PERSONAL TAXATION

HC Deb 22 March 1976 vol 908 cc46-105

4.11 p.m.

Mr. John Pardoe (Cornwall, North)

I beg to move, That this House, believing that the impact of personal taxation is both arbitrary and too heavy, and that the machinery by which the House can influence this impact is wholly inadequate, calls for relief of this burden, for a Royal Commission on Taxation, and for procedural reforms to enable the House to maintain a continuing review of the combined effects on the ordinary taxpayer of Government income and expenditure.

Mr. Speaker

I wish to announce that I have selected the amendment in the name of the Government.

Mr. Pardoe

Your announcement comes as no surprise, Mr. Speaker.

I see that the Government Benches, apart from the Treasury Bench, are almost deserted. I hope that by the end of this debate we shall have been able to convince the Government that this is not an exercise in Labour Government-bashing but a very much more serious matter and that we are trying to say something constructive on the eve of the Budget.

A Liberal Supply Day is very rare and perhaps, therefore, it makes it more difficult for my right hon. and hon. Friends to choose the subject for such a debate. We have chosen to debate the subject of personal taxation for many reasons, partly because we have always regarded the reform of taxation as a very important matter and partly because there have been a number of reports and resolutions from Liberal conferences over the years on the subject. There was also our early advocacy of the tax credit system as a major instrument of reform.

I cannot believe that any right hon. or hon. Member is unaware of the very considerable feelings that taxation at its present levels raises in the constituencies. It is not just a question of complaints from the middle-income groups. They come from almost all our constituents. My own experiences on two pre-legislative Select Committee on taxation—that on the tax credit scheme under the Conservative Government and that on the wealth tax more recently under the Labour Government—have taught me the need for reform and the perils of piecemeal ad hoc reforms.

There have also been a great many Parliamentary Questions on these subjects, a few of which I have asked myself and some of which have been asked by others of my right hon. and hon. Friends. However, I must pay tribute to the hon. Member for Norfolk, North (Mr. Howell), who has done more in this direction probably than any other hon. Member, and all of us are grateful to him for his work.

I mention publications, too, which have brought the attention of the Press, of the Government and, I hope, of civil servants to this very important matter. There are two publications by the hon. Member for Norfolk, North—the document which he has produced for the Low Pay Unit and that which he has produced for the Conservative Party itself. Also, there are other documents by the Child Poverty Action Group and one recently published by Aims for Enterprise written by the Liberal candidate for Lewisham, Michael Minter. This matter has also been raised in recent weeks by the Chairman of the Supplementary Benefits Commission, David Donnison. Although he was not talking specifically about taxation, it was clear from his article in Social Work Today and in his widely publicised lecture that it was the impact of taxation coupled with the benefits system which was causing many of the problems to which he drew attention. I hope, therefore, that we can have a relatively non-partisan debate on this matter.

We are concentrating on personal taxation not because we regard other taxation as unimportant but simply because this is a short debate and it seems better to concentrate on personal taxation rather than spread the butter too thin.

It is not my intention to blame one Government more than another for the present situation, although I am sure that some others will seek to do so.

I notice that there was a debate in the other place on 10th March on the disincentives of taxation, in the course of which Lord Orr-Ewing said that in six years of Labour Government from 1964 to 1970 taxes had been raised by no less than £3,000 million. He compared this with the record of the Conservatives and said: Under Tony Barber (as he then was) taxes were cut, cut and cut again. They were cut not just to the extent of the £3,000 million which had been added, but by another £1,000 million, making £4,000 million in all. What exactly does that mean? I think that we had better be careful of using the phrase "cutting taxation", which can mean all things to all men. If taxes were cut during that period of Conservative Government, I should have thought that the total of lax income at the end would have been less than it was at the beginning. But it was not. It was not less either in money terms, in real terms or as a proportion of national income.

I hope that even Conservative peers can read the very helpful document Economic Trends, produced by the Government Information Service. Table 111 is the relevant document. I know that it is always difficult to choose which years to compare because one is never sure whether an incoming Government have any effect on taxation in the year in which they come to power. But, comparing 1969 with 1973, we can see that total tax receipts increased from £14,749 million to £20,016 million, which was an increase of £5,267 million. Taxes on income alone increased by £2,775 million. So how is it possible to talk of tax cuts in that period?

In the same debate, Lord Barber himself made very much the same mistake when he said: I had always cherished the hope that my successors at the Treasury would, over the years, be able to continue the reduction of personal direct taxation (income tax) until it approached that of our main overseas competitors."—[Official Report, House of Lords, 10th March 1976; Vol. 368, cc. 1281–1301.] We could all say "Amen" to that if only the reduction of which he spoke had ever begun. The reduction never happened.

In answer to a Question of mine on 16th December last, the Treasury gave the proportions of income paid in income tax and national insurance contributions in each year since 1945 by a single man and a married man with two children, both men on average earnings. In 1969–70 the married man with two children on average earnings paid 12.5 per cent. of his income in tax. In 1973–74 this had risen to 14.2 per cent.

I ask Conservative Members to plot the figures given in that answer or in any others given since. They will find that it is impossible to make the case that, in the matter of income tax over the long term, there is much to choose between one Government and another.

In his excellent pamphlet published by the Conservative Party, the hon. Member for Norfolk, North frequently makes the point that there is very little to choose between the tax policies of one or other Government in terms of their effect. The only way in which it can be claimed that in that crucial period—which Lord Barber claimed to be a period of tax cuts—when those cuts could have taken place is to compare what hapened with what would have happened if the tax-free allowances threshold had remained unchanged throughout the period. However, those allowances did not remain unchanged. They were changed to a lesser extent than they should have been to keep up with inflation, and they would have been changed whatever Government had been in power.

The hollowness of the claim to have cut taxes can best be seen from a study of the number of taxpayers. All Chancellors always claim to have removed a large number of people from the tax net. No doubt on 6th April we shall hear again the great claim by the Chancellor that he has removed X million people from the tax net. Over the past 10 years Chancellors have claimed to have taken 8 million people out of the tax net, yet there are now 2½ million more taxpayers than there were 10 years ago and the working population has not increased.

I emphasise this aspect of the Conservative Government's record not because I want to score points against them but because I am trying to look at the matter objectively and admit how difficult it is for a Government to reduce taxation in the present system even where they are inclined to do so. I accept that the Conservatives sound as though they want to cut taxation while the Socialists sound as though they want to increase it. How politicians sound and how they turn out are two different things.

In so far as the Conservatives were able to slow the pace of the increase in personal taxation, they did so by allowing a greater gap between income and expenditure, and that was the borrowing requirement. Table 111 of Economic Trends shows that they rose very substantially in that period.

The first and major point of our motion is quite simply that personal taxation is too high. I am not singling out any one section of the population, because it is not my purpose to set one class of taxpayer against another. But the Answer on 16th December shows what has happened to the taxpayer on average earnings. Let us take tax and national insurance contributions together. Most of our constituents combine the two. We in Parliament distinguish between them, but there is little point in doing so.

The year 1975 set some kind of a record. In it the average British bachelor on average earnings for the first time paid one-third of his total income in tax and national insurance contributions. The average family man with two children, where he was on average earnings, paid one-quarter of his total income in tax and national insurance contributions. In 1975–76 the married man with two children and average earnings paid 19.9 per cent. in tax and 5.4 per cent. in national insurance contributions, a total of 25.3 per cent. Ten years ago he would have paid, if he had been on average earnings, 5.9 per cent. in tax and 5.3 per cent. in national insurance, making a total of 11.2 per cent. Twenty years ago he would have paid 0.4 per cent. in tax and 2.9 per cent. in national insurance, a 3.3 per cent. total. To anyone other than a dedicated Socialist who believes in collectivism for its own sake, those are appalling figures. They have developed under Governments of different political persuasions, but why?

Public expenditure is the main single reason. It would be foolish to suggest that taxation can be reduced without a reduction in public expenditure. I want to concentrate on some of the worst effects of the present level of taxation and see whether, even accepting the present level of public expenditure—which I do not—we could not do something to make the system work better. First, there has been a major switch from taxes on expenditure to taxes on income. In 1973 taxes on income amounted to 47½ per cent. of taxes on income and expenditure combined. In the first three quarters of 1975, taxes on income amounted to 55 per cent. of combined taxes on income and expenditure. However, we have to beware because, although a reversal of that trend would go some way to help, it would not make a very significant impact and we would have to raise consumption taxes substantially to make the sort of impact we would like on income tax levels.

There is, secondly, the problem of the threshold. We have been told by successive Chancellors over the years that there is no need to tie the threshold, the different levels of rate bands and the other personal allowances to average earnings or to the cost of living—which would be indexation. We are told that it is not necessary because they are revised every year and are raised. The trouble is that they are not, and it is the failure to maintain thresholds at a constant proportion of average earnings that has been responsible for most of the anomalies which now face us. A little over 20 years ago, the married man on average industrial earnings with two children did not pay tax. In other words, the threshold was then the level of average industrial earnings. Ten years ago he paid tax if his income exceeded 72 per cent. of average earnings. This year he will pay tax if his earnings exceed 44 per cent. of average earnings.

The crazy thing about this level is that it is well below the so-called poverty line established by the Department of Health and Social Security. We therefore have the idiocy that half of Whitehall pays out because family income is too low while the other half presumes that these families are well enough off to pay tax. Couple the fact that the threshold is too low with the fact that no tax in payable on short-term benefits—particularly unemployment benefit—and the situation arises in which work is frankly not worth while for a large number of people.

I know that many members of the public rant and rage about the shirkers, the skivers and the scroungers. Some of these examples were used by David Donnison in his recent article. Whenever I am confronted with my constituents' payslips—as I frequently am at my Saturday morning surgery—I am amazed not that people do not work but that they do work. I marvel that many of my constituents go to work. The majority of them would be far better off not doing so. I am certain that there is not one of them who would not be better off staying away from work for 14 weeks a year. Just a few of them do that, and they work it very well.

It is not good enough to rely on Governments to update allowances in line with the cost of living. They do not do it. The best method would be indexation, but not indexation at present levels. The relationship between the different allowances has been changed by inflation and arbitrary updating. The tax allowance for children has been doubled since the mid-1950s, although the cost of living has trebled. The only allowance which has kept pace with the cost of living is that for the single person.

We have devalued family tax allowances and benefits. We need to return to first principles before we start indexation and think through the basic reasons for family provision and the level at which it should be set. We should remember that when Beveridge recommended all the family provisions it was because of the principle of income maintenance, the idea that family poverty is not something that lasts throughout a family's lifetime but is something that exists at particular times, because expenditure rises while income does not or because income falls, during periods of sickness, when the wife cannot work because she is having the family and during periods of retirement and unemployment. That is the underlying reason for the income maintenance provisions and for family benefits. When we have established the proper level, we should index it.

The other effect of low thresholds is the poverty trap. A total of 50,000 families are caught in a situation in which, because of increased taxation and reduced benefits working together, they will take home less if they earn more. There are 390,000 low-income taxpayers who will receive only half of the extra £1 they earn, and 150,000 of them will lose between 75p and 99p of each extra £1.

Reducing the tax threshold, which I am sure the Chancellor is considering, would be expensive. To restore it to the position of two years ago would cost £2 billion out of the present £14 billion income from income tax. That is a measure of how far Parliament has been bypassed in voting income. We never voted that sum. Parliament never intended the Government to have that £2 billion. They obtained it because of inflation, because Parliament has not seen fit to tie their hands by indexation. To return the thresholds to the 1972–73 levels would cost more than £3 billion, and to increase the single and married persons' allowance by only 10 per cent. would cost £720 million for the current tax year, equivalent to 2p on all tax rates across the board.

Obviously, some will ask whether taxation is too high. I do not wish to go into international comparisons, because it is exceedingly difficult to compare one system with another. The Government's statistical services produced in Economic Trends last year a comparison which showed that up to 1972–73 we were not an over-taxed nation. I think that more recently increases in taxation here have been much more than elsewhere, and I suspect that such a comparison today would be rather different.

What about the effect on incentives? I shall not argue that. I read the Official Report of the debate in the other place, where there was a great deal of opinion but precious few facts, which are difficult to come by on this matter. I refer hon. Members to a chapter in "The Economics of Public Finance" by Professor Cedric Sandford, which is being published this month. It is the best summary I have seen of all the research done in this country and some of the research abroad on the question of taxation and incentives. After reading it, I do not know—and I do not think that anyone else does—whether tax is an incentive or disincentive. I assume in my own case that it is a disincentive, but I am not sure that that applies to everyone.

There is also the effect of high taxation on inflation. This is likely to be an extremely important engine behind demands for increased pay. I remember reading Roy Harrod's biography of Keynes. A description of Harrod's first interview with Keynes went as follows: Keynes propounded the view that no nation will endure paying more than a given percentage of its national income in taxation, and if it has to carry a greater load it will almost automatically find escape from its plight by inflation". We certainly have inflation, but I do not know whether it is because we have been escaping from our plight. However, I suspect that taxation has a substantial effect on demands for increased pay.

