Commons Sitting of 11 May 1976

Preamble
The House met at half-past Two o'clock
PRAYERS
[MR. SPEAKER in the Chair]
ORAL ANSWERS TO QUESTIONS
  DEFENCE

    Northern Ireland (Security Forces)
    Mr. Michael McNair-Wilsonasked the Secretary of State for Defence, if he will make a statement about the operations of the security forces in Northern Ireland.
    The Secretary of State for Defence (Mr. Roy Mason): Army operations continue throughout Northern Ireland in support of the police in the task of combating violence and terrorism. The considerable success of the Security forces' operations is reflected in the high number of persons—over 440 already this year—who have been arrested and charged with serious crimes.
    Mr. McNair-Wilson: While wishing to congratulate the security forces on the success of their operations, may I ask the Secretary of State to say something more about the deployment of troops in the Province? Will he give an assurance that the security forces will not be run down to a point at which the police find themselves not only performing their normal duties but being forced into a military rôle?
    Mr. Mason: I can give the hon. Gentleman a categorical assurance on the last point he raised. On the first point, there are 14,500 Regular troops serving in Northern Ireland at the moment, and of these, as the hon. Gentleman may well be aware, the Spearhead Battalion was withdrawn a week or so ago. It left a gap in South Armagh, and redeployment has taken place within Northern Ireland in order that we can retain sufficient
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    security forces in the South to combat the violence there.
    Mr. Powell: Is the right hon. Gentleman aware that hon. Members on the United Ulster Unionist Bench welcome the trend towards the concentration of the forces in Northern Ireland in the areas which are more directly threatened and that we would like to see this carried further so that it encourages a larger rôle for the UDR and increased activity in the police?
    Mr. Mason: I am obliged to the right hon. Gentleman. I read with great interest the report of his speech in the Army debate. We are not at variance on the points he made. It is absolutely essential that we should step up the rôle of the RUC and also try to recruit more to the UDR. My right hon. Friend the Secretary of State for Northern Ireland is giving consideration to the point that the right hon. Gentleman made about more Regulars in the UDR.
    Mr. Powell: Thank you.
    Mr. Biggs-Davison: While joining in my hon. Friend's tribute to the security forces, may I ask the Secretary of State whether he thinks that after so many years of troubles it might be time for a single director of operations to be appointed to control the security work not only of the Regular Army and the UDR but of the RUC as well?
    Mr. Mason: I think the present GOC Northern Ireland—General House—has sufficient forces to be able to carry out precisely the rôle to which the hon. Gentleman referred.
    Mr. Townsend: Does the Secretary of State feel that sufficient use is being made of Royal Military Police personnel in the transition from military patrols to police patrols?
    Mr. Mason: Yes. As a matter of fact, during the admittedly slow and gradual transition to increasing the primacy of the police, the Royal Military Police are playing a part in the operation.

    NATO Defence Ministers
    Mr. Peter Morrisonasked the Secretary of State for Defence what plans he has to meet his NATO counterparts.
    Mr. Mason: I have nothing to add to the reply I gave the hon. Member for Cambridge (Mr. Lane) on 6th April.
    Mr. Morrison: Has the right hon. Gentleman had any discussions with his NATO colleagues about future strategy in the light of the possibility of a Communist Government in Italy?
    Mr. Mason: First of all, the Foreign Secretaries of the NATO nations will be considering that. I think we should be cautious about our approach. No positive view is emanating to say that the Communists will take over Italy. The election still has to be held, and it would be premature to make any public comments about that at this stage.
    Mr. MacFarquhar: Has my right hon. Friend yet informed his NATO counterparts of the British decision to produce tritium in the United Kingdom, which means that for the first time this country will have a totally independent nuclear deterrent and, if so, why the Government have taken this decision?
    Mr. Mason: This has nothing to do with my NATO counterparts. This was a purely British decision, in order that we could produce our own tritium and be independent of the United States. Marginally, when it is completed, the operation will be cheaper for us, but we shall still not be independent of the United States in terms of the Polaris programme.
    Mr. Onslow: Will the Secretary of State tell the House whether it was because of representations from our NATO allies that his noble Friend felt obliged to remind the other place that any weakening by us in defence has much more effect on the Alliance than we may imagine?
    Mr. Mason: I have explained precisely that point before—that although, in military strategy and the deployment of weapons and troops, we play a part that is as good as that of any of our NATO allies, our Western European friends and our American allies believe that our psychological presence and our strength are just as important as the military strength that we have within the Alliance.

    Royal Ordnance Factories
    Mr. George Rodgersasked the Secretary of State for Defence if plans are in hand to extend civilian production at Royal ordnance factories.
    The Minister of State for Defence (Mr. William Rodgers): The Royal ordnance factories at present have a growing volume of work. There is no surplus capacity. However, I shall be glad to consider any specific proposals my hon. Friend has in mind.
    Mr. George Rodgers: Does the Minister agree that there is considerable anxiety among workers at Royal ordnance factories at the Government's proposals to cut the tail rather than the teeth in this area of public spending? Would it not be ridiculous to waste the skills and abilities of such workers when they could be engaged on useful civilian production?
    Mr. William Rodgers: I certainly agree with the second part of the question. I am sorry if there is any anxiety, because the Royal ordnance factories employ more men and women today than they did two years ago. That applies also to the factory in my hon. Friend's constituency.

    Expenditure
    Mr. Banksasked the Secretary of State for Defence whether he will give a guarantee that there will be no further cuts in defence expenditure.
    Mr. Mason: As I said in the debate on 31st March, we must judge the resources that we put into our defence in relation to the threat, and against the strength of the economy. While either of these criteria may change, I believe that for the years immediately ahead we have the balance about right.
    Mr. Banks: Does the right hon. Gentleman not agree that our defences have now been cut to the core and that any further defence cuts would have a most serious effect on our allies and on those serving in the forces.
    Mr. Mason: I do not accept that our defences have been cut to the core. Neither would I personally allow them to be cut to an extent that would endanger our security, or would mean that

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    they were approaching bedrock—[Interruption]The reference that was made was "approaching bedrock". I do not think that they have approached bedrock. Neither do I think that my colleagues would ask me to allow them to do so.
    Mr. Grocott: There may be different views in different parts of the House about the level of defence expenditure, but does my right hon. Friend agree that we should all deplore waste? Does he not further agree that the fact that about 10 per cent. of Ministry of Defence houses are empty and that many have been empty for many years is a waste that should be looked at? Does he agree that his Department should consider that matter more closely?
    Mr. Mason: I am obliged to my hon. Friend. No doubt he has received replies to questions posed to my Minister of State on this matter. He will know that, through the defence review and the Public Expenditure Survey cuts, we are now releasing more married accommodation to local authorities and the Property Services Agency than ever before. I expect that, over the next few years, 7,000 houses will be released.
    Mr. Goodhart: Apart from the next defence cuts, when will the Secretary of State give us adequate information about the last defence cuts? Why will he not give the House information about the 40 items of Army equipment that have been either cancelled or deferred? Is he trying to fool the Russians, or this House?
    Mr. Mason: I am surprised that the hon. Gentleman takes that line. I should have thought that during the past two years, in defence and Service debates and the publication of material, we have given far more information on defence than have any previous administration.
    Mr. Edwin Wainwright: Will my right hon. Friend always bear in mind that the building up of fighting power and armaments will always create danger between nations? Since the might of Russia seems to have been increasing tremendously over the past few years, what consultation has he had with his counterparts in the USSR?
    Mr. Mason: I have had no consultation with my counterparts in the USSR, but if my hon. Friend peruses the last
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    defence White Paper, he will note that we have recognised that, even in the past 12 months the threat has increased—particularly on the central front.
    Mr. Ian Gilmour: The right hon. Gentleman just now misquoted the Chief of the Defence Staff, who said that "absolute bedrock" had been reached and did not use the phrase "approaching bedrock". But even if the right hon. Gentleman had got his quotation right, surely there can be no question that the Russian threat is not diminishing, but is growing year by year. Therefore, why can he not give the guarantee sought in the Question?
    Mr. Mason: Because I do not think that I can prophesy to what extent the economic circumstances of this nation may change in the foreseeable future. It would be absolute folly for a nation to support massive defence expenditure while it had an economically ill condition and therefore proved an unreliable partner in NATO, anyway.
    Mr. Flannery: Does my right hon. Friend accept that the Conservatives, who seem so deeply perturbed about cuts, actually want massive increases in defence expenditure, as they have made clear over and over again? Does he further accept that many of us on the Government Benches believe that we are adequately defended and do not agree that there should be massive increases?
    Mr. Mason: Yes. I am obliged to my hon. Friend. Of course the right hon. Member for Chesham and Amersham (Mr. Gilmour) and the Leader of the Opposition have never yet explained how much they want to put back on to defence expenditure, where that money would come from, and what other services would suffer as a result.
    Sir John Rodgers: Is not the Secretary of State concerned that the United States of America so assesses the situation that it has increased defence expenditure and that France has just announced a 20 per cent. increase in defence expenditure? Does that not concern the Government?
    Mr. Mason: Of course, I watch the budgets of our NATO allies with great interest. The Americans have put forward an increased defence budget, which has not yet been accepted by Congress.

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    I have also noted the recent speech by one of the French military leaders, noticing that the French conventional forces have been rather starved of expenditure while they have been building up their nuclear missilery. They are trying to rectify that imbalance.

    Ammunition
    Miss Fookesasked the Secretary of State for Defence if he is satisfied that the quantities of ammunition made available for practice are sufficient for the purpose.
    The Under-Secretary of State for Defence for the Army (Mr. Robert C. Brown): Yes. The training scales for ammunition are continually being reviewed and appropriate provision made to meet them. Shortages in supply of an individual nature occur from time to time, but the position has improved over the last few years, and should continue to do so.
    Miss Fookes: Does the Minister accept that that is a somewhat complacent reply and that there is real anxiety among the professionals wherever one visits any Army establishments? Will he please give us a better answer?
    Mr. Brown: I do not think that I am being complacent at all. In fact, I am surprised that the hon. Lady made that assertion. There has been an all-round improvement in the last year.
    Mr. Boscawen: Does the Minister agree that there is concern about the massive increases in the cost of ammunition used for practice in the Services? Will he see whether he can offset some of the cost by putting it on some of the overseas arms sales, so as not to reduce the efficiency of our forces by not allowing them to use sufficient practice ammunition?
    Mr. Brown: That is another question, but I should have thought that it would not have been welcome to the House and the country if we were to load the cost on overseas arms sales to a point at which we lost out in this valuable export.

    Royal Navy (Manpower)
    Mr. Jesselasked the Secretary of State for Defence how many officers and men are now serving in the Royal Navy.
    The Under-Secretary of State for Defence for the Royal Navy (Mr. A. E. P. Duffy): On 1st April 1976, 9,311 officers and 55,130 ratings were serving in the Royal Navy.
    Mr. Jessel: May I congratulate the Minister on his appointment and wish him well in it? Since the Russians now have over 300 submaries, is he satisfied with the size of the British naval contribution to NATO?
    Mr. Duffy: I am grateful to the hon. Member. I remind him that the United Kingdom is a member of an alliance—NATO. I am satisfied that that Alliance is capable of deterring aggression by the Warsaw Pact. I also remind the House that within that Alliance the Royal Navy makes a vital contribution in the Eastern Atlantic and the Channel areas and that its contribution is left virtually undiminished by the defence review and the recent PESC exercise.
    Mr. Robin F. Cook: I add my congratulations to my hon. Friend and look forward to many interesting exchanges at Question Time. Has he seen the report presented by the Pentagon to the Senate last week, which showed that the NATO countries had manufactured twice as many large combat ships as the Warsaw Pact countries over the last 15 years? Does he accept those figures?
    Mr. Duffy: I am familiar with the view that my hon. Friend takes of that report and I hope that he will accept my assurance that I had planned to raise it with him in tomorrow's debate and to explain how Mr. Rumsfeldt, for example, takes a totally different view from that of my hon.Friend.
    Mr. Luce: How can the hon. Gentleman justify the reduction in the size of the British Navy at a time when the Soviet Navy is expanding dramatically?
    Mr. Duffy: I do not think that the hon. Gentleman was following me. I assured the House that the recent exercise and the previous defence review both left the Navy's vital contribution within NATO virtually undiminished.

    NATO (Nuclear Capability)
    Mr. Formanasked the Secretary of State for Defence whether the British

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    component of the NATO nuclear capability is affected by the recent changes in United States targeting policy.
    Mr. Mason: United States targeting plans are consistent with NATO's policy of flexibility in response. The British contribution to NATO's nuclear capability is targeted in accordance with NATO policy, and these plans are kept constantly under review.
    Mr. Forman: In spite of that answer, does the Secretary of State accept that the credibility of the British component is dependent upon the counter-city and not the counter-force strategy? Will he reconsider the dubious claim in his White Paper that this could be used in any future conflict in a controlled and effective way?
    Mr. Mason: The change in targeting policy by the United States has given it a further option of limited response and therefore, instead of the industrial and city targets being the first priority, it can if it wishes now target on the nuclear missile silos. Therefore, it has a new dimension. We are not involved in that targeting.
    Mr. Flannery: Does my right hon. Friend agree that the nuclear capability of the United States and the Soviet Union is enough to blow the whole world sky-high over and over again? Is he aware that many of us believe that the capability that we have is a drop in the ocean. and is totally unnecessary in such circumstances?
    Mr. Mason: It may be a drop in the ocean relatively speaking, compared with the massive overkill nuclear capacity and capability of the United States and the USSR, but if NATO unravelled and Britain was forced back on its own nuclear strategic deterrent we would not be subject to nuclear blackmail, because we would still have a second strike nuclear capability.

    South Africa (Arms Supplies)
    Mr. Molloyasked the Secretary of State for Defence if he will make a statement about the latest Government policy with regard to the selling of arms to South Africa.
    Mr. Mason: The Government's policy on arms sales to South Africa was
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    announced by the then Secretary of State for Foreign and Commonwealth Affairs on 4th December 1974. There has been no change in that policy.
    Mr. Molloy: Is my right hon. Friend aware that on the Government side of the House we are not so much concerned with known changes in the policy as with the apparent breaches of that policy which are frequently reported in the British Press? Does he not agree that there should be a thorough investigation because if reports are true it could damage British-African relations and constitute a threat to our global defence strategy?
    Mr. Mason: I am not aware of any breach in the policy on the sale of arms to South Africa. I am only aware of the case in which a firm happened to wrongly label goods going to South Africa, but once that was found out the matter was subject to legal examination. Apart from that case, there have been no breaches in the policy.
    Mr. Evelyn King: Does the Secretary of State accept that further advances of anti-Western Powers from Central Africa to the South would be contrary to British interests? Does he accept what flows from that, and will he make those consequences known to the world?
    Mr. Mason: The hon. Gentleman is referring to a wider question, which should be addressed to my right hon. Friend the Secretary of State for Foreign and Commonwealth Affairs.
    Mr. Lipton: Is there not a firm in Jersey that is sending nuclear equipment of some kind to South Africa, with or without the British Government's knowledge?
    Mr. Mason: Aviation (Jersey) Ltd. is the firm to which I was referring.

    Military Equipment (Exports)
    Mr. Sandelsonasked the Secretary of State for Defence what is the latest estimate of defence sales arising from exports in the calendar year 1976; what types of defence equipment are being sold; which areas are likely to benefit; and what is the estimate of the employment involved
    Mr. Mason: It is expected that a wide range of naval, Army and aerospace equipment will be exported by United Kingdom industry and by the Royal ordnance factories during 1976–77 and that this will be worth approximately £700 million. It is estimated that this amount directly creates 70,000–80,000 jobs in the United Kingdom, although many more jobs in supporting industry are dependent on them.
    Mr. Sandelson: I welcome that information, but will the Secretary of State explain the Government's policy on the acceptance and implementation of foreign orders for military equipment designed and capable of use only for defensive purposes?
    Mr. Mason: When examining individual export orders there are always some hair-line cases, and my hon. Friend has one or two examples in his constituency that may have suffered because of it. We have to consider all relevant political, military, security and finance implications when considering sales of equipment to any country.
    Mr. Geoffrey Finsberg: Does the Secretary of State agree that overseas defence sales are often hindered because firm orders have not been placed for the same merchandise for our own defence purposes? Will he take that into account and make some changes, so that the pump-priming operation has this export spin-off?
    Mr. Mason: I recognise that, but the hon. Gentleman must also recognise that the defence equipment manufacturers would always like to see the Army, Navy and Air Force buy their equipment first, because that gives them added impetus when they try to sell abroad. But I hope that they will not rely too much on that. They should be able to sell good equipment to foreign Services.
    Mr. Palmer: Does my right hon. Friend agree that if the multi-rôle combat aircraft project were cancelled, as has been suggested in some quarters, the effect on employment in the aero-defence industries both at BAC and Rolls-Royce would be disasterous?
    Mr. Mason: If the MRCA contract were cancelled and no further British military aircraft were developed, 24,000
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    jobs would go immediately in the airframe industry, and with consequent reductions in Rolls-Royce, leaving it to private enterprise, there would be hardly an aircraft industry left.
    Mr. Ian Gilmour: Has the Secretary of State seen recent reports which suggest that this country has lost, and France has gained, important arms sales orders to Egypt and other places because of our failure to offer equivalent credit terms? Can the right hon. Gentleman deny those reports?
    Mr. Mason: I can neither confirm nor deny such reports; it depends on the equipment to which the right hon. Gentleman is referring. We have established a working relationship with Egypt. Egypt is keen to take British equipment, and a number of our firms have orders from the Egyptians. There is a problem involving credit, but it would be folly to start a credit race on arms sales.

    Territorial Army (Column 88)
    Mr. Whiteheadasked the Secretary of State for Defence if he will order an investigation in the alleged involvement of Territorial Army units with uniformed neo-Fascists of the so-called "Column 88" during exercises in Epping Forest.
    Mr. William Rodgers: I have no evidence at all—and have been unable to find any—about events of the kind that my hon. Friend describes. However, on an incident involving the Army Cadet Corps and Column 88 in the West Country, I refer my hon. Friend to my reply to my hon. Friend the Member for Bolsover (Mr. Skinner) on 29th April.
    Mr. Whitehead: Is the Minister aware that that is not a wholly satisfactory answer? Will he give an assurance that, to the best of his knowledge, no present or former members of the British National Socialist movement, Spearhead, the League of St. George, or Column 88 hold commissions or other ranks in the Territorial Army or Army Cadet Forces? If not, is he prepared to order an investigation into a dossier that I shall be happy to send to him?
    Mr. Rodgers: I can answer "Yes" to the assurance for which my hon. Friend asked. I shall be interested to see any

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    dossier that he may have. If there are things to be investigated, that will be done.
    Mr. Biggs-Davison: Is the Minister saying that no such exercises have taken place in Epping Forest? There is considerable concern and resentment in my constituency, and beyond, at the information, news or rumours that the lovely forest has been misused for parades of political paranoia.
    Mr. Rodgers: I am saying that there is no evidence available to us that there have been any of these peculiar goings-on in Epping Forest. What I know of Column 88 is that it is a small drinking club of neo-Nazi nut cases. It is very unfortunate that lurid Press comment has, amongst other things, seemed to be damaging to the Territorial Army. This is totally without justification.

    Portsmouth Dockyard
    Mr. Brothertonasked the Secretary of State for Defence if he will pay an official visit to Portsmouth Dockyard.
    Mr. Duffy: My right hon. Friend has no plans at present to visit Portsmouth Dockyard.
    Mr. Brotherton: Is the Minister aware that alongside in Portsmouth lies what is left of HMS "Bulwark", our last Commando ship? In view of the Government's commitments to amphibious forces, how do the Government propose to transport the Royal Marines and their helicopters in future?
    Mr. Duffy: Although HMS "Bulwark" has been taken off the active list since 31st March this year, her material condition is being maintained until decisions can be taken about the Royal Navy's ASW capability. The amphibious forces have been reduced, but only so that we can concentrate on the central areas of NATO. This decision arose from the defence review. But there remain a brigade headquarters, 3 Commando Group, associated Wessex helicopters and Army support and—to come to the hon. Gentleman's last question—two assault ships. Moreover, HMS "Hermes" will also retain a secondary rôle as a Commando ship.
    Mr. Viggers: Is the Minister aware that so much of our commitment is now chan-
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    nelled through NATO, and so many cuts have been made elsewhere, that we now lack the flexibility that the Royal Marines—properly mounted—and small surface ships could provide?
    Mr. Duffy: I hope that that is not the case. I am taking the earliest opportunity to visit the Royal Marines on the ground and watch them in exercises later this year. I hope that I shall be able
    to satisfy myself on that question.
    Mr. Roper: If my hon. Friend has an opportunity to visit Portsmouth Dockyard, will he confirm the recommendations of the Expenditure Committee on the possibility of creating a trading fund for the Royal dockyards?
    Mr. Duffy: I assure my hon. Friend that I am very interested in that recommendation. I was in Devonport Dockyard only last Wednesday, attending my first Dockyards Policy Board, and I took the first opportunity of making my interest manifest. I intend to pursue it.
    Rear-Admiral morgan-Giles: Whilst adding to the congratulations already given to the hon. Gentleman on becoming First Lord of the Admiralty, may I ask him to realise that all through history the ships of the Royal Navy have gone out from Portsmouth Dockyard for one reason only—to defend our trade routes? Will he make sure during his term of office that that receives more emphasis than it has in recent years?
    Mr. Duffy: I am grateful to the hon. and gallant Gentleman. I share his awareness of, and concern about, this prime rôle of the Royal Navy, and I intend to dwell upon it in my contribution to our debate tomorrow.

    Polaris
    Mr. Cryerasked the Secretary of State for Defence if he will make a statement on the miniaturisation of Polaris missiles.
    Mr. Mason: No, Sir.
    Mr. Cryer: I am sorry that my right hon. Friend has not been more forthcoming. Does he accept that there is a great deal of concern about the miniaturisation of Polaris, as a possible forerunner of a new independent missile? Will he assure the House that that is not

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    the case, and that the contract with British Nuclear Fuels for tritium, for example, is not part of a go-it-alone nuclear missile programme that we do not want and cannot afford?
    Mr. Mason: I explained to the House earlier that the independent production of tritium has nothing to do with developing a solely United Kingdom nuclear missile programme. I have told the House many times that the research and development that is going on to maintain the effectiveness of our Polaris missiles has nothing to do with MIRV-ing. We are not proceeding with Poseidon, and we are not developing another generation of strategic nuclear weaponry.

    Central Vehicle Depots
    Mr. Ridleyasked the Secretary of State for Defence what is his latest estimate of the total capital cost of closing Ashchurch and Luddenhall CVDs, and of rebuilding Marchington/Hilton CVD, including redundancy payments and mothballing the closed depots.
    Mr. Robert C. Brown: I have nothing to add to the broad estimates provided in answer to the hon. Member's Question on 26th February. Closed depots would not be retained but would be declared surplus and disposed of by the normal procedure.
    Mr. Ridley: Is the Minister aware that, instead of costing the £2 million that he originally told me, it now appears that it will cost £14 million? Has the Department got its figures wrong? What is the point of a defence cut that results in much higher expenditure?
    Mr. Brown: As I stated in my answer, I have no further details to give at this stage, nor do I accept the hon. Gentleman's premise. The estimates will be validated before final decisions are taken.

    Airborne Warning and Communications System
    Mr. Wallasked the Secretary of State for Defence if he will make a statement on the long lead decision for the AWACS project.
    Mr. William Rodgers: I would expect NATO Ministers to consider this matter at the June meeting of the Defence Planning Committee.
    Mr. Wall: Does the right hon. Gentleman agree that all NATO commanders-in-chief have said that the project should have top priority, and that it is very important from the point of view not only of early warning but of command and control?
    Mr. Rodgers: I entirely agree that it is a very important matter. The issues are also complicated, and a great deal of money is at risk. For that reason it will be some time before final decisions are made.
    Mr. Geoffrey Finsberg: Will the Minister give the House an assurance that we shall not allow so much time to elapse that we find ourselves forced to place an order for a less desirable form of radar surveillance?
    Mr. Rodgers: I give that assurance. The only likely choice is between the AWACS project and the Nimrod alternative. There is a great deal to recommend both. That is one reason why the process of decision-making is rather lengthy.

    British Army of the Rhine
    Mr. Townsendasked the Secretary of State for Defence when he next plans to visit BAOR.
    Mr. Mason: I have at present no plans to do so.
    Mr. Townsend: When the Secretary of State next goes to Germany, will he carefully examine the tactical arguments that persuaded the Germans to remodel their army on the brigade system at a time when our defence cuts are doing away with our brigade headquarters? Will he look closely at the problems of collaboration that are likely to arise?
    Mr. Mason: I shall be only too pleased to do that. With regard to the problems of restructuring, which came up a great deal during the Army debate, tests and trials have taken place, and amendments must be made. I am receiving professional military opinion in NATO which welcomes the changes that we are making.
    Mr. Madden: When my right hon. Friend next meets the Secretary-General of NATO, will he emphasise that in

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    terms of defence per head of population the United Kingdom is presently contributing the sixth largest share to NATO, and that if there is anxiety about NATO, fuelled by hysterical speeches from the Opposition Benches, it is up to those NATO countries whose economies are far stronger than others to shell out a bit more?
    Mr. Mason: I should not wish to use that argument when I next meet the Secretary-General. Incidentally, I met him last week. My hon. Friend talks about the levels of defence expenditure. We are spending less in absolute defence expenditure than are the Germans and French. Therefore, if my hon. Friend wants me to take notice of the manifesto commitment my reply is that we have already done it.
    Mr. Rippon: Will the Secretary of State put in the Library the statements by the NATO chiefs welcoming what we are doing?
    Mr. Mason: If the right hon. and learned Gentleman wants to peruse the many communiqués we have issued from the DPC, I can tell him that they should be in the Library.

