HC Deb 03 May 1976 vol 910 cc843-982

Order for Second Reading read.

Mr. Speaker

I should like to inform the House that I propose to call the amendment in the name of the right hon. Lady the Leader of the official Opposition.

3.43 p.m.

The Chancellor of the Exchequer (Mr. Denis Healey)

I beg to move, That the Bill be now read a Second time.

In previous years the Finance Bill has normally embodied in full the tax proposals made in the Budget speech. The House has, in some cases, discussed and voted on such proposals in relative isolation from other elements of economic policy—and sometimes it has subsequently been necessary to reverse or modify certain provisions to take account of shifts in the economy.

This Finance Bill is different. In a sense it is incomplete, because, as the House knows, it makes no provision for my Budget proposal to link tax reliefs to the acceptance of a pay limit for the next round which is consistent with a further halving of our inflation rate during 1977.

This conditional element in my Budget triggered a fit of instant opposition from the Conservative Front Bench. It argued that the Government's approach to getting a voluntary agreement on pay cut across the prerogative of Parliament to determine our affairs.

This argument was conclusively demolished by my right hon. Friends the Leader of the House and the Secretary of State for Trade during the Budget debate. It may still show a timid flicker from time to time in the correspondence columns of Conservative newspapers, but the country as a whole takes exactly the opposite view. The overwhelming majority of British men and women, whether they are themselves trade unionists or not, recognise that our approach, which accepts the crucial rôle of wage settlements in influencing the management of demand, gives Parliament and people the opportunity to take a more balanced and informed view of our judgment than if I had introduced a conventional unconditional Budget.

When the House comes to vote on the amendments to this Bill, which I shall move at an appropriate stage after we have published a White Paper on the pay agreement, it will be voting in the full knowledge of how those amendments relate to what will be a major factor in determining our economic progress for the next two years.

The level of wage settlements will determine not only how far and how fast we can reduce our rate of inflation to levels at least comparable to those of our competitors. It will determine also how rapidly we can bring down the level of unemployment and how soon the whole community can once again benefit from higher living standards.

The Government, unlike their predecessor, have based their strategy on the assumption that co-operation and not confrontation is the only way forward. This has enabled us to help the trade unions by guaranteeing that, through reduced income tax, the working population as a whole is no worse off by accepting a low rather than a high pay limit. Furthermore, it has enabled trade unionists, who must reach a decision on the new pay limit, to do so in the full knowledge of all the advantages of making it as low as possible.

There were those, of course, both inside and outside the House, who believed that my proposals were too complex to be generally understood. If so, I trust they have read the results of the National Opinion Poll published in last Thursday's Daily Mail. They confirm the evidence of earlier opinion polls that my proposal for linking tax cuts to a low pay limit is fully understood and overwhelmingly supported.

Similar support is quite clear from the vast amount of correspondence which I have received since presenting my Budget. It is not difficult to see why. The experience of the last 18 months can have left nobody in any doubt about the automatic link between pay, prices and jobs. It is an immutable fact that high pay increases are self-defeating unless there is a corresponding increase in national productivity.

If we insist on wages higher than the economy can support, people will be priced out of jobs. In the short run some people may be a little better off—but only at the cost of making others worse off or actually causing them to lose their jobs. Within a few months the advantage of higher wages, even for those who receive them, will be wiped out by the higher prices which must follow.

As I have often reminded the House, the increase in oil and other import prices in 1973 and 1974 reduced our real national disposable income by nearly 5 per cent. Our standard of living was not reduced by nearly as much. Overseas borrowing has helped us to cushion the impact of import prices on our living standards. In the meantime, we have to adjust to the new situation.

Most of the necessary adjustment has now already taken place and the outlook over the next 18 months is for living standards to decline by perhaps 1 or 2 per cent. This is part of the unavoidable price we have to pay for getting unemployment down.

The universal acceptance and observance of the £6 limit has been a striking demonstration of the extent to which these basic economic truths have been accepted by working people. There is now conclusive evidence that their common sense is bearing fruit. Last week's report from the Price Commission, for example, shows that in the last nine months we have halved the rate of inflation.

Moreover, it is now generally recognised that if we had not had the £6 limit, our exports would not have performed so well, our balance of payments would have become much worse, and unemployment would still be on a sharply rising trend. The £6 limit also guarantees that our rate of inflation will continue to fall for the rest of 1976. But there will still be a long way to go before we close the gap between our rate and that of our major competitors.

In the OECD countries as a whole inflation averaged 8 per cent. in the second half of last year compared with 14 per cent. in the United Kingdom. Changes in wages, prices and the exchange rate take time to work through the economy, so prices in 1977 will be influenced by recent movements in the exchange rate and by the impact of pay increases during the current round.

There will, therefore, continue to be a good deal of upward pressure on prices in 1977, and to reduce the rate of inflation further we must ensure that pay increases during the next round are much smaller than in the present round. We must use the benefits of higher productivity as the economy expands to reduce the inflationary pressure, not to increase it.

Hon. Members will not expect me to anticipate today the outcome of the current discussions on pay policy. All of those who are involved in the discussions are agreed on the objective—to halve the rate of inflation once again in 1977. That means, as I told the House in my Budget speech, that earnings must rise in the next pay round by under half as much as they rose in the current pay round. We understand well enough that unless we achieve this objective we shall not get the industrial recovery which, at the end of the day, is the only guarantee of higher employment and living standards.

Our necessary preoccupation with these domestic matters should not blind us to the international dimensions of many of the problems which confront us. In my Budget speech I said that the United Kingdom was taking the lead in international discussions of the common problems of the industrialised economies so that we can develop coordinated strategies for dealing with them.

I suggested to my colleagues in the EEC that we should make a fundamental examination of the question of unemployment, covering not just the short-term measures appropriate to the present situation but also the scale and nature of the problem in the medium term—up to 1980 and beyond. We made a very valuable start at our meeting in Luxembourg a week ago.

The most interesting point to emerge was that we were all agreed that the key problem is the management of overall demand and output in relation to production and potential—rather than what are sometimes called the structural problems of technological change, or regional and sectoral differences, important as these may be. Moreover—I hope the Opposiiton Front Bench will note this—we all agreed that it will be impossible for any of us to achieve the level of output required for full employment without some sort of incomes policy. On this basis we shall be carrying forward our discussions both within the Community—where a tripartite conference involving employers' organisations and the trade unions has been arranged for the end of June—and in other international bodies

Mr. Eric S. Heffer (Liverpool, Walton)

Will my right hon. Friend say whether at this conference there are papers which indicate that rather than making cuts in public expenditure, one way of dealing with the problem of unemployment is by an extension of public expenditure?

Mr. Healey

No, Sir. I am not aware of any such papers. Papers were circulated by ourselves and by the Commission which suggested that one way of dealing with the immediate problem was by adopting the type of package of micro-economic measures which the Government introduced last September, in December and February. I am glad to say that some other Governments have followed that example. There was no suggestion that the answer to the problem was a vast increase in public expenditure. On the contrary, the point I am making is that demand and output must be increased at a level which is related to the national increase in productive potential if unemployment is to fall. The important conclusion, with which we all agree, is that that is the central problem, rather than the structural problem, as it is sometimes described, of technological change or regional differences and the other factors which I mentioned.

The meeting of European Community Finance Ministers took place a week ago when sterling had just been under serious pressure. Both my German and French colleagues agreed that there was no justification for that pressure in the recent performance of the British economy. Indeed, Chancellor Schmidt has just paid an important tribute to the success of our economic policies. Indeed, ever since I presented the Budget less than a month ago all the statistics have confirmed the continued improvement of our economy. The March increase in the retail price index was the smallest monthly rise since the summer of 1974. The March surplus on our current balance of payments, £101 million, was the biggest monthly surplus since September 1971 The March figure for the money supply showed an increase of ½ per cent., bringing the growth over the last year to 8½ per cent. And we have just begun to export North Sea oil.

My right hon. Friend indicated in the House a week a that conditions in the exchange markets were already quietening down after the pressure in the immediate post-Easter period. As hon. Members are aware, this calmer atmosphere has continued, and I am hopeful that the improved conditions we are now seeing will be sustained.

We intervened substantially during last month and this has undoubtedly had a significant cumulative effect in helping sterling. Apart from this and the rise in minimum lending rate, reinforcement has come from the market's realisation that there will be a satisfactory pay deal and that sterling is now very competitive. But we must maintain this competitiveness from now on through keeping up the momentum of progress in beating inflation.

I will now turn to the substance of the Bill, and I hope that the House will find it convenient if I deal in detail only with those clauses which have caused the most controversy or stand in need of some clarification.

No provision, perhaps, has generated more heat and less light than that contained in Clause 48 and Schedule 6 which gives the Inland Revenue additional powers to obtain information—information which is necessary to uncover illegal tax evasion. From the way in which some sections of the Press have conjured up Kafkaesque fantasies over these provisions, an uninformed observer might be excused if he assumed that the sanctity and tranquillity of family life were about to be disrupted all over the country by the midnight knock on the door in pursuit of an overdue tax return. This is, of course, a ridiculous fantasy.

Mrs. Elaine Kellett-Bowman (Lancaster)

It is the thin end of the wedge.

Mr. Healey

The thin end of the wedge was introduced by the Conservative Government many years ago. I am very glad that it was, and so are most taxpayers and the overwhelming majority of hon. Members.

The vast majority of people pay their tax automatically through the pay-as-you-earn system. Their income is revealed as a matter of course to the Inland Revenue and the necessary tax is deducted at source. There is nothing which offends their sense of justice more, or which poses a greater threat to the equity and credibility of the tax system, than the scope which a small minority currently enjoy for evading taxation because there are limitations in the power of the Inland Revenue.

Let me be precise about the nature of the problem. Evasion is, quite simply, tax dodging which is outside the law. It is a criminal offence, and the loss of revenue from those who indulge in evasion has to be made up by ordinary taxpayers who bear their proper share of tax through PAYE. Of course it is not possible to put a figure on the amount of revenue that is lost through evasion. If the tax authorities knew how much was involved they would probably be in a position to identify the culprits.

Mr. Alexander Fletcher (Edinburgh, North)

Have a guess.

Mr. Healey

I am about to make a guess.

There are, however, many signs that the sums involved are substantial and that they are growing. In the year to March 1975 the amount of evaded tax in major cases which the Inland Revenue was able to uncover amounted to some £17 million. As a proportion of the total tax yield this was only about one-fifth as much as the Revenue secured 15 years earlier. I am afraid, and I believe most hon. Members will agree, that there is little reason to suppose that the standard of compliance is now much higher than it was. Right hon. and hon. Members on the Tory Benches always talk about a great erosion of tax morality over recent years. The fact is that the amount of tax evasion uncovered by the Revenue has fallen by 80 per cent. in recent years, although according to the Conservative Party, the degree of tax morality is now much lower than it was.

Mr. William Hamilton (Fife, Central)

My right hon. Friend will surely make the point that the most noise coming from the Opposition concerns fraud with supplementary benefits and not fraud with wealthy taxpayers, with which this part of the Bill is concerned.

Mr. Healey

The whole country will have noticed the extraordinary discrimination exercised by the Conservative Party in pursuing the widow or unemployed worker for minuscule amounts of tax while raising a major campaign in the national Press to protect the millionaire who is defrauding the Revenue of millions of pounds.

It therefore seems, from the figures, that there has been a significant decline in the ability of the Revenue to detect and counter illegal evasion.

I hope the House will forgive me if I explain my proposals in some detail. The amount of misinformed comment about them makes it necessary that I should do so. They fall under two headings. The first concerns the power of a tax inspector to issue a notice calling for documents which relate to an individual's tax liability. For the overwhelming majority of tax payers this is automatic because they pay under PAYE. There is nothing in this provision which will empower the Inland Revenue to interrogate people or to require anyone to testify against anybody. Anyone who fails to comply with such a notice to call for documents may, however, attract a financial penalty.

If it is found necessary to approach any person other than the taxpayer, this can be done only with the consent of a General or Special Commissioner of Income Tax, and the Commissioner can give such a consent only when he is satisfied that in all the circumstances of the case the inspector is justified in seeking to issue a notice.

The second part of my proposals concerns the power to enter premises with a warrant. The relevant section provides that, where a justice of the peace is satisfied by information which he has received on oath that there are reasonable grounds for suspecting an offence involving tax fraud, he may issue a warrant to an officer of the Board of Inland Revenue. The officer will then be authorised to enter premises, search for and seize documents and other evidence which might be needed for proceedings relating to such an offence.

The House and the country should be quite clear what this means. In this provision we are concerned only with the suspicion of a criminal offence involving deliberate dishonesty. We are concerned with nothing else. The Inland Revenue will not be able to obtain a warrant merely on the grounds that a taxpayer has omitted something from his tax return through negligence or carelessness—because, of course, that is not a criminal offence.

It is wilful nonsense to pretend that tax inspectors will be walking into all sorts of people's premises and homes. There is nothing new for the Inland Revenue in the procedure for entering premises and searching them. It happened under the last Conservative Government. Under the existing law it is possible for the Revenue to apply for a search warrant in connection with tax investigations, for example under Section 26 of the Theft Act of 1968 or under Section 16 of the Forgery Act 1913.

The sort of circumstances in which it might be necessary to use the power of entry we now propose are those where the Revenue, if it tried to obtain documents under other powers and without a search warrant, would run the risk of the documents being destroyed or conveniently mislaid before it could get hold of them. On this basis, I envisage that the powers will be used at the most in only a handful of the most serious cases each year.

It has been suggested, Mr. Speaker, that a Treasury Minister should countersign every search warrant issued to the Inland Revenue by a justice of the peace. If hon. Members think about this, particularly Tory Members, they will recognise that it would run completely contrary to the traditions underlying the administration of direct taxation in this country to involve Ministers of the Crown in decisions on particular cases

. Ministers stand apart from the detailed operation of the tax system, and it is important that they should, so that we can avoid any claim that important decisions affecting individual taxpayers are influenced by political considerations. I am sure right hon. Gentlemen on the Tory Benches will agree that that should remain an essential part of the administration of tax in this country. I do not think they want, any more than we do, Ministers to be able to form a view on the tax circumstances of their political opponents, interesting as on occasions that might be.

Mr. Nigel Lawson (Blaby)

No one on the Conservative side of the House, or, I am sure, elsewhere in the House, is in favour of tax evasion. I am sure that the Chancellor will agree that there is an important balance to be struck. Why has he decided to take powers in the Bill which go considerably beyond those powers recommended by the Royal Commission on Taxation of 1955?

Mr. Healey

The reason is as I have said, that there is a great deal of evidence—not conclusive I admit—since 1955 that the amount of undiscovered tax evasion has enormously increased. One reason for this is the fact that our tax authorities do not have the same powers as the tax authorities in nearly all other democratic countries. I will give chapter and verse for this in a moment. I agree with the hon. Gentleman that in managing our tax system it is important to balance the requirements of effectiveness and equity with the proper regard for the privacy of the citizen.

I am as concerned as anyone that the individual should be properly protected. The safeguard for him in these proposals is the necessity for a justice of the peace to be satisfied that there are reasonable grounds for suspecting a criminal offence.

Justices, in our legal system, are empowered to issue warrants under a wide range of statutory provisions. There are over 50 such provisions including the two I have mentioned—the Theft Act and the Forgery Act—both of which are sometimes made use of by the Revenue now as they were under the last Conservative Government. The experience and independence of magistrates means that they are ideally placed to look after the interests of the individual. I hope no one will dispute that.

Most people realise that the tax man is not seeking to invade their homes. They realise, too, that it is in their interests to ensure that the authorities are in a position to deal with the special cases of those who are adept at defrauding the State and who—because of the Inland Revenue's present limited powers—manage to do so with impunity.

Some people have chosen to see this issue in terms of civil rights. They should reflect that the ordinary taxpayer, too, has a fundamental right—the right to be protected from the need to pay more tax because of the dishonest and fraudulent few, whom I think Conservative Members would not seek to protect. Other democratic countries have moved further towards securing that right than we propose to do in the Bill.

The powers available to the tax authorities in Canada, Australia and the United States are a good deal wider than those proposed in this Finance Bill. Those countries give tax authorities wide powers of access to premises in the ordinary course of administering the tax system and, where force is needed, they can obtain warrants as we propose the tax authorities should be enabled to do in this country. Anyone who reflects on the facts will agree that it is high time that we caught up with those other democratic, English-speaking countries, in which many of us have relatives and friends and in which they have been operating this system for years without a hypocritical outcry such as we have had from some Tory Members.

Sir John Hall (Wycombe)

Does the right hon. Gentleman agree that Schedule 6 provides for one spouse to be called upon to give evidence against the other spouse? Is that not contrary to the law of this country as it now stands?

Mr. Healey

No. I think that perhaps I spoke more quietly than normal. I made it absolutely clear that there was no provision to require spouses or relatives to testify, but where they possess documents which are relevant—the hon Gentleman will not require to use much imagination, as I have no doubt that he has great experience of these higher tax matters, to recognise that there are many situations where individuals—

Mr. Nicholas Ridley (Cirenceser and Tewkesbury)

On a point of order, Mr. Speaker. The Chancellor, in response to my hon. Friend's intervention, spoke words which could only be interpreted as suggesting that my hon. Friend was in some way skilled at or had even practised tax evasion. There was no doubt that the Chancellor's reply firmly cast my hon. Friend with the group of people whom he is trying to chase in the Bill. I suggest that he should be asked to apologise to my hon. Friend and to withdraw that remark.

Mr. Speaker

Order. I was listening carefully, and I made no such interpretation. Perhaps the Chancellor will make his position clear.

Mr. Healey

Of course, Mr. Speaker. I suggested nothing of that nature. If the hon. Gentleman wants to wear the cap and feels that it will fit him, he may do so. The point that I was making was that the hon. Gentleman must be aware of the ways in which companies, particularly family companies, operate. There are often many cases in which a spouse or a son possesses documents which are relevant to the tax situation of a taxpayer and where the Revenue must have the right to obtain those documents, as in other countries. Lest there be any suggestion in what I said that I intended anything else, I should make it clear that I did not. I think that my hon. Friends are clear that I had no intention of making such an imputation.

Mr. David Mitchell (Basingstoke)

On a point of order, Mr. Speaker. Is it in order for the Chancellor to suggest that an hon. Member is not honourable, which is precisely what he suggested when he said that, if the cap fitted, my hon. Friend should wear it?

Mr. Speaker

Order. It is not in order for any Member to suggest that anybody else in this place is not honourable, because it has officially been ruled that we are all honourable.

Mr. Ridley

The Chancellor said that if I thought that the cap would fit, I should wear it, the implication again being that my hon. Friend the Member for Wycombe (Sir J. Hall) and I have in some way been connected with tax fiddles. I request that the Chancellor be asked to desist from casting personal aspersions.

Mr. Speaker

Order. The hon. Gentleman concerned has made no protest, and he is listening to the debate.

Sir Geoffrey Howe (Surrey, East)rose

Mr. Speaker

Order. I am on my feet. I thought that the reference was to the hon. Member for Wycombe (Sir J. Hall).

Sir G. Howe

Further to that point of order, Mr. Speaker. The reference made by the Chancellor, in his inelegant withdrawal of what he previously said, was to my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) It was to him that the right hon. Gentleman said that, if the cap fitted, he should wear it. My hon. Friend suggested that that was an attack which should be withdrawn.

Mr. Speaker

Order. We want to get on with the debate. I thought that the Chancellor had made it clear that he intended to cast no slur on anyone.

Mr. Healey

Perhaps I can dispose of this ridiculous rigmarole which is being raised by hon. Gentlemen opposite. I state clearly and frankly, on a personal basis, that in my opinion the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) would be quite incapable of wearing this cap or any other of which I can easily think.

I come now to Clauses 51 to 62—

Mr. Graham Page (Crosby)

Before the right hon. Gentleman leaves that point, may I ask whether entry with a warrant to obtain documents would extend to entry into the taxpayer's legal adviser's office?

Mr. Healey

Not without notice. I am ready to confess my fallibility as a guide on all these detailed tax matters. I will ask my right hon. Friend the Chief Secretary to answer that question in winding up the debate.

Mr. Maurice Macmillan (Farnham)

The right hon. Gentleman, in referring to those who were likely to be tax evaders as opposed to legal avoiders, said that family businesses were particularly prone to that practice. I hope that he will make it plain that that does not apply to all family businesses, many of which are respectably conducted.

Mr. Healey

I thought that I had made that point crystal clear. I am a little surprised and shocked at the sensitivity of right hon. and hon. Gentlemen opposite on this matter. I made it absolutely clear that there were only a handful of cases in which these powers would be likely to be sought in a full year. Of course I do not suggest that all family businesses come into that category. However, it is the fact that some sections of the population, which do not declare their income or pay their tax automatically to the Inland Revenue, do evade tax. We have evidence of that.

The powers of the Revenue, inferior as they are, compared with those of tax authorities in other democratic countries, require to be increased to reduce the amount of tax evasion. The hon. Member for Blaby (Mr. Lawson), I hope on behalf of the Conservative Party, agreed that nobody in that party wishes tax evasion to continue on any scale which can be avoided by sensible action such as that which has been taken in other countries.

I come now, at long last, to Clauses 51 to 62 which contain the revised rules for the taxation of fringe benefits. The proposals follow an undertaking which I gave last year to review the legislation in this area. They are of two kinds.

First, we are extending the scope of the existing rules by bringing in employees and office holders earning over £5,000 a year in the public sector and in other non-trading concerns, and by applying the rules of benefits provided for an employee by a third party as well as by his employer. We intend that in future there should be no difference in treatment between the public and the private sectors. I should imagine that the Opposition would at least agree so far.

Thus, for example, the use of official cars by Ministers of either party—should the Conservative Party ever acquire office again—will be subject to the same rules as the use of company cars.

I suspect that hon. Members will feel cheated if I do not refer in this context to recent stories in the Press about the treatment of official residences, which seem to suggest that I have committed a form of fiscal hara-kiri. It is true that the tax changes I have introduced in the last two years have hurt me and my colleagues as much as anyone else on the same salary or in similar circumstances. This Finance Bill is no different in that respect. But I should take this opportunity of making it clear to the House that no change is intended in the rules governing the provision of accommodation either for Ministers or for anyone else in the public or private sectors. The legislation which governs the provision of benefits, including accommodation, goes back to 1948, and this is being re-enacted in the Bill.

Employees and holders of office in the public sector are already subject to tax on accommodation made available by their employers. The tax treatment in each case depends on the same criteria as apply under the benefits legislation. They will now, for the first time, be brought specifically within a statutory provision. I hope that right hon. and hon. Gentlemen opposite will also welcome that change.

There is no intention to distinguish the treatment of Ministers and others in the public sector from that of those in the private sector—for example, bank managers living over banks and others in a similar situation, such as lock keepers, as The Sunday Times pointed out yesterday.

Nor do we intend to change the present treatment, which has applied for many years, under which official premises provided for occupation by Ministers and other holders of public office are not regarded as taxable. The Committee will, of course, have its usual opportunity of examining the wording of the clause. If it takes a different view from that of the Government, it will have a chance of expressing that view, and, if it has a majority, of amending the legislation.

The second set of changes in these clauses deal with the value placed on certain benefits for tax purposes where the present rules are unsatisfactory—as in the case of company cars—or ineffective, as in the case of cheap loans.

Mr. John Nott (St. Ives)

Perhaps the Chancellor could clear up this point. If a company director is a representative occupier, why is that director taxed? Why should directors be treated differently from Ministers? Why should a company director be chargeable, when Ministers are not chargeable?

Mr. Healey

The reason is the one which commended itself to the Treasury when the hon. Member was himself a member of the Treasury team. He did not try to change it then. Whereas bank managers in the private sector have no power to change the circumstances in which they live, company directors in close companies have the power to buy themselves enormously expensive houses at the taxpayers' expense. Examples of that were widely publicised in the newspapers recently. The hon. Gentleman knows this very well from when he was a Minister in the Treasury. I wish he would not keep fouling the nest which he recently occupied so cosily for four years.

Mr. Nott

I am sorry, but I rose on a question of fact arising from the Chancellor's legislation. I cannot understand why the Chancellor cannot give a straight answer to a straight question.

Mr. Healey

In his excitement the hon. Member for St. Ives (Mr. Nott) did not listen to the reply I gave. My hon. Friends heard me and they understood it well.

The new rules for taxing the benefit derived from a company car by reference to a scale rather than individual mileage will bring a much-needed simplification into the tax system. No one can claim that the scales are unduly severe. The amounts are based on 1975 costs and they are not being brought fully into effect until 1978. This will minimise any adverse effects on the British motor industry with which we shall be having consultations about the provisions.

The proposal that cheap or interest-free loans provided for employees should be taxable as a benefit, unless the interest would have been eligible for relief, fills a gap in the existing law. We are allowing those with existing loans an extra year to rearrange their affairs before they become liable to tax on the benefit.

Mr. A. P. Costain (Folkestone and Hythe)

What about free travel for British Rail employees from their place of residence to their place of work? They have had this privilege for many years. Many live in outside areas believing that this privilege will continue. What is the position with that?

Mr. Healey

It may have escaped the hon. Gentleman's attention, but these employees are neither directors, nor are they living on incomes of over £5,000 a year, so they are not included.

I now turn to the Opposition amendment. I will give it all the attention it deserves—about two minutes. There can be no more final and conclusive answer to the claim that the Finance Bill is profoundly discouraging to skill and enterprise than the views of those in British industry whose professional concern is, above all, with skill and enterprise.

The Confederation of British Industry, representing the employers' side of industry, has expressed itself in words which allow no argument—Sir Ralph Bateman, its president, in Tokyo last week, and the noble Lord, Lord Watkinson, a distinguished former Conservative Minister, in London. The Retail Consortium, in its Economic Newsletter this morning, has been even more explicit. Its leader is another distinguished ex-Conservative Minister, the noble Lord, Lord Redmayne. This morning's survey by the Financial Times of business opinion reports a further rise in industrial confidence, based on growing evidence of a revival in industrial activity and a promising outlook for exports. No doubt there will be a further expression of confidence in the CBI survey which is due to appear tomorrow.

I think all of us on this side of the House well understand and deeply sympathise with the difficulties of right hon. Members opposite. Even their own party's supporters in the newspapers regard them as the most incompetent group of leaders the Conservative Party has had in living memory. But I must tell them that they should not expect to revive their fortunes by fouling their own nest. I hope they will resist the temptation to sell Britain short as they have done in recent weeks, notably the Shadow Chancellor in a speech he made—very aptly—to the Toy Manufacturers' Association.

Right hon. Members on the Front Bench opposite and their acolytes on the Back Benches, should heed what Lord Watkinson pointed out last week—that those who do sell Britain short face a united Government, TUC, CBI and people. That is a formidable combination to confront the sort of Tory Trotskyism which is spawning so rapidly in the damp cellars of the Carlton Club and Annabel's.

The Conservative Party has proved once again in its amendment today that it is unfit to present itself to the country even as the official Opposition, and still less as a potential Government. I ask the House to reject their amendment and to give the Bill a Second Reading.

4.28 p.m.

Sir Geoffrey Howe (Surrey, East)

beg to move, to leave out from "That" to the end of the Question and to add instead thereof: this House declines to give a Second Reading to a Finance Bill which attempts to meet the cost of spendthrift Government by increasing the real tax burden upon rich and pool alike, and is profoundly discouraging to skill and enterprise. The Chancellor's closing passage was entirely in character with the quite unjustifiable and monstrous attack he made a moment ago on my hon. Friend the Member for St. Ives (Mr. Nott). My hon. Friend asked a straightforward question of fact, which immediately provoked a barrage of the trailer of abuse from the Chancellor which he had been reserving for his peroration.

For us to have to listen to lectures on patriotism from the Chancellor is absolutely intolerable. The performance of my party in Opposition is that we support the Government when that support is justified. We supported them against their hon. Friends below the Gangway on defence, and we supported them on an incomes policy. If the Chancellor's party had given us the same support and understanding for our policies when our Government were in office, this country would not be in the mess it is in today. Imagine the irresponsibility of the Leader of the House throughout that period when he was actually saying that a victory for the miners was a victory for the nation. The Labour Party is not a party from which we are prepared to take lessons in patriotism—or in anything else

The Chancellor tends to repeat his curious little phrases—"Tory Trots", for example. All I can say is that people who live in Marxist glasshouses should be careful before they throw epithets like that around. The right hon. Gentleman knows more about Trotskism, Leninism and Communism than I would ever hope to know. The Chancellor and his Government should take lessons in fair play and democracy regarding the constitution of Committees of this House.