There is the effect of high taxation and the measures by which we vote taxes on the level of Government expenditure. That is a difficult chicken-and-egg argument. In the debate in the other place, the Lord Privy Seal said: Taxation goes with public expenditure".—[Official Report, House of Lords, 10th March, 1976; Vol. 368, c. 1290.] But does public expenditure go with taxation? If it did, we would manage to control both rather more effectively.

I suspect that the Lord Privy Seal has got it about right, and I am confirmed in that view by the evidence which Sir Alec Cairncross gave to the Expenditure Committee, reproduced in paragraph 18 of its First Report, "The Financing of Public Expenditure". He said: The main expenditure decisions are taken first. This is something which is not done in any other country … it may mean that there is greater readiness to concede an increase in expenditure than there would be if it were necessary on each occasion to impose fresh taxation. I am sure that that is right.

We cannot solve the problem of thresholds, the problem of the poverty trap or any of the other numerous problems which will be raised in the debate simply by taxing the higher income groups. If income tax were raised to levels which meant that no one in this country could earn more than £6,000 net, the total extra tax that would be raised would be 3 per cent. of present income tax. That would be just about enough to cut the basic rate by lp. So we should be merely fiddling around if we tried to do it that way.

To raise the tax threshold for married couples with two children to two-thirds of average industrial earnings, which would be a moderate demand, would cost about £1.9 billion. To obtain it from the rich, we should have to impose a ceiling on net incomes of £5,000, only about twice the take-home pay of the man on average industrial earnings. It is not possible for any of us to conclude that we can solve the problem by taxing the rich any more.

I hope I have said enough to show that there is a need for widespread reforms. We have eroded the tax base by a plethora of allowances and a confusion of objectives. This has led to ludicrous distinctions between one allowance and another. If I am fortunate enough to find a house with a swimming pool, a conservatory, a greenhouse and other luxuries, I can obtain a tax rebate—indeed, a tax incentive—to have it, provided I do not exceed a mortgage of £25,000. There is a tax allowance to set against the interest paid to have those luxuries. But if I wish, for example, to educate my children privately—what a heinous crime!—to buy my children books or to take my wife to a performance of music by Beethoven, all the cost has to come out of net-of-tax income. I do not see why it should be considered better for an individual to buy a car than to pay to enjoy the music of Beethoven.

We could have a lower rate band, and I hope that the Chancellor will consider it. If we take income tax and national insurance contributions together, we see that we now start tax in this country at a comparatively low threshold but at a rate of 41½ per cent. That is far too high.

My right hon. and hon. Friends and I commit ourselves to the introduction of a tax credit system. We have been in favour of such a system for a long time. It was one of the victims of the two-party system. There is no doubt that in the Select Committee which considered it the idea was knocked on the head by the need of Labour Members to give the Chancellor of the Exchequer a reason for opposing it.

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

Mr. Pardoe

Yes, I thought that would get the hon. Gentleman to his feet.

Mr. Sheldon

Would not the hon. Gentleman agree that his desire to have lower rate bands would in practical terms be impossible under a tax credit scheme?

Mr. Pardoe

Yes. That is a matter we discussed at some length in the Select Committee, but, even with that disadvantage and some of the others, one of the Minister's own tax experts—Professor Brian Abel-Smith, who is now an adviser at the DHSS—said, in spite of the Minister's attempts to get him to change his evidence in cross-examination, that he believed that a tax credit system would in the long run be a vastly superior means of combating poverty.

We have 44 means tests—a means test industry. Those of us who have to spend our Saturday mornings sorting out these problems could, if we had for some reason to retire, probably make a handy income out of the knowledge that we have gained. Of course, we should have no time for anything else.

The hon. Member for Norfolk, North has suggested a minimum wage. We have advocated a minimum income, which is a rather different thing, and I would urge him to take into account the disadvantages of a minimum wage. The hon. Gentleman has also urged the taxing of benefits. I see no reason why not. Considering all the national Insurance benefits, which are conveniently set out in a double-page spread in the Economist this week, there seems no reason why some should be taxed and others should not. Certainly it is not a political reason, but is simply a matter of administrative convenience introduced in 1949 by the Attlee Government.

Mr. A. J. Beith (Berwick-upon-Tweed)

Does not my hon. Friend further recognise the deep indignation felt by such groups as war widows that their benefits are taxed while a considerable number of other benefits are not?

Mr. Pardoe

I am grateful. That is certainly one of the benefits that we would want to see moved from taxation. But I see no reason for these distinctions at all. I hope that the Minister may be able to justify some of them, although I do not see how he can. We are now taxing people to pay subsidies and subsidising them so that they can pay their taxes. That is a crazy situation which must be sorted out.

All of us will have reforms to suggest today, but inevitably they will be things of shreds and patches. We need a Royal Commission on Taxation, concerned not only with personal taxation but with taxation right across the board. My own experiences on several Select Committees on proposed taxes leads me to conclude that we cannot solve the problem by considering one tax at a time. We must consider the totality of taxation, its correlation with benefits and the effect that that has on income.

I know that the Meade Committee set up by the Institute of Fiscal Studies is doing this job to some extent, and we look forward to its results with great interest, but there is no substitute now for a Royal Commission. In this House, above all we need a machinery for continually reviewing the impact of taxation not only on individuals but on industry and across the board and its relationship with welfare benefits, national insurance benefits and its impact on public expenditure.

This is the only legislative chamber in the world which does not consider income and expenditure together. As a result, the Government get away with murder. They can put forward a proposal on expenditure with which Members can feel reasonably content and for which they can vote because they are never called upon at the same time to consider its impact on taxation. Then, when the taxes are voted, different arguments are employed. We not only need to debate them together: we also need a permanent Select Committee to bring all these things together and review them continually.

I hope that this debate will convince the Government that their amendment is intolerably complacent. Of course we want a fair and progressive system, but we do not have one. The Government's measures—certainly those announced so far—will not take us towards a fair and progressive tax system. I therefore hope that the Minister will bring forward some proposals today, or at least that some will be made in the Budget, to sort out some of these problems.

Mr. Deputy Speaker (Mr. Oscar Murton)

I understand that the Minister wishes formally to move the amendment in the name of the Prime Minister and to reserve his right to speak.

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

That is correct, Mr. Deputy Speaker. I beg to move, in line 1, to leave out from 'House' to the end of the Question and to add instead thereof: 'believes in the need for a fair and progressive tax system, and endorses the Government's measures in that direction'.

4.47 p.m.

Mr. Victor Goodhew (St. Albans)

I think that we all welcome the opportunity to discuss personal taxes just before the Budget, although I fear that the Chancellor may already have the Budget so tied up that nothing that we say now will have any effect upon it.

I share many of the views expressed by the hon. Member for Cornwall, North (Mr. Pardoe), although I would remind him that, during those 13 so-called wasted years of Tory Administration between 1951 and 1964, there was a steady reduction in the standard rate of income tax, no capital gains tax—except, in the later part, for speculative gains—no capital transfer tax and no wealth tax. So for the hon. Gentleman glibly to say that there is no real difference between the two major parties on taxation is to simplify things and even to mislead the House and people outside.

My first Parliament was that from 1959 to 1964, when I remember several occasions on which the Chancellor said that he would reduce the standard rate by 3d or 6d in the pound. I can now reassure the hon. Member on his doubts about whether tax reductions are an incentive to greater effort. When reducing taxation, the Chancellor used to give a figure for its cost in the current year and in a full year. It never did cost the amount foreseen, simply because, the moment that the ordinary taxpayer discovered that he would be allowed to keep more of his own money—I emphasise that it is his own money and not the Government's—and decide for himself how to spend it, he worked harder and earned more and paid more tax—but more tax on a higher income. In the process of earning that higher income, he produced more goods and therefore more wealth for the country at large. That proved conclusively that tax reductions are a distinct incentive to greater effort.

We know that the reverse applies to increases in personal taxation. Over the years, many people have found that the additional benefit of working overtime was so much reduced by the higher rates of taxation they were charged that they decided to do a bit of "moonlighting". Even today, many people, having done a full normal week's work producing goods in factories, then do other jobs such as mowing lawns, washing cars or painting houses, for which they charge cash and pay no tax.

Having reached the stage at which people feel that it does not merit extra effort at work at their productive jobs in industry and in producing more jobs and wealth, one of the difficulties will be to persuade them that it is ever worth returning to spending all their time working at taxable employment as opposed to splitting it between some which is taxable and some which is not.

The other point that one must recall is that to have, as we have at present, a capital gains tax—again, introduced by a Labour Government—which takes no account of inflation is pure confiscation. It is quite ridiculous to suggest that just because someone, having saved money, buys a few shares, or whatever it is, and then sells them a few years later at a much higher price, he is necessarily getting a profit. It may be a profit on paper and in fact a loss in terms of purchasing power. The money that he gets in selling those shares after those few years may buy him much less than the original sum invested would have bought. It is, therefore, grossly unfair to continue with a capital gains tax which takes no account of inflation whatever.

If Governments wish people to save—despite the complete absence from the Chamber of Labour Members this afternoon, I imagine that even they wish to see investment in Britain—I do not know where they think that the saving will come from unless there are to be possibilities for private individuals to save. When we are told today that there is a complete collapse in the private enterprise system, or at least that there is insufficient investment in industry, the answer, simply, is that it no longer pays people to save or to invest. Therefore, the Government should look at the whole question of income tax and capital gains tax in that light as well.

With the capital transfer tax as well, and the proposal of a wealth tax to come, or the threat of it, we have now reached the stage at which there is such a jungle of taxation that it is impossible for people to know where they stand. It may be accepted that the ordinary person who pays PAYE on his earnings knows roughly where he stands. I say "roughly" because plenty of my constituents visit me from time to time on Saturday mornings telling me that they simply cannot understand why certain amounts have been deducted from their pay packets. It often takes a great deal of trouble and many letters to Government Departments finally to discover why certain sums have been deducted. It is sometimes discovered that they have been wrongly deducted.

However, the fact remains that many people today have more complicated incomes, composed not only of salaries but of investment income and so on, and they require the services of an accountant to discover how much income tax they owe the Government and whether the Government are taking too much or whether they are paying too little. This is thoroughly non-productive work. It is a paradise for accountants, but it is a ridiculous state of affairs that one cannot have a much more simplified scheme in which everyone knows his liabilities and in which if he has a higher income, earned or so-called unearned, he knows how much he may keep.

We must dig up the whole system by the roots and start again. I am not sure that a Royal Commission is the right body to do this, because Royal Commissions seem to take so long. In our present circumstances in Britain today, I should have thought it vital that some speed was put into the matter of reforming the whole taxation system.

I would start off from the point of view of the hon. Member for Cornwall, North by saying that of course income tax should be tax on all income, and I do not see why it should not apply to all benefits or why one should pick out certain benefits and not others. We should try to work down to a much lower tax on income than we have today in order to encourage people to believe that any extra effort, whether by work or by investing savings and making their money work, is worth while.

I believe that it is time that someone faced up to the fact that this purely artificial division between what is called earned income and so-called unearned income should be got rid of entirely. After all, when we talk about unearned income, most people tend to think of inherited wealth, of someone who is left a very large sum of money, which is invested and which produces a nice, cosy income for him. They think that that money is not earned and that the recipient should be penally taxed on it.

But that is not so for the vast majority. There are many people who during the course of their lives work hard and save hard for their retirement. They save hard and, having paid tax on their earnings, they invest their savings in a modest investment, such as stocks, shares or Government bonds, or something else, and they do so with the idea of providing themselves with some additional income during their years of retirement. In the vast majority of cases that so-called unearned income is simply the income on the capital saved out of taxed income, and it is quite ridiculous to differentiate and to charge a penal rate of income tax on that so-called unearned income. I hope that the Chancellor will be looking at that matter.

Capital gains tax must surely be adjusted to take account of inflation in times when we have a Government who happily allow inflation to run up to the rate of 25 per cent. a year. A pretty drastic adjustment will be required. As the present Government talk in their amendment about fair taxation, I say again that it is most unfair that capital gains tax is charged without any regard to the rate of inflation over the period during which the asset has been held.

Coming to capital transfer tax, I ask myself whether it is regarded as being thoroughly immoral and bad for a person who works hard and who saves money to pass it on to his children, whether during his lifetime or at his death. In many cases, on the contrary, it would be far better for it to be passed on during his lifetime to help the children get off to a good start. In so doing, one is very often helping to relieve the State of the burden of having to aid people later. But if this idea of providing for one's own family by transferring money to them is thoroughly discouraged, one will see people spending money rather than saving.

The Government must think very carefully before proceeding with any wealth tax if they are to continue with the capital transfer tax and the high penal rates of tax on capital gains and on income at present. If there were any proof needed of the fact that this system has got completely out of control and is now quite unacceptable, it is found in the number of what are known as high flyers, the really hard-working, high-earning people who have decided that they can stand the rates of taxation in Britain no longer and who leave the country. It is no good arguing that they should stay in the country which gave them birth and which may have given them training and so on. In the end, they will decide to take their skills and energies elsewhere, where they are better appreciated.

