Commons Sitting of 10 June 1974

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

  BRITISH RAILWAYS BILL
  Order for consideration, as amended, read.
  To be considered tomorrow.

ORAL ANSWERS TO QUESTIONS
  TRADE

    Trade Balance
    Mr. Carterasked the Secretary of State for Trade if he will make a statement on Great Britain's current trading position.
    The Secretary of State for Trade and President of the Board of Trade (Mr. Peter Shore): The figures up to April show that the worsening caused by increases in the price of oil had been partly offset by improvement in the balance of trade in other goods.
    Mr. Carter: My right hon. Friend will be aware that a large part of our current trade deficit is with the rest of the EEC. Does he think that that is a permanent or temporary situation? Further, will he tell the House why the much prophesied export boom consequent upon Britain's entry into the Community has not yet come about?
    Mr. Shore: My hon. Friend has made a fair point. There is a massive British trade deficit with the EEC. That deficit stands in sharp contrast to the confident expectations which were held some two years ago about how our trade with the EEC would benefit and improve. I now turn to the longer-term prospects. I hope that our visible trade with the EEC and
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    with all other trading areas will improve now that the general strength of demand in the economy has been regulated. There is now a considerable possibility of increasing our exports to all markets.
    Mr. Peter Walker: Does the right hon. Gentleman agree that last year, unlike what was suggested by his hon. Friend the Member for Birmingham, Northfield (Mr. Carter), exports to the Common Market rose by 37 per cent. compared with a rise of exports to the rest of the world of 26 per cent., and that now nearly a third of our exports goes to the Community?
    Mr. Shore: The right hon. Gentleman should know better than that. Our exports to the Common Market rose last year, but what the right hon. Gentleman should know, and what he so persistently ignored when he had ministerial responsibilities, is that our imports rose even faster. Our deficit with the EEC grew from £500 million in 1972 to over £1,000 million in 1973.

    European Economic Community
    Mr. George Gardinerasked the Secretary of State for Trade if he will seek discussions with leading British exporters on the effect that a British withdrawal from the European Community would have on their European sales.
    The Under-Secretary of State for Trade (Mr. Eric Deakins): I am ready to discuss export prospects with British industry at any time.
    Mr. Gardiner: Is the Minister aware that there will be some surprise that such discussions have not already been taken further with exporting firms? Will he get his right hon. Friend the Secretary of State to undertake to have discussions with ICI, whose chairman recently reported that his company's exports to the EEC increased by 63 per cent. during our first year of membership of the Common Market? I urge the Minister and the Secretary of State not to be deflected from having these discussions by the certain knowledge that the verdict that they will receive is that it would be disastrous for British exports and employment if we were to withdraw from the EEC.
    Mr. Deakins: I shall deal first with the second part of the hon. Gentleman's question. I am aware of the claim that is made by the CBI. However, I think that British industry is sympathetic towards the Government's declared intention of getting improved terms. There is also the point that the views of the British people will have to be taken into account before the issue can be resolved.
    I now deal with the first part of the hon. Gentleman's question. We have had discussions with the CBI representing British industry, but we are prepared in any particular case and in any particular market to have discussions with the exporting firms concerned.
    Mr. Blakerasked the Secretary of State for Trade what assessment he has made of the likely effect on trade with Commonwealth countries which would result from British withdrawal from the EEC.
    Mr. Shore: Such an assessment would be premature, but I have no reason to believe that our trade with Commonwealth countries would in any way suffer.
    Mr. Blaker: Will the right hon. Gentleman say whether he has asked the Commonwealth countries for their views on the merits of Britain's remaining in the Community and whether any Commonwealth country has expressed a preference for our leaving it?
    Mr. Shore: What I have discussed with a number of Commonwealth countries is the question of the access of their goods to Britain as a result of Britain's membership of the EEC. I can assure the hon. Gentleman that nearly all the countries to which I have spoken are very anxious that that access should be broadened and that Britain should therefore be able to achieve under this Government a fundamental renegotiation of the terms.
    Mr. Churchill: The right hon. Gentleman seems peculiarly evasive this afternoon.
    Mr. Speaker: Order. That was a statement, not a question.
    Mr. Churchill: Will the right hon. Gentleman now answer my hon. Friend's question, namely, have any representations been received from Commonwealth
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    Governments requesting Britain's withdrawal from the EEC?
    Mr. Shore: I think that Commonwealth Governments very correctly take the view that just as it would be improper for them to express the view that we should stay in so it would be equally improper for them to express the view that we should leave. What they wish to do is to leave it to the British Government to handle the renegotiations. They hope that their interests will be better looked after than they have been in the past few years and that the matter will be finally resolved by the British people.
    Mr. Moateasked the Secretary of State for Trade when he next expects to visit Brussels to discuss British trade with the European Economic Community.
    Mr. Shore: I have no immediate plans for trade talks with the Commission, but I hope to attend the meeting of the Council of Ministers on 25th June.
    Mr. Moate: Does the right hon. Gentleman recall the recent statement by the French President and the West German Chancellor expressing opposition to the protectionist trade measures taken in the Community? If it should prove necessary to negotiate British withdrawal from the EEC, does not that type of statement offer further encouragement of the belief that free trade in Western Europe could be retained?
    Mr. Shore: Regardless of the weight one puts on the declaration by the German Chancellor and the new French President, I have always taken the view that it is in the interests of all Western European countries, and, indeed, more widely, to establish as near as possible genuine free trade in the modern world. Whether Britain is in or out of the Common Market, I hope that we shall have success in the forthcoming multilateral trade talks and that we shall move forward to that international free trade régime which the hon. Gentleman wants to see.
    Mr. Body: Will the right hon. Gentleman confirm that in his talks with the OECD that opinion was expressed?
    Mr. Shore: The OECD is very much in favour of creating and broadening

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    international trade. We are pleased that in the past fortnight there has at last been settlement of the Article XXIV.. 6 negotiations affecting GATT, opening the way for the American trade reform legislation and, one hopes, the multilateral trade reform talks later this year.
    Mr. Martenasked the Secretary of State for Trade if he will make a statement about British trade with the EEC.
    Mr. Shore: In January-April 1974, on a seasonally adjusted basis, exports to the other members of the EEC were £1,681 million fob and imports from them £2,310 million cif.
    Mr. Marten: Is there any reason to expect that if we had a free trade area instead of the Common Market there would be much difference in our trade with Common Market countries? Is the Minister aware of the campaign that is being built up by the European Movement and its supporters in various places that for this country to withdraw from the Common Market would be disastrous to us? Is he further aware that the European Movement in Norway, and its supporters, said precisely the same and were proved wrong? Will the Government take action to counter this totally misleading propaganda by the European Movement and its many supporters.
    Mr. Shore: The hon. Gentleman tempts me, and I shall yield to temptation. I deeply deplore the propaganda efforts that are being made to resurrect this European dogma. The people who embarked upon that dogma in the past did this country no service. I very much hope that in the period that is now beginning British industry will put far more effort into winning markets in Europe, whether in a free trade area or in the Common Market, than in trying to persuade the British people that it is in their interests to become part of a European union.
    Mr. Jay: Will my right hon. Friend observe that with the original EEC Six —the great home market which we were exhorted to join—in the first four months of this year our visible trad': deficit has been running at an annual rate of £1,600 million a year.
    Mr. Shore: I am only too deeply aware of that. This is part of a progression,
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    from £500 million a year in 1972, to over £1,000 million a year in 1973, and at the rate of £1,600 million a year in 1974. One simple equation is that if any Conservative Front Benchers thought, during the negotiations, that we could somehow manage to shoulder the burden of our membership fees of the EEC out of the improved balance of payments position which they hoped we would get from our trade with the EEC, they must now be profoundly disillusioned.
    Mr. Tom Boardman: Will the Secretary of State confirm, after the consultation which he has no doubt had, that British industry, almost without exception, is opposed to withdrawing from the Common Market?
    Mr. Shore: It is typical of the hon. Gentleman to confuse British industry with the CBI. British industry also consists of many millions of workpeople, who do not take the same view about the advantages of membership of the EEC.
    Mr. George Lawson: Will my right hon. Friend consult the steel industry before he says too much about the attitude of British industry? Is my right hon. Friend saying that the skill of British management and men is so inferior that we cannot stand on our own feet before the Germans, the Italians or anyone else? Why are we doing so badly, if my right hon. Friend is saying that we are doing badly?
    Mr. Shore: I very much hope that we can and will stand on our own feet. It is like the old business of swimming the Channel. We are not afraid of swimming the Channel, but if we put the ball of the CAP round one ankle and our budgetary contributions round the other we should not be surprised if we sink.
    Mr. Peter Walker: Does the right hon. Gentleman agree that about one job in seven in British industry is dependent on exports to the Community? Is he aware that all his anti-Common Market remarks this afternoon are in complete contrast to the most recent statement of the Foreign and Commonwealth Secretary?
    Mr. Shore: I suggest that the right hon. Gentleman reads with rather more care what my right hon. Friend had to say.

    Australia
    Mr. Shersbyasked the Secretary of State for Trade if he will examine ways of speeding up the deliveries of British exports to Australia.
    The Under-Secretary of State for Trade (Mr. Clinton Davis): I am aware that in recent months there have been delays in shipments of goods to Australia. This is a problem that can be solved only by the commercial interests involved. They are already in close touch with each other but my Department has had discussions with the United Kingdom/Australia Conference and the lines concerned to ensure that everything possible is done to resolve the present difficulties.
    Mr. Shesby: Is the Minister aware that the Export Times today described this matter as the "Scandal of the 'shipping shambles'"? Will he be having any discussions with the British Shippers Council to try to alleviate the problem in the next three months?
    Mr. Davis: The Government appreciate the difficulty. We have had many letters expressing concern. The fact remains that we have no powers which enable us to force anyone to do anything. As I have already indicated, we have discussed the matter with the United Kingdom/Australia Conference and with the lines concerned. I believe that everyone is fully aware of the situation. It is not wholly of the making of British interests, because there are difficulties in Australia which have led to congestion in the ports, about which the hon. Ge leman knows.
    Mrs. Chalker: In view of the Minister's answer and the breakdown of negotiations in the port of Liverpool last Friday between the Transport and General Workers' Union and the port authorities, will he indicate what steps he intends to take to get the grain terminal working in the port of Liverpool?
    Mr. Davis: That is not a matter for my Department.

    Supersonic Flight Paths
    Mr. Adleyasked the Secretary of State for Trade if he will make a statement on his Department's negotiations with foreign Governments concerning supersonic flight paths.
    Mr. Clinton Davis: My Department is pressing forward as rapidly as possible in discussions with the countries concerned. We are making progress, but, as the hon. Gentleman will appreciate, it is not desirable to specify details of these discussions while negotiations are proceeding.
    Mr. Adley: I accept the latter point, but has the hon. Gentleman seen the reports in weekend newspapers that certain American politicians, notably in Boston and New York, seem again to be trying to use Concorde, by opposing it, to further their own political ends? Will he have discussions at an early date with his colleague in the French Government so that the Americans can be left in no doubt that playing this game is dangerous?
    Mr. Davis: I cannot be answerable for the actions of certain American politicians. The House has sufficient difficulty with some British politicians. Discussions of the nature to which the hon. Gentleman has alluded are a matter for my right hon. Friend the Secretary of State for Industry and not for my Department.
    Mr. Stonehouse: What representations have we made to the American authorities about allowing Concorde to fly into New York, for instance?
    Mr. Davis: I have already indicated that at this stage we are not prepared to divulge such details of discussions which are proceeding. I ask my right hon. Friend the Member for Walsall, North (Mr. Stonehouse) to accept my assurance that discussions have proceeded and that my Department is in no way dragging its feet.
    Mr. Heseltine: Will the hon. Gentleman explain why, on this one aspect of Concorde, we are told nothing, whilst all the unfavourable aspects are widely publicised?
    Mr. Davis: The hon. Gentleman should know better, having been involved himself in this form of discussion, but he seems to have learnt nothing from his own experience. For me to embark now upon detailed disclosure of the proposals which have been made could only harm the situation, and could not possible benefit it. I cannot believe

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    that the hon. Gentleman really thinks that it would be helpful for me to go into greater detail now.

    Company Law
    Mr. Dixonasked the Secretary of State for Trade whether he will make a further statement about the reform of company legislation.
    Mr. Shore: My Department is currently undertaking a wide-ranging review of companies legislation and of the machinery for enforcing it, and will take account of recent studies, including the proposals in the report on the reform of company law published on the reform of Party. This review will extend to the arrangements for supervision of the securities market, about which there have already been consultations with the Bank of England, and also to my own Department's policies and powers on enforcement; it will be undertaken on a wide scale in consultation with interested outside bodies, and will be published.
    Mr. Dixon: Does not the right hon. Gentleman agree, however, that if, as he has indicated, the Government's policy in these matters is going to correspond to the views of the left wing of the Labour Party, all they will be doing is erecting such a mass of complication in this country that no foreign investor will conceivably contemplate investing here in future and every Englishman, if he possibly can, will seek to invest abroad?
    Mr. Shore: The hon. Gentleman has misunderstood the degree and scope of the criticism that there has been from many sources—including, certainly, the Labour Party—about the way in which a number of these matters have been looked after in recent years. There is a widespread view that there is need for change and for increasingly vigorous enforcement in this sector.
    Mr. Skinner: Does not one of the reasons for company law reform lie in certain examples in recent months, including the rather strange case of London and County Securities, bailed out in an exercise in community politics by the leader of the 1922 Committee, the right hon. Member for Taunton (Mr. du Cann), and the equally strange subsequent affair in which the First National Finance Corporation, which assisted in bailing out.
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    London and County Securities by taking over some of its debts, has now found itself in almost as difficult a position? Does not my right hon. Friend also agree that, when we hear an important group chairman talking about investing in cash, something badly needs doing?
    Mr. Shore: Many criticisms could legitimately be made about certain aspects of affairs in the City, including the secondary bank problem. The range of matters on which we are now starting an inquiry does not, however, include secondary banks, which are being looked at in a different context. In my view, this will lead to serious consideration of proposals which should bring about significant improvements.
    Mr. Redmond: What special provision in company legislation will the right hon. Gentleman make for small firms?
    Mr. Shore: The question of small firms in terms of the securities market, the Stock Exchange and other matters, does not come first to mind. As the hon. Gentleman knows, what we are concerned with is the way in which take-overs take place and the way in which the present machinery of investigation is operating.

    Exports
    Mr. Gryllsasked the Secretary of State for Trade what consultations he has had with the Confederation of British Industry with regard to improving British exports.
    Mr. Shore: I have discussed a number of matters with the Confederation of British Industry, including exports and related trade issues. The British Overseas Trade Board has had similar discussions.
    Mr. Grylls: Has the right hon. Gentleman had discussions about arms sales to Chile? Will he come clean, stop hiding behind a smoke screen of secrecy and tell us how many hundreds of millions of pounds' worth of exports are being lost by the Government's silly ban when we need all the exports we can possibly get at present?
    Mr. Shore: The hon. Gentleman's figures are grossly exaggerated and are based upon his own rather heated imagination rather than upon any facts available to us. He knows the situation with

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    regard to arms sales to Chile. It has been stated in this House.
    Mr. Carter: Will my right hon. Friend tell us how many millions of pounds in trade this country might have lost if arms sales to Chile had gone ahead?
    Mr. Shore: That is another aspect of the matter.
    Mr. Tom King: In discussions with the CBI, what was the right hon. Gentleman able to say about any ideas he has for promoting British exports?
    Mr. Shore: I have had considerable talks with the CBI, both directly myself and through my officials and officials of the CBI. One of the main focuses of our talks has been how far the British Overseas Trade Board's activities can promote British exports and how its work and the work of the CBI can be brought closer together and made more effective
    Mr. Heseltine: Will the right hon. Gentleman comment on reports that among the activities he has been indulging in is to tell the ECGD, two weeks ago, that it should not give further support to certain countries of which he disapproves? Does he think that such activities help our trade?
    Mr. Shore: The hon. Gentleman should not believe all that he reads in the Press.
    Mr. Grylls: On a point of order, Mr. Speaker. In view of the unsatisfactory nature of the reply, I beg to give notice that I shall seek to raise the matter on the Adjournment at the earliest opportunity.
    Mr. Stanleyasked the Secretary of State for Trade whether he is satisfied with the financing assistance available to the purchasers of British exports.
    Mr. Shore: Yes. Sir. The financial facilities available for British exports are at once extensive and broadly competitive.
    Mr. Stanley: In view of the oblique reply to my right hon. Friend a few moments ago, will the Secretary of State give the House a categorical assurance that it is not the Government's intention to make ECGD finance available on a politically selective basis?
    Mr. Shore: If I am asked for a categorical assurance in relation to an article that appeared in the Economist alleging that I had asked for a list of export deals covering a number of countries and that I had prevented them from going ahead, the answer is "No".
    Mr. Stanley: Answer the question.
    Mr. Tom Boardman: Will the right hon. Gentleman now answer the question? Will he give a categorical assurance that no instructions are being given affecting credit facilities for exports to countries of whose Governments the right hon. Gentleman does not approve? Will he answer that?
    Mr. Shore: I am not prepared to give an answer in those terms. As the Minister responsible for the ECGD, it is not right for me to limit my rights in relation to the ECGD. What I am able to give the House is a categorical assurance that the article that appeared in the Economist was false.
    Mr. Hugh Fraser: The right hon. Gentleman can clear up this matter quite easily if he will assure the House that he will make a statement to the House about any individual case in which he decides to take political action against an exporter or importer. If not, by administrative action he will be doing what he is accused of doing by the Economist. If he will assure the House that he will tell us if he takes such an action, we shall be able to debate it.
    Mr. Shore: I am happy to give the right hon. Gentleman that assurance. If, with my colleagues, I decide to restrict ECGD transactions in relation to particular countries, I have no doubt that I shall want to make a statement to the House about that.
    Mr. Loughlin: Is not the right hon. Gentleman aware that successive Conservative administrations have taken decisions about financing and about trade itself on the basis of political opinions, and have done so over the whole postwar period?
    Mr. Shore: Of course there have been many occasions when Governments have had to intervene in trade matters. Anyone who knows the ECGD Act and who studies it carefully will appreciate that

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    certain provisions provide that there has to be an element of judgment about what kind of credit facilities should be available.
    Mr. Heseitine: Will the right hon. Gentleman tell the House whether he has had conversations with officials in the ECGD in order to put himself in a position to take action enabling him to discriminate against countries of whose regimes he disapproves?
    Mr. Shore: I shall certainly not tell the hon. Gentleman about conversations that I may or may not have had with members of my own Department.
    Mr. Heseltine: Open government!
    Mr. Shore: Not at all: that does not relate to the issue of open government. The right hon. Member for Stafford and Stone (Mr. Fraser) made the perfectly reasonable request that if we made changes in ECGD we should inform the House. I shall be glad to do that.

    China
    Mr. Berryasked the Secretary of State for Trade if he will publish the latest figures for trade with China; and if he will make a statement.
    Mr. Deakins: For the four months ended April 1974 exports were provisionally estimated at £22 million fob and imports at £25 million cif. Our trade with China continues to grow.
    Mr. Berry: Is the Minister aware that as I was present when my right hon. Friend opened the exhibition in Peking last year, I naturally welcomed that improvement Will he bear in mind the conversations between my right hon. Friend the Leader of the Opposition and the Chinese leaders recently, when the Chinese made it clear that our membership of the Community was an important factor in our relations with China? As the hon. Gentleman wishes our trade to improve, will he bear that in mind in reference not only to China but to other countries?
    Mr. Deakins: That is a matter not of Chinese trade policy but of Chinese foreign policy. All relevant considerations will be borne in mind. We all want an expansion of trade with what may be one of the most important markets for our exports.
    Mr. Buck: What is the Government's attitude to the supply of Harriers to China?
    Mr. Deakins: No firm proposals have yet been put to the company, but we hope that there are longer-term prospects for the sale of other types of aircraft.

    Foreign Companies
    Mr. Michael Morrisasked the Secretary of State for Trade what estimate has been made of the effect on the balance of trade of recent Government measures discouraging foreign firms from establishing themselves in Great Brittain.
    Mr. Shore: The Government have taken no measures to discourage foreign firms from establishing themselves in Great Britain.
    Mr. Morris: Is not the right hon. Gentleman aware of what was in the Budget? That was an extraordinary statement when, in fact, there are international companies which feel that the Budget acted against them—and I shall be happy to provide the right hon. Gentleman with a full list. In the light of the views of these companies, will he now listen to representations and, if he then thinks that the companies are adversely affected, will he consider alternative proposals and make amendments in the autumn Budget, to which we all look forward?
    Mr. Shore: Naturally, the Government will consider reasonable criticisms, but this matter has been debated in the House on a number of occasions in the context of the Finance Bill, and certain amendments have already been made.
    Mrs. Dunwoody: I dissociate myself entirely from the incoherent rubbish mumbled by the hon. Member. However, will my right hon. Friend remember that his Department is responsible for the film industry and that if we lose markets in countries whose nationals have contributed greatly to our cultural life and who have often come here precisely because at home they were subject to political pressures, we shall badly damage our own interests? I hope that my right hon. Friend will impress on his colleagues in the Treasury our fear that we may, unfortunately, lose some of these great opportunities if some provisions in the Finance Bill are not changed.
    Mr. Shore: I always listen to my hon. Friend with attention. If there are specific matters affecting the film industry that she thinks should be brought to the attention of myself and my right hon. Friend the Chancellor of the Exchequer, I invite her to make sure that we receive her submissions.
    Mr. Heseltine: Does not the right hon. Gentleman understand that if he had defended his actions, at least we should have been able to question them, but that it is far more serious when he does not understand that the Government's actions have harmed our trading position? May I help him? Is he not aware that the dramatic increase in taxation, the threat to withdraw from Europe, and the incredible antics of the Secretary of State for Industry have had the most damaging effects on the prospects for investment in this country by overseas investors?
    Mr. Shore: Not for the first time, the hon. Member is talking a lot of nonsense. The plain truth is—
    Mr. Heseltine: Look at the investment figures.
    Mr. Shore: —that the increase in investment in Britain for last year and the year before shows every sign of continuing in 1974. To date, I have received no information to show that anything we are alleged to be doing is discouraging investment in British industry.

    Italy (Import Deposit Scheme)
    Mr. Michael Lathamasked the Secretary of State for Trade what general advice his Department is giving to British exporters about difficulties caused by the Italian import surcharge.
    Mr. Deakins: Details of the import deposit scheme were sent to subscribers of the Export Intelligence Service on 7th May, and were also published in Trade and Industry on 9th and 23rd May. General advice was likewise published on 6th June.
    My Department has also given advice to individual firms in the light of their particular problems.
    Mr. Latham: I thank the hon. Gentleman for that reply and for the advice that has been given by his officials to my constituents. What is his Department
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    doing to get this unfortunate and discriminatory measure removed as soon as possible?
    Mr. Deakins: We have made our views clear through the Council of Ministers of the EEC. At the same time, we understand the severe difficulties imposed on the Italian economy by the tremendous rise in oil prices in the past six months. We must hope that the measures currently being taken will enable the import deposit scheme to be ended as quickly as possible in the interests of a further expansion of world trade.
    Mr. Kenneth Clarkeasked the Secretary of State for Trade what representations Her Majesty's Government have made to the Government of Italy about their new import deposit scheme.
    Mr. Shore: These measures have been discussed at meetings of the EEC, OECD, and elsewhere, where the views of the United Kingdom Government have been put.
    Mr. Clarke: Does the right hon. Gentleman agree that the main danger is that other countries which do not have Italy's grave problems will nevertheless follow their lead, and "beggar-thy-neighbour" policies will be adopted by developed countries trying to pass the results of their balance of payments problems on to their trading competitors? If the right hon. Gentleman agrees with that, will he give an assurance that there is no question of the British Government's contemplating equivalent measures to deal with their present balance of payments situation?
    Mr. Shore: There is a grave danger this year, probably more than in any year since the war, that if nations begin to restrict their trade for balance of payments reasons in the face of the incredible oil deficit, which virtually the whole of the developed world faces, this could produce a downturn—indeed, a slump. It is therefore absolutely essential that nations should not follow the example of the Italian Government—although I understand their very special difficulties— in pursuing policies which restrict trade. I can give the hon. Gentleman the assurance for which he asks in respect of this country for at least this year.
    Mr. Skinner: Is it not a fact that when any of the States within the Common

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    Market finds itself in extreme financial or other difficulties it tends to do its own thing, and that that applies not merely to Italy, with its import deposit scheme and import surcharge scheme, but to France and some of the other so-called giants of the Common Market? Will my right hon. Friend bear in mind that he should not be dogmatic in his replies about what Italy has done, because in the not too distant future he may well have to adopt physical and financial controls which may be similar in effect?
    Mr. Shore: I said that I was not considering this matter primarily in the EEC context, because I do not believe that the Common Market provides a substantial enough forum for solving major international trade and monetary questions. My answer was couched within the context of the international trading community as a whole, in respect of which we have to restrain ourselves this year in the interests of all.
    Mr. Tugendhat: Will the right hon. Gentleman pay particular attention to what the hon. Member for Bolsover (Mr. Skinner) has said? The oil situation is only one factor affecting the Italian economy. What marks the Italian economy off from other European economies is the extreme rate of price inflation, the avariciousness of its trade unions and the lack of profitability of its industry.
    Mr. Shore: No doubt we can all produce our own list of reasons for marking the Italian nation off from other countries. But the avariciousness of Italian industry and Italian capital——
    Mr. Tugendhat: Trade unions.
    Mr. Shore: —not just of Italian trade unions, and the great internal political difficulties of the Italian State, are important factors which affect the whole situation.

    Air Crews (Flight Time Limitations)
    Mr. Tebbitasked the Secretary of State for Trade when he expects to bring forward legislation concerning flight time limitations, following upon the report of the Committee of the Civil Aviation Authority published in June 1973.
    Mr. Clinton Davis: The Civil Aviation Authority has conducted wide-ranging.
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    discussions about the recommendations of the Bader Committee and has prepared drafts of revised legislation and related requirements. It is circulating these drafts to interested parties for comment, and proposals for changes to the legislation will be submitted to my right hon. Friend as soon as this process is complete.
    Mr. Tebbit: While thanking the Minister for that answer, may I urge upon him the necessity for taking early action? Unless legislation is introduced into the House this year it will not be possible to put it into effect in time for next summer's schedules of British airlines. Is the hon. Gentleman aware that I believe that this is necessary and long overdue?
    Mr. Davis: I am grateful to the hon. Member, who, I know, has a real interest in this matter. It is hoped that the legislation will have been introduced and implemented by the end of the year. The CAA has already followed one of the recommendations made by the committee, by the setting up of the Flight Time Limitations Board, which I think will be valuable.
    Mr. Leslie Huckfield: Will my hon. Friend accept that many of the problems of flight time limitations for the flight deck also affect cabin staff? Is he able to say anything about the progress of the committee which is reviewing the flying schedules of cabin staff?
    Mr. Davis: My hon. Friend will be aware that the working party which was established following the recent dispute is looking carefully into questions affecting cabin staff. It would be premature for me to make any statement at this stage about that.

    Chile
    Mr. Neubertasked the Secretary of State for Trade what recent steps his Department has taken to encourage trade between Great Britain and Chile.
    Mr. Shore: Apart from military supplies, which are embargoed, the normal range of services to exporters is available in respect of trade with Chile.
    Mr. Neubert: Some encouragement can be taken from that answer but will the right hon. Gentleman undertake. in connection with Chile, to advise his colleagues in the Labour Party and the

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    upper reaches of the engineering unions that before involving themselves in other countries' affairs they should have regard not to their own personal and highly selective prejudices but more widely to this country's interests as a trading nation?
    Mr. Shore: What my hon. Friends have to balance and what, as a Minister, I have to balance, are the interests of this country as a trading nation with our views about unacceptable political behaviour on the part of some other Governments. This becomes a matter of major concern when it affects the supply of armaments.
    Mr. Jay: Have not every Government of this country since the war maintained a list of countries to which they did not sell arms?
    Mr. Shore: My right hon. Friend is absolutely correct.

    Heathrow (Security Checks)
    Mr. Leslie Huckfieldasked the Secretary of State for Trade what is the current practice relating to the searching of passengers and their baggage at London Airport, Heathrow.
    Mr. Clinton Davis: Passengers and baggage at Heathrow and other United Kingdom airports are being searched by both British and overseas airlines to the extent recommended by the Government.
    Mr. Huckfield: Will the hon. Gentleman accept that the staff morale situation was considerably aggravated by the previous administration's being favourably disposed to the employment of private security firms? Will he accept that there is now an acceptance that he is taking a more helpful attitude? Can he also see that the best boost to staff morale and to public accountability generally would be if there were no private security firms at Heathrow?
    Mr. Davis: My hon. Friend will recognise that I have asked for a departmental examination of the role of private security organisations employed at Heathrow by the airlines. It would be premature of me to make any observation about this examination at this stage. Since it involves questions of security, the
    1216
    report will not be published. My hon. Friend will realise that I shall be taking the appropriate action when the report is in my hands.
    Mr. Maxwell-Hyslop: What action is being taken about the failure of whoever conducted the search to inform the police in time that within the last couple of days a passenger was found in illegal possession of ammunition and was allowed to continue on a flight to Dublin?
    Mr. Davis: This is a matter for my right hon. Friend the Secretary of State for the Home Department. If the hon. Gentleman wishes me to pursue his inquiry I shall certainly do so if he will write to me.

    Price Commission
    Mr. Ridleyasked the Secretary of State for Trade what estimate he has made of the increase in visible trade, both in and out of the United Kingdom, arising out of the activities of the Price Commission, since November 1972 to the present date.
    Mr. Deakins: No estimate has been made but I think it unlikely that the activities of the Price Commission have had more than a marginal influence.
    Mr. Ridley: Since the price of many goods is much higher on the Continent, is it not obvious that price control is causing a large diversion abroad of goods which then have to be bought back at higher prices? Why do the Government not realise that there cannot be price control of industrial materials in a world which is free and where goods can move freely? Why do they not realise that in the end we have to live in the; world market place and not in a sheltered little island, as the hon. Gentleman and his hon. Friends seem to think?
    Mr. Deakins: It will be difficult, if not impossible, to prove one way or the other whether what the hon. Gentleman asserts is true. The strong rise in demand in 1973 and three-day working in part of 1974 have had such a large impact on the levels of trade that they mask the influence and significance of the small factors which he has mentioned.
    Mr. Bruce-Gardyne: Is the hon. Gentleman really asking us to believe—to take

    1217
    one example—that the increase of two thirds in the volume of imports of excavating machinery last year and the increase of one third in the volume of exports of excavating machinery last year had nothing to do with the distortion created by price control?
    Mr. Deakins: I thought it was generally accepted that an expansion of international trade is a two-way process and that one country does not exclusively export goods of one type and import goods of another type. We export motor cars but we also import motor cars. We export excavators and, equally, we import excavating equipment. I see no reason to be concerned about the figures the hon. Gentleman quotes.

    Navigation Charts
    Mr. Robin F. Cookasked the Secretary of State for Trade whether he is satisfied that the navigation charts available to the Merchant Navy for territorial and international waters are adequate.
    Mr. Clinton Davis: Yes, Sir, although all charts have their limitations, as is pointed out in "The Mariner's Handbook" issued by the Hydrographer of the Navy. My Department is continuing to keep in close touch with the Ministry of Defence and the Chamber of Shipping on the needs of merchant shipping in this respect.
    Mr. Cook: While thanking my hon. Friend for that reply, may I ask him whether he recognises that this situation does not permit complacency? Is he aware that most navigation charts were drawn up at a time when no one could have envisaged the colossal draught of the modem super tanker? Does he not realise that there is a serious risk of a major collision incident as a result of a tanker colliding with an uncharted hazard? Does he not agree that if oil companies are to inflict super tankers on the world for reasons of economy they should be compelled to plough some of their obscene profits into the preparation of charts which would protect the world from these tankers?
    Mr. Davis: I have said that the question of the preparation of these charts is a matter for the Hydrographer of the Navy. There is no doubt that he is
    1218
    fully aware of the factors to which my hon. Friend has alluded. This has been fully exemplified by the statement he has made.

    Insurance Companies Act 1973
    Mr. McCrindleasked the Secretary of State for Trade if he is satisfied with the operation of the Insurance Companies Act 1973.
    Mr. Clinton Davis: The Act will not be fully operative until a number of detailed regulations have been made, but good progress is being made in the complex task of preparing them. While in many respects the Act appears to be working satisfactorily, it is premature to come to a conclusive judgment.
    Mr. McCrindle: Is the Minister satisfied that the main purpose of the Act, namely, to protect policy holders from insecure companies, is being achieved without preventing the formation of viable new companies or unnecessary control of existing institutions?
    Mr. Davis: With the co-operation of the British Insurance Association and of the whole insurance business, policy holders have been protected—for which, in the present very difficult situation, we should be grateful. Obviously risk-taking is involved in this business, and no form of supervision can eliminate the chance of failure, but the fact that this co-operation has taken place has been most satisfactory.

    Luton Airport (Passenger Traffic)
    Mr. Allasonasked the Secretary of State for Trade what was the percentage increase in air passenger transport movements at Luton Airport in 1973 over 1970 and 1971, respectively.
    Mr. Clinton Davis: On the basis of the figures I gave the hon. Member in my reply of 7th May, the percentage increases in commercial air transport movements at Luton Airport in 1973 over 1970 and 1971 were about 37-5 and 10 respectively.—[Vol 873, c. 141.]
    Mr. Allason: Does the Under-Secretary of State recollect that at the Luton public inquiry in 1972 the inspector said that the 1971 figures for aircraft noise were excessive? Therefore, with a 10 per cent. increase in traffic, they

    1219
    will be even more unacceptable. What are the Government doing to reduce air traffic pollution, which is causing so much misery to people around Luton?
    Mr. Davis: The question of a breach or otherwise of an undertaking given by Luton Corporation is a matter not for my Department but for the Department of the Environment. My right hon. Friend wrote to the hon. Gentleman on 7th June offering a meeting to discuss these matters, in the hope that some of the difficulties and complexities which have arisen, perhaps due to misunderstanding, can be erased.

    Concorde
    Mr. Michael McNair-Wilsonasked the Secretary of State for Trade what further discussions he has had with British Airways about operating Concorde.
    Mr. Shore: I discussed British Airways' Concorde appraisal with representatives of British Airways and of the British Aircraft Corporation on 17th May. Copies of the appraisal have since been made available to the House.
    Mr. McNair-Wilson: Is the right hon. Gentleman aware of the concern arising from the fact that the British Airways figures seem to suggest that that airline is firmly convinced that it cannot make a profit from Concorde, whereas Mr. Freddie Laker seems equally convinced that he can? In view of this disagreement between the two operators, will the right hon. Gentleman give either an assurance that no subsidy will be paid to British Airways without an impartial inquiry into its figures or a promise that if the aircraft goes into service with British Airways no subsidy will be paid until it has been in service for at least a year?
    Mr. Shore: The hon. Gentleman misunderstands the position. We have not yet reached the stage when we need to consider whether assistance is needed for British Airways to fly Concorde—nor do I accept the hon. Gentleman's statement, which preceeded his supplementary question, that British Airways is being wholly pessimistic about the prospects of Concorde. British Airways had to put forward a range of estimates and, naturally, put forward that central esti-
    1220
    mate which it felt obliged to put forward as a result of its present studies.
    Mr. Heseltine: Does not the Minister understand that the only reason British Airways published those figures was in reply to the statement made by his colleague the Secretary of State for Industry, largely without consultation? Is not the effect of forcing British Airways to make that statement damaging to the prospects for Concorde wherever salesmen of the British Aircraft Corporation appear?
    Mr. Shore: I do not think so. That is neither what we intend nor how British Airways views the matter. The Government, in the whole matter of Concorde, have started on a policy of encouraging as much informed public discussion as possible, and as part of that discussion it was incumbent upon the Government to ask British Airways to put forward its best estimate of the financial factors——
    Mr. Heseltine: The worst estimate.
    Mr. Shore: If the right hon. Gentleman believes that we asked British Airways to put forward its worst estimate I can only say that his head should be examined.

    Aircraft Noise
    Mr. Jesselasked the Secretary of State for Trade what action he proposes to take to mitigate aircraft noise following the publication of the Noise Advisory Council's report on so-called "Minimum Noise Routes".
    Mr. Matherasked the Secretary of State for Trade what measures he is considering to relieve those living on the Mole Valley route from aircraft noise.
    Mr. Clinton Davis: A consultation document about the recommendation in the report for splitting the Mole Valley route will be circulated very shortly to hon. Members and others concerned. Other relevant recommendations are being carefully considered.
    Mr. Jessel: Is the hon. Gentleman aware that to people living under them, minimum noise routes are maximum noise routes and that the concentration of aircraft noise is intolerable? Before deciding whether to split the Mole Valley route. will the right hon. Gentleman enter

    1221
    into the fullest consultation with the groups of people affected—both those who might benefit and those who might suffer? Will he also consider whether the Northolt air space can be used for the Woodley route on the east-bound take-off, and whether sound-proofing grants can be extended to the borough of Richmond-upon-Thames?
    Mr. Davis: The Government are aware that noise constitutes pestilence for many people. I give the hon. Gentleman the assurance for which he asks on the question of consultation. The question of Northolt air space is under review at present. I am aware that some people describe minimum noise routes as maximum noise routes.
    Mr. Mather: Is the Minister aware that the noise is more than a pestilence to my constituents, and has become quite intolerable? They have waited long enough for measures to be introduced to alleviate the noise. Will the change of route which was introduced temporarily in July 1972 and which adversely affects my constituents who live along the Mole Valley now be reversed?
    Mr. Davis: I have already said that this matter is the subject of review and will be the subject of consultation. I can go no further at this stage.
    Mr. Leslie Huckfield: Does my hon. Friend agree that he would have been able to give even better answers to the questions on aircraft noise if the previous administration had been prepared to spend one tenth of what it proposed to spend on the third London airport on research and development on quieter aeroplane engines?
    Mr. Davis: The previous administration was irresponsible in many ways. The question of retrofit and other matters to which my hon. Friend has alluded are matters of careful scrutiny by the Government. It is a pity that the previous administration did not do more.

    Shipbuilding (Exports)
    Mr. Teddy Taylorasked the Secretary of State for Trade what was the total value of ships exported by British merchant and naval shipbuilders in the most recent annual period for which figures are
    1222
    available; and what were the comparable figures in each of the previous five years.
    Mr. Deakins: For 1973 exports of ships and boats, as published in the December 1973 issue of the Overseas Trade Statistics, totalled £123 million; figures for earlier years are published in the appropriate annual Statements of Trade.
    Mr. Taylor: Does the Minister agree that these and other recently published figures show that after a major reorganisation, assisted by previous Governments, and improved labour relations, the shipbuilding industry is doing fairly well and providing more secure employment for the men in the yards than ever before? Will the Minister tell his colleagues to let the industry get on with the job instead of going through the upheaval and uncertainty of nationalisation?
    Mr. Deakins: One of our objectives in bringing shipbuilding into public ownership will be to make it even more efficient. This will help rather than hinder exports. This is the declared policy on which the Government were elected, and my right hon. Friend is undertaking to go ahead with this. We have no intention of reneging on our election commitments with regard to this issue.
    Mr. Blenkinsop: Does not my hon. Friend agree that the very disappointing share in the increasing world orders for shipbuilding strengthens the case for a major change in the whole shipbuilding industry?
    Mr. Deakins: Yes. The performance of the British shipbuilding industry has not been very good since the Second World War, and other nations have improved their share of world shipbuilding trade to the detriment of our own industry and workpeople. Any reorganisation—by way of nationalisation or otherwise—which can improve it will be to the overall benefit of the British economy and of the British people, and we all want to see that.
    Mr. Heseltine: Will the hon. Gentleman explain how many of those countries succeeded in improving their efficiency by nationalising the' shipbuilding industry?
    Mr. Deakins: If private enterprise does not work successfully, nationalisation is the only answer. That is the policy cf this Government.