The motion for committal of this Bill arises from agreement between the Chief Secretary to the Treasury and myself and it was entered into in good faith, but until we have clarified beyond doubt questions about the Standing Committee on the Finance Bill or any other Bill the Government cannot count on our support for that committal motion or any other. We are entitled to know the position before we send the Bill upstairs.

Mr. Geoffrey Robinson (Coventry, North-West)

What justification can there be for the speech of the right hon. and learned Member for Hexham (Mr. Rippon), which even the Director-General of the CBI called utter rubbish and which I call inflammatory rubbish?

Sir G. Howe

There is a good deal of justification for the encouragement which he gave to everyone in a position to do so to speak out loud and clear against the disastrous policies of this Government.

Mr. Healey

I am glad that the right hon. and learned Gentleman had a word to say about the speech of the right hon. and learned Member for Hexham (Mr. Rippon). Will he clear up one thing which is puzzling my right hon. and hon. Friends and myself? The right hon. and learned Member for Hexham attributed the behaviour of British employers to a mixture of idleness, greed and self-seeking. The Sunday Telegraph suggested that it was stupidity. Will the right hon. and learned Gentleman tell us on which side of this argument he stands?

Sir G. Howe

The Chancellor is trying to be a great deal too clever. He has been praying in aid as though they were the archangels themselves the authority and evidence of the very people about which he is seeking to question me.

Mr. Healey

They were attacked by the right hon. and learned Member for Hexham.

Sir G. Howe

The right hon. Gentleman cannot have his argument all ways by seeking to support them, to attack them and to call them in aid in his own support.

Mr. Healeyrose

Hon. Members

Sit down.

Sir G. Howe

I want to say something now about the strategy that the Chancellor is following in his approach to a bargain with the trade unions. I wish him to listen to the measured way in which the Opposition approach this matter. I begin at once by saying that one aspect of this approach to Budget-making, and only one part of it, is welcome—that is, the movement towards great openness in the making of that part of fiscal policy. Public expenditure is still worked out on secret figures not disclosed to us and with a refusal to disclose many key assumptions. However, some progress has been achieved if we have moved in the direction of openness as regards the Budget. I hope that we shall move in this direction over a wider area of consultation with a wider range of people.

As regards the rest of the Chancellor's approach, I noted with interest his statement that his colleagues in the European Community do not think it possible to get by without some sort of incomes policy. If that is any form of description of the situation which prevails in West Germany, I am content to go along with that as a description of an incomes policy.

It is not a subject on which we should be wholly dogmatic—

The Chief Secretary to the Treasury (Mr. Joel Barnett)


Sir G. Howe

The right hon. Gentleman can mutter and titter as much as he likes. Let him have the sense to recognise that on questions of this kind there are divisions of opinion, and always have been, in both parties. The Chief Secretary knows better than I do the range of dissension on this matter which lies along the Government Front Bench; there is plenty of dispute over there as well.

Let us approach the matter sensibly and recognise that, if the general level of wage bargaining is significantly reduced, there are real advantages; the pay and salaries element in public expenditure is itself reduced. Unions and their leaders should be helped to understand the relationship between wage rates and the risk of unemployment for their members. That is nothing but gain. Further, expectations about pay bargaining are significantly reduced, which itself is worth while, if the tearaway inflation that we have been going through in the past year or two is reduced. All that is gain.

It is worth asking for a moment whether the Chancellor has considered with sufficient modesty and insight why he now finds himself facing this huge task for which the second stage of the incomes policy has been prepared. He told us recently that a year ago we were on the brink of economic collapse. The Prime Minister, in an unusually graphic phrase, said that we were on a treadmill to disaster.

A year ago the Government used to talk about it as the social contract. I suppose that we must count ourselves lucky that there has been that advance and recognition that the social contract as originally presented was an anaesthetic prescription for economic disaster and nothing else. That is what it proves to have been if we consider the record over the past two years—an explosive growth of public spending and a corresponding explosion in wages and salaries, which were up by 54 per cent. in two years; and all this at a time when the gross national product has not expanded at all and today is still less than it was during the three-day working week.

As a reward for those two years' management by the Chancellor, we have got nothing except a steady fall in standards of public service and a steady rise in levels of unemployment. We must oblige the Chancellor to face the fact and oblige the people to face the fact, that the first two years of this Chancellor's stewardship are the years that the locust has eaten. The bed of nails on which the Chancellor is now groaning is a bed of nails that he made for himself. There is no escaping from that conclusion.

What else is there to be said about the Chancellor's procedures for continued private bargaining with union leaders about taxes which are to be paid by the rest of us? Of course, it is no bad thing that trade union leaders should be required to recognise that the power they claim to exercise must, in the interests of their members, be matched by responsibility. Of course, it is right that there should be consultation about the Government's economic policies.

However, before the Chancellor becomes too smug about these things, it must still be said that there are very unattractive features about the way in which the Chancellor has chosen and is choosing to handle these negotiations. Less than half the working population of Britain belong to unions affiliated to the Trades Union Congress and much less than half that number have any great enthusiasm for many of the policies adopted by that body. The people with whom these negotiations are taking place are in practical terms a small handful of intensely political, exclusively Socialist men, men upon whose patronage many of the occupants of the Government Front Bench depend for their positions of influence in the Labour Party. Those people are the controlling shareholders of the Labour Party.

The unattractive feature is that from these discussions the great mass of taxpayers and their representatives are excluded. In the form adopted by the Chancellor, this move towards open government is a very unattractive form of government by a Socialist elite It is now as it was when he first started—profoundly undemocratic. I say to the Chancellor—he should heed this warning—that anything like this form of negotiations in its present form should never happen again.

Mr. James Tinn (Redcar)

It may appeal to Conservative Members to point to the proportion of the working population who are members of trade unions. Can the right hon. and learned Gentleman explain why the responsibility for inflationary wage pressures is put entirely at the door of the trade unions by Tory Members?

Sir G. Howe

No one is doing anything like that. No one anywhere in the House that I have known of for a long time is doing that. Everyone recognises that at the heart of inflation lies the proper management of monetary policies. It is important that trade unionists and their leaders should understand the relationship between those policies and wage rates, among other things, and inflation.

It is not just political danger that the Chancellor is courting but economic danger as well, because to many people outside the country as well as to people inside the country he appears to have surrendered a large part of his economic responsibility and duty to people outside the House and beyond his control. The events of the past four weeks have shown the peril of allowing the condition of the pound and of our economy to depend upon the views of the last trade union leader to speak. It is a profoundly dangerous course.

What are we to make of the weeks that lie ahead? No doubt this week some agreement will be arrived at and announced with a fanfare of trumpets. When will Parliament have an opportunity to consider it? Apparently it is to be considered by the TUC at a special conference on 16th June. Meantime, as we move towards that conference, what is to happen to the economy and to the pound? It will have to survive an obstacle course of at least eight trade union conferences and heaven knows how many speeches and asides from union leaders in that time. Three of them were reported on the 1 o'clock news today, ail critical of the Chancellor's policy.

It may be all very well for ex-Governors Ronald Reagan and Jimmy Carter to withstand a series of well-publicised primaries, but the Chancellor, in exposing his economic policies and the pound sterling itself to a similar process of trial by ordeal—let us make no mistake about it, that is what he is doing—is taking a very serious risk with the economy.

But there are equally disturbing economic dangers. The gravest danger is that a deal will be regarded as an alibi or excuse for neglecting other economic policies of real and overwhelming importance.

The Chancellor of the Exchequer has said more than once that confidence in our future was transformed as a result of the £6 pay deal, but the performance of the pound since that deal was entered into should warn him against making over-complacent statements of that kind. He should beware of deceiving himself in a similar way again. Unfortunately. Governments are far too easily deceived by the early months, or even years, of agreement on an incomes policy which leads them to neglect the more important issues to which they should also be attending.

There are three things that the Government must do above all else. First, the huge overload of public spending must be rolled back. The Chancellor had the cheek to talk a few moments ago about a united Government, TUC and people. Many of us will doubt the unity of the Government and their capacity to roll back public expenditure while the Secretary of State for Energy is allowed to remain in insolent occupation of a seat at the Cabinet table while apparently dissenting from Government policy.

Secondly, the dangerously low level of industrial profits must be restored to health. Thirdly, the immensely depressing burden of direct taxation must, sooner rather than later, be reduced. If the Chancellor does not recognise that this is at the heart of our amendment, I regret it very much.

There is another great danger in the negotiations. The Chancellor may be forced to give other hostages to fortune which will themselves do great damage. Far too many hostages have already been given. Almost the whole of the Government's legislative programme in the past two years falls into that category—from the Trade Union and Labour Relations (Amendment) Act on the one hand to the Dock Work Regulation Bill on the other. Many Labour Members know that perfectly well, and each time they reflect upon their reluctant support for that kind of package of measures they should hang their heads in shame for what they have inflicted on the people of this country.

In his private bargaining, the Chancellor of the Exchequer must hold fast to his declared recognition of the desperate need to restore profitability to British trade and industry. That must mean a relaxation of price controls. In his Budget speech the Chancellor described that as crucial. Let him hold to that. If he does, he can count on the support of my party for that kind of courageous policy in the national interest.

The Chancellor must not succumb to pressures to introduce or extend a single subsidy. The outspoken and sensible members of the Government recognise this fact. The Secretary of State for Prices and Consumer Protection can scarcely conceal her desire to dispose of her subsidy programme as soon as possible, and the Foreign Secretary, when he was Secretary of State for the Environment, was only too anxious to begin unwinding the housing subsidies. The Chancellor has rightly been taking credit for phasing out subsidies to nationalised industries. Let him stick to the logic of that course. If he does, he can count on our support.

Mr. John Ovenden (Gravesend)

Perhaps the right hon. and learned Gentleman could clear up one point about the Conservative Party's stand on subsidies. Would he approve the complete phasing out of subsidies on commuter rail travel? We should like to know where the Opposition stand on that issue.

Sir G. Howe

There is no doubt about our position. Subsidies of all kinds must be kept within limits and, where possible, reduced. Our position on commuter rail travel has been made clear in debate after debate. We believe that there is a great deal of waste and inefficiency in the way commuter and other lines are run. Subsidies could be reduced and the commuters could get a fairer deal.

We are not making any selective qualifications on this matter. When the Labour Party begins spelling out with the same courage as we show that the world does not owe us a living, that food subsidies must be eliminated and that housing and nationalised industry subsidies must be reduced, then will be the time for Labour Members to criticise us.

Mr. Healeyrose

Sir Stephen McAdden (Southend, East)

On a point of order, Mr. Deputy Speaker. Is it in order for two hon. Members, let alone two right hon. Members, to be on their feet at the same time?

Mr. Deputy Speaker (Mr. Oscar Murton)

I think that the matter was resolving itself.

Sir G. Howe

I have given way to the Chancellor on a number of occasions and would like to do so again, but I refuse to give way when he stands at the Dis- patch Box in a hectoring, bullying manner as though he has some divine right to require anyone to give way.

The Chancellor ought also to recognise, in considering the way the Bill is taking us in the wrong direction, that it represents a real and increasingly unbearable increase in the burden of direct taxation on almost every section of the community. The right hon. Gentleman spoke earlier as though he had a prerogative right to look after widows and that we were constantly hounding these poor creatures. However, as a result of the Budget, a widow on the standard social security benefit will still be paying extra tax on every pound she earns on top of her basic social security pension. What kind of Budget is that to bring before the House?

Couples about to be married this year apparently have to face the instant disappearance of the tax benefit on which many of them have been depending. The Chief Secretary chuckles. He may be amused by this action, though he seeks immediately to evade it by shaking his head, but I have received dozens of letters, and many more have appeared in the Press, from couples throughout the country who were expecting a tax bonus of £230 this year and were depending on it for their wedding plans.

There may be a case for withdrawing this bonus as an anomaly, but it is a pretty mean-minded thing to do. If it had to be done, couples should at least have been given a year's grace to adjust to a new situation. The economy must be in a pretty desperate plight if the Chancellor, in order to stop these gaps, has been reduced to ransacking the contents of 400,000 bottom drawers for extra cash.

Another group to whom the right hon. Gentleman has given little attention is the pensioners, who last year were able to earn nearly £8 a week without paying taxes. This year, they will have that amount reduced to less than £6 per week.

Every class one looks at is facing heavier taxes under this Budget. The worker on average wages, even if the deal goes through in the form proposed by the Chancellor, will pay more and will face another discouragement later in the year. From October, a worker will see his neighbour who is out of work

becoming £2 or £3 a week better off than himself because of increases in unemployment pay.

In his Budget speech, the Chancellor said that to achieve the economic miracle for which he is looking we needed only a marginal improvement in our industrial performance at every level. He has a strange idea of the way to bring that about. We need exactly the opposite to this increased burden of taxes if we are to unleash the will to work which is necessary in order to restore our economy. Almost the whole of the right hon. Gentleman's proposals will have the opposite effect.

It is true that the Bill contains provisions to remove some of the more grotesque follies of capital transfer tax. Last year the Bill in which CTT was contained ran to 34 clauses and nine schedules. We argued that it was damaging and misconceived in many respects, but the Government brushed aside our objections and drove the legislation through under a guillotine. In this year's Bill we find concessions on many, though not all, of the points we were making, contained, if hon. Members can believe it, in 42 clauses and five schedules. That is what is thought necessary to set aside the mistakes in the 34 sections of last year's Act. There has been no comparable confession of error on this scale since the present Prime Minister resigned as Chancellor of the Exchequer in 1967.

The Bill contains almost nothing but a tightening of the noose around the necks of those upon whose enterprise and energy we vitally depend. The skilled craftsmen, salesmen, managers and people earning between £5,000 and £8,000 a year who have been listening to the Chancellor making his benevolent noises towards them realise that he was shedding nothing but crocodile tears. Those who so far through their share ownership have been able to have a stake through beneficial ownership in the success of companies for which they have been working are to face a heavy extra load of taxes. For those who have built up these enterprises, the fringe benefits which have come to form an important part of remuneration in our grossly overtaxed society are to be taxed away.

I have no affection for tax-free perks. I would far rather live in a society where the company car and things like that did not exist and where people were able to own their own cars, to save enough capital to allow them to snap their fingers at those whose inefficiency they cannot tolerate and have enough capital to allow them to move off and set up their own prosperous businesses. We have no hope of seeing that kind of society as long as this Government remain in office. We shall begin to move in that direction only when we get our tax rates down to about the European average of 60p in the pound. That is the direction in which we ought to be moving, and not the one along which we are being taken by the Chancellor of the Exchequer.

In the context of the present structure of tax rates, the Chancellor's latest measures will be seen as another move towards the transformation of Britain into some kind of fiscal Lubyanka. The Chancellor will succeed only in turning the trek of talent from this island into a veritable torrent. If this is the climate of envy and equality that is to prevail, the answer given by the Chancellor of the Exchequer to the important question of ministerial benefits will not do. If equality and envy are to be the order of the day, to allow Ministers to be left in tax-free enjoyment of their Downing Street dachas could amount to the final outrage.

I come finally to the proposals on which the Chancellor of the Exchequer understandably spent a lot of time—his proposals to increase the powers of the Inland Revenue. I repudiate absolutely the absurd notion which the Chancellor puts forward that the Labour Party represents an army of voters consisting exclusively of PAYE taxpayers who are wholly and exclusively virtuous and honest and that there is some kind of division between his party and this side of the House. We are all against tax evasion, but I want to consider the powers further.

Why, having been so virtuous and forthright about it today, was the Chancellor so furtive in his description of this in the Finance Bill, published as it was on a dark Maundy Thursday morning? Let me remind the House what it amounts to. What the Chancellor is proposing is a right for the tax authorities to enter a taxpayer's

home by force at any time and to remove anything that can be used in evidence and to do so—this is important—on the authority of any one of 19,000 justices of the peace. I have great admiration for justices of the peace and the important work they do, but this is a strange way of dealing with powers that will be used as seldom as the Chancellor says they will be.

When one looks at the background to these proposals, one sees that they go beyond the recommendations of the Royal Commission of 1955—a Commission of which one of the most prominent members was the man who is now the Chancellor of the Exchequer's special tax adviser, Lord Kaldor, which is not a very encouraging background for the creation of a fiscally efficient and just society. I am reminded of a story about Lord Kaldor, who served in the last Labour Government. The rumour reached his ears that he might be transferred from the Department in which he was serving to another, and he is said to have expressed surprise at the prospect because, as he understood it, all the major mistakes had already been made in that Department.

These proposals were considered more than 20 years ago, and the Inland Revenue has got on without them ever since. One must therefore wonder why they have been brought forward now. One cannot resist the suspicion that have been brought forward as a result of pressure from the Inland Revenue Staff Federation, a union that is affiliated to the TUC. That suspicion is powerfully fortified by the fact that the words of the Chancellor this afternoon verbatim and precisely correspond with text of the article written yesterday by the general secretary of that union. The two statements agree word for word, but the Chancellor is so conditioned that he cannot recognise that he is spouting his master's voice. It is no wonder that people are intensely fearful about where we are going. The present balance of power in our society strikes more and more people as increasingly offensive, and I give the Chancellor notice that we shall want to examine the case for these proposals with a deeply critical eye.

We are told that these powers will be used in only a handful of cases each year. Whether we listen to the Chancellor or read the article, if that is so why do these powers need to be placed in the hands of 19,000 justices of the peace? Four new justices of the peace are appointed every day of the week. Are all these people to be given training in the way in which to carry out the powers that are to be placed in their hands?

It may be constitutionally unacceptable to place these powers in the hands of Ministers, and especially in the hands of Ministers of the present Government, but why should not these powers be placed in the authority of a High Court judge for a handful of cases a year? If these powers or anything like them come on to the statute book, people would regard it as a powerful safeguard if these powers were placed in those hands rather than in the hands of justices of the peace.

The real importance of these proposals goes deeper than that. In a free society, a vital feature is the maintenance of trust between the taxpayer and the tax gatherer. If that is to survive, the level of taxes must be bearable and not intolerable, and the methods of collecting those taxes must be equally respected and tolerable. The bond of trust between the taxpayer and the tax collector is the social contract that is at the heart of a free democratic society, and it is that which has been placed in jeopardy by the combination of the measures which the Government have brought forward.

It is all very well for the Chancellor to say that beneficent countries such as Canada and the United States, which enjoy far lower marginal tax rates than our own and have a tax system of self-assessment which is different from the methods in this country, are prepared to live with inspection methods of this kind. It is significant that the right hon. Gentleman did not mention Sweden, where penally high tax rates, combined with powers of this kind, are resulting in some of that country's leading intellectuals being driven into refuge from that society.

It is this foundation of our society that the Government are more and more placing in jeopardy by their combination of high taxes and high-handed methods of collection. The Chancellor will find that the people of this country will increasingly be rising in anger against taxes

that are intolerably high if they also are to be collected by methods that are equally intolerably high-handed. That is the price that we are being asked to pay for this spendthrift Government. I ask right hon. and hon. Members to make it plain by their vote tonight that the House of Commons is no longer prepared to pay that price for this intolerable Government.

5.0 p.m.

Mr. Norman Atkinson (Tottenham)

I shall return in a moment to the question already raised by Members on both sides of the House about the additional search powers sought by the Treasury, but, briefly, I want to mention two points raised by the spokesman for the Opposition, the right hon. and learned Member for Surrey, East (Sir G. Howe), about the "Socialist elite" which has been created. The right hon. and learned Gentleman himself has to decide which horse in the race he will back. He has to make a decision about his own approach in the relationship between the Government and the trade unions or between the Government and the CBI, for instance. In all these discussions there is, by necessity, bound to be a degree of elitism, but the alternative is much worse than that. That is the real question which spokesmen on the Opposition side of the House have to recognise.

A voluntary wage agreement can be established only by the Government themselves meeting trade union leaders and involving themselves in discussions that ultimately, they hope, will result in a voluntary agreement. The essential attribute of a voluntary agrement is that both sides come together, discuss the matter, arrive at a conclusion and agree voluntarily to pursue that policy. If the right hon. and learned Gentleman is saying that it is wrong for the Government to do that, he can only be arguing for a statutory policy.

The only way in which Parliament can assert itself independently of those outside with whom the Government are at present negotiating is by saying that we shall have a statutory policy, that this will be the maximum wage agreement, and that whether the trade unions or management like it or not, those are the parameters set down by the Government and, therefore, there is no need to discuss it. Which of these two arguments is the right hon. and learned Gentleman talking about? I take it from his silence that he has no answer to them and that he has not made up his mind whether the Opposition want a statutory policy or a voluntary agreement that could arise from the sort of discussions going on at the moment.

My own personal view—I believe that it is the majority opinion on the Government side of the House—is in favour of a voluntary agreement being reached. People like myself have had a lot to say about this business of negotiations elsewhere and the diminution of the power of Back Bench Members in the House, but in the kind of arrangement in which there is a voluntary national wage agreement topped up by tax concessions from the Exchequer, plus, perhaps, a nationally negotiated reduction in prices—a very complicated package—Parliament must assert itself in negotiations of the social wage rather than the wage inside the wage packet. That is our responsibility in this situation—to make minimum demands on the Government to maintain the social wage and their obligation towards the extension of the public sector to do that, and also to be concerned about taxation in this country.

We can argue that it is an extension of democratic right when the Government go outside Parliament to negotiate directly with the trade unions in order to reach a voluntary agreement. I submit that this is an extension of democratic practice rather than a restriction of it, because of all the factors I have attempted to set out. However, the Government should now be absolutely honest. I do not think they can escape the consequences of lowered living standards unless they are absolutely honest at the outset. There is a tendency on the part of all Governments to move around in their stocking feet, hoping that no one will really hear them when they talk about lowered living standards. We should now be saying clearly to what extent we expect living standards to drop as a result of the policies, and it will be substantially higher than any of the figures that have been mentioned so far. By the time we get to August 1977 there will be a substantial reduction in the purchasing power of workers' wages in this country tar in excess of any figure mentioned at the moment. The Government have an obligation to be absolutely honest and set out the picture, as they see it, in terms of the percentages.

On the question of tax evasion there are two ways, as the Chancellor said. There is PAYE and "pay as you declare". Presumably, the Chancellor is seeking powers to do something about the latter point, but he is looking in the wrong place. He is looking in an area in which he will shed no light, despite the powers he will have. It is all done by cash. The deals that the Chancellor is concerned about are not, in the main, on paper. There are already ways in which the Government can search for documents in various companies if they are looking for massive company evasion of taxation. Indeed, the Price Commission could give a lot of information if it were working according to the statute.

There are ways in which the Government can overcome the evasion of company taxation, but there is an area much more lucrative than that—the whole business of moonlighting, and work done outside normal hours. It is estimated—I have no reason to doubt it—that each year about £3,000 million is earned but not declared for tax purposes. That must be the case, if one considers the very nature of the jobs done by professionals or skilled men working in various building trades, and other areas. I am not only talking about "lump" labour I am talking about the wide area of odd-jobbing and self-employment of one sort and another outside normal working hours. There must be between £3,000 million and £3,500 million worth of work being done, at a minimum estimate. This is a very large area, which is not taxed at the moment because it is all paid in cash. The only way in which the Government can overcome the problem of massive tax evasion in the City and elsewhere is by insisting that any payment over £50, or whichever figure is selected, is made not in cash but by cheque.

People may say the consequences of that are too severe for a democracy and that it will not work. If that is the case, then we will have to put up with the evasion. There are other countries in the world, from the United States to Hong Kong, which have failed to catch the tax dodger because the money is paid in cash. If the price of stopping them is too great a strain for democracy, so be it, but we must recognise that the only way it can be done is by saying that no sum of more than £50 will be allowed in cash, and that it must be paid by cheque. Then the Government will have access to the information it needs about tax evasion.

Mr. David Mitchell

Is it not a fact that the situation that the hon. Member has described is brought about by over high levels of taxation on such people, and that the answer is to shift taxation from earnings to taxation on spending?

Mr. Atkinson

Even if tax was 2p in the pound a lot of people would want to evade paying it. It is a sort of national sport. There is also a great sophisticated profession that sets out to advise people how to evade taxation. It is a sophisticated business. Even if tax were only 2p in the pound I am certain that some people would pit their wits against the Government in order to escape paying it. In that sense, I should like to repeat the Chancellor's words and say that perhaps my right hon. Friend the Chief Secretary will have a great deal of advice to give in that regard, knowing something about the less scrupulous operations that take place—although not having experience of them personally, of course.

I want to mention the whole business of the monetary strategy and what has happened in the City in regard to currency dealing and the position of the pound. My conclusion, and that of many of my hon. Friends, is that we have now reached the stage at which the £ sterling is totally and grotesquely undervalued—so much so that we are now suffering from the fall in its value in terms of employment prospects. The situation is the opposite of that being suggested by many leading experts when they say that by reducing the value of the pound we can sell our exports much more easily and that this, therefore, should assist in an early return to full employment. I have to tell my right hon. Friends that our experience is not that at all, but the opposite.

There is only one way in which one can assess the value of the pound, and that is by comparing a process of manufacture in Britain with an identical process overseas. Taking West Germany, for instance, our position is far less favourable than theirs, in terms of the labour content of any equivalent product. Whatever comparison one makes in this regard, if one makes exact comparisons, the pound is, of necessity, seriously undervalued. That is the challenge that faces us on the present exchange rate and what it is doing to our employment prospects.

From my own analysis of the figures produced by the Exchequer, by employers' organisations and by those who have analysed the work content in the products that we are exporting, it is undoubtedly the case that for every three hours of labour effort that we export, we are importing four hours. That is a ratio far higher than our existing external deficit. Therefore, we are importing unempolyment as a result of the lowering of the exchange rate, and our work people are at a disadvantage when they should never he in that situation.

Mr. Ian Gow (Eastbourne)

Is not the true value of the pound that price which people overseas are prepared to pay for it or to accept for it, whether they are buying it or selling it? Is the hon. Gentleman really advocating a return to a fixed parity?

Mr. Atkinson

Yes, indeed; I am about to draw just that conclusion. That is exactly my conclusion. I shall say so in a second or two. We should not allow people overseas, or people in the City of London who are advising people overseas, to determine the rate of exchange. Our employment prospects are far too important for that. It is not a question of allowing the propensity of the market, and so on, to determine the level of exchange. Since the Conservative Party floated the pound in June 1972, and floated it downwards, it has gone down by almost 36 per cent., compared, on average, with the leading currencies in the Western world. That is an awful amount.

There was no justification for that whatsoever, despite the antics of those who have overseas holdings. One of the reasons they give is that the biggest holders of sterling are the Arabs, who, by agreement, are the very people who have pushed up our domestic prices far higher than any other group. There is no mystery about inflation as far as the Arabs are concerned. They are the people who caused it. Their oil prices rose fivefold, so surely they are in no ignorance about our domestic problems. They may be the largest holders of sterling, but it does not lie in their mouths to determine the value of British workmanship and efforts.

Therefore, we take an entirely different view. I have a statement which was issued this month about our car and commercial vehicle exports. It is illuminating. Not only have our exports dropped considerably in volume terms since the devaluation of the pound; proportionately they are now earning even less for us. We must take into account our rise in domestic prices, and not only the lowering of the pound overseas and what is happening elsewhere in the world.

On the figures produced for us by all the inquiries being undertaken by the NEDC and others, the position since the Tories devalued the pound is that the labour content of our exports has dropped by one-third. The labour content of our exports of motor cars and commercial vehicles has dropped by one-third—almost the identical amount by which the pound has dropped. Therefore, I think that we are right in concluding that we are importing unemployment as a result.

The only conclusion that we can reach—the hon. Member for Eastbourne (Mr. Gow) was absolutely right—is that we must now campaign for the earliest return to a fixed parity, and the trade unions must exert the maximum possible pressure on the Government to that end. That is the only conclusion that we can reach if we are to make a serious contribution towards returning to full employment as quickly as possible.

The rate of exchange must be determined by the Government and not overseas dealers in sterling, or any other currency for that matter. Therefore, this matter involves not external demand but our own needs and how we ourselves will manage our economy.

Mr. Peter Rees (Dover and Deal)

I have been following with interest the point that the hon. Gentleman has been making. Will he tell the House at what rate he would recommend his right hon. and hon. Friends to fix the pound vis-à-vis the dollar?

Mr. Atkinson

That is precisely my final point—the business of returning to a Government-fixed parity. It is not for me to decide what that rate should be. When the decision is taken, it will be the criteria that exist at the time, particularly in Europe, that will determine the rate. The point is that if we could agree about the rate at present and say that the correct value is $2, how on earth, in the present system, would we return to $2? There is no likelihood that the pound can rise in that way in a free market. It has never happened in Europe. It cannot rise to its true value by the methods that exist now. Can any Opposition Member—and there are a number of experts present—foresee a situation in which the pound will climb back about $2?

Mr. Gow

With a change of Government.