I sincerely hope that the Minister will take some of these thoughts back to the Chancellor of the Exchequer. As I said, I suspect that the Chancellor is wrapped up and busily occupied in other things this week—much too much to worry about what is being said in the House today. However, I hope that he will consider the fact that we have reached the absurd stage at which people are being discouraged from working. As has been pointed out, in certain circumstances it pays people not to work instead of going to work. That must be wrong for the country. The sooner the Labour Government faces up to the fact the better.

5.0 p.m.

Mr. David Steel (Roxburgh, Selkirk and Peebles)

The hon. Member for St. Albans (Mr. Goodhew) has concentrated his remarks mainly on the problems, which are real, of those at the higher end of the income bracket. I want to talk about the other end of the income bracket. I want to talk about the other end of the scale, namely, those on the poverty line.

Our motion refers to the arbitrary nature of personal taxation. There is nothing in the Government amendment likely to inspire the House to endorse any measures designed at achieving a fairer and less regressive tax system.

Like all good Presbyterians I will begin my speech with a text. I take it from a speech in October 1974-by the Secretary of state for Social Services with which I wholly agree. She said this: An income adequate to live on must become the prerogative of every family, but the ways in which we make that income available are just as important as the money itself. Today too much of our welfare system tends to pauperise. In future every step we take must be designed to build self-respect. This means we must not separate the poor from the rest of society. However, the poor are separated from the rest of society by a jungle of rules and regulations which are collectively known as the poverty trap and they operate in such a way as to make a wage earner very often worse off after a pay rise, because of the loss of social security and other benefits.

This situation is coming under increasing criticism. It can therefore be very little consolation to the supporters of a party which is basically committed to the eradication of poverty to find that the Labour Party sells this commitment but that, far from easing the viciousness of the poverty trap, during the Labour Government's period in office they have allowed it to become considerably worse.

I know that there are other excitements within the Labour Party at present, but it is a very sad commentary that on this issue there is not a queue of Government Back Benchers waiting to address themsselves to this important topic.

I want particularly to deal with two aspects, both of which were mentioned in passing by my hon. Friend the Member for Cornwall, North (Mr. Pardoe). The first aspect is the incidence of the tax threshold. We should not allow to go unmentioned the fact that 1975 was a milestone in the history of the Welfare State, in that it was the first year when the tax threshold for the typical family man about whom we always talk—that is, the married man with two young children—became less than half the average male industrial earnings.

In 1952–53 the average family man had to earn more than the average industrial earnings before he started paying tax. Since then, the threshold has become progressively lower until last year such a man had to earn only 46 per cent. of average national earnings before he started to pay tax.

Translating that into terms of hard cash, if the tax threshold had actually stayed at the 1952 level, taking into account increases in industrial earnings, the ravages of inflation, and so on, such a family man would be starting to pay tax this year on earnings of £52.48. In fact, such a family man starts paying tax on earnings of only £27.60.

As my bon. Friend said, the consequence of this lowering of the tax threshold is that the head of a household in full-time employment is liable to pay tax even if his earnings are below the Government's own established poverty line as laid down in the Short-Term Supplementary Benefit Regulations and the Family Income Supplement Regulations.

For that same average family man who at present has to start paying tax at a threshold of £27.60, under the Family Income Supplement Regulations the need established is £35, and under the Supplementary Benefit Short-Term Regulations, including the allowances for rent and rates, the needs assessed are £33.25. Yet on an income of £27.60 the tax system begins to bite.

This is clearly quite ridiculous and anomalous. Not only does it mean, as my hon. Friend, possibly with some typical exaggeration in terms of North Cornwall represented, that a large part of the work force would be better off out of work than in work, but it also gives rise to a situation in which one Government Department gives out a benefit only for another Government Department to grab it back.

Again taking the typical family man with two children and earning the Trades Union Congress minimum recommended wage of £30, his family is entitled to claim £1.80 family income supplement from the Department of Health and Social Security, but it will have to pay back £1.72 to the Inland Revenue in income tax. Therefore, for a gain to this family of 8p the whole weight of two Government Departments is involved in a transaction.

It is little wonder that bureaucracy is Britain's only growth industry. It is enormously wasteful in terms of administration. It is a source of great bitterness and heartache for the lower-paid family, My hon. Friend and I both represent parts of the country where earnings are well below the national average. Every week people come into our surgeries with their pay slips and point out illustrations of this anomaly. It is true that for many of our constituents it just does not pay to work full time.

Apart from the tax threshold, there is also the effect of the clawback. This is the automatic reduction of social security and other benefits such as council rent rebates when a wage earner gains an increase in earned income. This is particualrly severe in the case of earning widows and old-age pensioners who might have a part-time job for perhaps one afternoon a week or one day a week. It applies also to full-time workers.

About 50 per cent. of people stand to gain nothing from a rise of £1 a week in their wages. Another 150,000 would get less than 24p. The Government claim that this is just a theoretical problem because some benefits are not reduced until six months after the increase of income has been earned. It may be theoretical to the Government, but it is a nightmare and a heartache to those affected by the rules.

There was a particularly good illustration of the application of the rules in the Sunday Times last month. The case of a family was quoted. There were three children in the family. The net income was £30. Two of the children enjoy free schools meals at present. The young child enjoys free milk. Family income supplement is received. An increase in income of £5 would wipe these benefits out and increase the family's tax burden to the point where they would be less well off than before getting such a £5 increase.

Some recognition of this has led the Government to oppose any mean-testing of new benefits which they seek to introduce in the future; and they cite the child interim benefit scheme which is to start next month as an example. It is payable to lone parents at the rate of £1.50 a week, but it is taxable and it is taken into account in assessing supplementary benefit and family income supplement. Therefore, it is unlikely that many families will gain anything at all.

The Child Poverty Action Group, in its pre-Budget memorandum to the Chancellor which it has circulated to all Members, said this about the scheme: It has now become clear that few single parent families will benefit from the move to CIB. For example, all those who are at present dependent on benefit—that is, those on national insurance or supplementary benefits—will gain precisely nothing from the special family allowance. Indeed, these groups are being advised not to apply. Furthermore, those single parent families where the breadwinner is in work and who are above the tax threshold and claiming more than £1.50 a week for FIS, will be made worse off through payment of tax and clawback arrangement on their child tax allowance. Only the small minority of single parent families (where the parent is working and not paying tax, or not drawing means tested benefits) will benefit financially from the interim benefits. So, despite the fanfare with which this benefit was launched, even the Government have been forced to accept that the Child Poverty Action Group is right in its conclusions. In answer to a recent Parliamentary Question the Under-Secretary of State for Health and Social Security said that of the quarter of a million families likely to claim, fewer than 5,000 will by this measure be raised above the family income supplement level.

Furthermore, the way in which the Inland Revenue has sent out amended tax codes to all single parents in work, reducing their tax allowances on the assumption that they will claim the new benefit, is evidence of the callous way in which Departments work and how the poverty trap operates. Under this Government, as under previous Governments, what the welfare man giveth the tax man taketh away. We argue that it is time to take positive action.

I shall not repeat what was said by my hon. Friend the Member for Cornwall, North about our proposals for a negative income tax. My hon. Friend was a member of the Select Committee which went into that subject in some detail. Last week, when I asked the Chancellor of the Exchequer what plans he had for the introduction of such a system, he said that he could not anticipate his Budget statement. May be he could not anticipate it, but we are entitled to do so on behalf of those families throughout the country who hope that some relief will be forthcoming when the Budget is announced.

5.12 p.m.

Mr. John Wakeham (Maldon)

I support the Liberal motion. Although I do not necessarily agree with every word in it, broadly speaking it has my support. If it does nothing else it shows up the inadequacy of the Government amendment. The only thing that can be said about the amendment is that it is brief. It reads: believes in the need for a fair and progressive tax system". Surely we all agree with that. The second part of the motion endorses the Government's own measures. I very much look forward to hearing the Minister's speech. I hope that it is fuller and more adequate than the amendment.

I shall not argue whether taxation is an incentive or a disincentive. My feeling is that it is overwhelmingly a disincentive. Surely we all agree that salaries and wages play a substantial part in determining how hard a man is prepared to work and how much responsibility he is prepared to take. The level of financial reward must play a great part in the encouragement of young people to learn skills and to become proficient either in a trade or profession. If that is so, we are right to examine our system of taxation and to ascertain whether our policies are meeting that objective.

I agree with a great deal of what was said by the hon. Member for Cornwall, North (Mr. Pardoe). I know that my hon. Friend the Member for Norfolk, North (Mr. Howell) will be pleased with the way in which the hon. Gentleman has used his research into those in receipt of supplementary benefits and the anomalies that arise. My hon. Friend has been pursuing that line ever since he became a Member in 1970. It has taken him the best part of five years to have accepted what now appear to be self-evident truths. My hon. Friend has been a lone voice crying out what is obvious common sense to anyone who considers his words. It has taken him five years to get across his message. I think that his arguments are now accepted within the Conservative Party, but he has not yet succeeded in getting them across to the Government.

One of the self-evident truths that my hon. Friend has put forward concerns post-tax incomes. I feel that the Government should be concerning themselves with the upper end of the scale in view of the vacancies that they seem to be creating in the nationalised industries. We must also be concerned about those who are to fill the top and important posts in our economy.

I believe that I am correct in saying that the after-tax income of the top 1 per cent. of earners is approximately four times the after-tax income of average earners. That distribution across the board is not that very far different from the post-tax distribution of income in a country behind the Iron Curtain. Over the past 40 years we have moved towards a substantial degree of after-tax income equality. I estimate that about 40 years ago the difference between the post-tax income of the top 1 per cent. of earners and the post-tax income of average earners was about 12 to one. There has been a substantial switch towards net income equality over the past few years. I believe that it is having a detrimental effect.

The distribution of capital has moved substantially towards a system of equality. We have moved further than is realised. This is an argument that many do not want to discuss. It is said that 10 per cent. of the population owns approximately 80 per cent. to 90 per cent. of all the country's assets, but that argument is destroyed if we take into account the value of pension rights. If that factor is introduced we have a situation in which some 45 per cent. of the population, as opposed to 80 per cent. to 90 per cent., owns the country's assets.

The figures are all the more distorted because capital is unevenly distributed between husbands and wives and between the young and the old. I agree that there is a considerable unequal distribution. It is a situation which I want to see remedied. However, uneven distribution and the ability for people to earn and to keep what they earn are essential parts of the system.

I do not think it is realised how far we have moved in the direction of equality. We have some of the highest taxation in the Western World and one of the lowest economic performances. Perhaps it is not a coincidence that such a high level of taxation occurs in a country whose economic performance leaves a substantial amount to be desired.

There has been a substantial increase in direct income tax over the past 10 or 15 years. In 1963 about 5 per cent. of net disposable income was paid in income tax. That has now increased to about 25 per cent. That increase is one of the major causes of inflation. The pressure for higher wages so as to maintain standards of living virtually rules out the possibility of paying people sufficiently well to take on onerous jobs.

My argument does not apply only to people who enjoy very high levels of income, those who might be induced to run the nationalised industries. It also applies to middle management. For example, if we wanted to increase a man's post-tax income from £8,000 to £12,000 in reward for taking on a responsible job, it would be necessary for there to be a pre-tax increase from £15,000 to £30,000. This is a major additional cost to a firm when seeking to find somebody to take on the responsibilities of running a major company.

I conclude by making three points. I wish to draw attention to some recommendations made by my own institute, the Institute of Chartered Accountants. The Institute has put forward some excellent suggestions to the Chancellor of the Exchequer and I hope that he will take note of them. Reference is made in those suggestions to the practical difficulties arising from taxation dealt with by means of extra-statutory concessions—concessions which come to the public's attention in a variety of ways, including Press releases, statements in Parliament, letters in professional journals, and so on. It is time that all the agreed anomalies which exist—and which the Inland Revenue, to its credit, tries to deal with by way of extra-statutory concession—were dealt with in a special Bill, rather than in the Finance Bill, in order to allow Parliament a greater amount of time to consider these matters.

I am not wildly enthusiastic about indexation of allowances, but I believe that the Government has a responsibility in that respect. I hope that the Government will examine a number of allowances which have not been increased since 1970. If the Government do not wish to bring in indexation of allowances, they at least have a clear responsibility to see that those allowances at least move broadly in line with the rate of inflation.

Furthermore, I believe it is time that the Inland Revenue re-examined expenditure wholly and exclusively incurred for the purposes of trade, which is not always allowed by the Inland Revenue in computing profits for income tax purposes. To give a few examples, there is the cost of leases for business premises, the cost of raising capital, the cost of abortive capital expenditure, and the question of exchange losses in respect of non-sterling balances. There are a number of items of expenditure which are incurred by people under Schedule D wholly and exclusively for the purposes of trade but which, because of anomalies in our tax system, are not to be deducted in computing profits or in arriving at the taxable sum. I believe that the situation is wholly unfair.

The Liberal Party has done the House a service in enabling hon. Members to debate this important subject. I hope that the Government will listen carefully to all the points made so that in future we may see a fairer and more reasonable taxation system.