IRA DEMONSTRATIONS (LONDON)
Mr. Prior (by Private Notice)Mr. Prior (by Private Notice)asked the Secretary of State for the Home Department if he will make a statement on the IRA demonstrations in London during the last few days.
The Secretary of State for the Home Department (Mr. Roy Jenkins): In the
Isle of Wight and in London on 7th and 8th June a number of supporters of the IRA accompanied the funeral procession of Michael Gaughan. Some of those who took part in this procession and a number of people who took part in a demonstration in London yesterday wore black berets, dark glasses and other dark clothing. I understand from the Commissioner of Police of the Metropolis that reports are being submitted to the Director of Public Prosecutions at the earliest possible moment for consideration of prosecutions under Section 1 of the Public Order Act 1936.
Occasions of this kind present great difficulties for the police. Their primary duty is to prevent public disorder, and it is a matter of difficult judgment to know what is the best way to prevent a provocative procession from turning into a riot. In fact, the demonstrations of the past few days—substantial though is the public reaction to and repugnance for them, feelings which I strongly share —have not resulted in disorder.
It would not be proper for me to comment further on the possibility of prosecutions. That is not a matter for me. But I think it right to say that in my view what took place is deeply and rightly resented by the overwhelming majority of British opinion. As a propaganda exercise it was wholly counterproductive. Part of the object was no doubt to intimidate. That, I believe, will not succeed either. I will consider urgently with the Commissioner of Police and other authorities whether any strengthening of law or procedure is necessary. The issues are not wholly straightforward, but I can assure the House and the country that whatever measures are necessary to frustrate any sustained campaign of paramilitary demonstrations, will be taken.
Mr. Prior: Is the Home Secretary aware that the whole House will applaud the
1224
remarks that he has just made in his statement? Is he aware, further, of the indignation and anger that this episode has caused and that the fact that a military-style funeral should have been organised for a convicted criminal in the streets of our capital city is an affront to the nation, especially to the families of those soldiers and civilians who have lost their lives upholding freedom in Northern Ireland? Is the right hon. Gentleman aware also that he will have the full support of the House in any measures that he feels it necessary to bring forward?
Can the right hon. Gentleman answer one question? What efforts did he make, and what efforts could he have made, to have the body sent direct to Ireland instead of having it paraded through the streets of London? Will he also comment on the fact that had the facts been reported to the Attorney-General consideration would have been given to the use of his powers under Section 1(2) of the Public Order Act 1936?
Mr. Jenkins: Dealing with the right hon. Gentleman's question about whether the body could have been flown direct to Ireland, I had no legal control over the body once it passed from the possession of the coroner. The Home Office could not have conveyed the body to the place of burial except with the agreement of the relations. It was not within my power to take the action which the right hon. Gentleman has, understandably, suggested.
As for the right hon. Gentleman's second question, I have no doubt that my right hon. and learned Friend the Attorney-General will consider the matter.
Mr. Grimond: Is the Home Secretary aware that his condemnation of this deplorable incident will be warmly welcomed throughout the country, as will his assurance that if further measures are needed he will introduce them? Will he assure the House that no bargains will be struck about the return of convicted criminals from this country to other countries through the use of blackmail?
Mr. Jenkins: No deals were made. This is a different matter; but I issued a statement more than a week ago which commanded a fair amount of support and agreement. In no way do I contradict that statement.
Mr. Jay: Does not the 1936 legislation to which my right hon. Friend has referred clearly prohibit the wearing of uniforms by private armies in this country?
Mr. Jenkins: Yes, it does prohibit it. But there is a question as to what constitutes a uniform. I agree that the common sense of the matter seems to be that the three factors which I described in my a statement constitute a uniform. However, there was a case in 1972 when the police took names and submitted them to the Director of Public Prosecutions and proceedings were not taken. I am not attempting to judge whether that was right or wrong, but the police were bound to have that in their minds, along with other considerations, in deciding whether to arrest as opposed to taking names.
Mr. Deedes: On the point about intimidation, and further to the question asked by the right hon. Member for Orkney and Shetland (Mr. Grimond), can the Home Secretary give a firm assurance that the termination of the Price sisters' hunger strike carries no implications for the other 30 or so prisoners in this country who wish to return to Ireland?
Mr. Jenkins: This is wholly wide of the question that I am answering. If the right hon. Gentleman wishes to put down a question on this matter, I assure him that I shall be very glad to answer it.
Mr. Flannery: Does my right hon. Friend agree that it is similarly an affront to the dignity of the British people to see massive paramilitary forces demonstrating as they did recently in Northern Ireland and similar massive demonstrations of Orangemen with fife and drum bands and regalia in the streets of Britain such as we saw over the past weekend?
Mr. Jenkins: I deplore paramilitary demonstrations of any sort.
Mr. St. John-Stevas: Does the Home Secretary agree that, although any individual who wishes is entitled to the private ministrations of the clergy, the use of the church for the occasion of a public political demonstration by the enemies of the United Kingdom falls into quite a different category? On behalf of the Government and of this House, will the right hon. Genetleman express the hope to the Westminster archdiocesan authori-
1226
ties that this kind of incident is never allowed to happen again?
Mr. Jenkins: I take great note of what the hon. Gentleman has said, and so no doubt will the authorities of the Church to which he belongs.
Mr. George Cunningham: Will my right hon. Friend confirm that neither he nor the Commissioner of Police for the Metropolis was asked for or gave consent under Section 1(1) of the Public Order Act 1936 to the wearing of these uniforms, and does my right hon. Friend agree that it is right to attach great importance to this first provocative action by the IRA in London, because the Public Order Act does not apply to Northern Ireland where these uniforms have been worn frequently in the past? Does my right hon. Friend agree also that, provided that the Attorney-General is satisfied that the purpose was a political one, it would be right for prosecutions to take place so that the law is not flouted with impunity?
Mr. Jenkins: There is no question of any consent under the Public Order Act 1936 being sought or given. Regarding the point about my right hon. and learned Friend the Attorney-General, he will no doubt take note of that. But it would be inappropriate for me to comment because, as a prosecuting authority, he is not in an exactly similar position to a colleague, a position in which one can speak for the Government as a whole. My right hon. and learned Friend has a judicial function and not a political function in this respect.
Mrs. Knight: Will the Home Secretary confirm that the wording of Section 1 of the Public Order Act 1936 makes it clear that it is an offence for any person to wear in any public place or at any public meeting a uniform signifying his association with any political organisation or with the promotion of a political object? If that is so, whatever view might be taken of the clothes worn by the marchers at the demonstration on Saturday, surely there can be no doubt that they were signifying their allegiance to a political association. If that is so, will the right hon. Gentleman note that, possibly due to the impunity with which the marchers operated on Saturday, a much bigger march took place yesterday at which money was collected for the IRA? Will

1227
[MRS. KNIGHT.] the Home Secretary now consider the possibility of making the IRA an illegal organisation?
Mr. Jenkins: On the first point, the hon. Lady gives an interpretation of Section 1 of the Public Order Act 1936, which she has clearly carefully read. I was not sure, however, whether she listened equally carefully to the exchange which took place between myself and one of my hon. Friends, because I think that I covered the point made by the hon. Lady in that exchange almost precisely and almost exactly. There was also the difficulty relating to the decision taken in 1972, when the police considered prosecution, by the then Attorney-General and the then Director of Public Prosecutions. However, these are all difficult matters of judgment for anyone concerned.
Concerning the banning of the IRA, the position of the present Government, as of their predecessors, has always been that they would consider this matter on the basis of whether it would assist in the preservation of public order. The view of the previous Government was that it would not so assist. That, I believe, continues to be the view of the police. The Commissioner of Police is an extremely experienced and balanced officer in these and in all matters. I think that view has been generally supported hitherto. There is not great advantage in banning an organisation. They reappear under a multiplicity of different names. Nor does what occurred in the Republic of Ireland yesterday, where the funeral was completed and where the IRA is banned, suggest that banning the IRA would automatically prevent demonstrations of this sort. I assure the hon. Lady that nothing that I have said in any way underestimates—I think that it is clear to the House—the seriousness which I attach to the whole issue.
Mr. Biggs-Davison: How can we criticise what happens in the Republic of Ireland when events such as those we have seen in London have taken place? Is it not entirely unfair to the Dublin authorities, who are trying to deal with organisations which are illegal there, to say blithely that it is likely that we shall not propose to make them illegal in England? Is it not vital to the continuation of good relations, which we all want
1228
to see, between British and Irish people living in this land, and for relations between the United Kingdom and the Irish Republic, that we should now see that those who march in political uniforms are brought to book, whatever their opinions, and that we should give fresh consideration to the banning of the IRA? Is the right hon. Gentleman aware that I still disagree with the previous Government and with the present Government and with the Commissioner of Police on this matter?
Mr. Jenkins: I take note of that, but I should have thought that it was apparent, even to the hon. Gentleman, that I was not saying anything blithely. Nor was I endeavouring to apportion any blame to the Government of the Republic of Ireland. Of course we want the closest relations with them in these difficult circumstances. But we still have to consider whether a course of action proposed would assist the ends we have in view. I will consider any action, but I shall not be rushed into it by the hon. Gentleman telling me that it is his view, against a great balance of other judgment.
Mr. Thorne: Is the Secretary of State aware that another interpretation of the events to which he has referred is possible, that many may consider the deceased to have been a political prisoner and that the funeral to which the Secretary of State has referred was organised by the deceased's political friends? Does he condemn that?
Mr. Jenkins: To be honest, I found my hon. Friend's question a little difficult to follow and to understand. I certainly condemn what took place on Saturday and Sunday.
Mr. Heath: The Home Secretary's outright condemnation of these events commends itself to the whole House and will commend itself very much to the whole country. On the question of the banning of the IRA, the Home Secretary is right. This matter has constantly been considered by successive administrations. For a variety of reasons—some of which are not usually discussed in public—it has been considered in the public interest that this should not occur. My hon. Friend the Member for Epping Forest (Mr. Biggs-Davison) knows that this was the view of the previous administration.

1229
I put one point to the Home Secretary. He said that the responsibility of the police is mainly for the preservation of law and order or to prevent public disorder. But surely the responsibility of the police is also to enforce the law, and Section 1(1) of the Public Order Act 1936 is quite clear about the law. I think that what the country wants is an assurance that these events will not be allowed to recur. The right hon. Gentleman said that the marchers did not succeed in their objective of causing public disorder. That is true. But a further objective must have been to affront the British people, and in that they have succeeded. What the public want to know is that clear action will be taken to prevent any such recurrence of these events.
Mr. Jenkins: I agree fully with what the right hon. Gentleman says about the affront. I think that British opinion has been deeply affronted and is right to be deeply affronted. It is the duty of the police to enforce the law as well as to prevent public disorder. Balances sometimes have to be struck in this respect. I have already referred to the 1972 position concerning this matter. But I know that the Commissioner of Police and other chief police officers have this matter very much in mind.
In reply to the last general part of the right hon. Gentleman's question, I reiterate what I said at the end of my statement—that whatever measures are necessary to frustrate any sustained campaign of paramilitary demonstrations will be taken.

ORDERS OF THE DAY

  FINANCE BILL
  (Clauses 5, 6, 7, 9, 10, 11, 13, 14 and 19, and new Clauses relating to the matters
  referred to in the Order of the House [9th May].)
  Considered in Committee. [Progress 21st May.]
  [Mr. GEORGE THOMAS in the Chair]
  Ordered,
  That consideration of the new Clause relating to exemption for trade unions be postponed till after consideration of other new Clauses.— [Mr. Joel Barnett.]

Clause 10
  PAYMENTS IN ADDITION TO ADVANCE CORPORATION TAX DUE IN FINANCIAL YEAR 1974
  Question, That the clause, as amended, stand part of the Bill, put and agreed to.
Clause 11

  ALTERATION OF PERSONAL RELIEFS
  3.50 p.m.
  Mr. John Cope (): I beg to move Amendment No. 35, in page 8, line 29, leave out '£865' and insert' £943'.
  The Chairman: I think it would be convenient to discuss at the same time Amendment No. 36, in page 8, line 32, leave out '£625' and insert '£724'.
  Mr. Cope: In accordance with the new rules of the House, I should start by declaring my interest. I pay income tax and I claim the married allowance which is the subject of Amendment No. 35. (AN HON. MEMBER: "And children's allowance? "]. I have claimed it in the past and I hope to claim it again in the future. However, I have no interest in Amendment No. 35, which relates to single allowances.
  Clause 11 alters the personal reliefs granted to taxpayers. I recognise that the Chancellor's purpose is to increase the personal allowances and thus help all taxpayers above the minimum limits. That

  1231
  is something, I suppose, for which we should be grateful, but I maintain that the Chancellor should be more grateful because the allowances would have been much higher if they had taken account of inflation.
  One disadvantage of the amendment is that it covers only one inflation-related point. We have had debates, and no doubt will have others, about inflation and taxation. But another disadvantage is that my proposal of £943 for married people is an awkward sum to calculate. The Chief Secretary and I share the profession of accountant and realise the difficulties involved in awkward calculations for our profession and for those of its clients who may be less nimble at mental arithmetic. But the Chancellor's proposal of £865 is also inconvenient. It has no noughts and is not readily divisible by other figures.
  I should be interested to know how that figure was arrived at. I arrived at mine by asking the Library by how much these allowances should be increased to keep pace with inflation since they were first introduced. There is a slight complication because of the changeover to the unified tax system, but the present married allowance of £775 and the single allowance of £595 were introduced upon that changeover in 1973. They were then equivalent to the old allowances of £600 and £460 which had been introduced in 1972.
  I therefore thought it right to apply inflation from 1972 to date, rather than from last year when these precise figures were introduced. The resultant figures of the size of personal allowances required in March 1974 to preserve their value in April 1972 are the figures in the amendments. No doubt many hon. Members will be surprised at the size of these figures. That reflects the amount of inflation since 1972. I am not making a party point, particularly as the figures that I have taken are those up to or just before Budget Day.
  My proposal of an increase of £168 in the married man's allowance is nearly double the Chancellor's proposal of £90. My proposed increase in the single allowance is £129, more than four times what the Chancellor proposes. That shows how his increases favour the married man
  1232
  against the single person. We shall be returning to this point later, no doubt, particularly with regard to single parent families, who are in a difficult position these days. I am not sure whether it is right to attack them by comparison with married people, but we can return to this matter.
  The main disadvantage that the Chief Secretary will see in the amendments is their expense. I hope he will be able to give us a precise figure. I have not tried to cost the amendments myself, but the figure must run to thousands of millions of pounds. This may make the amendment unacceptable, particularly to those who believe that reliefs and the increase of reliefs are a means of giving money away. However, the red book which fills in the details of the Budget proposals shows that without the changes in income tax proposed in the Budget there would have been an increase of £2,400 million in the amount of income tax collected. That reflects almost entirely the effect of inflation and much of it is exactly the same money as is dealt with in the amendment.
  So the onus is on the Treasury to explain why it wants to collect so much more as a result of inflation and not just to say, as the Chancellor did, "Are we not kind? We are giving you some of that £2,400 million back."
  4.0 p.m.
  I hope the Chief Secretary will say how many people would be taken out of the tax net altogether if these amendments were accepted. I have no doubt that a large number of people would escape tax altogether or move into a much lower tax bracket. We should be told how many people the Chancellor of the Exchequer proposes to bring into the tax net—in other words, by allowing the inflationary situation to bring them in.
  I have made the point in earlier debates that the Chancellor had not been as honest as he might have been in some respects in the way in which he has used inflation to gather more tax. I do not entirely exonerate Conservative Chancellors from this charge, but it seems to me that in a way inflation makes liars or dishonest men of us all since we tend to believe that a pound this year is the same as a pound was last year. This is no

  1233
  longer the case. Until the Chancellor and indeed all of us—recognises that a pound is no longer worth what it was last year, and until we begin to allow for this factor and appreciate the full extent to which inflation and rising prices attack the basis on which we found our financial decisions, we shall find it much more difficult to gather public support for the difficult decisions which will be required if we are to beat rising prices.
  I tabled this amendment not so much to deal with the precise amounts involved but to air the matters which I have attempted to put forward. I hope that the Chief Secretary will be able to say how much money the Government will take additionally if they refuse to increase allowances in line with inflation.
  Mr. Terence Higgins (): It has long been a principle of Conservative Oppositions—certainly one which we enunciated between 1964 and 1970—that one does not shoot Santa Claus. This is our feeling about Clause 11. We shall not vote against the clause as such since it increases certain tax allowances. None the less, it has also been a principle of our opposition that we have thought it right to table certain amendments which will enable us to isolate particular issues so that they can be debated in an orderly and proper manner.
  I am sure that the Committee is most grateful to my hon. Friend the Member for Gloucestershire, South (Mr. Cope) for tabling these amendments and for speaking to them so eloquently. The main point advanced by my hon. Friend is becoming increasingly important, and indeed is central to a great deal of our economic management. It relates to the extent to which fiscal drag, if I may use that inelegant phrase, should be offset by an increase in various tax allowances. The clause raises only some allowances, and amendment No. 35 is related to two of them. I refer to allowances for married couples and single persons, rather than to the specific allowances to which we shall return on subsequent amendments.
  In an inflationary situation when Government Ministers from the Chancellor of the Exchequer downwards are saying that they expect inflation to continue at a very high rate, the attitude taken by the Government to these allowances is
  1234
  extremely important. I hope that the Chief Secretary will clarify the precise position on these allowances because it may be that the value of the provision in the Bill on this occasion is not as great in real terms as at first sight may appear. Since my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) took action on this matter, inflation, alas, has proceeded and is likely to continue to be with us. The first question we must ask is whether or not the increase in allowances put forward in Clause 11 as it stands is sufficient to compensate for the effect of inflation. My hon. Friend mentioned the research he had undertaken in the Library, but since then there have been increases in the cost of living, part of which reflects the Chancellor's Budget measures. This may also be a relevant matter in this context.
  A further question which we must put to the Chief Secretary is: "What increase in the allowances would be necessary to restore the real position since the date of last uprating?" I hope that we shall have clear and unequivocal answers from the Chief Secretary on these points. They are related to the much wider question of indexation, and I have in mind the interesting and in some ways unprecedented remarks made on this topic by the right hon. Gentleman the Chancellor of the Duchy of Lancaster. I hope that the Chief Secretary will give us a clear view on the matter.
  I come to a further important point which is reflected in an article which appeared in The Economist on 27th April. It concerns the relationship between various personal allowances for married couples and single people and the question of family incomes supplement. We heard a great deal from the Labour Party in opposition about the various effects of FIS, but we now find a situation in which the tax allowances have been increased by a certain amount and FIS by nearly £2 a week. The article in The Economist brings out a series of arguments on the poverty trap, arguments with which the Committee will be familiar. I was astonished to discover at an earlier stage of the Committee's proceedings that the Chancellor of the Exchequer apparently was unfamiliar with the arguments on the poverty trap. He seemed unaware of the high rates of

  1235
  marginal tax and the tax paid by people on low incomes, and even those around or below the tax threshold. I think that is quite true, even though the hon. Gentleman the Minister of State, Civil Service Department, appears to find it amusing.
  The point which The Economist makes is:
  "The combination of Mr. Healey's budget and Mrs. Castle's generous increases in family income supplement will have one quite disastrous result, when the FIS increases come into effect in July. By raising the FIS eligibility limits (so that the average family on FIS will get nearly £2 more a week) very much more than the personal tax allowances—"
  the matter which we are now discussing
  "—and at the same time increasing the basic rate, the Government has created a marginal tax rate for the extra £1 earned by a broad band of poor families which is a good deal higher than the 83 per cent. rate it has introduced on the extra £1 earned over £20,000 a year."
  The crucial point here is the relationship between the family income supplement and the tax changes which the present Government are introducing, with regard to both these matters which we are now debating on the amendment and the related question of the increase in the standard rate of income tax. The net effect of having this kind of overlap is apparently to make this situation worse. We should have a clear statement from the Chief Secretary.
  The Chancellor of the Exchequer earlier apparently stated that he was unaware of the point whether it is or is not the case that the poverty trap, or the poverty surtax as we may call it, is made worse than it was by the proposals which the Government have introduced. I should like a clear statement by the Chief Secretary whether this is the case. The amendment which my hon. Friend the Member for Gloucestershire, South has put forward would do something to ameliorate this situation albeit at, no doubt, significant cost, for the reasons he has set out. To be more specific, it appears that there are a large group of people eligible for family income supplement who are also above the tax threshold. The FIS figures for those with one, two and three children under 11 years are £25, £28 and £31, whereas the corresponding tax threshold figures are £21.25, £25.85 and £30.48.
  1236
  There is a considerable overlap which means, in effect, that those who are needy enough to attract income support from family income supplement are on the other hand apparently regarded as sufficiently affluent to pay tax. This is an important point and I hope that the Chief Secretary can confirm whether I have understood the position correctly and whether with this poverty surtax the Government have made matters worse.
  The reality of the situation is that for a considerable range of people there is little gain in net income for a significant increase in net earnings. People will get very little extra net income for a considerable increase in earnings at this crucial level where they are beginning to approach, or may have passed, the tax threshold. If that is so, there must be considerable disincentive for people in this group to earn more. This is a matter of great importance. The Opposition have always believed that the tax system should be a system of giving incentives for people to work harder rather than one of causing them to feel that if they work harder they will not be any better off. The matter should be clarified. We want to know whether the Government's measures, taken as a whole, make the situation worse by reducing incentives. I hope that we shall have a clear statement on this from the Chief Secretary.
  I turn to Amendment No. 36 and the question of the single person allowance. Here the same arguments about the effect of inflation apply. The Government have raised the threshold for this group of people but apparently the rise is nowhere near enough to compensate for inflation. I hope the Chief Secretary will say whether this is the case and whether this amendment will offset the situation so that inflation is taken account of so far as the limit is concerned. I have already suggested that it does not perhaps go sufficiently far to have that effect. I hope that we shall be given the figures on the cost involved.
  4.15 p.m.
  We should also take issue with the Government on the statement made by the Chancellor of the Exchequer in his Budget speech. He devoted a comparatively small part of his Budget speech to this matter, which he announced as good news. I think I am right in recalling that he said that he was giving the good

  1237
  news first and would then turn to other matters less palatable to the House. Anyhow, as my hon. Friend has suggested, the good news did not seem to be as good as it appeared to be on the face of it. The Chancellor of the Exchequer qualified the position by saying that perhaps a single person had done rather well under the changes made by my right hon. Friend the Member for Altrincham and Sale and that, therefore, he would give a substantial increase to married couples but significantly less, proportionately, to single people. I think I am right in saying that the Government have increased the allowance to single people by merely £30, which, allowing for fiscal drag, is very small. Is it the case that my right hon. Friend the Member for Altrincham and Sale had got the balance wrong between married couples and single people? I would not take that view.
  We understand the great importance rightly attached to married couples and, in particular, we understand the problems of family poverty for married couples with a large number of children. Nevertheless, a great many single people feel that they are to a considerable extent subsidising those who are married or those with large numbers of children, and, that being so, it is right that we should raise the question of whether the single person allowance has been increased by a reasonable level by the Chancellor in his present proposals. We know that it is not sufficient to offset for inflation, but, leaving that on one side, is it right even in relation to the increase made in the married couple's allowance? Again I hope that we shall have an explanation from the Chief Secretary.
  The threshold has been raised. While successive Governments raised the thresholds and took a number of people out of taxation altogether, it has been found that, with inflation, these people have reappeared among the legion of taxpayers. This is perhaps something which in present circumstances we have come to recognise as a fairly typical phenomenon, but while we were in office We reduced the standard rate of tax, whereas it was almost the first action of the present Government to increase the standard rate of tax. Therefore, for those people still within the tax paying
  1238
  group, or, those taken out only to reappear among the legion of taxpayers, the step is that much more acute, and to that extent a higher rate of tax is paid. It is important, therefore, that we should get the threshold right, as well as ensuring that the step is as small as it can reasonably be made.
  We must look also at the effect of the threshold on different groups. In his Budget speech the Chancellor of the Exchequer said that a married man with two children would have some benefit from the Government's proposals up to the level of £54 a week. I am far from clear whether that statement comprehended all the changes announced or foreshadowed in the Budget speech, which covered a great many items some of which were implemented by order and some of which were implemented by increases in nationalised industry crises —I mean "nationalised industry prices"; a good Freudian slip, perhaps —or whether it contemplated only the narrow range of items embodied in the Finance Bill. However, be that as it may, it was asserted that the married man with two children would be better off up to £54 a week. I have some doubts about that.
  For other categories, for just the married couple, for example, the figure was a great deal lower, and the single person taxpayer—this is the crux of the matter—begins to be worse off on an income of only £18 a week. This being so, there is obviously a considerable bias in the measures as a whole in favour of the married couple compared with the single person. Therefore, the question again arises whether it is right that the balance between the two allowances should be of the kind which the Chancellor has proposed in the Bill, or whether a more sensible balance should be struck.
  The reality of the matter—I shall return to this on later amendments, and I hope to say a word about it in the debate on the clause—is that all these allowances could be better dealt with within the framework of the tax credit scheme which we in the Conservative Party put forward, which has been much debated both on the Floor of the House and in Select Committee, rather than piecemeal as the Government have sought to do, or, in the case of certain

  1239
  of the allowances, not at all. I hope to return to that matter later.
  For the moment, my hon. Friend the Member for Gloucestershire, South has rightly isolated some of the arguments which call for a clear statement of policy from the Government, and we hope to elicit that clear statement during this debate.
  Mr. A. J. Beith ()Mr. A. J. Beith (Berwick-upon-Tweed) Being surrounded by accountants, I feel at some disadvantage in not being able to declare that interest and having to speak very much as a layman.
  I support these two amendments, and I endorse what has been said by both the hon. Member for Gloucestershire, South (Mr. Cope) and his hon. Friend the Member for Worthing (Mr. Higgins) about the desirability of gearing our tax system to cope with inflation. However, as a good deal has been said about that by my hon. Friend the Member for Cornwall, North (Mr. Pardoe), I shall say no more about it on this occasion.
  For some time I have been much concerned—if I had not been, my constituents would have made me so—about the effect of low tax thresholds on the incentive and encouragement to work among those who have either small superannuation pensions or small widow's pensions. I have in mind here those who are particularly affected by the proposed married and single person allowances, and I direct special attention to Amendment No. 36, which deals with the single person's allowance.
  Since I became a Member of Parliament, no item has added so much to my postbag as has the position of the working widow who is hit by the relatively low single person's allowance and who will not, in my view, have her position sufficiently eased by the present proposed increase. For that reason, I strongly support Amendment No. 36. Widows with a small pension and earning by their endeavours small sums of, perhaps, £10 or £20 a week in relatively low paid jobs, such as in catering, frequently write to me to say that they find it difficult to understand why they should be allowed so poor a rate of earnings before they are taxed, and they make comparisons between their position and that of married women. They find their position
  1240
  difficult to understand partly because of the effect of their pension in relation to taxation, and I think that tax officers might well do more to explain this aspect of the matter. However, the fact remains that the single person who is a widow finds herself particularly disadvantaged if, for example, she has a house which was chosen and bought at a time when the family was together and her husband's earnings were coming in. She has the same level of household expenses as does the married woman alongside whom she works, and she finds that the burden of tax on her small income bears very heavily.
  The Chief Secretary ought not to underestimate the resentment which this causes, or the feeling among many widows that it is just not worth their working. Without doubt, many widows are doing extremely valuable work, work without which some of our public services would find it hard to continue.
  This problem could be dealt with in a number of ways, but it seems to me that the easiest and most immediate opportunity is to ease the single person's allowance. It could be argued that this method of dealing with the problem would bring within its scope not just widows but single persons living at home who did not have the same level of household expenditure. One of my constituents suggested in this connection that a householder's allowance might be a way forward, and I hope that the Treasury will consider that in due course. For the moment, however, some immediate relief should be given to the single person bearing heavy household expenditure, the sort of person who is seriously discouraged from working by the present tax thresholds and who will not be greatly helped by the proposed increase in the personal allowance, and I press the hon. Gentleman to provide for a higher level of single person's allowance.
  Mr. David Price (): It seems to me that these two amendments to Clause 11, bringing together the question of these personal allowances, raises the whole subject of the effect of inflation on the taxpayer and, hence, on the standard of living of our people. Indeed, the amendments represent the linchpin of the matter before us under Clause 11.
  The Committee will recognise that the two amendments are designed to raise

  1241
  both the married person's allowance and the single person's allowance and, hence, the starting point of income tax. In my view, it is this aspect of the matter rather than the sheer social justice of it which at this point in our affairs is the important question to be considered by the Committee.
  In this year we face problems of inflation of a different order from those which the country has faced certainly in the lifetime of all of us present in the Chamber, including yourself, Mr. Thomas. On whichever side we happened to be, we have in the past many times discussed the problem of inflation and fiscal drag and the need to keep allowances up in an endeavour to avoid the taxpayer being punished by having to pay in real terms more taxation than he would have paid had it not been for inflation. Now, however, we face inflation which mounts month by month. We hope that it will settle and that the rate will come down but the trend certainly continues upwards at the moment. Today we have had the review by the National Institute of Economic and Social Research, which, I am sure, all hon. Members will at least have looked at. Its prognostications certainly appear to be the same as those to which I have inescapably been driven. We have not yet reached the peak. Even if the present Government are completely successful, which I doubt, in their counter-inflation policy, the peak of the curve has by no means yet been reached.
  In wage and salary terms, as the Committee knows, many people benefit from what are called threshold agreements, as do many others who are not themselves subject to threshold agreements but who work in the same organisation as people with threshold agreements. Obviously, if a number of the workers in a company or organisation have threshold agreements and this month will receive their £1.20 a week increase, many others whose unions may not have negotiated such agreements will find that their employers, public or private, necessarily extend a similar threshold increase to them on cost of living grounds.
  However, there can be points in the income curve where one hits the starting point of income tax or where one hits the mounting point in the curve, and unless the allowances are adjusted in parallel with the cost of living so that the tax
  1242
  starting point is raised, even where gross income is increased under a threshold agreement the taxpayer will be worse off. I shall not detain the Committee by developing that further, since to do so would call for a lot of statistics, and even blackboard and chalk would be of assistance. Those familiar with these concepts will understand that if gross incomes increase under threshold agreements and if the starting point of income tax is not raised the point comes at which the individual taxpayer begins to be squeezed. Of the amendments put down for Clause 11 this group is the most critical. As my hon. Friend the Member for Worthing (Mr. Higgins) pointed out, we do not necessarily expect the Government to accept the amendment as it stands but we should be grateful for their views on it because it deals with a continuing problem. Even the National Institute in its optimism did not think that we could get to less than 5 per cent. inflation in under two years. When I first came to this House 5 per cent. a year inflation was regarded as extravagant, and when you first came, Mr. Thomas, the figure was a good deal lower than that.
  4.30 p.m.
  So, even if the Government were to be as successful as the National Institute hopes they can be—and that will need many policy changes—for the next two or three years we shall be faced with this problem in quite an extravagant form. We cannot talk in a different context about social justice, about social contracts, about equality, and about broad shoulders and narrow shoulders unless we deal with this problem of the starting point of income tax, because the shape of the curve follows from it.
  The Chief Secretary and I spent nearly a year discussing this matter in the Select Committee on Tax Credits, and I think that the brilliant gentlemen of the Inland Revenue, with all their curves, persuaded the Chief Secretary that it is possible to have a basic rate of income tax and still have a progressive curve of income tax. That being so, the amendment not only affects the starting point of income tax; it affects the subsequent tax curve which, therefore, affects real rate of income tax for all taxpayers. I believe that this group of amendments is far more important than the numbers of hon. Members present would seem to suggest.
  Mr. Julian Ridsdale (): 1 intend to make only a short intervention following up what was said by the hon. Member for Berwick-upon-Tweed (Mr. Beith). I am concerned to get more people like widows who are able to work doing a job in industry. If the Chief Secretary were to accept the amendment or if he were able to make a sympathetic gesture towards this group of people he would be helping both the widows and industry.
  In my constituency there is a grave shortage of labour, and the only potential source is the large number of widows who could earn the money but have been given no incentive. Perhaps the best way to deal with this matter is to abolish the earnings rule. I was dealing yesterday with the case of a clothing factory which wants 50 workers. If it could get them it could increase its production by 100 per cent. The incentive just is not there. Perhaps the earnings rule could be abolished in selected areas. At one time there were 5,000 widows in my constituency who wanted to work but did not have the incentive, and I therefore ask the Chief Secretary to examine the problem.
  Mr. Tony Newton (): I rise to support my hon. Friend the Member for Harwich (Mr. Ridsdale) and the hon. Member for Berwick-upon-Tweed (Mr. Beith) in what they said about widows and others concerned with the incentive effects and relatively low levels—certainly inadequate levels—of personal tax allowances in view of the rate of inflation. I, too, know of many cases where people are desperately needed—for example, the hospital services and other parts of our social services—but those people are more or less consciously deciding not to work because the return is not worth while. That cannot make sense to anyone. Although the amendment would not solve the problem, at least in the short term it would ease it and enable us to consider how it might better be tackled in the longer term. I therefore support very much what has been said on the point.
  I wish to press the Chief Secretary very hard on the underlying point which is highlighted by the amendment. I missed the first few minutes of the speech by my hon. Friend the Member for Gloucestershire, South (Mr. Cope), but I
  1244
  have no doubt that he said that to some extent this amendment was similar to others we have discussed in Committee on the Bill. There has been one significant development since our previous debates which is that we have now heard from the Chancellor of the Duchy of Lancaster—who has not been here in Committee and who, according to Press reports, has gone a great deal further outside the House than Ministers have at the Dispatch Box on the question of increasing allowances and the effect of inflation on the tax system.
  As a new and ordinary hon. Member I should like to hear from the Chief Secretary precisely what we should read into the right hon. Gentleman's remarks about the Government's thinking on these matters. It may be that the Chief Secretary is not privy to the thoughts of the Chancellor of the Duchy. If not, that is another matter we should raise. If he is, we should like to hear from the Chief Secretary a fuller explanation of what we may expect from the Government as a result of the right hon. Gentleman's remarks. Many of my hon. Friends have a good deal more sympathy with the relatively forthcoming approach of the Chancellor of the Duchy than with the secretive, bureaucratic and putting -everything - off - for - consideration - in -l0-years'-time arguments that we have heard so far from the Government Front Bench.
  I attach great importance to this because I do not believe that measures to protect people openly and explicitly against the effects of inflation are themselves inflationary. That argument has been about for a long time. It has been a classic Treasury argument against doing anything about index-linked bonds or anything which would admit to the existence of inflation. The argument has always been that such action would only make inflation worse. That argument was used by Treasury Ministers when inflation was at 2 1/2 per cent., 3 per cent. and even 5 per cent. Now, according to the National Institute, it is running at about 17 per cent. a year, but Treasury Ministers still tend to fall back on the same old argument that it will get worse if we do anything to protect people from the effects of it.
  Ordinary observation and conversation with people on the factory floor, in clubs

  1245
  and in pubs, and with all the people one meets in the course of being an MP shows that this belief flies in the face of the common sense and logical way in which people behave. Many believe, rightly or wrongly, that they have been losing out to the forces of inflation, and that is leading them to increase their demands beyond what they would otherwise have been. We should make a significant contribution to the long-term fight against inflation if we could simply convince more people that they are being effectively safeguarded against the constant erosion of their standard of living. This and other amendments could make a contribution towards that if they were accepted.
  My hon. Friend the Member for Worthing (Mr. Higgins) has already touched on the subject of the poverty tax or the wages trap or whatever we wish to call it. That is one aspect on which we should like some elaboration from the Chief Secretary. The trap has been getting worse, and the Budget accentuated that trend in some respects. It is likely to go on getting worse so long as the situation exists in which Governments feel a duty, and in some cases actually have a legal duty, to increase these benefits in line with inflation while they have no such duty in relation to the tax system. More and more people who are receiving social benefits will also be caught up with the tax system, and, by definition, that makes the problem of the poverty surtax worse and extends it to new groups.
  We are debating important matters. We cannot expect to solve all the problems in a discussion on one amendment, but we are entitled to know more about the Government's thinking than we have heard so far. In particular, we are entitled to know more about their thinking in the light of the remarks made by the Chancellor of the Duchy of Lancaster recently.
  The Chief Secretary to the Treasury (Mr. Joel Barnett): We have had a very interesting debate. It would be interesting to debate the mind of my right hon. Friend the Chancellor of the Duchy of Lancaster. But the amendment is about possibly indexing the married and single allowances. I do not think that that was precisely what my right hon. Friend was talking about in what was no doubt a very enlightening speech.
  Mr. Higgins: My hon. Friends and I were relying on Press reports, which may have taken the remarks of the Chancellor of the Duchy of Lancaster rather more widely than he intended. Is a copy of the speech available in the Library? If so, we shall perhaps have a more accurate report than the Press interpretation. Many of my hon. Friends and I thought that the right hon. Gentleman's speech went beyond index-linked bonds and so on, that it related to the general question of indexation, and went a great deal further than any ministerial statement had gone previously.
  Mr. Barnett: We are all fascinated by the thinking and the remarks of my right hon. Friend. If there is no copy of his speech in the Library, he will no doubt note what the hon. Gentleman said and make sure that it is placed in the Library. But it is not always possible to put a Minister's thoughts in the Library.
  I was about to deal with the specific question of the cost of the amendments. I am advised that it would be £740 million in a full year and £590 million in 1974-75. I gather from the speeches of Opposition Members in this very pleasant debate that they do not consider that to be a very large sum.
  Mr. Newton: Does the hon. Gentleman realise that the counterpart of that comment is that the process of inflation alone has taken £740 million from taxpayers in less than two years?
  Mr. Barnett: I shall come to indexation and the points made in the debate, but I was giving, as I was asked, the cost of the amendments this year—not last year or two years ago, but what they would cost now in a full year and in 1974-75. I hope that that will enable the Committee to understand what acceptance of the amendments would mean, although I gather that the Opposition do not propose to vote on them.
  We have already, under the clause, increased the married allowance by £90 and the single person's allowance by £30, at a cost in a full year of £489 million. That did not go as far as Opposition Members wanted, but it was a substantial and costly increase both in 1974-75 and in a full year thereafter.
  4.45 p.m.
  The hon. Member for Worthing (Mr. Higgins) and many other hon. Members

  1247
  [MR. BARNETT.] asked "Why not more? Why not go back to 1972 levels?" Hon. Members also referred to the poverty trap—the poverty surtax, as it has become known—and asked whether what has been done in the clause has made the position worse. It is a somewhat complicated matter. The figures for family income supplement make-up levels are £25 a week for a one-child family, £28 for a two-child family, and £31 for a three-child family. The tax starting points are £21.25, £24.86 and £28.48 respectively.
  The differences between those figures and those quoted by the hon. Member for Worthing are accounted for by his having overlooked the clawback deduction. I do not criticise him for that, because the clawback is very complicated and has often been criticised. However, it cannot be denied that if the basic rate goes up it is obviously higher at the point of poverty surtax. I do not dispute that; the hon. Gentleman is absolutely right. But that does not alter the fact that if we are increasing allowances, even if not by as much as Opposition Members would like, we are to that extent taking some people out of tax altogether.
  I shall come to the whole question of how much further we might have gone or should have gone in terms of indexation. I notice that most hon. Members referred not to fiscal drag but to inflation, and there is a difference between fiscal drag and inflation fiscal drag, as I am sure every hon. Member present will be aware. Before coming to the question of indexation, I want to deal with the disincentive arguments.
  Mr. Higgins: 1 am sure that the hon. Gentleman is right in what he said about my not allowing for clawback, but the figures he has just given seem to me to reinforce rather than to detract from my argument that the overlap is greater rather than less than I had supposed. That being so, it would appear that the poverty surtax effect is worsened, although the Chancellor of the Exchequer seemed to think a few days ago that he had made it better, or, at any rate, had not made it any worse. Does the Chief Secretary agree that a change to a tax credit scheme would overcome that difficulty?
  Mr. Barnett: Whether we can deal with it by a tax credit scheme is an
  1248
  entirely different matter. We debated it at great length in a Select Committee, of which the hon. Member for Eastleigh (Mr. Price) has spoken. It would depend on the kind of tax credit system. All that I and a number of my right hon. and hon. Friends said in the Select Committee was that the tax credit scheme that the previous Government sought to introduce was wholly unsatisfactory to us in many ways. However, that is not what we are dealing with now. It is certainly true that a form of child endowment, which was envisaged in that tax credit system, would help. But it was made clear in the Select Committee that there is no need for a tax credit system to have a child endowment. That was made clear when it was recognised that the child grant cash payments would be made payable to the mother and would not be part of the tax system. Therefore, it can be done. Indeed, the previous Government accepted and recognised that point. They had in mind to introduce the child endowment system before the tax credit system was introduced. The two matters are separate and nothing necessarily to do with a tax credit system.
  Mr. Higgins: It is true that they are separate matters, but the Minister has introduced an extraneous red herring— namely, child endowments. I am making a simple point about the threshold. Is it not the case that an overlap and a corresponding poverty surtax can be avoided by introducing a tax credit system?
  Mr. Barnett: I shall expand a little on what I have already said. We can deal with one part of the tax system by having a tax credit system, but that must depend on the effect elsewhere. If in the process of having such a system we created a regressive tax system across the board, which I believe the scheme proposed by the previous Government would have created, I would consider that to be unsatisfactory.
  Mr. William Clark (): Surely the Minister is wrong. The evidence that we received from the Inland Revenue proved conclusively that the tax credit system need not be regressive. Lower income bands can be introduced. Such a system would be administratively a little more costly but it is untrue to suggest that we proposed was certainly not regressive.
  Mr. Barnett: The hon. Member for Croydon, South (Mr. Clark) will know only too well, as he was the Chairman of the Select Committee, that the matter was discussed in detail. I was not convinced. I know that I was unable to convince the hon. Gentleman.
  Mr. William Clark: The hon. Gentleman was wrong.
  Mr. Barnett: That is a fact of life. Who is right and who is wrong will be found in due course. Meanwhile, we are not having the tax credit system proposed by the previous Government.
  Perhaps I may revert to the amendments. There is a disincentive element at this level that applies particularly to widows, as the hon. Member for Harwich (Mr. Ridsdale) mentioned. No one has ever doubted that there is a disincentive effect of some kind. There is such an effect at all kinds of taxation levels. That matter is raised constantly by the Opposition. They refer particularly to the highest rates of taxation.
  I know that many hon. Members have referred to the disincentive effect for widows and others at the lower levels of taxation, but, as has been fairly pointed out, much of that is to do with the earnings rule. That has now been increased, and we shall have to consider whether we can increase it much more. Of course, the cost will have to be considered but such a course would be almost certainly more helpful than anything we can do in the present context.
  I recall the former Chief Secretary, the right hon. Member for Wanstead and Woodford (Mr. Jenkin) once saying when we were debating the disincentive effect, and especially at the higher levels of income, that although there was such an effect at the poverty surtax level it did not seem to be effectively a disincentive to most workers. I have no doubt that in some instances there will be a disincentive effect but we are also faced with the problem of just how much tax relief we can give.
  I have already pointed out how much we have given in the clause as it stands and how much it would cost to do what has been suggested in this group of amendments. We cannot afford that now.
  Perhaps I might deal with the principle of the argument that the hon.
  1250
  Member for Gloucestershire, South (Mr. Cope) and many other hon. Members made—namely, the need to index personal allowances. The idea was to take the indexing back to 1972 levels.
  Mr. Beith: I do not wish to disturb the Minister's intellectual train, but before he leaves the disincentive effect will he note that I was referring primarily to widows below pensionable age who would not benefit in any way from the relaxation of the earnings rule? That is a separate but important point. Widows will not be impressed when they are told that the fact that they stay on at work— often they do so as they value the company which they enjoy while working as much as the small financial gain— means that it is not necessary to increase the allowance.
  Mr. Barnett: The hon. Gentleman is wrong. We have increased the allowance generally. That concerns widows and many others. I do not dispute that widows have a specific problem, and I have a great deal of sympathy for the problem of many widows, but we must consider the amount of revenue that.we, need to raise to do many of the sort of things that we have done already, which, as I understand it, no hon. Member has yet wanted to see undone. The amount that we can do at any given time is dependent upon the circumstances. That is the point that I am making. I am not saying that there is no need to help widows or any other deserving group of taxpayer.
  Mr. James Dempsey (): Such as the pensioners.
  Mr. Barnett: We have given considerable help to the pensioners this year by a direct increase in pensions and in personal allowances. My hon. Friend is tempting me to go wide of the amendments. I know, Mr. Thomas, that you would frown on me for going so wide.
  I now turn to the arguments that have been advanced on behalf of indexation. The hon. Member for Gloucestershire, South pointed out the need to revert to certain levels and to tie allowances to any increase in inflation. We debated this matter rather late one night and I made one or two remarks which were not entirely acceptable to all hon. Members. I do not know whether those

  1251
  [MR. BARNETT.] remarks were acceptable to the Opposition Front Bench. I should be interested to know whether it is in favour of indexation. That has not yet been made clear.
  For the reasons that I have given, I do not think that it would be possible to index without substantial cost.
  Reference has been made to honesty. I am not sure whether it is necessarily more honest to index allowances, assuming that it is desired to retain the same amount of revenue, and thereafter to increase the rates of tax. Conservative hon. Members may say that they would rather not increase or retain the amount of revenue that any given Chancellor has decided to raise in a particular year. 1 assume that would mean—and I am now forgetting the economic aspects—that it would be necessary to change some other taxes or to reduce the level of public expenditure, which again, I imagine, would appeal to some Conservative hon. Members. However, they are never specific as to which taxes they would reduce.
  For these reasons, I believe that it would be just as dishonest, although I accept that one can make out a case in many ways for indexing threshold wage agreements, savings, and so on. But we are here talking not about the general question of indexation across the economy but about indexing personal tax allowances. I am not yet convinced of the merits of indexation in their case, given that there is need to obtain a certain yield from taxation.
  5.0 p.m.
  Mr. Nigel Lawson ()Mr. Nigel Lawson (Blaby) We listened to the hon. Gentleman on the subject of indexation in the late-night debate to which he has referred. Once again we are hearing him putting the point in his customary good-natured obscurity. What he seems to be advancing as the greatest objection is the loss of revenue; but loss of yield also occurs as a result of bringing down the rate of inflation. Does he advance the same argument, therefore, against a reduction in the rate of inflation in that such action would reduce the yield to the Inland Revenue?
  Mr. Barnett: I am sorry that I am obscure to the hon. Gentleman. I am sorry that I do not make myself clear. Of course we want to bring down the
  1252
  rate of inflation, but we are talking about tax yield and expenditure in this year. The hon. Gentleman may well argue—1 do not know whether he will—that if we reduced the yield in 1974-75 by the amount required to increase personal allowances in the way suggested in the two amendments this would help reduce the rate of inflation. I doubt it. A case might be made out that indexation over a long period could have the same effect. But we are talking now about personal allowances and the effect on the tax yield in 1974-75. I do not believe for a moment that one could prove that indexing personal allowances in this way would help reduce inflation in 1974-75 or in 1975-76. I suggest that it is not easy to show that the indexation of personal tax allowances would necessarily reduce the level of inflation.
  Another point made by the hon. Member for Gloucestershire, South concerned the fact that the figures of tax allowances would become somewhat complicated and that those who were not accountants, or, one might say, mathematicians, might not so easily be able to check their personal allowances. That might well be the case. Canada has started a system of indexation. In the 12-month period ended September 1973, to get the new indexed allowances needed a factor of 147.200 divided by 138.025. In such circumstances, it becomes complicated. I am quoting these figures to show the difficulties. I know that it would be easier for some hon. Members than for others, but there has been considerable criticism of the system in Canada.
  Mr. Higgins: I have some sympathy with the way in which the hon. Gentleman is struggling on this last point, because clearly there is a relationship here between whether, effectively, indexation has an influence, let us say, on wage claims, on the one hand, and whether the revenue that is being raised by the Government has, on the other hand, an effect on demand. It is a fairly tangled web which is not easy to disentangle without the aid of a blackboard, as my hon. Friend the Member for Eastleigh (Mr. Price) has said. But what the hon. Gentleman has not covered in this context is what the figure would be to restore the real value of the allowances. I am sure that it must be in his brief.