    Service Men's Relatives (Deaths Overseas)
    Mr. Loydenasked the Secretary of State for Defence what
    provisions exist for the return to the United Kingdom of the bodies of relatives
    of United Kingdom Service men who have died abroad, where a desire has been expressed for burial in the United Kingdom.
    Mr. William Rodgers: It is for the Service man himself to make any necessary arrangements.
    Mr. Loyden: Is my right hon. Friend aware that the present provisions for dealing with the problem have resulted in the relatives of one of my constituents having to look to pay about £700 to bring back to the United Kingdom a young baby who died in Germany? Does he not consider it is time the provisions were examined with a view to preventing Service men being faced with such a cost when they suffer a tragedy of that kind?
    Mr. Rodgers: I know the very sad case that my hon. Friend has brought to our attention. There are problems in finding a better answer. That is one reason why an insurance scheme has been devised. If it will help my hon. Friend I shall be happy to look at the existing provisions and consider in what circumstances they could be changed.

    Redundancies
    Mr. Cartwrightasked the Secretary of State for Defence how many redundancies amongst military and civilian staff are now expected to result either directly or indirectly from the Government's successive reviews of defence spending.
    Mr. William Rodgers: I have nothing to add to the reply that I gave to the hon. Member for City of Chester (Mr. Morrison) on 9th March.
    Mr. Cartwright: Will my right hon. Friend give an assurance that those civilian employees facing redundancies will be given every opportunity of alternative Government employment, particularly in areas such as mine that are already suffering from industrial decline?
    Mr. Rodgers: I certainly give that assurance. My hon. Friend is right to draw our attention to the special problems of the Woolwich area, where there has been a traditional link with the Services. I appreciate the amount of disruption, anxiety and uncertainty that exists. We shall do all we can for those who have served the Services very loyally over many years.
    Mr. Onslow: Will the Minister explain how it is that since he is unable to tell us, within 5,000 either way, how many Ministry of Defence civilian employees will be made redundant, he can possibly be precise about the savings made by cutting them?
    Mr. Rodgers: If the hon. Member will refresh his memory and read the report of what I said on 9th March he will see that I gave very clear indications of the size of redundancies over the period to 1979–80. It is quite unreasonable to have more specific information, particularly when consultations must be carried on with the trade unions and we are anxious to make the best possible arrangements.

    NATO (Secretary-General)
    Mr. Luceasked the Secretary of State for Defence when he next plans to meet the Secretary-General of NATO.
    Mr. Mason: I met Dr. Luns when he was in London on 4th May. I expect to meet him again at the NATO spring ministerial meetings in Brussels next month.
    Mr. Luce: Since Britain and the NATO European allies are to a large extent dependent upon supplies from trade routes outside NATO's direct area of responsibility, has the Secretary of State discussed with the Secretary-General of NATO—and if not, why not?—the practical measures that NATO is taking to ensure adequate protection for our merchant shipping against the Soviet naval threat in these areas?
    Mr. Mason: Perhaps the hon. Member has not followed the close questioning on this matter which has taken place over the past 12 months. The Supreme Allied Commander, Atlantic, commissioned a study two years ago which is now complete, and has been sent to the different defence ministers of NATO for professional military opinion, and this will be discussed in the near future. That study is about the operating of NATO vessels outside areas to protect shipping lanes in war-time only.
    Mr. James Lamond: Has the Secretary of State grasped the implications of what was said earlier by my hon. Friend the Member for Sowerby (Mr. Madden)? While, nationally, Great Britain is tenth in GNP per capita among the 14 active members of NATO, its contribution to NATO is sixth on a per capita basis, and therefore there is an imbalance. Will my right hon. Friend draw this to the attention of the Secretary-General of NATO when he next meets him?
    Mr. Mason: I am sure that the Secretary-General of NATO is aware of this. It my hon. Friend accepts the manifesto commitment that we should bring defence spending down, as a percentage of GNP, to that of our major European allies, he will accept that we were bound to do that, because we spent more. But if one takes it as a per capita or absolute level of defence spending, our
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    major European allies, Germany and France, spend more than we do.
    Mr. Jessel: As Italy appears to be in some danger of going Communist, what action are the Government taking to ensure that as few as possible of our military secrets are shared with Italy?
    Mr.Mason: I thought that I gave an indication of our cautious approach in this matter earlier in Question Time.

    Land
    Mr. Andrew F. Bennettasked the Secretary of State for Defence if he will now set up a new committee of inquiry into the amount of land being held by his Department in areas of outstanding natural beauty.
    Mr. Robert C. Brown: No, Sir.
    Mr. Bennett: Does the Minister accept that the Nugent Committee made many recommendations that have still not been carried out? In 1973 our defence requirements were rather different, and there is a strong case now for releasing more areas of defence land in areas of outstanding natural beauty for the use of the general public.
    Mr. Brown: It is less than two years since this Government accepted, with minor reservations, all the proposals of the Defence Land Committee, under Lord Nugent. A great many of the recommendations have already been dealt with, and it is absurd to suggest that in less than two years there should be another major inquiry.
    Mr. Hicks: Is the Minister aware that certain proposals have been made concerning possible use of new sites on Bodmin Moor, which is an area of outstanding natural beauty, for use for military training purposes? Will he give an assurance that the Department does not favour this suggestion, made by the Department of the Environment during the current public inquiry?
    Mr. Brown: This is another question. The hon. Member knows that a public inquiry is taking place in respect of Dartmoor and therefore it would be improper for me to comment at this stage.
    Mr. D. E. Thomas: Is the Minister aware that there are certain areas of

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    former defence land in areas of outstanding natural beauty in Snowdonia National Park, which have not been adequately cleared and therefore are a great danger to the local population and to tourists?
    Mr. Brown: If the hon. Member cares to write to me about any specific place in his constituency, I shall look at it.

    ECONOMIC AFFAIRS (PRIME MINISTER'S SPEECH)
    Mr. Lawsonasked the Prime Minister if he will place in the Library a copy of his public speech on economic policy to the Union of Shop, Distributive and Allied Workers at Blackpool on 25th April.
    The Prime Minister (Mr. James Callaghan): I did so on 26th April.
    Mr. Lawson: In that speech the Prime Minister said that most people would be better off with the Chancellor's pay proposals than they would with free collective bargaining. Does he intend that free collective bargaining should ever be restored, and, if so, when?
    The Prime Minister: I learned a long time ago from Mr. Henry Hopkinson never to use the word "never", and I shall not do it now.
    Mr. Arthur Latham: Does the Prime Minister agree that there was nothing in that speech that could be regarded as offering any firm assurances to representatives of the TUC about rents, fares, food subsidies, or prices generally, or about overall public expenditure in terms of the social wage? If he were the General Secretary of the TUC and Mr. Len Murray were Prime Minister, would lie feel that this was a good bargain, in the absence of any undertakings of that kind?
    The Prime Minister: My hon. Friend has no doubt studied the speech that I made to delegates of the Union of Shop, Distributive and Allied Workers Conference, but he did not have the advantage of hearing it. The delegates were generous enough to give me a standing ovation as I left the hall—which may have been because they were grateful that I had finished or because they approved of my argument, and approved of the way in which the case had been put—a case that is supported by the overwhelming majority of people in this country.
    Mrs. Thatcher: Does the Prime Minister recollect that towards the end of his speech he spoke not of controlling inflation but of creating other values which are generally appealing? Does he accept that as the recent local elections show, many council tenants wish to own the homes they live in? Will he give the House an assurance that his Government will do nothing to prevent the sale of council houses to council tenants?
    The Prime Minister: I am not surprised at the right hon. Lady's ingenuity in bringing the local elections into a Question about a speech that I made at Blackpool two weeks beforehand. I have listened to what has been said about the subject of my speech recommending the acceptance of a bargain along the lines proposed by the Chancellor. I am still waiting to hear from the right hon. Lady whether she recommends it.
    Hon. Members: Answer the Question.
    The Prime Minister: I am answering a Question related to my speech at Blackpool. It is the right hon. Lady who is wriggling, and trying to avoid the Question, and dragging in red herrings. As for council houses, if a Question is tabled on that matter it will be answered.
    What I want to know from the right hon. Lady, and what the country as a whole wants to know is—even though her Back Benchers are trying to prevent me from getting the Question across—does she recommend this settlement made by the TUC to its members, or does she not?
    Mrs. Thatcher: The Prime Minister is paid to answer questions and we are paid to ask them. Why is he so afraid to answer my questions, especially since we took his home city?
    The Prime Minister: The right hon. Lady is also paid, but not as much as I am, and she is paid to ask relevant questions. I note that once again she evades the question whether the Conservative Party supports the view of the hon. Member for Henley (Mr. Heseltine) who is against this settlement, or the view of the right hon. and learned Member for Surrey, East (Sir G. Howe) who is grudgingly in favour of it. Where does the right hon. Lady perch on the twig between the two of them?

    MERSEYSIDE
    Mr. Loydenasked the Prime Minister if he will pay an official visit to Merseyside.
    The Prime Minister: I have at present no plans to do so.
    Mr. Loyden: Is my right hon. Friend aware that an official visit by him to Merseyside at this stage would be most welcome if only for the fact that it would provide the opportunity for him to answer the questions raised by 80,000-plus unemployed in Liverpool relating to how soon the Government's policies will be directed towards a reduction in that number? Is my right hon. Friend aware that instead of a rosy future for Merseyside there are predictions of yet further job losses, and that that is something to which the Government should pay attention?
    The Prime Minister: I am obliged to my hon. Friend for his Question, because unemployment should be of deep concern to us all. For Merseyside, there is every reason for concern about the future situation as well as the present. I understand that discussion is going on between hon. Members and Ministers about some of the industries there, and I hope that this will continue. Basically, however, an improvement in Merseyside will come, I hope, with the upturn in the economy, which has already begun. It would be wrong to hold out false hopes of an early improvement in the unemployment situation, but if we overcome inflation through an acceptance of the TUC wage deal, and if we take other measures, I believe that Merseyside's unemployment will begin to fall.
    Mr. Peter Bottomley: Will the Prime Minister say, on a visit to Merseyside or elsewhere, whether the pay policy that gives 4½–5 per cent. to people at work will represent a transfer of resources to or away from families with children?
    The Prime Minister: All of the proposals lower the standard of life of the British people over the next 12 months. I hope that that factor will not be avoided by anybody, and I hope that in its approach to the situation the Conservative Party will explain what it would do as an alternative.
    Mr. Heffer: In considering the problems of Merseyside, will my right hon. Friend consider especially the problems in the construction industry there, for which the levels of unemployment are the highest in the country? Is he aware that in the past the city council has reduced the level of house building? Will he therefore ask Ministers in the appropriate Department to impose the maximum pressure to get house building moving rapidly again on Merseyside?
    The Prime Minister: I am aware of the serious position in the construction industry. Special steps have been taken. Council house building has been increased, although to the best of my recollection private house building has been fairly stagnant. I shall look into this problem and ask my right hon. Friend the Secretary of State for the Environment to discuss the matter with me. Generally, however, an improvement in the construction industry is again likely to take place in parallel with the upturn in the economy.
    Rear-Admiral Morgan-Giles: Will the right hon. Gentleman accept my congratulations on being the first Prime Minister with the inestimable advantage of a naval training? As for the problems on Merseyside, will he look very broadly at the difficulties of the British merchant shipping industry, which frequently works from Merseyside, taking particular account of the extent to which it is being undercut by unfair competition from Soviet bloc shipping?
    The Prime Minister: Shipping is extremely important to Merseyside. I shall look into this matter, as the hon. and gallant Member invites me to do. I thank him for his congratulations. I am glad to see that he has recovered and is in good voice.
    Mr. Kilroy-Silk: Apart from the 80,000 unemployed adults, who include the 14,000 unemployed construction workers, there are 3,000 unemployed school leavers on Merseyside. My right hon. Friend recently emphasised the importance of profits in solving our problems. Is he aware that when profits were high unemployment on Merseyside was high? Does he agree that we need greater public control and direction of

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    industry? What do the Government intend to do to ensure that this summer Merseyside school leavers will find jobs?
    The Prime Minister: A number of steps have been taken through the job creation programme, the recruitment subsidy for school leavers, and the doubling of the temporary employment subsidy, all of which have helped to alleviate unemployment. I agree about the plight of the young people. The Government must pay special attention to that, so that when young people leave school they have the prospect of a job. But let us not hold out false hopes. The best return to prosperity for this country lies in an export-led upturn in production. If we can get that—and it is already beginning now, although I do not want to give the figures—[HON. MEMBERS "Why not?"]—because I want to be accurate— [Interruption.] The hon. Member for Blaby (Mr. Lawson) will find, when one day he stands at this Box as Prime Minister, that it is better to be accurate than to give figures that are not right and be challenged afterwards. There is now an increase in exports, which will continue. I would prefer the Government to do it this way than to embark upon domestic-led reflation, which would very shortly burst and ensure a return to an inflationary period, with more unemployment.

    COMMONWEALTH SECRETARIAT (SECRETARY GENERAL)
    Mr. Townsendasked the Prime Minister if he has recently met the Commonwealth Secretary General.
    The Prime Minister: Yes. I had a meeting with Mr. Ramphal last Thursday 6th May.
    Mr. Townsend: Did the Prime Minister ask the Secretary-General what action the Commonwealth Committee on Cyprus plans to take to protect that tragically divided island when the Turkish military authorities are introducing more Turks from the mainland into Cyprus and the number of Greek Cypriots in the north continues to diminish?
    The Prime Minister: No, I did not discuss that point with the Secretary General, but perhaps the hon. Member
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    will table a Question to my right hon. Friend the Foreign Secretary, who is, I know, concerned about it.
    Mr. Hooley: Will my right hon. Friend explain to the Secretary General what has happened to the Government's excellent initiative on commodities, taken at Kingston last year, which, judging by the speeches of my right hon. Friend the Secretary of State for Trade at UNCTAD the other day, appears to have disappeared into a totally negative and unhelpful approach?
    The Prime Minister: We discussed that matter, which has been discussed a number of times. The Government are most anxious to enter into a series of commodity - by - commodity arrangements, which would help the developing countries. However, when we are asking our own people to accept a voluntary reduction in their standard of life there are limits to what we can do in other directions.
    Sir David Renton: In view of the unemployment levels, the shortage of housing and school places, and other factors in this country, will the Prime Minister ask the Commonwealth Secretariat for help on the difficult problem of British passport holders in East and Central Africa, perhaps to use its good offices with the Indian Government, bearing in mind that so many of these people originated from India.
    The Prime Minister: No, I think that is a matter for us and not for the Secretary-General of the Commonwealth Secretariat.
    Mr. Spearing: When my right hon. Friend met the Secretary-General did he refer to any initiative he might take for getting Commonwealth representatives to meet before UNCTAD, and was that possible? Does my right hon. Friend not realise that the speech by the Secretary of State for Trade was not a happy one for the Government, because it did not contain many positive proposals of which the Commonwealth Secretariat would have approved wholeheartedly?
    The Prime Minister: The Government's policy is based to a considerable extent upon the report of the experts of the Commonwealth who met before the UNCTAD meeting and have been meeting regularly for the past 12 months. We

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    have discussed these matters on a number of occasions. We wish and are ready to put in a great deal in order to ensure the success of these commodity agreements, but there are limits to what this country can do in present circumstances.
    Mr. Tapsell: Remembering the important speech on commodities of the last Prime Minister, in Kingston, does not Dr. Kissinger's recent speech developing that theme produce a timely situation for a Commonwealth initiative, especially as many of the problems in these and other countries in the international monetary field have been caused by violent fluctuations in commodity prices?
    The Prime Minister: That was the origin of my right hon. Friend's speech last year, in which I played some part. It is in order to achieve that end that we would like to see commodity arrangements entered into, commodity by commodity. That would be far better than the bottomless purse that would be needed if we had a general fund for this purpose. We are certain that this would improve the position of developing countries. There is a widespread concern—which I share—about the indebtedness of developing countries, which is rapidly increasing. We have an obligation to do what we can, but here are limits beyond which we cannot go in present circumstances.

    MR. GEORGE JOHN DAVIS
    The Secretary of State for the Home Department (Mr. Roy Jenkins): With permission, Mr. Speaker, I wish to make a statement about the case of Mr. George John Davis.
    At the Central Criminal Court on 18th March 1975 Mr. Davis was convicted of robbery and wounding with intent to resist arrest, and was sentenced to consecutive terms of 17 and three years' imprisonment.
    He applied to the Court of Appeal (Criminal Division) for leave to appeal against his conviction and sentence. On 11th December 1975 the Full Court dismissed the application for leave to appeal against conviction but ordered the sentence to run concurrently instead of consecutively.
    After the trial, Mr. Davis and those who had been charged with him, but acquitted, made a number of complaints against the
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    police. The Commissioner of Police of the Metropolis asked the Chief Constable of Hertfordshire to make available a senior police officer of his force to investigate these complaints in accordance with Section 49 of the Police Act 1964.
    I have received interim reports from the detective superintendent who has undertaken this task. These reports relate principally to the identification of Mr. Davis by witnesses, and I have re-examined in the light of them the identification evidence on which Mr. Davis was convicted. As a result, I am satisfied that this evidence has been seriously weakened.
    I do not have evidence of Mr. Davis' innocence to justify my recommending a free pardon. I have considered whether I should refer the case to the Court of Appeal under Section 17 of the Criminal Appeal Act 1968. But this would be a lengthy process and it is not at present clear that all the relevant material now before me could be considered by the court.
    My conclusions about the shift in the balance of evidence in the case are such that it would not be right for Mr. Davis to remain in prison any longer. I have therefore decided to recommend the exercise of the Royal Prerogative to remit the remainder of Mr. Davis' sentence. He is being released today.
    Since the investigation into the complaints made against the police by Mr. Davis and others has not yet been completed, it would not be right for me to discuss the complaints generally or the results of the investigation in this context in any detail. I would, however, say that my decision today in no sense prejudges the result of the investigation and in no way implies that any police officer has behaved improperly.
    Mr. Whitelaw: Is the right hon. Gentleman aware that it must be right for him to make clear that his decision in no sense prejudges the result of the investigation which, at this stage, is incomplete and in no way implies that any police officer has behaved improperly? At the same time, does he appreciate that if he is convinced that there is a clear shift in the balance of evidence, he is clearly right to act? As the decision he has chosen is somewhat unusual, can he give us some further reasons why he has chosen this alternative?
    Mr. Jenkins: I agree with what the right hon. Gentleman said in his opening remarks. It would be wrong, in view of the evidence available, to keep Mr. Davis in prison any longer. Putting the matter back to the Court of Appeal would necessarily involve a delay of many months, during which I do not think it would be right for this man to continue to serve his sentence. There are certain aspects of the report before me which it is easier to deal with by way of the prerogative, for which there are precedendents, than by going back to the Court of Appeal. This would not preclude going back to the Court of Appeal, if it were thought right, on the question whether the conviction should stand as opposed to the remission of the sentence.
    Mr. Alexander W. Lyon: Does my right hon. Friend not agree that the course he has taken means that this man's name has still not been cleared and he is therefore not in a position to claim compensation for wrongful arrest? Does my right hon. Friend agree that a man is either innocent or guilty and that if there is this substantial amount of doubt about the matter, this man's name should be cleared completely? Does not this situation emphasise again the need to reconsider the tests applied by the Home Secretary in the exercise of the prerogative, as suggested by the Devlin Committee?
    Mr. Jenkins: There are two tests involved here—first, whether it is right that a free pardon should be given and, second, whether the verdict appears sufficiently unsafe that the sentence should not be allowed to stand. I am not in a position in which I think it would be right for me to give a free pardon. The Court of Appeal could test this at some stage in the future and I shall consider whether that should be done. Some of the evidence in this case has been considerably weakened, and that makes it right for me to take the course I have taken and to do so immediately.
    Mr. Beith: Is the right hon. Gentleman aware that many people inside and outside the House who very much doubted the strength of the identification evidence in this case will welcome the decision to free George Davis? Does the fact that the report received by the right hon. Gentleman was an interim report leave
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    open the possibility that a continued investigation could lead to a free pardon if, in the light of the evidence produced, that is thought appropriate? Will the opportunity still exist for George Davis to clear his name through procedures which are already in operation?
    Mr. Jenkins: The report is the second interim report and I received it as recently as 6th May. I was anxious to act quickly in this matter. There will be a further and complete report which will deal mainly with the question of complaints against the police rather than more specifically with the position of Mr. Davis. I have indicated that I should be prepared to consider, when the full report has been received and considered, whether it will be appropriate for the Court of Appeal to look further at the matter with a view to what the hon. Member has in mind.
    Mr. MacFarquhar: Can my right hon. Friend explain to hon. Members who have no legal training what kind of evidence there is which can convince him but which might not be appropriate for the appeal court?
    Mr. Jenkins: It would not be appropriate for me to go into details of evidence which might prejudice the result of the remainder of the report, which refers to Section 49 procedures against the police.
    Mr. Donald Stewart: Is the right hon. Gentleman aware that once the doubts to which he referred had arisen, most people would have welcomed the decision to release this man from prison? Will he draw the attention of his right hon. Friend the Secretary of State for Scotland to the case of Patrick Meehan, which is causing great concern in Scotland?
    Mr. Jenkins: I am sure that my right hon. Friend's attention has been drawn to that case and that he will approach it—as I do with all these cases—with a determination to see, as far as it is possible for any Secretary of State to see, that justice is done.
    Mrs. Millie Miller: Is my right hon. Friend aware that there are a number of men serving lengthy prison sentences on the strength of dubious identification? I refer especially to the case of Patrick

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    Murphy, who is serving an eight-year sentence after the original charge against him of murder was quashed, the original evidence being based on identification. Will my right hon. Friend look again, carefully, at that case?
    Mr. Jenkins: I always look extremely carefully at all individual cases. However, as I am sure my hon. Friend and the House will appreciate, it is important that one should proceed in these matters with expedition and decisiveness when one is convinced that it is right to do so. One should not get into the position of not being able to do what is right in a particular case because to do so would mean having to act in the same manner in a number of cases which may be far less strong. It would be quite wrong if one case were prejudiced by other cases. However, I shall certainly consider any representations that my hon. Friend wishes to make.
    Mr. Brittan: As the right hon. Gentleman says that he is still considering referring the case to the Court of Appeal, does he agree that he will be putting himself in an extremely difficult position, in view of his decision today, if he refers the case and if the Court of Appeal does not allow the appeal? In those circumstances does he agree that a very difficult question is raised as to the circumstances in which the Prerogative should be used, rather than referring the matter to the Court of Appeal? Will the right hon. Gentleman make a more general statement not in relation to this case but on the criteria which he proposes to adopt in future?
    Mr. Jenkins: I agree that there are considerable difficulties, but in my view I would have been in a less defensible position if, on the information before me, I had kept this man in jail for another six months or nine months.
    Mr. Molloy: Is my right hon. Friend prepared to consider the view that is held by many of us who have no legal training—namely, that although we support his action this afternoon, there remains the anguish in our minds that, while George Davis has been freed, there are certain investigations which still have to be carried out? Will my right hon. Friend ensure that whatever those investigations are, they are carried out
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    as speedily as possible so that George Davis will not have to live outside prison in a twilight world?
    Mr. Jenkins: I hope that the investigations will be carried out as quickly as possible. I think that the investigations have been carried out expeditiously, but I am not sure that I accept what my hon. Friend says at the end of his question as being correct.
    Mr. Lawrence: To take up the question raised by my hon. Friend the Member for Cleveland and Whitby (Mr. Brittan), what is the point of referring the matter to the Court of Appeal if it is unable to consider the sort of evidence that the right hon. Gentleman has taken into consideration in coming to his decision?
    Mr. Jenkins: I have not said that the matter should be referred to the Court of Criminal Appeal. I shall consider whether it would be appropriate to take that course when we have the complete Moulder Report. There could then he the question whether the Court of Appeal might or might not think it right to expunge the charge. However, in these circumstances the Prerogative is a firmly established right. I am sure that I have used it properly in this case, bearing in mind the evidence and the precedents.
    Mr. Edward Lyons: In the light of my right hon. Friend's apparent view that at the moment the Court of Appeal Criminal Division cannot do justice in these cases, does that not indicate an argument for enlarging the powers of the Court of Appeal so that it can make this kind of decision?
    Mr. Jenkins: I think that my hon. and learned. Friend will appreciate that the Court of Criminal Appeal considered this matter but without the evidence that is now available to me. That is the essential reason for the use of the Prerogative in the circumstances of this case. I do not think it would necessarily be in any way a criticism of the Court of Criminal Appeal to say that I have decided to use the Prerogative. It would not be possible to put the matter before the court until the whole report was completed and processed and until the court was able to seize itself of it. That would at the very best involve a delay of many months,

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    a delay which I would not feel to be justified.
    Mr. Crouch: Will the right hon. Gentleman say whether his decision in this matter regarding identity parade evidence in any way establishes a precedent for his future judgment in such matters? If I referred to him another case of possible mistaken identity, would it receive his personal attention?
    Mr. Jenkins: There will be no change in that respect. Any case that the hon. Gentleman referred would receive the closest attention. If he referred a case to me I should consider the matter and give him a reply myself. We propose to act upon the recommendations of the Devlin Report as soon as possible, and we shall consider what matters we can act upon without consultation. This does not mean—it would be wrong if it meant this—that any conviction upon identification will not be possible in future. That would be a very grave matter, and I am not propounding that for a moment.
    Mr. Whitehead: Does my right hon. Friend accept that most of us agree that he has taken a wise course in these circumstances, where there is still so much, perhaps, to emerge about the identification procedures in the case and the Section 49 investigations? However, does my right hon. Friend envisage any situation in which Mr. George Davis will not have a further opportunity of clearing his name? It is that which concerns my hon. Friends on these Benches.
    Mr. Jenkins: I have indicated how I think it possible that one might proceed to that stage. I can assure my hon. Friend that I have considered the matter carefully. I have in certain circumstances proposed a free pardon. In other circumstances I have proposed a remission of sentence, as have my predecessors. I am quite clear that in the present circumstances it is right that there should be an immediate remission of sentence and that I should not at present be justified in going any further.
    Mr. Baker: Does the right hon. Gentleman agreed that he could have referred the case to the Court of Appeal and at the same time have granted Mr. Davis parole, rather than adopting the rather
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    extraordinary procedure that has been followed?
    Mr. Jenkins: The procedure is not extraordinary. For reasons that I have explained in answer to three or four questions, I believe it to be the right procedure in this case.
    Mr. Skinner: I appreciate that it is a bit of parliamentary gibberish by both my right hon. Friend and the right hon. Member for Penrith and The Border (Mr. Whitelaw) to talk about a decision of this nature not prejudging the subsequent proceedings. Of course it will prejudge them. But will my right hon. Friend also look at the documents relating to Des Warren, who is still incarcerated? Will my right hon. Friend bear in mind that Des Warren was never identified as being involved in any criminal act at any time?
    Mr. Jenkins: I have looked at the documents in that case many times. I have considered many representations and I have answered many Questions from my hon. Friend. I do not regard the Des Warren case as being in any way a parallel with the Davis case.
    Mr. Sandelson: My right hon. Friend has indicated that there has been some weakening of the evidence of identification as regards Davis. Does that mean that there has been some new evidence which has influenced his decision? In that event, would it not be right that Davis himself should have a right of appeal to the Court of Appeal, Criminal Division?
    Mr. Jenkins: I think it is possible that he could consider such an application. I shall certainly consider whether the case should be so referred. As I have indicated, essentially a weakening of the evidence has occurred, upon the basis of which I have thought it right to take this immediate decision.
    Mr. Grocott: Bearing in mind the inevitable doubts that must result from any conviction now which is based largely on identification, and the current debate that is going on, will my right hon. Friend undertake to look at all the cases, some of which have been mentioned this afternoon, in which conviction has rested primarily on identification? Does my right hon. Friend agree that this is now an issue that must be debated as a

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    general principle and not merely with reference to specific cases?
    Mr. Jenkins: We must certainly deal with the Devlin recommendations. I must also say quite firmly what I believe clearly to be the case—namely, that it is essential that a Home Secretary. when confronted with a position of this sort, should be able to act decisively in a particular case. That is of great value from the point of view of justice in this country. It would be quite wrong to believe that because of that everyone who has been convicted on the evidence of identification, whether it be good, strong or moderate, should necessarily be put in an entirely different position. We should not be serving the interests of justice if one could not act in a particular case without calling into question a number of safe convictions, the upholding of which, in my view, is essential for the preservation of the rule of law and the fight against crime.