Mr. Atkinson

We must face reality. We shall have a Labour Government for the next 10 years, at least. There is no conceivable way in which a free exchange will push the pound back above the $2 level, yet in order to restore full employment that is what we must try to do.

Dr. Jeremy Bray (Motherwell and Wishaw)

Surely, to be fully understood, what my hon. Friend is asking is for the Treasury to take enormous reserves from somewhere, by which it can build up the exchange rate. The only way in which it can get those enormous reserves would be by the most shattering deflation of the United Kingdom economy. My hon. Friend seems to be asking the Government to deflate the economy to produce the reserves.

Mr. Atkinson

No, not at all. My final point is the key to the whole thing. If we are arguing for a directly planned economy, a centralised economy in that sense, of necessity my argument must mean that we control all imports, and if we are to get any planning sense at all into the priorities of our economy, this must mean that we do two things together. First, there must be a return to a fixed parity at the same time as we start to establish priorities in the materials and goods which this country imports. The two go together. Import controls and a much stricter currency control are essential if we are to get anywhere at all.

I am arguing against deflation. I am arguing for reflation and a planned economy. But this is being sabotaged by the nature of free exchange in the world—by the way in which it is undermining our efforts to return to full employment. My purpose is to put the alternative, which is direct Government intervention in the economy and the establishment of centralised planning as an absolute essential if we are to do these other things. Those things go together.

We cannot proceed unless there are priorities in our imports. We must be able to distinguish essential from nonessential goods and services. That is the essence of my argument. But unless we get some understanding about currency regulations, unless it is the Government who determine our rate of exchange—and I remind hon. Members that that was the case before 1972—until we get back to that state of affairs with these other essential elements that I am talking about, we cannot look forward to a progressive move towards the establishment of full employment.

5.22 p.m.

Mr. David Mitchell (Basingstoke)

The Finance Bill is the central machinery of the Government's economic policy. It has to be viewed against the appalling record of the Government since they have been in office, with unemployment doubled, the cost of living up by 50 per cent. by the time the Finance Bill reaches the statute book, Government expenditure doubled and the country running out of money—a record of which the Government should be ashamed.

It is against this background that I want to consider two matters—first, the general economic situation and, second, the position of small businesses as a result of the Finance Bill. I think we all agree—even the hon. Member for Tottenham (Mr. Atkinson)—about the need to see an increase in production. Indeed, it was central to the theme of the hon. Member's speech. The question is: how do we arrive at it? I suggest that we arrive at it by a tripod—a three-headed partnership of motivated management, skilled workers and capital—at a rate of interest which industry can afford. If we do not get those three things in partnership, we shall have decadent industry, unemployed workers and emigrating talent from our management. Looking at each of those three factors we have disappointingly to record that the Budget has done little or nothing to help, and in some cases it has made the situation worse.

Let us deal with motivated management. It is motivated mainly by money, and by a certain amount of fringe benefits because the taxation of money incomes is so high. We get the sort of management for which we pay. There is an old phrase in industry—"If you pay peanuts you get monkeys." The difficulty is that in this country we are paying our management too little. Management is something that can move from one country to another. There is a steady and growing drain on our skilled management to other countries. Last year the record number of emigrations—250,000—from this country contained a larger number of management skills than at any time before.

I was talking to a manager of an enterprise in my constituency with similar sister companies in other countries. To the management of its German company it pays £24,000 a year. To the managing director in France it pays £24,000 a year, and out of his £24,000 the managing director in France is left with £18,000. I have done the conversion at 9 francs to the pound. That is £18,000 spending money. In this country we pay the managing director £10,200 and he has £6,000 left as spending money. With a threefold difference in spending money after tax, it will not be long before there will be a flood of applicants to work as second, third, fourth and fifth under the managing director of the French enterprise rather than work for this company in this country. In "motivated management" there is a debilitating, haemorrhaging loss of skilled management that we need desperately to keep in this country.

Coming to the question of skilled workers, we have enough of these. We have the plight of the skilled worker who is unemployed. Idle hands are the most savage indictment of the record of this Government. I recognise that a period of enforced idleness sears into man's heart and soul. One frequently hears blame laid on the workers and trade unions because it is said that the workers are lazy. I do not believe that is true. I believe that the real reason for our low productivity and the slow moving of income into our companies is that there is too little capital behind each worker compared with our companies' competitors abroad. Capital is the prime need. There are two aspects of this. The first is that there should be a plentiful supply of it so that it is not too expensive. Second, there should be more behind each worker.

Let us consider the level of interest rates. This is of crucial importance in deciding whether enterprises are going to pay. One has to borrow money. When borrowing money the factor which determines whether it is worth setting out on the investment and whether it is worth tooling up for a particular job is very often the level of interest that one has to pay. There are many marginal products and new businesses that would get under way and provide jobs if the level of interest were right.

With interest levels the important factor is supply and demand. The sad fact is that the Chancellor is borrowing £12,000 million this year. I ask the House to consider what would be the effect on interest rates in this country if that were not done. Interest rates would have to come down to an extent that many more jobs would be created in the productive sector of the economy than exist at the moment.

The worst aspect of the matter is that last year the Government got their borrowing because there was a lot of unused liquidity in British industry. But today the Government talk of an upturn in trade as the year proceeds. The Chancellor spoke of it this afternoon. As that upturn in trade takes place, so British industry will require to draw back from the gilt-edged market the money that it has laid out there in order to stock up and buy the raw materials and tool up for the growing export trade of which the Chancellor speaks. Then where will the Chancellor get his borrowing? There will be an inevitable rise in interest rates, which will choke off the incipient recovery in jobs and production.

I come to my second point on capital—more capital behind each worker. Investment needs investors, and we need to encourage investors. "They also

serve"—who only put up the money. We must recognise that fact, and ensure that they are paid adequately for doing it. When the Chancellor of the Exchequer takes pride in having put up the rate of tax on investment income to 98 per cent., having done his damnedest to push investors away and to discourage them, he need not be surprised that there is too little investment in British industry and that British workers have to work with outdated machinery, unable to compete with their counterparts abroad.

The irony of it is that the more the Chancellor does to satisfy his hon. Friends on the Left Wing below the Gangway by clobbering the rich, the more he clobbers the investor and the more he creates unemployment and makes worse the situation of those whom he is trying to help. The Budget stands condemned for its lost opportunity, its failure to restore motivation to management, to ecourage the investor or to create jobs for workers.

I turn now to the position of the smaller business. The Chancellor expects an upturn in trade during the latter part of this year, and I think that he is probably right. Because of the low level of sterling, there will, I believe, be an upsurge in export orders, but these will come mainly to our large industries—to the great assembly industries, to the motor vehicle industry, if it is able to get on and produce, to the shipbuilding industry, if it is not in chaos after nationalisation, and to the aircraft industry, if, that also is not in chaos after nationalisation, and so on.

The orders will come to our major industries, and those industries will in turn be looking to a massive number of smaller firms to supply them with the parts that they need for their work. The sad truth, however, is that in many cases the Government will find that production not forthcoming, so that the larger industries will have to get their parts from Europe, from Germany, from France, from Holland—from countries which can send their goods in through the Common Market with no tax or tariff on entry into this country. That is what will happen, because the small businesses of Britain on which we should rely for those parts have been so clobbered by what the Government have done in the past two years and have been subjected to such a savage attack that they have had the stuffing knocked out of them. The number of bankruptcies is a record since figures were first recorded in 1914, there is a record number of companies simply closing and going away, and there is a record cut in industrial investment in this sector.

I give the Chancellor due praise for having recognised in his Budget that this is a sector for which something has to be done. He has, I believe, gone out of his way with certain measures which he has announced—I shall come back to them in a moment—to try to do something to help. The difficulty is that what he has done has been wholly inadequate against the size of the problem and against the background of the level of inflation since the measures which he is revising were first introduced.

Let us look for a moment at both the small and the growing medium-size firm. For the very smallest, there is a failure in the Budget to do anything in fairness for the self-employed, who have a substantial part to play, by allowing their national insurance contributions for tax purposes. That would be only elementary justice.

Next, there is the failure to lift the turnover starting point for VAT. When it was first introduced in 1972, the starting point was £5,000. Currently, that is equivalent to about £8,550, and by the time the Finance Bill becomes law it will be about £9,000. If the Chancellor were to lift the starting point for VAT to £9,000, exactly the equivalent of what it was when first introduced, that would take no fewer than 250,000 small firms out of all the form-filling involved, firms whose management time should be used in getting on with the job of producing, not filling up forms.

Mr. Ovenden

Will the hon. Gentleman give way?

Mr. Mitchell

I am trying to get through a lot as quickly as I can, and I promised not to take long. I hope that the hon. Gentleman will take his own opportunity later.

I come next to the medium-size firm, and here I must refer to some important aspects of the Government's concessions, and lack of them. I refer, first, to the decision to leave the smaller business rate of corporation tax unchanged at 42 per cent. The small German industrialist or business man pays 22 per cent. on retained profits, but in this country the rate is 42 per cent. Is it surprising that the Germans plough money back into their businesses far more than is done in Britain? This is certainly one area to which the Government should give attention.

Then there is the question of the definition of a small business for small business corporation tax relief. In this respect, I thank the Chancellor for having put the starting figure up from £25,000 to £30,000, but that increase in respect of small businesses for small business corporation tax relief does not even take account of inflation since this special rate was introduced. I am surprised to see sitting on the Front Bench the right hon Gentleman the Chief Secretary, who has so often told us that he wants to go back to the classical form of corporation tax in place of the imputation system. He knows as well as I do that this change to £30,000 does not go back to the classical form for the small business which does not distribute its profits but relies wholly on the ploughing back of profits for investment within the company for the sake of future production.

The truth is that the figure should have been lifted to about £100,000 if the right hon. Gentleman wanted the equivalent of a return to the classical system of corporation tax for these companies which do not distribute their profits by way of dividend.

Mr. Joel Barnett

The hon. Gentleman has correctly stated my position, but he is totally ignoring the new situation wherein there are 100 per cent. capital allowances and stock appreciation relief, which mean that the vast majority of companies do not pay corporation tax.

Mr. Mitchell

There is a part-truth in what the right hon. Gentleman says in its relevance to this situation—I am not suggesting that he is trying to mislead the House, of course—but there is a whole host of areas of expenditure vital to such companies which are not allowed for tax. Whether one refers to debtors or a whole host of other things, the right hon. Gentleman knows as well as I do that that is so. We shall debate the details later on the appropriate clauses.

Next, there is the capital transfer tax concession, but this also is wholly inadequate in relation to the movement of inflation since that tax was introduced. Because of the rate of inflation, companies have been driven into a higher bracket, far higher even than the 30 per cent. concession given by the Chancellor. Moreover, there still remains the death trap for the small business man of having to pay capital gains tax on the same appreciation and then paying capital transfer tax when he passes the business from one generation to another. This, together with the Chancellor's failure to announce the abandonment of the wealth tax, means that we shall still have thousands upon thousands of small businesses in this country looking to the future and deciding that it is not worth building themselves up, not worth investing, not worth seeking to create increased production and more and better jobs. It is not just worth while because, at the end of the day, it is the Chancellor of the Exchequer who takes the business—and no man works for that motivation. It is time that the Chancellor realised that he must work with the grain of human nature.

Thus, for the small business the Chancellor has rightly recognised the need for change, and he stands the more condemned for failing to deal with it.

5.39 p.m.

Mr. John Ovenden (Gravesend)

The debate so far has concentrated upon the Chancellor's economic strategy, but I shall not entirely follow that line, because I believe that the occasion of the Budget should be an opportunity not only to review or revise our economic strategy but also to look carefully at the anomalies and injustices in our tax system itself and try to correct them.

I regret that the Chancellor has not been more imaginative in his approach, especially to the personal allowances system. For a long time now, this system has been haphazard and, many would say, entirely illogical. Personal allowances have for some time ceased to take any genuine account of commitments. Here are a few examples.

First, I take the tax allowance for a married couple in a case where, because of family commitments, only one partner works. This allowance is far too low in comparison with the allowances enjoyed where both partners in a marriage are in a position to work. Next, there are the tax allowances for older children, which are far too low in comparison with the personal allowances often enjoyed by children of the same age who have left school and are out at work. It is impossible to justify a taxation system in which the same allowance is granted to a single householder—say, a widow or widowed mother—as is granted to a young person living at home with parents.

Our tax allowance system has become illogical. Inflation has destroyed much of its real value and the original reasoning behind it. My right hon. Friend the Chancellor had a unique opportunity, this year, to recast the system. The old system has been made meaningless by inflation. Instead of adding roughly the same percentages to personal tax allowances it would have been better if the Chancellor had taken a more imaginative view and recast the system. I see that my right hon. Friend the Chief Secretary is nodding in agreement. The Chancellor made some changes but he missed a valuable opportunity to recast the system.

Widows are badly hit by the present tax system. The right hon. and learned Member for Surrey, East (Sir G. Howe) has cried his usual crocodile tears over widows, but he was a member of a Government who failed to do anything at all for them. Although it may be a convenient stick with which to beat this Government, the right hon. and learned Gentleman's own record needs careful examination. He stressed the increased burden of tax on widows. I agree about that—but their position has come about not through the deliberate action of this Government, or a change in policy, but because this Government have carried on a tax system that they inherited from their predecessors. It therefore ill becomes the right hon. and learned Gentleman to weep crocodile tears over the plight of widows.

Many widows were confident that the Chancellor of the Exchequer would be unable to ignore their claims for fairer treatment this time. Many are bitterly disappointed by the omission from the Budget of any significant help. There are a few minor changes, but there is very little for working widows, on whom the burden of tax falls heavily. Inflation is making that burden excessive.

I recently asked the Chancellor of the Exchequer about the tax position of widows earning one-third of average earnings in addition to a pension. Widows often earn modest incomes, and many of them work only part time. I was astonished to discover that a widow with two children under 11 on one-third of average earnings paid £142 in tax last year—about £3 a week. It is time for the Government to look seriously at that situation, because it causes bitterness not only to widows but to their families, and is a matter of concern to that section of the population which wishes to see a fairer deal for widows.

The majority of widows work alongside married women, and their feelings of bitterness stem directly from their experience in that situation. That bitterness is understandable if one examines the situation. For example, let us take the position of two women earning £17 a week at a part-time job, each woman having two children of 12 and 9 years Of age. The widow pays £4.55 a week in tax and the married woman pays £1.50 a week in tax. Admittedly, the widow has a pension of £24.80, but the married woman's husband has a tax allowance permitting him a tax-free income of £27 a week. The widow looks upon her pension as the equivalent of the married woman's housekeeping money, and that is not taxed. The husband often enjoys a tax allowance which is higher than the widow's pension.

There are a number of ways in which the Chancellor could have helped widows. It has been suggested that pensions should be tax-free, but that approach has been rightly rejected by successive Chancellors because it would give the greatest benefit to wealthier widows. Unfortunately, in rejecting that approach successive Chancellors have tended to use the argument against it as an argument against any concessions to widows. I accept that such reasoning could be used against a general increase in personal tax allowances but the National Association of Widows has made proposals to the Chancellor to which objection cannot be made on those grounds. The association's proposal is for a small income exemption allowance similar to that given to pensioners. So that if other income does not exceed a certain level—perhaps the level of £3,250 which is the amount that pensioners are allowed—the widow should be entitled to an additional personal allowance.

I cannot understand why such tax treatment is justifiable for retirement pensioners but unjustifiable for widows. There are differences, but those differences show that the widow is in a less favourable rather than a more favourable position than is a pensioner. It could, therefore, be argued that widows are even more entitled to that favourable treatment than are pensioners.

The National Association of Widows argued that widows had a stronger claim for an extra tax allowance than did pensioners. It argued that pensioners received a number of financial concessions that were not available to widows. For instance, retirement pensioners travel at reduced fares or free on buses and British Rail; they have free prescriptions, free dental and optical treatment, and many other concessions from private firms. In that respect, the widow is worse off than the pensioner.

Retirement immediately follows a period of high earnings, and it is a period for which plans can be made. Widowhood cannot be planned. It is usually sudden, and often a woman becomes a widow after a long period of nursing a sick husband, in a situation that might have caused financial difficulty. In that respect she is in a less favourable position than a pensioner.

Many male retirement pensioners are still active when they stop work and can still do maintenance work around their homes. I know that we live in a world of sex equality, but there are still many widows and many women living on their own who cannot tackle the jobs around the house and who therefore incur considerable expense in employing someone else to do work for them. Widows are therefore in a less favourable position than retirement pensioners in that respect.

The case that has been made out points to the fact that in taxation widows ought to be regarded in the same way as retirement pensioners, and that their pensions should be treated in the same way. Widows have waited for a long time to get some justice out of the tax system. They have had a lot of sympathy from Treasury Ministers and a lot of crocodile tears from the right hon. and learned Member for Surrey, East, but they are becoming very impatient with both sympathy and crocodile tears, and are waiting for action.

I believe that more than any other Government the present Government are likely to face the requirements of widows and give them an element of justice. I hope that my right hon. Friend will not allow this Bill to pass without trying to insert in it a provision to make sure that widows feel that their faith in the Government is justified and deserved.

5.50 p.m.

Mr. Robert Cooke (Bristol, West)

The financial problems which assail the national heritage are as important as any other issue raised here today. It is historic Britain that attracts tourism, earning more than £2,000 million a year in foreign exchange. Yet in this century we have lost hundreds of major historic buildings and landscapes and seen the dispersal of priceless treasures overseas. It is to our historic places that our constituents flock on their day out, and we must think, too, of them.

A year ago, Heritage Year 1975 aroused widespread interest. This is to be carried through into Heritage Education Year 1977, warmly supported by the Secretary of State for Education and Science. Let us hope that neither of these proves to be a hollow sham. I know that the Chancellor of the Exchequer is not unmindful of the problems of the heritage. I hope that he will find time to translate his genuine interest into effective action.

I seek to highlight the problem and to propose a solution. This will involve, inevitably, certain strictures on the Government's capital taxation proposals, but I hope that the Government will accept that my strictures are made in a helpful spirit.

The largely man-made landscape provides a setting for a wealth and variety of buildings unequalled anywhere else in the world. Many of these buildings still contain collections of works of art far richer than those in most public galleries. Practically every major house is open to the public. All of this is threatened by alarm and uncertainty stemming from recent capital taxation, both enacted and prospective.

Over the weekend, many of us will have read of the imminent sales of some of the finest pictures remaining in private hands. We all recall the Radnor Velasquez, which went to America for £2.3 million, and the Harewood Titian, which was eventually saved, after months of agony and hectic public subscription, for getting on for £2 million. It is a sobering thought that a pair of Titians of the same series as Lord Harewood's—"Death of Actaeon", regarded by some as being finer than Lord Harewood's—which are in a private collection, are threatened by the Government's new taxation policy. This pair of Titians could well fetch £10 million by public auction. For years they have been on loan to a public collection and have been enjoyed by hundreds of thousands of people.

There are, of course, many more pictures and works of art of incalculable value on view in privately-owned historic houses, and all these are under threat. It has been suggested by certain national experts that some 25 paintings of major national importance are still in private hands. How can these experts know that? There must be many as yet undiscovered—they are being discovered all the time—and there are also those which are as yet unappreciated. I am thinking here of works of the late nineteenth and early twentieth centuries. The problem is enormous.

Why is it all happening? Both the capital transfer tax and the wealth tax are, in this context, designed as social engineering and not as revenue raisers. But there will be an actual cost to the community because of the vast amounts of public money needed to replace private owners and their remaining resources—and where, in any case, are we to put all the displaced objects? Today we have a cri de coeur from the Standing Commission on Museums and Galleries. It is about the university museums on this occasion, but national institutions and local museums are all in the same boat. The only result of this social engineering so far as the heritage is concerned is that a spanner has all but destroyed the delicate mechanism, the hitherto happy and satisfactory relationship between private owners, public collections and the public interest.

There has been a positive acceleration of the dispersal which we all seek to avoid. The floodgates are opening. They will be irresistibly jammed wide open before the Bill becomes law unless immediate action is taken. Last year's agony served to clear our minds. The mass of evidence which came out of the wealth tax hearings and the accompanying public debate was traumatic to live through, but—to use the Chancellor's favourite phrase—it resulted in a far wider parliamentary and public appreciation of the scale and nature of the problem.

I welcome what emerged from last year's debates—the amended capital transfer tax provisions—although in their new form in this Bill they may well prove to be counter-productive. The Chancellor's toughening up may prove too daunting, if only because a taxpayer could be liable for the actions of others over which he has no control. I draw the Chief Secretary's attention to the article by Mr. Wintersgill in The Guardian today. He has probably already seen it. I want to explore all this if possible at a later stage. The toughening up may be over-tough. I hope that there will be good-humoured exchanges in Committee on this and all the other aspects of the problem, because surely it should not be a matter of political controversy.

From the capital transfer tax, we now have conditional exemption for outstanding historic houses, their precincts and their outstanding contents, but a heavy extra responsibility is placed upon the owners, all in exchange for reasonable public access. They are tough rules, and I suggest that a new tax case will be required to deal with this aspect because neither Case I nor Case VI of Schedule D will suffice. I note a flicker of recognition from the Chief Secretary, sitting not so impassively on the Government Front Bench.

All this is progress of a kind, but no provision has been made for any income-producing privately-owned assets, whether in the shape of land or other things, for the support of the heritage. This is crucial to the whole matter, because without the supporting resources in the form of stringently-supervised maintenance funds we shall see land sold to pay taxes, contents dispersed to pay taxes and empty houses left as public liabilities in derelict landscapes.

Much skilful work has been done on the subject of maintenance funds—that is, privately-owned income-producing assets, land or otherwise, set aside under strict Treasury supervision to provide financial support for the heritage. The Government have themselves been engaged upon this as part of the Chancellor of the Duchy of Lancaster's arts finance remit. It has been raised with him and with other Ministers over many months. The Government must by now have found that workable schemes are a practical possibility, and an amendment of only a few simple words is all that is required—"conditional exemption for maintenance funds." The detailed rules can safely be supplied and applied by the Treasury, aided as it is already by the Government-nominated Historic Buildings Council, somewhat strengthened to deal with wider responsibilities.

Let us dispense once and for all with another old argument—namely, that we advocate a special privileged class of taxpayer. That is not so. It is the heritage that we seek to protect. The owners and their possesions are already hedged in by restrictions and loaded with responsibilities. Any further curtailment of the freedom of action of owners of the heritage will undoubtedly cause further sales and dispersals.

Another idea has been canvassed—namely, that of forcing owners to hand over to trustees all that they possess. That has nowhere found a welcome. No public body concerned with the heritage either advocates that approach or is anxious to collaborate with it. The few private trusts that have been set up have not found it easy to find suitable trustees. I reflect that there is no great building or landscape that was ever created by a committee or board of trustees.

It is recognised by the Government in their Green Paper and elsewhere that private owners can do the best job. I am not suggesting that they should not be closely scrutinised by the Treasury while they are doing it. That scrutiny has always been part of my submission to the House on this matter. It is a central and crucial matter.

I believe that the question of resources is very much a Second Reading point that deserves more than just a nod from the Treasury Bench. I hope that the Minister will be able to say something useful.

Mr. Joel Barnettindicated assent.

Mr. Cooke

I am grateful to have a nod from the Treasury Bench. That in-inspires me to think that we shall have something useful. But a nod will not quite do, nor will a confused series of exchanges in Committee. I forgive the Chief Secretary for what happened last year. It was all part of the educative process that took place across the House. We can do a better job than stage a confused Committee and an overcrowded Report.

The proposal which I have put to the right hon. Gentleman has the united support of all the national amenity societies through their joint committee and the National Trust which is associated with it. The Historic Buildings Council advocates it. There is wide acceptance on both sides of the House. Certainly the Opposition are united behind it. My hon. Friend the Member for Eastbourne (Mr. Gow), my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) and my hon. Friend the Member for Kidderminster (Mr. Bulmer) could easily deliver a speech in support of this subject, although I have no doubt that they will have other things to say this afternoon.

Mr. Jasper More (Ludlow)

And Ludlow.

Mr. Cooke

I am glad to have the support of my hon. Friend the Member for Ludlow (Mr. More). I know that I have the support of many more colleagues, including my hon. Friend the Member for St. Albans (Mr. Goodhew). I know that I do not embarrass my hon. Friend on the Front Bench, the hon. Member for Guildford (Mr. Howell), when I say that I know he will confirm that all my colleagues on the Front Bench have these matters very much in mind.

In conclusion, I call in aid the words of the National Trust and Historic Buildings Council for England. It might be said that the National Trust can do it all. There is a lot of misunderstanding on that score. I remember hearing the owner of a great historic house who was having his difficulties, as happens to all owners, being asked by a tourist "Why don't you flog it to the National Trust?" What ignorance that displayed. Perhaps it is our fault for not explaining matters, but the National Trust could not take on any more, nor does it seek to do so.

I read from the National Trust's recent memorandum, which says: The National Trust prizes its independence highly. It would not want to see the small proportion of its funds that comes from the public purse increase substantially. If this were to happen it … might jeopardise the support it receives from the public". The memorandum continues: it does not seek to replace the private owners of heritage properties … nor would it be capable of doing so … it is no substitute for enlightened private ownership"— that is, the National Trust ownership. It has therefore consistently argued in favour of conditions that will enable the private owner to contrive to care for his property adequately, with due regard for the public benefit. My last quotation is from the 1973–75 report of the Historic Buildings Council for England, a Government-appointed agency. In its report to the Secretary of State for the Environment, it says: we must also draw your attention publicly … to the problems that will arise if provision is not made for the exemption from capital transfer tax and wealth tax of funds for the upkeep of historic buildings in private ownership and their collections. It continues: the undiscriminating application of these taxes to privately owned historic buildings of outstanding interest would in a large measure nullify the present policy of preserving the country's architectural heritage". That is evidence enough that right is on our side and that there is massive support for what we advocate. I believe that now is the time for decisive action. Informed public opinion grows impatient at parliamentary procrastination.

At the end of last year a petition was presented by the hon. Member for Edmonton (Mr. Graham), who is now a member of the Government. As chairman of the all-party Heritage Committee, the hon. Gentleman did sterling work. The petition that he presented attracted a million and more signatures. I am sure that the Government do not want to stir up a renewed onslaught in the Press and media such as that which assailed them last year. I hope that even in this gloomy hour of economic crisis we can have the imagination and foresight to point the heritage towards a "settled future". I steal that phrase from the hon. Member for Edmonton. I hope that it can have a settled future so that it will still be there to brighten the lives of future generations.

6.8 p.m.

Mr. Eric S. Heffer (Liverpool, Walton)

I hope that the hon. Member for Bristol, West (Mr. Cooke) will forgive me if I do not take up his argument completely. However, I make one comment upon it. I believe that everyone wishes to see our historic buildings remain open to the public. I am not sure whether the hon. Gentleman's answer to the problem is the right one, but I hope we all accept that our fine buildings should remain open. Incidentally, they show us how over the years the rich have lived magnificently and how ordinary working people and peasants have worked to keep them living in their palaces. That is the greatest lesson that anyone gets who visits our wonderful historic houses.

I look with amazement and wonderment when I visit such places and see the beautiful objects of art. I think how they were all created by ordinary craftsmen and working people, created for the enjoyment of a few and not for the enjoyment of the many. It is a good thing that the many are beginning to enjoy these objects where previously they were shut away from them.

Mr. Robert Cooke

Perhaps the hon. Gentleman does not know that most of the great palaces to which he refers were publicly accessible from the very day they were created. They were built as show places and not as places in which their owners could hide away. Does the hon. Gentleman realise that Communist countries look after their historic buildings better than we do in this country?

Mr. Heffer

I do not know why the hon. Gentleman should introduce the subject of Communism. I could not care less what happens in Communist States as long as we do not have their political systems. I do not understand what relevance Communism has to any arguments that we are having on this matter. However, I do not want to pursue that topic at any length. I merely wished to make a brief comment on the matters raised by the hon. Gentleman.

I begin my few remarks by taking up that which appears to be the central issue of the Government's economic strategy—namely, the question of a wages policy. It is true that we do not have a statutory incomes policy. If we had one, there would have been a gigantic blow-up on these Benches and in the trade union movement. If there were a statutory incomes policy of the type that we have had in the past, undoubtedly the situation would be very different. However, we have a type of voluntary policy with certain statutory overtones which were clearly brought out and discussed during an earlier debate on inflation.

I fail to understand the argument, constantly deployed on both sides of the House, that if we controlled wages and had a wages policy, that would in some way deal with the question of inflation. If one opposes that argument, one is considered to be an economic illiterate. I find it a remarkable argument because of the fact that countries with the highest inflation rates are precisely the countries with the lowest wages and the countries with no organised trade union movement to fight to keep up wages.