  1253
  What would be the figure which would have the effect of restoring the true value of the allowances? We have all asked for the figure. We want to know whether the amendment is merely adequate to have this effect or, given the recent inflationary effect of the Budget, whether it would be effective now despite the substantial figures suggested.
  Mr. Barnett: I would be keen to pursue a debate on this with the hon. Gentleman if only he would tell us where he himself stands on it. Does he support the principle behind the amendment, or does he not? If we could know that, we could have a more reasonable debate. I have made my position clear, and I would be happy if he would make his clear.
  Mr. Higgins: It is not unusual for the Opposition to ask for factual information which only the Government have. My hon. Friend the Member for Gloucestershire, South (Mr. Cope) asked a specific question. Does this amendment simply allow for the effect of inflation, or is it inadequate to do so, or is it too great to do so? That is a simple, factual question of the sort which Oppositions have reasonably asked over the years. It is a question of asking for facts and not of stating opinions. We await with interest the hon. Gentleman's answer to this simple question. I am sure that his brief contains it. There is no need to stonewall on the issue.
  Mr. Barnett: I have the answer here. but I was interested to know whether the hon. Member for Worthing agreed with the hon. Member for Gloucestershire, South. The answer is that, taking inflation levels up to April this year, the increase would be 26·9 per cent., which would put the allowance at £983. That is the figure that would be required.
  Mr. Higgins: That is not a very good answer. The hon. Gentleman will have to consult his officials further. We are discussing two amendments one concerning the married allowance and the other the single allowance. The hon. Gentleman cannot produce just one figure for both. We must have the figures for the married allowance and the single allowance. Nor is it any good quoting the figure for April. The effects of the Budget
  1254
  were reflected in a substantial increase in the cost of living. The figure for April is not good enough. Can we have a more up-to-date figure?
  Mr. Barnett: The answer is "No, you cannot". The figure for the single allowance is £753. I hope that that helps the hon. Gentleman to make up his mind about what he is in favour of, but I doubt it.
  I turn now to the relativities of the single and married allowances. The hon. Gentleman made the point that we may have the balance wrong. I will give him the relative percentages we have now with the increase in the allowance made by my right hon. Friend. It becomes 1.38 to 1 compared with 1.30 to 1. I do not know whether the hon. Gentleman would consider this over-generous to a married man, but there is clearly an argument about what is the correct balance of relativities between an allowance which should be given for a married man and an allowance which should be given for a single man. I would not necessarily say that 1.38 to 1 is precisely right, or that 1.30 to 1, as it was before, was precisely right.
  In 1972, for operational reasons, the same increase in personal allowances had to be given for the married allowance as for the single person's allowance. Whether the balance is right between the two, I do not know. I would say that there is at least an argument that a slightly bigger margin to the married person is more reasonable than not. That is all I say in favour of that case, and no more, because it is impossible to say whether the balance is right. The hon. Member may be able to say that 1.30 to 1 was the right balance, but I do not believe that that is possible.
  Mr. Nigel Lawson: A moment ago, after persistent questioning by my hon. Friend the Member for Worthing (Mr. Higgins), the Chief Secretary produced these figures showing that in order to keep pace with inflation the married and single allowances should be increased to £983 and £753 from £865 and £625 respectively, as they now appear in the Bill. Can he tell the House how many people are being brought into taxation who would otherwise not be taxed because of the figures being what they are in the

  1255
  Bill and not the figures that he said would be necessary to keep pace with inflation?
  Mr. Barnett: The number of people who would be taken out of tax if we increased the allowances in this way would be about 2 million. But if the allowances were increased by even larger figures, 5 million people could be taken out. I do not see the strength of that argument. Clearly, the amount of tax paid could be reduced by increasing personal allowances. Equally, the level of direct taxation could be reduced by reducing the standard rate of tax.
  Mr. Nigel Lawson: As the Chief Secretary says that he does not understand the argument, may I put it more simply? The argument is that if allowances do not go up at the same rate as inflation, the number of people taken out of taxation at the beginning of the year is smaller than the number who go into taxation during the course of the year, so that one ends up with more people rather than fewer being taxed.
  Mr. Barnett: I hope that what the hon. Gentleman has just said is obvious to every hon. Member present. It is certainly obvious to me. Perhaps the hon. Gentleman will put it in writing if he wants to make it clearer, but it is perfectly clear to me that he is right and I do not dispute it. It is equally true that, given the present level of inflation, during the course of the year more people will be brought into tax. That is a fact, and I do not dispute facts of that kind.
  The only question is whether, given the cost of the amendments, the Opposition wish to press them to a Division and to reduce the yield from taxation by this very large sum of £740 million in a full year. If they do, I can only advise my hon. Friends to vote against them.
  Mr. Norman Lamont: As one who supporting the original indexation amendment late the other week, I should like to support my hon. Friend the Member for Gloucestershire, South (Mr. Cope). Since our first historic debate on this subject, the argument has moved a little forward and there has been increasing public discussion of the indexation of taxation allowances. It does not make much difference
  1256
  whether one has de facto indexation, as proposed in the amendment today, or the de facto indexation that was operated when my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) was Chancellor of the Exchequer and when so many of his so-called tax cuts and tax handouts to better-off groups were merely indexation and merely allowed certain groups to stay where they were. As a result of the increasing debate, today there is more understanding of the effect of inflation on tax thresholds.
  The Chief Secretary has put forward three arguments against the indexation of allowances and tax thresholds. He put forward some of them the other night. The first is the argument that to index allowances or thresholds would reduce the Government's room for manoeuvre That is how he put it the other night. Today it appeared that what he meant by that was that it was difficult for the Government to have the same level of expenditure if thresholds and allowances were indexed. If they were indexed, there would have to be tighter control of public expenditure.
  Is that such a bad thing? Is it such a bad thing that we should move from a system in which increases in public expenditure can be financed by inflation, as is happening now? We should have increases in public expenditure consistent with what we can afford, and what we can afford should be consistent with maintaining our living standards. That is what indexation is all about.
  5.15 p.m.
  The second argument was that it would not be honest to index tax allowances and thresholds if at the same time we had to put up the tax rate. I do not know that that is more dishonest than the present system. Some might regard it as a more realistic expression of the taxation relationships of different groups What is surely dishonest is the present situation in which the Chancellor of the Exchequer can pretend to cut tax when, in fact, he is doing nothing of the sort, when he is running hard to stay in the same place. That is what is dishonest, not the approach that the Chief Secretary criticises.
  The third argument, which the Chief Secretary used the other night but which.

  1257
  I note, he did not repeat today—I am glad of that, because it struck me as a rather dangerous argument—was that the Government of his party did not regard the present distribution of income as fair. As he was responding to arguments about indexation, what he appeared to be near to saying was that one should use inflation as a means of redistributing income within society. If one wants to argue about the distribution of income in society, one should do so openly in the House of Commons and not by any back-door method, not by any concealed method.
  The Chief Secretary also said today that indexation would not necessarily reduce inflation. No one is suggesting indexation as the panacea for curing inflation. However, when one has the policy, advocated this morning by the National Institute for Economic and Social Research, that we ought to allow wages to increase by the same percentage as prices increase during the coming year, it is important that that should be combined with indexation.
  If we simply say that wages are to increase by the amount that prices increase, that will not mean that living standards are kept constant. As my hon. Friend the Member for Eastleigh (Mr. Price) pointed out, unless the tax thresholds and allowances are indexed, increases in pre-taxed incomes bigger than the rate of inflation are required to keep living standards constant. That is where people are being swindled and that is where there is so much pretence. It is pretended that if there is a 10 per cent. increase of salaries or wages that will keep pace with a 10 per cent, rise in inflation. In fact, that is not so, and the effect is more marked the higher one goes up the salary scale.
  Indexation would help towards a more rational economic policy in two ways. First, indexing the thresholds would ensure that living standards remained constant, and in an incomes policy one could prevent or discourage people from acting on assumptions about their living standards that might prove to be unfounded. Secondly—and this is the main reason why I am in favour of indexation —the relationship of one income group to another in our tax system should be defined in legislation so that income is
  1258
  not redistributed by the back door, by stealth, or by inflation.
  Mr. Cope: I recognise that in this debate we have not, as yet, convinced the Chief Secretary about the arguments in favour of this amendment. I did not think that we would. I hope that we have clarified the issues and some of the arguments about the effects of inflation. I had not realised, Mr. Thomas, that you had been in the House such a long time as my hon. Friend the Member for Eastleigh (Mr. Price) seemed to imply. If that is the case, you must have seen many arguments come and go, some of which take many years to sink into Governments. This is an argument which will not go away.
  The Chief Secretary asked whether it was more honest to phrase things one way or another. He knows and I know that there are people in our profession who deal in degrees of honesty. I was taught that a thing is either honest or is not honest. I do not think that there are degrees. It is an absolute condition. It seems that it is dishonest for the Government to say that they are giving money to taxpayers when that is not what the Chancellor is doing. What he is doing is failing to compensate for inflation. It would be more honest, if we are to use such a term, for the Chancellor to say "I regret to say that inflation is going on. Therefore, we need to pay more for Government expenditure, and, therefore, we have to increase the personal allowances relative to their real value."
  I was surprised that the cost was as low as £740 million in a full year. This argues in favour of the amendment. The changes being made by the Finance Bill will cost £489 million in a full year, and I thought that my amendments would at least double that. It is an indication, at any rate, of the amount of money which is being taken away. The Chief Secretary told us that 2 million people would be relieved from tax altogether as a result of these amendments. To put it another way, that means that there are 3,000 people in every constituency—in Heywood and Royton if it is an average constituency, which I am not implying it is in any way—who will have to pay tax this year as a result of inflation and as a result of the Government failing to accept these amendments.

  1259
  [MR. COPE.]
  I forget what the Chief Secretary's majority is but 3,000 will certainly dent it a little. The Chief Secretary said he did not know what the right ratio was between married and single people. That rather goes against what the Chancellor said in his Budget speech when he seemed quite certain of what he was doing in proposing to alter the ratio.
  The crux of what the Chief Secretary has to say in resisting the amendment was that we cannot afford this at this time. The question really is whether taxpayers can afford this increased tax bill at this time. That is what we should look at. There was some argument between those concerned with the Select Committee about whether the tax credit system was or needed to be progressive. The kind of tax which we are now debating is not only progressive in operation but, because of inflation, progressively progressive. All the time it is eating further down into incomes and affecting the way in which people pay tax.
  Of course these are awkward figures, and I entirely accept the complexity argument put forward by the Chief Secretary. This was his strongest argument against indexation in terms of an applied formula automatically operating each year. The tax system is sufficiently complex. Nevertheless there can be de facto indexation at any rate, which would get round the complexity argument. That is the way in which the amendments suggest it should be done. It is the Government's duty to decide how much tax should be raised. I wish that they would be more honest about it, in the terms used by the Chief Secretary. 1 recognise that they do not wish to allow for inflation in this way, that they do wish to bring 3,000 people in Heywood and Royton and elsewhere into the tax system. That being the case, I beg to ask leave to withdraw the amendment.
  Amendment by leave, withdrawn.
  Mr. Newton: I beg to move Amendment No. 49, in page 8, line 32, at end insert:
  "(c) provided that if a married claimant proves that at any time within the year of assessment he or his wife with him reaches the age of 65 years or upwards for the figure £865 shall be substituted the figure £950. And if a single claimant proves that at any time within the year of assessment he reaches the age of 65
  1260
  years or upwards for the figure £625 shall be substituted the figure £675 '.
  This amendment seeks to raise the personal allowance for those aged over 65 in the case of married claimants from a figure of £865 as provided for in the Bill to a figure of £950 and for single pensioners from the £625 proposed in the Bill to £675. It will readily be appreciated that the effect of this in round figures, in respect of retired elderly taxpayers, would be to give married couples an extra tax reduction of around £30 a year and the single taxpayer a reduction in taxation of around £18 a year.
  I am happy to respond to a demand from the Labour benches, since during the course of the Chief Secretary's speech on Amendment No. 36 his hon. Friend the Member for Coatbridge and Airdrie (Mr. Dempsey), the solitary occupant of the benches below the Gangway, said something from a sedentary position which sounded like "What about the pensioner?" This amendment is designed to give some additional help to pensioners through the tax system.
  It is no new departure to have special treatment for elderly taxpayers in the tax system. Apart from the existing age exemption, to which the Chief Secretary will no doubt refer, and which is the subject of a later amendment, there is the old-age relief, designed to give elderly taxpayers some relief from taxation on investment income. The only reason why we no longer have such a provision is that my hon. and right hon. Friends, when last in Government, took action to extend relief on investment income to all taxpayers. This more than compensates elderly taxpayers for the loss of the age relief provision.
  The amendment was not tabled specifically as an indexing amendment along the lines of Amendment No. 36, although on the figures given by the Chief Secretary it would, I suppose, in rather broad terms, take the personal allowances for married and single pensioners to around the level which would be appropriate on the figures he gave us to keep pace with inflation over the past two or three years. The main reason why the amendment has been tabled is that it is the elderly in our society who suffer most through inflation and who have had a very difficult time over the past year and will continue to have a difficult time. This is one way

  1261
  in which we can help some of them— rather more than are helped by the Finance Bill proposals or those put forward by the Secretary of State for Social Services.
  In my speech on the last amendment I referred to figures spoken of quite commonly for the rate of inflation this year. This morning the National Institute is suggesting rises in prices of around 17 per cent. for this year. We have had figures of anything between 15 per cent. to 20 per cent. mentioned by hon. and right hon. Members opposite, including, I think, the Secretary of State for Prices and Consumer Protection. There is no doubt that we shall have the worst inflation, the worst single rise in prices this year, that anyone in this House can remember. That will have serious effects on many elderly people.
  5.30 p.m.
  No doubt the Chief Secretary will refer to the increase in pensions proposed by the Government. As has been said, none of us wants to shoot Santa Claus. We are delighted about the proposed increase. But it has not been paid, and we do not know when it will be paid. I very much doubt whether the Secretary of State for Social Services knows when it will be paid, because the social compact does not operate in this respect. The civil servants in the Department of the Secretary of State for Social Services have refused to do the necessary work and the pensioners do not know when they will get the increase they have been promised. All that is clear is that it is unlikely to be paid as early as 22nd July, the date originally promised.
  Meanwhile, pensioners see many other people benefiting from the threshold provisions introduced under the pay and prices policy of the Conservative Government. They see other people receiving help in solving the problems of inflation. The only thing which has happened to some elderly people in the past few months is that their taxes have been increased by the Budget. I recognise that that does not apply to all pensioners, but the incomes of many elderly people living on retirement incomes have decreased as a result of what has been done by the Government. That will remain true for a number of retired people even after the pension increase has been paid.
  1262
  I cannot accept the implicit argument of right hon. and hon. Members opposite and of some of the people in my constituency who have criticised me for advocating a higher threshold for the investment income surcharge in relation to elderly people that we are talking only about very wealthy people, the Charles Clores of the retirement world. Some of the people paying extra tax and facing extra burdens as a result of the Budget are not the poorest of pensioners but they are a long way from being the wealthiest members of society.
  It is important to recognise that even people who may not be poor by the standards of, say, the supplementary benefits scheme can suffer real hardship if as a result of the changes made by the Government their standard of living starts to fall. That is the effect of some of the events which have happened to some pensioners in the last few months. At an earlier stage of the Committee proceedings I recalled the Chancellor of the Exchequer talking at the Labour Party conference last year about extracting howls of anguish from wealthy taxpayers. I said that, judging from the people I saw in my constituency, the only people who had been howling with anguish in the last few months as a result of the tax changes were the elderly and retired people who did not know how they would meet the bills with which they were faced, including the bills arising from the basic problem of inflation.
  It has to be said, even in a debate which I would not want to turn into a political assault on the Chief Secretary, that that is different from the impression given to elderly taxpayers when the Labour Party was in opposition. The impression given then was that if taxation was increased it would be on the very wealthy and on those with higher incomes. There was no suggestion about people with relatively modest retirement incomes having to bear part of the burden. Therefore, these people legitimately feel that they have been let down and misled as a result of what has happened since the election.
  Some of the people who come to see me are facing rates increases of about 100 per cent. or even more this year. I recognise that the Chief Secretary cannot personally be blamed for that, but it is

  1263
  part of the situation which we are discussing. However, something for which his colleagues can be blamed is that these people are also facing a 70 per cent. increase in the charge for the electricity which they use for heating their homes through the increase in off-peak rates for night storage heaters. I have talked to enough elderly people to know that the propaganda for this form of heating was particularly attractive to old people. They were offered a form of heating which was, allegedly, economic to install and to run.
  No doubt the Chief Secretary will argue that the amendment would help elderly taxpayers all the way up the scale regardless of how wealthy they were. The increases which I propose perhaps would not mean much to the wealthiest taxpayers, but they would help those who are not particularly well off. That is where the bulk of the relief would go, and that is where the shoe is pinching.
  The amendment would help to fill a significant gap in the Government's policies. They are doing something to help basic national insurance retirement pensioners and supplementary pensioners and to help those who benefit from the age exemption, but they are doing nothing to help—in fact they are increasing the tax burdens on—people who have a little bit more than that but can by no means be described as wealthy. It would be appropriate to fill that gap and to recognise an ordinary basic fact of life, which is that elderly people tend to have a more difficult time than the rest of us. It is reasonable that that fact should be recognised in the tax system by giving them a higher personal allowance.
  My proposal would help in two other respects. First, it would help those who live in part or wholly on fixed incomes and are in the most difficult position of all. I am talking primarily of people on older types of pension schemes which have no effective inflation-proofing. They are dependent on their pensions for a significant part of their standard of living, and their standard of living is being significantly eroded. This is a problem to which neither side of the House has given significant attention in recent years. The amendment would help to benefit some of these people.
  Secondly, the amendment would help to reduce the great resentment about the
  1264
  fact that pensions are taxed. By reducing the tax on many pensions we would lessen that resentment.
  The amendment would not be enormously costly to implement. Perhaps the Chief Secretary would say precisely what it would cost. It would fill a gap in the Government's policies in a cause which we all support. It would help a number of people who are having a very difficult time. I hope that the Chief Secretary will consider the amendment sympathetically.
  [Sir M. GALPERN in the Chair.]
  Mr. Higgins: I was concerned when during the debate on the last amendment one of my hon. Friends declared an interest by saying that he was in receipt of a marriage allowance. I suppose that I should have done the same. The Chief Secretary did not declare his interest either. That illustrates the interesting complexity of the motion which the House recently passed on the subject of the declaration of Members' interests.
  Mr. Joel Barnett: Will the hon. Gentleman declare an interest on this amendment?
  Mr. Higgins: No, because I am not over 65. Whether I should do so because I have parents and because of the constituency which I represent I do not know.
  I congratulate my hon. Friend the Member for Braintree (Mr. Newton) on the originality of the amendment. Various allowances have been made for elderly people over the years, but I cannot recall an amendment of this sort being proposed before, still less implemented by a Government. The Committee would do well to consider the amendment carefully. I am not sure that it is not one that the Government should be asked to adopt and which I should ask my hon. and right hon. Friends to support. That will depend on the answer given by the Chief Secretary.
  The first question we must ask the Chief Secretary is: what is the cost of the amendment? I imagine that the cost will not be so great as was the cost of the previous amendment, but it may be quite a substantial sum. In this context the Committee finds itself in some difficulty. Over the years it has been normal for Oppositions, acting responsibly, to

  1265
  take account of the amount of money which any particular amendment may cost. On the other hand, Oppositions normally operate within the framework of a set of forecasts provided by the Chancellor of the Exchequer. This year for the first time in several years the Chancellor has failed to give a forecast for the first half of next year.
  Speculation in the Press and recent statements by the Chief Secretary—he cannot hide behind the Chancellor of the Duchy of Lancaster on this amendment— suggest that further reflation is necessary. The National Institute of Economic and Social Research also takes the view that perhaps aggregate demand will lag in the latter half of this year. Therefore, on grounds of equity and compassion and also on the ground of economic management the Committee should accept the amendment. We should like to know the cost of the amendment and whether the amendment is consistent with the line which the Secretary has taken in the last few days on the management of the economy. I hope that the Chief Secretary will be able to give a sympathetic answer.
  I wish to put forward several arguments in support of my hon. Friend the Member for Braintree. Most hon. Members have long regarded the social contract as a figment of the Prime Minister's imagination. The position is becoming bizarre when, on the one hand, the TUC is said to be in favour of higher pensions and, on the other hand, trade union members responsible for paying higher pensions are refusing to do so on the date announced by the Government. That is a remarkable situation which confirms the view we have always taken about the social contract. Pensioners will not only suffer from the effect on prices of inflationary wage claims but will suffer from this industrial action. There is, therefore, a case for considering whether we should operate through the tax system as well as through the pensions scheme whenever an increase proposed by the Government is implemented.
  In their election manifesto the Government put forward proposals for increasing the level of national insurance pensions paid to married couples and individuals. It is true that the Chancellor of the Exchequer made speeches to the effect that there would be increases in
  1266
  taxation, but the Government did not bring together their two policies of increasing pensions and increasing the rate of tax paid on pensions by pensioners who pay income tax. To that extent the real value of the pension has been reduced.
  5.45 p.m.
  We should give special attention to pensioners who are on fixed incomes. The crucial point is whether some sections of the community suffer a reduced standard of living as a result of the Government's action. I know from experience in my constituency that that is often so for people who are in receipt of a national insurance pension plus some other income. Pensioners below the tax threshold are covered if necessary by the supplementary benefit provisions. There is another group who are in receipt of a national insurance pension but are given age exemption from income tax. They are covered in Clause 4. There is also the group who are above that limit who receive a national insurance pension—or a part pension if they are over 80—and pay income tax. It is that group at which the amendment is directed. I think I am right in saying that this group has become neglected. These people will be paying tax at a higher rate.
  Despite the complexity of the matter, and although it might be better to deal with it by a tax credit scheme, I feel that we should give attention to this group of people. There is an inter-relationship of the three groups—the below-the-threshold supplementary benefit group, the above-the-threshold age exempted group and those who are above the age exemption limit but pay tax.
  Mr. Ridsdale: Does my hon. Friend realise that the group to which he is referring is the group that is hardest hit by the great increase in rates? Would not this be an excellent way of helping them?
  Mr. Higgins: I agree. I was tempted to dub this a Dame Irene Ward amendment. I might equally have dubbed it an hon. Member for Harwich's amendment. The people in this group are those who are worst hit by increases in rates and other measures. It is a group to which the Committee should be sympathetic. The people in this group will not receive threshold payments under the

  1267
  counter-inflationary policy. They are the people whose standard of living is going down significantly because they are on fixed incomes and because of the effect of inflation.
  Although those who are below the age exemption limit will benefit from Clause 11(4), the amendment is necessary to benefit those who are in receipt of a national insurance pension, are above the age exemption limit and are paying income tax. I hope that we shall have a clear answer from the Chief Secretary because we want to know the exact position.
  The benefit which would flow from the amendment extends right across the incomes scale. We must recognise that as a result of inflation many retired people face difficulties, and the bulk of the cost will go to those at the bottom end of this group. I believe that there was an earlier allowance which was subsumed when we brought in the provision for earned income allowance extending the investment income provisions so that any sums were paid only at earned income rate. We must look at Amendment No. 49 in relation to our long-term proposals in the tax credit scheme. The amendment emphasises the importance of dealing fairly with a group of people in the community who on the whole in present circumstances are being unfavourably treated.
  I hope that the Chief Secretary will be forthcoming in his reply and will say that the sums involved in implementing the amendment are not an impossible burden. If he accepts the amendment, I am sure that progress in Committee will be greatly accelerated.
  Mr. Peter Rees (Dover and Deal): The present Government have effected considerable generosity to the old. I am sure that we welcome the increase in the old-age pension, although perhaps the Labour Government underestimated the practical difficulty of implementing the increase in July—and they have encountered further difficulties on which I shall not dwell at this moment. It remains to be seen whether their generosity will be sustained. I tend to doubt it. I doubt whether their action compares well with the various measures introduced by the Conservative Government. Indeed, the generosity
  1268
  of the present Government has been of a limited and partial kind. It has not extended to consideration of the burden of tax borne by the old.
  I must agree that there is a measure of relief in Clause 11 for those over the age of 65 on small incomes, but there are many who come just above that level and, by today's standards, in no sense could be called wealthy. They may have a small income from savings in addition to their old-age pensions and pensions from the firms for which they worked; they might even have some income from small sums inherited from forebears. I know that this aspect of the matter will be considered sympathetically by the Chief Secretary, although I am not so sure about the reception it will receive by many of his Labour colleagues. The class of person to which I refer has been hit particularly hard in the last few years and is likely to go on being hit in succeeding years. Such persons have been heavily hit by inflation and will be considerably affected by the increase in the cost of the products of and the services given by the nationalised industries.
  In my constituency I find considerable concern about the increase in electricity charges, and my constituents well appreciate how prices of domestic coal will rise in the autumn. The effect of increases in rates has already been eloquently dealt with by some of my hon. Friends. I do not think the Chief Secretary appreciates the impact of the rate increase on the class of persons to whom I refer. We all feel the effects of the increase, but I must emphasise that they feel it particularly badly.
  Then we must also consider the increase in direct taxation. The people in the bracket covered by the amendment face the threat of a real cut in their standard of living. The kind of projections they made when they retired are proving to be utterly false; in many cases they are having to contract rather than expand their expectations. Amendment No. 49 is designed to help this class of person.
  I have no doubt that the Chief Secretary will produce some estimates of the cost. We are anxious to hear how he costs the amendment. I am always a little sceptical about specious costing exercises produced at the Government Dispatch Box, but I shall be interested to

  1269
  hear what the hon. Gentleman says. I do not think that the exercise will be as expensive as he no doubt will lead us to believe. Whatever the cost, the amendment seeks to give elementary justice to a class of the community who have suffered and are likely to go on suffering, particularly as a result of the Chancellor's measures.
  Therefore, I hope that, whatever the cost, the Chief Secretary will be a little more generous this evening than he was when a similar amendment to Clause 5 was dealt with on the first day of the Committee's proceedings. On that occasion, despite eloquent speeches from both Conservatives and Liberals, the Government treated our provision with callous disdain. I hope that the Chief Secretary may have mellowed a little over the recess. Perhaps his contact with constituents has given him a little more appreciation of the impact of the Chancellor's proposals in the country as a whole. I hope that he will be a little more generous this evening.
  Mr. Nicholas Ridley (): I was sorry to see that during the speech of my hon. and learned Friend the Member for Dover and Deal (Mr. Peter Rees) the hon. Gentleman the Chief Secretary was grinning with glee at the thought of the plight of the elderly. He shook his head violently when my hon. and learned Friend suggested that he might have visited his constituents during the recess. I hope that I misinterpreted the hon. Gentleman's physical gestures and that when he replies he will be a little more sympathetic to our arguments.
  I wish to emphasise one point with great sincerity. In the 15 years I have had the honour to be a Member of this House I have never before met so many elderly people who have such fears about the future. They are reaching a point close to despair in view of what the present Government have done and also as a result of the general inflationary situation and the economic storm clouds on the horizon. Although the young can emigrate and can adapt to the new situation, the elderly are trapped. They have their incomes such as they are, but little or no means of increasing them. An elderly couple may have their house, and it may be a rather bigger house than they.
  1270
  should have, but no doubt when they retired they thought that they could afford that property. However, they now find that rates and taxes are piling on to them and menacing them to a point when they are almost unable to maintain any sort of standard of living at all, especially when they now learn of all the extra burdens which are to be imposed upon them. An increase of 50 per cent. in the rates in my constituency has had a catastrophic effect on the confidence of many old people. At a time when incomes are controlled and their pensions are rising by only small amounts, they do not understand why they are being asked to bear extra burdens of 50 per cent. on rates and perhaps 30 per cent. on electricity charges. My hon. Friend the Member for Braintree (Mr. Newton) was perfectly right when he said that we had to do something to help them.
  6.0 p.m.
  My hon. Friend the Member for Braintree is being very modest in asking only for what I calculate to be a £33 tax remission for people over 65, and then only for those who do not come within subsection (4)—the people under the £1,170 limit if they are married. Even if the amendment were accepted, it would not cover some of the rate increases that my constituents and others will have to bear.
  In supporting my hon. Friend the Member for Braintree, I urge the principle of the amendment upon the Chief Secretary. Whatever the amount may be and whatever the economic consequences, we shall no doubt hear from him. But in principle it seems to be more sensible to adopt the suggestion contained in the amendment than to adopt the principle of the old-age relief.
  In the case of someone who is under 65 we do not say "If your income is less than £1,000 you pay no tax, but if it is more than £1,000 you start paying tax from the first £1 that you earn." We give a personal or married allowance, and the deduction of tax starts after the total allowances have been exceeded. So, if we wish to give special help to the elderly, it seems to be infinitely preferable for it to be done through a system of higher personal allowances than people under 65 receive than by resorting to the over-65 relief.

  1271
  The latter method means that someone whose income is £1,080 will be suddenly brought up against a very steep marginal increase in the tax that he has to pay. It also means that in the end it is a certain small amount which is, so to speak, free of tax and that anyone who seeks to achieve a greater income, even in old age, is especially hard done by. So, whatever the Chief Secretary may have to say on this occasion, I should prefer him to give thought to the principle behind the amendment that the elderly should be helped by higher personal allowances rather than by any system of over-65 relief.
  Mr. Ridsdale: I congratulate my hon. Friend the Member for Braintree (Mr. Newton), and I do so warmly in view of the fact that I happen to represent an Essex constituency. My hon. Friend understands very many of the problems of the elderly in Essex. Like my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), I support the principle behind the amendment. This is an excellent way of helping some of the elderly people who are suffering great anxiety at the present time.
  I agree with my hon. Friend the Member for Cirencester and Tewkesbury, who said that during his 15 years in the House he had never known a time when there had been greater anxiety. I can just top my hon. Friend's period here. I am in my 21st year as a Member of this House. I have never received such anxious letters from elderly people as those that have been in my postbag recently. Many of them refer to this as being "another nail" in their coffins. It is most disturbing to read their letters and the anxious expressions that they use, realising that they have to face a possible annual rate of inflation of 17 per cent.
  I contrast them with a group of people I saw a few minutes ago who were advocating a 30 per cent. increase in their wages. We must not forget that it is the effect of vast increases in wages which has caused a great deal of the inflation that we see at present.
  By means of the principle suggested in the amendment, we shall be able to introduce what might be called a threshold agreement into the tax system
  1272
  similar to that in the wages system. I think that it is only right for the Chief Secretary to accept the amendment.
  My hon. Friend the Member for Worthing (Mr. Higgins) talked about this "special group" of people. They are people who have been hit hard by the Budget itself. They face an additional tax bill, and anything which can be done to help them should be done. I hope that the Chief Secretary will be sympathetic to the amendment, because I can assure him that many elderly people are in great despair.
  Mr. Ian Gow (): I want briefly to support the amendment and to agree wholeheartedly with the speeches made by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) and my hon. Friend the Member for Harwich (Mr. Ridsdale).
  The constituency which I have the honour to represent contains as high a proportion of retired people as any in the country, with the possible exception of that of my hon. Friend the Member for Worthing (Mr. Higgins). Anyone who fought the last General Election knows the extent to which inflation is a cause of real anxiety and despair among the elderly. It lies within the power of the Government to give the elderly some grain of hope that this administration understands the really serious effects that inflation has upon them.
  Even if this modest amendment is accepted, given the rate of inflation which is in prospect of 15 or 17 per cent., it will be of only comparatively little help to the retired people who will benefit. I urge the Chief Secretary to accept the amendment. It will give some help to people who by definition are just above the line at which the basic retirement pension operates, who have probably saved during a lifetime of work, and who are precisely the people who need encouragement from the Government.
  I hope that the Chief Secretary will accept the amendment and thereby give some hope to those who are being driven to despair by this Government and by the rate of inflation that is in prospect.
  Mr. Joel Barnett: I want first to congratulate the hon. Member for Braintree (Mr. Newton) on moving an ingenious amendment of the kind that we have not

  1273
  previously discussed, as the hon. Member for Worthing (Mr. Higgins) said.
  I say at once that of course I recognise the problems of the elderly. No one could not be aware of them, even if he were not mellowed after a two-week recess, although I assure the hon. and learned Member for Dover and Deal (Mr. Rees) that I was not able to spend even two whole days in my constituency. I was at the Treasury for the bulk of the time.
  I should dearly love to take up the argument of the hon. Member for Worthing about the economics of the situation and the help that this amendment might or might not give to it. But, apart from the fact that it might be considered to be going a little wide of the subject matter of the amendment, I know that we intend to have an economic debate in Committee upstairs on Monday. For those reasons I resist the temptation to discuss the speech that I made a few days ago or the increases in rates and nationalised industry prices, which of course I am aware will hurt elderly people. However, those factors are not caused by the extent to which we increase personal allowances and how we increase them.
  I want to take the two points. First, if we are to increase personal allowances for the elderly, is this the best method? Secondly, having given the allowances that we have in the Budget, is this the best way and should we spend the additional cost of the amendment by additional relief to the elderly or in some other way, if those funds were available? The cost in a full year would be £50 million. It would be £30 million in the year 1974-75. [Interruption.] I heard an hon. Member say "Peanuts". One can get a lot of peanuts for £50 million. But I shall return to that matter.
  I want first to deal with the method adopted by the hon. Member for Brain-tree in the amendment and whether this is the right way to go. As the hon. Gentleman pointed out very clearly, what he is proposing to do is to give the relief not by increasing the age exemption but by giving a special increased personal allowance for the elderly, those over 65. As the hon. Member for Worthing rightly said, this has not been done previously. Since the date when it was decided to give relief, it has been done through age ex-
  1274
  emption. The problem of doing it in the way proposed is that it would seriously add to the complexity of an already complex tax system in relation to the elderly. With age exemption there is the tapering relief, the marginal relief that we know. Many elderly people find this very misleading. We shall be coming to that matter shortly on another amendment, so I shall not pursue that point. But elderly people find age exemption and the marginal relief somewhat complicated.
  To that extent, I can understand the point made by the hon. Member for Cirencester and Tewkesbury (Mr. Ridley), that it would be a simplification to have, simply, an increased personal allowance for the elderly. That is absolutely true. But successive Government have preferred to give the relief by way of an age exemption with tapering relief, for the fairly obvious reason (hat by doing it in that way one directs one's assistance to those at the comparatively lowest end of income groups and gives nothing to the highest income groups—not only nothing to the highest groups but nothing above a fairly low level. If the amendment were accepted, we would have the two side by side. We would have an increased personal allowance for the elderly but we would still have the age exemption.
  The hon. Member for Worthing questioned me on who would benefit from this and to which particular level the benefit would go. My answer will give an indication of just how complicated it would become and how very difficult it would be for elderly people to understand.
  Elderly people with incomes somewhat above the age exemption income limit may benefit from marginal age exemption relief. But increased personal allowances for the elderly would reduce the point at which marginal age exemption relief runs out. Those with incomes above the run-out point would benefit, but those who, despite the proposed increase, would still benefit by having their liability calculated by reference to the marginal fraction would neither gain nor lose.
  In other words, those with incomes above the current run-out point would get a constant benefit—unless they are higher rate payers. If their incomes

  1275
  come within the current run-out point— that proposed by the amendment—they will get a variable benefit. If they remain within the marginal zone, there will be no changes. I hope that that is clear to the hon. Member for Worthing. However, it only goes to show how complicated it would be. The system is already complicated enough with the relief, but if we added this provision many elderly people would find it very difficult to know whether to choose not to claim the age exemption.
  6.15 p.m.
  Mr. Newton: I hope that the hon. Gentleman will forgive me for saying so, but it is becoming increasingly obvious that he spent the recess in the Treasury. I am not sure that it would not have served him better to spend more time in his constituency. This seems to be exactly the kind of argument which is always put up against doing anything of this kind. We all know that the tax system is complicated. That is why the Conservative Government wanted a tax credit scheme to simplify it. But the fact that the present Government are to delay any simplification cannot be used also as an argument for doing nothing to ease the position of people who are suffering from the present tax system. I hope the hon. Gentleman will forgive me for speaking with some heat on this matter. I spent a fortnight in my constituency during the recess, I saw many people in this age group who are desperately worried. Most of them would have settled for a little more complication and £30 less tax this year.
  Mr. Barnett: I had not indicated whether I was accepting the amendment or whether we would be increasing relief for the elderly. I was talking of the principle of the amendment. I hope that the hon. Gentleman will acquit me of anything other than trying to deal with the principle of what he is trying to do in an ingenious suggestion. If one wants to give relief to the elderly, is this the best way to go about it? That is all that I am dealing with at this point in the argument. It would have been made no simpler or more difficult if, instead of spending some time in the Treasury during the recess, I had spent even more time in my constituency. That would not
  1276
  have affected the amendment or how it would be understood or fail to be understood by elderly people.
  Mr. Cope: If the Chief Secretary's point was that those with marginal relief were the people who would not benefit by the amendment, he can rest assured that we have not forgotten this matter and that Amendment No. 70, to which we shall come later, deals with people in that category.
  Mr. Barnett: I should be happy to have an omnibus debate on all the amendments to the clause, but I am afraid that I have to deal with this particular amendment, and it was this amendment with which I was dealing. I have tried to help the Committee by saying that if one is trying to help the elderly this is not necessarily the best way of doing it. As to whether, having decided which way one wants to help the elderly, one has the funds available to do that, that is another question. As I have said, in a full year this would cost £50 million.
  I have heard many speeches from Conservative hon. Members who are obviously very sincere on this matter. The hon. Member for Eastbourne (Mr. Gow) and others represent a large number of elderly people living in their constituencies who are finding life very difficult. No one disputes that. It is only a question whether, on top of what we have already done in the Budget, we should take another £50 million to help that particular group rather than some other group. That is all that this matter is about in terms of cost and priorities. As will be known, in the Budget we have increased the income limits for age exemption by £110 for single persons and £170 for couples. In addition, we have given a very substantial increase in national insurance pensions.
  I am informed that the tape at 17.23 hours stated that the Civil and Public Services Association's committee today decided to suspend its ban on uprating pensions and social security benefits increases. I hope, therefore, that it will be possible to pay the substantial increase in pensions in July.
  Mr. Dempsey: Will this increased allowance prevent any part of the increased retirement pension from being clawed back?
  Mr. Barnett: What we are talking about is giving an increased personal allowance over and above what every married or single person gets. That does not affect the point that my hon. Friend has in mind.
  Mr. Dempsey: Perhaps I could make it a wee bit clearer. Will this allowance prevent any of the increase in pension from coming within the tax bracket?
  Mr. Barnett: I do not think that my hon. Friend is talking about the amendment; he is talking about the increased pension, which is entirely different. There is no clawback on the increased pension as such.
  I must regretfully tell the Committee, despite my considerable sympathy with the points expressed, that, because of all we have done already for the elderly and in view of the cost and the great complexity involved, I am afraid that I cannot recommend that the amendment be accepted.
  Mr. Robert Carr (): The Chief Secretary does not seem to have mellowed much. I fear that he comes into the category of people and articles like walnut trees—the more you beat them, the better they be. Since the mellowing effect of the recess does not seem to produce the desired results, we shall have to try some harsher treatment, but we shall do so with great regret and in the best of spirits.
  I think everyone will welcome the news that the Chief Secretary has just given us, that the CPSA is calling off the action which looked likely to delay payment of higher pensions. While one realises that these staff have a very difficult time, in view of what is at stake it is about time that they called off that action and we are glad that they have. It would not have been acceptable to the country as a whole.
  However, this does not bear on the amendment. What we are saying is that there is a need to help people above the age exemption limit. Nothing that the Chief Secretary has said alters that fact. Certainly I am not greatly impressed by the cost argument. We shall be told on Tuesday of next week that it is all right to repay about £10 million of taxation to trade unions which probably need
  1278
  never have paid it in the first place. There is obviously considerable margin for error in all these matters. However, I do not believe that £30 million this year and £50 million in a full year should be taken so seriously by my hon. Friends as to make them refrain from pressing the amendment.
  Equally, we shall be unimpressed by the argument about complexity. We on this side want to simplify the tax system as well as making it more just and more effective in meeting social need. That is why we invented the tax credit system and why, had we still been in power, we should this year have been legislating for it. So it is unsatisfactory to turn down the amendment on the ground of temporary complexity. We must get around to making the whole system less complex, and the way of doing that has been prepared and would have been put into effect if we had still been in power.
  The Minister's other argument was also unimpressive. He asked whether, if we wanted to help the elderly, this was the best way. When, in answer to an intervention, he rather sharply told one of my hon. Friends that he had not yet rejected the amendment, I thought that if he were going to reject it he would at least be putting forward a better suggestion. But at the end of his speech he made it clear that he has no better way. In the absence of a better way, we should try to insist on this way.
  As I said, there is a need to help people above the age exemption limit. My hon. and learned Friend the Member for Dover and Deal (Mr. Rees) rightly said that the kind of projection that people make for their retirement has been wholly falsified by the scale of inflation which we now have and which, we are told by the NIESR, and almost told by the Government, will be bigger this year than ever before. My hon. Friends the Members for Cirencester and Tewkesbury (Mr. Ridley) and Harwich (Mr. Ridsdale) both said, I am sure accurately, that elderly people have never before had such fear about how they will live out the rest of their lives.
  It is true that younger people can take steps to change their position, but elderly people are largely trapped. While the amendment would help those who are not among the poorest pensioners, we should remember that because so many

  1279
  of these people are trapped they cannot adjust their way of life to meet the effects of inflation. If, when someone retires, he has a particular sort of house, he is at an age when he cannot easily change it. The provision is not there. One is trapped in the position in which one found oneself on retirement and for which one had planned, reasonably enough, before retirement.
  These are the people who are being most hit, for example, by the enormous rates increases, particularly in country areas, which this Government have deliberately brought about. They cannot adjust to meet the problems that inflation brings. That is why, as well as anything
  that we do to improve pensions, we should consider the whole spectrum of people above 65. It is time to introduce the concept contained in the amendment of a special personal allowance for these people.
  I congratulate my hon. Friend the Member for Braintree (Mr. Newton), on having invented this amendment. I believe that it is right, that it meets the need and that, unless the Chief Secretary can find some better way of meeting it, it should be pressed in the Lobby.
  Question put, That the amendment be
  made:—
  The Committee divided: Ayes 227, Noes, 250.

