractive to them, certainly in the longer term.

Having said this, I must emphasise that policies of price restraint in both the public and private sectors must be accompanied by greater moderation of pay claims and settlements if they are to achieve the result we all want. I do not believe that trade unionists are any less concerned than government and managements to achieve a further lowering of the rate of inflation, for this is so obviously in their own interests.

There is one important area where inflation has been particularly severe, and that is the cost of housing. Hon. Members will recall that in last year's Finance Act we abolished the stamp duty on mortgages. A greater relief to purchasers of new housing—and so to the price of housing generally—will come from the reform of indirect taxation in this Bill. When we took office SET added £120 to the price of an average council house. Already we have cut that by half. Next year, with the complete abolition of SET, the other half will go, and under VAT new construction will be zero-rated.

My right hon. Friend the Secretary of State for the Environment has been considering what further measures are now required to bring forward land for early housing development in accordance with good planning and in accordance with positive regional planning strategies, and he will be making a statement on his conclusions in the near future.

In the meantime there is one change which we can make in this Bill and which will help those who are buying their own homes.

The House will be aware that at present property other than stocks or shares worth not more than £5,500 is exempt from the 1 per cent. stamp duty; between £5,500 and £7,000 the charge is ½ per cent. I propose during the Committee stage to table a new Clause which will increase the exemption limit from £5,500 to £10,000, and provide that the band charged at the reduced rate of ½ per cent. will run from £10,000 up to £15,000. These changes will take effect from 1st August, which is the normal date for stamp duty changes. This will mean that at current prices about 96 per cent. of house purchases will be entirely exempt from stamp duty. I am sure that this proposal will be universally welcomed—especially by young married couples.

Mr. Dalyell

What is the cost?

Mr. Barber

The cost will be £33 million in a full year, and £21 million in 1972–73.

Mrs. Renée Short (Wolverhampton, North-East)

The right hon. Gentleman has said that house building is to be exempt from VAT, or zero-rated. Will he say why architects, quantity surveyors and other consultants used by building firms are to have their services subjected to VAT, and why the lawyers who will be negotiating the mortgages will also be subject to VAT?

Mr. Barber

I do not know whether the hon. Lady knows this, but before I announced the proposals in the Budget we had the very fullest discussions with the professions about these particular matters. We came to the conclusion—for reasons which can be deployed in Committee but which need full explanation—that this was the appropriate answer. We have looked at this matter extremely carefully. I am pleased that the hon. Lady acknowledges the fact that the change from SET to a zero rating for new houses under VAT will be a very substantial help with this general matter.

In my speech winding up the Budget debate I claimed that the Budget provides the biggest tax incentives for investment and for modernisation that we have ever had in this country. I claimed also that we have made the largest reductions in income tax, and also in purchase tax, that have ever been made.

As is so often the way in this House just before 10 o'clock, that part of my speech was perhaps somewhat inaudible. Nevertheless, these claims have not been disputed, and had time and audibility permitted I could have made further claims which I believe are equally indisputable.

It is not too much, I believe, to claim, that the tax reforms in this Bill—even before the new tax credit system-amount to the most radical reform of the tax system this century.

At the same time the changes in social benefits and taxation that we have announced benefit both those at work and those who have retired. They benefit all income taxpayers and they provide important help to families with children below the tax level.

As we prepare for entry into the Common Market we have—to quote the Economist— the most intensive system of investment incentives of any country in the world". And we are giving what is the biggest ever encouragement to personal saving which is so vital if over the years ahead we are to expand the wealth both of the nation and of its citizens.

For regional development there is now the largest margin of preference for investment that we have ever had in our history. And for employment, there is the biggest stimulus to demand ever given in any Budget.

Finally, and most important of all, our whole strategy is now geared to a faster and sustained rate of growth of national prosperity than has been achieved by this country within living memory. This Bill provides the detailed legislative authority to make that strategy possible, and I commend it to the House.

5.25 p.m.

Mr. Denis Healey (Leeds, East)

First, I must thank the Chancellor for his congratulations to myself. I assure him that I shall do my best to fulfil the prediction he made about the way in which I shall treat my responsibility. I thank him also for his words about my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) and those other colleagues who retired with him. All of us would agree that they have made a great contribution to the life of this House and of the nation. One thing I regret about my present appointment is the circumstances which led to it taking place at this time.

I feel that I should ask for the indulgence normally granted to a maiden speaker. But I fear that I cannot, on this occasion, guarantee to maintain the uncontroversial style which is the price paid for that type of indulgence—particularly on a day when we have had the announcement, for the fourth month in succession, of over 1 million persons unemployed in this country. I found it quite astonishing that the Chancellor, in a speech which lasted for over an hour, did not once use the word "unemployment", and did not refer to unemployment at any point or indicate how the measures he is proposing that the House should adopt would affect that problem.

I recognise that I have an immense amount to learn in my new responsibility. I have never been a business man or a banker. I am bound to confess, however, that the record of business men and bankers as Chancellors has not been an excessively brilliant record. I am not an economist, but I am far from convinced that that, too, is not an advantage. It always seems to me that economics is a branch of that pseudo science, psychology, which for a time acquired a certain respectability by using numbers, but I am glad to say that it is very much losing that reputation today.

This is, perhaps, the first period in a century or two since Adam Smith that economists have been showing a certain humility when they make comments and predictions about what is happening. Almost all of the generalisations which all of us took for granted 10 years ago about the economy of the nation, and, indeed, of all industrial nations, are now seen not to hold water. We have stagnation with inflation, and large-scale unemployment with soaring wage demands. The standard remedies no longer work. Chancellors press the button and nothing happens.

Perhaps it is worth asking, at the beginning of the discussion of the Bill, why that should be so. I am sure that the reason is that real men and women are very different from the abstract concept of the rational economic man on whom economists base most of their predictions. Human beings are immensely complex, capable of extremes of idealism and self-interest. Many prefer leisure to an extra £5 a week. Some prefer to live on a low wage among their friends than to move 200 miles and earn a higher wage. Many people, I think most, regard dignity and status as more important than money. Many, I am glad to say, are prepared to make sacrifices of their personal interests for the sake of their comrades in the factory or in the union, or for the sake of the older people or the younger people, rather than to exploit the strength of their bargaining power for personal interest alone.

But I am sure that the key to the new situation in which we find ourselves is that the whole population in the industrialised countries today is better educated and looks further ahead than ever before. People now make their own calculation about the future before they take decisions which affect our economic life. The working man who sees unemployment and expects it to continue, once he has satisfied his basic needs, may save a good deal of the rest of his money rather than spend it. This is certainly one of the reasons why attempts to stimulate the economy both in Britain and the United States by tax reliefs have been far less successful than treasuries and economists believe. Similarly, the business man with a generation of stop-go behind him will refuse to invest the money given him in tax reliefs unless he is satisfied that when the new plant is producing the goods the market will be there to buy them.

This again is why, in spite of repeated efforts by the Chancellor to stimulate investment by various types of incentive, the lack of confidence in his ability to manage the economy means that investment remains at an all-time low. The structure of industrial society all over the world is now on the edge of a technological revolution and demands far more central control by government if the changes which are inevitable are not to dislocate the whole fabric of society. In this new and rather unfamiliar situation it is confidence in the Government's ability to manage the economy which is the key to any hope of progress. In Britain that confidence has collapsed, as much among industry as among labour, over the last two years of the Government's rule.

This is not surprising, because the Chancellor has got it wrong every time. He has already produced three Budgets or mini-Budgets before this. We warned him again and again that the measures he proposed were either harmful, irrelevant or inadequate. He denied it. But none of the objectives he set himself on these three previous occasions was achieved. Those objectives were precisely the same as the objectives he set himself this afternoon, namely to achieve a forward-looking industry and faster and sustained growth.

What is the record? Take unemployment, where we have had the worst April figures today for over 30 years. Over 1 million are out of work in the United Kingdom for the fourth consecutive month. The seasonally corrected number of wholly unemployed persons in this country is up again by 4,000. In great Britain as a whole there are five men for every vacancy and in Scotland there are 17 men seeking to fill every vacancy. This is overwhelmingly the central economic problem facing the country, and it received not one word of comment from the Chancellor this afternoon. Unemployment in Britain today is by far the biggest single cause of avoidable human misery and suffering. It is also the biggest single cause of social inequality and its consequences spread far beyond those directly concerned through being unemployed.

Unemployment of 1 million means a toss for the nation in potential wealth and welfare which could be as high as £3,000 million a year—over £3 a week per household. The men and women who are unemployed are also consumers and are failing to contribute as they might to the spending power of the nation, which is intended to stimulate the economy. We face therefore a vicious circle. The object should be to abolish unemployment or to reduce it to a tolerable level. But once unemployment reaches 1 million it is impossible to find a way of doing so quickly without incurring a rate of inflation which is liable to wreck the whole fabric of the economy. Any Government who have allowed unemployment to reach its present level and maintain it are not only committing a moral crime against the nation but are responsible for any economic catastrophe. We have a spare capacity in manufacturing industries at the moment of 10 per cent. Even the Treasury admits that there is a gap of 3 per cent. in our productive capacity at the moment, and many independent economists believe that the gap is a good deal higher. Even if the Chancellor achieves the objective he set himself in the Budget and Finance Bill we cannot look forward to any significant fall in unemployment over the coming year.

Let us look at the record at the other end of the scale on investment. Investment is a major key—not the only one—to growth and to removing unemployment. Ever since the war we have run steadily behind our European partners in our rate of investment and we have tended to get less return in productivity for the investment we have made than many of them. During the last 12 months the growth in our gross national product was only 1 per cent. The growth in industrial production was only ½ per cent., and manufacturing production actually fell. In the last 12 months there was a decline in every major sector of industry except chemicals, and the news of chemicals today is by no means encouraging.

Production in this country was declining faster in the second half of the last 12 months than in the first half in spite of three Budgets by the Chancellor, each of which he confidently predicted, as he predicted this afternoon, would produce a total turn-round in the trend of our economy. The sale of machine tools is probably the best token of the tendency of the economy to improve its productivity, the best index of our industrial future. Demand for them fell by 37 per cent. last year. In a rather mournful article this morning the Financial Times had only one crumb of comfort to offer. It said that the state of the machine tool industry was so low that there was nowhere for it to go but up.

The Chancellor's main theme this afternoon in his discussion of our industrial problems was investment. Investment fell in real terms 8 per cent. last year and according to the survey carried out by the Department of Trade and Industry it is likely to fall about 3 per cent. during the current year. In cash terms, as distinct from real terms, investment last year, according to this week's figures, went up by only 0.6 per cent. and yet trading profits went up 12.3 per cent. in cash terms and undistributed profits, after tax and dividends, went up 23.7 per cent. I ask the Chancellor, does he believe, with the figures published by Government Departments in the last few days, that the key to investment is simply to increase profits? Surely the effects of the record of the last year show that this is not the answer, and if there is an answer it must lie elsewhere.

Tax cuts are not the answer. The Chancellor again boasted this afternoon of the enormous tax cuts which he has made, particularly for business, in the last 18 months, and it is precisely during this period that investment has fallen more heavily than at any time since the war. There is no sign whatever that the prospect of entry into the Common Market is changing the intentions of business.

Mr. J. Bruce-Gardyne (South Angus) rose——

Mr. Healey

I will give way in a moment.

What is very striking to those of us who have read the page upon page of advertisements signed by leading industrialists recommending entry into the Common Market and saying how it would stimulate the economy and investment is that none of them is putting his money where his mouth is. The situation is gloomy in the extreme. If the Chancellor wants to make industry more efficient and forward-looking he will have to behave very differently from the way in which he behaved in his last three Budgets. There is no sign whatever of that sustained and faster growth which he confidently predicted as a result of his three previous Budgets. Why should there be any confidence in his prediction that we shall get faster growth as a result of this Bill?

As a nation, we now face a strike of the capitalist class, which is infinitely more damaging to our national welfare than any go-slow on the railways, but the Government have produced no Industrial Relations Act to deal with members of that class.

Mr. Bruce-Gardyne

I cannot help feeling that the right hon. Gentleman is trying to suggest that the time lag between any policy activity and its result in the economy is far shorter than the evidence suggests it is. Surely the truth is that during the last years of Labour Government there was a catastrophic decline in corporate profitability, and that the pay-off in terms of the decline in investment followed after the present Government had taken office. There is bound to be a time lag between the build-up in profitability and the investment that will follow from it.

Mr. Healey

That is a very ingenious explanation, but let me make two points. First, the Chancellor certainly disagrees with the hon. Gentleman, because when he presented his July mini-Budget last year he confidently predicted that we should see the results in terms of a fall in unemployment and in increase in investment in September. If there were any truth in what the hon. Gentleman is saying, why did not his right hon. Friends produce two years ago the incentives they are producing today? They had every opportunity to do so. The plain fact is that the hon. Gentleman is trying to find an ex post facto justification for a continuous failure by the Government to produce measures which would carry out the predictions the Chancellor made when he presented them to the House.

The Chancellor had something to say about prices. They are still roaring up, though not so fast as they were 12 months ago. However, the Minister of Agriculture, Fisheries and Food told us on Monday that food prices went up by nearly 12 per cent. in the past 12 months. Overall, prices went up by 8.2 per cent. last year as against a rise in earnings of only 8.7 per cent. I do not believe there has been one 12-month period previously since the Second World War when the gap between prices and earnings over the year was as small as it was during the past 12 months. The gap is so small that for the working class as a whole the past 12 months produced almost no improvement in their standard of life. That means that for large sections of the working class there must have been a fall—for some a very large fall—in living standards.

House prices are the most dramatic example, and I am very glad the Chancellor referred to them. We on this side welcome what he proposes to introduce into the Bill to extend the relief stamp duty. But relief of stamp duty is only a drop in the ocean compared with the rise in prices. In the country as a whole house prices rose by 30 per cent. last year, and in the London area they rose by 60 per cent. The reason was not the irresponsibility of the workers, of trade unionists, but the irresponsibility of property companies and speculators in land. The central problem is that the percentage of the cost of a house attributable to the land on which it is built has risen from 5 per cent. before the war to 25 per cent. today. All of us on both sides look forward with avid interest to the proposals the Chancellor has promised that his right hon. Friend the Secretary of State for the Environment will present to us for dealing with the problems in the near future.

Since the present Government took office the only bright piece of news on the economic horizon has been the balance of payments. The main reason for our staggering balance of payments record has been industrial stagnation at home and a change in the world terms of trade, which has been very much to the advantage of this country. But even this gleam is fading now. The figures of our visible trade balance of recent months have been disturbing in the extreme. I was astonished that the right hon. Gentleman made no reference to this, as Chancellor of the Exchequer, responsible for the country's economic future. We had a gap of £33 million on visible trade in February and of £80 million in March. Some of that £80 million is attributable to the coal strike, and some to the jumbo jets which always fly over the horizon when Government's have particularly bad trade figures. I seem to recall that happening on a previous occasion.

Most of the commentators and economists who have studied those figures believe that the gap in our visible trade in March, after taking account of those factors, must have been over £30 million. That means that even if it does not get worse we shall have a gap on visible trade this year of about £400 million, which, after we have taken into account the steady surplus on our invisible exports, as we hope we can, will put our overall surplus this year to a quarter of what it was last year. I wish the Chancellor had said something about this and had explained why he thinks the trade balance is going wrong. I hope the Financial Secretary will say something about it when he winds up.

I cannot help feeling that perhaps one reason for the gap at this time is the concentration in the Chancellor's last measures on relief for consumer durables. I noticed the other day that car imports increased by 25 per cent. between the last two quarters for which figures are available. The relaxations on hire-purchase control also led to a flood of Japanese, Italian and German refrigerators, television sets and so on. Against this background, I am not surprised the Chancellor has told the world that he has left his hands free to devalue the pound when the new burdens imposed by entry to the Common Market begin to fall on us during 1973.

Mr. Christopher Tugendhat (Cities of London and Westminster)

The right hon. Gentleman will have noticed that recent figures show that one of the difficulties in our balance of payments is that the cost of goods produced in this country for export has risen much much more rapidly than the cost of our imports. Since he is talking in such a broad sense. I am sure he would wish to put in his speech a plea for wage restraint in those circumstances, since it is so relevant to the balance of payments, which concerns him.

Mr. Healey

I am grateful to the hon. Gentleman. I shall have something to say about that towards the end of my speech. At this stage it is better that we get down to the contents of the Bill in detail.

We must ask ourselves why the Government's record has been so appalling. It is only when we have answered that question that we can form a judgment whether the Bill will do any better than the earlier measures taken by the Chancellor to improve the situation.

I readily admit that there are some factors in the new economic situation in Britain, as in Western Europe and the United States, which still baffle all the experts. Many of those factors arise from the fact that the whole of the Western world is moving out of the Industrial Revolution into a technological revolution. Its; social consequences are as important in their effect on the economy as its direct economic consequences.

The extraordinary thing is that, faced with this totally new situation, the Government, instead of producing an economic policy appropriate to the computer age, are moving back to the age of the spinning jenny of the early Industrial Revolution. The Chancellor's whole policy until today has been the economics of Mr. Gradgrind and Mr. Samuel Smiles. His basic principle, chat of the Prime Minister and the Secretary of State for Trade and Industry, repeatedly stated in the House—and we had many echoes of it this afternoon—is to take the Government out of the central control of the economy wherever possible, except perhaps with wages where the Government have secretly attempted continuously to intervene, and to leave the jungle war of free competition, ensuring that only the fittest survive. We have heard this from the Prime Minister, the Chancellor and almost every leading Minister, the philosophy of the lame duck.

That policy did not work and cannot work in any democratic society because the people will not let it work. That is why Mr. Gradgrind and Samuel Smiles are no longer with us. This policy of the lame duck went down on the Clyde, in Derby and in Belfast. We now have investment grants back, we have the Industrial Reorganisation Corporation back under another name. The Government are still spinning somersaults on every aspect of their economic dogma and these somersaults, incidentally, are totally ignored by the vast bulk of Press and television commentators. What is disturbing is that though the Government have half abandoned the lame duck philosophy, the philosophy of the marketplace, they so far have found nothing whatever to put in its place.

Let me take some of the points the Chancellor made about his reforms of taxation, particularly corporation tax. The CBI has pointed out to the Chancellor in the last few days that the change in corporation tax next year will slow down investment this year because companies will wait to offset their expenditure against the50 per cent. tax rate introduced next year as against the 40 per cent. rate this year. The CBI is already asking him to reconsider his idea.

The Chancellor's defence of his decision to introduce the imputation system for corporation tax convinced none of us on this side and I doubt very much whether it convinced many of his hon. and right hon. Friends. What he seemed to be arguing was that because he had introduced certain other measures to stimulate investment, such as the restoration of investment grants which he had previously cancelled, he could afford to allow companies to distribute more of their profits because the fall in investment would be taken up by these other measures. But we had an 8 per cent. fall in investment last year and to maintain investment at its present rate is not good enough.

The Chancellor seems to believe that if he distributes the profits more widely it will create new incentives and somehow or other investment will increase. The experience of this country, America, Germany, Japan and France, all the leading industrial countries, is that industrial investment comes as to about 94 per cent. out of retained profits and only 5.8 per cent. out of new capital issues. I hope that the Financial Secretary will deal with this point because the Chancellor did not even refer to it in his last speech and the lame and contradictory explanation which he gave us this afternoon will certainly have created grave misgivings among all those who care about the future of our economy.

That was all the Chancellor had to say about improving the economic state of the country. Nearly all the other measures he introduced were basically a reflection of the class prejudice of the party he represents. There is no question whatever about that, and the Chancellor admitted that it basically represents a transfer from the poor to the rich, from those who work for their living to those who do not, but live on investment income. It all adds up to a deliberate attempt to divide the nation when the overwhelming need is to unite it. I am not clear whether his motive is some sort of social or economic dogma or simply an honourable desire to pay back the big companies for the services they rendered to the Tory Party at the last election. In either case the result is the same, it is a brutal and provocative affront to all those on the shop floor whose co-operation the nation needs.

If the Chancellor had £1,200 million to give away this year why did he not start by restoring school meals and milk, and removing dental and prescription charges, the imposition of which was so bitterly resented by the majority of people? He did not do that. He cut the tax on unearned income by nearly half; he imposed investment surcharge only on investment in excess of £2,000; he has taken 4½ million of the richest 5.7 million people in the country out of investment surcharge altogether. The level at which the relief on unearned income begins is 30 per cent. higher than the average earned income of the ordinary man. The results are more anomalies which must shame even the Chancellor.

A married couple with £15,000 a year investment income receive a present from the Chancellor of £1,500 next year. A married couple who earns £15,000 get only £324 next year and they have to pay surtax simultaneously on two years when they get this relief. Consider the relief on loan interests about which the Chancellor had a good deal to say. This was so disgraceful that it embarrassed even his warmest supporters in the Presss by its shamelessness. Let me quote the Daily Telegraph: Mr. Barber is as aware as the next man that he has made this piece of the tax mechanism even more arbitrary than before. To those, especially on his own side of the House, who felt his Budget measures were too egalitarian, Mr. Barber can point to his discrimination against the hire-purchasing masses, who get no relief, whereas the minority in a position to negotiate substantial loans are exceptionally favoured. What is the effect of the proposal to exempt loan interest? It is concentrated wholly on the rich and excludes the average man borrowing up to £400 to £500 on which he has £35 a year to pay in interest. It is aimed basically at helping people earning over £8,000 a year and the only excuse he can find for it is that it may encourage some people to invest productively. There is nothing in the proposals to ensure that this is how the borrowed money will be used.