5.24 p.m.

Mr. John Golding (Newcastle-under-Lyme)

I, too, look forward to a fair and reasonable taxation system. However, my notion of what is fair and reasonable is very different from that put forward by the hon. Member for Maldon (Mr. Wakeham).

People are worried about personal taxation and believe that the burden is too great. The Government are well aware of the situation. Many items of public expenditure, desirable in themselves, are to be cut in the next few years because of the pressure that has arisen as a result of the growing incidence of personal taxation. The Government are aware of the feelings of many people, particularly those on low incomes, that thresholds are set at too low a level. I look to the Government in the coming months to see whether, as part of a wages deal with the trade unions, they can perhaps make concessions and raise thresholds.

It cannot be denied that there is pressure from those on average earnings, and indeed from those with higher-than-average earnings among the skilled and manual workers generally, to bring the Government to recognise that too much money is taken out of the weekly pay packet in taxation. That has to be said. Perhaps in the coming year my right hon. Friend the Chancellor of the Exchequer will be right to consider the possibility of a wages deal with the trade unions which implies that, in return for tax concessions, the trade unions will accept less in wage increases from 1st August. These ideas are now worthy of discussion between the Chancellor and the TUC and all those interested in our economic well-being in the coming year.

The incidence of taxation is felt to be too high, but that does not of necessity mean that those of us who are inclined to be radical constantly wish to plead for lower taxation. I support the Government's public expenditure White Paper, but I do so with regret. I wish that people were prepared to pay more out of their earnings for many items supported by the public purse. I find it regrettable that I must tell deputations of pensioners that they cannot have all they demand because those who are in work are not prepared to pay a level of insurance contribution or an amount in tax necessary to give the pensioners all they seek.

We can look at almost every item of public expenditure in that way. We can say to the teachers that they cannot have the money they wish to see spent on education because people are not prepared to pay the amount in tax that is necessary to maintain the best possible education service. We can say the same to doctors and nurses in terms of what people are prepared to pay to maintain the best hospital service. This applies throughout the whole fabric of our society.

I think that the Liberal Party is being somewhat ambivalent on this point. We must recognise the reality that working people, among others, are not prepared to pay higher levels of taxation, although when we look at areas of need and distress we wish in our hearts that people who receive good incomes were prepared to pay more towards these ends.

Mr. Goodhew

The hon. Gentleman paints a sad picture, but he ignores a very large area of Government expenditure which has nothing to do with the well-being of the people to whom he refers. He is ignoring all the effort put by the Labour Government into nationalising the aircraft and shipbuilding industries, which is absorbing large amounts of Government money. That exercise will require heavy sums of taxpayers' money to administer. The Government should get out of those areas and concentrate on doing things that people cannot do for themselves. If the Government did not interfere in those other matters and concentrated on looking after old age pensioners and on maintaining a good Health Service, it could be managed perfectly well out of taxation.

Mr. Golding

I did not notice that those issues were looked after very well by the last Conservative Administration. I do not think that the Tory philosophy enabled them to look after the weak and the deprived as they ought to have done by using taxation or anything else. The answer to the hon. Gentleman is simple. For decades taxpayers' money has been poured into the aircraft and shipbuilding industries. It is an irrelevance to discuss that subject.

I was making the serious point that there are competing pressures upon us. There is pressure from those in need, who want more, and there is pressure from those who do not wish to pay more taxation. I listen to and understand both points of view. I regret that it is not possible for us, at present, to persuade our people to accept the levels of taxation which would be necessary to support the type of Welfare State I would like to see—even though I know that wealthy Conservative Members will never have had any experience of a Welfare State.

Mr. Beith

Will the hon. Gentleman address himself to the point that some of the people he is asking to bear this level of tax would, if they chose to rely on the Welfare State, get more than the net income left to them now when they have paid tax?

Mr. Golding

When we are talking about increasing thresholds and other methods of financing welfare I am prepared to listen to the objective arguments of the hon. Member for Berwick-upon-Tweed (Mr. Beith). I am sorry that he intervened at that point because I was trying to argue against the non-serious point put by the hon. Member for St. Albans (Mr. Goodhew).

Mr. Goodhew

The hon. Gentleman is wrong to accuse me of making a non-serious point. I am making a perfectly serious point and he knows it. It is not a question merely of financing the Welfare State out of taxation; it is a question of financing a lot of other Government activity—activity in which the Government ought not to be involved. The hon. Gentleman should come and talk to the Hawker-Siddeley workers in my constituency. He will find that they are very sad about being taken over by the Government. They will tell him that they wish that the Government would keep out of such things and concentrate on the Welfare State. We care about people, too. The Labour Party has no monopoly in care and concern for human suffering.

Mr. Golding

Generations of Chancellors would have wished that the aircraft and shipbuilding industries had been able to stand on their own rather than financed to a large extent by public money. Chancellors would have been delighted if they had not had to listen to representations from Conservative Members drawing attention to the fact that shipyards in other countries were State-subsidised. The hon. Member's contribution is an irrelevance.

I cannot accept the motion in its entirety. It says the impact of personal taxation is both arbitrary and too heavy". Here I take issue. I believe that the incidence of taxation can be argued to be too heavy for certain groups. I do not believe, although it has been argued by some Conservative Members, that it is necessarily too high for the very rich. I do not believe that the Chancellor should try to bring about a situation in which the very rich pay less taxation.

That is not to say that changes in taxation may not be desirable. It may be desirable to reduce taxation on those company profits which are ploughed back in investment rather than distributed. I would strongly object if, in his Budget, the Chancellor were to relieve the very rich of paying some taxation. There is still scope for increased taxation of the very rich. In the total scheme of things that is not a point that I would argue from a Revenue angle. I just cannot accept that the very well-off cannot stand the present burden of taxation.

I cannot support the call made in the motion for a Royal Commission on Taxation. If there are things that need to be done to ease the burden of taxation for the poor and needy, they ought to be done now. We do not require a Royal Commission to tell us that the thresholds ought to be raised. There is a growing tendency to create committees of inquiry and Royal Commissions which simply delay the implementation of radical proposals.

Mr. Pardoe

I accept the point that the hon. Gentleman is making generally. Does he not accept that the shreds and patches of taxation legislation which we have enacted over the years have left us with an intricate maze of taxation anomalies which can probably be sorted out only by the kind of overall survey that a Royal Commission would give? Does the hon. Gentleman not accept that, even if we changed the thresholds, we would still have appalling anomalies at the lower end of the income scale caused by the fact that we do not tax all national insurance benefits, including unemployment benefit? Does he not think that we might need the evidence of a Royal Commission to get away with that difficult political point?

Mr. Golding

I made representations to the last Conservative Administration saying that I thought it desirable, in the treatment of social security benefit, to cease to give tax relief on contributions and not to tax benefits. I am certain that that is the right way forward. We do not need a Royal Commission to tell us that that is the simple solution to the taxation of widows' benefits and suchlike.

I do not believe that the procedures of this House are so defective as to need overhauling in this direction. From the time the Chancellor presents his Budget to the enactment of the Finance Bill this House spends many days and weeks considering the fundamental matters referred to in this motion. I understand that the Budget debate will last for a week this year. It will be possible for hon. Members, having looked at the tax position and arrived at certain conclusions, to argue their own taxation philosophy. We should not always need a Royal Commission to tell us what changes in the law are required. I had always thought that it was part of my job to find out what changes people wanted to be made in the law and to put their point of view in the House.

Mr. Beith

Will the hon. Gentleman consider the difficulties facing any hon. Member who tries to do that? I do not know whether the hon. Gentleman has undergone the long slog on Standing Committees considering Finance Bills, but it is not possible for Back-Bench Members to make proposals to increase the Government's revenue, thereby altering the distribution of taxes. The exercise on the Finance Bill is tightly constrained so that major and even trifling changes cannot be proposed. Government spokesmen say, "The Opposition may ask us to cut the revenue but they cannot ask us to increase it because the procedure does not allow it."

Mr. Golding

I have spent many hours as a Whip listening to discussions in the House on Finance Bills. However, I was not referring to Finance Bill debates. I was referring to the week of debates which follow the Budget. I understand that in that week it is possible to present coherent alternative strategies to the Budget. A week is a long time in politics and in debate, and if the Liberal Party wishes to influence the House it should be possible for its members to present their alternative strategies in that week—if they have them. If the argument were that the Liberals do not have a coherent policy and that they would like a Royal Commission to find them an alternative policy, I would perhaps view their argument with more sympathy, but I do not think that they take that view. If the Liberal Party says that it has a coherent alternative strategy, it should present it during Budget week and allow the House to decide what it thinks of its ideas.

It is possible for the House to review the effects on the taxpayer of Government income and expenditure. I do not propose to speak at length on that matter but wish merely to draw attention to the fact that only recently we had a two-day debate on the impact of the public expenditure White Paper on the vast range of services provided by the Government.

In conclusion, may I say that I recognise the pressure that there is on hon. Members because of the incidence of taxation.

Mr. F. P. Crowder (Ruislip-Northwood)

When the hon. Gentleman finishes his excellent speech, will he have the grace to leave the Chamber and then there will be nobody on the Government Back Benches?

Mr. Golding

It would have been better if I had not allowed the hon. and learned Gentleman to make that intervention. I have learned from my mistake. No doubt Labour Members decided not to come into the Chamber on hearing that I was about to speak—and who can blame them?

There are pressures on us against further taxation, but I plead with the radicals in the Liberal Party not to go too far along that path. When pressure is put on us to urge reductions in taxation, we owe it to our radical past to say "Yes, but …" and to spell out to our constituents the need to finance pensions, the National Health Service, education, and so on. I say that to the Liberals in the knowledge that if I say it to the Tories it will be a complete waste of time.

I accept the Government amendment and I am confident that I shall be able to vote for it, but the Liberal Party's motion is deficient in several respects.

5.46 p.m.

Mr. David Penhaligon (Truro)

A proportion of the problem of personal taxation is the direct result of inflation. I once tried to work out what the national average wage would be on the day that I retired if the then current rate of inflation—about 23 per cent.—was maintained. The day on which I retire will be in the year 2009 and therefore it is some way away, but even so the calculation is interesting. I came to the conclusion that, on the then current rate of inflation, the average wage when I retired would be just over £40,000 a week. That would represent, before tax, an annual income of £2 million a year—a princely sum—and if I could have only a small proportion of it today I should be able to solve many of my problems. Without any change in thresholds, which is what we are discussing as much as anything else, on an income of £2 million there would be, according to the calculations of my hon. Friend the Member for Cornwall, North (Mr. Pardoe)—I do not normally deal in levels of taxation and therefore the calculations are beyond me—tax of £1.6 million, or just over 80 per cent.

In a period of inflation, by not adjusting the thresholds in line with earned income, the percentages paid in tax gradually increase. Before anyone gets excited about the idea that he may earn £2 million in 2010, I should point out that, according to my calculations, potatoes will be just over £1,500 each and my house, modest property though it is, will probably fetch on the open market about £8 million. There is a good chance that at least half my generation will pass to another world virtually millionaires.

One of the reasons for this situation is sheer undiluted politics. We are talking about the fiddling of indexes. Governments have increasingly taxed earned income and have been less willing to raise revenue by indirect taxation. Increasing VAT and reducing income tax may slightly distort the income pattern in a way that I should not like to see, but there are other ways in which the problem can be overcome. However, the effect time after time is that a larger percentage of the Government's revenue is raised through personal taxation.

That is a reflection of the domination of our political thought by an index which it is fashionable to discuss at the time. At one time it was fashionable to use the balance of payments. We seem to have given up that battle for lost, so now we discuss the cost of living index. The domination of the cost of living index in the past two or three years has caused a sizeable proportion of our problems.

Like other hon. Members, I have regular surgeries in my constituency. Occasionally I am asked, not "Did you support this?", but "Can you explain why the Government did it?" I feel that I ought to rally round my colleagues in Parliament and at least try to explain the logic of the Government's decisions even though I may have voted against them. I sometimes think that the definition of a good Liberal is one who understands both sides of the arguments so well that he cannot make up his mind. However, there are some decisions which dumbfound me.

For instance, a self-employed man with the enormous income of £31 a week pays 35 per cent. income tax on his marginal pay and an additional 8 per cent. in national insurance contributions. If he succeeds in increasing his profit by £1 per week—not exactly a large sum—the Government require 43p of that for their coffers. I have no wish to defend that situation and I find it difficult to explain to my constituents.

If the same man increases his income to £90 a week, which is at least a reasonable income, his level of taxation drops. In explaining the reasoning behind this to my constituents, I do not defend my parliamentary colleagues with the enthusiasm that an hon. Member perhaps should. I describe it as one of the idiocies of the legislation we pass. A self-employed person pays a lower level of taxation on the 85th pound he earns than on the 32nd. Anybody who thinks that is right deserves to have his head examined.

