HC Deb 08 December 1976 vol 922 cc493-539

5.28 p.m.

The Chairman

The first amendment selected is No. 4, in page 1, line 16, leave out '2' and insert '1'.

Mr. David Howell (Guildford)

on a point of order, Mr. Murton. Now that we are in Committee I raise a matter that arises from the schedule of amendments that we shall discuss. I am not in any way questioning the selection of amendments although I think you will agree, Mr. Murton, that amendments are somewhat sparse on the selection list. I think you will realise, Mr. Murton, that that appears to arise primarily from the way in which the Ways and Means Resolution has been drafted. It has been drafted effectively to exclude any amendment that might allow particular classes or groups to be exempt from the payroll tax—namely, the 2 per cent. increase.

The effect of that exclusion is at a stroke, if I may use the expression, to remove from debate all opportunity to discuss the position of the Churches and charities, which will be acutely affected by the Bill. In the past few days they have been making known their anger and dismay as it has become apparent that under the procedures of the House there will be no protection for them.

The House would value your guidance, Mr. Murton, whether there is any protection from this sort of device. The effects are very serious. We are dealing with the whole range of leading charities, all of which will be affected by having to find a large increase in funds to pay their employees.

During the Second Reading debate I read out some of the sums of money that will now have to be found by organisations such as Dr. Barnardo's Homes, the Spastics Society and others. The Minister of State then said that the figures were "wildly out". Naturally, I have double-checked the figures since then, and the Minister of State was wrong. They are not wildly out. They are precisely right. This is the only opportunity I shall have, Mr. Murton, to ask the Minister through you to withdraw the charge that the figures were wildly out. He must do so.

The Minister said that to his hon. Friend the Member for Kingswood (Mr. Walker): did not attempt to use figures from newspapers, which seem to be wildly out, at least as far as we can tell".—[Official Report, 6th December 1976; Vol. 922, c. 147.] But the figures were not wildly out. They were exactly right. We must, therefore, have a withdrawal on that point before we can proceed with the debate.

An important matter of principle is involved. If Treasury Ministers are to cone to the Dispatch Box, with no knowledge of the correct figures and use phrases such as "wildly out" when the figures are in fact correct, this is very worrying to all of us. Treasury Ministers who have not the slightest clue as to the impact of their measures are prepared to condemn the precise estimates provided by the National Council of Social Service and by the charities themselves and to dismiss them as "wildly out" when they are not. We must have some reassurance that the Treasury Ministers know what they are about and know vaguely what figures are involved. I look forward to a withdrawal by the Minister of State of that charge. We must have that from him.

The precise figure that led the Minister of State to that unwise and rather loose condemnation was the one concerning Dr. Barnardo's. One Labour Member, in a slightly irresponsible interjection, said that £5 million was far too large a total wage bill for a charity. It turns out that the total salary bill of Dr. Barnardo's for 1975–76 is £5,400,000 on an average number of employees of 2,470. For 1976–77, when the measure will apply, the salary bill will exceed £6 million.

The figures, therefore, were accurate. If anything they underestimated the position. The Royal National Institute for the Blind will have to go out and raise an extra £50.000. The Spastics Society will have to go out and raise an extra £93,000.

Then there is the position of the Churches, in regard to which the measure is estimated to cost, in the case of the—

The Chairman

I am willing at the appropriate moment to reply to the hon. Gentleman's point of order, but I must point out that the comments he is making now are not related to subjects which are a matter for the Chair.

Mr. Howell

I accept your ruling, Mr. Murton. I was reacting to a situation in which these matters can be raised at no other point than at the beginning of the debate, and yet they are matters of burning importance and intensity. But you rightly called me to order, and I leave these matters by asking whether we can in any way be safeguarded in the future against devices which prevent this House from debating measures which are a slap in the face for the work of charities, which undermine their efforts, and which force them, as Christmas comes, to face the prospect of raising far more money than they could ever have envisaged, as a result of a measure which will do them great damage.

Dr. Oonagh McDonald (Thurrock)

On a point of order, Mr. Murton. It relates to the provisional selection of amendments. Together with some of my hon. Friends, I submitted an amendment concerned with the impact of the National Insurance Surcharge Bill on local authorities and on the non-manufacturing public sector. This amendment has not been selected. Instead, a trivial amendment such as No. 11 has been selected in preference to my own amendment which is on a substantial matter. I therefore appeal to you, even at this late stage—

The Chairman

Order. I point out to the hon. Lady—I am sure that she meant no offence—that she must not comment upon the selection of amendments, arguing whether some may be trivial or not. It is entirely a matter for the Chair. Perhaps I may now answer both points of order.

Mr. David Mitchell (Basingstoke)

On a point of order, Mr. Murton. Will you guide me whether a series of amendments such as that put down by the hon. Member for Thurrock (Dr. McDonald) and a number of others, including. Amendment No. 8, have been ruled out of order because of the terms of the Ways and Means Resolution which was slipped through? Is it this resolution which has barred you, Mr. Murton, from being able to allow these amendments to be discussed?

The Chairman

Perhaps the hon. Member for Basingstoke (Mr. Mitchell) will allow me to answer the points of order.

I am obliged to the hon. Member for Guildford (Mr. Howell) for giving me prior notice that he intended to raise the original point of order. The Bill is founded upon a Ways and Means Resolution, to which the House agreed on 30th November, and the rules of the House prevent the Chair from calling any amendments which would take the Bill outside the terms of that resolution.

The resolution clearly provides that the surcharge shall be imposed on every person who pays secondary Class 1 contributions, that is, on all employers. It follows that no amendment is in order which permits exceptions, either temporary or permanent, or which imposes the charge on anyone other than an employer. The resolution also provides that the surcharge must be paid into the Consolidated Fund.

In addition, any expenditure provided for in the Bill must fall within the terms of the Money Resolution, to which the House agreed last Monday. This resolution provides only for administrative expenses, and it follows that any amendment providing for expenditure, whether out of moneys provided by Parliament or the Consolidated Fund, which goes beyond mere administration, is also out of order.

It is on these various grounds that I must regretfully rule that the majority of the amendments of which notice has been given are not in order. With regard to the point of order raised by the hon. Member for Thurrock (Dr. McDonald) it is clearly shown on page 755 of "Erskine May" that if a payment out of the Consolidated Fund is envisaged, a specific provision in the Money Resolution is needed. There is in this case no such provision.

Mr. George Cunningham (Islington, South and Finsbury)

On a point of order, Mr. Murton. I am sorry that I missed some of the earlier presentations of points of order, but I should be grateful for your assistance. The Ways and Means Resolution, besides making quite definite and clear the points to which you have just referred in your ruling, also says that the surcharge will be one which is equal in every case to 2 per cent. of the amount of the earnings". How is it that, with those words appearing in the Ways and Means Resolution, an amendment which specifies that for 2 per cent. there shall be substituted 1 per cent. is in order, but amendments which would exempt some people from the impost are not in order? Both seem to me detractions from what is clearly stated in the Money Resolution. How can one escape and another not?

The Chairman

Perhaps I can answer the hon. Gentleman by saying that in a Money Resolution the maximum amount which may be required is always specified, although it is in order for a lesser amount to be introduced by an amendment.

Mr. George Cunningham

Further to the point of order, Mr. Murton. My recollection is that in Money Resolutions and Ways and Means Resolutions words are frequently used which say that a charge shall be introduced not larger than X per cent. or £X, or whatever it might be. This Ways and Means Resolution does not do that. It says quite definitely that the charge will be equal in every case to 2 per cent. of the amount of the earnings". If the amendment in relation to 1 per cent. is in order, I cannot see how it is out of order for us to consider other detriments, although in a different form, exempting some people from the 2 per cent. rather than changing the figure of 2 per cent.

The Chairman

I am informed that in the resolution it is not practicable to state various rates for different types of case.

Mr. George Cunningham

With great respect, Mr. Murton—we must abide by your ruling, whatever it is—but l do not understand the ruling, because there is no intention of having different rates for different people. The Government's suggestion is clear—namely, that the surcharge rate will be 2 per cent. in all cases. But the first amendment which we are to debate seeks to substitute 1 per cent. for 2 per cent. in all cases. That is a departure from the Ways and Means Resolution. There are other proposals which seek to depart from that resolution or to modify the words "in every case".

The Chairman

Perhaps I could explain that it is in order to accept an amendment which reduces the amount "in every case" and it is in order for such an amendment to be debated.

Mr. George Cunningham

Would you say that again, Mr. Murton?

The Chairman

Amendment No. 4, to which the hon. Gentleman is referring, seeks to reduce the amount from 2 per cent. to 1 per cent. It would be in order to debate that amendment because, provided that the figure referred to the words "in every case", it would be in order for that to be debated.

Mr. George Cunningham

The relevant two lines in the Ways and Means Resolution are equal in every case to 2 per cent. of the amount …". It seems to me that there are two parts of that language that different people want to amend. One relates to the words "in every case". Another relates to the figure of 2 per cent. Why is one allowed to amend 2 per cent. but not the words "in every case"? Surely neither has a greater magical quality as being fundamental to the Ways and Means Resolution than the other.

The Chairman

I can only reiterate what I said—namely, that it would be in order for the Committee to debate a reduction from 2 per cent. to 1 per cent. provided that it refers to "in every case".

Mr. George Cunningham

I recognise that, because you have accepted such an amendment as being in order. I am asking why it is in order to modify the figure of 2 to a figure of 1 when it is not in order to modify the words "in every case". Both are of the same degree of fundamentality to the resolution. I shall not proceed on this point, but if this is the practice of the House then in this respect, as in so many others, the practice of the House needs altering.

The Chairman

I can only repeat that the Committee can debate the question of a reduction in the amount.

5.45 p.m.

Mr. John MacGregor (Norfolk, South)

I beg to move Amendment No. 4, in page 1, line 16, leave out '2' and insert 1'.

In listening to the most recent exchanges, I began to think that we would never have a debate on the substance of these provisions. I was as worried as the hon. Member for Islington, South and Finsbury (Mr. Cunningham) that, because of the tight way in which the Ways and Means Resolution has been drawn, a dangerous precedent could be established for all future Finance Bills under which we could have only a Second Reading debate but no Committee stage whatever and no opportunity to amend the Bill or to introduce any other elements into it.