  Division No. 32.]

  AYES

  [6.29 p.m.

  Adley, Robert

  Eyre, Reginald

  Kershaw, Anthony

  Aitken, Jonathan

  Fell, Anthony

  King, Evelyn (Dorset, S.)

  Alison, Michael (Barkston Ash)

  Fenner, Mrs. Peggy

  King, Tom (Bridgwater)

  Allason, James (Hemel Hempstead)

  Finsberg, Geoffrey

  Kitson, Sir Timothy

  Ancram, M.

  Fisher, Sir Nigel

  Knox, David

  Archer, Jeffrey (Louth)

  Fletcher-Cooke, Charles

  Lamont, Norman

  Atkins, Rt.Hn. Humphrey (Spellhorne)

  Fookes, Miss Janet

  Lane, David

  Awdry, Daniel

  Fox, Marcus

  Latham, Michael (Melton)

  Baker, Kenneth

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

  Lawrence,Ivan

  Banks, Robert

  Freud, Clement

  Lawson, Nigel (Blaby)

  Barber, Rt. Hn. Anthony

  Fry, Peter

  Le Marchant, Spencer

  Bell, Ronald

  Gardiner, George (Reigate&Banstead)

  Lewis, Kenneth (Rtland & Stmford)

  Bennett, Dr. Reginald (Fareham)

  Gardner, Edward (S. Fylde)

  Lloyd, Ian (Havant & Waterloo)

  Benyon, W.

  Gilmour, Sir John (Fife, E.)

  Loveridge, John

  Berry, Hon. Anthony

  Glyn, Dr. Alan

  Luce, Richard

  Bitten, John

  Godber, Rt. Hn. Joseph

  McAdden, Sir Stephen

  Boardman, Tom (Leicester, S.)

  Goodhart, Philip

  MacArthur, Ian

  Body, Richard

  Goodhew, Victor

  McCrindle, R. A.

  Boscawen, Hon. Robert

  Goodlad, A.

  Macfarlane, Neil

  Boyson, Dr. Rhodes (Brent, N.)

  Gorst, John

  MacGregor, John

  Braine, Sir Bernard

  Gow, Ian (Eastbourne)

  Macmillan, Rt. Hn. M. (Farnham)

  Bray, Ronald

  Gower, Sir Raymond (Barry)

  Madel, David

  Brittan, Leon

  Grant, Anthony (Harrow, C.)

  Marshall, Michael (Arundel)

  Brocklebank-Fower, Christopher

  Gray, Hamish

  Mather, Carol

  Bruce-Gardyne, J.

  Grieve, Percy

  Maude, Angus

  Buchanan-Smith, Alick

  Griffiths, Eldon (Bury St. Edmunds)

  Mawby, Ray

  Buck, Antony

  Grimond, Rt. Hn. J.

  Maxwell-Hysiop, R. J.

  Budgen, Nick

  Grist, Ian

  Mayhew, Patrick (RoyaiTbridgeWells)

  Bulmer, Esmond

  Hall, Sir John

  Meyer, Sir Anthony

  Burden, F. A.

  Hall-Davis, A. G. F.

  Miller, Hal (B'grove & R'ditch)

  Carlisle, Mark

  Hamilton, Michael (Salisbury)

  Mills, Peter

  Carr, Rt. Hn. Robert

  Hampson, Dr. Keith

  Miscampbell, Norman

  Channon, Paul

  Hannam, John

  Mitchell, David (Basingstoke)

  Chataway, Rt. Hn. Chrisiopher

  Havers, Sir Michael

  Moate, Roger

  Churchill, W. S.

  Hawkins, Paul

  Money, Ernie

  Clark, A. K. M. (Plymouth, Sutton)

  Hayhoe, Barney

  Monro, Hector

  Clark, William (Croydon, S.)

  Heath, Rt. Hn. Edward

  Moore, J. E. M. (Croydon, C.)

  Clarke, Kenneth (Rushcliffe)

  Henderson, Barry (Dunbartonshire, E.)

  More, Jasper (Ludlow)

  Clegg, Walter

  Higgins, Terence

  Morgan, Geraint

  Cockcroft, John

  Holland, Philip

  Morgan-Giles, Rear-Adm.

  Cooke, Robert (Bristol, W.)

  Hooson, Emlyn

  Morris, Michael (Northampton, S.)

  Cope,John

  Hordern, Peter

  Morrison, Charles (Devizes)

  Corrie, John

  Howe, Rt.Hn. Sir Geoffrey(Surrey,E.)

  Morrison, Peter (City of Chester)

  Costain, A. P.

  Howell, Ralph (Norfolk, North)

  Mudd, David

  Crowder, F. P.

  Howells, Geraint (Cardigan)

  Neave, Airey

  Davies, Rt. Hn. John (Knutsford)

  Hurd, Douglas

  Neubert, Michael

  Dean, Paul (Somerset, N.)

  Hutchison, Michael Clark

  Newton, Tony (Braintree)

  Deedes, Rt. Hn. W. F.

  Irvine, Bryant Godman (Rye)

  Normanton. Tom

  Dodsworth, Geoffrey

  James, David

  Nott, John

  Douglas-Home, Rt. Hn. Sir Alec

  Jenkin, Rt.Hn.P. (R'dgeW'std&W'fd)

  Onslow, Cranley

  Drayson, Burnaby

  Jessel, Toby

  Oppenheim, Mrs. Sally

  Durant. Tony

  Johnston, Russell (Inverness)

  Orr, Capt. L. P. S.

  Dykes, Hugh

  Jones, Arthur (Daventry)

  Page, John (Harrow, W.)

  Eden, Rt. Hn. Sir John

  Jopling, Michael

  Pardoe, John

  Edwards, Nicholas (Pembroke)

  Joseph, Rt. Hn. Sir Keith

  Pattie, Geoffrey

  Elliott. Sir William

  Kellett-Bowman, Mrs. Elaine

  Percival, Ian

  Pink, R. Bonner

  Shersby, Michael

  van Straubenzee, W. R.

  Price, David (Eastleigh)

  Silvester, Fred

  Vaughan, Dr. Gerard

  Prior, Rt. Hn. James

  Sims, Roger

  Viggers, Peter

  Quennell, Miss J. M.

  Skeet, T. H. H.

  Waddington, David

  Raison, Timothy

  Smith, Dudley (W''wick & L'm' ngton)

  Wakeham, John

  Rees, Peter (Dover & Deal)

  Spence, John

  Walder, David (Clitheroe)

  Renton.Rt. Hn. SirDavid(H't'gd'ns're)

  Spicer, Michael (Worcestershire, S.)

  Walker, Rt. Hn. Peter (Worcester)

  Renton, R. T. (Mid-Sussex)

  Sproat, lain

  Walker-Smith, Rt. Hn. Sir Derek

  Rhys Williams, Sir Brandon

  Stanbrook, Ivor

  Wall, Patrick

  Ridley, Hn. Nicholas

  Stanley, John

  Wealherill, Bernard

  Ridsdale, Julian

  Steen, Anthony (L'pool, Wavertree)

  Wells, John

  Rifkind, Malcolm

  Stewart, Ian (Hitchin)

  Winstanley, Dr. Michael

  Rippon, Rt. Hn. Geoffrey

  Stokes, John

  Winterton, Nicholas

  Roberts, Wyn (Conway)

  Stradling Thomas, J.

  Wood, Rt. Hn. Richard

  Rodgers, Sir John (Sevenoaks)

  Taylor, Edward M. (Gl'gow, C'cart)

  Worsley, Sir Marcus

  Ross, Stephen (Isle of Wight)

  Taylor, Robert (Croydon, N.W.)

  Young, Sir George (Ealing, Acton)

  Rossi, Hugh (Hornsey)

  Thatcher, Rt. Hn. Margaret

  Younger, Hn. George

  Rost, Peter (Derbyshire, S.-E.)

  Thomas, Rt. Hn. P. (B'nel.H'dn S.)

  Shaw, Giles (Pudsey)

  Thorpe, Rl. Hn. Jeremy

  TELLERS FOR THE AYES:

  Shaw, Michael (Scarborough)

  Trotter, Neville

  Mr. Adam Butler and

  Shelton. William (L'mb'th.Streath'm)

  Tyler, Paul

  Mr. Cecil Parkingson.

  NOES

  Abse, Leo

  Dunn, James A.

  Jones, Alec (Rhondda)

  Allaun, Frank

  Dunnett, Jack

  Judd, Frank

  Archer, Peter (Warley, West)

  Dunwoody, Mrs. Gwyneth

  Kaufman, Gerald

  Ashton, Joe

  Edelman, Maurice

  Kelley, Richard

  Atkins, Ronald (Preslon, N.)

  Edge, Geoff

  Kerr, Russell

  Atkinson, Norman

  Edwards, Robert (W'hampton, S.E.)

  Kilroy-Silk, Robert

  Bagier, Gordon, A. T.

  Ellis, John (Brigg & scunthorpe)

  Kinnock, Neil

  Barnett, Guy (Greenwich)

  Ellis, Tom (Wrexham)

  Lambie, David

  Barnett, Joel (Heywood & Royton)

  English, Michael

  Lamborn, Harry

  Bates, Alt

  Ennals, David

  Latham, Arthur(CityofW'mlnsterP'ton)

  Benn, Rt. Hn. Anthony Wedgwood

  Evans, Fred (Caerphilly)

  Lawson,George (Motherwell&Wlshaw)

  Bldwell, Sydney

  Evans, loan (Aberdare)

  Leadbitter, Ted

  Bishop, E. S.

  Ewing, Harry (St'ling,f'kirk&G'm'th)

  Lestor, Miss Joan (Eton & Slough)

  Blenklnsop, Arthur

  Faulds, Andrew

  Lever, Rt. Hn. Harold

  Boardman, H. (Leigh)

  Fernyhough, Rt. Hn. E.

  Lewis, Arthur (Newham, N.)

  Booth, Albert

  Fitch, Alan (Wlgan)

  Lewis, Ron (Carlisle)

  Boothroyd, Miss Betty

  Flannery, Martin

  Lipton, Marcus

  Bottomley, Rt. Hn. Arthur

  Fletcher, Ted (Darlington)

  Lomas, Kenneth

  Boyden, James (Bishop Auckland)

  Foot, Rt. Hn. Michael

  Loughlin, Charles

  Bradley, Tom

  Ford, Ben

  Lyon, Alexander W. (York)

  Brown, Hugh D. (Glasgow, Provan)

  Forrester, John

  Lyons, Edward (Bradford, W.)

  Buchan, Norman

  Fowler, Gerry (The Wrekin)

  McCartney, Hugh

  Buchanan,Richard(G'gow,Springb,-n)

  Freeson, Reginald

  McElhone, Frank

  Butler, Adam (Bosworth)

  Garrett, John (Norwich, S.)

  MacFarquhar, Roderick

  Callaghan, Jim (M'dd'ton & Pr'wich)

  Garrett, W. E. (Wallsend)

  McGuire, Michael

  Campbell, Ian

  George, Bruce

  Mackenzie, Gregor

  Cant, R. B.

  Gilbert, Dr. John

  Maclennan, Robert

  Carmichael, Neil

  Glnsburg, David

  McMillan, Tom (Glasgow, C.)

  Carter, Ray

  Gourlay, Harry

  Madden, M. 0. F.

  Carter-Jones, Lewis

  Graham, Ted

  Magee, Bryan

  Castle, Rt. Hn. Barbara

  Grant, George (Morpeth)

  Mahon, Simon

  Clemltson, Ivor

  Grant, John (Islington, C.)

  Mallalieu, J. P. W.

  Cocks, Michael

  Griffiths, Eddie (Sheffield, Brightside)

  Marks, Kenneth

  Cohen, Stanley

  Hamilton, James (Bothwell)

  Marquand, David

  Coleman, Donald

  Hamilton, William (Fife, C.)

  Marshall, Dr. Edmund (Goole)

  Colquhoun, Mrs. M. N.

  Hamling, William

  Mayhew,Chrlstopher(G'wh,W'wch,E)

  Concannon, J. D.

  Hardy, Peter

  Meacher, Michael

  Conlan, Bernard

  Harrison, Walter (Wakefield)

  Mellish, Rt. Hn. Robert

  Cook, Robert F. (Edinburgh, C.)

  Hart, Rt. Hn. Judith

  Mikardo,Ian

  Cox, Thomas

  Hatters ley, Roy

  Millan, Bruce

  Craigen, J. M. (G'gow, Maryhhl)

  Hatton, Frank

  Miller, Dr. M. S. (E. Kilbride)

  Crosland, Rt. Hn. Anthony

  Heffer, Eric S.

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

  Cryer, G. R.

  Hooley, Frank

  Morris, Charles R. (Openshaw)

  Cunningham,G.(lsl'ngt'n,S&F'sb'ry)

  Howell, Denis (B'ham, Small Heath)

  Morris, Rt. Hn. John (Aberavon)

  Cunnlnflham,Dr.JohnA.(Whiteh'v'n)

  Huckfield, Leslie

  Moyle, Roland

  Davidson, Arthur

  Hughes, Rt. Hn. Cledwyn (Anglesey)

  Mulley, Rt. Hn. Frederick

  Davies, Bryan (Enfield, N.)

  Hughes, Mark (Durham)

  Murray, Ronald King

  Davies, Denzll (Llanelli)

  Hughes, Robert (Aberdeen, North)

  Newens, Stanley (Harlow)

  Davies, Ifor (Gower)

  Hughes, Roy (Newport)

  Oakes, Gordon

  Davis, Clinton (Hackney, C.)

  Irvine, Rt. Hn. Sir A. (L'p'I,EdgeHiII)

  Ogden, Eric

  Deaklns, Eric

  Irving, Rt. Hn. Sydney (Dartford)

  O'Malley, Brian

  Dean, Joseph (Leeds, W.)

  Janner, Grevllle

  Orbach Maurice

  de Freitas, Rt. Hn. Sir Geoffrey

  Jay, Rt. Hn. Douglas

  Ovenden, John

  Delargy, Hugh

  Jeger, Mrs. Lena

  Owen, Dr. David

  Dell, Rt. Hn. Edmund

  Jenkins, Rt. Hn. Roy (B'ham,St'fd)

  Padley, Waiter

  Dempsey, James

  Johnson,James(K'ston upon Hull,W)

  Palmer, Arthur

  Dolg, Peter

  Johnson, Walter (Derby, S.)

  Park, George (Coventry, N.E.)

  Dormand, J. D.

  Jones, Barry (Flint, E.)

  Parker, John (Dagenham)

  Douglas-Mann, Bruce

  Jones, Dan (Burnley)

  Parry, Robert

  Duffy, A. E. P.

  Jones, Gwynoro (Carmarthen)

  Peart, Rt. Hn. Fred

  1282

  1283

  Perry, Ernest G.

  Sillars, James

  Walden, Brian (B'm'ham, Ladywood)

  Phipps. Dr. Colin

  Silverman, Julius

  Walker, Harold (Doncaster)

  Price, Christopher (Lewisham, W.)

  Skinner, Dennis

  Walker, Terry (Kingswood)

  Price, William (Rugby)

  Smith, John (Lanarkshire, N.)

  Watkins, David

  Radice, Giles

  Snape, Peter

  Weitzman, David

  Richardson, Miss Jo

  Spearing, Nigel

  Wellbeloved, James

  Roberts, Albert (Normanton)

  Spriggs, Leslie

  White, James

  Roberts, Gwilym (Cannock)

  Stallard, A. W.

  Whitehead, Phillip

  Robertson, John (Paisley)

  Stewart, Rt. Hn. M. (H'sth, Fulh'm)

  Whitlock, William

  Roderick, Caerwyn E.

  Stoddart, David (Swindon)

  Willey, Rt. Hn. Frederick

  Rodgers, George (Chorley)

  Stonehouse, Rt. Hn. John

  Williams, Alan (Swansea, W.)

  Rodgers, William (Teesside, St'ckton)

  Strang, Gavin

  Williams.Rt.Hn. Shirley (HTd&St'ge)

  Rooker, J. W.

  Strauss, Rt. Hn. G. R.

  Williams, W. T. (Warrington)

  Rose, Paul B.

  Summerskill, Hn. Dr. Shirley

  Wilson, Gordon (Dundee, E.)

  Ross, Rt. Hn. William (Kilmarnock)

  Swain, Thomas

  Wilson, William (Coventry, S.E.)

  Rowlands, Edward

  Taverne, Dick

  Wise, Mrs. Audrey

  Sandelson, Neville

  Thomas, D. E. (Merioneth)

  Woodall, Alec

  Sedgemore, Bryan

  Thomas, Jeffrey (Abertillery)

  Woof, Robert

  Selby, Harry

  Thome, Stan (Preston, S.)

  Wrigglesworth, Ian

  Shaw, Arnold (Redbridge, llford, S.)

  Tierney, Sydney

  Young, David (Bolton, E.)

  Sheldon, Robert (Ashton-under-Lyne)

  Tinn, James

  Shore, Rt. Hn. Peter (S'pney&P'plar)

  Tuck, Raphael

  TELLERS FOR THE NOES:

  Short, Rt. Hn. E. (N'ctle-u-Tyne)

  Urwin, T. W.

  Mr. Laurie Pavitt and

  Silkin, Rt. Hn. John (L'sham,D'tord)

  Variey, Rt. Hn. Eric G.

  Mr. Joseph Harper.

  Silkin,Rt.Hn.S.C.(S'hwark,Dulwich)

  Wainwright, Edwin (Dearne Valley)

  Question accordingly negatived.
  Mr. John MacGregor (): 1 beg to move Amendment No. 34, in page 8, line 40, at end insert—
  ' (4) In section 10(5) (restriction on child allowance by reference to the child's income) for the reference to £115 there shall be substituted a reference to £215 '.
  The amendment would increase from £115 to £215 the amount of income which a child may earn before his parent begins to have his child allowance reduced. At the outset, perhaps I ought to declare that I have no personal interest here.
  In one sense this might be described as another indexation amendment, and on that theme I must say that I have been fascinated by the frequency with which the concept of indexation has arisen in our debates on the Bill thus far. I suspect that outside the Chamber it is not yet recognised how many of our amendments have dealt with that concept, although I imagine that that situation will shortly change. In that sense I believe that the Committee is leading informed opinion in the country.
  Two months ago I put a Question to the Chancellor of the Exchequer, to which he replied on 8th April, asking when the present limit of £115 was fixed and what the new figure should be, the effects of inflation being taken into account. The limit was last fixed in 1963-64, and by February 1974 the figure should have risen to £216. I have rounded it down to £215. Account has thus been taken of inflation.
  I advance three main reasons in support of the amendment. First, there is
  1284
  the question of equity. Unlike several of the other matters covered by the indexation amendments which we have discussed, this limit has not been raised for a long time. Few other allowances have been allowed to remain static in these inflationary times as this one has. I stress also that we are talking here of comparatively modest amounts of children's capital. In 1963-64, assuming a return of 5 per cent., one was speaking of capital of about £2,000. Today we are considering about £1,000 or less, having regard to the increase in interest returns, and that sum of about £1,000 means a great deal less in real capital terms than did the £2,000 in 1963-64.
  It is a not dishonourable wish on the part of grandparents or others to give children a certain amount of capital for their future, and when they make these gifts they do so out of much more heavily taxed capital, especially with the prospective wealth and gift taxes. As I say, it is not dishonourable to wish to pass on a modest amount to children, but in so doing the donor penalises the parents of the children through the effect on the child allowance.
  1 agree very much with what was said by my hon. Friend the Member for Brain-tree (Mr. Newton) on Amendment No. 49 when he pointed out that a proposal of this kind would equally benefit people with very large amounts of capital and, therefore, much higher levels of income from children's capital, but the benefit is proportionately much higher for those who are only just above the income level

  1285
  of £115. In other words, the proportionate benefit really bites in respect of those for whom the amendment is intended. That, therefore, is my first argument, on grounds of equity in time of inflation.
  Second, I address myself to the question of students' earnings. In effect, every extra £1 above the £115 which a student earns at present during his vacations is charged at his parent's highest rate of tax. I recall earning modest sums myself as a student during the vacations to help me through university, running seaside summer shows for visitors. I was always extremely careful to keep my total net earnings, after taking expenses into account, below the figure at which I knew my family would start to be taxed. Today, however, it is far easier to earn a great deal more than £115 in the summer vacation.
  6.45 p.m.
  At that time the child's income allowance which we are here discussing was much more in step with the child tax allowance than it is now. Yet today, as a result of this Finance Bill, the child tax allowance has been increased to £305 for children over 16 years of age. I submit, therefore, that the £115 is well below what it should be.
  This is of special importance in relation to students' earnings. We want to encourage more children to go on to higher education, but we cannot yet, for reasons of cost, apparently, abolish the parental means test, although I should very much welcome it if we could. Thus we are hitting the student who has a family with an income above the parental means test level and who is willing to support himself by work during the vacations. In effect, we say that in many cases the student, or the family as a whole, will pay a very high marginal rate of tax on his earnings which result from his desire to make a contribution towards paying his way through university. The amendment would at least help in that sort of situation. A number of constituents have drawn my attention to their problems in this respect.
  I have written to the Chief Secretary about a particular case of that kind, namely, students' earnings on thin sandwich courses. It appears from the evidence available to me that those who go through university or technical college full time with grant from their employer
  1286
  or from the local authority—1 am especially concerned about those with grant from the employer—do not have their families' child allowance affected in any way. On the other hand, those on thin sandwich courses, in which they work for six months with an employer, obtaining earnings plus expenses, and in the remaining six months have a grant from the local authority, find that the first six months' earnings are regarded as earned income, and this bites on the child allowance. I regard this as an anomaly which ought to be remedied. It could be tackled in various ways, perhaps, but the amendment would at least help.
  Third, again unlike some of the other matters which we have discussed with reference to indexation, the cost here would, I am sure, be comparatively slight. I understand from the reply to a Question which I put to the Chancellor of the Exchequer that it is not possible accurately to assess the cost, and I recognise the reasons and the difficulty there. But the cost cannot be great.
  I move the amendment, therefore, on those three grounds: on grounds of equity, on the effect on students' earnings, and on the comparatively small cost. I urge the Chief Secretary to give it sympathetic consideration.
  Mr. Norman Lamont: I support my hon. Friend the Member for Norfolk, South (Mr. MacGregor) in his amendment to raise from £115 the level to which a child's income is allowed to go before the child allowance is reduced pound for pound. As my hon. Friend said, there is no doubt that this allowance has not kept pace with inflation. In 1952-53 the figure was £85. In 1957-58 it was raised to £100. In 1963-64 it was raised to £115. It has not been raised since, and in that time the real value has been almost halved. It seems to me, therefore, that, if we are to have this allowance at all, there is a strong case for increasing it.
  In supporting the amendment I wish to put a question to the Chief Secretary. How will this child's earnings limit and its effect on the child allowance be affected by the proposals which the Government intend to bring in for aggregation of children's and parents' incomes? As I understand it, the allowance here relates purely to children's income—in their own

  1287
  right, excluding scholarships and bursaries, for example. When we had aggregation before 1971 the child's income was treated as the income of the parent and did not affect the child allowance.
  I should be grateful if the Chief Secretary would tell us whether in the effect that the £115 or the improved allowance will have on the child allowances the Government are intending to revert to the pre-1971 situation. I hope his answer will be "Yes", but even if it is there is still a strong argument for increasing the allowance in terms of inflation alone.
  Mr. Joel Barnett: I am obliged to both hon. Members for the way they have spoken to the amendment, but particularly to the hon. Member for Norfolk, South (Mr. MacGregor) who moved it. Obviously we have a great deal of sympathy for the proposal because, as he rightly assumed, the cost is small. It would be only about £3 million in a full year—I say "only", but if I could find many amounts of £3 million I would have many people asking for them—and about £2½million in 1974–75.
  I do not want to resist the amendment on grounds of cost. I should like to see the allowance increased because it has been well overtaken by inflation over the years, but there is a problem. Perhaps I may here deal with the point raised by the hon. Member for Kingston-upon-Thames (Mr. Lamont) about aggregation, because that is the central point of my reply to the amendment. Whether we shall go back precisely to the pre-1971 situation has not been decided, but it will be similar to that situation on aggregation.
  When that happens the earnings of students or any other youngsters will not be left open to the sort of abuse which is unfortunately available through the use of covenants. Successive Treasury Ministers have argued this case, but invariably it is not altogether understood. If the amount that a child may earn or have as income is increased to the level mentioned in the amendment or to any other reasonable sum, it is open to grandparents and others, through the use of a covenant, to abuse the system. That argument has been used in the past and it is a most persuasive one. Although the cost of agreeing to the amendment would
  1288
  be small, the abuse could grow substantially and I am sure that that is not what the Committee wants.
  With the sort of aggregation which we are proposing to introduce, the investment income for a youngster would fall to be aggregated. That would be the time to allow an increase of the amount suggested in the amendment. Whether it would be that actual amount is something we should have to consider, but to do what the hon. Members wants in advance of aggregation would be a little incongruous. We should be giving the benefit to children with investment income only to move in the other direction with aggregation. I know that that does not altogether please Conservative Members, who do not like aggregation, and I understand that there is a clear difference of political view on that. There is some abuse here and it could grow considerably if the amount of income that a child could have were to be increased. That is the only reason why I should want to resist the amendment.
  Mr. MacGregor: Irrespective of the merits of the gift tax, would not that bite on the point the Chief Secretary has in mind?
  Mr. Barnett: I was referring not to the gift tax but to aggregation. Nevertheless, I take the point that if the grandparent was caught by the gift tax that might dissuade him from making any transfers. Therefore, that again might be the occasion for increasing the allowance.
  I am sympathetic to increasing the allowance, and if the Committee accepts my point I shall certainly be willing to consider that increase when we introduce aggregation. I cannot accept it now.
  Mr. Higgins: I have listened with great interest to the debate. It is true, as the Chief Secretary suggested, that there are profound points of principle at stake on the question of aggregation of children's income. We debated them at great length in Standing Committee under the last Labour Government before 1970 and subsequently. There is always the danger in matters of this kind that we engage in what might be called switchback politics. One party says that it will do one thing and the other party says that it will do the opposite when it comes to power, and the matter

  1289
  switches back and forth. On the general principle, we must relate the position at any given moment to any factors which may have altered since the matter was last debated. If the position is that the Labour Party says it will reverse everything that the Conservatives have done without the Conservatives adopting a similar attitude, the result will be a steady move to the far left. That is not a situation which the Conservative intend to accept.
  We have taken considerable exception to the line adopted by the Government, particularly on the gifts tax which has rightly been described as prospective retrospective legislation, and also to the announcement in the Budget by the Chancellor of proposals which will not take place until the autumn. Consequently we have no opportunity in the intervening period to debate such matters and remain in order. I cannot therefore try your patience, Sir Myer, by discussing the
  overall question of aggregation except to say that the points we made previously remain valid.
  I found the Chief Secretary's answer most unconvincing. It is based on the premise that what he proposes for the autumn will come to pass. I do not believe that that will be the case. He might have produced something more substantial. It is quite some time since the income limit was increased. There are frequently good reasons why it is not increased, but if those reasons exist the Chief Secretary has totally failed to produce them. It seems to me that my hon. Friends are on to a good point and I advise them, if they feel so moved, to press the matter to a Division, in which I shall support them.
  Question put, That the Amendment be made: —
  The Committee divided: Ayes 221, Noes 245.

  Division No. 33.]

  AYES

  [6.59 p.m.

  Aitken, Jonathan

  Deedes, Rt. Hn. W. F.

  Holland, Philip

  Alison, Michael (Barkston Ash)

  Dodsworth, Geoffrey

  Hooson, Emlyn

  Allason, James (Hemel Hempstead)

  Douglas-Home, Rt. Hn. Sir Alec

  Hordern, Peter

  Ancram, M.

  Drayson, Burnaby

  Howe, Rt.Hn. Sir Geoffrey(Surrey,E.)

  Archer, Jeffrey (Louth)

  Durant, Tony

  Howell, Ralph (Norfolk, North)

  Atkins, Rt.Hn. Humphrey (Spelthorne)

  Dykes, Hugh

  Howells, Geraint (Cardigan)

  Awdry, Daniel

  Edwards, Nicholas (Pembroke)

  Hurd, Douglas

  Baker, Kenneth

  Elliott, Sir William

  Hutchison, Michael Clark

  Barber, Rt. Hn. Anthony

  Eyre, Reginald

  Irvine, Bryant Godman (Rye)

  Bell, Ronald

  Fell, Anthony

  James, David

  Bennett, Dr. Reginald (Fareham)

  Fenner, Mrs. Peggy

  Jessel, Toby

  Benyon, W.

  Finsberg, Geoffrey

  Johnston, Russell (Inverness)

  Berry, Hon. Anthony

  Fisher, Sir Nigel

  Jones, Arthur (Daventry)

  Bitten, John

  Fletcher-Cooke, Charies

  Jopling, Michael

  Boardman, Tom (Leicester, S.)

  Fookes, Miss Janet

  Joseph, Rt. Hn. Sir Keith

  Body, Richard

  Fowler, Norman (Sutton Coldfield)

  Kellett-Bowman, Mrs. Elaine

  Boscawen, Hon. Robert

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

  King, Evelyn (Dorset, S.)

  Boyson, Dr. Rhodes (Brent, N.)

  Freud, Clement

  King, Tom (Bridgwater)

  Braine, Sir Bernard

  Fry, Peter

  Kitson, Sir Timothy

  Bray, Ronald

  Gardiner, George (Relgate&Banstead)

  Knox, David

  Brittan, Leon

  Gardner, Edward (S. Fylde)

  Lamont, Norman

  Brocklebank-Fowler, Christo-cher

  Gilmour, Sir John (Fife, E.)

  Lane, David

  Bruce-Gardyne, J.

  Glyn, Dr. Alan

  Langford-Holt, Sir John

  Buchanan-Smith, Alir.k

  Godber, Rt. Hn. Joseph

  Latham, Michael (Melton)

  Buck, Antony

  Goodhart, Philip

  Lawrence, Ivan

  Bidgen, Nick

  Goodhew, Victor

  Lawson, Nigel (Blaby)

  Bulmer, Esmond

  Goodlad, A.

  Le Marchant, Spencer

  Burden, F. A.

  Gorst, John

  Lewis, Kenneth (Rtland & Stmford)

  Buller, Adam (Bosworlh)

  Gow, Ian (Eastbourne)

  Lloyd, Ian (Havant & Waterloo)

  Carlisle, Mark

  Gower, Sir Raymond (Barry)

  Loveridge, John

  Carr, Rt. Hn. Robert

  Grant, Anthony (Harrow, C.)

  Luce, Richard

  Channon, Paul

  Gray, Hamlsh

  McAdden, Sir Stephen

  Chataway, Rt. Hn. Christopher

  Grieve, Percy

  MacArthur, Ian

  Churchill, W. S.

  Griffiths, Eldon (Bury St. Edmunds)

  Macfarlane, Neil

  Clark, A. K. M. (Plymouth, Sutton)

  Grimond, Rt. Hn. J.

  MacGregor, John

  Clark, William (Croydon, S.)

  Grist, Ian

  Macmillan, Rt. Hn. M. (Farnham)

  Clarke, Kenneth (Rushcliffe)

  Hall, Sir John

  Madel, David

  Clegg, Walter

  Hall-Davis, A. G. F.

  Marten, Nell

  Cockcrott, John

  Hamilton, Michael (Salisbury)

  Mather, Carol

  Cooke, Robert (Bristol, W.)

  Hampson, Dr. Keith

  Maude, Angus

  Cope, John

  Hannam,John

  Mawby, Ray

  Cormack, Patrick

  Havers, Sir Michael

  Maxwell-Hyslop, R. J.

  Corrie, John

  Hawkins, Paul

  Mayhew,Patrick(RoyalT'brldgeWelIs)

  Costain, A. P.

  Hayhoe, Barney

  Meyer, Sir Anthony

  Crowder, F. P.

  Heath, Rt. Hn. Edward

  Miller, Hal (B'grove & R'ditch)

  Davies, Rt. Hn. John (Knutsford)

  Henderson,Barry (Dunbartonshire, E.)

  Mills, Peter

  Dean. Paul (Somerset, N.)

  Higgins. Terence

  Miscampbell, Norman

  Mitchell, David (Basingstoke)

  Rees, Peter (Dover & Deal)

  Stradling Thomas, J.

  Moate, Roger

  Renton,Rt. Hn. SirDavid(H't'gd'ns're)

  Tapsell, Peter

  Money, Ernie

  Renton, R. T. (Mid-Sussex)

  Taylor, Edward M. (Gl'gow, C'cart)

  Monro, Hector

  Rhys Williams, Sir Brandon

  Taylor, Robert (Croydon, N.W.)

  Moore, J. E. M. (Croydon, C.)

  Ridley, An. Nicholas

  Thatcher, Rt. Hn. Margaret

  More, Jasper (Ludlow)

  Rifkind, Malcolm

  Thomas, Rt. Hn. P. (B'net.H'dn S.)

  Morgan, Geraint

  Rippon, Rt. An. Geoffrey

  Trotter, Neville

  Morgan-Giles, Rear-Adm.

  Roberts, Wyn (Conway)

  Tugendhat, Christopher

  Morris, Michael (Northampton, S.)

  Ross, Stephen (Isle of Wight)

  Tyler, Paul

  Morrison, Charles (Devizes)

  Rossi, Hugh (Hornsey)

  van Straubenzee, W. R.

  Morrison, Peter (City of Chester)

  Rost, Peter (Derbyshire, S.-E.)

  Vaughan, Dr. Gerard

  Mudd, David

  Royle, Sir Anthony

  Viggers, Peter

  Neave, Airey

  Shaw, Giles (Pudsey)

  Waddington, David

  Neubert, Michael

  Shaw, Michael (Scarborough)

  Wakeham, John

  Newton, Tony (Braintree)

  Shelton, William (L'mb'th.Streath'm)

  Walder, David (Clitheroe)

  Normanton, Tom

  Shersby, Michael

  Walker-Smith, Rt. Hn. Sir Derek

  Onslow, Cranley

  Silvester, Fred

  Walters, Dennis

  Oppenheim, Mrs. Sally

  Sims, Roger

  Weatherill, Bernard

  Orr, Capt. L. P. S.

  Sinclair, Sir George

  Wells, John

  Page, John (Harrow, W.)

  Smith, Dudley (W'wick&L'm'ngton)

  Winstanley, Dr. Michael

  Pardoe, John

  Spence John

  Wood, Rt. Hn. Richard

  Pattie, Geoffrey

  Spicer, Michael (Worcestershire, S.)

  Worsley, Sir Marcus

  Percival, Ian

  Sproat. lain

  Young, Sir George (Ealing, Acton)

  Pink, R. Bonner

  Stanbrook, Ivor

  Younger, Hn. George

  Price, David (Eastleigh)

  Stanley, John

  Prior, Rt. Hn. James

  Steen, Anthony (L'pool, Wavertree)

  TELLERS FOR THE AYES:

  Quennell, Miss J. M.

  Stewart, Ian (Hitchin)

  Mr. Marcus Fox and

  Raison, Timothy

  Stokes, John

  Mr. Cecil Parkinson.

  NOES

  Abse, Leo

  Deli, Rt. Hn. Edmund

  Hughes, Robert (Aberdeen, North)

  Allaun, Frank

  Dempsey, James

  Hughes, Roy (Newport)

  Archer, Peter (Warley, West)

  Doig, Peter

  Irvine, Rt. Hn. Sir A. (L'p'I.EdgeHili)

  Atkins, Ronald (Pre3ton, N.)