Let me take as an example Chile, which is ruled by a military dictatorship. It is a strange dictatorship in the sense that it has not accepted the Fascist corporatist state, although the dictatorship has acted on Fascist lines. However, it has accepted the theories of Milton Friedman involving a free market. Although Chile operates a free market system, it has a much higher rate of inflation than ours and its trade unions have been suppressed.

Let me take as another example Brazil, whose President comes to this country tomorrow, much to my regret. The so-called economic miracle of Brazil is adequately explained in The Times supplement today, and I recommend that supplement to any hon. Member who has the time to read it. But let me add that the rate of inflation in Brazil is almost impossible for those of us in the United Kingdom to visualise. Again, in that country there are no free trade unions. Those are just two examples of many underdeveloped or partially-developed countries with much higher inflation rates than we have, with depressed wages and with no organised trade union movement to fight for better wages and conditions.

Mr. Gow

Will the hon. Gentleman tell the House the rate of increase in money supply in Chile and Brazil?

Mr. Heffer

No, I cannot—at least, not without notice.

Dr. Bray

As my hon. Friend will know, when Friedman took on the job of advising the Chilean dictators they made slashing cuts in money supply, whereupon the rate of inflation escalated fantastically and the level of unemployment soared.

Mr. Heffer

I welcome the point made by my hon. Friend. I have often said in this House that even if one mentions the moon there will be some hon. Member who will say "I was there only yesterday". There is always somebody who has the answer to these extremely important matters raised in the House, and I am grateful to my hon. Friend for supplying the answer.

Let me return to the subject of inflation. I believe that the causes of inflation are manifold. My hon. Friend the Member for Tottenham (Mr. Atkinson) argued the case for fixed parities. I am not certain that he is right, but I shall certainly not say that he is wrong. In the past the greatest advocates in this House of the floating pound have been those who believed passionately in the private enterprise laissez-faire system in the extreme. I always felt a certain amount of scepticism when that argument was advanced. Because of the devaluation that has taken place in the period during which the pound has floated, the downward movement has led to increased import prices. That has been one of the causes of inflation.

Another cause of inflation is our continued membership of the EEC—and I refer particularly to its mad and stupid agricultural policy. Even my hon. Friends who are pro-Marketeers agree that the system is wrong and requires changing. Unemployment is also a factor in increasing inflation because, even though people are laid off, unit costs still rise and that has an effect on prices.

We must then consider the rôle of the multinational companies. It is easy to say that the subject is of no importance and that the difficulties are overestimated in terms of transfer pricing and all the rest of it, but I believe that multinational companies also add to inflation trends.

I have never argued that wages have no impact on inflation, but it is wrong to make the subject of wage restraint and control the central issue in the Government's economic strategy. The right hon. and learned Member for Surrey, East (Sir G. Howe) was correct to say that other things require to be done to deal with our economic problems separately from the question of wages policy and wage restraint. Naturally we differ fundamentally about what should be done, but he was right to argue that in developing other ways to deal with the problem there must be an alternative economic strategy.

However, the right hon. and learned Gentleman said that the House of Commons was being ignored and that some form of elitism was involved in the Government's meeting trade union leaders in negotiations behind the scenes. I think that it is right for the trade union movement to be brought into all discussions. On economic policy and budgetary matters, the country and the House should have a series of options put before them, we should be able to consider those options and the Government should then be prepared to take our views into consideration. There is nothing wrong with that principle.

I am worried that in the present situation the TUC could be on a hiding to nothing. If the TUC does not agree with the 3 per cent., it may be said to be holding back the tax concessions which would have been given to other people who are not members of the TUC or the trade union movement in general. If, on the other hand, the TUC holds out and wants more than 3 per cent.—perhaps 4½ per cent. or 5 percent.—it may be said, allied with the other argument, that the trade unions are being irresponsible and are not concerned with solving the country's problems.

What I object to is that the trade unions alone are being placed in that position. That is why I have misgivings about it. I am concerned not about the principle but about the way it is being done. It has been said that it is a form of black mail.That is a bit harsh, but when it is put in those terms to the trade unions it is getting rather near blackmail.

There is no doubt that there will be an agreement, because the trade union movement has more patriotism than any business interests will ever have. Business people do not display one-eighth of the patriotism displayed by the trade union movement. Already, the imposition of the £6 limit has meant a cut in the living standards of the workers. They know that from the negotiations will come an additional cut. If working people are prepared to accept a sacrifice of that sort, there must be genuine equality of sacrifice. By that I do not mean that we should say to the Opposition and their business friends "Please be good boys and let us see a bit of sacrifice from you."

What we have seen today from the Opposition in dealing with the clause that tackles tax evasion is not a display of patriotism. To use the word used by the right hon. and learned Member for Hexham (Mr. Rippon), it is a display of greed. We have to introduce the other side of the coin and make sure that there is genuine equality of sacrifice between the trade union movement and business interests. That is why I wish to put forward some proposals.

Mr. Dennis Skinner (Bolsover)

I am a little worried about equating patriotism with propping up this declining capitalist system. I think that my hon. Friend is talking about patriotism in a completely different way. On the question of the nuts and bolts of the proposition which the Chancellor put before the trade union leadership, rather than the trade unions, would my hon. Friend care to comment on the fact that by offering a wage increase of 3 per cent., plus a cut in certain taxes to compensate for fiscal drag, the Chancellor is giving the impression to the trade union movement and the nation at large that low relative wages equal tax cuts? Is not that a bad philosophy for a Socialist Government?

Mr. Heffer

I have argued from the beginning that low wages have nothing to do with fighting inflation. The suggestion that low wages mean less unemployment has nothing to do with reality. Countries with low wages also have high levels of unemployment. What is required is an alternative economic strategy, and that is the case I am arguing. The people in the trade union movement are so patriotic that they will accept sacrifices. Unfortunately, they are accepting the brunt of the sacrifices while the rich are not accepting any sacrifices, despite the squeals and howls that come from Opposition Members.

We need a Socialist strategy and a Socialist alternative economic policy. We are committed to the concept of a wealth tax. I know that a wealth tax would not solve the problems and would not bring in enormous sums of money but, if we are serious, a wealth tax must be brought in at the earliest moment so that our people can see that the Government are taking steps to tax the wealthy more heavily. It is nonsense to suggest that the wealthy cannot pay higher taxes. If there is to be equality of sacrifice, there must be a move in that direction.

Secondly, the banks and the financial institutions must be controlled by an extension of public ownership so that capital can be properly channelled into the industrial investment that is required. As the hon. Member for Basingstoke (Mr. Mitchell) said, each worker has insufficient capital to back him up. To rely on the voluntary policy—which we have had for so long—is impossible in the present crisis.

Mr. David Mitchell

Will the hon. Gentleman say by how much he thinks that a wealth tax would reduce the amount of investment and how many jobs would be lost as a result?

Mr. Heffer

I made clear that I do not think that a wealth tax would bring in vast quantities of money. It should be used as an indication of the seriousness of the Government in ensuring genuine equality of sacrifice. The money brought in from a wealth tax would not solve anything. It would be infinitesimal compared with what is required. I am not arguing that case. I ask the hon. Gentleman to do me the courtesy of listening to what I say and not comment on what he thinks I may have said. I am not saying that the wealth tax would provide all the capital that is required. The next step is the control of banks and financial institutions.

The third step that is required is for the National Enterprise Board to be given real teeth. The Industry Act needs to be amended to give the NEB the sort of powers that were originally envisaged by the Labour Party in the Green Paper and the 1973 programme. The NEB needs to have compulsory take-over powers and more money must be available to enable it to extend its activities into the profitable sector.

An immediate inquiry is needed into financial speculation, and action must be taken against speculators who have endangered the country's economy. It is ludicrous that, when a number of workers go on strike or there is a hold-up in the discussions between the Government and the General Council, the pound falls and there is a flutter in the City. It is an absolute nonsense, and it is time that the Government began to deal with it. Of course, that means that radical and fundamental measures have to be taken.

We cannot live for ever in the shadow of the problems of the City, which gets nervous whenever there is some discussion about a strike. It does not happen in other countries and it ought not to happen here. There ought to be rigid control on capital going out of this country. The time has come for Britain to stop being a depository for hot money. The Government must control the overseas portfolios. Those portfolios were mobilised before and can be mobilised again.

Either the situation is so serious—every-one tells us that it is—and requires the most serious measures to deal with it, or the people have been conned for the past 10 years and it is not serious at all. I believe that the situation is serious. Our crisis has its own peculiarities grafted on to the world crisis. We have to deal with them in a positive, Socialist way. There is no other answer except that of moving towards the more Right-wing type of dictatorship which could end up with a straitjacket being placed on the whole of our society. The alternative is a democratic, Socialist answer. We have not got that yet from the Government. It is not, as the hon. Member for Lancaster (Mrs. Kellett-Bowman) always suggests in her speeches, that we have had too much Socialism. My complaint is that we have never tried it. We have never even begun to get anything like Socialism. What we have is semi-controlled capitalism.

If we are to solve our problems, we need a democratic Socialist country. We need to plan our resources and our economy. That means that we have to carry out the other side of the proposals of the TUC. We can begin by imposing import controls on a selective basis. We can begin by giving more money to the National Enterprise Board. We can inject more cash now to help bring down unemployment in the construction industry. We can begin the process of reversing the trend of high unemployment. There are now 1¼ million unemployed. What is required is a true alternative strategy. I hope that sooner or later the reality of that will get across to the Government.

6.32 p.m.

Mr. John Pardoe (Cornwall, North)

We have been listening for the last few minutes to what has been termed by the hon. Member for Liverpool, Walton (Mr. Heifer) a Socialist strategy. He complains that what is wrong with a Socialist strategy is not that we have had too much of it but that it has not been tried. It may not have been tried in this country, but it has certainly been tried elsewhere. From time to time the hon. Gentleman waxes wrathful about the EEC, particularly its agricultural policy. That policy has produced surpluses, we know, and that is a problem. But the Russian agricultural policy produces shortages, and on the whole I would rather deal with surpluses than shortages.

If the hon. Member can point to one successful Socialist society in the world's history which has been any better at solving the problems he has enunciated, I might be more prepared to listen to him.

It is incredible to hear the hon. Member say that it is nonsense to suggest that the wealthy cannot be taxed any higher. What revenue would we get from that aspect of his Socialist strategy? A wealth tax would bring in peanuts. If we told all those with an income of over £5,000 a year that they could not take home any part of that income over £5,000, what would that do to the borrowing requirement? It would not begin to touch it. It is nonsense to suggest that that is the way forward.

The hon. Gentleman gave himself away in his comments on the speech of the hon. Member for Bristol, West (Mr. Cooke), who mentioned the national heritage. He said that when he went into these great national heritage houses the only thing he thought about was the appalling social system that allowed the owners of those houses to dominate the poor and needy in the past. Imagine what the hon. Gentleman must think every time he listens to a Mozart sonata or a violin concerto or whatever. All he has to think about is the iniquity of the system which allowed some wealthy Austrian patron to pay the composer for writing it. It must be a pretty miserable life for the hon. Gentleman. Imagine what he thinks when he wanders round Florence or Venice and stands before, say Michelangelo's David—not a quiver of artistic appreciation but simply a feeling of deep, desperate Marxist gloom.

Mr. Heffer

The hon. Gentleman may not be aware that I spend most of my holidays in Italy going to places like Venice, Florence and Rome to see the great historical treasures. The hon. Gentleman has again deliberately twisted and misinterpreted what I said. This is a typical example of the shallowness of his thinking and that of his party.

Mr. Pardoe

I am absolutely delighted to hear that the hon. Gentleman spends his holidays on what is clearly an international tour of misery, travelling around the art treasures of the world, in which he sees only economic causes. He can find a splendid pen portrait of himself and his views in the work of a good Socialist, Bernard Shaw. I refer to "The Apple Cart". He is getting to look and sound every day more and more like Bill Boanerges. If he would like to read the thing, he will see what I mean. No doubt he has read it already.

The hon. Gentleman was even more nonsensical when he tried to tell us, with his political sophistry, that we do not have a statutory incomes policy. We have a rigid incomes policy. It has been enforced. We have passed an Act of Parliament to bring that policy into effect. How statutory can we get? Let us hear no more of the reasons why the hon. Gentleman did not have to exercise his Socialist conscience in tearing this Government apart and why he feels that he can possibly accept a new variation of the incomes policy. The fact is that we have a statutory incomes policy, as my right hon. and hon. Friends and I said we would. We have an effective incomes policy which has worked. I congratulate the Government. It is a pity the hon. Gentleman does not accept that part of the story.

I am sorry that the debate has to take place on the Opposition's amendment rather than on our amendment. The Opposition's amendment is so worded that it is almost impossible for any member of the Opposition not to vote for it, but it is exactly what we might expect of one of the partners in our system of adversarial politics. It is mere mindless rhetoric. It speaks of the Finance Bill which attempts to meet the cost of spendthrift Government by increasing the real tax burden upon rich and poor alike". Of course. When did a Government not do just that, at least in the imagination of an Opposition? All Oppositions think like this. When did we not have a spendthrift Government? When was the real tax burden upon the right and poor alike not increased? I cannot think of any member of any Opposition in the history of this House who has not castigated monstrous increases in tax on rich and poor alike over the centuries.

Where are the Opposition's proposals for encouraging the skill and enterprise which they want? Why, if the Conservative Government encouraged skill and enterprise in the past, as presumably they did, and if this encouragement is such a major factor as they say it is for the prosperity of our economy, have we not been more successful in the past?

I do not want to debate the link between taxation and pay policy—

Mr. Skinner


Mr. Pardoe

I am glad the hon. Gentleman asked that question. The answer is that we did so at some length in the debate on the Budget proposals. I and my right hon. Friend the Leader of the Liberal Party made it clear that in principle we supported the Government's proposal. That proposal is a recognition of the fact that, as a result of the increased power of various pressure groups, including the trade unions, and the decline of the power of Parliament, parliamentary representative democracy is sick almost to the point of death. We put forward proposals for resurrecting it and for trying to do something about the monopoly bargaining power of these pressure groups.

I should like to raise with the Chief Secretary a matter which I mentioned in my speech on the Budget proposals to which I did not receive an answer. What is the real value of the bait which the Chancellor has, in my view, properly offered to the trade unions? The increases in personal tax allowances, which are conditional upon the pay policy, are in essence trifling. Even if they are passed by this House on subsequent Government amendments to the Bill, they will still mean that too many low-paid people and too many people who are not paid at all—those who are living on benefits of one kind or another—will have to pay income tax.

For instance, the present allowance for a married man is £955. If we add the £130 which the Chancellor is proposing, that will go up to £1,085. At present, supplementary benefit on the long-term scale for a married couple is £21.55 a week, which works out at £1,121 a year. On the basic mathematics, someone on supplementary benefit will still be within the income tax net. That cannot go on. Yet, if we are to advocate lower thresholds and, therefore, higher allowances, we shall be asked whether we want to increase the borrowing requirement. I can almost hear the Chief Secretary saying that now. Of course we do not want to increase the borrowing requirement, but that is not the only possible way of dealing with this matter. The permanent answer to high taxation is lower public expenditure, but we are not debating that matter today.

What about increasing taxes on expenditure? There is ample evidence in the constituencies and in the mailbags of all hon. Members—we cannot deny it—that people would rather pay their taxes on expenditure than as a deduction from income in their pay packets each week. There may be other arguments which we should put to them to the effect "You want to do this, but it is not a good thing to do." However, no Government in recent years have argued that case very strongly.

Some indication of what I am getting at is given in Table 9 on page 19 of the Financial Statement and Budget Report. That shows, for instance, that income tax in 1975–76 raised a total of about £15,000 million. If this House did nothing at all, if we did not change a dot or comma of any financial legislation, the revenue this year would be about £17,970 million. If we do nothing at all, the Government will receive £2,900 million more in income tax than they did last year.

Parliament made no decision about that. In my view, Parliament should make a decision about it. It may be that we would come to the conclusion that in our wisdom, and with the advice that the Government may give us and all the arguments they may put forward, it is right that they should achieve that kind of revenue. But it is better to have the matter put forward in a proper way. We can then choose and the Government will have to make a public choice whether they should get this extra revenue which they need to balance the books—they do not quite balance—by raising the rate of taxation or raising the rates of different bands of taxation, or whether they wish to bring down the threshold, as they have done as a result of inflation but without telling anybody that they have done it.

Indexation is essential if Parliament is to re-establish its control. I ask the Chief Secretary: what about a lower band of taxation? I suggest that 35 per cent. is hideously high for anyone to come into the income tax net. We ought to think seriously about, say, 20 per cent. to 25 per cent. as an introductory band. I am not suggesting that we should go back to two or three lower bands—that is a complicated procedure—but 35 per cent. is very high indeed as a starter. We all know that income tax is too high at almost every level of income. Some Labour Members below the Gangway may not accept that. They believe that a lot of people in our society can easily pay more income tax. That is not true. The level of tax is too high for the poor and for the rich.

The Conservative Party may pretend that it would be much better at dealing with this problem. However, it does not have history on its side. Still, the Shadow Chancellor of the Exchequer lectured the Chancellor of the Exchequer about many matters, including subsidies. The right hon. and learned Gentleman said that subsidies were an iniquity. I agree that subsidies are a useless way of trying to solve the problems which have confronted Governments over many years. But subsidies did not begin with this Government. The Opposition, when they were last in Opposition between 1964 and 1970, attacked subsidies. We all remember the attacks that they made in those years. Total Government subsidies were running at about £574 million, and they rose to £900 million in the last year of the then Labour Government.

Did the Conservative Government cut subsidies? Of course not. They found that it was impossible. Indeed, far from cutting them, they increased them enormously, particularly the subsidies mentioned by the Shadow Chancellor. I thought that the Conservatives had got around to leaving out the dirty word about nationalised industry subsidies. I thought that they might have too much of a conscience to mention that matter. However, when we look at what happened regarding subsidies to the nationalised industries during the 3½ to 4 years that the Conservatives were in power, we find that they rose astronomically. Total subsidies rose from £900 million in 1970 to £1,526 million in 1973. The same was true of public expenditure and of the borrowing requirement. It is a case of the pot calling the kettle black.

In order to cut expenditure and taxation generally, which would be the only real solution to the problem, we need to rethink the whole question of what the State should do and what we should be left to do for ourselves. That will require extremely radical policies and—I say this to the Conservative Party—a political settlement which ensures that we have a Government for long enough to carry them out It will take a very long time to carry them out. It is no use thinking that it can be done in 3½

to 4 years, because then we should have another bout of collectivism all over again. If the Opposition are serious about wishing to revise the boundaries between what the State and the individual do, they will have to go for political reforms which will make it possible.

Such a policy would undoubtedly arouse great controversy in this House. There would be great differences about it. But there are some matters about which we should all be able to agree. Some of those matters were touched on by the hon. Member for Gravesend (Mr. Ovenden), who spoke this afternoon on behalf of the widows. I agree with the view that the assortment and variety of allowances which we have allowed to build up over the years have no rhyme or reason. No Government have ever come to us and tried to defend the levels of any of these allowances. They go on from year to year, adding a bit here and a bit there, and there is no rhyme or reason to them.

Are these allowance necessary? Most of them are necessary only because of the high rates of taxation which we have allowed to envelop us over the years. Many hon. Members may have been attracted by the proposal in the Economist this week—that total income is £100 billion and that if we taxed that at 17 per cent. we should get £17 billion, which is what we are getting by all this paraphernalia of allowances, varieties of rates and so on.

I do not go as far as the Economist, because I think that there are much greater complexities than it has allowed for in a simplified version. But there is a very reasonable case for looking seriously at the level of allowances. For instance, in 1974–75 the single person's allowance cost the Revenue £1,875 million in revenue forgone. The married person's allowance cost £3,615 million, the wife's earned income relief cost £960 million, and the child allowance in that year cost £1,150 million. Those allowances alone total £7,600 million, which compares with revenues in that year which were not anything as high as they are now. The total tax on income in 1974 was £12,000 million and the total tax on expenditure £11,000 million. It might seem terrible to scrap all these allowances, and so it would be unless we offered a quid pro quo of much lower rates of tax and a much more effective anti-poverty programme.

It is nonsense for Government Members to think—and I know they think it because I did once also, but I am now admitting the error of my ways—that this progressive system of taxation has done very much to bring about equality in this country. It has certainly not tackled the poverty problem. We have far too much poverty in Britain and we are tackling it inadequately.

It would be far better to go for a much simpler tax system and deal with poverty through larger cash grants—grants in the form of family allowances, not family tax allowances.

Mr. Skinner


Mr. Pardoe

I have no objection to subsidising people. Subsidising goods and services is what worries me because it distorts the economy.

We have no evidence whatever to suggest that industrial subsidies ever increase the totality of investment. Indeed, one begins to wonder whether it is the totality of investment that is the problem or whether it is not the problem of low output of investment in Britain.

The problem of tax evasion is a matter of great controversy. Tax evasion is a serious matter and it is not something which should be dealt with lightly either by the Opposition or by the Government. It is a fraud on society, and many of us in all parts of the House reckon that the powers of investigation should be the same as for other frauds.

The Conservative Party waxes wrathful about the proposed powers, but there are precedents in their own legislation. The powers of entry given to the Customs and Excise when the Conservatives introduced VAT were formidable indeed. The Social Security Act 1975 gives powers to solve problems which are trifling when compared with the amounts that we are dealing with in tax evasion. The Inland Revenue is asking for similar powers to those which the Customs and Excise already has. I understand its needs for the powers—it wants them to do its job better.

I do not think that the Chancellor made out his case today. No one should be persuaded easily by arguments for these powers; we should have very powerful arguments, and we have not heard them yet. I am open to be persuaded. I am not committed to voting against the introduction of these powers at this stage. But the Chancellor will have to do far more to persuade us. Perhaps the Second Reading debate is not the place for the full panoply of his arguments, but I hope we shall hear them in Committee.

The need for these measures—if there is a need—is not because, as the Chancellor half suggested, the British people are now less honest than they were five or 10 years ago but because they have become ruinously over-taxed.

Compare this with the history of Customs and Excise when duties rose too high centuries ago. There was mass evasion and the Government of the day tried every conceivable method to block the loopholes. They hanged Cornishmen for smuggling goods across Cornwall to Jamaica Inn, which is in my constituency. Indeed, the severity of the penalties for smuggling is part of Cornish history. However, it did not do the blindest bit of good and the Government of the day had to retreat and lower the customs and excise duties. People became much more law-abiding and revenues from customs and excise duties rose magically at the lower rates.

I suspect that there is a parallel with our situation here. Just as customs and excise duties had risen to a point beyond which a free people could not be taxed, our rates of tax, certainly above the 35 per cent. standard rate, up to 98 per cent. on investment income and 83 per cent. on earned income, are beyond all reason. As long as they are beyond all reason, all the investigative powers that the Government can get and all the penalties they can provide will not do anything to stop tax evasion, because tax evasion is a disease of a nation that is over-taxed.

6.57 p.m.

Mr. David Lane (Cambridge)

There is much refreshing truth in what the hon. Member for Cornwall, North (Mr. Pardoe) said about high taxation and evasion. I hope that he will have many chances to return to this theme. I apologise to the House, particularly to my hon. Friend the Member for Guildford (Mr. Howell) and the Chief Secretary, that I shall have to be away for a good deal of the rest of the debate.

I shall confine myself to three general comments and three specific provisions in the Bill. My judgment remains very much the same as it was immediately after the Budget speech. The Government's whole strategy and the Bill, which is an important embodiment of it, do not sufficiently measure up to the needs of the moment.

The Chancellor himself, whose offensive sneers this afternoon were particularly deplorable on a matter of such importance, is not facing the seriousness of the situation, which is wholly the responsibility of this Government because of their ill-judged policies in and after 1974. The danger now is one of premature euphoria. I read reports of the Chancellor's speech yesterday in Nottingham which was altogether too blithe. Too many people are living in a kind of cloud-cuckoo-land, which is the fault of this Government with their soft talk and their soft options.

I give a constituency example. On Saturday in Cambridge there was a May Day meeting organised by the local trade unions—at which the audience was smaller than that at a Conservative May Day rally in another part of the city—and one of the trade union banners carried the slogan. "A 35-hour week now." Our national disease in Britain today is not too much work but too little. Until we in this country—I am talking of managers as well as of workers on the shop floor—are willing to work as hard and as efficiently as other comparable nations, we shall have to do without many desirable things, both in our personal lives and in the public services. There is now no alternative but lower living standards for the vast majority of us for at least a year or two ahead. I wish that the Chancellor would spell out these truths much more frankly.

Secondly, may I say a few words about the conditional tax changes, which are not in the Bill. I believe that the most serious immediate consequence of the Budget has been the continuing fall in the value of the pound, which is the world's judgment on the Government and on Britain's economic performance and which, as some Labour Members have already said, is adding all the time to the inflationary pressures.

A major reason for this weakness of the pound has been that too much of the tune is being called by the Trades Union Congress. Of course the Government have got to consult, as we did when we were in Government, but they should be consulting many others besides the trade unions—and these other people now feel that they are being left out of decision-making. The Government insist on elevating the TUC to an excessive eminence in the processes of national decision-making. Too frequently trade union leaders get a platform from which to talk the sort of arrant economic nonsense we heard recently in that call for a 35-hour week.

I hope that the Government succeed in persuading the TUC to a low pay limit. Indeed, many people believe that even 3 per cent., which may well drift up to 5 per cent. or 6 per cent., is too high. But we shall want to know two other things about this package. First, what price is the TUC exacting in further irrelevant and unrealistic economic policies—for example, for increased public expenditure and subsidies—before it will agree to any deal? Second, if the TUC refuses to settle at a level as low as the Chancellor suggested in his Budget speech—he said nothing about this this afternoon; perhaps the Chief Secretary will say something later—will the tax concessions be correspondingly reduced? If not, the Chancellor will be shown to have been irresponsible and his credibility will suffer even more. If so, let him make clear to the country whose fault it is.

My third general comment is that an incomes policy, however tough, is not enough in itself. This is the basis of our amendment. Several other things are essential to national economic recovery. Above all, there must be a reduction in the levels of public spending and of taxation.

Mr. Skinner


Mr. Lane

I could give a number of examples—on subsidies and on the money which is wasted on industry and on nationalisation—but I shall not be diverted now. I ask: where today are the incentives for more investment, for greater effort, for higher productivity and production?

In 1962—National Productivity Year—the Duke of Edinburgh said: No amount of economic juggling can alter the fact that in the long run our solvency depends upon the efficiency of our industries and upon national productivity. In particular, the Chancellor is not doing enough to encourage skilled workers and middle managers. Volumes were spoken in one sentence in yesterday's Sunday Times leader to which I think that the Chancellor himself referred: A more just level of income tax would curtail the expanding problem of perks. I go back to my constituency again for a small practical example of the disincentive effect of today's tax levels. I was telephoned during the Easter Recess by a small stallholder on the Cambridge Market who sells sheepskin goods. He was very disturbed that a supplier in the West Country had just turned down an extra order for a considerable quantity of the goods because, as the supplier had said, "It is not worth my while at present tax rates."

I want to make three brief criticisms of certain provisions of the Bill.

Mr. Atkinsonrose

Mr. Lane

If the hon. Gentleman will excuse me I shall not give way, because I have promised to end my speech within 10 minutes.

Mr. Atkinson

I thank the hon. Gentleman for giving way.

Mr. Speaker

Order. The hon. Member for Cambridge (Mr. Lane) is not giving way.

Mr. Lane

First, and I hope that I shall carry the hon. Gentleman with me in this, there is strong feeling among my constituents that when the Government are raising more revenue—this was another area which the hon. Member for Cornwall, North touched upon—they should look to other sources which are not being sufficiently tapped. Gambling has proved to be one of the real growth industries. I know that there are difficulties, but I regret that there is no proposal in the Bill for greater taxes on gambling. I hope that the Treasury will look at this point afresh.

Secondly, there is strong feeling among my constituents that the Government are not doing enough to help widows. There was some relief for widows in the Budget, but they still feel a sense of injustice. They contrast, for example, the position of a middle-aged widow who has a home and a family to keep with that of a single person who is still living in his or her parents' home. They contrast, too, the position of the widow at work with that of the married woman at work in similar circumstances. I hope that the Government will look again at this problem, too, before the Bill goes through.

Thirdly, there is strong feeling among my constituents that the capital gains tax should be made less onerous on householders who let rooms in a small way to lodgers. I continue to receive evidence in Cambridge that the present arrangements are a disincentive to resident landlords, with the result that badly-needed accommodation is being wasted. When I went to see the Minister of State, Treasury last summer about this matter, I had a very courteous hearing. He said that it would be considered in the whole review of the capital gains tax. I was all the more disappointed that nothing was said about this by the Chancellor in his Budget speech and there is nothing in the Bill. If total exemption is not possible for the portion of a house which is let to lodgers in this small way, could the Government at least consider some lower rate? I urge them to examine the problem again and to introduce changes before the Bill reaches the statute book.