In my opening remarks, I wish to link the discussions about the unseemly haste with which the Bill is being pushed through with the points of order to which the House has just been listening. Such an exercise would help to highlight the points which the Opposition—and also, it appears, some Labour Members—are forced to put forward on this amendment.

Let us look at what concerns the Opposition on these provisions. There is, first, the double standard that has been adopted in respect of the time taken by the Government in introducing the Bill and the time to be devoted to debate. I do not wish to labour the point because it has already been made by other hon. Members. We all know about the speed with which the measure has been brought before the House, but I am equally concerned about the way in which matters have proceeded thereafter.

On Second Reading on 6th December, the Minister of State, Treasury, said this on charities: The fact that the Bill may become law without an amendment will not inhibit us from listening to those representations and considering them in depth, and if it turns out—I make no commitment—that we think that we should accede to them it will be possible to put the matter right before the tax is introduced on 6th April."—[Official Report, 6th December 1976; Vol. 922, c. 147.] What concerns me—and this is a relevant matter because the amendment will help charities—is that the Government do not seem to have taken representations before bringing the Bill before the House and, furthermore, are not prepared to allow the House to put representations. Apparently, somehow or other, they will in some mysterious way accept representations after the Bill has gone through, and then put it right. That seems to me to be a gross double standard, and certainly a disgraceful way in which to treat debates. If we are to accept that the Government may be allowed to do this in respect of charities, why not in respect of other matters?

This leads me to deal with the second double standard, which relates to different interested groups. It seems that Churches and charities are a good thing—and I make no complaint about that because I agree—but that the self-employed and small businesses are not. We have heard no reference to them, and today we are precluded from debating an amendment which would have specifically helped very small businesses. There is a different standard there, and all we can do in debating this amendment, which is to some extent a blunderbuss of a weapon, is to concentrate on its provisions because it is the only way of substance in which we can deal with this matter. All one can say about charities and small businesses in this context is that the amendment will at least help them as well as others.

I turn to the effect of the amendment, which will reduce the surcharge of 2 per cent. to a figure of 1 per cent. In effect, it will reduce the increase in the totality of insurance contributions on employers from 23 per cent. to 11.5 per cent.—it is an 11.5 per cent. amendment. Presumably, the effect of the amendment on the public sector borrowing requirement in this respect broadly will be to halve it or slightly less than halve it. In other words, the effect presumably will be in the region of £350 million to £400 million. I put the figure at £400 million because one of the arguments which I advance in favour of the amendment is that the employment effect will be less as a result of the amendment and, presumably, there will be an impact by that means on the PSBR. The figure of 11.5 per cent. still represents a large increase in the total wage bill to be met by employers. Indeed, it will represent an increase of 11.5 per cent. on their insurance contributions.

So much for the effect of the amendment. I turn to the reasons why we put it forward. If we cannot get rid of this iniquitous measure altogether, let us seek to alleviate its harmful effects.

First of all there is the impact on all employers. The point was made in the Second Reading debate that since the measure was first announced on 22nd July, the economic circumstances surrounding all employers have changed substantially. Originally the Government argued that the surcharge would not have a serious effect on emloyment, prices or general economic prospects because there would be a significant upturn in the economy by the time the effects worked through after next April. But since then we have seen a deterioration in the economic situation. We have seen uncertainties about whether world trade will turn up in the way the Government hope. Although the President-elect of the United States intends to reflate the American economy there are doubts about the extent to which he can do so and about the impact this will have on world trade.

The downturn in growth in the United Kingdom economic prospects must be clear to any hon. Member who has talked to companies. We now see that expectations for price increases are much greater, not least because of the depreciation of sterling. Although the expectation now is that prices will rise faster than expected on 22nd July, that does not mean that it will be any easier for employers to pass on the effects of this measure. Indeed, it will be harder because the effect of the higher rate of inflation next year means that there will be less consumer demand, tighter competition, and much less scope for passing on price increases.

Then there has been the significant increase in interest rates, which has contributed to the deteriorating confidence in British industry. There is also the uncertainty about the proposed price increases by OPEC countries. It is not surprising that, compared with three months ago, employers who are asked about their prospects and plans for the next 12 to 18 months now say that they are waiting to see what will hit them next. There is a tremendous lack of confidence.

Even since the Second Reading debate there has been a new impact on employers which was announced yester day—the new national insurance increases. The effect of this on employees is concentrated on that group with whom the Chancellor claims to be so sympathetic, namely the middle management, because the increase does not affect anyone earning less than £95 a week. This means that a very large part of the salary increase these people received under this year's phase of the pay policy will disappear in the increased national insurance contribution. Leaving that aside, there is the effect on employers which is highly relevant to this measure.

Admittedly, the intention to introduce the surcharge was announced some time ago, and it does at least relate to the National Insurance Fund. Nevertheless, a large number of employers are not conscious of this new imposition on them from next April and they do not appreciate the effects of this increase together with the national insurance increases. I understand that another £380 million, on top of the £950 million, will be added to employers' bills next year as a result of the combination of these two measures. I cannot believe that this will not have a significant effect on their cash flow given the economic circumstances which I have described. The combination of this measure and the new national insurance increase announced yesterday will add substantially to problems related to cash flow and this will affect profitability.

Then there is the impact on retailers. On Monday the Minister of State tried to deal with this in the debate. He said: The position of distributors is different because the Price Code does not permit them to increase their prices solely on the ground that their overheads have gone up. However, the cost of the goods that they sell will have risen because of the surcharge and distributors will be permitted to add their normal mark-up to these increased costs. The position about the surcharge is no different under the Price Code from what it is in relation to other costs."—Official Report, 6th December 1976; Vol. 922, c. 148.] That is very small comfort for many distributors. It takes no account of the fact that in many cases their total turnover has gone down, and it is not a proper answer to the criticisms they have made. I have talked to the management of a large distributor company today and they are greatly concerned about this matter. These measures will have substantial effect on the large companies—direct mail, mail order and retail—and therefore, they will bear even more heavily on the small ones.

I do not think that the Government have given us a satisfactory answer about the effect of the measure on local authorities. We know that 61 per cent. of the total increase will be handed back through the rate support grant, but the extra element still has to be obtained from the ratepayers. If the amendment is passed it will alleviate the burden on local authorities.

The Government should also answer the question on nationalised industries which was posed by the hon. Member for Thurrock (Dr. McDonald) during the Second Reading debate. She has an amendment on this matter on the Order Paper, because she received no answer earlier in the week. At least her amendment will help the nationalised industries.

We must consider the general position of profits and prices and the effect on companies. I believe that the Government's general case so far is quite inadequate. On prices the Financial Secretary said during the Second Reading debate that he expected that the bulk would be passed on over a period. He said that there would be no substantial immediate effect as would be the case with a VAT increase. I urge him to tell us over what period the bulk will be passed on. I think that the Financial Secretary is trying to have it both ways. He says that in the short term there will be no significant effect on the retail price index but in the long term the bulk will be passed on. I think that much less will be passed on, and that the effect on profits will be more significant. Here again the amendment would help on prices.

As far as profits are concerned, I know that companies can offset the increased charge against corporation tax but many companies pay nothing like 52 per cent. corporation tax because of investment allowances and so on, and therefore there will not be a 52 per cent. offset for them. After corporation tax is taken into account the Government expect £950 million revenue to come from this measure. That figure shows what the effect will be on companies.

We had a very interesting argument from the Minister of State about profits when he quoted a brief extract from Phillips and Drew. That firm estimated that profits of industrial companies would rise by 20 per cent. It is fascinating that the Minister of State should rely on that firm rather than on his own Treasury forecasts. That does not give anyone very great confidence. Although Phillips and Drew is a very reputable company, there are many other views about profits next year, and it seems extraordinary for a Minister to relate his case entirely to the view of one stockbroking firm.

The Minister argued that because profits would increase by 20 per cent. there was plenty of slack to cover the surcharge. I think that he has taken no account of the very low base from which this increase begins. From memory I say that the broad figures are that the rate of return on capital has declined from about 13 or 14 per cent. in the early 1960s to less than 4 per cent. now. That is, by a very long way, an inadequate rate of return if we are to get the confidence, investment and growth that we all seek.

We have therefore, to face the fact that there must be an increase in profits not of 20 per cent. but of something very much more to get back to the levels which even the Financial Secretary will admit are necessary. For this reason I did not find his point about a 20 per cent. increase persuasive.

6.0 p.m.

There was another point to which the Financial Secretary did not give me an answer on Monday evening. It is that when we have the new inflation accounting system we shall see the true level of profitability in British industry. I know that we shall not see that next year, but from many of the estimates and calculations which have been done it appears that the figures we shall see then will not be realistic but that the true profitability of British industry will show through in the following year. The Financial Secretary took no account of that point. If he is to rest his case upon the suggestion that profits may increase by 20 per cent. next year, his case must be very weak indeed.

There must therefore be considerable doubt whether the Government are right in their forecasts and general beliefs about unemployment, prices and profits. I believe that they are engaging in guesswork, and we would see whether they were right but for the fact that the impact of this measure will be clouded by the IMF loan measures, which we are about to debate, and which will equally have an effect on unemployment, prices and profits.

I believe that the amendment would help the problems of unemployment, prices and profits. I accept that there would be a substantial effect on the public sector borrowing requirement, but it would be very much less than getting rid of the Bill altogether. I calculate the effect to be somewhere between £350 million and £400 million. It would be easier for the Government to seek genuine savings from the waste in current expenditure in the public sector, which they should have sought in the first place, than it would be for them to throw the Bill out altogether.

The amendment has much to be said for it, if we cannot get rid of the Bill completely. It will help to shift resources back to the productive sector of employment, whether in the public or private sector. It will produce a reduction in the proportionate share of the burden assumed by that productive sector. Until we can get a real shift back it will be right to call measures such as this—as my hon. Friend the Member for Guildford (Mr. Howell) described them—as the job destruction programme. At least my amendment would help to mitigate the effects of that job destruction.

Mr. Ian Stewart (Hitchin)

My hon. Friend the Member for Norfolk, South (Mr. MacGregor) moved the amendment with his usual skill, and I hope that the occupants of the Treasury Bench will take careful note of what he said.