  Douglas-Mann, Bruce

  Irving, Rt. Hn. Sydney (Dartford)

  Atkinson, Norman

  Duffy, A. E. P.

  Janner, Greville

  Bagier, Gordon, A. T.

  Dunn, James A.

  Jay, Rt. Hn. Douglas

  Barnett, Guy (Greenwich)

  Dunnett, Jack

  Jeger, Mrs. Lena

  Barnett, Joel (Heywood & Royton)

  Dunwoody, Mrs. Gwyneth

  Jenkins, Rt. Hn. Roy (B'ham,St'fd)

  Bates, Alt

  Edelman, Maurice

  John, Brynmor

  Benn, Rt. Hn. Anthony Wedgwood

  Edge, Geoff

  Johnson, Walter (Derby, S.)

  Bennett, Andrew F. (Stockport, N.)

  Edwards, Robert (W'hampton, S.E.)

  Jones, Alec (Rhondda)

  Bidwell, Sydney

  Ellis, John (Brigg & Scunthorpe)

  Jones, Barry (Flint, E.)

  Bishop, E. S.

  Ellis, Tom (Wrexham)

  Jones, Dan (Burnley)

  Blenkinsop, Arthur

  English, Michael

  Jones, Gwynoro (Carmarthen)

  Boardman, H. (Leigh)

  Ennals, David

  Judd, Frank

  Booth, Albert

  Evans, Fred (Caerphilly)

  Kaufman, Gerald

  Boothroyd, Miss Betty

  Evans, loan (Aberdare)

  Kelley, Richard

  Bottomley, Rt. Hn. Arthur

  Ewing, Harry (St'ling,F'kirk&G'm'th)

  Kerr, Russell

  Bowden,Andrew(Brighton,Kemptown)

  Fernyhough, Rt. Hn. E.

  Kilroy-Silk, Robert

  Bradley, Tom

  Fitch, Alan (Wigan)

  Kinnock, Neil

  Brown, Hugn D. (Glasgow, Provan)

  Flannery, Martin

  Lambie, David

  Buchan, Norman

  Fletcher, Ted (Darlington)

  Lamborn, Harry

  Buchanan,R'.chard(G'gowSpringbrn)

  Foot, Rt. Hn. Michael

  Latham, Arthur(CityofW'minsterP'ton)

  Butler, Mrs. joyce(H'gey.WoodGreen)

  Ford, Ben

  Lawson,George(Motherwell&Wishaw)

  Callaghan, Jim (M'dd'ton & Pr'wich)

  Forrester, John

  Lestor, Miss Joan (Eton & Slough)

  Campbell, Ian

  Fowler, Gerry (The Wrekin)

  Lever, Rt. Hn. Harold

  Cant, R. B.

  Freeson, Reginald

  Lewis, Arthur (Newham, N.)

  Carmichael, Neil

  Garrett, John (Norwich, S.)

  Lewis, Ron (Carlisle)

  Carter, Ray

  Garrett, W. E. (Wallsend)

  Lipton, Marcus

  Carter-Jones, Lewis

  George, Bruce

  Lomas, Kenneth

  Castle, Rt. Hn. Barbara

  Gilbert, Dr. John

  Loughlin, Charles

  Clemitson, Ivor

  Ginsburg, David

  Lyon, Alexander W. (York)

  Cocks, Michael

  Gourlay, Harry

  Lyons, Edward (Bradford, W.)

  Cohen, Stanley

  Graham, Ted

  McCartney, Hugh

  Coleman, Donald

  Grant, George (Morpeth)

  McElhone, Frank

  Colquhoun, Mrs. M. N.

  Grant, John (Islington, C.)

  MacFarquhar, Roderick

  Concannon, J. D.

  Griffiths, Eddie (Sheffield, Brightside)

  McGuire, Michael

  Conlan, Bernard

  Hamilton, James (Bothwell)

  Mackenzie, Gregor

  Cook, Robert F. (Edinburgh, C.)

  Hamilton, William (File, C.)

  Maclennan, Robert

  Craigen, J. M. (G'gow, Maryhill)

  Hamlfng, William

  McMillan, Tom (Glasgow, C.)

  Crosland, Rt. Hn. Anthony

  Hardy, Peter

  Madden, M. 0. F.

  Cryer, G. R.

  Harper, Joseph

  Magee, Bryan

  Cunningham,G.(Isl'ngt'n.S&F'sb'ry)

  Harrison, Walter (Wakefield)

  Mahon, Simon

  Cunningham,Dr. JohnA. (Whiteh' V'n)

  Hart, Rt. Hn. Judith

  Mallalieu, J. P. W.

  Davidson, Arthur

  Hattersley, Roy

  Marks, Kenneth

  Davies, Bryan (Enfield, N.)

  Hatton, Frank

  Marquand, David

  Davies, Denzll (Llanelli)

  Heller. Eric S.

  Marshall, Dr. Edmund (Goole)

  Davies, Ifor (Gower)

  Hooley, Frank

  Mayhew, Christopher (G'wh,W'wch,E)

  Davis, Clinton (Hackney, C.)

  Horam, John

  Meacher, Michael

  Deakins, Eric

  Howell, Denis (B'ham, Small Health)

  Mellish, Rt. Hn. Robert

  Dean, Joseph (Leeds, W.)

  Huckfield, Leslie

  Mikardo,Ian

  de Freitas, Rt. Hn. Sir Geoffrey

  Hughes, Rt. Hn. Cledwyn (Anglesey)

  Millan, Bruce

  Delargy, Hugh

  Hughes, Mark (Durham)

  Miller, Dr. M. S. (E. Kilbride)

  1292

  1293

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

  Rodgers, George [Chorley]

  Thomas, D. E. (Merioneth)

  Morris, Charles R. (Openshaw)

  Rodgers, William (Teesside, St'ckton)

  Thomas, Jeffrey (Abertillery)

  Morris, Rt. Hn. John (Aberavon)

  Rooker, J. W.

  Tierney, Sydney

  Moyle, Roland

  Rose. Paul B.

  Tinn, James

  Mulley, Rt. Hn. Frederick

  Ross, Rt. Hn. William (Kilmarnock)

  Torney, Tom

  Murray, Ronald King

  Rowlands, Edward

  Tuck, Raphael

  Newens, Stanley (Harlow)

  Sandelson, Neville

  Wainwright, Edwin (Dearne Valley)

  Oakes, Gordon

  Sedgemore, Bryan

  Walden, Brian (B'm'ham, Ladywood)

  Ogden, Eric

  Selby, Harry

  Walker, Harold (Doncaster)

  O'Malley, Brian

  Shaw, Arnold (Redbridge, lllord, S.)

  Walker, Terry (Klngswood)

  Orbach, Maurice

  Sheldon, Robert (Ashton-under-Lyne)

  Watkins, David

  Ovenden, John

  Shore, Rt. Hn. Peter (S'pney&P'plar)

  Weitzman, David

  Owen, Dr. David

  Short, Rt. Hn. E. (N'ctle-u-Tyne)

  Wellbeloved, James

  Padley, Walter

  Silkin, Rt. Hn. John (L'sham.D'ford)

  White, James

  Palmer, Arthur

  Silkin,Rt.Hn.S.C.(S'hwark,Dulwich)

  Whitehead, Phillip

  Perk, George (Coventry, N.E.)

  Sillars, James

  Whitlock, William

  Parker, John (Dagenham)

  Silverman, Julius

  Willey, Rt. Hn. Frederick

  Parry, Robert

  Skinner, Dennis

  Williams, Alan Lee (Hvrng, Hchurch)

  Pavitt, Laurie

  Smith, John (Lanarkshire, N.)

  Williams,Rt.Hn. Shirley(H'f'd&St'ge)

  Peart, Rt. Hn. Fred

  Snape, Peter

  Williams, W. T. (Warrington)

  Perry, Ernest G.

  Spearing, Nigel

  Wilson, William (Coventry, S.E.)

  Phlpps, Dr. Colin

  Soriggs, Leslie

  Wise, Mrs. Audrey

  Price, Christopher (Lewisham, W.)

  Stallard, A. W.

  Woodall, Alec

  Price, William (Rugby)

  Stewart, Rt. Hn. M. (H'sth, Fulh'm)

  Woof, Robert

  Radice, Giles

  Stoddart, David (Swindon)

  Wrigglesworth, Ian

  Richardson, Miss Jo

  Strang, Gavin

  Young, David (Bolton, E.)

  Roberts, Albert (Normanton)

  Strauss, Rt. Hn. G. R.

  Roberts, Gwilym (Cannock)

  Summerskill, Hn. Dr. Shirley

  TELLERS FOR THE NOES:

  Robertson, John (Paisley)

  Swain, Thomas

  Mr, J. D. Dormand and

  Roderick, Caerwyn E.

  Taverne, Dick

  Mr. Thomas Cox.

  Question accordingly negatived.
  Mr. Norman Mr. Norman Lamont: I beg to move Amendment No. 70, in page 9, line 3, leave out from '£565' to end of line 6.
  In replying to Amendment No. 49, the Chief Secretary said that one reason for his being unable to accept it was that it did not help adequately the elderly people in the marginal age exemption bracket. I very much hope that on this occasion the Chief Secretary will be able to accept my amendment, because it is designed to help those within that bracket.
  The effect of the amendment would be to extend the band of income up to which elderly people would be better off to opt for the marginal aid exemption relief. Under the present arrangements a person pays no tax up to the age exemption limit. Beyond that limit a person pays tax for each extra pound, under the proposals in the Bill, at 55 per cent. instead of 50 per cent. last year. Many people in this category are not well off, and 55 per cent. seems to be an extraordinarily high marginal rate of taxation. It is the same marginal rate that someone earning £8,000 a year would have to pay.
  The purpose of the amendment is to raise the point at which it becomes to a person's advantage to opt for the marginal age exemption. As a result of the changes made in the Budget the limit at which that point occurs for a single person has increased this year from £856
  1294
  to £1,025. That is an increase of 20 per cent. For a married person the limit has increased from £1,337 to £1,528, an increase of 14 per cent. If the rate of taxation levied on the marginal aid exemption had remained at 50 per cent. the cut-off point, at which it would have become to a person's advantage to opt for the relief, would have risen to £1,095 for a single person—an increase of 28 per cent.—and to £1,644 for a married couple, an increase of 23 per cent.
  There is thus a strong case for giving elderly people who have incomes beyond the age exemption limit some additional relief. The marginal rate of taxation of 55 per cent. seems an extraordinarily high rate to levy on someone with an income which may be only half the level of average earnings. Many elderly people in my constituency are in that position. Many have incomes from savings, and some have part-time jobs. They are the people who have been very hard hit by increased rates and increased electricity charges as well as all the other increased items. Often they have to pay their bills by instalments. They are hit more and more by rising prices. They find their living standards being crushed. They cannot afford to buy clothes, and it is becoming more and more difficult for them to buy food.
  When my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) referred to the twilight of the middle

  1295
  classes, I felt that that category included many people in the marginal age exemption bracket. They are the most defenceless of all. I feel strongly that there is a case for not raising the tax rate from 50 per cent. to 55 per cent.
  I appreciate that in most cases when taxation is increased it is necessary to spread the increase throughout the whole system, but it seems extraordinary that such a high rate of tax should be levied on people who are suffering more than any other group. They have fewer resources to cope with the increased burden and their resources are being eaten up as time goes by. I hope that the Government will feel able to accept the amendment.
  7.15 p.m.
  Mr. Higgins: My hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont) has raised an important point which was foreshadowed in the Chancellor's Budget Statement on 26th March. The Chancellor said that the age exemption income limit for single persons was to be increased by £85 from £700 to £785 and for married couples by £130 from £1,000 to £1,130. The right hon. Gentleman then said:
  "The marginal fraction, by which the relief is withdrawn when a pensioner's income slightly exceeds these limits, will have to be increased slightly in order to avoid an unreasonably wide marginal band. It will go up from 50 per cent. to 55 per cent."— [OFFICIAL REPORT, 26th March 1974; Vol. 871, c. 322.]
  On an earlier amendment, the Chief Secretary talked at considerable length about the complexity of the existing age exemption limits and especially about the marginal provisions. It seems that his remarks on the age exemption limit were ill directed. The hon. Gentleman sought to attack the amendment whereas the complexity of the age exemption limit would have continued whether or not the amendment had been accepted.
  As has been pointed out in the course of earlier debates, it is our view that the tax credit scheme provides a better solution to this sort of problem. The people with whom we are dealing are involved in considerable complexities if they fall within the marginal band.
  I had some sympathy with the Chief Secretary's reflex reaction. Probably over
  1296
  the past three or four years I have signed more letters than he has in the past few months relating to this issue. No doubt some of his colleagues and some of my hon. Friends have signed precisely the same sort of letter explaining how marginal relief on the age exemption limit operated. It is a complex matter which taxpayers, once they cotton on to what is going on, do not understand. To make an explanation takes about three pages of Treasury letter.
  That being so, I have some sympathy with the Chancellor's argument that there is a danger of creating an unduly wide band. None the less, as has been pointed out earlier, I do not think that taxpayers necessarily prefer simplicity to money. They may well feel, even though it is a complex matter and even though they find themselves in a complexity which they were not in before, that if they gain financially they will not mind all that much.
  It is right that my hon. Friend should probe to find why the Chancellor feels that he should raise the limit. To do so clearly reduces the width of the band of people falling within marginal relief, but at the same time it raises the marginal rate of tax. We now find ourselves in the curious position that there are people who pay high rates of tax at the top end of the scale, that there are people in the poverty surtax bracket and that there are now people in the lower middle income group—I avoid carefully the word "class"—who pay tax at the rate of 55 per cent.
  Perhaps the Chief Secretary will tell us at what income level a person would be required to pay tax at the rate of 55 per cent. I presume that that would apply to someone in the £8,000 to £9,000 range. Is that the case? If so, can the hon. Gentleman justify people paying at the rate of 55 per cent. when their incomes are just above the age exemption limit and they are worse hit by inflation than those in the £8,000 to £9,000 range?
  I hope that the Chief Secretary can give better justification than was contained in the rather brief remarks of the Chancellor of the Exchequer in his Budget Statement as to why this provision should be included in the Bill. Surely the situation might well have been left where it was.
  Mr. Joel Barnett: We have had two very interesting speeches from which we have at least learned something. We have had a clarification of what the right hon. Member for Leeds, North-East (Sir K. Joseph) meant by his reference to the middle income groups, although I thought that he referred to the middle classes. The hon. Member for Kingston-upon-Thames (Mr. Lamont) thought that he was referring to the middle income groups, but I gather that the hon. Member for Worthing (Mr. Higgins) thought that he was referring to the lower middle income groups. It is understandable because of the extra relief we have now given in the Budget.
  Under the Bill the income limit for the single person is increased to £810 and for a married couple to £1,170—that is to say, from £700 and £1,000 respectively. Thereby, either the middle income groups or the lower middle income groups are starting at a fairly low level today. But that is not the main burden of my argument. The cost of the amendment would not be very great. It would be £8 million in a full year and £5½million in 1974-75. Although, obviously, a sum of £8 million is important, I would not wish to rest my case on cost.
  Mr. Higgins: I must express some slight surprise at that figure. Am I to understand that as a result of this provision in the Bill, which affects only people at the age exemption limit within the marginal band—no doubt the hon. Gentleman will say which groups he is concerned with—an extra £8 million will be involved?
  Mr. Barnett: I am telling the hon. Gentleman that the cost of the amendment in reducing the figure of tax on the tapering figures above the age exemption relief would be £8 million in a full year.
  Mr. Higgins: It is also the cost of going up from what it was to what the Chancellor proposes.
  Mr. Barnett: I will put it the other way round. I agree that it is yielding £8 million in a full year to have it at 55 per cent. instead of 50 per cent. I will assume for the benefit of argument that the complex provisions of the tapering relief on age exemption marginal relief are fully understood. I am sure
  1298
  that hon. Members who have spent so many long hours in this Committee will be fully aware of the complexities.
  What the hon. Member for Worthing said in referring to my right hon. Friend's statement is right. The point is that if we had left it at 50 per cent,. a very wide band of taxpayers over the age of 65 would have been eligible for marginal relief in the tapering income groups. Perhaps I can explain that. If the marginal fraction of 50 per cent. had been retained for 1974–75, marginal age exemption relief could, in the extreme case, have given some small benefit to an elderly single taxpayer with an income of up to £1,169 and to an elderly married couple with a joint income of as much as £2,477. These are £359 and £1,307 respectively above the relevant income limits. That reflects the width of the band.
  I take the point made by the hon. Member for Kingston-upon-Thames, on which I think there may be some misunderstanding. I am talking now about marginal relief and where age exemption runs out. The figures quoted by the hon. Gentleman on this were those that would have applied had the income limits originally proposed by the Chancellor prevailed. But a revised resolution was later put down raising the income limits still further. I referred to that in my own speech during the Budget debate.
  If we accepted the amendment, the limits and the band would be very wide. This was the point which the hon. Member for Worthing understood. The net result would be that a large number of people would gain by it if they understood what to claim. I have no doubt that some would not know what to claim because of this complexity.
  I have mentioned the ingenuity of the idea of having a special allowance for elderly people. The trouble is that that would go all the way up the income scale, whereas age exemption restricts it to a particular level of income. That is the basic reason why we do not feel able to accept the amendment. By having a 55 per cent. rate, the benefit of the marginal relief will, in the extreme case, run out at £1,087 for the single person and £1,733 for the married couple. That is to say, the width of the marginal zones will become £277 and £563 respectively. I

  1299
  do not say that this is necessarily a happy situation. But I think that it is better than having a very wide band of income in the tapering relief.
  Both hon. Members complained about a high marginal rate of 55 per cent. Indeed, there has been Press comment about it. But it is somewhat misleading —and I am not blaming anyone—to talk about a high marginal rate of tax, because it is always open to someone to opt for the ordinary single person's or married allowance. A point which old people often find difficult to understand is that there is a marginal rate when they have had the relief of the age exemption. But it is not a high marginal rate in the true sense of the word.
  I could go on at greater length, but I think what I have said explains roughly the reasons why I do not feel able to accept the amendment. I hope that my arguments will be acceptable to the Committee.
  Mr. Newton: Having been involved in an earlier amendment, I find that the remarks which the Chief Secretary has made in reply to the debates today, during which we have tried to get some extra relief for elderly taxpayers, have become more and more profoundly unsatisfactory. For example, we were told that the objection to my amendment earlier was that the tax system would be made rather too complicated if we introduced the additional personal allowance for elderly people. Now we are told that it is not really as complicated as old people may think because they do not really look at it in the right way, that it is not really a marginal tax rate, and so on. But the end result of the hon. Gentleman's argument is that he does not want to do anything to help old people this year in this or any other way simply because he does not want to do it. This is not good enough.
  We have put forward a series of amendments, each of which would be economical in itself. Even the £30 million which would have been involved in an earlier amendment is a small sum. It is well within the margin of error of most of the sums we have in the Red Book. I am willing to bet that, of the estimates in the Red Book of the yield of taxation for the coming year, hardly one will not be at least £30 million out
  1300
  because of mis-estimation or because the rate of inflation has changed in the coming year. It is not enough for these proposals to be shot down by the argument that they will cost £30 million.
  7.30 p.m.
  As soon as we find a proposal that is cheap enough for the hon. Gentleman to accept, he finds some standard, hoary, old Treasury reason for not accepting it. We have met that in debate after debate. We all appreciate the reasons for not having a band as wide as would arise from the amendment of people subject to the marginal rate of 50 per cent. However, we have met part of the argument against earlier amendments, when the Chief Secretary said that the Government did not want to help people all up the scale, for we have now suggested a cheap amendment that would help only those with a little above average earnings. But he does not want to help them, either.
  I have a feeling that, however cheap, however simple, however neat, however attractive any amendment we devise may be, the hon. Gentleman will find some reason for rejecting it. No doubt the Treasury will be well able to dream up reasons for rejecting any proposals that we may make. But it is a shame. I do not want to turn this into any kind of lighthearted debate, and I say quite seriously that it will not go unnoticed in the country that the Government have turned down all these attempts to help a group of people who come to us day after day and week after week to draw our attention to their many problems.
  The hon. Gentleman should not underestimate the strength of that feeling. It is a widespread feeling among the groups we have been discussing. I am genuinely sad that the Chief Secretary has not been able to accept even the most modest amendment to help those suffering from the hardships that we have explained. The amendment suggested by my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont) would have helped some of these people to some slight extent.
  Mr. Cope: I should like to correct my hon. Friend in one small respect. It is not a matter of the Chief Secretary accepting ways in which to help this group of people. It is a matter of our trying to

  1301
  prevent the Chancellor of the Exchequer from damaging them. We have been proposing amendments to a provision increasing the tax upon these people. We are trying not to improve their situation but to prevent the Chancellor from making it worse.
  Mr. Newton: I am grateful for that correction. In my hasty notes, against the word "cost"—I had assumed that the Chief Secretary would resist the amendment on that ground—I have written "no cost at all", for it would not cost the Chief Secretary anything. The amendment would merely prevent his grabbing money from old people. It illustrates my observation on an earlier amendment that all that had happened so far this year—and I emphasise "so far", because pensions have not yet been paid—the only effect of Government policy that the pensioners have noticed, has been that the Government have increased the taxation of the incomes of many pensioners.
  I conclude by emphasising what has been said about the 55 per cent. marginal rate. Regardless of what may be said about the objections, about the administrative difficulties of having a very wide band of people subject to marginal relief, all the problems pale into insignificance against the resentment that will be felt by these people every time they get a small increase of income, whether from a private pension or a State pension, when they will have to pay 55p in every pound at the margin.
  Whatever arguments we use when we try to explain the tax system to elderly people, the resentment will remain. Whatever the reality of having a larger income or paying less tax, the old people will resent having to pay at the marginal deduction rate of 55p in every pound. There will be not only widespread misunderstanding but widespread resentment and anger, and the Government would have been sensible to go a long way to avoid that.
  Amendment negatived.
  Mr. Cope: I beg to move Amendment No. 42, in page 9, line 6, at end insert:
  ' (5) In section 12 (widower's or widow's housekeeper), section 13 (relative taking charge of unmarried person's young brother or sister) and section 14 (widows, other single persons and husbands with disabled wives with
  1302
  children) for the references to £100 there shall be substituted a reference to £150, and for the references to £130 there shall be substituted a reference to £180'.
  The Deputy Chairman (Mr. Oscar Murton): With this we are to take the following amendments:
  No. 47, in page 9, line 6, at end insert:
  ' (5) In section 16 (dependent relatives) for the references to £100 there shall be substituted references to £150, and for the reference to £145 there shall be substituted a reference to £200'.
  No. 58, in page 9, line 6, at end insert:
  ' (5) In section 16 (dependent relatives) for the reference to £145 there shall be substituted a reference to £175 '.
  No. 65, in page 9, line 6, at end insert:
  '(5) In section 12 (widower's or widow's housekeeper), section 13 (relative taking charge of unmarried person's young brother or sister), section 14 (widows, other single persons and husbands with disabled wives with children), section 16 (dependent relative), and section 17 (claimant depending on services of daughter), for the references to £100, £130, £145 and £55 there shall be in each case be substituted references to £150'.
  No. 66, in page 9, line 6, at end insert:
  ' (5) In section 18 (blind persons), for the references to £130 there shall be substituted references to £150, and for the references to £260 there shall be substituted references to £300'.
  Mr. Cope: These amendments relate primarily to the housekeeper and related allowances. No. 47 relates to dependent relative allowance. They propose increases in allowances that would not otherwise be affected by the Finance Bill.
  I should say at the start that I used to have an interest in these provisions. It arose because my mother died of cancer when I was two, and my father had to struggle to bring up children in the war years and in the years immediately after the war, and he needed the assistance of a housekeeper to do so. The problems for the single parent family are difficult whether the single parent is the father or the mother, although the problems of each are different.
  Those of us happy enough to be married and to have children and not in need of a housekeeper often forget the amount of work that our wives do as housekeepers and in looking after the children, although we are sometimes reminded of it. However, the single

  1303
  parent is brought up against these problems and fully appreciates the amount of work that a wife or husband has done. These people are affected in their different ways by this series of allowances. I am talking particularly about allowances for widows and widowers which arise under Section 12 of the Income and Corporation Act 1970.
  The increases that I propose are very modest. I propose an increase in Amendment No. 42 of £50 in each of the allowances mentioned there. In Amendment No. 47 I propose an increase of £50 to the £100 figure and an increase of £55 to the figure of £145 in order to round it off to £200. I should say, particularly in view of an earlier amendment concerned with married and single allowances, when I referred to inflation, that I have described these proposals as modest because they are far less than would be required to bring these allowances to the level at which they would be keeping pace with inflation.
  I am told that the housekeeper allowance, which stands at £100 and which I am proposing to increase to a mere £150, would need to be increased to £210 to maintain the value it had when it was first introduced. The modesty of my proposal will be seen when inflation is taken into account. No one should think that these amendments will make anyone rich. It is the tax on £150 with which we are concerned—£50 a year, £1 a week roughly speaking, which does not go far these days. Some of my hon. and right hon. Friends have been even more modest in their proposals which are included in the amendments we are also discussing. These give the Chief Secretary, if he objects to the cost of mine, the chance to take a less expensive route.
  One point which is not covered in Amendments Nos. 42 and 47 is covered in Amendment No. 66 and deals with blind persons. The blind persons' allowance is well known. The proposal in Amendment No. 66 is to increase it from £130 to £150 for a single blind person. For a husband and wife both of whom are blind, the reference to £260 applies and the amendment would alter it to £300. These are very modest increases but they are important to those concerned. Such amendments would show
  1304
  that the Committee and the Government care about these people.
  I accept that these allowances are complicated, but they are not quite at complicated as the allowances we discussed in an earlier amendment. It is a rather ramshackle system of allowances. It has been sorted out a little since I first began to study the tax system. There has been a great improvement. Nevertheless it is a ramshackle system, and I accept that my amendment does not assist in sorting out that system. This argues more strongly for the tax credit system which was proposed but which now seems to have been abandoned or at least shelved sine die.
  The tax credit system could take account of these things. If it were coming along in the reasonably near future that would be an argument for not accepting amendments of this kind aimed at improving the lot of the disadvantaged in society. The fact that the tax credit system is not coming along makes it important to look at these allowances, ramshackle as they are, and to make the Government examine them and ask whether they are sufficient or whether inflation should eat into them until they become worthless so that the groups whom they are meant to help are gradually driven into the ground.
  These are not complicated amendments. They are modest in amount. They argue for themselves. It is for the Treasury, if it can, to try to argue against them. All that they do is to try to restore the position a little to where it was in earlier years.
  7.45 p.m.
  Mr. Norman Lamont: I want to address my remarks to Amendments Nos. 65 and 66 standing in my name. As my hon. Friend the Member for Gloucestershire, South (Mr. Cope) has said, the different allowances which are the subject of these amendments form something of a ramshackle structure. It is almost impossible to find any logic in the way the different allowances have been adjusted over the years. Amendment No. 66 takes the five allowance groups—widow's or widowers; housekeeper; relative taking charge of an unmarried person's young brother or sister; widows, other single persons and

  1305
  husbands with disabled wives with children; dependent relatives; and claimants depending on the services of a daughter—and makes them into one single allowance of £150.
  There is a case for simplification and putting some sense into the system. These allowances have not kept pace with inflation in recent years. My right hon. Friend the Member for Altrincham and Sale (Mr. Barber) when he was Chancellor made the last decent increase when he increased them by nearly 30 per cent. Notwithstanding that, they have still not kept pace with inflation.
  Comparing the value of the allowances today with their value in 1962–63, it will be seen that the allowance covering a relative taking charge of an unmarried person's young brother or sister stood at £75, which in today's purchasing power terms would be £144. The value of the allowance today is a mere £100. It is dramatically behind the rate of inflation. We find that the housekeeper's allowance was £75 in 1962–63. Its current purchasing power would be represented by £144 whereas it stands at only £100.
  The allowances have moved differently over the years. The dependent relative allowance shows a slight increase over the 10 years. The allowance for widows, other single persons and husbands with disabled wives with children has also kept ahead of inflation. The others have all lagged behind.
  There is a case for a fairly dramatic increase, and there is also a case for amalgamating these allowances. They deal with groups of people who have similar needs. One can imagine some situations in which a person might conceivably move from one allowance to another. There is therefore, a strong reason for consolidating them. Such a step would also have anticipated the development of the tax credit system. We would be expecting something like this to happen if, as would have been the case under the last Government, the tax credit system had been introduced with this year's Finance Bill. That is an added reason for merging the allowances.
  1306
  Amendment No. 65 simply proposes an increase in the blind person's allowance, which also has dramatically fallen behind the rate of inflation. In 1963–64 the allowance was £100, which at today's purchasing power would be over £190 in value. There is, therefore, a strong case for increasing the allowance because it has lagged behind inflation. One thing which has always annoyed me about that allowance is that it is wrong that it should be apportioned for a period of a year. If a person becomes blind during the year, he gets the allowance only for the remainder of the year, as though becoming blind was not penalty enough in itself. I wish that we could do away with the apportionment provision.
  The main reason why I urge my hon. Friends to support the case for a substantial increase in the allowances, is to enable them to keep pace with the rate of inflation.
  Mr. Newton: Having had something to do with the preparation of the amendments, I wish to add my support to what my hon. Friends have said. As we are proposing that the allowances should be increased, plainly we believe that the allowances are proper. It is worth stating that because we do not want simply to draw attention to the anomalies in order to expose the situation. We all accept that the case for having allowances to fulfil the purposes which they set out to achieve is very strong, and we should like to see them extended in some respects. The amendment which we shall next discuss deals with the possible extension of the allowances to people who do not qualify for them.
  We are talking about groups of people who, because they have additional expense arising from their disability, or extra responsibilities for children, or problems arising from widowhood or widowerhood, have extra burdens loaded on them. It follows that they are people who have been finding life far from easy in the last few years, partly because of inflation. The problem of inflation underlies most of the amendments. On that ground alone there is a strong case for reviewing the level of the allowances. It is time that some of them were increased.
  There is, however, a strong case for putting some of the allowances together

  1307
  and creating a uniform additional personal allowance within the existing tax system or, as we would hope, within a tax credit system having an additional personal tax credit covering a range of the problems we are discussing. From the point of view of moving towards a tax credit system or of simplifying our existing system, which I am sure the Chief Secretary dearly has at heart, it would make a great deal of sense to bring some of the allowances together at a single standard sum.
  In many respects the situation is absurd. Like many other harassed taxpayers, I subscribe to Money Which? and study it with great assiduity when my income tax return arrives. This year it said in relation to the special allowance for the housekeeper or person looking after children:
  "A widow or widower with a child, who has a woman relative living in the house as housekeeper or looking after the child, will do better to give up the housekeeper allowance."
  That sounds odd until one reads on and finds:
  "He or she can claim, instead, the (higher) additional personal allowance for children and —if the relative qualifies—the dependent relative allowance as well."
  It seems absurd that if a person has a housekeeper living in the house for one purpose he can get one allowance and what is, in effect, a housekeeper living in the house for another purpose he can, by a complexity in the tax system, virtually choose to have a higher tax allowance.
  Money Which? says about a blind person allowance:
  "You cannot have both this allowance and a daughter's services allowance. Claim the larger one—normally the blind person's. But a widow or widower could have both the blind person's and a housekeeper allowance."
  On the allowance relating to the daughter on whose services a person is compelled to depend it says:
  "If you are a widow or widower who qualifies for this allowance you would do better to class your daughter as your housekeeper and claim the (higher) housekeeper allowance of £100 instead—you cannot have both."
  It is entirely proper that people who in effect use their daughters as housekeepers should be told to classify their daughters as housekeepers if they can get a substantial increased tax allowance. How
  1308
  ever, a tax system which causes men and women to classify their daughters as their housekeepers is open to argument.
  The amendments would cost a modest amount and would help to remove some of the anomalies. They would simplify the tax system and would pave the way to what I would describe as an additional personal tax credit in some future reform of the system and, perhaps most important, would help the people with the problems which we have been discussing to cope with life. On those grounds, it would be well worth the Chief Secretary giving at least some of the amendments serious consideration.
  Mr. Higgins: I support what my hon. Friends have said. It is right and proper that we should take this opportunity to debate these matters. The Chancellor of the Exchequer has taken action on the married person's allowance and the single person's allowance, though not on a sufficient scale to offset the effects of inflation. The amendments cover groups of people who we have always felt it right should be given special consideration.
  It would be more appropriate to deal with the broad principle of the present system and the alternative of a tax credit scheme on the Question "That the clause stand part of the Bill". But it is right that we should consider the allowances individually because, as I know, having spent three or four years in government, we have a ramshackle arrangement. When we were in office, my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) and his colleagues considered all the allowances to see what changes were appropriate. However, they felt that fundamental reform of the system was necessary.
  This year the Chancellor of the Exchequer—no doubt he was rushed for time and we appreciate that he had to construct his Budget in a hurry—has not taken effective action to help the people whom the amendments seek to help. That should surely give us considerable cause for concern. I hope that on each of the amendments the Chief Secretary will tell us the cost and the amount that would reflect the effect of inflation so that the real value of the allowances would be maintained from the date when they were last increased.

  1309
  8.0 p.m.
  The people involved, like the old, are among those least able to protect themselves. They include the blind, widows and single women with a dependent relative. These are people who are least able to help themselves, and the House of Commons has in the past rightly given attention to them.
  In normal circumstances we would say that the Budget judgment has been made and that the Chancellor has said that he can give only so much to the blind or to this or that group. But no increases have been given, and we are told that the Government might find it necessary to take reflationary measures in the autumn. I hope that' the Chief Secretary will not hide behind the argument that he made a speech outside the House of Commons and he does not want to go into it tonight.
  It appears that the Chancellor has not taken a firm view. It is not simply a question of being concerned with the margin of error in forecasts. It is becoming increasingly apparent that the bias is in the direction of lack of aggregate demand rather than excess of it. Whether that is so on the wages front is another matter. I hope that the Chief Secretary will be able to express sympathy for these groups of people and tell us whether we can hope for some changes in the near future.
  I have been associated in the past with the subject of Amendment No. 58, which deals with single women with dependants. It was some years before the plight of this group came to our attention, and eventually we succeeded in making provision to help them. That provision has been reviewed from time to time. Whereas the children's allowance goes up to £305, £275 or £240, depending on the age of the child, the dependent relative allowance remains unchanged at £145 for the single woman taxpayer. The job of looking after a dependent relative is every bit as difficult as looking after a child. Therefore, it is difficult to understand why the Chancellor feels it right to give an increase to the former and not to the latter group.
  I invite the Chief Secretary to give us a sympathetic reply and to express the Government's view on whether there is a case for standardising the allowances. I leave the broader question of the tax
  1310
  credit system until we come to the debate on the Clause. The Government have now had more time to consider these matters, and I shall be grateful to hear their view on these groups who are among the most vulnerable in the community.
  Mr. William Hamling (): I should like to say a word or two on Amendment No. 58 which deals with a matter on which I have spoken on several occasions during the last eight or 10 years. I hope that my hon. Friend will give the Committee an assurance that single women with dependent relatives will be treated more generously under the Labour Government than they have been in the past. When my right hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) was Chancellor, he made a significant change in the arrangements.
  Those of us who are associated with the National Council for the Single Woman and her Dependants have made representations to successive Chancellors over several years. I have no doubt that if the council consisted of a body of men backed by a powerful trade union it would have received far more generous treatment from Chancellors of both parties. Without being patronising, one can say that the cause of women has not received from the House of Commons the attention that it should have received, and it is about time that it did.
  Mr. Joel Barnett: It has been an interesting brief debate, and I am obliged to hon. Members for raising many of the matters that have been raised. I am sure that members of the Committee will be sympathetic to the case put forward by the hon. Member for Gloucestershire, South (Mr. Cope), particularly when he gave the instance of his mother having died of cancer when he was two years old. I am sure that all members of the Committee will have sympathy with single parent families. I certainly have.
  Things have been said about me during these debates of which my late mother would never have dreamt. It has been said that I have at heart the simplification of the tax system. It was said in earlier debates that I had not got a heart, but that is not true. I have, and I am sympathetic, but I am not necessarily always sympathetic to

  1311
  simplification as such. Simplification is not always the best method of approach to a tax system. It is not necessarily the fairest way to go about it.
  It is right to say that the system of allowances is ramshackle. These so-called secondary allowances have grown up over the years and there is a clear need to examine them. But we have to ask ourselves whether the best way to go about it is by this group of amendments.
  The cost of Amendments Nos. 42 and 47 would be £23 million in a full year and £18 million in 1974–75. I am speaking of the amendments concerned with the widow's or widower's housekeeper allowance, the child minder allowance, the additional personal allowance, and the single woman's dependent relative allowance and other dependent relative allowances. It is proposed in the amendments that these shall be increased.
  It has been said that the present system is rough justice. Indeed, it is, because the allowances grew up and they are anomalous, different allowances being applicable in each case. The present allowance for a dependent relative maintained by a single woman is £145. The widow's or widower's housekeeper allowance is £100 and the child minder allowance is £100. To deal with the matter in that way is rough justice and not necessarily the best way to go about it. I believe that we should look at the matter much more carefully than is sought to be done in these amendments.
  Mr. Cope: I think there is some slight confusion. Amendments Nos. 42 and 47 do not attempt to alter the framework of the allowances. I have sought to increase them all by £50. The amendment which seeks to iron out the situation is Amendment No. 65.
  Mr. Barnett: There are so many amendments in this group that it makes life a little difficult. The hon. Member for Gloucestershire, South seeks to increase the secondary allowances. I believe that there is a case for an increase in secondary allowances, but I wonder whether the hon. Gentleman's suggestion is the best way to go about the matter.
  Let us take as an example the child minder's allowance. Very few people
  1312
  are aware of this allowance because it is not very much used. The child minder's allowance is for a single person who maintains a widowed mother or other female relative to look after a young brother or sister. I am told that it is a specialised type of allowance that is rarely claimed. Then there is the widower's or widow's housekeeper allowance. That allowance has long been considered anomalous, and I imagine that that is one of the reasons why our predecessors did not seek to increase it.
  I think I should correct one point made by the hon. Member for Kingston-upon-Thames (Mr. Lamont), who said that the previous Chancellor of the Exchequer, the right hon. Member for Altrincham and Sale (Mr. Barber), had increased all the secondary allowances. I would remind the hon. Gentleman that that was concerned with an uprating following unification. There was no all-round increase, but that related to the removal of earned income relief. Incidentally, the Radcliffe Commission recommended that the widower's housekeeper allowance should be abolished. There are a number of anomalies in regard to secondary allowances. I believe that there is a case for reviewing these personal allowances, but not in a haphazard, crude sort of way by simply lumping the lot together or by taking particular allowances regardless of whether they have merit on their own account.
  I should like to refer to Amendment No. 58, to which attention was drawn by my hon. Friend the Member for Woolwich, West (Mr. Hamling). It refers to the single woman who supports a dependent relative, and proposes an increase in the allowance from £145 to £175. Again the cost is not the important matter in deciding whether the Committee should accept the proposition. The cost amounts to about £2½ million in a full year and about £2 million in 1974–75. I willingly concede that the figure is not large, but even in that case the situation is not as simple as it looks. The allowance was first introduced by my right hon. Friend the present Foreign Secretary when he occupied the office of Chancellor of the Exchequer in 1967. That occurred at a time when it was recognised that single women faced a serious burden in terms of tax.