I was interested in the earlier references to the child interim benefit. My hon. Friend the Member for Roxburgh, Selkirk and Peebles (Mr. Steel) said it would be both taxed and count against supplementary benefits. I am particularly interested about what will happen next year when it becomes the child benefit and available to all families. I was interested in what the hon. Member for Newcastle-under-Lyme (Mr. Golding) said about the ability of hon. Members on the Opposition Benches to affect legislation. I spent a substantial time trying to find a way to put on the Order Paper a motion that this benefit should be taxed. I do not want to go into the merits of the argument now though I think it should be taxed. It would have a redistributive effect on income for the purpose of increasing the income of the low paid, who are the people I am most concerned about. Despite the levels of taxation about which they complain, the higher paid seem to be able to look after themselves quite well.

I made a substantial effort to find out how an ordinary Back Bencher could put such a motion on the Order Paper and at least get the matter discussed. I was told to go to the Ways and Means Committee. I had never met it and was not quite sure what it did or where it hid. Eventually, I discovered that my party had not a single member on that Committee, which had to approve any motion for increasing taxation before it could be put on the Order Paper. The Government have a majority on the Committee and it is a difficult task when one does not have a single colleague to support one's case. Even on a relatively minor matter like taxing this benefit, I found no way in which I could get the matter discussed.

Mr. Golding

Did the hon. Member try to discuss it during the Budget debate?

Mr. Penhaligon

I am delighted that the hon. Gentleman has raised that point. Mr. Speaker was in the Chair—he was Mr. Deputy Speaker then—when I tried to raise this matter on the Third Reading of the Finance Bill. I think it was the shortest speech I have made in Parliament. It ran to just four lines in Hansard before I was told I was not allowed to speak on this matter.

I mentioned it in the Second Reading debate, but like so much of what is spoken in this House—usually with substantial wisdom—it went in one ear of the Government and out the other. Such speeches get into Hansard, but have little result.

The treatment of the disability allowance is another matter which is beyond me to explain to constituents. The allowance is, in effect, a recognition of the fact that a retirement age of 65 is a nonsense for some people. They reach a stage some time before their 65th birthday when it becomes clear that their working life is over. We pay them the benefit, equivalent to a retirement pension, as a recognition of the fact that, in effect, they have had to retire early. On the great day these people reach retirement age, they ask why they are suddenly £3 a week worse off. The reason is that we tax pensions, but not the disability allowance. For some obscure reason, a man whose ailments have not changed in any way is supposed to exist on £3 a week less.

Of course it is easy to stand here and talk about methods of reducing taxation, but I have already indicated support for two increases. But I think the hon. Member for Newcastle-under-Lyme would agree with me—though I might have a job persuading some of my hon. Friends—that a Royal Commission could look at the number of tax allowances given on extremely high incomes.

The economy of my county has been wrecked by the tax relief on mortgage interest. How can a Cornishman earning £40 a week who wishes to buy a house in Mevagissey, Pentewan, Porthtowan, Perranporth, St. Mawes, or anywhere else in my constituency compete with a man who already owns one house and, when he comes down from Birmingham to buy a property in Cornwall, gets a Government subsidy of up to 85 per cent. on the interest on his mortgage for the Cornish property? Of course, Cornish-men cannot compete. A flood of good housing in my constituency has gone to people who have no need of it, and this is one of the scandals of our age. It is caused by the tax allowance. I understand that it is possible for somebody who earns enough virtually to run a harem at the end of his working life.

Mr. Golding

It is a bit late then.

Mr. Penhaligon

This is an area into which I do not wish to enter, because we have enough problems already, but I understand that it is possible to divorce one's wife, have a court order made for maintenance and charge that against tax. Why should a humble 35 per cent. taxpayer like me get less from the Government for subsidising my ex-wife than a millionaire who is an 85 per cent. taxpayer? I can think of no logical reason why that prejudice is held against me.

I admit that it would be unfair to phase out allowances overnight because it would distort a person's taxed income pattern to such an extent that he would be unable to meet his liabilities. But the day has come when tax allowances for mortgages and court maintenance orders should not be granted at more than the standard rate. That would have a good effect on housing in my constituency.

Under recent legislation the Government are required to increase pensions in accordance with the cost of living or the average wage, whichever is greater. That is a good rule of which the House should feel proud. We shall be able to guarantee pensioners at least a consistent standard of living. But there is a risk that that promise will become a nonsense in the near future.

If no change is made in the single person's tax allowance in the forthcoming Budget, a woman who retires at 60 will pay income tax. If the Government increase her pension by 15 per cent. to compensate for the increase in the cost of living and take back 5 per cent. in tax her income will be increased only by 10 per cent. I wonder whether that is a deliberate policy, whether it is a new way of raising revenue. If it is not deliberate, I wonder whether it is legal. We shall not be guaranteeing that person's income against a cost of living increase or against the average wage. That person will have a real decrease in her standard of living.

I ask hon. Members to support the motion. It is time for a review on the impact of personal taxation especially at low income levels. Although Members of Parliament complain, we are a lot better paid than are my constituents. There are few of my constituents who would not take my job for the money. Taxation hits my average constituent who earns £36 a week and has a family to support—and there are thousands of them.

6.3 p.m.

Mr. Peter Bottomley (Woolwich, West)

It is a pleasure to follow two speakers who were elegant and inoffensive. If I hesitate to say which was which I hope that I shall be forgiven. I am glad that the Liberals have taken up a subject which, being in favour of motherhood and against inflation, I regard as important. The people who suffer most from arbitrary and heavy taxation are those with children to support.

I am sorry that the hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) is not here. I recall reading in a recent pamphlet which he wrote that there were at least 24 Liberals in the Tory Party in the House of Commons. How pleasant it would be if the Liberals could reconcile their differences and join us on the Tory Benches, where most of them, and most of their supporters, belong.

There are three groups who are affected by the arbitrary and heavy levels of taxation. The first group consists of people who are trying to create businesses. In my previous job I was in discussion with a group of people who wanted to set up a common ownership firm. They worked out how much they could borrow, how much interest they would have to pay, how much profit they could make and how much tax they would have to pay on the profit before they could call the business theirs. I am driven to recall the endeavours and the success that that group of people would have to have to build up a business worth £500,000, employ 50 people and perhaps export a little to the Middle East, when the alternative, according to page 11 of Labour Weekly, is to win £500,000 on the football pools. It is important to get the right balance. Arbitrary wealth is just as reprehensible as arbitrary taxation on those who are trying to create wealth.

The second group of people who are hit heavily by taxation are those who earn a great deal of money and have to commute. That was brought home to me in Frinton when I spoke there a fortnight ago. A fortunate man there said that he paid taxation at the highest level of 98 per cent. To pay for his £502 a year season ticket to London it cost him £22,000 a year in pre-tax income.

The third group to which I wish to refer are the pensioners. One has to explain to pensioners why a £20-a-week subsidy is given to every British Leyland worker while it is stated that an increase in the £13.60 pension is not possible. I find that I cannot explain that. We have moved on from the situation described by the hon. Member for Newcastle-under-Lyme (Mr. Golding) when he demonstrated the near-unanimity of the Labour Party and the Back Benchers on one subject, which is, presumably, not listening to the opinions of a leading Labour Party economist. To transpose what he said, how can we claim to be helping those in greatest need, who are the pensioners and the low paid with children? We have large and indiscriminate employment, housing and food subsidies and to that extent the Liberal motion basically justifies itself.

The most important group about whom I am concerned are the people with children. There are 13½ million parents sharing 14 million children—over half the population of the country. They are not represented in the House as a group, as trade unionists are represented. They are not taken into account when the Government meet the CBI and the TUC. I am not making a point against the trade unions. It is difficult for the trade unions to say that there must be fairness between their members who support children and their members who are past childbearing age. It is a good sign that on Wednesday the Chief Secretary is to meet a group led by the British Union of Family Organisations, of which I am the unworthy chairman, to put the case for the single parent family and other families.

To illustrate how discrimination against families has occurred during the past year one has only to consider the £6 income limit compensation for inflation. That amount would be the same for you, Mr. Speaker, with no immediate dependants, as it is for a man with a wife and two children. You would have £6 a week for yourself, whereas the family with two children would have only £1.50 per head. That illustrates the case for a sensible tax credit scheme which brings together welfare and taxation.

6.10 p.m.

Mr. David Howell (Guildford)

This debate has been an overture to the great economic and financial debates to come after the Budget. As such, it is welcome and gives an opportunity to air our preliminary views. I wish to make clear the Conservative Opposition's attitude to the motion and the amendment.

The amendment is a frivolous defence of the indefensible. No one seriously imagines that the Government have had much success with their fiscal measures. Most people, including some in the Labour Party, would say that the last two years have been a record of appalling fiscal incompetence. One need say no more than that about the amendment at the moment, except that I shall advise my right hon. and hon. Friends to vote against it.

In considering the motion itself, we all share the desire for a lower burden of taxation, but I have doubts about this yen of the Liberal Party for yet another Royal Commission on Taxation, this desire to grasp hold of some wholesome reform which will produce a perfect system. I do not know whether the Liberals have had time to think the thing through or have studied the experience of another Liberal Party, in Canada, which also went for the Royal Commission on Taxation solution and got into the most fearful difficulties.

Our view is that taxation is a living thing, and that even if one says, "Let us stop the world and start again", it cannot be done. That is what the Canadians found. One of the most eminent Canadian authorities on taxation summed up the wildly over-ambitious and wildly comprehensive reforms which came out of the Canadian Royal Commission as a "political and economic Vietnam" for the Canadian Government. He pointed out that the Canadian Government had attempted a major and comprehensive attack on the whole pattern of Canadian taxation, with the result that they were wildly over-stretched and that the pressures on the whole system, including on business men who had to unlearn the past and learn a new system, nearly led to total fiscal breakdown.

Therefore, I have grave doubts about the Royal Commission on taxation approach, and if the Liberals think it through more carefully and study the Canadian experience, I am sure that they will realise what many others have realised—that the way forward is a more cautious and less ambitious one, and that the idea of clearing the decks and producing a Utopian, radical new comprehensive-for-all-time taxation system belongs to cloud-cuckoo-land or to the land of Liberal manifestos.

That does not mean to say that we are against more elaborate consultation on taxation reform. We have always taken the view that there should be plenty of consultation on taxation. That is borne out by our record in Government and the publication of a number of Green Papers. We believe that that principle should be carried into the future, particularly in relation to capital taxation. We approach the future of capital taxation in a diametrically opposite way to that of the Labour Government, with their appallingly mismanaged introduction of capital transfer tax. While we want more consultation, and we like the idea of a lower burden of taxation if it can be achieved, I shall not be suggesting to my right hon. and hon. Friends that they should necessarily support the Liberal motion.

First, I turn to the overall burden of taxation and how heavy it is. I agree with the hon. Member for Cornwall, North (Mr. Pardoe) in his warning against the difficulty of making international comparisons. That has not stopped some hon. Members from doing it, but such comparisons can be misleading. However, there are some areas where we can agree.

First, there is no disputing that amongst the OECD countries the United Kingdom has the highest marginal rates of income tax. That fact seems to be agreed on both sides of the House. I notice that even Labour Weekly, which we all seem to be quoting today, states that the highest marginal rate—83 per cent. on earned income and 98 per cent. on investment income—is but "a fig leaf" to cover our "Socialist conscience". It will need a good deal more than a fig leaf to cover the Socialist conscience nowadays. But at least even in that quarter the realisation is at last penetrating slowly into the minds of those who write that publication that these inane and silly levels of taxation satisfy no criteria of social or any other kind of justice or fiscal common sense. There is no disputing that, and I do not think that the Treasury Bench would try to defend the situation.

We know, too, that amongst the OECD countries we have the highest level of capital taxation. That seemed to be the position before the capital transfer tax was brought in, and obviously it will be even more so since that tax was added to the previous structure.

Finally, we know that we are near the top of the list, preceded, I believe, only by Denmark and Sweden and possibly in some circumstances by Norway, for income tax. That is the position if one makes a table of tax "awareness" based on the amount of income tax and national insurance contributions actually paid by the employee.

Thus, the old cry which one still hears from the Labour Party that we are not so highly taxed after all no longer stands up to any comparison of any kind. Not that comparisons are needed. We know that the tax burden in this country has reached absurd levels, that per household total taxation has increased in the two years between 1973–74 and 1975–76 by no less than £688.

Thanks to the work of a number of people such as my hon. Friend the Member for Norfolk, North (Mr. Howell), we know that the effect at the lower end of the scale of this kind of increase has been devastating, particularly in the area of interaction between income from work and benefits from social security, about which we shall hear a lot more. My hon. Friend describes circumstances in which for many thousands of people the marginal rate of tax, plus all the other interactions of social security benefits, was well over 100 per cent. and in some cases 200 per cent. He describes a situation in which a man at work on £45 a week with two kids could, at the end of the week, find himself worse off than someone in the same circumstances who had stayed at home all week.

All this will get worse with the up-rating in November of social security benefits, which, under the present law, will have to be in the region of 22½ per cent. All these problems, appalling now, will be far more appalling in November when that takes place. On that score alone, the need for the Government to do something, and something very significant, is overwhelming. I will come in a moment to discuss what elbow room the Government have to meet this burning need.

