Commons Sitting of 9 May 1972

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

HON. MEMBERS FOR MID-ULSTER, FERMANAGH AND SOUTH TYRONE AND BELFAST, WEST
Mr. Speaker: The House will recall that on 20th April I read to the House the terms of two letters which I had received from the Resident Magistrate of Eniskillen in which he informed me of sentences of imprisonment passed respectively upon the hon. Members for Mid-Ulster (Miss Devlin) and Fermanagh and South Tyrone (Mr. McManus). I now have to inform the House that I have received a letter, dated 3rd May, from the Secretary of State for Northern Ireland in the following terms:
" By virtue of Section 1(1)(a) of the Northern Ireland (Temporary Provisions) Act and Section 8(2) of the Government of Ireland Act, 1920, I, as Secretary of State for Northern Ireland, am empowered to exercise the Royal Prerogative of Mercy in Northern Ireland. I am formally drawing your attention to the fact that on 27th April, 1972, I exercised these powers to remit all sentences of imprisonment (including suspended sentences) and any fines imposed in respect of offences of organising or taking part in marches or processions held contrary to law between (and including) 25th December, 1971, and 27th April. 1972.
"This act of clemancy will apply to Mr. F. McManus, Member of Parliament for Fermanagh and South Tyrone, and Miss B. Devlin, Member of Parliament for Mid-Ulster, both of whom were convicted of such offences and sentenced to six months' imprisonment as notified to you by the Resident Magistrate in his letters of 17th April, 1972."
I should add that I am informed that the act of clemancy also applies to the hon. Member for Belfast, West (Mr. Fitt).

PRIVATE BUSINESS
CLYDE RIVER PURIFICATION BOARD BILL
Lords Amendments agreed to.
LLOYDS & BOLSA INTERNATIONAL BANK
BILL [Lords]
Read the Third time and passed, with Amendments.
SEAHAM HARBOUR DOCK BILL
Read the Third time and passed.
NEATH CORPORATION BILL
[Lords]
UNITED KINGDOM OIL PIPELINES BILL
[Lords]
Read the Third time and passed, without Amendment.
LIVERPOOL CORPORATION BILL
Read the Third time and passed.
OXFORDSHIRE AND DISTRICT WATER
BOARD BILL [Lords]
SALOP COUNTY COUNCIL BILL
As amended, considered.
To he read the Third time.

ORAL ANSWERS TO QUESTIONS
  SOCIAL SERVICES

    Nurseries and Play Groups
    Miss Lestorasked the Secretary of State for Social Services how many children are currently attending day nurseries, residential nurseries and play groups, respectively.
    The Under-Secretary of State for Health and Social Security (Mr. Michael Alison): The latest available figures are that the number of places in local authority and private day nurseries is about 41,000, and in play groups about 260,000. The number of children in residential nurseries is about 3,600.
    Miss Lestor: Does the hon. Gentleman agree that there is something wrong with a system of administration that divides pre-school children between the Department of Social Services and the Department of Education for no reason other than facilities that may be available in a particular area? Will he ask his right hon. Friend to hold discussions with

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    the Secretary of State for Education and Science to see whether a joint authority can be established whereby educational responsibility can play some part in the care of the children in these areas?
    Mr. Alison: I am not aware that there is any failure in the provision of services as a result of this division of responsibility. However, my right hon. Friend is in the process of having consultations with my right hon. Friend the Secretary of State for Education and Science about the development of the future provision.
    Sir T. Beamish: Is everything possible being done to encourage the admirable voluntary work done by the pre-school play groups whose work fills an important gap until more money can be afforded for State nursery schooling?
    Mr. Alison: Yes. We give the most sympathetic consideration to any approaches they make to us for special help or encouragement.
    Mrs. Renée Short: Does the hon. Gentleman realise that the development of play groups has taken place simply because there is not enough State provision of nursery education? Does the hon. Gentleman also understand that if the provision is not adequate or up to standard, mothers who want some kind of activity for their children will find many alternatives, many of which are not adequate or suitable? This matter is of great concern to many people involved with young children. Will the hon. Gentleman see what he can do to persuade his right hon. Friend to accept full responsibility and to find more money for the care of pre-school children?
    Mr. Alison: The question about nursery education belongs to my right hon. Friend the Secretary of State for Education and Science. I take the point the hon. Lady made about the undesirable fringe developments which may occur in this sphere. I do not want to play down the vital contribution which voluntary organisations can make. The hon. Lady will be glad to know that expenditure is increasing quite dramatically in both the private and public sectors on this front.

    Welfare Payments (Unemployed Persons)
    Sir G. Nabarroasked the Secretary of State for Social Services what steps he is considering, for inclusion for this year's review, for adjustment of social welfare payments in such fashion as to encourage unemployed males to accept employment offers, when available, and end the situation that unemployed males receive larger weekly welfare payments, including unemployment pay, than wages on offer for a return to work.
    The Secretary of State for Social Services (Sir Keith Joseph): None, Sir. I consider the conditions governing the payment of social security benefits, in the circumstances outlined, to be generally adequate, though there is sometimes a difficulty in those cases where the job offered is low paid and the man has several dependants.
    Sir G. Nabarro: Is it not a fact that these circumstances are now proliferating and that there is increasing evidence from all parts of the country that it pays a man to remain out of work for long periods because the job opportunities offered to him do not reflect the return on the extra effort required to work as opposed to remaining on the dole? Surely this is a topsy-turvey condition of social welfare and economic affairs.
    Sir K. Joseph: There is a difficulty where the man concerned has several dependants, is a low earner when in work, and lives in an area where there are not many job opportunities. It is possible in certain cases that a man may be tempted not to make the great effort which we would expect of him, but if there are not many jobs available that cannot always be accounted for by motivation. To alter the level or conditions of benefit to meet these cases would, first, prejudice the children concerned and, secondly, be unfair to the vast majority of unemployed and sick who are only too anxious to obtain work and to go back to work.
    Mr. Ashley: Will the Secretary of State go further and condemn the outrageous nonsense implied in his hon. Friend's Question? Does he agree that such doctrinaire campaigns are damaging to industrial relations?
    Sir K. Joseph: The House knows that I do not agree with my hon. Friend on everything. However, I think that he is entirely justified in raising this very worrying dilemma which faces any Government. We have not yet discovered a way round it.
    Mr. Fell: Does my right hon. Friend realise that, in replying to my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro), he gave the impression that he thought that these cases were unusual? Does he further realise that in areas of low pay, such as East Anglia, these cases are not uncommon but are very common? Whatever hon. Gentlemen opposite may say, the gap is so narrow between what people may get when unemployed and what they may get when employed that it is not worth their travelling even 10 miles for a job.
    Sir K. Joseph: There is some truth in what my hon. Friend says, subject to two points: first, the family income supplement encourages the low earner to go back to work when he can because it supplements his earnings; and, secondly, the overlap between benefit and earning is particularly large for men who have three or more children.
    Mr. Stonehouse: Surely the answer to the problem is to have a basic minimum wage which is higher than the social security benefit which is being paid to those who are not employed? Will the Secretary of State suggest this to his right hon. Friend the Secretary of State for Employment?
    Sir K. Joseph: The last Government presided over the publication of a very detailed inquiry into the implications of the minimum wage and rejected it.
    Mrs. Castle: No.
    Sir K. Joseph: This is outside my Department. I withdraw that comment if it was inaccurate. However, there are difficulties in the way of doing what the right hon. Gentleman suggests.

    Pay Beds
    Mr. Ashtonasked the Secretary of State for Social Services what action he intends to take following the Expenditure Committee Report on pay beds in hospitals; and whether he will make a statement.
    Sir K. Joseph: I am considering the report and shall be replying to it in due course.
    Mr. Ashton: Will the Secretary of State take notice of the fact that we have a situation where consultants are organising the queue for operations and people can jump that queue if they are prepared to pay? Will he also take notice that the report shows that people have to wait on average 18 months for a tonsillectomy under the National Health Service whereas they have to wait only two weeks if they are prepared to pay?
    Sir K. Joseph: The House is aware that the Government take seriously the length of waiting lists in many parts of the country. This is a subject on which I hope to make a statement later this year.
    Dr. Summerskill: Will the right hon. Gentleman bear in mind that the subject of pay beds in the National Health Service is highly controversial among not only members of the Expenditure Committee and hon. Members but people outside this House? Will he ensure that the report is not shelved, that we shall have an early debate on this important subject in Government time, and that the Government will make quite clear their policy towards private beds in the National Health Service?
    Sir K. Joseph: The question of a debate is not for me. I believe that there are infinitely more important matters for the benefit of patients than this issue, on which I have already made my position abundantly clear.

    Heating Allowances
    Mr. R. C. Mitchellasked the Secretary of State for Social Services whether he will now introduce special heating allowances of at least 50p a week for all pensioners receiving supplementary benefit.
    The Under-Secretary of State for Health and Social Security (Mr. Paul Dean): No, Sir. The ordinary level of supplementary pension, which will be increased substantially in October, provides for all normal heating expenses. Where there is need for extra heating, special allowances are already provided by the Supplementary Benefits Commission.
    Mr. Mitchell: Is the Under-Secretary aware that that is almost the same answer as that which I received when I first asked the Question last September? Since then we have had a very long and cold winter in which a number of old-age pensioners have suffered severely from the cold. Will the hon. Gentleman treat this matter seriously? Large numbers of pensioners cannot at the moment afford to heat their premises properly. Will he make sure that something is done about this situation before next winter?
    Mr. Dean: All supplementary pensioners will have an increase in both the scale rates and the long-term addition in October this year—in other words, before next winter—which will amount to 85p for a single person and £1·30 for a married couple. In addition, the special addition for heating is being increased by 20 per cent. in October.
    Mr. Heffer: Does the hon. Gentleman agree that no Government—I emphasise no Government—over the past few years have done enough for our pensioners? Is it not clear that the increase which will become effective later this year will not meet the needs of pensioners and that, in particular, there is a need, as my hon. Friend said, for extra money for heating? In my constituency, young people have carried out a survey among the old and have discovered that elderly people are living in sheer misery during the winter months. Will the Under-Secretary look at the problem again and do something about it?
    Mr. Dean: Yes. I assure the hon. Gentleman and the House that my right hon. Friend takes this long-standing problem extremely seriously. In addition to the cash improvements, about which I have just given the House information, my right hon. Friend is also concerting activity with those who have undertaken surveys to ascertain the possibilities of other methods of assisting those who may require extra heating—for example, better insulation in their homes.

    Agoraphobia
    Mr. Greville Jannerasked the Secretary of State for Social Services if he will cause additional studies to be made into the causes and cure of agoraphobia; and whether he will provide appropriate finance.
    Mr. Alison: My Department is able and prepared to consider proposals for research related to the provision of services for psychiatric disorders, including phobias, within its normal research programme.
    Mr. Janner: I thank the Minister for that Answer. Is he aware that more than a quarter of a million people suffer from this sad and disabling disease and that more than 10,000 are totally disabled? Will he specifically undertake to devote resources to the diagnosis and cure of this particular unhappy and almost forgotten area of mental illness?
    Mr. Alison: I share the profound sympathy which the hon. and learned Gentleman has expressed for those who suffer from agoraphobia. A good deal of work is going on. The hon. and learned Gentleman will presently get information about it in answer to another Question which he has down. I believe that the facilities which exist, either through general practitioners treating patients at home or in the ordinary psychiatric departments of hospitals, are adequate at present.
    Mr. Russell Kerr: Is the Minister prepared to use the publicity facilities of his Department to make local councils and other authorities aware of the facilities which exist? I agree with my hon. and learned Friend that this is a greatly under-publicised affliction which could do with some publicity by the Department.
    Mr. Alison: Though I am prepared to look sympathetically at what the hon. Gentleman said, I think that most sufferers from agoraphobia will have brought their condition to the notice of their general practitioners and, through them, to hospital departments. If publicity will help in this respect, we shall certainly consider it.

    Special Investigations
    Mr. ClintonDavis asked the Secretary of State for Social Services why it has been found necessary to increase substantially the number of special investigators employed by his Department since June, 1970.
    Sir K. Joseph: They were appointed in order to enable more cases of suspected fraud, of the various types which can

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    be practised in connection with supplementary benefit, to he investigated by officers specialising in this work.
    Mr. Davis: Does the Secretary of State not agree that inquiries about cohabitation frequently go too far? Does he realise that inquiries are made of children, of neighbours and of employers all within the terms of the handbook? Is this justified and do the results justify it, and should not far more emphasis be put on the financial relationship between the man and the woman rather than on the alleged cohabitation?
    Sir K. Joseph: The investigators are performing a necessary if distasteful duty in order to safeguard public funds from fraud. As for any allegations that children are questioned by the investigators, I should be most grateful if the hon. Member would send details to the Chairman of the Commission who—as I do—would take such cases very seriously indeed. My belief is that, subject to the occasional inevitable human error in a difficult job, they perform their duties in a decent, honourable and conscientious way. Only just over one-third of their time is spent investigating cohabitation, the vast bulk of it being devoted to detecting other forms of fraud such as fictitious desertion and undisclosed earnings.
    Mr. Waddington: Does my right hon. Friend agree that nothing is more likely to infuriate the decent, hard-working citizen than the knowledge that some of his neighbours are battening on the State and drawing benefits, paid for out of his taxes, to which they are not entitled? Does not my right hon. Friend think it extraordinary that all too often hon. Members of the Opposition try to suggest that, for some reason which I do not understand, a man who is living with a woman and sharing her bed should not be responsible for keeping that woman but that the State should? Will he rest assured that we on this side of the House will welcome any steps to tighten up the present system and to stop abuses?
    Sir K. Joseph: I agree with a great deal of what my hon. and learned Friend said but, to be fair to him, the hon. Member for Hackney, Central (Mr. Clinton Davis) did not, as I understand it, attack the whole cohabitation rule but the
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    methods which he alleges are sometimes used in order to investigate alleged cases. That is a perfectly legitimate point to make to the Government. But I am sure that the rule, which is intended to ensure that the unmarried couple who live together as man and wife do not get more favourable treatment than the married couple is in accordance with public sentiment.
    Mrs. Castle: The remarks by the hon. and learned Member for Nelson and Colne (Mr. Waddington) intensify the alarm that we have felt on this side of the House about the attitude to women involved in these cases. The Secretary of State's reply is not very reassuring either. Is the House not entitled to know what methods are used and what instructions are given to the investigators? Are we not indebted to the Daily Mail for having obtained a copy of these instructions and can we now have them officially? 'Will the Secretary of State please answer the question by my hon. Friend the Member for Hackney, Central (Mr. Clinton Davis) whether the definition of cohabitation is one which distinguishes fairly and clearly between sleeping together and financial support? Can we therefore have the instructions and the definition published so that the House can express an opinion?
    Sir K. Joseph: I must refer the right hon. Lady and the hon. Member for Hackney, Central to the very careful paper on cohabitation published last year by the Supplementary Benefits Commission which spells out in 11 pages the evidence for which they look in deciding where cohabitation exists. Their emphasis is the whole time upon the existence of a stable union. In a short answer I cannot give all the details set out in the paper. As for publishing the instructions to the investigators, there are a very small minority of people who are only too willing to embark upon frauds against the public and to publish the instructions would facilitate their lives.

    Far East Prisoners of War
    Mr. Blakerasked the Secretary of State for Social Services to what extent he discussed at his meeting in April with the deputation from the National Federation of Far East Prisoners of War Clubs and Associations the modification of the

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    over-seven-years' rule; and if he will make a statement.
    Mr. Dean: The meeting to which my hon. Friend refers took place only yesterday afternoon. I promised then to consider a number of points raised with me by the deputation, including the operation of the seven-year rule.
    Mr. Blaker: It was evident at the national service of remembrance and reunion held by the Federation last month in my constituency that the number of Far East prisoners of war are diminishing fast. Is my hon. Friend aware that Australia, the United States and Canada have consistently treated their Far East prisoners of war and their widows more sympathetically than we have in this country? Will he take these points into account in the review?
    Mr. Dean: I would not accept entirely what my hon. Friend says about the treatment afforded by the United States, Canada and Australia, but I recognise that there are special problems here. I am taking steps to improve the arrangements which I think will reassure the Federation.
    Mr. Simon Mahon: Many of the troubles and illnesses of Far East prisoners of war are just coming to light today, sometimes after 30 years. Is it not basically essential that each case of a FEPOW who has been in the hands of the Japanese should be treated on its individual merits? Is it not essential that these men are examined by medical practitioners who know something about what the Japanese did to them and not by people who have little cognisance of the matter?
    Mr. Dean: I agree with the points which the hon. Member made and we must ensure in every case that where there is doubt, that doubt goes in favour of the claimant. The new steps which I am working out are designed to achieve this.
    Sir H. Harrison: I speak as one of these men. Is the Under-Secretary aware that the meeting took place only yesterday and that as a whole we have great confidence in him and in Ministers in the past? These are new facts that have come to light, and we look forward in due course, now that he has heard the repre-
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    sentations, to the Under-Secretary making another statement to the House.
    Mr. Dean: I am obliged to my hon. and gallant Friend for his comments and I will inform the House as soon as the details are worked out.
    Mr. Alfred Morris: Will the Under-Secretary agree to reconsider the terms of his original reply and to make a full and further statement to the House at the earliest possible date?
    Mr. Dean: I have assured the House that as soon as more information is available and the details are worked out I will see that they are made available to the House in the most appropriate form.

    Health Education Officers
    Mr. Dormandasked the Secretary of State for Social Services what is the number of health education officers employed by local authorities; and what is the number of local authorities employing them as a percentage of those local authorities empowered to appoint such officers.
    Mr. Alison: The local authorities with the major responsibility for health education are the local health authorities; these are mainly the counties, county boroughs and London boroughs. Of these about 60 per cent. are employing a total of about 200 full-time health education officers.
    Mr. Dormand: These are very interesting figures, but would the Under-Secretary agree that much greater emphasis needs to be placed on more preventive measures in health matters either by the appointment of additional health education officers or by some other means? Would he further agree that the climate of opinion is such that these measures would be accepted? If these things were done the saving might amount even to millions of pounds if we are to adopt the old adage that prevention is better than cure.
    Mr. Alison: I share the hon. Member's enthusiasm for the value of preventive medicine. It has to be borne in mind that not only full-time health education officers but also the normal run of health professionals—doctors, dentists, health visitors, district nurses and so forth—have their part to play in health education. In the context of National Health

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    Service reorganisation, we shall be looking again very closely at developing this side of preventive medicine.

    Dental Services
    Mrs. Renée Shortasked the Secretary of State for Social Services what proposals he has for the development of National Health Service dental services; and in particular whether he intends to maintain the full list of dental treatments now on the schedule.
    Sir K. Joseph: When I met representatives of the British Dental Association on 16th March they accepted my invitation to participate in a Joint Working Party with representatives of the Health Departments to consider how best, having regard to the availability of resources, to secure the long-term development and improvement of National Health Service dental services. The first meeting of the Working Party will be held on 19th May. I have no proposals for restricting the range of treatments available under the General Dental Services.
    Mrs Short: I thank the right hon. Gentleman for that reply, but may I remind him that there is an urgent need in many parts of the country for National Health Service dentists—I have raised this with him before—and that from the last amending regulations, produced earlier this year, it is quite clear that some of the new fees being paid to dentists, especially for restorative work, bear no relation to the amount of work they must do with the patient, and should be revised? In particular, where work must be put out to dental technicians the return for the dentist is minimal. This does not encourage more students to enter the profession. Will the right hon. Gentleman look into the matter?
    Sir K. Joseph: I should be grateful it the hon. Lady would put down a precise Question on the points which she has in mind. In general, because I am worried about the distribution of dentists, I have embarked on talks with the profession. The numbers of dental places and students in schools are rising.
    Mr. Scott-Hopkins: Does my right hon. Friend agree that in some parts of England, particularly Derbyshire, there is a grave shortage of dentists in the National Health Service? My constituents find it
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    extremely difficult to obtain dental treatment. Will he use his utmost endeavours to see that the supply of dentists going into the National Health Service is increased as rapidly as possible?
    Sir K. Joseph: The dental schools are expanding under the policies of previous Governments, and the present Government are continuing the expansion. There will be rising numbers of dentists, but there is a big problem of distribution, which I am discussing.

    Living Standards
    Mr. Duffyasked the Secretary of State for Social Services what steps he is taking to arrest the widening gap between the living standards of the poorest in work and those earning the medium wage.
    Sir K. Joseph: The available information in the articles published each year in Economic Trends on the incidence of taxes and social service benefits do not suggest that there was a widening gap up to 1970 between the incomes of the poorest in work and those earning the medium wage, so far as families with children are concerned. Since 1970 the present Government have provided additional help to low-income families designed to safeguard and improve their position.
    Mr. Duffy: Is the right hon. Gentleman aware that other evidence, notably that provided by the Child Poverty Action Group, suggests that the gap between the living standards of the poorest in work and those earning the medium wage has widened over the years and is wider now than at any time since 1945? Only in 1906 was the position worse than it is today. Yet all that his Government are doing by way of relieving the low-paid workers is further to ensnare them in a trap of so-called ameliorative measures.
    Sir K. Joseph: I do not accept those generalisations. The raising of the tax threshold in two successive Budgets has made a remarkable difference to the spending power, even in real terms, of the lowest-income families, on to which must be added the family income supplement, take-up of which has sharply increased since the recent advertising.
    Sir B. Rhys Williams: Is it not obvious that a rise in the cost of living has a much

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    more adverse effect on a man with a family to support than on single persons? Is not that an unanswerable case for increasing family allowances, even if only in the interests of wage stability?
    Sir K. Joseph: I hope my hon. Friend will agree that the tax credit scheme which was proposed in the Budget by my right hon. Friend the Chancellor, and which is shortly to be the subject of a Green Paper, meets a great part of the case he is putting.

    Fluoridation
    Sir G. Sinclairasked the Secretary of State for Social Services, in view of the fact that the Swedish Parliament has now repealed the law permitting fluoridation, and, after 17 years of trial, the only fluoridation in Germany has been stopped, whether he will now give further consideration to the advisability of fluoridation in the United Kingdom.
    Sir K. Joseph: No, Sir. I see no reason to question the advisability of fluoridating water supplies. I understand that in Sweden the repeal of the legislation was not based on medical or scientific evidence and that in Germany fluoridation was suspended because of doubts about its legality, doubts which the Federal Government are seeking to remove with amending legislation.
    Sir G. Sinclair: Will not my right hon. Friend take note that the Governments of the countries about to form the enlarged European Community—France, Germany, with my right hon. Friend's modifications, Italy, Luxembourg, Norway and Denmark, and many other countries in Europe, including Sweden, Austria, Spain, Yugoslavia and Greece, have decided against fluoridation?
    Sir K. Joseph: Enthusiastic European though I have always been and am, that does not mean that I must agree with every view of every country in Western Europe. But may I reassure my hon. Friend by telling him that I have no plans at present to introduce legislation on this matter?
    Dr. Dickson Mabon: I welcome the right hon. Gentleman's answer, but will he confirm that the incidence of dental caries in this country is among the highest in the Western industrial nations, and that this kind of experiment, which has
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    never been extensive in Great Britain, is an experiment to which we should give a fair wind?
    Sir K. Joseph: I know that dental decay is a big problem in this country, but I think the hon. Gentleman should put down a Question on that.

    Stoke Park Hospital
    Mr. Mayhewasked the Secretary of State for Social Services what action he has taken following the report of the Hospital Advisory Service on Stoke Park Hospital; and in what form he proposes to make the contents of the report available to the hospital staff.
    Sir K. Joseph: Copies of the report were distributed to the Regional Hospital Board and their chief officers and to the Hospital Management Committee. All senior staff at the hospital received copies; the report was also made available to all nurses in charge of wards and a summary of the main recommendations was shown to junior staff. As a result of policy decisions before the Hospital Advisory Service report and of its recommendations, revenue for the Stoke Park Group has risen in real terms by 29 per cent. since March, 1969. In addition capital improvements to the value of about £1 million have been or are being made at hospitals in the Group. Present conditions in the older wards are however still very unsatisfactory. New beds at Gloucester and temporary wards in the Stoke Park Group are being provided to relieve overcrowding in them. Staffing has steadily improved and the Board expects to maintain the rate of increase.
    Mr. Mayhew: Is the right hon. Gentleman aware that conditions in some of the wards, which were described to viewers in a remarkable BBC film recently, are utterly disgraceful and unacceptable? Why was the report with the right hon. Gentleman for six months before he took action on it? Why was it left for a small group of hospital nurses to raise the matter publicly?
    Sir K. Joseph: The right hon. Gentleman falls far below his usual standards of fairness on this question. The overcrowding in the wards that I understand were shown on television is very severe. That is why new temporary wards in

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    the hospital and further beds outside the hospital are being urgently provided as part of the £1 million extra capital expenditure of which I spoke, in order to relieve the worst of the overcrowding. As for action on the report, extra revenue and capital have been allocated, and were starting to be spent before the report, and both were stepped up after it.
    Mrs. Castle: After that great eulogy of his of what is being done, can the right hon. Gentleman tell us how many of the report's 60 proposals for dealing with what it described as squalid and unhygienic conditions have been or will be implemented, and when?
    Sir K. Joseph: Up-grading and new building is going on to relieve overcrowding. Extra medical and nursing staffing is available and is increasing. Ventilation is being considered. Laundry, clothing and food have been improved. I could go through many of the smaller items. But there is a flood of HAS reports, trying to catch up with a huge backlog of neglect in these services, and everything cannot be done at once.
    Mr. Mayhew: On a point of order. In view of the unsatisfactory nature of the right hon. Gentleman's reply, I propose to raise the matter again

    Private Medical Practice
    Mr. O'Halloranasked the Secretary of State for Social Services if he will make a statement about the extent to which private medical practice has increased in the National Health Service during the past five years.
    Sir K. Joseph: Between 1966 and 1971, the number of private in-patients treated in National Health Service hospitals in England and Wales rose from 101,696 to 114,856, an increase of the same order of magnitude as in the number of hospital in-patients in general. The proportion therefore of private in-patients to inpatients as a whole has remained roughly the same at 2 per cent. from 1968 to 1971.
    Mr. O'Halloran: I thank the right hon. Gentleman for that reply, but will he say that, whatever encroachment there is by the private medical service into the National Health Service, National Health Service patients will not suffer in regard to admission to hospital?
    Sir K. Joseph: I have no evidence of acute need for hospital care being impeded in any way by private patients. If any such cases can be brought to my notice, I hope that hon. Members will send them to me.
    Mrs. Renée Short: Perhaps the right hon. Gentleman will read the evidence that has already been submitted. He will find in it quite a large number of such cases cited by patients and people working in National Health Service hospitals. Does not he accept that the fact that private practice exists in the Service provides an enormous loophole through which there can be all kinds of abuses, and that that is the main objection to private practice?
    Sir K. Joseph: I am due to reply to the report and I would rather reserve my answers until then.
    Mr. Kenneth Lewis: As a great many people who are using private beds in hospitals do so through private insurance schemes, and as the trade union movement has its own private hospital for its own members, is it not time that the Opposition stopped this criticism of what is a legitimate and useful service?
    Sir K. Joseph: I hope that the Opposition are not taking up arms against the freedom of citizens to secure non-acute treatment at their convenience.
    Mr. Russell Kerr: Is the right hon. Gentleman aware that the British United Provident Association in particular is widely regarded as a queue-jumping organisation and as such is deeply offensive to the majority of people?
    Sir K. Joseph: The hon. Gentleman is not taking the point that the access to treatment at convenience is not intended to allow any interference with access as needed and at once for acute need.

    Prescription Charges
    Mr. Dempseyasked the Secretary of State for Social Services if he will introduce free prescriptions for a person in the long-term sick category whose sole income is £6·50 weekly invalidity allowance: and if he will make a statement.
    Mr. Alison: Anyone whose income is, on supplementary benefit standards.

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    insufficient to enable him to afford prescription charges, is already entitled to exemption or refund.
    Mr. Dempsey: Is the hon. Gentleman aware that I have a decision in writing from the manager of the Department of Health and Social Security in Coatbridge informing me that this person is not qualified to receive free prescriptions? Yet the sole income of the individual concerned is only £6·50 per week and out of that meagre sum he has to pay 60p for prescription charges. Is it not a national scandal that a person living on such an allowance should have to pay prescription charges? When is the hon. Gentleman going to introduce some compassion into the National Health Service to ensure that people of this type are exempted completely from prescription charges?
    Mr. Alison: It sounds a distressing case as related by the hon. Gentleman. If he will send me full details I will look into it. The exemptions are available not only for those on supplementary benefit but for those whose income is less than 50p above the supplementary benefit level.

    Long-stay Mental Hospitals
    Dr. Summerskillasked the Secretary of State for Social Services what representations he has received asking for changes in the Government's 15-year plan for long-stay mental hospitals; and if he will make a statement.
    Sir K. Joseph: I assume that the hon. Member is referring to the memorandum on hospital services for the mentally ill issued last December or to the Command Paper on "Better Services for the Mentally Handicapped" published last June. No specific time limit was set for completion of the redevelopment of either set of services, although we hope to make very substantial progress within the next 15 years. I have not received formal representations though I am aware that there are differing views on some aspects of these policies.
    Dr. Summerskill: Will the right hon. Gentleman bear in mind that both the National Society for Mentally Handicapped Children and the Royal Society of Health are deeply concerned about these proposals and have expressed their
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    concern in public? Is he satisfied, before he goes ahead with these plans, that he will have the co-operation and support of all the doctors, nurses and local authority servants who work for the mentally ill, as success depends on their co-operation?
    Sir K. Joseph: Yes, Sir. I am anxious lo work very closely with all the professions. I had a session with the NSMHC recently, when I asked its representatives to come and discuss with me any gap there might be between us.
    Mr. Carter-Jones: Will the right hon. Gentleman view the film, which had its premiere today, called "Like Other People ", which shows the emotional and sexual needs of disabled people and of mentally handicapped people? Will he look at the film before other Questions are tabled and also read the authoritative report by Ann Shearer, brought out today, on the emotional needs of mentally handicapped people?
    Sir K. Joseph: I will try to see the film.

    Elderly Persons (Hospital Treatment)
    Mr. Michael McNair-Wilsonasked the Secretary of State for Social Services whether he is satisfied with the procedures adopted by hospitals within the National Health Service for examining elderly persons who have been involved in accidents, and for their after-care; and if he will make a statement.
    Mr. Alison: Yes, Sir, but if my hon. Friend is concerned about a particular case and will send me details I will gladly look into it.
    Mr. McNair-Wilson: Is my hon. Friend aware that some hospitals, at least in the London area, have an inexplicable rule by which, even if a person over 80 years old is admitted after a fall in an accident in which a bone may well have been broken he is not automatically X-rayed? In a recent well-publicised case, an elderly person had to wait four days before the family doctor got to him, meanwhile suffering a great deal of agony because the bone was, in fact, broken.
    Mr. Alison: I will consider the matter, but the use of X-ray equipment must be

    1121
    a matter of judgment by the clinical technician.

    St. Cross Hospital, Rugby
    Mr. William Priceasked the Secretary of State for Social Services when he expects a start on the next phase in the development of St. Cross Hospital, Rugby.
    Mr. Alison: It is too early to forecast the date.
    Mr. Price: Is the hon. Gentleman aware that my constituents are normally patient people but that they are fed up with year after year of waiting for desperately-needed improvement? Can we have fewer promises from the regional hospital board and the Department and a little more action? If we do not get it, 80,000 people are going to come marching down the M1.
    Mr. Alison: The hon. Gentleman knows that I know that his constituents are normally patient people because I paid a prolonged and enjoyable day's visit to Rugby, when the people were assured that they would have their new hospital at St. Cross by the year 1974–75.

    DISABLED DRIVERS AND SPASTICS
    Mr. Alfred Morrisasked the Prime Minister if he will now arrange a further meeting with the representatives of the Disabled Drivers' Association and the Spastics Society further to the deputation he received on 7th December, 1971.
    Mrs. Castleasked the Prime Minister if he will fix a date for a further meeting with the representatives of the Disabled Drivers' Association and the Spastics Society whom he met on 7th December, 1971.
    The Prime Minister (Mr. Edward Heath): As a result of my previous meeting, my right hon. Friend the Secretary of State for Social Services announced improvements in the invalid transport scheme on 21st February. In addition, Lady Sharp has accepted my right hon. Friend's invitation to conduct a comprehensive inquiry into ways of helping those who are immobilised by severe physical disablement, and is already in touch with the Disabled Drivers' Association and the
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    Spastics Society. I have at present no plans for a further meeting.—[Vol. 831. c. 213–5.]
    Mr. Morris: While acknowledging the recent changes affecting haemophiliacs and disabled mothers, may I ask the right hon. Gentleman whether he recalls the emphasis which we placed last December on the mobility needs of those who are too severely disabled to drive themselves? Why are they still waiting for help?
    The Prime Minister: This matter is to be considered by Lady Sharp because it is set out specifically in the terms of reference of her inquiry. As the hon. Gentleman and my hon. Friend the Member for Banbury (Mr. Marten) were both present at the meeting, they will recall that those present agreed with me that we could not deal with all the problems at once and that there must be an order of priorities. My right hon. Friend the Secretary of State for Social Services has set out that list of priorities and I am glad that we have been able to do as much as we have in the time.
    Mrs. Castle: Is the right hon. Gentleman aware that he offered this deputation tea and sympathy but precious little else'? Is he further aware that the improvements to which he has just referred are being paid for not by the Government but by other disabled invalid vehicle users, who have forfeited certain concessions in order to pay for the improvements? Can he tell us what increase in expenditure there has been, as a result of these talks, on vehicles for the disabled?
    The Prime Minister: I cannot accept what the right hon. Lady said, which is very grudging and is certainly not borne out by the letters which I have had from those concerned—namely, the members of the organisations I met. The right hon. Lady says that nothing has been done. Five major improvements have been introduced by my right hon. Friend. Those qualifying for a vehicle will in future be able to forgo it and to receive instead an allowance of £100 a year tax free. This was specifically asked for in order to introduce flexibility into the scheme. It is no longer necessary for those individuals unable to walk because of a lung or heart condition to show that they need a vehicle to get to work in order to qualify for one. That is another

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    group for which help was asked. Mothers who qualify for vehicles can have a car instead of a three-wheeler if they have young children. That was another case put to us. Disabled people living alone in their own households, who would normally have to have full-time employment to qualify, will be able to have a vehicle even if they are not working. That was a further major point put to us. Any vehicle issued by the Department or run with the assistance of the new allowance will be exempted from vehicle excise duty. The question of the haemophiliacs has already been mentioned. These are all valuable steps which the Labour Government could not take and which we have taken.
    Mr. Marten: As a vice-president of the Disabled Drivers' Association, I can say that we are grateful to my right hon. Friend the Prime Minister for receiving us and for all that has stemmed from that meeting. But much more remains to be done and the great need is to put the case to Lady Sharp and her Committee.
    The Prime Minister: I agree entirely with my hon. Friend. The two major organisations mentioned in this Question are already in touch with Lady Sharp. We are anxious to hear views from any who have proposals to put forward. We have already shown that we are prepared to take practical action. When Lady Sharp reports—she has been asked to do so within the year—we will consider her recommendations.

    PRESIDENT POMPIDOU
    Mr. Skinnerasked the Prime Minister what communications he has had with President Pompidou since 23rd April.
    Mr. Raphael Tuckasked the Prime Minister what communications he has had with President Pompidou since 23rd April.
    The Prime Minister: My communications with President Pompidou are confidential.
    Mr. Skinner: Is the right hon. Gentleman aware that the French President remembers only too well a previous seige in Vietnam? Will the Prime Minister
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    now pick up a telephone and ask President Pompidou whether it is in order to tell President Nixon that the British people want him to stop this crazy war adventure that he has embarked on in the last few hours?
    The Prime Minister: The British Government are, of course, in touch with President Nixon. If President Pompidou wishes to express views to him, I have no doubt that he will do so.
    Mr. Raphael Tuck: Since President Pompidou has recognised the fact that in a democracy people must decide their own destiny, is there any reason, as we are supposed to live in a democracy, why the Prime Minister should not take a leaf out of President Pompidou's book and allow the British people to decide their own destiny on the most momentous issue that has ever faced this country? Or is he afraid to do so?
    The Prime Minister: The entry into force of the Treaty of Accession, to which the hon. Gentleman is referring, is dependent on its ratification by all member States in accordance with their respective constitutional requirements. It is open to each of the member States to decide how they should do this. There is no reason why we should argue particularly for a referendum, such as they had in France, nor is there any reason why instead of a referendum, we should not pursue parliamentary methods, as they do in Germany. The matter has been discussed in this House and the Amendment was rejected by a considerable majority.
    Sir Gilbert Longden: Will the Prime Minister persuade President Pompidou to take part rather more closely in the affairs of the North Atlantic Treaty Organisation, because it is likely that it will not be long before the Americans have left Europe, and if the European people wish to defend themselves against Communism, they had better get together.
    The Prime Minister: I do not entirely agree with the mood of the second part of my hon. Friend's question. French policy in NATO is a matter for France, although we have always expressed our desire that, if they find it possible, the French should play a larger part in NATO.