What we need from the Government today is bolder deeds and blunter words. The Chancellor has fallen short of what is required. I believe that his Budget and his Bill do not carry conviction because his party does not carry conviction, and the calls for national unity that we have heard from the new Labour Prime Minister will continue to ring hollow while the ideological and partisan content of the Government's programme remains as high as it is.

7.7 p.m.

Dr. Jeremy Bray (Motherwell and Wishaw)

I understand that in the Philippines the monitoring of the tax accounts of millionaires is in the hands of the wife of President Marcos. The first lady is a very beautiful and a very redoubtable lady whom no doubt the Chief Secretary will be pleased to entertain when she and her husband pay us a State visit shortly, in line with the tradition of State visits that we seem to be establishing.

One advantage of having the president's wife looking after the tax accounts of millionaires is that one is never short of funds for good causes. There has been a remarkable series of private gifts for culture and the national heritage in the Philippines which has made possible the construction of museums and galleries of all kinds, including a museum of folk arts which was built especially to house the Miss Universe contest.

Clearly this is the pattern of tax monitoring that Tory Members wish to establish in seeking to place the oversight of higher income tax accounts in the hands of a Minister.

Sir John Hall

I am interested to hear about what happens in this regard in the Philippines. The hon. Member will not omit to mention to the House that gifts made for charitable and cultural purposes are allowable against the donor's income tax.

Dr. Bray

I have no doubt that that is the case. I am not clear whether the hon. Gentleman refers to this country.

Sir John Hall

The Philippines.

Dr. Bray

Yes, indeed, and that is why they are so forthcoming. I wonder whether the hon. Member for Bristol, West (Mr. Cooke) really hankers after that sort of regime.

There are 42 clauses in the Bill dealing with capital transfer tax, substantially more than the 34 clauses dealing with the tax in last year's Bill. I wonder how many clauses they will breed in the 1977 Bill. This illustrates the problems we face, particularly on this side of the House, in dealing with tax matters. There is a fantastically elaborate structure to the Finance Bill and its working out in the case law established by Finance Acts. They are monstrously boring to any hon. Member who does not stand to benefit or lose from their workings. There is not an enormous number of hon. Members on this side who are liable to pay CTT or the wealth tax and it is conceivable that, on detailed points, we do not always bring to bear on Ministers the scrutiny and pressure that perhaps we should. By contrast, hon. Members opposite are eager and avid in their representations.

Of course, Ministers are gentle, softhearted and kind men who always wish to please. They are clear-sighted and always absolutely precise in their statements of the Government's intentions and effects of proposed legislation. However, that does not stop a certain impression that Treasury Ministers may not be under expert pressure from their Back Benchers on, to take an example from this Bill, conditionally exempt transfers and under which chargeable events they do or do not become taxable.

I challenge any of my hon. Friends to explain the meaning of a chargeable event. I am sure there are many hon. Members opposite who would be able to enlighten us and, no doubt, will do so at enormous and boring length in Committee.

One consequence of this situation is that we get in Finance Bills proposals such as the provision that the value of a farm may be reduced by 30 per cent. for capital transfer tax purposes when it is transferred. Since the value of a farm is set, more or less, by its value, not for producing wheat, milk, beef or anything useful, but for tax avoidance purposes, the effect of this 30 per cent. reduction in the liability for CTT will be substantially to increase the price of farms. This is very nice for those who have land, and not intolerable for those who wish to avoid tax, but it has precious little to do with the economics of farming, except in a damaging and harmful sense.

There is also a proposal for the reduction in the value of private businesses by 30 per cent. Being simple-minded and kind hearted constituency Members, anxious to secure the well-being of small firms in our constituencies, we want them to be treated fairly, but if a whole lot of phony creations are set up as small businesses in order to avoid liability for tax, our good will is being exploited.

I am not sure what steps can be taken to deal with this situation. We are exploited in other ways. Appeals are made to our concern for the national heritage. The hon. Member for Bristol, West did this when he called for maintenance funds to be provided for stately homes.

It may not be entirely clear to hon. Members what maintenance funds are. If one has a beautiful old house, surrounded by thousands of acres of farmland which yields a handsome income, and one uses the income from that land to pay the butler for polishing the silver, it could be exempt from liability to CTT. We are told that the splendid people in the National Trust and every amenity society are in favour of financing the butler to polish the family silver through the kind of relief measures proposed by the hon. Member for Bristol, West, and which may, I fear, receive a sympathetic hearing from Treasury Ministers. Tax provisions are the wrong place to start in looking after and preserving our national heritage.

The hon. Member for Cornwall, North (Mr. Pardoe) asked what Socialist or Communist State had made a success of anything. The hon. Member for Bristol, West pointed out that the Soviet Union looks after its national heritage a great deal better than we look after our heritage. I have a more practical example. When the cities of Italy were under the control of Italian Liberals or Tories their national treasures were neglected. Only when the Communists took control of cities were the art treasures looked after properly, though there is still a long way to go.

We should get clear in our minds what our policy for the arts and culture should be and then get on with it properly so that we are not constantly pushed around on tax provisions which spread far beyond the scope of what we intend and which are used to drive a coach and horses through our financial legislation.

I do not know what can be done to deal with the technicalities of the Finance Bill which are so little understood in this House and so much exploited by the Opposition and their friends. It is extra-ordinary that the Finance Bill should be virtually the only measure which does not have a memorandum of explanation published with it. I appreciate that it would be an enormous and complex memorandum, so perhaps a better idea would be for Treasury Ministers, at later stages of the Bill, to make copious notes on clauses available to any hon. Member who wishes to have them. During the passage of a number of local government reform Bills Ministers of successive Governments have made available notes on clauses.

The Finance Bill is the piece of legislation in which, above all, the technicalities should be explained so that hon. Members on this side who do not have professional advisers may be given a fair chance to examine the effect of the legislation.

Mr. Robert Cooke

The Inland Revenue has published a Press release on the capital transfer tax which the hon. Member can easily obtain. There are 18 paragraphs explaining the latest tax proposals, and 10 of them deal with the complexities of national heritage and how it is to be hemmed in under the amended version of what we got last year. I shall not follow the hon. Member in his wild fantasy about butlers polishing the silver being supported by the taxpayer and other such nonsense. The only alternative to maintaining private ownership and public accessibility in this country is that which exists in Communist countries—nationalisation and empty museums.

Dr. Bray

The spirit in which the hon. Member speaks does not do credit to his personal concern for our national heritage and the steps which I know he takes privately to protect it. The goodwill and cultural concern of the House are being exploited for tax avoidance purposes. If an explanatory memorandum published by the Inland Revenue on the CTT consists of 18 paragraphs, that is less than one paragraph for every two clauses. If the hon. Gentleman reads the Finance Bill in detail he will see that that is a rather inadequate explanation, especially if he compares that with the fullness of notes on clauses of other Bills. I do not know whether he has ever looked at the notes on clauses of other Bills, but if he has he will realise that they are usually very much fuller than what we have in this case. We can deal in detail in Committee with the nature and framing of the CTT provisions, and I shall, therefore, leave the matter there.

One interesting point was raised by my hon. Friend the Member for Tottenham (Mr. Atkinson). He rightly drew attention to the importance of the exchange rate in the present management of the economy and to the whole background of the Bill. I pointed out that simply to peg the exchange rate would result in the most colossal deflation, and he then talked about import controls. It would need more than import controls to deal with this situation, as I am sure my hon. Friend appreciates. It would need an enormous panoply of exchange controls and financing. It would have to be set out clearly which types of sterling were allowed and which types of purposes were allowed.

I am not sure that my hon. Friend appreciates the scale of the operation. There are at present on deposit in United Kingdom banks about £175,000 million in overseas currencies. In deposits on terms of maturity of less than one year there is an excess of liabilities of United Kingdom banks over assets of about £29,000 million. This is some of the hot money to which my hon. Frend the Member for Liverpool, Walton (Mr. Heffer) referred. If sums of that magnitude are to be subjected to a regime of fixed exchange rates one would need the most extraordinary panoply of differential exchanges for essential imports, for not quite so essential imports, for entirely voluntary imports, and so on. I wonder whether such an apparatus, which we designed merely by administrative fiat, and bearing in mind that we would have no idea whether the rules would have anything like the effect we intended, would not land us in a great deal worse mess than we are in now.

I take the point about considering the exchange rates, but I suggest that the way ahead in integrating properly the management of the exchange rates into the framework of domestic policy is a tedious, long drawn out and difficult process of international negotiation so that we bring overseas holders of sterling, overseas managers of their currencies, central banks, Ministries of Finance, and so on, into the discussion.

I am not satisfied with the initiative taken in international bodies by Finance Ministries. It seems that rules of thumb are being proposed on far too superficial a basis of analysis. Work is going on in the project Link, managed by Professor Klain at Wharton, to piece together models of national economies of the major industrial nations, those that are responsible for the major trading currencies. This makes possible a proper analysis and policy design exercise, using methods which are very much in their infancy in the international agencies and the Ministries of Finance. This is important for getting a properly and smoothly managed economy.

My hon. Friend will recall that for many years we had fixed exchange rates, but all the progressives were clamouring for floating exchange rates. Now we hear the clamour for a wholly fixed exchange rate.

Mr. Atkinson

What the progressives on this side of the House were arguing for was a fixed devaluation. The clamour to which my hon. Friend refers came from the monitarists and extreme Conservative Trotskyites on the other side of the House. They were arguing for a floating exchange rate, and none more so than the right hon. Member for Down, South (Mr. Powell), who was the leading advocate of a floating exchange rate.

Dr. Bray

Somewhere in that range is the answer that we would like to see—fixed but adjustable exchange rates. The problem is, what is the range of float, in what circumstances does one adjust, and what are the rules of adjustment. It is this detailed study, preceding negotiations, that we need.

The overall impression left by the Government's posture, not only on this Bill but the important discussions going on with the TUC, is that there is an air of realism about it. They know that the problem will not be solved this year. They are not calling for enormous hair-shirt policies giving zero growth for years in the national income or zero growth in consumer expenditure. That is not the backcloth, but there will be difficulties for years to come.

It is a pity that, against the background of wide national understanding and considerable advances in realism in the Government's policy, they did not explore the medium-term options for the economy and publish a full medium-term forecast to accompany the Finance Bill, or at least in the financial memorandum to the Budget speech. We shall get the statutory requirement from the Treasury to publish economic forecasts a year from the activation of the Industry Act 1975, and that at least will ensure for the future that this medium-term background is available to the House so that we are all able to debate a lot more intelligently the sense or nonsense—and with this Government I believe it is the sense—of the Government's policy.

7.27 p.m.

Mr. Douglas Crawford (Perth and East Perthshire)

It would appear that there is little that is new in the United Kingdom economic and political scene. The aridity of the debate, in which positions have been taken and during which there has been much sniping across the Floor of the House, is not helping a dialogue.

I except from that the speech of the hon. Member for Motherwell and Wishaw (Dr. Bray), who put forward interesting suggestions and said that it might he possible to build computer models of the economies of the industrialised nations of the world. I think he will accept that that is a difficult task, which needs a lot of research and programming.

I exclude from my stricture also the speech of the hon. Member for Cornwall, North (Mr. Pardoe). One gets the feeling that, irrespective of which party is in power, the fiddling goes on while the economy is burning. Perhaps it can do no other. Perhaps a political as well as economic rebirth is what is needed. Let us hope that this is inevitable.

Having said that the arguments have been rehearsed over and over again. I must add that it was interesting to listen to the hon. Member for Basingstoke (Mr. Mitchell) on the subject of emigration and the drain of skills. He called it a haemorrhage. We in Scotland have been well aware of this haemorrhage for many years past, and it is interesting that a Member for an English constituency thinks it is bad enough in England for note to be taken of it.

The Chancellor of the Exchequer was honest, and the hon. Member for Cambridge (Mr. Lane) was a little less than fair in this regard. I think that the Chancellor was honest in what he said, and I hope that the people of Scotland who voted for the Labour Party, and those who did not, will note his words. The right hon. Gentleman said that living standards would come down by 1 per cent. in 1977, and he added that there would be a continuing upward pressure of prices in 1977 because of what he called currency changes. It will be interesting to know whether the Chief Secretary can say whether the upward pressure of prices in 1977 will be the result of the devaluation that has taken place in the pound, or whether he assumes that there is to be a further devaluation this year and next.

The Chancellor also said, in the context of the EEC, that central demand management of the economy was more important than solving regional difficulties and differences. Presumably, in this context he included Scotland as a region. I should like Scottish Members to take that on board and be as honest in Scotland as the Chancellor has been in this House. Let them tell their constituents in Scotland that this Government, which campaigned in Scotland, as in the rest of the United Kingdom, on the promise of increased prosperity and the slogan "Back to Work with Labour", are producing the exact opposite. I hope they will show the same honesty as the Chancellor.

My party is opposed to the Bill for several reasons. The first concerns that part of Clause 1 which deals with whisky. You will be aware, Mr. Deputy Speaker, that my party opposed the Money Resolution on this subject at the end of the Budget debate last month. We had the support of the serried ranks of six hon. Members of the Conservative Party against the Government in that vote, three of whom were from Scotland. I understand that the duty on whisky amounted to £380 million for 1975–76. I would have thought that that would surely have been enough. It is not right to penalise employment in the industry any more. Also, my hon. Friend the Member for Banff (Mr. Watt) got no reply, either in his Adjournment debate on the subject or during the debate on the Budget, to his plea that the duty on whisky should be levied not when it comes out of bond but when it is actually sold over the counter.

Our second reason for opposing the Bill concerns Clause 8, which deals with hydrocarbon oil and the increase in petrol duty. Many of us have constituencies with large rural areas, and this will be a further imposition on people living there. This time the serried ranks of Conservatives who voted with us dropped from six to two—a point worth putting on the record. We are also against the delay in the increase in pensions. By the time the increase has been paid, no doubt inflation will have taken all of it up.

Our main reason, however, for objecting to the Bill is that it does not differentiate or recognise that Scotland has an economy that is becoming increasingly different from that of England. We have been told that wage rates in Scotland are now nearly equal to those within the rest of the United Kingdom, but the important criterion is not wage rates; it is family income. When we take family income into consideration, Scotland still lags behind the rest of the United Kingdom.

Mr. Tam Dalyell (West Lothian)

Will the hon. Gentleman spell out precisely what he means by this and give the figures for family income, as opposed to wage rates? What figure does he base this on?

Mr. Crawford

I cannot give the exact figures.

Mr. Dalyell

As usual.

Mr. Crawford

If the family income is 100 for the rest of the United Kingdom, it is in the order of 92 or 93 in Scotland.

Mr. William Ross (Kilmarnock)

Will the hon. Gentleman relate families to old-age pensioners and the number of children?

Mr. Crawford

I do not think that is all that relevant. I am talking about income per family in Scotland compared with the rest of the United Kingdom.

As far as unemployment is concerned, I would produce comparative figures based on a touchstone which gives a fair comparison between other European countries and Scotland. The number unemployed per 1,000 in January 1976, was for Norway, 3.4; Switzerland, 4.9; Sweden, 11.2; Austria, 12.9; England, 24.2, and Scotland, 31.1. That figure will speak for itself. We do not wish to be compared with England; we would rather be compared with the thriving economies of other small European countries.

Mr. Dalyell

Perhaps the hon. Gentleman ought to take into account the figures from the gastarbeiter. The Swiss figures are totally misleading.

Mr. Crawford

The third important difference is the position of natural resources in Scotland compared with natural resources in the rest of the United Kingdom. On the same day as the hon. Member for West Stirlingshire (Mr. Canavan) accused the SNP of misleading the House—he actually used a word that is not normally accepted as parliamentary—when he said we were roughly in an import-export balance situation, the first shipment of Scottish oil was exported to Germany. I am sure the irony of this will not have escaped the Scottish electorate. The Chancellor said today, preening himself, that we have just begun to export North Sea oil.

If I may turn briefly to the question of trade unions and bargaining, I speak as a member of a trade union. The right hon. and learned Member for Surrey, East (Sir G. Howe) said that trade union leaders were exclusively Socialist. I am not a trade union leader, nor exclusively Socialist, but it is important that this House should realise the historic links between the Labour Party and the trade unions. It should not necessarily blame the present Government for consulting the trade unions. Whether or not one agrees with what is going on, one should at least recognise the historic rationale behind what is happening at the present time.

In the Scottish trade union context, I would ask the Scottish TUC whether it would prefer to deal with a Scottish Government or have its affairs dealt with by long-armed links with its masters in London.

Mr. Dalyell

The hon. Gentleman did not attend the conference that we attended. He did not even bother to go, although it was in his own constituency.

Mr. Crawford

I wish they had invited me.

Mr. Dalyell

The hon. Member did not bother to go.

Mr. Crawford

I should be delighted to attend the next meeting.

Mr. Deputy Speaker (Mr. Bryant Godman Irvin)

Order. Sedentary observations are not contributing anything to this debate.

Mr. Crawford

I would also ask the Scottish TUC if it would not rather be closer both to the Government and the governed in Scotland than it is now.

Mr. Dalyell

It is all cliches.

Mr. Crawford

Would it not be possible to reach a more equitable solution in the context of a smaller rather than a larger unit, and in the context of Scotland rather than the United Kingdom as a whole? The Scottish Assembly and Scottish Government, when they are established—and that establishment will be soon—will adopt a compromise, a variation of the Swedish experience. We realise that all is not perfect in Sweden, but its industrial relations policy is working reasonably well. The compromise is that the cake, having been agreed, as it has in Sweden, there should still be scope for free bargaining within an agreed framework. I agree that this argument is rather like that of the hon. Member for Motherwell and Wishaw, who says that exchange rates should be fixed but disposable. It is a difficult compromise to achieve. However, we would do something like that, and I feel we would be achieving something positive.

That having been said, the Finance Bill is bad for Scotland. It will lead to more unemployment, raise taxation and cut off the springs of motivation. It will scourge one of Scotland's most important industries—whisky—and it will penalise those who live in rural areas of the country and need a car to travel to work. For these reasons, and for the reason that it does not accept that Scotland is a different and hopeful economy, my party will be voting against the Bill.

7.38 p.m.

Mr. William Hamilton (Fife, Central)

The House may find it difficult to believe that the hon. Member for Perth and East Perthshire (Mr. Crawford) is the economic and financial expert for the Scottish National Party. What must the rest he like if that is the specialist view of the Scottish economy? I gather that the hon. Gentleman is voting against the Bill because he objects to whisky and petrol going up in price. That is about the substance of it.

Dr. Bray

My hon. Friend is being grossly unfair to the hon. Gentleman. He is brilliantly intelligent, but all he has said is anwered by the hon. Member for Western Isles (Mr. Stewart).

Mr. Hamilton

I do not accept that. The hon. Gentleman is not only the expert; he is also the official spokesman on economic policy for the SNP, and he speaks with great ability and is an ex-member of the Tory Party.

Mr. William Ross

He used to advise them.

Mr. Hamilton

That becomes more obvious every time he speaks. He plucked out of the air a figure about the relationship between family income in the United Kingdom and that in Scotland and said that it was 92 compared with 100. Where the hell these figures come from I do not know. The SNP simply seem to pluck figures out of the air. The hon. Gentleman is sitting there already asleep. He simply cannot tell me where these figures come from. He said that if the United Kingdom figure was 100, the Scottish figure for family income was 92. Either that is official statistical information or it is a lot of ruddy nonsense. It is one or the other. If the hon. Gentleman would care to get up and tell me where I can get this information officially, I should be very glad to know.

Mr. Crawford

Is the hon. Member suggesting that everything which comes by way of Government statistics is not nonsense?

Mr. Hamilton

The hon. Gentleman cannot get away with it in that way. He is on record as saying that Scottish family income was 92 per cent.—not 91 per cent. or 93 per cent.—of United Kingdom family income. Where did he get that figure?

Mr. Crawford

I imagined that the hon. Gentleman would assume that the SNP, to which I am proud to belong, actually has research departments as well.

Mr. Hamilton

So this figure came from the department run by the husband of the hon. Member for Dunbartonshire, East (Mrs. Bain). That is the figure that comes from the SNP research department, so now we know that it is officially the figure that the SNP will parade throughout Scotland. Now that the wages argu- ment has disappeared, we come back to the mythical figure of family income.

As for the Scottish TUC, I think the hon. Gentleman said that it would rather deal with a separate Scottish Government. The Scottish TUC gave the answer to that question in his own constituency last week. This very week the trade union movement is celebrating the fiftieth anniversary of the most devastating industrial upheaval this century. That was created by the confrontation of capital and labour. That problem will exist whatever happens to the machinery of government in Scotland, one way or the other. There will still be a confrontation of capital and labour, and the hon. Gentleman and his party will be on the side of capital. That is where he came from and that is where he will end up.

Mr. Crawfordrose

Mr. Hamilton

I shall not give way any more. The hon. Gentleman has had his say, and I leave the matter there because it is not worth pursuing much further.

I want to return to the statement made by my right hon. Friend the Chancellor of the Exchequer and to one or two facets of the Bill. My right hon. Friend talked about reduction in the standard of living of about 1 per cent. in 1977. He did not put forward his projections much further than that, and he was probably right not to do so. However, I hope that we are now in for a period of much firmer and, frankly, more brutal, truthful and open government than we have had hitherto. For far too long we have suffered from government by stealth, ignorance, dishonesty and unreality.

We have had some depressing speeches from both sides of the House in this debate in the sense that extreme views have been expressed by people who do not really believe what they have been saying. They have been exaggerating, for party political purposes. I have no wish to be accused of doing that. I heard the hon. Member for Basingstoke (Mr. Mitchell) talking about our not paying management enough. He went on to talk about the penalties suffered by the small employers, small industrialists and so on. Indeed, long before the Budget was presented the Chancellor was recognising this same problem in a speech in which he said that there must be tax concessions to middle management. I remember that speech very well. I think that he quoted a specific figure in that speech.

There is some substance in that point. It must, however, be good management, and all too often that is under-emphasised in debates of this kind. There is abundant evidence of very bad management. Our problems do not emanate entirely or even mainly from the trade unions. They emanate predominantly from inefficient management. We have seen examples of that in Rolls-Royce. The motor cycle industry, for instance, has fallen easy prey to the Japanese solely and wholly because of bad management, bad sales research and so on. The same applies to the car industry and even to the newspaper industry. We get constant sermons from newspaper proprietors about had industrial relations. No example has been worse than the example set by themselves in the newspaper industry, where there is a combination of weak, inefficient management and conservative, myopic trade union restrictive practices, which in newspapers and elsewhere are a recipe for certain national disaster.

I do not believe that this Bill or any other proposals that the Government may put forward can possibly pretend to give our people any short-term easy or soft options. There are none available to us. The trade unions at present recognise that. I believe that the masses of our people recognise the need for sacrifices to be made. It is the Government's responsibility to ensure that those sacrifices are fairly borne.

My criticism of the Bill and the Government's policies overall in the last two years is that that has not been as manifest as it ought to have been. There is little evidence of a massive and irreversible redistribution of wealth in the United Kingdom, as we promised at the last General Election. Unacceptably high rates of inflation have brought the full weight of taxation on to the incomes of families with average and even below average earnings. The figures have been quoted here, and they were quoted by Baroness Wootton in another place last week.

I recently sent to the Inland Revenue details of the case of a working widow—widows have been mentioned on all sides of the House in this debate—who is receiving just over £1,000 a year and who comes into the 35 per cent. tax bracket. I went into her house. She had had the most cursory demand note from the Inland Revenue, saying in effect "Pay up or else". She was in tears when I went to her house. She said "Will they come and lift my carpets, Willie?" That is the picture being created by the Inland Revenue among ordinary, decent working folk who are struggling for a livelihood.

I have seen the Opposition Benches packed today to complain—about what? It is to complain about the Inland Revenue having the right to search—but not that widow's house, by God, no; the Opposition are not frightened of that. She never said to me "I am frightened of the tax man coming in to look at my documents." She would have been only too glad for them to look at her documents. What she was frightened of was that they would lift her carpets because she could not pay about 30 per cent.-odd tax on slightly more than £1,000 income.

I compare that with a scandal commented on in the Sunday Times of 4th April this year. The Sunday Times is not widely read in Central Fife. Therefore, people there might have missed it. I quote this article merely as an example of the great divisions between that working widow I went to see and the affairs mentioned in this article in the City column under the heading Storm clouds over directors' houses The article says, Rather late in the day shareholders in Greenfield Milletts, the leisurewear stores company, are being called to an extraordinary general meeting to give their retrospective blessing to a decision of their board involving the company and the private interests of John and David Greenfield, two of its main shareholders and joint managing directors. Briefly, the story is that In January 1975 the board of the company agreed to buy from the Greenfield brothers their luxury Surrey homes for a total consideration of £230,000 as valued by independent surveyors and to rent these back to them for a mere £4,500 a year. The company is also paying £9,000 additional fees. It is a long article about these directors' houses which were sold for £230,000 and then relet to the directors. It continues: The Greenfield interests and their family trust own 40 per cent. of the company's 9.36 million shares. But there is at least one other substantial family holder with 22 per cent. of the remaining shares. That is the kind of racket that is going on and which the Government must deal with. I am not saying that by dealing with those matters there will be enormous sums of money to be obtained, but psychologically the reaction of our people would be out of all proportion to the sums involved.

Trade union leaders have been subject to gibes by Opposition Members. People like Jack Jones, Len Murray and Lawrence Daly have said they will co-operate with the Government to moderate the demands of their workers on the economy, and, as one of my hon. Friends said, this is a true measure of their patriotism in the best sense of the word. I think the reality of power today is that the sovereignty of this House is properly being increasingly shared—not taken away but shared—with outside bodies like the TUC as the best representative body of labour that we have in this country. The CBI represents in some measure the employers' interests. The Retail Consortium represents the retail trade, and so on. That is the kind of sharing of sovereignty, of power and of decision-making that must be accepted by this House.

I do not think we shall solve our problems by anything other than cooperation and consensus politics and policies, and not with any kind of coalition Government. We already have that in some important respects, in practice if not in theory, in the Labour Party. The Labour Party is a coalition of varying and very often extreme interests from one side of the political spectrum to the other. The role of any Government, and particularly a Labour Government, in those circumstances must be to create an atmosphere of national unity and purpose and to instil into all our people the feeling that if the workers produce enough efficiently and competitively they will get from the Government the maximum degree of social and economic justice. Those are very broad concepts which must be subject to political judgment and decisions on social priorities and the rest.

I mentioned earlier that there are one or two declarations of intent which would have profound psychological effects even though the economic and financial return in cash terms would be minimal. I shall run the risk of being accused of riding hobby-horses. Nevertheless I run that risk. My right hon. Friend the Chief Secretary to the Treasury served on the Civil List Committee with me. In that Committee we got figures about the tax-free income for certain people who are presumed to maintain moral standards and give a lead to the nation. If any Member of this House cares to go to the Library and ask for the last year's return of the Duchy of Cornwall, he will see there that the Duke of Cornwall last year got a tax-free income of £145,000, and that was a lean year. In the previous year it was over £200,000.

My right hon. Friend was very forthright within the close confines of that Committee. I wish he would be just as forthright when at the Dispatch Box he deals with that kind of privilege, because we shall have a repetition of it tomorrow when we debate a Bill on tied cottages. There are certain tied cottages belonging to people who are exempt from the provisions of that Bill. It is absolutely appalling that a Labour Government should allow that kind of exemption and special treatment.

The same applies to Bank of England employees. They have been manipulating the currency. I hope that this will not be swept under the carpet. I hope we shall have a full, frank and complete disclosure and that the most Draconian disciplinary measures will be taken.

Mrs. Kellett-Bowmanrose

Mr. Hamilton

I shall not give way. The hon. Lady has just come into the Chamber.

Mrs. Kellett-Bowmanrose

Mr. Hamilton

For goodness sake, sit down. I also want to make the same point in respect of BP—

Mrs. Kellett-Bowman

Will the hon. Gentleman allow me?

Mr. Hamilton

No. The hon. Lady must contain herself. She should get across to Strasbourg or somewhere. She cannot come here and after a minute expect to intervene.

Mrs. Kellett-Bowmanrose

Mr. Hamilton

The hon. Lady must contain herself. I am coming to the end of my remarks.

Mrs. Kellett-Bowman

The hon. Gentleman is afraid to give way.

Mr. Hamilton

My right hon. Friend the Chief Secretary will have to take into account the fact that we believe that there are important things to be done which would not cost all that much in money terms but would be a declaration of intent.