    STATUTORY INSTRUMENTS, &c.
    Mr. Speaker: In order to save the time of the House, I propose, unless objection is taken, to put together the three motions relating to the Standing Committee on Statutory Instruments.
    Mr. Spearing: On a point of order, Mr. Speaker—
    Mr. Speaker: Will the hon. Gentleman raise that matter after I have completed putting the Question?
    Motion made, and Question put,
    That Commission Document No. R/3139/75 relating to Articles made from Precious Metals be referred to a Standing Committee on Statutory Instruments, &c.—[Mr. Foot.]
    Mr. Spearing: On a point of order, Mr. Speaker. I understand that you are proposing, with the leave of the House, to put the three motions together. I should like to point out that the first two motions are related to EEC Documents, whereas the third motion is not so related.
    Mr. Speaker: Order. I can save the time of the hon. Gentleman. The motions all relate to the Standing Committee on Statutory Instruments, and the first two relate to Commission Documents. If it
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    is so desired, we shall take the motions separately.
    Not less than 20 Members having risen in their places and signified their objection thereto, Mr. SPEAKER declared that the Noes had it, pursuant to Standing Order No. 73A (Standing Committee on Statutory Instruments. &c.).

    STATUTORY INSTRUMENTS, &c.
    Motion made and Question put,
    That Commission Document No. R/571/76 relating to the Dragon project be referred to a Standing Committee on Statutory Instruments, &c.—[Mr. Foot.]
    Not less than 20 Members having risen in their places and signified their objection thereto, Mr. SPEAKER declared that the Noes had it, pursuant to Standing Order No. 73A (Standing Committee on Statutory Instruments, &c.).

    STATUTORY INSTRUMENTS, &c.
    Ordered.
    That the British Wool (Guaranteed Prices) (Amendment) Order 1976 (S.I., 1976, No. 602) be referred to a Standing Committee on Statutory Instruments, &c.—[Mr. Foot.]

    PARLIAMENTARY COMMISSIONER FOR THE NATIONALISED INDUSTRIES
    3.55 p.m.
    Mr. Tony Durant: I beg to move,
    That leave be given to bring in a Bill to appoint a Parliamentary Commissioner for the Nationalised Industries; and for purposes connected therewith.
    Since the war the growing power of the State and its remoteness from the citizen has led to the necessity for Parliament to appoint Parliamentary Commissioners. We began with a Parliamentary Commissioner for various Civil Service Departments and we moved on to other Commissioners. My Bill seeks to add another Parliamentary Commissioner, namely one for the nationalised industries.
    Initially, Parliament was reluctant to introduce a Parliamentary Commissioner at all. Some hon. Members felt that this would take away the rights of individual Members of Parliament to

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    raise matters and there was some reluctance to act on this score for a considerable period of time. However, eventually, in 1967 the House agreed to appoint a Parliamentary Commissioner. What was envisaged was an impartial, traditional type of office whose occupant would examine and investigate problems and report back to the hon. Member who raised the matter and also to the Select Committee on the Parliamentary Commissioner. That procedure was established in 1967 and as a result some very successful work has been undertaken.
    In 1973, following the reorganisation of the National Health Service, a Parliamentary Commissioner was introduced with responsibilities in respect of the NHS and his duties were to deal with maladministration within that service. I admit that that office is as yet in its infancy and that there are still problems. We face the problem that clinical decisions are separated from administrative decisions. But at least the system exists and is growing in success.
    Following the reorganisation of local government in 1972, we set up the Local Government Commission on a regional basis. That is also in its infancy but it is achieving reasonable success.
    However, there is one important area in which no Parliamentary Commissioner operates, and that is in relation to the nationalised industries. Members of Parliament in all parts of the House receive a considerable number of complaints about the nationalised industries, and they wish to air those complaints in the most effective way. The normal method of following up the complaints is to write to the chairman of the nationalised industry concerned and to put the problem before him. Sometimes these matters are dealt with expeditiously. In other cases hon. Members can contact consumer councils or advisory committees. Once again, matters can be handled expeditiously. But one always ends with the remainder of cases in which one does not receive a satisfactory answer.
    Generally, consumer councils and advisory committees tend to be involved, in policy matters in the nationalised industries in terms of pricing or broader view than that contained within whatever it may be, and take a
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    an individual case. Therefore, in that respect a Member of Parliament may find it difficult to extract a satisfactory answer.
    The Select Committee on Nationalised Industries also examines the general running of the nationalised industries, but once again not in detail. The citizen, in my opinion, requires some direct machinery by means of which his parliamentary representative may raise matters relating to the nationalised industries.
    Let me give a simple example in my own constituency. A number of houses were damaged as a result of floods and a month later the flooding happened yet again. The cause was traced to a blockage in a drain. The water authority officials said that it had nothing to do with them because the local authority was their agent. The local authority officials said it was nothing to do with them because it was a water authority drain. Therefore, the poor citizens were left in the middle. Nobody would take responsibility for the matter. Nobody would take the decision to examine the problem and say who was responsible. The people concerned could only succeed as a result of a difficult, laborious and expensive process—and even then they did not know whether they would succeed.
    The Select Committee on Nationalised Industries investigated the subject of the Parliamentary Commissioner, and indeed took evidence from the Parliamentary Commissioner for Administration. I wish to quote from a memorandum submitted by the Parliamentary Commissioner for Administration to the Select Committee, in which he made three important points. The memorandum said:
    "The Ombudsman is a supplement to other methods of handling complaints and righting wrongs; but not an alternative. He has considerable powers to investigate in depth."
    I believe that that point is most important. The memorandum also said:
    "He has a status of complete independence, assured by the method by which he is appointed and the terms on which he holds office."
    In other words, the Commissioner acts as an independent investigator.
    I believe that the consumer councils are not strong enough for the task I have in mind and do not go as far as an independent Ombudsman would go. My Bill seeks to fill the gap.
    Question put and agreed to.
    Bill ordered to be brought in by Mr. Tony Durant, Mr. Michael Shersby, Sir George Young, Mr. Anthony Steen, Mr. Michael Neubert, Mr. Nick Budgen, Mr. Ian Gow, Mr. Robert Adley and Mr. Geoffrey Finsberg.

    PARLIAMENTARY COMMISSIONER FOR THE NATIONALISED INDUSTRIES
    Mr. Tony Durant accordingly presented a Bill to appoint a Parliamentary Commissioner for the Nationalised Industries; and for purposes connected therewith: and the same was read the First time; and ordered to be read a Second time upon Friday, 18th June and to be printed. [Bill 139]
ORDERS OF THE DAY

  FINANCE BILL
  (Clauses 14, 21, 24, 26, 27, 48, 52 and 64; new clauses relating to capital gains tax)
  Considered in Committee.
  [Mr. OSCAR MURTON in the Chair]

Clause 14

  REDUCTION OF HIGHER RATE
  4.2 p.m.
  Mr. David Howell: I beg to move Amendment No. 2, in page 10, line 26, leave out '12½' and insert '10'.
  The Chairman: With this it is proposed to take the following amendments:
  No. 1, in page 10, line 26, leave out '12½' and insert '8'.
  No. 4, in page 10, line 26, leave out '12½ per cent.' and insert 8 per cent.'.
  Mr. John Pardoe: On a point of order, Mr. Murton. May I raise a question about Amendment No. 5? I understand that this has not been selected because it is out of order. I knew perfectly well that it was out of order when I put it down. It would, however, be helpful if we could get on the record a ruling on why the House is denied the right to raise taxation as opposed to lowering it.
  We shall during the course of the debate be accused, no doubt, from the Treasury Bench, of widening the borrowing requirement. It seemed sensible, therefore, to put down an amendment such as Amendment No. 5, and it would be very useful, Mr. Murton, to have on record the reason for indulging in this crazy practice.
  The Chairman: This particular practice has gone on for the last 500 years. It is a matter for the Select Committee on Procedure and not for the Chair.
  Mr. Howell: Perhaps I should make one thing clear at the outset. The Conservative Party believes that the high rate, now proposed at 12½ per cent., and the standard rate of 8 per cent., should be consolidated into a standard rate of 10 per cent. The hon. Member for

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  Cornwall, North (Mr. Pardoe) has been good enough to draw our attention to the fact that there is a certain difficulty in expressing that belief in the form of amendments. As the hon. Member said very engagingly, the Liberal amendment was, of course, out of order, and all we have been able to do within the rules of order is to put forward half the proposition in the amendment. I hope that that makes the position clear and that the Treasury Minister who speaks in the debate will resist the rather predictable temptation to talk about reducing the revenue when our proposals would lead to a very substantial increase in the revenue and a reduction in the colossal public sector borrowing requirement.
  I hope, therefore, that the Treasury Minister will take out his pencil and cross out that part of his brief which refers to reducing revenue. Our proposals will not do that. They will increase it very substantially indeed. I am not quite sure what is the estimate, but in the light of the new rates it could be as much as £400 million.
  There is no doubt that the 25 per cent. high rate introduced last year was a major error of judgment. Everything that was predicted by my hon. Friends, and by hon. Members on both sides and in all parties, and every warning that was given, has come about. Treasury Ministers turned deaf ears to all we said, and yet all we said has come true.
  People have been thrown out of work. We said they would be. Industries have been very severely hit, on top of the difficulties they already faced in the recession. We said that would happen. Exports have been damaged and imports favoured. We said that would happen. The domestic applicances industry has been hammered. We forecast that. The television and radio industries have been placed in grave difficulties, and there have been substantial closures and lay-offs. We said that would happen, and it did. The caravan industry has been placed in great difficulties. Many boat yards have had to close. Many other firms have been placed in additional difficulties.
  We said that all these things would come to pass, and they did, despite the denials of Treasury Ministers. We do not expect a Chancellor of the Exchequer to admit that, of course, but it may be
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  that the Chief Secretary and the Financial Secretary between them will admit what is now universally recognised—that this was yet another fiscal blunder and misjudgment for which this country has had to pay a quite unnecessary price. When a new government come in, with commitments to tax reforms of this kind ringing in their ears, they would do well to pause and listen to clearer advice before rushing in with damaging legislation of this kind.
  The figure of 12½ per cent., which appears in the clause which we are seeking to amend, is the Treasury's attempt to put the matter right, having made the mistake in the first place. But in putting the matter right the Treasury have made another mistake. That is one reason why we are pressing our amendment. The Treasury has made another mistake for a number of reasons. The first is one which existed last year and persists now. It is that by having a higher rate—the 12½ per cent. on top of the 8 per cent.—the Treasury is still stuck with the appalling problem of deciding which cuts are less essential. which cuts are more essential and—in the immortal phrase of the Financial Secretary last year—which cuts will reflect the right social attitudes and which cuts reflect the wrong social attitudes.
  We are still stuck with a mad situation in which we have a schedule which declares that electric irons, refrigerators and electric kettles reflect the wrong social attitudes and are socially less desirable cuts. So are lawn mowers and liquidisers. Other items of a humbler kind apparently reflect the right social attitude and are socially more desirable cuts.
  This is an absurd and unhealthy situation, and one that has led to countless anomalies and difficulties. It deserves the ridicule which has been poured upon it. That problem still remains, but because of the reluctance of the Treasury Ministers to come clean and to admit their mistakes fully, and because of their insistence on hanging on to the l2½ per cent., we still have these absurd distinctions running through the application of the value added tax.
  The second reason for the Treasury making another mistake is even more serious. By pushing the rate up first to the high level of 25 per cent. and now

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  lowering it to 12½ per cent.—if it had the chance. Heaven knows where the Treasury would put it next, in the light of its latest assessment of social attitudes—the Treasury has turned the value added tax back into a sort of regulator. It has brought back into the VAT legislation all the worst aspects of the old purchase tax and created the very fiscal instability which it was hoped had gone for good when VAT was first introduced, and which was so absurd and made to seem so absurd by the endeavours, among others, of the late Sir Gerald Nabarro under the old purchase tax regulations and purchase tax provisions.
  It is a very serious mistake indeed to bring into an unstable enough industrial situation this additional element of fiscal instability, by treating the VAT as a yo-yo to be pushed up and down in accordance with this mistake and that and this fashionable belief and that. The whole attitude demonstrated by pushing VAT around the different rates is wrong, it is mistaken, it is damaging to industry, and it will create more instability than has been generated already.
  The third problem which persists under the continuing 12½ per cent, high rate is the components problem. My right hon. and hon. Friends and I spent a great deal of time and effort in trying to inject into the heads of Treasury Ministers the difficulties that would arise and have arisen in massive proportion.
  We pointed out that wherever we were dealing with complicated equipment, with many component parts, enormous difficulties would arise when we tried to work out the designation of the component and said that if it went, say, to a commercial refrigerator, it would be charged at 8 per cent., and if it went, say, to a domestic refrigerator, it would be at 25 per cent. The same point applies even more to the vast range of electronic components.
  During the year, as we warned, the Customs and Excise, together with a number of industries, including electronics and refrigeration, got into the most appalling jungle. There were very great difficulties. Enormous burdens were placed on the Customs and Excise in having to decide which components ranked for the higher rate and which ranked for the lower rate. Because we
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  still have the higher rate those problems remain.
  One item has been called to my attention—a minor example of the complexities that arise—in the area of assessing different types of electronic components for 25 per cent. or 8 per cent. I learned from the Customs and Excise that in respect of discrete semi-conductors with transistors, triacs and binary systems, plastic encapsulated, of less than 3 oz. in weight, the rate will be 25 per cent., but if they weigh more than 3 oz. the rate will be 8 per cent. If I may turn to capacitors, it appears that paper capacitors of greater than 0·5 microfarad and all-metal cased are rated at 8 per cent. but if of less than 0·5 microfarad, the rate is 25 per cent.
  The Financial Secretary to the Treasury (Mr. Robert Sheldon): Before the hon. Gentleman gets too fully launched into his disclosure of these anomalies I would point out that it was his Government who introduced value added tax. Even with the single rate, there were anomalies, which I should be delighted to quote, which would make those which the hon. Gentleman has just quoted seem the height of moderation. Is he aware that under the original VAT legislation by his Government, whether gloves were rated at the standard rate or were zero rated depended on the size of the fingers of each glove and the width across the palm. There are other examples which I shall be delighted to give the hon. Gentleman if lie wishes me to continue.
  Mr. Howell: The Financial Secretary tried this argument, nobly, but in vain, last year. It is a bizarre argument. He is saying that where there are complexities—and certainly there are—he thinks that there is a case for more. If he considers that the examples I am giving are modest, that accounts for much of the Government's economic policy. These are lesser examples of the extraordinary difficulties in which Ministers have placed this industry. I do not know whether the Financial Secretary has ever been in a warehouse where wholesale electronic parts and components are kept.
  Mr. Sheldon: I know what a capacitor is
  Mr. Howell: I am very glad to hear of the Financial Secretary's experience

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  and skill in this area. But clearly, whether or not he knows what a capacitor is, he has not the slightest idea of the vast problems of administration that are involved when there is a change in the VAT rate on electronic components. Every item among tens of thousands has to be reprogrammed and rearranged as to location, price and availability. This means a great deal more work. The hon. Gentleman may say that it is the Government's aim to make more work at the present time but it is a very bizarre way to go about it, and not, I would have thought, in line with the Government's policy for the future.
  Mr. Nicholas Ridley: Would my hon. Friend consider the appalling thought that if this warehouse full of electronic components, at two different rates of VAT, gets classified as dock work, it will be taken over by dock workers?
  Mr. Howell: All these possibilities loom up. The Chief Secretary and the Financial Secretary know that they are heading for another fine mess, that there is another fiscal banana skin in the offing, and, bless them, our two heroes are about to slip on it. They know, as they knew last year, that this will not do and that before this year is out, if they are still here—from which I hope we are preserved—more changes will have to be made. Last year men were thrown out of work and this year people will be kept out of work. New investment will not be made. Jobs will be diverted. Administration will take up time which should go into productive effort. That is what lies behind this 12½ per cent. rate.
  Last year we discussed where the idea came from. It was said that the trade unions wanted it and therefore the Government brought it in. I cannot believe that the trade unions were as misguided as to say that they wanted the 25 per cent, rate, any more than I suspect that they want the 12½ per cent. high rate. I believe the truth of the matter was that the right hon. Gentleman the Chancellor of the Exchequer was perhaps over-eager to meet what he thought were the trade unions' wishes, and like a collie dog, he jumped up to lick his masters' face
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  because he thought that it would please them. It did not please the trade unions. It did not please those people who were thrown out of work. It does not please us, and our advice is that the trade unions should now say "Down, Bonzo, down" and we should get back to 10 per cent.
  4.15 p.m.
  Mr. Ridley: I should like to congratulate my hon. Friend the Member for Guildford (Mr. Howell) on his speech. I agree with every word of it and I need not go over the ground he has so ably covered. First, however, I should like to ask where the Chancellor is. Is he not to come here and listen to the debate, when he should be here with the tears streaming from his eyes, apologising profusely to the House for the blunder he made last time? I do not know where he is. Perhaps he has locked himself in his room, as his right hon. Friend the late Prime Minister did on a similar occasion of defeat. He ought to come here and have the grace to apologise to the Committee for the appalling muddle he has got everybody into with this high rate VAT. He rather reminds me of Christopher Columbus who, when he set out, did not know where he was going, when he was there did not know where he was, and when he came back did not know where he had been—and did it all on borrowed money. That is what we should have had from the Chancellor.
  Dr. Jeremy Bray: The hon. Gentleman might also have added, of Christopher Columbus, that somebody else had done it already.
  Mr. Ridley: This has not been done already because nobody else has been foolish enough to try a higher rate of VAT. Surely, having admitted that he was wrong, the Chancellor should have had the grace to go back to the 10 per cent. rate overall. I cannot tell the Financial Secretary how much kudos the Government would have achieved as a result, because for once a Government would have admitted that they were wrong. They could have said, "We believe that we were wrong and we shall go back to what the Conservative Government did." That would have created a vast sigh of relief in the country as a

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  whole—that for once, in the long history of politics, a politician had admitted that he was wrong and had gone back to what was known to be right. That would have been the right thing to do.
  Mr. Ian Gow: My hon. Friend may have misunderstood recent developments in the Chancellor's mind. Far from returning to reality, he said yesterday that we were living in a world of economic miracles, and therefore the flight from reality continues.
  Mr. Ridley: But he has to do it because he has shaped the whole of his spending plans for the next five years on the achievement of an economic miracle. Therefore, he has to say that it is happening, otherwise he will be forced to change his expenditure plans. He is in a strange world because the Government's expenditure plans have not yet been agreed by the House—in fact they have been thrown out by the House—but we are proceeding on the basis that they are agreed and on the basis that an economic miracle will take place. But my hon. Friend diverts me. We should be talking about VAT.
  It seems to me that the timing of this has been particularly unfortunate because the time when the recession was perhaps at its deepest, when the damage that could be done to demand was highest, was the time when the Chancellor chose to put these tax increases on to boats, caravans, electrical goods, television tubes and all kinds of other things.
  The effect of this was probably to cause much more damage to employment and business than if it had been done at any other time. If this had happened at the height of a boom it might not have been quite such a bad thing to do, but to do it at the depth of a slump and now to take extra tax off shows an incredibly poor sense of timing.
  The reason why it was done was that there is a prejudice in the mind of the Labour Party. One sees it in everything. There is a prejudice in terms of what is socially desirable and what is not. Even people who work very hard but produce something that is thought socially undesirable are to be sacrificed. That is the extraordinary result of Socialism. It is better not to have prejudicies of that sort and to be impartial about what is produced.
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  If I were to criticise VAT at all it would be on the ground that there was no need to exempt food. That is perhaps making a sacrilegious statement, but I have always believed that the anomalies will remain and that the point of the tax is destroyed if there are different rates and if the tax is not applied across the board, to everything. The more rates that one has, the more difficult and damaging it will be.
  Shopkeepers will now have to keep registers of goods carrying 8 per cent. VAT and of goods carrying l2½ per cent. VAT—and of zero-rated goods. The difficulty caused by the carrying of the two rates is the administrative nightmare. As the two rates are now so close together—the 8 per cent. and the 12½ per cent. rates are not so far apart in regard to the ultimate price of items—it would surely be much better if the Government returned to a flat rate right across the board.
  I want to stress the point made by my hon. Friend the Member for Guildford. I hope that the Financial Secretary will not accuse us of wanting to cut taxation at a time of a high borrowing requirement. I do not think that anyone has ever accused me of wishing to be irresponsible about tax cuts in our Finance Bill debates. I want to see a 10 per cent. rate right across the board, which would bring in more money and not less. The fact that there are differing amendments, each trying to do it in different ways, is because we cannot move to raise taxation. It would be totally offside for the Financial Secretary even to mention that point. My amendment would reduce the rate to 8 per cent. and the amendment in the name of my right hon. and learned Friend the Member for Surrey, East (Sir. G. How) would reduce it to 10 per cent.
  I am interested to see, incidentally, that the right hon. Member for Devon North (Mr. Thorpe) has joined the Tory finance team as a junior member and that his name is at the bottom of the list of sponsors of the main amendment. Although he is not present, I should like to offer my great and deep condolences in the terrible tragedy that has befallen him. How good he was as a leader of the Liberal Party was demonstrated by his immediate desire to join my hon. Friends even in a junior capacity at the bottom