    STRIKES
    Mr. Ashleyasked the Prime Minister if, at his next meeting with officials of the Trades Union Congress, he will discuss the measures the Government have taken to reduce the number of strikes.
    The Prime Minister: I expect that there will be further discussions about what has been done and what more could he done to promote the peaceful and rational resolution of industrial disputes.
    Mr. Ashley: Is the Prime Minister aware that the irrational handling of the railways dispute will result in an increase in the already high number of working days lost under this Government since they took office? Is he further aware that the Government and the Board are responsible for creating confusion about which offer has been made, when it will be paid and who is speaking to whom? Would it help the Prime Minister if Sir Sidney Greene were to invite him and the Chairman of the Railways Board to a beer and sandwiches session to help them sort out the confusion?
    The Prime Minister: I do not think there is any confusion among those dealing with this difficult matter. The hon. Gentleman spoke about reducing the number of strikes. It is to be noted that in the first three months of this year there were 448 strikes and in the first three months of 1970 there were 1.212. If the hon. Gentleman is asking about the railway negotiations, these were not discussed at my meeting with the TUC. It was not appropriate to do so.
    Mr. Churchill: Is it not a scandal—[HON. MEMBERS: "Reading."]—that the ordinary citizen is being required[" Reading."]—through his personal taxation to finance and enable strikers—
    Mr. William Price: Go hack to reading!
    Mr. Churchill: —to be in a position to hold the nation to ransom? Will the Prime Minister seek to take measures to redress the balance of misery as between the community as a whole and the strikers so that it is not always the community that suffers most?
    The Prime Minister: Under existing law the families of those who require
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    assistance can obtain supplementary benefit. I agree with my hon. Friend that it is not justifiable, through a work-to-rule, to put the community to the inconvenience that we have seen, or to cause economic dislocation to the country as a whole.
    Mr. Harold Wilson: In view of the many speeches the right hon. Gentleman made before the Election pledging himself to reduce the toll of man-days lost through disputes, will he tell the House the total number of man-days lost under this Government in the 21 months up to 31st March, 1972?
    The Prime Minister: If the right hon. Gentleman wants figures for specific periods which he selects, I am prepared to send them to him. [HON. MEMBERS: "Answer"] What is true is that the major loss in man-days has been due to two very large strikes, the Post Office strike and the miners' strike. What is also noticeable is that in the rest of industry the number of strikes is approximately one-third of what it was when the right hon. Gentleman was in power.
    Mr. Wilson: If the right hon. Gentleman either does not know the figures for his own period of office or has not the guts to give them in the House—[Interruption.] Will he confirm that man-days lost from all causes add up now to 35,225,000—[Interruption.] The right hon. Gentleman used to offer to help me with figures when he was on this side of the House. I am helping him. Would he agree with that figure and agree that it represents 150 per cent. of the total man-days lost during the whole period of the Labour Government?
    The Prime Minister: If the right hon. Gentleman is so concerned about it, why did he not pass his own industrial relations legislation and get something done about it?

    PRIME MINISTER OF IRISH REPUBLIC
    Mr. Stratton Millsasked the Prime Minister if he will now seek an official meeting with Mr. Lynch to discuss border security.
    The Prime Minister: I have no plans for a meeting with Mr. Lynch, but we

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    remain in close touch through diplomatic channels about matters of mutual interest, including border security.
    Mr. Stratton Mills: Is my right hon. Friend aware that there is considerable disappointment that since the initiative, while Mr. Lynch is prepared to engage in fancy words, he does not follow them up with action in dealing with IRA activity in Southern Ireland? Is my right hon. Friend satisfied that the Government are doing everything they can to tabulate and follow up each incident and trail, and constantly to remind Mr. Lynch of his responsibilities?
    The Prime Minister: I can assure my hon. Friend that information on every incident on the border of which we have details is passed to the Government in Dublin. They know full well our views, and we look to them for co-operation in dealing with cross-border incidents.
    Mr. Biggs-Davison: While I fully appreciate Mr. Lynch's problems, might I ask my right hon. Friend whether it is not the case that the economy, the well-being and the reputation of the Irish Republic are suffering from the IRA? Is it not in the common interest of the United Kingdom and the Irish Republic to tackle this problem together? Cannot something be done to get nearer to a joint control of the Irish border?
    The Prime Minister: Of course it is in the common interest of both countries that we should deal with violence. I made this plain to Mr. Lynch at the meetings we had, the first at Chequers last September and the second with the Prime Minister of Northern Ireland, when the three Prime Ministers met for the first time in 50 years. We have taken every step possible to deal with this question and to emphasise that it is a common interest.
    Mr. Tapsell: Have the Government of the Republic been made aware of the strength of public feeling in the United Kingdom that, while we are doing everything in our power to create a just and peaceful society in Northern Ireland, we are entitled to expect greater co-operation from the Government in Dublin, particularly in the control of gunmen across the border?
    The Prime Minister: Yes, Sir. The Republican Government now have their ambassador back in London and we have our ambassador in Dublin. I am certain that the Government of the Republic are well informed about the state of British public opinion.

WEST MIDLANDS (POLLUTION)
Mr. StonehouseQ6. Mr. Stonehouse asked the Prime Minister if he will appoint an additional Minister in the Department of the Environment particularly to deal with the problems of pollution in the West Midlands.
The Prime Minister: I would refer the right hon. Gentleman to the answer I gave on 25th April to a Question from the hon. Member for Birmingham, Northfield (Mr. Carter).—[Vol. 835, c. 1271–2.]
Mr. Stonehouse: Is the Prime Minister aware that industrial pollution in the West Midlands is the worst in the United Kingdom and that there is widespread disgust in the West Midlands that the area is low on the list of priorities in the Department of the Environment? Now that there are Labour-controlled councils in the West Midlands, such as Birmingham, West Bromwich and Walsall—
Mr. Faulds: And Warley!
Mr. Stonehouse: —Yes, who are anxious to get on with the job of clearing up the environment, will the Prime Minister strengthen the Department of the Environment so that those councils can be given more help?
The Prime Minister: The hon. Gentleman's accusation that industrial pollution has low priority in the Department of the Environment is completely unfounded. It is true that the practical action which the Department of the Environment asks should be taken is in fact taken by a variety of local authorities, not only Government authorities but river boards, and so on. My right hon. Friend the Secretary of State for the Environment has made it plain that he believes that there is no longer any justification for holding back smoke control in the Midlands; and major capital investment programmes for sewerage have been approved. This is not a low priority, and a large part of the resources available is being used for it.
Mr. Jennings: Is my right hon. Friend aware that what is needed is not an additional Minister—of whom there are plenty in the Department—but additional work on the River Tame area to prevent the wholesale pollution of the River Trent? A lot has been done, but will the Prime Minister try to persuade his right hon. Friend the Secretary of State for the Environment to concentrate further on the cleansing of the filthy River Tame?
The Prime Minister: Since its inception in 1966, the Upper Tame Main Drainage Authority has spent £15 million on capital works. During the five-year period from 1971–72 to 1975–76, for which the Government have made allocation, the Authority is spending another £22 million on this problem. Nobody can say that it has a low priority when in these years about £37 million will be spent by the Upper Tame Main Drainage Authority.

BRIXTON PRISON (REMANDED PERSONS)
Mrs. Shirley Williams (by Private Notice)Mrs. Shirley Williams (by Private Notice) asked the Secretary of State for the Home Department what action is being taken to relieve overcrowding among men on remand at Brixton prison, making possible a reduction in the 22/23 hours a day these men currently spend in their cells; and to make a statement on the recent demonstrations at the prison.
The Secretary of State for the Home Department (Mr. Reginald Maudling): Since 3rd May there have been four demonstrations at Brixton by prisoners who sat down during exercise and refused to return to their cells. The number of prisoners involved ranged from 50 to just over 200. The demonstrations, which have been peaceful, lasted for periods ranging from 40 minutes on the first occasion to some 8½ hours last night, and were designed as a protest against the conditions for unconvicted prisoners in the prison.
I accept that conditions at Brixton are not satisfactory. Some relief is given by diverting prisoners to other London prisons, but these prisons are themselves overcrowded; no complete solution is possible until more accommodation becomes available under the accelerated
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prison building programme, details of which I gave to the House on 27th April. In the meantime I have asked the Regional Director to make a visit to Brixton to consider what improvements might be made, for example, in the arrangements for open visits or by allowing the use of personal radios.
I am also pressing on with the review of conditions for unconvicted prisoners generally, which I authorised recently, and I hope to announce my conclusions shortly.
Mrs. Williams: I thank the Home Secretary for his statement. I pay tribute to the restraint which has been shown by the Governor and the prison officers at Brixton in handling this difficult situation. My hon. Friend the Member for Brixton (Mr. Lipton) six weeks ago drew to the attention of the Home Secretary the conditions in Brixton prison which were likely to lead to trouble, as these are men who have been convicted of nothing, who are spending 23 hours a day in their cells, some of whom have been there not just for weeks but for several months awaiting trial. Will the Home Secretary consider drawing the attention of the courts to the conditions prevailing for remand prisoners in Brixton so that the courts may take them into account in deciding whether or not to grant bail? Will he also consider emergency action to provide extra accommodation, because for a man to have to wait four or six months for trial in these conditions makes a mockery of British justice?
Mr. Maudling: This is certainly a problem, but it is not a new one. The Government have greatly increased the programme for providing prison places. It takes some time to complete the building of new prisons, but we have done a great deal. As the hon. Lady knows, we are also pursuing new ways of lessening the problems of remand prisoners. The right way to tackle the problem is to provide more accommodation and to ensure that the remand system is adjusted to lessen the problem.
Mr. St. John-Stevas: Whatever my right hon. Friend does in the short term, is not the only solution in the long term the demolition of Brixton Prison, which is one of the worst in the country, and its replacement by modern buildings?
Mr. Maudling: In the long term perhaps, yes, but, after all, the Government face a situation where there is great overcrowding in the prisons. When there is already great overcrowding we cannot demolish existing accommodation.
Mr. Lipton: Six weeks ago I wrote to the Home Secretary drawing attention to the unsatisfactory conditions affecting prisoners on remand in Brixton. I drew attention to prisoners being on remand month after month before trial and being kept in their cells for 23 hours out of 24 because of the shortage of prison staff. Why has the Home Secretary taken no action but allowed the situation to develop until the present demonstrations have taken place?
Mr. Maudling: I cannot accept that at all. I do not accept that prisoners spend 23 hours in their cells, although I agree that the period that is spent in cells is far too long. A few months ago I authorised a review of the problem of prisoners on remand, and I hope to announce my conclusions shortly. This is something which the previous Government did not do.
Mr. Evelyn King: When my right hon. Friend builds new prisons, will he bear in mind the necessity for building new accommodation for prison staff to go with the prison? Is he aware that there are difficulties about the accommodation of prison staff in Portland, Dorset, and in other prisons, too?
Mr. Maudiing: Yes. I should have thanked the hon. Member for Hitchin (Mrs. Shirley Williams) for her tribute to the prison staff, who throughout the country work extremely well in difficult conditions. One reason for the accelerated building programme is to meet the difficulties of the prison staff.
Mr. Driberg: The right hon. Gentleman did not answer that part of the supplementary question of my hon. Friend the Member for Hitchin (Mrs. Shirley Williams) in which she mentioned bail and the prevalence of the refusal to give bail by courts, sometimes automatically without inquiring why the police oppose it. Will the right hon. Gentleman consider circularising the courts?
Mr. Maudling: As I have told the House, a study is being made of the question of bail. There is the question of reducing the number of people who are remanded in prison. We have to bear in mind also the belief held by many that sometimes people are released on bail who should be remanded in custody.
Mr. Thorpe: Since prisoners on remand are by definition innocent unless and until they are proved guilty, is the Home Secretary satisfied that remand prisoners are occupying the best prison buildings available rather than, as in this case, some of the worst?
Mr. Maudling: Rightly, the conditions of remand prisoners are different from those of convicted prisoners. It is precisely because of the difference between remand prisoners and convicted prisoners that the Government have given priority to a study of the problem.
Mr. John Morris: Will the Home Secretary give an indication of the length of time people have to stay in Brixton on remand? Does it not tend to be much longer there than it is in the rest of the country?
Mr. Maudling: I cannot give the figures without notice. The length of time on remand is one of the problems we are studying.

VIETNAM (BRITISH SHIPPING)
Mr. Orme (by Private Notice)Mr. Orme (by Private Notice) asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the danger to British ship ping near Vietnam.
The Secretary of State for Foreign and Commonwealth Affairs (Sir Alec Douglas-Home): All British shipping is being warned of the danger of entering North Vietnamese ports at the present time. According to the information available to me, there may be two or three British ships in the vicinity.
Mr. Orme: Were the British Government consulted by President Nixon, and did we in turn make representations to the United States Government following President Nixon's statement? Is the Foreign Secretary aware that this dangerous escalation in South-East Asia

1133
could lead to the possibility of a third world war? Would he take note of widespread opinion throughout the United States, including the view of people like Senator McGovern, which has condemned this action? Will not the right hon. Gentleman condemn such irresponsible action and call for the withdrawal of American forces from South-East Asia?
Sir Alec Douglas-Home: The hon. Gentleman asked me a Question about shipping and I have answered on the question of shipping. He is now seeking to widen the discussion into the matters which we discussed yesterday. The answer to his wider question is: no, we were not consulted; we were informed of the American action. This is a situation of danger, and I think Her Majesty's Government's action in this matter would be most effective if we tried to bring about conciliation under the procedure of the Geneva Conference. As I said to the House yesterday, the Russian Government have said that this is inappropriate, but I am asking to see the Soviet Ambassador tomorrow and I hope they will change their mind.
Rear-Admiral Morgan-Giles: Is it not a fact that practically no British merchant ships have visited Haiphong following the voluntary ban imposed by the British Chamber of Shipping? Is it not ironic to see Labour Members so alarmed about the security of British shipping when the Labour Government by their east of Suez policy did their utmost to play ducks and drakes with the ability to protect our shipping throughout the world?
Sir Alec Douglas-Home: I shall confine my reply to the question about which I was asked; namely, shipping. The fact is that there are very few British ships in this area.
Mr. Frank Allaun: Is it not quite correct for my hon. Friend the Member for Salford, West (Mr. Orme) to want to widen this question since this could finish up on our doorstep? Does the Foreign Secretary agree that, although neither the United States nor the Soviet Union wants a world war, it must be evident that such brinkmanship could lead—possibly by accident—to precisely that taking place, particularly if this week a Soviet ship is bombed or mined in Haiphong harbour? Despite the sympathies of the
1134
present Government with the Americans, should we not now speak out for the sake of the British people to avoid the possibility of becoming involved in a third world war?
Sir Alec Douglas-Home: The way to avoid a third world war is to set in motion the processes of conciliation. Since the Russians and Chinese have blocked any action by the United Nations, it seems to me that the machinery of the Geneva Conference is the kind of machinery which should be invoked and which would meet the situation described by the hon. Gentleman.
Mr. Kilfedder: Is the Foreign Secretary aware that there are many people in this House and in the country who have nothing but the greatest sympathy with President Nixon in arriving at this grave decision and, indeed, with all the people in the United States who are trying to seek a reasonable way out of this terrible problem?
Sir Alec Douglas-Home: We went over some of this ground yesterday. The present North Vietnamese offensive involves crossing recognised international frontiers of Laos and Cambodia and also the de-militarised zone which was defined by the Geneva Conference of 1954. Yes, I have a great deal of sympathy for the predicament in which the United States finds itself.
Mr. Callaghan: I agree with the Foreign Secretary that our aim should be to attempt to reach some solution to the fearful predicament as it has been called, in which the United States finds itself and I acknowledge that the Foreign Secretary intends to approach the Soviet Union again about a Geneva Conference. If that approach fails, will he consider the possibility of a further international control commission, perhaps taking up the path of conciliation which was proposed by India, Canada and Poland, and especially bearing in mind the fact that one of the proposals made by the United States in asking for the release of its prisoners is that there should be an internationally supervised cease-fire. Since the right hon. Gentleman obviously wants to pursue every avenue in a situation in which Britain's influence is limited, will he consider this prospect which might offer some hope for peace? Furthermore, will he in private representations—whatever he

1135
may say publicly to the United States—indicate that, although the people of this country have every symptahy with the situation in which the Americans find themselves, they feel that the Americans are following the wrong course?
Sir Alec Douglas-Home: No, Sir; I would not convey either publicly or privately the last part of the right hon. Gentleman's exhortation. I will consider the question of the control commission. This was first set up in 1954, and again in 1962 when I negotiated the Laos agreement on behalf of the Government. The control commission has not been effective because it has been blocked both in Laos and in Vietnam. Nevertheless, we shall pursue this proposal to see whether a more effective control commission could be set up, but the machinery of the Geneva Conference would have to be used and Russian consent is necessary.
Sir Gilbert Longden: Since I could not be present in the House yesterday when this matter was raised, might I ask my right hon. Friend to remind hon. Members opposite just who is invading whom?
Sir Alec Douglas-Home: I think I made clear yesterday that the North Vietnamese invasion is quite different from what has happened before in this war. On the previous occasion this action was to support guerillas, but now there is a massive invasion over the international frontier, supported by 500 to 600 Russian tanks.
Mr. Fernyhough: Does the right hon. Gentleman recall that in 1956, when the then British Government embarked on an indefensible war, the Americans in a firm but friendly way advised them that what they were attempting should cease immediately? Could not we now, in the same friendly but firm way, advise the Americans that a present they are embarking on a war which is as stupid and as indefensible as that upon which the Tory Government embarked in 1956?
Sir Alec Douglas-Home: Just because the Americans gave bad advice in 1956 I do not see why we should give it now.
Mr. Sproat: Would not my right hon. Friend agree that the main point is that American arms are being used to defend
1136
and protect internationally agreed frontiers, whereas the arms supplied by the Soviet Union are being used in an attempt to destroy South Vietnam in flagrant disregard of the Geneva Agreements?
Sir Alec Douglas-Home: Yes, Sir; that is so. I would rather concentrate, as I am sure the House would, on the processes of conciliation which are open to us.
Mr. Prescott: I agree with the condemnation of American action in Vietnam, and wish to address two questions to the Foreign Secretary about British shipping. First, since British seamen are once again in the front line of confrontation in a situation similar to the Cuba affair, will the right hon. Gentleman give assistance to British seafarers in those instances where possibly British ships may call for assistance to be guided through the mined areas? Secondly, if British seafarers refuse to go on such ventures into these waters, will he guarantee that they will not be prosecuted by the British shipowners for disobeying orders?
Sir Alec Douglas-Home: I think we should wait until the situation arises. We shall certainly do everything we can to advise British shipping. I repeat that British shipping would do well to keep away from Vietnam ports at this time.
Mr. Cormack: Is my right hon. Friend aware that the sympathetic understanding that he is showing towards the Americans is widely appreciated by most people in this country? Is not it fitting in seeking to reconvene the Geneva Conference, to remind the Russians that President Nixon is only too ready to withdraw completely if only the aggression can end and peace can be brought to Vietnam?
Sir Alec Douglas-Home: President Nixon has said in the past that he will enter negotiations without conditions. He repeated that in his speech yesterday, filling in more detail.
Mr. Harold Wilson: Reverting to the point raised by my right hon. Friend the Member for Cardiff, South-East (Mr. Callaghan), does the right hon. Gentleman not agree, as we learned, that the Russians are not exactly enthusiastic

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about recalling the whole Geneva Conference, including the Chinese? In the circumstances, has not the right hon. Gentleman been pressing the idea which has been put forward from these benches and was originally proposed by the Polish Minister, Mr. Rapacki, for a conference between the parties in the fighting, plus the control commission?
Secondly, in view of the fact that from these benches the right hon. Gentleman together with the then leader of the Opposition invariably asked whether we supported the United States in particular actions and always insisted on an answer, will the right hon. Gentleman now say whether he supports the statement by President Nixon or whether, as we did in the case of the bombing of Hanoi and Haiphong, the right hon. Gentleman dissociates his Government from it?
Sir Alec Douglas-Home: I distinctly remember the attitude taken by the right hon. Member for Fulham (Mr. Michael Stewart) when he was on these benches as Foreign Secretary in the Government led by the right hon. Member for Huyton (Mr. Harold Wilson). The right hon. Gentleman took a very careful and very responsible attitude on this matter. From my knowledge, I never pressed the right hon. Gentleman on this matter in order to embarrass the Americans or the right hon. Gentleman in any way. I will not be drawn into a discussion of whether I can give answers condemning the United States Government. If there is condemnation, it is of those who started this offensive and made it almost impossible to conduct peaceful negotiations through the United Nations.
Mr. Wilson: But does not the right hon. Gentleman remember his comments on our dissociation from the bombing of Hanoi and Haiphong, when we had given long advance notice, privately and publicly, to President Johnson of what would be our position if there were bombing of Hanoi and Haiphong? Is the right hon. Gentleman aware that in the past month, in addition to the statement issued this morning by our party which is very clear, I myself have publicly deplored both the invasion from the north and the resumption of American bombing which was stopped by President Nixon. [HON. MEMBERS: "Facing both ways."] It is possible to condemn invasion from
1138
both sides, which has been the attitude of successive Governments in other situations. Is the right hon. Gentleman aware that we have made this condemnation and that it was as a result of pressure by many Governments, including our own, that the bombing of the north was stopped by President Johnson in March. 1968?
Sir Alec Douglas-Home: I very much doubt the last proposition that the right hon. Gentleman has advanced. I must differ from him when he describes this as invasion from both sides. It is not. The South Vietnamese asked for American assistance. This is an invasion from North Vietnam.
Mr. English: Does not the right hon. Gentleman think that he is confusing the issue by referring constantly to "an international frontier". Does he mean the line of military demarcation between the British and Chinese in what was always a single State before it became French protectorate and what even now wishes to be a single State? There is no question, surely, of a bit of Ostpolitik in Vietnam.
Sir Alec Douglas-Home: By "international frontiers" I mean those of Laos and Cambodia. By "the demarcation line ", I mean the one laid down by the international conference. All these have been violated.

NEW MEMBER SWORN
Norman Stewart Hughson Lamont. esquire, for Kingston-upon-Thames.

BRITISH RAILWAYS (DISPUTE)
Mr. Speaker: Order. I have three applications under Standing Order No. 9. I propose to take them in the order in which I received them. Mr. Hastings.
Mr. Hastings: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
"The present course of the railway dispute and its possible consequences."
In all conscience, it is difficult to be specific about anything to do with industrial relations in this country. But at

1139
least this matter is specific to the extent that the dispute has continued now for over a month and caused great inconvenience to a large number of people, and that there is now the imminent threat of the situation deteriorating again.
Its importance lies not only in the risk of further disruption, loss and inconvenience to many people, but in the effect which a settlement could have on the future course of wage bargaining in the country as a whole. Moreover, there is the importance of its psychological effect upon the Government, Parliament and people.
I think that its urgency is self-evident. The cooling-off period has ended without an agreement. Whatever meetings may or may not be taking place, the present position seems entirely unclear on the basis of such information as is available publicly.
I submit that all those directly concerned, together with the country as a whole, should hear the voice of Parliament upon this matter without further delay.
Mr. Speaker: The hon. Member for Mid-Bedfordshire (Mr. Hastings) was kind enough to give me considerable notice of his intention to make this application today. I have considered it very carefully in all the circumstances. I have exercised my judgment as best I can. I am afraid that I cannot grant that application today.

NORTHERN IRELAND
Mr. Kilfedder: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
"The need for an inquiry following the Government's announcement in today's OFFICIAL REPORT that the Irish Republican Army has been guilty of torture in many cases where the victims have been murdered."
This matter is specific. We have had today for the very first time Government confirmation of gruesome rumours which have been rife for a considerable period in Northern Ireland about the ruthless behaviour of the IRA towards its victims, many tortured before death and in some
1140
cases mutilated after death. Until now, official spokesmen have always denied allegations of such behaviour by the IRA.
The matter is important because the House can easily understand the immediate effect that such official confirmation will have upon public opinion in Northern Ireland at this time of great tension. It will add to the feeling of anger and resentment that such bestial behaviour is being perpetrated by the IRA. Such evil conduct highlights the importance of the struggle against the IRA as more and more of its true character is revealed.
The matter is of the utmost urgency. There has been a serious deterioration in the morale and patience of the law-abiding people of Northern Ireland who have borne the infliction of so many outrages with remarkable forbearance. Today's admission by the Government that torture has taken place makes it necessary immediately to establish a tribunal of inquiry to prevent a violent reaction in Ulster and to get at the truth, for it is the truth for which the people of Northern Ireland cry out. What is more, such a tribunal of inquiry is needed to dispel as quickly as possible those rumours which are untrue. No doubt there are many which are untrue, but they will grow if the Government refuse to give the truth.
Finally, my hon. and gallant Friend the Member for Down, South (Capt. Orr) and my hon. Friend the Member for Antrim, North (Rev. Ian Paisley) have raised the case of Corporal Elliott, of the Ulster Defence Regiment, who is believed to have been tortured before being murdered, but they have been unsuccessful in getting a statement from the Government. I therefore ask you to give full consideration to this application.
Mr. Speaker: Again I am obliged to the hon. Gentleman for having given me considerable notice of his intention to make this application. As I said yesterday in reply to a similar application, my decision in no way reflects upon the importance of the matters that have been raised.
I have considered the matter, and I do not think that it should be pursued by means of an emergency debate under Standing Order No. 9. I add the postscript, however, that I am considering

1141
urgently the points raised as points of order yesterday about the way to deal with these matters.
I cannot accept the application.

VIETNAM
Mr. John Mendelson: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 9, in order to raise a matter of definite public importance for urgent debate, namely,
" The decision of the United States Government to mine the ports of the Republic of North Vietnam and to stop ships on the high seas without any legal right to do so and without the backing of the United Nations."
I have three points to submit very briefly without in any way going into the substance of the matter, which would be the subject of the subsequent debate.
First, I have to show that it is urgent. The United States Government have announced—and it has been reported in the British Press this afternoon—that the mines which have been laid will become active on Thursday morning. Therefore, without the ability of either the President of the United States or the general in command of that theatre to withdraw the mines, they will, by their own device, become active on Thursday morning. That makes the matter decisively urgent. I say in passing that it makes the matter urgent in a new way, in that the disastrous out come of this decision may be produced automatically, without any intervention by a human being between now and Thursday morning.
Secondly, I submit that this is directly the responsibility of the right hon. Gentleman the Foreign Secretary, the Prime Minister, the British Government and Parliament. We are one of the principal
1142
allies of the United States, and we are their allies with the broad support of the House of Commons and the British people. It is therefore clear that anything which happens which might involve the United States people and United States Government and their armed forces in serious conflict with any other major power may bring into play the alliances which are in existence, with the approval of Parliament, between the United Kingdom and the United States, and between their Governments. It would therefore be monstrous if the House of Commons had no opportunity to debate this matter before Thursday morning.
Thirdly, and finally, it is clear that an appeal was made to the conscience of mankind by the President of the United States in his speech, which some of us heard at 2 o'clock in the morning. The President is entitled to make an appeal if he sees fit to do so, but the British people have a right to expect that their elected representatives will try to formulate a reply to that appeal before it is too late so that their voice may be heard through their elected representatives.
Mr. Speaker: I am grateful to the hon. Member for having given me notice of his intention to make this application. I have considered carefully what he has said. I have also considered the exchanges in the House yesterday and today. I must confess that I find the exercise of this discretion under Standing Order No. 9 extremely burdensome, but I must say again in this case that I do not think that a debate under Standing Order No. 9 is the right way to pursue this matter.
I am afraid that I have to reject the application.

DOORSTEP SELLING
4.6 p.m.
Mr. Arthur Davidson: I beg to move,
That leave be given to bring in a Bill to regulate doorstep selling.
In view of the generous trailer which you allowed me during my supplementary question yesterday, Mr. Speaker, I can be very brief today.
The purpose of the Bill is to give greater protection to the consumer against the operation of salesmen who gain entry into private homes by pretending, through a skilful use of words, that they have called for a totally different purpose. Once inside the home they proceed, by another carefully prepared piece of chatter which again is carefully designed to conceal what they are really up to, to sell the householder expensive goods often involving hundred of pounds worth of commitments. Even after that, the householder is so beguiled and bemused that he thinks he is taking part in some worthy educational project or some piece of useful social research.
The practice, which is on the increase, has been condemned in a series of articles recently in the Daily Mirror, which has shown beyond doubt that great hardship has been inflicted on innocent people as a result of this particularly nasty and dubious form of selling. The Consumers' Association has also condemned the practice and, indeed, has infiltrated these organisations in order to learn at first hand the techniques used.
Very simply, the salesmen are taught deliberately to conceal the true object of the visit in every case. One firm says "We are calling on all the householders in the area and it is just a matter of interviewing you and your wife together for a few moments. It is about brand indentification." It is not about brand identification. It is about selling encyclopedias.
Another firm, which sells expensive record and stereo equipment, instructs its salesmen to use the following opening gambit "I am doing some research work in this area this evening, and there are a few question which I have to ask husband and wife together." He does not have any questions to ask the husband
1144
and wife, either together or separately. He is out to sell inferior stereo equipment.
Yet another firm has instructed its salesmen to say "We are not actually selling anything. We just want to show it to you." What they want to show, and what they want to sell, is a TV magnifying screen.
Another firm instructs its salesmen to say "I am in this area discussing fire prevention. Do not worry; it is not about insurance." If it were about insurance, the householder might be better off.
In all cases the approach is thoroughly dishonest. The householder is left without any protection and often lands himself in considerable debt. The first thing my Bill seeks to do is to make it obligatory for a salesman to reveal that he is a salesman. This would mean that the firm which deliberately coached its salesmen in these techniques would be encouraging them to commit an offence and the law would, therefore, be able to catch the real victims, who are the firms themselves, rather than merely the salesmen.
The second protection the Bill would give would be to enable the householder, the consumer, to have the same four-day cooling-off period as exists under any normal hire-purchase agreement.
I agree that the Bill is not perfect. It will not stamp out completely this sort of technique. It will, however, at least make it more difficult for these dishonest types of sales techniques to continue.
Mr. Alan Williams: On a point of order. Are you aware, Mr. Deputy Speaker, that a difficulty has arisen in that my hon. Friend has raised a matter of considerable importance to the public and the House, yet there is not in his place a Minister to represent the relevant Department? Will you arrange for this debate to occur again at a time when a Minister is present at least to hear the arguments before closing his mind to them?
Mr. Deputy Speaker (Sir Robert Grant-Ferris): I think the hon. Gentleman is under a slight misapprehension. It is not necessary on the raising of a Ten-Minute Rule Bill for a Minister to be present, and frequently Ministers are not present on these occasions. It is for the House to decide, having heard the hon.

1145
Member presenting the Bill, whether to grant leave for its introduction. If another hon. Member wishes to rise to make a short speech opposing the Bill, that is in order. Other than that, I now only have to ask whether the hon. Gentleman has the leave of the House to bring in his Bill.
Sir Harmar Nicholls: On a point of order. So that the record will not be lopsided on this matter, may I draw your attention, Mr. Deputy Speaker, to the fact that my right hon. Friend the Chancellor of the Exchequer, who is one of the most senior Cabinet Ministers, has been present to hear the case adduced by the hon. Member for Accrington (Mr. Arthur Davidson)? To suggest that the hon. Member's comments have not been noted by the Government is a wrong and stupid thing to counsel from the benches opposite.
Mr. Deputy Speaker: I do not wish to enter into any argument on this subject. It is up to the House to decide whether to give the hon. Member for Accrington (Mr. Arthur Davidson) permission to introduce his Bill.
Question put and agreed to.
Bill ordered to be brought in by Mr. Arthur Davidson, Mr. Charles Morrison, Mr. Alan Williams, Mr. Wellbeloved, Mr. Goodhart, Mrs. Doris Fisher, Mr. Cormack, Mr. Alfred Morris, Mr. Carter, Mr. Crouch, Miss Fookes and Mr. Robert C. Brown.

DOORSTEP SELLING
Bill to regulate doorstep selling, presented accordingly, and read the First time; to be read a Second time upon Friday, 16th June and to be printed. [Bill 136.]
ORDERS OF THE DAY

  FINANCE BILL
  (Clauses 1, 9, 12, 63, 64, 71, 73, 110, and 112 and Schedule 4)
  Considered in Committee.
  [Sir ROBERT GRANT-FERRIS in the Chair]
  Ordered,
  That the provisions of the Finance Bill committed to a Committee of the whole House be considered in the following order, namely, Clause 1, Clause 9, Clause 12, Schedule 4, Clause 64, Clause 110, Clause 71, Clause 73, Clause 63, Clause 1l2.—[Mr. Barber.]
  Clause 1
  VALUE ADDED TAX
  Question proposed, That the Clause stand part of the Bill.
  4.15 p.m.
  The Chancellor of the Exchequer (Mr. Anthony Barber): Before coming to the main principles which are involved in the consideration of Clause 1, I wish to point out that there has been a genuine misunderstanding about the way in which subsection (2) of the Clause is expressed.
  There was on the Notice Paper an Amendment, which has not been selected, which drew to my attention the misunderstanding which has arisen and it may he for the benefit of the House if I briefly explain what the misunderstanding is. It is that the Clause as drafted would import all the powers, including enforcement, in respect of all duties of the Customs and Excise. In fact, it does not do this. The VAT enforcement powers are specifically set out in the Finance Bill and there will be opportunity for these to be debated in Committee upstairs.
  Clause 1 simply imports the general powers of management under the Customs and Excise Act, 1952, which the Commissioners have in respect of all "assigned matters ", as they are called, and it follows a purchase tax precedent which has given rise to no complaint over the years.
  Nevertheless, I think that, as put here, it could give rise to misunderstanding—indeed, it has done so—and I therefore believe that it would be right to amend

  1147
  subsection (2) in due course by deleting all the words after "Commissioners" in line 2 on page 2; and in due course we will take steps to ensure that such an Amendment is made. I thought it might be helpful to clear that comparatively minor point out of the way at the outset.
  A debate on Clause 1 of the Finance Bill is a debate on the general merits of VAT and Government policy governing indirect taxation. It follows, therefore, that any suggestion that Clause 1 should not be adopted would be designed to make all the VAT legislation inoperable. It would, in fact, be a rejection of the entire VAT concept, and one can only assume that those who take this view would be reasonably well satisfied with the taxes which VAT is designed to replace; namely, purchase tax and SET.
  It is right that I should start by referring to some words which were contained in our election manifesto. We said:
  "We will abolish the Selective Employment Tax, as part of a wider reform of indirect taxation possibly involving the replacement of purchase tax by a value added tax."
  During the early months after I became Chancellor of the Exchequer I gave detailed and long consideration to whether we should introduce a VAT, and eventually, as the Committee will recall, I announced in the Budget of 1971 that I had decided that we should.
  It is right to recall—I said this last year in the course of our Budget debates —that when I became Chancellor I certainly, in the light of what was in our manifesto, had not then made up my mind whether we should switch over to VAT. It seemed to be highly desirable on all counts not merely to have all the advantages that one gets of being in office of finding out the way in which VAT operates in other countries but to have the benefit and advice of the expertise of the Customs and Excise on the mechanics of what was involved in introducing VAT.
  Furthermore—and I know that the House will accept my word on this—I came to the conclusion that it would be right to move over to VAT whether or not we joined the EEC. Indeed, I announced the decision several months before the negotiations were complete.
  VAT has an essential place in our far-reaching programme of fiscal reform which, as the Committee knows, extends
  1148
  into all parts of the tax system. From the days of Mr. Gladstone onwards indirect taxation has largely relied on a few selective revenue duties which single out various areas of consumption for heavy taxation, and in some cases very heavy taxation.
  Our list of revenue duties of this kind is short, and it is interesting when one looks back over the history of indirect taxation to find that it has grown shorter in recent times, I suppose because in this way one acknowledges the dominance of the major duties while Governments have surrendered those of comparative unimportant revenue yield.
  I believe it right that there should be a few major revenue-raisers of this kind, but alongside these well-tried money-spinners, which present few problems, our need is for a wide-ranging tax on the remaining field of consumer goods and services. Purchase tax, born of war and austerity in 1940, was a step in that direction. Selective employment tax, born of planning delusions in 1966, attempted to bring in the service industries as well, and attempted to force what was, in some mysterious way, supposed to be a desirable reshuffle of the country's labour force. I should like to say, first, something about those two taxes, which will go when VAT comes into operation.
  Purchase tax, after 30 years, has reached the end of its useful life. Whatever its advantages, the fact is that its intrinsic defects have remained ineradicable despite a great many changes and despite many attempts both to simplify it and to eliminate the anomalies of which it has more than its fair share.
  Sir Gerald Nabarro: Hear, hear.
  Mr. Barber: My hon. Friend says "Hear, hear". No single Member of the House has done more to highlight the anomalies of purchase tax than has my hon. Friend over the years.
  The simple fact is that any significant reform of purchase tax has become impossible. The tax applies to only a limited range of goods, with particular emphasis on consumer durables and semi-durables, and not at all to services. It is in that respect grossly unfair on particular industries and particular products. Furthermore, a sizeable area of consumer expenditure, on goods used both by consumers

  1149
  and by business and industry, could not be subjected to purchase tax without at the same time imposing a burden on industrial costs.
  This is a defect of purchase tax which is, as I think is accepted by both sides of the Committee, inherent in the very nature of the tax. The distinction between business and consumer items under purchase tax has often involved, as we know from previous Finance Bill debates, very arbitrary borderlines, often depending merely on the size of an article. To give just two instances, refrigerators are taxable if their storage capacity is not more that 12 cu. ft., but larger refrigerators are not taxable although they are the same in every other respect. Similarly, electric water heaters are taxable up to a capacity of 50 gallons, but beyond that they are free of purchase tax.
  There again, purchase tax has been bedevilled by its multi-rate structure, which has inevitably given rise to an even larger host of anomalies and administrative difficulties. On Second Reading, my hon. Friend the Chief Secretary pointed out many of the nonsenses that we have had to put up with over the years on this score. I need repeat only a few. Toilet soap is taxed at a high rate, yet toilet paper is exempt. Cutlery is taxed at the bottom rate. [Interruption.] It is very interesting that that is apparently what the Opposition really believe to be good sense. But that is not so with most people in this country. I ask the Opposition whether they believe that it is right that cutlery should be taxed at the bottom rate but that light bulbs should be taxed at a high rate. Is it right that an old person's television set should be taxed more heavily that the Paris fashions? This is inherent in the very nature of purchase tax.
  However, what troubles me most about purchase tax is the difficulty in arriving at any convincing rationale for the distortion of choice which it imposes. The correction of one inconsistency inevitably gives rise to another, and the continual tinkering which has taken Place over the years only serves to establish the inherent defects of the tax. During 1971 we had to make no fewer than six Treasury orders amending the purchase tax tariff. This frequency of alteration, after 30 years of operation of the tax, provides an element of instability which is bound to
  1150
  create, and has created, uncertainty in the minds of manufacturers planning for production for the years ahead. If the yield of the tax is to be worth while, its rates have to be relatively high, because of the narrow base, and so the whole market is distorted in favour of goods fortunate enough to be outside its scope.
  Mr. Joel Barnett: Will the Chancellor guarantee that there will be fewer Orders and Regulations under VAT?
  Mr. Barber: VAT will be far less discriminatory than purchase tax—without any doubt. The only way of ensuring that it was not discriminatory at all would have been to ensure that there were no exceptions of any kind. I shall come to the reason why I chose to provide for the special reliefs.
  Mr. Brian Walden: One is rather puzzled by the Chancellor's argument. Let us consider his example about refrigerators and their capacity. Is it not a fact that if a refrigerator is built into a house it will not be liable to VAT, whereas otherwise it will? Is this not exactly the sort of anomaly that the Chancellor is now condemning purchase tax for containing?
  Mr. Barber: The hon. Gentleman makes that assumption, but I think he had better wait until the discussion in Committee elsewhere on the way in which this is to be dealt with. All that I can say to the hon. Gentleman—I think he will accept it, because he is an intellectually honest person and a man of great ability; we welcome him to the Opposition Front Bench—is that it is accepted by everyone, whether they think that changing to VAT is a good thing or a bad thing, that it is far less discriminatory than purchase tax. It is true that if one provides for any special reliefs of any kind, inevitably borderlines arise. But we most certainly will not have with VAT the sort of borderline problem which has bedevilled purchase tax throughout its history.
  Another disadvantage of purchase tax is that, while retailers have always welcomed cuts in the rates, of the kind which they did not experience under the previous Government, whenever we have cut the rates there has been the perennial