In surveying the income tax scale up to management level, again we have a critical situation—a situation which the Chancellor of the Exchequer described as one in which people were receiving, in his own uniquely unattractive phraseology, "quite a caning". It is a situation recognised outside the country as verging on the ridiculous. On a recent visit to the United States, I found that the number one worry of American businesses who have invested or have subsidiaries here has now become not labour troubles but the level of taxation on management. They find they have to deal daily with requests from those already here to serve in branches elsewhere or requests from those they wish to post to the United Kingdom not to come here because of the levels of taxation.

Of course, all this is subjective judgment. It is not a scientifically-researched statement. The hon. Member for Cora-wall, North said that these things could not be objective. Of course not. There is no expert objective opinion in a political democracy on what is politically fair, just and reasonable. As the hon. Member for Newcastle-under-Lyme (Mr. Golding) said, we are here to argue that out.

It is clear that the situation at the upper end of the income tax scale is as ridiculous as it is at the lower end. Here, too, the case for change is desperately urgent. But when we consider what change can in practice be achieved, we are on much more difficult ground. Unless the Chancellor of the Exchequer raises the threshold by 20 per cent. or rather more—the rate of inflation between April 1975 and April 1976—he will not be reducing taxation at all: he will be increasing it by very substantial amounts.

Some calculations have been given in the newspapers, as well as by my hon. Friends, to show that the allowances will have to be raised, in the case of the single person from £675 to £810, and for the married person from £955 to £1,146. For a child under 11 the allowance will have to be raised from £240 to £288, and for a child over 11 from £305 to £366. If the Chancellor of the Exchequer raises the allowances by less than this, he will have increased taxation.

We have no doubt—I suspect that this view extends to all parties—that there is a desperate need at this time to reduce the levels of taxation. The question is whether the Government, in their determination to imprison themselves and to discard all the choices open to them, have left any room at all in which to achieve the necessary reductions in taxation. Peering into the immediate future for the answer, it is very hard to see that there is any room at all.

The debate on public expenditure showed that public expenditure will not be cut next year but increased. In 1975 prices the increase will be to about £52½ billion. Allowing 10 per cent. for inflation, the figure will be £58 billion. Looking at the revenue out-turn for last year, a fairly reasonable guess for this year would be about £40 billion. If we add 5 per cent. for the growth in economic activity and another 10 per cent. for inflation, we have £46 billion. That still leaves a gap next year—a public sector borrowing requirement that has to be financed somehow—of £12 billion. That is assuming no reductions in the rate of growth of taxation—no changes in the rates at all.

The first call in terms of responsible public finance is for the Chancellor of the Exchequer to reduce that colossal deficit. He has made undertakings in so many words to the outside world. He has said that there will be some reduction if he can achieve it. If there are any extra resources, this is where the money ought first to go—in reducing the gigantic deficit which otherwise will be as large in 1977 as this year—probably larger in 1977 pounds.

The tax dilemma is that cuts are crucial, but at the same time there is no room for cuts. Indeed, there is little room for reducing the rate of growth of taxation by partly raising thresholds to compensate for the increase in prices. Therefore, when the Chancellor of the Exchequer says, as he did in an interview with the Sun newspaper on the subject of relief for wage earners, I'll put cash in your pocket", he is offering something he has not got. He is making an offer of a kind which is irresponsible in relation to his other fiscal undertakings. That statement falls into the same category as his statement in the same interview that we have just "turned the corner" in the British economy. That is the sort of idiotic optimism that we have heard from the Chancellor of the Exchequer in the past—always wrong, always damaging and always misleading in its content and direction.

This is the position the Government face, and we shall watch in the next few weeks to see what on earth they propose to do about it. Desirable and crucial though major tax reductions are, as pointed out by Liberal Members and by Members of my own party, in the lower, the middle and the upper tax ranges, the Labour Government have created a situation in which they have left themselves no room in which to act responsibly and urgently.

Having said that, I add that not all tax changes are impossible. There may be no room for major and significant tax reductions. That is the fault of the Government. They have made their bed and must lie on it. Nevertheless, as a matter of national survival it is necessary to try to put some steam into business, into investment and into exports. It is possible, without any major revenue implications, without spending or giving back billions of pounds, to make substantial changes in business taxation, and to do something which might—although it is very difficult under this Government—have some confidence-inducing effect.

It should be possible to make reductions in what my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) has called the "political taxes", by which he means taxes which, if they were reduced tomorrow, would have no significant effect on the revenue. These taxes are not imposed for revenue purposes and could be taken away without damage to the economy and without showing fiscal irresponsibility.

I refer to the impossible-to-pay capital transfer tax, which is wrecking so many businesses up and down the land, losing jobs and denying people the chance to do a decent job of work. My right hon. and learned Friend refers, and so do I, to the highest marginal rates of tax. The Labour Weekly is also against them. These are the 98 per cent. and the 83 per cent. taxes which are at world championship levels of absurdity and should certainly go.

Then there is certainly a case for looking at the capital gains tax and its working under high rates of inflation and trying to move towards a tapering of it. A number of other changes in taxation could be made to encourage business investment.

Those on the Liberal Benches, such as the hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel), and others on the Labour Benches may say that this is very unfair because it is the people at the broad level, the mass of income earners, who must be helped now and must have the first priority.

Alas, we have to say—I hope that the Treasury Bench will say this very soon— that the first priority at this difficult time is not to help the mass of people. The first priority, alas, is to enable us to earn, to invest, to export. This means that the first consideration in any tax changes now at this stage, this side of national bankruptcy, must be to assist business investment by changes which will encourage investment and encourage business enterprise. That is the unpleasant but necessary priority to which we have been forced. When these things have been done and we are back from the brink of bankruptcy, we can then turn to the other and more desirable tax reforms.

This is the position into which Government have been trapped. In our view the Government's attempted defence in their amendment is untenable. Their record of fiscal administration, quite aside from the level of tax burdens, is inexcusable. They have blundered on everything they have done, whether it is capital transfer tax, the higher rate of value added tax—which was a nonsense—or the discrimination against small businesses. Even in the case of stock appreciation, where the Government tried to help, they have left firms with an absurd overhang of tax liability which will have to go.

Some of these matters could be put right in the 6th April Budget, but on past performance those who believe that anything of this kind will be done are likely to be disappointed.

6.28 p.m.

Mr. Richard Wainwright (Colne Valley)

This afternoon the House has responded fully to the spirit of the Liberal motion and the manner in which it was introduced by my hon. Friend the Member for Cornwall, North (Mr. Pardoe). We are gratified that the subject has been discussed throughout the debate from all sides of the House as one lying at the very heart of government itself and not simply as a background for grievances, for specific anomalies and for other complaints. There has also been a very constructive spirit about the greater part of the debate.

This is particularly gratifying to a party which has chosen this subject for only the third of its Supply Days since 1939. I hope that this in itself is an earnest of the fact that, contrary to what some speakers have said, we believe that, first and last, tax must be settled in this Chamber. None of our proposals for a Royal Commission or for Select Committee procedure with co-opted experts is meant in any way to detract from the total supremacy of this Chamber in settling matters of taxation. I hope that we have demonstrated that this afternoon. It is also gratifying to us that our views on taxation, which first saw the light in modern form as far back as 1962 in the report of a Liberal committee chaired by Professor Wheatcroft, have at last been ventilated on the Floor of the House.

There have been some notable contributions to the debate. If I refer to them briefly, it is only because of the lack of time at my disposal. The hon. Member for St. Albans (Mr. Goodhew) struck a Liberal chord when he pointed out that there is income from investment which is simply deferred pay from work. We go along fully with the idea that the income from a range of savings likely to have been saved out of taxed income over a lifetime before retirement should be treated as ordinary pay for the purposes of tax. It is only when we get on to ranges of unearned income which are plainly the result of speculation or of massive and skilled investment on a huge scale that we invoke a higher rate of tax.

My hon. Friend the Member for Roxburgh, Selkirk and Peebles (Mr. Steel), as has been acknowledged fully, dealt with the appalling aspects of the poverty trap which have been created because in his Budget nearly a year ago the Chancellor of the Exchequer did not allow any reasonable tolerance for the inflation which was bound to follow during the 12 months after his Budget. I underline the many points made by my hon. Friend by saying that Liberal Members will not tolerate a Budget which does not take account of the fact that, whether we like it or not, there is bound to be a high rate of inflation during the 12 months that we face and that full allowance must be made for it in settling the tax which poor people—those on low pay, pensioners, war widows and so on—have to meet. It is not good enough for the Chancellor simply to take the position as at the beginning of April 1976 and say "Look how I have relieved everyone by moving up the threshold". The inevitable inflation of the 12 months following on the Budget must be reasonably taken into account.

The hon. Member for Maldon (Mr. Wakeham) made a point, which has recurred in the debate, about the way in which the present rate of income tax and the present threshold severely hamper the attempt to get another successful round of the pay policy—a policy which we Liberals supported from the first without hesitation and which we want to succeed when it has to be renewed in a few months. But Liberals are far from alone in warning that the attempt to get the very difficult next round of a semi-voluntary pay policy will be gravely hampered if the Chancellor of the Exchequer is positively prevented from making considerable tax threshold adjustments.

This point was raised very fully and clearly by the hon. Member for New-castle-under-Lyme (Mr. Golding). The query which his very full analysis of the position put into my mind was how the Chancellor could do it. It is dear that there should be very substantial adjustments in favour of the lower earners. But how this is to be achieved by a Chancellor of the Exchequer who resembles a climber who has made the fatal mistake of stretching himself fully on the rock face and has no give in his muscles I do not know, and neither do the commentators.

The hon. Member for Woolwich, West (Mr. Bottomley), as we have come to expect, revealed his expertise on the tax problems of parents with young children. Naturally, it was music in our ears when he extolled the virtues of a tax credit scheme. I hope that he will accept that, although we cannot respond fully to his invitation to a political merger, we shall be delighted unhesitatingly to combine with any hon. Members who want to press a reasonably constructed tax credit scheme on any Government, even at present.

Mr. hon. Friend the Member for Truro (Mr. Penhaligon), who has the enormous advantage of being considerably younger than some of us on the Liberal Bench, horrified us with the vista of the logical consequences of the present rate of inflation. What he said spoke for itself. But without, I hope, being patronising, I say that young people should take note of what my hon. Friend told us, because for them, when some of us are dead and gone, the consequences of a persistent high rate of inflation will be very much as he described them.

The hon. Member for Guildford (Mr. Howell) appeared to feel that he had put his finger on what he and his hon. Friends seem always to regard as an inevitable Liberal weakness and felt that our call for a Royal Commission was just a form of words hastily thrown into our motion. I assure him that it is not. To take him and his party at their own word for a moment and to suppose that they will eventually again form a Government, our proposal for a Royal Commission is out of consideration for them. We believe that tax disasters derive in part from the fact that Governments take power having previously been in opposition and find wholly inadequate preparation for the carrying out of their plans once they reach power.

What we should like a Royal Commission to be dealing with is not the here and now and the emegencies of tax as they have been deployed today, but the longer-term problems—the problem of redefining taxable capacity, whether we are to move eventually from what is surely a rather crude business of simply taxing income and certain forms of spending to something very much more refined, and whether we can eventually discover the secret, which so far has remained hidden, of actually using taxation to achieve a real redistribution of wealth. So far, the results of a massive machine of taxation have been only the mouse of a redistribution, and Marks and Spencer have done more in that regard than anything that the Inland Revenue has achieved over the years.

Mr. Peter Rees (Dover and Deal)

Are we right to infer from what the hon. Gentleman has been saying that possibly he and his hon. Friends are in favour of a wealth tax in place of an investment income surcharge?

Mr. Wainwright

That is not a question that I am prepared to pursue in the time available to me. I believe that many of the inbuilt complications of a wealth tax have not yet even been explored, and certainly there would be problems for a Royal Commisson to clear up there.

There is also the requirement, which looms not very far ahead, to get our tax system into greater harmony with those of other countries and to work towards an international tax system. No one will dispute that these are problems on which a Royal Commission could usefully do a great deal of work before the issue came back, as it must, to Committees of Parliament and eventually to a full debate in this Chamber.

I suggest that today's debate has possibly marked a watershed in the discussion of taxation in this House in that, for the first time in my recollection, we have got away from this tedious, unprofitable and wholly circular business of arguing the incentive and disincentive effects of taxation. I agree with what my hon. Friend the Member for Cornwall, North said about the unprofitability of that. Evidently, others have arrived at the same conclusion. Perhaps it is a sign that we are now being governed rather more by people who are informed more by the humanities and less by the sociologies.

What matters really is how far the taxpaying citizen is satisfied with the benefits that he feels he gets from the PAYE that he suffers. The fact is that over the centuries many British taxpayers have been profoundly dissatisfied, and Governments have been forced to take notice of the dissatisfaction. We have arrived at a similar stage today.

John Hampden was dissatisfied because he felt that paying large sums in ship money would not produce much benefit for people living in Buckinghamshire, and we all know what flowed from that dissatisfaction. The Cornish boroughs rebelled against paying taxes for the raising of arms to defend the Scottish border. The Government would do well to note that these days, thanks to television and many other factors, there are thousands of Hampdens boiling up to something like the same indignant spirit that John Hampden so splendidly showed.