It is wrong that only in this way should the House be able to consider the impact of the proposed surcharge on any of the categories to which it will apply in terms of the rate at which it is to be charged. Obviously a 2 per cent. surcharge is a considerable amount of money. Certain figures were quoted when the Chancellor first introduced the measure in July, and slightly revised figures were given on Monday, but I wonder whether we have yet had the right figures on which to consider the impact of the surcharge. On Monday we heard comments from the Financial Secretary and the Minister of State about the impact. The Financial Secretary said: The Bill provides that the surcharge will be paid by employers from 6th April next year on the same basis as that on which they pay national insurance contributions in respect of their employees. It will apply, that is to say, to earnings under £95 a week."—[Official Report, 6th December 1976; Vol. 922, c. 33.] But the next day, tucked away in the Written Answers, the Secretary of State for Social Services said: I am required under the Social Security Act 1975 to review each year the general level of earnings in Great Britain and to consider what changes in national insurance contributions need to be made in the light of movements in earnings and other relevant factors. In fulfilment of this obligation, I have today laid a draft order which requires the approval of both Houses, setting out revised rates and earnings limits to take effect from 6th April l977."—[Official Report, 7th December 1976; Vol. 922, c. 156.] In other words, within 24 hours the whole process on which the House had been led to understand that the yield of this tax was related to a maximum limit of £95 in earnings per week had been changed. What was the basis of the Financial Secretary's calculations on Monday? Had the Secretary of State bothered to mention to the Financial Secretary that he had it in mind to change the figures and to produce higher ones? One would expect an uprating to be made at this time of year, and it surely must have been in the mind of the Financial Secretary when he produced those figures.

The juxtaposition of the Second Reading debate and the financial information provided in it on Monday, and the announcement the following day of the rate at which it is to apply next year, when the surcharge is first to come into operation, seems to make nonsense of any opportunity this House has had to consider the rate at which the surcharge is to be levied and the revenue that it will produce.

Are we to understand that the figures given to us on Monday for the gross yield and the net effect on the public sector borrowing requirement were related to assumptions about a £95 per week maximum? Were they stated to relate to that, but calculated on rates which the Financial Secretary knew his right hon. Friend would be announcing within 24 hours? If not, may we have updated figures this afternoon? Is it not late in the day for us to consider fundamental questions of yield on a tax like this, when a major announcement relative to the consideration of the rate and yield is made on the one intervening day between Second Reading and the remaining stages of a major piece of tax legislation?

So we should consider all the more urgently whether the rate of 2 per cent. is supportable by all those on whom it is to be charged. The hon. Member for Islington, South and Finsbury (Mr. Cunningham) had exchanges with you, Mr. Deputy Speaker, about the way in which the Ways and Means Resolution has been tabled. Our procedures permit us only to discuss the rate and not the applicability of the tax. The only way in which we can consider its effect on those to whom it applies is in relation to the rate itself.

I therefore believe that my hon. Friend the Member for Norfolk, South was justified in raising again the question of the impact of a 2 per cent. rate with its very large yield, which, by definition, will have a very high impact on small businesses, on industry, on churches and charities, and so on, next year. It is difficult to believe that if the Government intended, in July this year, to impose a 2 per cent. surcharge from which they would exempt, by some technical means, Churches and charities, they started to think about the problem only on Monday of this week. I simply cannot believe in the Government's good faith. They have left it too late to consider ways and means of achieving this. Yet, if the rate was 1 per cent., it would be much less difficult for charities, and although it would be a heavy impost it would be less damaging to them and to those they employ. The same applies to the impact of this surcharge on industry and those in industrial employment.

Since July—as is now well known to everyone, it seems, except the Treasury forecasters who always wake up to these things about six months late—there has been a fundamental change in economic circumstances. It has not all originated in this country. I accept that much of the change has been caused by changing circumstances in the world at large. But can it be right that the economic and financial strategy involving a 2 per cent. surcharge, which was thought right in those hot days of July, still applies with the same force in the chill of December, when we know that all the forecasts made at that time have gone wrong? We know that many sectors of the economy have experienced new and in some cases unacceptable difficulties, and that the whole outlook for the coming year has changed.

That outlook has largely been changed by the Government themselves. They have been unable to keep to their money supply targets, because of their own improvidence. They have spent all the money themselves, and have had to deny money to the private sector. They have put restraints on bank lending which will have an effect on the level of company prosperity and profits in 1977.

Mr. Tom Litterick (Birmingham, Selly Oak)

I have followed the hon. Gentleman's argument with interest. I agree that the circumstances have changed. Does the hon. Gentleman agree that this change is not peculiar to Britain, or the British economy? In fact, there has been a marked change in the economic prospects of every economy throughout the developed world. Heads of State and Prime Ministers in Western Europe and North America have made the same statements about the change in circumstances. Does the hon. Gentleman agree that it is not something peculiar to Britain?

Mr. Stewart

I accept everything that the hon. Gentleman said. I thought that was what I said myself. I said that there was a change not only in this country but also overseas. To that extent, much of it was outside the Government's control. I readily admit that.

I was also trying to make the point that there were certain events within the Government's control. To that extent it was a matter for them to consider in the light of their whole economic strategy. That is a fair point to make, whether it comes from hon. Members below the Opposition Gangway or from myself.

I shall take my argument a stage further, and I hope that I can carry the hon. Gentleman with me. We are now approaching a fundamental reappraisal of the balance of the economy, the amount of money raised by taxation, and the incidence of taxation between direct and indirect taxes. No doubt surcharges like the insurance contribution are all part of it. At this moment the Government are actively trying to weigh up the relative merits and demerits of a different mix of cuts and taxes, and so on. The Opposition are generously seeking to give the Government another opportunity for a little more flexibility in their decisions by having the chance to reconsider the level at which this so-called National Insurance Surcharge—thought up so long ago, in economic terms—is to be levied.

6.15 p.m.

The Government cannot have ignored the consequence when they have been thinking about the package which they will produce in the hope of satisfying the IMF, our international creditors and financial opinion. An amendment relating to the proposed rate of surcharge would be a blessing to the Government. It would give them an opportunity to reassess whether the full rate of 2 per cent. impost is justified in the light of changed circumstances without climbing down from the principle. However, the exact rate is a matter for the Government. So long as they can carry the Committee on an amendment such as this, it gives them the chance to say that although being imposed at a rate of 2 per cent., it is something that will have to be reconsidered if circumstances change in future.

One cannot believe that an impost of this sort is meant to be a tax for all time. After all, taxes are reviewed annually in the Budget and I think this one ought to be as well. It was introduced in a sort of mini-Budget in the summer without a Finance Bill. Already, sufficient time has lapsed and there has been sufficient change in economic circumstances to make it not only suitable but necessary for the Government to reconsider the rate at which this surcharge is to be imposed.

The fact that the Government are compressing consideration of the Bill into these few days, and the fact that by next week a major package of measures is bound to be put before the House, makes it nonsensical to consider this measure in isolation from all the rest.

The fact that no change in the 2 per cent. rate has been made since July suggests that the Government have gone blundering on, as they have with all their economic measures, oblivious to the changes which have taken place by the lapse of time. Is it not right that in contemplation of next week—much better still, in conjunction with next week's measures—the opportunity should have been taken to consider the effect on businesses, let alone the difficulties that have come to light in respect of Churches and charities? All this should have been reconsidered at one time.

I return to a point that I made earlier. It is about the draft order that was laid before the House yesterday by the Secretary of State. He said: I have today laid a draft order which requires the approval of both Houses."—[Official Report, 7th December 1976; Vol. 922, c. 156.] Does that approval have to be sought? I do not know whether we were innocent enough to believe it, but we were told that the reason why the Bill had to be streamrollered through the House of Commons on Monday and today was that if we left it a moment later the Government would not have time to fiddle their calculators and print off the tables. If they are presumably to build in a lot of different figures to the order presumably they will have to tear up all the figures that they had on the stocks and started off with. If that is not the case, why can they not reconsider the rate next week, when we have the whole of the economic package to consider?

This measure is being forced through the House for utterly specious reasons. Those specious reasons have been brought forward solely to justify getting the Government out of a tactical spot because they have brought in a measure which is clearly no longer at a proper rate. They do not want it to be mixed up with consideration of the fundamental issues of the economy that affect it.

They want it out of the way before next week, so that they can say to the IMF "Bravo. We forced through another £1 billion of irrelevant taxes last week. You will not try to make us force through any more irrelevant taxes, will you?"

We must consider the whole strategy in the context of next week's measure. That is the real slip in the Government's tactics, and is the explanation arising from the Secretary of State's statement, that the new rates at which this surcharge will apply have not been approved by the House. They have to be approved by the House. They will not be approved by the House today. Therefore, the whole case for forcing through the Bill containing this particular rate, suggested so long ago, is a load of old boloney.

Mr. George Cunningham

I want first to apologise to the hon. Member for Guildford (Mr. Howell), because on Monday evening at the end of the Second Reading debate, in the course of his winding-up speech, when he gave a number of figures for the likely effect of the Bill on a number of charities which he named, I intervened to question whether his figures could possibly be correct. I did so on the ground that the figures he gave for the savings would occur only if a charity had a wages bill in the region of £5 million or £6 million. I doubted—I still look on it with some disbelief, but it is true—whether those charities would have a wages bill in the region of £5 million or £6 million. I have not checked all the cases, but I have checked Dr. Barnardo's. I understand that its wages bill is running at about £6 million a year. Therefore, cost of the order which the hon. Gentleman indicated, and perhaps slightly higher, will be the consequence of the Bill. I apologise to the hon. Gentleman for questioning the figures that he then gave, which were absolutely correct.

Mr. David Howell

I am very grateful to the hon. Gentleman for what he says. I appreciate it very much.

Mr. Cunningham

Secondly, I must say that the practice of Governments in bringing forward usually Money Resolutions but in this case a Ways and Means Resolution so tightly drafted that we cannot have consideration even of very germane amendments—amendments that are absolutely fundamental to the very spine of the Bill—must stop. Once the Government have brought forward a tax and the House has passed it, the responsibility for anything wrong with that tax passes from the Government to those of us who voted for it. Therefore, as one of those who voted for it, I must tell the Government that if they do not stop this practice they will have to be stopped because it makes nonsense of the proceedings in this place if we are prevented from discussing the amendments which naturally occur and which would be very natural ones to consider in the course of passing the Bill.