  1151
  problem which has arisen concerning tax-paid stocks. Furthermore, it is well known and accepted—no one would deny it—that the tax is disliked by exporters. The reason is that it increases their export prices, through their overheads on stationery, office requisites and the like, and makes them that much less competitive than their tax-free competitors overseas. As a regulator of the economy, purchase tax is far from perfect because it has only a limited coverage.
  Nonetheless, purchase tax does at least have some pretension to being a tool of economic management. If SET, on the other hand, is such a tool, it is certainly of the blunt instrument variety, the crudest of bludgeons. Even now it is not at all clear what SET was intended to achieve. But it is only too clear what it has achieved over these years.
  So long as the main indirect tax was the purchase tax, which by its nature was confined to expenditure on goods, it could, perhaps, be claimed that the incidence of indirect taxation on service industries was lighter than on manufacturing industries. But I should have thought that no justification for saddling service industries with a tax riddled with as many absurdities as the SET is riddled with. After all, its selectivity created wholly artificial borderlines. The inequities that flowed from trying to differentiate between three classes of employer are too numerous to mention. One nonsense in particular will be familiar to all hon. Members, and that is the wholly artificial distinction between manufacturers, who get refunds, and wholesalers, who do not. So the result is that the manufacturer who orders his affairs in the artificial manner which is encouraged by SET will get refunds in respect of any wholesale activities he carries out. What justice or sense is there in that? The Opposition will agree, I think, that if SET had been kept, certainly this aspect would have had to be dealt with. Does anyone wish, as an act of Government policy, to drive wholesalers out of business? That is the direction in which SET was operating. The same kind of anomaly hits our specialist export houses and the retailer who tries to offer his own repair service.
  There is only one consistent thread in all this, one which was apparently not
  1152
  intended and certainly not one that commends itself to the present Government, and that is discrimination against the small manufacturer who cannot do, or prefers not to do, his own wholesaling or exporting.
  4.30 p.m.
  Mr. F. A. Burden: One of the worst aspects of SET was that buying houses, which were set up in this country purely and simply to buy merchandise for export abroad, had to pay SET on their staff. That caused them to cut back their staff and in many instances to cut back their purchases.
  Mr. Barber: My hon. Friend is quite right. Those cases are also well known. It is true that any tax generates difficult cases. The peculiar feature about SET was the impossibility of establishing general rules laying down that degree of consistency which is the hallmark of a fair taxation system. Slight and wholly natural alterations in their activities could move firms in and out of the tax. What we had in SET was a tax which was anomalous in its very nature. Its economic effects were certainly no better. It heavily taxed essential services while rewarding the manufacture of the most trivial article. It pushed up industrial costs and added a further layer on export prices by taxing all kinds of services connected with exports.
  The mere fact that VAT allows us to get rid of purchase tax and SET, is a powerful argument in its favour. However, its virtues are much more positive than that. Its principal advantage is its breadth of application. It is designed in principle to fall on all consumer expenditure on goods and services. Relief is allowed only for good reasons and in carefully defined areas. This broad base enables a large revenue yield to be obtained by means of a modest rate of tax. The wide coverage limits the distortive effect of high taxes on patterns of personal expenditure and therefore on trade.
  In consequence, the allocation of productive resources will be more in accordance with real demand. The neutrality of VAT as a revenue raiser is, I should think, a commendation in the eyes of those even who oppose it. Moreover, the VAT system of deduction of input tax ensures that the tax bears

  1153
  only on the ultimate consumer with the minimum burden on industry. At the export stage, all the VAT which has previously been paid can be completely rebated.
  Whatever view may be taken of the principle of VAT, I think that everyone will accept that as an economic regulator the potential of VAT is considerable. Because of its broad base, any rate adjustment required will be much smaller than is the case with purchase tax. As a result firms can look forward to more stability and feel more confidence in the future level of demand for their product. These are crucial matters when it comes to investing large sums in capital equipment.
  I think it will also be universally accepted at the other end of the chain of production and distribution, whatever views may be taken about whether the tax should be applied in this country, that the retailer will no longer have the problem of tax-paid stock if the rate is changed, because under the VAT system his tax liability is reduced by the actual tax paid on his purchases, even if it were at a different rate. In effect, his stocks are held tax free.
  All these are advantages inherent in value added taxation in general. The particular system proposed for this country has some special advantages. All along we have attached particular importance to keeping the tax simple. This we have done by deciding to have only a single rate of tax; by adopting a generous exemption limit for small traders; by providing for the use of existing commercial procedures as far as possible; and by preparing special simplified systems of accounting to help retailers.
  As the Committee knows, we have also been at pains to cushion the impact of the tax on lower income families, by zero-rating or exempting a number of important items of expenditure. Some hon. Members tried at one point to raise a scare about the effects of VAT on food distribution costs, but that has now been scotched by my hon. Friend the Financial Secretary in his reply to the hon. Member for Walthamstow, East (Mr. Deakins). The VAT system ensures that no VAT enters into the price of zero-rated foods; moreover, the food distribution industry now bears a significant amount of SET
  1154
  which will disappear. As a result, the overall effect will be a reduction in the tax on food.
  Mr. Denis Healey: The whole country will be interested in this: can the Minister assure the House and the country that the Government will in no circumstances introduce a positive VAT rating on food as a result of the harmonisation to which they are committed under the Treaty of Rome?
  Mr. Barber: There is no obligation under the Treaty of Rome, and as a result of the decisions which have been taken by the Six to impose VAT on food.
  Mr. Healey: Will the Chancellor answer the question.
  Mr. Burden: Give him time.
  Mr. Barber: I am trying to answer the right hon. Gentleman.
  Furthermore, when we enter the Community we shall have a say in these matters. The right hon. Gentleman knows perfectly well that I cannot, regarding any future decision concerning any form of taxation, give an absolute assurance, any more than the right hon. Gentleman could give an assurance if he were the Chancellor of the Exchequer in a Labour Government that he would not put up these taxes as his predecessors have put up taxes when they have been in office.
  Mr. Healey: The right hon. Gentleman has made the point that the British Government have the right to veto any steps towards harmonisation of which they disapprove. I am asking the right hon. Gentleman a question that is within his competence, that is to give an assurance that he will not agree in discussions which take place when we are in the Community, to the imposition of a VAT rating on food.
  Mr. Barber: I am not prepared to do that. I believe everybody would agree that it would be wholly irresponsible and intolerable to give an assurance about future taxation of any items in this country. If the right hon. Gentleman would like to give an absolutely firm assurance, whether we have purchase tax, VAT, or SET, that in the event of a future Labour Government they will not under any circumstances allow any of those rates to increase, we shall be interested to hear it.

  1155
  I hope that the House, in considering these matters, will not overlook the pervasive effects of SET in all sorts of sectors for which they express concern, whether it be housing and rents, repairs and improvements, entertainments and catering. Although there will be changes in the incidence of tax on particular commodities or transactions, particularly those which have been heavily taxed in the past, overall, as I have pointed out before, there are no grounds for thinking that the changes in taxation resulting from the introduction from VAT will be regressive.
  The case in favour of VAT rests firmly on its own fiscal and economic merits. Those merits have, of course, already led a number of European countries in the same direction as we are now proposing to take. Most of these countries are existing or potential members of the EEC —but not all, for Sweden and Austria have also chosen VAT on its merits, although they are not candidates for membership for the EEC. I might add that in Austria there is the first majority social democratic Government since the war. What was one of the first actions taken by that Government? They decided to introduce a value added tax.
  Consider also the example of Sweden, regarded by some as a Socialist Utopia. At present, the Swedish Government are proposing to raise their value added tax to 20 per cent. because they feel that this is the best and fairest way of raising the revenue.
  The adoption of the VAT system is required by EEC Directives, and the decision to introduce a VAT in this country as a means of improving our tax system means that we shall not require any transitional period in this particular sphere. However, I hope that some of the misapprehensions stemming from the EEC overtones have now been put to rest.
  So far—I should like to repeat this, because it should be made clear—the member States of the EEC have agreed only to introduce the system of VAT. They have not agreed on the harmonisation of rates or of coverage. Until such time as they do, they remain free to determine their own rates and coverage.
  1156
  As a member of the enlarged Community, we shall naturally have a voice in the discussions about harmonisation. What is even more important, under Articles 99 and 100 of the Treaty of Rome, decisions of this nature must be unanimous. These discussions on the harmonisation of coverage and rates, which does not necessarily mean complete equalisation, still have a long way to go.
  Mr. William Baxter: On VAT, I think that the Chancellor would concede that the heavier part of the burden will be borne by the poorer sections of the community. They will have to bear a considerable part of the value added tax. If it is on goods and various things which people use, it must affect the poorer sections of the community. Will the right hon. Gentleman give reasonable consideration to the possibility of a minimum income wage and allowances for the poorer sections of the community, because I think that should run in unison?
  Mr. Barber: That raises a much wider question which I could not deal with on consideration of the Clause.
  I should like to repeat what I said earlier. Taken overall, because of the special reliefs which we have provided, it is not true that this tax is regressive. This is a very important consideration. It arises because we have taken certain decisions, which I announced in the Budget Statement, which came as a considerable surprise to the right hon. Member for Leeds, East.
  Mr. Healey Mr. Healey indicated dissent.
  Mr. Barber: I do not know why the right hon. Gentleman shakes his head, because he was surprised. He surely must admit that.
  Mr. Healey: I was not surprised.
  Mr. Barber: The right hon. Gentleman says that he was not surprised. I do not know where it is, but I am sure that I can produce for him his election address in which he specifically stated that the tax would be applied to fuel and fares.
  Mr. Healey: Not in my election address.
  Mr. Barber: That is interesting. We shall have it on record and bring forward his election address on another occasion.
  The point is that it is time that indirect taxation in this country was spread in a less discriminatory fashion. Our particular form of VAT has been hammered out in intensive open consultation with those who are primarily affected. It has been well received by business men and industrialists who can see the solid merits of the system. It also meets the canons of social justice. It will replace two taxes which, to put it mildly, have been tested and found wanting. In short, it is the best instrument available for raising revenue from a broad sector of consumer expenditure.
  I should add that there will inevitably be those outside this House who, very naturally, will be concentrating on interests or activities with which they are especially concerned. It is understandable that, before the introduction of the tax, they should not be fully alive either to the great advantages of a less discriminatory tax or to the very great disadvantages of making particular exceptions with the inevitable consequences for the rate and the inevitable anomalies and non-senses which have so bedevilled our taxation system in the past and which would follow if we were to go down that slippery slope.
  Mr. Burden Mr. Burden rose—
  Mr. Barber: But our duty in this House is to take account of these broader considerations. It is in the very nature of the reform of taxation that it does not leave matters where they were. When I became Chancellor, I was urged by my right hon. and hon. Friends not to flinch from the reform of taxation merely because it posed problems. I accepted that advice. I, in my turn, now ask my right hon. and hon. Friends to support the Government in the task to which together we have set our hands and which, if we have the resolve and courage not to be diverted from our strategy, will be of great benefit to our country.
  Mr. Burden: Before my right hon. Friend sits down, will he advise me on one point? He made the point that when VAT is introduced the retailer will be holding his stocks without tax having
  1158
  been paid. In fact, now that purchase tax is being paid the retailer has already paid tax and he puts his profit on the cost of the article plus the tax. In future, valued added tax will be charged by the retailer and his profit will be put on the prime cost of the article without tax so he will not be able to hide the fact that he is charging profit on the tax as well as on the prime cost of the article. Is it not also a fact that, because he will not have paid the tax, he will not he subjected to the problem of having purchase tax reduced and having to cover in his profit the loss which he makes because he has already paid the tax?
  Mr. Barber: Certainly the conclusion of my hon. Friend's question is perfectly valid. It follows from the fact that, in effect, his stocks are held tax-free.
  [Mr. E. L. MALLALIEU in the Chair]
  4.45 p.m.
  Mr. Healey: As the Chancellor has pointed out, this discussion on "Clause 1 stand part" is, in effect, a Second Reading debate on the principle of the proposals for value added tax. I regret that we cannot treat this part of the Finance Bill as a piece of legislation in its own right by having a proper two-day debate, followed by a Committee stage, followed by the normal procedure. At least, the Chancellor will agree that the proposal for a value added tax represents the biggest change in our tax system for a generation. Until now it has been very little discussed in the House. We have only just been given an idea of the broad shape of the tax as the Government see it. Many details are still unknown; so we hope to learn more in Committee upstairs.
  The Bill gives the Commissioners of Customs and Excise unprecedented powers of both enforcement and definition. It also gives the Government the right to triple the yield of the tax within 12 months, if they so decide. By this time next year the Government could be raising £3,000 million from this tax rather than a simple replacement of the yield from purchase tax and SET. I know that the Financial Secretary will agree that we can go up to 12½ per cent. before the tax comes into operation, arid that the moment it is in operation it can be

  1159
  increased by a further 20 per cent., bringing it up to 15 per cent. in all, and, under another Clause, everything at present zero-rated can be removed and subjected to the full value of the tax. If the Government had no intention of removing things from the list in Schedule 4, presumably they would not have given themselves the power to do so by order.
  A great deal of the previous discussion on a value added tax has turned out rather irrelevant to the specific proposals which we now face. The Chancellor rightly pointed out that this tax must be seen in relation to its rate, its coverage, and its yield, on the one hand, but, on the other hand, and more important still, as forming part of a total structure of direct and indirect taxation. Indeed, we find value added tax performing different functions in some countries which have already adopted it.
  For example, in France value added tax was adopted largely because there was large-scale evasion of income tax at every level in the State and an extremely complicated and easily evaded form of sales tax. As a result the French have introduced an extremely complex form of VAT which fulfils very few of the criteria laid down by the Chancellor. It is highly discriminatory, there are four rates and there is very large-scale evasion. I will come to that later.
  In Sweden, on the other hand, there is very high and very progressive direct tax on income, and, in addition, there is a range of taxes on wealth which we do not have in this country. There are a tax on wealth and a tax on gifts, and there is a tax on inheritance which starts at £2,400—one-tenth the starting level of the British tax—and begins at a rate of 45 per cent. It cannot be evaded because of the effective gifts tax. If we had a system of taxation of income and wealth like Sweden's, we might decide that there was a case for a value added tax as our main form of indirect taxation. But it will not be any surprise to the House to know that the Government are not introducing the value added tax against this background.
  When the last Conservative Government considered introducing it the then Chancellor, now the Home Secretary, considered it as a possible replacement for
  1160
  purchase tax and for all or part of the profits or corporation tax. He was particularly concerned with whether or not our exports would be helped by a move from purchase tax and corporation tax to value added tax. The Richardson Commitee on Turnover Taxation, which he set up, came to an unequivocal conclusion which the Conservative Government of the day fully supported. Incidentally, all the criticisms of purchase tax by the Chancellor this afternoon and all the advantages which he claimed for value added tax as against purchase tax were directly repudiated and rejected by the Richardson Committee. I quote only paragraph 303:
  "The purchase tax system in fact affords a more logical, efficient and economic means of consumer taxation than a value added tax. The administration of the purchase tax is established and well tried in this country, and the tax is capable of medication and extension. We can see no countervailing advantages which can justify the introduction of a value added tax in its place."
  I am glad to see that the Government have sufficient confidence in Mr. Richardson's economic judgment to have made him Chairman of the new Industrial Development Executive.
  The Government are introducing value added tax for a completely different set of reasons which the Chancellor summarised in part in his remarks a few moments ago. The introduction of the value added tax is an essential part of the Government's general disengagement from the responsibility previous recognised by British Governments to control the economy according to certain social, as well as purely economic, objectives. The Chancellor has chosen the value added tax, as he told us this afternoon, because it is what he called "neutral and undiscriminatory", because it does not involve the sort of distortions of consumer choice involved in the multiple rates of purchase tax, and because it does not involve any fiscal interference with the laws of supply and demand which the Government claim to hold sacred. This is the theory, but the practice is very different.
  The Chancellor asked whether I was surprised at the large number of zero ratings and exemptions which he has permitted. I said I was not. I expected earlier that the Government would introduce a value added tax which would tax

  1161
  food and fares. The Chancellor did everything this afternoon to suggest that my belief was justified by his total failure to answer my question about what the Government would do when it came to the job of harmonising coverage and rates with other members of the Common Market. But, as we all know, the Chancellor is very sensitive not only to the laws of supply and demand but to the laws of the ballot box.
  Mr. Barber Mr. Barber rose—
  Mr. Healey: When the Government talk about Conservatives wearing a human face, it means they share at least one very common human feeling—a dislike of losing power. In order to get the Bill through the House at this stage, the Government have introduced a large number of changes in the elegant administrative structure of value added tax as described by the Chancellor this afternoon, and, like every other aspect of their economic policy where they have tried to temper Tory dogma with political expediency, it has ended in a ghastly muddle. If we look at the proposals in practice —
  Mr. Barber Mr. Barber rose—
  Mr. Healey: —we find the present proposals in their present form fall heavily between two stools and give the worst of all worlds.
  Mr. Barber: Will the right hon. Gentleman confirm that in his election address he stated—[Interruption.] I was not intending to intervene again, but when the right hon. Gentleman speaks about the Ballot Box will he confirm that he said that the Conservative Government would put a 20 per cent. tax on coal, gas and electricity?
  Mr. Healey: Yes, I will confirm that, and I am asking the Chancellor to say that he will not impose such a tax. I asked him earlier in the debate. I asked him for an assurance that he would not increase the rates and extend the coverage by order as he has given himself the power to do under cover of harmonisation. He refused to give any assurance on this point, and I shall return to it later.
  Let us look at this tax as it is presented to the House and not the Platonic idea of a value added tax. First, as
  1162
  the Chancellor said, it is intended simply to replace purchase tax and the selective employment tax and to produce roughly the same yield. In the form in which it is produced it is a retail sales tax collected in bits and pieces from consumers. But nearly half of consumer expenditure is zero-rated. On top of that there is a 10 per cent. standard rate applied to 1,500,000 registered taxable persons and there are another 500,000 persons exempted. So already there are three effective rates of tax for VAT—zero rate, standard rate, and a very difficult to define rate for those traders who are exempted. In addition, other indirect taxation is imposed at different rates. There are excise taxes on oil, petrol, alcoholic beverages and tobacco, and a special rate which is unique on motor cars.
  There is very little left here of the elegance and economy attributed to value added tax by the Chancellor of the Exchequer this afternoon, and I shall seek to show that in the form in which it is presented to us in the Bill the tax is infinitely less economic than the taxes it replaces. It is open to evasion on a colossal scale, it is teeming with ridiculous anomalies and it is likely to be highly inflationary in its effect. I would like to deal with these points in turn.
  5.0 p.m.
  First, even the Chancellor will not deny that it is appallingly expensive and inefficient to collect. Purchase tax collected very nearly as much money with 2,000 officials from about 68,000 traders. Under the right hon. Gentleman's VAT there will be 500,000 traders who are zero-rated. But they have to keep invoices at every stage. They must be subject to spot checks by the Customs and Excise and the Inland Revenue, but at the end of the day they do not contribute a penny to the yield of the tax, because the tax is passed on at every stage. Zero-rating under VAT from this point of view is bureaucracy for bureaucracy's sake. It produces no advantage to the country. It is simply a form-fillers' paradise, and it affects 500,000 people.
  I turn to the 1,500,000 taxable persons. They must invoice transactions at every stage, passing the tax on at every stage, with the 10 per cent. of the last stage being passed on to the consumer. The Chief Secretary attempted to dispute

  1163
  the figure I quoted of 50,000 additional persons required in business to operate this tax. I just ask him to give his own figure if he thinks it will be smaller, if he does not agree that the 50,000 larger firms out of the 1,500,000 involved are likely to require at least one extra person each to operate the tax.
  The Chief Secretary to the Treasury (Mr. Patrick Jenkin): When the right hon. Gentleman asks the same question as he asked on Second Reading, I can give him the same answer. We are having a great deal of déja vu in the right hon. Gentleman's speech. When the Customs put questions to firms in countries where the value added tax is already operating, asking them how many people they would save if they were relieved of the obligation of the administration, the answer was virtually none.
  Mr. Healey: With great respect, that is not the question at all, because all those countries here VAT has so far been introduced suffered from extremely inefficient forms of turnover tax, cascade tax, or retail sales tax. The analogy between those countries and Britain, which, as the Richardson Committee pointed out, has an extremely efficient purchase tax, is totally irrelevant.
  The burden on the Civil Service, I gather from the Daily Telegraph, is already becoming intolerable. There are talks of a strike against excessive overtime in the London area, even on the preparation of the tax. The Government claim that only 6,000 extra civil servants will be required to operate the tax. How do they arrive at that estimate? As I pointed out, purchase tax, which stops at the wholesale stage, requires 2,000 to deal with 68.000 taxable units.
  The Neddy report says that about 7,000 would be required to administer an invoice-based system, even if initially it is extended only as far as the wholesale stage. In other words, the Neddy estimate was the estimate of those needed to operate the VAT at the wholesale stage, involving a very much smaller number of persons than the VAT being introduced by the Government. If it takes 2,000 to operate a purchase tax effectively for 68,000, why does it not require about 40,000 to operate a VAT with equally detailed and effective con-
  1164
  trol? I am certain that the answer is that the figure the Government quote is possible only if they are prepared greatly to drop the standard of control and to rely on random checks rather than the sort of continuous control which now operates.
  I should like to quote the remarks of the Deputy Chairman of Customs and Excise, Mr. Radford, at a recent Financial Times seminar on the VAT, when he said:
  "It will not be possible for our staff to visit VAT traders anything like as often as they visit the purchase tax trader."
  Sir G. Nabarro: The right hon. Gentleman is surely omitting to consider the enormous impact of one new factory since Richardson, the proliferation in automatic calculating machinery, of a type often attuned specially to the value added tax, notably the electronic machines, and the fact that the overwhelming majority of small traders will use relatively inexpensive calculating machines, very often a single machine, to carry out work that would earlier have occupied many hands in their offices.
  Mr. Healey: The hon. Gentleman will gladden the Chief Secretary's heart, because he is doing some good advertising for those who sell calculating machines. But the fact is that the type of invoicing required is in many respects not suitable, especially with the small traders, for calculating machines, and the introduction of calculating machines is bound, at least in the short run, to increase the costs of production.
  I am sure the answer is that, to ensure that control does not collapse completely, the Government have given the Customs and Excise powers of enforcement which have been described by the Chairman of the Bar Council and the President of the Law Society as constituting a substantial infringement of the liberty of the subject. We have the extraordinary situation that under Clause 38 the Commissioners have the power to convict and fine a man without knowing the offence he has committed, without establishing the particulars of the offence. That is a juridical innovation into the system of British law which will appal all lawyers all over the country and anyone with a sense of common justice.

  1165
  The Commissioners do not only have the power to convict and fine without knowing in detail what offence has been committed. They also have the right to enter premises at will, without a warrant, to inspect goods, even if the business concerned is not subject to VAT, which is absolutely astonishing.
  Mr. Barber: I make no complaint about the right hon. Gentleman raising these questions on enforcement. It is not for me to do so. The Clause is concerned with the basic principle of VAT, but it is worthwhile pointing out for the record and the benefit of those outside the House that it is on a later occasion that all these matters can be debated. The right hon. Gentleman knows this perfectly well, and knows that if a good case should be made out for any changes in the enforcement or the penalty provisions changes will be made. The right hon. Gentleman was consulted about the Clauses which we should take on the Floor of the House and those which we should take upstairs. These matters will be considered upstairs, no doubt in great detail.
  Mr. Healey: I would not accuse the Chancellor of being frightened to face the facts, but he pointed out in opening that this is in the nature of a Second Reading debate on a Bill which constitutes the biggest change in our tax system since the Second World War, if not since the First World War. We are now discussing a Clause which specifically refers to the establishment of a value added tax and deals with the rôle of the Commissioners in carrying out its functions. I know that the Chancellor wants to redraft the subsection in question as defined later in the Bill.
  Just as the Chancellor has the right to pick the little things out of VAT which appeal to him, I have the right and duty—and I know that the Chair will call me to order if I am out of order—to point out that the Chancellor's claim that this tax is more economic and efficient than the taxes it replaces is a ludicrous opposite of the truth. I am seeking to prove not only that it will require many more people by far, but that they will not be able to supervise and control the calculation of the tax unless the Government give them the powers they have given, which I am glad
  1166
  to note the Chancellor now seems to be rather frightened of having given them. I hope we can rightly assume from the rather nervous interjection that he has just made that he is having second thoughts on the matter.
  Mr. Ian Percival Mr. Ian Percival (Southport) rose—
  Mr. Healey: I must get on. I do not want to upset the Chancellor by spending too long on particular issues that we shall be dealing with later upstairs.
  I want to turn to the mountain of anomalies and injustices in the Bill. The right lion. Gentleman made fun of the anomalies in purchase tax. Anyone can do so. The hon. Member for Worcestershire, South (Sir G. Nabarro) has done it, and we know such anomalies exist. But they will be nothing to those which will be created by VAT because they will in many cases go to the heart of people's livelihoods. They are not the difference between tax on toilet paper and tax on toilet soap. They are the difference between survival and failure for many businesses.
  My hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett) referred to some of the anomalies on Second Reading. He pointed to the fact that if one buys fish and chips one will pay VAT if one eats them inside the shop but will not pay it if one eats them outside in one's car. The same goes for chop suey and chow mein bought at the increasing number of Chinese shops in this country.
  Let us take first the question of the right to exemption for traders with a turnover of less than £5,000 a year. This cut-off of £5,000 falls right in the middle of one of the most thickly populated points in retailing. A man who is able to show that his turnover was £4,999 will be exempt. It is is £5,001 he will be subject to VAT. I shall come in a moment to the enormous temptation to fiddling and deceit which a cut-off at this point raises. This is a very serious matter because the Government themselves reckon that some 500,000 traders are under the £5,000 turnover limit. I would not be surprised to find that another 500,000 are between the £5,000 and £10,000 turnover limit. I should be interested to hear the Government's figures.

  1167
  Also, of course, every trader who wants to be exempt and whose turnover might be a little over the £5,000 a year would have a tremendous incentive to fiddle various elements in his input or sales and not register them. It is still an open question, nevertheless, whether the value of exemption to the small trader—or rather the cost of exemption to him, because he has to pay on all his inputs—is greater than the misery of filling out all the forms if he decides after all to be subject to VAT.
  Let us take the whole clutch of anomalies and injustices involved in the Government's decision that building shall be zero-rated, whereas maintenance and repair and the services of architects, lawyers and surveyors, whose operations are an integral part of the building process, are not. Again, we shall return to this matter in more detail later, but I want now to point out two or three major problems.
  The Financial Secretary to the Treasury (Mr. Terence Higgins): It is right to point out, if the right hon. Gentleman is to pick out, as he has done, points concerning the regulator, enforcement and the £5,000 limit, that he has been dead wrong in a number of his remarks. No one should take as correct what he has said until we have discussed it on the appropriate Clauses.
  Mr. Healey: I find that interjection almost the feeblest I have ever heard. I do not know whether the Financial Secretary proposes to reply to this debate. If he intends to do so, perhaps he will do the Committee the courtesy of answering the points then.
  Let us take the three anomalies arising from the distinction between new building, repairs and maintenance. How is it possible to distinguish, when a builder is doing development on an old house, between putting in a new floor—is that improvement?—and repairing the gutters —is that repairs and maintenance? Will not a builder be tempted to load all his overheads in every case on the zero part of what he is doing and not pay tax on the VAT-ed part?
  5.15 p.m.
  Then we have the development of a whole new industry of building activities, such as the installation of new furniture,
  1168
  carpets, and so on, into a house so as to escape VAT. There is the certain fact that the Government are to tax the services of architects, lawyers and surveyors, and to VAT repairs and maintenance done by established builders with a turnover of over £5,000 a year. This will mean an enormous amount of "fly by night" little firms offering to do repairs and maintenance without proper qualifications, houses built without proper services, without proper achitects' designs, and the general degradation of the whole standard of housing as a direct result of the distinction which the Government are seeking to draw in the housing sections of the Bill.
  Then there are the injustices and unfairnesses. The Government claim simply to be replacing purchase tax and selective employment tax, but they are reintroducing entertainment tax over a whole range of enterprises which have been free of it for many years. Hundreds of small football clubs, for example, will have to go out of business if they have to pay VAT as proposed here.
  Mr. Patrick Jenkin: Rubbish.
  Mr. Healey: The hon. Gentleman may say "rubbish ". Again, we shall be discussing this in more detail when he will have the chance, if he is here, to answer the serious points put by the Football Association.
  Entertainment tax is being introduced on theatres. Many theatres struggling to survive are likely to go under as a result. There will be a crippling blow at all the most enjoyable leisure activities of the people—sport, theatre and, indeed, music, which is something which should appeal to the Prime Minister even if it appeals less to some of his colleagues.
  I will not make much at this time, because we shall have a full day on it perhaps later in Committee of the House, of the brutal and offensive affronts to social justice. How can the Government excuse putting children's clothes and shoes up by 10 per cent. next April while bringing fur coats down by 13 per cent.? The Chancellor claims that this is not a regressive tax; yet he is taxing crisps and ice lollies but is leaving caviar and smoked salmon free. Anomalies and injustices on this scale are an invitation to evasion.
  Mr. Patrick Jenkin: The right hon. Gentleman is having his fun, but we are narrowing the difference between taxation on potato crisps and caviar.
  Mr. Healey: That is a very good-humoured interjection which the Committee will treat in the spirit with which it was made. But I am sure that if the difference between the cost of crisps and caviar is narrowed from £4 10s. to £4 9s. 11d.—or 49p—the Committee will be absolutely delighted.
  Mr. Patrick Jenkin Mr. Patrick Jenkin indicated dissent.
  Mr. Healey: We get a lot of general statements from Ministers but no facts and figures. I hope that we shall get them later. Perhaps the hon. Gentleman will tell us whether what I have said is true.
  Anomalies on this scale are an invitation to evasion, especially when there is inadequate control. Under VAT we shall have 1,500,000 taxable persons instead of the 68,000 involved in purchase tax. We all know from Continental experience of the scale of evasion which VAT suffers. I assure the Committee that I have picked these examples from public print because I would not want it to be thought that I was encouraging anyone to defraud the Customs and Excise.
  First, there is enormous scope for false invoicing—for selling more to the consumer than one actually declares—so that one can pocket the VAT oneself. There is enormous scope for forging invoices in order to get rebates. There is enormous scope for partially exempt traders to load all their inputs on to VAT-able sales, and in the service industries, as we know from experience abroad, many clients will conspire with the providers of services to conceal the real cost in order to avoid or reduce liability to VAT. This happened on a colossal scale in France. In France last year the estimate is that £1,000 million worth of VAT was lost through evasion.
  In Belgium, much smaller, the estimate was £125 million worth of VAT lost through evasion. So much for the change to administrative simplicity and efficiency of which the Chancellor was talking a moment ago. This tax is an invitation to a general loosening and lowering of social morality. This is one
  1170
  of the heavy factors to be weighed in the scales against some of the advantages to which the right hon. Gentleman referred and which I would not dispute.
  Many of the disadvantages of this Bill are due to the speed with which the Government are introducing this tax. In making his first speech on the first Clause the Chancellor had to admit that the second paragraph was wrongly drafted and said he would introduce an Amendment to replace it later. Already he has said that he is unhappy with the enforcement Clauses. There are innumerable uncertainties still left open.
  We know that drink will carry VAT next year, but we do not know whether the excise duty will be reduced accordingly, or what will happen to stocks which the poor wine merchants or brewers have left on their hands on which full excise has been paid.
  The situation is similar with secondhand cars. These form one of the most important items of expenditure for most ordinary people. I have never owned a new car in my life! We do not know how this item of expenditure will be dealt with. It will be handled somehow between the dealers and the Customs and Excise over the next year. A great deal of discretion is left after that to the Commissioners by way of definition which is far more than civil servants should be given in a matter of this importance.
  Decimalisation was a far simpler change in our arrangements; yet it was given three years to take effect. The Government are trying to introduce this new tax system in 12 months, and yet they are under no pressure to do so. Maybe the Government would argue that we must have VAT when we join the Common Market, so the sooner we get on with it the better. We are under no obligation to introduce VAT before the end of the transitional period in 1978. Italy, which has been a member of the Market for 14 years, is still three years late in introducing VAT and has had permission to have an extra year's grace. I have no doubt that by 1978 the Italians will still be repeating that it is inconvenient to do it at that particular moment.
  We must ask why the Chancellor is doing this in such a half-baked way, in such a rush—
  Mr. Burden: Could I draw the right hon. Gentleman's attention to a statement made by his right hon. Friend the then Prime Minister on 8th May, 1967, when speaking about VAT:
  " The agreement was that by 1st January, 1970, existing turnover taxes would be replaced by the value aded tax system."—[OFFICIAL REPORT, 8th May, 1967; Vol. 746, c. 1090.]
  He obviously accepted on behalf of the Labour Party that if we went into the Common Market we would have to give effect to this.
  Mr. Healey: I have given way too often. The hon. Member has made the point that the regulations of the Common Market originally laid it down that member countries should introduce VAT by 1970. The Belgians were a year late, the Italians have not yet done so and Britain was under no obligation to do so. The Prime Minister signed up this Government to bring it in by 1978. What the previous Prime Minister and the last Government always said was that this was a bad tax but that if we could join the Community on acceptable terms in other respects we would wear VAT.
  Mr. Burden: Not at all.
  Mr. Healey: With great respect.
  Mr. Burden: With great respect, I have it here in HANSARD.
  Mr. Healey: The then Prime Minister was quoting the Treaty of Rome, not the policy of the Government. It is well within the recollection of the House that my party has always taken the view that it is against VAT but would be prepared to accept it if other terms of entry were acceptable. That still leaves open what sort of VAT we introduce and how fast. That is the issue with which I am dealing, and it is a question to which we must address ourselves.
  Why is the Chancellor doing it in this half-baked way in such a rush when he gets nothing out of it which he would not get far cheaper and easier through purchase tax and SET, especially when, as the Richardson Report pointed out, purchase tax can easily be extended and it was proposed by the last Government to turn SET into a general pay-roll tax, had they won the last General Election? There can be only one reason why the Government are introducing VAT now in this form—because they think they will
  1172
  get it on the Statute Book with the minimum political fuss.
  But they have the firm intention of changing the yield, the coverage and the rate in the coming years and to do it under the protection of the argument that they are pledged to harmonise the rates of coverage with the other Market countries. When that time comes—and it could start next year—the Government have given themselves the power to take all trades at present zero-rated out of that rating by order the moment the Bill is law. They have the power to increase the rate to 12½ per cent. before it comes into operation and to increase it to 15 per cent. the following week, again by order with no effective discussion here.
  I believe—I could be wrong [Interruption.] If the Minister thinks so, he has every opportunity to reply later and quote relevant Clauses. What the Government intend is to produce a massive shift away from direct to indirect taxation. What they intend doing is what was contemplated by the Government in which the present Home Secretary was Chancellor but which carried out instead the recommendations of the Richardson Report—to cut income tax and profits tax in favour of a highly regressive system of indirect taxation. The Government have given themselves the power to do this. The Government have the right on the first day of operation of the tax to raise the rate to 15 per cent. as the standard rate and to increase the coverage by taking trades at present zero-rated and applying standard rating to them.
  I estimate that the combination of the cuts in zero-rating and the increases in standard-rating could allow the Government to raise £3,000 million more next year from this tax, if they so wish. As they have given themselves the power it is not beyond the bounds of possibility that they may wish to do this, without any parliamentary discussion other than what is permitted on the affirmative order procedure at the end of a tiring day dealing with another issue.
  The Government blame it all on the Common Market. Although there has been no agreement on harmonisation there has been agreement to harmonise and the Government have accepted the need to do this. The highest rate is 33⅓per cent. The only country which has a

  1173
  rate as low as the proposed British rate of 10 per cent. is Luxembourg, whose argements are not likely to carry the greatest weight when these matters are considered in the Community. We know that the Commission has made proposals as to what it wants. It wants two rates, the first being a lower rate of 5½–7½ per cent. covering food, at present zero-rated. The chancellor absolutely refused even to indicate the Government's intention on this matter when I asked him a question earlier. The Commission also intends to have a rate of 12 to 18 per cent. for the rest.
  5.30 p.m.
  The Chancellor can rightly claim that in its present form VAT is not as regressive as many of us had feared because of the large number of zero ratings and exemptions covering about 45 per cent. of the total consumer expenditure, and because of the low rate. But if we move to the French or German system, according to the calculations of Professor Brown the poor are likely to lose 3 per cent. of their living standard and the rich are likely to add 2 per cent. to their living standard. In other words, the introduction of harmonisation along the French or German lines would widen the gap between rich and poor by 5 per cent. That, of course, is what the Bill is about, and that is why the Chancellor is able to make these general remarks about the virtues of VAT although the Bill does not bear him out.
  The real view of the Tory Party was well expressed by the hon. Member for Truro (Mr. Dixon) on the second Reading of the Finance Bill when he said:
  "I would not be in the slightest disturbed if the rate of value added tax rose from the proposed level of 10 per cent. to perhaps, 12 or 15 per cent., because this would give us a wonderful opportunity of reducing the rate of direct taxation."—[OFFICIAL REPORT, 20th April, 1972; Vol. 838.]
  He was widely cheered by the benches opposite when he made those remarks. In other words, the proposals in their present form are a case of "Softly, softly, catchee Monkey." The Government get us on to the hook of the tax through the Bill and give themselves the power to hoist us on the hook by increasing the rates and coverage under cover of harmonisation.
  Mr. Dan Jones: Could I persuade my right hon. Friend to ask the
  1174
  Chancellor whether he would care either to subscribe to that theory or to deny it?
  Mr. Healey: My experience of getting the Chancellor to make a positive statement of intention on anything in the discussions on the Bill have so far been so disappointing that I do not want to submit myself to the risk of a further disappointment, although I have no doubt that my hon. Friend will take any opportunity that is offered to him to see whether he can do any better.
  In their present form the VAT proposals are a feast for fiddlers and form fillers; they are expensive and inefficient; they are crammed with anomalies and are an invitation to evasion. Although at this stage they are not as regressive as many of us feared, they will nevertheless prove to be considerably inflationary. Most of the work done on this subject suggests that these proposals would lead to an automatic increase of at least 1 per cent. next year, but if we get the normal ratchet effect—that is to say, people not deducting when taxes are taken off but increasing to the highest permissible level when increases are put on—the increase is likely to be substantially higher and to have a serious effect not only on inflation but on the general prospects for our exports.
  The proposals contain inside them a mechanism to change the whole structure of the tax so as to render it highly regressive and highly inflationary, as it already is in many Continental countries, to introduce a tax on food, housing, fares and fuel if the Government wish to do so, and to raise the rate across the whole board. This would be absolutely intolerable unless it were accompanied by a drastic improvement in social benefits and the introduction of highly progressive taxation on both income and wealth. But we know from the rest of the Bill before us that the intentions of the Government in this respect are exactly the opposite. The rest of the Finance Bill shifts the burden from the rich to the poor, from unearned income to earned income, from the prosperous areas to the depressed areas of the country.
  The value added tax before us represents one more bloody sacrifice to the primitive gods of the market place to whom the Chancellor so regularly gives obeisance. I ask the Committee to

