FINANCE BILL

HC Deb 17 July 1974 vol 877 cc533-59

As amended in Committee and in the Standing Committee, again considered.

Question again proposed, That the amendment be made:—

7.32 p.m.

Mr. Pardoe

Following the sombre remarks of the Home Secretary we return to the debate on advance corporation tax. The House will be glad that the Chancellor of the Exchequer decided to come down to give us his views, albeit rather brief, on his present judgment of the economy. But it would have been much more helpful had we had some indication of the Chancellor's views on the economy generally before we started the Report stage. It is extremely difficult for us to conduct debates on important Budget concessions and on Finance Bill amendments without having any idea of how the Chancellor sees the direction and shape of the economy, while we are, nevertheless, under notice that the Chancellor intends some time during the next week to produce some sort of mini-Budget which might be reflationary, deflationary, neutral or whatever.

Therefore, we have been debating amendments yesterday and today in an unsatisfactory situation. Despite the Chancellor's good will today in coming among us I do not think that we are much wiser as to his views on the shape or the future of the economy. The Chancellor spoke about the necessity to maintain secrecy. We all understand that secrecy is necessary if specific changes are being made in rates of taxation, which may affect the Stock Exchange or other institutions, but surely we could have had a little more information from the Chancellor on his general judgment of the economy.

The amendment moved by the right hon. Member for Carshalton (Mr. Carr) also bears the names of myself and my right hon. and hon. Friends. It is an extremely important amendment which goes right to the root of the Chancellor's Budget judgment. I make no bones about that. I have never denied it. We voted against the Second Reading of the Finance Bill because we believed that the Chancellor had then got his Budget judgment wrong. No part of the Bill is more directly fathered by Budget judgment than the clause to which the amendment refers, because it could have sprung only from a belief that company liquidity was fine and could be squeezed without further harm to the economy.

Clause 12 imposes on companies liable to pay advance corporation tax an additional liability to make an additional payment equal to one-half of whatever advance corporation tax becomes due in the financial year 1974. I am not arguing here about the merits of advance corporation tax as such, although it might be that we should open that can of beans on another occasion if we are to avoid what I believe is likely, namely, a dangerous recession.

My concern with this additional impost for this year is that we have had no debate on the Question, "That the clause stand part of the Bill" during the Committee Stage. I fully expected a debate at that time. Before the Whitsun Recess it was more or less decided between the two Front Benches that there would be a debate. Indeed, there was a specific agreement that there would be a debate on the clause after the Whitsun Recess. The story is told in columns 331 and 332 of HANSARD of 21st May. But we have had no such debate, presumably because the Front Benches, through the usual channels, had come to an agreement not to have one.

Therefore, it seemed to us that tabling the amendment would be a way of having a major debate on the whole question of this special impost on advance corporation tax. We have had no general defence from the Government—

Mr. Dell

As an historian who wishes to have accuracy I should say that on the day in question I came to the House expecting that there would be a debate and I was prepared, as far as I could, to answer it.

Mr. Pardoe

I can fully accept that the Government Front Bench was not in on the conspiracy. Nevertheless, whether there was or was not a conspiracy, by some extraordinary means a debate on the Question, "That the clause stand part of the Bill" was avoided, either conveniently or inconveniently. Therefore the House did not have a chance to consider the matter in great detail, although we have since debated some not insubstantial amendments.

It seemed to us right to have a debate on this occasion. We had no general defence from the Government on Second Reading regarding this special impost. In the debate on 9th May we simply had this statement from the Chancellor of the Exchequer: It would have been totally wrong in my view if the corporate sector had not been asked to bear some part of the extra burden."—[OFFICIAL REPORT, 9th May 1974; Vol. 873, c. 618.] That, I am sure, is a sentiment with which we can all agree, but it does not answer the important question raised by the right hon. Member for Carshalton, and which I hope we can also raise.

The Chancellor, on the Second Reading of the Finance Bill, gave no indication at all of his view of company liquidity. I warned on Second Reading that this was bound to have a considerable effect on employment and investment. The Chief Secretary, however, in a speech to a Financial Times conference on 24th April said: Thus, far from being gloomy as some have suggested, the Budget offers better prospects for industry. He went on: I believe unnecessary alarm has been spread by the much exaggerated comment on the effects of the Budget on the liquidity positions. … Liquid assets of industrial and commercial companies late last year were at very high levels, around £10,000 million … but there is no evidence that so far companies generally are experiencing a liquidity crisis. That was in the past, as are all statements on company profits with which hon. Gentlemen opposite make great play. We have to concern ourselves here with the company liquidity and profitability in the future, and the figure of £10,000 million, which the Chief Secretary mentioned in his speech and which has been bandied about a great deal in speeches on this subject, particularly by Government spokesmen, refers to the end of 1973.

Since then, we have had tough and strict price controls. There have been threshold agreements imposed, causing considerable problems for many companies—much greater problems than anyone expected when the Budget speech was made. There have also been higher national insurance contributions, higher prices in nationalised industries, higher corporation tax and advance corporation tax.

It is now clear that the Chancellor's Budget judgment was wrong. I thought so and said so at the time. It took a wrong view of the effect of the three-day week, as the Chancellor has already admitted, and that was easily done and was totally excusable. What was far less excusable was the Chancellor's wrong judgment on the consequences of the deflationary effect of oil price increases and the turn round in the public sector deficit. I said on Second Reading that together these amounted to a total turn round in the public sector deficit of £4,000 million, which is a fairly colossal figure. The Chancellor's judgment on this proposal was warped by other than strictly economic matters.