I hope that that consideration will be taken on board in the course of preparing Money Resolutions and Ways and Means Resolutions for the future. It is not a question only for this Government. All Governments do it. It makes life much easier for them. If they are to go on being insensitive to the requirements of the House in that respect, they will have to be stopped by the use of the power of the House, whether legitimate, by means of voting, or by the dirty tricks, by means of obstructing other business which normally goes through the House on the nod.

The proposal to put a 2 per cent. tax on top of the national insurance contribution is one which in the normal way I should be deeply opposed to, partly because I think it is important for the national insurance contribution to be, and be seen to be, a contribution for the benefits that come out of the National Insurance Fund. Not all hon. Members share that view. The Liberal Bench, now empty, has frequently argued that we should get rid of the National Insurance Fund concept and instead fund national insurance benefits simply out of taxation.

On that argument, Liberal Members cannot object to the mixing up of a revenue-raising device with the national insurance contribution. It is important to distinguish between the two in order to bring home to people just how much it costs to provide them with national insurance benefits, and particularly the retirement pension, which is the most expensive one of the lot. They do not understand it very clearly at present, but they will never understand it if, in addition to the normal national insurance contribution, there is a bit that does not go into the National Insurance Fund, which is not required for or used for the benefits but is syphoned off to the Consolidated Fund as a normal tax.

However, I am prepared to accept that in present circumstances this is an extremely cheap way of raising a lot of money—a cheap way in the sense of being one which I should have thought cost practically nothing to collect, in that it is as easy to calculate 10¾ per cent. of a figure as it is to calculate 8¾ per cent. of a figure. It raises much more than could so cheaply be raised by any other form of taxation. Given the need to bridge the gap—or at least close it a bit—between revenue and expenditure, it seems to me that in present circumstances this device is perfectly honourable, honest and reluctantly, acceptable. I should have preferred it if it had been an explicitly temporary measure, however. It should have a self-destruct built into it because of its basic offensiveness. I hope that we can be told that the Government are not committed to the maintenance of this device in perpetuity but will give it up as soon as—within the next two or three years, say—other means can be found to raise whatever money needs to be raised by more conventional means.

As for the difficulty about charities, I wonder whether we can be told whether the law as it exists could be used to exempt charities and Churches from the burden of the Bill. For example, I think that ministers of religion who would under the normal provisions of the 1975 Social Security Act be treated for national insurance purposes as employees, because they pay Schedule E tax and not Schedule D tax, were switched to being regarded as self-employed persons for national insurance purposes by means of a regulation made by the Minister, taking effect, I think, in April 1975, under the powers conferred by the 1973 Social Security Act.

If I remember correctly—I have not been able to put my finger on the provision at short notice—the 1973 Act, now consolidated into the 1975 Act, gives the Minister a power to make regulations providing that although, in the normal way, such and such a category of people would be employees, they will be treated as self-employed, or vice versa. The Minister has the capacity, by regulation, to switch people between the various categories of earners. I do not know, but it just may be possible to get round the Churches' difficulties temporarily by continuing to regard ministers of religion as self-employed people for the time being. Certainly, if I were the Archbishop of Canterbury, and more so if I were one of his financial advisers, I should want to extend the position in which ministers of religion were regarded as self-employed people for this purpose for a bit longer, given the severe impost that will otherwise rest upon the Church.

Mr. MacGregor

That is an ingenious proposal, but is it not a fact that ministers of religion could not be classified as self-employed for this purpose only, but would have to be so classified for all purposes?

Mr. Cunningham

I think so, under the provision that I was thinking of when I said those words. But what do they lose by that? They lose the possibility of unemployment pay, which probably they very rarely draw, and the benefit of the earnings-related supplements. Given the earnings of most ministers of religion, that probably does not amount to much. I should have thought that, on the whole, it was in their interests to be treated as self-employed, if the only reason why the Government have, I understand, been pressing them to regularise the position and accept employee status is that it is the normal thing for people who pay tax under Schedule E.

The whole idea of the 1973 Act in this respect, to have people treated as employees or self-employed people for both purposes, was not to have an untidy situation such as existed before. Given this additional difficulty of ministers being categorised as employees, it would probably make sense for the Church to seek to continue the position whereby they are regarded as self-employed for the time being, while this 2 per cent. surcharge exists.

There is another section of the 1975 Act, Section 2(1), which perhaps could be used. It says that: Regulations may provide (a) for employment of any prescribed description to be disregarded in relation to liability for contributions otherwise arising from employment of that description". It appears that that could exempt prescribed categories of people from the 2 per cent. contribution without exempting them from the 8¾ per cent. contribution. I have no doubt that such a thing was not in the minds of those who drafted the Bill, but it does seem that there is a wide power for the Minister to exempt any category of employment from any obligation to pay a contribution under the Act.

It might be held that that constituted an authority to exempt any category not only from the whole contribution but also from part of the contribution. I hope that the Minister will look at the law as it exists, because we cannot amend the Bill in this respect. I hope that he will consider whether it is possible either to find a means of exempting charities and Churches from the obligation to pay the 2 per cent. contribution, or to find some way of making a refund of the money after it had been paid.

6.30 p.m.

Mrs. Margaret Bain (Dunbartonshire, East)

Like the hon. Member for Norfolk, South (Mr. MacGregor), who moved this amendment so eloquently, my hon. Friends and I oppose the Bill and, we intend to go through the Lobby with him. The amendment is at least an alleviation of the effects of the Bill. My party takes the same attitude to this Bill as to the devolution Bill which will come before the House next week. Half a loaf is better than nothing at all, and this amendment will, at any rate, alleviate the situation.

I was bemused when the hon. Member for Islington, South and Finsbury (Mr. Cunningham) said that this was an easy way for the Government to raise finance. It may be easy and straightforward, but the hon. Gentleman pushed aside the whole question of the price to be paid by the community for that ease. He should refer to the closing stages of the Second Reading debate on Monday.

The hon. Gentleman would discover that the Minister of State, Treasury, said that the effect of this tax on employment will be 10,000 jobs lost by the end of the fourth quarter after the introduction of the tax."—[Official Report, 6th December 1976; Vol. 922, c. 149.] I am surprised that a member of a party which campaigned on the slogan "Back to work with Labour" can say so glibly that this measure will keep people out of employment and yet not come with us to vote against it.

Money should not be taken from employers in this way, but left with them, so that they can invest to maintain employment that is desperately needed. In my constituency employers have advertised for one apprentice and received 60 applications, including some from people with university degrees in engineering who have found that no employment is available. We shall not gain employment by taking away money which should go back into industry to create investment throughout the whole country, not just in Scotland.

I want to emphasise, as I did on Monday, that small businesses will be badly hit. Money lending rates are high, and costs for all small businesses are so great that increasingly they are being forced to close up shop, thus creating unemployment. This is particularly important in Scotland, where there are so many small companies.

My party will oppose any measure which will make things more difficult for small businesses and I recommend my hon. Friends to have no hesitation in supporting the amendment. I hope that some of the hon. Members opposite who criticised the Bill on Monday will have the courage of their convictions tonight and go into the "No" Lobby on Third Reading.

Mr. George Younger (Ayr)

I should like to add my voice to that of my hon. Friends and to that of the hon. Member for Dunbartonshire, East (Mrs. Bain) in attacking the savage effect which this imposition will have on small businesses. It is a shabby measure.

In the summer the Government found themselves in need of revenue and they cast around until they found an area where it would cause least embarrassment at that time. They found business and industry which do not, directly, have votes, and put the imposition on them, thinking that this would have the least impact upon the Government's popularity.

The trouble is that the Government, in doing this sort of thing, talk about industry as a large number of huge concerns. There are hundreds and thousands of employers without huge departments and staffs to maintain their financial affairs. The Government imagine that all these impositions go through the books and after several months, or even longer, come out in increased prices to the consumer. The trouble is that this Government still have not realised that the vast majority of businesses in this country are very small, although they account for well over one-third of jobs. These are businesses of all sorts. They range from farms to fishing boats, shops, engineering works and factories of various kinds.

I want to impress upon the Minister that this imposition may appear innocuous, but the majority of small businesses are already battered and bruised by the effects of incredibly high inflation, soaring rates and costs, and the effect of the Price Code, which prevents employers from passing on costs by way of prices as quickly as they may need to in order to recoup extra costs. Many of these small firms are already struggling and many are on the verge of extinction.

If the Minister thinks I am exaggerating, I shall illustrate my argument by telling him about a meeting in my constituency last weekend. It was attended by small business people from the area. They expressed to me, in the strongest possible terms, that I should try to bring home to everyone in Parliament the fact that these businesses are now facing severe difficulties. Yet this measure, which the amendment seeks to alleviate, imposes on such businesses an extra 2 per cent. on their national insurance contributions. The amendment has only the modest aim of reducing this severe imposition by half.

I want to illustrate to the Minister what this will mean to small businesses. An employee on less than average earnings, about £50 a week, will cost his employer an extra £52 a year.

I know of one small business, a dry cleaner's—obviously, I shall not mention the name of the firm—which is suffering from severe difficulties. The company came to me for help recently because the recession had caused a drop in the use of its services and because it faced rising costs. This firm employs 20 people, with average earnings, since many of the staff are part-time, of about £50 a week. The extra amount which will have to be paid each year by that company because of this imposition will be over £1,000. That is the difference between life and death to this business, which is already facing possible extinction.

This imposition will, beyond the slightest shadow of doubt, throw a considerable number of small firms out of business. As a result, it will throw a considerable number of people on to the dole. Therefore, the amendment, which seeks to halve the effect of the imposition, is one that we should take seriously. It is a great pity that, because of the way in which the Ways and Means Resolution is drawn, we cannot talk about exceptions for certain categories of business, but at least we can use the lowering of the rate as a sort of blunt instrument to help those who will be hardest hit, as well as those who have more strength to resist the difficulties.

I hope that the Minister will explain how the impact of this surcharge on Churches and charities can, if he so decides, be put right later. How can it be put right when the Bill has been enacted? Can he take action by an order or will there have to be new legislation if it is found necessary to exempt some categories?

The Minister should tell us not only that he will listen to representations and deal with any difficulties later, but satisfy us on the means to be used for this purpose and explain whether we shall be able to take part in the process of deciding those means. Our constituents are daily making further representations.