  1175
  reject Clause 1 and to reject with it the whole principle of the tax as constructed in the Bill. If, as I suspect, we fail to win the Division, I assure the Chancellor and the Committee that we shall fight every inch of the way on the Floor of the House and upstairs to try to make the best of an appalling job.
  Mr. Percival: I do not propose to follow the right hon. Member for Leeds, East (Mr. Healey) in his tedious repetition of inaccuracies and exaggerations.
  As a result of the generous indication given by my right hon. Friend in his opening remarks that he intends fully to meet the points which led my hon. Friends and me to table Amendment No. 79, yet another most cogent and convincing speech is destined to the nearest waste paper basket in the Library.
  I am grateful to my right hon. Friend because I would not have been happy to support Clause 1 with subsection (2) as it stood.
  I disagree with almost everything the right hon. Member for Leeds, East said, except for some of what he said about the enforcement provisions. Even there he was guilty of gross inaccuracy and overstatement. I tried to put him right, but he had not the courtesy to give way and be corrected, perhaps because he had been corrected so many times already that he did not want to be corrected again. He referred to the Commissioners as having "power to convict and fine ". The first time he said it I thought it might be a slip of the tongue, but when he said it again I thought it should be corrected because it is nonsense. The Commissioners have no power to convict or fine anyone.
  Nevertheless, my hon. Friends and I who tabled Amendment No. 79, together with the CBI, the Law Society, the Bar Council, the Finance Committee of Conservative back benchers, the Legal Committee of Conservative back benchers, the Society of Conservative Lawyers and others are seriously concerned about the enforcement provisions. However, the detailed discussion of them will come later, and I have not the slightest doubt that my right hon. Friend will then show the same degree of interest and readiness to consider points of view as he has shown on Amendment No. 79.
  1176
  As to the Clause that we are discussing, we felt that Subsection (2) might might be interpreted as bringing in not only powers of management but powers of enforcement. My hon. Friends and I wanted to make it clear right from the outset that we are most anxious to see a proper balance between the duties and convenience of the administrators on the one hand and the rights and convenience of the "administrated" on the other hand. We did not think that balance was properly struck in subsection (2). However, all is well, and my right hon. Friend has put Clause 1 right. I hope this generosity augers well for the future when we get to Clause 30 and thereafter, but for the moment I can only, and I do, thank him most warmly for having so speedily and fully met the point which my hon. Friends and I felt required consideration on this Clause.
  Mr. Dick Douglas: I listened with great attention to the speech of the Chancellor of the Exchequer and that which was made by my right hon. Friend the Member for Leeds, East (Mr. Healey). I was bemused by the Chancellor's plea that there had been wide consultation to achieve agreement on the structure of the tax which is proposed in Clause 1 and also as to the rate of exemption and zero-rating to be embodied in the Bill. If he has had extensive consultations about the procedures to be adopted in the Bill, I wonder how it was that he asked his officials to draft Clause 38 in the way in which it has been drafted. I appreciate that we shall be debating that provision on a later occasion, but I feel that we should be told why it is necessary to draft that Clause in that way.
  The point to be remembered about VAT relates to the distinction between theory and practice. Theoretically it is a tax on the factors of production, but for practical purposes the tax as we now see it is a tax on consumption. If the theory of the tax is carried through, it would be a system which would increase efficiency. But in practice it is a tax which will be passed on to the final consumer and, depending on the relative strength of the trade union movement's bargaining power in the Community and the demand for its skills and products, VAT will be divisive, inflationary and

  1177
  regressive. If we examine the present form and structure of the tax, we see that it embodies in its essential ingredients for indirect taxation purposes the taxation system of France.
  My right hon. Friend has pointed to the reasons for the EEC members wishing to adopt the French tax structure. Many of the EEC countries have taxation systems which are inferior to our own in terms of indirect taxation. It could be argued that the tax is an acceptable price to be paid for entry into the EEC, and, indeed, many people will argue the case for the tax on that basis. However, we know that the Conservative Government accepted the basis of VAT before the terms of entry were known, and, indeed, the Chancellor made great play in his speech with the fact that this was one of the proposals in the Conservative election address. It has been said that Labour might have given a similar undertaking.
  I make no apology for the fact that I am a pro-European, but I have been essentially sceptical about the VAT. I supported the Labour Party manifesto which entered two caveats, one relating to CAP and the other to VAT. If a Labour Government had wanted to introduce this tax as an acceptable price of entry into the EEC, we should certainly wish to examine in great detail the nature and structure of the tax.
  5.45 p.m.
  The Chancellor emphasised the fact that the exemptions and zero-ratings appear to have come as a surprise to some of us, but he should have recognised that many Opposition Members were pressing him last year to indicate his policy with particular regard to foodstuffs. The Chancellor's usual phraseology was that food would be relieved of VAT, and we are pleased to see the zero-rating in this respect.
  My right hon. Friend said that pressures in the Community to harmonise the structure of the tax, as well as the rates of tax, might force the present Government or any future Government not to have a zero-rating for food, but to include foodstuffs within the rating structure of the tax proper. Therefore, it is right that we should now be searching the Government's mind in order to discover their intentions and to see whether
  1178
  they wish wholeheartedly to continue to adhere to the policy of zero-rating of foodstuffs and to impose their veto on further discussion of rates of tax within the Community. It is right that we should get their intentions quite clear. It will be too easy to accept the structure of the tax and the rates of tax laid down in the Bill and then in future to find ourselves imposing a rate of tax on foodstuffs which is unacceptable and which would make the tax even more regressive than it is at present.
  The Community countries introduced VAT because they already had a sales tax down to retail level and a cascade system of taxation within the general structure. However, Her Majesty's Government have made great play with the fact that they are replacing the two forms of taxation, SET and purchase tax, which have many deficiencies. I do not accept the case that the Chancellor has made against purchase tax or SET, but as a Co-operative Member of Parliament I must point out that much criticism has been levelled against SET. We argued that SET could have been adopted to produce a payroll tax. If we were to have a payroll tax and a corporation tax and if we got the agreement of our European partners, we could have had these two devices for taxing the same thing both in theory and in practice as we are in theory taxing under the value-added system. With a payroll tax and a corporation tax we would be taxing value added. Therefore, although in terms of nomenclature the situation is different, operating the two more acceptable devices in terms of administration and not passing on the tax to the final consumer would have operated in a much more beneficial manner to the Community in general.
  Mr. Patrick Jenkin: I follow with interest what the hon. Gentleman says, but I would point out that one serious disadvantage of proceeding in that way is that there would be no way of putting a tax on imports or of giving relief on exports in the pattern he is seeking to describe.
  Mr. Douglas: The Chief Secretary rightly points out that there is an administrative difficulty, but there could be a possible agreement with our European partners. If our European partners have a structure and rate of tax which better

  1179
  suits their tax systems historically, there is no reason for us to accept that pattern. Our pattern of historical development in terms of taxation is better than, for example, the French system. There is no reason why we should follow them if it is possible to secure agreement for remitting a proportion of the tax on exports. If we were to agree that our corporation tax plus our payroll tax amounted to the same as a 10 per cent. value added tax, it ought to be possible to make such a remission.
  Mr. Christopher Tugendhat: It is not only the Common Market countries about which we are thinking. There are also the other members of GATT. One of the advantages of a value added tax is that it is possible to favour exports under the rules of GATT. The hon. Gentleman's proposal may have many merits, but it would be very difficult to get other members of GATT, especially the United States, to agree to this kind of modification simply to meet our own convenience.
  Mr. Douglas: I quite agree. However, the United States is showing extreme misgivings under the GATT about the operation of the VAT. We have Italy, for example, which has huge remissions of taxation in relation to exports and which does not have the VAT. So the difficulty that the hon. Gentleman suggests arises whether we have the VAT or not. The difficulties in relation to GATT are enormous, and I could instance the problems that we have in looking at the tax system of Japan. However, that is a much wider topic, and I should be out of order if I attempted to pursue it now.
  In criticising selective employment tax the Chancellor of the Exchequer said that large sums were collected in the form of revenue which were paid back to certain sectors of the economy in the form of rebates. That is exactly what will happen under the VAT as it exists at present. A large number of retailers will be zero-rated. But they are within the VAT system. They will have to show by their invoices the tax levied on their inputs, and they will have to reclaim it. I hope that we shall be told what calculations have been made of the cost of collecting each £1 of revenue.
  1180
  The VAT is a more costly tax to collect than selective employment tax and purchase tax. In real terms, there is no additional flow in this sector to the Treasury. It is a nightmare for those who will have to administer it. Therefore, I cannot see any merit in rushing into introducing the tax before the end of the transitional period.
  Mr. W. Baxter: While I agree with my hon. Friend that the tax will be a nightmare for those who have to administer it, it will be an even bigger nightmare for those who have to collect the tax in the course of operating their businesses. There is an incredible number of rules and regulations laid down by the Commissioners about the way in which records must be kept. It will necessitate a large number of additional people being employed by firms paying the tax.
  Mr. Douglas: I accept my hon. Friend's point, and I have no doubt that from his own considerable business experience in Scotland he will seek an opportunity to expand upon it.
  I turn, then, to the £5,000 exemption. As I understand it, the first time that the figure was mentioned was in 1963 in an article by Professor Prest. Has the Treasury made any calculation of what would be the equivalent value of a turnover of £5,000 in 1972 terms as against the time when it was first proposed in 1963? It strikes me as a very low figure. However, I do not intend to argue the case of the small retailer. No doubt my right hon. and hon. Friends will seek to raise the matter on some future occasion.
  If the Government intend to introduce the tax, it is incumbent upon them to explain the facts and what they intend doing. When the tax was introduced in France the Government—not other private concerns or academic institutions— undertook to explain it throughout the country. If right hon. and hon. Gentlemen opposite think that the tax is so fair, I hope that they will try to explain it in the country and thus, if it is to be introduced, remove some of the difficulties from the minds of those who will have to operate it.
  Sir G. Nabarro: I am very pleased to be called immediately after listening to the speech of the hon. Member for East

  1181
  Stirlingshire (Mr. Douglas) because there is an extraordinary contrast in our views on this important matter of the value added tax. The hon. Gentleman proclaims himself a supporter of Britain's entry into Europe but an opponent of the VAT. My position is exactly the opposite: I am an opponent of Britain's entry into Europe but a proponent of the VAT.
  In those halcyon days when I was assaulting Treasury Ministers on the purchase tax, my efforts were all designed to lead to a single objective, which was the standardisation of the rate of tax and the spread of the tax over a much wider base. What I always objected to about the purchase tax was the relatively confined base and the multiplication of rates of tax, with the corrollaries which flowed from them.
  On Second Reading I reminded the House that in 1950 and 1951 there were about seven different rates of purchase tax ranging from 100 per cent. at the top on electric fires down to 5 per cent. at the bottom. The latter rate excluded the zero rate which applied to a number of important exclusions from purchase tax. Over the years between 1951 and 1964, stage by stage the Tory Government contracted the number of rates until by 1964 there were only three, with a top rate of 25 per cent. and a bottom rate of 10 per cent.
  I have no doubt that had the Tory Government been re-elected in 1964 they would have introduced not a value added tax, perhaps not a turnover tax, but a sales tax in one form or another which would have conformed to the twin desiderata that I have always supported in this matter: first, that there is no such thing as luxury in peacetime when goods and services abound, and, secondly, that all manufactured goods and services contribute to the nation's export trade, directly or indirectly. Thus, in my view, any sales or turnover tax which generally conforms to those twin desiderata is a form of tax which I support.
  [Sir STEPHEN MCADDEN in the Chair]
  6.0 p.m.
  In the first Green Paper on VAT, Command 4621, published in 1971, it was made perfectly clear that VAT, as then promulgated in general outline by Her
  1182
  Majesty's Government, was a sales or turnover tax. It was for that reason that I gave my support to the general principle, though in a few moments I shall have a good deal to say about the operations of the tax, and I quote the exact words of the Green Paper at that time because I think that the Government have honourably implemented what they then wrote. They said on page 5:
  "VAT is a form of turnover or sales tax. Like purchase tax and some other forms of turnover tax, VAT is a tax on final consumer expenditure in the domestic economy."
  That is exactly what I have always struggled to attain.
  For myself, I want to urge on the Chancellor of the Exchequer that he does not submit to any special pleading at all during the passage of the Bill in Committee. I do not want to see cricket clubs put on zero-rating. I do not want football clubs to be put on zero-rating. I recognise that this small incidence of tax on sporting clubs of that kind may be represented as a resumption of entertainment duty, but I believe fervently in the simply principle that the wider the spread of the tax the lower the rate can be. Taken to an extreme, as I said on the Second Reading of the Bill, I should myself follow the European system of applying VAT to all food, fuel, transport and all essential services, because in that event the rate of tax—nobody can say precisely, save only after detailed Treasury scrutiny—would probably be half or less of the proposed 10 per cent. rate of tax in the Bill.
  Mr. Tam Dalyell: Has the hon. Gentleman calculated the effect of his proposals on what he is often pleased to call the bureacracy?
  Sir G. Nabarro: I shall deal in a moment with this question of the increase in bureaucracy, because it is greatly exaggerated in the context of VAT. What I object to is the proliferation of unnecessary Government officials brewing up tea, occupying office space, and so on. I do not think there need necessarily be any huge increase in bureaucracy arising directly from VAT.
  The wider the base of VAT, the better the opportunity for reducing the rate. I give an example in the context of fuel. Coal is specifically zero-rated as fuel, but fuel oil is taxed very heavily though it is a competitive fuel, and later on I

  1183
  shall move an Amendment for the removal of the fuel oil duty. Fuel oil and coal should both be zero-rated if we are to deal with fuel at all in the Bill, though I should myself prefer all these items to be brought into VAT in order to reduce the rate to the lowest possible level.
  Under the old purchase tax arrangements which we are seeking to replace, the element of discrimination was disastrous in industry, trade and commerce. Take, for example, a case which is rarely quoted within the motor trade. We tax motor cars very heavily.
  Mr. David Madel indicated assent.
  Sir G. Nabarro: I am glad to see my hon. Friend the Member for Bedfordshire, South (Mr. Madel) nodding assent. He has the Vauxhall-General Motors works in his constituency. As I was saying, motor cars are heavily taxed, but the three other major constituent parts of the motor industry are exempt from purchase tax. There is no purchase tax on motor lorries, which is the second of the four parts of the motor industry. We place no purchase tax on tractors, which is the third major part of the motor industry. We place no purchase tax on components and spares, which is the fourth major part of the motor industry. All those four essential ingredient parts of the motor industry contribute equally to the huge volume of motor industry exports and the large scale employment of our people within that industry.
  Under VAT it may be argued that if tractors are applied to the production of food—and they often are—they will be zero-rated, while tractors used for industrial purposes will not be zero-rated but will attract VAT. But there will be this element of equity, that the four parts of the motor trade will all contribute equally to this form of indirect taxation. There will not be the violent discrimination that there is under the purchase tax system.
  I give another example connected with the internal combustion engine. We are all familiar with the expensive and luxurious power boat or cabin cruiser.
  Mr. Denis Skinner: Yacht.
  Sir G. Nabarro: Yes, if it is a motorised yacht. These items have always been excluded from purchase tax. I see no reason for excluding from purchase tax a cabin cruiser which is sold at £8,000 but placing purchase tax of 30 per cent. on a Rolls-Royce motor car.
  The Temporary Chairman: May I draw the hon. Gentleman's attention to two things? First, he should address the Chair, and not back benchers on the Government side. Secondly, it is not in order for him to move his place while he is addressing the Committee.
  Sir G. Nabarro: I shall stand rigidly to attention and address you, Sir Stephen. Perhaps you would prefer that. But I have always perambulated up and down below the Gangway when I am not treading on the toes of my hon. Friends behind me.
  The Temporary Chairman: I hope that the hon. Member will not question my ruling. It is out of order for an hon. Member to move from his place while he is addressing the Committee.
  Sir G. Nabarro: I shall stand rigidly to attention and address you, Sir Stephen.
  As I was saying when I was interrupted by the Chair, this violent form of discrimination inherent in the purchase tax system will disappear entirely with the introduction of VAT on the major industrial products with which we ought principally to be concerned in the Bill, and that, by itself, I regard as a major reason for supporting VAT at a constant rate. which is the rate of 10 per cent. proposed in the Bill, though it may be varied by 2½per cent. up or down—
  Mr. Joel Barnett: What about the regulator?
  Sir G. Nabarro: The regulator, for economic managerial reasons, has always been accepted by the two major parties in the House, and this minor latitude or variation in VAT is something which I do not regard as particularly significant. Later on we may legislate to vary VAT by even wider margins, but that must depend on considerations of economic management.
  I now propose to say something about the allegation that VAT will create an enormous fiscal bureaucracy both in Government Departments and in industry,

  1185
  trade and commerce. That was possibly true at the time of Richardson and his report, but it is not true today. Every workshop, every office and every accounts department of every firm of any size has calculating machinery readily available. The fact that VAT is calculated on each invoice is of no consequence at all given adequate electronic and other types of office machinery to deal with it.
  Mr. W. Baxter: Although adding machines may assist one to make various calculations for invoice and other purposes, machinery for keeping records will be vital in view of the instructions of the commissioners. For example, we are told in Clause 34(6):
  " A statement contained in a document produced by a computer shall not be admissible in evidence by virtue of subsection (4) of this section ".
  Will the hon. Gentleman direct his attention not so much to adding machines but to what will be required to keep the necessary records mentioned in the Bill?
  Sir G. Nabarro: It may be more convenient to discuss this matter when we come to the Clause to which the hon. Gentleman referred. I accept that it is not only a question of adding or calculating machines or computers. We are creating a vast, complex new system of tax assessment or collection. The Customs and Excise is being charged with this responsibility and will attune its requirements to the needs of industry, trade and commerce in such a way as to create the least possible dislocation and to entail the smallest amount of labour to make the returns that will be necessary. That is axiomatic in all the proposals in the Bill about VAT.
  The number of bureaucrats, as they have been called, required to operate VAT has been grossly exaggerated. The SET system is cumbersome, wasteful and has created thousands of new jobs for collecting relatively small sums of revenue, especially having regard to the repayment, part-time worker, old-age pensioner and other facilities. As yet we have no reliable estimate of how many people will be saved on SET alone, and they all have to be set against the hypothetical increase in the bureaucracy arising from the introduction of VAT.
  I favour this form of taxation, whether or not we join the EEC. Though com-
  1186
  plicated, it is much fairer and capable of considerable enlargement in the years ahead in such a way that it will spread the burden of taxation over a wider base more equitably. Once the system has been made acceptable and consumers are accustomed to the calculatioins within it, it will prove popular.
  I shall vote tonight with enthusiasm, for a sales or turnover tax, in support of Clause 1, which I regard as progressive, harmonious, happy and relatively acceptable to the great majority of traders.
  6.15 p.m.
  Mr. A. E. P. Duffy: I agree with the hon. Member for Worcestershire, South (Sir G. Nabarro) that whether or not we were joining the Common Market, the House was moving in the 'sixties to the point when one day there would be introduced VAT or a turnover or sales tax.
  Although tax reform has taken other forms, which have undoubtedly been an expression by Parliament of the need for new ways of encouraging, for example, investment—we all know of the disappointments and frustrations that have been felt on that account right up to the present—both parties when in Government have subscribed to rising levels of public expenditure and have known the problems of raising the corresponding revenue.
  Hon. Members on both sides are also well aware of the disincentive effects of the existing rates of taxation. To that end Governments of both parties altered the tax structure in the 'sixties. When my right hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) was in office he was hailed as a reformer and his first Finance Bill was regarded as epoch-making. Yet we have since witnessed Finance Bills, some more than others, which have been a good deal more comprehensive and far-reaching in their proposals.
  The scene seemed to have been set by the end of the 'sixties for a consideration of some such measure as is now before the House of Commons. I agree with the hon. Member for Worcestershire, South that this would have happened whether or not we joined the Common Market. Here I declare my interest as the hon. Gentleman declared his. He said he was an opponent of Europe but

  1187
  a proponent of VAT. Like my hon. Friend the Member for East Stirling-shire (Mr. Douglas) I am a European, but I hope I am not uncritical of any features of the EEC or any of its institutions. Tonight I shall try to take a balanced view of VAT. I do not say that in a patronising sense and I hope that my hon. Friends in particular will not take exception to my phraseology.
  We must reckon on the nomination of VAT now, whatever reservations we may have, and we must consider it on its merits. There seems to be a good deal of support for the view that on both economic and social grounds VAT is admirably designed for a consumption-oriented society. It is argued on its behalf—on more than one side, and not merely by the Chancellor; it is argued elsewhere and especially by specialists—that it is neutral and that it does not discriminate against particular products as do purchase tax and SET. I spoke in favour of SET in the Finance Bill debates a year ago. If occasion required I would do so again now. I am an unrepentant supporter of SET and I dissociate myself from the remarks made about it by the hon. Member for Worcestershire, South.
  It is said next on behalf of VAT that it will restrict tax avoidance, and especially tax evasion, while its impact on the taxpayer should be less harmful from the economic standpoint than those taxes which fall directly on income or capital. It is also claimed that it is simple in structure yet broad based in application and will prove a useful instrument of economic management.
  It is highly probable, as I say, that if Britain were to remain outside the EEC we would still adopt VAT, just as Sweden and Austria are doing. Growing interest is being shown in it by the United States and Canada. I think the same interest would be evident here even if we were not joining Europe because we could not be indifferent to the introduction of VAT in those countries which were among our trading partners.
  After a while value added tax will become a common feature of the whole of the Western world, quite irrespective of identifiable trade blocs. Moreover, if we are to enter the EEC, with its uniform
  1188
  custom dues, harmonisation must follow. I do not see how we can have one and not the other. Furthermore, as the hon. Member for the Cities of London and Westminster (Mr. Tugendhat) reminded us, it is an appropriate tax as well, especially appropriate for a country like ours, to assist exports and to discourage imports.
  They are reasons, among others, that are being put forward on behalf of VAT. There is much merit in them, more in some than in others. Certainly they have to be argued out and cannot just be dismissed. But I believe that VAT should not be regarded as a miracle worker, especially in regard to the last point I made on its behalf. In my judgment, any spill-over benefits to exports would be small and, despite what the hon. Member for Worcestershire, South said, would still be controversial for some time.
  Perhaps the strongest argument for VAT in Britain today is the need to raise more revenue as painlessly as possible. If we in the Opposition do not subscribe to VAT as strongly perhaps as the hon. Gentleman, we should be less than honest if we did not admit that VAT's potential as a means of raising revenue is greater than that of any other tax except income tax. The United Kingdom has long lacked a general tax which raises money right across the board from a wide range of goods and services. In my judgment, drink and tobacco duties have very little buoyancy left. Purchase tax and oil duties are levied at different rates and cover an arbitrary set of commodities. With the Government set on abolishing SET, services would escape the tax net altogether unless a substitute were to be brought forward.
  Finally, there is no blinking one's eyes, certainly on the Opposition benches, to the discontent provoked among many working men by direct taxation rates—
  Sir G. Nabarro: Hear, hear.
  Mr. Duffy: —nor the welcome they would accord to any proposals, even in the direction of indirect taxation, that would provide relief of those direct taxation rates, especially as they apply to overtime.
  On the other hand, value added tax as proposed in the Bill amounts to nothing less than blatant tax switching. Our

  1189
  taxes are effective in reducing inequalities of income before tax only at the point of surtax; that is to say, they become progressive only at the highest levels of income. We know that the lowest levels —we have had reason to know because of the sterling work of some of my hon. Friends in this Parliament, notably my hon. Friend the Member for Oldham, West (Mr. Meacher)—are quite progressive, not only on account of the tax threshold but also in respect of indirect taxation because of the very high specific duties on drink, especially beer, and tobacco, and the way in which they bear on low-paid workers. Over a large band of income in the middle reaches, the total burden of taxation is only proportional to income. That is why I advance the view that only in the higher reaches is our structure truly progressive.
  I wonder, therefore, whether the tendency in this Parliament for, first, social benefits to be means-tested and, more recently, for rents to be means-tested will not soon be reinforced by value added tax, which could bear hardest on the mostest with the leastest, because value added tax, indirect, broad-based and indiscriminate though it may be, when applied to the consumer of goods and services could strike hardest at those who have nothing to spare in their weekly budgets.
  The National Economic Development Council, in a national survey of industrial views, found no general consensus in favour of the tax—contrary to what the Chancellor said this afternoon—except that its introduction might help to clear up the present tax jungle and reduce taxation in certain spheres of higher purchase tax. On the other hand, there will be administrative costs and difficulties, as was pointed out by my right hon. Friend the Member for Leeds, East (Mr. Healey), as well as a proliferation of anomalies, which he also indicated and which suggests to me that my right hon. Friend is correct when he asks for more safeguards.
  Unless the Government can show that reductions in taxation elsewhere are reflected in more stable prices—given stable import prices—they will find it very difficult to escape the charge that they have given yet another twist to the inflationary spiral in our society and that, moreover, they have also given our tax
  1190
  structure a regressive shift. There is, therefore, all the greater obligation on the CBI to persist in its present form of price restraint beyond July.
  Secondly, by way of safeguards the Government must mount a massive information and education campaign. This is a matter of utmost urgency. After all, large sums have been spent by the Government on the Common Market campaign; but there is little evidence of such publicity being given to VAT. Yet the need is stark if the public, simply as consumers of goods and services, are to have any basis for measuring the comparative prices and alternative costs that will follow the introduction of value added tax.
  I make five points in conclusion. Despite my attachment to the European case I find it very difficult to rid my mind of the suspicion that value added tax as envisaged and as likely to be applied will prove to be a regressive tax. Secondly, I do not see how it will be regarded by the public as anything else but an additional tax, given the present want of publicity and explanation, and that this therefore will not generate further inflationary pressure in our economy.
  Thirdly—I shall not go into all the details as I did on Second Reading—it will increase the administrative costs not merely of government but especially of industry, and it will make its biggest impact on the small retailer and the small trader, of whom there are so many in our economy and to whom record-keeping does not come instinctively, Fourthly, it will constitute an additional burden on the tax-paying morality of our society. Unless the greatest care is exercised and, moreover, further publicity is provided, Clause 12 will create a new black market, an area of evasion.
  Finally, I subscribe to the closing words of my right hon. Friend the Member for Leeds, East, though in different language, when I say that VAT, again given the experience of other countries in Western Europe, is being introduced in this country too soon and too fast in an inflationary situation.
  Mr. David Mitchell: I have listened with fascination to the hon. Member for Sheffield, Attercliffe (Mr. Duffy). When he claimed that one of

  1191
  the first essentials today is for the Government to raise more money in taxation, I could see even more clearly demonstrated the great gulf that lies between Labour Members and Conservative Members.
  Mr. Duffy: I apologise for interrupting the hon. Gentleman so soon, but I said "raise more revenue ". The difference is not merely subtle but also very important, and it is one which I thought did not separate the parties.
  6.30 p.m.
  Mr. Mitchell: I am grateful to the hon. Gentleman for his clarification. The reason that it will draw yet more revenue from a nation which is already over-taxed is not something to which I wish to subscribe. If value added tax were proposed by the Government as an additional tax, I should oppose it. This tax is to replace purchase tax, and selective employment tax. The straightforward question for hon. Members, in deciding whether to support or oppose this tax, is whether it is preferable to purchase tax and selective employment tax.
  As this tax replaces purchase tax, it will mean a number of price reductions. As it will not apply to rents, rates and fuel, which together with food are the main components in the budget of the pensioner and the elderly person. it will obviously have a very limited effect on the cost of living.
  I turn to the question of which tax—selective employment tax or value added tax—is better for Britain's economy at this time. The selective employment tax operated selectively, and principally on the service industries. In so doing it had a serious effect on the pattern and level of employment. Its purpose, which was clearly stated in the Budget debates on its introduction, was to drive people from the service industries into the manufacturing industries. It stemmed from the old world concept that belongs to the cloth cap trade union image of the last century, and which lingers in some parts of the Labour Party, that all workers in the service industries are carried on the backs of those who work in manufacturing and who produce the country's wealth.
  The reality is that in a more advanced economy employment in manufacturing
  1192
  is fairly static. As production demand increases, new methods and new machines —electronic equipment, and so on—enable the increase in production to take place without a great increase in employment. The one sector of the advanced economy in which there is prospect of continuing and sustained growth of employment is the service industries.
  Therefore it was a great tragedy when the Labour Government introduced a tax to apply selectively to employment and to that part of employment in which there was the main prospect of growth in demand for labour. The selective employment tax made a substantial contribution to the present very serious level of unemployment.
  It is also necessary to consider the impact that the tax had on types of employment and the type of people who were paid off. Not only has there been a net reduction in employment and a massive growth in unemployment, much of which can be attributed to the selective employment tax, but those who were paid off because of the tax were such people as the disabled and pensioners, the marginally employable. These were the type of people who could have been done without before but who had been given jobs because they could be useful and because employers wanted to help them. They were the first people to be paid off on the introduction of selective employment tax.
  Today, time and time again in shops, restaurants and such places one can find no service. One cannot tell whether the place is a self-service establishment. The common experience of people who sit down in restaurants is that they are so under-staffed that the customers do not know whether they have to go and get the food for themselves. When inquiries are made, time after time the statement is made that the selective employment tax increased the cost of employment to such an extent that employers deliberately tried to reduce the numbers employed.
  Mr. Brian Walden Mr. Brian Walden rose—
  Mr. Mitchell: I have already given way once. No doubt the hon. Gentleman will have the chance of making his own speech in his own way.
  Mr. Walden: Not on this point.
  The Temporary Chairman: Order. We cannot have two hon. Gentlemen on their feet at the same time. If the hon. Member for Basingstoke (Mr. David Mitchell) does not wish to give way, the hon. Member for Birmingham, All Saints (Mr. Brian Walden) must resume his seat.
  Mr. Mitchell: Very well—I will give way.
  Mr. Walden: The hon. Gentleman is quite wrong. If he has any evidence from the employment figures to sustain his case that the increase in employment has come from servicing rather than from manufacturing, I should be delighted to hear it. The figures that I have studied prove, for all the regions for which I have seen figures, entirely the reverse. The decline in employment is in manufacturing. Employment in the service industries is not being affected in the way the hon. Gentleman claims, whatever the intentions of those who originally introduced the selective employment tax may have been. This is a strong point in favour of SET.
  Mr. Mitchell: That has convinced me that I should not give way. Obviously the hon. Gentleman failed to hear clearly what I said. He will see from the OFFICIAL REPORT tomorrow that I did not say that SET caused a reduction. I said that service industry was where the natural growth in employment would have taken place, should have taken place and in fact takes place in the more advanced economies, but it has failed to do so in Britain to anything like the extent that it has done in other economies at the same stage of development in Western Europe.
  For confirmation of that let the hon. Gentleman go round some London shops and note how long he must wait for a shop assistant to come to serve him. Gone are the days when an assistant would come up to a customer and say "What can I get you, sir?" or "Can I help you, sir?". Now customers must queue at the cash desk to pay. This is one of the effects of selective employment tax, and it was stated to be an intended effect when the Bill was introduced.
  Today we are asked to choose between that tax and the value added tax. It is a condition of our joining the European Economic Community that we accept the value added tax. The member States of the EEC had already chosen
  1194
  the value added tax because of its inherent advantages. The United States is now introducing such a tax—[Interruption.] This tax, at much higher rates, if the hon. Gentleman wants it that way, in some European countries, has been accepted as having substantial advantages. One of the principal advantages of the tax is that it is remitted on exports and is, therefore, an encouragement to exporters. As we enter Europe and opportunities for British exporters increase, we shall need something which will give a greater encouragement to our exporters.
  I congratulate the Treasury Ministers on having fixed as low a level as 10 per cent. I hope that during the later stages of the Bill they will not accept Amendments to the Clause that would in any way set at risk the low level of 10 per cent. It is only by having a wide spread of tax that one can have such a low level at which to base it.
  We are moving from taxing on earnings to taxing on spending. That must be to the benefit of the community at large. However, there is a question to which I am most anxious to secure an answer from my hon. Friend the Minister. As I understand the position, the tax applies when one of three things occurs: when the goods leave the premises of the vendor, when the goods have been available for collection for three months by the purchaser but have not left the premises, or when the goods have been invoiced. Does the further logical concomitant follow that during the transition period goods to which those transactions do not apply will not incur value added tax? If goods have already been paid for, invoiced or made available to the purchaser but have not been removed from the premises before value added tax operates, will they be exempt?
  There are many people in the trading community who are anxious to know where they stand. Many members of the public who have purchased commodities which they do not propose to put into their homes at present are anxious to know exactly what the position will be. I hope we can have clarification from my hon. Friend.
  Mr. W. Baxter: I think it will be agreed on both sides of the Committee that whatever tax is imposed or altered will bring

  1195
  acclamation and condemnation. I cannot think of any tax which could be imposed which would receive universal approval and acclamation. It is true to say that whatever a Chancellor of the Exchequer introduces is bound to be criticised and condemned.
  The Chancellor, like the hon. Member for Basingstoke, (Mr. David Mitchell), devoted a great deal of his speech to the selective employment tax. I agree with much that has been said about that tax. It had great limitations. It did not add to the economy what its architect expected it to add. However, there is no need to go over that ploughed field again and harrow and re-harrow it. We can leave it as it is.
  The question is one not only of selective employment tax but of replacing purchase tax. Purchase tax has a great deal to commend it and successive Chancellors of the Exchequer have found it a valuable tax with which to tax those luxurious items that the richer among us are capable of buying, leaving the tax off goods that the poorer members of the community require for their day-to-day life. There was not much wrong with the principle involved in that tax. That is why Chancellors of the Exchequer, of both parties, have kept it in operation for such a long time.
  6.45 p.m.
  It is now suggested that there should be a considerable revolution in our tax system. There is no doubt that value added tax has much to commend it, but it also has much to condemn it. If we were a more equitable society where there were not so many lower paid workers in our midst or underpaid old-age pensioners, their incomes would be such that they would have some degree of surplus in their purse to pay the extra tax that they will be called upon to pay even on household goods. The tumbler from which the Chancellor sipped his water will carry tax. That tax will be paid by rich and poor. That is the problem of value added tax.
  Before we impose such an obligation upon the poorer sections of the community we should seek ways in which to overcome the difficulties: for example, as I suggested in an intervention to the Chancellor, a minimum wage or income
  1196
  taking into consideration not only value added tax but many aspects of our social services.
  I believe that the day is opportune for a complete revolution of our tax and social service system. I give full marks to the Chancellor for devoting a good deal of his time and energy to trying to find a method whereby we can bring about this revolution. However, he has not got far enough. He has stopped midway and imposed a tax which will fall upon the least fortunate, the poorer section of the community.
  Mr. Burden: I recall that it was the hon. Gentleman's right hon. Friend who imposed a tax on potato crisps. I would have thought that crisps were bought as much by poorer people as by the wealthy.
  Mr. Baxter: That is an unfortunate example of the peculiarity of the House of Commons which brings it into disrepute. We are continually looking at the past and trying to score points from what somebody has said at a particular time in different circumstances. Many people, young and old, are beginning to lose faith in the House of Commons because of the sheer stupidity of Members in always harping on things that have happened before and making quotations out of context.
  I appeal to hon. Members not to focus their attention and great ability on the past but to devote a little of their time, energy and brains—let us call them little grey cells—to what can be done in future for the well-being of our country. That may save any interruptions about what somebody said 20, 30 or 40 years ago.
  The Bill has certain limitations and problems, for example, many people will need to be employed by the Government to put value added tax into operation. Of course we must give the Government the tools to do the job they seek to do. There is nothing to be gained by saying that a large number of civil servants will be required to carry out this onerous task.
  However, that is not the end of the problem; it is only the beginning. Industry carries a great burden of responsibility which should be carried by Government Departments. Anyone who has a business and tries to operate the pay-as-you-earn or other tax systems knows that he has to employ a number of

  1197
  people for the sole purpose of carrying out the Government's rules and regulations vis-à-vis the tax system which may be introduced. There can be no question that under the Bill it will be necessary for private enterprise to add quite considerably to its staff to carry out the duties and responsibilities which will be placed upon it.
  I pointed out to the hon. Member for Worcestershire, South (Sir G. Nabarro) that it was not just a question of adding machines being required. Even if computers were intoduced into a business —this is not evidence acceptable by the Commission—records of great intricacy and accuracy would still have to be kept so that no mistake could be made. If a mistake were made, considerable penalties would be likely to be imposed upon a firm or its managing director if perchance it could be proved to have been intentional. It is an extremely fine line of demarcation in a complicated Finance Bill to say that a man did or did not understand the exact implications of the measure which he was asked to implement.
  We are not all lawyers. Many business people do not employ lawyers. We perhaps have part-time accountants. Ordinary people must try to find out their obligations under the law, and this law is very complicated in composition.
  I need only draw attention to how the Bill will affect the building industry, in which I have some interest. It is very difficult to understand. On page 98, Schedule 4, under "Construction of Buildings, etc.", we see:
  "Item No. I. The granting, by a person constructing a building, of a major interest in, or in any part of, the building or its Site."
  Can anyone tell me what that means? I have to give an interpretation of that. Can anyone tell me what Items Nos. 2 and 3 mean? I should like to know what my VAT obligations are in that respect.
  Under "Notes" is it stated that
  "(1) Item 2 does not include any work of repair or maintenance or the supply of any services to a person who himself supplies such services as are mentioned therein."
  Again, would someone be kind enough to explain to a layman what is required there? [An HON. MEMBER: "That is why we employ lawyers."]
  Mr. Burden: On a point of order, Sir Stephen Would it not be wrong for anyone to give an explanation, since this does not come within the debate on Clause 1?
  The Temporary Chairman: That is not a point of order. However, I am glad to have the opportunity of saying that I do not want to interrupt the hon. Member for West Stirlingshire (Mr. Baxter), but I well recall his interrupting the hon. Member for Worcestershire, South (Sir G. Nabarro) and drawing his attention to the wording of Clauses 34 and 37. I did not interrupt then because it was an intervention. However, it would be wrong to pursue the interpretation of Clauses 34 and 37 at this stage. I do not object to the hon. Gentleman making reference to those Clauses, but their interpretation should be left to consideration of the Clauses when we come to them.
  Mr. Baxter: I could not agree more, Sir Stephen. I did not expect an explanation to be forthcoming. I merely posed the difficulties which I as a layman see in the Bill.
  Clause 5(6) provides that
  "The granting, assignment or surrender of a major interest in land shall be treated as a supply of goods."
  I contend that all this is extremely complicated. Surely an obligation will rest on the Chancellor of the Exchequer to give a more simplified version so that ordinary people will not be put into the unenviable position of not wanting to break the law but, by some mischance, breaking it unintentionally and being liable to have heavy penalties imposed upon them or their firms.
  I do not want to go further into the matter as there are many hon. Members who wish to speak. However, I believe that direct tax as such will be weighted heavily against the poorer sections of the community. Therefore, we must have regard to that aspect of the matter.
  If we as a Parliament do not relate income to expenditure—value added tax adds to the expenditure of not only the higher-paid but the lower-paid worker —and consider a whole new set-up of income structure based upon an entirely new concept, on which it would be out of order for me to give my ideas this evening, we shall be doing a great disservice.