Under his proposals a person can borrow for anything and the richer the person is the lower the effective rate of interest will be. A man can borrow money to buy shares exclusivly to make a capital gain, or to buy old pictures or antiques, again to sell a year or two later for a capital gain. There is no benefit whatever to the economy but very great benefit to the man concerned, according to his wealth. In addition we have the proposal to allow companies to pay executives with share options on which they will pay only capital gains and not income tax. We shall be discussing that on the Floor of the House in a few weeks so I will not say more now.

This part of the Budget is a tax dodgers' charter. All the loopholes closed by the Labour Government are being prised open. There is another massive cut in surtax after the massive cuts which the Chancellor has already made in a previous Budget. To compensate for cutting surtax on the rich the Chancellor is imposing surtax on a wider band of people at the lowest end of our income scale, those whose poverty entitles them to means-tested benefits such as the family incomes supplement, free school meals, rent and rate rebates, exemption from dental and optical charges, and so on. For such people a wage increase offers no protection against rising prices since what they gain in wages they lose in benefits.

I hope hon. Members opposite have read an excellent article by my hon. Friend the Member for Oldham, West (Mr. Michael Meacher) who points out that a surface miner with three children aged 7, 9 and 11—and if the chief Secretary disagrees perhaps he will give us his figures precisely at the end of the afternoon—who was earning £22.50 last year was actually worse off immediately after the Wilberforce increase of £5 because of tax, inflation and loss of benefits. And this Budget simply makes him 10 pence better off out of the whole £5 increase in wage—an increase which was bitterly fought by this Government and in such a way as to make our current industrial problems on the railways an inevitable consequence.

How can you ask ordinary men and women to exercise restraint in wage demands against a background of a Budget of this staggering unfairness? Of course, what the Chancellor can say is what he said this afternoon: "All right, but I am a Conservative and that is what party politics in Britain are about. This is where I think we should draw the line between the rich and the poor. But I have given £1 a week to everyone who pays full income tax and that should reduce wage claims and bring big benefits to the economy by releasing £960 million this year and £1,200 million next year".

The question we must ask ourselves is how much of that £1 the worker will keep after the price increases which are actually being planned by the Government at this very moment to come into effect before the end of the next financial year. From October people will be paying up to 35p towards the new pensions scheme and the average worker will be paying5p. In October a rent increase of £1 will be imposed on everybody who is not actually in poverty. According to the best estimates, rates are going up this year by about 11 per cent. overall, and the Chancellor is as conscious as any of us of the terrifying trend in house prices. The Daily Telegraph suggested the other day—and I believe it is right—that you cannot get a 90 per cent. mortgage in the London area unless you are earning £60 a week—put this against the welcome but ultimately insignificant concession offered on the Stamp Duty.

Other prices are still roaring up. Next year we shall face an entirely new range of price increases through the common agricultural policy, which begins to operate in January, and the VAT, which begins to operate in April. I do not want to turn this into a debate on the Common Market—Heaven forfend; we have spent much time on that and there is much time still to be spent—and I know there are differing estimates of the precise amount by which food prices will rise. The Government claims 20p a week each year until completion in 1978. We all know that outside experts believe that prices will rise by about 50 per cent. a week each year.

Mr. Cormack

Could the hon. Gentleman repeat those figures? Did he say 50 per cent?

Mr. Healey

I meant 50p, not "per cent.". I said 50p and that is the higher estimate. Some people put it very much higher, for example Professor Kaldor, but I think 50p is more like it and it is certainly more than the 20p which the Government claim.

What is worse still about the common agricultural policy is that that, too, falls very much harder on the poor than on the rich. I am sure many hon. Members will have read if not the full study at least the summary of the study by the Trade Policy and Research Centre which shows that when the common agricultural policy is fully operative households earning under £1,850 a year, the vast majority, will be £500 million worse off—all the households together, that is. To take the two cases it mentions, a single old-age pensioner will be paying £16 a year more for his food and families in the poverty group will be paying £33 a year more for their food, but people earning over £5,500 ayear will actually be paying £8 a year less for their food as a result of the changes imposed by the common agricultural policy. And this starts—I agree it only starts—in eight months' time on 1st January, while in this Budget the Chancellor has made no provision whatever to help the people who are going to be affected, although we had the assurance from Ministers in early debates that measures would be taken for those who were affected unfairly and adversely by these new increases.

The value-added tax imposes even more serious burdens. I believe that the Home Secretary was right when he was Chancellor in saying that VAT is a bad tax if we have an efficient purchase tax, as we have in this country, and I believe that Mr. Gordon Richardson was right when he argued this in detail in a report for the Conservative Government. I am glad to see that the Government have enough confidence in his judgment to make him Chairman of the new Industrial Development Executive. This is a bad tax for a country which has an effective sales tax, as we have in purchase tax. The Government were under no obligation whatever under the Rome Treaties to introduce this tax until 1978. In practice, as we know, Italy is still three years late in introducing the tax, after 14 years as a member of the Common Market, and is suffering no penalty. But the Chancellor has decided to introduce this tax at a stroke next year.

Sir G. Nabarro

Quite right too.

Mr. Healey

The hon. Member says, "Quite right too", but he is too experienced in these matters to take the same view as the Chancellor, that it is not a regressive tax. He knows it is a regressive tax and that is why he supports it.

Let me give the Chancellor some examples. Because you have a 10 per cent. single rate of tax—if that is what the rate will be when we come to it, and I will come to that in a moment—instead of four rates of purchase tax, it means that the average housewife will pay 10 per cent. more for her children's clothes, whereas the wealthy widow will pay 16 per cent. less for her fur coat. If the Financial Secretary can offer alternative figures to these, which were obtained by me yesterday from a leading British store, I should be very glad to hear them later.

Sir G. Nabarro

That is a very biased and discriminatory kind of argument. Children invariably have Brownie cameras and under the Labour Government the purchase tax on a Brownie camera was 55 per cent. My right hon. Friend brings it down to 10 per cent.

Mr. Healey

I make no apology for discrimination, but I believe in discriminating in favour of the weak and the poor, not the rich and the strong.

This new tax—and the Chancellor knows this better than anyone—is appallingly expensive to administer. The NED study suggested that it would require 6,000 to 8,000 additional civil servants, and this from a Government one of whose main promises before the election was to cut the number of civil servants. Worse still, it will force industry across the board to employ about 50,000 extra clerks. This is the estimate quoted in an interesting article in The Times this morning.

The Chief Secretary to the Treasury (Mr. Patrick Jenkin)

I am intrigued by the right hon. Gentleman's figure of 50,000 extra clerks in industry. He will appreciate that this was a non-attributed remark in The Timesarticle. I believe in fact that it is attributable to someone who is trying to sell business machinery.

Mr. Healey

If the hon. Gentleman has a better estimate, perhaps he will give it. He knows perfectly well that the incidence of VAT on firms and individuals in this country is almost infinitely higher than the incidence of purchase tax. He knows that it is collected and rebated at many stages throughout the whole process. The Government would not need 6,000 to 8,000 additional civil servants if that were not the case. If the Government need that additional number of civil servants in order to operate the tax, nothing is more certain than that firms—many of them very small businesses—and individuals affected will have an enormous additional administrative load of paper work.

It is inconceivable that even this Government would have introduced such a clumsy tax just to achieve the current yield of purchase tax and selective employment tax. They mean to increase the rate as time goes on. They are giving themselves power in the Bill to make the rate 12½ per cent. even before the tax comes into operation, to go up to 15 per cent. in 1974 and up to 18 per cent. in 1975. They propose to take power to do this simply by Statutory Instrument, debated at the fag-end of a busy day in this House, and the amount of money involved is some £350 million in additional taxation if the right hon. Gentleman chooses to go up by 2½ per cent. in the rate, which is three times as much as the amount which the Government can increase taxation at the moment under the purchase tax regulator.

Mr. Barber

Will the right hon. Gentleman say, having looked through the Bill, whether there are any comparable powers to reduce the tax, and if so what are the series of figures coming down?

Mr. Healey

The figures are exactly the same coming down. If the right hon. Gentleman can give an assurance that he does not propose to increase the tax but to reduce it, we shall be happy and relieved to hear it.

I must remind the right hon. Gentleman, in case he has forgotten, that the rate of 10 per cent. is least of any country in the Common Market. He is proposing to join an organisation which has already set itself the aim of harmonising the rates of VAT across the board. There is no case for anyone in the Common Market adopting VAT at all unless the object is to have a single rate or set of rates across the board. The only purpose of introducing a single tax is to have a single rate and thereby to reduce tax discrimination which may fall on goods exchanged across national frontiers.

If it were made as a debating point, then what the right hon. Gentleman said in reply to my intervention in his speech was rather poor. I said that if the Chancellor wants to take some further commodities out of VAT he has given himself the power to increase VAT up to 2½ per cent. before it comes into force. I did not say, nor would I ever say, that this is the way the Opposition would propose to deal with it, because we believe that a single rate of VAT is highly regressive and discriminates against the poor. We believe that if one needs to raise the amount proposed there are other ways, as the right hon. Gentleman will find when he sees our Amendments. For example, one might well decide to take children's clothing out of VAT and to find the money by increasing surtax. I see no reason why the Chancellor should not take some such step—except, of course, the political prejudices which have inspired the whole Budget.

Again, there is no provision in the Bill to help those hit mercilessly by this new tax next year, as they will be also by the common agricultural policy. The whole new section of the community is to be pitchforked into the poverty trap if the Government are to make available some increases in pensions or some increases in some other form of means-tested benefit. The fact is that this £1,200 million of tax "give-away"—the tax bonanza which the newspapers wrote about a few weeks ago—will be wiped out for most people before it is received. It is not a present; it is simply a limited compensation for the deductions the Government had already planned in the real spending power and standard of living of our people.

As a consequence, the stimulus the Budget gives to the economy—one of the additional reasons which the right hon. Gentleman gave of disbelief—will be far less than he expects. I ask him to tell us what is his estimate of the additional demand which will come to the economy from these tax reliefs. I suggest that it will be well under half over the year as a whole of the total amount of tax remitted. If he has another estimate, let him give it to us so that we have some opportunity of deciding whether the Budget does anything to meet our basic economic problems.

I come back to my central theme. This Bill widens still further the gap between the rich and the poor in the country and particularly between the very rich and the very poor. It does nothing for the average man, whether he be a factory worker or a young executive. It destroys any possibility of establishing an appropriate climate for wage restraint. It is totally inadequate in its effect on our central problems, human, political, economic and social, and above all, unemployment, to which the Chancellor, on this day of all days, chose not to refer at all in his speech.

Even if the Budget achieves the objectives set by the Chancellor—and it is no more likely to do that than any of the other Budgets he has presented to the House—there is no guarantee that it will reduce unemployment by more than a fraction over the next 12 months. That fraction will be largely made up of the 60,000 extra bureaucrats needed tooperate VAT. [Interruption.] I am talking not just of bureaucrats in the Government but of bureaucrats in business as well. The only cut in unemployment will come from the additional number of people required by the Government and industry to operate VAT—and, of course, from the golden hoard of tax consultants who will also garner a golden harvest.

The Bill is deeply divisive of our society and harmful, inadequate or irrelevant in its effect on our economy. That is why we shall be voting against it tonight.

6.19 p.m.

Mr. W. R. Rees-Davies (Isle of Thanet)

There are many matters in this lengthy and complex Bill to which one could allude, but I shall deal with only one, because I can do so only on Second Reading, since the Bill will go upstairs to Committee where a number of us may not be present. This is the question of the tax on the betting differential between on and off course. I give notice that I shall table an Amendment on this matter, supported by a number of my hon. Friends and commanding also a large measure of support from hon. Members opposite. The Amendment will lay a differential of tax. It will provide that on course the bets will attract a tax of 1 per cent. whilst the present tax of 6 per cent. will remain off course. I do this with the support of every racing person in the country and every association which has any interest in the racing world. The bookmakers, the Totalisator and everybody associated recognises that this is an essential if we are to save the racing industry of this country.

So far as the Totalisator Board is concerned, if the Chancellor had acceded to the request of the deputation which I led to him last year and had introduced this change last year, I very much doubt whether we should have needed the Totalisator Bill this year. Had it been done, the losses at present being created by the Totalisator Board of approximately £250,000 a year would have already been swept aside by the advantages which would accrue to the Board by the improvement of a tax of that kind.

There are two stages to this. It is very important that the Treasury should recognise that. The first stage is to decide in broad principle, shall it go down to 1 per cent., or 6 per cent. to 2 per cent., or 6 per cent. only down to, say, 4 per cent.

The reason why it is not desired to omit any tax on the course—I think that my hon. Friend the Financial Secretary is dealing with this aspect of it—is that it is necessary to keep a careful supervision over this matter on course. It is therefore right to keep some tax on course if only to enable one to secure complete and effective supervision over the finances of this tax.

It will then have a substantial differential. All those associated with racing—whether they come from the Jockey Club, the Racecourse Association, the ordinary run of persons, from the book-making fraternity or the Totalisator—recognise that if we are to get people to go racing, to spend money to go on course, there must be a substantial differential which would attract the racegoer to go and enjoy the sport. Basically it is only those who go there who provide the money for the prize money, which enables the racing industry to continue. All those who sit and watch television or remain at home are making no contribution. Those who go pay approximately £3 or £4 a day for their day's pleasure.

In the event of the tax being reduced from 6 per cent. to 1 per cent., the average punter on the course will be able to say that if he has two winners in the afternoon it will cover the amount it would cost him to attend on that day. Thus there is a genuine incentive to participate in the sport on the course and to enjoy its benefits. The loss to the Treasury is virtually minimal. Nearly £70 million is taken from bookmakers in off-course tax at 6 per cent. The totalisator has a turnover of only some £25 million. The bookmakers and their associates have a turnover of about £900 million. About £3½ to £4 million is the tax on course. The notional loss to revenue would amount to £2½ to £3 million on course. By attracting the people on to the course they will very greatly help the Totalisator to become financially viable and therefore save the Government from the danger of its becoming bankrupt, and they will do a great deal for the industry, which in any event would have to be done by the Levy Board.

One hopes that those concerned in this case—which is now well understood by the Department of Customs and Excise—and those who advise them, who are people in Government Departments, who fully understand the position of the betting and gaming tax, will appreciate the arguments and recognise that what we asked for in this field is in order tomaintain this industry, which last year sold £3½ million-worth of bloodstock for export. It has a genuine and proper export trade. That yields more than the tax which is obtained on course. The true figure is a good deal higher than that.

This is an appeal to ensure the viability of the operation of what has become far more valuable to the Treasury than they ever believed possible. When the tax was introduced I remember Treasury Ministers saying that they thought they might get £20million from this tax. They got over three times as much. It is solid and it will continue. If we are to maintain the continuance of the tax—and here is a pure Treasury argument—to give them what they need, it is essential that we have a strong on-course betting market properly maintained. I assure Ministers, from my not inconsiderable experience in this field, that the on-course market is weakening. It is being maintained by two or three big bookmakers who are making money off course and who are seeking to sustain the situation on course.

If this differential is granted by the Government in Committee—the 6 per cent. to 1 per cent., or 6 per cent. down to 2 per cent.; and it will need at least 6 per cent. to 2 per cent. to give the necessary differential—they can then go on to consider a separate matter, which will receive the support of the bookmakers notwithstanding that it is against their interests: namely, for the moneys collected off course, and on course to attract a different rate of tax.

If this Amendment is granted by the Government in Committee, then on Report one could consider whether the on-course rate for the Totalisator in respect of all its bets could be paid at 4 per cent., and off-course at 6 per cent. If that is done there will be no difficulty in ensuring the viability of the Tote and the continuance of this profession.

I said that I would deal with one subject. I adhere to that promise. I shall take the opportunity later to debate the value-added tax and the fine arts questions, which we shall have abundant opportunity to do at a later stage.

6.27 p.m.

Mr. Kenneth Lomas (Huddersfield, West)

I am sure the hon. Member for the Isle of Thanet (Mr. Rees-Davies) will forgive me if I do not follow him to the races. He has made a very pertinent point deserving of consideration.

I have given a promise that I shall not exceed 10 minutes, and I intend to adhere to that. In view of that it is not my intention to range over all the economic problems and the economic state of the nation today.

I am glad to be the first on this side of the House to congratulate heartily my right hon. Friend the Member for Leeds, East (Mr. Healey), who is now the Shadow Chancellor, on a powerful and forceful speech. I offer him my very sincere congratulations.

I was very distressed to hear the Chancellor in his opening remarks appear to say that he has had so much consultation on the value-added tax that he had more or less made up his mind already. He does not seem to be prepared to give way on any Amendments that may be put to him. I hope that that is not so, because no Chancellor is Mr. Perfect, and the present incumbent is certainly not that. He has been wrong before and could well be wrong again.

It is right and proper that some of the things which perhaps could well be taken up in Committee should be ventilated this afternoon because for various reasons it may not be possible for me to speak to Amendments I may put down. I should like to refer to the Budget Statement of the Chancellor on 21st March, when, talking about the value-added tax, he said: … these definitions of luxuries and essentials devised in the main 30 years ago have little relevance today. It makes no sense that for example, television sets, electric, gas or paraffin heaters are taxed at 30 per cent. while items such as Persian carpets or the latest Paris fashions should be taxed at a mere 11¼ per cent. And I am sure hon. Members opposite will be hard put to explain why, to take two pertinent examples, boats should be exempt from purchase tax while pipes are taxed at 45 per cent.!"—[Official Report, 21st March, 1972; Vol. 833, c. 1377, 1378.] Equally, it makes no sense to refuse zero rating of certain items of food and non-alcoholic drinks and to continue this rather stupid system. It makes no sense that soft drinks, fruit juices and potato crisps should be subjected to the 10 per cent. VAT, when asparagus, smoked salmon and caviar escape it.

The Chancellor later said that value-added tax had been designed with the interest of the lower income family in mind. I cannot believe that because, by the very nature of the Bill and the legislalation which the right hon. Gentleman intends to introduce on VAT, it means that many items, such as soft drinks, crisps and ice-cream, which feature prominently in the purchasing pattern of the lower-income groups, will be taxed, while luxury foods will not.

It also seems to enter the realms of phantasy that glucose drinks can be taxed, while powdered glucose, from which any individual could make such drinks, is not; that tinned pineapple is free of tax, while bottled pineapple juice is taxed; that grapefruit juice and orange juice are taxed, while the fruit from which they are made, and from which any individual could extract the juice, escapes the tax.

I am making a constituency point, which I do unashamedly, because in my constituency of Huddersfield, West I have a long-established and well-known firm of soft drink manufacturers, Benjamin Shaw and Sons Ltd. of Willow Lane, and it has a branch in the Colne Valley. I am glad that that constituency is now represented by a Labour Member. It was previously represented by a Liberal, and I am surprised that there is not one Liberal present to listen to this debate.

I have a great deal of sympathy with the views expressed not only by Benjamin Shaw Ltd. but by the Soft Drink Manufacturers and that section of the Food Manufacturers Federation which is affected. Their view is that the new VAT arrangement, far from simplifying the tax structure and reducing inequalities of this kind, will only help to perpetuate them. I ask the Treasury to look at this again before the Committee stage and, if possible, to bring forward suitable Amendments.

It was confidently expected that the transition from purchase tax to VAT would see an end to the discriminatory form of taxation from which soft drinks have suffered since purchase tax was imposed upon them in 1962. Neither the industry nor the consuming public will ever understand why soft drinks were subject to purchase tax, while tea, coffee and other non-alcoholic drinks, such as milk-based products, were not.

It should be recognised that soft drinks are consumed in millions of homes each day. They are part of the working-class budget, and they are part of the daily diet of many people. From time to time they are even consumed in great quantities in the Strangers' Bar in the House of Commons. They are drunk for their refreshment value, for their health value and for their nutritional value, and they are an increasing element in the weekly grocery purchases of all people of all classes.

If the Chancellor is right in what he said, namely, that he is looking after the lower-income group—which I cannot accept—why is it that, with so many luxury foods free of tax, the youngsters' humble squash drink is taxed? To select a narrow range of food that is consumed in virtually every home must push up prices and the cost of living for those who, in the main, are least able to afford it.

But there is another side of the coin, and this affects industry. In 1962, when purchase tax was first imposed by a Conservative Government, there were 750 firms engaged in the manufacture of soft drinks. Since then, 300 firms have gone out of business and capital investment has been at a low ebb for many years, mainly because the return on capital has been so low. If the Government have any intention—which I very much doubt—of seeking to contain or reduce the ever-increasing cost of living or, indeed, of brightening the lives of the less-well-off sections of the community, and if they wish to stimulate capital investment, they will sweep away these anomalies whereby some food is taxed and other food is not. What is required—and I beg the Chancellor to see what he can do about this—is to ensure that all food is zero-rated. What I have said about soft drinks applies equally to potato crisps. I am not asking for soft drinks to be considered as a special case. What I am saying is that they should be treated and subject to the same tax rates as other items of food.

I hope that the Chancellor will look at this problem again. I have deliberately chosen this narrow matter because I know that many hon. Members on this side of the House are prepared to range over the whole of the economy. What I have said had to be said, and I intend to return to it in Committee, but I hope that before then the Government will have had second thoughts.

6.36 p.m.

Sir Gerald Nabarro (Worcestershire, South)

I should be churlish, indeed, if I did not warmly congratulate my right hon. Friend the Chancellor of the Exchequer on bringing in the Budget of my dreams. A reduction of taxation of £1,200 million in a year would have boggled the imagination in the days of a Labour Government, particularly on the Friday afternoon when the Chancellor of the Exchequer of the day, the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), came to the House and increased taxes by £924 million, at a stroke.