Mr. Norman Lamont (Kingston-upon-Thames)

Would the hon. Member not agree that the £10,000 million the Chief Secretary quoted was an important figure in that it is a gross figure and excludes bank borrowing? If we are to have any realistic assessment of company liquidity we ought to take into account bank borrowings. Although the Chancellor may argue that such borrowings will not be called in immediately, it is highly unlikely that at the present high rates of interest anyone will be able to finance investment or to maintain employment and production in this way.

Mr. Pardoe

The hon. Gentleman is absolutely correct. The £10,000 million was wrong for a multitude of reasons, not the least being those which he has stated.

Mr. Tom Boardman (Leicester, South)

Does the hon. Member also agree that the total figure of bank borrowing was £14,000 million and that therefore there was a negative liquidity of £4,000 million?

Mr. Pardoe

That is also true. The Chancellor's judgment was probably warped by other than strictly economic matters. The Government were being pressed during the election campaign and shortly after it by the TUC and their Left wing to grab from the company sector some of what was called "the company fat".

There were possibly even worse motives. The long-term strategy of the Government is for far-reaching nationalisation of industry and the extension of Government control through increased dependence on Government finance. For that strategy to be effective companies will have to be far less self-sufficient for investment finance, forcing them—and I think this is what the Government intended—to look to the Government and the banks for their funds. As the company sector moved into deficit and became more dependent on the banking system it would provide a golden opportunity for a major extension of Government control of industry through the nationalisation of the banking system.

This may be taking a rather Machiavellian view of Government policy but there are plenty of Machiavelli's on the Front Bench, not necessarily present now. What is the economic deal now? Even if we allow runaway wage inflation—and we may well allow for that—sustaining consumer spending later in the year, the impact of the Budget measures on the company sector financial position resulting in a £2,000 million to £3,000 million deficit at least was always bound to lead to a collapse in investment spending, widespread bankruptcies and rising un- employment by late autumn or early 1975.

Do the Government accept this? Is that their new judgment, if not their old one? Do they believe that this is the way to deal with inflation in the absence of an incomes policy? The present wage explosion—and we must remember that wage increases are running ahead of price increases and a new norm of 20 to 25 per cent. is being set—is running away with the economy and the Government have no effective policy to combat it. A large part of the burden of later price increases will be shifted through this on to the company sector. That may mean that there is no real need to stimulate consumer spending at present.

The Government may well ask, what about priorities? It is true that this amendment is expensive—it would cost £300 million. This is an alternative to increased unemployment pay. If something is not done for the company sector very quickly there will be 800,000 people out of work by the end of the year or early next year. The increase in unemployment pay will be enormous.

Frankly I would rather put £300 million into companies to maintain employment and produce something than pay people to produce nothing. On that point alone priorities could come down fairly heavily in favour of improving company liquidity. I hope, therefore, that the Minister will be able to say that the Government are sympathetic to the idea, that they recognise the serious problems that now exist in the company sector and perhaps are even prepared to admit that they got their judgment wrong—I hope for good reasons rather than bad reasons—as I said at the time of the Budget debate.

7.45 p.m.

Mr. Dick Taverne (Lincoln)

May I say how much I welcomed the remarks at the end of the speech by the right hon. Member for Carshalton (Mr. Carr). He seemed this afternoon to be drawing back from the brink over which he plunged rather recklessly on two occasions yesterday. There are completely different problems about a Finance Bill when there is a minority Government. Last night I accused the Opposition of behaving with a lack of responsibility when they had the power to write their own Finance Bill. It is a somewhat heady power and a most unusual situation.

At this stage of the Bill individual clauses are considered separately and there is always, or so it seems, an irresistible case to be made for cutting tax. The hon. Member for Worthing (Mr. Higgins) knows how Treasury Ministers time after time have to resist apparently worthwhile amendments to protect the Revenue. It is easy for all parts of the House, if they are free to do so, free from the control of the Whips, to back those cuts.

I was once told the story of an American senator who was asked how he had managed to retain his seat for about 40 years. He replied "By voting for every single demand for an increase in public spending and by voting against every single demand for increased taxation". It is a temptation which exists. On this occasion the right hon. Member and the hon. Member for Cornwall, North (Mr. Pardoe) have resisted it. They have put forward a case which I hope will be answered in some detail.

It is a matter of priority for the Government to decide. There are alternatives which they will have to consider. This may well be one of those which they have in mind for the statement which is to come. I am sure that if this is the spirit of the Report stage it will evoke a suitable response.

If there is a minority Government, which is not necessarily a situation to be deplored by everyone in this House and which seems to be a situation the public do not necessarily dislike, it places certain obligations and burdens on the Opposition. It forces a particular form of restraint, and yesterday was not an example of how that restraint should be exercised.

Mr. Peter Rees (Dover and Deal)

To take up the point raised by the hon. and learned Member for Lincoln (Mr. Taverne), may I say that even with his able support the Conservative Opposition would not be able to carry any amendments which found favour with us. It needs the combined wisdom of at least, dare I say it, the Liberal benches and ourselves to carry any amendments. If there is any question of plunging over preci pices of irresponsibility, the blame can hardly rest with any one party.