  1199
  I welcome the fact that the Chancellor is exercising his brains and ingenuity to find a more simplified method of tax. I agree with the principle that our tax system requires a complete overhaul. It has many limitations and there is room for great improvement. Irrespective of how we improve it, however, we shall never make tax as such a thing to cheer about and to be welcomed with open arms. I suggest that we should go further than has been attempted in the Bill.
  Sir Robin Turton: I have great sympathy with the hon. Member for West Stirlingshire (Mr. Baxter). He, like myself, thinks that SET was a mistake and that it should be abandoned. He too wants to devise a new system of taxation which is not regressive in character and is easy to operate.
  I have reluctantly come to the conclusion that the Government are right to use a form of value added tax. My reason is that this is the age of the value added tax. It is a non-tariff barrier. When certain countries have a value added tax which is aiding exports, it is impossible for other great trading nations like ourselves to opt out. We have to get into it. Unless the GATT succeeds in defeating the evasion of free trade by the use of value added tax, I do not think that we can stay out of the party.
  Under our system of purchase tax we are always at a disadvantage in trading compared with a country which has a value added tax. If we are to change from purchase tax to a value added tax, should we have it, as my right hon. Friend the Chancellor has chosen, at one rate with a certain amount of zero rating, or should we have two rates? I disagree with my right hon. Friend here. I prefer two rates. There is a difference between the luxuries and the necessities of life.
  Mr. John Pardoe Mr. John Pardoe (Cornwall, North) indicated dissent.
  Sir Robin Turton: The hon. Member for Cornwall, North (Mr. Pardoe) shakes his head. No doubt to him there is no difference, but to my constituents, to the old people, there is a difference. It is only if they have a win on the pools
  1200
  or a good bet on the races that they can afford a luxury. Their normal everyday expenditure is on the necessities of life.
  7.0 p.m.
  Mr. Pardoe: I shook my head because I wanted to challenge the right hon. Gentleman about this. This is one of the myths that has spread around the House of Commons on all sides. Will the right hon. Gentleman focus his attention on the problem of distinguishing between luxury and non-luxury goods on any level of income? Does he consider that a motor car is a luxury or is essential to a man living 40 miles from his work in a poor rural area such as Cornwall? Does he consider that tobacco smoked by old-age pensioners, attracting a very high rate of tax, is a luxury, or is it one of the essential commodities of life for them? Does he consider that a television set for an old-age pensioner—
  The Deputy Chairman: The hon. Member for Cornwall, North (Mr. Pardoe) must not give too many illustrations in an interruption.
  Sir Robin Turton: There are certain things which are quite clearly luxuries. Drink and tobacco are in the luxury class whether the person buying them has a low income or not. Equally, jewellery and fur coats come in the luxury class. But somehow we must get a lower rate for the necessities of life, and this has not been done. I appreciate the reasons of my right hon. Friend the Chancellor for doing what he has done but he must bear in mind that the other countries which apply value added tax, like France, make this differentiation and they have more thin one rate of tax.
  We come to the major issue, the proposal by the Chancellor to zero-rate food. I think that a good part of my objection to having only one rate of tax is met if all food is zero-rated, but here again my right hon. Friend has made the mistake or following too slavishly one of his predecessors, in this case the right hon. Member to Birmingham, Stechford (Mr. Roy Jenkins), who in a most unfortunate Budget selecthed certain items of food and said that potato crisps, for example, were a luxury, and we now have the curious arrangement whereby some food attracts purchase tax and some does not. I think the matter should be looked at

  1201
  again. If the Chancellor is right to exempt food, as I am sure he is, it cannot be right to be bound by the definition laid down by the right hon. Member for Stechford in a previous Budget. I hope that this matter will be reopened.
  The right hon. Member for Leeds, East (Mr. Healey) interrogated the Chancellor about what would happen if we joined the Common Market—which I hope we will not—and had to harmonise. We should be told before this debate ends what the Common Market countries are doing about food. As far as I know, five of those countries have value added tax on food and Italy, which of course does not operate value added tax yet, proposes to apply it to food. This should be explained in the course of the debate and we should be given more information about the committee of the Commission which is looking into harmonisation. Last year when I discussed this matter with members of that committee they told me they were proposing sometime next year to put harmonisation into effect. I asked whether, if we adopted the value added tax and excluded food, we would be bound to change with harmonisation. They gave me the unfortunate assurance that that was bound to be the case.
  We should be clear about whether this is right or wrong, because there was a certain amount of doubt in the cross-play between the right hon. Member for Leeds, East and my right hon. Friend the Chancellor of the Exchequer this afternoon.
  [Sir ROBERT GRANT-FERRIS
  in the Chair]
  Mr. David Crouch: Would my right hon. Friend take into account that harmonisation can work both ways and that when we are in the Common Market it is possible that those five can see the wisdom of not applying VAT to food and might harmonise with us?
  Sir Robin Turton: Five of the members of the EEC operate value added tax at the moment and one is planning to operate it. My hon. Friend the Member for Canterbury (Mr. Crouch) is one of the great optimists. He is what the French call "la gouvernesse Anglaise". He believes that when Britain goes in,
  1202
  everyone will follow her. That is a wonderful thought and a good old Colonel Blimp idea but I often wonder whether it is so well regarded abroad as it is in the House of Commons.
  Mr. Barber: Perhaps I should clarify the position. Under Articles 99 and 100 of the Treaty of Rome decisions con-concerning coverage and rates have to be unanimous. This means that value added tax could not be applied to food without the consent of the British Government.
  Sir Robin Turton: I am grateful for that assurance.
  My only other point is a quite different one. I accept the value added tax for the GATT reason and also because of convenience because we have to move over to some other form of indirect taxation. But how will we deal with the transitional period? This is of vital importance to many traders. My right hon. Friend the Chancellor of the Exchequer said that
  "For other goods,"—
  that is, not goods on sale or return—
  "purchase tax will be ended by Treasury Order a short time before the introduction of VAT, so as to help traders to dispose of existing tax paid stocks and to re-stock ready for VAT."—[OFFICIAL REPORT, 20th April, 1972; Vol. 894, c. 778]
  The difficulty over this is the use of the words "short time". This has worried people. The requirements vary according to the trade. In my constituency I have the headquarters of one of the greatest clothing firms in the country. The period for the turnover of stocks is five months. Unless this period is made so elastic that it caters for all different goods, trade will be harmed because traders will not stock up with their needs for fear of double taxation.
  I appreciate that this is not a simple problem. It is quite an easy matter to deal with it, in the Chancellor's words, for an enterprise with a short stocking-up period. But when dealing with clothing, including men's suits and women's skirts, for which there is a five-month turnover period, I cannot see how the Chancellor can surmount the problem in the terms of what he said on 20th April.
  Mr. Dalyell: The right hon. Gentleman has raised a very urgent issue. At Gleneagles at the weekend I was a guest of the cake and biscuit manufacturers at their annual conference. They were

  1203
  extremely concerned because the vacation time from tax is to be two weeks. May I, through the right hon. Gentleman, ask the Chancellor how flexible the Treasury will be as regards the amount of time it will give in the clothing industry, in the cake and biscuit industry and in other industries?
  Sir Robin Turton: I am grateful for the support of the hon. Member for West Lothian (Mr. Dalyell). We must have some reassurance for traders, because it is vital for the Chancellor to say something before it is too late and before people refuse to stock up because of the fear of double taxation. Up to now, although I have been in correspondence with the Treasury on the matter, we do not have sufficient reassurance for the trade. Therefore, I hope that some reassurance will be given to traders generally on this transitional period, tonight or at an early date in Committee.
  Generally, I welcome the Clause. I was not persuaded by the argument of the right hon. Member for Leeds, East, and I wish my right hon. Friend the Chancellor every success in his endeavours.
  Mr. Pardoe: My colleagues and I intend to support the value added tax in principle and to vote for the Clause. It is by no means a new part of Liberal policy to do this. It has been part of Liberal policy for 10 years, and was included in a report of the Liberal Party's Tax Commission in 1962 as part of a package for tax reform which was described by the present Chairman of the Parliamentary Labour Party, the right hon. Member for Sowerby (Mr. Houghton), as the most significant outline of major tax reforms published in recent years and breathaking in its sweep. It takes the Conservative Party 10 years to catch up with Liberal policy and the Labour Party rather longer, but no doubt it will get around to it eventually.
  As for the speech of the right hon. Member for Leeds, East (Mr. Healey), I think he will look back on it as perhaps not one of his most honest efforts. It was the speech of a man of great intellect and natural honesty constantly having to employ that intellect in seeking to justify the twists and turns he is being forced to take. I found it a lamentable spectacle, a waste of a considerable mind.
  1204
  I did not find it an honest speech. I found it a carping speech. It is always possible to find such points as he made about any reform of taxation. Almost all the points he made against VAT today were made, some just as irrelevantly, about any changes in taxation over the past 10 years.
  The basic philosophy behind the Liberal Party's espousal of VAT 10 years ago was contained in a memorandum of the time which said that we wanted to cut the burden of direct taxation on individuals and spread the burden to indirect taxation. We wanted to compensate those individuals and groups who might lose through higher indirect taxation by introducing a far more effective social security system to help them when they were really in need. The Chancellor has now announced new studies of negative income tax which may well help in this direction.
  Mr. Robert Sheldon: The hon. Gentleman said that the speech of my right hon. Friend the Member for Leeds, East (Mr. Healey) was not an honest speech. I expected that after that sweeping denunciation we should hear some evidence to explain why he thought so. If he is not going to adduce it, will he at least accept that his particular concern for an increase in indirect taxation is obviously quite counter to the views of my right hon. Friend?
  Mr. Pardoe: I intend to deal with the points the right hon. Gentleman made on the question of the increase of income tax and the transfer as between direct and indirect taxation.
  We also wanted to compensate for cuts in tax on those with high earnings by more effective taxation of transfers of wealth. Even then, we wanted to align our tax system with the Common Market, and we also wanted a far more effective distribution of income through the tax system to overcome poverty. I make no bones about this: I am a member of a distributivist party. I want to redistribute income. I do not believe our tax system so far has done so.
  It was not just a matter of our wanting to go into Europe and, therefore, accepting those tax proposals that went with the European package. I believe, with the Chancellor, that this country would

  1205
  necessarily have come out in favour of a value added tax whether or not we were going into Europe.
  7.15 p.m.
  The Chancellor dealt first with the inadequacies of the taxes which VAT replaces: purchase tax and the selective employment tax. That is a perfectly legitimate argument, but it is not conclusive. There are always anomalies in any tax. The right hon. Gentleman point out that as we have known over the years there are masses of anomalies in purchase tax. There will inevitably be anomalies in the VAT, as the right hon. Member for Leeds, East said. He will no doubt have plenty of opportunities in future years to justify that forecast. But in certain parts of the country, particularly regions with a high incidence of service industries, such as the far South-West and some other development areas, especially Scotland and Wales, SET weighed very heavily, and a value added tax will put a smaller burden on them.
  Therefore, I deal not with the disadvantages necessarily inherent in those two taxes but primarily with the advantages in the new tax. We can see it only in the context of all taxes and benefits. I am therefore very glad that a Committee of the House is to assess the whole incidence of benefits and taxation right across the board for the first time, because it is impossible to look at the effect of taxation on poverty and distribution alone without looking at what is coming in on the other side of the ledger.
  I want to dispose first of all of one or two myths about our present taxation system that have been with us over a long period. First, it is generally assumed in the House and outside that we have a progressive taxation system which is effective in redistributing income. I challenge that view completely. Our tax system is not progressive. It has had virtually no effect over the years on the redistribution of income, still less on the redistribution of wealth.
  I was first brought to awareness of this problem way back in the late 1950s by a review of a book by Professor Titmuss. The review, which appeared in the New Statesmen, was written my the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins). It clearly pointed out—and I went to the source material, to Professor Titmuss's book—that by using
  1206
  the income tax figures it was impossible to say how far redistribution had taken place, and that the official statistics tended to over-egg the pudding and very much to exaggerate the redistribution that had taken place. Since then a great deal of more sophisticated work has been done by people outside the Socialist way of thought. I hope that at least some other members of the Labour Party will read some of it.
  An article in Economics and Statistics in August, 1966, by Merrett and Monk confirmed my view that our tax system was in no sense progressive. One of the conclusions they came to was that:
  "It would be possible to replace the whole of Britain's taxes (other than surtax and the taxes excluded from our analysis) and replace them by a uniform sales tax at around 28 per cent., and if anything leave the lower incomes groups rather better off than they are under our present tax system."
  That absolutely challenged received opinion such as I have been led to believe it was then. It was confirmed in an article in the New Statesman in the same year by Robin Marris, who concluded:
  "… Professor Merrett has made a very radical suggestion indeed. It flies in the face of socialist orthodoxy, but I am forced to confess that, despite my lifelong assumptions. I find it difficult to disagree with him."
  That was at least one Socialist view.
  In another article, in New Society in 1970. Robin Marris also concluded:
  "it is easy to make the British indirect tax system less regressive. All you have to do is increase purchase tax in a neutral pattern, or increase SET and or substitute a general sales tax or value-added tax".
  I agree with him, and I think a value added tax is by far the best way of tackling the problem that I have set out. The Opposition should start questioning their assumption about the way in which our taxes have worked over the years on the distribution of income and wealth. I want to redistribute income and to redistribute wealth, and I do not believe that our present tax system will do either.
  Then, of course, the question arises: will VAT redistribute income? The National Economic Development Office, in its earlier study, concluded that a value added tax would have very little net effect on the distribution of income. The tax proposed in the Bill will. I believe.

  1207
  have very little net effect on the distribution of income, and I regret that. I would like it to have a much greater effect, and if it replaced more than two taxes, as I believe it should do—it might even be necessary to have a higher rate than 10 per cent. in order to do so—we could achieve a very substantial redistribution of income and perhaps wealth.
  The right hon. Member for Leeds, East said that the Chancellor was in the process of "softly, softly, catchee monkey" in relation to the change-over from income taxes to expenditure taxes, and he was assuming, probably rightly, that at some future date a Government of one political complexion or another—probably a Conservative Government, because I expect it will be sooner rather than later—will use an increased rate of VAT in order to reduce income taxes. Why not? It is not long ago that the right hon. Member for Birmingham, Stechford, as Chancellor of the Exchequer, made it known openly that he was looking for ways of moving from the burden of taxes on income to a greater burden of taxes on expenditure. That, I think, is a perfectly acceptable means of reforming our tax system.
  There are considerable grounds for switching from direct to indirect taxes. It would have been an extremely beneficial effect on the poverty problem. First, what is the effect of progressive income tax on incentive to work? I do not think that it can really be measured, but it must have some effect, and what is perhaps more important is that it is popularly supposed to have some effect. All of us have encountered this in the attitude of ordinary people to the problem of high rates of tax, as they think, on their earnings from overtime.
  Income tax is a very unpopular tax. This is because it comes out of the pay packet. It can so easily be seen and challenged. The popularity of a tax is not absolutely conclusive, but radicals have to argue continuously against a low taxation philosophy. I take issue with the view that we are an over-taxed society. It is bunkum, since we are not over-taxed by comparison with any of the other industrialised societies with which we compete, but the one fact which is unique to this country is that out of
  1208
  our total tax burden income taxes take up a high proportion of the total, and have done over years. Since radicals want to get more revenue for their social purposes, and since we need more taxation and more tax revenues, it is better to take it from a less beneficial method of taxation than from a more beneficial one.
  Secondly, a further reason for moving from indirect taxation to expenditure taxation is that we need a stimulus to savings, in the long term if not particularly in the short term. Direct taxes fall both on savings and consumption, while indirect taxes fall on consumption only. Savings redistribute wealth, which is one of the things I want to bring about, and they are also anti-inflationary.
  Thirdly, indirect taxes can be rebated on exports and direct taxes cannot. Fourthly, we can far more easily control consumer expenditure in the economy in macro-economic terms through this broadly based consumer tax than we can with the panoply of purchase tax and other taxes now available to us. After all, purchase tax is only incidental on a fairly narrow range of the economy, on consumer durables, presumably those which the right hon. Member for Thirsk and Malton (Sir Robin Turton) would declare luxuries. I am not entirely certain how many of these things really are luxuries in the modern economy or to most ordinary people.
  I am no longer certain, for example, that a washing machine is really a luxury to a housewife with children. I do not think that a motor car is a luxury. I am not sure that the television set is a luxury to an old couple stuck in the wilds of Cornwall, where there are no bus services because they have been removed by various Governments. I do not think that one can really categorise tobacco as a luxury, because it is one of the essentials of life to many old people —and that statement comes from one who detests tobacco smoke, does not smoke and has not done so since the age of 10.
  I think it is far better to replace the taxes we have—purchase tax and selective employment tax—simply from the point of view of controlling the economy and it will be the better off for that reason. So my view is that VAT will not be a regressive tax, certainly not at the rate of 10 per cent. It would be a

  1209
  progressive tax if it replaced, for instance, such things as the very heavy incidence of taxation on petrol and on beer and tobacco because this ensures that the bottom 15 per cent. of income groups pay a higher proportion of their income in tax than do the broad band of the middle class.
  That is why it is nonsense for Socialists to talk of reform of taxation which moves us from income taxes to expenditure taxes by saying that it is regressive. It is not regressive. Our present taxation system is regressive, and I want to make it more progressive. I believe that having a broadly based tax of this sort on consumption, which is a magnificently efficient revenue raiser, will enable us to go from replacing just two taxes to replacing many more, and finally redistributing income and wealth.
  Mr. Peter Hordern: When I read the newspapers today I saw that the Opposition were to mount a full-scale attack on the value-added tax, to be led by the right hon. Member for Leeds, East (Mr. Healey). I looked forward to his speech with considerable interest, but I must say that, for one who talked about opposition to the tax and fighting it to the last man, the right hon. Gentleman, as a former Secretary of State for Defence, concealed his forces very well. One has detected in the debate all the usual signs of the hurrying and scurrying of the Whips to find more hon. Members opposite to speak. While I do not say that the comments we have heard so far have not been very good, they have been few, I think that the right hon. Gentleman's critique of the tax was very much concerned not with a broad criticism of the tax itself but with small and minor anomalies and difficulties that could occur with the tax.
  The right hon. Gentleman referred in particular to anomalies, fiddles and fly-by-night firms. [Interruption.] If any hon. Member opposite cares to read HANSARD tomorrow he will find that this is largely what the right hon. Gentleman spent his speech in doing. He referred at one point to the fact that there was in the VAT proposals a considerable distinction between the tax to be levied on crisps and that to be levied on caviare. He obviously had not been told that it was the Labour Government which placed purchase tax on crisps and, in-
  1210
  cidentally, on pet foods, at the rate of 22 per cent. The present Government have narrowed the differential. I do not think that was a particularly happy point for the right hon. Gentleman to mention. As I understood it, his principal point was that the tax was likely to be regressive and that we ought to follow the example of Sweden, where direct taxes were very much higher than taxes on expenditure.
  Mr. Healey: And on wealth, too.
  [Mr. Crawshaw in the Chair]
  7.30 p.m.
  Mr. Hordern: And on wealth. I take that point. That is the position in Sweden, but we shall not have a tax anything like that in Sweden, nor would there be any conversations or negotiations within the Community suggesting that we should.
  Indeed, every one of the European countries has a lower rate of direct taxation than ourselves. We also have a higher rate of indirect taxation than any of the European countries. If the right hon. Gentleman doubts that, I have the figures here. The indirect taxation is made up largely of the heavy Customs and Excise duty already referred to on hydrocarbon oils, alcohol and tobacco
  Mr. Eric Deakins: Would the hon. Gentleman not regard the social security payments by employers on the Continent as a form of indirect taxation?
  Mr. Hordern: I have the figures nere and they include the social security contributions. I could read them out but I would ask the hon. Gentleman to accep from me that taxes on incomes and expenditure are higher in this country than in the European countries.
  Mr. Healey: Would the hon. Gentleman not agree that the present Government under these proposals propose to levy a lower percentage of their total revenue through VAT than any of the present or prospective members of the Market?
  Mr. Hordern: Not only do I agree with the hon. Gentleman, but I say that it is a point in favour of the tax.
  Mr. Healey: It is a good debating trick, but what the hon. Gentleman was

  1211
  discussing was the consequence of harmonisation with the rates of the other Continental countries. He was purporting to show that harmonisation would not involve an increase in the yield and coverage, and he has now confessed that the opposite is the case.
  Mr. Hordern: Through no fault of his own the right hon. Gentleman was not present when the Chancellor made a brief intervention on this point. There has to be complete agreement on harmonisation by all member countries, so that there is no demand that we should harmonise our rates.
  Mr. Healey: Nonsense.
  Mr. Hordern: This is the position. My right hon. Friend made the point during an intervention, and, with respect, I prefer my right hon. Friend's version of the Treaty of Rome and the freedom which this Government have under it to that of the right hon. Gentleman.
  That brings me to the point of the Opposition's position over VAT and our entry into Europe. I do not believe that the Labour Party could have been serious about entry into the European Community in 1967 unless it had then been prepared to adopt VAT. It is true that some hon. Members opposite were serious about it. I thought that the right hon. Gentleman was serious when he wrote that article in the Daily Mirror. Of course there were some hon. Members opposite who were serious about joining the Community then, but they are no longer on the Front Bench.
  When the right hon. Member for Dundee, East (Mr. George Thomson) said that the terms brought back from Brussels by the Chancellor of the Duchy were satisfactory and would have been recommended to the Labour Government had they been in office, that must have implied an acceptance of the principle of VAT. They must have known that was the case. It is not as if VAT is a new proposal, produced out of thin air. The French have had it since 1954 and the Council of Ministers had decided to have a common form of VAT as long ago as 1967. It was the declared intention that VAT should be in force by 1st January, 1970. The right hon. Gentleman is right to say that Italy has yet to adopt the tax and it
  1212
  may be some time before it does so. We do not know. It is true that Belgium was a year late in adopting it. But it is also the case that Germany, France, Holland, the Netherlands and Luxembourg have all adopted the tax and did so by the due date.
  There was never any possibility that we could join the Community without adopting VAT, and everyone knows this. The truth is that the attitude of the Labour Party towards VAT is a difficult one to understand. I understood from what the right hon. Gentleman said that his party is in favour in principle of joining the Community and accepting VAT, but not on the terms negotiated. The attitude of hon. Members opposite towards VAT seems to be "Yes perhaps sometime but not just yet."
  In a negative way it is rather like St. Augustine, who said:
  "Give me chastity and continency, but do not give it me yet."
  There is this different—that, whereas St. Augustine could at least have been assumed to have been enjoying whatever it was he was doing, there is no such guarantee that the Labour Party is enjoying anything at all. I gather that the Labour Party would rather have stuck to purchase tax and SET. That is the inference that must be drawn. What was SET if it was not a tax on employment adding directly to costs? I know of no other tax which was so hastily produced and which has caused so much confusion. Everyone knows that is the case.
  VAT is a very different matter. The right hon. Gentleman knows that many associations I believe 300—were consulted about its form. Not only that but a Green Paper was published and then a White Paper with the frame of the Bill within it. There is no question but that on the issue of consultation and fairness VAT is to be preferred to SET. Then no one could say that purchase tax was free from objection. It has anomalies such as toothpaste being taxed more highly than confectionery. Whenever rates are increased—and they were increased frequently by the Labour Party—more anomalies appear. The Labour Party complains that VAT is a regressive tax, but all expenditure taxes are regressive

  1213
  and the degree to which they are regressive depends on the rates and the coverage.
  It does not lie with hon. Members opposite to accuse this Government of regressive taxation when they put a 22 per cent. purchase tax on pet-foods, increased every single rate of purchase tax and even introduced a new rate of 55 per cent. The central point is that before the reductions in purchase tax made by this Government the yield was almost £1,500 million. That is enough to cover VAT by itself without taking into account SET. If one comes to discuss the real contribution the Government have made towards reducing taxation and lightening the burden on those who can least afford it, then it will be seen that not only are the Government proposing to do so by taking out purchase tax altogether but SET is thrown in as a bonus.
  It is true that VAT will cover some items which were not chargeable before. On the other hand, it will not cover some items which were liable to SET, such as food and housing, lighting and heating. This point was put very fairly in a Labour Party "Talking Point", No. 6 of 20th March, 1970. It said:
  "It is generally agreed that the main advantage of the value added tax is its universality. It is not confined to certain goods—tobacco, petrol—or to certain services. It is also important to bear in mind that the more exemptions there are to the tax the more expensive it is to administer."
  I thought that was a very fair point, well put by the Labour Party just before the General Election.
  My hon. Friend the Member for Dartford (Mr. Trew) has shown in a most illuminating piece of research that more than 60 per cent. of people with incomes up to £15 a week will escape VAT, and of those earning up to £25 a week more than 50 per cent. will also escape it. Surely the way to deal with the regressive aspect of VAT is to raise the tax threshold on incomes and to increase the child allowance, the married person's allowance and the single person's allowance. This is just what was done by my right hon. Friend in his last Budget, which allowed about £1,200 million in a full year to be devoted to this aspect. My right hon. Friend referred to the tax not being regressive, and these are the clear advantages which have to be
  1214
  balanced with the disadvantages of the tax.
  One thing is clear. Not only are we to have one single rate compared with different rates, all of them much higher, in the European countries, but the revenue from the tax as a proportion of the total will be significantly lower than that of all the other countries. It will take up 7½ per cent. in this country compared with 24 per cent. in France and 16 per cent. in Germany. The reason why we can afford to have such a low rate of VAT is that we have such a high rate of Customs and Excise duties on hydrocarbon oils, alcohol and tobacco. We derive 20 per cent. of our revenue from duties on those items, whereas all the other countries in Europe derive under 10 per cent. This is a particular advantage in that we can concentrate taxes on expenditure on the relatively narrow field of what would not be considered to be essentials—for example, tobacco and alcohol—and we can spread VAT very widely at a low rate on other forms of expenditure.
  Our traders therefore stand at an advantage compared with European traders both as to the rate and as to the operation of the tax with only one rate. The right hon. Member for Leeds, East mentioned the Richardson Committee, but that Committee was not considering this form of VAT. The question of zero-rating was not dealt with by the Committee. Compared with our European competitors, our exporters will have a direct advantage in being zero-rated, and another advantage in being able to claim their inputs after one month has elapsed instead of the regular three-monthly period. So this is not only a fair tax but a helpful tax both in the way in which it will raise revenue and in its incidence.
  For that reason I cannot see how any exemptions can readily or easily be made. While I have the greatest sympathy with some of the causes which have been the subject of Amendments to the Bill, it is inevitable that if any exceptions are made the same results will occur as occurred with purchase tax and SET. They will be followed by appeals for further exemptions and further zero-ratings, which will make the tax administratively more difficult and will he bound to increase the rate. It is

  1215
  not right to isolate VAT from the other tax reforms. It is a notable achievement to have secured a single expenditure tax at a single low rate. It accords well with the Conservative Party's attitude to taxation, which is that taxes should be fewer, lower and simpler.
  7.45 p.m.
  Mr. John Cronin: The hon. Member for Horsham (Mr. Hordern) has made an interesting and amusing speech and I hope later to cover some of the points he made. He suggested that our proper anxieties about the regressive nature of value added tax could be assuaged by the circumstance that the Chancellor gave away substantial benefits to the low income groups in the last Budget, but he overlooked that, at the present rate of inflation, those benefits will hardly be worth anything by the end of the year. That is not, therefore, a complete reassurance. The VAT will have a continuous built-in regressive effect on low income groups.
  The Chancellor's speech contained no mention of the effect of the tax on the cost of living. I can understand the Chancellor being shy about this because one of the most deplorable aspects of the Government's record since they have been in office is the steady spiralling of costs which has bedevilled our economy. I hope, therefore, that the Financial Secretary will tell us what effect the tax will have on the cost of living, because we are very much concerned about it.
  The effect of value added tax in other countries has been to produce a considerable increase in the cost of living. For instance when the Netherlands brought in VAT there was a 5 per cent. increase in the cost of living in three months. When Norway brought in VAT there was a 6 per cent. increase in six months. In Denmark there was a 9 per cent. increase in six months. These are all massive increases which occurred within a short time.
  Mr. Togendhat: I am sure the hon. Member for Loughborough (Mr. Cronin) is aware of the danger of taking isolated figures. Since he has given those figures, will he tell us what was the rate of inflation in the countries concerned immediately prior to the introduction of
  1216
  VAT and immediately after the period he has mentioned, so that we can see the figures in context and not merely in vacuo?
  Mr. Cronin: I do not carry around with me reference books containing these figures, and one cannot produce the figures out of one's head. It is important to remember what has been the direct effect of the introduction of VAT and there can be no doubt that in those countries it was extremely inflationary.
  Practically all the troubles from which this country has suffered in the last year or two have been caused by the increase in the cost of living. The industrial unrest, the miseries of the coal miners' strike and the railway go-slow have all been direct effects of the rise in the cost of living. We should be glad to know that there will be no further large increase in the cost of living which will increase industrial unrest, cause more strikes and increase the misery of the low income group.
  One important aspect of VAT is that its collection has a built-in inefficiency compared with purchase tax. As my right hon. Friend the Member for Leeds, East (Mr. Healey) pointed out, purchase tax was collected by about 2.000 civil servants from about 68,000 firms, but the collection of VAT will involve supervising the records of about 2 million firms. About half a million of those firms will be paying no tax whatsoever because they will be exempted and about1½ million firms will be paying tax. We understand that a further 6.000 civil servants will be required, but what tends to be overlooked is that a lot of the work of the Civil Service will be taken over by employees of the firms paying the tax.
  The great objection to having more and more civil servants is that we should be paying people for non-productive work. Exactly the same consideration applies from the point of view of economics if a clerk in ICI or Unilever is paid to do a totally unproductive job. If we take 50,000 of the largest firms which will be paying VAT, they will each require at least one full-time employee, probably even up to two or three employees, to be engaged on this work. We can think in terms of at least a further 50,000 people who will be employed simply on carrying out the clerical

  1217
  work and the calculations involved in the VAT. It does not matter whether the 50,000 extra people are civil servants or are employed by private industry; they will still be doing unproductive work. They could be engaged in adding to the wealth of the country instead of being employed to fill in forms and make calculations purely for the collection of the tax.
  What strikes me when I look at this system is the enormous number of anomalies and difficulties that will arise from the tax. First, one cannot help being impressed by the dilemma of the small trader with a turnover of less than £5,000 a year. He has to choose either to accept exemptions and to be free from tax, or to pay the tax. But if he accepts exemptions, he must absorb the tax paid by his suppliers which must in turn increase his costs.
  Mr. Robert Boscawen: Does not the same thing happen today with purchase tax when a small trader has to decide either to increase his trade above £500 or to avoid paying tax by keeping it below a certain figure?
  Mr. Cronin: That is not the same thing. Purchase tax is fixed on definite parts of stock, whereas this tax is based on turnover. I suggest that the small trader will find his competitive value greatly eroded by VAT and will come out of it very badly indeed.
  I turn to the sort of anomalies which will be created in terms of the television rental provisions. These arrangements play an important part in the leisure life of the country. What will happen to them when VAT comes into operation since these contracts are based on the assumption that purchase tax has been paid? How will these contracts work after April, 1973, when VAT comes in? This will cause all kinds of anomalies.
  I suggest that the Financial Secretary should direct attention to the position of the retailers of food. A medium size supermarket probably deals with around 40,000 items per week. It may be said that since food is zero-rated this will be no problem, but it must be borne in mind that one-quarter to one-third of all goods sold in a supermarket are non-food goods. How will those establishments cope with the enormous problem of deal-
  1218
  ing with all the form-filling and clerical work involved in this tax?
  Then we have the problem of the fitted carpet effect. House buyers who wish to avoid paying VAT and who have houses with built-in central heating, kitchen furniture, cupboards, cookers, carpets or any other fittings will find that they are free of VAT, but if they buy those things separately after they have bought the house extra tax will have to be paid. I am wondering how this will work in practice. Will it drive up the cost of houses even higher than it is at present? This must surely be the general effect.
  Mr. Peter Trew: If the hon. Gentleman looks at Schedule 4, Group 7, he will see that zero-rating relates to items of
  "builder's hardware… of a kind ordinarily installed by builders as fixtures".
  Fitted carpets are not ordinarily installed by builders as fixtures.
  Mr. Cronin: I accept that as a helpful contribution. I was thinking that such things as central heating, refrigerators and kitchen furniture might be installed by the builder. I agree that fitted carpets would not come into this category. However, this does not detract from what is known as the fitted carpet effect which will cause extraordinary anomalies.
  What will happen to a firm with a turnover of more than £5,000 which wishes to avoid paying VAT? It will simply break itself into several smaller firms each dealing with specific items of production. For example, a boat builder could break up his firm into separate segments, one part making hulls. one making engines and yet another manufacturing rigging and sails. What will happen to a person who seeks to avoid tax on that basis? This could be done in numerous areas of industrial life. I have mentioned only a few of the difficulties, but it seems to me that we shall look back on the days of purchase tax as being relatively free of difficulty compared with the sort of difficulties which hang over our heads in regard to VAT.
  Finally I wish to say a few words about the regressive effects of the tax which embarrass hon. Members on this side of the Commitee. The Chancellor of the Exchequer said today that VAT was less discriminatory and indeed was

  1219
  neutral in its effect. We rather liked purchase tax because it was discriminatory and not regressive in its effects. Certainly we feel that VAT will be regressive. People who have any kind of social conscience take pride in the discriminatory nature of purchase tax, which can be used to some extent to redistribute income. Value added tax will have no such effect; it will be uniform in its effect in spite of the zero rating of some commodies and the exemption of others.
  Purchase tax as employed by the Labour Government had a socially desirable effect. It is much more satisfactory that a mink coat worn by a successful actress should attract a higher rate of taxation than a wollen vest worn by a retirement pensioner. Surely it is better that jewellery should attract a much higher rate of taxation than, say, children's shoes and clothes. Even with zero rating, the poor will be proportionately much worse off under VAT.
  We should be thankful that the Chancellor has introduced zero rating, but I should like to know why he has introduced in the Bill powers to abolish such rating. Has this some sinister significance for the future? Does he eventually intend to put VAT on foodstuffs? I think there can be little doubt that this is the first stage in achieving this discriminatory, reactionary and anti-social effect. I say without hesitation that the VAT will be a weapon in the hands of the present reactionary Government, a Government which my colleagues and I regard with the utmost distress. I shall vote with enthusiasm against this tax tonight.
  8.0 p.m.
  Mr. Christopher Tugendhat: First, perhaps I might revert briefly to a point made by the hon. Member for Loughborough (Mr. Cronin) early in his remarks when, in reply to an intervention of mine, he said that he did not carry all the relevant figures in his head and was not a walking encyclopaedia. I sympathise with the hon. Gentleman. I, too, do not carry all these figures in my head.
  But I have been disappointed by the arguments that we have heard from the benches opposite, of which the hon.
  1220
  Gentleman's speech was typical, and the bringing out of the air of certain figures about certain foreign countries without putting them in context. It is possible that prises rose by X or Y per cent. in a given country after the introduction of a value added tax. That is all very fine and interesting. But if one does not know at what rate prices were rising beforehand and at what rate they rose afterwards it is difficult to see the significance of the figures being put forward in evidence.
  The hon. Member for Loughborough may be right, but this constant bringing out of the air of foreign examples without putting them into context does not carry the argument about what will happen with the introduction of a value added tax in this country one way or the other.
  Mr. Brian Walden: In view of the hon. Gentleman's wise caution against doing that, is not it foolish to cite foreign examples of how firms have been able to cope with the tax given a tax structure different from our own? Does not the Chief Secretary continually do that in these debates?
  Mr. Tugendhat: If my hon. Friend the Chief Secretary did as the hon. Gentleman suggests, he would be running that risk. But there is a difference between what my hon. Friend has been doing and what the hon. Gentleman alleges. My hon. Friend the Chief Secretary spoke about the results of questions which had been asked of firms in countries which now have VAT. They were asked whether, if the VAT were abolished, they would be able to reduce their administrative staff. My hon. Friend reported that they had said, "No ". I think that that is fair. They were not asked whether the introduction of VAT had led to an increase in the number of people whom they had to employ. They were not asked to compare the position now with what it had been. They were asked what would be the position now if VAT were removed. I think that that is a reasonable pointer in this context.
  Mr. Brian Walden: I accept that, but it cannot be used as an example for saying that the introduction of the tax in this country will not lead to an increase in administrative staff in business. That is such palpable nonsense that it

