FINANCE BILL

HC Deb 19 July 1972 vol 841 cc638-716

Order for Third Reading read.—[Queen's Consent, on behalf of the Crown, signified].

4.23 p.m.

The Chancellor of the Exchequer (Mr. Anthony Barber)

I beg to move, That the Bill be now read the Third time.

The Third Reading of the Finance Bill is by tradition, which is made more compelling by the rulings of the Chair, a narrow debate. However, it is in order to say a few words about the passage of the Bill so far. I am sure that the whole House will be with me when I express my gratitude to my Treasury colleagues, the Chief Secretary, the Financial Secretary and the Minister of State. They have borne the brunt of the detailed debates and carried out their tasks with great skill and patience. No two Parliamentary Private Secretaries ever made a greater contribution to the debates on the Finance Bill than our two, our hon. Friends the Members for Blackpool, South (Mr. Blaker) and the High Peak (Mr. Le Marchant).

I also pay tribute to the Opposition spokesmen. It is an immensely difficult task for those in Opposition to equip themselves with the expertise which is necessary to deal with the complex matters contained in a Bill such as this. In addition to that inherent problem of opposition, the right hon. Gentleman the Member for Leeds, East (Mr. Healey) was faced with an added difficulty because he was appointed the principal Opposition spokesman without any warning and at the most crucial time of the year for the consideration of economic and taxation matters.

Finally, I express my gratitude to back benchers on both sides who have contributed to the debates, but in particular to my hon. Friends, who have played a most constructive rôle in the programme of reform. Those who have for so long pressed for taxation reform have cause to be grateful to my hon. Friends for now making it possible.

No one could claim that the important taxation reforms embodied in the Bill have not been well discussed and debated. Both the proposals for value added tax and the reform of corporation tax were published in Green Paper form last year and have been subjected to extensive consultations and discussions. I am informed that the Bill has more Clauses and Schedules than any previous Finance Bill. To consider the policy and the detail, we have had four days of Budget debate, one day on the Second Reading, six days in Committee of the whole House, 20 sittings of the Standing Committee and three day son Report. So far our deliberations have occupied 3,638 columns of Hansard. I am told that if we keep the debate going for two more hours, as we shall, hon. Members will have spoken exactly double the number of words that there are in the Authorised Version of the Bible. I do not doubt that if our tax laws had to be written on tablets of stone we should perforce be far more concise.

When I was appointed Chancellor I knew that one of my tasks was to reform and modernise the tax system which had grown up in haphazard fashion over the past 50 or 100 years. Now, two years later, the bulk of the legislation has been virtually completed. The legislation for the unification of income tax and surtax was passed in last year's Finance Act. This year we have legislation for the reform of indirect taxation and company taxation, and important changes in estate duty. We have now completed all the main legislation of our radical tax reform programme. We have reached the culmination of a two-year process of preparation, consultation and legislation.

Some of the tax changes are already in operation, but the main structural changes, the unification of income tax and surtax, the replacement of purchase tax and selective employment tax by VAT and the reform of corporation tax, all come into operation next April. By completing that legislation in advance and enacting provisional rates for next year, we have met the plea, which has been so often made in the past, for advance notice of major changes in taxation.

When I became Chancellor, my task was not only to reform the taxation system but also to reduce the burden of taxation. That policy has been achieved. We have not waited for the new system before doing so. We have made reductions in taxation right away and right across the board. We have in the Bill and in last year's Finance Act reduced and reformed the taxes on earnings and spending. We have reduced and reformed the taxes on companies. We have taken action to promote investment and savings. The reductions have all been planned so as to pave the way for the long-term structural reforms. Corporation tax has been reduced twice, and from April, 1973, the tax system will be neutral as between retained and distributed profits. That will greatly diminish the present double taxation on distributions and help the capital market to play its proper part in the allocation of capital resources.

We have paid special attention to the problems of small companies. They will benefit from the lower rate of corporation tax. Perhaps more important, we have laid the spectre of shortfall and generally simplified close company legislation. We have also given direct encouragement to the investment and modernisation of industry by introducing the most generous ever system for depreciation for the whole country. Over and above free depreciation, we have introduced grants for the regions and given the biggest and clearest financial advantage for regional development that we have ever had. I have given the assurance that it is our intention that this combination of national and regional investment incentives will be left at least until 1978.

All this is a major step forward in company taxation. However, at the same time we are giving industry two things which it has rightly demanded, stability in depreciation allowances and advance notice of corporation tax changes, so that it can plan with confidence.

So much for companies and the means of production. However, when companies produce their goods it is right that the public should have as far as possible a free and undistorted choice. Although I recognise that it is controversial, our major reform has been the replacement of discriminatory purchase tax and SET by the new VAT. A great deal of time has been spent on VAT in Committee, which is right when a completely new tax is introduced. However, because of the increased tax based, VAT will give con- sumers a greater freedom of choice and reduce uncertainty for producers and traders and help exporters.

We have taken particular care to ensure that this change will not make the tax system more regressive. The rate of VAT is the lowest in Europe. Its coverage has been designed to ensure that it does not bear disproportionately on the poor.

Already, as part of the process of tax reform and tax reduction, indirect taxes have been reduced by more than £700 million. That is the measure of the contribution that we have already made to fighting the rise in the cost of living. The reductions in the upper rates of purchase tax in the Bill were in particular planned in a form which would ease the process of introducing VAT. Since the intention is to raise by VAT a broadly similar revenue to that which is raised at the present by purchase tax and SET, the effect on the overall level of prices will be minimal, particularly as the burden of SET is being removed from essentials such as food and housing. The House may be interested to know that if purchase tax and SET had continued at the rates in force when I became Chancellor VAT would have had to be imposed at a rate not of 10 per cent, but of 15 per cent.

But we are concerned not only with spending. A high level of personal savings is also essential if, in the long-term, we are to sustain a faster rate of growth, and therefore our tax reforms have also been designed to promote saving and to remove some of the previous discouragements. We have legislated this year to ensure that as from next April there will be no additional tax on investment income up to £2,000 a year. The first £2,000 of income from savings will be treated in the same way as income from earnings.

In addition, we have legislated for a new scale of estate duty, for a major easing of the estate duty burden on widows, and for a raising of the starting point which, taking the two years together, exempts half the estates which would otherwise have been liable, and all these exempted estates are at the bottom of the scale.

The changes which we made last year in capital gains tax, the abolition of the charge on death and the introduction of the small disposals exemption took one-quarter of all assessments out of that tax altogether. We have abolished the stamp duty on mortgages altogether, and we have abolished stamp duty on conveyances for the great majority of house purchasers.

Finally, I come to taxation on earnings, which is perhaps most important of all if we are to achieve over the years ahead a really dynamic economy. The new unified income tax system for which the legislation is now complete will be much simpler for the people of this country to understand and will have a far less discouraging effect on enterprise and initiative.

As from next April there will be only a single tax on earnings, and surtax with all its complications will be a thing of the past. With none of the complications of the earned income relief, the tax allowances will represent quite simply the amount of tax-free income, and the result of the massive increases in allowances made by this Government is that a married man with two young children does not reach the starting point of tax until his earnings exceed £1,115 a year. This is almost one-third more than when I became Chancellor of the Exchequer. So the encroachment of income tax on the lower income groups which took place so steadily under the previous Administration is reversed. Above the allowances—that is to say, above the starting point of tax in the new system—every taxpayer will know that 30 per cent, of his earnings—no more, no less—will be deducted for tax, and that will remain so right through until he becomes liable to the higher rates of tax which start at around £5,500.

This year the increase in personal allowances is by far the biggest item. The House will recall that it cost £1,200 million. Of this, £1,000 million goes to people whose earnings are under one-and-a-half times the national average. The reduction in SET and purchase tax to which I have referred helps everyone. The proposed coverage of VAT has been widely welcomed. Of the estate duty changes, two-thirds of the benefit goes to widows, charities and raising the threshold.

The Bill represents the completion of this particular programme of taxation reform, and this programme has in certain important respects been so arranged as to pave the way for the consideration which I hope will before long be given to the proposal for a tax-credit system involving a fundamentally new approach to the bringing together of the personal tax and social security systems. But that is for the future. For the present, I commend the Bill to the House.

4.35 p.m.

Mr. Denis Healey (Leeds, East)

This is, indeed, as the Chancellor said, the longest Finance Bill in history which we are debating on Third Reading this afternoon, and I confess that I feel this deeply, as no doubt do Members on the Front Bench opposite. I am grateful to the Chancellor for what he said about myself and about the teams on both Front Benches which dealt with the Bill in Committee.

I hope that no one will consider it invidious if I give special praise to my hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett), who did so much to lighten my own burdens in these circumstances, and to the hon. Member for Worthing (Mr. Higgins) who carried the heavy burden of justifying the unjustifiable in the long debates on VAT.

The Chancellor rightly concentrated on the tax changes which are the substance of the Bill, and I shall do so as well, but I shall spend more time than the right hon. Gentleman did on discussing some of the effects of these tax changes on the needs of the nation and on the new objectives which the Chancellor has set himself in dealing with the problem of inflation.

It almost baffles comprehension that the Chancellor should again have made a speech on the Finance Bill without referring for a moment to the major problems facing the country, those of employment and, even more important, inflation. I shall have a good deal to say about the impact of some of the changes in the Bill on what is confessed by everybody in the country to be our major national economic problems, a problem which, departmentally, the Chancellor has the main responsibility for solving.

For the ordinary people of Britain the main feature of the Bill is the relief of £1 a week to those who pay sufficient tax to qualify, but that relief has already been swallowed up for many in rising prices and loss of benefits, and it will disappear for all who should be benefiting from it by the end of this year, or the early months of next year, partly through the progress of inflation—unless drastic action is taken to stop it—and partly as a result of new burdens on the cost of living being imposed by deliberate Government policy later in the year through the Rent Act, the food policy and VAT, which we shall be discussing this afternoon.

Apart from this putative cut of £1 a week for ordinary people, nearly all the other proposals in the Bill, apart from those already reversed—like the removal of restraints on investment in the sterling area, or those under challenge by our prospective partners in the Common Market like the proposals for free depreciation—have been shown to be inadequate, irrelevant or highly damaging. I hope that the Chief Secretary will confirm that the Brussels Commission has already rejected the German claim that this free depreciation is contrary to the statutes of the Market, not only under Article 92, but also in general, because the right hon. Gentleman will be aware that one of the complaints leveled by the German Government relates to the fact that this free depreciation affects investment all over the country, and not only in the regions, and, therefore, the disclaimer which the Minister for Industrial Development referred to in dealing with this yesterday is not wholely relevant and does not cover the whole problem as the Germans have put it.

Mr. Barber

There is no conflict between the depreciation provisions in the Bill and our joining the EEC.

Mr. Healey

I understand that that is the Chancellor's view, but, as the matter has been raised by one prospective partner, I ask the Chancellor to confirm that that is the view of the Brussels Commission, because it is for the commission to decide whether or not it is, and if it decides that it is, nothing that the British Government may say or believe is relevant.

Mr. J. Bruce-Gardyne (South Angus)

If the right hon. Gentleman refers to yesterday's Hansard, he will see that my right hon. Friend the Minister for Industrial Development said: I further understand that the Commission has already told the German Government that the depreciation provisions in the Finance Bill are not regarded by it as regional measures."—[Official Report, 18th July, 1972; Vol. 841, c. 396.]

Mr. Healey

Yes, I know. I made that point a moment ago. I do not think that the hon. Member was listening carefully. While certainly the free depreciation is not contrary to the regional provisions of the treaty, I wanted an assurance that the Brussels Commission does not regard it as contrary to any of the provisions of the treaty. As I understand it, the Germans have been complaining that because the free depreciation applies to all capital investment all over the country, therefore it is distorting of competition. If I am wrong about that, I shall be only too happy to hear about it. But the disclaimer quoted by the Minister yesterday does not cover this point. It refers only to the question whether it is contrary to the regional policy of the Brussels powers.

Apart from the proposals which have already been reversed or challenged, nearly all the other proposals have been proved, since they were introduced in the Budget four months ago, to be inadequate, irrelevant or positively damaging to our economic interests.

The biggest single change, on which the Chancellor rightly spent some time a moment ago, is the replacement of purchase tax and SET by VAT, which has been presented again and again—we could almost chant the refrain every time the first word comes from the Financial Secretary—as a comprehensive tax to cover the broad range of consumer expenditure.

On Second Reading, when the Chancellor first introduced VAT in detail, he tried to persuade us that it was an elegant device, a taxman's dream, to relieve us painlessly of our money without the distortions or anomalies of the taxes it replaces. But the careful examination to which we have submitted the tax over the last few months confirms the view we expressed on Second Reading, that value added tax, as the Government have presented it, is a fatuous monstrosity, a fiesta for form-fillers and fiddlers, leaking at every joint with idiotic and damaging anomalies, appallingly expensive to administer, incapable of enforcement without violating the basic traditions of British justice, regressive in its social impact and inflationary in its economic effect.

I want to justify this claim point by point. First, let us consider the anomalies. I do not think that even the Financial Secretary will now claim that VAT is not absolutely crammed with the most absurd anomalies. These anomalies arise from the fact that in this area, as in so many areas, the Government have felt themselves compelled to temper their dogmatic attachment to 19th century market economics with a lively concern for the effect of their actions on political expediency in the latter half of the 20th century. Thus the tax is not comprehensive, as presented at present. About 45 per cent.—nearly half—of consumer expenditure is not affected by the tax—quite rightly so, in the opinion of this side of the House. Since the 45 per cent, zero rating was first announced by the Government, we have had an odd collection of further concessions by the Government. These have come partly under pressure from quite legitimate vested interests outside the House, partly as a result of threatened rebellions by Conservative back benchers—I am glad to see the hon. Member for Norwich, South (Dr. Stuttaford) in the Chamber, who spoke so eloquently about zero-rating children's shoes—and partly as a result of arguments advanced from the Opposition side of the House. Almost every concession made by the Government was one which was refused in Committee but, when finally put into an Opposition Amendment, the concession was made when we came to the Floor of the House last week.

For many of us, the quintessence of the anomalousness of this tax will be the common or garden fried potato. If we fry it at home it attracts no VAT. If someone fries it for us in a restaurant, it attracts a 10 per cent. VAT. If someone fries it for us in a fish and chip shop, it attracts no VAT if we eat it outside the shop but a 10 per cent. VAT if we eat it in the shop. To further this quintessence of idiocy, if this fried potato is cold and served in a sealed packet, it attracts a 10 per cent. VAT whether we eat it at home or in the shop where we buy it. We still have to wait for some Ministers to enlighten us on the question put by my hon. Friend the Member for Heywood and Royton on Second Reading, as to how many chips we have to eat between the counter and the door in order to be relieved of how much VAT in a fish and chip shop.

I want to quote a few other anomalies that have come to light. Butter is not taxed but the paper in which it is wrapped is taxed. A one-man tax does not charge VAT, but a firm running four taxis does charge. Taxi drivers are now deeply concerned whether they should display, together with their normal flag, a little poster saying "VAT Free" or "VAT Charged". Furniture fitted in a kitchen—so far as we can discover—is to be free from tax. Furniture in bedrooms is to attract a tax of 10 per cent.

One of the most interesting anomalies in the Bill is that if one chooses to spend 27 days in a hotel room one will pay a 10 per cent. VAT. If one spends 28 days in the hotel room one will be completely free from tax. If one is wise one will be able to have three days at a hotel by paying VAT for the first 25 days and then riding free for the last three until one qualifies for exemption.

Another anomaly which is certain to attract enormous evasion is that a man with a turnover of £5,000 does not charge the tax but cannot recover it from his inputs. If he is earning 10s. more in a year, then he has to charge the tax but he can recover it from his inputs. One of the things which disturbed us most in Committee is that abortionists, even in private practice, do not charge value added tax but an osteopath treating an old-age pensioner must charge value added tax. Rented television is free from double taxation; rented radio is not. Postal services are free from VAT; private telephones are not.

Indeed, it is easy to see why The Times has described value added tax as "the very anomalous tax". It is difficult to think of a tax in our history which has quite so many anomalies or as damaging anomalies as this one.

I come now to the socially regressive character of the tax. By zero-rating items of consumer expenditure which are essential, such as food and fuel, up to now the Government have very much reduced the regressive character of the tax as it exists on the Continent in countries with which we are expected to harmonise our rates and coverage when we join the Common Market. But it is very interesting to see precisely how, even within the restraints that the Government have so far accepted, the tax has turned out to be far more regressive than the Chancellor has ever admitted.

In 1970 the two higher rates of purchase tax, which were on less essential goods and luxuries such as furs and perfumes, raised £587 million more than the same volume of those same goods would raise under VAT.

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

Will the right hon. Gentleman tell the House how much of that comes from furs and how much from perfumes?

Mr. Healey

I cannot. Perhaps the Chief Secretary will enlighten us on that later. He will not deny the figure I gave, which I gave in our earlier debate; namely, that the two higher rates of purchase tax charged in 1970 accounted for 60 per cent, of the whole yield, which was £587 million more than the same volume of these inessential goods would raise under the value added tax. Therefore, it is clear that that £587 million must now be found by taxing more essential goods and services.