The amendment ought to be welcomed by hon. Members on both sides of the House. The Minister can be assured that if he accepts the amendment he will save a considerable number of jobs and avoid considerable additional costs to the Exchequer.

I hope that the Government will not again resort to this method of raising extra money when they have difficulty in raising revenue—as they seem to have every month. It is a shabby way of raising revenue, and is imposed on people who are already under great pressure and severe difficulties.

Unless we nurture these small businesses and avert from them extra impositions which will make life intolerable for them they will start going out of existence by the dozen in every constituency. The House is thoroughly disgusted with this measure, but this amendment would at least go some way to alleviate its effects.

Mr. Ted Leadbitter (Hartlepool)

I indicated on Second Reading my concern about the effect of this Bill on industry and the public utilities, and gave various examples of what happens when legislation is brought forward in haste in this way.

After years in the House, it is to me a remarkable experience to be discussing a Bill of this magnitude and for there to be only three selected amendments on a measure which affects every employer in the United Kingdom, every business, and charities of all kinds, and which seems to have been brought forward without the slightest consultation with any of the interests involved. That cannot be good government. I agree with my hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham) that, in the light of our proceedings this week, the House must, some time, make up its mind to call a halt. In the light of parliamentary procedures consequential upon our membership of the Common Market and certain Government practices we must seek ways to take back some power to ourselves in order to prevent us from becoming a rubber-stamp Chamber.

The current economic situation puts us in a dilemma. It has been suggested that the Bill is a cheap way of bringing in revenue, but the use of employers as tax collectors should not commend itself to reasonable people. We have seen this development in the operation of VAT. Do the Government not understand the heartache, frustration and despair felt by many small employers as they attempt to meet their quarterly VAT demands and do it for the Government for free?

We should watch this tendency. If there are stresses and strains in this building, we must remember that there are excessive stresses and strains outside among people who find it very hard to keep up with the amount of paper work required to meet Government demands.

6.45 p.m.

The Government attempted to ease the minds of hon. Members by saying that this measure would be spread thinly and uniformly throughout the economy and that there would be no discrimination. That sounds very nice; but it is unreasonable in a mixed economy where there are differences between regions, different conditions of trading between employers, and different demands upon business, industry and the public services. There have been attempts to persuade us that there is merit in spreading the effects of the Bill uniformly, but the consequences will be very different from those forecast by the Government.

I have been thinking carefully about how I should vote, for the Government must take into account that hon. Members have been unable to make reasoned contributions because they have not had time to think through the consequences of the Bill. No debate can make sense if we seek to examine a Bill by intuition, and seek to suggest amendments on the basis of personal experience, but without all the facts We have little information before us and we do not really know the effects on individual employers and charities.

I suspect the Government do not know either. They have mentioned global sums, and referred to £900 million coming from the private sector, £400 million from the manufacturing sector, and rough calculations of the amount which will have to be paid by local authorities, who will, however, have a clawback of about 60 per cent. in the rate support grant. There has been no information about the detailed effects. The House is uninformed and we must, therefore, act on intuition.

I suggest that the Government may be faced with increased unemployment as a result of this Bill. As I said on Monday, an employer who faces increased costs because of this 2 per cent. tax—which is a misuse of the National Insurance Scheme procedures—and who wishes to keep his carefully calculated overheads at the same level in order to remain competitive may have to put people out of work.

It seems, therefore, that in areas of high unemployment, and in regions such as mine, also Scotland, Merseyside and Wales, we shall be placed in the unhappy position, with an already heavy and burdensome public cost of maintaining 1½ million unemployed, of adding to those social costs, knowing full well that we might have avoided that situation if we had taken time with this legislation.

I hope that this hasty method of producing this kind of measure will be stopped, and that the Government will realise that neither the Treasury nor the DHSS has any crystal ball. I do not think anyone in those Departments has any greater expertise or experience than can be found in the House of Commons when we have to discuss matters like these and how they affect the general public. I suspect very much that the House of Commons has more sense in these matters. Therefore it should be given the time to give the proper kind of advice to the Government.

Dr. Alan Glyn (Windsor and Maidenhead)

I shall be very brief, Sir Meyer. I am surprised at being able to endorse just about everything said by the hon. Member for Hartlepool (Mr. Leadbitter). This is a major fiscal measure. It is an extraordinary way of raising money. I know that one has to be very careful in speaking to this amendment, which I commend my hon. Friend the Member for Norfolk, South (Mr. MacGregor) for bringing forward. It gives us an opportunity to talk about the effect of the Bill. This may be an easy way of raising money, but is it a desirable way? The answer, as the hon. Member for Hartlepool said is "No". I do not think this is the way to raise money to please the IMF.

If the amendment is accepted it will at least reduce the impact on a very hard-pressed section of the community—the small business man. He is already called on to produce a great deal of money. The Bill will particularly hit those small businesses with between five and 50 employees, which are finding life very difficult. If the amendment is accepted they will find life only half as difficult.

It is very undesirable that this extra 2 per cent. contribution will have to be borne by Churches and charities. I am glad the Minister is listening. I think he told us that he might find some way of dealing with this point. We know what the Prime Minister's reactions have been. We do not need to spell it out. His refusal to see the Archbishop of Canterbury was a most unusual step, in our constitution.

At least my hon. Friend's amendment does something to reduce the effect of the Bill, which will have a very serious impact on employment in small businesses which are, as the hon. Member for Hartlepool rightly said, once again being called upon to be the tax collectors for the Government. This is not the right way to proceed. This is a hasty measure, and neither the Churches nor charities will thank the Government for it.

The Financial Secretary to the Treasury (Mr. Robert Sheldon)

In my response to the contributions that have been made I shall start by commenting on the speech by my hon. Friend the Member for Hartlepool (Mr. Leadbitter). He made two important points that certainly need to be closely examined. He referred to the problems of unemployment—to which shall be referring later—but on the other point I think I can offer him some assurance. That matter concerned the burden falling on the smaller businesses and smaller employers, and the paperwork that my hon. Friend is worried about as a result of the introduction of this legislation.

The idea behind the legislation was that it would be purely a surcharge on the national insurance contribution. I do not seek to deny that it is a form of taxation, but it is a form that is operated in an easily administered manner, just by making a surcharge on a national insurance contribution. The extra paperwork for the small employer or any employer is quite minimal, whereas the problems for the small business man in operating VAT produce a number of complications of the kind which my hon. Friend described, including the need for quarterly returns. This will not be the case with the National Insurance Surcharge. It will be a purely straightforward surcharge on the contribution. This was one of the major attractions, for reasons which I shall be going into.

The debate started with the hon. Member for. Norfolk, South (Mr. MacGregor) dealing with the problems of the self-employed and small businesses. I am sure that was an error and an oversight on his part, because he must realise that the self-employed are not involved. Small businesses will find that this measure will be rather easier than perhaps most of the practicable alternatives that might have been introduced, for the very reason that it does not bear heavily on any particular sector. Being a very broad-based tax—about as broad-based a tax as one could reasonably introduce—its impact on any particular type of business or any particular part of the industrial or commercial sectors will be much reduced.

Whereas some taxes can have very heavy and sometimes damaging effects on certain businesses, this one, being widespread, is unlikely to have a difficult impact on specific industries. That is one of the reasons why we are introducing it. Other reasons are to obtain a reduction in the public sector borrowing requirement of about £700 million as a result of the revenue arising, and its low burden upon individual organisations because of the very wide base of the tax.

Two further advantages that we saw were the effect on prices, which, as I indicated on Second Reading, will work its way through very slowly, and at a level much below that of the alternative methods of raising tax, and the unemployment consequences, being much less than those to be expected from any of the alternatives. Of course we cannot be complacent about any projected increase in unemployment, but the basic fact is that if we attempt to take out of the economy large sums of money, such as those involved in this legislation, we cannot escape from the consequences of a reduction in demand and increases in unemployment which immediately arise therefrom. The only thing we can say is that they are very much less as a result of this measure than they would have been in the case of a number of the alternatives that we have looked into. If this had been a direct tax, the increase in unemployment would have been much higher. As for achieving our object by public expenditure cuts—I was interested to see that in the Second Reading debate the hon. Member for Guildford (Mr. Howell) promised to cast off his last veil and tell us what he would cut, and then sat down fully clothed. Perhaps as time goes on we shall get closer to it.

Mr. John Nott (St. Ives)

Tomorrow.

Mr. Sheldon

Tomorrow, perhaps—but like many tomorrows, tomorrow is a day that never comes for some.

7.0 p.m.

The consequences of the amendment would be that so far from the surcharge raising £950 million in 1977–78, the figure would be cut by half. There would be a reduction of £475 million in the revenue receipts; revenue that is needed if we are to implement the policies of last July. Clearly, that is a sum of money that is so enormous that we cannot accept an amendment of this kind, the consequences of which would be very serious.

There is also the problem of failure to reduce the public sector borrowing requirement—a failure to the extent of £350 million. That is half of the projected £700 million by which the PSBR would otherwise have been reduced. The major financing problem of the high PSBR would be with us at a very serious level.

The hon. Member for Norfolk, South referred to the effect upon local authorities. He said that he had gone into this matter with some care and that he understood that 61 per cent. of the surcharge would be met from the rate support grant. He is quite right in that. What would not be met would be the 39 per cent.—that is, 39 per cent. of the 2 per cent. That would be payable by local authorities. I would not wish to minimise the consequences. I merely present the figure for what it is.

The hon. Member accepted that the increase in the profitability of companies might very well reach the 20 per cent. that is projected by Phillips and Drew. He further pointed out that profitability, as he saw it, was too low, and that this increase would be needed for reasons other than paying the surcharge. However, as I mentioned on Second Reading, with some care, it is my belief—I still believe this to be true—that the bulk of this surcharge will work its way into prices. The hon. Gentleman is right when he says that there are consequences for unemployment. The surcharge cannot totally be passed on in prices, and part of it will be passed into unemployment. I have accepted that, and I gave the figure of 10,000 jobs, which is much less than the figure would be with any other method of raising such sums. Part of it is likely to come out of profits. However, again I believe this to be a very small effect. When one considers the 20 per cent. increase in profits as quoted by Phillips and Drew, one can appreciate that this is a relatively small aspect of a problem that is much larger.