I have already mentioned the Bank of England, the Duchy of Cornwall and tied cottages. Then there are the payments which BP has been making to Right-wing political parties in Europe. They are accountable to us in this House and to the Government. I hope that the Government will be forthcoming in proceeding urgently with the investigations into the practices of the Bank of England employees and the BP directors and give us the facts and figures, because until we deal with these matters our supporters will believe that we are maintaining a system economically and socially which is manifestly unfair and unjust.

We are facing an extremely critical situation. Nevertheless we have been in more critical situations. I do not believe that we need get too desperately anxious about it. On the other hand, the Government must be much more forthright and honest in assessing the short-term, medium-term, and long-term prospects for our economy and at the same time give evidence that they are making much speedier progress towards a kind of fairer and more socially just society than they have done in the last few years.

8.0 p.m.

Mr. Esmond Bulmer (Kidderminster)

I join the hon. Member for Fife, Central (Mr. Hamilton) in recognising the need for co-operation, but I shall not follow him in pursuit of some of the hares that he started. In particular, I question what the hon. Gentleman said about the inevitability of the conflict between capital and labour. In my experience, it need not exist. The real division in our society today, I believe, is between those who create wealth, by technical ability, by managerial skill or by lending their savings, and those who administer the wealth that is created.

I do not regard the Bill as wholly bad. I have some strong personal reservations about Clause 2, which the Chief Secretary will understand—I shall come to that later—but at least the Government have recognised some of the damage that they have done in the past, notably with the capital transfer tax and its effect on industry, agriculture and the national heritage. My hon. Friend the Member for Bristol, West (Mr. Cooke) made a powerful plea for the national heritage, and I am sure that, in Committee, the Chief Secretary will wish to take up the points that he made, notably that about extending the conditional exemption on a house and garden to maintenance funds.

I turn now to Part II. In his Budget Statement, the Chancellor said: Although the severity of the 25 per cent. Increase was necessary in the especially difficult circumstances of last year, I have decided that in the longer term the 25 per cent. rate is too high. It could damage some parts of manufacturing industry and jeopardise employment."—[Official Report, 6th April 1976; Vol. 909, c. 255.] Where has the Chancellor been for the past 12 months? If he had come to my constituency, he could have met all too many people who had lost their jobs as a result of that increase in value added tax. He could have met people whose businesses were put at risk, people who had stared bankruptcy in the face, and many others who had been greatly discomforted. He owes more to those people than a facile statement of that kind.

The House is entitled to ask the Chancellor what estimate he made before introducing that large increase to 25 per cent. Did he make any estimate at all? If he did, was he correct in his assumptions? If he was correct, one can only say that he deliberately put a lot of people out of work. If he was wrong, perhaps he will tell us why he was wrong. Perhaps he did not even try. If that was the case, he should tell us why not.

Perhaps the right hon. Gentleman will tell us why he did not consult the Department of Employment and ask for its views. I am not sure that he would have got much help there, because, when I questioned the Secretary of State about the effect on particular companies in my constituency, I was told that the figures were not available. I therefore asked the Secretary of State whether he would make arrangements to monitor the effect of the 25 per cent. VAT, and the reply came: My Department maintains statistics of employment in all industries, though no formal investigation of the effects on employment of changes in the rate of VAT have been carried out. Her Majesty's Customs and Excise, however, is continuing to monitor carefully the effects of the 25 per cent. rate of VAT on the industries affected, including any employment effects."—[Official Report, 16th March 1976; Vol. 907, c. 480.] Thus encouraged, I put down a further Question to the Secretary of State to ask what evidence he had received from Customs and Excise of the effect on employment of VAT at 25 per cent., and the reply was: None.…."—[Official Report, 30th March 1976; Vol. 908, c. 439.] That is a rather casual attitude. Is it not part of the business of the Department of Employment to study the statistics and make representations to the Chancellor? According to the Chancellor, Customs and Excise has apparently been monitoring the effect. Perhaps the facts were too embarrassing to be made public. Hon. Members on the Government side know very well the effect there has been on some industries in their constituencies, and it is probably very much the result of pressure exerted by them which has led the Chancellor now to realise that that damaging increase should be reduced. It is incumbent on the Chancellor to give recognition of the effect that his error has had on the lives of a great many people.

I do not know whether the Chief Secretary believes that the Treasury has learned anything from that mistake. Many of us in industry feel that the Treasury is basically unsympathetic to industry—that it does not understand it. Whether that be right or wrong, what is clear is that the Treasury is not staffed by people who understand industry or who have had experience in industry. I believe that if individual members of the Treasury staff actually ran a small business for a year, or spent a year in a company—not one of the great companies, such as ICI, Shell or the multinationals, but one where the real pressures of life are felt—we might find a rather different attitude.

Mrs. Kellett-Bowman

And we might lose a few civil servants.

Mr. Bulmer

I put it to the Chief Secretary that in future his fiscal and employment policies ought to work more closely together. Anyone in industry could have told him that to put a 20 per cent. increase on the price of a product at a time when inflation was running at 30 per cent. would be likely to lead to a dramatic fall in demand.

Just one category of product has been picked out for a repeat performance of an increase on that scale—I declare my interest here—and that is cider. No doubt, hon. Members on the Government Benches will dismiss what I have to say here as special pleading, but if I share with them my experiences over the past two or three years they may understand a little more clearly why so many of us in industry have the greatest difficulty investing in the way we should like.

The first reason, of course, is the operation of the Price Commission and the Price Code. The Chancellor has said that he will look at this again, but one of the real problems is the allowable cost regime, which does not give allowance for marketing costs. If a small company competing with large brewers cannot advertise its product, it goes out of business. Yet that cost is not allowed.

Again, the constraints on productivity are clearly counter-productive. The change in base date for allowable costs, which, I regret to say, was the work of my right hon. and hon. Friends, hit us very hard, because we did not increase our prices as we could have done. We tried to hold them down, but we then found that we were penalised because, as inflation went ahead, we could not put up our prices, with the result that there was a huge increase of debt and we had to cut our investment by 50 per cent. I am sure that this is an experience that many other companies have had.

Happily, in order to get out of that situation, everyone worked the hell of a lot harder, and productivity went up by 20 per cent. But could we recognise that? No, we could not.

I am sure that the hon. Member for Liverpool, Walton (Mr. Heller) is right when he says that there is a great fund of patriotism and a great desire to work hard and do as well as possible for the company and the country. I believe that to be true, but enormous resentment is caused when individual workers see the money that their productivity has justified in being paid to them being paid instead to other companies, where there is indiscipline and bad management. Certainly, when a man who has worked hard and well sees what goes on in Chrysler and British Leyland, he does not think that his money has been well spent.

Equally, there is the effect of the incomes policy on managers. My company has lost one of its most able to Canada because we cannot pay management properly. The hon. Member for Fife, Central talked about bad management. One is likely to have bad management if one cannot pay for the best management and cannot keep one's own good managers. Hon. Members who refer to the survey produced by the British Institute of Management will understand that a man on £5,000 a year has seen his standard of living fall by 17 per cent. in the past three years, and the man on £20,000 has seen his fall by 33 per cent.

The hon. Member for Walton talked about patriotism on the shop floor. Surely, it is a demonstration of the patriotism of management that many more people are not going abroad although they know only too well that they could earn far more by so doing.

I come now to Clause 2, which provides for the duty increase. All of us in industry are accustomed to having further increases on our products. What matters here is the scale of the increase. The Secretary of State for Prices and Consumer Protection requested our company to put its products in her shopping basket. We agreed to hold prices down, but for our restraint we have been faced with making increases on a scale that we would never have dreamt of.

Honourable Members on the Labour Benches will know the feelings of miners in South Wales. If the right hon. Lady had told them five or six years ago that 1p was to be put on a pint she would have had a poor reception. But the present increase is 7½d, or 3p. That is a large increase, and the companies con- cerned have had no chance to make representations.

It would be helpful for industry if there were more consultation—if the Treasury would really argue through the merits of, for instance, high alcohol versus low alcohol, indigenous products versus non-indigenous products, and those which require long investment, such as orchards.

Efforts to hold down prices have resulted in the Treasury saying "Here is a product whose price has been held down—let us pump a large increase on it" Productivity increases by the work force are ignored.

Further, to finance the loan which is implicit, dividend restraint has meant that the capitalisation of the company is probably 50 per cent. of what it would otherwise have been, and the effects on a rights issue could be serious.

I have tried to illustrate, from my own experience, how the planning and operation of business has been handicapped at every turn by Government intervention—how price control, control of remuneration and stultification of the capital market have caused key decisions to be pre-empted. It is impossible to run a company as efficiently as one would like. Most people are trying to operate in a world of politically-induced uncertainty. It would be helpful if the Chief Secretary could explain how this uncertainty might be reduced. If industry knew that it would not suffer arbitrary price increases of more than X per cent., or that some of its freedoms were to be restored, uncertainty would be diminished. The web that the Government are weaving is not likely to release energy or promote investment. In industry we resent the fact that many of those who tell us what to do are not accountable, and have total job security and inflation-proof pensions, whereas all of us are in the firing line.

Both sides of industry have a common interest. A common interest exists between all those at work. There is a need for profit and a need to recognise the responsibility carried by management and by trade union officials.

A paradox that sometimes arises is that if one talks to a shop steward and agrees that he carries much weight and responsibility, and that the district official carries more, and one asks him if, when negotiating with managers, he would like the person acting on his behalf to be as good as, if not better than, the person with whom he is negotiating, he says "Yes". But if you suggest to the shop steward that the price that has to be paid is an increase in subscriptions he answers "No". That might be at the root of some TUC representations on managerial salaries.

I support the criticism made by my right hon. Friend the Leader of the Opposition in the amendment.

8.15 p.m.

Mr. Denis Skinner (Bolsover)

It would have been better, Mr. Deputy Speaker, if my hon. Friend the Chairman of the Manifesto Group had caught your eye first. I am not, therefore, able to follow a speech by my hon. Friend the Member for Gateshead, West (Mr. Horam). We did a double act, however, at the beginning of the year in his constituency when we agreed on a number of fundamentals within the confines of a constituency dinner.

I wish to comment on some of the things said in the debate notwithstanding the fact that my hon. Friend the Member for Gateshead, West will want to comment further on those points. I listened with care and interest to the Liberal Party representative, the hon. Member for Cornwall, North (Mr. Pardoe)—at least, I think he represents the Liberal Party. He does not represent the Liberal Benches now. The minority parties are not represented in the House just now. That is worth noting on this important day when later we are to discuss the vexed question of the Committee of Selection. Apart from the right hon. Member for Down, South (Mr. Powell), who is not now in the House, the minority parties are poorly represented.

Mrs. Kellett-Bowman

Get on with it.

Mr. Skinner

I have been disturbed by the hon. Lady, who represents a constituency somewhere in Lancashire, who represents the House in Strasbourg on some occasions and who comes here late at night because the Whips have sent for her.

Mrs. Kellett-Bowman

I have been here all day.

Mr. Skinner

The hon. Lady keeps on interrupting me.

Mr. Deputy Speaker

It might be better if the hon. Gentleman returned to the Finance Bill.

Mr. Skinner

When one begins a speech, on whatever subject, it is important to take account of the total environment. Today, in no more than a few paragraphs, it is important to take account of the surroundings, to get the feel and right atmosphere of the Chamber.

Mr. Tony Newton (Braintree)

Will the hon. Gentleman at least recognise that he has now been so successful that there is one Irishman present and one Scotsman on the fringe?

Mrs. Kellett-Bowman

The House will soon hear a Lancastrian.

Mr. Skinner

Having spent many long hours under your guidance, Mr. Deputy Speaker, I know that you will deal properly with the interruptions. They are not contributing to the debate, and I know that you will deal firmly with them for the future.

I said that I had been listening to the Liberal Party spokesman. It was an extraordinary speech, because the hon. Member for Cornwall, North launched an attack on my hon. Friend the Member for Liverpool, Walton (Mr. Heifer), and since my hon. Friend is not here it is necessary for me to defend him from that wild and outrageous onslaught. I shall remind the House of some of the things that the hon. Member for Cornwall, North said. He began by saying that to balance the Budget there should be less taxation. When we are currently in deficit to the tune of about £10,000 million, rising to £12,000 million in the next financial year, I find it hard to believe that anyone representing any party in the House could talk in those terms. Not only did the hon. Member want to reduce the level of taxation, but he wanted to reduce the starting level of taxation—and some of my hon. Friends would argue along that line. Liberalism appears to mean everything to all people and that one should back every runner in the race.

The hon. Gentleman talked about the indexation of taxation, which, I understand, means a return to the status quo. Representing the Liberal Party, the hon. Gentleman launched forth on some new radical approach to taxation. He wanted to tackle poverty. He had already argued for a reduction in the taxation level by a massive amount, but, despite that, he said that he wanted to reduce poverty and to assist widows, pensioners and the others.

My main reason for speaking, however, is to place on record a point of view different from that of the Government and, to a certain extent, that of the trade union leadership. I choose my words carefully. I am referring specifically to the trade union leadership, notwithstanding an opinion poll which suggests that 70 per cent. of the people are in favour of the current kind of incomes policy. I speak for no one else, either in the Tribune Group or elsewhere, when I say that I believe that the next stage of this incomes policy is fraught with exceeding danger.

I say that on the premise that when we discussed the £6 pay limit last year we did so in an environment not dissimilar from the situation of a few days ago. I remember reading, in the Daily Telegraph and other newspapers which I have to read to keep up with the economic jargon, reports saying that the pound was under severe pressure and that a pay policy was necessary—and here we should bear in mind that we had fought two General Elections on the basis of having no interference with free collective bargaining. Accordingly, the Government and the trade union leadership came forth with the policy of a limit of a £6-a-week increase for all those earning below £8,500, not taking into account the many loopholes which those above £8,500, and some below, are able to exploit in order to improve their take-home pay.

The £6 pay policy was sold on the basis of certain fundamentals. The first of these was that it would keep down the level of unemployment. We all know the answer to that. When people say to me that the £6 limit has succeeded, I say that it has been accepted but that the other side of the bargain has not been kept, because unemployment has almost doubled in the period since the policy was introduced. Despite all the claims of the trade union leaders, despite all their attempts and exhortations, they have failed dismally in their effort to get the other side of this so-called bargain kept.

Secondly, the same is true of price control. There has been a modicum of success—no more than that. But in the negotiations on the £6 limit—no different from the present situation—it was agreed that prices should be held down. "Price Check" is not doing much good. On the prices side of the bargain, we have got hardly anywhere. That is perhaps exemplified best by the fact that my right hon. Friend the Secretary of State for Prices and Consumer Protection is not able to do anything at all about the price of potatoes. "Price Check" presumably includes about 50 items, yet when it comes to something like potatoes, where the wages content of the commodity is surely very small, my right hon. Friend is unable to do anything. Despite all the pleas of the trade union leaders, they have not succeeded in achieving much on the prices side of the bargain.

The third negotiating counter was to do with the retention of the social wage. That, too, has failed. We all recall the many times we were told that the social wage was equal to about £20 a week. What happened? Within the same year of the £6 pay policy, and at the same time as the Chancellor of the Exchequer and others were acclaiming it to the skies, a White Paper showed that the social wage was to be cut drastically. In other words, housing, hospitals and education, the latter to the extent of £620 million over the next three years, were to be cut. For whom? It was not for the people represented by the Opposition.

The cut in the social wage represented in the White Paper equals misery and a cut in the standard of living for working-class people. It means that the working class are to be deprived of many of the social provisions which are part of the social wage that they need if we are to redistribute income in favour of those working-class families for whom we all campaigned on this side of the House in the February and October elections of 1974.

I want to know from my right hon. Friend the Chief Secretary whether he is happy to see this reduction in the social wage over the next four years, because we are talking in the Budget of a pay policy for the working class, based on the current negotiations, which is to extend until March 1978, which is a long time and is the period during which these cuts in the social wage are to be perpetrated if the whilte Paper continues in its present form.

Therefore, on these three fundamentals it can be said, tragically, that the Government have not been able to deliver the package. What is worse, the trade union leadership has not responded in the way it should have done in order to ensure that if there were another package it would not be caught again. It looks as if it will be caught. In Tribune this week, Mr. Jack Jones has a splendid article setting out nine points which he feels ought to be implemented by the Government, including import controls and the direction of investment by control of the financial institutions. These are all very worthy objectives. He should take that article to the Treasury and Downing Street.

There, Jack Jones should say "These are our points. We are negotiating about a policy which is some sort of contract, and, unlike with the last policy and its predecessors, I want to see these points implemented, because we have not got the other side of the bargain that we negotiated last time. One of my friends said so at the Labour Party Conference Tribune Group meeting and I did not like it, and I do not want it to happen again."

Some of us on this side of the House are going to remind Jack Jones and his colleagues—this is not a personal issue—of their failure to extract from the Government not a price but part of a deal, part of an arrangement, which they had entered into.

We contantly hear from the Opposition and from the media generally about the price that the Government must pay because of trade union demands. I have never heard such nonsense in my life. I do not know what these trade union demands are, I do not know what prices have to be paid. In any event, they are not being extracted from the Chancellor. On that point, too, I have to say to my right hon. Friend the Chief Secretary, that dapper little fellow on the Front Bench, that the contract was not fulfilled.

It does not make me feel pleased or elated to have to say these things, but although the £6 pay policy received consent the other side of the bargain has not been upheld. The worst feature of all—this is probably the one that takes into account the first of the three items to which I have referred—is that I remember hearing about the spin-offs that would result from the £6 pay policy.

We constantly hear about the result of sacrifices, of belt-tightening and of pulling up our socks. Of course, that applies to the workers. It is always the same class of people—namely, those who can be banded together, those who are in a trade union. It is easy to pick off a quarter of a million miners because they all have a union card. In the same way, it is easy to pick off the railwaymen and those in public employment. It is easy to build a nice little fence around them, to collectivise them and to direct a nice little incomes policy at them.

But there are many thousands in our society who cannot be found when we start to think in terms of an incomes policy, regardless of all the exhortations. Apart from the matters that I have mentioned, we were told that if we had an incomes policy, however distasteful, and if we interfered with free collective bargaining, the money that would not be expended in wages by those in the public and private sectors would be available for investment, the additional money enabling the country to grow again. We all remember that argument. We were told that if we reduced the wages bill there would be more money available to invest in various forms in the public or private sectors.

In fact, that has not happened. Many of the theories that we have heard over the past few years have not come to fruition. Many claims have been made but the required investment has not taken place, despite the tax allowances that were introduced by the Tory Government. As a result of the latest edition of a pay policy, none of the additional money has gone into the area that is so important if we are to achieve growth.

On that basis, the contract with the trade unions has not been a raving success. It is true that it has assisted in helping us to reduce the rate of inflation. That is because to some extent the wages bill has been reduced. I do not deny that for a moment. But that is not the only reason.

My right hon. Friend the Chief Secretary is an expert on these matters and he knows that during the past financial year there have been two main reasons for our seeing a reduction in inflationary trends. First, the price of most commodities that we have to buy on the world market in order to live and manufacture has fallen fairly significantly during the past 18 months. There has been a fall after the mammoth rises that took place when oil and many other commodities were rising in price. For the past 18 months those commodities have in many cases reduced in price or otherwise remained stable. That has meant that they have become relatively lower in price, bearing in mind our rate of inflation. That has been one of the reasons for our being able to reduce the rate of inflation.

The second reason for our seeing a reduction in inflationary trends is the absence of our old friends the thresholds. We are now calculating our year-on-year wage index on the basis of its not containing any threshold payments for the previous year. For a long time we made calculations based on an increase in threshold. That added to inflationary trends and was a factor which had to be considered in addition to increased wages.

My right hon. Friend is an honest man and he understands what I am saying. For the two reasons that I have cited, we were bound to have a reduction in inflation. Naturally, I do not want to sound disparaging about that. I am pleased that the reduction has taken place. However, the necessary investment has not taken place. The trade union leadership has recommended that its members should make great sacrifices, the result of which has been a wage redistribution away from the poorer classes to those who are relatively better off.

I do not want to over-dramatise the situation. I do not want to give the impression that the shift has been a tremendous one right across the board through all the strata of our society. But it is true to say that the pendulum has gone the other way. What we are doing by means of the Budget is causing the pendulum to swing a little further.

If we have to reduce the total standard of living, I believe that there are those who must bear the brunt. I agree totally with my hon. Friend the Member for Walton in his remarks about the introduction of a wealth tax. However, because there are many clever accountants and advisers to assist people on large salaries, we shall not get much from that tax. Those clever gentlemen will find a little loophole here and a little piece of evasion there, and the net result will be that we shall not be given much in return. However, we must make that attempt. We must show people outside that we intend to introduce that tax. Indeed, it could have been done within the provisions of the Finance Bill. We should give some indication to those people that there will he, if not a redistribution in their favour, certainly a movement in favour of fairness.

That is my view of the current situation. I believe that there is something a little nauseating, perhaps even sinister, in the package thrown at the trade union movement. I do not think that it should have been presented in this way. It must be remembered that the trade union and labour movements comprise two wings. On occasions the two wings do not overlap, and I believe that that is how it should be. Before I came to this place, I used to argue at trade union branch meetings that the system divided itself into industrial matters and political matters.

I believe that before the Government launched out with the scheme described in the Budget, the trade union movement should have been made aware of what was in the Chancellor's mind so that the matter could have been thrashed out before it was placed before the trade unions. If the trade union leadership had rejected the matter out of hand—as its members almost did because they did not know what was coming—probably the Government would have deserved such action.

I hope that the Government will not want to repeat this exercise. What will be the impression among those who read the newspaper headlines? They will get the impression that because the country is adopting a system of lower wages, which in turn will result in lower tax levels, this will happen again and again. My right hon. Friend the Chancellor will not redeem his £12,000 million deficit if he argues on the basis of cutting tax levels. If we are to do our duty by the working-class people who send us here, we must increase the social wage. We need better houses, hospitals and schools for working-class people and we need to improve their pensions. That means that we cannot necessarily talk in terms of reducing taxation. The philosophy behind my right hon. Friend's proposal to give a little bit back, because of the consequences of fiscal drag and all the rest of it, is alien to our party. We should not repeat that exercise.

We have always argued that our job is to increase the proportion of the gross national product devoted to public expenditure. In answer to a question from me some time ago, my right hon. Friend disagreed with the Home Secretary's view that going beyond 60 per cent. would create a danger to the pluralist society. It has always been our philosophy to increase public sector expenditure and the social wage. Only by doing that can we get anywhere near the promise contained in our election manifesto to redistribute wealth in favour of working-class people and their families. I feel that I have to remind my right hon. Friend of the joint commitments we made in October 1974. We shall have a few opportunities to remedy the problems to which I have referred before we again meet the electorate. We have a duty to redeem our election promise as quickly as possible.

8.41 p.m.

Mr. Nigel Forman (Carshalton)

I feel sure that the House will not expect me—one of the newest and most innocent Members—to follow, let alone to emulate, the inimitable style and delivery of the hon. Member for Bolsover (Mr. Skinner). The amendment comes to the nub of this matter by pointing out that the Finance Bill attempts to meet the cost of spendthrift policies by increasing the real tax burden and by profoundly discouraging both skill and enterprise.

The Government have certainly spent more, borrowed more, and taxed more than any previous Government since the war, yet the Chancellor is claiming that Britain will be home and dry within the next 18 months. Before the unlikely event of our reaching such an enviable position it is perhaps worth repeating yet again a few of the salient statistics that quantify the magnitude of the Government's spend thrift tendencies.

As we know only too well, public spending now accounts for about 60 per cent. of the gross national product. At £64,000 million in the coming year it means that total public spending will be almost double what it was in 1973–74, under the previous Conservative Government. The public sector borrowing requirement seems likely to be about £12,000 million this year, again, which means, as my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) put it, that the Government intend to borrow about £1 for every £5 it spends, or about £550 a year for every family in the country. On the matter of public borrowing the question for the Government must surely be whether they will be able to continue financing such vast sums without accelerating further the growth of the money supply.

I understand from what I have read in the Press that the Chancellor is allowing for about 15 per cent. growth in M3 over the coming year, but he will undoubtedly have to face some difficult choices when our economic recovery gathers pace and the present high rate of savings starts to fall. The Government have already had to raise interest rates—we have seen that with the jacking-up of the minimum lending rate—because of the pressures on sterling, and may have to do so again by a percentage point or so as the situation worsens and as international confidence seeps away. However, I feel that the use of the interest rate weapon will not prove sufficient to maintain international confidence in our currency and there will therefore have to be other further painful cuts in public expenditure. That must be one of the measures that the Chancellor had in mind when he emphasised to the House that if the money supply could not be held at a rate consistent with his overall strategy he would take— any action, monetary or other, which may be necessary to correct it."—[Official Report, 12th April 1976; Vol. 909, c. 1037.] The real indictment of this Government's economic management is not so much that they are now pursuing the wrong policies as that they are guilty of doing too little too late, having spent the best part of their first 18 months in office doing too much with the wrong policies too soon. The House will recall that the Chancellor's self-defence when replying to the Budget debate on 12th April, was that: To have attempted to adjust immediately to that double blow"— here he was referring to the so-called "legacy" from the last Conservative Government and to the effects of the fivefold rise in the price of oil and other commodities— at a time when the world was already moving into recession would have meant unemployment in Britain far above the levels that we have had to endure in recent months. But now that the world recovery is under way, we must make that adjustment, painful though it may be. The result of that deliberate delay on the part of the Government has been that the British economy is now entering the world upturn in a less favourable condition than it should be at this stage of the world's economic cycle. We are entering this stage of the upturn with a rate of inflation of between 12 per cent. and 13 per cent. which is still about double that of some of our major international competitors. We have a level of unemployment that is most unlikely to come down to the TUC target of between 600,000 and 700,000 by 1979. We also have a level of industrial production—let us not forget this—still below its level in March 1974.

The even more important political point is that the Government's previous reluctance to grasp the nettle of economic adjustment early enough has led directly to the present excessive levels of public spending and the present penal rates of taxation, which are referred to in the Opposition amendment. Each of these is the consequence of the Government's delay in tackling the problem of inflation. The result of this pincer movement on personal consumption has been a fall in real take-home pay, which fell by about 5 per cent. in the second quarter of 1975 and which is scheduled to continue to fall by one or two percentage points in 1976 and 1977. In his speech on 12th April the Chancellor described this fall as: part of the price the nation has to pay for getting unemployment down."—[Official Report, 12th April 1976; Vol. 909, c. 1039–40.] That is true in the limited sense that the £6 policy and, now, this hybrid tax and incomes policy on which the Government are relying has helped and can help to limit the unemployment consequences of previously generated inflation as well as reduce public expenditure.

In broader terms it would be more accurate to say that the fall in real take-home pay is the price that the people of the country are having to pay for a Government who have spent more, borrowed more and taxed more than any other Government since the war. The tragedy lies in the way the Government have squandered their opportunities for public education in the realities of life, presented to them over the past two years. After the shattering events of 1973–74, at home and abroad, people knew full well that they would have to adjust. But they got no timely, responsible leadership from the Labour Government. Instead they were offered a series of electoral blandishments between February and October 1974. Then there was the inflationary device known as the social contract, between October 1974 and July 1975, and, more recently, this still inflationary £6 policy for the period to August.

My contention is that the British people know in their hearts what needs to be done. They knew all along. They knew this long before the Government were able to summon up the courage to spell out the objectives that we needed to follow, let alone to implement, the necessary policies.

Naturally, I welcome the Government's belated conversion to economic common sense, but I deeply regret that sensible measures have been introduced so late in the day that, even now, they are disproportionately reliant upon a form of incomes policy which cannot be watertight—least of all with this new complicated formula—and that the range of measures still does not include sufficient evidence of the Government's readiness to abandon their doctrinaire and damaging policies in other areas, such as nationalisation and price control, both of which will continue to be part of the heavy price exacted by the TUC for the next stage of the incomes policy. Unless the Government resolve to take all the action necessary in the interests of economic common sense, they will still fail to inspire sufficient confidence in British management and industrialists at home and in holders of sterling abroad.

The truth is that since the nation is still being allowed to live beyond its means, and since the Government still have not tackled the cancer of the underlying and growing public deficit, to which my right hon. Friend the Leader of the Opposition referred in her immediate response to the Budget Statement, there can be no effective substitute for the Government setting the main example. I submit that the way to do that is by rigorously controlling the growth of money supply, by curbing still further the increase in public spending, and by putting real conviction into their new industrial policy, which came such a cropper over Chrysler, to restore the health of the productive wealth-creating sector of the economy.

Since the Government show no signs of doing enough on any of those three counts, I shall, of course, be voting with my right hon. and hon. Friends in the Lobby tonight.