  1313
  The question now is whether that allowance should be increased. The Committee should recall that my right hon. Friend the Chancellor in his Budget increased generally all personal allowances. This has helped the single woman in the category to which the amendment refers as well as everybody else. It has been said that a strong case exists for increasing allowances, and in many instances that is so, but this is not to say that the Chancellor has done nothing at all about the situation. My right hon. Friend has made substantial increases in personal allowances generally.
  8.15 p.m.
  Mr. Higgins: With respect to the Chief Secretary, he seems now to be deploying a bad argument. The increase in the allowance for the single person is significantly less proportionately, as the Chancellor in his Budget speech admitted, than is the allowance for the married couple. Therefore, the single person relatively gains less. The single woman with a dependent relative is in a vulnerable position, and such a woman is hit particularly hard by inflation. We are saying that the Government should take account of that situation. I stress that this is not a partisan matter. A married woman who looks after a child receives an increased allowance but the single woman who looks after a dependent relative of 80 or 90 years of age receives no increase in her allowance. I hope that the Chief Secretary will be a little more forthcoming, and I know that his hon. Friend the Member for Woolwich, West (Mr. Hamling) will support him if he says that he will look at this matter before the Bill reaches its Report stage.
  Mr. Barnett: I have already said that I am not unsympathetic to some of these secondary allowances. However, I suggest that the way in which this group of amendments seeks to cover the situation is not the right one. I am not saying that on consideration—and I hope that we shall be able to consider it—we shall not be able to find some way of helping the situation.
  I come to Amendments Nos. 65 and 66 in the name of the hon. Member for Kingston-upon-Thames. The hon. Gentleman seeks to increase the allowances in both cases to £150.
  1314
  As I said earlier, I do not think that it is necessarily right to take allowances which have been set differently relative to one another and to argue that they should all be increased to the same figure merely because they are simpler to understand.
  Mr. Norman Lamont: But will the hon. Gentleman be a little more specific? It seems that all the people covered in those allowances are in very similar circumstances. Although the hon. Gentleman says that it does not make sense to put them all up to one level and that one may have a calculated relationship with another, it appears that they all affect the same sort of people in much the same circumstances.
  Mr. Barnett: The hon. Gentleman is not proposing that they should all be increased proportionately. He is bringing them into line. The main reason for the complication of the present personal allowance structure is the number of different personal allowances that there are. It has been described as a ramshackle structure, and no one disputes that. But to say in this crude way that because they are all different allowances, without looking into why they are different and why they started differently, one should therefore bring them all into line regardless of why they started off differently surely is not what this Committee would wish to do. Surely the better way of dealing with it would be to examine each of them on its merits. The real way is to look at a system by means of which we can do away with this large number of personal allowances.
  We have had several references to the fact that a tax credit system would do this. We did not like the tax credit system suggested by the previous Government, and I do not go back on that—
  Mr. Hamling: I am sure that the Committee is very sensible of the logic of my hon. Friend's case in saying that the whole system should be simplified, but is my lion. Friend saying that the Government intend to do just what he has said?
  Mr. Barnett: No. I shall come in a moment to what we intend to do.
  I have given the reasons why we believe that it would be wrong to deal with the allowances in this haphazard way simply

  1315
  because there are relative, different figures as between one class of allowance and another, and that is why I am afraid that the Government cannot accept the amendments as they stand.
  There have been all kinds of reasons for the implementation of particular allowances like the one which the then Chancellor of the Exchequer introduced in 1967 for single women and why, when that was introduced, it was different from other allowances obtaining at the time—
  Mr. Newton: I think that it would help the Committee if the hon. Gentleman explained in one concrete case why the differences exist. Obviously his argument stands up as a logical Treasury-type argument that it does not make sense to sort it out. That is an argument that we all understand, even if we do not agree with it. But can the hon. Gentleman explain why a widower employing a female other than his daughter to look after him gets a tax allowance of £100 but that if he employs his daughter he gets an allowance of only £55? I am not sure that my figures are correct, but, even if I have gone wrong somewhere, the figures that I have quoted are close to being the situation.
  Mr. Barnett: I shall give an example. However, I do not know why it is a typical Treasury argument simply because it is logical—
  Mr. Newton: I am not attacking the hon. Gentleman's officials, still less himself. The point is that it is an argument that is pure logic, without regard to the practicalities. We all understand that there is no reason why all these allowances, in an abstract world, should be at the same level. But, looking at them in a practical world and considering the circumstances in which they apply, it is not possible to think of any reason for having different levels. The hon. Gentleman is trying to simplify the tax system, and we all pay lip service to trying to do that. We have here an amendment which will help the hon. Gentleman down that road.
  Mr. Barnett: I am obliged to the hon. Gentleman for his help. Perhaps I may give an example of the indiscriminate nature of the proposed increases in the
  1316
  various amendments that we are discussing. In one case the amendment would abolish any differential in the amounts of secondary allowances, although some of these have become fairly specialised. One example is the daughter's services allowance or what was the housekeeper allowance for the single person who maintained his widowed mother to look after a young brother or sister. It is difficult to see the logic of a proposal which would increase the daughter's services allowance by £95 but the allowance for the single woman supporting a dependent relative by only £5.
  All these amendments are indiscriminate. We have great sympathy for the single woman who has not gone out to work and not married but instead has looked after her mother. But the amendments are so indiscriminate that they are not the way to go about it.
  We also know that the Finer Committee on the one-parent family will be publishing its report fairly soon. We believe that it will indicate that there is need for relief in many directions. Therefore, I should like, with the Committee's permission, to reconsider all the secondary allowances, especially the additional personal allowance, after the Finer Committee has reported. I believe that that will be before we reach the Report stage of this Bill. I assure the Committee that I shall give very serious consideration to these secondary personal allowances, not least the additional personal allowance, and that it will be my hope to make a concession on those grounds, although obviously I cannot go any further than that at the moment.
  Mr. William Clark: The hon. Gentleman has referred to the Finer Committee. Are we to take it that he will accept the recommendations of the Finer Committee? If the Finer Committee says that it would prefer one-parent families to be absorbed in a tax credit scheme, will the Government accept that recommendation?
  Mr. Barnett: The hon. Gentleman should know better than to ask such a question. I have no idea what the Government will decide about the Finer Committee's report. I have described the way that I hope to approach this whole problem. With that, I hope that the Committee will accept the matter and allow these amendments to be withdrawn—
  Mr. William Clark: But cannot the hon. Gentleman go any further? He prays in aid the report of the Finer Committee. This Committee gets the impression that, in the light of what the Finer Committee says, the secondary allowances will be increased. Is that right?
  Mr. Barnett: The hon. Gentleman has been here a long time. I have said that I am prepared to consider the matter in the light of the Finer Committee's report, and I hope that that will be available before the Report stage of this Finance Bill. When the Finer Committee's report is available, I shall give consideration to all the secondary allowances, not least the additional personal allowance.
  Mr. Higgins: We are making some progress, but the clear implication of what the Chief Secretary has said is that he will read the report of the Finer Committee and will come forward with proposals on Report. Other than that, I do not see that the hon. Gentleman has said anything at all. Is that what we are to understand, or is he simply saying, as a matter of interest to the Committee, that he will have read the Finer Committee's report before the Bill's Report stage, which is a different kettle of fish? We should be clear about what he is saying. The implication was that, having read the Finer Committee's report, the hon. Gentleman will come forward on Report with proposals, or at least some amendments will appear on the Paper. Am I that wrong? If so, what was the hon. Gentleman talking about?
  Mr. Joel Barnett: I want to make it absolutely clear. I am not saying at this stage whether or not the Government will accept what appears in the Finer Committee's report. What is perfectly understood, however, is that the Finer Report will deal among other things, with single parent families, and in the light of that I am saying that I shall look at the secondary allowances. I cannot go beyond that.
  [Mr. GURDEN in the Chair]
  8.30 p.m.
  Mr. George Cunningham (): As the Chief Secretary has undertaken to examine all these secondary allowances, may I ask him to give particular attention to an anomaly relating to the dependent
  1318
  relative allowance? At present, any person claiming the dependent relative allowance has two limitations to the relief that it brings. There is first the limitation in the deduction from income which is taxable, and there is the limitation on the income of the dependent relative, which must be only that of the retirement pension at the time.
  Anyone who knew enough to adopt the alternative procedure would make a deed of covenant in favour of the dependent relative and by that means escape both limitations. We have, therefore, a system under which a person who is sophisticated enough to be able to do that and to put up with the inconveniences—and there are some—which result from using a deed of covenant can get a higher relief than someone who uses the straightforward tax allowance, about which most people who are entitled to it know.
  I do not ask the Chief Secretary to respond to that matter now, but if we are reviewing these things, because of the alternative possibility of the deed of covenant provision, at least the limitation in respect of the recipient's income ought to be made more generous or, perhaps, removed.
  Mr. Hamling: I welcome what my hon. Friend the Chief Secretary has said about the Finer Committee's Report. Those of us who have been concerned with these matters have awaited that report for a long time with great interest. We are concerned not only with single women with dependent relatives but with a great number of people, such as widows, who have been neglected for too long. I am delighted to hear from my hon. Friend that the report is expected so soon. I am delighted to have his assurance that the Government will look at it in relation to the secondary income tax allowances.
  With regard to what my hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham) has just said, we are concerned not only with people who have incomes and who are able to make covenants but also with the very large number of cases in which there is no income as such. The parents might be on social security. What we have been concerned about in the past in these debates is that the single woman who has no income of her own—perhaps because she has given up her employment or has

  1319
  been unable to obtain employment— should also, in order to look after the dependent relative, be given some consideration. That is outside the scope of this Finance Bill but is something which should be put on record.
  Mr. Cope: i also welcome the Chief Secretary's announcement of a review of the secondary allowances between now and Report stage.
  Mr. Joel Barnett: I said that I would consider the question of secondary allowances in the light of the Finer Committee's report and this debate. That was all. I did not say that it would be anything else.
  Mr. Cope: I do not think I said that it would be anything else. I welcome the fact that the Chief Secretary is to consider or to review the secondary allowances, or whatever phrase the hon. Gentleman cares to use. I am a new Member of the House and I probably do not appreciate its finer points.
  Mr. Hamling: We did not hear that when Conservative Members were in Government.
  Mr. Cope: These are matters for debate. It would have been helpful, however, if the Chief Secretary had told us about this an hour ago. We might have saved a little time. However, in view of what the hon. Gentleman has just said about a review or consideration, I beg to ask leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Mr. Norman Lamont: I beg to move Amendment No. 52, in page 9, line 6, at end insert—
  ' (5) In section 18 (blind persons), for the references to "registered blind person" or "registered blind persons" there shall in each case be substituted "registered blind person or registered disabled person" or "registered blind persons or registered disabled persons"'.
  This is a probing amendment to discover the arguments, which will no doubt be advanced by the Chief Secretary again, against enlarging the blind person's allowance to cover disability in general. A similar amendment has been moved in previous years and I am familiar with some of the arguments against it. but it
  1320
  is not without reason that the matter has come up several times.
  Whatever the administrative arguments, it is now generally recognised that the blind person's allowance was based on an out-of-date concept, when blindness was an obvious and visible form of disability. It is only in recent years that there has been an increasing awareness of the general problems of disability within society.
  I appreciate the administrative argument that blindness is an easily identifiable disability, but tax treatment for the disabled should be determined by source and degree of disability rather than by administrative convenience. We now have much more experience in assessing disability, under the industrial injuries scheme and the administration of the constant attendance allowance, and we have more sophisticated methods of assessment.
  The amendment would give the Inland Revenue certain tasks in assessing disability which would have to be done through the normal social services organisation. In this sense it paves the way towards the tax credit system and, through that, to the creation of a disability income which is what organisations for the disabled like the Disablement Income Group have always wanted. If we could get a tax allowance for all the disabled and from that move into a tax credit scheme, we could then progress to a disability income. That is all the more urgent because there is no specific tax allowance for disabled people.
  Many people are not covered by our present social security arrangements, particularly those who are born disabled and disabled married women at home. Many people who deserve help are not capable of working but can look after their families and therefore do not benefit from the constant attendance allowance.
  The amendment might be expensive, and the Chief Secretary will probably say that the extent of disability within society is largely unknown. One argument might be that the registered disabled are only the tip of the iceberg. But the feeling is growing that the disabled have not been adequately served by our tax system. Something like the amendment will one

  1321
  day be necessary if we are to move forward, as we will have to do, to a disability income.
  Mr. Hugh Dykes: I wish to intervene only briefly following the comprehensive explanation of the rationale of the amendment by my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont), and to support wholeheartedly what he said and to add my plea to the Chief Secretary that he should consider the amendment and its full implications.
  My hon. Friend the Member for Kingston-upon-Thames was modest in saying that it was a probing amendment and presumably, therefore, the intention is to go no further than to probe, but I would like to aim for more than that, although this is entirely a personal view, because this has now become an urgent and important matter.
  I warmly endorse what my hon. Friend said and I shall add some additional points. The administrative argument which might be constructed against extending from the obvious and tangible category of the blind person to a special allowance to disabled persons as a whole, as a generic category, can be gainsaid by our increasing practical experience in many ways, including work by local authorities and central departments, particularly the Department of Health and Social Security, and also because even in a legal sense the concept of the disabled person has moved from being just a fairly vague conceptual impression in the mind of many people to a definitive legal concept, the concept of a registered disabled person as now endowed and approved by Parliament in the Private Member's legislation originally introduced several years ago.
  I do not think that the administrative arguments which might be deployed by the Chief Secretary in his pre-Finer mood will necessarily carry the weight which would contradict the valid argument for the Government deciding to take action on this substantial front. This is an important category of people, and it may be that there are important differences to be ironed out between those who are in a formal sense registered disabled persons and those who are not, between the various gradations of disability, whether congenital or created physically during
  1322
  a person's life. There are all sorts of admittedly complex details to be ironed out. But in talking with members of DIG and other disabled persons in my constituency, and with those working with the disabled, including those in local voluntary associations for the disabled, I find that there are, not on intermittent occasions but fairly frequently, now articulate blind people who say that although they are blind, which is a severe disability, they know many disabled people whom they regard as being much more disabled intrinsically than they are. There are innumerable examples of active blind people who still do a virtually full-time job or perhaps a part-time job in their homes, and we admire them for this. We know also of sighted people severely disabled from other causes. One example is a woman, a constituent of mine, who tries to do an eight-hour day in her home flat on her back, doing a writing or telephoning job, which is a tremendous tribute to her tenacity, but she does not qualify, except for any special assistance which may be available under separate legal provisions, for special treatment. This is increasingly an old-fashioned anomaly.
  Many associations and organisations for blind people would welcome an extension to cover disabled people in general. This would be perhaps a mirror image of the inception of a national disability income, transcending party lines, which more and more people in the House of Commons want. There was an important rally connected with this in Trafalgar Square yesterday.
  For all these reasons, and for many others which could be raised except that the debate would go on too long, I hope that the Chief Secretary will be able to say a little more, bearing in mind what he said previously, which was a welcome indication of his willingness to look at anomalies which worry hon. Members on both sides. This particular problem needs to be resolved in the fairly foreseeable future.
  8.45 p.m.
  Mr. Joel Barnett: I am always obliged to the hon. Member for Kingston-upon-Thames (Mr. Lamont) for the way in which he moves his amendments, because he saves us the need to reply by giving the reply in his own remarks. He

  1323
  has just done the same on this amendment.
  As was evident from the fact that the hon. Gentleman called it a probing amendment, this proposal goes far wider than did the amendment on the fairly narrow question of investment income dealt with on another occasion by my hon. Friend the Financial Secretary. Both the hon. Member for Kingston-upon-Thames and his lion. Friend the Member for Harrow, East (Mr. Dykes) touched on the question of defining the nature or extent of disability. One may have on the register the type of disabled person suffering severe disability—the hon. Member for Harrow, East gave some examples— whose case is, in fact, worse than that of a blind person. There are such terrible cases, and one would always wish to help. Equally, however, one may have on the register a person whose disability is nowhere near so severe; his disability might be regarded as fairly modest, although I readily agree that not one of us would wish to suffer it.
  Thus, the whole question is most complex, and this is why we are worried about the whole problem of identifying classes of disability. I believe—I am sure that most hon. Members, on reflection, will agree—that it is best to deal with the disabled through the social security system. The Government are under a statutory commitment, under Section 36 of the Social Security Act 1973, to review our social security provision for chronically sick and disabled persons and to lay a report on that review before Parliament by 31st October 1974. I cannot comment on the progress made so far, save to say that the Government wholly accept that commitment and intend to abide by it.
  I submit that that is the best way to deal with the matter, because it would reach those disabled people who do not have sufficient income to pay any tax at all. That is the way we have in mind to deal with it. Indeed, I know that this is the view taken by the hon. Member for Worthing (Mr. Higgins), because, when he was Financial Secretary in 1973, he said:
  "It is none the less true, by and large—I would not wish to generalise absolutely—that
  1324
  help is more efficiently directed if it is done through the social security system than through giving taxation relief of one kind or another." —[OFFICIAL REPORT, Standing Committee H, 23rd May 1973; c. 697.]
  I agree with the hon. Gentleman—that is the way to deal with it—and I imagine that most hon. Members on both sides will accept that line of argument.
  For those reasons, I am not able to accept the amendment so reasonably moved by the hon. Member for Kingston-upon-Thames. I hope that the hon. Gentleman will accept that what we have in mind is to provide help for the disabled through the social services and through the work of my hon. Friend the Member for Manchester, Wythenshawe (Mr. Morris), who is now the Minister responsible for these matters. I know that all hon. Members and disabled people outside the House will be only too well aware of how much my hon. Friend has done, of how much more he will hope to do, and, indeed, of how much more the Government will hope to do. I am sure that that will be the best way to go about it.
  Mr. Norman Lamont: I beg to ask
  leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Question proposed That the clause stand part of the Bill.
  Mr. William Clark: The Chief Secretary has told us that about 2 million people have been taken out of the tax bracket. I do not doubt that figure as it stands, but I think it a little dishonest of the Government to say that 2 million are taken out of the tax bracket when we know only too well from all the problems of inflation that we have discussed that as a result of rising incomes a good many more people will come back into the tax bracket. I am pretty sure that by the end of the fiscal year—perhaps the Chief Secretary will comment on this—there will be not a net reduction but an increase in the number of people in the tax bracket.
  We have discussed all the various allowances, and on both sides of the Committee we are well aware of the anomalies and differences. Some of them are pretty archaic, and, what is more, they are unfair because they give a benefit to one person but not to someone else who should be equally entitled to it.

  1325
  Under our tax system it is all very well giving a tax allowance to someone but that affects only the person who is actually paying tax. The person we want to help is possibly not in the tax bracket. That is why I regret, as do my hon. Friends and, I am sure, hon. Members on the Labour side, that the Government have set their minds against a tax credit system. Such a system would at least help the person on a lower income. We have been talking about a housekeeper allowance and a dependent relative allowance and so on. Under the tax credit system the dependent relative would be covered. That person would have an income in his own right, and it would mean that he, could pay the daughter or son to look after him. That is much better and far more dignified.
  We have just had a debate on the disabled. The Chief Secretary said that the Financial Secretary would look at the question of investment income for disabled persons. I look forward to him accepting our view that they should get an extra allowance, or at least the same allowance as a retired person. The Chief Secretary said that the best way of dealing with the disabled is to give them a cash payment. I could not agree more. It is all very well giving a disabled person a tax allowance, however, but that allowance will benefit only people in the tax bracket. The Minister suggests a cash payment through social security, but I differ with him on that. The tax credit system included machinery to cover the disabled person.
  One could attribute the same economics to blind persons who at the moment get an allowance. If a blind person is paying tax the allowance is of some value. If he is not it does not matter whether the allowance is £500 or £1,000 a year, because it will not benefit him. That is one of the advantages of the tax credit system. The system has various side effects. For example, it cuts out the nonsense of not taxing all income, under which some people can get an income from social security or elsewhere which is not taxable and can in some instances for two, three or four weeks after having stopped working end up with more take-home pay than when they are in full-time employment and assessed under PA YE.
  I want to know why the Socialist Party is against the tax credit system. In the
  1326
  Select Committee, which had four Socialist members, there was a division. Three of the four—the Chief Secretary, the hon. Member for Ashton-under-Lyne (Mr. Sheldon) and the present Secretary of State for Social Services—voted against the tax credit system. But the man who was at one time Chairman of the Parliamentary Labour Party, the former right hon. Member for Sowerby, voted for it. I am delighted that the Liberals supported the main report. It is all very well for the Chief Secretary to say, presumably speaking for his party, "We thought that the tax credit system was not the right one." I do not think that is true. The man who voted with us on the main report has had promotion and has gone to another place. I am told that life there is easier than it is here.
  One of the arguments against a tax credit system is that it is not sufficiently flexible. Never has so much nonsense been spoken. The Chief Secretary and the Financial Secretary know, and the Chancellor of the Exchequer should know, that the flexibility within the tax credit system is equal to that in our present PAYE system, but I do not intend to pursue that matter.
  The Temporary Chairman: Order. I take it that the hon. Gentleman was referring to the tax credit system so far as it affects personal reliefs, and nothing more.
  Mr. Clark: I am referring to it only as it affects personal reliefs and secondary allowances, Mr. Gurden. Those are the sort of reliefs and allowances that one can bring into a tax credit system.
  We have been arguing about whether the married and single persons' allowance should be increased. They are mirrored within the tax credit system, in that a married man will receive £6 cash allowance each week and if his income were such that he did not have to pay £6 tax he would receive the balance from the Inland Revenue. The Chief Secretary wants simplification in our tax allowances. That is one way in which we can have it.
  Year after year successive Governments talk about whether they should increase the earned income relief—though that has now gone because of the action of my right hon. Friend the Member for Altrincham and Sale (Mr. Barber). They

  1327
  talk about increasing the married allowance, the single allowance and the child allowances at different ages and they argue about whether they should increase the dependent relative allowance and whether they should give the blind and the disabled an allowance. It is high time that hon. Members and the country realised that the sooner we have a tax credit system, giving positive benefits to the low paid, the blind, the disabled and so on, the better.
  That is why I very much regret the negative approach of the Chief Secretary and the Treasury to the tax credit system. I understand that, under the previous Government, the Treasury and certainly the Department of Health and Social Security were in favour of a tax credit system.
  I hope that the underlying reason why the Labour Government do not want a tax credit system is not political. I also hope that it is not sour grapes because they did not think of it themselves.
  9.0 p.m.
  Mr. Higgins: The Committee will have listened with considerable interest to my hon. Friend the Member for Croydon, South (Mr. Clark), because he was the Chairman of the Select Committee which was particularly concerned with the proposals for a tax credit system.
  We have now been debating for some hours and in considerable detail the proposals in the Bill and the amendments that my hon. Friends and I have pressed upon the Government. I think that there is universal agreement that the present system of so-called secondary allowances is ramshackle and full of anomalies. It is clear from the answers of the Chief Secretary that it has not sustained the value of the allowances in real terms, allowing for the effect of inflation.
  Many of the secondary allowances are of benefit to the hard-hit groups with which the Committee rightly has sympathy. There has been no agreement concerning them even in money terms. It has been the constant thread of our debates that a better system should be devised. The fact is that a better system was devised by the previous Conservative Government. We put forward our proposals for a tax credit scheme. We had hoped that it would be possible to make
  1328
  that a matter on which there would be all-party agreement. It was for that reason that my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) proposed that the matter should be discussed as widely as possible within the House. In due course a Select Committee was set up which considered the matter in considerable detail.
  The previous Government hoped that it would be possible to proceed on a sensible and all-party basis. It was an immense disappointment to my right hon. and hon. Friends and myself when in the Budget Statement the Chancellor of the Exchequer came up with the proposals in the clause which we are now considering.
  The Chancellor, when referring to the tax credit system, said:
  "Before describing my direct tax proposals, I should outline very briefly the Government's position on a tax credit system.
  We believe, as we explained at length in opposition, that there are serious drawbacks to the tax credit scheme proposed by the previous administration. They were fully described in the Minority Reports of the Select Committee. We have not taken any decision against the principle of a negative income tax, which was the subject of considerable study under the previous Labour Government, but our immediate priority has been to carry out the major increase in national insurance benefits which I have referred to."—[OFFICIAL REPORT, 26th March 1974; Vol. 871, c. 312.]
  That being so, it must be said that the previous Labour Government did not produce anything as well worked out as the proposals in the Green Paper. The tragedy is that the present Government, instead of asking whether their advisers were ready by way of a tax credit scheme—they would have received the answer that legislation was well advanced and could be produced immediately—produced the statement which I have just quoted.
  The result is that we have a hotchpotch of measures which are inadequate protection against inflation. They do not cover a great many of the hard cases that we have been discussing. They have been introduced instead of announcing proposals for a tax credit scheme. The previous right hon. Member for Sowerby, Mr. Houghton, who is now in another place, found in favour of such a scheme. The Committee will recognise that his experience of social security benefits was of long standing and that he brought

  1329
  great expertise to bear. 1 do not think that anyone would dispute that.
  Many of us felt that the arguments put forward at that time by the hon. Member for Heywood and Royton (Mr. Joel Barnett) and his hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) and the somewhat different arguments put forward by the present Secretary of State for Social Security were not well founded. I believe that if they asked their present advisers they would be told that they were not well founded.
  It is regrettable that we are not able to proceed on that basis. The fact is that there were considerable advantages in the scheme which had we been in office we would have most certainly legislated for in our Finance Bill. It is inevitable that the lead time for a reform as radical as a tax credit system is considerable. Such a system cannot be introduced overnight. It takes a considerable time to prepare such legislation and then a considerable time to implement it. As a result of the Government having decided not to introduce such a scheme this year we shall lose a year at least. That will be to the disadvantage of the British people.
  The tax credit system would have excluded certain groups—the self-employed, for example, for whom other arrangements would have been made, and families mainly dependent on supplementary benefits, who would have needed something in addition to the system. But it would have covered about 90 per cent. of cases of the kind we have been discussing today. It would have been of very considerable advantage, for example, to one-parent families and to the married woman. There was some misunderstanding originally about credits being given to the children, but my right hon. Friend the Member for Altrincham and Sale made it clear that they would be paid to the mother.
  There were, therefore, considerable advantages in the tax credit system which this clause does not give. It would have got us over the problem of the poverty trap situation, where the family income supplement is continued at the same time as there is an overlap with the tax threshold. I shall not go over that argument again, but nevertheless there is a difficulty, which the hon. Gentleman clearly recognised and to which he had
  1330
  no solution other than to admit that the tax credit system would have provided a solution. It would have reduced greatly the need for means testing. It would have been of considerable advantage which we are unfortunate not to have the opportunity to approve at present.
  The tax credit system would also have benefited not only taxpayers but those below the tax threshold, particularly the pensioners whose case we have already debated. Taking all these amendments, and covering an even wider area, the tax credit system would have given the opportunity to improve the way in which the Government are able to deal with the very real social problems we are faced with. Moreover, it would have been a simplified system, and would have reduced greatly the number of civil servants required.
  For all these reasons, it is a matter of great regret that we do not have the tax credit system before us today. It is an opportunity delayed at the very best. 1 hope that it is not an opportunity missed. I said earlier that it was not the policy of the Opposition to shoot Santa Claus, so we shall not vote against the clause. At the same time, we are very sad that we do not have a more comprehensive and sensible proposal, which had been worked on, developed and was ready for legislation, and from which the Government have run away. I hope that the hon. Gentleman will let us know precisely what the Government's position is on this issue now. I hope that he will confirm that the Government are prepared to go ahead with such a scheme.
  Mr. Joel Barnett: In this clause we are discussing personal reliefs, and that is as good a reason as any why it does not include a tax credit system. A number of points have been made passionately, as always, by the hon. Member for Croydon, South (Mr. Clark). He and I have debated tax credit systems upstairs and downstairs for a long time.
  I make it clear that the Government are not opposed to any tax credit system. They are opposed to the tax credit system suggested in the Green Paper of the Conservative Government. It is that system to which we are opposed, not a tax credit system of itself. It may well be possible to devise a comprehensive tax credit

  1331
  system which is fair as between one taxpayer and another. I am far from convinced, as I showed when we discussed the matter in the Select Committee, that the tax credit system proposed by the Conservative Government was anything like fair.
  The hon. Member for Croydon, South said that by a tax credit system we would help the disabled and the lowest income groups and all sorts of other people by means of cash grants. That is true. He went on to say, however, that there would be some side effects. He mentioned some that would be beneficial—the fact that there would be, for example, a £6 cash allowance weekly. But he forgot to mention the not insubstantial side effect that the whole lot would have cost £1,300 million, and we have never been informed how that money would be found. The hon. Gentleman also forgot to mention the side effect that the vast majority of taxpayers, more than 90 per cent. of them, would be stuck with the same basic rate one with another. I do not consider that to be the best way in which to provide a progressive tax system, and I stick by everything I said at the time of the Select Committee.
  When the hon. Member for Worthing (Mr. Higgins) talks about a tax credit system and providing extra allowances and bigger net incomes, it has to be remembered that there is no miracle in a tax credit system or anywhere else. If incomes net of tax are increased by the tax credit system, or in any other way, the money must come from somewhere. It can be provided by printing paper, as happened all too frequently during the course of the past nearly four years.
  But the £1,300 million is one side effect that somehow neither hon. Member cared to mention. If a tax credit system costing £1,300 million is introduced, how that sum is to be financed is important, because its method of financing could affect all those who would greatly benefit, as the hon. Gentleman told us, from the tax credit system.
  Mr. William Clark: Whatever the figure, whether £1,300 million or £650 million, would the hon. Gentleman care to say who would benefit from such a reduction in taxation?
  Mr. Barnett: When taxation generally is reduced, and that is what the tax credit system is intended to achieve, the individuals who benefit most are those with the largest incomes.
  Mr. Clark: I could not agree more, but the Chief Secretary is missing the point. Under the tax credit system, the people who are not in the tax bracket also get a cash benefit. As he knows, the figure of £1,300 million was illustrative. But whatever the figure, whether £1,300 million, £650 million or anything else, who would benefit from that reduction in revenue?
  Mr. Barnett: It is the hon. Gentleman who is missing the point. If we give a benefit of £650 million, or whatever the figure is, given that there is a revenue neutral situation, the money must come from somewhere. If it is taken from indirect taxation, that will certainly hurt most those whom the hon. Gentleman claims will be helped by the tax credit system. The money cannot be taken from direct taxation, because it is precisely the direct taxation system which is hurt most by the tax credit system proposed in the Green Paper.
  Clearly I am stepping miles out of order, Mr. Gurden, and I hope that you will forgive me, but I have been trying to reply, if only briefly, to some of the issues raised in this debate. The clause provides personal reliefs totalling £684 million. I think that it will be acceptable to the Committee, and I therefore commend the clause.
  Question put and agreed to.
  Clause 11 ordered to stand part of the Bill.

Clause 13

  SHARE OPTION AND SHARE INCENTIVE SCHEMES
  Mr. Maurice Macmillan: I beg to move Amendment No. 29, in page 10, line 34, leave out from beginning to end of line 43, and insert:—
  ' (a) section 78 of the Finance Act 1972 (approved share option schemes) except:

  (i) in its application to cases where a right obtained as mentioned therein was exercised before 27th March 1974, and

  1333

  (ii) in relation to schemes to which Part III of Schedule 8 to the Finance Act 1973 applies; and

  (b) subsections (2)(a) and (3X«) of section 79 of that Act (which excludes the application of subsections (4) and (7) of that section in cases of acquisitions made under approved share incentive schemes) except:

  (i) in their application to cases where the acquisition was made before 27th March 1974, and

  (ii) in relation to schemes to which Part II of Schedule 8 to the Finance Act 1973 applies; and'.

  I should declare a very long-term interest. For many years I have been concerned with an organisation known as the Wider Share Ownership Movement. After a great effort, denied by administrations of both parties, it finally succeeded in getting accepted a concept of a property-owning democracy that extended beyond that of home ownership. That effort was supported by my right hon. and hon. Friends, by right hon. and hon. Members on the Liberal benches here and in another place, and by right hon. and hon. Members on the Labour benches, and it had a lot of help from individuals within the trade union movement.
  9.15 p.m.
  The object of the movement was to turn "earners into owners". It was to extend the whole concept of a property-owning democracy. The idea had a great deal of support but it also came up against a lot of opposition from the Inland Revenue and to some extent the Treasury. I remember some time ago being told at some meeting, or reading in a paper, that although there might be a case for encouraging personal savings through the tax system, this was possible only if the personal saving was for socially acceptable reasons, such as saving against a rainy day, for the education of one's children, home ownership and old age. It was not to be encouraged, however, if the purpose of the savings was to increase the wealth of the saver.
  That was a long time ago. I thought it was a silly argument even then. It is even sillier now with the advances we have made through save-as-you-earn and, until this clause came into the Finance Bill, own-as-you-earn. It is clear that in putting this clause in the Bill the Treasury has accepted the spirit of that strange doctrine that saving must
  1334
  not be encouraged through the tax system if it benefits the saver. Because of what has been done recently by the last Conservative administration, of share schemes, both selective and those applying to all employees, have become firmly established.
  Over the last few years 700 companies have developed schemes for their executives and managements following the Finance Act 1972. In the past six months employee schemes, own-as-you-earn schemes, have been announced or instituted by such companies as ICI, Allied Breweries, National Westminster Bank, Cadbury-Schweppes, P and O, Legal and General Assurance and so on.
  The own-as-you-earn scheme came into being with the 1973 Budget of my right hon. Friend the Member for Altrin-cham and Sale (Mr. Barber). The scheme was released from the pay freeze on 1st December 1973. Since then it has developed and covers 13 companies and about 500,000 workers. It has been estimated that a further 150 schemes are in the pipeline involving 1½million employees. This is considerable evidence and shows the great demand by companies and those who work for them for such a scheme. It is this that the Chancellor has chosen to discourage in the Budget.
  Clause 13 is directed at preventing selective schemes, whether employee share incentive schemes or executive stock option schemes. It also prevents the operation of the own-as-you-earn scheme. My amendment seeks to deal with that. We are seeking to restore that scheme to the statute book, whatever else may happen to the clause. The system introduced by the Bill not only damages the selective scheme but is unfair in its double taxation impact on the employer.
  I need not go in detail into the operations of the own-as-you-earn scheme; they are part of the save-as-you-earn scheme. An employee in the scheme contributes through the save-as-you-earn contract for five or seven years and at the same time acquires the opportunity to use the proceeds of the save-as-you-earn contract to purchase ordinary shares in his company.
  Some of the criticisms of the scheme are not well founded. It is argued that it is not in the best interests of employees

  1335
  to risk both their livelihoods and their savings in the future of one company. There would be much in that argument if it were not for the own-as-you-earn link with the save-as-you-earn scheme. The argument that the employee's savings are at risk under the own-as-you-earn scheme ignores the fact that during the savings period the employee is protected from loss and at the end of that period he must, under the legislation, be free to sell his shares if he wishes to do so.
  Employees who go in for these schemes will normally have a series of overlapping savings contracts. They will, therefore, constantly have a stake in their company, and even if they realise their gains at the earliest opportunity they will have a stake which is protected by part of it always being in the save-as-you-earn element of the total scheme. It is this element of protection which has done a great deal to counter the arguments put forward on earlier ideas which others and I have had rejected by successive Governments.
  A second argument put forward against the own-as-you-earn plan is that it is restricted to employees in the private sector. It is worth noting that several schemes, some of which have been submitted to the Treasury for consideration, have been developed to provide similar benefits for those employed in the public sector. I admit that they would require the enactment of legislation, but it is apparent that the more widespread the adoption of own-as-you-earn schemes in private industry the greater will be the incentive to adopt them in the public sector. My right hon. and hon. Friends and myself would very much welcome this extension of public ownership in the public sector.
  Right hon. and hon. Members opposite have frequently expressed views about employee participation, but they seem to me to lack concern about employee participation in ownership. The Chancellor of the Exchequer said that he was not opposed to share schemes, but he did not see why they should be assisted by the tax system. I hope to show when we deal with the next amendment that the tax system as altered by the clause discriminates against those schemes. If the Government's argument is seriously that this objective should not be en-
  1336
  couraged, they must think again about their priorities, unless they wish the Opposition to believe that their objections to employee shareholding are purely political.
  We have tax incentives through life insurance premium relief, through tax exemption on pension funds, through capital allowances on investment in plant and machinery and through grants to companies in development areas, and we have, even under the Chancellor's present proposals, some forms of relief on mortgages for home ownership. The tax system is used as an incentive for many objectives, and I suggest that the spread of ownership among the workpeople through participation, protected under the own-as-you-earn scheme, in the ownership of their companies is as socially acceptable and desirable an objective as any of the others for which the tax system is used to provide an incentive.
  I hope, therefore, whatever the Government's view on the rest of our amendments, that they will accept this amendment which specifically excludes from Clause 13 the own-as-you-earn scheme, and enables and encourages companies and individuals through the tax system to operate the scheme to the advantage of the country, the company and the employee.
  Mr. MacGregor: I warmly support my right hon. Friend on this amendment. I should, perhaps, declare a dual interest. First, I am a supporter and member of the Wider Share Ownership Council. Secondly, the company for which I work has a subsidiary in another part of the group which is concerned with schemes of the own-as-you-earn type and, indeed, was partly responsible for the conception of the scheme. I have no interest in that other company beyond my general belief in own-as-you-earn schemes.
  The amendment rightly concentrates on own-as-you-earn schemes, but I am also concerned about share option and share incentive schemes, which have many advantages. However, we are discussing only the own-as-you-earn schemes.
  It is right to put forward an amendment to restore the present position of own-as-you-earn schemes not only because of their attractiveness but because, whereas prior to the Finance Bill share option

  1337
  and share incentive schemes were not able to be put into operation, own-as-you-earn schemes were, and they were proving to be extremely popular. In the four short months from 1st December 1973 in which they could operate there was clear evidence that more than 150 schemes were being prepared, involving 1½million employees.
  Those schemes have been hit by the Finance Bill. Whereas under the Bill own-as-you-earn schemes will be subject to income tax and, therefore, to a rate of 33 per cent., previously, when only capital gains tax applied and it was likely that many schemes would produce returns which could be released at £500 charges at a time, no tax would accrue to the employees on the share element.
  The second reason why own-as-you-earn schemes are now difficult to introduce is that many institutional investors have taken the view that while the schemes are subject to income tax they will vote against them in the companies concerned. I regret this attitude of the institutional investors, and if the amendment were carried that objection would be removed.
  9.30 p.m.
  It is worth briefly recording why these schemes are so attractive. They are attractive to the employee because they give him an opportunity to build up capital and savings in ways other than simply through ownership of his own house. In my judgment that is one of the most desirable things which we should try to achieve among groups of employees who can benefit from the scheme. Secondly, they guarantee a minimum benefit through tax in respect of the SAYE element so that there is not the same risk for employees as for the higher income groups who might have taken part in share option or share incentive schemes. I agree with my right hon. Friend the Member for Farnham (Mr. Macmillan) that these schemes give a sense of participation in a company which is more attractive than is the theoretical argument about worker participation or a 49 per cent. participation on supervisory boards.
  Furthermore, these schemes actively encourage savings. If the own-as-you-earn scheme had been built up, it was calculated that the inflow to the building societies through SAYE would have
  1338
  amounted to £60 million per annum and would have risen to a higher figure in later years. This would have provided a steady flow of savings into the building society movement, which would have been given greater assistance in facing its present and future difficulties. The scheme would also help to encourage an employee to build up a sum of money in a building society which he could use either to buy his own house or in other ways. The employee would do so with the active encouragement of his employer. It would provide an extra advantage from the savings point of view in that there would be an additional incentive, and the employer would be the person who would encourage the employee to save.
  From the employer's point of view the scheme would add to the range of benefits to be offered to employees and would be related to results without affecting profit and loss in the short term. It also gave a man greater identification with his company, and in many cases it would have helped in the reduction of labour turnover.
  I do not wish to overestimate the benefits of the scheme, but I believe that, although perhaps not very large in the economy as a whole, there would have been benefits in terms of a person's identification with a company since the company's success would be linked with the outcome for the employee. It would also add an extra area of benefit since it would be less inflationary than would additional wage demands.
  My right hon. Friend referred to two criticisms, and I share his views on both matters. The first criticism was that such a scheme would tend to put all the eggs in one basket. I believe that the employee would be protected because he need not necessarily take up the shares at the end of the save-as-you-earn period. We could have developed other schemes to deal with the eggs-in-one-basket argument.
  The second criticism is that the scheme applied only to the private sector and was not available to employees in the public sector. There is strong merit in that criticism, but again it would have been possible—and still is—to evolve a scheme to overcome this criticism. What we can at least do in meeting these two criticisms is to restore the position of the own-as-you-earn scheme to the point at which it rested before the Finance Bill came along.