  1221
  is no example, and I am sure that the hon. Gentleman will concede that gladly.
  Mr. Tugendhat: The hon. Gentleman and I are in danger of running into a dialogue, but I cannot let that pass as the hon. Gentleman put it. I think that the remark of my hon. Friend the Chief Secretary about the position here and the position as it would be on the Continent was fair. It suggests, therefore, that VAT as such does not lead to a great increase. I think that that is a reasonable deduction to draw.
  I do not suggest that one can draw any profound conclusions for this country from that statement. But I think that it is a reasonable point to make, and, in any event, in this country we must also think in terms of the taxes that it is reducing. Without going into detail, I am sure that the hon. Member for Birmingham, All Saints (Mr. Brian Walden) will agree that the introduction of SET and the handling of it led to an increase in the number of people employed by companies for these purposes. To some extent, the hon. Gentleman is comparing apples and pears and not factors which are totally alike.
  The other point which disappointed me about the arguments of right hon. and hon. Members opposite on VAT was the position of the Common Market. Here I revert to a point made by my hon. Friend the Member for Horsham (Mr. Hordern). There is no point in trying to hide the fact that the Labour Party was in favour of joining the Common Market on the right terms and that it remains in favour of joining if the right terms can be secured. Right hon. and hon. Gentlemen opposite have always said that they did not like VAT and that they would introduce it as one of the prices of going into Europe but not on its merits. I appreciate the caveats entered by Labour Party spokesmen. Nonetheless they said that they would introduce VAT if the right terms were agreed. It was not a matter like Commonwealth sugar or New Zealand butter, being put forward as a sticking point in the negotiations. The idea that VAT would be introduced if we joined was always accepted. Therefore, when we argue about VAT now, it is difficult to see the great point of principle dividing us. Had Labour secured the terms that it wanted, it would have introduced the
  1222
  tax. The tax cannot be that bad, otherwise it would have been elevated to the primary position of Commonwealth sugar, New Zealand butter and the other considerations which played such an active part in the conversion of the Leader of the Opposition away from Europe.
  Mr. Dalyell: What baffles some of us who voted in favour of the principle of British entry is why the Government feel it necessary to bring VAT in so quickly. If the hon. Gentleman will tell us why it has to be introduced so quickly, he will do us a great service.
  Mr. Tugendhat: The enlightenment is likely to be brighter or more illuminating if it comes from the Treasury Bench than from a mere back bencher. But it seems to me that there are substantial arguments in favour of doing it now rather than later. When a Government have committed themselves publicly to a certain course of action, there is much to be said for getting on with the job with a reasonable degree of haste—though not over-hastily. If traders, business and industry know that the Government are committed to introducing VAT and that the Opposition are committed to it if they get the terms that they want in the Common Market, delay only leads to difficulty and uncertainty. Once one is committed to a course of action, it is right to get on with the job and remove the uncertainty attending it. Hanging about in the way that some suggest will do no good and will lead to the kind of uncertainty that we see in the steel industry, which does not know its future because it cannot know the result of the next General Election. Having made their position clear, I believe that the Government were right to move reasonably rapidly.
  I am afraid that I have been diverted from my two main points The first is that, whether or not this country joins the European Community, there are substantial arguments in favour of a value added tax. At present, some 40 per cent. of our export trade is with countries which either have a VAT or are proposing to introduce one. What it more, those countries constitute our most rapidly growing markets. When right hon. and hon. Gentlemen opposite were in power they used substantial and sensible arguments in favour of metrication on the

  1223
  ground of international standardisation, because of our trade being with countries which were largely metric. Similar arguments apply to a value added tax.
  That apart, the fact, that VAT encourages exports and its lack inhibits a country in that regard is an important consideration. Voices are now being raised in the United States in business and industrial communities in favour of a value added tax which they feel gives Europeans an unfair advantage over them in export markets. This is an argument which deserves to be heeded in this country. Given the fact that so many of our principal trading partners are adopting this form of tax, it is a pity that we should gratuitously put ourselves at a disadvantage compared with them.
  The other substantial point, which has been dealt with fully by many hon. Members on this side of the Committee and by some hon. Gentlemen opposite, including the hon. Member for Cornwall, North (Mr. Pardoe), is that in many ways VAT will enable indirect taxation to be more evenly and fairly spread. At present about 70 per cent. of consumer taxes in this country fall on tobacco, alcohol and the running of a motor car. This is a heavy concentration, and it bears particularly hard on the poorer section of the community. Of the remainder of our consumer taxes, a heavy burden is borne by a certain limited number of consumer durables such as refrigerators. Clothing, too, is taxed, and this bears very heavily on the less-well-off section of society.
  Hon. Gentlemen opposite have frequently quoted the Richardson Report and made play of the fact that Mr. Richardson produced a report which was hostile to VAT but is now lending his considerable services to the Government. It is fair to point out that the excellent report on VAT produced by the National Economic Development Office when Sir Fred Catherwood was running it at the time of the Labour Government made a number of substantial points in favour of VAT, and the point that I have made about our present system of taxes bearing heavily on the less-well-off is one of the most important points in that excellent document.
  I know that the right hon. Member for Leeds, East (Mr. Healey) is new to
  1224
  financial affairs. Perhaps it is fair to tell him that, rather than study the Richardson Report which came out so many years ago, the report published only three years ago when his Government were in power might provide a better source of information and ideas for him. I am glad to see that the hon. Member for Birmingham, All Saints shares that view. The point that I have made is a substantial one in favour of the tax, and it means that when the regulator is used it will cover a much wider segment of the economy and will not bear so hardly, unevenly and unfairly on certain industries.
  VAT has been widely praised outside the House, and it is generally accepted within the House, whether or not one is in favour of the tax as such, that the particular VAT which my right hon. Friend the Chancellor of the Exchequer has produced is a good example of the tax. The single rate and the relatively low rate have both been praised. I wish to participate in the praise that has been lavished upon my right hon. Friend, but there is one point that I must make on that score.
  I appreciate that my right hon. Friend has consulted many outside interests and that many industries, trade associations, and so on, have had an opportunity to put their views. I appreciate that this has perhaps arisen out of more consultation than has ever been known before. Hon. Members on both sides of the Committee approve of the Green Paper system of consultation and all the rest of it, but I find myself rather unhappy at the implications of some of the speeches of Treasury Ministers and of reports in the newspapers arising out of the guidance given by Treasury Ministers about their attitude towards the possibility of making changes in the tax as it goes through the House, and their attitude towards exemptions.
  Much as I support the idea of consultations with outside interests, and glad as I am that Green Papers should be published, we must not forget—and I say this in all humility as a relatively new Member—that laws are made here and not in consultation with outside interests. I very much admire the elegance and simplicity of the proposals which the Chancellor has put forward, but I am sure that he would not wish to claim that

  1225
  they are perfect in any way and incapable of improvement.
  There are some important anomalies concerned with the position, for instance —to give only one example—of those who write books, such as myself, who will be well treated, and I am grateful for that, and people who paint and participate in the plastic arts. I mention that as one example. There are many difficulties, and I hope very much that the mere fact that considerable consultation has taken place with outside interests will not be put forward by Ministers as an argument for not making changes in the place in which, after all, changes are supposed to be made.
  With that one caveat, I praise the Chancellor for the simplicity and elegance of his tax and say that if he makes changes we shall take that as a sign of strength and not as a sign of weakness.
  8.15 p.m.
  Mr. R. B. Cant: I shall be brief and make reference to only two points. I must confess that I am pro-Common Market and pro-VAT, but I shall faithfully follow my right hon. Friend into whichever Lobby he goes tonight.
  I agree with all those who have said that in the world in which we live, in which other countries are not only applying VAT but are expressing interest in it, we have no alternative but to follow suit whether the tax is a good tax or not. The General Agreement on Tariffs and Trade will never have any great influence even on behalf of the economic masters of the world in the context of the reduction of non-tariff barriers.
  We have been told that the changeover from purchase tax and SET will not have any effect on the redistribution of income. That may be the case although, from what I have heard, I do not think that that is altogether proven. Certainly the Government will be faced with a serious decision in the future when, whatever hon. Gentlemen opposite may feel, the need to gather in increasing amounts of revenue, for one purpose and another presents itself.
  Although I am quite happy about the 10 per cent. with zero ratings, exemptions, and so on, I and, no doubt, many others on this side of the Committee will watch carefully to see precisely what the Gov-
  1226
  ernment do in the future, because I do not feel that increasing rates of VAT will make a contribution to the welfare of the poor—far from it. If the Government start increasing the rates of income tax or reducing the rates of corporation tax, then I, perhaps for a change, will join the critics on this side of the Committee on this issue.
  I am not a smoker but I drink beer, and I am worried in case VAT is superimposed on the existing enormous excise duty on beer. If that were to happen, the lot of the beer drinker would be very unhappy indeed and I do not think that the Chancellor has as yet given us anything that would offer consolation. The main point on this is that when future Budgets come around we shall be asking in Written Questions for some calculation of the gini co-efficient of income distribution as a consequence of increasing VAT.
  My second point is one that has been made by many others. Why 1973? I have no desire to save the Prime Minister from electoral defeat. I think he must have a fairly well-defined masochistic streak in him if, for whatever reason, he proposes to introduce VAT at the very time when he is impressing upon us that inflation is public enemy No. 1. Although there is a nice equation between purchase tax, SET and VAT we know from the introduction of decimalisation that somehow or other traders will make a profit out of it and prices are bound to go up.
  Cannot the Government be persuaded to make at least a little contribution towards winning the battle against inflation? As we know, inflation leads to wage increases, strikes and the rest. Cannot the Government follow a modified Italian example, so to speak? This is my request. If the hon. Member for Horsham (Mr. Hordern) were in his place, knowing his almost pathological interest in the state of the money supply I think he must certainly endorse the view that to agree to the introduction of VAT at a time when the Government seem bent on doing everything possible, through the money supply, to increase prices is folly. My concern is simply for the effect that all this will have on the people.
  Mr. Burden: I find the attitude of hon. Gentlemen opposite rather amusing because it has been evident that those

  1227
  who took part in our Common Market debates in 1967 have all been swept aside. They have gone and in their stead we have an entirely new Labour Front Bench now discussing this issue.
  Although the previous occupations have been swept aside, their views cannot be swept under the carpet. It was strange to hear the hon. Member for Stoke-on-Trent, Central (Mr. Cant) say that although he agreed with the introduction of VAT he nevertheless intended to vote with his colleagues against its introduction. This is an almost farcial state of affairs.
  On a personal note, I welcome the promotion to the Opposition Front Bench of the hon. Member for Birmingham, All Saints (Mr. Brian Walden). I have listened to his speeches on many occasions with great interest. He is always most articulate, and I am sure he will prove a formidable addition to the Opposition Front Bench.
  However, the hon. Member for All Saints made an unfortunate intervention earlier when, as one of my hon. Friends was discussing SET and pointed out that the right hon. Member for Cardiff, South-East (Mr. Callaghan), when Chancellor of the Exchequer, introduced it to drive excess labour out of service industries and into manufacturing, he leapt hurriedly to his feet and rather denied that that was the original purpose of SET. I trust that the hon. Gentleman now agrees that SET has absolutely failed in its objective.
  Mr. Brian Walden Mr. Brian Walden indicated assent.
  Mr. Burden: I am glad that the hon. Gentleman assents to that proposition. It has been a shockingly bad tax in every way.
  Instead of stimulating employment in manufacturing, SET made everybody in the distributive trades see how much staff they could cut and there was enormous growth in self-service activities almost immediately after the introduction of this shocking tax. Above all, it showed the bad judgment of the Labour Party in fiscal matters of great importance.
  Bearing that in mind, perhaps the speech of the right hon. Member for Leeds, East (Mr. Healey) was not surprising. In the past he has been greatly involved in defence matters, matters com-
  1228
  pletely different from those with which he has now become involved. Perhaps the Labour Party has had some difficulty finding men of Cabinet rank who are not committed to supporting the introduction of VAT. On this score, the right hon. Member for Leeds, East is clean, as are most of the present occupants of the Opposition Front Bench in this debate. Although they are clean on this score, they have a lot of explaining to do because we want to know exactly where they stand on various other matters.
  When the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) was Chancellor he made it clear that in his view VAT would have to be introduced if we entered the EEC. But his colleagues on the benches opposite now imply that purchase tax is sacrosanct. We have gained the impression this afternoon that, whatever happens in Europe. the Labour Party will hang doggedly on to purchase tax.
  Do hon. Gentlemen opposite appreciate that we are the only country with purchase tax and that a considerable number of countries have introduced VAT? Why, if we are so right—presumably those other countries have examined these matters—and if purchase tax is so much better than VAT, have they not introduced purchase tax into their fiscal systems?
  I trust that the spokesman who winds up the debate for the Opposition will tell us the present view of the right hon. Member for Stechford on VAT. May we also be told the views of those financial spokesmen on the benches opposite who were at one time negotiating for Britain to enter the Common Market?
  VAT becomes chargeable only at the point of ultimate sale to the retail customer. Although there are intervening charges, they are all paid back, until the final and ultimate point of sale to the customer is reached. Indeed, it has other advantages over purchase tax. I know from considerable experience that one of the advantages is that now, when the value added tax is applied, the retailer does not have to lay out large sums of money in tax before he sells the article. He collects it, and it is then paid to the Government. Indeed, there is also the other extremely valid point that it does not

  1229
  mean that if an article does not sell readily he has paid tax at a rate considerably above the real selling value of the article.
  Another point is that under VAT it is not possible for the retailer, as now happens with purchase tax, to charge his retail price not only on the price of the article but also on the tax, because with VAT tax is imposed afterwards, and this should help to some extent to keep down prices.
  [Mr. E. L. MALLALIEU in the Chair]
  8.30 p.m.
  I refer for a few moments to the present attitude of the Labour Party. Are they in favour of entering the Common Market?
  Mr. Deakins: No.
  Mr. Burden: There we have "No ". I should be happy if the right hon. Member for Leeds, East would intervene and say whether it is still Labour Party policy to enter the Common Market if they consider the terms reasonable.
  Mr. Healey: Of course it is, and we have said so a million times. What the hon. Member seems incapable of recognising is that, just as he and his hon. Friends regard the common agricultural policy as a ludicrous nonsense which they have to accept for the sake of what they see as the benefits of entering, we regard VAT also as a ludicrous nonsense which we would have to accept if we could get satisfactory terms on other issues, including, above all, the common agricultural policy.
  Mr. Burden: That is a very interesting admission. Until the right hon. Gentleman intervened, the hon. Member for Walthamstow, West (Mr. Deakins) said, "No, we do not want to enter the Common Market—full stop". Then, when I offered the question to the right hon. Gentleman, he said, "Yes, it is still our policy to go in if we can negotiate the right terms". No one in the country, certainly no one in the House, has heard one word from the Labour Party about what they would consider to be acceptable terms.
  Mr. Deakins: Rubbish.
  Mr. Burden: It is no good the right hon. Member for Leeds, East screwing up his eyes, because that is so. He has also, this afternoon, launched an absolute all-out attack on VAT. Yet a moment ago he said" If we could get the right terms in other directions, then we would accept VAT ". He has also said that if a Labour Government could get the right terms in other directions, they would accept the common agricultural policy.
  The previous Prime Minister stated emphatically—it is no good the right hon. Gentleman swinging about—that this is one of the prices of entry to the Common Market, that the common agricultural policy is not negotiable and that it was accepted by the Labour Party. Equally, he said that VAT was one of the things that they would have to assume. Earlier today, when I intervened during the right hon. Gentleman's speech he tried very hard to write-off something that his right hon. Friend the then Prime Minister had said about the whole question of VAT. Of course, we accept that it depended upon getting the terms that the Labour Party considered were right. But which part of the Labour Party? Quite a few right hon. and hon. Members of the Labour Party sitting below the Gangway say "We would not go in in any circumstances".
  Mr. Healey: What about differences on the hon. Gentleman's side?
  Mr. Burden: No, the right hon. Gentleman must just take it. Quite a number of hon. Members opposite say "In no circumstances will we go in". There is certainly a considerable number of influential right hon. and hon. Members of the Opposition, who were involved in the negotiations conducted by the Labour Government, who say "The terms now are absolutely right and we could get no better". There are also other hon. Member of the Opposition who say "Yes, but because it was the Tories who negotiated these terms, we shall say that we shall go back to try to get some better ones".
  So for which part of the Labour Party does the right hon. Gentleman speak? What his right hon. Friend the then Prime Minister said about VAT is in no doubt. I hope that the right hon. Gentleman will forgive me for having the

  1231
  temerity to suggest that if he is to take on the task of shadow Chancellor, he should take an early opportunity of looking up some of the things which some of his predecessors have said, both in office and as shadow Chancellor. If the right hon. Gentleman were to do so he would find that in the debate on the European Communities in 1967 the then Prime Minister said:
  "Here we are talking about Article 99 of the Treaty of Rome"—
  this refers to VAT—
  "which provides for the harmonisation of turnover taxes, excise duties and other forms of indirect taxation. In making this provision, the immediate concern of the countries of the Community was to get rid of the distortions to trade which resulted from the existence in some of the countries of what are called cascading or cumulative turnover taxes for which only arbitrary allowances could be made as the goods concerned passed from one country to another.… It was only a few weeks ago… that agreement was reached on even the first step towards this harmonisation. The agreement was that by 1st January, 1970, existing turnover taxes would be replaced by the value added tax system. The agreement at present allows exemptions for particular categories of goods."—[OFFICIAL REPORT, 8th May, 1967; Vol. 746, c. 1089–90.]
  It is no good the right hon. Gentleman saying that there is no need now to do anything until 1978. In 1967 the right hon. Member for Huyton (Mr. Harold Wilson) was negotiating to join the Common Market and, had he succeeded, he tacitly accepted in those remarks that this would have to be introduced by 1970.
  Mr. Healey: Oh, no.
  Mr. Burden: Oh, yes, he did. The right hon. Gentleman accepted that VAT would have to be introduced. The Opposition Front Bench, which has been fulminating about VAT all day long and how they will retain purchase tax, now admit that, if their aims to go into the Common Market had succeeded, they would have introduced VAT and that it must be introduced if we go into the Common Market.
  I feel sure that the hon. Gentleman who is to wind up will make it perfectly clear that, whatever arguments may have been advanced today, the Labour Party, if it succeeds in its aim of going into the Common Market on terms which Opposition Members still say that they
  1232
  will negotiate, will automatically accept that which Opposition Members have today stated is completely unacceptable —namely, VAT.
  In any case, what is VAT? What is the difference between purchase tax and value added tax? In effect, although the range of articles may differ, the taxes do precisely the same thing. Purchase tax increases artificially the basic price of the article to which it is applied. The value added tax ultimately does precisely the same.
  The value added tax will be of great advantage in many ways. It will certainly be of great advantage to British exporters. The removal of SET will be acclaimed by the many overseas buying houses in Britain which have only one object—namely, to buy British merchandise for export—and whose costs here have been escalated by the imposition of SET. The removal of SET will ease their costs in Britain and help our exports.
  I believe that the introduction of VAT will do away with something which has for a long time been a blight on manufacturing industry. I refer to the uncertainty which is created in manufacturing industries and in wholesaling by possible changes of purchase tax. It will give confidence to manufacturers and will not increase the cost of living.
  The argument that it is going to bite very hard on the poorer members of the community is completely fallacious. If we look at the range of goods on which purchase tax is already placed it will be found that the Opposition have already increased the cost of living through taxation and increases of purchase tax on a great many of the poorer members of the community on whom the proposed value added tax will have far less impact than purchase tax has had.
  Mr. Dalyell: I do not know whether the hon. Member for Gillingham (Mr. Burden) was fulminating, but his fulminating was not entirely in the direction of Clause 1.
  I was rather curious about what was going on in the head of the Minister of State, Treasury whom my hon. Friend the Member for Birmingham, All Saints (Mr. Brian Walden) and I were interrupting. As the hon. Member for the Cities

  1233
  of London and Westminster (Mr. Tugendhat) said, there is a real issue here and if the only defence his hon. Friends can give is that we must not hang around, there is a very real question to be asked.
  My right hon. Friend the Member for Leeds, East (Mr. Healey) asked "What is all the hurry about?" I can understand an obligation to introduce VAT by 1978 but it seems extraordinary, when there are so many corrections to be made in the legislation, that we have to have it this year. Is there no more to be said on this issue than was said by the hon. Member for the Cities of London and Westminster that, once having decided to do it, it must be done quickly? If there is such a hurry, what thought is being given to the transitional period?
  The right hon. Member for Thirsk and Malton (Sir Robin Turton) and other hon. Gentlemen have been asking through out the day about the transition period for certain industries. British industry is extremely concerned about what will happen. I have no knowledge of the clothing industry but many of us have constituency interests in the food industry. To what extent has any thought been given to the food industry in the amount of flexibility the Government are to offer in relation to the so-called holiday period?
  I will return to a subject I raised in an intervention. Manufacturers in the cake, biscuit, chocolate and confectionery industry, as my hon. Friend the Member for Birmingham, Northfield (Mr. Carter) knows very well, are desperately concerned. I speak on behalf of a firm in Livingston new town and a number of other new firms but he speaks of a wider industry. There was a conference during the week-end, the annual general meeting of the Cake and Biscuit Alliance, where it was spelled out in some detail exactly what would happen. I give this as one example for time reasons but there are many other examples.
  At present, with few exceptions all these goods bear some degree of purchase tax as they leave the manufacturer. So, without special action, all stocks in the hands of wholesalers and retailers on 1st April will have borne purchase tax and will have to bear VAT.
  To avoid this the so-called holiday period from taxation, needs to be
  1234
  announced, first well in advance, and, secondly, from 1st January, 1973, for special Easter goods, and from 1st February, 1973, for other goods.
  This is perhaps not the time to go into the details of the problems of the confectionery industry. However, for how long are we to be told by the Tory Front Bench "It is all a matter of negotiation. Nothing has been decided, there has to be consultation with people outside the House, and then we will tell you"? There seem to be issues of considerable substance involved. There is no reason why we should not be told at a very early stage precisely what kind of tax holiday period the Government Front Bench have in mind. If the Financial Secretary shakes his head knowingly, will he take this opportunity of clearing the matter up? There may be a good reason but none of us have been told throughout the day the reason for the hurry or what is to be done about the transition period. If I am making invalid or lightweight points, let us be told, because it will shorten my speech and possibly some of the proceedings in Committee.
  I can only take it, from the silence of the occupants of the Government Front Bench on a fairly easy matter on which they should be forthcoming, that either they do not know or there is no good will. If this is to be their attitude throughout these proceedings, some of us will be more long-winded than we otherwise would be.
  8.45 p.m.
  Mr. Sheldon: We heard my hon. Friend the Member for West Lothian (Mr. Dalyell) ask whether his points were invalid or lightweight. Those of us who have had the pleasure of knowing him over many years know that those are adjectives which we would least ascribe to points or questions which he puts before this Committee or any other body before which he argues. His point was important. We have not had an answer to it so far from either Ministers or backbenchers opposite.
  What is the reason for the hurry with the introduction of this legislation? We know, with some degree of certainty, that the Chancellor of the Exchequer has a great yearning to go down in history as one of the fundamental reformers of the tax system in this country. I should be

  1235
  the last to wish to deny him that position, as this is a matter in which I have been most interested over many years.
  Suggestions are frequently made that the reform of the tax system is the prelude to the improvement of the economy. When arguments of that kind are put forward I have to voice my scepticism.
  Looking at successful economies throughout the world, I seem to find that they owe little to the tax laws within which those countries operate. I will give one example which might serve as a remind of the limitations of tax upon economic performance. I refer to Germany. At the time of Germany's economic miracle, at the time when it was expanding at a faster rate than any other country in Europe, it had to suffer the enormous problems, complexities and injustices of its cascade tax, when it put tax upon tax upon tax as goods made their way from one industry to another and finally to their consumers. At that time Germany was undergoing its own economic miracle.
  It is important for us to be clear that at the end of the day it will be little distinction for the Chancellor if he busies himself with these tax reforms while at the same time we endure the problems of 1 million unemployed, low investment, and minimal growth.
  I mention this not in any carping spirit but because it is important to see tax reform in its proper perspective. Although this is a matter of great importance which requires our close attention, it cannot be a substitute for economic strategy, only a supplement to it.
  I do not have a frantic like or dislike of the value added tax. It is supposed to be a tax on consumption. However, like many taxes, it can be looked at in different ways. After all, it is a tax on added value. The value added, as goods pass through any particular firm or factory, is a combination of both the payroll and the profits tax. It is the payroll—all the salaries and wages—and the profits taken by an enterprise. Therefore, we could call it a payroll and profits tax, because that is what we are taxing.
  What makes the value added tax different from a payroll and profits tax? Many of my right hon. and hon. Friends
  1236
  would have no quarrel with a payroll and profits tax. The Committee will recall that I and my hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett) have, year after year, put forward proposals for a payroll tax to replace SET. But what makes it different from the kind of payroll and profits tax that so many of my hon. and right hon. Friends would like to see is the emphasis by the Government that the tax must be passed on, or may be passed on, and this makes it a consumption tax. If we think in terms of manufacturers doing their best to minimise the tax by efficiencies of labour and modest restraint in profits, it can be seen that the difference is in the emphasis rather than in the design.
  Mr. Geoffrey Rhodes: I am following my hon. Friend's point closely, but is it not a fact that there is no real evidence from the use of VAT within the Common Market that what he is suggesting has happened? Any close examination of the incidence of VAT within the Common Market and I spent a lot of time in the Community countries when the tax came in—shows that it was passed on to the consumer. Those hon. Members on the Conservative benches who opposed selective employment tax on the ground that it was passed on to the consumer are inconsistent now in supporting VAT. I can speak with a clear conscience on this because in eight years on these benches I have never voted in favour of SET.
  Mr. Sheldon: My hon. Friend's record on this matter is well known and he is amplifying the point I was making that the value added tax to be introduced by the Government is a tax on consumption because they are clearly urging that the tax be passed on. But, if in the alternative form it was urged that the tax be not passed on the same method would be used to tax payroll and profits. This is the point I was making, and my hon. Friend quite rightly says that the way in which the value added tax has been operated and the way the Government will operate it will pass it on to the consumer.
  I look for a number of qualities in any new form of taxation, and for me there are four simple tests. A good tax

  1237
  should raise money according to the ability of the individual or the organisation concerned to pay. It should be fair and preferably should help towards a greater redistribution of wealth. It should have beneficial effects upon the economy and it should have ease of administration. In this last respect we must consider the additional 6,000 civil servants who will be needed.
  The Chancellor of the Exchequer said that the value added tax had been praised because it was neutral. He said that this was a commendation for the tax even in the eyes of those who opposed it. To me this is not an advantage. I do not see any benefit from a tax which is neutral in its effect. A good tax should have some social purpose as an essential ingredient in it. There cannot be anything apparently more neutral than a poll tax, and that is hardly a good tax.
  As my hon. Friend the Member for East Stirlingshire (Mr. Douglas) said, this VAT is regressive. If it is desired that an essential ingredient of a tax system is that it should have some social purpose it must discriminate. Where there is discrimination there must be categorisation, and once there is categorisation there are anomalies. This is an inescapable element of a fair tax. If a tax does not have a social purpose and it is neutral it can be efficient but it will also be unfair. What I have against the value added tax is that it has no social purpose and is neutral. Worse than that, it has gross anomalies.
  With purchase tax we had a system which was basically fair, because it was discriminatory. Of course there were anomalies, because there was an attempt to redistribute, to charge more for certain articles held to be luxuries and less for those held to be necessities. But the anomalies of purchase tax were an essential price for the fundamental fairness that underlay the system. We find that the value added tax is unfair; it is not discriminatory, yet it has the added bonus of giving anomalies as well. At least the anomalies of purchase tax were there for a social purpose. The anomalies of value added tax are inherent in the tax, and it offers no advantages in compensation.
  Therefore, we on this side say that we should have made a neutral value added tax discriminatory in other ways.
  1238
  We should have attempted to introduce changes in other kinds of taxation to alter the neutral effect and provide discrimination of the kind we had in purchase tax, by an amount that would bring about a reduction in the prices of those goods which we hold to be essential for the wellbeing of the people of this country.
  The odd thing is that the principle that there should be some discrimination is one which the Government have accepted in the end. But, most peculiarly, they felt it was unique and could apply only to motor cars; they conceded the principle that purchase tax should go in hand with value added tax but said that it would apply only to motor cars. We on this side should ask why the tax was exclusively reserved for motor cars. Why was it not considered for any other article of a high luxury kind?
  Let us look at some of the anomalies. We can have a lot of fun with them. I shall mention just one or two now. Under the tax we have anomalies which have nothing to do with fairness, which either result from bad drafting or are inherent in what is an unsatisfactory tax. For example, we are now to tax small matters like distilled water, even the water that goes into iced lollies. Those from the north who come up for the Cup and charter an aeroplane will have to pay tax, but if they go to Paris they will pay no tax. Those who finally depart this life depart from it in a partially-taxed coffin, wrapped up in a wholly-taxed shroud. We can go on and on with the anomalies. The important point is that they are obtained without any improvement in the redistributive effects of a tax and without any attempt to relieve some of the very important elements that should be free from tax in the way that any socially-just economic policy should be able to provide.
  I do not believe, and nothing I have heard in the debate has led me to believe, that the economy will be improved now or in the next few years as a result of the introduction of the value added tax. Therefore, we must ask, as my hon. Friend the Member for West Lothian asked, why it is being introduced now. The value added tax and the car tax are to bring in about £1,600 million in a full year. The old purchase tax and selective employment tax, taking the reduction in the 1972 rates of tax, brought

  1239
  in slightly more. So there is no increase in revenue on an annual basis. The sums are roughly the same. Comparing the £1,600 million with the £16,000 million-plus that was to be raised in taxation in 1972–73, one must ask why the Government are juggling about with a tax whose yield is not large by comparison with the total revenue raised by other forms of taxation.
  9.0 p.m.
  We have the inconvenience of this Bill. Do not let anyone be under the impression that the part dealing with VAT is only 50 Clauses and so many Schedules. A whole host of regulations and orders are not included in the Bill when many of them should have been. Had they been included, there would have been a mammoth Bill. Part of what should have been included in the Bill has been left out, just as so much has been left out of the European Communities Bill in a manner which we find unsatisfactory.
  Even accepting that the Government believe the price to be worth paying, we must ask what their final intentions are. They have not gone to all the trouble of engaging 6,000 extra civil servants merely to deal with the problems of evasion which my right hon. Friend spoke about, nor just to replace one tax with another. That cannot be what it is all about. The new tax will not improve the economy. It is unnecessary for entry into the EEC. So we must probe the Government's true intentions.
  We get a clue in the rate of the tax—10 per cent. It is a round number, and an easy number to start with—and an easy number to raise during the years to come. We did not get a satisfactory answer even when the Chancellor intervened to say that that could not be applied to food without the consent of the United Kingdom Government. He did not give us the views of the United Kingdom Government. Are they firmly against taxation on food? Is it their intention to resist the taxing of food? Of course we know that it could not be applied to food without their consent, but what are their intentions? This is a suspiciously easy entry into the EEC, and the new tax is something that we should watch with great care because it is clear that the Government, with all the effort and discussions of the last year or so, have
  1240
  not gone to all this trouble just to get a replacement for purchase tax. There is more to it than that. We ask the Government to tell us and not keep us in the dark as they have kept us in the dark on a number of other matters.
  The Bill manifestly needs considerable amendment. The Financial Secretary to the Treasury told us in the debate on the Budget when talking about the staff of the Customs and Excise:
  "They have received more than 700 representations about VAT and have discussed it with more than 300 groups, in some cases on a number of occasions. As a result, we have been able to meet many of the points made."
  Later, he said:
  "This means that we cannot, having accepted the principle, reasonably at later stages begin to accept this or that Amendment to include or exclude this or that detailed item."— [OFFICIAL REPORT, 23rd March, 1972: Vol 833, c. 1803–5.]
  As final confirmation of the view of the Government we have today's article in the Financial Times over the by-line of John Bourne, Lobby Editor, The heading is:
  "Barber to stand firm on VAT".
  We know that the Government will resist all these Amendments. I find it insufferable that the Government should consider that because this Bill has received the scrutiny of industry and commerce, because it has been inspected by the Civil Service, it is so perfect that it need not be looked at or amended here. If the House of Commons cannot change the Bill I do not know what is the purpose of bringing it to this Committee. We are not experts no one here ought to claim to be experts—but what we ought to know, what we ought to repre. sent, is what the British people consider to be a fair tax on any of these matters.
  The Government take a grave risk if they ignore the opinion of the people in the final formulation of this tax. There must be the acceptance of an understanding that this Bill, like any other which comes before the House or a Committee, will be amended in the light of argument and discussion. In considering this Bill with its massive allocation of orders and regulations of a kind rarely seen and reminiscent of the European Communities Bill it may be that our scrutiny will show our procedures to be rather inadequate. It is clear from some of the

  1241
  things said by members of the Government about the Bill that what they were thinking about was not what was in the Bill but what was in the regulations and the orders which they have discussed but which this Committee has not yet seen.
  One of the saddest aspects of this Bill for me has been the way in which the House of Commons has been excluded from discussion. Like many others, I have had discussions with industry on various topics to do with the Bill. On one occasion I was discussing this with a number of people from an industry and they asked me whether I had read the discussion paper circulated by the Government. I was ashamed to admit that I had not seen it because I was not allowed to see it. This veil of secrecy which the Government have thrown over their proceedings extended to refusing to give me permission to see a document which was freely circulated within industry. There have been a number of such documents. I have tabled Written Questions and I have asked the Financial Secretary whether I could see those documents and he has refused. So we come to a debate of this kind when the Government say they have had representations from industry and discussions with it, when it is said that there has been scrutiny by the Civil Service, but the House and this Committee have been excluded from it. It is sheer effrontery to come to this Committee and say that there will be no Amendments. This is intolerable and unacceptable.
  There is a need to amend their Bill more than most Bills. This arises simply from the points of contact which it has with the community at large. There are a number of matters which we discuss in Finance Bills which have limited application. This Bill applies to every man, woman and child in the country. It deals with children's clothing, with people who feel ill and go to the chemists, with every small shopkeeper, and when the Chancellor talks about his generous tax exemption limits for traders there will be a hollow laugh from the cigarette and tobacco kiosks which will find themselves having to pay VAT and having to organise themselves for it.
  In this connection I want to quote from a letter in The Times Business News of 3rd May dealing with this generous
  1242
  exemption limit for small traders. It said:
  "Not many retail businesses are making much of a living for their owners on a turnover of less than £5,000. So when MPs buy their next packet of cigarettes from a little old lady in their station kiosk, they should spare a thought for the VAT problems she will have next year. And the thousands like her."
  This generous exemption limit will produce not only problems for those people but also the difficulties of evasion and avoidance to which my right hon. Friend the Member for Leeds, East (Mr. Healey) referred.
  We must remember the last words spoken in the House of Commons by the right hon. John Boyd-Carpenter in a speech to which many of us listened with affection. He said that any Chancellor of the Exchequer must come to the House prepared to make some concessions. The Chancellor of the Exchequer would be flying in the face of precedent if on an important new tax he failed to accept some of the arguments put to him which by their very nature he will not hear from industrialists and civil servants. He should be prepared to keep an open mind and not close it as he seems to have closed it before coming to the Committee.
  The VAT is a new and complex tax. There is no immediate requirement for it and we of the Opposition—and I am hopeful that many others in Committee will join us in this—will seek to amend the Bill during our long discussions. I do not believe that a case has been made out for VAT in this form at these rates and at this time, and I shall ask my hon. and right hon. Friends to oppose it.
  Mr. Higgins: In replying to the debate on the Motion "That the Clause stand part of the Bill" I will first comment on one or two of the speeches made by right hon. and hon. Gentlemen opposite. Many hon. Members on both sides of the Committee have said that they believe the time is ripe for reform of our indirect tax system, and the principle of the tax which we are debating has been endorsed by several hon. Members on both sides of the Committee.
  The hon. Member for Sheffield, Attercliffe (Mr. Duffy) said that we should consider VAT on its merits. He said

  1243
  that it is admirably designed for a consumption-oriented tax; that it is nondiscriminatory; that it will restrict avoidance and evasion—a point which is somewhat in conflict with what the right hon. Member for Leeds, East (Mr. Healey) said in opening the debate; that it is simple in practice and broadly based in application; that it will be a useful instrument for economic management—a point which the hon. Member for Ashton-under-Lyne (Mr. Sheldon) does not seem to appreciate and that we should adopt VAT even if we were outside the EEC. The hon. Member for Attercliffe went on to make points of criticism of which I have taken careful note and to which I shall come presently, but I agree very much with what he said and there is merit in the reasons he gave for VAT. The hon. Gentleman went on to say that VAT is not a miracle. I am even prepared to agree with him on that. Nevertheless it is a major part of the reform of taxation in which the Government are engaged, a reform which is generally recognised as the most important this century.
  9.15 p.m.
  Some points have been raised which are based on misunderstandings and will be more appropriately taken up when we discuss the details of the various Clauses. I would not in any way wish, as the hon. Member for Ashton-under-Lyne has said, to anticipate those debates. We hope that there will be careful scrutiny of the Bill. I agree with the hon. Gentleman that this is a matter in which the House of Commons has a vital role to play. I hope we shall be giving this matter detailed scrutiny as it proceeds on the Floor of the House. I made this absolutely clear in the course of the speech to which the hon. Gentleman referred. I said that I would not wish to anticipate the views expressed in Committee or on Report.
  Having started on that non-partisan note, I turn to the speech of the right hon. Member for Leeds, East. I must confess I cannot promise to be non-partisan about that speech, which bore a remarkable resemblance to the speech delivered by the right hon. Gentleman on Second Reading. Apart from one or two passages, it was almost identical.
  Mr. Healey: Why not?
  Mr. Higgins: The right hon. Gentleman asks "Why not?" I hope we are not going to have the same speech on every Clause. I hope we shall have careful detailed scrutiny based on sound homework. I cannot say that the right hon. Gentleman's speech seemed to reflect any great depth of homework. I am sorry to say I found some of his remarks in many ways irresponsible. He suggested that I should take up these matters in my winding-up speech and I propose to do so.
  I intend to deal with the right hon. Gentleman's comments on enforcement. I will read carefully what he said, but my hon. and learned Friend the Member for Southport (Mr. Percival) drew attention to one of the right hon. Gentleman's statements that the Commissioners will have the power to convict and fine. This is simply not the case. It is irresponsible for any hon. Member, particularly a right hon. Member on the Opposition Front Bench, to seek to put forward early in the opening stage of our debate that kind of remark, for which there is no foundation. This is a serious debate and this is why I considered it right to intervene in the right hon. Gentleman's speech to put on record that I thought he was wrong on a number of points.
  Mr. Healey: The hon. Gentleman will recall that his right hon. Friend the Chancellor of the Exchequer was deeply uneasy about Clause 38. Of course the Commissioners themselves do not constitute the court, but they present the case for prosecution. The powers given to the courts by the Bill are totally without precedent in the jurisprudence of this country and have come under the most serious attack from the Presidents of the Bar Council and the Law Society. This is a serious point and I hope the hon. Gentleman will not try to ride away from it with a totally irrelevant piece of debating detail.
  Mr. Higgins: The right hon. Gentleman is wriggling and he knows it. The fact is that he made an irresponsible statement this afternoon. We can return to this point at a more appropriate stage in the Committee. The right hon. Gentleman also seeks to put into my right hon. Friend's mouth words which he did not utter. In my view the right hon. Gentleman was irresponsible, and again we