Myright hon. Friend has apologised to me for absenting himself and not listening to my speech this afternoon because of urgent business elsewhere. In his Budget speech he epitomised the tag that I have used at successive elections since 1950 that the Socialist Party is the party of increased and increasing taxation—the Tory Party is the party of reduced and reducing taxation.

Mrs. Renée Short

For some.

Sir G. Nabarro

Since 18th June, 1970, a total of £3,000 million has come off taxes, and I am proud of my right hon. Friend.

In my judgment there are two important criticisms of my right hon. Friend's Budget statement. I give them both very shortly, and I shall return to them by moving Amendments in Committee.

The first is that the discrimination against fuel oil as an alternative to bituminous coal for domestic fuel should have been removed. You will remember, Mr. Speaker, that it was put on by the Chancellor of the Exchequer, Mr. Selwyn Lloyd in 1961. It was then perpetuated by his successor, my right hon. Friend the Member for Barnet (Mr. Maudling), in 1962, who proclaimed quite bluntly and with candour that it was intended as a protective measure for the coal industry.

Coal and fuel oil—especially in view of our discoveries of fuel oil in the North Sea and natural gas—should be allowed to compete on equal terms. As we do not tax bituminous coal in any way whatever, and we are even exempting it entirely from VAT, we should not continue the tax on the major competitive fuel, which is fuel oil.

Secondly, I am rather sad that more has not been done in the income tax sphere for elderly people. There are large numbers of income taxpayers among men over 65 years and women over 60 years and married couples over 65 years who, on account of the aggregation of the improved prospective State pension rates respectively of £6.75 for a single pensioner and £10.90 for a married couple, which, when added to only very modest earnings and perhaps occupational pensions—for three-quarters of all pensioners today have other sources of incomes—can readily find themselves with an aggregate income of more than £634 in the case of a single pensioner, and £929 in the case of a married couple, both of which are the thresholds as they are usually called, for the payment of income tax. In any event, I deprecate the use of these irregular figures. Why £634? Why £929? Why not round up the figure to £1,000 for a married couple and £675 for a single pensioner? I shall move to that effect in Committee.

I now turn briefly and only in matters of broad principle to the introduction of value-added tax. I suppose it is notorious that I am opposed in principle to Britain's entry into the EEC. I am deeply involved in VAT and wrote about it in detail almost as the first Member of the House of Commons, before Richardson had been widely debated. I support VAT for two reasons which both conform precisely to my fiscal philosophy in the matter of indirect taxation.

In times of peace when there is adequate manufacturing capacity for goods of all descriptions and for attendant services, it is in my judgment wholly wrong to discriminate in the rates of indirect taxation applicable to those goods and services. All manufactures in time of peace and plenty contribute to twin desiderata. First, they employ our people. Second, they contribute to exports. I have always deprecated purchase tax because of its hugely discriminatory character.

There is demonstrated here a fundamental difference between the Labour Party and the Tory Party. The Labour Party believes in endeavouring to categorise all goods and services in such a way as to place a swingeing tax on items that it deems according to its socialist views to be luxury items and to scale down the rates of tax on those items which it believes are of an essential and welfare character as, for example, children's clothing.

I believe that approach to be wholly wrong for the reasons I have stated. In 1951 when the Labour Party left office there were seven rates of purchase tax, from 5 per cent. at the bottom to 100 per cent. at the top. Because of this wide range of rates countless anomalies and incongruities crept into the purchase tax system. These caused me, in 1958—in those good old days when one was not confined to one miserable Question a day on the Order Paper but could put down three Questions to one Minister every Tuesday and every Thursday—to table on each 1st January 100 Questions on purchase tax to the Chancellor of the Exchequer over three months ahead to run up to the Budget. Every Question was designed to illustrate a reckless anomaly created by bureaucrats in the fastnesses of the Treasury, none of which could be altered save by the weapon of ridicule.

Successive Tory Chancellors of the Exchequer behaved very well in their reactions. They took slow and faltering steps in my direction between 1958 and 1962. In 1964 the number of rates of purchase tax had come down from seven to three, from a top rate of 100 per cent. to 25 per cent., and to a bottom rate of 5 per cent., so that the span of rates was between 5 and 25 per cent. in 1964 instead of between 5 and 100 per cent. in 1951. Had the Tories not lost the 1964 election, we should have introduced a single rate of purchase tax which I had hoped would be at 10 per cent. spread over a much wider base. That is what we are doing today with VAT, which is essentially a form of sales or turnover tax.

It will be argued, in detail, in Committee and I shall take part in the arguments with relish, whether particular articles should be taxed at a different rate. I shall resist all arguments for discriminatory treatment, because I believe that the VAT ought to be applied to all services and all manufactured goods and, were I the Chancellor, I should apply it to food, fuel, transport and to everything else, because the greater the range the lower the rate. It is impossible to eliminate entirely from food prices the VAT element.

The hon. Member for Huddersfield, West (Mr. Lomas) made a splendid speech and I warmly support him. I should like all those convenience foods to be zero-rated for VAT, so long as we adhere to the principle of not subjecting food generally to VAT. It makes no sense to me to say that all food shall be zero-rated except convenience foods. What are the convenience foods? They are soft drinks, ice cream, sweets and confectionery on which purchase tax was put in 1961, again by the Conservative Chancellor Mr. Selwyn Lloyd, but the hon. Gentleman forgot to mention that in 1969 the right hon. Member for Birmingham, Stechford as Chancellor extended this and put purchase tax on potato crisps, roasted peanuts, and pet food all of which caused an outcry at the time. Today all these convenience foodstuffs attract purchase tax at 18 per cent. It will lead to the extraordinary situation that luxurious foods, which shall go unnamed, will escape VAT altogether, save only for the small element of tax in respect of certain distributive processes, whereas convenience foods which formerly attracted purchase tax at 18 per cent. will be subject to VAT at 10 per cent.

Mr. Patrick Jenkin

I hope that my hon. Friend will not misunderstand the point that one of the supreme advantages of VAT, as, for instance, against SET, is that zero-rated means genuinely zero-rated and all the VAT, whether in the distributive or the manufacturing process, which has been paid on the goods up to the final retail sale can be repaid to the final seller. With respect, my hon. Friend is wrong in suggesting that food and other goods and services that are zero-rated cannot effectively be relieved of the burden of tax.

Sir G. Nabarro

We shall have to agree to disagree. I will argue it in detail in Committee. The VAT will indubitably enter into the price of certain foodstuffs in respect of the distribution processes.

The Financial Secretary to the Treasury (Mr. Terence Higgins) rose——

Sir G. Nabarro

I do not want to give way now. That is my view and I will argue it in Committee.

Mr. Peter Blaker (Blackpool, South)

Nonsense.

Sir G. Nabarro

It is not nonsense any more than was the response "Nonsense" which was given to me when I raised the soft drinks question in 1961. I remind the House of the claim by H.M. Customs and Excise against the Savoy Hotel for the payment of purchase tax on fresh orange juice sold to clients patronising the hotels and restaurants owned by the Savoy. That case was fought up to the High Court, and cost tens of thousands of pounds until Mr. Justice Sachs finally ruled on 10th March, 1966 that an orange pressée was not a soft drink.

Only a few months ago in another place after many years of expensive litigation natural bottled blackcurrant juice, "Ribena", was deemed to be a soft drink, whereas Beechams, the manufacturers, had claimed over many years that it was a natural fruit juice product and had not gone through any manufacturing stages.

These matters will arise again with VAT unless we say that all food is to be zero-rated, including convenience foods. I do not believe the Government would lose very much by taking these convenience foods right out of the range of VAT altogether. We shall argue all these matters in Committee.

I should prefer to go forward with a system in which we took all foodstuffs right out of tax, unless and until there is harmonisation of VAT in this country with that in continental countries. In every EEC country VAT is applicable to food, as was clearly stated in a written parliamentary answer on 30th June, 1971. Until we adopt such a system, we should zero-rate all foodstuffs, including the convenience foodstuffs which I have named. Save for these few comments, I welcome the Budget and the Finance Bill which implements it, and I hope that the Bill will have a successful passage through the House.

6.50 p.m.

Mrs. Renée Short (Wolverhampton, North-East)

The right hon. Gentleman the Chancellor of the Exchequer will be very disappointed when he realises that he has missed a scintillating and rumbustious speech by the hon. Member for Worcestershire, South (Sir G. Nabarro). When the hon. Gentleman said that this was the Budget of his dreams, we must all remember that he is one of the better-heeled Members of the House. That states the case and shows why hon. Members on this side of the House are so opposed to so much of this Budget.

What working people have come to understand very clearly is that galloping inflation—which overtakes all the income tax reductions, pensions increases and all the other benefits doled out to those in the poorer-off sections of the community—represents a huge invisible tax. They are the section of the community which have to pay so much to meet inflation. We here are in a better position to meet inflation than are large sections of the community.

We frequently hear about the iniquities of Labour Chancellors who have taxed the community at such a high level, but it should be pointed out that in the financial year which was completed when the Budget was introduced the Chancellor collected about £16,800 million in taxes whereas in the last full year of Labour Government the Chancellor collected about £14,700 million in taxes. People have paid more in taxes under the present Government—and will pay a lot more when we allow for the fall in the value of money since this Government came into office—than they did in the Labour Government's last year of office. This, together with the fact that there has been virtually no growth in the economy since the Conservatives came to power, means a real and drastic reduction in the standard of living of ordinary people.

To add to their difficulties, local authority rates will be considerably increased this year. The diabolical Housing Finance Bill, which is now being steam rollered through the House, will raise tenants' rents by about two-thirds. We must add to this the 16 per cent. increase in food prices which only two days ago the Minister of Agriculture told me had occurred since the Tory Government came to office. All this adds up to a considerable erosion in the living standards and income of ordinary people.

Next year we shall have the additional burden of VAT. I agree with the hon. Member for Worcestershire, South on the need to remove food from VAT altogether, including the foods which were mentioned by my hon. Friend the Member for Huddersfield, West (Mr. Lomas).

There is no doubt about why we have to have VAT. It is part of the price of entry into the Common Market. Nobody can deny the effect it will have on prices. The Government have stood by and have allowed food prices and other prices to increase at a rapid rate since June, 1970. They believe that the higher prices go now, the less will be the impact when we finally go into the Common Market and have to impose VAT on a whole range of goods which are not now taxed. People have got wise to this and that is why they are so opposed to our entry into the EEC. The National Economic Development Office has recently estimated that the imposition of VAT and its full implementation when we go into the Common Market will push up the cost of living by another 2½ per cent. or 3 per cent. per year.

The Chancellor said with great self-righteousness that there will be no tax on food, apart from the excepted items set out in Schedule 4 of the Finance Bill. We know that in the Common Market countries VAT covers food. So far Italy has stood out and is fighting a battle with the Commission on this point. Once we go into the Common Market, I wonder how long it will be before the Chancellor is told that we must get into line with our partners and put VAT on all food items.

Perhaps in the Government's reply later tonight we shall be given a firm undertaking that, whatever may be the pressure from the Common Market countries, neither this Chancellor nor his successors—if we are so unfortunate as to have any more Tory Chancellors—will impose VAT on food items. The Chancellor is taking in the Bill the power to change the range of value-added tax at 2½ per cent. either way. He said in reply to an intervention by my right hon. Friend the Member for Leeds, East (Mr. Healey) that, unless there is some changed thinking in the Treasury, this will be done right across the board. This means that in every future Budget the Chancellor can impose a 2½ per cent. increase in VAT right across the board.

The complexity of operation of the tax has already been described by my right hon. Friend and that is alarming. Many medium-sized businesses and large firms will be affected.

Mr. Patrick Jenkin

Perhaps I could correct one point on which there is obviously a misunderstanding. The 2½ percentage points either way is once and for all, because the Chancellor has indicated a 10 per cent. rate a year in advance and must allow himself some flexibility. Thereafter, the regulator power is much less.

Mrs. Short

I am obliged to the hon. Gentleman, but this is still subject to the proviso of the system which may apply if and when we go into the Common Market, in order to bring us into line with other countries and with what they decide to do. We cannot dodge this problem. At some stages it will be possible for VAT to be claimed back, but the poor consumer cannot claim anything back. The buck stops with the consumer, who will be left to pay additional VAT on a large range of goods. There will be many thousands more collection points for VAT than exist now for the collection of purchase tax. I understand that there are about 65,000 collection points for purchase tax. It has been estimated that there may be as many as 2 million for value-added tax, all of which will add to the cost of implementing the scheme.

With 6,000 or so more civil servants to run it instead of the 1,800 who at present administer purchase tax, it is not surprising that the Richardson Committee came out against it in 1964. The Conservative Party made a great deal of mileage during the lifetime of the Labour Government from 1964 to 1970 over the need to reduce the number of civil servants. Perhaps it is not strange that we do not hear about that now.

I find it odd that the Chancellor of the Exchequer is prepared to carry out the tax reductions in certain luxury items which have been mentioned when goods and items which are bought by lower-paid people will have to meet the 10 per cent. tax. I have in mind such items as household goods of many kinds, children's clothing, and many others. What is more, ice-cream, lollies, fruit squashes, sweets and chocolate biscuits which are bought for children all will carry the tax. Some of them are bought occasionally by pensioners as a special weekly treat. They, too, will have to meet the tax. If an old lady has a pet dog or cat or budgerigar, she will have to pay tax on the dog food, cat food or bird seed that she buys. This is just one factor which indicates that the poorer sections of the community have been overlooked completely in this Budget.

Part of the price of entry into the Common Market is that we have to conform to Article 99 of the Treaty of Rome which says that we have to harmonise all our indirect taxation. This is the most important indirect tax that we have. A report by the Trade Policy Research Centre shows that under the deficiency payments for agriculture which were operated by the LabourGovernment a considerable amount of income was transferred from poor households to rich ones. It was estimated at about £67 million. It went from households with incomes of £1,850 or less to those earning more. Under the common agricultural policy which we are bound to operate once we are in the Common Market, if we go in, it is estimated that the net transfer will rise by £437 million to £504 million, of which no less than £254 million will go to households earning more than £1,850 a year.

In other words, the largest extra cost of the common agricultural policy will fall on households with incomes of between £18 and £23 a week and with four children. This, again, is a measure of the unfairness of this Budget. It means that they will be paying about an extra £1 a week or £52 a year. That will take up very rapidly any help given to such families under the Budget by reductions in income tax. That means miners, railway men and many municipal workers who earn between £18 and £23 a week. By contract, a household with anly two adults and in come between £3,770 and £5,500 a year will bear an additional cost of less than £13 a year as a result of the common agricultural policy.

It has been estimated that incomes will have to rise to meet these additional costs after entry into the Common Market by 1.5 per cent. faster if there is to be no reduction in the per capita food consumption up to 1978. That means that either the Government and employers have to pay more to working people or working people have to eat less. The report suggests that 4 per cent. less per capita would have to be eaten to meet higher food prices. This will mean a very considerable reduction in the standard of living of ordinary families in this country.

One asks repeatedly what the Government intend to do to help lower-paid workers when we go into the Common Market. It will be no use right hon. and hon. Gentlemen opposite complaining, as they do all the time, that the wicked working people are always making unrealistic and unfair wage claims If the trade unions face this kind of increase in their cost of living and a corresponding reduction in their standard of living, what do right hon. and hon. Gentlemen opposite expect them to do? Do they expect them to sit back and face this reduction in their standard of living without righting back? Of course they are not prepared to do that.

We on this side of the House will vote against this Second Reading gladly. We shall be putting down a large number of Amendments for consideration in Committee. I hope that we may even be able to persuade the Chancellor of the Exchequer to see sense and to realise that he must introduce some justice before this Bill completes all its stages.

7.6 p.m.

Mr. Martin McLaren (Bristol, North- West)

We have listened to a gloomy account by a Cassandra in the form of the hon. Member for Wolverhampton, North-East (Mrs. Renée Short). People will find it difficult to recognise in the England of today the depressing picture that she has painted——

Mrs. Renée Short

Time will show.

Mr. McLaren

I prefer to speak on a much more cheerful note. We have had a good Budget and, therefore, today we have had a good Finance Bill. People are pleased with it, not disappointed by it——

Mrs. Short

Which people?

Mr. McLaren

All the people.

Mrs. Short

The railwaymen? The miners?

Mr. McLaren

A few weeks before the Budget——

Mrs. Short

The hon. Gentleman does not answer.

Mr. McLaren

—I was bold enough to write to my right hon. Friend the Chancellor of the Exchequer advancing several suggestions of measures that I hoped he would take. Naturally I was very pleased when I listened to his Budget speech and discovered that he had decided to do nearly the whole lot. I do not say that it was because of my suggestions, but it was pleasing to me that his thoughts and my own were running on identical lines.

My right hon. Friend has done a great deal in the past two years. He has done it in two ways. First, he has reduced taxation, allowing more money, in the time-honoured Gladstonian phrase, to fructify in the pockets of the people. Secondly, he has been a leading reformer in the taxation structure. When he has done so much in various directions, it is ungracious to cavil or complain that he has not done more. He will do more in the third and fourth Budgets in the lifetime of this Parliament.

I want to deal with the effects of inflation on the taxpayer. Inflation drives people inexorably into the higher tax brackets. I am glad that my right hon. Friend has recognised this problem by raising allowances and taking very many people out of liability for income tax.

I am rather sorry that nothing has been done to protect the taxpayer from paying capital gains tax on paper gains which are illusory because they are caused by inflation. The Treasury likes to treat us on the footing that the value of the £ remains constant. But we all know that that is an illusion. There should be an arrangement by which the amount of capital gains tax depends on the length of time an investment has been filled.

In terms of estate duty, to some extent, in Clause 111 my right hon. Friend has recognised the effects of inflation by reducing the steepness of the scale.

I come next to stamp duty. The main point that I intended to make in this short speech was to ask the Chancellor to raise the threshhold of stamp duty on house purchase. He has stolen my thunder, he has shot my fox, and spoilt my speech. I am, of course, delighted to hear what he said. It will be warmly welcomed by those intending to buy houses in these days of rising house prices. It will be a great help to young married couples and will assist the movement towards homeownership as opposed to the renting of houses.

The other item of stamp duty we should look at is the duty on the purchase of Stock Exchange securities. If we wish to become a share-owning democracy in addition to a home-owning democracy, we should do nothing to make it harder for people to save and to apply their savings to owning shares. Therefore, I should like to see this duty abolished. It would be of great assistance to savings and to the idea of the capital-owning democracy. I fail to see why people should have to pay tax when they buy securities. There is no such duty in New York, which is the other leading stock exchange market.

So, when we look at the reform of the Stamp Act, 1891, we can take pleasure that we have already made some substantial strides. We have abolished the duty on receipts, on cheques, last year on mortgages, and on agreements. In Clause 115 there is a small improvement in that we have abolished the duty on bank notes.

What is left? There are two main sources of revenue derived from tax: first, under the heading of conveyances, and, secondly, under the heading of share transfers. The Chancellor has told us this afternoon that he is whittling away the duty on conveyances.

When we consider the long history of stamp duties we perhaps feel like the man who goes to prune a tree in his garden. He sees a dead branch and cuts it off. He sees another dead branch and he cuts that off. He begins to warm to the work. He takes off his coat, goes to find another larger saw, and eventually decides that the best thing he can do is to cut down the whole tree. That is how I feel about the Stamp Act, 1891. Before today it was producing only £100 million, and after today, according to what the Chancellor has told us, it will be producing less than £70 million.

I suggest that it is better to rely for revenue on the main sources—namely, income tax, corporation tax, value-added tax and the customs—and to streamline our system by closing down what I should describe as the branch lines. The stamp duty is such a branch line—an archaic tax on documents. I encourage the Chancellor, this year or perhaps next year, to rid us of it root and branch.

Those are some of my thoughts arising out of the effects of inflation on the taxpayer. I end by again congratulating my right hon. Friend the Chancellor and his team on the many good things they have proposed and the many good deeds they intend to do.

7.15 p.m.

Mr. Michael Meacher (Oldham, West)

The Chancellor frankly admitted in winding up the Budget debate that he had made a mistake in omitting any mention of the Government's policies towards the lower paid. Frankly, I believe that, as a man who would have had to make bricks without straw, he made the right decision from his point of view. However, he decided to rectify the omission by a series of highly selective quotations and allegations which were either wrong or downright misleading.

Before I come to these points—I have given the Chancellor full warning that I propose to make this point—I want to put the treatment of the low paid into perspective. Although there are some morsels for them in the Bill, I believe that their choiceness in the Chancellor's priorities can be properly measured only in the light of the handouts which he has felt able to afford for other groups.

It has been said many times, both today and during the Budget debates, that it is the rich who have been singled out for special gratification. This can be said on three main grounds, and I want to raise some new points.

The first is the very high level at which the investment surcharge has been pitched. The Chancellor said that he was cutting the tax on unearned income by £300 million. He did not add that he was cutting the tax on unearned income by almost half.

The Minister of State, Treasury, in an Oral Answer on 16th February, 1971, stated that the tax on interest and dividend payments amounted to £723 million.

This level of investment surcharge means that over two and a quarter million persons with unearned income between £1,000 and £2,000 a year, who are very far from the poor widows and the retired about whom the Chancellor spoke so disingenuously, have been entirely removed from the present investment surcharge and will be subject to a higher rate of tax than the £25 a week wage-earner. Of course, the one and a quarter million persons with unearned income in excess of £2,000 a year, who include many of the rich and all the very rich, have been given a tasty little aperitif before we come of the main course in the Bill. This is the reintroduction of tax relief on personal loans.