In our discussions in Standing Committee we found out what some of these more essential goods and services are to be—a whole range of safety equipment in industry, a whole range of goods for disabled people, a whole range of essential household goods; all of these will now carry a 10 per cent, value added tax. Every time that we sought to change the Government's intention, the Government rejected our Amendments.

At the moment the Government plan to raise £52 million by taxing children's clothes and shoes, which will impose a burden of £10 per year on the average young family. It is true that, in response to pressure from both sides of the House, the Government have set up a medical group to consider whether it is desirable to produce a utility shoe for children. If they do, that might reduce the £10 a family to £8 a family, but the reduction will be no more than that. Children's clothes and shoes have never before been taxed in British history until they will be taxed under VAT next April if the Government have their way.

Canteen meals will go up 10 per cent. Tea from machines in canteens will go up 25 per cent. The price of a wash in a launderette, unless launderettes find a way of adopting season tickets—a concept to which an hon. Gentleman opposite treated us in the excursion into the lives of ordinary men and women with which he enlivened our debate in the early hours of the morning—may well rise by 50 per cent. or 100 per cent., because coin-operated machines are not fitted to take coins which will add on simply 10 per cent. to the existing charges, and in many cases no such coin exists even if the machines did take it.

The Government propose to raise an extra £40 million from 8 million private users of telephones whom the Chief Secretary in Standing Committee admitted to be mainly poor people.

Mr. Patrick Jenkin

We have inserted a correction in the Official Report. It was of course mainly not poor people.

Mr. Healey

I am glad to hear that. I am sure that the Chief Secretary will agree that an enormous number of old people—many of whom are poor, incidentally—rely on the telephone as almost their only contact with their relatives and with the outside world. No correction in the Official Report will change that fact.

A whole range of charitable, educational and sporting activities are to be subjected to the value added tax. In his weekend speeches the Prime Minister makes a great deal of his desire to make the cultural heritage of our country, and, indeed, of world civilisation, as widely as possible available throughout the nation. Yet he is not satisfied merely with clapping an admission charge on entry to art galleries and museums. He is clapping the value added tax on top of that entry charge. He is clapping a 10 per cent. charge on admission charges to concerts. He is clapping a 10 per cent. charge on admission to the live theatre. He is clapping a 10 per cent. charge on admission to football and rugger matches —a "killer tax", as it has been described by the Football Association.

The Chancellor knows as well as all the rest of us know that the imposition of the value added tax as a back door re-introduction of entertainment tax on admission charges to football matches, rugger matches and the live theatre will mean the speedy disappearance of many of the smaller clubs and many of the smaller theatres which are operating very successfully, though on the margin.

The average church will have to find £200 a year extra for its repair and maintenance. Yet last week the Chancellor refused to give up the £1½ million involved only two days after he had given the bookies £2½ million in his relief of value added tax on on-course betting.

A crippling burden of £100,000 a year will fall on the Youth Hostels Association, one of the most useful organisations in promoting healthy recreation for young persons. Many charities like Oxfam and Help the Aged will suffer similarly. The Salvation Army will have to add 10 per cent. to the price of beds for the down and out as a result of the imposition of value added tax on charities.

What so many of us found it almost impossible to understand during our debates was that there was no rhyme or reason in this cruel discrimination against good causes. At one moment we were told that it was impossible and wrong to distort the application of this tax for social or medical reasons. The next moment we were told that the Government would consider doing so for children's shoes. At one moment we were told that it was absolutely impossible to relieve the churches of VAT on their repair and maintenance without extending the relief to any public house which wanted to repair and maintain its premises. Yet a day earlier the Government themselves had relieved rental television of double taxation without similarly relieving other hired goods.

In addition to these anomalies and the social regressiveness and sheer brutality of some aspects of the tax, the Government have not sought to disguise the fact that the administrative costs of the tax will be appalling. They have told us that they are prepared to spend £16 million on an extra 8,000 civil servants in the Customs and Excise to administer the tax. It required only 2,000 to administer the purchase tax.

In addition, 2 million members of the public will be concerned with the administration of the tax. Half a million will have to pay the tax but will not have to keep records; those are the exempted members of the public. Another ½ million will have to keep records but not pay the tax; those are the ones whose business is zero-rated. Altogether the 1½ million who have to keep invoices will have to record thousands of millions of separate transactions every year and keep the records of these transactions available for long periods for scrutiny by the Customs and Excise.

Yet the Government have so little confidence in the ability of 10,000 members of the Customs and Excise to monitor these invoices that they have given them unprecedented powers of search and entry, powers which have, if any precedent, precedent only in powers given in the 18th century and still surviving for the detection of smugglers. These powers are now to be applied to 1½ million of our fellow citizens.

Again, the Government have so little confidence in the ability of the Customs and Excise, even armed with these powers of search and entry, to provide evidence for prosecution that they have sought and got from hon. Members opposite the right of the courts to convict a man without knowing when or where the crime was committed or the precise amount of money involved. I am not at all surprised that when we debated this matter on the Floor of the House last week and one or two Members opposite looked at the Bill for the first time their shock and horror of reading the provisions of Clause 38 were as great as our own.

The reasons the Government have sought these draconian powers of enforcement is that they know that a tax falling on so many people who have never dealt with this type of tax before will be open to evasion on a colossal scale. When we quoted to the Government Front Bench the French estimate of a loss of £1,000 million a year through the evasion of value added tax we were told "We are not like Frenchmen here. We do not evade tax." But Britons have never been subjected to the temptation of evasion on this scale because great care was taken previously in this country to levy consumption tax at the wholesale end from 68,000 people instead of levying it at the consumption end from 2 million or 1½ million people.

Even after this immensely detailed scrutiny there are many vital issues on which no one, including the Government Front Bench, yet knows what the law will be. Mr. Reynolds, tax adviser to Esso Petroleum, at a conference held by the Financial Times was reported in The Times as saying: Many questions about VAT still remained unanswered. Those who had sorted out some of their worries were a highly privileged minority. He went on to say that if an industry like the oil industry, which was used to dealing with excise duties over nearly 50 years, had problems one could imagine that classification might loom as a significant problem for businesses not wholly experienced in it. The Government have been asked again and again to publish and put before the House, before asking it to approve the Bill the Statutory Instruments on which it will rely for operating the Bill when it is enacted. The Government have not done so because they are incapable of doing so. In many vital areas they do not have the slightest idea of how they will handle the problem. We had an admission of that in the case of building fixtures during the Committee stage. It is not surprising that one of my close friends who works for one of the leading British charities should have designed a new banner saying: Vat 69, the drink that is fine VAT '72, the witch's brew. Why on earth have the Government embroiled us all in this Heath Robinson contraption just to raise the same revenue as was being raised through purchase tax and SET without any of these difficulties? Purchase tax is so much simpler and fairer. To take only one example of great concern to the commercial world at present, purchase tax is not charged on bad debts. VAT will be charged on bad debts, and, not surprisingly, the business world is up in arms about it. There is only one conceivable explanation, unless the Government have taken leave of their senses, why they should seek to raise the same amount of money from VAT as they did from two simple and extremely efficient taxes. It is that their intention is to raise the rate and coverage of the tax and to harmonise with the Common Market as soon as they have the opportunity.

The Chancellor as much as admitted in his opening remarks this afternoon that the gap between our VAT proposals as they exist today and the average VAT rate and coverage on the Continent is very wide indeed. Broadly speaking, the Continental countries raise 15 per cent. of their revenue through VAT, which is 50 per cent. more than Her Majesty's Government will raise if they confine themselves to the rate and coverage in the Bill. But the Government have given themselves the right to do the same as is done by our partners in the Common Market with whom we have accepted an obligation in principle to harmonise our VAT, and to do so by order at the fag end of a busy day.

We spent a great deal of time trying to probe the Government's intentions on the application of VAT to food. On Second Reading and in Committee the Chancellor rejected every opportunity to deny that he would extend the tax to cover food. The furthest he has ever gone was last Wednesday when he was prepared to say: What I can and will do is willingly give an undertaking that there is no question of the powers contained in cl ause 12(4)"— that is extension by statutory order— being used by this Government to impose a positive rate of tax generally on food. Putting it another way this power will not be used to delete group 1 of Schedule 4".—[OFFICIAL REPORT, 11th July, 1972; Vol. 840, c. 1471.] When my hon. Friend the Member for Birmingham, All Saints (Mr. Brian Walden) asked the Chancellor if he would also say that he would not seek to include food in the coverage of VAT by a separate Bill or by a different procedure he refused to answer. I hope very much that we shall get a clear answer to the question from the Chief Secretary when he winds up this evening.

I turn to the missing theme in the Chancellor's speeches on the Finance Bill—inflation. We all recognise that this is overwhelmingly our great national problem, and the VAT, even in its present form, will make the problem substantially worse. According to the National Institute of Economic and Social Research—and when I quoted its estimate the Government did not seek to deny it—VAT in its present form will add at least 1 per cent. next year to the cost of living overall. As I have sought to demonstrate, the increase will fall very much more heavily on the poor than on the rich. The rich will find that their cost of living will go down with the abolition of the high rates of purchase tax and their replacement by the 10 per cent. rate of VAT. That is without taking into account the "ratchet" effect with which we became so familiar after decimalisation last year. I would be prepared to wager that the increase in the cost of living attributable to VAT by the end of next year will be well over 1 per cent., although it is impossible to put a more precise figure upon it.

All this will happen in a year when we shall probably find a 2 per cent. increase in the cost of living as a result of the expected devaluation of the £ of 8 per cent.—that is if we peg at 2.40 dollars—and between a 1 and 2 per cent. increase in the cost of living due to the first year's impact of the common agricultural policy. With VAT added to these other symbols of Government policy and failure we can look forward next year, whatever happens on the inflation front in other respects, to an additional increase in the cost of living of 4 per cent. or 5 per cent. That is without taking into account all the other things the Government are doing, for example in the rents Bill, and what they are not doing to deal with the problem of inflation in general.

As I said earlier, what shocked me again when I listened to the Chancellor this afternoon was that in referring to the Finance Bill and its social and economic objectives he never once mentioned our central national problem of inflation. Similarly, in listing all the objectives of the Finance Bill on Second Reading the words "inflation" and "price rises" never passed his lips. I referred to his attitude in the debate on the floating of the £ as one of "stupefying complacency". It is no less stupefying today because he was compelled to float the £ by his failure to control inflation and the act of floating in itself will make inflation worse.

I pass to the question of the impact of the tax reforms or changes in the Bill on the central problem facing us all, the problem which it is the responsibility of the Chancellor personally to do something about. After deliberately provoking confrontations with the working people for two years—and no one has been more provocative than the Chancellor in his weekend speeches during some of our recent industrial disputes—the Government very wisely are trying at last to start a dialogue with the trade unions, as the representatives of our working population, on the problem of inflation. One of their major objectives, as the Chancellor admitted in his Press statement after the meeting yesterday, is to try to get the co-operation of the trade unions in some sort of incomes policy, an incomes policy of a voluntary nature, because, as he rightly admitted yesterday, a compulsory policy cannot last for long. That is the lesson of the past. Constructive co-operation between working people, their employers and the Government is vital if we are to get inflation under control. It would be fatal to peg the £ until we get inflation under control. But the first condition of obtaining this type of co-operation—I suspect that the Chancellor was told this in no uncertain terms by the trade union representatives at the meeting he attended yesterday—is the Government's dropping policies deliberately designed to drive up the cost of living.

It is perhaps not in order to do more than mention the Housing Finance Bill and the Government's food policy, in addition to the value added tax, which is very relevant to our debate today. But there is a second condition for fruitful co-operation between the Government, employers and working people. The Government are right to identify two major objectives of incomes policy. The first is that there should be some compression of differentials; that is, the difference in reward for differences in skill, difficulty or danger of work. The second is that increases in incomes should be related to, and dependent on, increases in production. The Government are absolutely right to set those two objectives or criteria in their discussions with the TUC and the employers for any sort of voluntary incomes policy. But the whole of the Chancellor's tax policy since he took office nearly two years ago has been calculated to twist the trend in the opposite direction. He has deliberately sought—he boasted of it again this afternoon—to widen differentials between rich and poor. He has deliberately sought to help those who do not work for their living, who depend on unearned income. Among those who do work, he has tolerated absolutely inexcusable increases of income for those who speculate and profiteer. For example, there is the increase of £100 million—50 per cent.—in the income of stockbrokers last year, at a time when production was falling and unemployment rising. The Government must try to understand that these issues, which they refuse to refer to when they enter into negotiations for discussions with the trade unions, are regarded by ordinary people as absolutely critical, acid tests of the Government's good faith in the matter.

An incomes policy cannot be based on one law for the rich and another for the poor. The compression of differentials cannot be applied only to people who happen to be members of trade unions working for incomes between about £15 a week and £50 a week, forcing them to compress their differentials while launching the wealthy to dizzy heights of income by tax reliefs, profiteering and speculative gains.

The House will be aware, though I regret to say that the public is not, because so far as I could discover our debate late last Thursday night received no mention in the Press or on the radio, that the Opposition voted last Thursday against an increase in top salaries in the case of the judges, the only group whom it is permitted to discuss under the law as it stands. On the very day the Government decided to float the £, and thus give another twist to the inflationary spiral, they gave rises of up to 20 per cent, to the top men in public service, men who are earning between four and 14 times the national average already. What is not realised so fully is that those men had already been given by the Chancellor an increase of £1,080 in take-home pay—I am taking a £15,000-a-year man as typical—by cuts in tax and surtax, and that that increase is being raised in the Bill to £1,504 by next April, equal to the whole earnings of the average man and woman in this country.

Outside the public sector we see much higher increases in pay for top people and much higher increases in tax relief. The Chancellor boasted when we discussed the Budget—I noted that he did not quote the figure today, and I understand why—that he was giving away this year £300 million, which will go almost exclusively to people earning over £5,000 a year, or living on unearned income. A director or manager of a firm who has a total income of £22,100 a year—there are many such—of which £2,100 is investment income is £2,000 a year better off as a result of the Budget. A married couple with a £15,000-a-year income which is all unearned will receive a present from the Budget of £1,430, almost the average earnings of the average man or woman. No production increase, no productivity increase, is tied to that increase. At the other end of the scale, a young family with two children under 11 on the average earnings receive a net increase in income through the tax changes we are discussing of only 0.02 per cent., a few shillings in the whole year. Yet the Chancellor lectures the trade unions on compressing differentials, and the Foreign Secretary, living on estates won entirely by the greed and rapacity of his ancestors, has the gall to lecture the agricultural workers on greed when they are asking for an increase above £16 a week for a 42-hour working week.

Mr. Cecil Parkinson (Enfield, West)

Did the right hon. Gentleman turn down the recommendations of Lord Boyle on his own income? Did he take into account how many times above the national average his earnings were then? Does he not feel a bit embarrassed, talking like this about the judges, when he accepted the increase for himself without being tempted to vote against it?

Mr. Healey

The increase of salaries for Members of Parliament, which was voted unanimously, so far as I recall, was the first increase for seven years. It did not follow 12 months after the last increase, as in the case of judges' pay. The salary of Members of Parliament before the increase was only twice the national average, and not 11 times, as in the case with the judges' salaries. The increase was less than was required to cover the increase in the cost of living since the previous rise seven years ago. Most important, the increase offered to Members of Parliament followed the most comprehensive essay in job evaluation ever applied to any salary in this country. The increase offered to the top salary earners in public service the other day was offered, as Lord Boyle frankly admitted in his report, without having the slightest idea whether it was justified by the nature of their job. That is my reply to the hon. Gentleman.

Mr. Peter Hordern (Horsham)

Earlier in his remarks the right hon. Gentleman referred to the increases in judges' pay as being of the order of 20 per cent. Will he now say what the annual increase in the rate of judges' pay was since the last increase? I would ask the right hon. Gentleman not to attempt to mislead the House by referring to the increase what the judges had the year before since he knows very well that that was part of the delayed increase from the original settlement made some years ago. Will he answer the simple question: what was the annual increase in judges' salaries.

Mr. Healey

I confess that I cannot answer that question. Perhaps the Minister can later. What I will say is that when a similar recommendation was made to the last Government in 1969, when inflation was far less of a problem than it is today, the Government of the day decided, in my view quite rightly, to phase the increase over three years. There was no reason why this Government could not have done that a fortnight ago. But they chose not to do so, although a Conservative Government in 1962 did decide to phase a pay increase offered to Servicemen over two years. Secondly, it was perfectly open to the Government to change the recommendations, as a Labour Government changed the recommendations regarding ministerial salaries and cut the increase by half, and as they did, too, with doctors. The Government are so insensitive, and that is my main concern—

Mr. Bruce-Gardyne

On a point of order, Mr. Deputy Speaker. I wonder whether you could advise the House in these matters. It was my understanding that on the Third Reading of the Finance Bill it was in order only to discuss those matters in the Bill as it had been returned to us from the Committee. I find it a little hard to follow the precise connection between the present line of the right hon. Gentleman's speech and the Bill.