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  of the list of names. I certainly welcome him. I am glad that he will be supporting us in the debate.
  Finally, I should like to refer to the share of our gross national product that VAT and direct taxes take. Income tax has risen from taking 10·9 per cent. of GNP in 1974 to taking 13·4 per cent. in 1975. It is impossible yet to say what it will take in 1976, but it will clearly take more because GNP is falling and income tax is rising. However, indirect taxes have fallen from 13·8 per cent. in 1974 to 13·6 per cent. in 1975. Therefore, we have a situation in which indirect taxes are taking less and less and direct taxes are taking more and more.
  I believe that this is the wrong balance. I believe that we have to have both direct and indirect taxes. I do not want to talk about direct taxes now, but there comes a point at which one can take too much off people in income tax and too little off them in indirect taxes, because in a way, it gradually erodes people's freedom to choose. If they have very little money left anyway, it is not much help if goods are cheap. It is better to allow them to keep a greater proportion of their money even if goods are dearer, because they can then decide to buy X, Y or Z or to buy nothing at all. In a way, there is scope for such things.
  The whole VAT level is getting too low. Not only do I think that it should be restored to a single rate, which should certainly be 10 per cent., but I should prefer to see the level of VAT rise overall in the future. I would not even mind if it were 12½ per cent. across the board if that enabled reductions in income tax to be made. When we have the poverty trap and the taxation of people on very low incomes, it cannot be right that we should continually allow the share that indirect taxes take to dwindle while we increase income tax.
  Perhaps one does not need to dwell upon this debate. However, I think that the Chancellor should have come to the House and said that he realised what a mistake he had made, and he should have gone back to a flat rate. There is no virtue whatsoever in the 12½ per cent. rate as against the 8 per cent. It is not bringing in a great sum of extra revenue. It involves very little extra revenue. However, it is causing immense complications,
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  and the whole series of anomalies that my hon. Friend has mentioned is close in our memories from last year's Finance Act.
  I have one last thought. In these debates my hon. Friends and Labour Members are very assiduous. A number of hon. Members do not attend as much as others. But we sit here day after day, night after night, and we sit here for long hours. We do not do it just because we like it or because we cannot think of anything better to do. We do it because we hope that the Government are listening.
  Last year the Financial Secretary spent many hours listening to the argument against the higher rate of VAT. Why did something not happen? Why did we have to wait a year, until now? Could he not have said during last year's Finance Bill debates "Yes, I agree. I accept that this is the wrong way to do it, and we shall drop the higher rate."
  There are so many instances that I remember from last year's Finance Act, and that of the previous year, where the Government have rebutted arguments from the Opposition and then a year later they have enacted them—for example, capital transfer tax. I do not want to stray into that subject, but it is a prime example of something on which, if only the Government were listening and were prepared to accept the veracity of the points put in Committee, not only would they save themselves, traders and taxpayers a great many problems but they would make this place more real and they would make it worth while for hon. Members to come here and argue the case and to put points to the Government.
  However, there is that awful brief that says at the top "Resist". The word should be banned from Treasury briefs. The Minister should be trusted—I trust the Minister; I have great respect for him—to make up his own mind and to listen and to accept the arguments, if he thinks they are right, and to accept amendments. That is what Parliament is for. We should not have to wait for a year. It was a sorry day when the Government did not drop the higher rate last year. I hope that they will now agree to accept the amendments so that we can return to the flat rate, which is what we should have. That would be at least some justification for the existence of Parliament.
  4:30
  Mr. Jerry Wiggin: I find it a very attractive idea that the word "Resist" be replaced by "Listen, and then make up my mind". It is a wonderful idea and perhaps it could be implemented in the rest of the proceedings of this Committee. It would certainly make them infinitely worth while.
  I must declare a personal interest in that, as set out in the register of interests, I advise in particular the Ship and Boat Builders National Federation and the Racing and bloodstock industries, both of which have serious problems with VAT which I shall be mentioning.
  I am sorry that the Government have seen fit to table a Budget Resolution that so constricts the debate on VAT because this tax—a universal tax, I think one could say—applies to virtually every shopkeeper and retailer in this country and certainly to every individual consumer. It surely is right that during the passage of a Finance Bill we should have the opportunity to discuss the anomalies and problems created by the decision of the Government last year to introduce two rates of VAT.
  It would be ungenerous if one were not to start by saying that we are grateful and thankful for the 10 per cent. reduction in the higher rate. I think I am right in saying that the reduction from 25 per cent. to 12½ per cent. makes in real life a reduction of 10 per cent. on the price of the article to the consumer. It would be wrong not to be grateful for that concession, which recognises a need, as my hon. Friend the Member for Guildford (Mr. D. Howell) so amply demonstrated in his opening remarks.
  I suppose it is true that if one were to be knocked down and one's assailant placed his foot firmly on one's throat it would be a great relief to have the foot taken off the throat. Indeed, in the Middle Ages it used to be considered a prerogative of Royal mercy if one were condemned, to be hanged, drawn and quartered and the monarch removed the drawing and quartering from the sentence. It is only because of the disastrous decision and its evil effects last year that one is expressing gratitude today for the mercy shown by the Government.
  We warned, during infinite debates on the matter, of the consequences on
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  employment, company solvency and indeed, first and foremost, the revenue that would be received from this higher rate. Every one of those forecasts from this side of the Committee has come true. The employment situation in all the industries concerned, with the possible exception of photography and some hi-fi equipment, the majority of which is imported, has in every case suffered seriously. It has been the same, sadly, as regards solvency and revenue.
  It seems appalling to me that the Government consistently seemed to be unable to tell the House what the revenue was from the higher rate because the necessary statistics were not available from the Customs and Excise. It seems a very odd way of collecting this tax if it is not possible to find out what are its effects.
  My hon. Friend the Member for Guildford has so wisely and rightly put the case for a standard rate of 10 per cent. that I need not pursue that point. I am certain that if the Financial Secretary also had "think" at the top of his brief he, too, would accept the great advantages of adopting such a solution.
  The problems with collecting value added tax are surely well known by now to all hon. Members, but the extra burden of record-keeping and stock-keeping imposed by the dual rate has meant a vast increase in the number of hours put in by many small businesses or their part-time clerical assistants, who quite rightly resent being employed as unpaid tax collectors.
  Last year the Government said that the goods chosen to be taxed at the higher rate were mainly high-priced items available through a restricted number of retailers, but the reality has turned out to be that the actual items, particularly those goods suitable for use as parts of higher rated items, are available from a multitude of retail outlets, and this involves most High Street shops.
  Of course, there are anomalies with any system of taxation of this kind—I agree, for instance that it would have been better in some ways if children's clothing had not been exempted because many of the anomalies introduced with that concession would then not have arisen—but it is accepted that most of these anomalies had been sorted out by 1974. The operation of the standard and

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  zero rates was no longer causing difficulties and the Customs and Excise and most industries had come to terms with it. Thus to reintroduce all the complexities and all the anomalies made a mockery of even the old purchase tax rules in many cases.
  One of the points concerning the application of VAT that disquiets me most is the decision making in the operation of a dispute between the Customs and Excise and a retailer or manufacturer, or an organisation which is asked to help adjudicate in this matter. There is a clear temptation for human judgment alone to be relied upon and for the appeal procedures not to be carried out, because of expense and complexity. I accept that this is part of VAT and was part of the original legislation, but it deters the trader who is having difficulty with one small line from pursuing the matter. The inevitable result is that he ceases to stock that line. Rather than have a dispute with the Customs and Excise he decides not to bother with that item. So the matter rolls on, and it is astonishing how complicated some of these matters become. I have a letter here with which I shall trouble the House later on the subject of a simple item such as pumps.
  This point was accepted in last year's legislation and the items of general use that were quoted there, such as nuts, bolts, screws, batteries and road vehicle parts, are subject only to the standard rate of VAT. But this list is grossly too restrictive and a widening of the list would prevent a great many difficulties. Such items as electrical and electronic components—my hon. Friend the Member for Guildford has already raised the matter of electronic components—create severe difficulty, as do hardware and non-road vehicle parts, wire and fibre rope fittings, and many other items which various organisations have put to the Treasury. The Treasury can do something about this with an Order under Section 17(2) of the Finance Act, and I sincerely hope that it will.
  I have here a list of anomalies. I shall not bore the House with all of them but will just mention one or two. For example, the rowlocks on a rowing dinghy are higher rated because they are suitable for use as part of a boat, but the oars
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  are standard rated because they are an accessory to a boat. A lantern hung in a yacht's rigging is standard rated, but proper navigation lights are higher rates because they are fitted to the boat. One could go through a whole list of such difficulties. One particularly interesting example is that a trailer or trolley is higher rated under Schedule 7 when it is sold as an accessory to a boat but a recent tribunal decision has resulted in the coupling end of the trailer and trailer winches being standard rated. This leaves the framework and chocks as the only higher rated bits. So there is a whole new area here for do-it-yourself trailer kits with some parts at one rate and other parts at another rate.
  I wish to show the House how simple it is for the Customs and Excise to resolve this problem by reading a letter dated 27th April 1976 from Her Majesty's Customs and Excise to the Ship and Boat Builders National Federation concerning bilge pumps:
  "That which are suitable for fixing to and use on boats within Item 1 of Group 3 are regarded as chargeable at the higher rate under Item 6 of the Group whether they are electrically operated or hand operated. This ruling applies whether or not the particular bilge pump is also used for other purposes (e.g. in agriculture or industry). Portable bilge pumps, however, are regarded as accessories to boats and since they are not specified in Item 5 of Group 3, they are chargeable at the standard rate.
  As regards fresh water pumps (e.g. for galley use) these are not regarded as parts of boats and are not therefore chargeable at the higher rate under Group 3. However, certain of these pumps may be within the scope of Group 1 of the higher rate schedule if they are electrically operated and of a kind suitable for domestic use, which is regarded as covering use in any house, caravan, houseboat, etc. My colleagues who deal with Group 1 have recently had discussions with the British Pump Manufacturers Association to consider which types of pumps can be regarded as suitable for domestic use."
  It finishes by saying:
  "We trust therefore that the problems you have raised will now he resolved, but if this is not the case please do not hesitate to contact me again."
  That was 12 months after the higher rate was introduced, and I know that there have been hundreds of such letters to this one Federation alone. I know, further, that there are many other problems with various trade organisations being drawn to the attention of the Customs and Excise, and they can make their

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  decisions based only on a few lines in last year's Finance Act. I believe that we ought to have a very close look at that again and I certainly hope that my hon. Friend's propositions will not this time fall on deaf ears.
  I turn from the anomalies created by the higher rate of VAT to the racing industry for which VAT has, inadvertently perhaps, created problems in relation to its foreign competitors. The racing industry provides a substantial income to the Treasury in racing duties of about £100 million a year. Therefore, putting aside the employment, investment and export earning virtues of the industry, it should be of interest to the Financial Secretary because, without a prosperous racing industry, the Treasury will lose a great deal of money.
  Substantial evidence is building up that VAT is deterring foreign investors in race horses from bringing their horses here to race and to sell. In particular, they are sending their horses to France and to Southern Ireland. In Southern Ireland there is no VAT on bloodstock. France adopts a Gallic compromise by valuing the animal at its carcase value. For example, foals are valued at 7 per cent. on £200, yearlings at 7 per cent. on £282 and two-year olds and over at 7 per cent. on £400. That means that foreign owners will go to France or to Ireland, where there is other assistance as well, rather than to this country.
  This argument has been put to the Chancellor in great detail. As I know that many hon. Members wish to speak, I shall not go over the argument in detail again.
  There are two simple solutions. The first is to treat a race horse in the same way as a car, a boat or an aeroplane—namely, VAT only on the profit margin. That would be of great help. That system has been applied to so many inanimate objects that there is no reason why it should not be applied to horses.
  Alternatively, we should adopt the French solution which requires no legislation. It requires only an interpretation by the Customs and Excise of the value of the bloodstock concerned.
  I accept that there will be a small loss of revenue of perhaps £500,000 or £750,000. However, that seems a very
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  small price to pay for keeping within our shores one of our great national assets which has been built up over 200 to 300 years—the British thoroughbred race horse.
  It is no use pretending that, because the drain on our resources will go on for only two to three years, the damage can easily be repaired. It cannot. The blood lines which have been built up here are of inestimable value and are the future seedcorn of this industry.
  If the Treasury allows the export of our bloodstock to go on, the country itself will suffer. Last year 83 per cent, of all horses sold in this country were going abroad. I hope that the Financial Secretary will take note of this special pleading. This is not a big industry. It employs only 100,000 people including those in the betting industry. The proposal is important for both revenue and pleasure. We have a national investment in this industry.
  Value added tax can be made simple. It was introduced with the philosophy of being a simple tax. In my view, it is vital that it be so again.
  Mr. David Mitchell: I agree with my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) on the need for us to support moving away from taxing earnings towards taxing spending. One useful step in that direction would be the standardisation of VAT at 10 per cent. instead of 12½ per cent. and 8 per cent. The irony is that we should raise more money with a great deal less work for the trading community.
  The Chancellor of the Exchequer in his Budget Statement recognised the importance of easing the work load of the small business man, but, frankly, there is no difference in the work load in calculating 12½ per cent. or 25 per cent. We must he grateful for the reduction, but I remind the Financial Secretary that gratitude in politics has been translated as a lively anticipation of further benefits to come. We shall look forward to those benefits as we progress in Committee.
  The Chancellor's error last year resulted from his failure to listen to arguments from the Opposition. We indicated that if he imposed a 25 per cent. rate of VAT on so-called luxuries—items which

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  are in general use in old-age pensioner and 100,000 other households—he would bring about unemployment. The Chancellor introduced an experiment which did bring unemployment. He may say "Those people are not unemployed. We are experimenting to see what happens when VAT is suddenly rocketed up." The experiment has failed. It is a pity that the right hon. Gentleman is not here today to apologise for not having followed the advice which he was given last year.
  5.45 p.m.
  There are two great needs in the VAT system. The first is simplicity. Everybody thinks in terms of VAT being at 12½ per cent. and 8 per cent., but there is also the zero rate. Therefore, the trader has to deal with three different rates of VAT. The work load involved is the most important matter for many small businesses. I suggest that two changes could make a useful contribution. here.
  The work load is most severe on small businesses. The large business has a computer. It does not matter to the operation of the computer whether one presses the buttons for 12½ per cent., 8 per cent., 10 per cent., or 25 per cent., because out comes the answer automatically. But the wife of a small business man probably takes home the books to work on over the weekend. That happens in thousands of small businesses. If the hon. Gentleman does not believe what I am saying, I suggest that when he calls at his local garage to fill up with petrol he should ask "Who does the VAT in your business?" Almost invariably he will find that it is the proprietor's wife who does it—[Interruption.]—and that is the way in which the evenings and the weekend are spent. I gather that the hon. Gentleman is supporting—
  Mr. James Dempsey: I was merely saying that she does it with a pocket computer.
  Mr. Mitchell: The hon. Gentleman refers to the use of a small calculator. That is very different from having one's books run through a computer. The small business man has to keep records of all his sales and individual purchases and to apply the various rates of VAT to them. If the hon. Gentleman had ever done a VAT return, he would not smile
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  so benignly considering the work load involved. I have done one. It is a long, tedious and unpleasant job for anybody to do.
  Mr. Dempsey: I have done more than that.
  Mr. Mitchell: Therefore, this is a serious matter for the small firm.
  VAT was introduced with a cut-back limit at the bottom of £5,000. That was in 1972. That is now equivalent to £8,600 in round figures. By the time that this Finance Bill becomes law, taking account of the rate of inflation, I have no doubt that it will be £9,000. Before next year's Finance Bill £9,000, or more, will be equivalent to £5,000 in 1972. If it were right in 1972 to exempt small businesses which had a turnover of £5,000, it must now be right to exempt small businesses with a turnover of £9,000. I urge the Chancellor to examine carefully the possibility of making such an exemption.
  I have been doing some research into this matter. I have turned up the astonishing fact that no fewer than 250,000 firms would be exempt from VAT if that exemption were brought in. They would also not have the work load which goes with calculating the VAT. Therefore, the time that is taken in that exercise now could be devoted to getting on with and running those businesses. That is what they are in business for—to produce things for the country, to provide a service for the local community or whatever it may be. I strongly urge on the Chancellor that he should take this step.
  The complexity of VAT is well illustrated by the case of a small business man, a constituent of mine, who came to see me in my surgery last week. He is a plumber. He had a vague idea about the tax but did not quite understand it. He registered for VAT when, in fact, his turnover was below £5,000 and he did not in fact have to register. He thought it was necessary to collect VAT off those customers with whom he traded who were registered for VAT. This confusion may perhaps cause a certain smile in some quarters of the House, but in reality, it is so complex that this is the sort of confusion which arises in the minds of some hon. Members and very large numbers of small business men.

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  This plumber collected VAT off three companies for whom he was doing plumbing work and received about £60. He kept it carefully and made his VAT return on that basis. Naturally he was told that this was not right. He explained what he had done and was told, "Give us the £60 and that will do". He gave them a cheque for £60. He then became acutely aware of just how complicated it is to try to run a small business in this day and age with all the returns, regulations and problems with which one has to comply. VAT was just about the last straw. He decided to give up, stopped running the business and went to work for somebody else. Then, last week there arrived through his letter box a letter from Her Majesty's Customs and Excie demanding immediate payment of £183·10 which appeared on the return for 1973–74. The letter added:
  "Unless this is paid immediately at the above address an authorised person will be directed to levy distress on your goods and chattels without further delay and you will be left to pay the cost of charges incurred."
  If I give the Financial Secretary the name and address of this particularly unfortunate gentleman, will he look into it? It seems to me that to harry a man to pass over money which he has not collected is to misuse the whole purpose of VAT. I urge the Minister to take steps to see that the smallest small business men are taken out of the tax as a whole, as was the intention of Parliament when it was first introduced.
  Mr. Douglas Crawford: I do not want to cast myself in the rôle of Christopher Columbus but I am delighted to be sitting on the same bench as a fellow-countryman of Madoc, who beat Christopher Columbus by several centuries. In this context I would congratulate my hon. Friend the Member for Caernarvon (Mr. Wigley) and his party, Plaid Cymru, on their magnificent success in Wales last week.
  One should not be too carping in the criticism levied against the reduction of VAT from 25 per cent. to 12½ per cent. A decrease is a decrease, and I suppose that we should welcome that as such. I would like to ask the Treasury Minister one or two questions. Does he not agree that most traders would not object to the bottom rate being raised from 8 per cent.
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  to 10 per cent., and has he bothered to ask them? Has he paid attention to what Chambers of Commerce and Chambers of Trade have said on this matter? I presume he is aware that small traders do not have an army of civil servants to help them do their VAT returns.
  The Minister may know what a capacitor is, and, obviously, from the little word at the top of his brief he will know what a resistor is, but has he actually run a small business or have any of his hon. Friends run a small business?
  Mr. Douglas Henderson: That is what they are doing at the moment.
  Mr. Crawford: As my hon. Friend for Aberdeenshire, East (Mr. Henderson) says, "That is what they are doing at the moment." The administrative difficulties of multi-rate VAT and its affect on small traders mean that they have to work literally night after night after night. In addition there is the levy on the self-employed first proposed by the Conservative Government in 1973 and increased by the Labour Government subsequently. The imposition of mult-rate VAT will continue to demoralise small traders and, as the hon. Member for Basingstoke (Mr. Mitchell) said, will drive them out of business.
  This is all the worse now that inflation has eroded the threshold at which VAT becomes payable. The £5,000 threshold of a few years ago has risen by between £3,000 and £4,000 today. The Scottish National Party would like to see the threshold raised to at least £10,000 or £15,000. Having said that, I can add my party's view to that of the Conservative Party in urging the Treasury Minister to accept the amendment.
  Mr. George Younger: The first question the Minister must not shirk answering this afternoon is why almost everything the Government argued this time last year had to be swallowed as true yet by a remarkable turnabout, the 25 per cent. rate last year has now been abandoned and the 12½ per cent. rate substituted for it. In asking the Minister to say something about this I should point out to him the shortness of the time in which clearly the Government have changed their mind. Last year's debate on the Finance Bill lasted, as such debates

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  usually do, right through the summer and did not terminate until July. Now, in the following May, with the Budget only one month old, the Government have done a complete U-turn. Since the Government did not resist our final amendments until July last year and they clearly decided on the change some time in February or March, at least a few weeks before the Chancellor made his Budget Statement this year, the difference is little more than seven or eight months.
  The Minister must tell us why all the arguments we put forward for so many weeks last summer were resisted week after week by the Chancellor and then only such a short time later were reversed. As my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) said, it does not help Parliament when it is seen that it is powerless to force such a sensible change on the Government and yet seven months later the Government. propose the change as if they had thought of it themselves. I hope that the Minister will come clean with us. What was it which happened between July 1975 and February 1976 which convinced the Chancellor that what we said last year was right and that what he and his Ministers said was so wrong? It would help the proceedings of this Committee if the Minister would come clean on that point.
  I would like to say a word about the whole concept of luxuries which last year led the Chancellor to introduce the 25 per cent. higher rate of VAT. The concept is still here this year albeit reduced from 25 per cent. to 12½ per cent. The Chancellor must tell us more about why he was wrong last year in the degree, at least, of this concept of luxuries. He must tell us why he still sticks to the idea at all. It would help him, if he is to carry any public credibility for what is being done, to explain to the House, and through the House to the country, why it is that the Government consider that all these things should still have a high rate of VAT and why they are said to be a luxury.
  5.0 p.m.
  The Chancellor and the Government seem to have a distorted view of the value to the community of making and selling these goods. They have a fixed
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  vision of some well-heeled people luxuriating in the goods listed in the schedules to last year's Finance Act, as if that were the only thing that mattered. But surely, even if some particular luxury is ultimately enjoyed by one well-off individual who can look after himself financially, such goods are still of great importance to many people besides that individual.
  This is what caused so much resentment in the past year among workers and those who run businesses and are engaged in making and selling these goods. It is not their fault that the Government consider that the use of these goods is somehow undesirable. When they are put out of work, they do not feel any better about it because someone who might have enjoyed using those luxuries will no longer do so. All that matters to them is that their job or their firm is being severely hit, in some cases put out of business, because the Government have decided that the eventual purchaser is in some way undesirable.
  Therefore, will the Financial Secretary come clean on that as well? Does he still think, with this "lower higher rate", that there is something undesirable about people using these goods? Does he think that they are anti-social, and if so, why? Would he explain to those whose only job is making these goods whether they, too, are undesirable to the community? He could not argue last year, and certainly cannot argue now, that those who are still being put out of work by the higher rate will be able to give up those jobs and to get others easily. Other jobs are difficult to get at present.
  One point made last year is every bit as true now—that some of these goods which appear to the Government to be luxuries are necessities for some people. Much has been said about the desirability or otherwise of the higher rate on yachts. I can at least understand, although it was ridiculous, the argument that Ministers made about that. But many people in the remote areas, particularly the Highlands of Scotland, where I come from, regard a boat as essential for their normal lives, not for business purposes but purely for getting about. They have been particularly hard hit by the higher rate when life is already pretty expensive. I hope that the new medium rate will

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  help them, but it would be better to forget all about the concept of luxuries.
  We now have evidence—last year it was speculation—that that higher rate has hit the boat building industry hard. The industry has been exporting with growing success for many years and it is certainly important in some areas of the country. We now know that the higher rate has hit domestic sales so hard that many of these firms will either have to go out of business or curtail their activities. This is having a direct and adverse effect on their exports. That cannot be in the interests of the Government or the country and certainly not in the interests of those working in boat yards who are in danger of losing their jobs, if they have not already lost them.
  Finally, in the hope that the Minister will listen more sympathetically than he did last year, I add my voice to what has been said about making VAT simple. As a new concept, the tax was complicated to those who had to operate it. The first time that I studied VAT documents with constituents, I also found them complicated. But once one has become familiar with them, the system becomes easier and can at least be dealt with.
  I emphasise to the Minister the absolutely fatal mistake of adding extra rates. The system depends for its suitability to small businesses on there being the smallest possible number of rates. Two rates is as many as are reasonable. Like many other hon. Members I believe that the evidence of the past year is that three rates brings us near the point at which the last straw breaks the camel's back. As my hon. Friend the Member for Basingstoke said, literally hundreds of thousands of small businesses have been brought into the VAT net and have to do their returns under pressure, often in their spare time. Reducing the number of rates would make all the difference in the world to them.
  If the Minister listens to these debates with any intention of being prepared to change his mind, I beg him to look again at the problem of three rates. Our suggestion, which cannot be properly expressed in amendments, is, I hope, perfectly clear—that it would be far better to abolish the higher rate and to return to one standard rate of 10 per cent., even though that would mean raising the rate
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  on some goods. These are not new points—my hon. Friends have raised them powerfully before—but I hope that the Minister will consider this year's Finance Bill as a different operation from last year's.
  Last year, the new brooms were anxious to show that their tax methods would work irrespective of difficulties, but this year we know that major mistakes were made which could have been avoided if they had listened to the Opposition. That is why I hope that the Government will pay attention to us this year and make it clear that they are prepared to do so.
  Dr. Bray: Like other Labour Members, I have been defending the 25 per cent. rate for the past year and I shall do my best with the 12½ per cent. rate in the coming year. But could the Minister help me a little? The 25 per cent. rate was defensible in that it departed substantially from the 8 per cent. and thus had undoubted economic effects, for better or worse, in shifting the balance of demand, which is presumably one point that the Government had in mind. The 12½ per cent. rate differs so little that it is difficult to see it having a major effect on the balance of demand.
  I should have thought that any economic regulator significance of the 12½ per cent. must be minimal, but presumably there is a revenue case. The yield from l2½ per cent. is over half as much again as the yield from 8 per cent. and that is substantial, but there is also a cost for some people. We can directly estimate the cost to the small business in making out two different sets of returns, which must be a significant burden. What we cannot estimate are the additional costs to the Customs and Excise in raising the tax at the two different rates.
  I was somewhat concerned that, in reply to a parliamentary Question from me the other day, the Financial Secretary could not estimate the savings to the Exchequer of a reduction to a single rate at 10 per cent. or 8 per cent. I wonder whether he could estimate those savings today. If they are totally trivial, clearly the 12½ per cent. rate becomes a little more defensible. I refer to only one equity consideration in the distinction between the 8 per cent. and the 12½ per cent. rate—the inclusion of domestic