Mr. MacGregor

In regard to the Minister's previous point about local authorities, even taking the point about the rate support grant, the plain fact is that in my own county council in Norfolk, for example, this will add an extra £390,000 to the cost on the rateable element. When county councils and other local authorities are being forced to make very big cuts in school programmes and all sorts of things, such extra sums make a very big difference.

Mr. Sheldon

I understand that. I have not sought to conceal that it will impose a widely-spread burden over all areas of the community, whether in local authorities, businesses or elsewhere. The point that I have sought to make is that being a small element over such a very large base, the problem for individual areas of our economy is likely to be less concentrated and so more readily endurable.

The hon. Member for Hitchin (Mr. Stewart) asked whether the yield from this surcharge was related to the new national insurance earnings limits which have recently been announced or whether the figures had been computed by reference to those that are currently in force. The figures are based on the new limits, and so take account of most of the likely effects that we shall see during the introduction of the measure.

Mr. Ian Stewart

I do not want to throw this back at the Minister, but does that mean that his statement as reported at column 33 of Hansard for 6th December—that the surcharge would be on the same basis as national insurance was being paid; that is to say, earnings under £95 a week—taken in conjunction with the figures that he quoted on Monday for the practical reasons that he was not able to reveal the true figures—was incorrect?

Mr. Sheldon

The position generally is that when one makes estimates for the future, be they for revenue or other purposes, one makes projections as to the likely levels of earnings and the various other factors involved. That is how these figures are calculated—otherwise we would never attain anything like the accuracy that we are able to achieve for some figures.

My hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham) made a general reference to Ways and Means Resolutions. In the broad approach that he adopted, I am sure that he was referring to the nature of various documents. We must find more satisfactory ways of discussing not only taxation measures but Bills in general. Although I take my hon. Friend's particular point concerning financial legislation, I am sure that there are areas in which we can improve our procedures. What he has to say on these matters has much in common with what I believe to be necessary.

My hon. Friend referred to the advantage of this tax in being a revenue raising method that uses the national insurance machinery as an extremely cheap way of raising a lot of money. That is one of its greatest attractions. He said that he would have been happier had it been introduced as a temporary measure, being brought forward as an urgent need to meet a temporary situation. That was its principle attraction to the Treasury. However, as to the temporary nature of it, it is not for me to say what will happen two or three years from now. We shall watch its progress with interest to see how it fits in. We note that the burden on employers will shift somewhat—although I accept the differences that have been mentioned—towards the kind of relationship that exists between the levels of employers' taxes on the Continent for different purposes. Nevertheless, it is still a burden. We shall need to see how this goes, the effects that it creates and the burdens that become evident.

I refer finally to the contributions concerning the Churches and charities. My hon. Friend the Member for Islington, South and Finsbury pointed out the possibility of changing the categorisation of certain individuals from employees to being self-employed. I am not able to comment in detail upon that matter. I should like to consider it. I can foresee a number of problems at this stage, and the matter needs further consideration.

However, on the whole of this subject I have undertaken to receive representations, without commitment. I look forward to these in order to appreciate the nature of some of the problems, to see how they might be alleviated and how account may be taken of some of the valuable points that have been made, particularly some of those made here today.

This measure will be of value. T believe that it meets our urgent need for high levels of revenue to reduce the level of the public sector borrowing requirement by substantial amounts. The amendment would have serious consequences for that strategy. Therefore, I am unable to commend it to my right hon. and hon. Friends.

Mr. David Howell

The amendment halves the surcharge, but frankly that does not reflect our heart's desire on this subject. We have made no secret that we would be done with it altogether. We urged in the summer that public expenditure should be cut instead. The humiliation with the International Monetary Fund and all the traumas that followed might have been avoided if our advice had been taken. The amendment halves the difference between what we would like and what the Financial Secretary would like, and it is in order. We welcome that, although we had something approaching a seminar from the hon. Member for Islington, South and Finsbury (Mr. Cunningham) in linguistic philosophy to establish why it is in order. Even now I am not sure that I am entirely clear, but there it is. It has had a better fate than other of our amendments that were ruled out of order by the tightness of the Ways and Means Resolution.

A whole number of matters have been raised in the debate. Lowering the surcharge by 1 per cent. would bring benefit to all groups and classes, including many on which we would have liked to move special amendments. In particular, it would help the Churches and charities, about which the Financial Secretary was speaking.

I shall deal with the Churches. I think that the Government have made asses of themselves over the whole question of the Archbishop meeting the Prime Minister. I do not know where the original idea came from, but I should imagine that by the time it was seen at Number 10, the Prime Minister was not, to use his current phrase, "over-impressed" by the proposition that he and the Archbishop should settle down to sort out this tax mess.

The Financial Secretary and the Minister of State said that they would put the matter right. That is an odd situation.

Mr. Robert Sheldon

I did not say that.

Mr. Howell

The Minister is quite right. He did not say that he would put the matter right. I shall quote him exactly: The fact that the Bill may become law without an amendment will not inhibit us from listening to those representations and considering them in depth, and if it turns out—I make no commitment—that we think that we should accede to them it will be possible to put the matter right before the tax is introduced on 6th April."—[Official Report, 6th December 1976, Vol. 922, c. 147.] This is a very unsatisfactory situation. How will they put the matter right? The Bill is passing through the House of Commons and it will become law. What changes or admendments will be proposed to enable either the surcharge to be paid back to the charities and the Churches or for the Churches and charities to be excluded? If so, then, as my hon. Friend the Member for Norfolk, South (Mr. MacGregor) rightly said, why not other small businesses and concerns which will be roughly treated by this legislation?

This is an extraordinary state in which to leave the legislation. We find it unsatisfactory, as no doubt do the Churches and charities. I do not see how the Minister will put the matter right—if he considers that it should be put right—without amendments. The idea that we should pass the Bill and then leave it to the loving and tender care of the Treasury is absurd and insulting to our intelligence. We are pressing the amendment because we find the Treasury's proposals totally unsatisfactory.

Hon. Members have said again and again that this is part of the Government's vendetta against small businesses. This is part of the same family as the proposal for a wealth tax—which is a direct attack on the interests of working people in small businesses—the capital transfer tax and the multiple rates of VAT, which are the source of chaos and difficulty and are driving small business men to despair.

We are dealing with 6 million working people. Their lives will be affected by this vendetta and by the fact that the employers will have to pay an extra surcharge. They will know just who is promoting their interests and who is calling for a wealth tax, multiple rates of VAT, and so on, which will smash up small businesses and cause damage to medium-sized businesses as well. It ill becomes the Government to claim that they are doing something to help small businesses, when the record of bankruptcies has never been higher.

The next reason concerns the regions. We have had contributions by Members representing different parts of the United Kingdom, including Scotland—if we are still allowed to call that part of the United Kingdom by that name—by the hon. Member for Dunbartonshire, East (Mrs. Bain). There is no doubt that an additional employer tax—a payroll tax—in the regions now will be a wicked thing. It would be tough. All parts of the United Kingdom will be hurt, and Northern Ireland will come top of the list.

It is curious that on Monday the voice and the vote of Ulster was missing from our debate. I find that extraordinary. I cannot understand why, knowing a little about the Ulster economy, the voice and vote of the representatives of Northern Ireland were not made clear in a positive way in the House.

7.15 p.m.

Of all the kinds of industries and industrial structures that will be smashed by this surcharge, Ulster will be at the head of the list, particularly because of its reliance on the textile industry. That industry will not be able to pass on the prices. It is absurd for the Financial Secretary to argue that he believes that the surcharge will be passed on in higher prices. Has he spoken to no one in the textile industry? It is not in a position to raise prices now.

This surcharge will bite deep into the Ulster economy. When I think of the terrific work being done by Ulster employers and trade unionists, under appalling conditions, to maintain employment and to get business into Northern Ireland, it concerns me that not one of the representatives for Northern Ireland in this House could bring himself to speak up and vote against this wicked impost on the Northern Ireland textile industry and the building industry. Everyone knows that the building industry is in great peril. This tax will kick it when it is already down.

On the question of distribution and retailing, we need more clarification, perhaps on Third Reading or through another amendment, if we cannot have it now. The Minister of State said: The Price Code does not permit them —referring to distributors— to increase their prices solely on the ground that their overheads have gone up. However, the cost of the goods that they sell will have risen because of the surcharge and distributors will be permitted to add their normal mark-up to these increased costs."—[Official Report, 6th December 1976; Vol. 922, c. 148.] If I understand that aright, it means that they cannot push up prices and they will have to sack employees. They will have fewer hands in the shop, whether part-time or full-time—full-time where the employer's contribution is required. Further, it will work through in substantial bankruptcies and unemployment in the retail and distributive trades. That is the inevitable outcome of this measure.

The Minister said that perhaps distributors will manage to put up prices anyway. I do not think that they will be able to do that. Not only are the market conditions bad; the new Secretary of State for Prices and Consumer Protection is a very ambitious price controller. He is very fond of sitting on prices. There are rumours that he will try to override Treasury Ministers and sit on the prices of nationalised industries' products. We hope that Treasury Ministers will stand firm against that one, because that would smash up their very strategy, such as it is. However, the new Secretary of State is an ambitious and determined price controller, and I am sure that he will see that no prices are passed on in this area or in other areas. It will all come out in unemployment.

That brings us to the heart of this matter. This proposal is a part of the Government's job destruction programme. It will lose jobs for many more people in the spring, summer and winter of next year, just as there are now many more people out of work than there have been for a long time because of the cowardice and inadequacy of past Government proposals.

My hon. Friends were right to raise the matters which they have raised, to press them and to recognise that this is a totally unsatisfactory measure. But if we could at least halve the rate we would do half the damage, and half the number of people would be thrown out of work.

Question put, That the amendment be made:—

The committee divided: Ayes 229, Noes 245.