  1245
  shall be happy to answer his points later in the proceedings on the Bill.
  The second point I wish to take up is the extraordinary misapprehension of the right hon. Gentleman about the position of potato crisps and caviare. It was the Labour Government which put the tax on potato crisps in the first place, and it is the present Government which are reducing the tax. The change to VAT will reduce it still further.
  Mr. Joel Barnett: Will the hon. Gentleman allow me to intervene?
  Mr. Higgins: No; I should like to finish this point. We have not taxed caviare and the right hon. Gentleman when in Government never put forward a proposal to do so. I wondered why this should be so. I recall the statement by Hamlet, in talking to the players:
  "The play, I remember, pleased not the millions; twas caviare to the general."
  No doubt the right hon. Gentleman was more preoccupied at the time with generals than with caviare. However, as I say, we have narrowed the differential between the tax on potato crisps and the tax on caviare.
  I also take up the more important point that the right hon. Gentleman made—
  Mr. Barnett: Before the hon. Gentleman goes on—
  Mr. Higgins: No. I shall not give way. I have a great deal to say. The right hon. Gentleman—
  Mr. Barnett: Will not the hon. Gentle. man give way?
  Mr. Higgins: No. The right hon. Member for Leeds, East made a very serious point about the ability in the Bill to increase taxation by order. He made a number of statements, and he repeated the point that he had made on Second Reading. I take it up now because I do not wish there to be any misunderstanding.
  In his Budget Statement my right hon. Friend the Chancellor of the Exchequer explained that in order to help forward planning he proposed to announce a year in advance the rate which the tax was likely to be. He prescribed in the Finance Bill a rate of 10 per cent. But in order to allow for the needs of
  1246
  economic management between now and the time when the tax comes into operation Clause 9(2) provides for a once-for-all power to substitute by Treasury order before 1st April, 1973, a rate not lower than 7½ per cent. nor higher than 12½ per cent. There may have been a misunderstanding of this provision. I make it clear that it is a once-for-all provision as distinct from the VAT regulator power contained in Clause 9(3).
  The once-for-all power in Clause 9(2) can be used only before the tax has started. Unless economic circumstances require the operation of the power, the starting rate will be 10 per cent. If there needs thereafter to be a change my right hon. Friend has taken power to do that. The regulator power in Clause 9(3) will enable the rate of VAT to be altered by order up to 20 per cent. of the existing rate after the tax has been introduced.
  On Second Reading the right hon. Member for Leeds, East said that the Government were giving themselves power continually to increase the rate of VAT by Statutory Instrument. The right hon. Gentleman said:
  "They are giving themselves power in the Bill to make the rate 121 per cent. even before the tax comes into operation, to go up to 15 per cent. in 1974 and up to 18 per cent. in 1975. They propose to take power to do this simply by Statutory Instrument, debated at the fag-end of a busy day in this House…"—[OFFICIAL REPORT, 20th April, 1972; Vol. 835, c. 809.1
  That is not the case, and we ought to be clear what the position is. If one studies the Bill the once-for-all power could, if the economic management necessitated, raise the rate to 12½ per cent. before the tax came into operation. In theory if it in turn became necessary to use the regulator power during 1974 to increase the rate of tax, a 12½ per cent. rate could be increased to 15 per cent. But such an increase would have to be consolidated in substantive legislation before any increase could be made under the regulator power. This would give the fullest opportunities to discuss the matter in Finance Bill debates. There can be no question of a second increase under the regulator power in the way that the right hon. Gentleman suggested. If that is so, I presume that the right hon. Gentleman will wish to withdraw what he said on Second Reading.
  Mr. Healey: Certainly I do. I admit I was mistaken on Second Reading. However that was not the point I made today. My point today was one that the hon. Gentleman has confirmed, which is that it is open to the Government under the powers that they are giving themselves in the Bill within a year from now and within a week of the coming into operation of VAT to impose a rate of 15 per cent. over all, and, furthermore—
  Mr. J. Bruce-Gardyne: Or 5 per cent.
  Mr. Healey: —to increase the coverage so that it covers all the items at present zero rated. The hon. Gentleman is not disputing that, and that was the whole burden of the point I was making this afternoon.
  Mr. Higgins: The final point made by the right hon. Gentleman arises on another Clause, and no doubt we shall debate it at length when we get there.
  I wish to clarify the position, and I am grateful to the right hon. Gentleman for saying that he was mistaken on Second Reading. We are glad to have his correction on the record. The point I want to make is a simple one. It is that the powers are symmetrical. They are there both to increase tax by this amount and to decrease it by this amount.
  If the public are concerned about this, I can only tell the right hon. Gentleman that we on the Government side of the Committee are happy to stand on our record of tax changes between 1951 and 1964 and between June, 1970, and today. Whether the public would feel the same confidence in the right hon. Gentleman's record, I leave them to decide. It is extraordinary that the right hon. Gentleman should put up this enormous bogey man when our record is as good as it is and that of the party opposite is just the reverse.
  I now turn to some other points which have been made. Whatever the views about the economic merits of VAT, since the publication of the White Paper there has been widespread recognition of the way in which the VAT system has been discussed with the parties involved. I do not accept the point made by the hon. Member for Ashton-under-Lyne. There is a strong case for doing this in advance
  1248
  of introducing legislation so that the legislation is in the best form possible by the time that it comes to the House, which can then scrutinise it in the normal way.
  The preparation for this change has been the most thorough in modern times. The consultations are continuing because many technical questions have to be ironed out and we are doing as much work as possible on this. If the House approves the Bill, by the end of the summer explanatory literature will be sent to as many firms as possible setting out the mechanism, scope and coverage of the tax and what people will have to do. Hon. Gentlemen opposite have urged that we should give the maximum publicity to this tax so that people will understand it, and that is what we intend to do.
  What I find extraordinary this evening is the way in which hon. Gentlemen opposite say that the whole thing is being rushed. The right hon. Member for Leeds, East said that this was all being introduced within a year. The fact is that we set out our proposals quite clearly in a Green Paper issued a considerable time ago. It is incredible that right hon. and hon. Gentlemen opposite should say that this is all being done in a rush when we have published the White Paper and we have brought in the Bill. This change will not be introduced until April, 1973. Selective employment tax was introduced by the previous Government out of the hat, without a moment's warning, without any consultation and with all its faults upon its head. I find the right hon. Gentleman's argument extraordinary.
  Mr. Dalyell: If it has all been so carefully thought out, why is it that we do not know more about the transitional period?
  Mr. Higgins: The question of the transitional period does not arise on this Clause. My right hon. Friend spelled out the position in his Budget speech. It is a matter on which we shall need to have consultations. The time when the transitional period is announced will have to be judged in the light of the economic situation and after taking into account how long a period seems to be appropriate in the circumstances.

  1249
  [SIR ROBERT GRANT-FERRIS in the Chair]
  9.30 p.m.
  I wish to take up some other points that have been made about the VAT machinery. There are some aspects of the working of VAT that I should perhaps particularly mention because they have not been fully understood. One point about which there has been a good deal of misunderstanding is the operation of what is known as the VAT credit mechanism, which is the system for the deduction of input tax.
  Perhaps some people have been misled by published examples which follow the tax through on a single article from the point of manufacture, through to the wholesaler, on to the retailer and eventually to the customer. As I look at the Green Paper I see that there could have been an appropriate improvement in that it gave an example of one item passing down the chain, and in many ways this might have been misleading. We should have placed more stress not on the position of the individual item but on the question of the accounting period.
  Some people seem to have been led to think, mistakenly, that they will have to wait until they have sold a particular batch of goods before being able to claim the input tax paid on that batch at the time of purchase. This is not so. Input tax paid on goods bought in any tax period can be deducted in the tax return for that same period, even if the goods are still in stock.
  This means, in effect, that the stock will be held tax free, so that the retailer's money is not tied up in goods on his shelves, as now happens with purchase tax. This is a somewhat technical point which I wish to get over clearly. In other words, traders will not have to wait until they have sold their goods before being able to claim the input tax.
  This brings me to some concern which has been expressed about cash flow. It is true to say that, given the arrangements which exist on dates of settlements and so on, a number of traders will find that their cash flow improves. They will also have the benefit, as compared with SET, of not having to make a forced loan to the Government, which was in many ways one of the more iniquitous features
  1250
  of SET, which, unlike VAT, had an adverse effect on companies' cash flow.
  The same principle applies to capital equipment, services and so on. The buyer takes the tax deduction right away and any effect on his cash flow should, in general, be positive. These are some of the advantages which have not yet been fully appreciated.
  It is this credit mechanism which is the distinguishing feature of VAT and which makes it different from a cumulative or cascade tax, which applies at each point of production or distribution with no relief given for tax paid at earlier stages. The disadvantages of cascade taxes are well known. A number of Continental countries have tried them but have replaced them with VAT.
  A cascade tax discriminates between different methods of marketing, taxing some things once or twice but others several times over, so that it favours vertical integration. In principle, VAT is different in that it does not have any built-in incentive to vertical integration of production or distribution. It has the virtue that a very efficient producer or distributor pays a lower rate of tax whether or not he is vertically integrated.
  It might be helpful if I commented on the accounting periods. The White Paper explains that the prescribed accounting periods will usually be three months, with a period of grace of up to one month for the purpose of calculating the amounts of input and output tax and sending in the tax return. Some people may have accounting systems which are not based on calendar months, and we shall be seeing what we can do to tailor the tax periods to fit their accounting practices more closely.
  Where the input tax is expected to be more than the output tax as a general rule, perhaps because the trader's outputs are zero-rated foodstuffs or exports, the accounting period will normally be one month, and the Committee will appreciate that this is to the advantage of the trader.
  The Customs will not delay making repayments, still less hold back repayments to credit them against future tax liabilities. If a trader is due to be repaid money, he will get it promptly, unless, for example, there is a sudden claim for substantial refund, when normally he will

  1251
  be a trader who pays tax. In designing the machinery of the tax as a whole, it has been our concern that there should be as little interference as possible with normal trade practices.
  I turn to one or two more general points which stem perhaps from the remarks made by the hon. Member for Ashton-under-Lyne. No doubt in the debates on later Clauses we shall have a great deal of special pleading of one kind or another. There are three points. I should like to make on matters which arise about the principle embodied in this Clause.
  First, a number of representations which we have received and deputations which have come to make representations have argued that VAT will discriminate against a particular service or product. But apart from the broad blocks of expenditure which my right hon. Friend proposes to relieve from the tax—which everyone, I think, would agree cover the basics of life—VAT is a comprehensive tax. The point I was seeking to make on Second Reading was that if one accepts the principle of the comprehensive tax, that is something which will obviously influence one's decisions about exemptions. But in proposing to charge particular items to VAT we are not discriminating against them but refusing to discriminate in favour of them. If one has a comprehensive tax pleas for special treatment or discrimination must, I think, be looked at in the light of this.
  If we are to broaden the tax base and have the advantages of this for economic management—and they are very considerable, as I spelt out on Second Reading—it will mean that some items will be taxed which have not hitherto been taxed. This is a necessary result of having a tax which is comprehensive and having a broader base and economic advantages will flow from it.
  I make two other very quick points before I conclude. With regard to VAT, the broad blocks of expenditure which I have mentioned have been given relief by my right hon. Friend. This means, because we have not got a completely comprehensive tax, that we are bound to have some borderline problems. But the lines which have been drawn are lines which, to coin a phrase, are at the saddle point. Generally speaking, if one tries
  1252
  to move any of those lines a little further on a particular border, one is likely to slide a long way before one could call a halt at a sensible point. The early history of purchase tax demonstrates what an anomalous and inequitable system emerges once one begins to slide down such a slippery slope.
  For that reason it is not meaningful to ask what will be the cost of this or that concession. In answering that, one would need to take account of all the other concessions which would then be pressed. As my hon. Friend the Member for Basingstoke (Mr. David Mitchell) and my hon. Friend the Member for Horsham (Mr. Hordern) have pointed out, once such a process begins the standard rate would have to be raised higher and higher. Eventually one would be raising no revenue at all.
  Mr. Brian Walden: I hope the hon. Gentleman will give us a little more on that point, because if the Committee took him at his word on that, there would be virtually no purpose in having any discussion on zero rating or exemptions.
  Mr. Higgins: The point I am making is very simple. It is that if one accepts the principle of a comprehensive tax, obviously the House will need to look at all the various debates and reach a decision accordingly. I am seeking to establish that one would need to look at the consequences of having this or that particular concession. I stress as strongly as I can that on this matter one will need to look at the consequences. and no doubt we shall do that in great deail in the forthcoming debates in the Chamber.
  Mr. Healey: The hon. Gentleman keeps calling this a comprehensive tax. The fact is that it covers only 55 per cent. of consumer expenditure, because he has zero rated or exempted another 45 per cent. A very large number of the proposals for zero rating which the Committee will be discussing in the next few days could not conceivably make a difference of more than 2 or 3 per cent. in the total of consumer expenditure. It really will not be good enough for either side of the Committee if Treasury Ministers in dealing with these points say "We are not prepared to concede £5 million here because that would mean that we had to concede £1,500 million altogether". It is just as possible to quantify

  1253
  the consequences of making concessions on the individual items proposed in our Amendments as it has been for the items which the Government have already zero rated or exempted.
  Mr. Higgins: I am surprised to see an ex-Chancellor on the opposite side of the Committee nodding in agreement with that. It is an extraordinary proposition that we should consider making this or that concession without paying regard to the consequences flowing there-from. No doubt we can go into that in great detail later.
  The hon. Member for Loughborough (Mr. Cronin) raised in particular the question of the cost of living. At the time of the announcement in the 1971 Budget of the decision to introduce VAT much was made of the supposed effect on prices. Indeed, the Leader of the Opposition held forth at great length in the Budget debate last year.
  The effect of the switch would depend on the rate and coverage of the tax and any consequent effect that would have on prices. We now know that the tax will be levied at a rate of 10 per cent. and that food, rent, fares and housing will be relieved. Last year's prediction of the serious effect this tax will have on the cost of living can be seen to be unfounded.
  In this context it is worth pointing out that, looking at the overall effect of the reform of indirect taxation which we began in the 1971 Budget, this is estimated to reduce prices in that period, not to increase them.
  Much has been said about the social effects of the substitution of VAT for purchase tax and SET. During the debate the point was made from this side, and not only from the Front Bench, that there are no grounds for supposing that the changeover will be regressive. This is in sharp contrast with the assertions which have been made by hon. Members opposite.
  On 23rd March my hon. Friend the Member for Dartford (Mr. Trew) quoted —I refer to c. 1738—figures which strongly support the view which I am now putting forward. The research division of the Library had calculated what proportion of family budgets in the 1970 Family Expenditure Survey would have been free of VAT. The figures given
  1254
  by my hon. Friend were broadly correct, and I will remind the Committee of them.
  The figures show that the proportion of family budgets escaping VAT is higher for those with incomes in the range £10 to £15 a week than for those in the range £20 to £25 per week, and higher for those in the range £20 to £25 a week than for those in the range £35 to £40 a week. The figures show that the change does not benefit high income families relative to those with lower incomes. This is not surprising because, as I said earlier, we have gone to considerable lengths to zero-rate items such as food, fuel and fares and to relieve housing as far as practicable, exactly in order to avoid a regressive result from the changeover.
  Finally, to take up a point made by the hon. Member for Ashton-under-Lyne and a number of other hon. Members, there is a vast distinction between the two sides of the Committee as to whether to discriminate, in the way that purchase tax does, by having a multitude of rates. We on this side believe that there is great virtue in having a single rate. The proposals for a single rate have been very widely welcomed.
  We accept that there is this difference of philosophy between the two sides. What I find incomprehensible is the way in which the right hon. Member for Leeds, East and his predecessor and the hon. Member for Ashton-under-Lyne seem to feel that the present purchase tax in some way achieves its objective. It is well known that a great many items which nowadays no one would regard as luxuries were charged at very high rates of tax, though they may have been regarded as luxuries in 1940. The opinions expressed by the right hon. Gentleman's predecessor and by the right hon. Gentleman are extraordinary. Does the right hon. Gentleman suppose that only the rich buy television sets and washing machines? Does he think that electric and paraffin space heaters, electric irons, light bulbs, radio sets, proprietary drugs and medicines, all of which were previously at 30 per cent., are purchased only by the opulent? Does he suppose that gramophones, cosmetics and other items which were charged at the top rate of purchase tax are only possessed by the well-off? The answer is

  1255
  that the distinction which purchase tax makes between luxury and essential goods no longer holds. For virtually every so-called luxury item there is a cheaper version. There are cheap cameras as well as dear cameras. There are expensive record players and cheap ones, and so on.
  The discrimination of which right hon. and hon. Gentlemen are apparently in favour is discrimination which has not worked in practice, and it is not justified. What I want to be clear about this evening, and I believe the Committee should be clear about it as well, is that we are carrying out a major reform of our indirect tax system. That will be of great benefit to the country and the management of the economy.
  The Opposition's alternative is to stick with purchase tax and selective employment tax. Both those taxes have been completely discredited. It is high time we moved to a more rational system.
  9.45 p.m.
  Mr. Deakins: Most taxes in this country are not imposed on the basis of their contribution to social justice. But at least it may be said of purchase tax and SET that they did not have and do not have the socially regressive effects which are likely to flow from value added tax at 10 per cent. or any other rate that is imposed.
  The Financial Secretary to the Treasury has told us that this is going to be the most comprehensive tax ever introduced. Although the hon. Gentleman has excluded food, transport and education, he is bringing in a lot of goods and services which have never been taxed before, such as holidays, entertainment, communications and many other aspects of everyday life which affect ordinary people. They have never been taxed before directly or indirectly, whether through purchase tax or SET.
  I will put the record straight since a number of my hon. Friends have spoken in this debate in favour of value added tax. Their dispute with the Government is merely on the question of timing and the propriety of introducing value added tax in advance of our entry into the Market. I assure the Government benches that there is a considerable body of opinion on this side, which was rather
  1256
  unrepresented in the debate, which fervently believes that direct taxation is a far more progressive form of taxation than indirect taxation. Far from increasing the burden on the poorer section of the community through an extension of indirect taxation and relief of direct taxation, the way we should go in future —I hope the next Labour Government will take this to heart—is to increase direct taxation not only on income but on wealth, and steeply reduce the rates of indirect taxation, if not cut them out altogether.
  The major difference of principle which divides the two parties has for some reason not come out in debate. It may be that a number of my hon. Friends who are pro-Marketeers happened to be in favour of value added tax. There is no doubt about it that we have no assurance from the Government that the burden of this tax will be relieved on poor people by a consequent raising of social security benefit. Pensioners, the disabled, widows and the unemployed will be the people who suffer. They are not the people who are affected at the moment by direct or indirect taxation, purchase tax to any large extent, or SET. However, they will be affected very directly one way or the other by the burden of this iniquitous tax. Although few working-class people complain about the level of direct taxation, for every one who complains about direct taxation on overtime there are 100 who complain about price rises and the cost of living. It is that that we should have in mind.
  Let the Conservative Party, if it wishes, and as it has done in the last Budget, have the interests of surtax payers and high direct tax payers at heart. The Labour movement stands or falls on its devotion to the cause of the people who sent us here and whom we represent. If we accept this tax we are betraying their interests, because it will raise the cost of living and they will not be compensated for it. Therefore, I hope that on a matter of principle my right hon. and hon. Friends will divide the Committee, marching into the Lobby really believing what they are saying and voting for.
  Mr. Crouch: I am not sure whether the hon. Member for Walthamstow, West (Mr. Deakins) was speaking for the official Opposition, but he has made his views extremely clear on this tax. I could not

  1257
  take a more opposite view. During the several hours of the debate we have not heard those views expressed by other hon. Gentlemen. In fact, we have heard an extremely muddled expression of views, not a strong expression against the tax. [Interruption.] I do not want to discuss where I have been all day, but I have been here throughout the debate. [Interruption.] I went out at one time to have some supper, but I did not have caviare or potato crisps.
  The point of my brief intervention is to say that I welcome the advent of value added tax to replace the uneven, arbitrary, and thoroughly unequal purchase tax and selective employment tax.
  We have heard exclamations of disgust and dismay from the Opposition that we are rushing to impose this tax on the country. However, my hon. Friend the Financial Secretary has given a clear answer: that the Government allowed well over a year for discussion and consultation with interested parties throughout the country. I have found this period extremely valuable for discussing this subject with traders, manufacturers, retailers and others who are particularly concerned at the advent of a change in our taxation system. I welcome the Government's approach and the Green Paper which gave us so long for consultation.
  Consultation is not a matter which must be confined to people outside the House of Commons. Suggestions have been made on both sides that consultation must now take place in Committee of the whole House and in Committee upstairs because we want the opportunity now, and in the next two days, of examining and consulting with the Government some of the details of the application and administration of this tax.
  I have some sympathy with the right hon. Member for Leeds, East (Mr. Healey) who, in an intervention at the end, made the most constructive remark of any which he has made all day when he pointed out that there might be some further exceptions and exemptions and zero-ratings which should be considered in Committee. I hope that my right hon. and hon. Friends on the Treasury Bench will not prove inflexible. We know that the Chancellor is never inflexible. He has a ready ear when we express our views
  1258
  to him. I hope that he and his colleagues will continue to be flexible.
  I do not entirely agree with my hon. Friend the Member for Horsham (Mr. Hordern), who, perhaps reflecting an almost official Treasury view—[Interruption.]—perhaps in the shadows of that great Department—said that he hoped that there would be no more exceptions and exemptions because we could not afford to extend them too far.
  Some pressures are being brought to bear on hon. Members, which will be considered at a later stage in our Committee deliberations, for further zero-rating and exemptions. I hope that my right hon. and hon. Friends will listen to them and that we shall have consultation and debate upon them.
  I am concerned about one point of administration on which I believe we should have consultation and which I hope will be looked into very closely. I refer to the failure of the value added tax section of the Finance Bill to allow for any relief of bad debts incurred. This is a concession allowed under the purchase tax system. I have had some consultation and correspondence with the Financial Secretary on this matter. I understand the view of the Treasury to be that it cannot allow both the customer and the supplier to enjoy a tax credit in the case of value added tax as this would mean virtually allowing a double taxation relief.
  The Exchequer maintains that if the Treasury now allowed a claim for a tax refund to the supplier—that is credit in respect of the supply of goods or services for which he has not been paid—this would mean that it would be suffering a double loss of tax. I do not believe the Treasury need suffer such loss of tax. Why cannot the Customs and Excise debit the account of the person who has gone bankrupt and has not paid for the goods and services he has received by the amount of input tax already credited to him in respect of his purchase of goods and services? If the debtor has become insolvent the Customs and Excise will already have top priority in claiming money owed to them and will be in a much better position than any other creditors. If Clause 41 VAT is given such priority over other debts in the event of bankruptcy on winding up.
  Question put, That the Clause stand part of the Bill:—
  The Committee divided: Ayes 232, Noes 200.

  Division No. 170

  AYES

  [9.56 p.m.

  Adley, Robert

  Green, Alan

  Oppenheim, Mrs. Sally

  Alison, Michael (Barkston Ash)

  Grieve, Percy

  Osborn, John

  Astor, John

  Griffiths, Eldon (Bury St. Edmunds)

  Page, Graham (Crosby)

  Atkins, Humphrey

  Gummer, J. Selwyn

  Page, John (Harrow, W.)

  Awdry, Daniel

  Hall-Davis, A. G. F.

  Pardoe, John

  Baker, Kenneth (St. Marylebone)

  Hamilton, Michael (Salisbury)

  Parkinson, Cecil

  Baker, W. H. K. (Banff)

  Hannam, John (Exeter)

  Percival, Ian

  Barber, Fit. Hn. Anthony

  Harrison, Brian (Maldon)

  Pike, Miss Mervyn

  Beamish, Col. Sir Tufton

  Haselhurst, Alan

  Pink, R. Bonner

  Bell, Ronald

  Hastings, Stephen

  Pounder, Rafton

  Bennett, Dr. Reginald (Gosport)

  Havers, Michael

  Powell, Rt. Hn. J. Enoch

  Biffen, John

  Hawkins, Paul

  Price, David (Eastleigh)

  Biggs-Davison, John

  Hayhoe, Barney

  Proudfoot, Wilfred

  Blaker, Peter

  Heath, Rt. Hn. Edward

  Pym, Rt. Hn. Francis

  Boardman, Tom (Leicester, S.W.)

  Hicks, Robert

  Quennell, Miss J. M.

  Body, Richard

  Higgins, Terence L.

  Ramsden, Rt. Hn. James

  Boscawen, Robert

  Hiley, Joseph

  Redmond, Robert

  Bossom, Sir Clive

  Hill, John E. B. (Norfolk, S.)

  Reed, Laurance (Bolton, E.)

  Bowden, Andrew

  Hill, James (Southampton, Test)

  Rees-Davies, W. R.

  Bray, Ronald

  Hordern, Peter

  Renton. Rt. Hn. Sir David

  Brocklebank-Fowler, Christopher

  Hornby, Richard

  Rhys Williams, Sir Brandon

  Bruce-Gardyne, J.

  Hornsby-Smith.Rt.Hn.Dame Patricia

  Ridsdalo, Julian

  Buchanan-Smith, Alick(Angus,N&M)

  Howell, Ralph (Norfolk, N.)

  Rippon, Rt. Hn. Geoffrey

  Buck, Antony

  Hunt, John

  Roberts, Michael (Cardiff, N.)

  Bullus, Sir Eric

  Hutchison, Michael Clark

  Roberts, Wyn (Conway)

  Burden, F. A.

  James, David

  Rossi, Hugh (Hornsey)

  Campbell, Rt.Hn.G.(Moray&Na!rn)

  Jenkin, Patrick (Woodford)

  Russell, Sir Ronald

  Carlisle, Mark

  Jessel, Toby

  Scott-Hopkins, James

  Chapman, Sydney

  Johnson Smith, G. (E. Grinstead)

  Sharpies, Richard

  Chataway, Rt. Hn. Christopher

  Jopling, Michael

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

  Chichester-Clark, R.

  Kellett-Bowman, Mrs. Elaine

  Shelton, William (Clapham)

  Churchill, W. S.

  Kershaw, Anthony

  Skeet, T. H. H.

  Clark, William (Surrey, E.)

  Kilfedder, James

  Smith, Dudley (W'wlck & L'mingtom

  Clarke, Kenneth (Rushcliffe)

  Kimball, Marcus

  Soref, Harold

  Clegg, Walter

  King, Evelyn (Dorset, S.)

  Speed, Keith

  Cockeram, Eric

  King, Tom (Bridgwater)

  Spence, John

  Cooke, Robert

  Kinsey, J. R.

  Sproat, Iain

  Coombs, Derek

  Kitson, Timothy

  Stanbrook, Ivor

  Cooper, A. E.

  Knight, Mrs. Jill

  Steel, David

  Cordle, John

  Knox, David

  Stewart-Smith, Geoffrey (Belper)

  Corfield, Rt. Hn. Frederick

  Lamont, Norman

  Stokes, John

  Cormack, Patrick

  Legge-Bourke, Sir Harry

  Stuttaford, Dr. Tom

  Costain, A. P.

  Le Marchant, Spencer

  Sutcliffe, John

  Critchley, Julian

  Lewis, Kenneth (Rutland)

  Tapsell, Peter

  Crouch, David

  Lloyd, Ian (P'tsm'th, Langstone)

  Taylor, Sir Charles (Eastbourne)

  Crowder, F. P.

  Longden, Sir Gilbert

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

  Davies, Rt. Hn. John (Knutsford)

  Loveridge, John

  Taylor, Frank (Moss Side)

  d'Avigdor-Goldmld, Maj. -Gen. James

  MacArthur, Ian

  Taylor, Robert (Croydon, N.W.)

  Dean, Paul

  McCrindle, R. A.

  Tebbit, Norman

  Deedes, Rt. Hn. W. F.

  McLaren, Martin

  Temple, John M.

  Digby, Simon Wingfield

  McNair-Wilson, Michael

  Thatcher, Rt. Hn. Mrs. Margaret

  Douglas-Home, Rt. Hn. Sir Alec

  Maddan, Martin

  Thomas, Rt. Hn. Peter (Hendon, S.)

  Orayson, G. B.

  Madel, David

  Thompson, Sir Richard (Croydon. S.)

  du Cann, Rt. Hn. Edward

  Maginnis, John E.

  Thorpe, Rt. Hn. Jeremy

  Dykes, Hugh

  Marten, Neil

  Trafford, Dr. Anthony

  Eden, Sir John

  Mather, Carol

  Trew, Peter

  Elliot, Capt. Walter (Carshaiton)

  Maude, Angus

  Tugendhat, Christopher

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

  Mawby, Ray

  Turton, Rt. Hn. Sir Robin

  Emery, Peter

  Maxwell-Hyslop, R. J.

  van Straubenzee, W. R.

  Eyre, Reginald

  Meyer, Sir Anthony

  Vickers, Dame Joan

  Farr, John

  Mills, Peter (Torrington)

  Waddington, David

  Fenner, Mrs. Peggy

  Miscampbell, Norman

  Walder, David (Clitheroe)

  Fidler, Michael

  Mitchell,Lt.-Col.C. (Aberdeenshire.W)

  Walters, Dennis

  Flnsberg, Geolfrey (Hampstead)

  Mitchell, David (Basingstoke)

  Ward, Dame Irene

  Fisher, Nigel (Surbiton)

  Moate, Roger

  Warren, Kenneth

  Fookes, Miss Janet

  Molyneaux, James

  Weatherill, Bernard

  Fortescue, Tim

  Money, Ernie

  Wells, John (Maidstone)

  Foster, Sir John

  Monks, Mrs. Connie

  White, Roger (Gravesend)

  Fox, Marcus

  Monro, Hector

  Winterton, Nicholas

  Fry, Peter

  Montgomery, Fergus

  Wood, Rt. Hn. Richard

  Gardner, Edward

  More, Jasper

  Woodhouse, Kn. Christopher

  Gibson-Watt, David

  Morrison, Charles

  Woodnutt, Mark

  Gilmour, Ian (Norfolk, C.)

  Mudd, David

  Wylie, Rt. Hn. N. R.

  Gilmour, Sir John (Fife, E.)

  Murton, Oscar

  Younger, Hn. George

  Godber, Rt. Hn. J. B.

  Neave, Airey

  Gorst, John

  Noble, Rt. Hn. Michael

  TELLERS FOR THE AYES

  Gower, Raymond

  Normanton, Tom

  Mr. Victor Goodhew and

  Grant, Anthony (Harrow, C.)

  Nott, John

  Mr. John Stradlins Thomas

  Gray, Hamish

  Onslow, Cranley

  NOES

  Albu, Austen

  Golding, John

  Oakes, Gordon

  Allaun, Frank (Salford, E.)

  Gordon Walker, Rt. Hn. P. C

  Ogden, Eric

  Allen, Scholefield

  Gourlay, Harry

  O'Halloran, Michael

  Archer, Peter (Rowley Regis)

  Grant, George (Morpeth)

  Oram, Bert

  Armstrong, Ernest

  Hamilton, William (Fife, W.)

  Orbach, Maurice

  Ashley, Jack

  Hamling, William

  Oswald, Thomas

  Ashton, Joe

  Hannan, William (G'gow, Maryhill)

  Paget, R. T.

  Atkinson, Norman

  Harper, Joseph

  Panned, Rt. Hn. Charles

  Bagler, Gordon AT.

  Harrison, Walter (Wakefield)

  Parry, Robert (Liverpool, Exchange)

  Barnes, Michael

  Hart, Rt. Hn. Judith

  Pendry, Tom

  Barnett, Guy (Greenwich)

  Haitersley, Roy

  Pentland, Norman

  Barnett, Joel (Heywood and Royton)

  Healey, Rt. Hn. Denis

  Perry, Ernest G.

  Baxter, William

  Heffer, Eric S.

  Prescott, John

  Benn, Rt. Hn. Anthony Wedgwood

  Houghton, Rt. Hn. Douglas

  Price, J. T. (Westhoughton)

  Bennett, James (Glasgow, Bridgeton)

  Hughes, Rt. Hn. Cledwyn (Anglesey)

  Probert, Arthur

  Bidwell, Sydney

  Hughes, Mark (Durham)

  Reed, D. (Sedgefield)

  Boardman, H. (Leigh)

  Hughes, Robert (Aberdeen, N.)

  Rees, Merlyn (Leeds, S.)

  Booth, Albert

  Hughes, Roy (Newport)

  Rhodes, Geoffrey

  Boyden, James (Bishop Auckland)

  Irvine,Rt.Hn.Sir Arthur(Edge Hill)

  Richard, Ivor

  Bradley, Tom

  Janner, Greville

  Robertson, John (Paisley)

  Broughton, Sir Alfred

  Jenkins, Hugh (Putney)

  Roderick, Caerwyn E.(Br'c'n&R'dnor)

  Brown, Bob (N'c'tle-upon-Tyne, W.)

  Jenkins, Rt. Hn. Roy (Stechford)

  Rodgers, William (Stockton-on-Tees)

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

  John, Brynmor

  Roper, John

  Buchan, Norman

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

  Rose, Paul B.

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

  Johnson, Walter (Derby, S.)

  Ross, Rt. Hn. William (Kilmarnock)

  Callaghan, Rt. Hn. James

  Jones, Barry (Flint, E.)

  Sheldon, Robert (Ashton-under-Lyne)

  Cant, R. B.

  Jones, Dan (Burnley)

  Shore, Rt. Hn. Peter (Stepney)

  Carter, Ray (Birmingham, Northfield)

  Jones, Gwynoro (Carmarthen)

  Short. Mrs. Renee (W'hampton.N.E.)

  Carter-Jones, Lewis (Eccles)

  Judd, Frank

  Silkin, Rt. Hn. John (Deptford)

  Castle, Rt. Hn. Barbara

  Kaufman, Gerald

  Silkin, Hn. S. C. (Dulwich)

  Clark, David (Colne Valley)

  Kelley, Richard

  Silverman, Julius

  Cocks, Michael (Bristol, S.)

  Kerr, Russell

  Skinner, Dennis

  Cohen, Stanley

  Kinnock, Nell

  Small, William

  Coleman, Donald

  Lamborn, Harry

  Smith, John (Lanarkshire, N.)

  Concannon, J. D.

  Lamond, James

  Spearing, Nigel

  Conlan, Bernard

  Latham, Arthur

  Spriggs, Leslie

  Corbet, Mrs. Freda

  Lawson, George

  Stallard, A. W.

  Crossman, Rt. Hn. Richard

  Leadbitter, Ted

  Stewart, Rt. Hn. Michael (Fulham)

  Cunningham, G. (Islington, S.W.)

  Lee, Rt. Hn. Frederick

  Stoddart, David (Swindon)

  Cunningham, Dr. J. A. (Whitehaven)

  Leonard, Dick

  Stonehouse, Rt. Hn. John

  Dalyell, Tam

  Lestor, Miss Joan

  Summerskill, Hn. Dr. Shirley

  Darling, Rt. Hn. George

  Loughlin, Charles

  Taverne, Dick

  Davidson, Arthur

  Lyon, Alexander W. (York)

  Thomas, Rt. Hn. George (Cardiff.W.)

  Davies, Ifor (Gower)

  Mabon, Dr. J. Dickson

  Thomson, Rt. Hn. Q. (Dundee, E.)

  Davis, Clinton (Hackney, C.)

  McCartney, Hugh

  Tinn, James

  Davis, Terry (Bromsgrove)

  McEthone, Frank

  Tomney, Frank

  Deakins, Eric

  McGuire, Michael

  Torney, Tom

  Dempsey, James

  Mackenzie, Gregor

  Tuck, Raphael

  Doig, Peter

  Mackintosh, John P.

  Urwin, T. W.

  Dormand, J. D.

  Maclennan, Robert

  Varley, Eric G.

  Douglas, Dick (Stirlingshire, E.)

  Mahon, Simon (Bootle)

  Wainwright, Edwin

  Duffy, A. E. P.

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

  Walden, Brian (B'm'ham, All Saints)

  Dunnett, Jack

  Marks, Kenneth

  Walker, Harold (Doncaster)

  Eadle, Alex

  Mason, Rt. Hn. Roy

  Wallace, George

  Edwards, William (Merioneth)

  Mavhew, Christopher

  Weitzman, David

  Evans, Fred

  Mellish, Rt. Hn. Robert

  Wells, William (Walsall, N.)

  Ewing, Henry

  Mendelson, John

  White, James (Glasgow, Pollok)

  Faulds, Andrew

  Mikardo, Ian

  Whitehead, Phillip

  Ferny hough, Rt. Hn. E.

  Millan, Bruce

  Wiltey, Rt. Hn. Frederick

  Fisher, Mrs. Doris(B'ham.Ladywood)

  Miller, Dr. M. S.

  Williams, Alan (Swansea, W.)

  Fletcher, Ted (Darlington)

  Milne, Edward

  Williams, W. T. (Warrington)

  Foley, Maurice

  Mitchell, R. C. (S'hamplon, lichen)

  Wilson, Alexander (Hamilton)

  Foot, Michael

  Morgan, Elystan (Cardiganshire)

  Wilson, William (Coventry, S.)