Mr. Deputy Speaker (Mr. E. L. Mallalieu)

I am sure that the right hon. Gentleman realises that he was perhaps stretching the "passing reference" rule a little too far.

Mr. Healey

I am grateful for your advice, Mr. Deputy Speaker. Perhaps my anxiety to answer the questions put by the hon. Members opposite, which you allowed to be put to me, led me some distance from the Bill. I would remind the hon. Member for South Angus (Mr. Bruce-Gardyne) that the central point I was making is that the tax and surtax changes in the Finance Bill increase the take-home pay of top salary earners by 20 per cent., tax free, by next April. It is a tax-free increase of £1,504 a year. If the hon. Member is embarrassed by the recital of these facts I can well understand it but they are deeply relevant to the problems facing the Government and the nation.

So far I have discussed only the income and surtax relief offered to the wealthy in this Budget. Let us look at some of the other concessions—£30 million-worth of relief on capital gains for unit trusts, £7 million worth of relief on loan interest—carefully calculated to eliminate the interest on loans taken out by ordinary people for hire purchase purposes because the first £35 of loan interest is not included—£115 million-worth of free depreciation, which I sincerely hope helps to achieve the Chancellor's objectives and £45 million in relief for small companies. Yet the same Chancellor who has offered these staggering additional give-a ways to the wealthy refused, only last week, to offer £2 million in tax relief to the blind. He imposed surtax on the very poor by an enormous extension in the spread of means-tested benefit.

The Government's philosophy is shown at its nadir, if that is the right word, by the proposals for stock options contained in the Bill. These stock options are not tied to profits, they are related in no way whatever to production or productivity. They can only increase differentials rather than compress them because they are open to 87 per cent. of the directors of companies and only to ¼ per cent. of the employees of companies. As my hon. Friend the Member for Dudley (Dr. Gilbert) pointed out in Committee, the scheme which the Hoover Company has already put to the Chancellor makes 11,300 employees work to increase the value of shares given to 170 of the very wealthy executives in Hoover, who get a preferential tax rate on capital gains brought about as a result of the efforts of the workers. Last year alone if the stock option proposals had been operable, ten executives of major companies in Britain could have had £2 million of share options between them. Their potential profits from capital gains as the years pass will be greater still.

I put this point to the Chancellor, and if he will not take it from me perhaps he will take it from Mr. Campbell Adamson and Mr. Victor Feather who put the same point to him, I gather. In 1972 the people of this country are better educated, more alert and more aware than ever before in history. Millions of the people in this country feel totally alienated from the whole system of government as it has operated over the last two years. If the Prime Minister asks those millions to co-operate in the restraint of income increases they will immediately come back with the facts which I have mentioned. I hope hon. Members read the recent moving and eloquent articles in the Financial Times and The Times by their social correspondents, referring to this sense of alienation from the whole process of Government which now assails such a large proportion of our population.

There is no possibility, and the Chancellor must know this, of controlling inflation without the co-operation of these millions and there is no chance of getting this co-operation without a radical reversal of the social and economic policies enshrined in the Bill. That is why we shall vote against the Third Reading tonight and that is why we hope, without great confidence, that at least some hon. Members opposite who are sincerely concerned with this problem will recognise the importance of restoring unity in our divided nation and will start by joining us in the Lobby tonight.

5.27 p.m.

Dr. Tom Stuttaford (Norwich, South)

I am grateful to be called so early and to be able to follow the right hon. Member for Leeds, East (Mr. Healey). I can guarantee that my speech, although it may have some similarity to his as regards VAT, will be very different as regards time. I know that there are a great many hon. Members on both sides of the House who want to speak.

It is right that someone on this side should get up and say clearly that there are many Conservatives in the country and in the House who do not care for VAT. This number will increase when its true import is realised throughout the country. I know from my visits to my constituency that each time I return there is yet another group which is dissatisfied with our proposals on VAT, and it is becoming more and more difficult to explain just why we should have it.

Such people turn to the party manifesto and quite rightly point out that, although we gave a hint that we might be introducing VAT, we never gave the absolute assurance that we would. We gave some assurances. We said that we would simplify the tax system, and that was a straightforward statement. No one today really believes that the introduction of VAT will simplify the tax system. We feel that it will increase the number of civil servants needed to collect it. That in itself is a pretty unpopular message to have to give to one's constituents.

Secondly, we learned that we were to reduce taxation. We are reducing taxation, and we are grateful that taxation has been reduced, but we wonder just for whom the taxation will be reduced. Further down the same page of the manifesto we see it stated that the VAT will be fairer because the tax will be less discriminatory because it will be more broadly based, and it will be fairer in its impact on different types of industry and service. There is no real mention in our manifesto about how it will be fairer to the ordinary persons who voted us into power, and, in fact, it is not going to be fairer to ordinary persons. It is going to be discriminatory, however much we care to deny it. It is going to favour the rich—that is the truth of the matter—because we have not made enough exemptions.

We on this side of the House have always prided ourselves on being a party which believes in being fair to individuals. It is those people opposite us, we have said, who are the people who believe in across-the-board State control; they are the people who are dogmatic; they are the people who do not understand individual variations according to indivi- dual needs. Now we have a tax which does not take fully into consideration the individual needs of different groups of people. VAT will be inflationary, and this inflation will bear worst on those in the lowest income groups.

Like the right hon. Member for Leeds, East, we are very concerned indeed that there has been no categorical denial that it will be imposed on food. Like him, too, we are concerned that there has been no guarantee by the Conservative Party that the Government do not intend to placate Europe by imposing VAT on food—not necessarily this Government but any Government to come in future. We want today an assurance that we shall see that in our next election manifesto, and not in the vague terms in which VAT was mentioned in our manifesto last time; we want a categorical statement that VAT will not be introduced on food.

It is already a nonsense that we are introducing it on some foods, the ones which at present are covered by purchase tax. It seems the utmost conceit that we should decide for people what they should eat and what they should not eat and what is good for them and what is bad for them, and what is desirable or undesirable for them. We should leave that amount of self-determination to the people and not decide for them by our fiscal policies. It has always been the policy of the Conservative Party not to control people in that way, not to influence them not to eat chocolate biscuits because we shall charge them more if they do. We claim not to favour across-the-board, insensitive measures, but, as regards food, we certainly have not lived up to our claim.

Nor should we treat food as the only essential requirement of life. There are other essential requirements—clothes, furniture, household goods, all of which will bear this tax, which will fall more heavily on people on the lower incomes, if they are not exempted.

I come to one other odd anomaly, and now I refer to historic churches and other buildings. Many of us on this side of the House feel that we were badly treated because last week, as those of the Treasury Bench will know, their proposal would not have gone through had we not been given an assurance that the following day there would be a large grant made to historic churches. That statement was made to us sitting here in a determined group, who stayed sitting here for two or three minutes when the Division bells rang, and then we heard that this great grant would be coming the following day. There were enough of us to take away the Government's majority.

What actually came the following day? A short statement, a paragraph in Hansard, upon a Private Member's Bill in Committee, and this is what it said: Any decision on the provision of funds for grants for the repair of ecclesiastical buildings will have to be taken in the light of all the factors involved, including the ecclesiastical exemption from listed building control and the related question of churches that may be declared redundant under the terms of the Pastoral Measure, 1968."—[OFFICIAL REPORT, Standing Committee C, 12th July, 1972; c. 33.] That was the great grant which gave the Government their majority that previous night on this other measure.

Mr. William Hamling (Woolwich, West)

The hon. Member should have known better.

Dr. Stuttaford

We took the assurance for what it was, but I think we need an explanation today just why we have not had any grant but that one great statement, because it is important, if we are to have any honesty in politics, that honesty should spread right from the top and all the way down. We should like some careful thought given to that matter in the winding up speech tonight. There is no doubt whatsoever that that other night there were enough of us here to have taken away the Government's majority in the Lobby.

Then, next, there is the question of charities. We learnt that charities would benefit, but many of the older ones will not benefit. Some charities may benefit because of the changes in estate duty and in other taxes in one form and another, but it is the popular charities which will benefit, and there are some charities which are extremely concerned about the effect of this tax. They do not care for it. Ours has always been a party which has said it likes to encourage charities and private enterprise, private enterprise and do it yourself, relying on people to help themselves, rather than being con- trolled by the State. We should have given more relief for charities than we have done. This, again, is an example of how we have turned against the basic traditions of the Conservative Party, traditions which have meant so much to the Conservative Party associations over the last forty to fifty years, when we were one nation, and when one nation was the aim and not a polling slogan. We have, too, got to think of one other group, and that is the retailers. There can be no doubt that many of them will have to pay double taxation, from being caught in purchase tax and being caught in value added tax. We have been told that adjustments will be made, that we are to have a pause, but there is a feeling already that the pause is inadequate; a feeling that the consideration which has gone into this is still not enough. That is another matter on which we must have answer tonight.

We must be told very clearly tonight what is to be done to help charities further. A possibility here would be greater tax relief for firms prepared to make grants to charities. At the moment they can only do that to any great extent if what they do is associated with advertising. There should be taxation relief in some way for firms which are today the patrons of art and the patrons of charity as the landed gentry and nobility were in the eighteenth century, and they should receive some tax benefit for acting as such. Charities must receive greater aid. We want to know just how it was that we did not get that greater grant which we were promised for historic ecclesciastical buildings. We want to know what is to be done to reduce the inflationary effect of VAT, because it will be inflationary, just as decimalisation was inflationary, and, like that, will bear hardest on the lower income groups. We want to know what can be done to honour our election pledge that we would make the taxation system simpler. At the moment, we feel, it will be complicated, and will cost more, and mean more civil servants and more money to pay them in collecting the tax. It will be extraordinarily unpopular, and that unpopularity will be with us for many years to come.

5.42 p.m.

Mr. William Hamling (Woolwich, West)

I should like to congratulate the hon. Gentleman the Member for Norwich, South (Dr. Stuttaford) on the radicalism of his speech, bearing in mind, especially, what the Chancellor said when he commended the Bill to the House as an essay in radical taxation reform. Certainly the hon. Gentleman the Member for Norwich, South has a rather different view of what radical tax reform means.

We on this side have described the tax to which the hon. Gentleman was objecting as a monstrous tax, an iniquitous tax. It seems an abuse of terminology to talk of some tax changes in this Bill as reform. Change it may be, but it is certainly not reform. One normally associates the word "reform" with some kind of improvement, some kind of amelioration, for the mass of the population. These tax changes which have come in this Bill will not bring amelioration to the vast majority of the people of this country. There will certainly be changes to the benefit of a few people and, generally, those people who least need this kind of benefit.

One question to which we must address ourselves in looking at the changes in taxation this year, bearing in mind the changes which the Government have already introduced in previous Finance Acts, is the balance between direct and indirect taxation. The balance towards indirect taxation has taken a lurch in the wrong direction in the incidence of particular indirect taxes on particular sections of the community.

The Chancellor of the Exchequer commended some of these tax changes as being changes right across the board—rather reminiscent of the Financial Secretary's comments on VAT. But a change right across the board does not necessarily mean equity. It may mean the oposite of equity—injustice. It is true that VAT is a tax across the board, but that does not mean social justice. The marginal effect on taxation of this sort on the lower paid and the moderately paid is a tremendous attack on their living standards in comparison with the incidence of that tax on the wealthy. The hon. Member for Norwich, South was certainly aware of that.

The public has been denied information about VAT. Discussions on the effects of the tax changes have not been sufficiently widespread in the last few months either in the Press or in the broadcasting media to give any useful facts or information to the public on what is taking place.

The right hon. Gentleman said that corporation tax had been reduced twice. We know from discussions in Committee upstairs and on the Floor of the House that the main purpose of the tax changes is to provide investment incentives to business people. No one will pretend that for companies and wealthy individuals these tax changes will mean that the total amount involved will be devoted to investment. How much will seep back into personal consumption by the wealthy? No one can tell. At a time when the Government claim that the less well-off people should exercise restraint, this comes as a strange device.

The right hon. Gentleman, in commenting on the changes in the allowances, said that the tax threshold for a married man with two children is now £1,115. But we have to bear in mind the effect of inflation, largely Government-induced, upon incomes. To receive the same real income as he did, say, three years ago—in the last financial year for which my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) was responsible—a man on £1,200 in that financial year today needs 23 per cent, more pay. The tax threshold might have been raised in one sense, but inflation reduces the tax threshold, and this is a feature of the Finance Bill to which we on this side of the House have drawn attention more than once.

The tax concessions to the wealthy in the Bill come hot on the heels of even greater tax concessions to the wealthy in previous years. I think particularly of aggregation, which some of us regard as a method of tax avoidance. Inasmuch as concessions are made to certain groups of wealthy taxpayers, the deficiency in the tax revenue must be made up by reducing Government expenditure, by relying more on borrowing and therefore paying interest to the very people who are already being given the tax concessions, or by increasing the burden of tax on other people. I suggest that all three devices are being used.

When the right hon. Gentleman claims that taxation is being reduced, I say—whose taxation? Is it across the board, to coin a phrase, or predominantly for certain people? I argue, as I have argued in the last three years, that the Govern- ment may claim to be reducing taxation but the major reductions are enjoyed by a few wealthy or moderately wealthy people, whereas for the great mass of the population the tax reductions are swallowed up by increased prices, increased charges and by inflation which the Government have allowed to gallop forward in the last two years.

We also have to consider taxation outside the Budget, and this the Government never seem to notice. We have to consider the increased burden of local rates, which is partly the product of the Government's policy. Who knows what the future will hold when the Government produce their plans for local government taxation That is a regressive tax, one which bears just as heavily on the lower paid as does VAT to which the hon. Member for Norwich, South has taken so much exception.

We also have to consider the effect of the devaluation—which is precisely the result of the Government's policy—on prices and on the cost of living. I regard devaluation as an indirect tax which bears particularly heavy on the moderately paid and the lower paid, having regard to its effect on import and export prices and on the cost of food. This is all part of the Government's taxation policy which is concealed by the form of the Finance Bill. Outside the Bill there are changes in customs duties and there is the common agricultural policy. These represent increases in taxation for which the Government are responsible and which bear on the ordinary person.

I come now to VAT. At the last General Election we campaigned universally against VAT. There were no disputes inside the Labour Party at the last election about the disastrous effect of VAT on the lower paid and the moderately paid. I think of the speeches made by my right hon. Friend the Member for Stechford. Every one knows that the purpose of this tax change was not to simplify taxes. VAT is not a simple tax, and the Chancellor of the Exchequer cannot argue that it is a reform brought about merely to simplify our tax system. It is part of the price the Government are paying for entry into the Common Market. It is all the more surprising that so many people are prepared to take our entry into Europe so lightly and without debate.

The Chancellor of the Exchequer said that our membership of the Community will give consumers greater freedom of choice. I suppose that for the ordinary person—for example, a working-class mother who has to decide whether to spend her money on a pair of shoes for her children or on a fur coat for herself—the freedom of choice is extended to the extent that the rate of tax will be the same. Such an argument is ludicrous because it takes no account of consumer habits and patterns.

Purchase tax was never applied in the same way as value added tax will be applied. It cannot be said that changing from purchase tax to VAT will give greater freedom of choice to poorer sections of the community. On the contrary, it limits their freedom by increasing their cost of living, and this bears particularly hard on the lower paid. I am certain that the Budget will enhance the freedom of the rich. But this is not why we are sent to the House. We are sent here to provide greater freedom and justice for the majority of people in our society.

The right hon. Gentleman said that, since the revenue to be derived from VAT compares broadly with that flowing from purchase tax and selective employment tax, the effect on the cost of living will be minimal. I do not know anybody outside the House—and this certainly applies to those in business—who is as confident as that. Only an idiot would suppose that changes in SET will reduce the cost of services covered by SET. We know that tax reductions announced at the time of the Budget have already been swallowed by inflation. The consumer has not benefited from those changes. The Bill also ignores the distribution of the burden of VAT. I regard this Measure as grossly inequitable, and this applies to the whole of the Government's taxation policy. I very much support what was said by my right hon. Friend the Member for Leeds, East (Mr. Healey) on this subject.

I turn to a different topic, and that is the subject of revenue. Consideration of revenue matters has not been as widespread in our discussions of the Finance Bill this year as perhaps in previous years, and this is a pity. We have spent a great deal of time in discussing taxation of companies, corporation tax and VAT, but so far little time has been devoted to revenue. A great many of our Amendments on this topic were not selected and, therefore, have not been discussed. Some of the Amendments which we were allowed to move and speak to produced a negative response from the Treasury Bench.

I have particularly in mind the subject of the taxation of the incomes of women. Although technically it cannot be said to have any direct relevance to some of the questions we have raised, indirectly in regard to some of the discussions we have had on this Bill these are important questions to which I hope the Chief Secretary will refer in his reply.

We must consider the subject of discrimination against women in our tax system. I am not only thinking about the situation of single women, or of the separate assessments which are made, but I am thinking particularly of the single-person heads of families. I am thinking of widows, abandoned wives and divorced wives, single women with dependent relatives and single unmarried women with children—single women who have babies and decide to keep them and bring them up. This is a large category of people in our society and they constitute by far the vast majority of single-person heads of families in this country.