The small value that the Treasury places on this concession, which was unexpected even in the City—namely, £7 million a year—entirely conceals its real meaning. It hides the huge size of the loan superstructure which will be built over it, the large capital gains ramifications which may be expected to flow from it, and the artful way in which this concession has been virtually limited to the rich.

For those with high incomes or sizeable capital or both as security against large loans, the significance of this bonanza can best be judged by looking at the situation at the time this concession was removed in the 1969 Budget. At that time the cost to the Treasury was £35 million, but from this loan interest was running at about £70 million a year, and the total of personal borrowing, excluding borrowing for house purchase, amounted to about £850 million. On the basis of that precedent, we can expect that this small tax concession of £7 million a year is likely to conceal a total of personal borrowing in excess of £200 million a year.

It is also worth asking where this huge sum will go. Although no doubt, on the basis of past precedents, much of it will go to the payment of private school fees or the purchase of life insurance premiums, there can be no doubt that the great majority of it will wind up in the purchase of equities. If, as many informed observers expect, the Stock Market peaks above the 600 mark, this will probably mean a gross capital gain for the lucky borrowers of £30 million to £40 million all told—not a bad hors d'oeuvre—with still more to come.

Who will rake off this gain? The concession is so fixed as to benefit disproportionately the rich. The man at the top end marginal rate who takes out a £10,000 loan will have his net interest cut to 2½ per cent. If he has more than £2,000 a year investment income, as he probably will have, then he is almost certainly going to have an actual tax rate of only 1⅓ per cent. I need hardly say——

Mr. Patrick Jenkin

The hon. Gentleman spoke of the man's "tax rate". His tax rate would be over 90 per cent.

Mr. Meacher

I was, of course, referring to the interest rate on his personal loan. Persons on very high incomes have an enormous advantage in taking out loans, and the way that the Budget has been arranged has the effect of reducing the interest rate for such people.

At a time of 5 per cent. to 7 per cent. inflation, this is borrowing at less than nil cost. The people who will almost exclusively get this very pleasant facility are those at the medium or above surtax level. It is nice to think that at least a few thousand people will be able to keep the wolf from the door.

Less tangible but perhaps equally important is the Chancellor's determination, while unleashing the energies of the people, to make sure that the energies of the tax fiddlers are not left out. His whole ethos appears to be that tax avoidance is a well-understood peccadillo that should be tolerated, indeed encouraged, so long as it does not go to extremes and get out of hand, because then it gets publicity and brings the whole exercise into disrepute. The message is "As long as you sin only moderately, the Chancellor will connive". Stripping aside the civil service-ese of his speech, the right hon. Gentleman has said that himself.

Regarding Labours 1965 close company rules, which were designed to prevent tax avoidance, the right hon. Gentleman intends, he says, to keep them only to the extent that "significant sums" of revenue are at stake. Having exempted four-fifths of companies, which were previously liable to shortfall directives, from this check, it is clear that the Chancellor is prepared to allow the bloodletting to go a long way before significant revenue is reached.

The same point can be made about that other hoary old favourite, short-dated gilts, as a means of transmuting higher-taxed income into lower-taxed or usually non-taxed capital gains. This will be blocked, says the Chancellor, but only when the taxpayer pays interest exceeding £2,000 a year. It is difficult to believe that this will provide our sophisticated tax consultancy boys with much trouble.

Given this largesse and these priorities, it is hardly surprising that the gains to the poor are merely the leavings after the more ample repast of the already well-sated. In defence of a less than thread bare record, the Chancellor, in winding up, artfully extracted some highly selective quotations from the pre-Budget memorandum from the Child Poverty Action Group entitled "One Nation: the Conservatives' record since June, 1970", about the Labour Government's record at a time of economic crisis. The right hon. Gentleman did not add that that document went on to say: Since the Conservative Government took office, families with children actually became worse off. After allowing for increased school meal charges and the loss of free milk, net income rose less than prices. It is worth noting that even with earnings in the bottom 10 per cent., a two-child family would not have been eligible for family income supplement. In comparison with the substantial in creases in net income enjoyed by the highest paid, these net losses are altogether at odds with the Prime Minister's pledge. In all fairness, the Chancellor might have added that part of the statement as well.

What is more, the Chancellor goes on from straining the truth to utterly distorting it. He made this incredible statement about his new tax reliefs: The result of this is that while all taxpayers above the new tax threshold will benefit from the Budget by £1 a week, almost all families below the new threshold will also benefit by £1 a wek".—[OFFICIAL REPORT, 27th March, 1972; Vol. 834, c. 161.] The right hon. Gentleman must know that that statement is both inaccurate and tendentious. I made this point earlier in an intervention, but I was not able to develop it. Consider, first, those above the tax threshold. The low-paid, £1,000 a year family man with two children under 11 will now be better off by 35p per week, and not by £1. I am using figures taken directly from the Financial Statement. The so-called affluent car worker on £2,500 a year, after having 40p per week extra National Insurance contributions stopped from his wage, will gain 60p per week and not £1, and he is among the highest paid manual workers.

On the other hand, the £20,000 a year executive—again, these figures are clear from the Financial Statement—finds him self with a cool extra £10 a week. He is that much better off, and if 10 per cent. of his income comes from unearned sources, as it is likely to do, his whopping tax gift rises to over £15 a week.

I hope the Chancellor will admit frankly that the facts about these high, regressive income tax and surtax concessions are wholly misrepresented by his statement about all taxpayers above the new tax threshold benefiting from the Budget by £1 a week.

Second, those below the new tax threshold——

Mr. Patrick Jenkin

I do not understand the hon. Gentleman's figures. He intervened in my right hon. Friend's speech and spoke about a £20,000 a year man with two children over 11 but not over 16. The difference between 1971–72 and 1972–73 is £52.31 and every taxpayer gets exactly the same benefit from the allowance.

Mr. Meacher

On page 31, in table 18, of the Financial Statement it is made clear that the charge to income tax and surtax for the £20,000 a year man with two children in that age bracket will drop from £10,302 in 1971–72 to £9,819 in 1973–74.

Mr. Patrick Jenkin

Over two years.

Mr. Meacher

Yes, but we are talking about the full effects of the tax changes. The fact that a change occurs over two years is neither here nor there, and the points I have made are clearly stated in the Financial Statement.

I was coming to those below the tax threshold. There are perhaps 2 million to 3 million households below this point of tax liability, yet the Chancellor has said that because the maximum entitlement to FIS has been increased by £1 per week, almost all families below the new threshold will also benefit by £1 a week.

The right hon. Gentleman must know—at least, he should know—that the number of families in receipt of £4 per week in FIS who will get the £1 increase is less than 10,000. It is certainly nowhere near 2 million to 3 million. I hope, therefore, that the right hon. Gentleman will frankly acknowledge that his statement was wholly false and that the truth is that such huge gains have been showered on the wealthy few that the morsels that fall from the rich man's table are relatively trivial and marginal in size.

As a result, the Chancellor has lost an unprecedented reflationary opportunity to surmount the poverty wage problem, a problem which may now prove incurable. Indeed, we will probably not have in future years economic conditions like those we have had this year.

The rise in the tax threshold, large though it is, is still not nearly large enough to reduce poverty surtax, for all the Chancellor's pretentions to this end. Within two years fixed drag may bring all, or at least most, of the 2¾ million low paid removed from tax back into the tax net.

The lowest-paid mineworkers who screwed £5 out of Wilberforce, only to find themselves 15p worse off, are now better off by the princely sum of l0p per week. This lesson will not be lost in the present dispute. That is the measure of the Chancellor's gratuity to the lower paid.

Worse still, by raising personal allowances and leaving the child tax allowances untouched, the right hon. Gentleman has given no assistance to the low-paid households by size of families, and by leaving family allowances out of the general benefit review, he has made sure that no comprehensive help is given to the poorest families who are beneath the tax threshold.

These are not the priorities of "one nation", as the Prime Minister promised before the election. They are not the priorities of justice. If anyone previously had any doubts that the Conservative Party represented sectarian interests of business and wealth, he can have no such doubts now.

7.30 p.m.

Mr. Piers Dixon (Truro)

When the hon. Member for Oldham, West (Mr. Meacher) warned us that he had already warned my right hon. Friend the Chancellor about some of the remarks he would make, I was full of apprehension and excitement; but, in the event, the hon. Member's speech was remarkably restrained, at any rate by the standards to which we have become accustomed from him.

There will be many examples of special pleading during the next few weeks on the subject of value-added tax. I, at any rate, shall be guilty of no special pleading for any particular interest or commodity. The only special pleading in which I shall indulge will be in encouragement to my right hon. and hon. Friends on the Front Bench further to restrict the various examples of exemption and zero-rating that they are proposing.

I view the extra car tax as, in effect, a supplementary value-added tax. It is not in form but it is in effect. I see no reason why motorcars should be charged at more than the standard 10 per cent. any more than why certain other commodities and services should be charged at less.

I was glad to hear from my right hon. Friend that he would be giving a small time limit—I think he referred to a "short time"—for the problem of tax-paid stocks early next year. It seems that what we need is not only a suitable time between the period when purchase tax comes to an end and the period when value-added tax starts, but also a very considerable time interval between the point when the Government state their precise intentions and the point when the purchase tax period comes to an end.

There has been considerable discussion today about the efficacy of the corporation tax systems, under the Labour Government and under the Conservative Government, and of their relevance to the tendency to invest. I followed the arguments of the right hon. Member for Leeds, East (Mr. Healey) with great attention. It seems to me that business men do not invest because there happens to be a lot of money lying around in their companies—or, if that is a motive for their investment, it certainly ought not to be—but rather, intelligent business men who want to do the best for themselves and for their shareholders invest in the expectation of profits. That is the true significance, in a conceptual context.

of the change from the existing Labour-inspired method of corporation tax and the change to the Conservative method.

Mr. Healey

In that case, will the hon. Gentleman explain why investment fell by 8 per cent. last year, although profits rose faster than at any time over a long period, 123 per cent. overall, and 28.7 per cent. for undistributed profits after tax and dividends?

Mr. Piers Dixon

The right hon. Gentleman will accuse me of falling back on the ex post factoargument he mentioned before, but it is reasonable to give the two systems a certain amount of time to see which one works better. We do not know whether the Conservative system will work; it must merely be a theoretical exercise. What the right hon. Gentleman knows perfectly well is that the Labour system has not worked. In purely empirical terms, investment was extremely low under the Labour Government, as much as, I admit, it has been under the Conservative Government.

I followed the approach of the hon. Lady the Member for Wolverhampton, North-East (Mrs. Renée Short) with great attention. I do not agree with what she said, but I agree with one point which she made, and that should be recognised on both sides of the House—that the changes in taxation are a preliminary to our entering the Common Market. But hon. Members should not exaggerate the immediacy of the Common Market implications. Long before we reach fiscal harmonisation, the Common Market will wish to achieve monetary harmonisation. Gradually the band within which parity rates can fluctuate will narrow, until it is reduced to nil and there is a single currency.

I would not expect to see fiscal harmonisation in any great degree until monetary harmonisation is achieved. The first base on which there will be fiscal harmonisation will be in corporation tax. The changes in corporation tax which we are introducing are designed, to a certain extent, to fit into the types of corporation tax which have become prevalent and accepted on the Continent.

As for value-added tax, I did not entirely go along with either the right hon. Member for Leeds, East or the hon. Lady the Member for Wolverhampton, North-East. It will be many years before the rate of value-added tax will have to conform throughout the countries of the Common Market. The respect in which we shall have to conform will be not in the rate but in the base, and it seems to be absolutely conclusive that we shall eventually have to pay value-added tax on food and other commodities. I consider that to be, in the eventual analysis, a good thing, although I know that my right hon. and hon. Friends on the Front Bench do not necessarily agree with that. But, by definition, we have agreed to pay a certain proportion of value-added tax to the common European budget, and if we can fiddle the base it makes nonsense of our commitment under the Treaty. So, the base is in effect fixed, but the actual rate will be decided by the House of Commons for many years to come.

But when the right hon. Member for Leeds, East complained that the rate of value-added tax in Common Market countries was altogether higher than it is proposed that it should be in this country, he gave only one side of the argument. I think that he would be the first to agree that, although indirect taxation in continental Europe is higher than it is in Britain, direct taxation is lower. I would not be in the slightest disturbed if the rate of value-added tax rose from the proposed level of 10 per cent. to, perhaps, 12 or 15 per cent., because this would give us a wonderful opportunity of reducing the rate of direct taxation.

7.38 p.m.

Mr. A. E. P. Duffy (Sheffield, Attercliffe)

The hon. Member for Truro (Mr. Dixon), in his opening remarks, recognised that in a debate of this kind there would inevitably be much special pleading. He disclaimed any intention of undertaking that himself, and he honoured that promise. That made me feel that I must make the same disclaimer. I hope that I may be permitted later to say something on behalf of commercial interests in my city, Sheffield, which are concerned about the operation of value-added tax. Otherwise, I hope that the House will accept that my concern is entirely for the structure and the content of the Budget.

Many hon. Members must feel the same and must have felt this way for some years, because there has scarcely been a year since 1965 without a Finance Bill which has not made important changes in the British tax code, and this year's Bill is no exception. The effect on both individual tax and corporation tax policies will be profound. It is a formidable document. First, the Chancellor has set out his proposed law on value-added tax, and I shall speak about that initially.

We see certainly so far as our country is concerned that there will be a degree of harmonisation here as elsewhere but at the moment it is substantially in the form already published in the White Paper. We are now beginning to get a fairly clear idea as to its scope and its range although, of course, much detail has yet to come. The Chancellor can fairly claim at this stage, as he reminded us this afternoon, that he is trying to combine simplicity with an attempt to minimise any regressive effects VAT may have. These are two aspects of VAT which we should all wish to see the Chancellor pursue.

The first question I want to raise is whether he will achieve these twin objectives and, if he does, given what the hon. Member has just said about the eventual, perhaps inexorable, harmonisation, will he be able to preserve them? The first, simplicity, is undoubtedly desirable on administrative grounds. The European experience has shown that a multiple-rate structure increases the Government's administrative costs by anything between 50 and 80 per cent. compared with a single-rate system. On the other hand the Chancellor must not seek administrative convenience at the cost of equity and social justice.

But even a single-rate value-added tax will not be a cheap tax for government, industry or commerce, as my right hon. Friend the Member for Leeds, East (Mr. Healey) insisted. I hope that at this stage I shall be permitted to follow all my hon. Friends who have so far spoken on these benches, some of them necessarily in my right hon. Friend's absence, to congratulate him on what we are all agreed was a very promising maiden speech. It was much more than that because it was a heartening speech. It was a powerful delivery—a word which is often used on these occasions, but a word which fits not merely my right hon. Friend's reputation but also his physical stature. I think we shall find in subsequent exchanges in the months to come that although we, as he certainly does, lament the departure of other of our hon. and right hon. Friends from the Front Bench, our Front Bench will be none the poorer for that and I know that they would recognise that.

It will not be a cheap tax. The Customs and Excise is expected to take on another 6,000 to 8,000 people. Given the present complement of 18,000 and the present civil service salary levels, this will eventually constitute quite a sizeable burden—I am told at first it will be about £16 million. We have also been told by my hon. Friend the Member for Wolverhampton, North-East (Mrs. Renée Short)—and unsympathetic though she was to the tax I do not think any hon. Member can gainsay her point—that collection points will be many and they will be multiplied. She thought they would jump from 70,000 at present covered by the Customs and Excise to 2 million and even if we settled on 1½ million—and I cannot see it being less than that—with all that implies not only for policing the tax with all the extra paper work, this is a prospect which must daunt all of us.

Yet industry and commerce could be faced with VAT costs even in excess of those of the Government. There are likely to be two or three times the numbers involved at present to deal with the VAT in the business sphere compared with the Government and this proliferation of paper work, record keeping and accounting will not be confined to the medium or large firms. I am glad to be able to speak for the first time for those on whom the VAT will have the biggest impact—the small person in business, the small trader and small retailer. Those who will be excluded simply because they have a turnover of less than £5,000 a year can draw no comfort from this. It will be no help to more than 10 per cent. of them.

I want to question this widespread belief that there is to be total exemption for that category. I cannot see how at least 90 per cent. can avoid paying for it. How can they if they are to claim on input tax, because then they will have to register? I have checked with the small traders in my constituency and with their accountants over the last few weeks and I find that a small trader commonly believed to be exempt might well be liable to the extent of £6 or £7 a week in input tax. How can he be indifferent to that amount, and yet how can he claim unless he registers?

But then we come to the question of record keeping, and this would apply in the most part to those, one supposes, who have never kept records. They are not the only people, but at this level there is no record-keeping at all that would be acceptable to the Customs and Excise. VAT is likely to present the most acute problems to the small man whether he is in business or not. It will not be easy for them to keep records, especially those which would be required for returns or claims on the difference between inputs and outputs. Will they always succeed, for example, in getting those bills for expenditure they quite properly incur wholly and exclusively in the performance of their work—for example, from taxi drivers. This is one of many such problems we shall be airing in Committee.

I want to say a brief word about one matter which has been aired already on three occasions so far in our debate this afternoon, although I hope that I shall avoid repetition. I have been asked to do so by many retailers and many of them are of considerable consequence to the business life and to the distributive trade in Sheffield. I am thinking of the transitional problem regarding stocks. I want to do this in spite of the Chancellor's assurance because I was expecting him to say what he did. When retailers have written to me I have already replied in a similar vein to them. I have tried to assure them along the lines of this assurance this afternoon, about, for example, the possible practice or device of sale and return.

In Sheffield many retailers feel that such a suggestion, already given off the record by the Government, for alleviating the problem, which centres generally around sale-or-return arrangements, will be very unsatisfactory. They feel that the financing of such arrangements would lead to additional obligations. Nor do they regard the purchase tax holiday as a satisfactory solution. They think that it is bround to provide an opportunity for cheap-jack competition by some competitors who might be so inclined and that it will leave the shopping public in con- fusion. On the other hand, we all realise that it will be difficult to make constructive suggestions for arrangements that will not be vulnerable to misuse.

Mr. Higgins

Would the hon. Gentleman spell out in a little more detail what he meant by financing the problem of sale or return?

Mr. Duffy

Sale or return presupposes a common stock, a common value, a common category, a common practice, a common trade, a common custom. The Sheffield retailers insist that there is a great variety and that it will not be as easy to practise sale or return, or to seek refuge in it, as is held in some quarters. Some durable items will be a good deal more difficult to handle in this way than others. Yet many retailers in Sheffield representing different trades and different items subscribe to this concern, presumably because it has come out of the Chamber of Commerce. I must not take up too much time, so if the Minister is interested, perhaps he would accept a letter from me. I know that the retailers would be grateful for his consideration of the matter, but they recognise the difficulties.

I should now like to make some brief remarks about Part III, because I do not want to concern myself entirely with VAT. I understand what the Chancellor is trying to do in cutting taxation. However, I still wonder whether he is doing it in the most sensible way. The arguments of my hon. Friend the Member for Oldham, West (Mr. Meacher) carry a considerable weight, and I hope that on grounds of equity the Government will consider them. I hope they will not think it enough to increase pensions and supplementary benefits, or even to increase personal tax allowances, which account for the greater part of the Chancellor's package in money terms. The cuts in the rate of purchase tax are not in themselves enough, though I realise that they are made not only as the preliminary to the switch to VAT but also because of the Chancellor's anxiety to moderate price increases. They do have value.

I also realise that the introduction of free depreciation has given industry what it has been long asking for. The taxing of small companies, 90 per cent. of the total, at special rates, and the easing of restrictions on close companies may lessen some of their special difficulties. But, as my hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett) reminded the Chancellor, the position is complex, and we shall hear much more about the matter in Committee.

Last year the Chancellor announced the reform of corporation tax to remove discrimination against dividends, the unification of income tax and surtax and the replacement of purchase tax and SET by VAT. The process of reform continues this year, notably in the allowance of interest against tax and the reversal of the 1966 legislation against share option schemes. But, as the right hon. Gentleman acknowledged this afternoon, these are controversial measures that will undoubtedly be challenged in Committee.

The Bill, in short, is a virtual encyclopædia of taxation proposals. It will take the British economy a considerable time to assimilate all the changes they portend. In this sense, the impact of the Bill may be somewhat slow to appear. Its underlying purpose is obvious. It is meant to arouse the enthusiasm of British industrialists for the challenge of the Common Market and so a long view, perhaps as far ahead as 1978,is taken. But clearly the Chancellor has also been conditioned in his thinking in the short term by high unemployment and to a large extent by the present balance of payments position. His aim is to increase the rate of growth of the economy from 3 per cent. to 5 per cent. and so bring down unemployment and establish permanently a more rapid rate of expansion.

After the forecasting failures of the past, none of us can be sure what the precise effect of such a large stimulus will be, but the cut in income tax is more likely to be spent than saved, and the same is true of the increase in pensions, while lower rates of purchase tax will increase demand for some consumer goods. Meanwhile, on the face of it, industrialists have all the investment incentives they need.

The question is, will the economy respond? There remains the question of strategy, of underlying purpose, and the possible economic impact of the Bill. There is in particular the danger that it may work against the efforts the Govern- ment have made and are still making. I have in mind in particular the need to reduce unemployment, first, and, secondly, to relieve inflationary pressures. Those are my final two points, to which I now turn.

We have been told that unemployment is marginally down overall, I have already taken the trouble to investigate the position in the borough of Sheffield and the adjacent employment area of Rotherham, and I am happy to be able to say that that overall reduction is reflected in both Sheffield and Rotherham. But unemployment is still at such a high level in both as to continue to cause concern. That is how it has been treated in the local Press tonight. Further progress may depend less on stimulation of demand than on encouragement of investment.