  Forrester, John

  Morris, Alfrad (Wythenshawe)

  Woof, Robert

  Freeson, Reginald

  Morris, Charles R. (Openshaw)

  Galpern, Sir Myer

  Moyle, Roland

  TELLERS FOR THE NOES

  Gilbert, Dr. John

  Mulley, Rt. Hn. Frederick

  Mr. James Hamilton and

  Ginsburg, David (Dewsbury)

  Murray, Ronald King

  Mr. James Wellbeloved.

  Question accordingly agreed to.
  Clause 1 ordered to stand part of the Bill.

Clause 9

  RATE OF TAX
  Mr. Brian Walden: I beg to move Amendment No. 2, in page 8, line 17, leave out ' ten ' and insert seven and a half
  The Chairman: With this Amendment we can take for debate the following Amendments, all standing in the name of the right hon. Member for Leeds, East (Mr. Healey) and the names of his hon. Friends:
  No. 3, in page 8, line 25, leave out ten ' and insert ' seven and a half';
  No. 4, in line 26, leave out ' seven and a half ' and insert ' five';
  No. 5, in line 26, leave out ' twelve and a half ' and insert nine';
  No. 7, in line 28, after ' increase insert:
  'the rate for the time being in force by such percentage thereof, not exceeding ten per cent. ';
  and No. 88, in page 8, line 30, leave out ' 20 ' and insert 10 '.
  standing in the name of the hon. Member for South Angus (Mr. BruceGardyne).
  Mr. Walden: The intention of this group of Amendments should be quite clear. We are seeking not to diminish the capacity of the Government to lower the rate of the value added tax but to diminish the rate at which the Government say they will introduce it and also their regulative power to increase it. I shall answer the constant invitations from the Government, who are sparing in the information they give us, for us to define more clearly our attitude. I welcome the chance on this narrow set of Amendments to do just that.
  First, however, I want to make a technical point which arises from my experience—and I need to declare a financial interest here. It is of great interest to the business community. Obviously, at some stage the rate of VAT will be varied and I hope that the present or any future Government, if they decide to vary it, will not do so beyond two places of decimals. It is a technical point but important.
  1264
  If accounting machines have to be sold on the assumption that they have to deal with three or four places of decimals, it makes a great deal of difference to the business equipment industry. If it sells machines on the basis that that is likely to happen and it does not happen, it will be put in the position of having appeared to have defrauded those it has supplied. On the other hand, if it supplies machines which calculate up to two places of decimals and then there is need to calculate up to four places, palpably the job will have to be done all over again and the industry will find itself in an invidious position. I begin therefore with what is, I hope, a fairly non-controversial point. From the Treasury Bench point of view I shall get worse but I begin by drawing the Minister's attention to this and asking for some reassurance.
  I want to say a little about regressive and progressive taxation. I at least am unhappy about how these words are being used and defined. Every direct tax is by its nature regressive. There is only one really progressive form of taxation and that is Utopian. It is the old slogan of "From each according to his ability". In this case it is his ability to pay. People would pay differently for the same commodity in proportion to their income which would have the effect of equalising incomes. That cannot be done in the real world. That is the only really progressive form of taxation.
  With all indirect tax the issue is "How regressive?" That brings us to the point that worries us when we look at Clause 9, to our suspicions about what is likely to happen in future if the Clause is passed unamended. We do not like the virtue that hen. Members on the Government side so frequently praise about the tax, namely that by being widely based and having a single rate it is non-discriminatory. We like discriminatory taxation. If there is to be regressive taxation, and indirect taxation is regressive, we prefer a discriminatory tax. What for hon. Members opposite is a virtue is for us a vice.
  We believe the Tory Party when it says that it prefers a system in which a much greater proportion of revenue is raised from indirect taxation and there is a decline in direct taxation and taxation of corporations. That sincerely expresses the philosophy of hon. Members opposite.

  1265
  It is a highly regressive philosophy but it is one in which they believe and, given the basis for their support, that is understandable. That is what makes us suspicious about the rates laid down in Clause 9.
  However beautiful an instrument the Chancellor says he has devised for the nation and however many people he claims to have consulted and—I noticed this leaking into his briefs and those of this colleagues—however much he regards this as being so perfect as to make any changes unnecessary, we cannot agree. We do not really believe this, being suspicious men or at least not being naive men. We cannot really believe that the Government intend to employ an additional 6,000 of their own servants plus a minimum of 50,000 people in industry to cope with this tax to raise in perpetuity exactly the same amount of revenue as is raised by purchase tax and SET.
  We do not buy it. We do not think it is a likely proposition. What we think is likely is that a singularly nasty pill will be sweetened, at least in its presentation. The country will be told that everything has been worked out with full consultation although there has been no consultation with the vast majority of people who pay tax, namely the consumers. Their views have certainly not been requested.
  [Sir STEPHEN MCADDEN in the Chair]
  10.15 p.m.
  Despite all the consultative mechanism, we do not believe that the Government would go to all this trouble and philosophic nicety just because the Tory Party has decided that rather than reform purchase tax it is ideologically purer to introduce VAT. We think that the VAT rate will go up, as it has done in every country in which VAT has been introduced. I am delighted to see that my old friendly enemy the hon. Member for Oswestry (Mr. Biffen) agrees with me on that. He knows, I know and the Chancellor knows that no country which has introduced VAT has kept to the rate at which it was introduced.
  It would be a purposeless and farcical exercise if, simply because hon. Gentlemen opposite have scruples towards pur-
  1266
  chase tax, which they never had during the 13 years they were in power in the 1950s and 1960s, and because they excessively dislike SET, they felt it necessary to produce the massive provisions which appear in the early part of the Bill.
  We notice—and this was conceded by the Financial Secretary to the Treasury —that in accordance with Clause 9(2) and (3) it is an indisputable fact, although only obliquely confirmed by the Treasury Bench, that the tax could be operating a year from now at 15 per cent. I am not even taking into account, as it would be out of order on this series of Amendments, that the zero ratings could also be changed. We could have a 15 per cent. rate. The Government have given themselves power to do that. I think it was the Financial Secretary who said that the rate will be 5 per cent. Pigs could fly. It will not be a 5 per cent. rate and in our judgment it will not be 10 per cent. for very long either.
  The Chancellor has given himself power by subsections (2) and (3) to put the rate up to 15 per cent. If there is no intention to do that, and if the regulative powers are not needed to do that, our series of Amendments could easily be accepted. We are not taking away from the Chancellor his ability to use the regulator; what we are seeking to take away from him is the chance to put up the rate to 15 per cent. If he has no intention of doing that, if no thought could be further from his mind, he should accept the Amendments. The Financial Secretary said in a memorable phrase that the Conservative Party would be prepared to run on its taxation record. We shall remember those words and we shall see whether or not the rate goes up. If it is not the intention to do that, it will not be difficult for the Chancellor to come to the Box and say—so that his intentions shall not be misunderstood, and standing as he always does on his record—that he is not prepared to take sweeping regulative power of this kind which will enable him to increase the rate of tax simply, as my right hon. Friend the Member for Leeds, East (Mr. Healey) said, by means of an order at the fag end of a day. We are inviting the Chancellor not to take those powers but to take the more limited powers we are suggesting in our series of Amendments
  Harmonisation is relevant to our Amendments and it is another suspicion

  1267
  in our minds. The Chancellor can always dispel these suspicions by giving guarantees that will stick instead of running on his record by filling out the bare bones of the tax that we have been given.
  Despite all that is said about Green and White Papers, the fact remains that the VAT provisions give us a flimsy framework and a devil of a lot of regulations. Although it may be true that the Customs and Excise will be involved in the most profound talks on these regulations with interested parties outside the House, very few inside the House will have the opportunity to be privy to any of these talks or to discover what we have let ourselves in for until we have passed these various Clauses.
  We want to vent our suspicions. We do not believe that the Chancellor has given us any assurance that is worth having. The hon. Member for Horsham (Mr. Hordern) said the Chancellor had assured the House that harmonisation could come about only by a unanimous decision in the Community. He felt that was an absolutely sufficient guarantee from the Chancellor in respect of all our fears about a rising rate. It would be a guarantee if he knew that our iron Chancellor would fight against any harmonisation proposals which would cause him to have to raise the rate in this country. We do not believe that for a moment. We do not believe that will happen. We think the Chancellor will welcome the chance to put up VAT rates and will run it in on the pretext that he has to do this to harmonise with regulations inside the Common Market. I say to the hon. Member for Oswestry—who like the Opposition Front Bench was not born the day before yesterday—that we are in agreement on this matter.
  I say to the hon. Member for Horsham, whom I have known and liked for a long time, whatever our political differences, that we have not had any assurance on this matter. We have no guarantee to give to our constituents. What we can tell them is simply that we are passing a Bill which might mean that the rate of VAT, when it starts to operate, will be 10 per cent; on the other hand, it might mean that it will be 15 per cent. Again it might mean that it will be 6 per cent., but nobody seriously believes
  1268
  that and it is thrown in only as a debating point. The amount of tax is so broadly based that the amount that can be raised by giving the Government regulative powers under Clause 9 is colossal. I do not recall any Government on a narrow tax of this kind ever asking to be given regulative authority of this kind. I suggest that the Government would do well to consider the Opposition Amendments and to examine whether they want to go back to their constituents and say that the tax might be at 10 per cent., 12½ per cent. or 15 per cent. Will they say that the people should be content to accept the Chancellor's belief in the long run in the record of the Conservative Party on taxation?
  Mr. A. E. Cooper: I would point out to the hon. Gentleman that in the six years of Labour Government taxation was increased by £3,000 million and that in the two years we have been in power we have reduced taxation by £3,000 million.
  Mr. Walden: The hon. Gentleman must feel that I have been under an anaesthetic for a very long time if he thinks that is the first time I have heard that chestnut. If I wanted to hold up the progress of the Committee, which I do not, I would talk about the respective rates of balance of payments at various times when one side or the other was in power and would deal with the rate of demand in the economy and so on. We can all make these points. I am less interested in what we did in six years of government or in what the Tories did in their 13 years than I am in worring about the rate of VAT once the tax comes into operation.
  Our Amendments give the Chancellor the chance to come clean. They give him the chance to say that he does not need a regulative power which could
  bring him in such a large additional sum in revenue and, bearing in mind many people's just and proper apprehensions about the intentions of the Treasury, to say that he is prepared to accept these Amendments.
  Mr. Trew: Any Amendment proposed by the party opposite which has the effect of reducing taxation is one which we ought to welcome—and examine.
  The hon. Member for Birmingham, All Saints (Mr. Brian Walden) gave an innocuous reason for introducing the

  1269
  Amendment. He said that it was to reduce the freedom of action of the Government to increase the rate of VAT in the future. In effect, the hon. Gentleman proposes a reduction in revenue of £360 million, and really he must say where he proposes—[Interruption.] The Amendment is to reduce the provisional rate of VAT by 2½ per cent., which has the effect of reducing the revenue by £360 million.
  Mr. Walden: But all the consequent Amendments give the Chancellor of the Exchequer the chance to recoup back to the 10 per cent. rate if he wishes to.
  Mr. Trew: But the Amendment reduces the band within which my right hon. Friend can act in a way equivalent to reducing revenue by £360 million. However, the hon. Gentleman gave a clue about the way in which he would like to see the additional revenue made up. He disapproved of the fact that we on this side wanted to shift the burden of taxation from earning to spending. In that, of course, he disagrees with his right hon. Friends the Members for Birmingham, Stechford (Mr. Roy Jenkins) and for Manchester, Cheetham (Mr. Harold Lever), who are on record as acknowledging the disincentive effect of high direct taxation. Presumably they are in sympathy with the principle of shifting the burden of taxation from earning to spending.
  When the hon. Member for All Saints hinted darkly at the Government's intention to increase the rate of VAT in order to bring in more revenue, he overlooked a very important aspect of VAT, which is its buoyancy. To leave the rate at 10 per cent. is not to raise the same amount of revenue for ever. It is a buoyant tax because it is a comprehensive one and, therefore, extends automatically to every new process, technology and service coming on to the market. But in addition the rate of revenue increases faster than consumer expenditure for one important reason. Those goods and services relieved from VAT, which are the necessities of life, each year form a progressively smaller proportion of total consumer expenditure. Therefore the tax base for VAT increases year by year. That is why it is a buoyant tax and very different from the tax favoured by the party opposite, purchase tax.
  1270
  From 1959 to 1969 consumer expenditure increased by 78 per cent. But the yield from purchase tax increased by only 59 per cent. Purchase tax is not a buoyant tax because the base for it shrinks year by year. It cannot be extended to services which each year form a greater part of consumer expenditure. Just as the tax base for VAT increases relatively year by year, so the tax base for purchase tax decreases relatively year by year. Therefore, if it is to yield the same revenue as VAT it has to have a running mate. The chosen mate of the Labout Party is SET. They are the two terrible twins of Socialist indirect taxation policy.
  SET has never been a popular tax. It has been introduced in this country in various forms. It so greatly incensed a distinguished former constituent of mine, Wat Tyler, that he rebelled against it in 1381. It was a long time before any Government were so foolish as to introduce such a tax again.
  There are no alternative indirect taxes which in any way match VAT as a revenue raiser. I consider that 10 per cent. is eminently fair. It represents an overall tax of 5 per cent. on consumer expenditure. By no stretch of the imagination can that be called harsh.
  It is not regressive. It is worth referring again to the figures referred to by my hon. Friend the Financial Secretary in the previous debate. The analysis of the 1970 family expenditure survey showed that 40 per cent. of the average household expenditure would be exempt from VAT, rising to over 65 per cent. for the poorest households. That is not a regressive tax but a fair one. The rate of 10 per cent. is eminently reasonable and the lowest in Europe, and I therefore oppose the Amendments.
  10.30 p.m.
  Mr. Bruce-Gardyne: I do not intend to go quite as far back as my hon. Friend the Member for Dartford (Mr. Trew) in his reference to a distinguished former constituent. I want to say a few words in particular about the Amendment in my name, No. 88, and Opposition Amendment No. 7, which is really the pair to it.
  Before doing that I feel impelled to say something about the introductory

  1271
  remarks of the hon. Member for Birmingham, All Saints (Mr. Brian Walden). I think that on the whole the hon. Gentleman made a somewhat more impressive case than did his right hon. Friend the Member for Leeds, East (Mr. Healey) earlier this afternoon, but that is not surprising. That is what we should expect of the hon. Gentleman, particularly on these matters.
  Nevertheless I felt that the hon. Gentleman brushed aside too easily embarrassing comments from this side of the Committee about the tax records of the two sides of the Committee during their respective terms of office. The hon. Gentleman sounded rather like the confirmed alcoholic who turns to his abstemious friend and says "I say, old fellow, we will put the hard stuff out of reach ", because that is ostensibly what the Amendments are designed to do. That will not wash in view of the Labour Party's record.
  The hon. Gentleman expressed all sorts of concern about the evil intentions which my right hon. Friend the Chancellor of the Exchequer might have about harmonisation in the European Community. I am bound to tell the hon. Gentleman that what concerns us on this side of the Committee is nothing of that kind. What concerns us is what, in the improbable event of the electorate returning them to power, another Labour Government would do by way of confirming their reputation of using regulators invariably in an upward direction. How the hon. Gentleman can have the nerve to talk about the Tory Governments of 1951 to 1964 using the regulator upwards without mentioning that only last summer the Government used it not merely downwards, but downwards doubly, is past belief.
  The fact is that we were all surprised that my right hon. Friend was able to announce a 10 per cent. standard rate. We had all expected something substantially higher. As my right hon. Friend said, in his election address, the right hon. Member for Leeds, East forecast something substantially higher. If the right hon. Gentleman was not surprised at a 10 per cent. rate—and he confessed that he was not—one can only assume that he does not believe anything in his
  1272
  election addresses, and on his past track record he would be well advised to take that view.
  There is a double hypocrisy about the Opposition's attitude on Amendment No. 2 and the other principal Amendments. As my right hon. Friend said on Second Reading, the position is that there is a total conflict between the desire of hon. Gentlemen opposite, in these Amendments, to go for a lower rate of VAT and their determination to demand all sorts of extensions of zero-rating under Schedule 4.
  In his first intervention on Second Reading in his new appearance as Opposition spokesman on financial matters, the right hon. Member for Leeds, East said that if we were worried about extending concessions on zero-rating, we could always put up the rate of VAT. That being his view, what hypocrisy it is for hon. Gentlemen opposite to call for a lower standard rate. We can treat Amendment No. 2 and the Amendments that go with it with the contempt they deserve.
  I come to Amendment No. 88 which stands in my name and Amendment No. 7 which stands in the names of hon. Gentlemen opposite, though the hon. Member for All Saints paid scant attention to it. For the benefit of hon. Members who have not followed these matters in detail, perhaps I should emphasise that the purpose of Amendment No. 7 is to empower the Government to use the VAT regulator to 20 per cent. downwards but to only 10 per cent. upwards. The purpose of my Amendment No. 88 is to restrict the freedom of the Government to use the regulator to 10 per cent. in either direction, which conforms to the existing regulator on purchase tax.
  Mr. Douglas: The hon. Gentleman lays great stress on hypocrisy. If he has such endearing concern for the veracity of the statements of his colleagues in the Government, may I ask him to explain why he is proposing in Amendment No. 88 to restrict their freedom of action to reduce the tax?
  Mr. Bruce-Gardyne: If the hon. Gentleman will have patience I will come to that. He must let me make my speech in my own way.

  1273
  I use the word "hypocrisy" again. For hon. Gentlemen opposite, who in six years used the regulator twice in an upward direction but never in a downward direction, to demand that we, who have already used the regulator doubly downwards, should restrict ourselves not to nut up the rate by more than 10 per cent. but to be free to put it down by 20 per cent. is a hit hard to swallow.
  Why do I suggest that we limit the use of the regulator to 10 per cent. in either direction? I am increasingly an agnostic about the use of the regulator for purposes of fine tuning because I doubt whether it is given to man to manipulate the economy almost from week to week by substantial adjustment in the fiscal system. I sometimes think that if we devoted to what we might call the monetary choke half the loving care and attention that we devote to the fiscal accelerator and brake mechanisms we might find ourselves more successful in managing the economy.
  There is one very good case for the use of the regulator in a downward direction, and that is as a weapon against inflation. I hazard a guess that the historians of our affairs may come to the conclusion that the decision of my right hon. Friend to reduce purchase tax by 20 per cent. last year was more effective in fighting inflation than the so-called CBI price initiative, which I believe to have had some disadvantageous effects in other spheres, a matter which I cannot develop without straying out of order. If, however, one wishes to adjust rates of indirect taxation downwards in order to combat inflation, one does not need a regulator for that purpose. One of the curious things about the remarks of the hon. Member for All Saints was that he showed no awareness of the fact that last year it was not the regulator that was used but the power to issue an order under the Purchase Tax Act, 1963.
  As I understand it—my hon. Friend the Minister of State will correct me if I am wrong—the only purpose of having a regulator is to enable the Government to adjust the rates of indirect taxation when the House of Commons is not in session, because when the House of Commons is in session it is open to the Government to introduce orders on the same lines as the order introduced last July to reduce the rate to 20 per cent.
  1274
  Perhaps my hon. Friend the Minister of State will clear up a point that arises on this matter. The power to make such an order existed under the Purchase Tax Act, 1963. May we take it that a similar power would exist under the Bill for VAT? I think that this is probably correct but it needs clarification. If it is correct, clearly the only reason for having the regulator must be for purposes of fine tuning for the four months of the year when the House of Commons is not sitting. Abstemiousness from fine tuning for four months of the year would not help very much. So. whether or not we have the regulator in existence is not a matter of overriding significance in the management of the economy. But perhaps we should have an explanation from my hon. Friend the Minister of State as to why it has been decided to put the regulator power at 20 per cent. as opposed to the 10 per cent. on purchase tax. We have not had such an explanation to date.
  In his Budget Statement my right hon. Friend the Chancellor said that there would be a VAT regulator. He did not explain precisely what it would be. But in the Budget debate on 23rd March, my hon. Friend the Minister of State said:
  "There is one important advantage of VAT and the 20 per cent. regulator power which has not yet been fully recognised and to which I should like to refer. The coverage of purchase tax is limited. Consequently changes in the rates of purchase tax intended to stimulate or restrict demand in the economy as a whole are concentrated upon a relatively small slice of consumer expenditure. The introduction of VAT will reduce the scale of this problem." —[OFFICIAL REPORT. 23rd March, 1972; Vol. 833. c. 1810.]
  This afternoon my right hon. Friend the Chancellor again drew attention to precisely this advantage when he said that the wide sweep of the VAT meant that rate adjustments for purposes of managing the economy—I think I have his words correctly—can be "much smaller" than they were in the case of purchase tax. In that case, why do we go to a 20 per cent. regulator from a 10 per cent. regulator?
  Mr. Douglas: It is suggestive.
  Mr. Bruce-Gardyne: The hon. Gentleman keeps saying that these things are suggestive and he gets tremendously excited about all the awful things that may happen. He must have been listening to his right hon. Friend the Member

  1275
  for Leeds, East this afternoon, when my right hon. Friend pointed out that in his election address the right hon. Gentleman forecast a 20 per cent. VAT on fuel and so on. The right hon. Gentleman said "No, you have not got it now, but you will have it." If the right hon. Gentleman were to accuse his neighbour of beating his wife and his neighbour were to sue him for libel, one can imagine the right hon. Gentleman saying in court "I agree that there is no evidence that he is beating his wife, but I know damned well that he will and I make the accusation against him."
  Mr. Walden: Is it not the case that one is always more disposed to believe that a right hon. Gentleman will not beat his wife if he is not seen to be carrying rods and canes into his house? We are inviting the Chancellor not to carry so many sticks. Then we shall believe that the right hon. Gentleman's matrimonial intentions are as he said.
  10.45 p.m.
  Mr. Bruce-Gardyne: As I thought I had explained to the hon. Gentleman, his record and that of his party in this matter is so dubious that protestations of anxiety about our future conduct come ill from them.
  What worries me slightly, as one who is a complete agnostic about the virtues of attempting to fine-tune the economy, about the Clause as it stands is that the instrument we appear to have in mind to use could be better described as a hay rake than a tuning fork. If we have to use these instruments at all, I should like to know why we could not stick to a more modest tuning fork.
  To report Progress and ask leave to sit again.—[Mr. Barber.]
  Committee report Progress; to sit again tomorrow.
  ADJOURNMENT
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Fortescue.]

  DORNOCH FIRTH (BRIDGE)
  10.46 p.m.
  Mr. Robert Maclennan: I am glad to have the opportunity provided by this short debate to put before the Government, at rather greater length than has been possible in letters and parliamentary Questions, the imperative reasons why I believe that the Government should authorise the crossing by road of the Dornoch Firth and why I believe they should do so now.
  The proposal to bridge the Dornoch Firth at the Meikle Ferry is not new. Indeed there are extant plans drawn up by the great Telford well over 100 years ago for this bridge. I hope that the Under-Secretary will not regard that fact as providing any justification for the Government's further delaying in coming to a decision.
  I am conscious that Ministers have on a number of occasions expressed interest in, understanding of, and even sympathy for the proposal, but tonight I hope that we shall have evidence from the Under-Secretary that the Government intend to take action.
  The more recent history of this proposal stems from the decision of the Sutherland County Council in October, 1967, to raise in its county development plan the question whether this scheme should be included and to go ahead. In November, 1968, an approach was made to the Scottish Development Department suggesting that the preliminary studies should be put in hand. This was in the context of the economic strategy of the Highlands and Islands Development Board for the development of the northern Highlands based, with the approval of the then Labour Government, upon the development of two areas—the area which came to be known as the Wick-Thurso axis in Caithness and the area known as the Moray Firth Development Area.
  The Highlands Development Board and the then Government believed that these areas could be the foundation of major industrial growth, in the one instance based upon the possibilities and needs associated with the prototype fast reactor development in Caithness and in the other instance based upon observed natural advantages of the Moray Firth area with

  1277
  its flat land and deep water which would provide suitable harbours for major industry and the back-up for the then Government's decision at that time to locate an aluminium smelter there.
  It is not necessary—indeed I do not wish so to take up the short time available to me—to rehearse all the exchanges which have taken place since that time between myself and members of successive Governments. The Minister will be aware that this has been a matter which I have constantly sought to bring to the attention of successive Governments and Ministers. I want to find out in a clear and unmistakable way where the Government stand today in this matter.
  The arguments in favour of the bridge must, however, be briefly repeated. First, the principal argument is that for the northern Highlands communication is a paramount factor in its development. Air communication is enormously useful and growing in importance but it has a limited capacity for freight. Coastal freight transport has a minor rôle to play. The railway in recent years has shown an unwillingness to take on the job of ferrying freight from the North to the markets in the South. British Rail has proved singularly uncompetitive with road transport. For example it decided, about six years ago, not to take livestock any more and appeared unwilling to foster the development of rail transport for freight purposes.
  The roads are the most vital lifeline for the northern communities. The proposal to bridge the Dornoch Firth is part of a scheme which has been universally advocated throughout the northern Highlands for bridging the three Firths—the Beauly Firth, the Cromarty Firth and the Dornoch Firth—to compensate for the geographical obstacle of distance which these northern communities face in seeking to promote industrial development.
  Looked at from the perspective of the North, not from the angle of vision with which the Under-Secretary of State undoubtedly views these matters from within St. Andrew's House, the proposal to bridge the Dornoch Firth is of at least equal importance to my constituents in Caithness and Sutherland as the schemes to bridge the two crossings further south Indeed, the saving in time which would be effected by bridging the Dornoch Firth
  1278
  would be substantially greater for my constituents travelling from Caithness than would be the saving effected by the bridging of the two firths further south which is now to go ahead.
  The importance of this communication link to all industries, not merely to manufacturing industry, cannot be too strongly stressed. However I must particularly single out agriculture, as the store markets and the transport of livestock require large and growing numbers of animals to be transhipped annually out of my constituency south over a road which is singularly ill-equipped and unsuitable for the purpose. I refer to Struie, the A836. Indeed it must be remembered that for many of my farming constituents, their markets lie not in the central belt but in areas north of Inverness. Therefore important as improvements are to the A9 further south, this improvement is of paramount need.
  Some estimate of the benefits which would be derived from these savings is shown by the following figures. On the journey between Wick and Invergordon there would be a saving of 19 miles if the bridge were built across the Dornoch Firth, which is 22 per cent. of the total journey. On the journey between Golspie and Invergordon there is the same saving but this time it is 44 per cent. of the total journey. If the three firths were bridged the saving in total journey from Wick to Inverness would be 31 miles, which is 22 per cent. of the total journey.
  I need hardly stress to the Minister the shortcomings of the A386. It is hazardous in winter with precipitous inclines and sharp turns. I need not stress its unsuitability for the carriage of all freight but particularly the carriage of livestock. The benefit of a road which avoids this hazardous route is immeasurable. It cannot be measured by any of the conventional cost-benefit analysis techniques.
  The benefit would be not only to those going south, but also to those going north, particularly the tourists. It would be of benefit to the Burgh of Tain which at present, because of the existence of the A836, loses out on the tourist trade. It and the whole of the area would be benefited by the construction of the trunk road. When the Orkney roll-on, roll-off ferry is completed and is sailing from Scrabster in May, 1974, the motor link with the Orkneys will be considerably

  1279
  improved. The tourist traffic, which is growing at an annual rate of about 25 per cent., will be enormously assisted, as will be those living in the northern isles who wish to travel south. It should be said in passing that with the growth of tourism on that road there is no fear that Bonar Bridge and places north and west would be cut out by the existence of such a bridge. The main tourist interest continues to be in the North and West and one would expect that traffic to continue.
  But none of these factors brings urgency to the debate. They are continuing and good reasons for treating this matter as important, but not necessarily with the high degree of urgency which I would ascribe to it tonight. The situation has been made critical by the economic development which has taken place in the Moray Firth under the impetus of the Labour Government and the Highlands and Islands Development Board in the first instance and continued by the present Government with the exploitation of oil resources in the Moray Firth.
  The Minister must agree that this development has proceeded at a pace quite in excess of anything that could have been estimated two years ago. The build-up of jobs in the Easter Ross area and further south in the Moray Firth has been simply phenomenal and it can be expected to continue at an increasing rate. The Jack Holmes Planning Group when it produced its report about three years ago predicted that the growth of population in that area by the end of the century would be about 250,000 to 300.000. I have it on the best of authority—from the Highlands and Islands Development Board—that it is expected that there will be 6,000 new permanent jobs in the area by 1974. This has massive consequences for the development of the infrastructure of the whole region, consequences which I believe the Government have not as yet fully taken into account or adequately responded to.
  The planning officer of Ross and Cromarty has pointed out that by next year there will be in Easter Ross a requirement of 4,700 new houses to deal with an influx of 6,100 workers—indeed, that the infrastructure costs in Easter Ross to take account of the growing oil industry developments will soar in the
  1280
  next three years to about £50 million, which is about £8,000 per job. So we are talking about massive development of a kind which is not, I believe, paralleled in any other part of Scotland at this time. It is in this context that the Government should be looking at the costs associated with the relatively minor infrastructure project of bridging the Dornoch Firth.
  There are economic reasons why the Government should consider this scheme immediately. Not only are these developments taking place which will throw some light on the total cost factor, but we are faced with a serious economic situation in Sutherland and in particular where the population has dwindled over recent years to something below 13,000 for the first time in its history. We are also faced with an unemployment rate in my constituency of 10·3 per cent. We face the prospect of a population drift. The situation is quite encouraging at present in Caithness because of the work associated with the Atomic Energy Authority's reactors there.
  The number of school leavers is rising annually both in Caithness and Sutherland, and in the region as a whole it is about 450 this year and is expected to rise to about 650 in three years' time. These young people have to have jobs provided for them. An immediate source of jobs to hand lies in the developments of the oil industry in Easter Ross and this is of particular importance and of potential benefit to those living in the eastern part of Sutherland. the catchment area that extends at least as far north as Golspie in the east and as far west as Lairg.
  To enable us to take advantage of these employment opportunities, the bridge over the Dornoch Firth would be critical. I believe also that it would ease to some extent the immediate problem of Ross and Cromarty. It is important to note the anxiety that has been expressed by the chief planning officer not about the possibility of dealing with this question in the long term but about the problem of meeting the needs of the industry that is there now in the short term. These needs, I believe, can be met by opening up some of the jobs at least to those now living in Sutherland. Also, the advantage to those living and working in Easter Ross of being able to travel

  1281
  north to Sutherland and enjoy recreation there hardly needs underlining.
  What about cost? The figure put on this project in 1968 by the Scottish Development Department was £1 million for the crossing, including the approach roads. It has to be admitted that the cost has probably escalated in the time which has elapsed to something nearer the £1,800,000 calculated by the development officer of Sutherland on the basis of the costs of bridging the Kyle of Tongue. It is not for me to spell out how the project might be carried out, but it might be by causeway and bridges or by a dam with sluices. The cost might be approximately the same in each case but it is partly to discover that that the Government should embark on an engineering study straight away, to carry out the necessary preliminary inquiry into the most economic way of bridging the Dornoch Firth.
  On costs, I should make a minor debating point. If the Government are prepared to spent £30 millon on a gunnery range at Tain, it is not too much to ask them to spend £1.8 million on this new bridge, which would be of lasting and inestimable value.
  The matter is put into perspective by the admirable assessment in the Glasgow Herald by Aeneas Allen who estimated that by the end of the century £1,000 million would have been invested by industry in connection with the oil industry in the area. The Highlands and Islands Development Board considered this a matter of importance and the Secretary of State has told me that it regarded it as a project having the highest priority which should be considered as early as possible.
  The secretary to the Board wrote as follows:
  "The Board's attitude to the proposed bridge remains as before. We regard it as second in priority to Ballachulish. We feel that the provision of a bridge over the Dornoch Firth at Meikle Ferry will be a logical and important development both for East Sutherland and Caithness and, in a few years' time, for Orkney when the roll-on/roll off ferries are operating. Now that Ballachulish has been accepted and the Secretary of State has approved the crossings over the Beauly and Cromarty Firths we now regard the Dornoch Bridge as the next major improvement to be secured."
  1282
  What is the attitude of the Government? It remains somewhat obfuscated In 1970, just before the General Election, the then Minister of State, my hon. Friend the Member for Greenock (Dr. Dickson Mabon), said that the Dornoch Firth crossing was principally a communication question with planning and developmental advantages which were largely self-evident. He said that an engineering investigation was needed with a cost benefit evaluation.
  I agreed with that then and I agree now. That is the situation and the Government should get on with it. What are they doing? It is unclear from the various parliamentary replies I have had from the Government what their intentions are. It was suggested in the Under-Secretary of State's letter to me of 4th February, 1971, that we might do well to wait to take advantage of the development of technology in bridge building, but if that is what we have to wait for we shall have to wait a long time and population drift will have become so disastrous that Sutherland's future will be in question. Do we have to wait for the growth of the tourist traffic rate to justify this in cost benefit terms? That would be a long time.
  Do we have to wait until the A9 road to Inverness is completed? If so, we shall have to wait until the end of the decade before the envisaged bridge can be built. Surely the Government do not believe that to be advisable. Do we have to wait until the Cromarty and Beauly bridges are completed? That would not be in the best interests of the northern Highlands as a whole. It will not be before 1978 at the earliest.
  I hear that the Government have let the cat out of the bag. It was reported in The Press and Journal of 30th April, 1971, that the deputy chief road engineer of the Scottish Development Department, Mr. R. A. H. Allen, spoke of there being:
  "just a possibility that some time later"—
  that is after the Beauly and Cromarty Firths were bridged—
  "there would be a crossing of the Dornoch Firth."
  That was headed:
  "Over the Firths by 1980."
  If that is the position, will the Minister come clean tonight and say that not until

  1283
  1980 can we expect to have that firth bridged? Then we can make our plans accordingly. If that is not the position, will he say that we are to be able to take advantage of the economic developments taking place in the oil industry in Easter Ross and give us a proper estimate of when this will happen?
  11.11 p.m.
  The Under-Secretary of State for Development, Scottish Office (Mr. George Younger): I am grateful to the hon. Member for Caithness and Sutherland (Mr. Maclennan) for raising a matter of great importance, particularly to his constituents. He has raised this matter often in the House but, as he has said, this is perhaps a better time to have a rather longer debate than usual. In thanking the hon. Member for raising this subject and particularly for the way in which he has put the matter tonight, may I accept absolutely his assessment of the general desirability of the bridge.
  Both I and my right hon. Friend the Secretary of State accept that this is a desirable project, from the point of view of the people of Sutherland and the people on both sides of the Firth who would make use of such a bridge and also from the point of view of the far north of the Highlands. As the hon. Gentleman will know, my right hon. Friend said as recently as 20th April:
  "I have myself for some years past been aware of arguments in favour of such a scheme and called attention publicly to them." — [OFFICIAL REPORT, 20th April 1972; Vol. 835, c. 141.]
  There is no doubt in the Government's mind that a crossing at Meikle Ferry would bring considerable benefits to Caithness and Sutherland both directly by shortening the main north-south lines of communication and indirectly by making a whole range of economic activities easier. I assure the hon. Member that we look upon it as a most desirable scheme, particularly bearing in mind the present and prospective developments in the oil industry and at Easter Ross and the Highland area to which he has referred.
  Because a proposed road scheme can be shown to be desirable from the point of view of the people living in an area, this does not mean it necessarily must or indeed can be put in hand straight away.
  1284
  Although much valuable work in improving the Scottish main road system has been and an expanded road programme is at present being implemented, many schemes of modernisation or reconstruction are still urgently needed in many parts of Scotland.
  Present funds available now and in future are limited in view of the vast demands made upon them. I emphasise the large amount of work either being done or planned on the strategic routes serving north and north-eastern Scotland particularly with a view to the development of the oil industry. For the A.9 as the main route northwards from central Scotland we have published draft orders for a new route between Inverness and Invergordon, while south of Inverness preparations are in hand for bypasses at Dunkeld and Ballinluig and the replacement of the Almond Bridge north of Perth is being prepared. A comprehensive range of improvements is planned about which we hope to make further announcements shortly.
  Similarly the work already started to improve the main route between central Scotland, Dundee and Aberdeen—that is, the A.85 and A.94—is to be accelerated. Further south the recently completed M73 link road between the Glasgow-Carlisle and Glasgow-Stirling roads—
  Mr. Maclennan Mr. Maclennan rose—
  Mr. Younger: I do not have much time.
  Mr. Maclennan: It is not good enough—
  Mr. Deputy Speaker (Sir Robert Grant-Ferris): Order.
  Mr. Maclennan Mr. Maclennan rose
  Mr. Younger: I must ask for a little courtesy from the hon. Gentleman. I listened with great patience to his speech.
  Mr. Maclennan: It is an absolute scandal.
  Mr. Deputy Speaker: Order. The hon. Gentleman must kindly keep to his seat.
  Mr. Younger: I am trying to answer courteously a courteous debate started by the hon. Gentleman. It is rather hard that we should have—
  Mr. Maclennan: No information.
  Mr. Younger: Whose fault is that? I have a speech planned to last a quarter of an hour. I am not complaining—
  Mr. Maclennan: I am.
  Mr. Younger: The hon. Gentleman should complain to himself.
  It may bring the point home more clearly if I name a few major schemes in the Highlands which are being prepared for inclusion in the road programme during the next two or three years. There is the bridging of the Loch Leven narrows at Ballachulish, planned to begin before the end of this year, the improvement of lengths of the Ballachulish-Oban and Lochgilphead-Oban roads, the continuing reconstruction of the Fort William-Mallaig road—
  Mr. Maclennan: On a point of order. Is it in order, Mr. Deputy Speaker, for the Minister to use the opportunity that I have provided by raising the subject of this narrow crossing of a stretch of water in my constituency to describe the entire roads programme for the whole of Scotland?
  Mr. Deputy Speaker: The hon. Member knows that that is completely and exactly an example of a bogus point of order.
  Mr. Younger: I absolutely despair of the hon. Member. If he had wanted to give me full time to answer the debate he could have finished after a quarter of an hour. I have a lot of interesting information to give the House and I am trying to give it. I have now wasted much of the little time that I had. I am normally not a difficult person in these matters.
  We are sure in the Government that in giving each of these projects—and others that I could mention—priority over a Meikle Ferry crossing we are doing something that is right for the Highlands. I am sure that the money available is used in the most effective way for the Highlands. I ask the hon. Member to reflect upon what he might have been saying by way of justified criticism if we had been putting the priorities in reverse and had been improving part of the northern stretch of the A9—
  The Question having been proposed after Ten o'clock and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
  Adjourned at sixteen minutes past Eleven o'clock.