Our taxation system does not take sufficient account of family considerations which affect these women. Our system still treats them as single people when, of course, they have wider responsibilities. They are the heads of families and they have domestic responsibilities which the single person living on his own does not have. Therefore, I hope that the Treasury in the next year will consider some of these revenue considerations, because I have no doubt that we shall return to this subject in next year's Finance Bill.

I should like to echo what was said by my right hon. Friend about incomes policy. This is a matter to which we devoted a great deal of attention upstairs in Committee, and there is no doubt that we have been speaking in terms of incentives for only a majority of society. The vast majority are not considered by the Government to have the same right to be given incentives. But if the Government want a rational incomes policy they must come off their high horse a little. They must consider the implications of a rational prices and incomes policy. I referred to this matter in my speech in the Budget debate and, indeed, in every speech I have made on finance in the last eight years. At a time when tax changes will be coming into effect and when we are asking the ordinary working man to do so much, the Government should seek to put their own house in order and get their priorities right. Then they can perhaps claim to appeal to the patriotism of the ordinary citizen.

6.0 p.m.

Mr. David Knox (Leek)

I am sorry that the right hon. Member for Leeds, East (Mr. Healey) is not present, because I wished to remind him that it is a calendar month to the day since he made his notorious devaluation speech upstairs in Committee. Fortunately, his speech this afternoon was rather more responsible than his speech on that occasion, although some of his figures leave something to be desired in terms of accuracy.

At one stage the right hon. Gentleman, if I understood him aright, said that as a result of our entry into the Common Market there would in the next 12 months be an increase in prices of 2½ per cent. In fact, the right hon. Gentleman has it wrong. There will be an increase in food prices of 2½ per cent. but in terms of the general level of prices this means an increase of rather less than 1 per cent.

I do not mean to be unkind to the right hon. Member for Leeds, East but his speech lasted 53 minutes. This is not the first lengthy speech that he has made since becoming the Opposition's economic spokesman. I commend to him the example of my right hon. Friend the Chancellor of the Exchequer, whose speech today lasted 14 minutes—a quarter of the time that the right hon. Gentleman took. The brevity and conciseness of my right hon. Friend's speech should serve as an example to us all.

I make only one brief comment on the speech of the hon. Member for Woolwich, West (Mr. Hamling). At one stage he said that there had been a change in the wrong direction in terms of the balance between direct and indirect taxation in the last two years. In fact, since this Government came to power the proportion of the revenue taken in direct taxation has increased and the proportion taken in indirect taxation has decreased. Judging from the rest of the hon. Gentleman's argument I should have thought that this was what he desired. It is only right to get the facts straight on this issue.

I am grateful for this opportunity to intervene briefly in the final stage of this year's Finance Bill. It seems a very long time since my right hon. Friend the Chancellor of the Exchequer introduced his Budget on 21st March. Now we have almost reached the end of the road.

The Committee upstairs was a model one. First and probably most important, we did not sit on a single occasion all night. We finished at a sensible and civilised hour each night.

Mr. Hamling

No thanks to the Government.

Mr. Knox

Secondly, the Opposition were responsible and constructive throughout most of the Committee's proceedings without compromising their principles or hiding their strong objections to certain aspects of the Bill. Thirdly, Treasury Ministers were reasonable and flexible throughout the Committee's proceedings, and every hon. Member who served on the Committee was grateful for their attitude in this respect.

There are two main aspects to any Finance Bill. The first is the implementation of the Chancellor's Budget judgment. The second is the reform of the taxation system. Sometimes the reform of taxation is of little significance, though this year, as last year, major reforms have been implemented.

I am sure that the whole House will agree that my right hon. Friend the Chancellor is to be congratulated on the scale of his tax reforms, even if such unanimity cannot be achieved on the nature and the details of the reforms. In terms of the scale of the reforms my right hon. Friend has achieved a remarkable degree of success in the two years that he has been in office.

Though the scale of the reforms is impressive and though in the long term the nature and the details of the reforms can contribute to our economic strength. I have no doubt that the most important aspect of any Finance Bill is the implementation of the Budget judgment. I cannot say—no sensible person can say with absolute certainty—that my right hon. Friend has got it right this year. If I were to venture a view it would be that if anything my right hon. Friend had been cautious in his Budget judgment. But I welcome the general direction to which his Budget judgment and this Finance Bill point.

The overall effect of the Bill is to cut taxes very substantially. This will have the effect of reducing the level of unemployment, of reducing the level of under-employment of both labour and capital in the economy, of operating the economy at a much higher level of activity and of promoting much faster economic growth.

Inevitably there is a time-lag between the introduction of these measures and their being fully effective. Nevertheless I am sure that the policy which my right hon. Friend has embarked upon in this Finance Bill is correct because I have no doubt that the lack of growth in the British economy is far and away the most serious defect that we have suffered since the end of the war. I am equally certain that economic growth should be the first priority of economic policy. The fact is that the British people expect this. They demand it. They will always get rid of politicians who fail to deliver the goods. If right hon. and hon. Gentlement opposite really want to know why they lost the last General Election, I can tell them that it was because they failed in this respect. It seems certain that this Government, too, will be dispensed with by the electorate at the next General Election if we fail to produce economic growth. The electorate is right in this respect. It seems to me that growth should be the principal aim of any economic policy.

Mr. George Cunningham (Islington, South-West)

How do we get it?

Mr. Knox

By pursuing policies of the sort that we have adopted and by expanding the economy. We appear to have embarked upon such a policy now.

To those of my right hon. and hon. Friends who are concerned about the effect of the growth policy on inflation I say that we have tried Professor Paish's theories. We have tried to reduce inflation by having a higher level of employment. The theory was that there would be no cost inflation if this were done. It has not worked. Anyone who doubts that has only to cast his mind back to the coal miners' strike. Does anyone suppose that the fact that there were a million people out of work at that time in any way reduced the cost inflation—

Mr. Speaker

Order. I apologise for interrupting the hon. Gentleman. But debate on the Third Reading is much narrower than this. The hon. Gentleman is going into broad economic problems and policies. His remarks should be confined to the Bill itself.

Mr. Knox

I apologise, Mr. Speaker. I was dealing with the part of the Bill which concerned my right hon. Friend's Budget judgment. However, I was about to leave it, anyway.

I turn to the value added tax. This is a part of the Finance Bill which I welcome warmly. I do so not just because I am a strong supporter of British entry to the European Economic Community. I do it also because I believe that as far as any tax can be a good one the VAT is such a tax. Apart from anything else, it is a great improvement on the taxes that it replaces. Both purchase tax and selective employment tax were bad taxes by any standards. We have heard arguments from right hon. and hon. Gentlemen opposite today, just as we heard arguments put forward in Committee, against the VAT. But almost every argument applied with even greater force to the taxes which the VAT replaces. For many reasons purchase tax and the SET were very bad taxes.

The first main advantage of the VAT is that, because it involves the replacement of two taxes, the overall effect is bound to be a simplification of the tax structure. There will be difficulties in the first year or two. It is too easy to say that because it is new it is a difficult and complicated tax. Nevertheless the overall result is bound to be a simplification in the tax structure.

Secondly, the VAT has a wider coverage than purchase tax did. What is more, the VAT has only one positive rate. In my view this will help remove anomalies in the tax structure and make the system fairer. It will not remove all the anomalies and it will not make the system 100 per cent. fair, but it will be a move in the right direction.

Thirdly, value added tax will, except for a few limited cases in the early stages after being implemented, avoid the sort of double taxation, which took place with purchase tax and selective employment tax. Certain commodities were subject to both taxes one way or another.

Fourthly, value added tax is much less discriminatory than purchase tax or SET and will, therefore, be neutral in its effects and will help to eliminate the distortions of consumers' choice which took place with purchase tax.

Fifthly, the form of value added tax which we have introduced in this country will be much fairer than the present system of taxation because it will not be applied to food and housing. As the House knows, SET affects both of these items.

Sixthly—this is very important—value added tax is rebate able on exports and will be charged on imports. Here again, there is an advantage over the previous system of indirect taxation.

The final advantage of value added tax is important also, though it has not been heard much in our discussions on the matter. Because valued added tax will be levied at every stage of production, there will be a much clearer identification between costs incurred and profits taken and the tax levied. It will, therefore, be obvious to producers that if costs and profits are increased the tax will increase as well and that if costs and profits are reduced the tax paid will be reduced. There will, therefore, be a much stronger incentive to people to keep costs and profits steady and even to cut them than at the moment.

There is another point which I should like to make before leaving VAT. I should like to ask my hon. Friend the Chief Secretary a question about VAT as applied to further education. In Committee, both on the Floor of the House and upstairs, my hon. Friend said that the Government's intention was to exempt from value added tax colleges of education, polytechnics and other institutions of further education. However, accepting that there was some doubt about the drafting of Schedule 5 concerning this matter, he agreed to have the matter considered by the draftsman and, if necessary, to table a suitable Amendment. No such Amendment has been tabled. Will he confirm, when he winds up the debate, that institutions of further education will be exempt from VAT?

Finally, I refer to the car tax. I must declare an interest. I have been associated with the motor industry for about 10 years. I regret the introduction of this tax not because of any representations which have been made to me by my employers or anyone else but because I believe it is a great mistake.

The motor industry is one of the key growth industries in this country and it has been clobbered time and again by successive Governments. Between 1965 and 1970 the demand for motor cars produced by the British motor industry fell marginally while the demand for cars produced by Common Market countries increased by 50 per cent. This came about directly as a result of the Government's Measures. It meant restriction of British output. British manufacturers' unit costs were higher than those of their competitors in Europe. It also meant that profits in the British motor car industry were restricted, and this had an inhibiting effect on the scale of research and development in the industry, with consequent effects on its future competitive position.

It seems regrettable that, having damaged the British motor car industry so much in recent years, we should now put on it this extra tax burden of 10 per cent. I should have thought that if we applied VAT as it is to be applied to other goods and services, it would be much fairer and would give the British motor car industry an opportunity to expand and compete with all the most advanced motor car industries in the world. I hope, therefore, that my right hon. Friend will seriously consider removing this tax at the earliest possible moment.

6.15 p.m.

Mr. George Cunningham (Islington, South-West)

The part of the speech of the hon. Member for Leek (Mr. Knox) with which I felt most in disagreement was the part to which you, Mr. Speaker, took exception on grounds of order. Therefore I should not follow him into that subject. However, his explanation of the failure to obtain growth and his means of correcting that situation are too superficial. The reasons for our failure are more deep-seated than inadequate demand in the country and are to be expressed more in terms of what seems to be a secular decline in the level of enterprise and efficiency. There, rather than the level of demand, lies the secret.

Reference has been made to the extent and depth of the scrutiny that has been given to the Bill in Committee both on the Floor of the House and upstairs. It is as well not to let this occasion pass without saying that the methods we adopt for scrutinising the Finance Bill are inadequate in modern conditions. It is not possible in a Standing Committee of the kind we operate to go into a Bill of great technical complexity in the manner necessary to give it the attention which it deserves.

The innovation of looking at the Finance Bill in Committee partly of the whole House and partly upstairs is of relatively short standing; but surely, even after such a short trial, it is obviously necessary to go on to something more radical. The Bill should be looked at on a Select Committee basis so that we can get directly at the civil service advisers to Ministers concerning some of the Clauses and perhaps at other expert witnesses as a preliminary to our normal discussion in Standing Committee. It is high time that we had a Committee of this House to look not at the Finance Bill but at taxation, so that, without having to look at the terms of the Bill, it will be possible to consider the options available, to take expert evidence, and to clarify many issues. Few things affect millions of people so closely in their daily lives and are discussed so little in detail in this House as the taxation system.

The Chancellor of the Exchequer claimed today, as he has claimed on many days, to be the greatest reforming Chancellor, not of all time but for a very long time. This is an entirely bogus reputation which he is building up for himself with the assistance of some of the Press.

A great deal is wrong with our taxation system, in both its policy content and form. On one or two aspects of its form the Chancellor has made some wee, modest improvements. However, to abolish the surtax office is not an extensive reform. Of course it should have been done before. The Chancellor is absolutely entitled to take credit for doing something which should have been done before. But it is not a deep-seated reform of the taxation system to say that instead of paying income and surtax and having to write a few cheques, one will in future have it all run together in one payment.

Nor is it a deep reform of the taxation system to abolish the earned income relief and to go over to the system which will apply from April next year. Both of those should have been done long ago—they were pretty obvious. The reputation of being a great reforming Chancellor should be based on something more fundamental than that. For example, if the Chancellor wants to deserve a reputation for being a reformer, he might have a look at the distinction between tax allowances and outgoings. That, too, is a small matter, but he might as well rope it in if he wants to try to deserve his reputation.

The maintenance of the distinction between some forms of tax relief and other forms is responsible for excessive amounts of tax relief being made available for some forms of expenditure. An outgoing is an expenditure which is treated as a deduction from total rates to obtain one's income figure, and should logically have no upper limit. One or two tax reliefs which are currently treated as outgoings, if re-classified as tax allowances, would normally be given an upper limit. That applies particularly to the tax relief which is available for loans for house buying and house improvement, and the new tax relief, the restored relief, for interest payments on all loans.

That brings me to the feature of the Bill which is the most iniquitous. The Chancellor did not offer today, and has not done so in the past to my knowledge, a logical defence of the re-introduction of tax allowance for interest payment on loans such as loans for house purchase. At a time when everybody accepts that our principal economic difficulty is inflation, to say to people, "Borrow money, pay the interest rate which you have to pay at commercial rates, and we will subsidise it down for you by a minimum of 30 per cent. and possibly a maximum of 70 per cent.", is simply stupid.

Of course, the Government thought that they had to re-introduce the allowance because they were foolish enough to put it in their election manifesto. But the country should not be expected to pay the price for the bad preparation of the Conservative Party's election manifesto. Not only have the few Socialist newspapers criticised this change, but a number of Conservative newspapers have been surprised that the Government saw fit at this time to introduce the change. There is no logical justification for it and it will certainly be inflationary. When one compares the basis upon which this relief is being re-introduced with the basis upon which it existed up to 1969, one finds that it is worse than it was before. Those who borrow small amounts, up to £400 or £500, the amount appropriate, for example, for buying a car, will not get tax relief, while those who borrow above that amount will do so. There will be a re-emergence of the kind of endowment insurance schemes which were being pushed a great deal in the year preceding the abolition of the relief in 1969. They were schemes designed explicitly to take advantage of this tax relief.

Mr. Patrick Jenkin

The hon. Gentleman has taken note of the changes that were made in the Finance Act, 1968, which dealt primarily with the insurance problem to which he is drawing attention and which are not being altered. It is the change made in the 1969 Act that is being repealed.

Mr. Cunningham

I confess that I am not fully acquainted with the point that the Chief Secretary has mentioned. However, as I read the Bill, any borrowing will qualify for interest relief. I instanced the insurance scheme dodge because that was the best dodge, as one received tax relief on the borrowed money and also tax relief on the insurance premium. That was the best fiddle in the world.

Even if some of those schemes are barred—it may be that some such schemes will be barred—by the continuing legislation, it will still be possible to get the relief upon the borrowing even if not the relief upon the insurance element. Since it is the relief upon the borrowing which is the largest relief, I am sure that the subsidy element to people participating in these schemes will be almost as much as before, even if it is, as I did not realise, slightly reduced.

Tax relief on life insurance premiums is long overdue for re-examination. I accept that it is one of the few successful ways of providing a fiscal incentive to saving and providing a tax relief for life insurance policies. But there is a great distinction between the rigorous policing and conditions which apply to the premiums paid to a private pension scheme, under the Finance Act, 1956, and the conditions applying to receiving tax relief on normal life insurance policies. Under the 1956 Act, any money paid into a private pension scheme must stay there—one can never get it out before one retires. Nor can it be used as a security. On the other hand, money put into a life insurance policy, upon which tax relief has been enjoyed, may be taken out, so long as it is after the first fiscal year, and the tax relief will not be lost.

If the Chancellor wants to deserve the reputation of being a reformer, that matter is long overdue of reform. A person who is entitled under present legislation to have, for example, £150 on every extra £1,000 of his income not subject to tax, will have that proportion increased to approximately £215. It is a means by which the tax-free element in any increase in salary is increased. I hope that if not the present Government then a future Labour Government will look at this fiddle. It is one of the loopholes which are available to everyone but of which only the rich are in a position to take advantage.

If we want to provide fiscal incentives to save, then we need to look at one of the more obvious ways of doing so, as well as one of the most humane ways, which would be to provide more generous tax relief for persons over retirement age, however one cares to define retirement age. The exemption or relief which we provide now is marginal. We could give much more generous relief at that level. That would constitute a fiscal incentive to saving. It would be a relief which would get general support as it would be designed to benefit those who have given a life's work to the community and who now can properly be allowed to enjoy the fruits of that work without an undue proportion being taken for the costs of society. That is the sort of matter which could be looked at by the kind of committee of this House on taxation reform which we should have.