I am moved to intervene not by the speech of the hon. and learned Member, which was graceful and brief, but by the speech of the Chancellor. I was moved first by his figures and secondly by his discourtesy. Let me deal with the figures to begin with, although they have been ably and adequately dealt with by my right hon. Friend the Member for Carshalton (Mr. Carr). I remind the House, as I did yesterday, that as regards the amendment to Clause 5, in which I played some small part in Committee, I asked Treasury Ministers what would be the cost of incorporating such an amendment in the Bill.

I was told categorically on 17th June that it was impossible to calculate the figure. Last night the Chancellor came to the House and in a characteristically discourteous intervention and with a wealth of misleading detail calculated that the cost was somewhere between £100 million and £120 million. I forget what the figure was, and I attach no significance to it whatever. If the Chancellor approaches these problems in the same spirit of levity and discourtesy, the rest of his figures will naturally be treated with the same suspicion and doubt.

Another point in the right hon. Gentleman's intervention this afternoon deserves to be taken up. He told us that he had not yet made up his mind whether in fact any appeal was to be proceeded with by Customs and Excise before the London Value Added Tax Tribunal in the case of Thorn Electrical Industries Ltd. Our debates both in the House and in Standing Committee have proceeded on the basis that an appeal was likely. The Chancellor of the Exchequer and the Financial Secretary owe it to the House and to those outside who are interested in this important matter of VAT law to tell us whether Customs and Excise will proceed with the appeal. It is intolerable that we should be left in a state of uncertainty, particularly when our debates have proceeded on a certain basis.

If the Treasury Bench is not confident about the possibility of an appeal, why did it put out the most misleading, not to say disingenuous, circular which I ventured to quote last night dealing with the decision of the tribunal? I refer to the circular from memory because I was not forewarned that the Chancellor would take this incredible line. The circular suggested that the matter created uncertainty and that the Government's amendment was designed to confirm the law as it was always understood. That, I believe, was an improper way for a responsible Minister to approach this problem. I am bound to say—I very much regret having to say it in his absence—that it is characteristic of the way the Chancellor has treated the House in our debates.

Comparatively speaking I am a recent arrival in the House, but I consider that it was discourteous of the Chancellor to intervene last night not having heard the earlier part of the debate and not to deal with all the specific questions that were put to him, and then to leave the House in a state of uncertainty. He has repeated that discourtesy this afternoon. He entered the Chamber having barely listened to any of the speeches. He made a somewhat similar intervention and departed before the debate on the amendment had been concluded. That is no way to treat the House. If we are to regard what he says with any seriousness, he owes it to the House to sit through our debates and to listen to what we have to say as, unfortunately, we have to listen to what he says.

The burden of the right hon. Gentleman's theme both last night and this evening is that we may not pre-empt his second Budget judgment which will be unveiled to us next week. If he has not the courtesy to give us a glimpse of what is in his mind, he has no right to criticise our amendments. In the uncertainty which he has created by announcing that his first Budget judgment in April is now out of date, how can we possibly form a concluded view on the amendment? He owes it to the House to have indicated before Report his preliminary views on these matters. We do not ask him to do so in precise terms. If he is to introduce a reflationary mini-Budget next week, he has no right to ask us to debate the amendment in a vacuum. If he is to leave us in a vacuum, we are entitled to form our own judgment, and no doubt we shall do so.

The argument that the right hon. Gentleman has advanced is that we are in a sense pre-empting what he is to un veil next week. As a result of the lack of courtesy that he has shown us, I think it is much better that we should pre-empt his judgment. It is much better that we should introduce for him the reflationary package which otherwise he might introduce next week.

We on this side of the House, and I include not only my right hon. and hon. Friends but Liberal hon. Members—I hope that the hon. Member for Cornwall, North (Mr. Pardoe) will allow me to include him in my remarks—have shown a clearer appreciation of where the interests of the country lie. If the Chancellor is to come into the Chamber next week with the story that he will reflate demand by £500 million, all I can say to him is that I would much prefer to press this amendment to a Division. If there is to be any reflation—and this is a matter of fine debate as we have no guidance from the right hon. Gentleman—it should be in the corporate sector.

On the basis of the right hon. Gentleman's totally misleading figures and his arrogant behaviour, I believe that we must do the best we can in his absence. I hope that my right hon. and hon. Friends will take a more robust view about the amendment than they might have done if the Chancellor had adopted a more responsible approach to our debates.

Mr. Michael Shaw (Scarborough)

As the hon. Member for Cornwall, North (Mr. Pardoe) has said, this is an important amendment. It concerns a matter that goes to the very heart of the Budget judgment. The fact is that this is not a Conservative but a Socialist Budget. The fact is equally true that in the amendment a lot of money is at stake. I believe that we are not free to take a clause such as Clause 12 as it now is and to deal with it in isolation when the sums are as vast as those involved in the amendment.

The country has just gone through a three-day working week. At that time the costs of goods and services were rising rapidly, possibly more rapidly than ever before. Companies were making record profits and yet at the end of the year they found that their liquid positions were worse than at the beginning of the year. There were record profits but they did not cover the requirements for increased costs in keeping the same level of stocks that were maintained a year before. The conditions that companies have faced, although they have been clouded because of the monetary lull in their cash demand and a consequent easement of their position, have not been helpful and there are serious difficulties in many cases.