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  equipment in the higher rate. Legislation in the House is often dominated by male chauvinist pigs but it is arrant nonsense to tax the capital equipment of housewives while subsidising the capital equipment of male workers.
  Mr. Dafydd Wigley: I should like to thank the hon. Member for Perth and East Perthshire (Mr. Crawford) for his kind remarks about my party's fortunes last week. Merthyr Tydfil may not be entirely irrelevant to today's debate because 5,000 employees in a washing machine factory there were laid off partly because of the effect of the 25 per cent. rate of VAT on washing machines.
  I want to take up the point the hon. Member for Ayr (Mr. Younger) made about the three-tier system of VAT. I do not object to the concept of a higher rate of tax on luxuries but what I do not agree with is the Government's definition of luxuries. The Government had a strange idea of luxuries last year. It is not difficult to accept higher rates of tax on jewellery and furs, for example, but it is very odd to put that higher rate on washing machines and domestic equipment. There was another anomaly. Garden rollers carried the lower rate whereas garden cultivators were taxed at the higher rate. The roller is used mainly on lawns which could be regarded as a luxury whereas the cultivator is concerned with the more necessary process of growing food.
  But the system of VAT was introduced by a Conservative Government. It falls short on all the definitions of a good tax. There are three criteria for a good tax. It should be equitable and seen to be so but, as we have heard from hon. Members today, VAT is not equitable. It should be cheap to administer, but VAT is not because it is such a complex system. The hon. Member for Motherwell and Wishaw (Dr. Bray) mentioned the cost to the Government, and certainly the cost to small businesses is astronomical. Businesses employing only two or three people have to allocate an employee on three half-days a week to deal with the tax.
  Not only should the Government look at the possibility of raising the threshold
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  from £5,000 to £10,000 to take account of inflation but they should consider some form of rebate of, say, 20 per cent. up to the value of between £1,000 and £2,000 a year, in acknowledgement of the work that small businesses have to do on behalf of the Government. Other countries have carried out such experiments, including, I believe, Canada. It is only fair to compensate small businesses for the loss of labour which they could otherwise use for more profitable work. There should be some recompense for collecting the tax.
  Thirdly, a good tax should also be easy to understand. We have been told today of an instance of a person misunderstanding the tax. I have heard of a number of similar examples recently and before I became a Member of the House. The tax is difficult to understand and it is, therefore, not ideal.
  5.15 p.m.
  Given that we must live with it for some time, ways of simplifying it must be examined. Although there may be good social arguments for a higher rate on luxuries we must face the reality that since there is now such little difference between the two rates it is logical to have only one rate. The arguments in favour of easier administration are overwhelming and whether the standard rate is 8 per cent., 10 per cent., or 12½ per cent., the Government must think again.
  The tax is forcing small companies out of business. Two or three firms in my constituency have given VAT as a reason for going out of business. Many small companies struggling against the system are in an almighty tangle with their taxes, and that could come home to roost in the future. I urge the Government to consider the possibility of a standard rate for the future and not to repeat past mistakes. I urge the Government to ensure that there is a stable tax policy which. even if it is not entirely ideal to everyone. is generally acceptable, and certainly more practical.
  Mr. John Wakeham: I support the amendment. Many arguments in favour of it have already been made by my hon. Friends.
  I wonder whether my hon. Friends and I are being too charitable to the Chancellor of the Exchequer in suggesting that

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  he has learned the lesson of last year's mistake. In his Budget speech the Chancellor said the changes that he was introducing arose from today's different circumstances. If the circumstances are now different, can the Chancellor explain in more detail what those differences are—or is it that a mistake was made and that a welcome correction has now been made?
  I should like to know more about the Government's thinking on multi-rate VAT as opposed to a single rate. The present system is complex and cumbersome. Many of its disadvantages have been described, both today and previously, by my hon. Friends. The Government must clarify the advantages that they see in the present system, particularly now that the rates are so close together.
  Have the Government taken on board the staggering lessons to be learned about the effect of a change in taxation upon industry and the country? Multi-rate VAT is a clear example of how little Ministers outside the Treasury know about the effects of a sudden, dramatic change in taxation.
  I take as an example a constituency interest, the building of small boats. As soon as the 25 per cent. rate of VAT was announced I put down many Questions to a number of Departments which I believed should have been interested in the effects and should have been considering what was likely to happen in the country. I was staggered to find that there were very few answers. Certainly the Treasury had a rough idea how much revenue it would raise, or intended to raise, though I am not sure that it was even correct about that. But apart from that, the tremendous effects that I thought were likely to be apparent to anybody who thought about the increase in taxation appeared to have been considered by none of the Departments concerned. For example, the Department of Employment had no idea of the effects on employment or training opportunities.
  The small boat building industry, of which I am talking in particular, is highly skilled. The necessary skills are acquired not by book learning but by long apprenticeship and experience gained in many years' work. Once such a labour force is dispersed, it is likely never to be replaced.
  There was little idea of the likely effects on home sales, and there was little
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  evidence of any thinking by the Government as a whole about the effects on exports. We all pay credit to those firms which managed to save themselves by exporting. A number of firms in the small boat building industry have done a good job in maintaining their business by exports, but many found severe difficulties in surviving and therefore being able to export.
  In supporting the amendments, I think that the lessons to be learnt are very clear. I hope that the Government have taken them on board. Obviously, a 12½ per cent. rate is better than 25 per cent., but I hope that the Government will now investigate the effects throughout the country of their foolish steps last year, so that we learn the lessons for any future changes in VAT.
  Mr. John Loveridge: We welcome the Government's reduction of the upper rate of VAT to 12½ per cent. At least the Chancellor of the Exchequer can learn, but he learns at someone else's expense and suffering.
  We have heard how 5,000 jobs were temporarily lost at Merthyr because of the high rate, and we know that Thorn Electrical lost 1,400 jobs largely for the same reason. There are also innumerable small firms which cannot be named in the same way which have lost staff and therefore added to the unemployment caused by these widely differential rates.
  It would be simpler to have a single 10 per cent. rate. That would give more revenue to the Government and would be easier for those who have to administer the work. It would be easier especially for the small business people who have to do the computations themselves when they are tired in the evening. How much of the effort and energy of industry is being lost by adding these endless small items of administration on to people who are trying to produce goods for the home market and export?
  The Chancellor said last year that unemployment that year was not an instrument of policy. Did the right hon. Gentleman mean that? It does not seem that he did, because we see how, with the higher rate of VAT alone, his Finance Act brought about higher unemployment and the misery that goes with it.
  It is not only a question of jobs at home. It is also a question of selling

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  British goods overseas. Surely the Government wish to encourage that. We all know that high sales in the home market lead to higher sales in overseas markets, as unit costs fall because factories are more fully employed when they sell to the maximum of their productive capacity. How much of British industry is at a very low level of output, barely covering overhead costs from sales?
  What was done to research the change? Who knew what effect the different taxes would have? The Government called them luxury taxes at one time. We can see how they differentiate with care between the rowlocks and the oars mentioned by my hon. Friend the Member for Weston-super-Mare (Mr. Wiggin)! But are there not other factors even more important than the luxury element? We know that industries with a high capital base in relation to their turnover will be more affected by a high level of VAT than those with a low capital base in relation to turnover. Did the Government take that into account in deciding on 25 per cent. last year and now 12½ per cent.? I cannot help doubting it.
  My hon. Friend the Member for Maldon (Mr. Wakeham) spoke of the need to know more about what we are doing when we set and change tax rates. Of course that is so. There is a great deal of confusion about what happens when we change our taxes. There is a much greater effect of a change in taxation at one particular point of trading than at another.
  Here I want to quote from the First Report from the Expenditure Committee for the Session 1975–76 on "The Financing of Public Expenditure", based on the great deal of evidence that was taken. It said:
  "Ministers and Parliament could be better informed by the results of modern research methods and it might even be that some controversies over taxation would be eliminated once research into them had been done. We therefore recommend that the Treasury, in conjunction with the Revenue Departments and the Social Science Research Council, should review their arrangements for taxation research with a view to providing published research into matters of current interest on a more regular and adequate basis."
  That is certainly necessary. I remember asking what research was being done in
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  this country and being told that Professor Brown was doing some research.
  Mr. John MacGregor: At Stirling University.
  Mr. Loveridge: I am grateful to my hon. Friend. I wish Professor Brown luck. Is he alone to bear the burden of discovering how tax affects the public? Should there not be more research by the Government themselves?
  The view was also put forward that decisions about levels of taxation and their results were matters for Ministers. That is true, but we might as well have Ministers who are well informed by good, modern research. We do not, however, need research everywhere. There are some places where a little common sense might serve.
  My hon. Friend the Member for Basingstoke (Mr. Mitchell) pointed out that possibly 250,000 businesses were busy on value added tax work when a simple adjustment for inflation, raising the cutoff point from £5,000 to £9,000, would allow up to that number who chose to opt out to do so. It seems to me sometimes that this Government are not so keen after all on stopping unemployment. That is in the tradition of Labour Governments! If we go back over half a century we find that from 1929 to 1931 unemployment more than doubled under that Labour Government. Between 1945 and 1951 it doubled again, and between 1964 and 1970 it went up 50 per cent. From 1974 to date, unemployment has already doubled.
  The point I am making is that the setting of one element of VAT at a much higher rate than another inevitably brings higher unemployment, loss of sales in the home market, and loss of sales abroad.
  The need for research on this, and other taxes as well, is vital to the welfare of this country. Would the Financial Secretary ensure that greater knowledge, greater research and more informed advice is given to Ministers about the effects of their decisions, through establishing a new department at the Treasury.
  5.30 p.m.
  Mr. Hector Monro: I want to support what my hon. Friends have said in relation to these important amendments. I believe we should go back as soon as possible to the single rate of

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  taxation in aid of simplicity and cutting down administrative work.
  When the Minister replies he should tell us more about the reasoning behind the welcome change from the 25 per cent. to 12½ per cent. higher rate of VAT. Perhaps he could tell us how much the Government gained or lost by increasing the rate of VAT last year, because many of us believe that he gained nothing at all, on account of the diminishing returns. Did the higher rate of VAT do the country any good whatsoever in relation to domestic goods? If the Minister can face the test of eating more humble pie perhaps he would tell us why he turned down our valid arguments against the 25 per cent. rate this time last year, but has now apparently accepted what we said then, and has reduced the tax substantially this year.
  I hope he will tell us why the Chancellor has at long last seen the light in relation to sport and recreation, after 12 months of contemplation. My hon. Friend the Member for Weston-super-Mare (Mr. Wiggin) argued very firmly about the impact of 25 per cent. rate on the boat-building industry, and the sports of sailing, canoeing, gliding, and flying light aircraft, all of which had a very difficult year as a result of last year's decision. It would be very interesting to know why the arguments which were unacceptable 12 months ago are right now—right enough, in fact, to cut the rate back to 12½ per cent.
  Like my hon. Friends I would prefer to see a 10 per cent. rate even on so-called luxury goods. Many of these goods are not luxuries. They are essentials. The arguments in favour of a flat 10 per cent. rate are so clear that the Minister has a strong case to answer if he still wishes to retain variable rates.
  The boat-building industry was hit so hard that we would like to know whether the Minister collected any figures showing the substantial loss of jobs because of a very difficult home market in the sale of boats in the last 12 months. Can the Chancellor offer any form of apology for the damage he did to the industry by increasing the rate to 25 per cent?
  I hope the Minister will accept the arguments of my hon. Friends in relation to small businesses, and on the additional simplicity of one rate in dealing with the administration of VAT. He, and many of
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  his colleagues, under-estimate the large amount of work involved filling in forms and sending them to Southend, or where-ever it is, and caused by the operation of this tax at more than one rate. If we stick to one rate it cuts out a large amount of work.
  In supporting these amendments I rub home with some degree of pleasure and satisfaction the fact that the Minister must admit that 12 months ago he was wrong in putting the rate up to 25 per cent., as this has had extremely damaging effects on industry, sport and recreation. Could he explain in clear terms why he could not accept a lower rate last year, but can do so now?
  Mr. Dempsey: I would like to thank the Chancellor and his colleagues for reducing the rate of VAT on, for example, repairs to washing machines. I was one of the Members on the Government side who criticised the Chancellor and his colleagues for introducing a tax on essential services such as washing machine repairs, to the detriment of the housewives of this country. I said at the time that a washing machine is not a luxury item, but an essential part of a housewife's equipment, and it should have been spared the charge of 25 per cent. tax. As one of the Chancellor's most bitter critics over the introduction of such a high rate of tax, I take this opportunity of thanking him publicly for paying attention to the representations that were made, and reducing the rate to 12½ per cent. I still think it is too high, because we all know that a washing machine is an integral part of household equipment and is something the housewife cannot possibly do without.
  I would have preferred to see the 25 per cent. rate kept on pleasure yachts and other such luxuries, and the very lowest possible rate operating on producing parts for and carrying out repairs to essential equipment such as washing machines.
  Conservatives are complaining about the operation of VAT, but they are the ones who introduced it. I voted against it, because I did not think it an appropriate tax to introduce into this country, probably because I am not very pro-European. One hon. Member of the Opposition had the temerity to suggest that I did not know anything about the operation of these taxes. He could not be further from the truth. I spent most of my

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  life applying purchase tax, and there were more than two rates of purchase tax.
  Some of the rates which operated in my time were 2½ per cent., 5 per cent., 7½ per cent., 10 per cent., 15 per cent., 20 per cent., 25 per cent., 33⅓ per cent. and even 40 per cent. They had to be applied to many essential articles of domestic equipment under Conservative administrations. Even then it was shown quite conclusively that it was well-nigh impossible to operate revenue collection with a proliferation of rates of purchase tax on different types of commodities. We should be fair and honest about this, irrespective of which party is in power. It is impossible to operate a system of taxation involving multiple rates without creating anomalies.
  We spent years with the late Sir Gerald Nabarro drawing attention to all the different types of anomalies of taxes imposed by the Conservatives. There was the brush for brushing down a horse; it did not attract tax; but the brush for brushing a waistcoat did. We talked about well-built young school girls of 13 who required larger sizes of shoes and had to pay tax upon them while young female workers who were not so well built and took a smaller size paid no tax. An umbrella used in the street attracted tax, but if one sat on the bank of a river fishing for salmon the umbrella one used to keep off the rain did not attract tax.
  There are still dozens of anomalies and it is well-nigh impossible to eliminate them. Nevertheless I should like to see them minimised. People who run small businesses would prefer a single rate of tax, and if it is prudent for the Exchequer to pursue such a policy it should be done. For that reason I should like to know how much the Chancellor would expect to lose in revenue if the 12½ per cent. race of VAT were reduced to 10 per cent.
  In any comprehensive system of revenue raising such as we pursue it would be morally wrong and unjustifiable to tax everything at the same rate. There are luxury goods and there are essentials. The trouble is that Governments seem unable to get their priorities right. A washing machine is essential, as is an electric cooker. The replacement of spare parts for and the repair
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  of these items is equally essential, and therefore, we should reduce the tax on them. I hope that the Government will bear these important points in mind and that everything will be done to ensure that the right item is subject to the right tax, and that commodities which are so necessary for the day-to-day use of families attract as little tax as possible.
  5.45 p.m.
  There has been some grudging admiration from the Opposition for the Chancellor's response to pressure on him to reduce the 25 per cent. rate on many items of household equipment and to meet the needs of small business. We should be courageous enough now to say that we are grateful for small mercies, and that we hope that the reduction in this rate of tax will continue.
  Mr. Gow: The Committee stage of the Finance Bill is by definition concerned with the minutiae of the measure. Hanging over the Committee and the clause today, however, is the Government's borrowing requirement which runs at the terrifying figure of £12,000 million.
  I want to begin by examining the history of VAT during the two years in which the Chancellor has held office. When he arrived at the Treasury there was a single rate of VAT at 10 per cent. In July 1974, three months before the General Election, he reduced the 10 per cent. rate to 8 per cent. Some of my hon. Friends and I voted against that reduction. One month after the election he increased the rate of VAT on petrol from 8 per cent. to 25 per cent. and then in his Budget Statement last year he said
  "As I explained in my Budget Statement in March last year, the structure of VAT which we inherited from the previous administration suffered from the major inadequacy of its dependence on a single positive rate." —[Official Report, 15th April, 1975; Vol. 890, c. 302]
  The Government are beginning to recognise that there is not a vice but a clear virtue in a single rate of VAT. Slowly, reluctantly and with ill grace the Treasury Bench is moving towards precisely that situation which it inherited from my right hon. Friends.
  The arguments advanced by my hon. Friend the Member for Ayr (Mr. Younger) calling for simplicity in the tax

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  system are accepted overwhelmingly outside this Committee. It is time that in framing our fiscal legislation the Government put at the top of their list the objective of simplicity. We must be thankful for small mercies. It is true to say that provisions related to VAT in this Bill cover only seven clauses. But the administration of VAT with the present three rates plus zero rating imposes upon traders and industry complexities which would be removed in part by a single rate of tax as we now advocate.
  There is another and much more serious aspect of Clause 14. I have referred already to what I regarded at the time and still regard as the highly irresponsible attitude of the Chancellor in July 1974 in reducing the rate of VAT. There is a strong case for going even further than the amendment. If we are to reduce the public sector deficit, there will be two essential ingredients, the first of which is an increase in certain rates of taxation in the short term, with a reduction in public expenditure.
  There is a strong case for increasing the 8 per cent. standard rate and 12½ per cent. so-called luxury rate to a combined rate of 15 per cent. That would make the necessary psychological impression on the British people that we can no longer continue with the policy of deception which is involved in the borrowing of £12,000 million a year.
  The Committee should support the amendment because a single rate of 10 per cent. would produce more revenue than the dual rates of 8 per cent. and 12½ per cent. It is a step in the right direction. However, we need to recognise on this side the possibility that it may be necessary to go beyond the amendment and to have a single rate of 15 per cent.
  Mr. Tony Newton: I wish to speak fairly briefly and to raise just one specific point. However, I should first like to make a few observations on some of the earlier speeches.
  The hon. Member for Coatbridge and Airdrie (Mr. Dempsey) constructed a most delicately balanced platform for himself by saying that he had supported the 25 per cent. rate, now supported the 12½ per cent. rate and, as far as I could judge, would support any rate brought
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  forward by the Government. He justified his views on the ground that the Chancellor of the Exchequer needed to be able to alter the balance of demand—which is a nice way of saying that he is creating unemployment in a wide range of industries.
  Having built this platform, the hon. Member put his foot right through it by accepting the argument which we put forward last year about domestic equipment. Though there are no clear figures, most of the revenue raised by the higher rate of VAT came from this kind of equipment— refrigerators, washing machines and even garden equipment. Once the argument is accepted that it is unfair to tax this domestic equipment when subsidies are being given on industrial equipment, the whole case for the higher rate is destroyed.
  My hon. Friends seemed to have been unduly kind to the Ministers on the Front Bench and even more so to those who are not at present on the Front Bench but should be. My hon. Friend the Member for Guildford (Mr. Howell) implied the Government had got it wrong but suggested that it was an honest mistake of the kind anybody could make and that it was a pity that they had not taken the advice offered to them. My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) suggested that it was the fault of officials in the Treasury and Inland Revenue and that if only Ministers had heeded their own innate political wisdom, we should not have got into this mess.
  The truth is that this was a political decision. That is how we got into this mess. Surely no one believes that the Customs and Excise or the Treasury wanted the problems of a dual rate VAT. It was dreamed up because the Government were looking for a good story to sell to the electorate in order to get a quick election after February 1974. One part of the story—which enabled the Chancellor of the Exchequer to use the celebrated 8·4 per cent. claim in the middle of the campaign—was to cut VAT from 10 per cent. to 8 per cent. during the summer.
  After the election, the Government found that they had got their sums wrong and that they needed the money after all. They could not put the rate back to 10 per cent. because that would have been

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  an open admission that they had tried to con the electorate. Consequently, we had this ridiculous 25 per cent. rate which has caused considerable damage to industry and considerable unemployment.
  The Government still do not want to go back to square one and to admit that the whole sorry episode has been a mess, so now we have a 12½ per cent. rate—only 2½ per cent. different from the original 10 per cent. rate.
  This is precisely the kind of thing which gets politics and Parliament a bad name and which causes the accusation which, as practising politicians, we hear too often, that someone is "playing politics". I am not suggesting that this is confined to one side of the House. That would be absurd. But this episode has been one of the worst examples of its kind in recent years and it goes a long way to explain why so many people hold our proceedings as Governments and Oppositions in so much contempt.
  This Government action was not only playing politics. It was also playing with people's jobs. There are many people who were made unemployed because of this political gamesmanship. I hope that Ministers will not be allowed to forget this fact in those areas where real problems of hardship have been caused by the Government's decision last year.
  It is important that this lesson should be taken on board if we are to avoid making the same mistake again. This business of using the so-called luxury or less essential industries as economic regulators by vast changes in their taxes or the hire-purchase controls on their goods has been one of the most damaging single features of British economic policy since the Second World War. If we have not learned that lesson by now, heaven help us. That is the reason our motor car, television and domestic equipment industries are facing their present difficulties and why we are facing a flood of imports. We have constantly messed about with the basis on which these important industries operate. If we get nothing else from the Government, I hope that we shall have an assurance that there will be no more messing about on these lines in future.
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  The 25 per cent. rate was both damaging and idiotic. The 12½ per cent. rate may be a little less damaging—though a great deal of damage has already been done—but it is certainly no less idiotic. I support what my hon. Friends have said about getting back to a single, sensible, moderate rate of VAT across the board, and I shall have no hesitation in supporting the amendment.
  The specific matter to which I referred at the beginning of my speech was brought to my attention by a constituent. I have no direct financial interest in the matter. It concerns submersibles, which is a technical word to describe the midget submarines which are being used extensively in exploration work in connection with North Sea oil and gas. Because they are less than 15 gross tons—the definition contained in last year's Bill—they are regarded as boats and taxed at the higher rate. This has been causing financial and cash flow difficulties for at least one of the companies which makes these vessels.
  I think that the Financial Secretary will be aware—certainly some of his staff will be—that there has been extensive correspondence on this matter with his Department and with others. The problem was brought to my attention when the higher rate was 25 per cent. Obviously it is not so much of a problem at 12½ per cent. Nevertheless, matters remain that much more difficult than they need be because the payments have to be financed—and the interest charges can be very high—before the repayments come along. It seems ridiculous that these pieces of equipment, which for all practical purposes can be used only for business work, and principally for exploration in the North Sea, should attract the higher rate at all.
  6.0 p.m.
  I understand that the Treasury has raised the argument that the problem may be resolved by a certain amount of shuffling of accountancy. That is because the supplying firm is part of the same group as the operating firm. I understand that that shuffling is not seen to be a solution by the companies involved and that efforts along those lines would not entirely resolve the problem. Secondly, even if they would resolve it for the two companies within the group, they would

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  not resolve it for other companies involved in similar work which are buying submersibles from suppliers outside the country, and which are often in competition with them. The Treasury's argument does not hold.
  The second Treasury argument is that there is a difficulty in defining submersibles. That is an argument that I do not understand. Surely there is no great problem in defining a submarine. Most of us would know a submarine if we saw one. Surely the Customs and Excise would know a submarine if it saw one. Surely it would not be difficult to draw up a framework of definition to distinguish a submarine from a boat.
  In last year's Finance Bill, life rafts were exempted from the general provisions. If we can define a life raft by comparison with other forms of craft, I cannot believe that it is impossible to define a submarine.
  The other problem of definition raised by the Treasury involves submarines used for business purposes and those used for recreational or pleasure purposes. That is clearly a distinction that would have to be drawn. I find it difficult to believe that that is impossible. It was done for a number of categories within last year's Bill. Even domestic equipment such as television sets are put in Finance Bills in the form of those used for domestic purposes or otherwise. Surely it would not be beyond the wit of the Customs and Excise, or the parliamentary draftsmen, to devise some way of using a similar formula to distinguish submarines used for business purposes and to exempt them from the higher rate of tax.
  I shall not take up much more of the time of the Committee at this stage by elaborating the argument any further. I stress that it would be of some help at least to some companies operating in the North Sea, at a time when they are facing intense overseas competition, if they were relieved of the burden of having to finance, even for a short time, the payment of high-rate VAT on their purchases of submersibles, bearing in mind current interest rates. It does not seem that it should be beyond the bounds of possibilities for that to be done. I hope that the Financial Secretary will feel able to take another look at this matter.
  Mr. MacGregor: I hope that my hon. Friend the Member for Braintree (Mr. Newton) will forgive me if I do not take up his argument on submersibles. However, I shall say something about why we have the two-tier VAT towards the end of my remarks. I believe that my hon. Friend was right in what he said on that issue.
  I support many of the matters raised by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). First, I support his complaint about the Chancellor's absence. Since my hon. Friend has spoken the Chancellor has popped his head in the Chamber twice to see how we are getting on. Presumably he is waiting for the vote. It is a pity that he has not listened to some of the arguments that have been raised in this debate as well as in previous debates when he has introduced proposals such as that which we are now having to put right.
  On looking back at Finance Bills during the two years that I have been a Member, I can recall a number of occasions on which the Chancellor has come forward with proposals, has failed to listen to the Opposition arguments and has then had to go into reverse shortly afterwards. That is what happened with his proposals for loans as regards advance corporation tax. The Committee will recall that six months later he introduced stock relief for businesses. He introduced that proposal when companies were short of liquidity. We shall be turning to capital transfer tax at a later stage. For some time he made it clear what he would do to middle management. He said that he would make the pips squeak. He is now trying to put that situation right. He has also sought to put right the VAT situation. As many of my hon. Friends have made clear, time and time again throughout the long summer months of last year we drew his attention to the economic effects that the higher rate of 25 per cent. would have.
  I take up the remarks of my hon. Friend the Member for Cirencester and Tewkesbury about the balance between direct and indirect taxation. There is no doubt that in a period of high inflation such as that which we have suffered, unless the Chancellor has the courage to

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  index tax thresholds and tax allowances, which inevitably involves curbing public expenditure, the effect of inflation is that the balance between the two forms of taxation gets out of hand. That is highly relevant as it means that the revenue from direct taxation creeps up all the time whereas the revenue from indirect taxation, unless the Chancellor has dealt with public expenditure, which patently he has not, stays reasonably static.
  One of the urgent priorities is to achieve a balance between direct and indirect taxation. The events of the past two years have done much to put them out of equilibrium. We must seek to reverse that trend. As my hon. Friend the Member for Guildford (Mr. Howell) has said, the spirit of the amendment would be to start us on that process. I have before me some figures which the Financial Secretary gave in answer to a Written Question last week on 6th May. He was asked to estimate the change in revenue which would occur in 1976–77 if all items now eligible for VAT were levied at 10 per cent. or 12½ per cent. respectively. He replied that revenue would increase by £550 million or £1,350 million respectively.
  If we leave aside the arguments about the public sector borrowing requirement and public expenditure as it is clear that in this Bill the Chancellor will not be doing anything on those fronts, if the Chancellor had had the courage to introduce an overall 10 per cent. or even 12½ per cent. VAT—I tend to feel that in our present circumstances 12½ per cent. may be right—he would have had much greater scope for beginning to deal with the burden of direct taxation. If he had taken that action he could have quadrupled the concessions on the higher rates, doubled child allowances, or at least increased them compared with the situation two years ago, and done much more to help widows or the over-70s. I believe that a great opportunity was missed.
  I turn specifically to 25 per cent. VAT, and now 12½ per cent. VAT. It has not been sufficiently stressed in this debate, but it emerged quite clearly last year that 25 per cent. VAT—there was the dramatic jump from 8 per cent. to 25 per cent.—enormously increased the impact on
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  companies producing goods attracting the higher rate, as well as having a greatly increased impact on the products in the shops.
  I very much agree that there is a need for more research to be undertaken on the effects of such changes in taxation. I too served on the General Sub-Committee of the Public Expenditure Committee. Earlier this year it took evidence on that matter, and there was a period when we were questioning the Inland Revenue and subsequently the Treasury. Both Departments were trying to shuffle responsibility on to the other. They both claimed that the necessary research was being undertaken. As my hon. Friend the Member for Upminster (Mr. Loveridge) said, it became clear in the end that they were taking some advantage of the work being done by Professor Brown of Stirling University.
  I believe that it would greatly aid taxation decisions if much more work was done on the effect of taxes in terms of employment, for example, before they were introduced. At present we have to wait a year before we can judge whether our arguments of last year have been proved correct, as they have been. Perhaps it would have brought light to the Chancellor when he was considering the possibility of 25 per cent. VAT to get him out of the political difficulties to which my hon. Friend the Member for Braintree has referred, if he had had access to evidence about the economic effects of what he was proposing as a purely political device.
  The boat builders in my area, and no doubt in others, were greatly relieved when the rate was reduced to 12½ per cent. One boat builder, as reported in the Eastern Daily Press, said
  "We never sold a single boat to an individual in this country when the tax was 25 per cent."
  That example was mirrored throughout the country and had the economic consequences that we predicted. The Financial Secretary will recall from our debates last year that we sought to underline the fact that damage was often done to rural areas where little or no alternative employment could be offered because the smaller industries were concentrated in those areas. It must be said that employment is still difficult in those areas.