Another improvement would be to transform tax reliefs from being reductions in the amount of income which is taxable to being reductions in the amount of tax which is payable. In the Bill, the system is retained whereby any tax reliefs which is given constitutes a greater benefit to the rich man than to the poor man, even as between two taxpayers. If we were to make a change to cash reductions in the amount of tax which is payable, our tax system, which is not at all progressive, would become that little bit more progressive than it is now. The myth in this country—

Mr. Speaker

Order. The hon. Gentleman must relate his remarks to what is in the Bill.

Mr. Cunningham

I will try to do so, Mr. Speaker, despite the fact that the Government have regrettably failed to put into the Bill much of what I wish they had put into it.

Mr. Speaker

Order. That is precisely what the hon. Gentleman is not allowed to point out on Third Reading.

Mr. Cunningham

In that case, Mr. Speaker, I shall skip the next part of my intended speech.

The result of the changes introduced in the Finance Act, 1971, which have been taken a little further in this Bill and will be taken still further next year, is to make the taxation system less progressive than it was before. I would argue with great firmness that it is in exactly the contrary diection that we ought to be pointing. There is no evidence for the Government's view that the profile of the taxation incidence as it has existed is responsible for any lack of enterprise. There is plenty of evidence for believing that the profile is such that it is seen by the man on rather less than average earnings as being very unfair to him. I accept that in part this is due to his believing that he is paying more tax than he actually is paying and that the reforms which will come next year will improve his position modestly. But the main feature of the system as it now exists and, even more so, as it will exist after the changes made in the Bill, is that, leaving aside the very richest, we have a relatively high incidence of taxation upon the man with average earnings and a bit below, and a relatively low incidence of taxation upon people, let us say, on £5,000 or £6,000 or £7,000 a year.

Then we have a large number of loopholes to allow the person on £4,000 or £5,000 or more a year to reduce his tax paid considerably below what he ought to be paying. To say to trade unionists who are trying to get a higher share of pre tax incomes, "You cannot have it except to the extent that your productivity increases" sounds ill coming from a Government who are making the tax system more regressive. It is not the case that the working people should get an increase in buying power only to the extent that there is an increase in productivity because the distribution of the cake at the moment is unfair.

What we want to achieve is a redistribution of the post-tax buying power. One can do this by altering pre-tax incomes or one can correct it a little by altering the tax system. What the Government are doing by the Bill and in other legislation is attempting to freeze the ratio of pre-tax income as between the rich and the poor and then, by the taxation system, to alter the distribution of post-tax incomes in a direction favourable to those who are well-off. This is a highly regressive Bill and I hope that a Labour Government will reverse it rapidly.

6.35 p.m.

Mr. Ian Lloyd (Portsmouth, Langstone)

The Third Reading of any Finance Bill represents in a sense the culmination of a very long and agonising political process which starts with each General Election and progresses through the life of any Parliament. I imagine, therefore, that many of us realise that after each election there will be represented in the Finance Bill a view of the distribution of incomes. The hon. Member for Islington, South-West (Mr. George Cunningham) has just prodded the House with the terms "fair" and "unfair" as applied to the distribution of incomes. This goes to the heart of the question.

I sometimes have an apocalyptic vision that hon. Members opposite may at some stage be in Government again, with the Conservatives sitting opposite. The then Labour Government will introduce a Finance Bill, as we would expect, increasing surtax and capital gains tax and skewing all the distribution of wealth in the general direction regarded by them as correct, equitable and fair.

What I find strange is that when the Conservative Party is in Government, representing an alternative view of the distribution of wealth in our society—a different view of what is fair and unfair—which we have put to the country in such a way that we have been returned to power, and we then produce a Finance Bill which skews the distribution of wealth in a different way, hon. Members opposite do not, as one is entitled to expect, say, "We disapprove and disagree with it, but it is after all what the Government were returned to do."

I come, therefore, to what I believe to be a rather more fundamental aspect. We are not simply talking about the equity of the matter, about the fairness or unfairness of a particular view of the distribution of wealth, represented in the Opposition by a Lorenz curve well to the left and on this side of the House by a Lorenz curve well to the right. What we must consider in any Bill is whether the distribution of wealth proposed is effective or ineffective. This is a much wider criterion, going beyond, although it must embrace and include, the question of equity.

It is important to make the point that we cannot take the simple view in the House of Commons that this is a ratchet which works only one way, that when a Labour Government produce a Finance Bill the ratchet of Socialism can move forward and that is equitable, not divisive and is acceptable, whereas when the Conservatives return to power and do the opposite, as we said we would do because we believe that the Labour Party has gone too far by over-taxing, they are being inequitable and divisive. It is inherent in the democratic process that we should be allowed to put this kind of view without being criticised as being divisive, which is precisely what the Opposition are now doing.

I fully support the Bill because it is doing what we said we would do—pull the ratchet back. It does something else that we should not lose sight of. It is promoting a distribution of wealth which will be more effective in the sense that it will enable this society of ours to increase much more dramatically its total production of wealth. Therefore, in line with our views, we believe that the size of the cake and the whole set of processes which contribute to its size are much more important in the long run than those processes which merely affect its distribution.

Only today we read that in the United States the medium income is now 10,000 dollars, which means that half the income earners there now enjoy a gross income of over 10,000 dollars—about £4,000—a year. That is 30 million people. It is an immense achievement and is the goal at which we should be aiming, whatever flaws there may be in that society.

There are one or two points, emphasised by the right hon. Member for Leeds, East (Mr. Healey), to which I must draw attention before proceeding to some figures which will interest the House. In referring to the salaries proposed for judges, the right hon. Gentleman over and over again used gross figures. It is most misleading to use such figures, but right hon. and hon. Members opposite invariably use them. I can understand that.

Mr. Healey

I know very well the point which the hon. Gentleman is about to make, but he will do me the justice of admitting that I talked all the time about take-home pay and pointed out that the take-home pay of the judges was being increased by the Budget by 20 per cent., apart from any formal increase in salary.

Mr. Lloyd

I know that the right hon. Gentleman was referring to take-home pay. He was challenged on the figure of 20 per cent. and he refused to reply. He should have pointed out that the increase applied to a much longer period. One can talk about take-home pay, but seldom is it done. Seldom are judgments made about the distribution of wealth implicit in a Finance Bill based on the net income after tax. The right hon. Gentleman knows as well as I do that anyone drawing £15,000 a year who is given a gross increase of £1,000 takes home nothing like £1,000. If one applies to the net increase in his income the cost of living factors which apply over the period to which the increase applies, one arrives at a realistic figure which is in the lower hundreds. We can talk sensibly only on the basis of real income after tax and adjustments for the cost of living.

The right hon. Gentleman implied throughout that the income of almost everyone—whether rich or poor, judge or dockyard worker—was given to him in trust by the State. Apparently, it was not his; he did not earn it; he did not own it. But if the State, by adjusting the taxation process, allowed him to keep a little more, the State was being very generous in giving back to him something which belonged to the State and not to him. The right hon. Member knows that others take a different view. I do. I believe that every man's income belongs first to himself because he earned it. Most of us earn it by the sweat of our brow. If we earn it, surely it belongs to us and the tax system which is applied to it legitimately leaves us with something which is already ours and takes from us something which was ours in the first place.

Mr. George Cunningham

No one disagrees with that.

Mr. Lloyd

I am glad to hear it because often when I listen to hon. Members opposite speak on the subject I get the opposite impression.

Central to the Bill must be the philosophy of the Chancellor of the Exchequer in his approach to the question of inflation. I sense from most of the speeches made by right hon. and hon. Members opposite that the perhaps important but very small and percentage-wise dramatically small, number of incomes at the top or bottom of the Lorenz curve are immensely significant because of their psychological effect.

The House should have the facts on the question of incomes. The latest figures published in the Inland Revenue Statistics for 1972 show that there are throughout the country 253,000 people out of 21.7 million with an income of over £5,000. There are only three sections in the statistics—people earning over £5,000, people earning over £10,000 and people earning over £20,000. A dramatic change takes place after tax has been deducted. No longer are there 253,000 people earning over £5,000. Indeed, the top category has virtually disappeared. In fact, there is a mere 77,000 people earning over £5,000 and the total figure remains the same—21.7 million people.

The Inland Revenue Survey of Personal Incomes for 1969–70, which gives the latest figures available, shows that there are 86,000 people earning over £8,000 before tax. Again, there is a dramatic change after tax is deducted. A mere 4,000 people draw £37 million out of the total income paid in society of £24,197 million.

In these circumstances, how can the right hon. Member for Leeds, East say, on either statistical or economic terms, that this very small, minute top slice of incomes is of such dramatic influence that what we do in respect of them by total confiscatory taxation will have a significant impact on the basic inflationary situation? I do not believe that the case can be made out for a moment.

Mr. George Cunningham

Is not the hon. Gentleman falling into the "Zachariah" philosophy? I have a very small number of people in my constituency whose names begin with "Z". On that basis, I am prepared to argue that all people whose name begins with "Z" should not be taxed. But it would make no difference to the rest of us. Is not the hon. Gentleman's argument of the same character?

Mr. Lloyd

No, it is not. I do not think that this group of people should not be taxed or that they should not be taxed heavily. The Lorenz curves produced by the Inland Revenue—and they are logarithmic curves—show that the number of people at both ends of the scale can be measured in hundreds and that those in the middle can be measured in millions. Inflation is basically a product of everything above the point which I indicate as shown on these curves.

I make only one exception to my argument. Plainly examples must be set, and examples are important, but I return to what I said at the beginning of my remarks. If the basic philosophical approach of the Government to the distribution of wealth is inherently and demonstrably different from that of the Opposition, we must be entitled, as a matter of right, to govern according to our philosophy and not according to that of the Opposition. This we are being continually, perhaps understandably, pressed to do. I find the argument wholly unconvincing because in a sense it is undemocratic that there is only one way in which to govern, and that is according to the philosophy on the distribution of wealth held by right hon. and hon. Members opposite.

Mr. J. Grimond (Orkney and Shetland)

The hon. Gentleman is presenting a very important and interesting argument with which I disagree in many respects, but, accepting his belief that his party views things differently, he must apply it throughout the scale. If the very rich are entitled to the maximum which they can obtain because they do good for the economy and are entitled to large rewards, the hon. Gentleman cannot forbid it to the unions or others who are also competing in a competitive society and must obtain as much as they can. That, in my view, is the reason for the present trouble.

Mr. Lloyd

I entirely accept that if one adduces the argument that the rich or top 1 per cent. of society is entitled to support politically the party which says, "We believe that the skewing of the distribution of wealth has gone too far against you", the rest of society is entitled to say, "We support the party which disagrees with that". But one cannot carry that argument to the point of saying that when the parties change office the party which won on the basis of the argument that it had gone too far the other way—and, according to the Lorenz curve we are talking not about the top 1 per cent, but about the distribution of wealth throughout the incomes structure—should not have the legitimate right to govern and to distribute wealth in such a way that accords basically with the philosophy on which it won the General Election.

This is a fundamental argument, and is of the greatest importance and significance. My objection to much of what has been said is simply this. We were returned to power having said to the country that it has been over-taxed for too long and that the ratio of top incomes to the lowest incomes has fallen too much; it is even below that of Soviet Russia. If we compare the general tax structure in our society as it existed before the election in 1970 with that in all the societies with which this country was, and still is basically competing, and we see that the distribution of tax and the operation of the immensely complicated and weighted tax system is reducing the capacity of society to increase its output of wealth, we are entitled to govern on that basis.

The hon. Gentleman said that he was hoping for a radical reversal of the situation. That is precisely what we hoped for, what we argued for and what we demonstrated was necessary before the General Election. The radical reversal is going the other way, and hon. Gentlemen opposite must like it or lump it.

6.50 p.m.

Mr. Tam Dalyell (West Lothian)

The three back-bench speeches from the other side of the House had one thing in common. At various points they created varying degrees of discomfiture on the Government Front Bench. I know what all this talk from the hon. Member for Portsmouth, Langstone (Mr. Ian Lloyd) about a radical reversal and one-way ratchets is about. The Chancellor of the Exchequer boasted that £1,000 million had gone to those earning one-and-a-half times, or less, the national average income. This is out of £1,200 million, and £200 million goes in personal allowances to those who have more than one-and-a-half times the national average. To save time, I refer the House to what my right hon. Friend the Member for Leeds, East (Mr. Healey) said about the compression of differentials. To get any kind of a policy that is acceptable to millions of people and do that kind of a giveaway is just not on.

The hon. Member for Leek (Mr. Knox) launched a portentous attack on my right hon. Friend the Member for Leeds, East, who, heaven knows, is capable of defending himself, but I saw the Chancellor become somewhat uneasy because, as soon as we had all this bombast from the hon. Member for Leek about the "notorious speech of 19th June" we recollect that it was that Chancellor, sitting in that place, who only a few months ago during his Budget speech invited us to have a free discussion on devaluation. He said that devaluation was now a subject of free discussion and we could all talk about it with no inhibitions. All I say to the Chancellor and to the hon. Member for Leek is that they cannot have it both ways. It is either one or the other. Either talk about devaluation is to be encouraged, or it is not. If my right hon. Friend is to be criticised, so then is the Chancellor in great measure.

Most devastating of all was the speech of the hon. Member for Norwich, South (Dr. Stuttaford). What really came through was the sense of sheer let-down that he had. He felt that he had been deceived. I am sorry that he is not in his place because if he were he could deny what I have said if it is not correct. What came through was that he felt that he had been conned because of the difference between the promises that were made on 12th July during the debate on charities, in particular in relation to churches, and what happened upstairs in Committee during the debate on a Private Member's Bill introduced by the hon. Member for Cannock (Mr. Cormack) when it came to a discussion of the preservation of churches. The devastating, damaging phrase used by the hon. Member for Norwich, South was that "the Government know perfectly well that the lobby in favour of the churches was greater than the Government majority." What could be plainer than that of the hon. Gentleman's sense of let-down and the feeling that he had been conned?

What is the policy here? On 12th July it was my understanding that some fairly definite announcement would be made on this issue, as on children's shoes and on a number of other matters, before we came to the Third Reading of the Bill. What is to be the policy on children's shoes? Medical advisers are available in Alexander Fleming House. The Government have had ample time, and they should have come to the House before the Third Reading and told us precisely what they were going to do.

There is a real problem about smaller football clubs. As my hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett) knows, we have not ceased to receive representations, some of which have spelled out the fact that it is no exaggeration to say that on top of the Wheatley Committee proposals for renovations for purposes of crowd control the Government's proposals mean that some of the smaller clubs—I am not referring to Arsenal, Celtic or any of the other big clubs—will be in real financial difficulty.

I have received some serious representations from youth hostels, and the view of Mr. Ballantyne, the secretary of the Scottish youth hostel at Stirling, is that they are in serious trouble.

Finance Bills are a continuous process, and one purpose of the Third Reading is really to enable us to set down markers for next year, because we know that if we are to be candid there is little that we can do this year to alter the Bill. I should like to refer to something that was discussed at length on various Amendments that were proposed by my hon. Friend the Member for Birmingham, Northfield (Mr. Carter) and myself on the issue of pollution, using the fiscal system, and particularly about recycling.

I call in aid the speech to the TUC Conference on the Environment of the right hon. Member for Worcester (Mr. Peter Walker). He said: Worldwide, people are demanding higher qualities of environment. Those industrial nations that are developing goods which are quieter and cleaner than other nations are, for that very quality, going to have expanding markets. It is for that sort of reason that the tax system has to be biased towards creating, in the design stage, that quality of goods, because the concept that we have had throughout of the gross national product is a misleading concept. We should substitute for it the gross national wellbeing, because this would involve not only the quantity of money, which does not measure all that we want, but also the quality of life.

Throughout our discussions, especially in Committee upstairs, there has been a confusion by many of us between the Big and the Good. To explain—a farmer doing the gross and net return from his acres must do his accounts on the basis that his land, including hedges, ditches and water courses, is in as good heart at the end of the year as at the beginning. To keep it so is the principle of all good husbandry and a condition of most farming leases. Output reckoned, or income gained, at the expense of the deterioration of the land is an illusion. Yet this is precisely what we do if we simply add up the GNP and derive from it the figures of economic growth.

We have to look at what we are up against if we impoverish the land—look at the Soil Report for the West Midlands—if we exhaust the mines—look at the sad history of the shale oil industry in West Lothian—if we misuse the quarries—the hon. Member for St. Ives (Mr. Nott) will agree with this—if we abuse natural gas—look at what is happening in the North Sea—and if we poison the rivers that are used for angling. This is a net loss.

Hitherto, with exceptions, the only yardstick by which we have measured such happenings is the value of the product that we get out, plus paid-for services, or the incomes of those who produce or render them. It is against that background that we have to use the tax system. This is not the same as a fiscal policy for limiting growth. Limiting growth is a bit of an ill-conceived argument.