8.53 p.m.

Mr. John Horam (Gateshead, West)

Before commenting on the speeches by my hon. Friends the Members for Bolsover (Mr. Skinner) and Liverpool, Walton (Mr. Heifer), who, unfortunately, has left the Chamber, I should like to make one remark about the eloquent speech by my hon. Friend the Member for Gravesend (Mr. Ovenden), which was a plea about the plight of widows. I should like to add to that by referring to the position of war widows. I am sure that my right hon. Friend the Chief Secretary will be aware of their situation, as I have always assumed that he knows everything about taxation.

Many war widows are to have their pensions taxed for the first time from April. There was some expectation that they would be taken out of taxation in the measures that my right hon. Friend the Chancellor of the Exchequer proposed in the Budget. They were not taken out, and there was considerable disappointment on that account. My right hon. Friend the Chief Secretary may not have time to deal with this specific point tonight, given the lateness of the hour but it is a matter about which, rightly or wrongly, expectations were raised. A number of people wrote to me about this matter—other hon. Members may have received similar letters—but nothing was done about it in the Budget.

On the main question of the Government's broad economic strategy and all that goes with it, I have heard the argument put forward by the Tribune Group on many occasions. I understand the force of the argument and why my hon. Friends are concerned, but I thought that tonight they went over the top. Almost everything they said was the reverse of any objective view of the situation.

For example, my hon. Friend the Member for Walton maintained that the Government had not asked for the same kind of sacrifices from the rich as they had asked of working people. That is total nonsense. We have had the capital transfer tax, which was the first serious attempt to have proper taxation of the transfer of wealth on death and the most important source of inequalities in wealth and income. It was an even more radical proposal than anything put forward by the Attlee Government. Sometimes my hon. Friends refer disparagingly to the Wilson and Callaghan Governments, as compared with the Attlee Government.

We have had higher taxation of investment incomes and a total stop, under the pay policy, on increases to those earning above £8,000. The real value of share capital has dropped to 40 per cent. of what it was in 1972. That is in consequence of the decline in the capital market. All this has had a massive effect on the wealth holding sectors in the community. One only has to look at the Diamond Commission to see the change in distribution in income and wealth in the last 50 years, even before my right hon. Friends got to work on it.

In the last two years, since this Government came to power, there has been to quote the manifesto—something of which I have knowledge and for which I have a regard—a fundamental and irreversible shift in the balance of wealth. It is irreversible in that I hope the Government will keep winning elections. It is fundamental in that there has been measurable progress towards this goal, and one cannot maintain, as my hon. Friend the Member for Walton did, that no sacrifice has been asked from the richer people. Of course it has.

Mr. Skinner

Asked, yes, but not delivered.

Mr. Horam

Not only asked, but signed, sealed and delivered. The cries from Opposition Members indicate that it has not been pleasant from their point of view.

It is a nonsensical claim that the Government have not been even-handed. The policies have been more than evenhanded. The real standard of living of the pensioner has risen by 13 per cent. compared with the top wealth creators. This shows the fairness of the Government.

My hon. Friend the Member for Bolsover listed four points in the social contract between the Government and the trade unions. I am a sponsored trade union Member, as he is. The first point was unemployment, and it is quite clear to anyone with any understanding of the basic situation that the unemployment this year is the consequence of not having a proper pay policy last year. What we should now be looking at is what will happen to unemployment next year, as the result of the £6 limit last year. What would happen next year, as the result of a £2 or £3 limit this year? There is a lag in these things. We all knew —Jack Jones certainly knew—that unemployment would be high last winter. So the first point that my hon. Friend for Bolsover made on unemployment is nonsense.

My hon. Friend also said, secondly, that prices have not been reined in, because the policy of the Secretary of State for Prices and Consumer Protection, who is now also the Paymaster-General, has not worked as well as was hoped. Well, perhaps it has not worked as well as we hoped, but the fact is that inflation is coming down as a consequence of the £6 policy and of the social contract, which my hon. Friend derides.

My hon. Friend also talked of the social wage. Much has been talked about this by members of the Government. Now it can be argued that the money wage of people has declined in the past six months. Prices have gone ahead of wages under the £6 policy. That cannot be denied, and we knew that sacrifices had to be made. But it cannot be argued that the social wage—that part made up of public expenditure—has declined,

because public expenditure has not yet been cut. It is to be cut in the next financial year and the following financial year, or, rather, the increase in its growth is to be restrained. But so far we have not had the massive cuts of which my hon. Friends in the Tribune Group are always complaining.

I am aware of the situation in my constituency, as my constituents are, on the whole, among the lower paid. What they would benefit from now would be a cut in taxation as much as an increase in public expenditure. We have reached that point in the balance between the two where it would be counter-productive in welfare terms to take on the public expenditure being asked of the Government by some sections of the Labour movement.

Public expenditure is a means to an end, and the end is the betterment of the standard of living of our worst-off constituents. I would not like to say which would benefit them the more—a reduction in taxation or an increase in public expenditure. My hon. Friend will find from the facts that we are taking £750 million a year in taxation from people on supplementary benefit level. That is the rate at which taxation has bitten into the lower income groups as well as everybody else. Regard must be paid to this. My hon. Friends who ignore this are living very dangerously.

Mr. Skinner

On the basis of that argument, and as my hon. Friend and I both agree that people on these poverty levels should be relieved from paying tax, would it not have been better if my right hon. Friend the Chancellor had said, in accordance with his policy and mine, "I shall move these people out of tax at a stroke and not go into the tax bargain"? He could have offered more on the other side.

Mr. Horam

My right hon. Friend the Chancellor could have done that, but how could he have done it and also met the demands of my hon. Friends the Members for Walton and Bolsover for money for the National Enterprise Board and the construction industry? My hon. Friend complained that the sums to which the hon. Member for Cornwall, North (Mr. Pardoe) treated the House did not add up. His own sums do not add up; that is the gap at the heart of his policy.

The arithmetic of the Tribune Group does not work, because its members do not live in the real world. They do not have to make the sums add up, as do my right hon. and hon. Friends on the Government Front Bench. I do not totally agree with everything that my right hon. and hon. Friends in the Government do, but I do not have to follow the nonsense uttered by my hon. Friends the Members for Bolsover and others, sincere though they are. They must face the facts of life sooner or later.

In my view, the Government are basically on the right course. They will fail only if they are insufficiently radical and insufficiently bold. They will be insufficiently radical and insufficiently bold if they pay too much attention to the irrelevant conservatism of the extreme Left and, instead, ignore the basic common sense of the working class, who are right behind them.

9.2 p.m.

Mr. David Howell (Guildford)

I am glad that in this debate we were able to get the Chairman of the Manifesto Group in at the end. It provided a useful antacid to the rather indigestible operatic performance from Members below the Gangway.

We were treated to the marvellous spectacle of a lacuna arguing with a gap. I know which of the two I prefer. It also illustrated—this was interesting for those of us who came in towards the end —the terrific and massive unity that exists in the Labour Party—a unity to which the Chancellor referred—which goes right the way to the top, and which was demonstrated with vigour tonight. We shall all take note of it, and of the Chancellor's heavy reliance on that unity in expressing his views.

That aside, the debate has returned again and again to the two priorities concerned with taxation and tax reform in Britain—priorities that the Finance Bill does not succeed in meeting. I refer, first, to the need to sort out the preposterous tangle of income tax and social security benefits and, secondly, to the need to reduce the political or anti-enterprise taxes which have very little revenue implication and which, in Britain, have reached, as I think most people recognise, unique levels of complexity, inequity, and uncertainty amongst all Western countries.

We have reached the stage, if we are concerned about our reputation abroad, when these levels of taxation bring ridicule to Britain. By mobilising an army of 80,000 members of the Inland Revenue to try to bring sense to the system they cast ridicule on this country, as well as on the organising competence of the Government.

The Chancellor has not tackled the first of these priorities, because he cannot. The money needed to raise tax thresholds, to unscramble the overlap between income tax and social security is already owed elsewhere on a very large scale. The Government, the Chancellor and the Bill have not attempted to tackle the second priority, because they will not. As the Chancellor said in the now notorious Wall Street Journal article of 2nd March, he does not believe that high taxation has much to do with economic growth.

I thought that was an unwise view to express. Though I do not connect cause and effect, I cannot help but notice that the slide in sterling began the next day—long before we got on to the present hair-raising big dipper on which sterling is connected to the latest statements and news bulletins from the front on the pay deal. Dealing first with what he cannot do, we wish we were convinced that the Chancellor fully understands the limitations placed on the financing of the public sector borrowing requirement in the coming year.

The Chancellor has let it go a little to his head that he succeeded in getting through last year without a vast expansion in the money supply. He is very proud of that fact, and often repeats it. But circumstances are different this year. Last year, the public sector borrowing requirement financed 25 per cent. inflation. A lot of money is needed to do that. As inflation falls, the public sector borrowing requirement should fall. If the borrowing requirement is maintained or increased, it will pump massive sums of money into the economy, and this will be the result if we have an outturn of about £12,000 million this year.

The borrowing requirement should fall during a business recovery, and Government revenue should rise. That is what is happening in the United States, West Germany and every other country, but it will not happen here. We are committed to a continuing high borrowing requirement, perhaps even higher, in money terms, than last year. One would expect that with a recovery, revenues would rise, and payments such as unemployment benefit would fall, and that therefore the public sector borrowing requirement would shrink.

The central message of the current budgetary situation and of the Bill is that the conditions in 1976 for financing a deficit will be totally different. Anyone who assumes that we can go into 1976–77 and finance the same-sized deficit as we did last year without heaving up interest rates to levels that will turn people out of jobs even more than at present, and which will wreck even more investment prospects, is living in a dangerous fool's paradise.

One of my hon. Friends has reminded us that even if the deal goes through in the next few days as proposed by the Chancellor of the Exchequer, the finance that the right hon. Gentleman will have to find will put between £700 million and £900 million on the borrowing requirement. This is finance that the Chancellor does not have; he already owes it elsewhere.

Establishing a firm idea of pay limits is useful in enabling trade union leaders to understand that if they go beyond it, they will throw their members out of work. And it is useful in the public sector and nationalised industries in preventing unions forcing through excessive wage increases and having them paid from cash the State does not have, so sending the Government into a further cartwheel of inflationary financing.

That is fine. My right hon. and learned Friend made clear that that kind of endeavour and outcome is one that we support, but the question is, how much has to be paid for it? As hon. Members have asked, what is the price going to be? If the price is in itself more inflationary than any curbing of inflation that may or may not arise from a deal and an agreement to wage restraint and a commitment to a particular flat-rate plus percentage, we are not very much further forward. That is not a new deal; that is the old roundabout on which we have been before, and which nearly whirled us to perdition.

The question is whether, given the commitment to a gigantic borrowing requirement, the financing of which will be very difficult, we can afford to enlarge that deficit any more for any reasons. Even if we could, it would be very small beer. The lifting of the threshold as the Chancellor proposes would be very small beer indeed compared with the billions that would have to be taken off the deficit and that are needed to establish a sounder financial position.

But those billions are needed also to lift the threshold back at least to 1974 levels and achieve some disentangling of the high levels of income tax from social security benefits. No one need imagine that the small additional lifting of the threshold offered by the Chancellor in the deal even begins to take us a tiny way along the road to disentangling income tax from social security benefits. It goes no way to creating a situation in which people will again find it worth while to work for an average wage if they have two children—something which at present they do not find it worth while to do.

The hon. Member for Cornwall, North (Mr. Pardoe) gave some interesting figures, and I propose to add to them to show by how much taxation has been increased, not lowered, in this Budget. If the age allowance ceiling of £3,250 is to compensate for inflation in the last year, it should be £3,600. The single person allowance has been raised to £735, but it should be £817 to compensate. The married allowance is £1,085, but it should be £1,155. The investment income surcharge, which is depicted by hon. Gentlemen below the Gangway as a reinforcement for well-heeled capitalism but is, in fact, often the basic remuneration for elderly people in quite straitened circumstances, has not been changed at all. In fact, as a result of not being changed it has been increased and is therefore a heavier burden.

Let me give one example, which I regard as disgraceful. If maintenance payments to a divorced woman exceed £2,000 a year—£40 a week—they carry a surcharge of 50 per cent. This rate has been unchanged, so the divorced woman sustains a substantial further increase in taxation.

As my right hon. and learned Friend made clear, taxes have been raised right across the board. There has been no move whatsoever towards disentangling the complexity of and the inter-relationship between income tax and social security and means-tested welfare benefits. Last year hundreds of thousands of families—and we have seen and talked to them in our constituencies—found to their dismay that high income tax, combined with benefits, cancelled out any earnings increase, and they will find that again this year with or without the concessions that the Chancellor offers on the basis of the trade union deal.

This year we have taxes up across the board. Income tax is up, and benefits have been raised. They were raised last November, and they are to be raised again next November, so the overlap will be very much greater. We have reached what is regarded by most people as a lunatic situation, in which a man on £50 or £55, on a near-average wage, finds that, if he has two children, it does not pay him to go to work, certainly not when he is drawing PAYE accumulated rebates. That situation has not been tackled at all. The Bill has not attempted at any point to address itself to that situation. I understand why. It is because the Chancellor is locked in and has decided not to cut public spending but rather allow it to increase by 14.4 per cent., in money terms, or something of that order. He is unable to find the resources necessary to lift tax thresholds even to the point which would put us back to the level of last year, let alone to the level of 1974.

Now, none of these arguments about where to find the revenue arises when we come to the other major tax problem—the political taxes. By "political taxes" I mean taxes on the statute book not designed to raise revenue, balance out the books or reduce the deficit, but those which are there for reasons of political pressure and because they make hon. Members opposite, particularly those who are here this afternoon, feel good. Why they make them feel good I found harder and harder to understand as I listened particularly to the hon. Member for Liverpool, Walton (Mr. Heller) who started off in the most enticing way. One almost thought one would agree with him, only to find that his solution for the problems he analysed was to bring in a wealth tax.

The hon. Gentleman wanted to put more people out of work. Having analysed the situation and found it unsatisfactory, he wanted a higher tax on wealth creation, with the loss of more job opportunities. That was his proposal. I am afraid it is hard to follow why it should in any way relate to the interests of working people in this country. I know that hon. Members below the Gangway have they own little world, in which they debate these things, and perhaps they can sort them out.

Let me return to the political taxes, because a number are mentioned in the Finance Bill. We shall have to debate them at great length both on the Floor of the House and in Committee. As far as the capital transfer tax is concerned, changes have indeed been made, but they will just about compensate for inflation. In fact, if one takes the figures as announced in March 1974, the change falls considerably far short of compensating for inflation. We shall be raising many questions about capital transfer tax. It is just as much of a job wrecker now as in March 1974. We have instances—I am sure that Chief Secretary has many others—where it is placing firms and the jobs in those firms in direct jeopardy. It is still a job wrecker, and it is still a firm wrecker. There are several other aspects of capital transfer tax that we shall want to discuss.

My hon. Friend the Member for Bristol, West (Mr. Cooke) talked about maintenance funds for historic houses. I realise the difficulties here and we shall want to come to them, because I do not understand or follow the point made by the hon. Member for Motherwell and Wishaw (Dr. Bray). What is the point of having ruined mansions? What is the point of allowing these houses to crumble? Is the hon. Member suggesting that bureaucracy should take over and run them? If the kind of proposals that the hon. Gentleman appeared to be talking about are adopted, that will be the end of the historic house and the heritage of this country, because there will not be the finance there to run them any further and the State will not provide it.

The second political tax included in the Finance Bill is the small companies rate. The initial instinct is to welcome what has been proposed, that the ceiling rate for profits below which corporation tax at the lower rate can be claimed has been raised to £30,000. But that was set in 1973 at £25,000, and £25,000 in 1973 is not £30,000 now; it is more like £42,000. Again, there has been an increase, as my hon. Friend the Member for Basingstoke (Mr. Mitchell), in an excellent speech, recognised. The screws have been further turned on small companies seeking the lower corporation tax rate. It has not been decereased; it has been increased.

We then come to VAT, where, no doubt, Ministers will argue, as the Chancellor has argued, that there has been some help to small business. I must say that this whole VAT high-rate situation is a banana-skin episode in fiscal legislation. We argued from the start that it was madness to put a high-rate tax on electric irons and cuckoo clocks. We argued that there was no such thing as a socially less desirable luxury good. However, the Ministers had received their instructions and they had to follow this nonsensical legislation through.

After a year, it has been discovered that it did great damage. All kinds of provisions had to be rushed in to try to offset the damage. Now we have new clauses in the new Bill to put it half right. We still have two rates. It is a complete waste of administration. One rate at 10 per cent. would be much simpler. That is what we believe the Chancellor should have done. But obviously there were difficulties in swallowing the whole of the humble pie. Therefore, we had to have the 12½ per cent. rate.

There is a case not only for the single rate but for looking at the exemption level—a matter raised by some of my hon. Friends. Even if one were to keep pace with the depreciation of the currency, it would, as my hon. Friend the Member for Basingstoke said, have to rise to between £8,000 and £9,000. So much for that aspect of political taxes where changes could be made without any cost to the Revenue at all and yet are not made.

We turn now to the other aspect of political taxes, that is, the high rate of income tax on the £80-£160 group, the people on £4,000 to £8,000, who the Chancellor in happier days was rash enough to say had had quite a caning. Under this Bill the caning continues harder than ever. It is true that the tax rate bands of the higher rates may be raised if the deal with the trade unions comes off, but that would not anything like compensate for inflation. For instance, to move the £4,500 rate to £5,000 would still leave it £500 short of where it should be to put us back to the levels of last year.

Therefore, those in this group are being more highly taxed. They are paying higher national insurance contributions The fringe benefits and perks are under attack. We in the Opposition have stated our view that under a more moderate level of income taxation, half of these perks would not have arisen in the first place. It would not be necessary to think up ways of providing emoluments and benefits outside the tax system. There will be great difficulties in deciding what is the arm's-length price of certain benefits—for instance, the arm's-length price of an airline ticket to an employee of an airline company. When seeking to buy an airline ticket I always find that there are about 16 different prices going. The same applies to tangible goods, such as washing machines. What is the arm's-length price? It is illegal to have a fixed price. There is no resale price maintenance. How shall we sort out that difficulty?

There will be a great deal of difficulty, and much manpower will be absorbed in the hunt for the perks. If that manpower was, as it should be, diverted from thinking up ways of lower taxation, or done away with altogether, a great deal of effort and the Chancellor's energies and adrenalin would be saved in the tremendous manhunt that will otherwise continue.

Now we come to yet another area in which the £4,000-£8,000 man, who expected not to be caned, will face greater difficulties. That is at the top rate of income tax. In the words of Labour Weekly—it is not my regular reading, but this is that publication's view—the 83 per cent. and the 98 per cent. rates are a figleaf for the Socialist conscience. That is the view of that publication. It is right. These things are fiscal absurdities. They do great damage abroad. Everyone thinks we are barmy to be running a 98 per cent. rate. It is confiscation less 2 per cent. Why bother to operate it? It adds nothing to the glamour of the Socialist State. It proves nothing about the virility of Socialist policy. It does nothing but create an impossible disincentive situation, and it provides the outside world with a constant beacon and reminder of our chaotic and incompetent tax system.

As to the investigatory powers mentioned by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe), we are not reassured by what the Chancellor had to say, or about the reminder that the local magistrate will be called upon to provide permission for the Inland Revenue men to come in. We are even less reassured when it turns out that the words that the Chancellor used in his speech today were, verbatim—I noted them—the words used by the General Secretary of the Inland Revenue Staff Federation in an article in the Sunday Times yesterday.

This is a bit much. With respect, we do not expect all that much from the Chancellor, but we are at least entitled to get a fresh speech from him, and not the words of the General Secretary of the Inland Revenue Staff Federation served up as the Chancellor's speech the following day. There is something very funny indeed about this arrangement. Perhaps the Chief Secretary will explain whose words we were hearing out of the Chancellor's mouth this afternoon. Could we put in a plea to the Chancellor to give us a fresh speech in future? That is the least that we are entitled to expect.

Still on the things which will hit the £4,000-£8,000-a-year men—the skilled workers on £80 a week and upwards, and junior management—there is a nasty bit in Clause 58 which hits at share incentive schemes. It is characteristic and in line with the attitude of the Labour Party that ownership is somehow not quite right—that working people should not be entrusted with the ownership of a house or of assets. Clause 58 is in line with that tradition.

One good thing came out not in the Chancellor's speech—but a little afterwards, when the Chief Secretary told us that capital transfer tax is to be lifted when all shares are transferred to an employee trust under Clause 78. We shall want to look at the small print, but in general that seems a step in the right direction. I do not know how that got past the Labour Party's Home Policy Group. The group does not like that sort of thing at all. The group is not keen on workers acquiring any kind of economic independence, because, as it has told us, the ownership which it believes in is the so-called public ownership. It does not like the diffusion of ownership. It likes ownership to fall into the hands of the public bureaucratic machine—the party bosses and organisers of the great State industries. It does not want ownership in the hands of the workers. It would go a long way to stop it, but it does not seem to have gone far enough this time.

So this is one tiny little clause that has got through, despite the deep antipathy of lion. Members opposite to working people owning anything. [Interruption.] I thought that would rouse the hon. Member for Walton. I am glad he feels that ownership is such a terrible thing and that he owns nothing. We know that the Chancellor owns nothing. We know that he would never dream of establishing a position as an owner of anything.

I saw, on television yesterday, the Chancellor in Nottingham making a speech to the somewhat bewildered and, I thought, a little hostile burghers. I noticed at the back of the picture some bad vibrations coming up, and I think the Chancellor must have noticed them too. He was telling us characteristically that it was going to be all right and that we shall be—to use his phrase—"home and dry" by the end of 1977. I think that is a phrase of which we shall hear more. Who is going to be home, and who is going to be dry? That is the question to which we shall be returning again and again when we look back to that speech in Nottingham yesterday.

The Chancellor keeps telling us—or, rather, it is a fact recognised in the editorials and public comment—that he cannot responsibly cut taxes, or not by anything comparable to what is needed to start solving the problems that I have mentioned. The reason, he says—or again he does not say it, but it is obvious —is that he will not cut expenditure this year. In the fiscal year 1976–77 it will rise. The Chancellor will not cut expenditure, he argues, because it will lose jobs. That is the argument to which he and his hon. Friends return again and again. I do not believe that is so. Of course, it will lose some jobs. My hon. Friends have pointed out that those public programmes which are cut will result in a loss of jobs but that they will also involve a substantial gain in jobs. My hon. Friend the Member for Basingstoke put this clearly. If hon. Members opposite had been listening they would have heard him. He said that in the independent business sector, where 6 million people work, providing that interest rates are not through the roof and providing the State is not attracting all the funds and resources, there is the opportunity of a very considerable expansion.

I believe that, given the chance of reasonable interest rates, we could see a major expansion of jobs in the independent business sector. But we certainly shall not do so if we have interest rates of 11 per cent. and 12 per cent. We shall not do so if we have the wealth tax which the hon. Member for Walton wants, and we shall not have very many new jobs even under the changes which the Chancellor now proposes. But there is no doubt that cutting public expenditure, far from losing jobs, as the Chancellor constantly argues, would in fact pave the way for an expansion and the creation of new job opportunities of a kind which would really add to the nation's productive wealth.

The members of the independent business sector—those 6 million people—have no say in the deal about which negotiations are now going on, and about which we are shortly to hear. As my right hon. and learned Friend reminded the House, this deal was presented to us as an advance in open government. Yet the Sunday newspapers are full of stories about the extreme secrecy in which the deal is being conducted. One newspaper, indeed, said that so secret were the talks that information officers in Government Departments were denying that they were taking place at all. That seems a curious "Alice in Wonderland" demonstration of open government.

In fact, it is not open government at all. It is open so far as debate and the world exchange markets are concerned, but what is being fixed up is being done on the old boy network of the classic kind. That is where the deal will be brewed up. Meanwhile, for the people I have mentioned—the millions of independent business people and the 15 million not in trade unions, as well as the rest of Britain—we shall have to go along as best we can with the Finance Bill as it stands. We shall have to go along with a tax regime of unparalleled incompetence and with tax and spending plans which are appallingly inconsistent. That is the background against which we must consider the Bill.

My favourite moment nowadays, when we are discussing economics, usually comes at about this time—he is a little late today—when the Lord President of the Council comes ambling in—the old Pied Piper himself—to remind us that Labour policies are working. That is his theme, and he keeps repeating it. [Interruption.] I hear it said that that is true. Very well. All I can say is that those who take that view must share with the Lord President the same blind spot when they look at their right hon. Friend the Chancellor of the Exchequer, because the truth is that they are looking at a Chancellor with an astonishing record. We are considering a state of affairs in which no Chancellor has ever before in British history raised taxes so high. No Chancellor has ever borrowed so much. No Chancellor has ever presided over such a colossal increase in prices.

That is Labour policies working, is it? No Chancellor has ever presided over such a high rise in unemployment, and no Chancellor has ever misled the British people with such devastating plausibility as the present Chanceller did yesterday, when he talked about "home and dry" in 1977.

That is the only compliment that I can scrape together for the Chancellor tonight—that he is an extremely plausible citizen. As it is my only compliment, it will not be enough to convince my right hon. and hon. Friends to do other than reject this melancholy document and vote for our amendment.

9.33 p.m.

The Chief Secretary to the Treasury (Mr. Joel Barnett)

The hon. Member for Guildford (Mr. Howell) certainly used the right word at the end, if only at that point. Even when he makes what he thinks are good jokes, he is always very melancholy about it, and I hope that he will forgive us for not laughing at his jokes since he does not laugh himself.

What I like about the hon. Gentleman is that he started off wanting to have his cake and eat it. He told us about various areas in which he wants to cut taxation, and he could not forbear from telling us also about the borrowing requirement. I shall come back to that presently. What the hon. Gentleman obviously did not do, however, was listen to his right hon. and learned Friend the Member for Surrey, East (Sir G. Howe), because he spent a good deal of time at the beginning of his speech talking about the pay policy and suggesting that it was not an open policy at all, whereas his right hon. and learned Friend welcomed the greater openness of the pay proposals. That was very different, I may say, from the instant reaction of the right hon. Lady the Leader of the Opposition, and perhaps the hon. Member for Guildford was trying to curry favour with her by agreeing that he did not like it either.

In a very interesting remark at one point, the right hon. and learned Member for Surrey, East told us that he would not be dogmatic about incomes policies. We know the reason for that. One has only to look at the right hon. and learned Gentleman's hon. Friends on the Front Bench and below the Gangway to find it. But he still went on to complain that consultation with the trade unions did not affect more than 50 per cent. of the workers. My hon. Friend the Member for Redcar (Mr. Tinn) intervened to say that the right hon. and learned Gentleman had consistently blamed the trade unions for all our problems and that he was now implying that the trade unions were not responsible. My hon. Friend the Member for Tottenham (Mr. Atkinson) also intervened to ask the right hon. and learned Gentleman what was the alternative if he disagreed with pay policies. There was total silence. That is typical of the two speeches from the Opposition Front Bench today. Not one constructive comment has been made.

The nub of the criticism from the Opposition has been the burden of taxation. That has also been referred to by a number of my hon. Friends, who have frequently said that the level of taxation is not too high and that it is not as high as in many other countries. While I agree with some of the things my hon. Friends say, and I accept that that is true statistically, I am bound to accept that we have a very high and steeply progressive rate of personal taxation. Personally, I would like to see it somewhat lower, but I do not apologise for the fact that we have a progressive rate of income tax, because since the war we have not experienced the same rates of growth and output as many other countries. The demands for public services are as persistent as demands for fairer taxes, and the fairest method of paying for those public services is by progressive income tax. The former Chancellor of the Exchequer, Lord Barber, tried a policy of higher public expenditure and lower taxes, and we are still paying for that policy.

If it is right that we should have a progressive tax system, it is also right to recognise that inflation has reduced the thresholds for higher rates of tax as well and that many middle managers have been hard hit. I hope that those who demand substantial tax reductions in that area, even where the cost would be comparatively small, will recognise that there are millions at the lower end of the income scale who also have been hard hit and that the cost of even a moderate relief for them would be high. Nevertheless, the effect of fiscal drag at what might be called the lower end of the higher income level is plain to see.

My right hon. Friend therefore thought it right to include some relief for higher incomes amongst his conditional reliefs for all taxpayers, and given a satisfactory pay settlement he proposes to raise by £500 the starting point for the higher rate of tax and for each of the next four thresholds. But there will be no change in the starting point for the rates from 65 per cent. to 83 per cent. In this way, the maximum benefit from the higher thresholds would be reached at a taxable income of £8,500. It would then be the same at higher levels of income.