The hon. Member for Bristol, North-West (Mr. McLaren) thought that the number of Budgets for which the Chancellor had been responsible was a matter for congratulation, but in some ways it seems to some of us that the Budget must be seen in a different light, as being not so much a matter for congratulation. We see the Chancellor now in the rôle of a gambler. He can surely have nothing else now; this must be his last throw. If he does not succeed in stimulating investment now, he never will. He has tried pretty well everything that could have been mustered in orthodox terms. What remains?

It is something which no Chancellor can provide, something which only a Government in its totality must provide, and especially the Prime Minister. I am thinking of leadership. I am thinking of the responsibility for the general climate. No one else has that responsibility. I wonder whether that is what businessmen are looking for more than anything else. It is easy to wrap the matter up in words that have been used so often in this Chamber during the past year or two, like "confidence". But I do not want to use that word tonight, except perhaps by way of explanation.

I can explain a little more by going on to my second point, the related problem of inflation. It seems to me that the risk that demand inflation may reinforce the cost inflation is genuine, especially since the money supply is to be allowed to grow without a ceiling by the extent thought necessary. Since the Government still have no formal prices and incomes policy they must talk to the major parties to the bargaining process like the TUC and CBI. They are highly dependent on the good will and co-operation of both. There was a time when hon. Members on both sides thought they would get it from both, but after the events of this week—the application and possible consequences of the Tory legislation of a year ago, the Industrial Relations Act, the souring of industrial relations, and therefore the climate in industry, which soon spills over into society—can anyone say with any confidence that the Government will get that good will and co-operation, without which they will not reduce inflation? Perhaps without it they will not even get the investment they need, because although industrialists may want to give it, if they do not see co-operation from the other side of industry they may not do so.

Are the Government entitled to that good will and co-operation from the TUC? Will they get it, given the events of today and goodness knows what events may lie ahead?

8.0 p.m.

Mr. John Gorst (Hendon, North)

I will not detain the House long because I wish to confine myself to a couple of points on the subject of value-added tax. I regard this Budget not merely as fair and intelligent but as realistic insofar as it deals with the problems of the moment and also as visionary insofar as it caters for the future.

The first of the two points on value-added tax relates to aspects of hiring and rental agreements. At the moment when value-added tax comes into operation, rental or hiring agreements will start to attract 10 per cent. VAT. I am thinking particularly of the television industry, an industry in which I have spent more than half of my working life and which, in the days when I was working in it, was comparatively small, in rental terms, but which has now grown to an immense industry with something like 10 million out of 18 million sets on rental as opposed to outright purchase.

At that moment the rental being paid by the ordinary person will have in it an element which takes account of pur- chase tax paid on the set. In addition, at the moment of VAT there will come a 10 per cent. surcharge which is quite unfair and which will lead to double taxation unless some form of exemption is made for this side of the business. It is extremely doubtful whether it would be possible for the value-added tax to be passed on to the customer, bearing in mind that the new sets will be available in the shops at a cheaper price because They will no longer be bearing the purchase tax element.

Secondly, it is unrealistic to expect the industry, prosperous as it may be now, to be able to absorb this cost. The most recent turnover figures show that the industry has been selling at the rate of about £464 million a year but its profits have been of the order of £46 million, which means that almost exactly 10 per cent. of turnover is profit. If the industry has to absorb a 10 per cent. increase in its costs it will clearly be in an extremely vulnerable position unless some change is made.

I draw my right hon. Friend's attention to the fundamental principle of VAT staled in Clause 47: Tax shall not be charged on any supply or importation taking place before 1st April 1973. Clearly, if purchase tax has been paid on all these sets, there will have been some form of charge levied on them. I hope that this point can be looked at. I am sure that it does not apply only to television sets. It may well apply to car hiring on long-term agreements and any other item of household equipment, such as a house or internal telephone system.

If my right hon. Friend will not make any change, can he give an assurance that long-term rental agreements can be broken by consumers if as a result of VAT they find that they cannot afford the extra 10 per cent. for something which, with the best will in the world, they had not anticipated when they took out the rental agreement and committed themselves on a long-term basis? The solution should be that rental agreements in force before VAT comes into operation should be excluded. I urge my right hon. Friend to give consideration to doing that and treating them in exactly the same way as a hire-purchase agreement entered into before the introduction of VAT.

The second point I want to raise concerns the zero rating of newspapers. By singling out one medium, the newspaper industry, and giving it preferential treatment over its competitors, be they radio, television, the hoardings or cinema, there will be a tendency to distort the media and the manner of the message advertisers will be putting across to those they want to reach. It is easy to imagine a newspaper space salesman going into the office of a potential advertiser and saying "Use newspapers rather than radio, television or whatever because it will cost you 10 per cent. less."

It may be that my hon. Friend will reply that the reason we have singled out the Press is because there is such an important element of classified advertising placed by ordinary men and women who have something to sell or to rent. These people are not running a business, they cannot claim the cost and they would not easily be able to absorb a 10 per cent. increase. The fact is that all newspaper advertisements whether or not they are classified, will be included in this zero rating and it will distort the media. I am not trying to do down the Press or write up the Press or any other medium. If the Press is to be zero rated then all the other media should be. If the other media cannot be, or should not be, then I would argue that the Press ought not to be zero rated. There ought to be fair treatment for all the media.

I turn to the omissions from the Bill. It is unfortunate that at least two or three of my hon. Friends on the Front Bench who in Opposition in 1969 were keenly interested in making certain changes in the 1969 Finance Act brought in by the Labour Government, and who made passionately eloquent speeches on the subject in Committee, should now find themselves unable, for the second year, to make reasonable amendments which I have every reason to suppose the previous Government would have made had they been in office, which, thank Heaven, they are not. I am referring to the gaming machine licence duty in which I must immediately declare an interest as an adviser to that industry. It is a great shame that a small opportunity could not have been found among these 122 Clauses to put right the penal situation affecting that admittedly small but important industry for those who enjoy a seaside holiday in this country.

It is a shame that special treatment could not have been given to one category of old-age pensioner. I am not talking about the pensioner who has been retired for five or 10 years, but the old old-age pensioner, the person in his or her 80s who has been retired for so long that maybe much of their household equipment and personal effects require replacement. They have not for many years been able to spend a great deal on these items, yet they find themselves after a long period of time having to incur expenses which probably were last incurred during the period before their retirement. I believe that this is an area to which we all ought to be giving very special consideration and very special treatment.

Sir G. Nabarro

Will my hon. Friend, therefore, support my Amendment in Committee to raise the threshold of the age relief from £929 to £1,000 for a couple and from £634 to £675 for a single pensioner to help with this very purpose?

Mr. Gorst

I should have the utmost delight in supporting my hon. Friend's Amendment if I were indeed to be supporting him in the Standing Committee.

May I conclude by saying that I regard this as a modernising, reforming Finance Bill, progressive in its outlook, well prepared and, I believe, the subject of more diligent homework than almost any Finance Bill within living recollection, and to that extent I am absolutely delighted to give it support.

8.11 p.m.

Mr. Dick Douglas (Clackmannan and East Stirlingshire)

I do not propose to follow the hon. Member for Hendon, North(Mr. Gorst) in his very special pleading.

We have heard some interesting speeches this afternoon. Perhaps the most interesting from the point of view of the individuals on these benches was that made by our new leading spokesman on financial matters. It is an indication of the strength and depth of understanding of these matters on these benches that my right hon. Friend carried out his new duties with such distinction and that when he was interrupted by right hon. and hon. Gentlemen opposite was able to reply fully to them. That is not to say that I do not regret some of the changes that have been made in Front Bench spokesmen. We have a superfluity of talent in the Labour Party but that does not mean that we can waste it.

I propose to look at the Finance Bill briefly from the point of view of the new taxes that are proposed. The major new tax is the value-added tax. I should perhaps declare an interest because I am a Labour and Co-operative Member of Parliament, therefore my interest in the value-added tax is related to its effect on the consumer in this country and on the retail organisations. I therefore welcome the proposals to zero-rate food, and here I would not agree with the hon. Member for Worcestershire, South (Sir G. Nabarro) who argued the case that food should be included in the tax and should not receive exemption in any form whatsoever. The proposals of the Government to zero-rate food are, I think, the result of deep, long and continual consultations with people in the trade and of pressure from hon. and right hon. Gentlemen on both sides of the House.

While some of my hon. Friends may have deep forebodings as to what may happen should we have to harmonise not only the structure but the rate of the tax in the eventuality of our entering the European Economic Community, I do not share them, because I think the Community might very well look at the form and structure of the tax we have introduced and go our way. I suggest this because the structure of a tax cannot be looked at just in relation to simplicity: it must be looked at in the totality of the tax system. I think that the way the Government have done this—without praising them too much—has reduced the regressive nature of the tax, although not completely eliminated it, because the overall pattern of the tax system has to be considered.

My hon. Friend the Member for Old-ham, West (Mr. Meacher) indicated in his remarks that this has been done at a time of very high unemployment and social difficulty in the country and the Government have had an opportunity to readjust the lax system with the surpluses available to them; but the Government have indeed missed the opportunity to reduce the regressive nature of the tax system as a whole and, if they have done anything, have increased the regressive nature of that system. They have not reduced the inequity in the system as a whole because if, as the Government have done, one gives an indication that for large amounts of income one intends virtually to reduce the distinction interms of tax between earned and unearned income, that increases the inequity of the system. One is giving the impression that the only thing that is worth investing in is money itself, and that is what has been happening over the whole period of this Government's existence.

People have not been willing to invest in plant and equipment but have looked for the relatively fast buck by investing in the monetary system. They have not been willing to embark on fixed assets but have embarked on the holding of assets in the form of paper. It is all in terms of short-term stock exchange booms and land booms, in the form of land changing hands. Nothing is happening in real terms but because a few pieces of paper change hands and some capital gains are made or unearned income is acquired, the individuals who are capable of cornering these markets are better off and those who work by hand and brain are not reaping the same benefits.

The Chancellor in his remarks today—and my right hon. Friend the Member for Leeds, East speaking for the first time this afternoon as finance spokesman, indicated this—did not mention unemployment at all and it would be invidious for me not to look at the unemployment figures and try to nail the lie that what has been happening in terms of shake-up has been the result of high and exorbitant wage demands on the part of the workers. In Scottish terms we now have 151,861 people unemployed—7.1 per cent. of all employees. For male unemployment, the figure in percentage terms is 9.3 per cent. Here we have a situation in which Government spokesmen find extreme difficulty in arguing that wage or earning rates are higher in Scotland than in the rest of the United Kingdom. They also find a great deal of difficulty in arguing that the need for investment in Scotland is lower than in other areas of the United Kingdom. Their argument, in relation to their fiscal policy, their overall economic strategy.

is that we have to heat up the rest of the United Kingdom before some of the heat of economic activity is generated in areas like Scotland, the North, Wales and Northern Ireland.

I ask the Chancellor this: with the best regional incentives, with the best incentives, it is claimed, in the whole of Europe, or indeed the whole of the world for the attraction of industry, when is the vital spark of investment going to appear in the Scottish economy? We have missions in Germany trying to attract German direct investment into Scotland. If these regional incentives are so good, can we have some indication that German and other European industrialists are flocking to Scotland? The labour is there. If these investment incentives are so attractive, why are foreign investors and, indeed, Scottish investors not undertaking the necessary investment to mop up this large and undignified pool of unemployment—undignified not because of the men and women themselves but because it is a slight on the Government and the House of Commons that it continues.

There are some things that I welcome in the Bill. I welcome the distinction in Clause 91 in relation to the tax position of co-operative societies. This is a useful venture, although I want to examine it much more closely in Committee. I also welcome the aids given in similar Clauses to small businesses, but I am not sure how effective they will be. I want to know how the Government see all this linking up with the strategy in terms of the new responsibilities of the Minister for Industrial Development. What link up do they see in regional terms for small businesses getting services, such as advice bureaux, and so on, whereby they can take advantage of the tax concessions, if they be such, involved in the Bill?

There are some things in the Bill which completely bemuse me, particularly the relief given for interest payments on personal loans and, again, the increase offered in terms of the higher threshold for estate duty payments. I do not see their relevance to the economic situation. However, as I have said, we shall examine all the Clauses diligently both on the Floor of the House in Committee and in Committee upstairs.

This is a bemusing Bill. It indicates that the Chancellor and his colleagues are engrossed in manipulating the tax system. Changes in the tax system are necessary. Some of those embodied in the Bill are desirable. But we have to have a change in the Government's attitude towards economic management as a whole. They have sapped the confidence of industry in investment. It will take a long time for that confidence to be restored.

I believe that this is the Chancellor's last throw. He has given, as hon. Members opposite like to boast, £3,000 million away in tax. But he has reduced the options open to him. Possibilities emerge if he gets it wrong because there is no fail-safe in his overall economic strategy if we run into balance of payments difficulties again. If we have some form of industrial difficulties in the future, he has no room to negotiate on things like incomes policy. He has destroyed the confidence of the trade unions. This is his last throw. While I welcome certain elements in the Bill, I am wary about the overall consequences and the Government's economic strategy.

8.25 p.m.

Mr. Ian Percival (Southport)

I speak as an enthusiastic admirer of what my right hon. Friend the Chancellor of the Exchequer and his colleagues have already done and what they propose to do in the Bill—to restructure our whole tax system and to make it fairer and reduce the burden of taxation. The Bill is a very big one, containing many different measures of considerable substance, and it arouses our admiration. Some people, especially hon. Members opposite, seem to have overlooked the fact that the best way to help the least fortunate in society is by building a prosperous State. I believe that the Bill will contribute to that. It is imaginative, far seeing and far reaching.

I speak also as an admirer of the value-added tax and of the particular system which has been devised in this instance and set out in Part I of the Bill. Nevertheless, the whole of the rest of my observations will be entirely critical because I want to confine myself to Clauses 30 to 40. My purpose is to impress upon the House in general and the Government in particular that the powers taken in these Clauses will not do. They are far, far too great. They place far too much power over the individual in the hands of the Executive. I give one or two examples. Under Clause 32, The Commissioner may, as a condition of allowing or repaying any input tax to any person, require the production of … such security … as appears to them appropriate. There is, as far as I know, no equivalent provision in any fiscal legislation. The Clause also requires that, as a condition of a specified person continuing to supply goods or services, he must deposit security for the tax which may be due. Again, I know of no similar provision in any fiscal legislation.

To continue to supply goods in breach of these conditions is a criminal offence. Not the least alarming feature of these Clauses is the indefinite number of additional offences they will add to our criminal law—offences which attract penalties usually of the order of £1,000 or three times value of the tax evaded, whichever is the greater.

The powers of entry and search are, I believe, far greater than have ever been given in any legislation of which I know. In this case there is no requirement that the authorised person has to produce proof of authority or carry a direction upon him authorising him to do what he is doing.

One goes through these provisions. Though the citizen is allowed an appeal he cannot pursue it unless and until he has deposited the whole of the tax due on the assessment against which he is appealing, an assessment which may be an estimated assessment. I know of no such powers, no such prohibition, restriction or inhibition on the right of appeal as that.

What has happened is that somebody has said, "It would be useful if we could have every conceivable power which we can think of for the purpose of collecting this tax". It might be that to have these tremendous powers might enable those responsible for the collection of the tax to collect some tax which they would not have otherwise been able to correct. The price paid for that in these provisions is far too high in a country which still proclaims that the individual freedom and liberty of the subject, not least of the subject in his own home, is what it is all about. That is the basis of our democratic society.

These powers are understandable in the collection of customs where one is try to catch smugglers. They have been carried forward perhaps into purchase tax, which was given to the Customs and Excise to collect. Now they are being carried forward into this tax, and added to very substantially, overlooking the fact that this is a tax of a different nature from a customs duty, and a tax which will be collectable from a vastly increased number than that affected by purchase tax.

I have tried to cram into a few minutes some instance; of the Draconian nature of the powers contained in this Clause. I ask the House to look most carefully at them before agreeing to give those powers to any Department of the Executive. I ask my right hon. and hon. Friends on the Front Bench to have another and careful look at them.

8.33 p.m.

Mr. Eric Deakins (Walthamstow, West)

I should like to comment on the remarks of the hon. and learned Gentleman the Member for Southport (Mr. Percival). He said that this was a far-reaching Bill, although he went on to criticise it. He also criticised the extra offences that are being created. The more far-reaching one makes a system of taxation—we are told that VAT is to be a very broadly-based tax indeed—the more difficulty there will be for the taxpayer in his dealings with the Inland Revenue, because there are more points at which the Inland Revenue in its tax collection system may be in conflict with the interests of the taxpayer.

We have the fairest system of tax collection in the world, bar none. In spite of the opinion of some of my hon. Friends, we have remarkably little tax evasion, although we have in this country a great deal of legitimate but nevertheless unjust tax avoidance.

I want to confine my remarks to two subjects, the share option concessions and the value-added tax. I should like to ask the Financial Secretary for the evidence that since 1965 there has been an extra drain of executives and directors from this country as a result of our not having had the share option concessions now introduced. Second, I ask what consideration was given by the Government, in introducing these concessions, to their effect on the efficiency of British industry.

It might be claimed that there was some justification for those concessions if we were going to make our industry more efficient. We all know more people want to do that. The share option schemes will be most valuable in those companies which are most successful and which are already paying their executives and directors very high salaries.

Will not this extra concession lead to a drain not out of the country but from the less successful companies to the more successful companies? We need to ensure that we have the managerial talent to bring up from a state of relative inefficiency to a state of strong competitive efficiency our less efficient companies rather than our already efficient companies. I should have thought that this would not help our economic efficiency.

The third point concerning share option schemes is that of social justice. This sort of scheme will reward those executives and directors who are most successful. The path to success in the past 15 years in British industry has been mainly one of takeovers, closures and redundancies. I think that it is going too far to give extra awards to those who manage to make bigger and bigger profits by closing down uneconomic units without any regard to the social costs involved in terms of consequent unemployment.

I disagree with the Chancellor's assessment that VAT is a socially equitable tax or, rather, that it is not socially inequitable. Any extra form of taxation which is indirect must be socially regressive if it taxes those goods and services which are not now taxed and in particular those which have not been covered by purchase tax, which was originally designed as a tax on luxury.

What the ordinary person is most interested in is food, transport, fuel and power, education, clothing, housing and health. The Government may say that in one form or another they will relieve most of those goods and services from the impact of VAT. We shall have more chance in Committee of examining that claim in detail, but I wonder whether, at this stage, the Minister can tell us what criteria the Government used in determining which of those services should be zero rated, and which should be exempt, because there is a considerable difference between the two forms of VAT in those circumstances. Why is it that education and health are exempt, and not zero rated, whereas food, transport, fuel and power are zero rated?

On education in particular, which is our fastest growing social service, certainly in terms of expenditure—and very necessary expenditure at that, as everyone agrees—the position about educational materials is not clear. It is uncertain whether they come under Group 3 of Schedule 4, or Group 6 of Schedule 5. This may be a Committee point, but we shall be interested to hear the answer to it. We must make sure, at all costs, that no VAT in any form has any impact on the costs of the education service.

Furthermore, it is not clear from the wording of Schedules 4 and 5 that the whole of education will be exempt. I am sure that that is the Government's intention, but the wording of the appropriate Group is so tightly drawn that, on the face of it, it seems to exclude education in polytechnics, evening institutes and technical colleges. I hope that we may have some assurance about that.

Of the other goods and services that I have mentioned, clothing has been referred to by a number of my right hon. and hon. Friends and one does not need to be labour the point save to say that this, like food, is a major item of consumer expenditure, particularly among people with very little money left over after meeting the elementary costs of living.

My final point is to come back to the comment made by the Chief Secretary to the hon. Member for Worcestershire, South (Sir G. Nabarro) about food and distribution costs. Is it clear that all costs which have an impact on food prices will be exempt from VAT, by whatever means the Government consider appropriate?

In the case of pre-packaged food—not convenience foods and subject to purchase tax—will the cost of pre-packaging be excluded? Is it clear that all distribution costs will be excluded? Furthermore, is it clear that all inward transport costs—not distribution costs—will not be affected by VAT? Those services are a considerable proportion of the costs in the food manufacturing industry. They are of great interest to consumers and to all Members of the House. We want a clear assurance that there will be no increase whatsoever in the price of food as a result of the introduction of VAT. If the Government can give that assurance, we on this side of the House would welcome it, although we condemn many other provisions of this socially inequitable tax which will raise the cost of living for the ordinary person by far more than the combination of purchase tax and SET could ever have done.

8.40 p.m

Mr. Patrick Cormack (Cannock)

Although I am tempted to follow the interesting speech of the hon Member for Walthamstow, West (Mr. Deakins) I want to be brief as several hon. Members still wish to speak, so I shall be specific and confine my remarks to the fine arts.

Before coming to my main subject, I should like to say how very much the concessions given in the Budget and embodied in the Finance Bill with regard to charitable bequests and capital gains tax as they affect benefactions and public institutions are appreciated. There is one anomaly, to which I beg my hon. Friend the Financial Secretary to pay particular attention, and that is the way in which the National Art-Collections Fund will be limited to exemption from duty or bequests of £50,000, when it should be on a par with the great national institutions.

I want to talk about VAT as it affects the fine arts, I do not share the apprehensions of many hon. Gentlemen opposite about the tax in general. I think it is probably a good tax, and I admire the sensitivity and thoroughness with which my hon. Friends have had their consultations over the last year and decided which articles should be exempted or zero-rated. But in the fine arts there is a blind spot. I am not trying to plead a special case for a particular trade or group. I am trying to highlight something which is to me fundamental to the national interest both from an economic and a cultural point of view.