On behalf of the United Kingdom delegation, of which I had the honour to be a member, at the Second Inter-Parliamentary Conference on the Environment at Vienna, I proposed a Motion which was accepted unanimously after a good deal of discussion by some fairly hardened politicians not only from Europe but from Africa, Canada, and Australia. It called on national Governments to consider three things: first, what help can be given to the recycling industry; secondly, what tax can be added to scarce materials, such as copper; thirdly, how purchase tax or VAT on consumer durables can be related to the potential life-span of the article. It was decided that Conference believes that such measures can only be introduced on the basis of international co-operation, putting no individual country at a commercial disadvantage. It is understood, as made clear in the discussions upstairs, that it is the Government's policy to internationalise the costs of pollution. This is fairly easy provided it is not done for an export industry, but significant State aid is necessary for the development and protection of the recycling industry. This industry must be cradled and cherished through the tax system like any other given industry on which national welfare directly depends. I give two examples to the House. Tyres can be transformed into granules and re-cycled in that way. Glass can be recycled into material for road-filling and many other purposes. Help of this kind, is the way in which I should like to see the fiscal system next year become more helpful by giving tax advantages for joint local authority/private enterprise recycling installations.

I should like to see a mineral tax, highest for copper, which on present estimates will be finished first, and lowest, perhaps, for iron, which on present estimates will last longest. If the projections change, so should the tax. It is not difficult, because the current oil tax can be easily adjusted. But such taxes have to be harmonised internationally.

I come to motor taxation. Surely we should look at a system of a high tax in the first year, tailing off to nil after a number of years. There is a certain advantage to the motor industry in building longer lasting, though, I concede, more expensive, cars. This might not appeal to Sir Donald Stokes at first, but it raises the whole question of the use of materials. An alternative way of doing this would be to give special tax advantages to cars that lend themselves to being easily melted down at the end of their useful life.

I should like to return to what was said in Committee on the whole question of car pollution. ICI announced last November a development of a dual catalyst system, which it claims will meet the 1976 United States emission standards. The catalyst material was not revealed, and ICI has to remain silent about the details for obvious reasons of commercial security. But British Leyland believes in the two-catalyst system. This is a concrete example in which there ought to be tax advantages to persuade manufacturers at the design stage—this is crucial—to build into their designs this type of anti-pollution material.

I should like to see purchase tax or value added tax on durables related to their intended lifespan and their potential for being recycled. This again would have to be done at the design stage. I dispute what the Minister of State said in Committee on 15th June. I shall not read it all out, but the burden of it was that it was so difficult to establish standards. I repeat the point I made in Committee. With all these Government research establishments, it is not as difficult as all that.

The Treasury operates much better as a home side than when playing away. What I mean by that is that when it is making decisions which are internal Treasury decisions it is much more rational than when it depends on outside evidence, be it from the Department of Health or, in this case, the Department of Education and Science, which is responsible for the research facilities. When the Treasury has to get advice, it seems that its decisions are less imaginative than when it is a purely internal Great George Street decision.

I hope that next year, on many of the Measures that are introduced, we shall copy the United States and have an environmental impact assessment of every Measure. The Americans do it—I claim no originality for it—and so should we. On every tax change, where relevant, we ought to have an environmental impact assessment. My right hon. Friend the Member for Leeds, East, when interviewed by George Scott on Friday night, said that politicians had to be interested in the pace at which measures became acceptable to the British people.

But in case the Treasury think that these are somewhat esoteric ideas, after the recycling Amendment I had a large group of letters and quite unusual correspondence. For instance, Dr. Simnett of the University of Newcastle-upon-Tyne said: Our public meetings regularly attract audiences of over 100 people which is not bad for a foggy winter's night on such an inglamourous subject as sewage disposal. I have sent to the Department a long letter from the University of Newcastle upon Tyne, which has gone into these subjects in depth and a long memorandum from a Mr. Green of Huntingdonshire, one of many memoranda.

There is considerable public interest in this kind of idea. In the coming months the Treasury would be well advised to see what can be done. I realise that there are complexities and difficulties, but I do not see that there is a better opportunity than the Third Reading of the Finance Bill to stake out, in as constructive a way as one can, what one would like to see in next year's Bill, which is only six months away and which will begin to be built soon.

7.5 p.m.

Mr. Piers Dixon (Truro)

I hope that the hon. Member for West Lothian (Mr. Dalyell) will excuse me for not following his labyrinthine arguments on the problems of pollution in his constituency and in mine.

I will address my remarks to one of the statements made by the right hon. Member for Leeds, East (Mr. Healey) when talking about fiscal honesty. The right hon. Gentleman claimed that one of the reasons we should not have value added tax in this country was that it would invite Englishmen, Scotsmen, Welshmen and others to be as dishonest as Frenchmen. Perhaps I have rather an old-fashioned, Victorian view about fiscal morality. I believe that the British are naturally more honest, and have been more honest for an extended period, than the great majority of Europeans. The right hon. Gentleman said that the reason that there was more fiscal dishonesty in France was that France had a broadly-based indirect tax. He said that the reason why there was a relatively small amount of fiscal dishonesty in Britain was that purchase tax was on such a narrow base.

I wish that the right hon. Gentleman were in the Chamber now, because he could contest the following argument. Why is it that in Britain, where we have an extremely large amount of direct taxation, we pay it, whereas in France, where there is a small amount of direct taxation, even so the French are notoriously dishonest about their payment of income tax?

The right hon. Gentleman has got the argument upside down. The one reason why we are able with confidence to bring VAT into this country without a very great risk is precisely that the British people have, by long tradition, been fiscally honest.

One of the reasons why Socialism has been such an easy thing to bring into this country and will in the future be such an easy thing to extend—unless all of us are very careful—is that whatever the British people think of their Government, they will always pay their taxes. Britain is the ideal country into which to introduce Socialism. It is much more difficult to do it in France or Italy.

In my constituency, in Truro and St. Austell, we are extremely happy about value added tax as a whole. I congratulate my right hon. Friend. I am sure that that applies generally in the country. However, the traders of Truro and St. Austell are unhappy about the transitional arrangements. I know that my right hon. Friend has problems. The transitional period cannot be too short, because it would serve no purpose; it cannot be too long, because there is the danger of its distorting the whole economic pattern at the end of this year and the beginning of next year.

There will have to be an announcement later this year about the length of the transitional period. I hope that my right hon. Friend, before making that announcement, will tell us the latest date on which he will be making the announcement. In other words, there should be three dates—the date, I hope not too far ahead, when my right hon. Friend will say "I shall be making the announcement on such-and-such a date"; the second date would be the date on which my right hon. Friend would actually make the announcement; the third date would be the date on which the transitional period would begin.

I congratulate my right hon. Friend on being the great reforming Chancellor of this generation. I hope that in future years we shall have as little fiscal legislation as possible.

7.10 p.m.

Mr. James Hill (Southampton, Test)

Voltaire said that taxation was the art of plucking a goose to obtain the maximum amount of feathers with the least amount of hissing. I would not want to carry the analogy too far. I will content myself with saying that my right hon. Friend the Chancellor is a very clever man. The art of taxation was never understood by anyone in the Labour Government, because they grabbed for whole handfuls of feathers, and the goose, when it hissed, dealt with them appropriately.

Hon. Members have criticised the Bill. There are many things in it which are, perhaps, open to criticism. The Bill is rather like a Christmas pudding—there are plenty of three penny bits in it for those who are looking for them. One is the tax exemption on gifts to charities. The most important from the point of view of removing inequality is relief from estate duty for the surviving spouse. Many times during the last two years we have heard of the inequality arising when a widow has had to sell the domestic home to raise the money to pay estate duty. My right hon. Friend can be congratulated on this score, even if it were the only one, but there are plenty of others. Charities and other institutions do very well out of the provisions relating to estate duty.

One thing which has not been mentioned today but for which the public will be very grateful is the reduction in stamp duty on conveyances and leases. The limit has been raised from £10,000 to £15,000. The post-war credit relief is another worthwhile change. Hundreds of thousands of people are already enjoying the benefits of their post-war credits. Another well-thought-out and worthwhile reform is that in respect of vehicle excise duty for disabled persons.

My hon. Friend the Member for Leek (Mr. Knox) said that consideration should be given to the tax on cars being 10 per cent. When this matter was first brought to the public gaze some months ago, I was in correspondence with my right hon. Friend and he confirmed in a letter to me that, although purchase tax at that time stood at over 30 per cent. on motor cars, the comparable figure under value added tax would be only 20 per cent. There is no case for there being a further reduction of taxes on motor cars.

I am an anti-polluter. I have had my car fitted with liquefied petroleum gas. I know that my right hon. Friend is concerned about this, because in his wisdom he has imposed duty at the rate of only 50 per cent. of the whole rate on this worthwhile fuel, which does not pollute the atmosphere. If concessions are to be made to the motor industry, that industry should make concessions to the public by making vehicles which are as anti-pollutant as possible.

Group 7 in Schedule 5 is concerned with health. Two groups of services are omitted. The first omission, which I sought to rectify by an Amendment tabled in Standing Committee, although I was not a member of the Standing Committee, is family planning aids, services and medicines obtained not under a doctor's certificate. A person who purchases his family planning aids without the aid of a prescription, perhaps from long experience knowing exactly which aid is needed, will have to pay 10 per cent. VAT. Young people get their family planning needs from many sources, including dispensers at universities and shops which provide this service, and they, too, will have to pay VAT. The anomaly is that they would not have to pay VAT if they bothered a doctor. We know how hard worked general practitioners are. Britain is at long last trying to create a society in which family planning aids are no longer things of secret. We are hoping that more family planning clinics will be opened. It is wrong that the Bill should penalise people who virtually provide a family planning service for themselves.

Second, osteopaths are omitted from the list of the professional people who provide services. I have received letters from osteopaths pointing out this anomaly. Some of the letters have mentioned that perhaps my right hon. Friend has not suffered from back trouble, though I am sure that even if he had suffered from it he would not allow that to influence him. Osteopaths are highly respected professionals in medicine whose services will attract the 10 per cent. VAT.

Clause 38 prescribes the penalties for fraudulent evasion of tax. VAT will bring in a completely new and increasing number of small retailers who have not hitherto dealt with purchase tax, because they have paid the purchase tax on buying the goods from the wholesaler. They will now have to deduct the tax and account to Customs and Excise. Mistakes can be made, especially in the first year or two. Newgate Prison is closed. We no longer transport people to Australia. It is a terrible thought that anybody getting the wrong side of the Customs and Excise is liable to a maximum of two years' imprisonment. Such a penalty is generally imposed for a serious offence such as manslaughter. Let my right hon. Friend increase the fines by all means, but it is wrong to have the threat of imprisonment for evasion of the tax.

Clause 41 deals with bankruptcy proceedings and gives the Inland Revenue an unfair method of obtaining a priority creditor's rating. The vast majority of bankruptcies these days are caused by the banks or the Inland Revenue. A small creditor will seldom force a small business into bankruptcy, because he is always looking for his return. Under the Clause such creditors will be at an even greater disadvantage. The normal creditors will be there—the Inland Revenue and the landlord, who will be a preferential creditor. But, in addition, the Inland Revenue will come in under another guise, as the Customs and Excise. In the past small businesses went into bankruptcy owing money to the wholesaler, who was not a preferential creditor. Now the Customs and Excise will step in as a preferential creditor and will act in the same way as the wholesaler did in the past. The difficulty is that the priority creditor may be owed about £100, and if there is only £90 left when the bankrupt's affairs are tied up, it will go to the Customs and Excise, who will become a priority Creditor. The Customs and Excise should take the same chance as every other creditor.

To sum up, therefore, I hope that my right hon. Friend the Chancellor will examine the questions I have raised about family planning, osteopaths, the penal provisions of Clause 38 and the provisions of Clause 41. I see no reason why VAT should afford a priority credit rating to the Customs and Excise. The Bill contains many things with which I am proud to be associated. We on the Government Benches are perfectly willing to meet the public on the Bill and I thank my right hon. Friend the Chancellor for the work he has put into it.

7.23 p.m.

Mr. Dick Douglas (Clackmannan and East Stirlingshire)

This is an interesting Bill, and as a Co-operative Member I welcome the provision to abolish SET. I also welcome the concession designed to avoid as far as possible double taxation on television sets which are sent out for hire. Those are two important concessions which were made during the passage of the Bill. We pressed the Government on them strenuously during the Committee stage. The trading associations concerned were extremely worried lest their profitability and cash flow were affected by the Bill.

The position of small close companies is still outstanding. I am still not clear about it. I know that the Chancellor wanted to help this type of business. It is a particularly important one for Scotland. We want to ensure that the penalties of the increased rate of corporation tax are much more fairly distributed to make certain that the cash flows of these companies are not inhibited when ploughing back their profits to secure capital development.

The outstanding feature of the Bill is VAT. The Conservatives made it plain before they came into office that they wanted to introduce the tax whether we went into the EEC or not. I have made it plain in many speeches here and in my constituency that, while I am a convinced European, I have always had grave misgivings about the efficacy of this form of taxation. I give the Chancellor credit for devising a clever form of taxation. It is useful to impose one effective rate, and it is useful also, in terms of reducing the regressive nature of the tax, to zero-rate foodstuffs. But even at this late stage we must seek a clearer indication from the Government than they have given so far that they will strenuously resist any temptation and resist any pressure from external sources to bring foodstuffs within the scope of the tax. We have certain specific misgivings. While we accept the general structure of the tax, we would be worried if the Government sought at some early date to impose the tax on food.

My fourth point relates to corporation tax in Part IV and to capital allowances. We have discussed once whether the EEC Commission has examined the provisions for capital allowances and the provisions in the Industry Bill. In the Committee stage of the Industry Bill last Thursday night we were given an assurance by the Minister for Industry in answer to a question from the hon. Member for Glasgow, Cathcart (Mr. Edward Taylor) that the Bill met the general requirements of the EEC Commission. But if the 20 per cent. or 22 per cent. capital grants available under the Industry Bill are combined with the system of free depreciation in the Finance Bill, the total will exceed the 20 per cent. capital grant which the Commission allows in the congested areas. I do not want to be a scaremonger and I do not want to inhibit industrialists from investing, particularly in areas like Scotland, but we should be told clearly that the two provisions have been agreed to by the Commission.

I do not take the view that because I am a Scot I should have nothing to say about capital allowances in Northern Ireland, which is another part of our economic union. It is perfectly legitimate for a member of an economic union to examine what is going on in another member country. We must be clear that industrialists in this country can push ahead with the necessary investment on the basis of the provisions in the two Bills, soaking up a large measure of unemployment in areas like Scotland. We want to know that investment will take place at the pace we desire.

7.30 p.m.

Mr. Joel Barnett (Heywood and Royton)

I thank the Chancellor of the Exchequer for his very kind remarks about me and my hon. Friends on the Opposition Front Bench, and I also thank my right hon. Friend the Member for Leeds, East (Mr. Healey) for the very kind words he said about us.

I was taken aback, as I am sure some other hon. Members would have been, by the remarks of my hon. Friend the Member for West Lothian (Mr. Dalyell) and the representations he told us he was still receiving. Seriously, the House owes him a debt for his assiduity.

Although we gave the Bill tremendous scrutiny, I agree with my hon. Friend the Member for Islington, South-West (Mr. George Cunningham) that there is something considerably lacking in our methods, and that we need to look again at the way in which we deal with our Bills.

It has been a long haul. The July scene is somewhat different from the March scene, when the Chancellor presented his Budget. The Budget forecasts on which the Bill is based said nothing about the flotation we had a little later. But that flotation stems from the Government's failure to deal with the basic problem of our day, the problem of inflation. Any other successes the Chancellor may claim—and it is difficult to find them—are insignificant by comparison with the failure to deal with inflation.

If the economic scene is different, the Bill, too, is very different. It is not simply that it is now clearly irrelevant; in my view, it is positively dangerous. In content and philosophy, it is wholly out of tune with the needs of the moment. Its danger lies in the failure to comprehend the harm the Chancellor has done in the Bill to those in the TUC and the CBI who are genuinely seeking to help to deal with the problems of inflation.

If I may allow myself the luxury of a brief philosophical look at the Bill as a whole, I should like to consider what it does to help to solve the major problem of inflation. We shall have to learn to live with some inflation, butthe consequences of massive inflation could be very serious. I do not think that it is overstating the case to say that there would be from such a massive inflation such an erosion of living standards as could create in this country a situation which many of us might never envisage, despite our renowned stability. Therefore, it is the most serious situation that faces us. It is against this background that we must look at the major elements in the Bill and whether it helps or hinders the fight against inflation.

It will be no secret to hon. Members that I think VAT is a horrible tax. I am sorry that I missed the speech of the hon. Member for Norwich, South (Dr. Stuttaford). Apparently at least one Conservative Member is also not very keen on the tax. When we started on the tax we were told that its major merits were that it was broad based, comprehensive, and free from anomalies. We all know that it never was comprehensive and broad based, when 45 per cent. of consumption was untaxed. After our debates in Committee, I doubt whether anyone now believes that there are no anomalies. All the anomalies could be remedied at a stroke by making the tax truly comprehensive and including food, fuel and all the other items that have been zero-rated. The Chancellor has insisted on the power to do so, because he has retained the ability to include those items in VAT by order after a 1½-hour debate at the end of a parliamentary day.