Some Opposition Members feel that those proposals do not go nearly far enough. Some of my hon. Friends say that they go too far. To those who claim that the higher rate relief is unnecessary, I would say that the facts dispute that claim. The effects of inflation on those enjoying the higher thresholds cannot be denied, and when coupled with sharply-rising progressives rates of tax on incomes of over £4,500, which is one and a half times the earnings of the average worker, the effect is compounded.

Families who used to pay tax on income at the basic rate now find themselves, because of inflation, paying tax at the rate of 40 per cent. or 50 per cent. on incomes which are no larger in real terms. The same is true of the higher of the income scales, and some lightening of the income tax scale at these levels is now accepted by most people. It will not be paid for by the effect of inflation. That is not the intention. It is a compromise in an attempt to offset the fall in the real value of the take-home pay of middle managers, for example, and the need for continued restraint by every section of the community.

Mr. John MacGregor (Norfolk, South)

Will not the right hon. Gentleman come clean and say clearly that one of the major problems is that it is impossible to attract back here middle and senior managers who have experience abroad, that one of the chief reasons for that is that the higher income groups have not kept pace with inflation but have suffered an erosion in their living standards, and that what the Chancellor proposes goes nowhere near far enough to deal with the problem?

Mr. Barnett

The hon. Gentleman could not have been listening. That is precisely the point I am making. We recognise their problems. It is absurd for the Opposition to demand a reduction in taxation for that kind of taxpayer at a comparatively small cost when it is difficult, if not impossible, to make the substantial cuts required to help those at the lower end of the income scale. That absurd point is constantly being made by the Opposition. My hon. Friends the Members for Liverpool, Walton (Mr. Heifer) and Fife, Central (Mr. Hamilton) made the crucial point that what we want is equality of sacrifice, but that is the last thing we are being asked to do by the Opposition.

We have also heard the customary Liberal panacea—although it is really the panacea of the hon. Member for Blaby (Mr. Lawson). My hon. Friend the Member for Bolsover (Mr. Skinner) took the Liberal Party apart in its absence. The case for improving tax allowances to offset the effect of inflation is not denied, but action must be considered in the context of the wider economic situation and it is more sensible to have an annual review of rates and allowances which may be adjusted flexibly in the light of the situation rather than a policy of automatic indexation. Indexation, as the hon. Member for Blaby constantly fails to recognise, would build into the tax system far greater rigidity than anything at present. It presupposes that all tax allowances are or should be indexed by the same proportionate amount every year.

My hon. Friend the Member for Gravesend (Mr. Ovenden) made an eloquent plea for a recasting of the tax system to help widows. He may have overlooked the fact that my right hon. Friend has done a great deal for widows, particularly the widow with young children. The widow today gets an additional personal allowance which is equivalent to the tax allowance for a married man. In addition, this year the Chancellor has increased child tax allowances substantially more than was necessary in order precisely to help that kind of single-parent family and other families with children. What the hon. Member for Blaby seeks to do would build into the system the tax allowances as now exist.

Mr. Lawsonrose

Mr. Barnett

I have not time to give way. I have heard the hon. Gentleman frequently on this subject.

Mr. Lawsonrose

Mr. Barnett

Very well.

Mr. Lawson

I am sorry that the right hon. Gentleman has chosen to sink so low and beneath his usual form. He knows perfectly well that the effect of indexation is to give back to Parliament the discretion to alter widows' allowances, or any allowances that it wishes, instead of leaving such matters to arbitrary factors and giving the Government a vested interest in inflation.

Mr. Barnett

I have noted the hon. Gentleman's point.

I now turn to the Liberal amendment, which was not called. It seems a bit odd that it should seek to deal with the indexing of indirect tax rates as well. That is important because it is generally accepted that indexation cannot be applied to only one form of tax or only to direct taxes. It must be applied to indirect taxes as well.

I do not know whether the hon. Member for Cornwall, North (Mr. Pardoe) quite appreciated the terms of the Liberal amendment. Perhaps he did not draft it. Maybe it was drafted by his hon. Friend the Member for Rochdale (Mr. Smith) or by another of his hon. Friends The Liberal amendment does not agree with anything that the hon. Member for Cornwall, North said.

The hon. Gentleman gave us a strange but interesting story about Cornish smugglers. He told us how it was necessary to reduce the rate of customs duty to avoid a serious situation that arose in those days. But what he is seeking to do by means of his party's amendment he did not make altogether clear in his speech. In fact, the terms of the amendment would automatically increase the rates of indirect taxes. It would probably bring back Cornish smugglers.

Mr. Pardoe

The Chief Secretary has become woefully muddled. Many of the customs and excise duties are cash amounts, and we have had to increase them in the Bill. I am urging that they should be percentage amounts. That is what is meant by the relevant phrase in the Liberal amendment.

Mr. Barnett

I am obliged to the hon. Gentleman for that explanation. So he is not now wanting automatically to index the rates of indirect taxes.

Mr. Pardoe

That is what it would do.

Mr. Barnett

I shall tell the hon. Gentleman the consequences of what he is asking the House to do, since he did not tell the House himself. If we did what he suggests, we should have to face a serious consequence—namely, the effect of foreshadowing earlier increases in indirect taxation, which could be inferred from the movement of the RPI with which he would seek to tie it. That would encourage a forestalling and disruption of trade. That is precisely what it would do. There would be frequent changes in duty rates in line with inflation.

Mr. Pardoe

Total rubbish.

Mr. Barnett

It is no use the hon. Gentleman disagreeing. He has not thought it through. The effect of frequent changes in duty rates in line with inflation—[Interruption.] If the hon. Gentleman has finished, I shall continue. Frequent changes—[Interruption.]Perhaps the hon. Gentleman left school not so very long ago, but he must remember where he is. I am trying to explain to the hon. Gentleman what I gather most hon. Members will have understood already. The course that he is suggesting would have appalling consequences for investment and employment in industry, as well as on distribution. I ask the hon. Gentleman to have some words with his Liberal friends, who might understand the matter a little more.

The hon. Gentleman's indexation proposals, or any of his proposals, are made —[Interruption.] In some ways the hon. Gentleman is even more arrogant than the hon. Member for Blaby. It is a fine balance. I hope he will accept that there is no panacea in indexation.

My hon. Friend the Member for Fife, Central had a few words to say about fringe benefits in certain areas. I hope he will forgive me if I do not follow him entirely in that direction. I believe that the new system of taxing cars has been grossly misunderstood. There must be millions who pay the full cost of running a car who would very much like to run one privately on the scales for assessment as set out in the schedule. They are very modest scales. The whole idea of moving to a scale is recognised by accountants as a considerable simplification and will save a great deal of administrative trouble, not only for the Revenue but particularly for the accountancy profession.

I should like to say a few words on the capital transfer tax. I know that the hon. Member for B[...]stol, West (Mr. Cooke) is keeping a close eye on me because he raised a number of points on that tax. In regard to capital transfer tax, we made clear from the outset that it was no part of our intention to harm productive assets. The general weight of the tax is in some ways considerably less than in the case of estate duty, particularly in respect of small businesses. Our further consideration of the impact of the tax on businesses and farms, as part of the general review of the tax, has led us to conclude that further measures of relief directed to those assets are called for, and they are in the Bill as drafted.

The only reason why businesses could cope with the high rates of estate duty was that it was a highly avoidable tax, and it was avoided by many people. Indeed, it was unfair in its incidence, not least to the small business man whom the Opposition purport to represent. It is right that scope for avoidance should be kept to the minimum. I hope that Opposition Members go along with that view. The corollary is to provide special relief for businesses, including farms, in so far as the existing special relief on farmland is not available.

Let me deal with a number of other points which have been raised in the debate. The hon. Member for Bristol, West and others referred to our national heritage. My hon. Friend the Member for Walton told the House of his interesting tours in Venice, Rome, Florence and elsewhere. Obviously, he supports any move to avoid hurting our heritage too much.

We shall table an amendment in Committee to provide exemption from taxation on funds established for the maintenance of historic houses where those houses meet certain conditions of exemption. The majority of the Select Committee on a Wealth Tax recommended that such exemption should be given from capital transfer tax, provided that the fund was exclusively devoted to the maintenance of the building. I am happy to be able to tell the hon. Member for Bristol, West that we shall be taking that step in Committee.

Mr. Jasper More

Before the right hon. Gentleman leaves the subject of capital transfer tax, will he say what benefit, if any, will be derived by forestry interests from the measures introduced in the Budget?

Mr. Barnett

I am sure that the details can be discussed in Committee. I want to finish my remarks by 10 o'clock, and I shall be happy to deal with the subject of forestry on some other occasion.

I wish to say something about the information powers in the Finance Bill. These powers are contained in Clause 48 and Schedule 6. The criticisms made by the right hon. and learned Member for Surrey, East were grotesque. I was happy to note that he was not followed in that vein by many Opposition speakers. Obviously, they have listened to my right hon. Friend the Chancellor of the Exchequer and have realised how foolish were some of the criticisms made by the right hon. and learned Gentleman. His remarks totally distorted the powers we are proposing to take.

Let us be clear what we are talking about. We are talking about those who break the law, those who are dodging their fair share of tax.

Mr. Nott


Mr. Barnett

I must tell the hon. Member for St. Ives (Mr. Nott) that I am talking about a provision in the schedule that deals with the obtaining of a warrant from a justice of the peace giving the right to go into premises. There would have to be a criminal offence.

Mr. Nott


Mr. Barnett

Yes. The person concerned would have to be cheating the Revenue.

Sir Geoffrey Howerose

Mr. Barnett

Before the right hon. and learned Gentleman gets too excited, I should tell him that an inspector of taxes would have to swear on oath to a justice of the peace that there was suspicion of fraud. [HON. MEMBERS: "Ah."] I take it that the right hon. and learned Gentleman does not object to that.

Sir Geoffrey Howe

indicated assent.

Mr. Barnett

That makes rather a difference. He does not complain about that.

I accept entirely that the right hon. and learned Gentleman and the Opposition generally recognise that a man who cheats the Revenue cheats his neighbour—the average honest taxpayer. An inspector of taxes who has good grounds for believing that fraud has been perpetrated will swear on oath accordingly to a justice of the peace, and only then will the justice of the peace give him a search warrant to see whether there are papers which will be helpful in his inquiries. I am happy to see that the right hon. and learned Gentleman accepts that.

Sir Geoffrey Howe

The right hon. Gentleman challenged me. I made clear in my speech that one matter that caused us anxiety was that the power to grant a search warrant to enter the home of anybody at any time should be placed in the hands of any one of 40,000 magistrates. That was precisely the point to which we objected.

Mr. Barnett

I am very surprised. Justices of the peace have power to issue warrants on all kinds of occasions. Why should the right hon. and learned Gentleman be so concerned about those who are suspected of cheating the Revenue? I cannot understand it.

I recognise that, despite the need to stop evasion, we must be careful about not going too far with the powers we seek to take. We must balance the need to protect the rights of the honest taxpayer with the need to protect the rights of the individual citizen. It is strange that some Opposition Members who do not have too many scruples about those who break the social security laws for trivial sums should suddenly have scruples about those who are suspected of defrauding the Revenue of large sums of money. Despite that, I recognise that personal privacy should not be breached too readily. We have to be very careful about it.

In addition to the safeguards that we have written into the Bill, the right hon. and learned Member for Surrey, East suggested that we might consider a High Court judge for this purpose. The Chancellor and I are prepared to consider all kinds of safeguards to protect the individual's liberty, provided it is understood and recognised that it is the responsibility of the House to stop evasion if at all possible.

Mr. Graham Page

Will the right hon. Gentleman give way?

Mr. Barnett

The right hon. Member for Crosby (Mr. Page) asked about entry into solicitors' premises in the case of suspected fraud. The answer is "Yes."

I shall deal briefly, because that is all it deserves, with the Opposition's amendment. It is the most cynical and dishonest proposal that the House has seen for a long time. The implication is that substantial reductions in taxation can be made. That does the maximum possible harm by building up expectations that cannot be fulfilled and it would cost many thousands of millions of pounds that are not available. The amendment exposes the Opposition's irresponsibility. I ask my hon. Friends to vote against it and in favour of the Second Reading of the Bill.

Question put, That the amendment be made:—

The House divided: Ayes 274. Noes 288.

Division No. 116.] AYES 10 p.m.
Adley, Robert Bryan, Sir Paul Durant, Tony
Aitken, Jonathan Buchanan-Smith, Alick Dykes, Hugh
Alison, Michael Budgen, Nick Eden, Rt Hon Sir John
Amery, Rt Hon Julian Bulmer, Esmond Edwards, Nicholas (Pembroke)
Arnold, Tom Burden, F. A. Elliott, Sir William
Atkins, Rt Hon H. (Spelthorne) Butler, Adam (Bosworth) Emery, Peter
Awdry, Daniel Carlisle, Mark Ewing, Mrs Winifred (Moray)
Bain, Mrs Margaret Chalker, Mrs Lynda Eyre, Reginald
Baker, Kenneth Churchill, W. S. Fairbairn, Nicholas
Banks, Robert Clark, Alan (Plymouth, Sutton) Fairgrieve, Russell
Beith, A. J. Clark, William(Croydon S) Fell, Anthony
Bell, Ronald Clarke, Kenneth (Rushcliffe) Finsberg, Geoffrey
Bennett, Dr Reginald (Fareham) Clegg, Walter Fisher, Sir Nigel
Benyon, W. Cockcroft, John Fletcher, Alex (Edinburgh N)
Berry, Hon Anthony Cooke, Robert (Bristol W) Fletcher-Cooke, Charles
Biffen, John Cope, John Forman, Nigel
Biggs-Davison, John Cormack, Patrick Fowler, Norman (Sutton C'f'd)
Blaker, Peter Corrie, John Fox, Marcus
Body, Richard Costain, A. P. Fraser, Rt Hon H. (Stafford & St)
Boscawen, Hon Robert Crawford, Douglas Freud, Clement
Bottomley, Peter Crouch, David Fry, Peter
Bowden, A. (Brighton, Kemptown) Crowder, F. P. Galbraith, Hon T. G. D.
Boyson, Dr Rhodes (Brent) Davies, Rt Hon J. (Knutsford) Gardner, Edward (S Fylde)
Braine, Sir Bernard Dean, Paul (N Somerset) Gilmour, Rt Hon Ian (Chesham)
Brittan, Leon Dodsworth, Geoffrey Glyn, Dr Alan
Brocklebank-Fowler, C. Douglas-Hamilton, Lord James Godber, Rt Hon Joseph
Brotherton, Michael Drayson, Burnaby Goodhart, Philip
Brown, Sir Edward (Bath) du Cann, Rt Hon Edward Goodhew, Victor
Goodlad, Alastair Macfarlane, Nell Rossi, Hugh (Hornsey)
Gorst, John MacGregor, John Rost, Peter (SE Derbyshire)
Gow, Ian (Eastbourne) Macmillan, Rt Hon M. (Farnham) Royle, Sir Anthony
Gower, Sir Raymond (Barry) McNair-Wilson, M. (Newbury) Sainsbury, Tim
Grant, Anthony (Harrow C) McNair-Wilson, P. (New Forest) St. John-Stevas, Norman
Gray, Hamish Made], David Scott, Nicholas
Griffiths, Eldon Marshall, Michael (Arundel) Scott-Hopkins, James
Grimond, Rt Hon J. Marten, Neil Shaw, Giles (Pudsey)
Grist, Ian Mates, Michael Shaw, Michael (Scarborough)
Grylls, Michael Mather, Carol Shelton, William (Streatham)
Hall, Sir John Maude, Angus Shepherd, Colin
Hall-Davis, A. G. F. Maudling, Rt Hon Reginald Shersby, Michael
Hamilton, Michael (Salisbury) Mawby, Ray Silvester, Fred
Hampson, Dr Keith Maxwell-Hyslop, Robin Sims, Roger
Hannam, John Mayhew, Patrick Sinclair, Sir George
Harvie Anderson, Rt Hon Miss Meyer, Sir Anthony Skeet, T. H. H.
Hastings, Stephen Miller, Hal (Bromsgrove) Smith, Dudley (Warwick)
Havers, Sir Michael Miscampbell, Norman Speed, Keith
Hayhoe, Barney Mitchell, David (Basingstoke) Spence, John
Heath, Rt Hon Edward Moate, Roger Spicer, Jim (W Dorset)
Henderson, Douglas Monro, Hector Spicer, Michael (S Worcester)
Heseltine, Michael Montgomery, Fergus Sproat, Iain
Hicks, Robert Moore, John (Croydon C) Stainton, Keith
Higgins, Terence L. More, Jasper (Ludlow) Stanbrook, Ivor
Holland, Philip Morgan, Geraint Stanley, John
Hooson, Emlyn Morgan-Giles, Rear-Admiral Steen, Anthony (Wavertree)
Hordern, Peter Morris, Michael (Northampton S) Stewart, Donald (Western Isles)
Howe, Rt Hon Sir Geoffrey Morrison, Charles (Devizes) Stewart, Ian (Hitchin)
Howell, David (Guildford) Morrison, Hon Peter (Chester) Stokes, John
Howell, Ralph (North Norfolk) Mudd, David Stonehouse, Rt Hon John
Howells, Geraint (Cardigan) Neave, Airey Tapsell, Peter
Hunt, David (Wirral) Nelson, Anthony Taylor, R. (Croydon NW)
Hurd, Douglas Neubert, Michael Taylor, Teddy (Cathcart)
Hutchison, Michael Clark Newton, Tony Tebbit, Norman
Irving, Charles (Cheltenham) Nott, John Temple-Morris, Peter
James, David Onslow, Cranley Thatcher, Rt Hon Margaret
Jenkin, Rt Hn P. (Wanst'd & W'df'd) Oppenheim, Mrs Sally Thomas, Rt Hon P. (Hendon S)
Johnson Smith, G. (E Grinstead) Osborn, John Thompson, George
Johnston, Russell (Inverness) Page, Rt Hon R. Graham (Crosby) Thorpe, Rt Hon Jeremy (N Devon)
Jones, Arthur (Daventry) Pardee, John Townsend, Cyril D.
Jopling, Michael Pattie, Geoffrey Trotter, Neville
Joseph, Rt Hon Sir Keith Penhaligon, David Tugendhat, Christopher
Kaberry, Sir Donald Percival, Ian van Straubenzee, W. R.
Kellett-Bowman, Mrs Elaine Peyton, Rt Hon John Vaughan, Dr Gerard
Kershaw, Anthony Pink, R. Bonner Viggers, Peter
Kilfedder, James Price, David (Eastleigh) Wakeham, John
Kimball, Marcus Prior, Rt Hon James Walder, David (Clitheroe)
King, Evelyn (South Dorset) Pym, Rt Hon Francis Walker, Rt Hon P. (Worcester)
King, Tom (Bridgwater) Raison, Timothy Walker-Smith, Rt Hon Sir Derek
Knight, Mrs Ji[...] Rathbone, Tim Wall, Patrick
Knox, David Rawlinson, Rt Hon Sir Peter Walters, Dennis
Lamont, Norman Rees, Peter (Dover & Deal) Weatherill, Bernard
Lane, David Rees-Davies, W. R. Wells, John
Langford-Holt, Sir John Reid, George Welsh, Andrew
Latham, Michael (Melton) Renton, Rt Hon Sir D. (Hunts) Whitelaw, Rt Hon William
Lawrence, Ivan Renton, Tim (Mid-Sussex) Wiggin, Jerry
Lawson, Nigel Rhys Williams, Sir Brandon Wilson, Gordon (Dundee E)
Lester, Jim (Beeston) Ridley, Hon Nicholas Winterton, Nicholas
Lewis, Kenneth (Rutland) Ridsdale, Julian Wood, Rt Hon Richard
Lloyd, Ian Rifkind, Malcolm Young, Sir G. (Ealing, Acton)
Loveridge, John Rippon, Rt Hon Geoffrey Younger, Hon George
Luce, Richard Roberts, Michael (Cardiff NW)
McAdden, Sir Stephen Roberts, Wyn (Conway) TELLERS FOR THE AYES:
MacCormick, Iain Ross, Stephen (Isle of Wight) Mr. Spencer Le Marchant and
McCrindle, Robert Mr. Cecil Parkinson
Abse, Leo Blenkinsop, Arthur Carter, Ray
Allaun, Frank Boardman, H. Carter-Jones, Lewis
Anderson, Donald Booth, Rt Hon Albert Cartwright, John
Archer, Peter Bradley, Tom Castle, Rt Hon Barbara
Armstrong, Ernest Bray, Dr Jeremy Clemitson, Ivor
Ashley, Jack Broughton, Sir Alfred Cocks, Michael (Bristol S)
Ashton, Joe Brown, Hugh D. (Provan) Cohen, Stanley
Atkins, Ronald (Preston N) Brown, Robert C. (Newcastle W) Coleman, Donald
Atkinson, Norman Buchan, Norman Colquhoun, Ms Maureen
Barnett, Guy (Greenwich) Buchanan, Richard Conlan, Bernard
Barnett, Rt Hon Joel (Heywood) Butler, Mrs Joyce(Wood Green) Cook, Robin F. (Edin C)
Bates, Alf Callaghan, Rt Hon J. (Cardiff SE) Corbett, Robin
Bean, R. E. Callaghan, Jim (Middleton & P) Cox, Thomas (Tooting)
Benn, Rt Hn Anthony Wedgwood Campbell, Ian Crawshaw, Richard
Bennett, Andrew (Stockport N) Canavan, Dennis Cryer, Bob
Bidwell, Sydney Cant, R. B. Cunningham, G. (Islington S)
Bishop, E. S. Carmichael, Neil Cunningham, Dr J. (Whiteh)
Dalyell, Tam Johnson, James (Hull West) Radice, Giles
Davidson, Arthur Johnson, Walter (Derby S) Rees, Rt Hon Merlyn (Leeds S)
Davies, Denzil (Llanelll) Jones, Alec (Rhondda) Richardson, Miss Jo
Davies, Ifor (Gower) Jones, Barry (East Flint) Roberts, Albert (Normanton)
Davis, Clinton (Hackney, C) Jones, Dan (Burnley) Roberts, Gwilym (Cannock)
Deakins, Eric Judd, Frank Robertson, John (Paisley)
Dean, Joseph (Leeds W) Kaufman, Gerald Robinson, Geoffrey
de Freitas, Rt Hon Sir Geoffrey Kelley, Richard Roderick, Caerwyn
Delargy, Hugh Kerr, Russell Rodgers, George (Chorley)
Dell, Rt Hon Edmund Kilroy-Silk, Robert Rodgers, William (Stockton)
Dempsey, James Kinnock Neil Rooker, J. W.
Doig, Peter Lambie, David Rose, Paul B.
Dormand, J. D. Lamborn, Harry Ross, Rt Hon W. (Kilmarnock)
Douglas-Mann, Bruce Lamond, James Rowlands, Ted
Duffy, A. E. P. Latham, Arthur (Paddington) Sandelson, Neville
Dunn, James A. Leadbitter, Ted Sedgemore, Brian
Dunnett, Jack Lee, John Selby, Harry
Dunwoody, Mrs Gwyneth Lestor, Miss Joan (Eton & Slough) Shaw, Arnold (Ilford South
Eadie, Alex Lever, Rt Hon Harold Sheldon, Robert (Ashton-u-Lyne)
Edge, Geoff Lipton, Marcus Shore, Rt Hon Peter
Edwards, Robert (Wolv SE) Litterick, Tom Short, Rt Hon E.(Newcastle C)
Ellis, John (Brigg & Scun) Lomas, Kenneth Short, Mrs Renée (Wolv NE)
Ellis, Tom (Wrexham) Loyden, Eddie Silkin, Rt Hon John (Deptford)
English, Michael Luard, Evan Silkin, Rt Hon S. C. (Dulwich)
Ennals, David Lyon, Alexander (York) Silverman, Julius
Evans, Fred (Caerphilly) Lyons, Edward (Bradford W) Skinner, Dennis
Evans, Ioan (Aberdare) McElhone, Frank Small, William
Evans, John (Newton) MacFarquhar, Roderick Smith, John (N Lanarkshire)
Ewing, Harry (Stirling) McGuire, Michael (Ince) Snape, Peter
Fernyhough, Rt Hon E. Mackenzie, Gregor Spearing, Nigel
Fitch, Alan (Wigan) Mackintosh, John P. Spriggs, Leslie
Fitt, Gerard (Belfast W) Maclennan, Robert Stallard, A. W.
Flannery, Martin McMillan, Tom (Glasgow C) Stewart, Rt Hon M. (Fulham)
Fletcher, Raymond (Ilkeston) Madden, Max Stoddart, David
Fletcher, Ted (Darlington) Magee, Bryan Stott, Roger
Foot, Rt Hon Michael Maguire, Frank (Fermanagh) Strang, Gavin
Ford, Ben Mahon, Simon Strauss, Rt Hon G. R.
Forrester, John Mallalieu, J. P. W. Summerskill, Hon Dr Shirley
Fowler, Gerald (The Wrekin) Marks, Kenneth Swain, Thomas
Fraser, John (Lambeth, N'w'd) Marquand, David Thomas, Dafydd (Merioneth)
Freeson, Reginald Marshall, Dr Edmund (Goole) Thomas, Jeffrey (Abertillery)
Garrett, John (Norwich S) Marshall, Jim (Leicester S) Thomas, Mike (Newcastle E)
Garrett, W. E. (Wallsend) Mason, Rt Hon Roy Thomas, Ron (Bristol NW)
George, Bruce Maynard, Miss Joan Thorne, Stan (Preston South)
Gilbert, Dr John Meacher, Michael Tierney, Sydney
Ginsburg, David Mellish, Rt Hon Robert Tinn, James
Golding, John Mikardo, Ian Tomlinson, John
Gould Bryan Millan, Bruce Tomney, Frank
Gourley, Harry Miller, Dr M. S. (E Kilbride) Torney, Tom
Graham, Ted Miller, Mrs Millie (Ilford N) Tuck, Raphael
Grant, George (Morpeth) Molloy, William Varley, Rt Hon Eric G.
Grant, John (Islington C) Moonman, Eric Wainwright, Edwin (Dearne V)
Grocott, Bruce Morris, Alfred (Wythenshawe) Walden, Brian (B'ham, L'dyw'd)
Hamilton, W. W. (Central Fife) Morris, Charles R. (Openshaw) Walker, Harold (Doncaster)
Harrison, Walter (Wakefield) Morris, Rt Hon J. (Aberavon) Walker, Terry (Kingswood)
Hart, Rt Hon Judith Moyle, Roland Ward, Michael
Hattersley, Rt Hon Roy Mulley, Rt Hon Frederick Watkins, David
Hatton, Frank Murray, Rt Hon Ronald King Weetch, Ken
Hayman, Mrs Helene Newens, Stanley Weitzman, David
Healey, Rt Hon Denis Noble, Mike Wellbeloved, James
Heffer, Eric S. Oakes, Gordon While, Frank R. (Bury)
Hooley, Frank Ogden, Eric White, James (Pollok)
Horam, John O'Halloran, Michael Whitlock, William
Howell, Rt Hon Denis Orbach, Maurice Willey, Rt Hon Frederick
Hoyle, Doug (Nelson) Orme, Rt Hon Stanley Williams, Alan (Swansea W)
Huckfield, Les Ovenden, John Williams, Alan (Swansea W)
Hughes, Rt Hon C. (Anglesey) Owen, Dr David Williams, Rt Hon Shirley (Hertford)
Hughes, Mark (Durham) Padley, Walter Williams, Sir Thomas
Hughes, Robert (Aberdeen N) Palmer, Arthur Wilson, Alexander (Hamilton)
Hughes, Roy (Newport) Park, George Wilson, Rt Hon H. (Huyton)
Hunter, Adam Parker, John Wilson, William (Coventry SE)
Irvine, Rt Hon Sir A. (Edge Hill) Parry, Robert Wise, Mrs Audrey
Irving, Rt Hon S. (Dartford) Pavitt, Laurie Woodall, Alec
Jackson, Colin (Brighouse) Peart, Rt Hon Fred Woof, Robert
Jackson, Miss Margaret (Lincoln) Pendry, Tom Wrigglesworth, Ian
Janner, Greville Perry, Ernest Young, David (Bolton E)
Jay, Rt Hon Douglas Prentice, Rt Hon Reg
Jeger, Mrs Lena Prescott, John TELLERS FOR THE NOES:
Jenkins, Hugh (Putney) Price, C. (Lewisham W) Mr. Joseph Harper and
Jenkins, Rt Hon Roy (Stechford) Price, William (Rugby) Mr. James Hamilton.
John, Brynmor
Question accordingly negatived.

Main Question put forthwith, pursuant to Standing Order No. 39 (Amendment on Second or Third reading), and agreed to.

Bill accordingly read a Second time.

Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).