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  The Financial Secretary has assured us that he has monitored the effects of the 25 per cent. rate. It is his responsibility to give us the results of that monitoring exercise. I should like the Minister to give information on two fronts. First, will he give information in the context of the unemployment figures which have been caused as a result of the imposition of VAT at 25 per cent.? Secondly, will he say what has been the net increase to the revenue? It is necessary to take into account the costs involved in paying unemployment benefits in so many areas. If he cannot give hon. Members that information now, perhaps he will do so in due course.
  Mr. Nicholas Winterton: Will my hon. Friend also direct the Minister's attention to the fact that the Government proposals introduced last year affected youth organisations and similar bodies which provide training for young people in boating and canoeing activities? Obviously those organisations were restricted in their purchases, and facilities for young people were thus reduced.
  Mr. MacGregor: My hon. Friend has made his point clearly, and I am sure that the Financial Secretary noted it.
  Many references have been made to various anomalies. I accept that no form of indirect taxation will overcome all the anomalies, but I hope that we can do something to limit them.
  I wish to refer to the question of television rentals. As I understand the situation under the Bill, those who took out contracts prior to May 1975 will continue to pay 8 per cent. VAT, but those who now take out new television rental contracts will attract a rate of 12½ per cent. That is a great advantage over the previous figure of 25 per cent. but is still 50 per cent. higher than the rate paid by people with existing contracts. It is another anomaly and is a disincentive to people to change their sets and to take up new contracts. Undoubtedly, this will have an adverse effect on the industry.
  So many points have been made in the debate with which I agree that I shall not seek to labour them again. My hon. Friend the Member for Ayr (Mr. Younger) asked the Financial Secretary to make clear why the differential between
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  the two rates still exists. Last year I formed the impresion from discussions in Committee that junior Ministers had a considerable distaste for the arguments which they were putting forward in seeking to justify a 25 per cent. rate. As they produced one argument and it was countered, and that counter argument proved to be correct, so the Ministers turned to another argument—until eventually all their arguments were stripped away. The truth was that the tax was imposed for a purely political reason. I regret that the Chancellor of the Exchequer is still not man enough to admit the mistake made two years ago and to return to a single rate.
  6.15 p.m.
  Mr. Robert Sheldon: The hon. Member for Norfolk, South (Mr. MacGregor) joined his hon. Friend the Member for Upminster (Mr. Loveridge) in asking for further research into the operation of taxes. Indeed, the hon. Member for Upminster asked for research to be undertaken into the operation of taxes on incentives.
  I willingly respond to those requests because over 10 years ago I made the same plea from the Back Benches. At that time there was virtually no research being undertaken in the universities or elsewhere. I pay tribute to the work carried out by Professor Brown of Stirling University.
  But although research has been carried out, a certain amount of disappointment has been displayed at the paucity of results. Many of us hoped that those results would have enlightened some of our proceedings and given foundation to the many claims frequently made from both sides of the House—or at least would have established a certain consensus on some of these matters. Alas, it has failed to do so. Therefore, I am delighted to see such work continuing and I shall be more than interested to see any results. However, we must accept the present limitations on such research in terms of our day to day consideration of these matters.
  I understand the points made by the hon. Member for Norfolk, South who asked about my monitoring exercise. The Committee may recall that following the introduction of the 25 per cent. rate last year, I said that I intended to conduct a close monitoring of its effects. It is

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  right to draw a distinction between research and monitoring, since monitoring involves acting within a time scale and may mean we bring about changes as a result of observing what has happened.
  The monitoring exercise which I carried out resulted in an easing of hire-purchase restrictions last December and also had a part to play in the reduction of the higher rate of VAT, the subject we are now discussing.
  The hon. Member for Guildford (Mr. Howell), in moving the amendment, said that he hoped I would resist the temptation to seize on the amendment as increasing the public sector borrowing requirement. I assure the hon. Gentleman that I find it easy to resist that temptation. I believe that in discussing amendments one needs to have in mind, because of the complicated rules under which Parliament discusses these matters, the purpose lying behind any proposal. Therefore, one should seek, where possible, to reply to the spirit of an amendment rather than to concentrate on niggling details of the results of any such amendment if carried into operation. I accept that what the movers have in mind is a uniform rate of 10 per cent.—a proposal which they cannot put in amendment form because of our rules of procedure.
  To take the purpose of the amendment as I construe it, if the higher rate were reduced from 12½ per cent. to 10 per cent. it would result in the additional revenue falling from £140 million a year to £65 million a year, both figures being for a full year. The result of bringing both the standard and higher rates to 10 per cent. would involve a total increase in revenue of £550 million, or almost 1 per cent. addition to the retail price index. There are those who accuse the Government of being RPI watchers, but I do not accept that accusation. I believe that the agreement which we have been successful in achieving with the TUC has been very valuable. Therefore, when we speak of the standard of living the RPI is a crucial part of our consideration. Being the component that it is at the present time, although in the long term it would be wrong to make policy changes too heavily dependent upon alterations in the retail price index, a particular and quite exceptional case can be made out in current circumstances.
  Mr. Gow: Was it a condition of the so-called agreement between the Government and the TUC that there should be no increase in the rate of VAT?
  Mr. Sheldon: Not at all, but clearly the Government had in mind the burden that any increase in VAT would have on all members of the community, including those who are represented by trade unions or are in employment, and whose standard of living—as has been accepted by both the Government and the unions—will be reduced during the current year.
  In his Budget Statement the Chancellor of the Exchequer said that he had considered the 25 per cent. rate to be necessary last year, and he gave his reasons. He said also that in the longer term the 25 per cent. rate was clearly too high, and could damage some parts of manufacturing industry and jeopardise employment. As a result of this, the rate is reduced in the present proposals to 12½ per cent. Perhaps I may go more fully a little later in the course of my remarks into the reason why the figure is 12½ per cent.
  The hon. Member for Basingstoke (Mr. Mitchell) quite rightly pointed to the complications for small traders. It is a matter of which we must all be extremely conscious, and because of this we have introduced a number of simplified schemes to take their particular reactions into account.
  There have been a number of criticisms of the value added tax structure. I confess that I strongly criticised its introduction. It was brought in as a comprehensive, broad-based tax, free from anomalies. That was a wholly misleading description to which the Office of Fair Trading might well have objected had it been in operation at that time. It was certainly not comprehensive. It was certainly not broad-based, in view of the exclusions of food, books and other items. As to its being free from anomalies, we have discussed that so often in the past that there is no need for me to repeat the argument now.
  But VAT was one of the gems of the tax policy in the Tories' heyday, when it was believed—this was a wholly exceptional experience—that the country could largely be put right by changes in the principles of taxation. I do not believe that taxation reform had ever been accorded so high a position in our

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  country. At a time when there were many other matters requiring attention, taxation policy seemed to be the prime interest of the Government. It is very difficult, however, to point to any beneficial results in the light of the problems that were faced both then and subsequently.
  I said something about the monitoring exercise, and it will, of course, continue. I intend to maintain the contacts established over the past 12 months with industry and to continue the open-door policy in the Treasury, so that those who have representations to make as to the way the tax may be affecting their own particular industry, employment, investment and so on, can have access to me personally, as they have had in the past 12 months. I look forward to receiving further representations.
  The Committee may be aware of the announcement I made this year, for the second year running, that if people have criticisms of the details of the Finance Bill legislation, I shall be more than willing to receive their representations. I add that I send a personal acknowledgment in all such cases. I believe that this contract is very valuable, and we are getting much more understanding of some of the measures that we undertake in this House.
  I have been asked, quite fairly, why the stopping place of 12½ per cent. was chosen in reducing the higher rate of value added tax of 25 per cent. There are two reasons for this. The first follows the experience we had when hire-purchase restrictions were lifted in July 1971. The problem we had then was that the domestic industry was not able to meet the demand, and we had a large increase in the imports of certain products covered by the hire-purchase restrictions which were then removed.
  I shall give an example of what happened in those years. Referring to what are known as white goods—that is, refrigerators, washing machines and so on—in 1970–71 imports, as a percentage of domestic demand, were about 10–11 per cent. In 1972 the figure rose to 15 per cent., and in 1973 it rose to 23 per cent. a total domestic demand. The figure for colour television sets likewise rose from 11 per cent. in 1971 to 19 per cent. in 1972, and to 25 per cent. in 1973. There was, therefore, an enormous surge of
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  imports following the increase in demand caused by Government changes.
  The lesson we have learned is that it does not end there, for when the situation giving rise to the flood of imports is reversed, those imports do not go down, because the overseas manufacturers, once they have a foothold in the market here, fight fiercely to retain it. Any Government need to be convinced that, in bringing about taxation changes of this kind, full account is taken of the amount of import penetration to which the Government may unwillingly be giving rise.
  Mr. Wigley: Will the Financial Secretary accept that, as a background to the foreign manufacturers fighting tooth and nail to retain their proportion of the United Kingdom market, there is, in the case of washing machines, overwhelming prima facie evidence of dumping, particularly by Italian manufacturers?
  Mr. Sheldon: I am sure that the Secretary of State for Trade will be pleased to take note of the hon. Gentleman's point, and perhaps the hon. Gentleman will give him any evidence he has.
  In arriving at the figure of 12½ per cent. we had long consultations with the various industries concerned in order to get a feeling as to what level of value added tax might be acceptable without the particular problems I have described.
  There is another reason for the rate's being reduced from 25 per cent. to 12½ per cent. and not to any other figure. It is concerned with the actual shape of the tax itself. It may come as a surprise to a number of hon. Members to know that, in the interests of simplicity, there are very few rates of tax which can be devised to suit the retail mechanisms which have been set up. This is largely because of the need to ensure simplicity, not only for the small retailer but for others. In meeting those requirements, one has only the rates of 10 per cent., 12½ per cent., 20 per cent. and 25 per cent. If we try to have rates between those figures, we have awkward retail fractions which we have been told are difficult to operate and to understand, particularly as applied to some of the small retailers.
  6.30 p.m.
  This naturally produces a number of constraints in the operation of the tax which are not apparent in other countries, with their different forms of VAT—and

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  neither were they apparent with the old purchase tax. We cannot have any rate between 12½ per cent. and 20 per cent. without producing a number of difficulties, and this is a very considerable constraint. I am not saying that it cannot be done! I am saying that it would produce complexities of a kind that we try hard to avoid.
  European VAT systems, differently based from ours, not only have a wider range of convenient rates which can be chosen but also have the advantage of as many multi-rates as may be required. Our form of VAT is much more restrictive than that which applies in other countries. This needs to be understood, because several consequences follow from it. Variations for economic reasons, in the light of changing economic conditions, and so on, become harder to arrange. There are, for example, the problems arising from the difference between the time of the announcement of changes in value added tax rates and their coming into effect, leading to the spending sprees with which we are so familiar.
  The more this is generally understood, the more the problems of VAT and the less the attractions that were for so long foreseen are shown actually to have been realised. Because of this I believe that the changes which have been made in the higher rate are quite justified.
  Mr. Younger: I am very puzzled by the hon. Gentleman's argument. It is all tremendously interesting but nobody who has spoken today has suggested any rate between 12½ and 25 per cent. We have concentrated entirely on bringing back the 10 per cent. rate, which the Minister has admitted is quite feasible. It seems to me that what he is saying is quite irrelevant to the amendment.
  Mr. Sheldon: I do not know whether the hon. Gentleman heard his hon. Friend the Member for Eastbourne (Mr. Gow) arguing for a 15 per cent. rate.

  Division No. 128]

  AYES

  [6.35 p.m.

  Aitken, Jonathan

  Bennett, Sir Frederic (Torbay)

  Boyson, Dr Rhodes (Brent)

  Amery, Rt Hon Julian

  Bennett, Dr Reginald (Fareham)

  Braine,Sir Bernard

  Arnold, Tom

  Benyon, W.

  Britten, Leon

  Atkins, Rt Hon H. (Spelthorne)

  Berry, Hon Anthony

  Brown, Sir Edward (Bath)

  Awdry, Daniel

  Biffen, John

  Bryan, Sir Paul

  Bain, Mrs Margaret

  Biggs-Davison, John

  Buchanan-Smith, Alick

  Beith, A. J.

  Boscawen, Hon Robert

  Buck, Antony

  Bell, Ronald

  Bottomley, Peter

  Budgen, Nick

  Perhaps he missed that. But this is an important matter because it limits the range of possibilities open to any Government and the House and the Committee need to be informed about it.
  I believe that the Committee would be right to reject this amendment. The reduction in the higher rate to 12½, per cent. has been welcomed, although many feel that it has not gone far enough. I can assure the Committee that the monitoring of this rate will be continued, and if any further change downwards is justified, I am sure the Chancellor will come to the House with further proposals. Meanwhile, I ask the Committee to reject the amendment.
  Mr. Monro: The hon. Gentleman has not at all answered the argument in relation to unemployment in the boat building and electrical industries. Would he kindly tell the Committee a little more about the Government's thinking in terms of unemployment'?
  Mr. David Howell: We have just heard from the Financial Secretary the story of a dismal blunder, and after the general recognition of the mistake that was made last year, against the advice of my hon. and right hon. Friends, it is very disappointing to have this dingy smoke-screen of arguments put forward as a cover-up for what the right hon. Gentleman the Chief Secretary and his hon. Friend know perfectly well was a major fiscal error, a major misjudgment, for which the House and the country, and those thrown out of work as a result, are entitled to an apology. We haxe not had a word of apology or explanation of why this unnecessary damage was done.
  I urge my hon. and right hon. Friends to vote most strongly for the amendment and against this misjudgment, this fiscal error and this fiscal incompetence.
  Question put, That the amendment be made:—
  The Committee divided: Ayes 185, Noes 202.

  Bulmer, Esmond

  Kershaw, Anthony

  Reid, George

  Butler, Adam (Bosworth)

  King, Evelyn (South Dorset)

  Renton, Tim (Mid-Sussex)

  Chalker, Mrs Lynda

  King, Tom (Bridgwater)

  Ridley, Hon Nicholas

  Channon, Paul

  Kitson, Sir Timothy

  Ridsdale, Julian

  Clark, Alan (Plymouth, Sutton)

  Knight, Mrs Jill

  Rifkind, Malcolm

  Clark, William (Croydon S)

  Knox, David

  Rippon, Rt Hon Geoffrey

  Clarke, Kenneth (Rushcliffe)

  Lamont, Norman

  Roberts, Wyn (Conway)

  Cockcroft, John

  Lane, David

  Ross, Stephen (Isle of Wight)

  Cope, John

  Latham, Michael (Melton)

  Rossi, Hugh (Hornsey)

  Cormack, Patrick

  Lawrence, Ivan

  Sainsbury, Tim

  Corrie, John

  Lawson, Nigel

  St. John-Steves, Norman

  Costain, A. P.

  Le Marchant, Spencer

  Shelton, William (Streatham)

  Crawford, Douglas

  Lester, Jim (Beeston)

  Shepherd, Colin

  Dodsworth, Geoffrey

  Lewis, Kenneth (Rutland)

  Shersby, Michael

  Drayson, Burnaby

  Lloyd, Ian

  Silvester, Fred

  Durant, Tony

  Luce, Richard

  Sims, Roger

  Elliott, Sir William

  McAdden, Sir Stephen

  Sinclair, Sir George

  Evans, Gwyntor (Carmarthen)

  MacCormick,Iain

  Spicer, Michael (S Worcester)

  Eyre, Reginald

  McCrindle, Robert

  Stanbrook, Ivor

  Fairgrieve, Russell

  Macfarlane, Neil

  Stanley, John

  Finsberg, Geoffrey

  MacGregor, John

  Steel, David (Roxburgh)

  Fisher, Sir Nigel

  Macmillan, Rt Hon M. (Farnham)

  Steen, Anthony (Wavertree)

  Fookes, Miss Janet

  McNair-Wilson, M. (Newbury)

  Stewart, Donald (Western Isles)

  Forman, Nigel

  McNair-Wilson, P. (New Forest)

  Stewart, Ian (Hitchin)

  Fraser, Rt Hon H. (Stafford & St)

  Madel, David

  Stokes, John

  Fry, Peter

  Marshall, Michael (Arundel)

  Stonehouse, Rt Hon John

  Gardner, Edward (S Fylde)

  Marten, Neil

  Stradling Thomas, J.

  Gilmour, Rt Hon Ian (Chesham)

  Mates, Michael

  Tapsell, Peter

  Gilmour, Sir John (East Fife)

  Mawby, Ray

  Taylor, R. (Croydon NW)

  Glyn, Dr Alan

  Maxwell-Hyslop, Robin

  Taylor. Teddy (Cathcart)

  Goodhart, Philip

  Meyer, Sir Anthony

  Thatcher, Rt Hon Margaret

  Goodhew, Victor

  Miller, Hal (Bromsgrove)

  Thomas, Dafydd (Merioneth)

  Gow, Ian (Eastbourne)

  Mills, Peter

  Thomas, Rt Hon P. (Hendon S)

  Gower, Sir Raymond (Barry)

  Miscampbell, Norman

  Thompson, George

  Gray, Hamish

  Mitchell, David (Basingstoke)

  Vaughan, Dr Gerard

  Grimond, Rt Hon J.

  Monro, Hector

  Viggers, Peter

  Grist, Ian

  Montgomery, Fergus

  Wainwright, Richard (Colne V)

  Grylls, Michael

  Morgan-Giles, Rear-Admiral

  Wakeham, John

  Hall, Sir John

  Morrison, Charles (Devizes)

  Walder, David (Clitheroe)

  Hamilton, Michael (Salisbury)

  Mudd, David

  Wall, Patrick

  Hampson, Dr. Keith

  Neave, Airey

  Walters, Dennis

  Hannam, John

  Neubert, Michael

  Watt, Hamish

  Harvie Anderson, Rt Hon Miss

  Newton, Tony

  Weatherill, Bernard

  Heath, Rt Hon Edward

  Nott, John

  Wells, John

  Henderson, Douglas

  Oppenhelm, Mrs Sally

  Welsh, Andrew

  Holland, Philip

  Page, Rt Hon R. Graham (Crosby)

  Wiggin, Jerry

  Hooson, Emyln

  Pardoe, John

  Wigley, Dafydd

  Hordern, Peter

  Parkinson, Cecil

  Wilson, Gordon (Dundee E)

  Howe, Rt Hon Sir Geoffrey

  Penhaligon, David

  Winterton, Nicholas

  Howell, David (Guildford)

  Percival, Ian

  Young, Sir G. (Ealing, Acton)

  Howells, Geraint (Cardigan)

  Prior, Rt Hon James

  Younger, Hon George

  Hunt, David (Wirral)

  Pym, Rt Hon Francis

  Johnson Smith, G. (E Grinstead)

  Raison, Timothy

  TELLERS FOR THE AYES:

  Jopling, Michael

  Rees, Peter (Dover & Deal)

  Mr. Carol Mather and

  Joseph, Rt Hon Sir Keith

  Rees-Davies, W. R.

  Mr. Michael Roberts.

  NOES

  Abse, Leo

  Coleman, Donald

  Ewing, Harry (Stirling)

  Anderson, Donald

  Colquhoun, Ms Maureen

  Faulds, Andrew

  Archer, Peter

  Conlan, Bernard

  Fernyhough, Rt Hon E.

  Armstrong, Ernest

  Cook, Robin F. (Edin C)

  Flannery, Martin

  Atkins, Ronald (Preston N)

  Corbett, Robin

  Fletcher, Ted (Darlington)

  Atkinson, Norman

  Cox, Thomas (Tooting)

  Foot, Rt Hon Michael

  Barnett, Rt Hon Joel (Heywood)

  Craigen, J. M. (Maryhill)

  Ford, Ben

  Bean, R. E.

  Crawshaw, Richard

  Forrester, John

  Bennett, Andrew (Stockport N)

  Cronin, John

  Fowler, Gerald (The Wrekin)

  Bidwell, Sydney

  Cryer, Bob

  Fraser, John (Lambeth, N'w'd)

  Blenkinsop, Arthur

  Cunningham, Dr J. (Whiteh)

  Garrett, W. E. (Wallsend)

  Boardman, H.

  Davies, Bryan (Enfield N)

  George, Bruce

  Booth, Rt Hon Albert

  Davies, Denzil (Llanelli)

  Gilbert. Dr John

  Bottomley, Rt Hon Arthur

  Davies, Ifor (Gower)

  Ginsburg, David

  Brown, Hugh D. (Proven)

  Davis, Clinton (Hackney C)

  Gould, Bryan

  Buchan, Norman

  Dean, Joseph (Leeds West)

  Gourlay, Harry

  Buchanan, Richard

  Dempsey, James

  Graham, Ted

  Butler, Mrs Joyce (Wood Green)

  Doig, Peter

  Grant, John (Islington C)

  Callaghan, Rt Hon J. (Cardiff SE)

  Dormand, J. D.

  Grocott, Bruce

  Callaghan, Jim (Middleton & P)

  Duffy, A. E. P.

  Hamilton, James (Bothwell)

  Campbell, Ian

  Dunnett, Jack

  Hardy, Peter

  Cant, R. B.

  Eadie, Alex

  Harper, Joseph

  Carmichael, Neil

  Edge, Geoff

  Harrison, Walter (Wakefield)

  Cartwright, John

  Edwards, Robert (Wolv SE)

  Hart, Rt Hon Judith

  Castle, Rt Hon Barbara

  English, Michael

  Hatton, Frank

  Clemitson, Ivor

  Evans, Fred (Caerphilly)

  Healey, Rt Hon Denis

  Cocks, Michael (Bristol S)

  Evans, Ioan (Aberdare)

  Heffer, Eric S.

  Hooley, Frank

  Millan, Bruce

  Spriggs, Leslie

  Huckfield, Les

  Miller, Dr M. S. (E Kilbride)

  Stallard, A. W.

  Hughes, Rt Hon C. (Anglesey)

  Molloy, William

  Stoddart, David

  Hughes, Robert (Aberdeen N)

  Moonman, Eric

  Stott, Roger

  Hughes. Roy (Newport)

  Murray, Rt Hon Ronald King

  Summerskill, Hon Dr Shirley

  Hunter, Adam

  Newens, Stanley

  Taylor, Mrs Ann (Bolton W)

  Irvine, Rt Hon Sir A. (Edge Hill)

  Noble, Mike

  Thomas, Ron (Bristol NW)

  Irving, Rt Hon S. (Dartford)

  Oakes, Gordon

  Thorne, Stan (Preston South)

  Jackson, Colin (Brighouse)

  Ogden, Eric

  Tierney, Sydney

  Jackson, Miss Margaret (Lincoln)

  O'Halloran, Michael

  Tinn, James

  Jay, Rt Hon Douglas

  Orbach, Maurice

  Torney, Tom

  Jeger, Mrs Lena

  Padley, Walter

  Tuck, Raphael

  Jenkins, Hugh (Putney)

  Palmer, Arthur

  Urwin, T. W.

  Jenkins, Rt Hon Roy (Stechford)

  Park, George

  Varley, Rt Hon Eric G.