Any easement in the cash situation at the time of the original Budget decision was only temporary. I believe that the Budget decision should have been not to impose any further burden on companies but to continue to encourage them to go on producing and investing so that the future of our trading position could have been more secure. Having expressed that view—I believe it is a view which is held unanimously by my right hon. and hon. Friends—we must consider the Bill as it now is and consider the cost of the amendment.

Great though my sympathy is for the views expressed by my hon. and learned Friend the Member for Dover and Deal (Mr. Rees), I am bound to say that I do not take quite the same robust view of this matter as he does. From what I have heard so far, I would not be prepared to go into the Lobby to support the amendment.

How much better it would have been had the statement and the two-day debate on financial affairs which I understand we are to have next week had occurred before the Report stage of the Bill. We could then have discussed the amendments in the full knowledge of the Chancellor's views.

For those reasons I am reluctant to support the amendment in the Division Lobby, although I approve of the principles behind it.

8.0 p.m.

Mr. Nott

I hope that the House will forgive me if I rise only to indulge in a two-minute dialogue with my hon. and learned Friend the Member for Dover and Deal (Mr. Rees).

The right hon. Gentleman the Chancellor is obviously an extremely busy man. I do not think that he should attend in Committee or on Report, but when he comes to the House to speak on a specific matter he should do his utmost to see that debate through. When my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) came to the House to participate in a debate he stayed throughout. It is not good enough for the right hon. Gentleman to come into the House and, not having heard a word of the debate, make a speech and two minutes later go out again. I could not be more aware of the pressures on the Chancellor's time, but if he comes to the House at all he should stay for the debate.

I come to my hon. and learned Friend the Member for Dover and Deal and his robust philosophy. I agree with the remarks made by the hon. and learned Member for Lincoln (Mr. Taverne). We have to rethink the way in which we handle the Finance Bill if we again have a minority Government—which I hope will not happen, but that possibility is with us. The country cannot be run properly by 635 Chancellors of the Exchequer. The nation should not be placed in the position in which the House of Commons is effectively dictating the Chancellor's Budget strategy and, moreover, as the hon. and learned Member for Lincoln said, at a late stage in the proceedings.

It is the traditional function of the House of Commons to control Supply, but historically it would have seemed odd if those who were attempting to control the expenditure of the Sovereign had tried to shovel it down his throat. That is what, in effect, we have been attempting to do in the last two days.

I do not agree with what my hon. and learned Friend the Member for Deal and Dover said about the VAT amendment. I understand the retrospective argument, but I do not think that it was, in practical terms, retrospective. We have to rethink the way in which we go through the Lobbies and add £120 million to the borrowing requirement either this year or next year. In a minority situation we cannot afford to do that too frequently. Fortunately, there is a way of avoiding the problem for this year by taking the matter further before the courts. I listened to the debate yesterday, but I do not agree with the conclusions or the vote that were reached.

I come to corporation tax. I agree with my hon. Friend the Member for Scarborough (Mr. Shaw). I do not think that we should press the amendment. What is important to me is what we should be doing about the size of the borrowing requirement and the rate of increase of the money supply. Both these issues we shall debate next week and before we do so I should like to give the matter more thought.

But my immediate reaction is that the money supply is growing at much too slow a pace. I agree with the general point made by the hon. Member for Cornwall, North (Mr. Pardoe), if I understand him correctly. I do not know whether M3 or M1 are meaningful figures. Theorising on the money supply sometimes reaches preposterous proportions. The greatest experts on money supply would admit how little they know about it. In the conditions which the Western world will face over the next two or three years it cannot be right that M3. if it means anything at all, should grow at a rate between 5 per cent. and 8 per cent. That is a recipe for disaster in 1975 and 1976.

Some of my hon. Friends say to me that if we increase the money supply at this moment we shall enhance inflation. I find that a strange argument because it completely disregards the time lags in monetary policy. We should be thinking about what the situation will be in 1976 if we go on expanding money supply at 15 points less than the current growth of money GNP. Money GNP is now growing at between 20 per cent. and 25 per cent., whereas money supply is growing at 5 per cent. That must be a recipe for disaster in 1975 and 1976. It will greatly exaggerate the size of the unemployment in those years which will be high in any event.

My right hon. Friend the Member for Carshalton (Mr. Carr) made an excellent speech, and I am glad that he said we should listen to the debate and to what the Chancellor had to say before making up our minds whether to vote on the amendment. I am more of an agnostic on whether we should vote on this amendment than I was on the VAT amendment last night. Believing as I do that it is becoming urgently necessary to expand M3 I am in a quandary exactly how we should do it. I strongly believe that we should get back to a balanced Budget, but how we are to do that in the next three years in the conditions which we are likely to face is a great problem.

On the whole, I think that we should expand bank advances in the private sector and run down the Budget deficit. We must keep the Budget deficit as low as we possibly can and try to bring the Government accounts more into balance. We should probably release special deposits and some pressures now on the banks in the private sector. We should try to ease the money supply in that area. If I am lucky enough to be called to speak next week in the economic debate I should like to develop that theme.

For reasons which my hon. Friend the Member for Scarborough advanced I hope that we shall not press the amendment, although it has provided the opportunity for an interesting debate.

Mr. Dell

This has been an interesting debate. It would appear from the way that the argument went that the Opposition were gradually convincing themselves that they should not vote on the amendment, regardless of my reply. The right hon. Member for Carshalton (Mr. Carr) said how important my reply would be, but I noticed the way in which the argument changed after his speech. Nevertheless, I must treat the debate seriously.