Division No. 18.] AYES [7.19 p.m.
Adley, Robert Grant, Anthony (Harrow C) Neave, Airey
Aitken, Jonathan Gray, Hamish Nelson, Anthony
Alison, Michael Griffiths, Eldon Neubert, Michael
Amery, Rt Hon Julian Grimond, Rt Hon J. Onslow, Cranley
Arnold, Tom Grist, Ian Oppenheim, Mrs Sally
Atkins, Rt Hon H. (Spelthorne) Grylls, Michael Page, John (Harrow West)
Awdry, Daniel Hall-Davis, A. G. F. Page, Rt Hon R. Graham (Crosby)
Bain, Mrs Margaret Hamilton, Michael (Salisbury) Page, Richard (Workington)
Baker, Kenneth Hampson, Dr Keith Parkinson, Cecil
Banks, Robert Hannam, John Pattie, Geoffrey
Beith, A. J. Hastings, Stephen penhaligon, David
Bell, Ronald Havers, Sir Michael Percival, Ian
Bennett, Dr Reginald (Fareham) Hayhoe, Barney Price, David (Eastleigh)
Benyon, W. Heath, Rt Hon Edward Pym, Rt Hon Francis
Berry, Hon Anthony Henderson, Douglas Raison, Timothy
Biggs-Davison, John Hicks, Robert Rathbone, Tim
Blaker, Peter Hodgson, Robin Rees, Peter (Dover & Deal)
Body, Richard Holland, Philip Rees-Davies, W. R.
Boscawen, Hon Robert Hooson, Emlyn Reid, George
Bottomley, Peter Hordern, Peter Renton, Rt Hon Sir D. (Hunts)
Bowden, A. (Brighton, Kemptown) Howe, Rt Hon Sir Geoffrey Renton, Tim (Mid-Sussex)
Boyson, Dr Rhodes (Brent) Howell, David (Guildford) Ridley, Hon Nicholas
Braine Sir Bernard Howells, Geraint (Cardigan) Rifkind, Malcolm
Brittan, Leon Hunt, David (Wirral) Roberts, Michael (Cardiff NW)
Brocklebank-Fowler, C. Hurd, Douglas Roberts, Wyn (Conway)
Brotherton, Michael Hutchison, Michael Clark Rodgers, Sir John (Sevenoaks)
Brown, Sir Edward (Bath) James, David Rossi, Hugh (Hornsey)
Bryan Sir Paul James, R. Rhodes (Cambridge) Rost, Peter (SE Derbyshire)
Budgen, Nick Jenkin, Rt Hon P. (Wanst'd & W'df' d) Sainsbury, Tim
Bulmer, Esmond Jessel, Toby St. John-Stevas, Norman
Butler Adam (Bosworth) Johnson Smith, G. (E Grinstead) Shelton, William (Streatham)
Chalker, Mrs Lynda Johnston, Russell (Inverness) Shepherd, Colin
Churchill W. S. Jones, Arthur (Daventry) Shersby, Michael
Clark, Alan (Plymouth, Sutton) Jopling, Michael Silvester, Fred
Clark, William (Croydon S) Kershaw, Anthony Sims, Roger
Clegg, Walter Kilfedder, James Skeet, T. H. H.
Cope John Kimball, Marcus Smith, Cyril (Rochdale)
Cordie John H. King, Tom (Bridgwater) Smith, Dudley (Warwick)
Cormack, Patrick Kitson, Sir Timothy Speed, Keith
Costain, A P Knight, Mrs Jill Spence, John
Crawford, Douglas Knox, David Spicer, Michael (S Worcester)
Crouch David Lamont, Norman Sproat, Iain
Crowder, F. P. Langford-Holt, Sir John Stainton, Keith
Dean Paul (N Somerset) Latham, Michael (Melton) Stanbrook, Ivor
Dodsworth Geoffrey Lawrence, Ivan Steel, David (Roxburgh)
Douglas-Hamilton, Lord James Lawson, Nigel Steen, Anthony (Wavertree)
Drayson, Burnaby Le Marchant, Spencer Stewart, Donald (Western Isles)
du Cann, Rt Hon Edward Lester, Jim (Beeston) Stewart, Ian (Hitchin)
Durant, Tony Lewis, Kenneth (Rutland) Stokes, John
Eden, Rt Hon Sir John Lloyd, Ian Stradling Thomas, J.
Edwards, Nicholas (Pembroke) Loveridge, John Tapsell, Peter
Elliott, Sir William Luce, Richard Taylor, R. (Croydon NW)
Emery, Peter McAdden, Sir Stephen Taylor, Teddy (Cathcart)
Ewing, Mrs Winifred (Moray) MacCormick, lain Tebbit, Norman
Eyre, Reginald McCrindle, Robert Thomas, Rt Hon P. (Hendon S)
Fairbairn, Nicholas Macfarlane, Neil Thompson, George
Fairgrieve, Russell MacGregor, John Townsend, Cyril D
Farr, John Macmillan, Rt Hon M. (Farnham) Trotter, Neville
Fell, Anthony Madel, David van Straubenzee, W. R.
Fisher, Sir Nigel Marshall, Michael (Arundel) Viggers, Peter
Fletcher, Alex (Edinburgh N) Marten, Neil Wainwright, Richard (Colne V)
Fletcher-Cooke, Charles Mates, Michael Wakeham, John
Forman, Nigel Maude, Angus Walder, David (Clitheroe)
Fowler, Norman (Sutton C'f'd) Mawby, Ray Warren, Kenneth
Fox, Marcus Maxwell-Hyslop, Robin Watt, Hamish
Freud, Clement Mayhew, Patrick Weatherill, Bernard
Fry, Peter Meyer, Sir Anthony Wells, John
Galbraith, Hon T. G. D. Miller, Hal (Bromsgrove) Welsh, Andrew
Gardiner, George (Reigate) Miscampbell, Norman Wiggin, Jerry
Gilmour, Rt Hon Ian (Chesham) Mitchell, David (Basingstoke) Wigley, Dafydd
Gilmour, Sir John (East Fife) Moate, Roger Wilson, Gordon (Dundee E)
Glyn, Dr Alan Monro, Hector Winterton, Nicholas
Godber, Rt Hon Joseph Montgomery, Fergus Younger, Hon George
Goodhart, Philip More, Jasper (Ludlow)
Goodlad, Alastair Morgan, Geraint TELLERS FOR THE AYES:
Gorst, John Morgan-Giles, Rear-Admiral Mr. John Corrie and
Gow, Inn (Eastbourne) Morris, Michael (Northampton S) Sir George Young.
Gower, Sir Raymond (Barry) Morrison, Hon Peter (Chester)
NOES
Abse, Leo Fowler, Gerald (The Wrekin) Morris, Charles R. (Openshaw)
Allaun, Frank Freeson, Reginald Morris, Rt Hon J. (Aberavon)
Anderson, Donald Garrett, John (Norwich S) Moyle, Roland
Archer, Peter Garrett, W. E. (Wallsend) Murray, Rt Hon Ronald King
Armstrong, Ernest George, Bruce Newens, Stanley
Ashley, Jack Gilbert, Or John Noble, Mike
Ashton, Joe Ginsburg, David Oakes, Gordon
Atkins, Ronald (Preston N) Golding, John O'Halloran, Michael
Atkinson, Norman Gould, Bryan Orme, Rt Hon Stanley
Bagier, Gordon A. T. Gourlay, Harry Ovenden, John
Barnett, Guy (Greenwich) Graham, Ted Padley, Walter
Barnett, Rt Hon Joel (Heywood) Grocott, Bruce Palmer, Arthur
Bates, Alf Hamilton, James (Bothwell) Park, George
Benn, Rt Hon Anthony Wedgwood Hardy, Peter Parker, John
Bennett, Andrew(Stockport) N) Harper, Joseph Pendry, Tom
Bidwell, Sydney Harrison, Walter (Wakefield) Phipps, Dr Colin
Bishop, E. S. Hart, Rt Hon Judith Price, C. (Lewisham W)
Blenkinsop, Arthur Hatton, Frank Price, William (Rugby)
Boardman, H. Healey, Rt Hon Denis Rees, Rt Hon Merlyn (Leeds S)
Booth, Rt Hon Albert Heffer, Eric S. Roberts, Gwilym (Cannock)
Bottomley, Rt Hon Arthur Hooley, Frank Robinson, Geoffrey
Boyden, James (Bish Auck) Horam, John Roderick, Caerwyn
Bradley, Tom Hoyle, Doug (Nelson) Rodgers, George (Chorley)
Bray, Dr Jeremy Huckfield, Les Rodgers, Rt Hon William (Stockton)
Brown, Hugh D. (Provan) Hughes, Rt Hon C. (Anglesey) Rooker, J. W.
Buchanan, Richard Hughes, Robert (Aberdeen N) Rose, Paul B.
Butler, Mrs Joyce (Wood Green) Hughes, Roy (Newport) Ross, Rt Hon W. (Kilmarnock)
Callaghan, Rt Hon J. (Cardiff SE) Irvine, Rt Hon Sir A. (Edge Hill) Rowlands, Ted
Callaghan, Jim (Middleton & P) Irving, Rt Hon S. (Dartford) Ryman, John
Campbell, Ian Jackson, Colin (Brighouse) Sandelson, Neville
Canavan, Dennis Janner, Greville Sedgemore, Brian
Cant, R. B. Jay, Rt Hon Douglas Selby, Harry
Carmichael, Neil Jeger, Mrs Lena Shaw, Arnold (Word South)
Carter, Ray Jenkins, Hugh (Putney) Sheldon, Robert (Ashton-u-Lyne)
Cartwright, John John, Brynmor Shore, Rt Hon Peter
Castle, Rt Hon Barbara Johnson, James (Hull West) short, Mrs Renée (Wolv NE)
Clemitson, Ivor Johnson, Walter (Derby S) Silkin, Rt Hon John (Deptford)
Cocks, Rt Hon Michael Jones, Alec (Rhondda) Silkin, Rt Hon S. C. (Dulwich)
Cohen, Stanley Jones, Barry (East Flint) Silverman, Julius
Coleman, Donald Jones, Dan (Burnley) Skinner, Dennis
Colquhoun, Ms Maureen Judd, Frank Small, William
Cook, Robin F. (Edin C) Kaufman, Gerald Spearing, Nigel
Corbett, Robin Kelley, Richard Spriggs, Leslie
Cowans, Harry Kilroy-Silk, Robert Stallard, A. W.
Cox, Thomas (Tooting) Kinnock, Neil Stewart, Rt Hon M. (Fulham)
Craigen, Jim (Maryhill) Lambie, David Stoddart, David
Crawshaw, Richard Lamborn, Harry Stott, Roger
Cronin, John Lamond, James Strang, Gavin
Crowther, Stan (Rotherham) Latham, Arthur (Paddington) Strauss, Rt Hon G. R.
Cryer, Bob Leadbitter, Ted Summerskill, Hon Dr Shirley
Cunningham, G. (Islington S) Lee, Jonn Taylor, Mrs Ann (Bolton W)
Davidson, Arthur Lester, Miss Joan (Eton & Slough) Thomas, Mike (Newcastle E)
Davies, Bryan (Enfield N) Lawis, Ron (Carlisle) Thomas, Ron (Bristol NW)
Davies, Denzil (Llaneill) Lewis, Ron (Carlisle) Thorne, Stan (Preston South)
Davies, Ifor (Gower) Litterick, Tom Tierney, Sydney
Davis, Clinton (Hackney C) Luard, Evan Tomlinson, John
Deakins, Eric Lyon, Alexander (York) Torney, Tom
Dean, Joseph (Leeds West) Mabon, Dr J. Dickson Varley, Rt Hon Eric G
Dell, Rt Hon Edmund McCartney, Hugh Walden, Brian (B'ham L'dyw'd)
Dempsey, James McDonald, Dr Oonagh Walker, Harold (Doncaster)
Doig, Peter McElhone, Frank Walker, Terry (Kingswood)
Dormand, J. D. MacFarquhar, Roderick Ward, Michael
Douglas-Mann, Bruce McGuire, Michael (Ince) Watkins, David
Duffy, A. E. P. MacKenzie, Gregor Watkinson, John
Dunn, James A. Mackintosh, John P. Weetch, Ken
Dunnett, Jack Maclennan, Robert Weitzman, David
Eadie, Alex McMillan, Tom (Glasgow C) Wellbeloved, James
Edge, Geoff Madden, Max White, Frank R. (Bury)
Edwards, Robert (Wolv SE) Magee, Bryan Whitlock, William
Ellis, John (Brigg & Scun) Maguire, Frank (Fermanagh) Willey, Rt Hon Frederick
English, Michael Mallalieu, J. P. W. Williams, Alan (Swansea W)
Ennals, David Marks, Kenneth Williams, Alan Lee (Hornch'ch)
Evans, Fred (Caerphilly) Marquand, David Williams, Sir Thomas (Warrington)
Evans, loan (Aberdare) Marshall, Dr Edmund (Goole) Wilson, William (Coventry SE)
Ewing, Harry (Stirling) Marshall, Jim (Leicester S) Wise, Mrs Audrey
Faulds, Andrew Mason, Rt Hon Roy Woodall, Alec
Fernyhough, Rt Hon E. Maynard, Miss Joan Woof, Robert
Fitch, Alan (Wigan) Meacher, Michael Wrigglesworth, Ian
Flannery, Martin Mikardo, Ian Young, David (Bolton E)
Fletcher, L. R. (Ilkeston) Millan, Rt Hon Bruce
Fletcher, Ted (Darlington) Miller, Dr M. S. (E Kilbride) TELLERS FOR THE NOES
Ford, Ben Miller, Mrs Millie (Ilford N) Mr. James Tinn and
Forrester, John Moonman, Eric Mr. Peter Snape.
Question accordingly negatived.