There are few areas in which we can say with complete truth that Britain leads the world, but Britain does in the fine arts. London is the centre of the fine art market. It is to London that people come when they wish to buy, and, more important, it is to London that people come when they wish to sell. Last year we had the example of the great Dodge Collection of Chicago. It was not sold in America or Europe, it came to London to Christies', where it fetched record sums. Each year this market brings in invisible exports a considerable amount of foreign currency into the country. This market would be substantially damaged if the proposals contained in the Bill came into law. And not only would our invisible exports be damaged, but we should be increasing the one form of exports that it has been the deliberate policy of succesive Governments to discourage over the last 30 years—the export of works of art.

What will happen if the proposals become law is that the Metropolitan Museum of Art in New York will be able to buy at a 10 per cent. discount as against the National Gallery, London. I could multiply this example many times and I hope that my hon. Friend will take this point to heart.

When one comes to the generalities of the subject, and talks about the quality of life, as we are always doing, quite rightly, these days, one sees that the Government have taken proper note of books and music in their proposals for VAT, but the case for works of art is no less strong on purely cultural grounds.

Hitherto there has been absolutely no direct fiscal discrimination against British collectors, with the consequence that the collecting of works of art has been widely spread so that the possibility of later acquisition by public collections by means of benefactions has been facilitated and enhanced. In this way the public owe a great debt to that British genius of collecting which has proved itself over the last several centuries. This will be in jeopardy if the Bill goes through as it stands for there will be an enormously inflationary effect on paintings and antiques generally.

I urge my hon. Friend to bear in mind that we are not here dealing with ordinary goods. There is no final purchaser. There is no value-added element as there is in many of the products of which we have spoken. We cannot compare an exquisite water colour or a Chippendale chair with a washing machine. On those goods where there is a final sale VAT is logical. Once the thing has been sold its value immediately depreciates, whereas with works of art there is no final point of sale. These things increase in value over the years and we shall do a great disservice to the collecting instinct and the quality of life if we allow these proposals in the Bill to become law.

I have tried to be brief for the simple reason that I know that my hon. Friend the Member for Ipswich (Mr. Money) is most anxious to take part in the debate. I urge my right hon. and hon. Friends to bear in mind that here is a real threat to Britain's position as the centre of the art world, a real threat to collecting in general. I ask them to pay heed to what we say and to make the necessary Amendments in Committee.

8.46 p.m.

Mr. John D. Grant (Islington, East)

I, too, will be very brief, not only in the interests of the hon. Member for Ipswich (Mr. Money) but also because my hon. Friend the Member for West Lothian (Mr. Dalyell) wishes to make a brief contribution.

First, I wish to express my incredulity at the failure of the Chancellor of the Exchequer to deal with the central economic issue that is before us, namely the level of unemployment. It is against these unemployment figures that we must view the Budget and the Finance Bill in their potential effect on the level of unemployment.

A constant theme of the Chancellor's remarks over a long period has been the fact that the wage demands of wicked trade unionists have had such an inflationary effect that they have led to higher unemployment. That same right hon. Gentleman was not so long ago boasting that the rate of increase in wages and prices had been substantially halted. One might have expected this to have been reflected in the unemployment figures, but that has not happened.

The Chancellor has demonstrated his flair for the feelings of ordinary people with his recent speech about the railway dispute. I suppose it must be taken as representing part of his aim to encourage British industry on the path of economic righteousness which was the central aim of his Budget proposals. In fact, that speech did untold harm.

It is worth looking at what the incentives in the Budget and the Finance Bill will mean for working people. These are the sort of incentives which are supposed to be designed to help avoid the series of damaging industrial crises which have been the hallmark of this Government since they came to office. We have heard about the £1 a week which the hon. Gentleman says the average industrial worker will receive as a result of the tax cuts. Even that figure appears to be under attack. And the right hon. Gentleman does not draw attention to increases in national insurance contributions and other increases resulting from this Government's policies—for instance, those which will flow from the Housing Finance Bill.

Let us look at how a worker will benefit from the provisions of the Bill. A railway man can now look forward to enjoying the benefit of paying a good deal less tax on his investment income, he will be helped with his surtax, and presumably the British Railways Board might even consider including him in any stock option scheme. This might be one way of breaking the present deadlock on the railways. That same railway man would be wise to extend his borrowing now that his tax allowance on loans is to be restored. One might say that speculators from the ticket office to the footplate are in for a real bonanza.

I shall raise only one other point and it concerns the value-added tax. It is a point which I hope the Government will take very seriously. Thousands of small traders will be affected by the tax who have never experienced anything of the kind before. It is a highly complicated and a highly complex tax. This Bill has been drafted in highly technical jargon, as was the White Paper on VAT. I shall be surprised if many of those of whom I speak are able to understand it. So many Bills which are considered in this House appear to be worded deliberately to baffle the layman. They succeed in baffling some hon. Members as well.

The Industrial Relations Act has been described as a lawyer's paradise. With respect to my hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett), I regard this Bill as an accountant's paradise. It may be that the slogan arising from it will be not that every home should have one but that every corner shop should have one. Will not the Treasury consider coming down from Cloud Nine for once and publishing a child's guide to VAT? I hope that that will be done, not after these proposals have gone through this House but while it is still possible for people to make effective representations. That might be a worth-while contribution to the open Government to which the Chancellor of the Exchequer and his colleagues are theoretically committed.

8.52 p.m.

Mr. Ernle Money (Ipswich)

I am grateful to the generosity of my hon. Friend the Member for Cannock (Mr. Cormack) and the hon. Member for Islington, East (Mr. John D. Grant) for the opportunity to address the House briefly.

I want to echo the concern expressed by my hon. Friend the Member for Cannock, and for exactly the same reasons. I do so not on emotive grounds or because the art trade is in some way mixed up with culture, but because it is very important in the national interest from the financial and economic point of view.

I ask my right hon. Friend to bear in mind the volatility of this market. It has not always been here. Before the war it was divided between Paris, Berlin, New York, and other capital cities. It came here after the war because of a fortunate combination of circumstances. We had available not only the expertise but a free market. It was an unrestricted market in financial terms. In addition, we had no purchase tax and a low level of commission charges. It is a market which has been nurtured carefully over the years. We had, for example, the steps taken to encourage the developments which came from previous Chancellors of the Exchequer; the removal of the embargo on the import of works of art in 1949, allowing bulk shipments to be made to London and payment to be made in the currency of the country from which they came; and the major step forward urged for so long by that great dealer, the late Oscar Johnson, who persuaded the Government in 1954 to relax exchange control restrictions so that British dealers were able to acquire works of art abroad for re-sale anywhere through the medium of British firms.

In these circumstances, I ask my right hon. Friend to bear in mind, first of all, that if VAT is to be implemented in its present form services to foreign clients by dealers or auctioneers will, except in the small group of traders or "authorities" comprised in Schedule 4, Group 8 of the White Paper, not be zero rated. Since these services are one of the chief sources of foreign exchange earned by the art trade, they should be recognised as such and zero rated.

Secondly, many overseas customers prefer to take their purchases with them direct from the shop or sale room. It is estimated that 67 per cent. of works sold in London salerooms are in lots of less than £100. There is a real risk that that kind of trade, which is essentially the one earning the money rather than the bigger works, will be affected seriously by the imposition of VAT.

I put those points now to the Government. There are many others on which I shall write to my right hon. Friend. The real issue is whether we shall not be giving enormous comfort and help to our American and Swiss rivals in this field, to the extent that they will be laughing all the way to the bank if VAT is imposed on the British fine art trade.

8.55 p.m.

Mr. Tam Dalyell (West Lothian)

I am grateful to my hon. Friend the Member for Islington, East (Mr. John D. Grant) for his generosity in cutting short his speech and, indeed, to the hon. Member for Ipswich (Mr. Money).

I will use such time as I have to ask certain factual questions of the Treasury relating to how it comes to its decisions and the evidence that it is adducing for certain assertions.

First, on the question of the administration of the value-added tax. I do not know whether my right hon. Friend the Member for Leeds, East (Mr. Healey) was right in quoting 50,000 or 60,000 extra civil servants. Perhaps it is an exaggeration, but we should be told. Presumably the Treasury has made some estimate. Our objection is that we are not told at this point in time what estimates the Treasury has made. I should be shocked to hear that the Treasury has made no estimate. Perhaps the Financial Secretary will interrupt and put me right about this matter. Has any calculation been made of the number of civil servants who would be involved in the excution of the value-added tax.

Mr. Higgins

We had a number of exchanges on this matter at Question Time last week.

Mr. Dalyell

Will the hon. Gentleman give me an answer in numbers?

Mr. Higgins

I refer the hon. Gentleman to the answers which I gave last week.

Mr. Dalyell

As I recollect, they were somewhat evasive answers. This is a cat and mouse game. If the Financial Secretary is forthcoming he can help us again. A direct question was asked about what would be involved on the issue of children's clothing. In a civilised way, I asked the Chancellor what calculation had been made. This was not a pejorative question; it was simply an inquiry as to the fact. If it is argued that the Budget is geared to the needs of low income groups being looked after, it is legitimate to ask about children's clothing. By what percentage, in the estimate of the Treasury, will it rise? Has the Financial Secretary got these facts. This is deplorable.

Mr. Higgins

We cannot have an impromptu Question Time halfway through the debate. On the points the hon. Gentleman asked me about earlier, we have had a number of exchanges. I have given definite answer on that subject. If he has a specific question on this subject and he puts it down, I will answer it. I dealt with his first point in the Budget debates.

Mr. Dalyell

The hon. Gentleman's memory is not any less good than I thought it was. This really is wriggling. The Chancellor chose this ground. He was asked a factual question and he refused to give any kind of answer. This is what bothers us about the way the Treasury comes to its decision. I am not one to sneer at the Treasury civil servants. They are some of the cleverest people in the country. But how do they reach their decisions? We are entitled to ask certain factual questions. I can only deduce that it is not the fault of the civil servants, but the incompetence of the Ministers, or that the Ministers are unwilling to reveal the whole package, which is even more objectionable.

At some time I should like the Treasury Ministers to define the word "modest". We are told that there will be a modest flow to charity. What on earth does that mean? Instead of using vague adjectives, the Treasury should quantify exactly what it is saying.

I am glad the Chancellor has come in, because I should like to repeat my objections to him.

Mr. Joel Barnett

We all object to him.

Mr. Dalyell

The Chancellor has to think about the way in which these debates are conducted. In a very civilised manner, I have asked certain factual questions. I asked what the percentage rise in children's clothing would be, and I was rebuked for lengthening the Chancellor's speech. That is no kind of answer. If the Government claim that they are looking after the needs of low income groups, it is a fairly obvious question to ask. It is not a recondite or esoteric question. It is a simple question which concerns millions of housewives. I should be shocked to be told that no percentage estimate has been made of the rising costs of children's clothes. As the Chancellor is present, I ask him whether I am wrong. He sits there like a Sphinx. I have the greatest suspicion that I am not so wrong.

As a Scot, I am puzzled to know why suddenly, out of the blue, there is a bias against charter flights and a different treatment of scheduled flights. My hon. Friend the Member for East Stirlingshire (Mr. Douglas) and those of us from the North have every right to be concerned about this. I see my hon. Friend the Member for Aberdeen, North (Mr. Robert Hughes) in his place. Our constituents are far more dependent than Londoners on charter flights. On what basis is there discrimination against those who use charter flights as distinct from scheduled services?

I repeat, in the presence of the Chancellor, a point made admirably by my hon. Friend the Member for Walthamstow, West (Mr. Deakins) about stock options. The Chancellor said that we must have these because international companies operate this way and that unless we act likewise British companies will be at a disadvantage. The right hon. Gentleman will be aware that many multi-national companies behave in Britain as do British companies. In other words, when they are in Rome they behave like the Romans.

Is the explanation given by the right hon. Gentleman the real reason for bringing in this highly regressive scheme of stock options? If his reason is the only argument for this change, then it is highly egregious. Is there any evidence for the assertion that British-based companies get less good managements because they do not have the stock options available to multi-national companies? This was not adduced in any of the evidence offered to those concerned with the brain-drain.

My major complaint against the Chancellor and the Government is that time and again they make assertions without producing evidence to support them. I give notice that, politely and gently, I shall throughout the Committee stage go on and on asking for the evidence on which their assertions are based.

9.3 p.m.

Mr. Joel Barnett (Heywood and Royton)

I feel that I should begin by declaring my interest in the narrow financial sense, as it were, because it is in this narrow sense that I might gain considerably from this Finance Bill.

On the other hand, I hope that I shall not be considered unduly altruistic if I both speak and vote against the Measure, for in the wider interests of the small number who will benefit most, I believe that those wider interests would be better served by a very much fairer Bill.

The only justification for perpetuating, indeed increasing, the wide difference in the level of real incomes—it is not a justification that I could accept because of what it does to the very fabric of our society—might be that it provides incentives which in turn provide the national wealth from which all can benefit. That is the usual argument. It was used today by the Chancellor, along with a denial that the Bill and its financial measures were unfair. Although I appreciate why the Chancellor should deny that they are unfair, this is surely one of the point that hon. Gentlemen opposite make; that they seek to help those at the higher end of the income scale.

I wish briefly to examine a few of the Bill's measures from the point of view of fairness, and then, if we can see that they are not fair, examine whether they achieve some of the major economic advantages, by way of incentives, to which the Chancellor referred.

As one who for many years had been advocating a unified tax system together with my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), I welcomed the simplification. But I have never argued that it would have more than a marginal effect in tax terms. It is true that workers will know that their real rate of tax will be 30 per cent. rather than the 50 per cent. or more that many at present think it to be.

We have all heard the arguments that workers will, therefore, work harder, do more overtime and so on. But the facts do not prove it. The hours of overtime worked in the United Kingdom are as high as and in many cases higher than in countries with lower marginal rates of tax. Out of 21 OECD countries, only in Yugoslavia are more hours worked on average. Depite this, and without the evidence, it is possible that there may be more overtime worked. But the state of unemployment in this country today is catastophic. As my right hon. Friend the Member for Leeds, East (Mr. Healey) said it is rather surprising that the Chancellor did not see fit, in opening the debate, to say anything about a level of unemployment of over 1 million, nearly two years after the present Government took office. That is the present situation.

In these circumstances, is it the remedy to introduce a tax system one of the virtues of which may be to increase the amount of overtime worked? Is that the sort of society that the Chancellor is trying to create—more overtime rather than more leisure? Has the Chancellor stopped to ask whether that is the best way to increase productivity? There is a great deal of evidence to indicate that more overtime is more likely to decrease productivity than to increase it.

The effect on workers of what has been done in the unified tax system is to remove an illusion. But the real benefit from that unified tax system, where there is no illusion, is that £300 million will almost entirely go to those with £5,000 a year and more, and to those with investment income. The usual economic case is that this will encourage initiative. That has never been proved in the past and the Chancellor did not attempt to prove it today.

What about the case on fairness? I said that almost all of the £300 million would go to those with incomes of over £5,000 a year, and to those with investment incomes. During the Budget debate, the Chief Secretary intervened to say that the 30.14 per cent. standard rate, which now comes down to 30 per cent., would mean that £45 million to £50 million would go to people other than the group I have mentioned. The Chief Secretary has since been kind enough to write to me to say that he got that wrong and that it is only £28 million. I do not know why he bothered to intervene in that debate, because even if it had been the bigger figure, the case is still made. The £28 million is spread right across the board to 20.57 million taxpayers, and that figure takes into account married couples as one. Most of that will go to those at the top end of the scale with most income, whereas the other £272 million will go to 255,000 people with more than £5,000 a year. For those with investment income, the largest amount will go, naturally, to the very smallest number with the maximum amount of capital. One begins to understand the measure of Conservaive tax philosophy, the measure of their fairness.

I thought that my hon. Friend the Member for Oldham, West (Mr. Meacher) was unduly modest in his claims when he said that this would be going largely to the wealthy, because with this £300 million, it is not "largely" to the wealthy; it is almost entirely to the wealthy.

Then one comes to estate duty. There is some welcome relief to those with capital under £30,000 and the Chancellor has proudly boasted that two-thirds of the £143 million relief in a full year will go to widows, to those at the threshold and to charities. Incidentally, we shall want to look very closely at the definition of "charities". It was rather interesting that the Chancellor today said that he did not make it a higher figure because of the abuses. We want to examine what he meant by that. What he did not say was that if two-thirds goes in this direction, one-third must go somewhere else and one-third, or nearly £50 million, will go largely to the small number of very large estates. This is therefore yet another example of Conservative fair taxation policy. If it is not fair, is there some economic purpose for it?

The usual case is that it is a valuable incentive to allow a man to keep what he has earned. This is a nonsense because in the case of large estates the money is not earned but is inherited by carefully devised trusts or accumulated through large and skilfully manipulated property and share deals. It emphasises the difference between us. I do not accept as a valid definition of earnings that which the Chancellor seems to accept. An accumulation of millions in these days of inflation contrasts very much with the case of a worker who, if he got a 20 per cent. wage increase, would find it difficult to accumulate £100 in a lifetime in real earnings.

We come to the new corporation tax, which is another example of Conservative tax philosophy. I am not surprised that it has been widely welcomed in the City, although I think the City is rather short-sighted, particularly in the case of close companies. What is carefully hidden under the title of reform is the combination of incentive to pay higher dividends while the Chancellor reduces the tax on those dividends. As always in a Conservative tax philosophy, equity takes a back seat. Again, if the new corporation tax is not fair, is there an economic case for it?

Among the major arguments presented by the Chancellor for the new corporation tax is that the old tax impedes the raising of capital and lessens the pressure on efficiency. Again this is stated as a bald fact with no evidence being presented to the House. If one could prove that the positive encouragement of dividends would make companies more efficient, one would have to consider such a step, although not combined with a reduction in the tax on those dividends.

But there has been no evidence to the House. The Chancellor has not proved it, and all the evidence is entirely to the contrary. In the 1950s the 100 fastest-growing companies, with regular access to the market, also retained the highest proportions of their profits. In 1968 the fastest-growing companies also had the highest retention. This does not mean that all the high retainers also have the fastest growth but it shows that high retention is necessary to get high growth. But with the new corporation tax, the Chancellor is to penalise this type of company.

Before making such a major change with all the upheaval that is involved, one would have expected a credible case to be made, but none is made. One is left with the obvious conclusion that it is credible only in the context of a Conservative tax philosophy which seeks to prove that there is no difference between, on the one hand, unearned income derived from investment savings and only to a small extent from real earnings, and on the other hand, income earned the hard way which leaves very little room for savings.

There is one major disincentive. A 50 per cent. rate of corporation tax next year with a 100 per cent. depreciation—which is not free depreciation—means that plant bought this year, will, in terms of relief, be worth £40 for every £100and next year it will be worth £50 for every £100. This is not an incentive to purchase new plant but an incentive to defer purchase of new plant. The Chancellor has made it clear yet again today that, arrogantly, he is not prepared to accept Amendments to the value-added tax. I hope that I am wrong about that. In any case, I hope that at least he will accept an Amendment either to make this truly free depreciation of preferably 125 per cent., which would make it the same as next year. It would be even better if he would make it higher than 125 per cent. in a year when we desperately need increased investment.

I turn to the major new tax, the value-added tax. The Government have made it clear that they consider it such a wonderful new tax that they would have introduced it whatever happened over our entry into the Common Market. Why are they so fond of this wonderful new tax? There are four major reasons why we would expect a Government to be keen on a tax: that it has economic advantages; that it is easier to administer; that it removes anomalies; and that it is fairer.

What are the economic advantages? Exports do not bear purchase tax today, so it has no advantage there. That it is a buoyant revenue-raiser, as was said in the Budget debate, is only another way of saying that with inflation a widely-based consumption tax will automatically increase revenue. I had thought it was the Government's intention to reduce inflation, but that is by the way, as it clearly will not happen. In any case, there was nothing to prevent the Government from widening the scope of purchase tax, so in that sense there are no economic advantages.

As for the effect on prices, with the car tax collecting another £100 million, the tax is altogether about £100 million more than a combination of SET and purchase tax. But we all know that a reduction of SET will, to put it mildly, have only a marginal effect on prices. We have evidence of that because of what happened when the Government took off the first half. But a replacement by VAT will have a very serious effect on prices.

All the economic arguments of the Richardson Committee Report in 1964 are as valid today as they were then. Not one of the arguments presented in that Report has even been answered. The arguments certainly were not answered by the Chancellor today. That Report made the case that the tax would impede growth and investment and harm the balance of payments. That was even when it was being proposed as a possible replacement for profits tax, which is not the case today.

I assume that the Government accept that they have no case on the question of administration, because they agree that between 6,000 and 8,000 additional civil servants will be needed, and the cost to 1½ million to 2 million registered firms in equipment and staff will be colossal. My right hon. Friend referred to an article saying that another 50,000 clerks might be needed, and that the figure could be even higher. The Chief Secretary intervened to try to make a clever point about salesmen selling equipment. He was unable to tell us exactly what extra staff will be required, for the very good reason that he does not know. But we know that companies will need a considerable increase in staff to cope with the new tax.

I remember very well when we debated SET the arguments of Conservative Members about how stupid it was to pay a tax and then reclaim it. Now every firm in the land will be paying the tax and then setting it off against the tax it collects, whereas the SET rebate applied only to manufacturing companies. Now not only do we have 20 million taxpayers, but the Government have created 2 million more unpaid tax collectors.