Neither I nor my right hon. Friend have ever tried to under-estimate the problems involved in our present situation. Many companies face serious problems, there are problems for the Government and problems with the public sector borrowing requirement.

It is interesting that in a debate which is closely related to the public sector borrowing requirement and in which we are discussing an amendment which if passed would increase the public sector borrowing requirement by £300 million the one fact which has not been mentioned by any right hon. or hon. Gentleman on the Opposition benches is the borrowing requirement in the last year of the previous Government, before we came into office. I was interested to hear the hon. Member for St. Ives (Mr. Nott) express the wish that we should get back to a balanced Budget. I do not think he can claim that his right hon. Friend the former Chancellor of the Exchequer advanced the cause of getting back to a balanced Budget. This is the problem which we faced when we came into office. We wished to do something about the public sector borrowing requirement as we found it when we came in.

I accept the fact, since it is obvious, that the mini-budget casts its shadow forward. The hon. and learned Member for Dover and Deal (Mr. Rees) said that we were debating the matter in a vacuum. I fear that I cannot fill the vacuum this evening. I cannot imagine any mini-budget which, introduced by my right hon. Friend next week, would affect the need to reduce the borrowing requirement this year by the £300 million which the ACT surcharge enables us to do. Whatever else happens, it will still be essential if we are to keep the borrowing requirement in any sort of control.

The right hon. Member for Carshalton was concerned with the effect on investment of taking money away from the company sector. He argued about the need to encourage high quality investment, and went on frankly to admit that no Government had been particularly successful in encouraging high quality investment and said that our investment record was poor by international standards among developed countries. But he said that by the time we wanted a fertiliser, we sucked money out of the economy. I do not believe that the ACT surcharge will have the effect on investment that the right hon. Gentleman expects. I wish to emphasise that the continuing and determining fact about the level of investment is the availability of profitable demand. That is the reason why we can have some hope, in the current export demand, that we might attract a level of export-oriented investment which would move in the direction of changing the balance of activity.

When we came in we did not tinker with the investment incentives. We left the 100 per cent. depreciation, which is a valuable incentive since it has an influence on investment, but the main factor in determining the level of investment is the availability of demand—and in the present highly competitive situation the availability of rising export demand should be a favourable factor.

The qualification which the right hon. Gentleman would make relates to the present state of company liquidity. There may be demand, but is there the money to finance the investment? The hon. Member for Cornwall, North (Mr. Pardoe) discussed the question of the current level of company liquidity and we had an intervention from the hon. Member for Kingston-upon-Thames (Mr. Lamont) on this point. At the end of the first quarter of 1974, after the three-day week, the level of company liquidity gross was still high. It was still at that time around £9,900 million.

I know the Conservatives tend to qualify the figure by referring to the net position. They say that if one takes away bank advances there was a net deficit and that the figure of £9,900 million is not to be taken at face value. I do not believe that is the correct interpretation of this situation. These bank advances in theory may be on call, but they are not so in practice. This company liquidity is available to finance investment. The CBI, for example, is not claiming any immediate problems. It says that there may be problems next year, but in its representation to the Government the CBI has not claimed any immediate liquidity problem.

We have helped liquidity by keeping regional employment premium in existence and giving assurances about its future. That should help, but we shall keep company liquidity under review—an assurance which we have repeatedly given since the time of the Budget.

8.15 p.m.

The hon. Member for Cornwall, North discussed the financial deficit in the company sector and speculated on the ill effects which the present deficit might have. Unfortunately, in the present situation, with a large balance of payments deficit, that was inevitable. What does the hon. Gentleman expect to be done at this moment? There are the public sector, the corporate sector and the personal sector, and it is inevitable that in total they should be in deficit.

In the personal sector, is the hon. Gentleman suggesting that we should have further increases in taxation to reduce the surplus in that sector? If not, the question is simply a matter of striking the right balance between the deficit in the public sector and that in the corporate sector. That has to be determined by the Government. We believe that, given the conditions which we were facing at the time of the Budget, my right hon. Friend made the right decision by imposing a £300 million ACT surcharge as a way of producing the right balance between the deficit in the public sector and that in the company sector. The question is whether this will so affect the company sector that it will have an ill effect on investment. I have given reasons why I do not believe it should have that effect.

Mr. Maurice Macmillan (Farnham)

Since the right hon. Gentleman is dealing with investment will he explain, on the question of exports—and I have experience of a firm three-quarters of whose products are exported—what he means by the availability of export demand?

Mr. Dell

There is at present considerable demand overseas for the products of British industry, with the result that British industry is increasing its exports. It is helping us to deal with the non-oil deficit, which, fortunately, is falling. That is what I meant by saying that there is demand. We know that there are fears about the rate at which world trade may expand in the future, but at present we are seeing in our exports an increase which is of great value in helping with our balance of payments problem and is reducing our non-oil deficit.

A further point on the availability of money to companies to finance their activities is the situation in regard to bank lending. There continue to be large, un-drawn facilities and, so far as we know, no exceptional calls are being made on bank facilities at the moment. These are average statements. They may be misleading in respect of particular companies, but we have asked the banks to look at the problems of particular companies.

The right hon. Gentleman put the problem on the basis, "Should we take £300 million this year at the expense of next year?" We believe that, given the current liquidity position in the company sector, we can justifiably take the £300 million this year without doing any harm to the company sector, and we have decided to do so this year. I hope that he will accept, on looking at the facts and figures, that that was not an unreasonable decision.