When these people look at their pay slips and gaze out of their twelfth-storey flat in some municipal Bantustan, they say "I did not ask for electric under-floor heating which I can switch on only when I have won the pools; I did not ask for a flat full of Parker Morris closets so that the whole family can go at the same time; my wife did not ask for the Minister of Sport to beckon her to his latest lacrosse facility in the park." Such a person sees the whole thing as being out of control. He believes that he is being mulcted and that his freedom of choice is being eroded for reasons he does not support.

There is a further enormously important potential explosion on the way, because people are now beginning to realise, thanks again to television and perhaps to debates in this House, that a lot of what they pay is now being used to finance outrageous salaries in the public service. Typists gaze mournfully at the deductions on their pay sheet, thinking that a lot of the money goes to pay the girl next door whose speed is slower than theirs and who complains that she is occupied for only two days a week, but who is earning 50 per cent. more than her counterpart in a private office. These are the ingredients of revolt, and it is because we sense that over-taxation can dissolve society that we have invited the House to discuss the matter this evening.

The consequences of raging inflation are particularly manifest in taxation. There is an urgent need—and I hope that we shall have some declaration of principle on this from the Financial Secretary tonight—at least to catch up with the years that the locusts have eaten. For instance, the so-called child—that is, in Inland Revenue language, anybody up to the age of 80 who is still under the care of parents and is undergoing full-time education—is allowed to earn only £115 a year before the parents' child allowance starts to be docked. That allowance was fixed in this House 13 years ago and therefore it ought to be at least three times that amount. These points are noted by taxpayers outside and reflect very severely on the reputation and esteem in which this House is held.

I come in a closing moment—for that is all it deserves—to the Government amendment. I have never supposed that Ministers were such a collection of Little Jack Homers saying what good boys they are with a progressive and fair trend in taxation. I hope that the Financial Secretary, using his Lancashire good sense, will explain the Government's idea of progress. It is not at the moment clear to me.

I can give one example to support my contention. The rate of tax which is paid by the taxpayer who hits the taxable belt of income for the first time is 35 per cent. In wiser times, people were introduced to income tax at about 16 per cent., which was levied on their first £100 of taxable income. That was followed by an intermediate rate of 24 per cent. and only after that was the clutch let out completely and the taxpayer required to pay the full rate of tax. Few things can be more provocative than subjecting the citizen to the full normal rate of tax the moment his income becomes taxable. Yet, after perpetuating that situation, the Government have the cheek to say that they are administering an increasingly progressive and fair system of taxation.

I invite the House to reject the Government amendment and to support the motion.

6.45 p.m.

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

The House will not expect me to give any details of the kind that some questions have been seeking and upon which a number of comments have been made. The Budget is now only just over two weeks away. However, I welcome the opportunity to deal in general terms with a number of serious points, including those raised from the Liberal Benches. I take note of the comment by the hon. Member for Truro (Mr. Penhaligon), who said that a good Liberal was one who understood both sides of the argument and so could not make up his mind. I hope that what I have to say will produce that kind of indecision on this occasion.

I note, too, as the hon. Member for Colne Valley (Mr. Wainwright) said in his most engaging way, that it is a long time since the Liberals had Supply Days as frequently as they are having them at present. The Government are entitled to some credit for that situation.

Mr. John Nott (St. Ives)

They have had three.

Mr. Sheldon

I note what was said by the hon. Member for St. Ives (Mr. Nott), who has a peculiar relationship with the hon. Member for Cornwall, North (Mr. Pardoe), whose subleties I have not been fully able to understand. Certain people are still very innocent in these matters. By "relationship" I meant the constituency relationship which exists where their two boundaries meet.

Mr. Nott

They do not.

Mr. Sheldon

I am obliged to the hon. Member for that information.

It is my responsibility to deal with the arguments that have been put forward by the Liberals. The hon. Member for Cornwall, North said that as regards increased taxation there was not a great deal to choose between one Government and another. He made a point that I have used at after-dinner speeches in the City of London, which is that the Conservatives sound as though they wish to cut taxation and that the Socialists, or at least some of them sound as though they wish to increase it. The result is not all that different in either case, for a number of very sound reasons.

Perhaps the most important reason is that the Conservatives are faced with an ineluctable choice about rising expenditure, just as a Labour Government are, but the Labour Government try to ensure a greater degree of fairness and a fairer distribution of income. The problem of public expenditure is one which faces both the Government and the House. In Adjournment debates and on other opportunities hon. Members are forced by constituency pressures to ask for additional public expenditure to meet legitimate demands. We know that the pressures on Members to reduce taxation exists, but they are rather more diffuse than the pressures to increase public expenditure, which are direct and which, by their very nature, tend to be similar. The pressures which historically will always be expressed in this House are not so well resolved at the present time.

The hon. Member for Cornwall, North propounded one or two possible solutions to these problems. First, he advanced the important argument, which we have debated a number of times, that we need a certain amount of indexation written into some of the provisions for direct taxation in particular. He said that the Government could raise extra sums of revenue beyond that which Parliament has authorised because of the increase in inflation during the subsequent fiscal year. I take that point, but all these matters can be considered in the light of the Budget judgment.

If the judgment is that a higher or lower rate of inflation is expected, that will have its impact on the levels of allowances, and those arguments can be deployed then as well. There is no lack of opportunity for many debates of that kind in the future. There will be a number of days' debate on the Budget, followed by debate on the Finance Bill in Committee here and upstairs, as well as on Report and Third Reading.

Of course I understand that the hon. Gentleman also wants us to consider these important points in the formulation of the Budget. I can assure him that a number of decisions have still to be taken on the Budget, but I cannot say much more than that.

The hon. Gentleman mentioned the problems of the failure to tax benefits, which he said led to a certain loss of incentive by those people who are working and paying high levels of tax. Taxing short-term benefits is very difficult. By the very nature of the benefits, the person concerned could well be back at work or no longer eligible for benefits by the time the administrative machine had identified him. It was for precisely these reasons that benefits were excluded from taxation so many years ago. Lower rate bands of taxation, which the hon. Gentleman's own tax credit scheme would not permit, present similar difficulties.

When the public sector borrowing requirement is occupying so much of our time, there is some merit in the point made by the hon. Member for Guildford (Mr. Howell) that reductions in taxation should be viewed in conjunction with the public sector borrowing requirement, which must be causing concern to the whole House. The hon. Member for Cornwall, North and others asked about the possibility of considering together matters of public expenditure and taxation. They rightly pointed out the interaction between public expenditure and levels of taxation. I am a past chairman of the General Sub-Committee of the Expenditure Committee, and my comments on the matter before I took office are on record. I was strongly in favour of taking them together, but I understand the great problems involved.

The Government recognise the importance of bringing about better appreciation of the taxation consequences of public expenditure. In the White Paper this theme has been very well developed. As the Treasury has said in its reply to the Expenditure Committee, we shall give further study to the practices of other countries. This will naturally take time, but in due course we shall be reporting some of the findings to the House.

I should next like to say something about the effect of taxation on incentives. The hon. Member for St. Albans (Mr. Goodhew) argued that this was still an important matter and the hon. Member for Maldon (Mr. Wakeham) devoted most of his speech to it. I agree with the hon. Member for Colne Valley who said that some of these arguments are occupying the attention of the House rather less than they used to do. We are all grateful for that. However, the arguments are still being advanced and it is only fair that I should try to rebut some of them.

Sometimes it is said that people do not take positions of greater responsibility just because they would find themselves paying a higher level of income tax. However, there are two answers to that argument. The first is the change made to surtax in 1961, when the threshold was raised from £2,000 a year to £5,000, and the other is the large income tax reduction announced in his 1970 autumn Budget by the then Chancellor.

Both those decisions were said to have been made purely on the ground that they would give incentives to people, who would release their energies to ensure the economic advance of this country. Both failed to produce the results claimed for them. Despite the passage of years, nobody can identify in the figures for economic growth any

ripple, any hiccup, due to those changes. Therefore, I hope that we shall not hear many more such arguments.

Mr. Peter Rees

Will the Minister admit that the country was not given more than two years to enjoy the lowering of the tax rates introduced by Lord Barber?

Mr. Sheldon

If the hon. and learned Gentleman thinks that giving money in that way was of particular advantage to our manufacturing strength, all I can say is that not only has he seriously misunderstood the nature of incentives, but he has failed to understand what motivates the people concerned.

In 1970 income tax was reduced. The public sector borrowing requirement then stood at £802 million. The following year the higher rate thresholds—the old surtax levels—were increased, and the public sector borrowing requirement rose to £1,016 million. Then we had the unified tax structure, which gave advantage to those with the pleasure of enjoying high levels of investment income, and the public sector borrowing requirement increased to more than £4,000 million. There was a direct relationship between the Chancellor's reduction in taxation and the increase in borrowing, which paid for it. The country paid a great deal for those reductions in income tax, which produced the highest rates of inflation it has ever known. They were incurred in the interests of reducing taxation.

Changes of that kind we can do without. When the Chancellor rises to make his Budget Statement on 6th April, we shall see the fair and progressive taxation that the amendment talks about and see it brought properly into full action.

Question put, That the amendment be made:—

The House divided: Ayes 279, Noes 253.