  Johnson, James (Hull West)

  Pavitt, Laurie

  Wainwright, Edwin (Dearne V)

  Jones, Barry (East Flint)

  Peart, Rt Hon Fred

  Walker, Harold (Doncaster)

  Jones, Dan (Burnley)

  Pendry, Tom

  Walker, Terry (Kingswood)

  Judd, Frank

  Phipps, Dr Colin

  Ward, Michael

  Kaufman, Gerald

  Price, William (Rugby)

  Watkinson, John

  Kelley, Richard

  Radice, Giles

  Weetch, Ken

  Lambie, David

  Richardson, Miss Jo

  Weitzman, David

  Lamborn, Harry

  Roberts, Albert (Normanton)

  Wellbeloved, James

  Lamond, James

  Roberts, Gwilym (Cannock)

  White, Frank R. (Bury)

  Leadbitter, Ted

  Robertson, John (Paisley)

  White, James (Pollok)

  Lewis, Ron (Carlisle)

  Robinson, Geoffrey

  Whitehead, Phillip

  Litterick, Tom

  Roderick, Caerwyn

  Whitlock, William

  Lomas, Kenneth

  Rodgers, George (Chorley)

  Willey, Rt Hon Frederick

  Loyden, Eddie

  Rodgers, William (Stockton)

  Williams, Alan Lee (Hornch'ch)

  Lyons, Edward (Bradford W)

  Rooker, J. W.

  Williams, Rt Hon Shirley (Hertford)

  Mahon, Dr J. Dickson

  Roper, John

  Williams, Sir Thomas

  McCartney. Hugh

  Rose, Paul B.

  Wilson, Alexander (Hamilton)

  Macfarquhar, Roderick

  Ross, Rt Hon W. (Kilmarnock)

  Wilson, William (Coventry SE)

  Mackenzie, Gregor

  Selby, Harry

  Wise, Mrs Audrey

  McMillan, Tom (Glasgow C)

  Shaw, Arnold (Ilford South)

  Woodall, Alec

  McNamara, Kevin

  Sheldon, Robert (Ashton-u-Lyne)

  Woof, Robert

  Madden, Max

  Silkin, Rt Hon John (Deptford)

  Wrigglesworth, Ian

  Magee, Bryan

  Silkin, Rt. Hon S. C. (Dulwich)

  Young, David (Bolton E)

  Marks, Kenneth

  Sillars, James

  Marquand, David

  Skinner, Dennis

  TELLERS FOR THE NOES:

  Marshall, Dr Edmund (Goole)

  Small, William

  Mr. Peter Snape and

  Marshall, Jim (Leicester S)

  Smith, John (N Lanarkshire)

  Mr. Alf Bates.

  Maynard Miss Joan

  Spearing, Nigel

  Question accordingly negatived.
  Question proposed, That the clause stand part of the Bill.
  Mr. David Mitchell: I think that it would be quite wrong for us to move on from this clause without giving the Minister an opportunity to answer a number of observations made in the debate on the amendment. These were perhaps more by nature of "clause stand part" comments. I am, therefore, seeking the opportunity to hear the Minister's response to my questions about up-dating the £5,000 starting point for VAT. It is a matter of very considerable substance and great importance to a large number of traders, and one which the Minister wholly ignored in his reply to the debate on the amendment. He ignored many points made in the debate. I can only assume that he was sheltering behind the narrowness of the precise terms of the amendment.
  Mr. Robert Sheldon: Before the hon. Gentleman goes too far along that road, I must point out that it was an amendment to change the higher rate that we
  296
  were debating, and nothing else. A number of hon. Members went much wider, as I did, too, with respect to the Chair; but that was what the debate was about.
  Mr. Mitchell: I am aware of that, and that is why I am giving the Minister this opportunity to do what I am sure he would wish to do—to answer questions and comments that he did not answer.
  A further matter is that of bad debts. There is widespread feeling that it is very unfair that VAT should be payable on bad debts. It is quite true, as the Committee will know, that in 1972, when the VAT legislation was introduced, we were not in a period when bad debts were a significant matter, but they are significant today. It is difficult enough for a trader in depressed trading conditions to find a customer, to match his requirements to the product, to pack, to deliver, to comply with the web of regulations that he has to meet, and to apply the multi-rate VAT. But sometimes, afterwards comes the shock, when suddenly he finds his customer does not pay. He calls on

  297
  his customer or takes out a default summons, and eventually finds that his customer has disappeared or has gone bankrupt, or for some other reason is not able to pay. Then, adding injury to insult, if one can use the phrase that way round, he finds himself having to pay VAT on that bad debt.
  It seems to me that there is a very simple and very straightforward way in which the Government can help the Committee and the traders concerned. I refer to the point on which the Financial Secretary touched in the earlier debate when he said that there were a number of simplified schemes for retailers. One of these schemes allows the retailer to be liable for VAT on the money he banks and not on the sales he makes. The effect of that is that he does not pay VAT on a bad debt.
  Therefore, I should like to have the views of the Financial Secretary and his advice on whether he considers it would be feasible in the Finance Act of 1972, Section 30(3), to insert after the word "retailers", which is the restriction in that part of the section, the words
  "or any other trader or taxable person".
  This would allow that same benefit which applies to the retailer to be spread to other traders. I should be very grateful if the Financial Secretary would advise the Committee about that.
  Mr. Robert Sheldon: I should like to reply to the hon. Member for Basingstoke (Mr. Mitchell). He mentioned the exemption level for VAT, which is at present £5,000. There have been, as the hon. Gentleman quite rightly says, a number of attempts to raise this level in previous years. There is no particular amendment which we are discussing here, but I do not think that need inhibit me from replying on the general principle involved.
  The general principle adduced by those who wish to see the level raised is that this is an advantage to the small trader, who is freed from the responsibility of having to carry out the procedures in connection with the tax, and that I understand. What is frequently lost sight of is the advantage to the retailer of being registered for value added tax even though his turnover may be below the regulated level, because he is able to claim deduction of input tax. This is very
  298
  important in certain trades whose business is directed not to the consuming public at large but rather to other firms, and traders registered for the tax are able to make claims against the invoices sent to them by other registered traders but not by other people.
  As the extension of VAT continues, I think that this will be a feature that will be more appreciated. The tax has now been in operation for three years and during that time there have been people who have become aware of certain of the provisions and have been able to live with them in a way that was more difficult initially. Given time, one can learn to understand any system, even if it is not wholly good, and it may be that if there were an increase in the exemption limit, those people who would be able to deregister might not wish to do so.
  Another point to which I draw the attention of the Committee is the problem of those people who would be going in and out of registration whenever we changed the limit. If we were to index it—and there have been arguments of this kind—there could be a number of such traders who would find themselves going in and out of registration in a way that would be wholly unacceptable to them or to the operation of VAT itself. In these circumstances, it may be that some Governments—not the present one—might wish to make deregistration compulsory just because of the difficulties of operating with these effects. I mention this only to show the problems.
  There is the further consideration that by comparison with the rest of Europe our exemption level is astonishingly high. There are registration levels as low as £500, and ours is certainly far and away the highest at £5,000, without increasing it further. Those are the matters I should draw to the attention of this Committee.
  The hon. Member for Basingstoke mentioned the problem of bad debts. This problem was inherent in the original 1972 legislation, as he may recall, and it has always been a difficult problem. There are a number of analogous difficulties both with customs and excise duties and in other areas. I am sorry that I do not have Section 30(3) in my mind, although I know the general provision which the hon. Gentleman mentioned. However, there are grave

  299
  difficulties involving, for example, amounts of customs or excise duties which may be very large, and where such goods may be the subject of bad debts and the customs or excise element is at stake. So there are the repercussive effects, which I am sure the hon. Gentleman will understand, as well as the general problem to which he referred.
  There are certain areas at which I am looking closely at the present time to see whether it might he possible to get some change in the arrangements. I am sorry that my investigations are still going on, but I am aware of the general concern and I am doing what I can to move in this direction.
  Mr. David Mitchell: I am grateful to the Financial Secretary. Is he able to undertake to look at the precise point I have made? Having accepted the principle that the retailers can escape from paying VAT on bad debts, would he consider extending that to other traders?
  Mr. Sheldon: The hon. Gentleman will understand that I am more than happy to look at any points which he or any other member of this Committee puts to me, and I willingly undertake to look at the particular point to which the hon. Gentleman referred.
  Mr. Wiggin: Would the hon. Gentleman go through the speeches made by my hon. Friends and myself and deal with some of these points in correspondence, because a lot of detailed issues were raised?
  Mr. Sheldon: I shall be more than delighted to do that. I understood that it was not the wish of most hon. Members who took part in this debate to have a particularly lengthy debate. It went very much wider than the amendment itself, and I did not object to that. I tried to answer on issues going well beyond the amendments, but if this were carried too far, the debate could become wholly unrelated to the amendments and perhaps wider and more detailed than many honourable Members without a particular interest which they put in the form of a speech would wish. However, I shall be pleased to take up any points put to me, including those made in the debate and even those that might occur to hon.
  300
  Gentlemen opposite after they have left this Committee stage.
  Question put and agreed to.
  Clause 14 ordered to stand part of the Bill.

Clause 21

  CHARGE OF INCOME TAX FOR 1976–77
  Mr. Pardoe: I beg to move Amendment No. 8, in page 13, line 24, after "cent" add
  "except in respect of the first £500 of an individual's total income which shall be charged at 25 per cent".
  It will be immediately obvious that what we are endeavouring to do by this amendment is to raise the whole principle of a lower rate of tax for those who come into the tax net. This is a subject which I discussed on Second Reading. The Government did not then reply to me and I hope that we can get something of their thinking as a result of this debate today.
  It is, of course, no minor amendment. I am grateful to the right hon. Gentleman the Chief Secretary for having, out of the kindness of his heart and the clarity of his brief, advised me only five minutes ago that this amendment would cost £1,100 million. How do I know that it will cost that amount? I know it because the right hon. Gentleman told me. I do not know it because of the efficiency of the Treasury or the Inland Revenue.
  I put down a Question on Monday 3rd May for Written Answer on Thursday 6th May asking exactly what the cost would be, and I still have not had an answer. However, the Treasury is able to provide the Chief Secretary with an answer for the purpose of knocking down the argument. It does not seem a satisfactory way to conduct our business. I hope that the Treasury will buy a calculating machine before we next have to debate this subject. I should have thought that this was a simple business.
  7.0 p.m.
  In any case, I should have thought that this was just the kind of option which the Treasury ought to consider every year in arriving at its various Budget proposals. If this option is not being calculated on a fairly regular basis, there is clearly something wrong with the options which have been put before

  301
  the Chancellor for him to make a political choice.
  It is a considerable cost. I did not have the exact figure, but I should not have been far below this figure had I had to make a guess, because I knew that this was a major amendment.
  If the Chief Secretary's argument is to he that to add a further £1,100 million to the borrowing requirement would be catastrophic, I accept that it would be. But if he says that it would necessarily be added to the borrowing requirement, I should simply say that it is not necessarily so.
  There are other ways of raising this revenue. We have had a debate on an amendment, tabled by both the official Opposition and the Liberal Party, to standardise the rate of VAT. If we had standardised it at 10 per cent., which we suggested in the amendment, that would have brought in another £550 million. But, as the Treasury advised me in answer to a Question which I also had down for Written Answer on Thursday 6th May, which it has got round to calculating, if we had a standard rate of VAT at 12½ per cent., it would in this financial year bring in an additional £1,350 million. That is exactly how I would pay for this concession.
  There has been a substantial shift during the last three or four years from taxes on consumption to taxes on income. It is a pronounced shift and it is continuing in this financial year. It is a shift which makes economic madness in our economic situation to encourage consumption and to discourage wealth creation. That is lunacy. The Chief Secretary may argue that taxes neither discourage nor encourage. Let us hear the argument. I do not believe it. I believe that taxes on consumption discourage consumption and that lower taxes on consumption will inevitably encourage consumption: vice versa with taxes on income.
  The official Opposition attitude, which I think I understand already, is that, while they support this amendment in principle, they will not lend their vote to what they feel would be a massive extension of the borrowing requirement.
  I do not think that we ought easily to accept an argument which always says one of two things: either a matter is too
  302
  big for the Opposition to propose because it is in the Government's purview, or that they are not entitled to challenge the Budget judgment.
  I recall that argument being made by some Members on this side of the Committee in the debates in 1974 when the Chancellor came to the Dispatch Box and thundered against us for having destroyed his Budget judgment by various amendments—in particular, the one to increase the investment income surcharge from £1,000 to £2,000. No doubt we shall have that again in various debates in the coming weeks.
  It is pusillanimous to say that this is too large a bite at the cherry. I think that the Opposition and Parliament are entitled to challenge not only basic Budget judgments, but the big decisions made by the Government on finance. I cannot imagine an American senator or congressman saying "That is so big that it must be for the President to decide. That is so big that only the Executive can make the decision." These are the kinds of decisions at which Parliament ought to look in addition to the small decisions on taxation.
  I am arguing not to increase the borrowing requirement, but to shift back from taxes on income to taxes on consumption. The change, which the Chief Secretary will be able to calculate, will not even put us back to the ratio between the two kinds of taxes which existed in 1972. The right hon. Gentleman is obviously doing a quick calculation in his head. I assure him that an additional £1,100 million will not put us back in that position. I am not trying to be that ambitious. I am trying to go back not to 1972, but to late 1974 perhaps.
  I say—primarily to the Opposition, I suppose—that if the Government were to surrender this revenue without either replacing it or cutting public expenditure, the borrowing requirement would go up. But the word "or" is a very big "or".
  I wonder what would happen to public expenditure if we agreed to this amendment today. Are we supposing that £1,000 million would be added to the borrowing requirement? I suggest that what would happen would be what we all want to happen. We want the Government to come back with cuts in public expenditure and at the same time to reduce taxation. That surely is what

  303
  most of us believe would stimulate the economy more than anything which has happened so far.
  The argument against the Government's line is the value of the additional incentives. We have the highest standard rate of tax of any European country. If the Chief Secretary has a few examples from elsewhere in the world, I should be happy to hear them. I do not suppose that I shall get them from the Treasury, even if I put down Questions, but the right hon. Gentleman may have them in his brief.
  If so, does he accept that in principle, if not in detail, it is wrong to bring taxpayers into the tax net at so high an introductory rate as 35 per cent.? Will not that create all manner of difficulties? It will not help the poverty trap. It will exacerbate the situation because, on a straight financial calculation, the majority of my constituents would be better off not going to work at all.
  All those problems would be helped enormously if we agreed to the amendment. If at the same time we forced the Government to make a quick appraisal of public expenditure, that would be no bad by-product.
  I hope that the Opposition may yet decide to support this amendment. I hope that the Chief Secretary will say that he is prepared to accept it. There is nothing I should like more to hear from his lips, but I do not think I shall hear that.
  Mr. MacGregor: I have a lot of sympathy with this amendment and with what the hon. Member for Cornwall, North (Mr. Pardoe) said. However, there are public expenditure implications which we must take into account.
  If the Chancellor of the Exchequer were as reasonable in his responses as was the Financial Secretary about the purpose of the last amendment—the hon. Gentleman fully understood that we were putting forward an argument rather than trying to reduce revenue—all would be well and it would be easier to have a proper debate on the purpose behind this amendment.
  Unfortunately, the Chancellor was not so reasonable. I realise that if the amendment were carried, he would spend his time going round the country saying that the Opposition—in particular, the
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  Liberal Party—bleated about public expenditure but all they did was to try to add about £1 billion to the public expenditure programme. We are not trying to do that on this occasion, but, alas, that type of approach by the Chancellor serves only to bring Parliament into contempt and disrepute, as my hon. Friend the Member for Braintree (Mr. Newton) said earlier.
  I have sympathy not only for reasons of incentive, of shifting the balance back from direct to indirect taxation, and all the other arguments we have heard, but also because I think this would be some help in dealing with a further problem upon which I would like to elaborate. That is the problem of the balance, not only of the poverty trap but also the disincentive, between those in work and those out of work.
  We are all now familiar with the poverty trap problem. It is quite simply that many groups below average earnings and, indeed, groups getting very close to average earnings, if there are three children, are paying a high marginal rate of tax for every increased pound in earnings. This is because family income supplement drops away. There is a withdrawal of welfare milk and free school meals and family incomes supplement eventually goes. There is also the withdrawal of rent rebates and rate rebates. The higher burden of national insurance contributions begins to bite even more. There is no doubt that the problem of the poverty trap is one which is causing increasing irritation throughout the country among groups of below average earners.
  It has been caused because tax rates, and tax allowances particularly, have not been fully indexed—even in the so-called concessions given in the Budget—to keep in pace with inflation whereas benefits, by and large, have.
  Possibly even more important than the poverty trap problem, which is now commonly recognised as one which has to be dealt with, is the problem of disincentive for those out of work wanting to come back into work. It is a problem of encouraging the worker rather than the shirker. I have been impressed by the fact—now that this point is raised in the House—that there is not much opposition from the Back Benches opposite. Hon. Members opposite are certainly beginning

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  to hear about this from their own constituents. Of all the subjects raised with me in my surgeries and correspondence, this is now by far the most frequent.
  There is enormous resentment among people that now it pays them to be out of work rather than in work. There is enormous resentment that it benefits people even more to refuse to take a job in the last three weeks of the year because of the tax clawback they get. Anyone planning his income on a rational basis would do that. There is also resentment, particularly among widows and older people, who are striving to remain in work and find that there is practically no incentive to do so especially when there are two additional factors—the higher national insurance contributions which they are about to face and which those out of work do not face, and the enormously increased cost of getting to work because of the increase in petrol prices. No one is blaming the Government for that, but it once again puts the balance much more in favour of those out of work that of those in work. This also creates a disincentive for people out of work who could have part-time earnings but who simply find it not worth their while.
  There is one further problem in this respect, which does not relate directly to the amendment but which leads to the main point I wish to make. That is that I find it extremely difficult to justify the whole area, not only of the balance between those out of work and those in work but also between the benefits which are taxable and the benefits which are not. One of the arguments drawn to my attention recently by a polio disabled widow, aged 57, is that she realises that there will be a decline in her net income as she reaches pensionable age because invalidity and constant attendance allowances are not taxed whereas the pension is taxed. It seems to me, although the amendment would help in all of these different problems, that the real requirement is for the Chancellor, the Chief Secretary and other Ministers to set up an urgent working party with the Secretary of State for social services to sort out the whole inter-relationship between tax allowances, tax reliefs and social security and unemployment benefits. This is becoming one of the issues which will cause the greatest resentment among ordinary working people in this country on incomes below average and up to average earnings.
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  7.15 p.m.
  I have great sympathy with the purpose behind the amendment but I am just a little worried about it not just on public expenditure grounds but because I believe, curiously, and perhaps paradoxically, that it does not go far enough. I calculate that the difference it would make would be under £1 a week. When one looks at the different problems relating to the poverty trap, and the disincentive between in work and out of work, £1 is not enough to make a difference, not just for those on £50 a week but also for those on average earnings. This highlights the problems with which we have to deal. We have to deal with this issue on an even broader basis than that contained in the amendment.
  Direct taxes have to be reduced, but even more, the starting point at which one pays tax, whether it is 25 per cent., 30 per cent. or 35 per cent. should be much more in line with what it was in relation to average earnings only a small number of years ago. It is interesting to reflect that in 1965, a man with two children had his starting point for tax at two-thirds of average earnings. To get back to that point would cost nearly £2 billion. This shows the scale of the problems we face and the magnitude of the task ahead of us. I am certain that we shall have to embark on it and, for that reason, I believe we should be grateful to the hon. Member for Cornwall, North for giving us the opportunity, through the amendment, to air the problems.
  Mr. Wakeham: I want to intervene briefly to say that I think that the hon. Member for Cornwall, North (Mr. Pardoe) has done a service in bringing forward the amendment for discussion. I can see the public expenditure arguments, but I think it right that the Committee recognises the extent of the enormous problems which many people in business have over the question which arises when people first get into income tax brackets, particularly when this arises as a result of overtime earnings and so on. Frequently, in many companies, people who earn salaries and do not get any overtime have to explain to employees who will get overtime that there is no possible way in which they will be paying 100 per cent. of what they earn in overtime. However, a large number of people feel a sense of resentment

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  about moving into another tax bracket. Moving from nil to 35 per cent. is a great discouragement in this field and is something we ought to do something about, even if we cannot do it by way of the amendment.
  It is paradoxical that in this country the people in tax brackets who are most badly affected are the high income earners—no doubt other hon. Members will discuss this—and the low income earners. We treat both of them, for different reasons, badly. There is no doubt that the combination of our tax system and social security arrangements makes it extremely difficult for those on low incomes, in spite of all their efforts, to get themselves out of the difficulties in which they find themselves.
  The hon. Member for Cornwall, North and myself made the error, last time we discussed this subject, of attributing much of the work done to my hon. Friend the Member for Norfolk, South (Mr. MacGregor) when it was my hon. Friend the Member for Norfolk, North (Mr. Howell). Nevertheless, I think they have both done valuable work. The hon. Member for Cornwall, North has done a service by raising this matter in the House.
  Mr. John Nott: This is an interesting and valuable amendment. Although I do not wish to advise my hon. Friends to divide on the amendment, it is obviously an interesting subject. The removal of the reduced rate band by the present Home Secretary in the Budget of 1968 or 1969 was a major error of judgment. Although I can see the reasons which led him to do so, the country has suffered as a result. Now, as the cost of the amendment shows, it will be very difficult to correct the situation.
  It is ironical that the present Chief Secretary and Financial Secretary when in opposition opposed the tax credits scheme, which we were trying to get through the Select Committee and intended to bring into the House, on the ground that the scheme would make it more difficult to help the lower paid. The argument was that it would bring in what was then the basic rate of 30 per cent., that the credit would also be 30 per cent. and that that would restrict a future Labour Government in helping the lower paid.
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  Now, two years later, the poverty trap has deepened to an extent which it would have been almost impossible to conceive in 1973. Those who objected are now Treasury Ministers who have presided over probably the greatest increase in tax for the lower paid in the history of the House of Commons. It is worth reminding the Chief Secretary in a friendly spirit of his attitude then. If the amendment would cost £1,100 million, that shows the extent to which tax is being borne by the lower paid, and the serious situation that we face.
  The marginal rate of tax for those who come into tax for the first time is now effectively 40¾ per cent. That is the basic rate plus the employee's contribution to national insurance. When they see their payslips, men frequently demonstrate to hon. Members that a marginal rate of over 40 per cent. On overtime earnings greatly reduces their incentive to work overtime and produce more.
  I entirely agree with the hon. Member for Cornwall, North (Mr. Pardoe) that the shift in the last two years from taxes on consumption to taxes on income is quite unjustified and that the process has to be reversed. It is a nonsense that we now tax people's income and savings at over 40 per cent. at the margin. People have to save out of after-tax income, generally. We have made the shift even greater so that now the tax on savings and on income has increased and the tax on spending has been relatively decreased.
  No doubt the Chief Secretary's argument will be that it is ludicrous for the Opposition to talk about reversing that trend and to return to relatively higher taxes on consumption when the Government are running an incomes policy. That will always be the argument against taxes on consumption—that they would make an incomes policy more difficult to pursue. But that is a reason why this incomes policy will run into difficulties. I am not saying that it will fail in the narrow sense of how we define these terms. I have strong views on the £6 limit. I will not go into them now, but whether it succeeded or not is a matter for considerable debate.
  Certainly, if phase 2 of the Government's incomes policy fails, it will fail as much as anything because of the

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  shrinking of differentials which is constantly taking place now. British Leyland workers, middle management, the miners and those on higher incomes will in the end rebel against that shrinking. I am not saying that it will happen in the current year, but it is the shrinking of differentials which will in the end be the undoing of this incomes policy, and probably of most such policies.
  So the argument cannot be sustained that a switch back to relatively higher taxes on consumption will necessarily undermine incomes policies. I agree that Oppositions should not be embarrassed by a Chancellor who blusters his way through debates by charging them with wanting to increase the borrowing requirement. I would point out that it is not Government expenditure which would be increased. That is the terminology that we frequently use, but a reduction in taxation is not an increase in Government expenditure. But certainly this suggestion would increase the borrowing requirement.
  Certainly Oppositions cannot be inhibited from proposing necessary and desirable tax reductions simply because we are frightened that a Chancellor who will misrepresent anything that the Opposition say will come rushing to the Box and accuse us, because we wish to lower taxation, of increasing his borrowing requirement. The Chancellor has trebled the borrowing requirement because he has allowed public expenditure to get out of control. That is entirely different from the amendment, which concerns a reduction in taxation.
  If the hon. Member wishes to press the amendment to a Division, we favour its spirit, but, unlike him, we may quite soon have to face the consequences of our actions. Although I agree with my hon. Friend the Member for Norfolk, South (Mr. MacGregor), that the time is overdue for thinking through the whole relationship of benefits and income tax, we would not wish to follow the hon. Member into the Lobby, although we support the spirit of the amendment.
  My hon. Friend the Member for Norfolk, South made the valid second point—that the Budget has greatly narrowed the differential between those in work and those out of work. Every time we make this point, Labour Members jump
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  up and down and suggest that we are trying to do down the unemployed, the sick and the disabled. That, of course, is a nonsensical way of pursuing the argument. We believe as much as Labour Members in a social security system which supports those in need, but that does not imply that the Chancellor should arrange his Budget measures so as to ensure that those out of work receive twice as much as those in work. The narrowing of that differential, if nothing else, will undo the Government at the next election.
  Ministers may show their agreement when their hon. Friends say that theirs is the party which supports the disabled and the sick, but the one thing which will undo them will be the working man's rebellion when the situation has gone too far and he will tolerate no longer the extent to which he pays tax and social security contributions to support those who are out of work. This is normally not their own fault. But the differential has been narrowed to such an extent that the protests are increasing day by day, with grave consequences for the country.
  Incentives are being removed for those in work and differentials are being narrowed. We have to find a way of putting back a reduced rate band which will lower the point at which people will come into income tax for the first time.
  7.30 p.m.
  The Chief Secretary to the Treasury (Mr. Joel Barnett): The hon. Member for Cornwall, North (Mr. Pardoe) began by complaining that he had put down a Question on 3rd May for answer on 6th May and that he did not receive an answer until I gave it to him today. I am sorry about that. But he was slightly in error when he said that he put down a Question on 3rd May, because in fact he tabled 50 Questions: 35 of those were on 3rd May, 14 on 4th May and one on 5th May.
  Of course one wants to answer hon. Members' Questions as quickly as possible, but one also wants to cut down the size of the Civil Service. Answering 50 Questions on complex tax matters takes a little time. I am sorry that it was not possible to supply an answer as quickly as the hon. Gentleman and I might have liked, but answering 50 Questions from one hon. Member takes time.