The hon. Member for Cornwall, North has a very much more Machiavellian interpretation of our actions. He believes that we are sucking the company sector dry to make it ripe for nationalisation. If he believes that, he will believe anything. There is no truth in it. We have to ensure success for the private sector of the economy if we are to have success for the Government and for the country. There is no question about that. Even to imagine that to be the policy of this Government is an absurdity.

I hope that now that the right hon. Member for Carshalton has heard my explanation he will join some of his backbench colleagues in agreeing that he should not recommend his right hon. and hon. Friends to vote in favour of this amendment. This was a decision reasonably taken to help with a public sector borrowing requirement which we inherited. I am sure that the clause will be necessary, whatever my right hon. Friend the Chancellor of the Exchequer rises to say next week.

Mr. Maurice Macmillan

Will the right hon. Gentleman say a little more about the availability of export demand? He explained why liquidity and cash problems and this extra advance on corporation tax were not affecting company investment. One reason that he gave was that export demand was available. He used that phrase as if it was just sitting there, waiting for someone to get it. However, those of us who export find that we have to invest first in order to be able to be certain of meeting any demand that our efforts create. It is this prior investment which concerns us, and it is this factor which the right hon. Gentleman's explanation, admirable though it may have been in other directions, seemed to neglect.

Mr. Dell

I am glad to hear that the right hon. Gentleman's company exports three-quarters of its turnover. I wish that more companies could make that claim. He is obviously being of great assistance in his new capacity on the Opposition back benches in helping to deal with the country's balance of payments deficit.

In another capacity in an earlier epoch I, too, was deeply concerned with exports. I spent a large part of my life in exports. The right hon. Gentleman does not need to tell me that it is essential to invest first, and that it has to be profitable in order for it to be encouraging to do. The fact is that here is a world market which we can supply, which we are able to supply the more easily because our products are competitive, and which industry is more ready to supply because it can make profits uncontrolled by Governments if it chooses to supply.

Mr. R. Carr

If I may exercise my right to reply to the debate, I do so with the assurance that I shall not detain the House for very long.

Before addressing myself to the substance of the amendment, perhaps I might say a few more words about the VAT amendment. This is an important matter.

If we had had any reason, even now, to believe from anything said to us by the Government, not only on Report but in Committee, that £120 million was in volved in this year, that is a matter to which we would have addressed ourselves. However, we would still have had to face what I described last night as a very awkward decision. We would have had to decide between a strong call for expediency—using that word in no derogatory sense—and a matter involving constitutional and legal principles.

If the right hon. Gentleman reads all that was said by his fellow Treasury Ministers, he will see there was no reason for us or for anyone outside this House to imagine—until late yesterday—that the amount was as big as he now says it is and that it could possibly come into circulation in the current year.

One of the reasons argued by the Financial Secretary against our amendment and in favour of the House passing retrospective legislation on this matter was that the period for settling it all up would be enormously protracted. If the Government wish to have any give and take of responsibility in these important matters, they must accent that we have no evidence before us leading us to believe that the issue at stake involves £120 million on this year's public sector borrowing requirement, or anything like that sum.

If the Paymaster-General reads all that has been said by his right hon. and hon. Friends in dealing with this matter, he will agree that were he on the Opposition benches he could not possibly be expected to take that view. I still do not take the view that there is this amount at stake this year.

I would have been shocked if I had felt that the Customs and Excise did not intend to pursue this appeal. I am not a lawyer and therefore I am not versed in the nuances of what particular phrases mean. I was under the impression from what was said by the Financial Secretary on 17th June, in Committee, that he was of the view that the Customs and Excise still believed that its interpretation of the law was right, that what the House intended was what the Act achieved, and that the tribunal in this case had perhaps made a rather strange judgment. I was under the impression that notice of appeal had been given, and given in a meaningful sense, and that it would be carried through.

Given that that was our feeling from reading the Act and studying the case, if that amount is at stake it will need a great amount of justification not to proceed with the appeal. I accept that the Chancellor of the Exchequer has a responsibility and a freedom of action in this matter. But I hope that he will accept that we had no evidence to suggest that there was anything like £120 million at stake in this year's public sector borrowing requirement.

Turning to the amendment, I should like to repeat our strong belief that the future protection of jobs in this country, as well as our capacity to compete on an equal basis and maintain a high standard of living with full employment, depends critically now and in the years ahead on stimulating a higher level of productive investment in our industrial economy. That being so, we give this matter a high degree of priority and we believe that it is vital for the Government to encourage the fulfilment of that high priority need.

The Paymaster-General advised the House that this was not the way to do it. I will not again join argument whether it is or is not. I accept that, as a matter of responsible judgment, the right hon. Gentleman believes that this is not the way to do it. However, he did not indicate in what other way it might be done. I suppose that to some extent he says that he cannot anticipate his right hon. Friend's Budget statement next week. That underlines the unsatisfactory nature of the position in which we find ourselves. We are put in a very difficult position.

We are asked to conclude our proceedings on the basis that it would perhaps be improper to make such a big adjustment in the Chancellor's overall Budget judgment and balance in the knowledge that in a few days he will almost certainly tell us that that judgment and balance, if not wrong at the time, are at least outdated. Therefore, we must make up our minds once and for all on this matter before we have any idea of what the new balance will be.

8.30 p.m.