  1339
  For these reasons I warmly support the amendment.
  Mr. John Pardoe: It seems to me that in discussing this amendment—and I wish to reserve most of my remarks on this subject for a later discussion—we are at the heart of the argument whether one is on the side of popular ownership or public ownership. I hope that we shall have some idea on which side the Government stand in this argument. I had originally supposed that the Government were not totally sold on the idea of monopoly public ownership and still had lingerings of some Liberal attitudes towards the spread of ownership. However, in Clause 13 they finally dispense with all such lingerings.
  The Chancellor of the Exchequer gave some broad and brief reasons why he was opposed to these schemes, and I know that this amendment is very limited. In his Budget Statement the right hon. Gentleman said that he had no antipathy to share schemes as such but felt that employees should not get special tax privileges because they received their remuneration in one form rather than in another. He went on to say that any respectable share incentive scheme should be able to stand on its own feet without relying on the crutches of tax.
  Precisely the same argument applies to pension schemes. I have just negotiated a very generous scheme for my company, and the Government are handsomely making the company and the employees —on both sides' contributions—a tax-free present. I think that they should go further. In the past the Liberal Party has urged that all share incentive and share option schemes and own-as-you-earn schemes should receive from the Government 110 per cent. of the tax.
  I think that the Government can and do use the tax system to encourage schemes which are not strictly within the terms of the Inland Revenue—in other words, not strictly a method of getting revenue in the most efficient way. The Government simply encourage schemes which they think desirable. It is for that reason that all Governments have encouraged pension schemes by tax remissions. They consider pensions desirable. The Chancellor of the Exchequer says that he has no antipathy to share schemes. If the
  1340
  Government think that popular ownership is desirable, why do not they use the tax system to encourage such schemes?
  Although this is a limited amendment and although I support it, I am opposed to Clause 13 as it stands. I hope that the Committee will not only pass this amendment but, at a later stage, throw out Clause 13.
  The Financial Secretary to the Treasury (Dr. John Gilbert): We have had a short but very interesting debate on this amendment, the purpose of which is to exempt so-called own-as-you-earn schemes from the provisions of Clause 13 which seeks to bring profits under stock option and share incentive schemes generally into charge under Schedule E for income tax rather than, as at present, allowing them merely to attract capital gains tax treatment.
  The right hon. Member for Farnham (Mr. Macmillan) will agree, I am sure, that these matters were discussed at length in the proceedings on the 1973 Finance Bill and that there is a fairly clear division of opinion, if not of philosophy, between the two sides with respect to the generality of these schemes. For that reason I shall not weary the Committee with tedious repetition of the arguments which we rehearsed at the time of the 1973 Bill.
  I take issue with the right hon. Member for Farnham when he suggests that the present Government are in no way seeking to encourage savings. Many steps were announced by my right hon. Friend in his Budget Statement to improve the return on various types of savings instruments which were available to the general public, and that will continue to be our policy. The difference largely is in the incentives available for the discretionary use of taxed income going into savings, and by and large we have kept the arrangements which we inherited from the previous administration.
  The right hon. Member for Farnham advanced a great many arguments in favour of the principle of own-as-you-earn schemes, and they were all perfectly proper arguments. I do not seek to refute them in detail, though I have some reservations about certain of them, and the hon. Member for Norfolk, South (Mr. MacGregor), in what I thought was

  1341
  an extremely candid and reasonable speech, referred to various weaknesses in our present schemes. What the right hon. Member for Farnham signally failed to do, however, in all his eulogies about the desirability of these schemes was to advance any argument as to why they should receive preferential tax treatment. That is the nub of the difference between the two sides of the Committee.
  We have made it clear time and again that there is no intention on the part of the Government to try to attack incentive schemes of any sort or even employees' share purchase schemes. As has been pointed out, many companies are still going ahead with them. But I repeat what my right hon. Friend said in his Budget Statement. It is our view that these schemes, if they are worth saving, should be able to stand on their own feet without the support of tax concessions. The general rule as we see it still applies and should apply. Any employee should be taxable under Schedule E on all taxed emoluments from office or from employment.
  I remind the Committee that where employees acquire shares under genuine profit-sharing arrangements—the sort which arc of interest to members of the Liberal Party—in other words, where the value of the shares that an employee receives is taxed as part of remuneration, those schemes are not affected by the provisions of the clause. Any growth in the value of the shares after they have been acquired by the employee will continue to be exempt from income tax and will be treated for capital gains tax as before.
  The hon. Member for Norfolk, South mentioned certain advantages to these schemes. He said that they gave an employee an opportunity to build up his savings. If the employee is fortunate, that is true. I am talking about the element in the schemes which is related to changes in the price of shares. If the employee it not fortunate, this is not true to any extent over and above the amount that he has paid in by regular instalment. There is, therefore, an enormous element of arbitrariness about the reward that the employee would get in this way.
  Much more interesting, however, was the fact that the hon. Gentleman, in his very candid speech, adduced as being attractive to the employer the introduction of these schemes. He said that they
  1342
  added to the benefits that the employer could offer his employee without affecting his profit and loss account. That is true. What these schemes amount to is that they produce, or will have produced before the provisions of the clause take effect, a reward to the employee if he is fortunate in regard to the price of the shares of the company for which he works, a benefit which costs the employer absolutely nothing, although the cost is borne by the generality of taxpayers. That is a matter to which we shall return.
  Mr. Peter Rees: The hon. Gentleman has concentrated on the advantages, so called, to the employer. Does he recognise that many employers have incurred considerable expense and undergone considerable trouble to set up these schemes, which are to be completely stultified by the provision which he and his right hon. and hon. Friends have now introduced? Will he concentrate a little on the disadvantages likely to flow from this ill-thought-out provision rather than the somewhat hypothetical advantages on which he is enlarging?
  Dr. Gilbert: I shall come to that point shortly. I was still addressing myself to the remarks of the hon. Member for Norfolk, South.
  One of the objections that we take to the principle of these schemes is that they enable the employer to produce additional net remuneration to the employee, if the price of the shares goes up. without any cost to the employer. The hon. Gentleman is perfectly right when he says that they amount to a very cheap way in which the employer can reward a lucky employee rather at the expense of the general body of taxpayers.
  9.45 p.m.
  In answer to the hon. and learned Member for Dover and Deal (Mr. Rees), yes, of course I am aware that many companies have incurred expense in introducing these schemes since the 1973 Finance Act. But any such company was put on notice during the passage of that Act that my party found many elements of those schemes obnoxious and that we intended to legislate as early as possible against any preferential tax treatment that they received. Therefore, anyone who has invested time and money in preparing such schemes cannot complain of retrospection. He has been clearly

  1343
  at risk since the proceedings on the 1973 Act, in which the hon. and learned Gentleman played a distinguished part. Our position has remained unchanged since then. I invite my hon. Friends to resist the amendment.
  Mr. Maurice Macmillan: I advise the Committee to support the amendment. The Minister did not give a satisfactory answer. He said that the employer benefited from the concessions in operating the own-as-you-earn scheme. But precisely the same situation applies to pensioners. We regard it as equally desirable to help the employer who helps his employees to save in this way as it is to help those who contribute towards their pensions. There is no logical distinction.
  The position is quite different in the case of profit sharing, because there the profit is partly remuneration and the
  employee is taxed as if it were earned income; it is the gain that is tax free. In this case we are talking about an option which requires a saving by the employee out of his earnings rather than an addition by the employer to them.
  I can only agree with the hon. Member for Cornwall, North (Mr. Pardoe), who said that the Labour Party is against what he calls popular ownership, and with my right hon. Friend the Leader of the Opposition, who on the first day of the Budget debate described the Chancellor's discouragement of these schemes as purely doctrinal. I ask my right hon. and hon. Friends to vote for the amendment.
  Question put, That the amendment be made: —
  The Committee divided: Ayes 221, Noes 249.

  Division No. 34.]

  AYES

  19.47 p.m.

  Adley, Robert

  Durant, Tony

  Hurd, Douglas

  Aitken, Jonathan

  Dykes, Hugh

  Hutchison, Michael Clark

  Alison, Michael (Barkston Ash)

  Eden, Rt. Hn. Sir John

  Irvine, Bryant Godman (Rye)

  Allason, James (Hemel Hempstead)

  Edwards, Nicholas (Pembroke)

  James, David

  Ancram, M.

  Elliott, Sir William

  Jenkin, Rt.Hn.P. (R'dgeW'std&W'td)

  Archer, Jeffrey (Louth)

  Eyre, Reginald

  Jessel, Toby

  Atkins, Rt.Hn. Humphrey (Spelthorne)

  Falrgrleve, Russell

  Johnston, Russell (Inverness)

  Awdry, Daniel

  Fenner, Mrs. Peggy

  Jones, Arthur (Daventry)

  Banks, R. G.

  Finsberg, Geoffrey

  Joseph, Rt. Hn. Sir Keith

  Barber, Rt. Hn. Anthony

  Fisher, Sir Nigel

  Kellett-Bowman, Mrs. Elaine

  Belth, A. J.

  Fletcher, Alexander (Edinburgh, N.)

  Kershaw, Anthony

  Bell, Ronald

  Fletcher-Cooke, Charles

  King, Evelyn (Dorset, S.)

  Bennett, Dr. Reginald (Fareham)

  Fookes, Miss Janet

  King, Tom (Bridgwater)

  Benyon, W.

  Fox, Marcus

  Kitson, Sir Timothy

  Berry, Hon. Anthony

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

  Knight, Mrs. Jill

  Bitten, John

  Freud, Clement

  Knox, David

  Boardman, Tom (Leicester, S.)

  Fry, Peter

  Lamont, Norman

  Boscawen, Hon Robert

  Gardiner, George (Relgate&Banstead)

  Lane, David

  Boyson, Dr. Rhodes (Brent, N.)

  Gardner, Edward (S. Fylde)

  Langford-Holt, Sir John

  Braine, Sir Bernard

  Gilmour, Sir John (Fife, E.)

  Lawrence, Ivan

  Bray, Ronald

  Glyn, Dr. Alan

  Lawson, Nigel (Blaby)

  Brittan, Leon

  Gcdber, Rt. Hn. Joseph

  Lewis, Kenneth (Rtland & Stmford)

  Brown, Sir Edward (Bath)

  Goodhew, Victor

  Lloyd, Ian (Havant & Waterloo)

  Bruce-Gardyne, J.

  Goodlad, A.

  Loveridge, John

  Buchanan Smith, Alick

  Gorst, John

  Luce, Richard

  Budgen, Nick

  Gow, I. R. E. (Eastbourne)

  McAdden, Sir Stephen

  Bulmer, Esmond

  Gower, Sir Raymond (Barry)

  MacArthur, Ian

  Burden, F. A.

  Grant, Anthony (Harrow, C.)

  McCrindle, R. A.

  Butler, Adam (Bosworth)

  Gray, Hamish

  Macfariane, Neil

  Carlisle, Mark

  Grieve, Percy

  MacGregor, John

  Carr, Rt. Hn. Robert

  Grimond, Rt. Hn. J.

  McLaren, Martin

  Chataway, R;. Hn. Christopher

  Grist, Ian

  Macmillan, Rt. Hn. M. (Farnham)

  Churchill, W. S.

  Hall, Sir John

  Madel, David

  Clark, A. K. M. (Plymouth, Sutton)

  Hall-Davis, A. G. F.

  Marshall, R. M. (Arundel)

  Clark, William (Croydon, S.)

  Hamilton, Michael (Salisbury)

  Marten, Nell

  Clarke, Kenneth (Rushclitfe)

  Hampson, Dr. Keith

  Mather, Carol

  Clegg, Walter

  Hannam,John

  Maude, Angus

  Cockcroft, John

  Hastings, Stephen

  Mawby, Ray

  Cooke, Robert (Bristol, W.)

  Havers, Sir Michael

  Maxwell-Hyslop, R. J.

  Cope,John

  Hawkins, Paul

  Mayhew, P. (Royal T'brldge Wells)

  Cormack, Patrick

  Hayhoe, Barney

  Meyer, Sir Anthony

  Corrie, John

  Henderson, Barry (Dunbartonshire, E.)

  Miller, Hal (B'grove & R'ditch)

  Costain, A. P.

  Higgins, Terence

  Mills, Peter

  Crowder, F. P.

  Holland, Philip

  Miscampbell, Norman

  Davies, Rt. Hn. John (Knutsford)

  Hooson, Emlyn

  Mitchell, David (Basingstoke)

  Dean, Paul (Somerset, N.)

  Hordern, Peter

  Moate, Roger

  Deedes, Rt. Hn. W. F.

  Howe, Rt.Hn. Sir Geoffrey(Surrey,E.)

  Money, Ernie

  Dodsworth, Geoffrey

  Howell, Ralph (Norfolk, North)

  Monro, Hector

  Drayson, Burnaby

  Howells, Geraint (Cardigan)

  Moore, J. E. M. (Croydon, C.)

  More, Jasper (Ludlow)

  Ridley, Hn. Nicholas

  Taylor, Robert (Croydon, N.W.)

  Morgan, Geraint

  Rifkind, Malcolm

  Thomas, Rt. Hn. P. (B'net.H'dn S.)

  Morgan Giles. Rear-Adm.

  Rippon, Rt. Hn. Geoffrey

  Thorpe, Rt. Hn. Jeremy

  Morris, Michael (Northampton, S.)

  Roberts, Wyn (Conway)

  Townsend, C. D.

  Morrison, Charles (Devizes)

  Rodgers, Sir John (Sevenoaks)

  Trotter, Neville

  Morrison, Peter (City of Chester)

  Ross, Stephen (Isle of Wight)

  Tugendhat, Christopher

  Mudd, David

  Rost, Peter (Derbyshire, S.-E.)

  Tyler, Paul

  Neave, Alrey

  Shaw, Giles (Pudsey)

  van Straubenzee, W. R

  Neubert, Michael

  Shaw, Michael (Scarborough)

  Vaughan, Dr. Gerard

  Newton, Tony (Braintree)

  Shelton, William (L'mb'th.Strealh'm)

  Viggers, Peter

  Onslow, Cranley

  Shersby Michael

  Waddington, David

  Oppenheim, Mrs. Sally

  Silvester, Fred

  Walnwright, Richard (Colne Valley)

  Orr, Capt. L. P. S.

  Sims, Roger

  Wakeham, John

  Page, John (Harrow, W.)

  Sinclair, Sir George

  Walder, David (Clilheroe)

  Pardoe, John

  Skeet, T. H. H.

  Walters, Dennis

  Parkinson, Cecil (Hertfordshire, S.)

  Smllh, Dudley (W'wick&L'm'ngton)

  Weatherill, Bernard

  Pattie, Geoffrey

  Spence. John

  Wells, John

  Perclval, Ian

  Spicer, Michael (Worcestershire, S.)

  Winstanley, Dr. Michael

  Pink, R. Bonner

  Sproat, lain

  Wood, Rt. Hn. Richard

  Price, David (Eastlelgh)

  Stanbrook, Ivor

  Worsley, Sir Marcus

  Quennell, Miss J. M.

  Stanley, John

  Young, Sir George (Ealing, Acton)

  Raison, Timothy

  Steen, Anthony (L'pool, Wavertree)

  Younger, Hn. George

  Redmond, Robert

  Stewart, Ian (Hitchin)

  Rees, Peter (Dover & Deal)

  Stokes, John

  TELLERS FOR THE AYES

  Renton.Rt. Hn. SirDavid(H't'gd'ns're)

  Stradling Thomas, J.

  Mr. Michael Jopling and

  Rhys Williams, Sir Brandon

  Tapsell, Peter

  Mr. Spencer Le Marchant

  NOES

  Abse, Leo

  Dell, Rt. Hn. Edmund

  Hughes, Robert (Aberdeen, Norlh)

  Allaun, Frank

  Dempsey, James

  Hughes, Roy (Newport)

  Archer, Peter (Warley, West)

  Doig, Peter

  Irvine, Rt. Hn. Sir A. (L'p'I.EdgeHill)

  Ashton, Joe

  Dormand, J. D.

  Irving, Rt. Hn. Sydney (Dartford)

  Atkins, Ronald (Preston, N.)

  Douglas-Mann, Bruce

  Jackson, Colin

  Atkinson, Norman

  Duffy, A. E. P.

  Janner, Greville

  Bagler, Gordon, A. T.

  Dunn, James A.

  Jay, Rt. Hn. Douglas

  Barnett, Guy (Greenwich)

  Dunnett, Jack

  Jeger, Mrs. Lena

  Barnett, Joel (Heywood & Roylon)

  Dunwoody, Mrs. Gwyneth

  John, Brynmor

  Bates, Alf

  Edelman, Maurice

  Johnson,James(K'ston upon Hull.W)

  Benn, Rt. Hn. Anthony Wedgwood

  Edge, Geoff

  Johnson, Walter (Derby, S.)

  Bennett, Andrew F. (Stockport, N.)

  Edwards, Robert (W'hampton, S.E.)

  Jones, Barry (Flint, E.)

  Bidwell, Sydney

  Ellis, John (Brigg & Scunthorpe)

  Jones, Dan (Burnley)

  Bishop, E. S.

  Ellis, Tom (Wrexham)

  Jones, Gwynoro (Carmarthen)

  Blenkinsop, Arthur

  English, Michael

  Jones, Alec (Rhondda)

  Boardman, H. (Leigh)

  Ennals, David

  Judd, Frank

  Booth, Albert

  Evans, Fred (Caerphilly)

  Kaufman, Gerald

  Boothroyd, Miss Betty

  Evans, 1. L. (Aberdare)

  Kelley, Richard

  Bottomley, Rt. Hn. Arthur

  Ewing, Harry (St'ling.F'klrk&G'm'th)

  Kerr, Russell

  Boyden, James (Bishop Auckland)

  Faulds, Andrew

  Kilroy-Silk, Robert

  Bradley, Tom

  Fernyhough. Rt. Hn. E

  Kinnock, Neil

  Broughton, Sir Alfred

  Fitch, Alan (Wlgan)

  Lamble, David

  Brown, Hugh D. (Glasgow, Provan)

  Flannery, Martin

  Lamborn, Harry

  Buchan, Nornvin

  Fletcher, Ted (Darlington)

  Latham, Arthur(Cityo(W'minsterP'toi-)

  Buchanan, Richaif (G'gow.Springbrn)

  Foot, Rt. Hn. Michael

  Lawson, George (Motherwell&Wlshaw)

  butler,Mrs.Joyci'H gev.WoodGreen)

  Ford, Ben

  Leadbltter, Ted

  Callaghan, Jim (M'dd'ton & Pr'wlch)

  Forrester, John

  Lestor, Miss Joan (Eton & Slough)

  Campbell, Ian

  Fowler, Gerry (The Wrekln)

  Lever, Rt. Hn. Harold

  Cant, R. B.

  Freeson, Reginald

  Lewis, Arthur (Newham, N.)

  Carmlchael, Neil

  Garrett, John (Norwich, S.)

  Lewis, Ron (Carlisle)

  Carter, Ray

  Garrett, W. E. (Wallsend)

  Loughlin, Charles

  Carter-Jones, Lewis

  George, B. T.

  Lyon, Alexander W. (York)

  Castle, Rt. Hn. Barbara

  Gilbert, Dr. John

  Lyons, Edward (Bradford, W.)

  Clemitson, Ivor

  Ginsburg, David

  McCartney, Hugh

  Cocks, Michael

  Gourlay, Harry

  McElhone, Frank

  Cohen, Stanley

  Graham, Ted

  MacFarquhar. Roderick

  Colquhoun, Mrs. M. N.

  Grant, George (Morpeth)

  McGuire, Michael

  Concannon, J. D.

  Grant, John (Islington, C.)

  Mackenzie, Gregor

  Conlan, Bernard

  Griffiths, Eddie (Sheffield, Brighlrfde)

  Maclennan, Robert

  Cook, Robert F. (Edinburgh, C.)

  Hamilton, James (Bothwell)

  McMillan, Tom (Glasgow, C.)

  Cox, Thomas

  Hamilton, William (Fife, C.)

  Magee, Bryan

  Craigen, J. M. (G'gow, Maryhill)

  Hamling, William

  Mahon, Simon

  Crosland, Rt. Hn. Anthony

  Hardy, Peter

  Mallalieu, J. P. W.

  Cryer, G. R.

  Harper, Joseph

  Marks, Kenneth

  Cunningham,G.(isl'ngt'n,S&F'sb'ry)

  Harrison, Walter (Wakefield)

  Marquand, David

  Cunningham, D r. John A. (Whiteh'v'n)

  Hart, Rt. Hn. Judith

  Marshall, Dr. Edmund (Goole)

  Davidson, Arthur

  Hattersley, Roy

  Mayhew,Christopher (G'wh.W'wch.E)

  Davies, Bryan (Enfield, N.)

  Hatton, Frank

  Meacher, Michael

  Davies, Denzll (Llanelli)

  Heffer, Eric S.

  Melllsh, Rt. Hn. Robert

  Davies, Ifor (Gower)

  Hooley, Frank

  Mikardo, Ian

  Davis, Clinton (Hackney, C.)

  Horam, John

  Millan, Bruce

  Deakins, Eric

  Howell, Denis (B'ham, Small Heath)

  Miller, Dr. M. S. (E. Kilbride)

  Dean, Joseph (Leeds, W.)

  Huckfleld, Leslie

  Mitchell, R. C. (S'hampton, Itchen)

  de Freitas, Rt. Hn. Sir Geoffrey

  Hughes, Rt. Hn. Cledwyn (Anglesey)

  Molloy, William

  Delargy, H. J.

  Hughes, Mark (Durham)

  Morris, Charles R. (Openshaw)

  1346

  1347

  Morris, Rt. Hn. John (Aberavon)

  Rose, Paul B.

  Tinn, James

  Moyle, Roland

  Ross, Rt. Hn. William (Kilmarnock)

  Torney, Tom

  Mulley, Rt. Hn. Frederick

  Rowlands, Edward

  Tuck, Raphael

  Murray, Ronald King

  Sandelson, Neville

  Varley, Rt. Hn. Eric G.

  Newens, Stanley (Harlow)

  Sedgemore, Bryan

  Wainwright, Edwin (Dearne Valley)

  Oakes, Gordon

  Selby, Harry

  Walden, Brian (B'm'ham, Ladywood)

  Ogden, Eric

  Shaw, Arnold (Redbrldge, llford, S.)

  Walker, Harold (Doncaster)

  O'Malley, Brian

  Sheldon, Robert (Ashton-under-Lyne)

  Walker, Terry (Kingswood)

  Orbach, Maurice

  Short, Rt. Hn. E. (N'ctle-u-Tyne)

  Watkins, David

  Ovenden John

  Silkin, Rt. Hn. John (L'sham,D'ford)

  Weitzman, David

  Owen, Dr. David

  Silkin,Rt.Hn.S.C.(S'hwark,Dulwlch)

  Wellbeloved, James

  Padley, Walter

  Sillars, James

  White, James

  Palmer, Arthur

  Silverman, Julius

  Whitehead, Phillip

  Park, George (Coventry, N.E.)

  Skinner. Dennis

  Whitlock, William

  Parker, John (Dagenham)

  Smith, John (Lanarkshire, N.)

  Wigley, Dafydd (Caernarvon)

  Parry, Robert

  Snape, P. C.

  Willey, Rt. Hn. Frederick

  Pavitt, Laurie

  Spearing, Nigel

  Williams, Alan (Swansea, W.)

  Peart, Rt. Hn. Fred

  Spriggs, Leslie

  Williams,Rt.Hn. Shirley(M'f'd&St'ge)

  Phipps, Dr. Colin

  Stallard, A. W.

  Williams, W. T. (Warrington)

  Price, Christopher (Lewisham, W.)

  Stewart, Rt. Hn. M. (H'sth, Fulh'm)

  Wilson, William (Coventry. S.E.)

  Price, William (Rugby)

  Stoddart, David (Swindon)

  Wise, Mrs. Audrey

  Radice, Giles

  Stonehouse, Rt. Hn. John

  Woodall, Alec

  Richardson, Miss Jo

  Strang, Gavin

  Woof, Robert

  Roberts, Albert (Normanton)

  Strauss, Rt. Hn. G. R.

  Wrigglesworth, Ian

  Roberts, Gwilym (Cannock)

  Summerskill, Hn. Dr. Shirley

  Young, David (Bolton, E.)

  Robertson, John (Paisley)

  Swain, Thomas

  Roderick, Caerwyn E.

  Thomas, D. E. (Merioneth)

  TELLERS FOR THE NOES:

  Rodgers, George (Chorley)

  Thomas, Jeffrey (Abertlllery)

  Mr. Ernest G. Perry and

  Rodgers, William (Teesside, St'ckton)

  Tierney, Sydney

  Mr. Donald Coleman.

  Rooker, J. W.

  Question accordingly negatived.
  It being Ten o'clock, The CHAIRMAN left the Chair to report progress and ask leave to sit again.
  Committee report progress.

BUSINESS OF THE HOUSE
Ordered,
That the Motion relating to Ways and Means may be proceeded with at this day's Sitting, though opposed, until any hour.—[Mr. Coleman.]

FINANCE BILL
Again considered in Committee.
Mr. Maurice Macmillan: I beg to move Amendment No. 64, in page 11, line 10, at end add—
' (3) Where a person becomes liable to tax as a result of this section or of section 79(4) or 79(7) of the Finance Act 1972 as amended by Schedule 8 to the Finance Act 1973 and this section his employer shall be entitled to deduct for the purpose of calculating his liability to corporation tax a sum equal to the sum chargeable to tax in the hands of that person '.
In moving the amendment I am merely asking the Chancellor of the Exchequer to practise what he preached in his Budget speech and on the Second Reading of the Finance Bill when he said:
"We have no antipathy towards share schemes as such.… All we say is that the employees of such companies should not get privileged tax treatment because they happen to receive their remuneration in one form and not another. That goes for the managing director and for the shop floor worker.… Any respectable share incentive scheme should be able to stand on its own feet without relying on crutches in the shape of tax privileges."—[OFFICIAL REPORT, 9th May 1974; Vol. 873, c. 610.]
In answering our earlier debate the Financial Secretary repeated that he had no intention of attacking incentive schemes or share purchase schemes; but that is exactly what the Bill as it is now drafted does. The Chancellor missed the point, as the Financial Secretary missed the point, that as the law now stands the companies are at a disadvantage by operating a scheme of this sort.
The Temporary Chairman (Mr. Mur-ton): Order. May I ask those hon. Members who do not wish to listen to the right hon. Gentleman to withdraw quietly?
Mr. Macmillan: This is a highly technical point, but that is no excuse for the Financial Secretary to miss it. A stock option is taxable at full income rates to the individual and yet, unlike other forms of remuneration which are taxable at full income rates, there is no corresponding deduction in computing the profit for tax purposes of the company concerned. That is in marked contrast, for example, to the United States, where legislation specifically provides that if the employee's profit on the exercise of an option is taxed as regular income, that amount is deductible from the firm's profit for the corresponding tax year. If the Financial Secretary is so keen on equitable treatment of share incentive and share purchase schemes he should accept the amendment.
Dr. Gilbert: As the right hon. Member for Farnham (Mr. Macmillan) so clearly said, the purpose of the amendment is that where there is an increase in the value of shares taxable in the hands of an employee the company shall be allowed to deduct an equal amount in computing its taxable profits. The right hon. Gentleman advanced that proposition in the name of equity, on the basis that a distinct cost to the company was involved. That is where the Government take immediate issue with him.
In computing its profits, a company can deduct those expenses that are wholly and exclusively laid out for the purposes of trade. The sums referred to in the amendment are neither expenses nor sums incurred by the employing company. There is no direct connection with expenditure by the company, and on the face of it there is no reason why the company should be entitled to deduct the growth in the market value of its shares as an allowable expense. There could hardly be a more arbitrary way of trying to assess profits.
The right hon. Gentleman prays in aid United States legislation. But we have made it clear that, in our opposition to any tax benefits for such schemes, we do not accept United States legislation as a model.
The gain to the employee arises in all these cases because the shares have

1351
appreciated over a period. It would be artificial to regard such sums as an outlay by the employer.
Mr. Peter Rees: Does not the hon. Gentleman agree that share option schemes may result in the dilution of the capital of the company concerned, so that in a broad commercial sense it suffers a corresponding disadvantage? With his wealth of experience of Canadian law, for instance, does not the hon. Gentleman feel that a corresponding advantage should be conceded to the company?
Dr. Gilbert: I accept what the hon. and learned Gentleman says about dilution of equity. There might be a modest cost there, but there would be no means of quantifying it in terms of the amendment. That is why I invite my hon. Friends to resist the amendment.
A mendment negatived.
Question proposed, That the clause stand part of the Bill.
Mr. Maurice Macmillan: I ask the
Committee to reject the clause, largely for the reasons given in the debate on Amendment No. 29, on which we divided the Committee. The Opposition do not think that the clause should apply to selective schemes, whether stock option schemes for management and executives or share incentive schemes for employees generally, any more than it should apply to the all-employee scheme, the own-as-you-earn plan that we have so recently debated.
I should like to draw the attention of the Financial Secretary to an anomaly. Under subsection (l)(a) and (b), the benefit obtained by an individual under an approved share option or share incentive scheme will, as of 27th March this year, be taxable as part of the emoluments of the individual. An anomaly arises in respect of the different treatment of share option schemes and share incentive schemes that are already in operation. Clause 13(1)(6) excludes certain portions of Section 79 of the Finance Act 1972 except when the acquisition was made before that date. No such concession has been given under Clause 13(l)(a) if the option is exercised after 27th March 1974.
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I do not believe that it can be the intention to produce such an anomaly. If the intention is to tax as income any benefit derived by an individual as a result of his employment, then those individuals who have share options under an approved scheme will be brought within the scope of Clause 13 whereas those who have rights under a share incentive scheme will be excluded. I make that point for the consideration of the Financial Secretary in case we do not succeed in defeating the whole clause.
My main argument is that share incentive schemes for workers and management are desirable in themselves. Therefore, the arguments which applied to the previous amendment apply also to the provisions of the clause as a whole. I must point out that because such schemes are selective and need not apply to all employees they do not necessarily apply to top management only. There are a number of schemes which have been frustrated by stages 1, 2 and 3 and which will be permanently frustrated by the clause. Many people regard such schemes as extremely valuable for some of their shop-floor employees.
I have had representations from a fairly wide band of opinion within industry. It is considered that what the Government are doing by means of the clause is damaging to industry's relationships with its workpeople. It is now having to go back on schemes which have been discussed with the unions and others concerned and which have received full approval.
We should not underrate the importance of that part of the clause which relates to management. British management in productive industry is probably paid less and taxed more than in any other industrialised country in the world. When the Bill becomes an Act that total situation will be exacerbated. It is hard enough to get good people to take responsibility considering the rewards that they will get. It is hard enough for those who are working in manufacturing industry to acquire any capital in the course of a long working life. It is hard enough for them to enjoy any benefit from any savings that they might make owing to the high marginal rates of tax on investment income and, indeed, on high earnings.

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In inserting this clause the Chancellor of the Exchequer is denying the proposition that able executives should be encouraged, as they are in the United States and in Europe, to build up capital during their working lives so that they can, if they wish, change their careers in the 30s and 40s and perhaps—dare I mention it to the right hon. and hon. Members?—go into business in a small way on their own account.
The arguments that have been put forward for many years by those of us who have been working together in the Wider Share Ownership Movement have been both economic and, it might almost be said, philosophical.
10.15 p.m.
Successive Governments, mainly Labour Governments, have created a situation in which the reward for the dealer is better than that for the earner and creator of real wealth. The Opposition argue that we damage our society by failing to encourage those who have the talent and ability not merely to earn a lot for themselves in high income management but to create wealth in the wa> which is essential if our mixed economy is to survive—to create it by savings, by starting small businesses and building them up and passing them on eventually into the larger companies on which we depend.
We impose a burden by our tax system, a burden to which the Chancellor of the Exchequer is adding by this clause. To those who have the capacity to create real wealth in the forms of machines, investment and companies, we are giving an incentive and an encouragement to sell out because that is the only way in which they can get a better reward. We are doing this instead of encouraging them to build up their business, to continue to create wealth—for themselves, yes, but for the community as well.
Of all the damage that the Bill does to talent and ability and to the creation of wealth, this clause is perhaps the most serious of all. It will help to prevent the transformation of the earner into the owner, the manager into the entrepreneur. Yet it is on ability to make such a transformation that a capitalist free enterprise society and a mixed economy must ultimately depend. We
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need our most able people to start new concerns which add to the real wealth of the country. We must encourage those who do so to retain their investments rather than provide them with incentives to get out.
This clause is, therefore, disastrous in a political as well as an economic sense to a mixed economy. I do not believe that all hon. Members opposite want to damage the creative element in private enterprise to that extent. The only point of damaging it so much is to be able thereafter to criticise private enterprise for failing to deliver the goods when, in fact, the Government's own measures are causing that failure.
Stock option schemes, share incentive schemes, share ownership through own-as-you-earn, schemes giving management and employees generally a stake in the ownership of their firms, or giving people the capacity to build up capital to start out on their own, are all useful first steps in spreading wealth in the way we Conservatives want to spread it—into the hands of the people and not into the hands of the Government.
Mr. Pardoe: I endorse almost every word that the right hon. Member for Farnham (Mr. Macmillan) has spoken in support of his view this evening, both on the amendment and now on the clause. The Finance Secretary in his replies to the amendment did not answer any of the major, though some of the incidental, points in that short debate.
One of the Financial Secretary's comments struck me as extraordinary. He said that the Government had absolutely no intention of damaging investment. He said that the Government had done several things to encourage savings. It would be nice to hear from him this evening what those several things are.
I suppose that one could say that increasing income tax was an encouragement to saving, in that if one put money into a pension fund one did not have to pay so much tax, and so I suppose the higher the rate of tax the more encouragement there is to save. But I do not think that that is what the Financial Secretary was thinking of. Nevertheless, it is the only way in which the Finance Bill might encourage anyone to put his money into anything.

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Why not let us have the answer on a personal basis? We know that the Secretary of State for Employment believes that he is overpaid, so presumably plenty of that money is available for saving. May we have a list of all those things into which members of the Government have put their money since they got their so-called excessive salaries? May we be told where the Financial Secretary has been putting his money in the past few weeks since he came into his new job? I hope that he will give us a long list of these things and a list of all the savings that have been encouraged by the Budget.
Far from that, all the Finance Bill seems to have done in the cause of savings is to create the situation in which the man who more than anyone else in the past 10 years has proved that he knows how best to use money to make money, Mr. Jim Slater, would advise people to put their money into the piggy bank. That does not seem to indicate that the Government have been able to encourage saving, or to encourage the motivation that leads to it.
Clause 13 sweeps away one of the few encouragements to saving that any Government have actually introduced in the past few years. I must immediately make it clear in opposing Clause 13 that I do not want to go back to the previous scheme. There is a new clause that makes certain proposals for replacing Clause 13. The 1972 Finance Act scheme was far too narrow, and we said so at the time. Indeed, it positively encouraged those accusations of class and privilege bias that the Labour Party, then in Opposition, was only too keen to pour on the head of the then Conservative Government. In 1973 the Conservative Government extended the scheme somewhat, and it certainly became better. But in essence the most important aspect of any such scheme is that it must be equally available to all employees on an equal basis. The new clause would go some way to meeting that.
In reply to the amendment, the Financial Secretary answered the observation about companies that had spent the past two years building up such schemes and that would now find that all their effort had been wasted. The effort put into devising new pension schemes to
1356
some extent can be said to have been wasted for the same reasons.
The hon. Gentleman excused the Government's actions on the ground that in opposition the Labour Party fully warned companies that it would reverse this legislation. Good heavens!If companies had to take account of everything that Oppositions said they opposed when Governments proposed nobody would ever take any notice of any legislation.
In our bonkers adversary system of Government anything that the Government are for the Opposition are always against and vice versa—not because it is good or bad but simply because the Government propose and the Opposition oppose. This is one of the reasons why 6 million people voted Liberal at the last General Election and why double that number will vote for us next time. The Minister gave no answer to the point which I made and which the right hon. Member for Farnham supported from the Opposition Front Bench about popular ownership versus public ownership.
Is the Labour Party in favour of spreading wealth? Is it in favour of private ownership, or does it wish to take all private ownership away and put it in the hands of the State? I and my hon. Friends believe that private ownership is a good thing from almost every point of view. What the Government are endeavouring to do is to build a nation of wage slaves.
Mr. Peter Rees: I have been privileged to take part in debates in Committee on the tax system dealing with share option schemes and share incentive schemes since 1972. The case against them has almost uniformly been put by the hon. Member who now occupies the position of Financial Secretary to the Treasury. It has been noticeable that there have been few other contributions from the Labour benches. It has struck me, as I have listened to the hon. Gentleman, that there is an unbridgeable gulf of incomprehension between these two parts of the Committee.
The hon. Gentleman has always put the case against share option and share incentive schemes on two grounds. The first is that if all cannot participate, none should. In conformity with the spirit of the great resolution we passed before the

1357
recess, I must declare a lack of interest in that I am a professional man and do not, and am unlikely to, benefit from a share option or share incentive scheme. None the less I am entirely in favour of them and I cannot follow the rather mean and squalid approach of the hon. Gentleman.
Secondly, the hon. Gentleman has made the point on previous occasions and tonight that there is no case for putting employees who may benefit from a share option or share incentive scheme into a privileged position. If he and the Committee will allow me to say so, it is at this point that I often wonder whether he has truly grasped the brief which no doubt the devoted gentlemen in the Official Box have placed into his eager hands before the debate.
I hope the Committee will forgive me if I go into a little detail on this point. I know that my hon. Friends grasp the point and that it is entirely clear to them. But the hon. Gentleman who holds this highly important office concerned with our tax affairs seems to be unaware of what, on a previous occasion, his right hon. Friend the Member for Cardiff, Soulh-East (Mr. Callaghan) did to these schemes. The truth is that before the Finance Act 1967 an employee who was privileged to participate was taxed when he was granted his option on the value of the option at that point of time. But he paid no tax when he exercised his option even though, as one would expect, the shares had gone up. That would strike me, and, I hope, my hon. Friends, as perfectly fair, because, although he may have contributed to the rise in the value of the shares that rise in value did not constitute, in any true sense, remuneration for his services.
What the hon. Gentleman's right hon. Friend did, and what he is attempting to do now, was to ensure that an employee would not be taxed when he participated in the scheme but would pay capital gains tax and income tax at the basic and higher rate on the difference between the value of the shares at the date he was granted the option and the value of the shares at the date he exercised his option —an entirely penal provision.
It puts him in a far worse position than an employee who might, at least prior to this Finance Bill, have borrowed money and invested it in his own company. The
1358
combination of these two measures makes it virtually certain that an employee without any capital resources will be unable to acquire a stake in the company for which he works. One asks oneself: why is it that hon. and right hon. Gentlemen opposite have this obsessive concern with share option and share incentive schemes? Are they totally opposed to any form of capitalism, any form of capital stake acquired by employees? Are they afraid that employees might become too closely identified with the fortunes of the companies for which they work? Do they in their heart of hearts want to see all employees become the employees of nationalised industry? Is the shadow of that earnest, eloquent Marxist the right hon. Member for Bristol, South-East (Mr. Benn) to be cast over these debates, too? Or are hon. and right hon. Gentlemen opposite frightened that if employees become too closely identified with the capital structure and fortunes of the companies for which they work the influence of the trade unions in them may be undermined?
10.30 p.m.
I was not over-enamoured of the measures introduced in 1972 and 1973. The rules were too complex and too strictly drawn, and more generosity could be injected into them. But they were a modest start. That modest start is to be swept away. I am sure that the Committee and the country will have noticed the arrogant reply of the Financial Secretary to an intervention of mine when I pointed out that many companies have invested considerable amounts of money and thought in starting these schemes, and now they are to be entirely stultified by the ill-thought-out, obsessional measure we are debating.
I hope that my right hon. and hon. Friends and members of the Liberal Party will agree that this clause is based on petty doctrinal spite, and I hope that the country, and particularly employees of companies which have had the forethought to introduce schemes in the past two or three years, will notice it. I shall vote against the clause with absolute enthusiasm.
Mr. John Nott: I hope that the Financial Secretary's reply on this clause will be more reasonable and conciliatory than his reply on the last amendment. If it is not, I intend to continue

1359
debating this clause for a very considerable time.
I have heard the Financial Secretary speak on the subject of share options over the last three years, and I accept that he holds a different view from ours. What is not acceptable is the kind of arrogance which the hon. Gentleman displayed when answering the debate on the last amendment. There is no excuse for that kind of arrogance on a matter which is of deep concern to both sides of the Committee.
My right hon. Friend the Member for Farnham (Mr. Macmillan) made an admirable speech. This country is in competition with every other country, particularly with the United States. That may be a very boring statement to the Financial Secretary. He may regard every statement made from this side of the Committee as boring. By the way in which he raises his eyes to the roof he displays his arrogance once again. I have had to reply to debates from the Government Front Bench, and one thing which I learned, and which the hon. Gentleman still has to learn, is that if one wants to curtail debate one had better accept that other people may occasionally have different political views from one's own.
We no longer have a capitalist society. The people who run the big companies of this country are not capitalists. They are managers. As such they are entitled to ask for the same consideration from the Government, of whatever political complexion, as managers receive in France, Germany or the United States.
If the Financial Secretary insists on supporting the clause, as no doubt he will do, I make only one small request of him. In answering the debate surely he will recognise that there is a genuine and sincerely-held point of view opposite to his own. If he shows that, I shall be happy to go through the Division Lobby and vote against the clause, but if he shows the kind of arrogance that he showed in answering the debate on the previous amendment, I shall keep the debate going until 4 o'clock in the morning by making a five-hour speech.
Mr. Tom Boardman: I ask the Financial Secretary not to adopt the arrogant approach he adopted on previous occasions by suggesting that these schemes were for the benefit of
1360
wealthy company directors and high executives, but to direct his mind to the schemes that are to be condemned by the clause, which, as my right hon. Friend the Member for Farnham (Mr. Macmillan) said, is one of the most damaging clauses in the Bill.
To turn from the general to the particular, I will give a specific example. In a company of which I am a director a scheme was devised, in which I cannot participate, which made available to all employees of the company, of whatever salary or income level, a share incentive scheme of the own-as-you-earn type. That scheme will fall under the axe of the clause. The scheme was put to and approved by the shareholders of the company without dissent. It was welcomed by employees on the factory floor, lorry drivers and the like, who wished to have the opportunity to participate in the company in which they worked and had confidence.
Such a scheme should be welcomed by a Government which wanted to encourage investment and participation. Yet the clause condemns it. How can the Financial Secretary justify that position if he really wishes to see worker participation and investment, on which the economy of the country depends? The clause operates in completely the reverse direction.
Dr. Gilbert: It would be idle to deny that there is a difference of opinion between the two sides of the Committee on this clause, as will be clear to anyone who has sat through the succession of debates on stock options ever since the 1972 Finance Bill.
I will deal first with a relatively minor matter before coming to the general point of principle. I concede immediately to the right hon. Member for Farnham (Mr. Macmillan) that he is right in saying that there is a minor anomaly under Clause 13 of which we were aware. The profit made by someone who, under a share incentive scheme, already owned his shares before Budget day will continue to attract capital gains tax.
The right hon. Gentleman believes passionately in the value of schemes of this sort. He adduced in support of his claim the argument that great segments of industry were in favour of introducing these schemes for all the reasons which