Last week when we discussed the question of food, the Chancellor was, to put it mildly, somewhat devious. He gave us an assurance not that he would never tax food or even that it was not his intention to tax food but that it was not his intention to use the order to tax food. That was unworthy of him. It is within his power to say here and now that he at least would never tax food. That pledge he can give. That is the pledge we have asked for, and I understand that his hon. Friend the Member for Norwich, South, also asked him to give it. We ask for an unequivocal pledge that he will never tax food, but I see that he remains silent and does not intend to give us that sort of pledge.

If such words have any meaning—and those on the Treasury Bench have used such words often enough—the Government intend to make the tax comprehensive. Otherwise, they would never have introduced a tax as complicated administratively as VAT just to collect the same amount of revenue as the two taxes it replaces. I would welcome a denial, but I fear that their intention is to make the tax the truly comprehensive tax they have always claimed it to be.

I doubt whether anyone, even the Financial Secretary, still believes that it is a good tax. Possibly the hon. Member for Surrey, East (Mr. William Clark) believes that it is, but he had better be careful, because while he is still claiming that it is a good tax, the Government might be dropping it, as happened to him on an Amendment. I doubt whether anyone can believe, whatever else he believes about the tax that it will reduce the pressure on prices, which is what is needed today.

The reasons are obvious. They derive from the well-known maxim that if a tax is imposed, prices increase, but when it is taken off there are many excuses for not reducing the prices. With a new tax, no chances will be taken. When they sell goods, retailers will now base their profit on the cost including the VAT input. At present most retailers base their profit margin on goods including the purchase tax, treating the whole lot as the total cost. I had always thought that with VAT they would treat the net price as the price on which to charge VAT, because they are getting a credit for the input. But after talking to quite a number of people involved, I believe that retailers will charge VAT on the inclusive price and then pocket the input which they are allowed. The result is bound to be that inflation will be both cumulative and substantial.

The situation will not be helped by the way the Chancellor has chosen to deal with stocks. Retailers—I am not talking only about small retailers—will be faced with a number of choices on how to deal with the transitional problem of stocks. They will almost certainly reduce the orders between now and next April. This was proved to me recently by a statement in the Financial Times of 5th July by the chairman of S and K Holdings Limited. The report said that: During the coming months buying limits of each group member would be restricted to avoid any real danger of double taxation on shelf stocks on the introduction of VAT. That will happen throughout the country, with serious transitional problems, at a time which will be absolutely wrong for the economy. If inflation is the most serious danger facing us today, the one dramatic way in which the Government could show that they mean business would be to postpone the start of VAT, because there is nothing in the Treaty of Accession which demands that the Government should introduce it now.

Turning to the remainder of the Bill's major items, unified tax, loan interest and share options, there is a Tory case that can be made for each of them. I do not agree with it, but the case can be made. However, no case can be made for doing these things at this moment. What is urgently needed is the co-operation of workers. At such a time we have the Foreign Secretary telling the workers that they should curb their greed. He should have spoken to the Chancellor of the Exchequer first. My right hon. Friend the Member for Leeds, East gave some examples of what the Chancellor is doing with judges and other top salary earners. I will give one other example, not relating to earned income but to something about which the Chief Secretary never likes to hear—unearned income.

A married man with no children with a £20,000 a year investment income—[Interruption.] If the hon. Member for South Angus (Mr. Bruce-Gardyne) would listen to the argument it would help. He is right if he says that there are few such people, but if he thinks that that in itself is an adequate reason for giving them large handouts, he is wrong. This man, before the Chancellor's changes in the Budget, had a net income of £5,590. In 1973–74 his net income will be £7,242 an increase of £1,652—more than the average industrial earnings in the country, an increase of nearly 30 per cent. It is not 30 per cent, with deductions, but 30 per cent. net. That is investment income.

This is done by the Chancellor in the way in which he has largely misused his unified tax system for, in addition to what he has done with the tax system, this man—not the railwaymen—will have further opportunities through the other measures of the Chancellor, by way of loan interest and unit trusts, share options, capital gains and the rest. As for share options, there may be an odd young man who will work hard as a result of them, but I doubt whether in the main, this will be the case, for there is no incentive. This is simply a method of giving a back-door increase in real income to these people.

I agree with the hon. Member for Portsmouth, Langstone (Mr. Ian Lloyd) that the reversal of these measures would not mean that there would be massive economic consequences. But I believe that it is incredible folly to introduce them at the same time as workers are accused of greed for seeking to maintain a standard of living in the face of rising inflation. Would it not have been more sensible to use the £300 million of tax relief from the unified tax to keep down fare increases, fuel or food increases, or to bring forward the payment date of the higher old-age pension, so helping those in greatest need?

Those priorities are not the Chancellor's. He gets his whole philosophical approach wrong. If he is right, and I believe he is, in constantly telling us that our well-being as a nation depends on our not taking out more than we produce, then he must be desperately wrong in using this Bill to allow a few who are already very rich to take out more than they could ever produce. I am pleased to note that this is also a view shared by the hon. Member for Norwich, South, if by no other hon. Member opposite. If as a nation we are to succeed in the battle against inflation, any Gov- ernment needs the goodwill and co-operation of every worker and, what is more, of his wife. This Bill destroys any chance of getting that co-operation and I have therefore no hesitation in asking my hon. and right hon. Friends to vote against it.

7.44 p.m.

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

In a few minutes—because I do not intend to speak for long—the House will decide whether to give this Bill a Third Reading. In considering the magnitude of the reforms which the Bill embodies, I believe that my hon. Friend the Member for Leek (Mr. Knox) was right when he said that we could take some pride in the manner in which the proceedings on the Bill have been handled.

We used to hear a lot—we heard an echo of it tonight from the hon. Member for Islington, South-West (Mr. George Cunningham)—about how ill-equipped Parliament is to deal with complex technical, fiscal, legislation. For many years there have been complaints, too, that industry, commerce and the professions have played too small a part in the processes of tax reform. I believe that, quite apart from the substance of the reforms—and I shall come to them in a moment—the manner of their introduction represents a major advance on anything that went before.

The Green Papers, the thorough consultations with the Revenue departments, the Select Committee's study of corporation tax, the draft VAT legislation published at the time of the Budget—all of these have fully proved their worth. Not only have they enabled Revenue departments and Treasury Ministers to consult far more widely than hitherto, and not only is the process of the introduction of reforms being spread over several years, but the new procedures have without any doubt led to better-informed debates in the House and in Committee. All of this must be to the advantage of the economy as a whole. I do not believe that any Government will ever go back to reforming the tax system in the old way.

Spreading the introduction of new taxes over two or more years has other advantages. In some matters it is not possible to decide on the details until the House has settled the broad principles and further consultations can take place. Corporation tax is a case in point. In Committee I said that we would be prepared to consult further on several important aspects including the treatment of groups of companies and some transitional relief for unquoted companies. During the Budget debate I gave an undertaking to consult interested parties to see whether a scheme of relief could be framed for unincorporated associations and other bodies with objects of a public nature.

Further, the fact that corporation tax reform does not come into effect until next April gives us time to revise our network of double taxation agreements, particularly in relation to dividends going abroad. As the House will recognise, the existing arrangements are not apt to cover the imputation system. In the next year or so the Inland Revenue will be renegotiating as rapidly as it can the material parts of our existing agreements. We have already had preliminary discussions with some of our overseas partners, and I am confident that we shall negotiate satisfactory arrangements. We have, therefore, deliberately reserved until next year the question whether we need additional provisions, at least in respect of trade dividends paid abroad, to strengthen our negotiating position. I hope that we shall not but if, regrettably, we find that we do, we shall ask Parliament for the necessary additional powers in next year's Finance Bill.

I turn to another aspect of company taxation, to deal with the point raised by the right hon. Member for Leeds, East (Mr. Healey), about what has come to be known as the "German inquiry" about our capital allowances and our investment incentives. I can give him two clear assurances on this. The only inquiry which the Germans have made is whether the free depreciation and the regional incentives in the Industry Bill are consistent with Article 92 of the Treaty of Rome. The Commission has assured the Germans that they are.

The second point raised by the right hon. Gentleman, taking the free depreciation in this Bill on its own was: does it conflict with anything else in the Rome Treaty? Here I can tell the House that the whole package was disclosed to the Commission immediately after my right hon. Friend made his Budget statement. The Commission has had it for four months and there has been no hint or suggestion that anything in the proposals is not fully compatible with the Community rules. I can assure the House, too, that this was gone into most carefully by the Government before the Budget. As my right hon. Friend said this afternoon, we are satisfied that there is no incompatibility with the Community provisions.

As we might have expected, the bulk of the debate has centred around VAT.I will not restate the reasons why we have decided to introduce VAT. They were well stated by my hon. Friend the Member for Leek. What has become apparent is that the right hon. Member for Leeds. East still does not understand the tax. He had a great deal of fun with what he described as the anomalies, but he got many of them quite wrong. Yes, he is right, butter wrappers are taxed but in the hands of the retailer or wholesaler the tax is input tax. When the butter is sold to the public the whole packet is zero-rated and no tax is paid on the wrapper. In the case of the short stay-long stay boundary in hotels the right hon. Gentleman suggested that if one stayed over 27 days one's stay would be tax free. This just simply is not so. It is the home element, if I may so describe it, in the Bill which is tax free. The services remain taxed.

Mr. Healey

That is why I chose my words with such care. I referred to providing the room. I referred to the services element as taxed.

Mr. Jenkin

I listened most carefully to the right hon. Gentleman when he said that, and my hon. Friends had the same impression as I.

The right hon. Gentleman said there would be an increase in staff numbers of 8,000. It is not 8,000. It is 6,000. My hon. Friend the Member for Norwich, South (Dr. Stuttaford) made the same point. Perhaps I may be allowed to repeat what I said on Second Reading. I said that by the time our tax reforms are completed, with the tax credit scheme, we hope to be able to save many thousands of civil servants, and there will be a cut in staffing on the tax machinery running into five figures.

The right hon. Gentleman compared the two rates of purchase tax in 1969–70 as having raised £587 million. The Annual Report of Customs and Excise shows that it was £687 million.

Mr. Healey

I did not say that.

Mr. Jenkin

Then I stand corrected.

Mr. Healey

I think that the hon. Gentleman did not listen very carefully to what I said—or possibly his advisers did not. What I said was that they raised £587 million more than the same volume of these goods would raise under VAT.

Mr. Jenkin

That is a nice and different point.

The fact is that one-third of the yield of the top two rates of purchase tax referred to cars, and after next year cars will be taxed with VAT plus car tax at much the same rate as they are taxed at present.

I think I have said enough in general on the right hon. Gentleman's points, but there are three detailed points which I must answer.

One of them was made by the right hon. Gentleman and also by my right hon. Friend the Member for Norwich, South, in which they reiterated their belief that this tax was going to be regressive. This simply is not so. Of course, it is good clean fun to pick out the particular items which have not hitherto been taxed or which will now be taxed at a higher rate, but surely to goodness the House must realise that we have to look at the totality of the change, and here I must emphasise what my right hon. Friend the Chancellor said in his Budget Statement: There is, therefore, no reason to fear that the change-over to VAT will be regressive."—[OFFICIAL REPORT, 21st March, 1972; Vol. 833, c. 1378.] He had very good reasons to say so. Of course, most food, fuel, housing, fares, which enter substantially into the budgets of the poor, will be zero-rated, and some of these bore SET; and many ordinary household items—electric light bulbs, toilet soap, television sets, space heaters—will be taxed at much lower rates. Services, which come much more into the budget of the well-to-do, will be taxed in a way in which many of them have not been taxed before.

Ours will, in fact, be the fairest VAT in Europe—[Hon. Members: "Ah."]—a fact which hon. Members opposite have been very slow and reluctant to admit.

Dr. Stuttaford

rose—

Mr. Jenkin

I am coming to my hon. Friend in a moment. He raised the question of churches. It is a serious point and I must answer it. I can only believe that my hon. Friend was not in the House when my right hon. Friend the Chancellor referred to this on 12th July, and perhaps I may remind my hon. Friend of what my right hon. Friend said: I assure the House that the Government are willing to consider any approach made by the church authorities about the possibility of grants towards the cost of repairs to historic churches, and naturally any question of grant for historic churches in use would not be confined to those of the Church of England. Later my right hon. Friend said: I invite any charity which feels that it can demonstrate a significant deterioration in its position as a result of the changes in this Bill to send details to the Customs and Excise."—[OFFICIAL REPORT, 12th July. 1972; Vol. 840, c. 1690–4.] He went on to say that it would be looked at most sympathetically.

Dr. Stuttaford

Would my hon. Friend agree that on the actual night that Amendment was being discussed we were told that there would be some announcement the following day about a grant? The question of a discussion in the future is not at all the way in which it was put.

Mr. Jenkin

My hon. Friend the Member for Dartford (Mr. Trew) also raised this point, and he expressed himself satisfied with what the Chancellor said in that debate. I think it best to leave it so. There was no question of any misunderstanding.

My hon. Friend the Member for Leek raised the question of colleges of further education. I can assure him that it is the Government's intention to exempt the provision of education by such bodies in so far as they are providing education such as provided by a school or university and otherwise than for profit. If the drafting of the Bill requires change in the light of further discussion I can assure my hon. Friend that the necessary adjustment will be made by a Treasury order before 1st April next.

Before I sit down I must deal with the last part of the speech by the right hon. Gentleman the Member for Leeds, East. I seem to recollect that on his first appearance as Opposition spokesman on finance I remarked on the dearth of economic quotations from him: I could find no single utterance of his on the record on economic matters. He has, if I may say so, broken his duck with a vengeance. I am willing to bet that some of his remarks during the proceedings on this Bill are remarks which he would prefer to forget.

However, I simply cannot let the right hon. Gentleman get away with the main burden of his criticism today. The fact of the matter is that over and over again we have seen since the last General Election the Labour Party contradict what it did and said in Government. We were roundly criticised last year for increasing the earned income relief right up the scale, but it was the right hon. Gentleman the Member for Birmingham, Stechford (Mr. Roy Jenkins) who said in 1969: …I have carefully considered whether, even in a year as difficult as this, it would be justifiable for incentive reasons, and for the encouragement of sayings, to mitigate slightly the rates of tax on high earned incomes. He went on: I would emphasise, however, that I regard an increase in one of the earned income allowances as a high priority for a later Budget."—[OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 1031–2.] The truth of the matter is that he wanted to do it; he failed to do it, but it has not stopped the Labour Party from attacking us when we do it.

Take the reintroduction of stock options, to which the hon. Gentleman the Member for Heywood and Royton (Mr. Joel Barnett) referred. Many in the Labour Party were critical of what that party did in 1966, and they know it. Last year the hon. and learned Member for Lincoln (Mr. Taverne) said: To be frank, I was not entirely happy about the course which the law had taken in the past."—[Official Report, Standing Committee H, 21st June, 1971; c. 939.] While I would not for one moment claim that the hon. and learned Member would assent to every Clause and every paragraph on that subject in this Bill, it makes the violent criticisms we have had from the Labour Party wholly inconsistent with the sensible and moderate reaction of the hon. and learned Member last year.

Take the unified tax system. The right hon. Gentleman the Member for Stechford said he wanted to do this but found himself unable to achieve it; it would always be an essential feature of a unified tax system that it should be structured round earned income rather than investment income, which means some starting point for the investment income surcharge. Yet how could the Labour Party hope to administer a unified tax system with a significantly lower starting point in investment income than the one we have chosen? Or would it, as the hon. Member for Heywood and Royton suggested, have two tax systems side by side, earned income tax and investment income tax? We are not told.

So it goes on—on one Tory tax reform after another, we have achieved what the Labour Party wanted to do, and yet because we do it, not that party, it stands on its head in bitter complaint. The simple fact is that the Labour Party is quite unable to attack the major changes in this Bill—the biggest-ever increases in personal allowances, the substantial cuts in indirect taxation, the real help for widows and charities on estate duty, the new 100 per cent. first-year allowances for plant and machinery, and, above all—I say this again to a party which itself has committed to enter into the European Community—the Bill contains the fairest VAT in Europe with its single, low, positive rate—[Hon. Members: "For how long?"]—coupled with the zero-rating of most food, housing, fuel and fares. These are the heart of the Bill, and I invite the House to support it in the Division Lobby.

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

The House divided: Ayes 291, Noes 253.