I advise my right hon. and hon. Friends that for the Opposition to press an amendment involving a flow of £300 million would, in effect, be taking over the job of the Government. This is a single item of such massiveness that I do not think we could or should do it. That has been my feeling all along.

Like the hon. Member for Cornwall, North (Mr. Pardoe), I have felt that this was an important matter and that to bring it forward as an amendment at this stage provided us with the opportunity of a minor economic debate of an important nature which, for reasons that I cannot now remember—certainly not the kind of conspiracy that the hon. Member for Cornwall, North suspected—we were prevented from having in Committee on the Floor of the House. That is why the amendment has been useful. However, I advise my right hon. and hon. Friends not to press it. Of course, we would take it ill if, having advised us in this sense today, the Chancellor were to do next week what he has been advising against today.

I repeat the warning that we shall take it ill, in the sense that we shall regard it as critically bad judgment for the future welfare of this country, if next week the Chancellor does not include in his measures, if he proposes reflationary measures of any kind, some important initiative to help industry and to encourage a higher level of investment.

On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Joel Barnett

I beg to move Amendment No. 5, in page 6, line 42, at end insert 'but nothing in this section shall require such a payment to be made by the trustees of an authorised unit trust or by an investment trust (within the meaning of Chapter VI of Part XII of the Taxes Act);

Mr. Deputy Speaker(Mr Oscar Murton)

With this amendment I think it might be convenient to take Government Amendments Nos. 6, 7, 8 and 9.

Mr. Barnett

Amendment No. 5 meets a specific representation made in Committee on the effect of Clause 12. It releases authorised unit trusts and approved investment trusts from the operation of the clause.

We believe that the trusts are in a special situation. For tax purposes authorised unit trusts are treated as distributing all of their available income and approved investment trusts are required to distribute at least 85 per cent. of their income. This means that the trusts may have to distribute income received under deduction of income tax. If they do, they are not able, because of the mechanics of the tax system, to set this income tax suffered by deduction against their liability for ACT or for the ACT supplement. Thus, the supplement would bear with particular severity on the cash position of unit trusts and, only to a slightly lesser extent, investment trusts.

Amendments Nos. 6 and 7 provide that in a group of companies the parent may claim to have the ACT supplement paid by it set against a subsidiary's corporation tax liability for the relevant accounting period. Again, these amendments implement an undertaking that I gave in Committee.

The next two amendments, Nos. 8 and 9, accelerate the return of the ACT supplement to the company which can show that the amount paid would exceed its mainstream liability for the relevant accounting period. Under the clause as drafted a company has to wait for the repayment of any excess over its liability for the relevant accounting period until the date when that liability falls due or would, if there had been any, have fallen due, which is normally 1st January 1976.

It has been argued by, among others, the CBI and in Committee by the hon. Member for Croydon, South (Mr. Clark), and I am sure by the hon. and learned Member for Dover and Deal (Mr. Rees), that this hits hard at the company which, because of double tax relief or large tax allowances on capital expenditure, has little or no ultimate corporation tax liability. The effect of the proposed amendments is that the repayment may be made at a date earlier than the date laid down in Clause 12(6) if, and to the extent that, the inspector is satisfied that the supplement exceeds the mainstream liability.

In order to prevent too early a loss of funds to the Exchequer no repayment under this concession is to be made before 1st September 1975. I hope that the House will accept this. I trust those hon. Gentlemen to whom I gave those undertakings in Committee will appreciate that I have fulfilled my undertakings.

Mr. David Howell

The Chief Secretary pressed the three points here covered by the four amendments with great vigour during the earlier part of the Committee stage. We welcome the three concessions which have now been brought forward, the lower rate of ACT for unit and approved investment trusts, the point concerning the parent company, and the pay-back point coverered by the last two amendments.

I do not know whether my hon. Friends will have any further comments. We welcome these concessions.

Mr. Peter Rees

I acknowledge that most of these amendments were made in response to various points raised in Committee by my hon. and right hon. Friends and myself.

I am a little worried about Amendment No. 9. I would ask the Chief Secretary about the standard of satisfaction the inspector will require. Without wishing to appear churlish and looking the gift horse in the mouth, I am worried about the date of 1st September 1975. Presumably if the company concerned has an accounting period concluded before that date it will not preclude a repayment of advance corporation tax. It may be that the Chief Secretary will be able to reassure the House that, in those circumstances, repayment will be possible before September 1975, otherwise it appears hard and ungenerous. Perhaps the Chief Secretary could give an assurance concerning that amendment.

Mr. Joel Barnett

I should have thought that the standards that an inspector of taxes would require are the normal stan- dards required when he agrees a set of accounts. Once he has agreed accounts and the loss created, whether by losses as such or by capital allowances, that will be sufficient for him.

Mr. Rees

If that is so, the amendment gives nothing. If the accounts and the company's liability have been agreed—or the fact that it was in a loss position and not obliged to pay corporation tax—surely it would in any event be entitled to repayment of ACT.

Mr. Barnett

I am sure that the hon. and learned Gentleman appreciates that a company can make losses yet still be liable to advance corporation tax because it had paid a dividend.

Mr. Rees

indicated assent.

Mr. Barnett

I see that I carry him with me.

The reason for the amendment is that, as originally drafted, the clause would have meant that it would have taken somewhat longer to make the repayment.

Mr. Rees

indicated assent.

Mr. Barnett

I see that he takes my point.