7.30 p.m.

Mr. John Cope (Gloucestershire, South)

I beg to move Amendment No. 9, in page 2, line 31, leave out subsection (6).

We propose this amendment to find out what the subsection does. It is obscure. Normally one could rely on the provisions of a Bill being explained on Second Reading or at least in Committee, but that has not been done. We want the Minister of State to explain the meaning of the provision.

The purpose of the first part of the subsection is relatively clear, subsection (5) having provided that Any provision contained in or having effect under any enactment other than this Act or the Social Security Acts 1975 and applying in relation to a contribution with which a surcharge is payable under this section shall, subject to subsection (6) below, apply in relation to the contribution as if the surcharge were part of the contribution. The first part of subsection (6) allows the Treasury to take out a piece of any enactment and to be selective about how it is applied. I cannot see the necessity for the second part of subsection (6). It appears to refer to subsequent enactments. Perhaps those will be to deal with points which have been raised by the Archbishop of Canterbury and others and which may make it necessary to amend the Bill before long. In that case, I cannot see why the subsequent enactments should not deal with them.

Mr. MacGregor

I am as puzzled as my hon. Friend the Member for Gloucestershire, South (Mr. Cope) about some aspects of subsection (6). I want to ask the Minister another question so that we know exactly what we are doing. What particular purpose has he in mind? Will he give one or two examples why the Treasury may wish to direct that subsection (5) shall not apply in a particular case. An answer to that question will be of help in understanding the subsection.

The Minister of State, Treasury (Mr. Denzil Davies)

The amendment has been moved to try to divine the purpose behind subsection (6). The hon. Member for Gloucestershire, South (Mr. Cope) said that he was particularly concerned with the second limb of the subsection. To explain that I must return to subsection (5) because subsection (6) leads on from it.

Briefly, subsection (5) provides that references to secondary Class 1 contributions in other legislation be construed as including the surcharge. It is designed to ensure that employers, when dealing with legal requirements, know what the reference point is. It provides for the contribution and the surcharge to be treated as one at all times. Subsection (5) brings them together to ensure that the contribution and the surcharge, for the purpose of paying over money, are treated as one.

An example of how it will operate can be found in its possible relation to the Price Code. Employers' national insurance contributions will be allowable costs under the code. Subsection (5) enables employers to treat the surcharge as an allowable cost increase for justifying price increases under the code. Since national insurance contributions are allowable under the code, and because they are contained in subsection (5), it automatically follows that the surcharge should be allowable.

Subsection (6) makes it possible by order to dissociate the two elements again. Subsection (5) brings them together and the first limb of subsection (6), if necessary, enables the two to be kept apart.

Another example can also be given from the Price Code. The present Price Code will run for only three months from the time when the Bill is in operation because it runs out in July. If representations were made in respect of the Price Code as it affects distributors, and if the Government accepted—as yet they have not—those recommendations because they felt that distributors were being unduly affected, subsection (6) provides for legislation to be amended accordingly. That is the kind of situation that is envisaged. Subsection (6) is a safety net in case it is found that it is not always to the benefit of employers to concertina the two elements together.

Mr. MacGregor

Is the Minister saying that the Government have no specific examples in mind, that they do not intend to do anything, but that the provision is there in case it is needed?

Mr. Davies

Yes, it is there as a safety net in case it is found that it is not always to the advantage of the taxpayer, in the kind of example I have given, to have the two brought together.

The second limb is there to ensure that any separation in the future is done by legislation. The Bill allows the national insurance contribution and the surcharge to be brought together. By order under the first part of subsection (6) it is possible to move them apart again, but that applies only to existing legislation and not to future legislation. With future legislation the scheme of the Bill applies, and if it is necessary to move the two apart it has to be done in the future enactment itself. It is a constitutional safeguard.

I seem to remember debating a similar subsection in the European Communities Act. I suspect that the draftsman took parts from that Act and put them into the Bill. This is a constitutional safeguard to ensure that any future change is made by the Act itself and that there cannot be power by order to bind Parliament in the future.

Mr. Cope

The Minister is obviously trying to be helpful, and I am grateful to him. I am, however, slightly concerned. He said first that the purpose of subsection (5) is to ensure that the new contribution will be an allowable cost under the Price Code. Immediately after that, he almost took that back again. That is a disturbing example to give to the House of the first element of subsection (6).

The second limb of subsection (6) seems to be totally unnecessary. The first limb says clearly: shall not apply to any specified provision contained in an enactment passed before this Act". I do not see how that can apply or be thought to apply to any subsequent enactment. The second limb seems to be unnecessary and merely to add confusion. No one could possibly read into the first limb that subsequent enactments can also be altered. It does not apply to future enactments. There is no need for the second limb giving Parliament the power to override the Bill if it becomes an Act. Parliament has the right to overrule any Act or any subsection in an Act.

In the second limb the following words appear: or having effect under any enactment. I am not sure what those words mean. I understood what the Minister said about subsequent enactments, but what do those words introduce into the subsection?

Mr. Denzil Davies

The hon. Gentleman said that the second limb of subsection (6) is unnecessary. I have great respect and regard for the hon. Gentleman, and I can only say to him that the draftsman is of the opinion that it is necessary. That is the draftsman's advice, and how he drafted the clause. He has set it out clearly, and it is a constitutional safeguard.

The hon. Gentleman asked me the meaning of the words or having effect under any enactment. They refer not to an enactment but to an order taking effect under an enactment; it could be subordinate legislation. That is to make sure that the provision applies both to primary and to secondary legislation.

Mr. David Mitchell

This is a probing amendment put down by my hon. Friends to make sure that they understood what was in the Treasury mind. The Minister said that the subsection was there to enable employers to know certain matters. That stresses the point that it is not clear to my hon. Friends, after careful reading of the words, what is meant. My hon. Friends are more familiar with the terminology used in legislation than is, for example, the average small business man or anyone else outside this place.

I add a plea which, Sir Myer, you might occasionally almost feel like endorsing. I ask that in future we should have clauses before us which are a little more comprehensible, so that people can understand what they mean. If the Minister takes a special interest in that when future legislation comes before the House, this little debate will have done a great deal of good.

7.45 p.m.

Mr. Cope

I am afraid that I am not satisfied. I do not propose to press the amendment to a Division, but the subsection is unsatisfactory. The Minister of State is a lawyer—a very good lawyer, I understand. I have been on Finance Bill Committees with him both before and since he was appointed to his present position, and have always found him clear and helpful in explaining enactments and prospective enactments to people like myself who are not lawyers and have to try to understand them. But he seems to be unable to explain why the draftsmen wanted or needed to include these words.

After all, if this constitutional safeguard is necessary to make clear what subsequent enactments may do, we shall have to have a subsection like this in every clause we pass. The constitutional safeguard depends not on these words but on the doctrine that Parliament is all-powerful and can alter any existing primary or secondary legislation. It is an unnecessary provision.

I dislike making Acts of Parliament more complicated by including unnecessary provisions, particularly provisions which are difficult to understand. I dislike the provision, but it is not worth taking up the time of the House to vote on it. Like other rubbish that clutters up our tax Acts, we must nod it through. On those grounds, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 ordered to stand part of the Bill.

Clause 2 ordered to stand part of the Bill.

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