1361
are familiar to both sides of the Committee. He did not observe, as is also the case, that there is division of opinion in industry on these matters. There was division in 1972, as I am sure is known to him. There is still division of opinion in industry as to the value of schemes of this sort.
I recognise the right hon. Gentleman's good faith and the work he has done, by his lights, in the Wider Share Ownership Council. But if, as he says, it is necessary for the most able people in this country to get a bigger return—and by "the most able" he talks largely of those fortunate enough to be at executive level in their companies—to do their job properly, surely it is up to the companies to pay it to them out of their profit and loss accounts and not to seek to get a subsidy for the net return to their employees such as would be given to them by the main body of taxpayers out of schemes of this sort.
Mr. Peter Rees: Would the hon. Gentleman be kind enough to explain what subsidy companies will be getting from schemes of this kind?
Dr. Gilbert: Certainly. I shall be happy to explain. I thought the hon. and learned Gentleman was well acquainted with these matters. If a company has to pay a much larger amount of money, as suggested by the right hon. Gentleman, in order to retain the services of its employees or to keep them keen, as it were, to do their jobs more effectively, it has to pay that out of its profits.
Mr. Peter Rees: Before tax.
Dr. Gilbert: Whichever it is, we are talking about a net return, which is really what is at stake here—the additional net return to an employee. If it is paid by way of income to him, he will have to pay up to his marginal rate of tax on the full amount of that additional emolument. That additional amount of tax will be available to reduce the tax burdens of everyone else. It is simple. The hon. and learned Gentleman is being disingenuous if he does not recognise that. It is obvious, because if we do it the other way, through share incentive schemes whereby the net gain to the employee is treated for tax purposes only
1362
by the capital gains tax route, he will get the same amount of net gain for a far smaller tax burden.
This point was raised, though indirectly, by the hon. Member for Norfolk, South (Mr. MacGregor) in the most reasoned contribution we have had to the debate. It is clear that the same amount of net advantage would be given to an individual employee for a much smaller contribution to the general body of tax which is collected.
Mr. Nott: I am sorry to trouble the hon. Gentleman but, as I say, we have suffered from him for too long to allow him to get away with this. The fact of the matter is that a share option scheme is nothing more nor less than the shareholders of a company agreeing, in an ordinary general meeting, to give up part of their shareholding to the managers of the company in which they have an investment, and no subsidy is involved whatever. All that is happening is that the shareholders of the company, if the shares rise, are forgoing capital gains tax on their part and are transferring that capital gains liability to the managers of the firm in which they have invested. No subsidy is involved whatever.
Dr. Gilbert: I am sorry to take issue with the hon. Gentleman, who has considerable knowledge of these matters. But the objective of these schemes is quite clearly to get a given net return to an employee at the cheapest possible cost to the company. That has been pointed out by the hon. Member for Norfolk, South. That is what is involved. The net effect is that an employee, usually a senior executive employee, will get an equivalent net return at a much lower tax cost. If it is not that, why are hon. Members opposite making such an objection?
Mr. MacGregor: The hon. Gentleman was kind enough to refer to my remarks but he has misinterpreted what I said. The point I made was that this had a neutral effect on the profit and loss account. That is a different matter from subsidy. From the way the hon. Gentleman interprets "subsidy", it would seem that if tax were reduced by any small amount it could be interpreted as a reduction of a subsidy. It is a funny play with words.
10.45 p.m.
Dr. Gilbert: Not at all. The hon. Gentleman was quite clear in what he said. He said that a contribution made to an employee in this way would have no effect on the profit and loss account in the short run. That is why this clause touches such a raw nerve among hon. Gentlemen opposite. If it were not for the fact that tax incentives were so important in schemes of this kind, the Opposition would not be putting up such a resistance to the clause—
Mr. Tom Boardman: The Financial Secretary is saying that there is a subsidy to the company. However, the subsidy comes from the shareholders. There is further taxation paid by the emoluments of the employees coming out of the shareholders instead of coming out of profits which would otherwise be subject to tax.
Dr. Gilbert: I made it clear in reply to an earlier intervention by the hon. and learned Member for Dover and Deal (Mr. Rees) that there was an element of cost to a company in the degree of share dilution involved in any scheme. I said also that it was a minor element in the cost of such schemes. It is perfectly clear that what is really attractive about these schemes is the capital gains tax treatment of the gains accruing to senior executives if the shares go up in price.
I am surprised that the Opposition make quite so much heavy water about these schemes, because not only are they, by and large, in suspense at the moment, but the fact is that the Opposition have been very keen to point out—and presumably this was the reason for stock option and share incentive schemes at all, regardless of the tax treatment that they are given— how the maintenance of a thread between the effort of an employee and the price of the shares of the company in which he works is a very important element in keeping his loyalty to the company, in giving him a sense of participation in the affairs of the company, and also in giving him a greater incentive to work harder and more productively in the interests of that company.
Mr. Peter Hordern: The hon. Gentleman should tell the Committee the purpose of the clause. It has been demonstrated by my right hon. and hon. Friends that the cost of the contribution to stock option
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schemes is borne entirely by the shareholders. There is no cost to the taxpayer at all. Furthermore, there must be some reason for the clause. Under present arrangements, there is some revenue to be derived in capital gains tax. Under Clause 13 there will be no revenue because there will be no more stock option schemes. What is the purpose of the clause?
Mr. Nott: Political spite.
Dr. Gilbert: The point is that if greater rewards are necessary in order to keep keen employees in this country, those greater rewards must come in the salaries paid to them. On those salaries there will be income tax paid up to the marginal rate of each employee, and that is where additional tax will come to the Exchequer.
It is a little surprising to see the Opposition so enthusiastic still in supporting a principle that the efforts of a senior employee can be closely correlated with movements in the price of the stock in his company. When one sees what has happened to the price of shares on the London Stock Exchange over the last two years, I should have thought that that amounted to a serious slander on the main body of senior British management. As will be well known to Opposition Members, since early 1972 the price of shares on the Stock Exchange has fallen by a virtually unprecedented amount, the vast proportion of that fall having taken place while they were still in office. Taking account also of the fall in the value of money over the same period, the fall in the real value of shares on the Stock Exchange has, I believe, been rather greater than that which occurred between 1929 and 1931.
Anyone, therefore, who suggests—it follows immediately from the proposals put forward by hon. Members of the Opposition—that that fall in the value of shares is due to a sudden excess of sloth or incompetence on the part of senior management is making a proposition so implausible that no one would support it. It is a preposterous suggestion. Surely it follows that the converse is equally true. There is no connection between the movement of the price of shares of a company in which an individual is employed and the efforts that an employee puts into his work for

1365
that company. We suggest that the correlation is totally spurious and that the reason why the Opposition are getting so worked up about the clause is that the very tax privileges that the clause seeks to take away are particularly dear to their hearts.
This is a privilege which we on the Government side of the House have repeatedly made clear that we find unacceptable. I invite my right hon. and hon. Friends to support the clause.
Mr. Nolt: We are concerned not so much with general tax privileges granted to senior management but with the fact that the clause also covers those wage-earners in companies who, until the clause was published, were entitled to receive a benefit up to a limit of £1,500. The whole purpose of the legislation which the Conservative Government brought forward was to enable ordinary people working in British industry to participate in some small way, under the Workers Share Incentive Scheme, in the business in which they worked.
I quite understand that the hon. Gentleman does not agree that the man working on the shop floor in British industry should participate in ownership. But it is no use the hon. Gentleman answering the debate by implying that share option schemes are relevant only to managers, because they are not. We introduced the Workers Share Incentive Scheme as a genuine attempt to try to make ordinary people in British industry feel that they had an opportunity to participate in the firm in which they worked. The maximum benefit that they could have obtained was £1,500. Because of an ideological obsession on the part of the hon. Gentleman and some of his hon. Friends—I do not believe it can be many of them—against the word "options", he is seeking now to deny
the working man in industry an opportunity to obtain a share of his own firm. This is very shabby and cheap. The hon. Gentleman should be ashamed of what his party is doing.
Mr. Maurice Macmillan: I heartily support my hon. Friend the Member for St. Ives (Mr. Nott). If he was making heavy water of it, that is probably because the Financial Secretary generated considerable steam.
The Financial Secretary is wrong. There is no effect on the profit and loss account in the short term of the firm which would have paid capital gains tax, but in the longer term there is a transfer of ownership from the existing shareholders who would have paid capital gains tax on their shares to the management, who also should pay capital gains tax, as we provided, but not income tax, as the clause provides.
The hon. Gentleman talked a great deal about shares quoted on the Stock Exchange. I hope that he will remember his words when we discuss the new clause about capital gains being expressed in real and not just inflationary terms.
The clause will be destructive, not just for the employees of large, quoted companies, but for the greater number of employees of those smaller firms which offer participation in ownership and which in many cases retain their good senior management through such participation. The Financial Secretary should not lead such a blinkered life when dealing with matters like this affecting the realities of the shop floor and management—in fact, the whole of our industry.
Question put That the clause stand part of the Bill: —
The Committee divided: Ayes 239, Noes 202.

Division No. 35.]

AYES

(10.57 p.m.

Abse, Leo

Blenkinsop, Arthur

Carter, Ray

Allaun, Frank

Boardman, H. (Leigh)

Carter-Jones, Lewis

Archer, Peter (Warley, West)

Booth, Albert

Castle, Rt. Hn. Barbara

Ashton, Joe

Boothroyd, Miss Betty

Clemitson, Ivor

Atkins, Ronald (Preston, N.)

Bottomley, Rt. Hn. Arthur

Cocks, Michael

Atkinson, Norman

Boyden, James (Bishop Auckland)

Cohen, Stanley

Bagler, Gordon, A. T.

Bradley, Tom

Coleman, Donald

Barnett, Guy (Greenwich)

Brown, Hugh D. (Glasgow, Provan)

Colquhoun, Mrs. M. N.

Barnett, Joel (Heywood & Royton)

Buchan, Norman

Concannon, J. 0.

Bates, Alf

Buchanan, Richard(G'gow,Springbrn)

Conlan, Bernard

Benn, Rt. Hn. Anthony Wedgwood

Callaghan, Jim (M'dd'ton & Pr'wlch)

Cook, Robert F. (Edinburgh, C.)

Bennett, Andrew F. (Stockport, N.)

Campbell, Ian

Cox, Thomas

Bidwell, Sydney

Cant, R. B.

Craigen, J. M. (G'gow, Maryhill)

Bishop, E. S.

Carmichael, Neil

Crosland, Rt. Hn. Anthony

Cryer, G. R.

Janner, Greville

Price, Christopher (Lewlsham, W.)

Cunningham, G. (Isl'ngl'n.S&F'sb'ry)

Jay, Rt. Hn. Douglas

Price, William (Rugby)

Cunningham,Dr. JohnA. (Whiteh'v'n)

Jeger, Mrs. Lena

Radice, Giles

Davidson, Arthur

John, Brynmor

Richardson, Miss Jo

Davies, Bryan (Enfield, N.)

Johnson,James(K'ston upon Hull,W)

Roberts, Albert (Normanton)

Davies, Denzil (Llanelli)

Johnson, Walter (Derby, S.)

Roberts, Gwilym (Cannock)

Davies, lfor (Gower)

Jones, Barry (Flint, E.)

Roderick, Caerwyn E.

Davis, Clinton (Hackney, C.)

Jones, Dan (Burnley)

Rodgers, George (Chorley)

Deakins, Eric

Jones, Gwynoro (Carmarthen)

Rodgers, William (Teesside, St'ckton)

Dean, Joseph (Leeds, W.)

Jones, Alec (Rhondda)

Rooker, J. W.

Delargy, Hugh

Judd, Frank

Rose, Paul B.

Dell, Rt. Hn. Edmund

Kaufman, Gerald

Ross, Rt. Hn. William (Kilmarnock)

Dempsey, James

Kelley, Richard

Rowlands, Edward

Dolg, Peter

Kerr, Russell

Sandelson, Neville

Dormand, J. D.

Kilroy-Silk, Robert

Sedgemore, Bryan

Douglas-Mann, Bruce

Kinnock, Neil

Selby, Harry

Duffy, A. E. P.

Lamble, David

Shaw, Arnold (Redbridge, llford, S.)

Dunnett, Jack

Lamborn, Harry

Sheldon, Robert (Ashton-under-Lyne)

Dunwoody, Mrs. Gwyneth

Latham, Arthur(CityofW'minsterP'ton)

Short, Rt. Hn. E. (N'ctle-u-Tyne)

Edelman, Maurice

Leadbitter, Ted

Silkin, Rt. Hn. John (L'sham.D'ford)

Edge, Geoff

Lestor, Miss Joan (Eton & Slough)

Silkln,Rt.Hn.S.C.(S'hwark,Dulwich)

Ellis, John (Brigg & Scunthorpe)

Lever, Rt. Hn. Harold

Sillars, James

Ellis, Tom (Wrexham)

Lewis, Arthur (Newham, N.)

Silverman, Julius

English, Michael

Lewis, Ron (Carlisle)

SKinner, Dennis

Ennals, David

Loughlin, Charles

Smith John (Lanarkshire, N.)

Evans, Fred (Caerphilly)

Lyon, Alexander W. (York)

Snape, Peter

Evans, loan (Aberdare)

Lyons, Edward (Bradford, W.)

Spearing, Nigel

Ewing, Harry (St'ling,F'kirk&G'm'th)

McCartney, Hugh

Spriggs, Leslie

Faulds, Andrew

McElhone, Frank

Stallard, A. W.

Fernyhough, Rt. Hn. E.

MacFarquhar. Roderick

Stewart, Rt. Hn. M. (H'sth, Fulh'm)

Fitch, Alan (Wigan)

McGuire, Michael

Stoddart, David (Swindon)

Flannery, Martin

Mackenzie, Gregor

Stonehouse, Rt. Hn. John

Fletcher, Ted (Darlington)

Maclennan, Robert

Strang, Gavin

Foot, Rt. Hn. Michael

McMillan, Tom (Glasgow, C.)

Strauss, Rt. Hn. G. R.

Ford, Ben

Madden, M. 0. F.

Summersklll, Hn. Dr. Shirley

Forrester, John

Magee, Bryan

Swain, Thomas

Fowler. Gerry (The Wrekin)

Mahon, Simon

Thomas, D. E. (Merioneth)

Freeson, Reginald

Mallall, J. P. W.

Thomas, Jeffrey (Abertlllery)

Garrett, John (Norwich, S.)

Marks, Kenneth

Tierney, S.

Garrett, W. E. (Wallsend)

Marquand, David

Tinn, James

George, Bruce

Marshall, Dr. Edmund (Goole)

Torney, Tom

Gilbert, Dr. John

Mayhew, Christopher (G'wh.W'wch.E)

Tuck, Raphael

Gourlay, Harry

Meacher, Michael

Varley, Rt. Hn. Eric G.

Graham, Ted

Mellish, Rt. Hn. Robert

Walnwright, Edwin (Dearne Valley)

Grant, George (Morpeth)

Mikardo, Ian

Walden, Brian (B'm'ham, Ladywood)

Grant. John (Islington, C.)

Millan, Bruce

Walker, Harold (Doncaster)

Griffiths, Eddie (Sheffild, Brightside)

Miller, Dr. M. S. (E. Kilbride)

Walker, Terry (Kingswood)

Hamilton, James (Bothwell)

Mitchell, R. C. (S'hampton, Itchen)

Watkins, David

Hamling, William

Morris, Charles R. (Openshaw)

Weitzman, David

Hardy, Peter

Morris, Rt. Hn. John (Aberavon)

White, James

Harper, Joseph

Moyle, Roland

Whitehead, Phillip

Harrison, Walter (Wakefield)

Mulley, Rt. Hn. Frederick

Whitlock, William

Hart, Rt. Hn. Judith

Murray, Ronald King

Wigley, Dafydd (Caernarvon)

Hattersley, Roy

Newens, Stanley (Harlow)

Willey, Rt. Hn. Frederick

Hatton, Frank

Oakes, Gordon

Williams, Alan (Swansea, W.)

Heffer, Eric S.

Ogden, Eric

Williams,Rt.Hn. Shirley (H'f'd&St'ge)

Hooley, Frank

O'Malley, Brian

Williams, W. T. (Warrington)

Horam, John

Orbach, Maurice

Wilson, William (Coventry, S.E.)

Howell, Denis (B'ham, Small Heath)

Ovenden, John

Wise, Mrs. Audrey

Huckf'ield. Leslie

Owen, Dr. David

Woodall. Alec

Hughes, Rt. Hn. Cledwyn (Anglesey)

Palmer, Arthur

Woof, Robert

Hughes, Mark (Durham)

Park, George (Coventry, N.E.)

Wrigglesworth, Ian

Hughes, Robert (Aberdeen, North)

Parker, John (Dagenham)

Young, David (Bolton, E.)

Hughes, Roy (Newport)

Parry, Robert

Irvine, Rt. Hn. Sir A. (L'p'I.EdgeHilI)

Peart, Rt. Hn. Fred

TELLERS FOR THE AYES:

Irving Rt. Hn. Sydney (Dartford)

Perry, Ernest G.

Mr. James A. Dunn and

Jackson, Colin

phipps, Dr. Colin

Mr. Laurie Pavitt.

NOES

Adley, Robert

Biff en, John

Carlisle, Mark

Alison, Michael (Barkston Ash)

Boardman, Tom (Leicester, S.)

Carr, Rt. Hn. Robert

Allason, James (Heme! Hempstead)

Boscawen, Hon. Robert

Chataway, Rt. Hn. Christopher

Ancram, M.

Boyson, Dr. Rhodes (Brent, N.)

Clark, William (Croydon, S.)

Archer, Jeffrey (Louth)

Braine, Sir Bernard

Clarke, Kenneth (Rushcliffe)

Atkins, Rt.Hn. Humphrey (Spelthorne)

Bray, Ronald

Clegg, Walter

Awdry, Daniel

Brittan, Leon

Cockcroft, John

Banks, Robert

Brown, Sir Edward (Bath)

Cooke, Robert (Bristol, W.)

Barber, Rt. Hn. Anthony

Brown, Ronald (H'Kney.S.& Sh'dltch)

Cope, John

Beith, A. J.

Bruce-Gardyne, J.

Corrie, John

Bell, Ronald

Buchanan Smith, Aiick

Crowder, F. P.

Bennett, Dr. Reginald (Fareham)

Budgen, Nick

Davies, Rt. Hn. John (Knutsford)

Benyon, W.

Bulmer, Esmond

Dean, Paul (Somerset, N.)

Berry, Hon. Anthony

Bull'er, Adam iBosworth)

Deedes, Rt. Hn. W. F.

1368

1369

Dodsworth, Geoffrey

Kershaw, Anthony

Ralson, Timothy

Drayson, Burnaby

King, Evelyn (Dorset, S.)

Redmond, Robert

Durant, Tony

King, Tom (Bridgwater)

Rees, Peter (Dover & Deal)

Dykes, Hugh

Kltson, Sir Timothy

Rees-Davies, W. R.

Eden, Rt. Hn. Sir John

Knight, Mrs. Jill

Renlon, R. T. (Mid-Sussex)

Edwards, Nicholas (Pembroke)

Knox, David

Rhys Williams, Sir Brandon

Elliott, Sir William

Lamont, Norman

Rifkind, Malcolm

Eyre, Reginald

Lane, David

Rippon, Rt. Hn. Geoffrey

Fairgrieve, Russell

Langford-Holt, Sir John

Roberts Wyn (Conway)

Fenner, Mrs. Peggy

Latham, Michael (Melton)

Rodgers, Sir John (Sevenoaks)

Fisher, Sir Nigel

Lawrence, Ivan

Ross, Stephen (Isle of Wight)

Fletcher, Alexander (Edinburgh, N.)

Lawson, Nigel (Blaby)

Rossi, Hugh (Hornsey)

Fletcher-Cooke, Charles

Lloyd, Ian (Havant & Waterloo)

Rost, Peter (Derbyshire, S.-E.)

Fowler, Norman (Sutton Coldfield)

Loveridge, John

Shaw, Giles (Pudsey)

Fox, Marcus

Luce, Richard

Shaw, Michael (Scarborough)

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

McAdden, Sir Stephen

Shelton, William (L'mb'th,Streath'm)

Freud, Clement

Macfarlane, Neil

Shersby, Michael

Gardiner, George (Reigate&Banstead)

MacGregor, John

Silvester, Fred

Gardner, Edward (S. Fylde)

McLaren, Martin

Sims, Roger

Gilmour, Sir John (Fife, E.)

Macmillan, Rt. Hn. M. (Farnham)

Sinclair, Sir George

Glyn, Dr. Alan

Madel, David

Smith, Dudley (W'wick&L'm'ngton)

Godber, Rt. Hn. Joseph

Marshall, Michael (Arundel)

Spicer, Michael (Worcestershire, S.)

Goodhew, Victor

Mather, Carol

Sproat, lain

Goodlad, A.

Maude, Angus

Stanbrook, Ivor

Gorst, John

Mawby, Ray

Stanley, John

Gow, Ian (Eastbourne)

Maxwell-Hyslop, R. J.

Steen, Anthony (L'pool, Wavertree)

Gower, Sir Raymond (Barry)

Mayhew,Patrick(RoyalT'bridgeWe!ls)

Stewart, Ian (Hitchin)

Grant, Anthony (Harrow, C.)

Meyer, Sir Anthony

Stokes, John

Grieve, Percy

Miller, Hal (B'grove & R'ditch)

Stradling Thomas, J.

Griffiths. Eldon (Bury St. Edmunds)

Miscampbell, Norman

Tapsell, Peter

Grimond, Rt. Hn. J.

Mitchell, David (Basingstoke)

Thatcher, Rt. Hn. Margaret

Grist, Ian

Moate, Roger

Thomas, Rt. Hn. P. (B'net,H'dn S.)

Hall, Sir John

Money, Ernie

Thorpe, Rt. Hn. Jeremy

Hall-Davis, A. G. F.

Monro, Hector

Townsend, C. D.

Hampson, Dr. Keith

Moore, J. E. M. (Croydon, C.)

Trotter, Neville

Hannam, John

More, Jasper (Ludlow)

Tugendhat, Christopher

Hastings, Stephen

Morgan, Geraint

Tyler, Paul

Havers, Sir Michael

Morgan-Giles, Rear-Adm.

van Straubenzee, W. R.

Hawkins, Paul

Morris, Michael (Northampton, S.)

Vaughan, Dr. Gerard

Hayhoe, Barney

Morrison, Charles (Devizes)

Viggers, Peter

Henderson,Barry (Dunbartonshire,E.)

Morrison, Peter (City of Chester)

Waddington, David

Hlggins, Terence

Mudd, David

Walnwright, Richard (Colne Valley)

Holland, Philip

Neubert, Michael

Wakeham, John

Hooson, Emlyn

Newton, Tony (Braintree)

Walder, David (Clitheroe)

Hordern, Peter

Nott, John

Walters, Dennis

Howe, Rt.Hn. Sir Geoffrey(Surrey,E.)

Onslow, Cranley

Weatherill, Bernard

Hurd, Douglas

Oppenheim, Mrs. Sally

Wells, John

Hutchison, Michael Clark

Page, John (Harrow, W.)

Winstanley, Dr. Michael

Irvine, Bryant Godman (Rye)

Pardoe, John

Worsley, Sir Marcus

James, David

Parkinson, Cecil (Hertfordshire, S.)

Young, Sir George (Ealing, Acton)

Jenkin, Rt.Hn.P. (R'dgeW'std&W'fd)

Pattle, Geoffrey

Younger, Hn. George

Jessel, Toby

Percival, Ian

Johnston, Russell (Inverness)

Pink, R. Bonner

TELLERS FOR THE NOES:

Jopling, Michael

Price, David (Eastleigh)

Mr. Hamish Gray and

Joseph, Rt. Hn. Sir Keith

Quennell, Miss J. M.

Mr. Spencer le Marchant.

Question accordingly agreed to.
Clause 13 ordered to stand part of the Bill.
To report Progress and ask leave to sit again.—[Mr. Harper.]
Committee report Progress: to sit again tomorrow.

WAYS AND MEANS

  CAPITAL GAINS TAX
  Motion made and Question proposed,
  That the rate of capital gains tax provided for by section 113 of the Finance Act 1972 shall be increased to 161 per cent.— [Dr. Gilbert.},
  11.8 p.m.
  Mr. Terence Higgins: I presume that this is a paving amendment
  1370
  for a Government amendment which will appear at a subsequent stage, but I should be grateful if the Financial Secretary would be courteous enough to give an explanation.
  11.9 p.m.
  The Financial Secretary to the Treasury (Dr. John Gilbert): I was not
  quite sure when I had to rise to my feet. I had intended no discourtesy to the hon. Member for Worthing (Mr. Higgins), as I am sure he recognises.
  The resolution authorises an increase in the rate of capital gains tax payable by certain unauthorised unit trusts and by common investment funds for funds in court. The rate is at present 15 per cent.; for 1974–75 it is to be 16 ½ per cent. The need for the motion results

  1371
  from an oversight when the Bill was published, for which I apologise.
  Capital gains tax rates are like income tax rates in so far as they are fixed in advance. Accordingly, it is necessary to fix the rate for these analogous funds in this year's Finance Bill. The need to increase the present rate of 15 per cent, to 16 ½ per cent. arises as a result of the increase in the basic rate of income tax from 30 per cent. to 33 per cent.
  If there are any other points the hon. Gentleman would like to raise, I shall do my best to answer them.
  Mr. Higgins: I understood from what the hon. Gentleman said that the motion was related to a clause in the Finance Bill for which no Ways and Means Resolution had previously been passed, although it should have been moved. Which clause is covered by the motion?
  Dr. Gilbert: I am informed that a new clause will be tabled in due course, which will show the hon. Gentleman why we are introducing the motion now.
  Mr. Higgins: With great respect to the hon. Gentleman, that is not good enough. First, the hon. Gentleman tells us that the motion is moved now because there had been an oversight, the clear implication being that it was something in the Finance Bill already. When I pressed him he said that there was a new clause to be considered in Committee upstairs. He cannot have it both ways. I hope that the hon. Gentleman will give rather more convincing explanations on what is a fairly simple matter.
  Dr. Gilbert: There is a misunderstanding here. Before one can introduce a new clause one must have a motion. The motion is being moved now, and the new clause will be introduced later.
  Mr. Higgins: The hon. Gentleman's first explanation was that this was a Ways and Means motion which was tabled because of an oversight—that it should have been tabled before and was not. If it is to cover a new clause to be introduced in Committee upstairs, there is no reason why it should not be tabled at that stage. That would be perfectly reasonable, in which case there is no oversight. What I find difficulty in understanding is why the hon. Gentleman thought that there had been an oversight on something to
  1372
  be done in Committee upstairs on a future occasion.
  Dr. Gilbert: I do not wish to be discourteous to the hon. Gentleman. I thought that I made it clear that the oversight was that the new clause itself had not been tabled, and, therefore, the motion is needed. We are chasing our own tails here. I made it clear that it was an oversight, for which I apologised. I cannot see that it is in any way inconvenient to the House to deal with the matter now. What I said could not be more open.
  Mr. Higgins: I now understand what the hon. Gentleman is saying—that both the new clause and the Ways and Means motion were an oversight. If that is so, of course the House will gladly accept it. But we are still put in a rather odd position, finding ourselves with both a new clause and the motion, which has not been mentioned before, without the hon. Gentleman giving a full explanation. But I am grateful for what the hon. Gentleman has now said.
  Question put and agreed to.
  Resolved,
  That the rate of capital gains tax provided for by section 113 of the Finance Act 1972 shall be increased to 16½ per cent.

ADJOURNMENT
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Harper.]

SEWERAGE CHARGES
11.14 p.m.
Sir John Langford-Holt: I wish to delay the House for only a short time. Like every other hon. Member, I care a great deal for its reputation and the reputation of its Members.
I am sure that all of us have been told by our constituents, both during the General Election campaign and at many other times, that the trouble with the House is that it is out of touch. That hurts not only hon. Members but the whole system.
I shall mention three irritants. One of the three does not come within the Minister's departmental responsibility but

1373
I feel that I must mention it because, like the two other irritants, it brings the whole concept of honest government into question. The vexed question of storage heaters and the publicity that has gone with it drives my constituents absolutely mad. I have two electricity board pamphlets which mention half-price electricity. Those are not my words. The Government have recently—
The Minister of State, Department of the Environment (Mr. Denis Howell): On
a point of order, Mr. Deputy Speaker. Is it in order to ask for an Adjournment debate on water sewerage and then to talk about electricity charges?
Mr. Deputy Speaker (Mr. George Thomas): I think that it was a remark in passing and that the hon. Member for Shrewsbury (Sir J. Langford-Holt) is coming to sewerage and rates.
Sir J. Langford-Holt: That is right, Mr. Deputy Speaker. I think that I am entitled to raise anything I like on an Adjournment debate.
The next matter which is little short of an irritating swindle—
Mr. Deputy Speaker: Order. I am
sorry to interrupt the hon. Gentleman but for the sake of other hon. Members who are in the House I should tell him that, although technically he is right and he can talk about whatever he likes, there is a firm understanding in the House that on an Adjournment debate we stick to the subject.
Sir J. Langford-Holt: I now propose to do so, Mr. Deputy Speaker. I mentioned that first matter in passing. First, I wish to refer to the variation of the rate relief order. I knew that the rates were to go up. There is no point in denying that. However, my constituents complain that their rates have been more than doubled. I am still awaiting a reply to a letter that I wrote to the Minister's Department a fortnight ago seeking to find out the figures for my constituency. It is felt that the rate increases were a political move, and the constituents of rural constituencies are thoroughly resentful.
The inclusion of sewerage and other services within the rates is a matter which was not invented by the present
1374
administration but has been in existence for a long time. However, what is now taking place has become absolutely clear. One of my constituents said "Any commercial enterprise which levied charges for services that it did not provide would be liable to criminal charges under the Trade Descriptions Act." That may or may not be true. However, I doubt whether a judge would accept as a plea that we the suppliers of whatever it may be do not know exactly to whom we are supplying our goods and that, therefore, we must charge everyone. That is precisely what was stated in a Written Answer on 7th May. The Minister said that it was intended to do something about the matter. He then added that nothing can be done until the water authorities can identify the properties without main drainage.
But when will that happen? It is not a matter which can be left indefinitely. One of my constituents who has no main drainage received a bill only last April for £27 for such services. We must remember that the rural areas do not have the services which people who live in urban areas are entitled to expect. Their dustbins are collected weekly perhaps, they have no main sewerage, no mains water; they have no pavements, lighting or transport.
The machinery of government is notoriously slow, but there is one thing the Minister can do, and I ask him to do it. What makes people angry is that they are asked to pay for services which they do not receive. When a person is not on the main drainage system, he has to install a septic tank. What happens when the time comes for that tank to be cleaned? The person concerned goes to the sewerage authority and asks for the tank to be cleaned. What astonishes that ratepayer is that he is then charged for the performance of a function which should be carried out free of charge. I hope that the hon. Gentleman will look at this point pending an examination of the whole problem.
Finally, I must make the point that nobody who fought the last General Election could be unaware of the dislike expressed throughout the country of our whole rating system.
Mr. Paul Tyler: Before the hon. Gentleman concludes, will he direct his attention to the fact that it was his

1375
Government—a Tory Government— who introduced the Water Act about which he is now complaining. I note from the OFFICIAL REPORT of the Third Reading debate on 2nd May that the hon. Gentleman was not present on that occasion, which was perhaps fortunate, but the rest of his Conservative colleagues supported the Water Act and we are now reaping the consequences.
Sir J. Langford-Holt: I thought I made it clear that I was not saying that the Labour Government had invented all the ills to which I referred. I admit that this problem has been with us for many years.
Mr. John Pardoe: No, not for many years—only recently.
Sir J. Langford-Holt: I am saying that the whole rating system has caused a great deal of complaint. It would be quite wrong in this debate, since it would be out of order, to advocate any form of legislation. Some people suggest that there should be a local income tax: some suggest the earmarking of a percentage of general taxation as a way in which local government finances can be carried on; others suggest that the education services should be transferred to the Exchequer. Whatever happens, whichever alternative is chosen, the solution must be drastic— and that solution must be reached as quickly as possible.
11.23 p.m.
The Minister of State, Department of the Environment (Mr, Denis Howell): I am in many ways grateful to the hon. Member for Shrewsbury (Sir J. Langford-Holt) for raising these matters tonight, some of which he was kind enough to suggest were not the responsibility of the Labour Government. I will return to that point in a moment.
I was delighted that in his opening remarks he asked for honest government. I was grateful for the realistic intervention from the Liberal benches to draw his attention to the fact that we are being plagued at the moment by the outrageously high rate increases which flow directly from the method of local government reorganisation and water reorganisation imposed upon the country by the Conservative Government. We as the then Opposition, and also the Liberals, said this at the time. If every local
1376
government area was to have two treasurers where one had done the job previously, two clerk's departments where one existed before, and duplication of other government posts, those things obviously had to be paid for. We also drew attention to the increased salaries on the basis of which the reorganisation was to be carried out.
When the hon. Gentleman speaks of honest government, he should draw the attention of his ratepayers and taxpayers to where exactly the responsibility for the present situation lies. I have before me a message to all ratepayers in the hon. Gentleman's constituency which appeared in the Shropshire Star on Monday 20th May, containing photographs of the hon. Gentleman, and also of his two hon. Friends, the hon. Members for Oswestry (Mr. Biffen) and Ludlow (Mr. More), neither of whom is present tonight. The message went as follows:
"We want to send a message to all ratepayers in Shropshire. We thank those who have written to us. Like most of the rural areas and smaller towns of England. Shropshire ratepayers are being faced with enormously increased rate demands. The amount of the increase varies in different districts; among the worst hit are the former Clun RDC and the Wrekin area. A number of factors have contributed to the present position; the latest blow has been the present Government's sudden alteration in the Domestic Rate Relief. A protest debate took place in the House of Commons on the 25th March, when we all voted against the Government's action. We have also signed a Motion of Protest."
It will be seen that there is no honest approach in this campaign which the hon. Gentleman is conducting. There was no suggestion that the rate increases in Shropshire are the direct result of his Government's actions in forcing through this local government reorganisation measure. There is no mention of the creation of the monolithic Severn-Trent Water Authority, stretching across the whole of England and part of Wales, too. This is bound to increase administrative costs.
Mr. Tim Renton (): As the hon. Gentleman reminded us, we are talking specifically about the sewerage charges. The Water Authorities (Collection of Charges) Order 1974 was made on 13th March this year, laid before Parliament on 26th March and came into operation on 27th March. Will the hon.

1377
Gentleman consider a specific amendment to the order under which hereditaments not connected to the main drainage will be relieved of all or part of the general services charge levied by the water authority?
Mr. Pardoe: In the quotation which the Minister read out there was the phrase "we all voted against". Does he recognise that there is a clear implication there that the whole of the Conservative Party voted against that when, in fact, 90 Conservative Members abstained on that occasion and the Government achieved a majority of 75?
Mr. Howell: I am grateful to the hon. Gentleman for that historical and, I believe, factually correct account of our proceedings.
I turn to the main question which the hon. Gentleman has raised, which is that of charges for sewage disposal services levied through the general rate system and the problem which arises when people are not connected to the sewerage system. This is something which very few people would find possible to defend. It is a system which has operated in this country for generations. The one advantage which has so far emerged from the Water Act 1973 is that it has highlighted this deficiency.
That Act has brought this to a head. Sewerage services have always been financed on the basis that they are a community service. One of the things we have to consider is whether the system should continue to be so financed. I draw particular attention to Section 30(1) of the Act, which enables a water authority to levy such charges as it thinks fit for services performed, facilities provided and rights made available.
There is an obligation on the water authorities and the local authorities to provide the opportunity for householders to link up with sewers. But there is no corresponding obligation to ensure that householders always do so. When we discuss future arrangements this must be resolved. It creates an enormous sense of grievance and injustice when people do not have the opportunity to link up with the main drainage system. It adds to their dismay when they also have to pay for the emptying of cesspools and suchlike.
1378
I come to the practicality of the matter. I have already said—and I think that my hon. Friend the Under-Secretary said it during an earlier Adjournment debate—that this administration wants to do something about it. We accept that it is monstrously unfair that people who are not enjoying services, not because they are not linked up with them—such people are a separate case—but because they do not have the opportunity to take advantage of the main drainage system, should be expected to pay. The difficulty is how to identify those people and get some system of direct charging.
I have to tell the House that our early estimates are that there are certainly no fewer than 800,000 households whose premises are in this situation of not being able to link up with the sewerage system. It is a formidable number. I am advised that they are not necessarily all in rural areas, although many are.
When we came to office, we found that the previous administration—and I have had to continue to support this system, for otherwise there would have been financial chaos in the water authorities— had decided that the first year's financing at any rate should be done through the existing rate collection system. There seemed to be no other system that could apply. Therefore, it was quite clear that it was impossible to make exemptions this year, especially having regard to the fact that it was not just the great change in water administration with which we had to contend but the phenomenally difficult administrative task of the re-organisaion of the whole of local government, which had also been imposed on the country at one and the same time.
Water authorities took over responsibility on 1st April, and effectively that meant that water authorities had only eight months to establish themselves, to review their situation and to decide their costings and estimates, get into operation and start obtaining the finance through the rating system for their operations. I can tell the House, and I am sure that hon. Members will appreciate this, that, although there are many things that the new administration would like to do, in many of the discussions that we had with the water authorities we found it virtually impossible to obtain the information within the time scale available to us. We have been in office for only

1379
three months and we have started to ask for this information in order to make sensible and intelligent decisions, but the water authorities simply cannot obtain the information.
Some of the old local authorities are very good about being able to say exactly what capital allocation has been committed to this task and what revenue costs were, but we have discovered many local authorities where it has been impossible to distinguish, either on capital account or on revenue account, between water and sewerage and other services, because they were all linked under a multiplicity of different heads of local government finance.
It will be seen that, although we wanted to move in this direction, there could be no question of paying relief or rebates in this year's situation. I am informed that in 1972 the previous administration discussed the whole question of paying rebates in the sort of case that has been mentioned. I do not think that this information has been given before, but I am informed that, although the previous administration discussed whether to pay rebates in these cases, it rejected the possibility, and so we are having to start from scratch. That adds considerably to my difficulties.
Mr. John Cope: Did the hon. Member say, as I thought, that there was now no question of repaying this year's payments? That is not the impression that the Under-Secretary gave in the last Adjournment debate on this subject, when the Liberals were not present but many of us were. He then gave the clear impression not only that this matter would be looked at for future years but that the Government would consider rebating this year's payments.
Mr. Howell: That is a fair point. It is quite true that my hon. Friend the Under-Secretary said that we were actively looking at the situation this year because the anomalous and unfair position had been drawn to our attention. We have looked at it this year but, for the reasons which I have unfolded to the House—at least 800,000 premises are affected—the local authorities and the new water authorities do not have the
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information on which to take any such practical action this year. Although, as the hon. Member has said, my hon. Friend said that we would investigate the position, I am sorry to have to say that we have done so but that we find it impracticable to act this year.
Mr. Cope: I apologise for interrupting the Minister again but, frankly, the large number of people involved—the Minister has given a figure of 800,000, and I do not disagree—is no reason for not doing anything on this occasion. Indeed, it is added reason why something should be done.
Mr. Howell: I hope I have made it clear to the House, and I am being frank in giving as much information as I can, that the size of the problem administratively to identify the premises is colossal. With the added fact that the new authorities have only just started work, and in a sense all their rating demands are estimates, it is practically impossible to do anything this year. While that is a regrettable state of affairs, it is no different from every previous year when these people have paid for services which they have not received.
What the House will want me to do, and what I undertake to do, is to move as rapidly as possible to a situation where the water authorities can identify these dwellings and can exempt them from payment for services which they are not enjoying. That is what I wish to do.
Mr. Cope: Can the exemption be backdated?
Mr. Howell: It cannot be backdated. Why should that be done in one year when in some cases this has been happening for 50 years? The logic of retrospective relief is impossible to apply. It is attractive to say that we should do it for this one year, but why stop at one year when the people have been paying for these services and local government has been financed on this basis for a large number of years?
Mr. Stephen Ross: 1 apologise for intervening but I should like to correct the hon. Member for Gloucestershire, South (Mr. Cope). I heard the summing up in the earlier debate on rating which came on unexpectedly one night and about which great

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play has been made by the Conservative Opposition. The information concerning properties which have septic tanks could be obtained easily from valuation officers, who make the assessments and know which properties have septic tanks and those which do not.
Can the Minister please answer a point put by the hon. Member for Shrewsbury (Sir J. Langford-Holt) when he spoke about the charge for emptying septic tanks? This is certainly an affront to ratepayers, and surely something can be done. Many authorities had not budgeted for this money in their accounts because they were under the impression that the water authorities would pay for it. Surely this could be underwritten by the Government and septic tanks at least be emptied free of charge. Will the Minister deal with this before he concludes?
Mr. Howell: I will do my best in the time that remains. The cleaning of cesspits and septic tanks is a function of district councils, which is an added complication. It is not a function of the water authorities. It is for the district councils to decide whether to charge or to empty the tanks free. Water authorities have no power to pay district councils to empty septic tanks.
A further complication is that, even if these domestic dwellings could be identified, there is some doubt whether it would be legal or ultra vires for water authorities to refund charges properly demanded and collected under the collection of charges order. This is one of the questions which I discussed with my legal advisers today. They are not entirely united, but the best advice I can give the House is that most of them
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think that it would be ultra vires to implement a refund charge such as this.
We shall do the best we can. I very much hope that it will be possible to put this matter right for next year. I give the House the assurance that I shall do my very best to ensure that we speed up the administrative arrangements necessary to identify these properties. We want to have them excluded from payment if they are not enjoying the services. I trust that the House will rely upon me to bring that about.
But it must be faced—this is the main fact—that the reorganisation of the water services was carried out far too quickly by the previous administration for proper administrative arrangements to be made for direct charging and certainly for proper administrative arrangements to be made in the time available to the water authorities, which was eight months from the moment they were set up to the moment they took over the responsibility for these major services. To impose that sort of administrative nonsense, which I believe it to be, at the same moment as local government reorganisation on an unprecedented scale was going on is a condemnation of the manner in which the Conservative Government carried out their important duties.
We shall do our best to retrieve the situation as soon as we can. I am grateful to the hon. Gentleman for raising the matter because it has given me the opportunity to highlight where the shortcomings in these matters should firmly rest.
Question put and agreed to.
Adjourned accordingly at eighteen minutes to Twelve o'clock.