I understand the hon. and learned Gentleman's concern about the need for making the repayment earlier than 1st September 1975, but the ACT supplement is intended to reduce the public sector borrowing requirement and too early a date for repayment could go some way to frustrating that intention. The amendment would avoid the situation put to me in Committee, in which, if the supplement had been paid, a repayment would be unduly delayed. I hope that it will be considered that I have gone some way to meet the point made in Committee.

Amendment agreed to.

Amendments made: No. 6, in page 6, line 44, after 'shall', insert 'subject to subsection (2A) below'.

No. 7, in page 7, line 3, at end insert: '(2A) Where throughout the relevant accounting period of a company which makes a payment under this section (in this subsection referred to as "the parent company") another company is a subsidiary of the parent company for the purposes of section 92 of the Finance Act 1972, the parent company may by notice in writing to the inspector elect that, to the extent only of the subsidiary's liability to corporation tax for the subsidiary's relevant accounting period, or to such less extent as may be specified in the notice, the payment shall be deemed to be made on account of that liability.'

No. 8, in page 7, line 26, after 'above'. insert 'or subsection (6A) below'.

No. 9, in page 7, line 30, at end insert: '(6A) If the inspector is satisfied before the time mentioned in subsection (6) above that an amount falls to be repaid under that subsection, that amount shall be repaid when the inspector is so satisfied; but no repayment shall be made by virtue of this subsection before 1st September 1975'.—[Mr. Joel Barnett.]

Mr. Peter Rees

I beg to move Amendment No. 180, in page 8, line 10, after 'up' insert: 'or where a company ceases to be within the charge to corporation tax'.

Mr. Deputy Speaker

It will be convenient to discuss at the same time the following amendments:

No. 181, in page 8, line 11, after 'commenced', insert: 'or if the company ceased to be within the charge to corporation tax'.

No. 182, in page 8, line 14, after 'commenced', insert: 'or if the company ceased to be within the charge to corporation tax'.

No. 183, in page 8, line 18, after 'winding-up', insert: 'or the accounting period at the termination of which the company ceased to be within the charge to corporation tax as the case may be'.

Mr. Rees

The amendments are designed to increase the relief already afforded by subsection (8). As the scheme of Clause 12 has been explained, the additional charge of advance corporation tax is a "loan" to the Government to be repaid from the liability to corporation tax of a company that has paid a dividend. As the Chief Secretary has recognised in subsection (8), there may be situations in which a company, although it has paid a dividend, will have no subsequent liability to corporation tax. Therefore, it will never get any repayment of its loan to the Government. I may be wrong on this, and I am open to correction.

The Chief Secretary has recognised that particular hardship could arise when a company was in the process of being wound up before 1st January or at the beginning of this year. However, a further situation has occurred to me and I hope that there is some validity in the point. A company may have ceased to trade and therefore will not have a subsequent accounting period for liability to corporation tax against which the additional charge can be set. In other words, it is only another example of a company not being able to achieve a repayment of its loan to the Government. The amendments are designed to deal with that situation and I hope that they will not provoke such a wide-ranging debate as we had earlier tonight.

8.45 p.m.

Mr. Joel Barnett

I am happy to respond to the hon. and learned Gentleman. I appreciate the point that he is making. There is a possibility that there may be a type of company caught in the way that he suggested. But I want to explain the effect that his amendments would have.

The amendments are designed to put the company which ceases to be within the charge to corporation tax on a par with a company which is wound up, both as regards the liability to pay the ACT supplement and the set-off or repayment of the supplement. We have not been able to see clearly the type of case which these amendments seek to protect. But in any event—I hesitate to say this to the hon. and learned Gentleman, although I see him smiling—the amendments are, in the jargon, technically defective, I hasten to add that I do not accuse the hon. and learned Gentleman of being defective in any way.

I am assured that the amendments as drafted would embrace a company that at any time in the past had ceased to be within the charge to corporation tax—for example, through migration—irrespective of whether it had subsequently come back within the charge. The purpose of subsection (8) is to exempt from the surcharge the exceptional case of the company already in liquidation on 1st January 1974 which makes a distribution after that date giving rise to an ACT liability. Under paragraph (b), where a company goes into liquidation after 1st January 1974 but before 1st April 1975, any additional payments made under the clause may be rebated against the tax due on profits, if any, arising up to the date that winding-up commenced. This ensures that the completion of a winding-up will not be unduly delayed because of the effect of the clause.

We find it hard to envisage a case in which it is thought that the subsection operates unfairly. There is no problem with the example that the hon. and learned Gentleman has given, because it would be treated in another way and I am assured that it would be all right.

However, I want to promise this to the hon. and learned Gentleman: if we come across cases—examples which he has not given us—which might be affected in the way suggested. we shall seek either to deal with them by administrative action, or, if necessary, come back with other amendments. At present, as far as I can see, there is none that would be affected—I hope that the hon. and learned Gentleman will accept that from me—otherwise I should have been happy to look at this matter.

Mr. Rees

I am touched by the Chief Secretary's diffidence in suggesting that my amendment might be technically defective. These were suggestions that he made at various intervals in Committee, and I am well inured to this kind of criticism—although I did not expect it on this occasion.

However, I do not wish to detain the House. The hon. Gentleman has made a generous concession which I am sure will meet the justice of this case. Although I am not happy about administrative concessions, I agree that this is such a small and narrow point that it may be appropriate to deal with it by the Chief Secretary at a later stage proposing—not on his Finance Bill—a more far-reaching amendment.

On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.