It has been said that the one redeeming feature of the tax is that it reduces anomalies. It is true that one rate plus a zero rate is beter than two rates. But I must disillusion hon. Members who think there will be no anomalies in the tax. My hon. Friend the Member for Huddersfield, West (Mr. Lomas) spoke of some, and I should like to refer to just a few.

Take the simple case of a fish-and-chip shop. If a person takes them out of the shop they are free of tax but if he eats them on the premises they are subject to tax. I wonder how many chips he has to eat on the way out before they become liable to VAT. He will not have to stop for a chat on the way out. Alternatively, there are drugs. Those on prescription are currently free of tax but there are many of the cheaper drugs which people buy from the chemist instead of going to the doctor. If they do that in future they will have to pay VAT.

Caravans are free of VAT provided they cannot be used on the roads. Aircraft are free of VAT but, according to Group 9 in the Fourth Schedule, providing they are not used for pleasure. It is almost certainly true that for the taxpayer coughing up part of the £1,000 million for research on Concorde it will be no pleasure, but in the terms of the Bill it will need to have been designed not to give pleasure. I suppose it is just possible that that was the intention. If a person travels by plane the fare will be free of VAT provided that it is a scheduled flight. Millions seeking the sun in charter flights on package holidays will presumably have to pay VAT. We should certainly like an explanation of that.

Food will be free from the tax and the Bill tells us that food includes drink. We now have that in writing—but I must warn hon. Members that it is not all drink that is exempt. True, water is tax free, but only provided that it is not distilled or bottled. I think I have shown from the few examples I have given that there is plenty in this new tax for the hon. Member for Worcestershire, South (Sir G. Nabarro).

The only argument left is on equity, and I do not believe that even the Chancellor's best friend could accuse him of introducing a tax on equity grounds. As my hon. Friend the Member for Walthamstow, West (Mr. Deakins) pointed out, he has done nothing of the sort. It could have been worse. For a Chancellor who has taxed everything in sight, and some things that are not, to claim as a virtue that he is not taxing food, fuel and a number of other items which were not taxed before anyway certainly exposes the weakness of the case, especially when the single rate of which he boasts ensures that a baby's coat is taxed at the same rate as a mink coat.

It is true that it is not administratively as bad as it might have been but I believe, as I always have believed, that this remains an administrative monstrosity. As my hon. Friend the Member for Sheffield, Attercliffe (Mr. Duffy) said, the problems of this tax have not yet been appreciated. It will be a nightmare to firms and tax officials alike.

With one rate and a minimum number of exemptions and zero rating, there will be additional burdens for the lower paid and for the average paid because the net effect of the other measures inside and outside the Budget will do nothing to relieve the burden falling on those groups.

As my hon. Friends for East Stirlingshire (Mr. Douglas) and Oldham, West have said, perhaps the most blatant hand-out is on loan interest. The Chancellor virtually admits it. As he could not give this relief to the lower paid through hire-purchase interest, he has disallowed the first £35, equivalent to perhaps 7 per cent. of £500—not even enough for a night out for a big surtax spender. That sort of man will be interested in borrowing £500,000 rather than £500. The Chancellor has shown that he knows about this in at least on respect because in Clause 72 he has closed one loophole. It has taken him 10 subsections to do it and to prevent the big surtax-payer from getting away with definite gain without risk of buying short-dated gilts. He is still left £2,000 of loan interest allowable, equivalent to 8 per cent. on £25,000. It will not be the workers who take advantage of that kind if incentive. As for the really big boys I doubt whether the Chancellor with his experience believes that one Clause dealing with one known tax avoidance scheme will go far to prevent the artificial transactions, as he rightly called them, which will be found in increasing numbers. While the trade unions which he freely castigates may not be able to use these schemes, he should not be surprised if they are aware of them.

Coming to another scheme, the capital gains relief on unit trusts, this clearly will not be for widows and orphans, as the Chancellor would have us believe. Margaret Stone put it well in The Times of 8th April: In this post-Budget pre-Finance Bill period one thing at least doesn't require any clarification: unit trusts are clearly a very good investment for the wealthier investor. The right hon. Gentleman the Secretary of State for Trade and Industry once said that in our regional policy we had been trying to put cream in our coffee by spraying a jugful of cream around the room in the dark—a very graphic phrase. But the Chancellor has not been spraying it around. He has been putting small dollops of cream in a few cups, and not in the dark, as my right hon. Friend correctly says. In other cases we could at least try to prove economic justification; in this there is none at all.

Again, as some of my hon. Friends have pointed out, in stock options the argument is that this would be a vital incentive to the young executive. In practice, it would be a useful increase in real income, and there is not a shred of evidence that such a man would work harder or that he would be less likely to emigrate. As the Jones Report on the brain drain pointed out very clearly, there were no tax reasons for that. But even if it could be proved that there were, it would be foolish to ignore the industrial relations consequences on groups of workers who are sternly told that they ought to accept 12 per cent. in the national interest.

At the outset I said that the justification for unfair taxes, which I certainly would find unacceptable, could only be that we could prove that they would increase the total national wealth, from which all would benefit. The policies are certainly unfair, as I think I have shown; also they will not achieve the objective claimed. But even if the incentives had some marginal effect, they never could compensate for the serious consequences of widening the gap between those who own capital and those who work. Workers may not read the Financial Times, but they are aware of the rich pickings for the few that the Chancellor is giving in this Finance Bill.

It is no use the Chancellor deploring militancy when the man who gets £1 a week immediately has it taken a way from him by the Chancellor's ministerial colleagues and when these same workers see so much more being given. As my hon. Friend the Member for Oldham, West pointed out, again very modesty, it is £10 per week, and indeed more, in tax relief. Indeed, to a man with £20,000 a year with just 10 per cent. of it in investment income, it is nearer £800 a year.

It is the Chancellor himself, through this Bill and his measures, who is giving the biggest possible boost to militancy in this country. It is no use piously asking workers to accept 12 per cent., no matter how valid is the economic case for even less, when these groups of workers see the Government giving vastly more than 12 per cent. to land and property speculators. There was a very interesting cartoon in The Times on Tuesday—it the might have been more appropriate for the Morning Star—which showed two tycoons walking down an empty railway track, and one saying to the other, "All for a mere £8 million. One gazumping property developer could make more than that in a morning".

In these circumstances nobody should be surprised at militancy; he should be surprised that there is not more. There is, of course, much wrong with our society, but it is not the kind of wrong that this Government would have us believe. The vast majority of the people of this country are not bloody-minded, they are not seeking confrontation with either the Government or employers.

The view that they are seeking confrontation has led this Government into the major error of trying to divide the trade unions from the rest of the country. Most workers want peace and co-operation but they also want a fair share of the national wealth. Workers will not indefinitely staysilent and watch a Conservative Government use their tax philosophy to create an unfair society. This is the lesson to be learnt from trade union militancy. The Budget has shown that the Government have not learnt that lesson. They are taking us along the road to disaster. I therefore ask my right hon. and hon. Friends to join me in voting against a Bill which puts the Conservative Party's policy into effect.

9.30 p.m.

The Chief Secretary to the Treasury (Mr. Patrick Jenkin)

I begin by adding my voice to the welcome given to the right hon. Member for Leeds, East (Mr. Healey) who has joined our finance debates. If the collection of economic quotations from the right hon. Gentleman that is held by the Conservative Research Department is any guide to the wisdom we can expect to drop from his lips, we shall have to go unrewarded. Apart from one article in a rather ancient edition of Socialist Commentary, I have been quite unable to trace anything at all of what he has said about finance. We enjoyed his speech today, especially his animadversions on economists. He is a journalist and I am a lawyer and I think that we can both afford to be beastly to the economists, although I must be careful about my hon. Friend the Financial Secretary to the Treasury.

A great many points have been raised in the debate and I will try to answer as many as possible. We will have a full Committee stage and many of the details can be probed there.

The right hon. Gentleman asked me about the balance of payments. The balance of payments remained in surplus in the first quarter of the year, despite the distortions caused to the March figures by the coal strike and other special factors. Indeed, if the effect of the coal strike is excluded, the surplus was very substantial. Furthermore, the fact that during this period sterling remained in strong demand in the foreign exchange markets suggests that the underlying balance of payments position is regarded as sound.

Over the next 12 months, we expect to continue to earn a satisfactory current surplus, although not as high as last year's, as imports will rise with the rise in domestic activity following the measures we have taken to boost demand. Therefore, as my right hon. Friend said in his Budget statement, further visible trade deficitsare likely but there is no reason to expect them to be on the scale of last month's, and they will be more than offset by our earnings on invisible account.

A number of hon. Members raised the question of unemployment. I do not propose to give a forecast of how soon or how quickly the figures will begin to fall, but there are now some encouraging signs. In the last four months of 1971, the monthly average rise, seasonally adjusted—all the figures I am giving are seasonally adjusted—was about19,000. In the first four months of this year, the monthly average rise was about 9,000 and the provisional figure for April is 4,000. Even before the Budget, therefore, unemployment was starting to level off.

Moreover, on the other side of the coin, the trend in unfilled vacancies is encouraging. In April, there has again been a rise more than would be justified on seasonally normal factors, and this is the fourth consecutive month in which there has been a rise in unfilled vacancies. As the massive Budget stimulus takes effect, we can expect this trend to intensify.

The hon. Member for Heywood and Royton (Mr. Joel Barnett) and others spoke about the question of investment and made the suggestion which, I think, they derived from an article in the Economist, to the effect that investment may be postponed from this year to next because it would then get capital allowance at a higher rate under the imputation system.

That argument, which is based on a crude comparison of tax rates, has a plausible ring about it. I believe it is substantially a myth. It is not my experience that businessmen decide their investment programmes in that way. Increasingly firms make vigorous appraisals of the present value on a discounted cash flow calculation of their proposed expenditures and of profits likely to result. The tax relief is a fact. This is one of the reasons why we have introduced "free depreciation" this year. That is only one element in the calculations.

The use of discounted cash flow techniques goes a long way to offset the apparent margin of advantage. Investment is aimed at profits. Profits today are more valuable than profits tomorrow. Any businessman who plays around with deferring his investment would risk burning his fingers. He might lose his share of the market. He might find himself left behind in the queue for new plant. I recognise that there may be some postponement at the fringe. But I find it hard to believe that industry as a whole would behave so shortsightedly. [An Hon. Member: "They have for the last few years."] With respect, they have not When it was the other way round—the increase in investment grants from the party opposite—there was no evidence that that led to any overall increase in the total amount of investment. It led to a small measure of bunching at the end of the period, followed immediately by a trough just afterwards.

Could I turn to the point made by my hon. Friend the Member for the Isle of Thanet (Mr. Rees-Davies). This is not a matter in the Bill. He warned us he was going to move an Amendment. I took the most careful note of what he said about the differential between on-course and off-course betting tax. We shall examine his arguments. We shall return to this at the Committee stage.

The hon. Member for Heywood and Royton made an attack on the stock option proposals. He sought to argue that these were nothing but a concession to the rich. The hon. Gentleman has not followed the Bill. He has not understood what we are doing.

I do not regard stock options or the share incentive schemes as objectionable. They can play a part in making British industry more enterprising and more competitive and help to instil into management the entrepreneurial spark which industry so badly needs.

I was encouraged in taking this view by the reaction of the hon. and learned Member for Lincoln (Mr. Taverne), speaking in Committee last year in the course of a short debate on stock options and the share incentive schemes.

Although the hon. and learned Member does not now sit on the Front Bench—that we regret—he was then speaking as a finance spokesman for his party. Referring to my right hon. Friend the Secretary of State for Employment, he said: I do not disagree with much of what the Chief Secretary has said. To be frank, I was not entirely happy about the course which the law has taken in the past. It was clearly unsatisfactory that schemes of the kind referred to should spring up to avoid the law. On the other hand it would have been repressive to have oppressed them—so that the line advocated by the Chief Secretary is one that I do not find unacceptable."—[Official Report, Standing Committee H, 21st June, 1971; c. 939.] We start on both sides of the House, I imagine, from the standpoint that the schemes have merits and should not be suppressed. It was the intention and the achievement of the 1966 legislation to suppress them.

We must have regard to what has happened since 1966. During these years several hundred companies have succeeded in avoiding that legislation by introducing share incentive schemes. The Bill takes a twofold approach to the problem. First we are extending the income tax charge to share incentive schemes which do not comply with the proposed conditions of approval so that they are on all fours, as near as may be, with share option schemes. Second we are establishing for both types of scheme a code of inland revenue approval. As my right hon. Friend the Chancellor said in his Budget statement, this follows many of the guidelines established by other bodies as being reasonable in all the circumstances.

That seems to me—and I should have thought to most hon. Members on both sides of the House—a very fair and balanced approach. Few measures of anti-avoidance overkill cause more dismay in industry than the legislation banning stock options. Few measures of avoidance over-kill cause more dismay in industry than the legislation banning stock options, and what we are doing is to put that right.

It has been the theme of speakers from the benches opposite—and the hon. Member for Heywood and Royton was no exception—that the Government in general and the Bill in particular have neglected the interests of the poorest in our community. I find that argument difficult to accept. Indeed, when one sees just how much the Government have done for the poorest sections of the population it is perhaps regrettable that the charge should be seriously made.

From the moment that we came to office we decided that one of our highest priorities should be to bring about a rapid improvement in the financial position of the poorest groups. Pensions are now to be reviewed annually, and when this year's 12½ per cent. increase in pensions and other benefits takes effect in October—this is something that hon. Gentlemen opposite were not able to do—the pension will have increased by no less than one-third since we came to office—well ahead of any likely increase in prices.

At the same time, the increased contributions to pay for that have been made in a way which has imposed no extra burden at all on those earning £18 a week or less. Selective help has been given to elderly non-pensioners by the new old-persons' pension. There is the new age addition for 1¼ million pensiners over 80. There is the new age related widow's pension, with the 3-year marriage test abolished. On the family incomes supplement, already 75,000 families are receiving a maximum benefit of up to £5 a week. There are the new invalidity pensions and the invalidity allowance for the long-term sick. The higher benefit rates previously paid only to the children of widows now go to invalidity and retirement pensioners. There are higher limits for the earnings rule for the working wives of invalidity pensioners. The earnings rule has been substantially relaxed for retirement pensioners. There are higher pension increments for those who defer their retirement. The new constant attendant allowance for the severely disabled is helping 75,000 families, and its extension to a much wider category of the disabled will help many more. There have been improvements in the invalid vehicle service. All that represents a massive new deal for the disadvantaged.

The right hon. Member for Leeds, East incautiously referred to the article in The Guardian of 20th March by the hon. Member for Oldham, West (Mr. Meacher), in which he purported to show that a miner with children was worse off after Wilberfore than before. That is utter nonsense. A straightforward way of making a comparison would have been to have included, on the one hand, the November, 1970, take-home pay, and on the other the post-Wilberforce take-home pay, backdated to November, and set those two opposite each other. Instead of doing that the hon. Gentleman started with gross pay—not take-home pay—took the gross Wilberforce increase, made a number of adjustments to it, and ended with something that he called the new net wage.

It was neither net, nor a true wage, and he compared it with the old gross wage. It is hardly surprising that he came to the wrong conclusion. If the hon. Gentleman had compared the net take-home pay after Wilberforce with what it had been a year before he would have found that, after taking into account all changes in money value, there was a significant increase in pay in real terms, and that was before the changes in the Budget.

In addition, the hon. Gentleman managed to disregard altogether the 1971 increase in the child tax allowances, and some people might think that it was highly misleading to include the school meals charge, because the miner taken as an example would not have been entitled to exemption in November, 1970, or November, 1971. With all due humility I strongly advise the right hon. Member for Leeds, East, who comes fresh to these matters, to treat his hon. Friend's figurings with a good deal of caution.

Mr. Meacher

The Financial Secretary has made two main points. The first was about the inclusion of the loss of free school meals. That was included because free school meals, if they were being taken up, would have been lost, and four out of five families get this means-tested benefit. For the sake of moderation I deliberately excluded all the other means-tested benefits which these families might have been getting but which they would have lost at arbitrary points as a result of this rise.

The main point which the Chief Secretary made was that the figure on which I calculated the effects of the £5 increase was gross. Certainly it was gross. If I had taken the net figure the effect of the £5 increase being given net would have been to produce a correspondingly lower figure and exactly the same final result of the man being 15p worse off.

Mr. Jenkin

All I can say is that the hon. Gentleman sounds even less convincing now than he did earlier.

The truth of the matter is that the tax changes of both this year and last year have been of major help to those at the lowest end of the scale. We have given priority to raising the tax threshold. The threshold for the single man or woman has been raised by £3.34 a week. For the married couple, both of whom are earning——

Mrs. Renée Short rose——

Mr. Speaker

Order. The hon. Gentleman is not giving way, so the hon. Lady must resume her seat.

Mr. Jenkin

I am coming to the hon. Lady in a moment. The threshold for the married couple entitled to age exemption has been raised by £3.63 a week, and for a couple with two young children the threshold has been raised by £5.31 a week. The Finance Bill frees altogether from liability 2¾ million who would have paid tax, and families below the tax threshold will in general benefit by £1 a week from the extra FIS payments from the start of this month. The number who will benefit from that is very much nearer to the 75,000 I mentioned earlier than to the 10,000 mentioned by the hon. Member for Oldham, West.

Both major parties which have held office since the war have made improvementsin the social services, and I am sure it has been the aim of both major parties to seek to shelter the poorest from the rigours of the tax system. Yet I say without hesitation that this record of improved social security and of tax relief at the lowest end of the scale is without parallel. It does not stop there. The Labour Party massively increased purchase tax across the board and also introduced SET in a way which imposed taxation on food and housing. We, on the other hand, have twice reduced purchase tax and, in designing the VAT, have seen to it that it shall not be regressive. Food, fuel, fares and new housing will be zero-rated, rents will be exempt, and in this way we can claim that we are protecting the least fortunate members of society.

In future we look to the new tax credit scheme announced by my right hon. Friend in his Budget statement. As he said this afternoon, this is not merely a way of simplifying PAYE and saving manpower costs, although it does that; we aim, too, to provide valuable benefits for lower-paid workers and many retirement pensioners without individual means-testing. I utterly reject the argument that we have neglected the poor.

Mrs. Renée Short

Will the hon. Gentleman give way on this point?

Mr. Jenkin

I am just coming to the hon. Lady. Perhaps I may be allowed to continue because I shall refer to the point she made about VAT and the Common Market.

Mrs. Renée Short

I was not going to refer to that.

Mr. Jenkin

The hon. Lady referred to it at some length this afternoon, so perhaps I may reply to her. When I dealt with the Financial Resolution to the European Communities Bill I described in some detail how the various pieces of Community and United Kingdom legislation would dovetail, and I do not want to repeat all that tonight in the context of the VAT Clauses of this Bill. Perhaps it is enough to say that it is this Bill, which, if it is passed, will charge VAT on the people of this country and that when it is law two further essential stages will be necessary before the VAT begins under the Finance Regulations to take effect. First there must be a unanimous Community decision about the uniform assessment basis of VAT. If that decision requires any change to the United Kingdom VAT, further United Kingdom legislation will have to be approved by the House. It cannot be done under the European Communities Bill or under the Finance Bill.

The right hon. Gentleman and other hon. Members raised the matter of staffing. During the Budget debate my hon. Friend the Financial Secretary said that 6,000 more staff would be needed to administer VAT than were currently involved in the collection of purchase tax. The Government are convinced that the price is well worth it to secure the advantages of a much fairer system of indirect taxation. There will be a certain offsetting saving of some 500 staff in the Department of Employment and in other Departments as a result of the ending of SET.

On the Inland Revenue side there will be a saving of over 500 staff as a result of the increase in number of exemptions from surtax limits and other savings, and there will be similar savings next year. From 1974 to 1975 there will be savings of over 1,000 staff resulting from unification, but in the longer term the figures will be dwarfed by an eventual saving of 10,000 to 15,000. By the time our tax reform programme is complete, staff savings on collecting tax could well run into five figures. If the right hon. Gentleman moves his Amendment for a multi-rate scheme he will add massively to staffing requirements.

The right hon. Gentleman asked about the needs of traders. Some of the figures, in view of their source, are highly coloured but the Customs officials have been talking to firms on the Continent and have asked how much staff they would save if they did not have to deal with VAT. The answer was virtually none at all. The answer is that once the tax is in being it can be operated with virtually no additions to their manpower. They take it in their stride.

Mr. Healey

But is it not the case that many Continental countries introduced VAT to replace extremely expensive and difficult-to-administer forms of sale tax, cascade tax, and so on, and that the experience of Continental firms is no guide to the experience of British firms since in Britain 1¼ million firms will be involved in value-added tax as against 74,000 involved in purchase tax at present?

Mr. Jenkin

The right hon. Gentleman is right that there will be many more registered traders, but that is not the point. The point is how much additional work will be imposed in the end, and the answer is that it will be relatively small.

The Labour Party has made clear that it dislikes the VAT and all its works. That is its view and it is entitled to it. This surely must mean that right hon. and hon. Gentlemen opposite are pre- pared to stand up and defend the retention of the illogical complex set of taxes which VAT seeks to replace. We have heard no word as to any hint of the reforms which they would rather see.

I do not need to weary the House with a long catalogue of the follies of SET. It was a wildly unpopular tax whatever its structure may have been in 1966. The whole concept was wrong. Great manufacturing companies had to shift blocks of their staff around to avoid paying a tax which it was never intended that they should pay. To raise £500 million they had to raise £2,000 million and pay back £1,500 million. And there has been a forced loan to the Government as high as £200 million at any one time. Selective Employment Tax was a tax which was intended to help assist manufacturing industry. It became an oppressive burden.