Division No. 95.	AYES	7.0 p.m.
Abs, Leo	Bean, R. E.	Brown, Ronald (Hackney S)
Allaun, Frank	Benn, Rt Hon Anthony Wedgwood	Buchan, Norman
Anderson, Donald	Bennett, Andrew (Stockport N)	Buchanan, Richard
Archer, Peter	Bidwell, Sydney	Butler, Mrs Joyce (Wood Green)
Armstrong, Ernest	Bishop, E. S.	Callaghan, Jim (Middleton & P)
Ashley, Jack	Boardman, H.	Canavan, Dennis
Ashton, Joe	Booth, Rt Hon Albert	Cant, R. B.
Atkins, Ronald (Preston N)	Bottomley, Rt Hon Arthur	Carmichael, Neil
Atkinson, Norman	Boyden, James (Bish Auck)	Carter, Ray
Bagier, Gordon A. T.	Bradley, Tom	Carter-Jones, Lewis
Barnett, Guy (Greenwich)	Bray, Dr Jeremy	Cartwright, John
Barnett, Rt Hon Joel (Heywood)	Brown, Hugh D. (Provan)	Castle, Rt Hon Barbara
Bates, Alf	Brown, Robert C (Newcastle W)	Clemitson, Ivor
Cocks, Michael (Bristol S)	Jackson, Miss Margaret (Lincoln)	Perry, Ernest
Coleman, Donald	Janner, Greville	Phipps, Dr Colin
Colquhoun, Ms Maureen	Jay, Rt Hon Douglas	Prentice, Rt Hon Reg
Concannon, J. D.	Jeger, Mrs Lena	Prescott, John
Conlan, Bernard	Jenkins, Hugh (Putney)	Price, C. (Lewisham W)
Cook, Robin F. (Edin C)	Jenkins, Rt Hon Roy (Stechford)	Price, William (Rugby)
Corbett, Robin	John, Brynmor	Radice, Giles
Cox, Thomas (Tooting)	Johnson, James (Hull West)	Richardson, Miss Jo
Craigen, J. M. (Maryhill)	Johnson, Walter (Derby S)	Roberts, Albert (Normanton)
Crawshaw, Richard	Jones, Alec (Rhondda)	Roberts, Gwilym (Cannock)
Crosland, Rt Hon Anthony	Jones, Barry (East Flint)	Robertson, John (Paisley)
Cryer, Bob	Jones, Dan (Burnley)	Robinson, Geoffrey
Cunningham, G. (Islington S)	Judd, Frank	Roderick, Caerwyn
Cunningham, Dr J. (Whiteh)	Kaufman, Gerald	Rodgers, George (Chorley)
Davidson, Arthur	Kelley, Richard	Rodgers, William (Stockton)
Davies, Bryan (Enfield N)	Kerr, Russell	Rose, Paul B.
Davies, Denzil (Llanelli)	Kilroy-Silk, Robert	Ross, Rt Hon W. (Kilmarnock)
Davis, Clinton (Hackney C)	Kinnock, Neil	Rowlands, Ted
Deakins, Eric	Lambie, David	Sandelson, Neville
Dean, Joseph (Leeds West)	Lamborn, Harry	Sedgemore, Brian
Delargy, Hugh	Lamond, James	Selby, Harry
Dell, Rt Hon Edmund	Latham, Arthur (Paddington)	Shaw, Arnold (llford South)
Doig, Peter	Leadbitter, Ted	Sheldon, Robert (Ashton-u-Lyne)
Dormand, J. D.	Lestor, Miss Joan (Eton & Slough)	Shore, Rt Hon Peter
Douglas-Mann, Bruce	Lewis, Ron (Carlisle)	Short, Rt Hon E. (Newcastle C)
Duffy, A. E. P.	Lipton, Marcus	Silkin, Rt Hon John (Deptford)
Dunnett, Jack	Litterick, Tom	Silkin, Rt Hon S. C. (Dulwich)
Eadie, Alex	Loyden, Eddie	Silverman, Julius
Edge, Geoff	Luard, Evan	Skinner, Dennis
Edwards, Robert (Wolv SE)	Lyon, Alexander (York)	Small, William
Ellis, John (Brigg & Scun)	Lyons, Edward (Bradford W)	Smith, John (N Lanarkshire)
Ellis, Tom (Wrexham)	Mabon, Dr J. Dickson	Snape, Peter
English, Michael	McCartney, Hugh	Spearing, Nigel
Ennals, David	McElhone, Frank	Spriggs, Leslie
Evan, Fred (Caerphilly)	McGuire, Michael (Ince)	Stallard, A. W.
Evans, loan (Aberdare)	Mackenzie, Gregor	Stewart, Rt Hon M. (Fulham)
Ewing, Harry (Stirling)	Mackintosh, John P.	Stoddart, David
Faulds, Andrew	Maclennan, Robert	Stonehouse, Rt Hon John
Fernyhough, Rt Hon E.	McMillan, Tom (Glasgow C)	Stott, Roger
Fitch, Alan (Wigan)	McNamara, Kevin	Strang, Gavin
Fitt, Gerard (Belfast W)	Madden, Max	Strauss, Rt Hon G. R.
Fletcher, Ted (Darlington)	Mallalieu, J. P. W.	Summerskill, Hon Dr Shirley
Foot, Rt Hon Michael	Marks, Kenneth	Swain, Thomas
Ford, Ben	Marquand, David	Taylor, Mrs Ann (Bolton W)
Forrester, John	Marshall, Dr Edmund (Goole)	Thomas, Jeffrey (Abertillery)
Fowler, Gerald (The Wrekin)	Marshall, Jim (Leicester S)	Thomas, Mike (Newcastle E)
Fraser, John (Lambeth, N'w'd)	Mason, Rt Hon Roy	Thomas, Ron (Bristol NW)
Freeson, Reginald	Maynard, Miss Joan	Tierney, Sydney
Garrett, John (Norwich S)	Meacher, Michael	Tinn, James
Garrett, W. E. (Wallsend)	Mellish, Rt Hon Robert	Tomlinson, John
George, Bruce	Mendelson, John	Torney, Tom
Gilbert, Dr John	Mikardo, Ian	Tuck, Raphael
Ginsburg, David	Millan, Bruce	Urwin, T. W.
Golding, John	Miller, Dr M. S. (E Kilbride)	Varley, Rt Hon Eric G.
Gould, Bryan	Miller, Mrs Millie (llford N)	Wainwright, Edwin (Dearne V)
Gourlay, Harry	Mitchell, R. C. (Soton, Itchen)	Walden, Brian (B'ham, L'dyw'd)
Graham, Ted	Molloy, William	Walker, Harold (Doncaster)
Grant, George (Morpeth)	Moonman, Eric	Ward, Michael
Grant, John (Islington C)	Morris, Alfred (Wythenshawe)	Watkins, David
Grocott, Bruce	Morris, Charles R. (Openshaw)	Weetch, Ken
Hamilton, W. W. (Central Fife)	Morris, Rt Hon J. (Aberavon)	Weitzman, David
Hardy, Peter	Moyle, Roland	Wellbeloved, James
Harrison, Walter (Wakefield)	Mulley, Rt Hon Frederick	White, Frank R. (Bury)
Hart, Rt Hon Judith	Murray, Rt Hon Ronald King	White, James (Pollok)
Hattersley, Rt Hon Roy	Newens, Stanley	Whitehead, Phillip
Hayman, Mrs Helene	Noble, Mike	Whitlock, William
Healey, Rt Hon Denis	Oakes, Gordon	Willey, Rt Hon Frederick
Heffer, Eric S.	Ogden, Eric	Williams, Alan (Swansea W)
Hooley, Frank	O'Halloran, Michael	Williams, Alan Lee (Hornch'ch)
Horam, John	O'Malley, Rt Hon Brian	Williams, Rt Hon Shirley (Hertford)
Howell, Rt Hon Denis	Orbach, Maurice	Williams, Sir Thomas
Hoyle, Doug (Nelson)	Orme, Rt Hon Stanley	Wilson, Alexander (Hamilton)
Huckfield, Lea	Ovenden, John	Wilson, William (Coventry SE)
Hughes, Rt Hon C. (Anglesey)	Padley, Walter	Wise, Mrs Audrey
		Woodall, Alec
Hughes, Mark (Durham)	Palmer, Arthur	Woof, Robert
Hughes, Robert (Aberdeen N)	Park, George	Wrigglesworth Ian
Hughes, Roy (Newport)	Parker, John	Young David (Bolton E)
Hunter, Adam	Parry, Robert
Irvine, Rt Hon Sir A. (Edge Hill)	Pavitt, Laurie	TELLERS FOR THE AYES:
Irving, Rt Hon S. (Dartford)	Peart, Rt Hon Fred	Mr. Joseph Harper and
Jackson, Colin (Brighouse)	Pendry, Tom	Mr. James Hamilton.

	NOES
Aitken, Jonathan	Gray, Hamish	Morrison, Hon Peter (Chester)
Alison, Michael	Griffiths, Eldon	Mudd, David
Amery, Rt Hon Julian	Grimond, Rt Hon J.	Neave, Alrey
Arnold, Tom	Grist, Ian	Nelson, Anthony
Atkins, Rt Hon H. (Spelthorne)	Grylls, Michael	Neubert, Michael
Baker, Kenneth	Hall, Sir John	Newton, Tony
Bank, Robert	Hamilton, Michael (Salisbury)	Normanton, Tom
Beith, A. J.	Hannam, John	Nott, John
Bell, Ronald	Harrison, Col Sir Harwood (Eye)	Onslow, Cranley
Bennett, Dr Reginald (Fareham)	Hastings, Stephen	Page, John (Harrow West)
Benyon, W.	Havers, Sir Michael	Page, Rt Hon R. Graham (Crosby)
Berry, Hon Anthony	Hawkins, Paul	Paisley, Rev Ian
Bitten, John	Heath, Rt Hon Edward	Parkinson, Cecil
Biggs-Davison, John	Heseltine, Michael	Pattie, Geoffrey
Blaker, Peter	Hicks, Robert	Penhaligon, David
Body, Richard	Higgins, Terence L.	Percival, Ian
Boscawen, Hon Robert	Holland, Philip	Pink, R. Bonner
Bottomley, Peter	Hordern, Peter	Price, David (Eastleigh)
Bowden, A. (Brighton, Kemptown)	Howe, Rt Hon Sir Geoffrey	Prior, Rt Hon James
Boyson, Dr Rhodes (Brent)	Howell, David (Guildford)	Pym, Rt Hon Francis
Braine, Sir Bernard	Howells, Geraint (Cardigan)	Raison, Timothy
Brocklebank-Fowler, C.	Hunt, David (Wirral)	Rathbone, Tim
Brotherton, Michael	Hunt, John	Rawlinson, Rt Hon Sir Peter
Brown, Sir Edward (Bath)	Hurd, Douglas	Rees, Peter (Dover & Deal)
Bryan, Sir Paul	Hutchison, Michael Clark	Rees-Davies, W. R.
Buchanan-Smith, Alick	Irving, Charles (Cheltenham)	Ronton, Rt Hon Sir D. (Hunts)
Buck, Antony	James, David	Renton, Tim (Mid-Sussex)
Budgen, Nick	Jenkin, Rt Hon P. (Wanst'd & W'df'd)	Ridley, Hon Nicholas
Bulmer, Esmond	Jessel, Toby	Ridsdale, Julian
Burden, F. A.	Johnson Smith, G. (E Grinstead)	Rifkind, Malcolm
Carlisle, Mark	Johnston, Russell (Inverness)	Rippon, Rt Hon Geoffrey
Chalker, Mrs Lynda	Jopling, Michael	Roberts, Michael (Cardiff NW)
Clark, Alan (Plymouth, Sutton)	Joseph, Rt Hon Sir Keith	Roberts, Wyn (Conway)
Clark, William (Croydon S)	Kaberry, Sir Donald	Rodgers, Sir John (Sevenoaks)
Clarke, Kenneth (Rushcliffe)	Kellett-Bowman, Mrs Elaine	Ross, Stephen (Isle of Wight)
Cockcroft, John	Kershaw, Anthony	Rossi, Hugh (Hornsey)
Cooke, Robert (Bristol W)	Kilfedder, James	Rost, Peter (SE Derbyshire)
Cormack, Patrick	Kimball, Marcus	Royle, Sir Anthony
Corrie, John	King, Evelyn (South Dorset)	Sainsbury, Tim
Costain, A. P.	King, Tom (Bridgwater)	St. John-Stevas, Norman
Craig, Rt Hon W. (Belfast E)	Kitson, Sir Timothy	Scott, Nicholas
Critchley, Julian	Knight, Mrs Jill	Shaw, Michael (Scarborough)
Crouch, David	Knox, David	Shelton, William (Streatham)
Crowder, F. P.	Lamont, Norman	Shepherd, Colin
Davies, Rt Hon J. (Knutsford)	Lane, David	Shersby, Michael
Dean, Paul (N Somerset)	Langford-Holt, Sir John	Silvester, Fred
Dodsworth, Geoffrey	Latham, Michael (Melton)	Sims, Roger
Drayson, Burnaby	Lawrence, Ivan	Sinclair, Sir George
du Cann, Rt Hon Edward	Lawson, Nigel	Skeet, T. H. H.
Durant, Tony	Le Marchant, Spencer	Smith, Dudley (Warwick)
Dykes, Hugh	Lester, Jim (Beeston)	Speed, Keith
Eden, Rt Hon Sir John	Lewis, Kenneth (Rutland)	Spence, John
Edwards, Nicholas (Pembroke)	Lloyd, Ian	Spicer, Michael (S Worcester)
Elliott, Sir William	Loveridge, John	Sproat, lain
Emery, Peter	Luce, Richard	Stainton, Keith
Evans, Gwyntor (Carmarthen)	McAdden, Sir Stephen	Stanbrook, Ivor
Eyre, Reginald	McCrindle, Robert	Stanley, John
Fairgrieve, Russell	Macfarlane, Neil	Steel, David (Roxburgh)
Fell, Anthony	MacGregor, John	Stewart, Ian (Hitchin)
Finsberg, Geoffrey	Macmillan, Rt Hon M. (Farnham)	Stokes, John
Fisher, Sir Nigel	McNair-Wilson, M. (Newbury)	Stradling Thomas, J.
Fletcher, Alex (Edinburgh N)	McNair-Wilson, P. (New Forest)	Taylor, R. (Croydon NW)
Fletcher-Cooke, Charles	Madel, David	Tebbit, Norman
Fookes, Miss Janet	Marshall, Michael (Arundel)	Temple-Morris, Peter
Forman, Nigel	Marten, Neil	Thomas, Rt Hon P. (Hendon S)
Fowler, Norman (Sutton C'f'd)	Mates, Michael	Thompson, George
Fox, Marcus	Maude, Angus	Thorpe, Rt Hon Jeremy (N Devon)
Fraser, Rt Hon H. (Stafford & St)	Maudling. Rt Hon Reginald	Townsend, Cyril D.
Fry, Peter	Mawby, Ray	Trotter, Neville
Gardiner, George (Reigate)	Maxwell-Hyslop, Robin	Tugendhat, Christopher
Gardner, Edward (S Fylde)	Meyer, Sir Anthony	van Straubenzee, W. R.
Gilmour, Rt Hon Ian (Chesham)	Miller, Hal (Bromsgrove)	Vaughan, Dr Gerard
Gilmour, Sir John (East Fife)	Mills. Peter	Viggers, Peter
Glyn, Dr Alan	Miscampbell, Norman	Wainwright, Richard (Colne V)
Godber, Rt Hon Joseph	Mitchell, David (Basingstoke)	Wakeham, John
Goodhart, Philip	Moate, Roger	Walker-Smith, Rt Hon Sir Derek
Goodhew, Victor	Montgomery, Fergus	Wall, Patrick
Goodlad, Alastair	Moore, John (Croydon C)	Walters, Dennis
Gorst, John	More, Jasper (Ludlow)	Warren, Kenneth
Gow, Ian (Eastbourne)	Morgan, Geraint	Weatherill, Bernard
Gower, Sir Raymond (Barry)	Morris, Michael (Northampton S)	Wells, John
Grant, Anthony (Harrow C)	Morrison, Charles (Devizes)	Whitelaw, Rt Hon William

Wiggin, Jerry	Wood, Rt Hon Richard	TELLERS FOR THE NOES:
Wilton, Gordon (Dundee E)	Young, Sir G. (Ealing, Acton)	Mr. Clement Freud and
Winterton, Nicholas	Younger, Hon George	Mr. John Pardoe.

Question accordingly agreed to.

Main Question, as amended, put and agreed to.

Resolved, That this House believes in the need for a fair and progressive tax system, and endorses the Government's masures in that direction.