Division No. 302.]	AYES	[8.0 p.m.
Adley, Robert	Fenner, Mrs. Peggy	Lane, David
Alison, Michael (Barkston Ash)	Fidler, Michael	Langford-Holt, Sir John
Allason, James (Hemel Hempstead)	Finsberg, Geoffrey (Hampstead)	Legge-Bourke, Sir Harry
Amery, Rt. Hn. Julian	Fisher, Nigel (Surbiton)	Le Marchant, Spencer
Archer, Jeffrey (Louth)	Fletcher-Cooke, Charles	Lewis, Kenneth (Rutland)
Astor, John	Fookes, Miss Janet	Lloyd,Rt.Hn.Geoffrey (Sut'nC'dfield)
Atkins, Humphrey	Fortescue, Tim	Lloyd, Ian (P'tsm'th, Langstone)
Awdry, Daniel	Foster, Sir John	Longden, Sir Gilbert
Baker, Kenneth (St. Marylebone)	Fowler, Norman	Loveridge, John
Balniel, Lord	Fox, Marcus	Luce, R. N.
Barber, Rt. Hn. Anthony	Fraser,Rt.Hn.Hugh(Stafford & Stone)	McAdden, Sir Stephen
Batsford, Brian	Fry, Peter	MacArthur, Ian
Beamish, Col. Sir Tufton	Galbraith, Hn. T. G.	McCrindle, R. A.
Bell, Ronald	Gardner, Edward	McLaren, Martin
Bennett, Dr. Reginald (Gosport)	Gibson-Watt, David	McMaster, Stanley
Benyon, W.	Gilmour, Ian (Norfolk, C.)	Macmillan, Maurice (Farnham)
Berry, Hn. Anthony	Gilmour, Sir John (Fife, E.)	McNair-Wilson, Patrick (NewForest)
Biffen, John	Glyn, Dr. Alan	Maddan, Martin
Biggs-Davison, John	Godber, Rt. Hn. J. B	Madel, David
Blaker, Peter	Goodhew, Victor	Marples, Rt. Hn. Ernest
Boardman, Tom (Leicester, S.W.)	Gorst, John	Marten, Neil
Body, Richard	Gower, Raymond	Mather, Carol
Boscawen, Robert	Grant, Anthony (Harrow C.)	Maude, Angus
Bossom, Sir Clive	Gray, Hamish	Mawby, Ray
Bowden, Andrew	Green, Alan	Meyer, Sir Anthony
Braine, Bernard	Grieve, Percy	Mills, Peter (Torrington)
Bray, Ronald	Griffiths, Eldon (Bury St. Edmunds)	Mills, Stratton (Belfast, N.)
Brewis, John	Grimond, Rt. Hn. J	Miscampbell, Norman
Brinton, Sir Tatton	Gummer, Selwyn	Mitchell, Lt-Col.C.(Aberdeenshire,W)
Brocklebank-Fowler, Christopher	Gurden, Harold	Mitchell, David (Basingstoke)
Brown, Sir Edward (Bath)	Hall, Miss Joan (Keighley)	Moate, Roger
Bruce-Gardyne, J.	Hall, John (Wycombe)	Money, Ernle
Bryan, Paul	Hall-Davis, A. G. F.	Monks, Mrs. Connie
Buchanan-Smith, Alick (Angus,N & M)	Hamilton, Michael (Salisbury)	Monro, Hector
Buck, Antony	Hannam, John (Exeter)	Montgomery, Fergus
Bullus, Sir Eric	Harrison, Brian (Maldon)	More, Jasper
Burden, F. A.	Harrison, Col. Sir Harwood (Eye)	Morgan, Geraint (Denbigh)
Butler, Adam (Bosworth)	Hastings, Stephen	Morrison, Charles
Campbell, Rt.Hn.G.(Moray & Nairn)	Havers, Michael	Mudd, David
Carlisle, Mark	Hawkins, Paul	Murton, Oscar
Carr, Rt. Hn. Robert	Heath, Rt. Hn. Edward	Neave, Airey
Chapman, Sydney	Higgins, Terence L.	Nicholls, Sir Harmar
Chataway, Rt. Hn. Christopher	Hiley, Joseph	Noble, Rt. Hn. Michael
Chichester-Clark, R.	Hill, John E. B. (Norfolk, S.)	Normanton, Tom
Churchill, W. S.	Hill, James (Southampton, Test)	Nott, John
Clark, William (Surrey, E.)	Holland, Philip	Onslow, Cranley
Clarke, Kenneth (Rushcliffe)	Holt, Miss Mary	Oppenheim, Mrs. Sally
Cockeram, Eric	Hordern, Peter	Osborn, John
Cooke, Robert	Hornby, Richard	Owen, Idris (Stockport, N.)
Coombs, Derek	Hornsby-Smith.Rt.Hn.Dame Patricia	Page, Graham (Crosby)
Cooper, A. E.	Howe, Hn. Sir Geoffrey (Reigate)	Page, John (Harrow, W.)
Cordle, John	Howell, David (Guildford)	Parkinson, Cecil
Cormack, Patrick	Howell, Ralph (Norfolk, N.)	Peel, John
Costain, A. P.	Hunt, John	Percival, Ian
Critchley, Julian	Hutchison, Michael Clark	Peyton, Rt. Hn. John
Crouch, David	Iremonger, T. L.	Pink, R. Bonner
Crowder, F. P.	Irvine, Bryant Godman (Rye)	Pounder, Rafton
Dalkeith, Earl of	James, David	Powell, Rt. Hn. J. Enoch
Davies, Rt. Hn. John (Knutsford)	Jenkin, Patrick (Woodford)	Price, David (Eastleigh)
d'Avigdor-Goldsmid, Sir Henry	Jessel, Toby	Prior, Rt. Hn. J. M. L.
d'Avigdor-Goldsmid,Maj.-Gen.James	Johnson Smith, G. (E. Grinstead)	Pym, Rt. Hn. Francis
Dean, Paul	Jones, Arthur (Northants, S.)	Quennell, Miss J. M.
Deedes, Rt. Hn. W. F.	Jopling, Michael	Raison, Timothy
Digby, Simon Wingfield	Joseph, Rt. Hn. Sir Keith	Ramsden, Rt. Hn. James
Dixon, Piers	Kaberry, Sir Donald	Rawlinson, Rt. Hn. Sir Peter
Dodds-Parker, Douglas	Kellett-Bowman, Mrs. Elaine	Redmond, Robert
Drayson, G. B.	Kershaw, Anthony	Reed, Laurance (Bolton. E.)
du Cann, Rt. Hn. Edward	Kilfedder, James	Rees, Peter (Dover)
Dykes, Hugh	Kimball, Marcus	Rees-Davies, W. R.
Eden, Sir John	King, Evelyn (Dorset, S.)	Renton, Rt. Hn. Sir David
Edwards, Nicholas (Pembroke)	King, Tom (Bridgwater)	Rhys Williams, Sir Brandon
Elliot, Capt. Walter (Carshalton)	Kinsey, J. R.	Ridley, Hn. Nicholas
Elliott, R. W. (N'c'tle-upon-Tyne,N)	Kitson, Timothy	Ridsdale, Julian
Emery, Peter	Knox, David	Roberts, Michael (Cardiff, N.)
Eyre, Reginald	Lambton, Lord	Roberts, Wyn (Conway)
Farr, John	Lamont, Norman	Rodgers, Sir John (Sevenoaks)
Fell, Anthony		Rossi, Hugh (Hornsey)
Rost, Peter	Stoddart-Scott, Col. Sir M.	Walder, David (Clitheroe)
Royle, Anthony	Stokes, John	Walker, Rt. Hn. Peter (Worcester)
Russell, Sir Ronald	Tapsell, Peter	Walker-Smith, Rt. Hn. Sir Derek
St. John-Stevas, Norman	Taylor, Sir Charles (Eastbourne)	Walters, Dennis
Sandys, Rt. Hn. D.	Taylor,Edward M.(G'gow,Cathcart)	Ward, Dame Irene
Scott-Hopkins, James	Taylor, Frank (Moss Side)	Wells, John (Maidstone)
Sharples, Sir Richard	Taylor, Robert (Croydon, N.W.)	White, Roger (Gravesend)
Shaw, Michael (Sc'b'gh & Whitby)	Tebbit, Norman	Wiggin, Jerry
Shelton, William (Clapham)	Temple, John M.	Wilkinson, John
Simeons, Charles	Thatcher, Rt. Hn. Mrs. Margaret	Winterton, Nicholas
Sinclair, Sir George	Thomas, John Stradling (Monmouth)	Wolrige-Gordon, Patrick
Skeet, T. H. H.	Thomas, Rt. Hn. Peter (Hendon, S.)	Wood, Rt. Hn. Richard
Smith, Dudley (W'wick S L'mington)	Thompson, Sir Richard (Croydon, S.)	Woodhouse, Hn. Christopher
Soref, Harold	Thorpe, Rt. Hn. Jeremy	Woodnutt, Mark
Speed, Keith	Tilney, John	Worsley, Marcus
Spence, John	Trew, Peter	Wylie, Rt. Hn. N. R.
Sproat, Iain	Tugendhat, Christopher	Younger, Hn. George
Stainton, Keith	Turton, Rt. Hn. Sir Robin
Stanbrook, Ivor	van Straubenzee, W. R.	TELLERS FOR THE AYES:
Steel, David	Vaughan, Dr. Gerard	Mr. Bernard Weatherill and
Stewart-Smith, Geoffrey (Belper)	Vickers, Dame Joan	Mr. Walter Clegg.
Stodart, Anthony (Edinburgh, W.)	Waddington, David
NOES
Abse, Leo	Dormand, J. D.	Jones, Barry (Flint, E.)
Albu, Austen	Douglas, Dick (Stirlingshire, E.)	Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)
Allaun, Frank (Salford, E.)	Douglas-Mann, Bruce	Jones, Gwynoro (Carmarthen)
Allen, Scholefield	Driberg, Tom	Jones, T. Alec (Rhondda, W.)
Archer, Peter (Rowley Regis)	Dunnett, Jack	Judd, Frank
Armstrong, Ernest	Eadie, Alex	Kaufman, Gerald
Ashton, Joe	Edelman, Maurice	Kelley, Richard
Atkinson, Norman	Edwards, Robert (Bilston)	Kerr, Russell
Bagier, Gordon A. T.	Edwards, William (Merioneth)	Kinnock, Neil
Barnes, Michael	Ellis, Tom	Lambie, David
Barnett, Guy (Greenwich)	English, Michael	Lamborn, Harry
Barnett, Joel (Heywood and Royton)	Evans, Fred	Lamond, James
Baxter, William	Ewing, Henry	Lawson, George
Benn, Rt. Hn. Anthony Wedgwood	Fitch, Alan (Wigan)	Leadbitter, Ted
Bennett, James (Glasgow, Bridgeton)	Fletcher, Raymond (Ilkeston)	Lee, Rt. Hn. Frederick
Bidwell, Sydney	Fletcher, Ted (Darlington)	Leonard, Dick
Blenkinsop, Arthur	Foot, Michael	Lestor, Miss Joan
Boardman, H. (Leigh)	Fraser, John (Norwood)	Lever, Rt. Hn. Harold
Booth, Albert	Freeson, Reginald	Lewis, Arthur (W. Ham, N.)
Bottomley, Rt. Hn. Arthur	Galpern, Sir Myer	Lewis, Ron (Carlisle)
Boyden, James (Bishop Auckland)	Garrett, W. E.	Lipton, Marcus
Bradley, Tom	Gilbert, Dr. John	Lomas, Kenneth
Broughton, Sir Alfred	Ginsburg, David (Dewsbury)	Loughlin, Charles
Brown, Bob (N'c'tle-upon-Tyne,W.)	Golding, John	Lyons, Edward (Bradford, E.)
Brown, Hugh D. (G'gow, Provan)	Gordon Walker, Rt. Hn. P. C.	Mabon, Dr. J. Dickson
Brown, Ronald (Shoreditch & F'bury)	Gourlay, Harry	McBride, Neil
Buchan, Norman	Grant, George (Morpeth)	McCartney, Hugh
Buchanan, Richard (G'gow, Sp'burn)	Grant, John D. (Islington, E.)	McElhone, Frank
Butler, Mrs. Joyce (Wood Green)	Griffiths, Eddie (Brightside)	McGuire, Michael
Callaghan, Rt. Hn. James	Griffiths, Will (Exchange)	Mackenzie, Gregor
Campbell, I. (Dunbartonshire, W.)	Hamilton, William (Fife, W.)	Mackie, John
Carmichael, Neil	Hamling, William	Mackintosh, John P.
Carter, Ray (Birmingh'm, Northfield)	Hannan, William (G'gow, Maryhill)	Maclennan, Robert
Carter-Jones, Lewis (Eccles)	Hardy, Peter	McMillan, Tom (Glasgow, C.)
Castle, Rt. Hn. Barbara	Harper, Joseph	Mahon, Simon (Bootle)
Clark, David (Colne Valley)	Harrison, Walter (Wakefield)	Mallalieu, J. P. W. (Huddersfield, E.)
Cocks, Michael (Bristol, S.)	Hart, Rt. Hn. Judith	Marks, Kenneth
Cohen, Stanley	Hattersley, Roy	Marquand, David
Coleman, Donald	Healey, Rt. Hn. Denis	Marsden, F.
Concannon, J. D.	Heffer, Eric S.	Marshall, Dr. Edmund
Conlan, Bernard	Horam, John	Mason, Rt. Hn. Roy
Corbet, Mrs. Freda	Houghton, Rt. Hn. Douglas	Mayhew, Christopher
Cox, Thomas (Wandsworth, C.)	Howell, Denis (Small Heath)	Meacher, Michael
Crawshaw, Richard	Huckfield, Leslie	Mellish, Rt. Hn. Robert
Crosland, Rt. Hn. Anthony	Hughes, Rt. Hn. Cledwyn (Anglesey)	Mendelson, John
Crossman, Rt. Hn. Richard	Hughes, Mark (Durham)	Mikardo, Ian
Cunningham, G. (Islington, S.W.)	Hughes, Robert (Aberdeen, N.)	Millan, Bruce
Dalyell, Tam	Hughes, Roy (Newport)	Miller, Dr. M. S.
Darling, Rt. Hn. George	Hunter, Adam	Milne, Edward
Davidson, Arthur	Irvine,Rt.Hn.SirArthur(Edge Hill)	Mitchell. R. C. (S'hampton, Itchen)
Davies, Denzil (Llanelly)	Janner, Greville	Molloy, William
Davies, Ifor (Gower)	Jay, Rt. Hn. Douglas	Morgan, Elystan (Cardiganshire)
Davis, Clinton (Hackney, C.)	Jeger, Mrs. Lena	Morris, Alfred (Wythenshawe)
Davis, Terry (Bromsgrove)	Jenkins, Hugh (Putney)	Morris, Charles R. (Openshaw)
Deakins, Eric	Jenkins, Rt. Hn. Roy (Stechford)	Morris, Rt. Hn. John (Aberavon)
de Freitas, Rt. Hn. Sir Geoffrey	John, Brynmor	Moyle, Roland
Dell, Rt. Hn. Edmund	Johnson, James (K'ston-on-Hull, W.)	Mulley, Rt. Hn. Frederick
Dempsey, James	Johnson, Walter (Derby, S.)	Murray, Ronald King
Doig, peter		Oakes, Gordon

O'Halloran, Michael	Rodgers, William (Stockton-on-Tees)	Tinn, James
O'Malley, Brian	Roper, John	Tomney, Frank
Oram, Bert	Ross, Rt. Hn. William (Kilmarnock)	Torney, Tom
Orbach, Maurice	Rowlands, Ted	Tuck, Raphael
Oswald, Thomas	Sandelson, Neville	Urwin, T. W.
Owen, Dr. David (Plymouth, Sutton)	Sheldon, Robert (Ashton-under-Lyne)	Wainwright, Edwin
Padley, Walter	Shore, Rt. Hn. Peter (Stepney)	Walden, Brian (B'm'ham, All Saints)
Paget, R. T.	Short,Rt.Hn.Edward(N'c'tle-u-Tyne)	Walker, Harold (Doncaster)
Palmer, Arthur	Silkin, Rt. Hn. John (Deptford)	Wallace, George
Pannell, Rt. Hn. Charles	Silkin, Hn. S. C. (Dulwich)	Watkins, David
Parker, John (Dagenham)	Sillars, James	Weitzman, David
Parry, Robert (Liverpool, Exchange)	Silverman, Julius	Wells, William (Walsall, N.)
Pavitt, Laurie	Skinner, Dennis	White, James (Glasgow, Pollok)
Peart, Rt. Hn. Fred	Small, William	Whitehead, Phillip
Pentland, Norman	Spearing, Nigel	Whitlock, William
Perry, Ernest G.	Spriggs, Leslie	Willey, Rt. Hn. Frederick
Prentice, Rt. Hn. Reg.	Stoddart, David (Swindon)	Williams, Alan (Swansea, W.)
Prescott, John	Stonehouse, Rt. Hn. John	Williams, Mrs. Shirley (Hitchin)
Price, J. T. (Westhoughton)	Strang, Gavin	Williams, W. T. (Warrington)
Price, William (Rugby)	Strauss, Rt. Hn. G. R	Wilson, Alexander (Hamilton)
Probert, Arthur	Stuttaford, Dr. Tom	Wilson, Rt. Hn. Harold (Huyton)
Reed, D. (Sedgefield)	Summerskill, Hn. Dr. Shirley	Wilson, William (Coventry, S.)
Rhodes, Geoffrey	Swain, Thomas	Woof, Robert
Richard, Ivor	Taverne, Dick
Roberts, Albert (Normanton)	Thomas,Rt.Hn.George (Cardiff,W)	TELLERS FOR THE NOES:
Roberts,Rt.Hn.Goronwy (Caernarvon)	Thomas, Jeffrey (Abertillery)	Mr. James Wellbeloved and
Robertson, John (Paisley)	Thomson, Rt. Hn. G. (Dundee,B.)	Mr. James Hamilton.

Question accordingly agreed to.

Bill read the Third time and passed.