Purchase tax has been a better tax than SET but will have few mourners. History is littered with attempts by the legislature to tailor tax to prejudices. Purchase tax was not the least successful, but coverage has always been limited. Although large areas of consumer expenditure of goods were free of purchase tax, it is hard to discern any coherent social purpose. The ownership of yachts and caravans does not figure largely in the budgets of the poor, yet they are tax free, while ordinary domestic equipment such as cleaners, heaters and furniture are charged.

One hon. Gentleman made a plea for consideration of some of the marginal problems which will be faced with any tax that will not have a 100 per cent. coverage. We must face this, and recognise it.

The problems of VAT are as nothing to the ridiculous nonsenses that we have had to put up with over the years in the case of purchase tax. Why should ladies stockings be charged at the lowest rate but a liquid to imitate ladies stockings at the top rate? Why should a pottery piggy bank be top-rated but if painted with the words "razor blades" be at a lower rate? Why should bird cage novelties be at a high rate but bird cage fittings be free of tax? Why should cutlery be at the bottom rate but light bulbs at a high rate? Why should toilet soap be taxed at a high rate and toilet paper be exempt? Why should children's toys be taxed much more heavily than children's sweets? I could go on.

It is not only a matter of these distinctions being senseless to the consumer. It is the impact on industry and the constant shifts and changes which have perhaps most damaging consequences. Purchase tax was far too narrowly based. It not only distorted consumer choice; when it was changed for reasons of economic management, the impact hit far too narrow a range of industry. It is this tax which those who oppose this Bill would have us retain.

Value-added tax is not based solely on the Common Market argument, though those who support the Common Market must accept it. The case for VAT rests upon its superior virtues as an indirect tax over those it will replace. The Daily Express cannot be claimed to be amongst the most notable champions of our entry into the Common Market. Yet in a feature article on VAT last December it concluded that it … would have one overwhelming benefit. It could end once and for all the pernicious unpredictability of purchase tax. VAT will be a much better tax.

The welcome that my right hon. Friend's proposals have had from those who will operate the tax have been most encouraging. Perhaps I might read one quotation from the body which represents more retail traders than any other group.

I refer to the Retail Consortium, which said on Budget night: The Retail Consortium welcomes the comparative simplicity of the VAT system chosen by the Chancellor and the non-inflationary level of the rate he has selected. The Consortium welcomes the fact that the Chancellor as taken account of the representations which it has made to him about the potential loss facing retailers holding tax-paid stocks. The Consortium welcomes the reductions in purchase tax which will benefit the public and will smooth the way for a change to VAT.'' I believe that that is perhaps the best accolade for the system of consultation upon which my right hon. Friend embarked last year. What a contrast it is to the hullabaloo which greeted SET when it was introduced bythe right hon. Member for Cardiff, South-East (Mr. Callaghan) in 1966.

The value-added tax is the modern, sophisticated tax for a modern industrial nation. Once it has settled down, it will represent a vastly better system of indirect taxation than that which it replaces.

One hon. Member suggested that VAT was the heart of the Finance Bill. Those hon. Members who go into the Division Lobby against the Bill will be declaring their opposition to what is perhaps the most significant element in the modernisation of our tax code. I ask the House to give the Bill a Second Reading.

Question put, That the Bill be now read a Second time:—

The House divided: Ayes 292. Noes 258.

Division No. 137.]	AYES	[9.59 p.m.
Adley, Robert	Brocklebank-Fowler, Christopher	d'Avigdor-Goldsmid, Sir Henry
Alison, Michael (Barkston Arsh)	Brown, Sir Edward (Bath)	Dean, Paul
Allason, James (Hemel Hempstead)	Bruce-Gardyne, J.	Deedes, Rt. Hn. W. F.
Amery, Rt. Hn. Julian	Bryan, Paul	Digby, Simon Wingfield
Astor, John	Buchanan-Smith, Alick (Angua,N & M)	Dixon, Piers
Atkins, Humphrey	Buck, Antony	Drayson, G. B.
Awdry, Daniel	Bullus, Sir Eric	du Cann, Rt. Hn. Edward
Baker, Kenneth (St. Marylebone)	Burden, F. A.	Dykes, Hugh
Balniel, Lord	Butler, Adam (Bosworth)	Eden, Sir John
Barber, Rt. Hn. Anthony	Campbell, Rt.Hn.G.(Moray & Nairn)	Edwards, Nicholas (Pembroke)
Batsford, Brian	Carlisle, Mark	Elliot, Capt. Walter (Carshalton)
Beamish, Col. Sir Tufton	Carr, Rt. Hn. Robert	Elliot, R. W. (N'c'tle-upon-Tyne,N.)
Bell, Ronald	Chapman, Sydney	Emery, Peter
Bennett, Sir Frederic (Torquay)	Chataway, Rt. Hn. Christopher	Eyre, Reginald
Bennett, Dr. Reginald (Gosport)	Chichester-Clark, R.	Farr, John
Benyon, W.	Churchill, W. S.	Fell, Anthony
Berry, Hn. Anthony	Clark, William (Surrey, E.)	Fenner, Mrs. Peggy
Biffen, John	Clarke Kenneth (Rushclifle)	Fidler, Michael
Biggs-Davison, John	Cockeram, Eric	Finsberg, Geoffrey (Hampstead)
Blaker, Peter	Cooke, Robert	Fisher, Nigel (Surbiton)
Boardman, Tom (Leicester, S.W.)	Coombs, Derek	Fletcher-Cooke, Charles
Body, Richard	Cooper, A. E.	Fookes, Miss Janet
Boscawen, Robert	Corfield, Rt. Hn. Frederick	Fortescue, Tim
Bossom, Sir Clive	Cormack, Patrick	Foster, Sir John
Bowden, Andrew	Costain, A. P.	Fowler, Norman
Braine, Bernard	Critchley, Julian	Fox, Marcus
Bray, Ronald	Crouch, David	Fraser, Rt.Hn.Hugh (St'fford & Stone)
Brewis, John	Crowder, F. P.	Fry, Peter
Brinton, Sir Tatton	Davies, Rt. Hn. John (Knutsford)
Galbraith, Hn. T. G.	Lloyd, Ian (P'tsm'th, Langstone)	Rossi, Hugh (Hornsey)
Gardner, Edward	Longden, Gilbert	Rost, Peter
Gibson-Watt, David	Loveridge, John	Royle, Anthony
Gilmour, Ian (Norfolk, C.)	Luce, R. N.	Russell, Sir Ronald
Gilmour, Sir John (Fife, E.)	McAdden, Sir Stephen	St. John-Stevas, Norman
Glyn, Dr. Alan	MacArthur, Ian	Sandys, Rt. Hn. D.
Godber, Rt. Hn. J. B.	McCrindle, R. A.	Scott, Nicholas
Goodhart, Philip	McLaren, Martin	Scott-Hopkins, James
Goodhew, Victor	Maclean, Sir Fitzroy	Sharples, Richard
Gorst, John	McMaster, Stanley	Shaw, Michael (Sc'b'gh & Whitby)
Gower, Harry	Macmillan, Maurice (Farnham	Shelton, William (Clapham)
Grant, Anthony (Harrow, C.)	McNair-Wilson, Michael	Simeons, Charles
Gray, Hamish	McNair-Wilson, Patrick (NewForest)	Sinclair, Sir George
Green, Alan	Maddan, Martin	Skeet, T. H. H.
Grieve, Percy	Madel, David	Smith, Dudley (W'wick & L'mington)
Griffiths, Eldon (Bury St. Edmunds)	Marples, Rt. Hn. Ernest	Soref, Harold
Grimond, Rt. Hn. J.	Marten, Neil	Speed, Keith
Grylls, Michael	Mather, Carol	Spence, John
Gummer, Selwyn	Maude, Angus	Sproat, Iain
Gurden, Harold	Maudling, Rt. Hn. Reginald	Stainton, Keith
Hall, Miss Joan (Keighley)	Mawby, Ray	Stanbrook, Ivor
Hall, John (Wycombe)	Maxwell-Hyslop, R. J.	Steel, David
Hamilton, Michael (Salisbury)	Meyer, Sir Anthony	Stewart-Smith, Geoffrey (Belper)
Hannam, John (Exeter)	Mills, Peter (Torrington)	Stodart, Anthony (Edinburgh, W.)
Harrison, Col. Sir Harwood (Eye)	Mitchell, Lt.-Col.C. (Aberdeenshire,W)	Stoddart-Scott, Col. Sir M.
Haselhurst, Alan	Mitchell, David (Basingstoke)	Stokes, John
Hastings, Stephen	Moate, Roger	Stuttaford, Dr. Tom
Havers, Michael	Money, Ernle	Sutcliffe, John
Hawkins, Paul	Montgomery, Fergus	Taylor, Sir Charles (Eastbourne)
Hayhoe, Barney	More, Jasper	Taylor, Edward M.(G'gow, Cathcart)
Heseltine, Michael	Morgan, Geraint (Denbigh)	Taylor, Frank (Moss Side)
Hicks, Robert	Morgan-Giles, Rear-Adm.	Taylor, Robert (Croydon, N.W.)
Higgins, Terence L.	Morrison, Charles	Tebbit, Norman
Hiley, Joseph	Mudd, David	Temple, John M.
Hill, James (Southampton, Test)	Murton, Oscar	Thatcher, Rt. Hn. Mrs. Margaret
Hill, John E. B. (Norfolk, S.)	Nabarro, Sir Gerald	Thomas, John Stradling (Monmouth)
Holland, Philip	Neave, Airey	Thomas, Rt. Hn. Peter (Hendon, S.)
Holt, Miss Mary	Nicholls, Sir Harmar	Thompson, Sir Richard (Croydon, S.)
Hordern, Peter	Noble, Rt. Hn. Michael	Tilney, John
Hornby, Richard	Normanton, Tom	Trafford, Dr. Anthony
Howe, Hn. Sir Geoffrey (Reigate)	Nott, John	Trew, Peter
Howell, David (Guildford)	Onslow, Cranley	Tugendhat, Christopher
Howell, Ralph (Norfolk, N.)	Oppenheim, Mrs. Sally	Turton, Rt. Hn. Sir Robin
Hunt, John	Osborn, John	Vaughan, Dr. Gerard
Iremonger, T. L.	Owen, Idris (Stockport, N.)	Vickers, Dame Joan
Irvine, Bryant Godman (Rye)	Page, Graham (Crosby)	Waddington, David
James, David	Page, John (Harrow, W.)	Walder, David (Clitheroe)
Jenkin, Patrick (Woodford)	Parkinson, Cecil	Walker, Rt. Hn. Peter (Worcester)
Jennings, J. C. (Burton)	Peel, John	Walker-Smith, Rt. Hn. Sir Derek
Jessel, Toby	Percival, Ian	Wall, Patrick
Johnson Smith, G. (E. Grinstead)	Peyton, Rt. Hn. John	Ward, Dame Irene
Jones, Arthur (Northants, S.)	Pike, Miss Mervyn	Warren, Kenneth
Jopling, Michael	Pink, R. Bonner	Wells, John (Maidstone)
Joseph, Rt. Hn. Sir Keith	Powell, Rt. Hn. J. Enoch	White, Roger (Gravesend)
Kellett-Bowman, Mrs. Elaine	Price, David (Eastleigh)	Whitelaw, Rt. Hn. William
Kershaw, Anthony	Prior, Rt. Hn. J. M. L.	Wiggin, Jerry
Kilfedder, James	Proudfoot, Wilfred	Wilkinson, John
Kimball, Marcus	Pym, Rt. Hn. Francis	Winterton, Nicholas
King, Evelyn (Dorset, S.)	Quennell, Miss J. M.	Wolrige-Gordon, Patrick
King, Tom (Bridgwater)	Raison, Timothy	Woodhouse, Hn. Christopher
Kinsey, J. R.	Ramsden, Rt. Hn. James	Woodnutt, Mark
Kirk, Peter	Rawlinson, Rt. Hn. Sir Peter	Worsley, Marcus
Knight, Mrs. Jill	Redmond, Robert	Wylie, Rt. Hn. N. R.
Knox, David	Reed, Laurance (Bolton, E.)
Lambton, Antony	Rees, Peter (Dover)	TELLERS FOR THE AYES:
Lane, David	Rees-Davies, W. R.	Mr. Bernard Weatherill and
Langford-Holt, Sir John	Renton, Rt. Hn. Sir David	Mr. Walter Clegg.
Legge-Bourke, Sir Harry	Rhys Williams, Sir Brandon
Le Marchant, Spencer	Ridley, Hn. Nicholas
Lewis, Kenneth (Rutland)	Ridsdale, Julian
Lloyd, Rt.Hn.Geoffrey (Sut'nC'dfield)	Rippon, Rt. Hn. Geoffrey
	Roberts, Wyn (Conway)
NOES
Abse, Leo	Barnes, Michael	Bottomley, Rt. Hn. Arthur
Albu, Austen	Barnett, Guy (Greenwich)	Boyden, James (Bishop Auckland)
Allaun, Frank (Salford, E.)	Barnett, Joel (Heywood and Royton)	Bradley, Tom
Archer, Peter (Rowley Regis)	Beaney, Alan	Broughton, Sir Alfred
Armstrong, Ernest	Benn, Rt. Hn. Anthony Wedgwood	Buchan, Norman
Ashley, Jack	Bennett, James (Glasgow, Bridgeton)	Buchanan, Richard (G'gow, Sp'burn)
Ashton, Joe	Bidwell, Sydney	Butler, Mrs. Joyce (Wood Green)
Atkinson, Norman	Bishop, E. S.	Callaghan, Rt. Hn. James
Bagier, Gordon A. T.	Blenkinsop, Arthur	Campbell, I. (Dunbartonshire, W.)

Cant, R. B.	Huckfield, Leslie	Padley, Walter
Carmichael, Neil	Hughes, Rt. Hn. Cledwyn (Anglesey)	Paget, R. T.
Carter, Ray (Birmingh'm, Northfield)	Hughes, Mark (Durham)	Palmer, Arthur
Carter-Jones, Lewis (Eccles)	Hughes, Robert (Aberdeen, N.)	Pannell, Rt. Hn. Charles
Castle, Rt. Hn. Barbara	Hughes, Roy (Newport)	Parry, Robert (Liverpool, Exchange)
Clark, David (Colne Valley)	Hunter, Adam	Pavitt, Laurie
Cocks, Michael (Bristol, S.)	Irvine, Rt.Hn.SirArthur (Edge Hill)	Pendry, Tom
Cohen, Stanley	Janner, Greville	Pentland, Norman
Coleman, Donald	Jay, Rt. Hn. Douglas	Perry, Ernest G.
Concannon, J. D.	Jeger, Mrs. Lena	Prentice, Rt. Hn. Reg.
Conlan, Bernard	Jenkins, Hugh (Putney)	Prescott, John
Corbet, Mrs. Freda	Jenkins, Rt. Hn. Roy (Stechford)	Price, J. T. (Westhoughton)
Cox, Thomas (Wandsworth, C.)	Johnson, Carol (Lewisham, S.)	Price, William (Rugby)
Cronin, John	Johnson, James (K'ston-on-Hull, W.)	Probert, Arthur
Crosland, Rt. Hn. Anthony	Johnson, Walter (Derby, S.)	Reed, D. (Sedgefield)
Crosaman, Rt. Hn. Richard	Jones, Barry (Flint, E.)	Rees, Merlyn (Leeds, S.)
Cunningham, G. (Islington, S.W.)	Jones, Dan (Burnley)	Rhodes, Geoffrey
Cunningham, Dr. J. A. (Whitehaven)	Jones, Rt.Hn.SirElwyn (W.Ham,S.)	Richard, Ivor
Dalyell, Tam	Jones, Gwynoro (Carmarthen)	Roberts, Albert (Normanton)
Davidson, Arthur	Jones, T. Alec (Rhondda, W.)	Robertson, John (Paisley)
Davies, Denzil (Llanelly)	Kaufman, Gerald	Roderick, Caerwyn E. (Br'c'n & R'dnor)
Davies, Ifor (Gower)	Kelley, Richard	Rodgers, William (Stockton-on-Tees)
Davis, Clinton (Hackney, C.)	Kerr, Russell	Roper, John
Davis, Terry (Bromsgrove)	Kinnock, Nell	Rose, Paul B.
Deakins, Eric	Lambie, David	Ross, Rt. Hn. William (Kilmarnock)
de Freitas, Rt. Hn. Sir Geoffrey	Lamond, James	Rowlands, Edward
Delargy, H. J.	Latham, Arthur	Sandelson, Neville
Dell, Rt. Hn. Edmund	Lawson, George	Sheldon, Robert (Ashton-under-Lyne)
Doig, Peter	Leadbitter, Ted	Shore, Rt. Hn. Peter (Stepney)
Dormand, J. D.	Lee, Rt. Hn. Frederick	Short, Rt.Hn.Edward (N'c'tle-u-Tyne)
Douglas, Dick (Stirlingshire, E.)	Lever, Rt. Hn. Harold	Short, Mrs. Renée (W'hampton, N.E.)
Douglas-Mann, Bruce	Lewis, Arthur (W. Ham, N.)	Silkin, Rt. Hn. John (Deptford)
Driberg, Tom	Lewis, Ron (Carlisle)	Silkin, Hn. S. C. (Dulwich)
Duffy, A. E. P.	Lipton, Marcus	Sillars, James
Dunn, James A.	Lomas, Kenneth	Skinner, Dennis
Dunnett, Jack	Loughlin, Charles	Small, William
Eadie, Alex	Lyon, Alexander W. (York)	Smith, John (Lanarkshire, N.)
Edelman, Maurice	Mabon, Dr. J. Dickson	Spearing, Nigel
Edwards, Robert (Bilston)	McBride, Neil	Spriggs, Leslie
Edwards, William (Merioneth)	McCartney, Hugh	Stallard, A. W.
Ellis, Tom	McElhone, Frank	Stewart, Donald (Western Isles)
English, Michael	McGuire, Michael	Stoddart, David (Swindon)
Evans, Fred	Mackenzie, Gregor	Stonehouse, Rt. Hn. John
Ewing, Henry	Mackie, John	Strang, Gavin
Faulds, Andrew	Mackintosh, John P.	Strauss, Rt. Hn. G. R.
Fernyhough, Rt. Hn. E.	Maclennan, Robert	Summerskill, Hn. Dr. Shirley
Fisher, Mrs. Doris(B'ham, Ladywood)	McMillan, Tom (Glasgow, C.)	Swain, Thomas
Fitch, Alan (Wigan)	McNamara, J. Kevin	Taverne, Dick
Fletcher, Raymond (Ilkeston)	Mahon, Simon (Bootle)	Thomas, Jeffrey (Abertillery)
Fletcher, Ted (Darlington)	Mallalieu, J. P. W. (Huddersfield, E.)	Thomson, Rt.Hn. G. (Dundee, E.)
Foley, Maurice	Marks, Kenneth	Tinn, James
Foot, Michael	Marquand. David	Tomney, Frank
Ford, Ben	Marsden, F.	Torney, Tom
Forrester, John	Marshall. Dr. Edmund	Tuck, Raphael
Fraser, John (Norwood)	Mason, Rt. Hn. Roy	Urwin, T. W.
Freeson, Reginald	Mayhew, Christopher	Verley, Eric G.
Garrett, W. E.	Meacher, Michael	Wainwright, Edwin
Gilbert, Dr. John	Mellish, Rt. Hn. Robert	Walden, Brian (B'm'ham, All Saints)
Ginsburg, David (Dewsbury)	Mendelson, John	Walker, Harold (Doncaster)
Gordon Walker, Rt. Hn. P. C.	Mikardo, Ian	Wallace, George
Gourlay, Harry	Millan, Bruce	Watkins, David
Grant, George (Morpeth)	Miller, Dr. M. S.	Weitzman, David
Grant, John D. (Islington, E.)	Milne, Edward	Wellbeloved, James
Griffiths, Eddie (Brightside)	Molloy, William	Wells, William (Walsall, N.)
Griffiths, Will (Exchange)	Morgan, Elyatan (Cardiganshire)	White, James (Glasgow, Pollok)
Hamilton, James (Bothwell)	Morris, Alfred (Wythenshawe)	Whitehead, Phillip
Hamilton, William (Fife, W.)	Morris, Charles R. (Openshaw)	Whitlock, William
Hamling, William	Morris, Rt. Hn. John (Aberavon)	Willey, Rt. Hn. Frederick
Hannan, William (G'gow, Maryhill)	Moyle, Roland	Williams, Alan (Swansea, W.)
Hardy, Peter	Mulley, Rt. Hn. Frederick	Williams, Mrs. Shirley (Hitchin)
Harrison, Walter (Wakefield)	Murray, Ronald King	Williams, W. T. (Warrington)
Hart, Rt. Hn. Judith	Ogden, Eric	Wilson, Alexander (Hamilton)
Hattersley, Roy	O'Halloran, Michael	Wilson, William (Coventry, S.)
Healey, Rt. Hn. Denis	O'Malley, Brian	Woof, Robert
Heffer, Erie S.	Oram, Bert
Horam, John	Orbach, Maurice	TELLERS FOR THE NOES:
Houghton, Rt. Hn. Douglas	Orme, Stanley	Mr. Joseph Harper and
Howell Denis (Small Heath)	Oswald, Thomas	Mr. John Golding.
	Owen, Dr. David (Plymouth, Sutton)

Question accordingly agreed to.

Bill read a Second time.