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  I think that the delay was understandable in the circumstances.
  I appreciate the reasonable way in which hon. Members have presented their case. Like the hon. Member for St. Ives (Mr. Nott), I am always happy to accept the spirit, if not the amendment itself. I shall not seek to ask the Committee to vote against the amendment simply on the ground that it would cost £1,100 million—although that is not a small sum. My argument is not entirely based on that. As hon. Members have said, other measures would be taken if the amendment was carried but, because of the nature of our proceedings, we cannot always consider amendments which might equalise the situation.
  While I accept that hon. Members are not seeking to increase the borrowing requirements by the amendment, because of other measures they would seek to introduce, they are not seeking to reduce the borrowing requirement. The amendment would make it more difficult to reduce because, whatever else hon. Members would cut to compensate, it would still be a little more difficult to reduce the borrowing requirement to levels that we should all like to see.
  Mr. J. Enoch Powell: That was an interesting obiter dictum The right hon. Gentleman referred to the levels of borrowing requirement which all of us would wish to see. Can he be more specific about that, because it is important? He should not leave the Committee entirely without guidance about the level of borrowing requirement that the Government wish to see.
  Mr. Barnett: I am always delighted to give an answer to the right hon. Gentleman's sensible questions. I should like to see the borrowing requirement lowered and the Government would like to see it lower.
  The hon. Member for St. Ives said, perfectly reasonably, that my hon. Friend the Financial Secretary and I complained about the tax credit system and that one of the reasons we said that were against it was that it would make it difficult to have reduced rates within it. I willingly concede that I do not like the present system and that if I were starting to create a tax structure from another point,
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  it would not be the present system by which 90 per cent. of taxpayers all pay the same basic rate of tax. Graduations in rates of tax would create a fairer and smoother system.
  My complaint about the tax credit system was that it would create a system, which would have taken many years to prepare, in which it would be more difficult than at present to have a smoother structure. I do not apologise for that argument against the tax credit system.
  The hon. Member for Cornwall, North and others took on board the case that they would have to make in advocating an amendment which increases the borrowing requirement by £1,100 million and that they were obliged to say what they would do to compensate for that. I do not complain that they did not explain how they would compensate, because this is not the occasion to do that. The main case made by the hon. Member for Cornwall, North did not lie in that direction, because he argued the need for a shift from direct to indirect taxation.
  Certainly in recent months and years I have never argued that the combination of inflation, the incomes policies of successive Governments and the inadequacy of our economic performance have meant that post-tax income differentials have not been substantially narrowed. That is a fact which cannot be disputed. It is equally true that there has been a substantial shift from indirect to direct taxation. I do not dispute that.
  The hon. Member for St. Ives, as always, sought to discover what my argument would be and to answer it in advance. He said that I would say that if we shifted from direct to indirect taxation at this time the incomes policy would fail. He did not tell the House his policy on this matter, for reasons that I understand. On Second Reading the right hon. and learned Member for Surrey, East (Sir G. Howe) said that he did not want to be dogmatic. We know why he said that—there are some slight differences of opinion.
  The hon. Member for St. Ives forecast that the incomes policy would fail, not because of the shift to indirect taxation, but because of the problems of differentials. I accept that there are such problems between skilled and unskilled

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  workers and others, but at present our overriding need is to achieve a successful incomes policy to bring down inflation. It would be asking too much of trade union leaders to say "Please accept an incomes policy of the kind that we have achieved with the TUC but at the same time we will increase indirect taxation and so add to the retail price index." That would not be a sensible thing to do.
  If the hon. Member for St. Ives had told us that the Opposition's official view was "Forget incomes policies. We are not in favour of them, but we are in favour of a substantial shift to indirect taxes. We are not bothered about getting agreement with the TUC." he would have had a reasonable case. But he could not say that, and I do not think that he has a case.
  I willingly concede that the present structure of our direct tax system is anything but ideal, but there are difficulties in current circumstances. It has been argued tonight that one of the ways to help those at the lower end of the tax scale is to introduce the reasonable band of £500—although it could be argued that we should go for more than one band—at a lower rate of 25 per cent. It is said that that would help those in the poverty trap, for example.
  I am not sure that that would necessarily be so, although it would clearly be so in some respects. If one had a choice between introducing a reduced rate band and raising the threshold, it would be better for those at the lowest end of the tax scale to raise the threshold. I am glad to see the hon. Member for Norfolk, South (Mr. MacGregor) nodding agreement. It is clearly so, because those who benefit most are those with £500 of taxable income. Those with only £300 or even less would benefit to a lesser extent.
  I turn to the subject of the poverty trap. Let us forget the switch to indirect taxes in order to change the burden of taxation, because that is not a possibility at present. If we used what funds were available in order to introduce a reduced rate rather than increase the threshold, that would not particularly help, because there would be an area of overlap, the net result of which would be that the width of the poverty trap would be extended. More people would come into
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  it if, because of the relief given there, we could not raise the threshold in the way we propose in the conditional reliefs. I am glad to see the hon. Member for Cornwall, North nodding agreement.
  The other problem is that introducing a reduced rate band rather than raising the threshold would result in making the poverty trap deeper. Therefore, I am not sure that the overall effects would be beneficial.
  I take the point that hon. Members were arguing not for failing to increase the threshold but for switching to indirect taxes. I hope that they will accept that, given the circumstances we face, to switch from a £1,100 million direct tax yield to an indirect tax yield would not be reasonable.
  Mr. MacGregor: I am grateful for what the Chief Secretary has said about the poverty trap. Would he also comment on the problem of the differences between those in work and those out of work? That is one of the points the amendment would help to meet. I should be particularly grateful for the right hon. Gentleman's views on the proposal that there should be a working party of Treasury and Department of Health and Social Security representatives to sort out this tremendous problem.
  7.45 p.m.
  Mr. Barnett: I take the point about those in work and those out of work. It is true that 40·75 per cent. is a very high level for those coming into tax to start at. I should very much like a lower rate at the outset, but for the reasons I have given it is very difficult to introduce it at present.
  When we are starting with a structure with which none of us is very happy, we have a fairly narrow choice. One could use whatever limited funds are available to raise the threshold or to help in some other way those at the lower end of the incomes scale. I shall consider the point made by the hon. Gentleman, who is always very fair and reasonable in his approach to these matters. But we have regular discussions with the DHSS on the relationship between those in work and those out of work, and the best way to help them. We discuss benefits and their relationship with the tax system.

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  The hon. Member for St. Ives had a little party political fun about the whole question of those in work and those out of work. I do not complain about that. But while he and no doubt most of his constituents complain about these matters, they are not among the major issues faced by Labour Members. The major issues for us tend to be housing and social problems. It is easy for the hon. Gentleman to make the general case. I do not seek to suggest that he would not increase benefits or that he would reduce them, even though he said that once. It may have been a slip of the tongue, though I notice that he is not denying it.
  The hon. Gentleman fairly conceded that most of the unemployed are out of work through no fault of their own. If he does not seek to reduce their income by reducing benefits, the only way in which he can widen the differential is to make substantial reductions in direct taxes. For the reasons I have given, no Government could at present make those substantial reductions. The Opposition have not been able to spell out precisely where they would save many thousands of millions of pounds by cuts in public expenditure. Even if they could, they would only begin to meet their criticism about the borrowing requirement. That still would not leave room for massive reductions in direct taxation.
  All hon. Members are duty bound to have a sense of responsibility in these matters. It is to do a disservice generally to build up expectations, to imply that in the present economic climate, which is likely to affect taxation for the next few years, we could make massive reductions in direct taxation. I hope that it will be possible to make some reductions. Indeed, we are making some in the additional reliefs that we plan to introduce at Report stage. But it is unreasonable to pretend that we can do substantially more in present circumstances.
  For these reasons, I hope that the hon. Member for Cornwall, North, now knowing the cost of the amendment, will feel able to seek to withdraw it.
  Mr. Pardoe: First, I do not accept the Chief Secretary's argument that it is impossible to offer the country a substantial reduction in the taxation of income. I not only believe it is possible,
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  but I believe that he and others will find that it will have to be done because of the build-up of a massive revolt against the social wage. People are fed up to the teeth with financing themselves—putting in one pocket what they are paying out of the other. We are no longer taxing reasonably well-off people to finance the social wage. We are all going to have to think this thing through.
  I do not apologise for asking the Treasury 50 Questions in the aftermath of the Finance Bill. There are a lot of questions which need answering, and the great majority of those I put down were merely asking for an up-dating of the tax revenue losses in the light of the Budget of the various allowances.
  On 6th May there were 267 Written Questions on the Order Paper, 15 of them mine. I did not ask the most Questions on that day—two Conservatives asked more. Maybe I do ask a lot of Questions, but it is inevitable that a Member of a minority party will ask more Questions than a Member of one of the major parties.
  The Chief Secretary says that he accepts our case for substantial changes in taxation, but he is being rather like the Irishman who, asked the way to somewhere, says he would not start from here anyway. How are the Government going to get from here to there? They have turned down our proposal and that of the CBI for a Royal Commission. They will not set up a Select Committee to bring social services and social benefits together for taxation purposes. How are they going to sort this out and give us a taxation system which works? Maybe they are pinning their hopes on the Institute of Fiscal Studies. I hope so, because that will produce a great deal of good sense.
  The Chief Secretary's point about the poverty trap does not apply. It would apply if we isolated this debate. Later my party and the Conservatives will move amendments, not only to index threshold allowances, but substantially to increase the threshold. I have amendments to raise tax allowances to those levels which apply in the supplementary benefit scale. Unless we do that, we shall always be faced with the problem of disincentives. I do not accept any of the arguments that the Chief Secretary has put forward, but

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  I do not intend to force the issue to a vote.
  Amendment negatived.
  Sir Geoffrey Howe: I beg to move Amendment No. 10, in page 13, line 26, leave out '£4,500' and insert '£5,000'.
  The Deputy Chairman (Sir Myer Galpern): With this we are to take the following amendments:
  No. 9, in page 13, line 26, leave out '£4,500' and insert '£5,500'.
  No. 11, in page 13, line 26, leave out '£4,500' and insert '£6,000'.
  No. 25, in page 14, leave out lines 2 to 11 and insert—

  Part of Excess over £6,000

  Higher Rate

  The first £600

  40 per cent.

  The next £1,200

  45 per cent.

  The next £1,200

  50 per cent.

  The next £1,200

  55 per cent.

  The next £2,400

  60 per cent.

  The next £2,400

  65 per cent.

  The next £3,600

  70 per cent.

  The remainder

  75 per cent.

  No. 26, in page 14, line 2, leave out '£4,500' and insert '£5,500'.
  No. 78, in page 14, line 2, leave out '£4,500' and insert '£5,000'.
  No. 27, in page 14, line 3, leave out '£500' and insert '£600'.
  No. 28, in page 14, line 4, leave out '£1,000' and insert '£1,200'.
  No. 29, in page 14, leave out lines 5 to 11 and insert—
  'on the remainder 50 per cent.'.
  No. 30, in page 14, line 5, leave out '£1,000' and insert '£1,250'.
  No. 31, in page 14, line 6, leave out '£1,000' and insert '£1,250'.
  No. 32, in page 14, leave out lines 7 to 11 and insert
  'The remainder at 60 per cent.'
  No. 33, in page 14, line 7, leave out '£2,000' and insert '£1,500'.
  No. 34, in page 14, line 7, leave out '£2,000' and insert '£2,400'.
  No. 53, in page 14, line 8, leave out '£2,000' and insert '£2,400'.
  No. 36, in page 14, line 9, leave out '£3,000', and insert '£3,700'.
  No. 37, in page 14, line 10, leave out '£5,000' and insert '£6,200'.
  Sir G. Howe: It would be more convenient for the case I intend to make for me to speak to Amendment No. 10, although Amendment No. 9 remains in the group of the amendments which we are discussing. Amendment No. 10 is that which proposes to raise the starting rate for the higher band of tax by £500 as proposed in the conditional changes still subject to consideration by the TUC. Not only is the change necessary to enable the Government to live with the bargain which they hope to have struck, but it enables the principle of the Chancellor's deal to be discussed, too.
  The other amendments raise two other issues—the extent to which the burden of tax is being increased by stealth, by failure to raise the starting point in line with inflation, and the generally excessive load of direct taxation, which is becoming progressively more burdensome throughout the scale, and more so to those who are higher in the scale.
  The deal which the Chancellor announced last week raises questions which we shall seek other opportunities to debate. First of all, there are the economic pluses and minuses about the deal, and, secondly, there is the constitutional desirability of it. On the second point there is the important question of the attitude the Government will adopt towards it, because we intend to take this matter to a vote unless something is said to deflect us from that course. We want to know precisely what the Government's attitude will be because what we are proposing in this amendment are the changes which should be taking place if the agreement announced last week is endorsed, and the Government feels able to go ahead with it.
  Are the Government going to accept or resist Amendment No. 10? Are they going to accept it on the basis that it is in line with the agreement at which they have arrived, or will they say that the House of Commons should not exercise the right and the power to carry that amendment through until it is endorsed and preconditionally approved by the TUC. We are entitled to know the Government's position about that because it is a consequence of the method adopted by the Government that they may invite the House to vote down the amendment. Many people will regard this as unattractive, but at least we shall have an opportunity of questioning the position.

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  What about the merits of the deal itself? The Committee will remember that last year we were on the treadmill of 30 per cent. to 35 per cent. inflation in wage rates. That was not wholly the consequence of the monetary forces at work in the system. At least a part was a consequence of the Government's decision to embody into the social contract a belief that people could go on with the illusion that they could maintain their real living standards notwithstanding the fundamental factors at work in our economy. It was a consequence of the decision embodied in the social contract for the Government to finance the expansion of public sector wages without any limit and the decision to proceed with a huge programme of expensive Socialist spending commitments.
  In July last year the Government found themselves with an economy, in the Chancellor's words, on the verge of collapse and they were obliged to dismount from their inflationary treadmill. That process was bound to be a very difficult one.
  The fulfilment of the battle against inflation must involve the continued application of strict monetary policy. Certainly this is not sustainable if Government spending goes on on the present scale. In that kind of situation what, if any, is the rôle of an incomes policy as an adjunct to other economic policies which ought to be pursued? I said the other day that this was not an issue on which anyone in this House should be ready to leap into a dogmatic posture. Both political parties have in successive elections moved into a situation of opposing such a move for a variety of very powerful and understandable reasons. Both have then been driven in one sense or another, rightly or wrongly, to espouse such a move. There is a wide variety of views in both parties on this subject. Hon. Members on both sides are prepared to say at certain times that the situation is hopeless and that an incomes policy is essential. Others say that the situation becomes hopeless when an incomes policy is introduced.
  8.0 p.m.
  In that spirit I advise the Government to approach this matter without a totally dogmatic view. That is how the Committee should approach it if it is to have any credibility on this important question. On that basis, are there any points
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  to be conceded in favour of the deal still running being replaced by the deal announced last week? I suppose that certain points can be conceded. First, it is at least arguable that the existence of a crude pay policy might diminish the increase of unemployment which should follow from the proper monetary and fiscal policies. In so far as it does that, however, it blunts the message of monetary policy itself.
  It may also be conceded that while it is in operation a pay policy can help to curb the size or growth of public sector pay and salaries. It may be conceded, too, that the existence of a flat-rate figure of this kind—a figure of 4½ per cent. rather than 35 per cent.—could perhaps help to lower the level of expectations in pay bargaining.
  Some people may be prepared to welcome the deal without qualification on that basis. Some are prepared to welcome it in a condition of high euphoria. An even smaller number on both sides are prepared to regard it as the foundation for some kind of long-term replacement of the labour market.
  I do not discount the possible value of the three points I have conceded. Nor would my party propose, as the Labour Party did, to move in and challenge the policy and seek to overthrow it. But the Opposition would be failing in their duty if they did not draw attention to the other fundamental features about the deal that we should ignore, as they develop and exist now, at our peril.
  Surely this Committee and people outside it have by now learned that anything resembling euphoria at the conclusion of a pay deal of this kind is profoundly misplaced, whether under the last Conservative Government when I was concerned with it, under Sir Stafford Cripps, who was a less-than-euphoric character, or under Lord George-Brown, who returned in high euphoria from a Brighton meeting—and he is a character capable of euphoria. Many Members know that that kind of reaction is profoundly misplaced. They know as we move into our fifth or sixth incomes policy since the war the immense difficulties of exit—or, to use the more fashionable space-age jargon—re-entry from such a policy. These difficulties continue to multiply before our eyes. In

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  every post we get letters in large numbers on this subject.
  Even those who believe that an incomes policy could be the basis of a long-term replacement of the labour market concede that in the end, maintained over the long term, it would prove intolerable. I noticed the speech by my right hon. Friend the Member for Worcester (Mr. Walker) the other day in which he disclaimed any intention of establishing such a policy on a permanent basis. I do not need to rehearse all the reasons to the Committee. We have been round this course before in a range of cases. There is the compression of differentials. It is clear that the strains arising from that would be serious.
  The concept of the State, or some agency of it, replacing the market as the determinant of the value of a man or a group of men in the market place, is likely to create resentment which becomes increasingly explosive. No one has found a method whereby the practical difficulties of working a policy through could be overcome. It is said that economies such as those of Austria or Sweden have found a method for achieving that. Their economies are smaller than ours and they may be able to endure certain constraints for a longer period, but they do not point the way for us.
  There is then the persistence of price control as an inevitable condition for a policy on incomes. The Chancellor knows that it is essential to restore profitability to industry by the relaxation and eventually the abolition of the present pattern of price control. Yet how many times have the Government had to concede on that point in the course of the present deal? There is also the extent to which a bargain of this kind leads to the entrenchment of power and authority of what is, by any standard, a small and unpresentative group of trade union leaders. They are often committed to old-fashioned Socialist prejudices about the shape of political and economic policy which often do not commend themselves with much enthusiasm even to the Government Front Bench, to propositions which have been discarded in other countries which are not subject to this advocacy of old fashioned Socialism, and to policies which are gravely damaging to the members of unions whose leaders are
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  putting them forward. All these points come through this clause in a very powerful way.
  The constraints of arriving at this deal include a continuing increase in the real burden of taxes imposed by the Budget in every class of the community. Even if the conditional changes in allowances were made they would fall short of what is needed to offset the effect of inflation since the Government came to power. My point is well illustrated by the figures in Amendments Nos. 9 and 10. In Amendment No. 9 my hon. Friend the Member for Blaby (Mr. Lawson) proposes increasing the £4,500 to £5,500. That is how far the figure would need to move to take account of the real burden resulting from the 22½ per cent. increase in prices. In Amendment No. 10 we propose moving to £5,000, which is the Government's suggestion, but the difference between £5,000 and £5,500 is the extent to which taxation is being increased without being explicitly disclosed. I am not sure that the country or even the Committee understands the extent to which that is happening.
  Let us take as one figure the amount of income tax per household paid in the year just starting compared with our last year in office. In our last year it was £389, and in the year just beginning it will have gone up to £869. It will have more than doubled since the Government came to power. Of course, in money terms those figures go beyond the increase in real terms, but nevertheless that is a formidable increase. In addition, the total of taxes on income in each household—that is to say income tax, rates, and national insurance contributions—have more than doubled. Total public spending per household has just about doubled. All these things are consequences of the kind of bargaining which has gone on in this deal.
  This is happening because spending has been increasing on the same scale as taxation at the behest of the other partners to the pay deal—in a manner which is not entirely representative of their members' interests and still less representative of the country's interests.
  This is taking place covertly. Many later amendments show how far thresh-holds should rise if the burden is to be maintained at a constant level in real

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  terms. My hon. Friend the Member for Blaby has said many times before that this amounts to a form of fiscal fraud.
  I do not say that we should move to a pattern of automatic indexation of all these allowances—though Canada has done so—but the figures, arithmetic and consequences should be spelled out and the House should be given the chance to consider the consequences honestly and openly. It is becoming increasingly intolerable that the Government, with inflation as their ally are, almost as thieves in the night, imposing extra taxes instead of them being imposed openly and specifically by this House.
  Even more serious is the selective impact of these changes. With all the other measures in the pay deal and elsewhere in Government policy, they are having a particularly serious impact on the skilled craftsman, managers and salesmen who play such a vital part in our economy. These are the people earning between £4,000 and £8,000 a year about whom the Chancellor said so much recently, but for whom he has done so little to help. They are facing the constraints of the £4 cut-off in the incomes policy and the remarkably ill timed and mean attack on the system for the taxation of benefits in kind—benefits which, in many cases, are tools of the trade. Even without the consequences of this attack, the people whom the Chancellor said he was setting out to help will be between 5 per cent. and 8 per cent. worse off in real terms compared with a decline of 1 per cent. to 2 per cent. in the living standards of the average wage earner.
  The damage being done by this accumulation of policies has been made clear in many ways.
  Mr. Robert Sheldon: Do I understand that the right hon. and learned Gentleman welcomes the pay policy in as far as it could achieve lower expectations but no further?
  Sir G. Howe: The pay policy may have effects which could be beneficial in three respects—expectations, public sector pay and a diminution of the impact of unemployment. That is the most that can be said for its advantages. I am warning the Committee not to regard it as a solution or as something which will
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  get us out of our hole. I am stressing the need for other policies because the pay policy, as always, contains the seeds of its own destruction.
  The reduction of expectations, if achieved by the pay policy rather than by the impact of monetary constraints and unemployment, will be in general terms. The incomes policy, as designed, will have particularly harsh effects on the people to whom I was referring earlier.
  8.15 p.m.
  Mr. Robert Sheldon: I understand the right hon. and learned Gentleman's reservations. As he did not make this clear when the statement was made by the Chancellor of the Exchequer, will he now take the opportunity of telling us whether he welcomes the agreement between the Government and the TUC?
  Sir G. Howe: I have indicated that in the process of exit from the almost hyperinflationary tunnel which the social contract represented, there may be a rôle to be played by an agreement of this kind. However, do not let us assume that it is generally advantageous or overlook the damaging elements in the policy. One of the most damaging elements is the constraint on top incomes coupled with the failure to make any abatement in the very high level of taxes paid by skilled managerial people.
  The report on the film industry commissioned by the former Prime Minister includes a section on personal taxation and says that it is well understood in the industry that the high levels of British taxation tends to encourage certain young people with drive and ability to seek opportunities abroad. The report says that this problem is not peculiar to the film industry and goes on to emphasise the seriousness of the situation. The members of the Committee included Mr. Alan Sapper, General Secretary of the Association of Cinematograph, Television and Allied Technicians, Lord Ryder of the NEB and Baroness Falkender. That is quite an impressive trio, and their report is only one of the illustrations of the extent to which the great constraints of this climate of high taxation make it impossible to look forward to a return to economic reality. There is no room for tax cuts if borrowing continues to increase.

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  The case for economic sanity goes by default if discussions on this kind of Bill are conducted narrowly and exclusively with the TUC. That is why we are so concerned about power and responsibility in this and other matters being taken away from the House.
  Some people may say that this is inevitable or even right. Of course it is right for the Government to expound the foundations of their economic policy and to acquire understanding and acceptance for it throughout the country—though the foundations need to be much more sound than those of this Government and the Government should also spell out to the TUC the consequences of monetary policy. Let us have more open budgetary process and a greater involvement of the House at an earlier stage in this process. It should not be left on the basis of a virtual transfer of authority to one interest group. Parliament is the body elected by the people and accountable to the people. It is not right for this responsibility to be taken away from this House. Nor is the Government's action popular throughout the country.
  The Government may think that by entering into this sort of close consultation with trade union leaders they are doing what the people of the country want, but the results of the local elections suggest that that is far from the case. If hon. Members opposite consult their constituents they will find that they are increasingly resentful at the way in which decisions are being taken by the TUC rather than by elected representatives. It is an unpopular proposition and it is not necessary.
  If all of us who claim to believe in the desirability and the necessity of parliamentary Government stand together and argue the case for decisions being taken in the House and by the Committee, and if we have the courage to sustain the economic policies which we have too often cast aside, which are by no means easy, we can deal with the matter in a way that will not make us feel obliged to adopt the approach epitomised by the clause, which I suspect the Minister will be asking us not to accept because it has not yet been ratified by the TUC.
  That is what we regard as an undesirable feature. We ask the Government not to be beguiled by the mechanics of the
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  situation in the short term. They are easily beguiling, and some of us have been too easily beguiled in the past into thinking that the answer to the problem has been found. Unless we deal with the long-term underlying problems, which will give us the freedom to reduce public spending, to begin cutting taxation and lightening the burden on those who feel so overwhelmed by present taxation, there is no hope of restoring the fundamental health of our economy.
  Mr. Ridley: My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) has deployed some strong arguments. I was especially interested in his views about the pay deal with the TUC.
  I found it absolutely extraordinary that the Financial Secretary should make two interventions of such a character. Almost plaintively he asked whether my right hon. and learned Friend welcomed the deal. I remember other occasions when the Prime Minister and the Chancellor almost pleadingly have asked for love from the Opposition Front Bench for their silly deal.
  What is it to do with the Government whether we love them or hate them? Why do they seem so desperately in need of the support of the Conservative Party for the deal? After all, it must be a most unpopular deal. It seems to be much resented by the British people, as is evidenced by the local elections. Are the Government trying to drag us in? Are they trying to make us the coauthors of the deal so that the opprobrium will rest equally on both Front Benches? Is there some other motive?
  It is extraordinary how much prominence has been given to the deal. I remember when the pound was falling hourly in the weeks following the Budget. We were told that the cause of the fall of the pound was that public opinion wanted to make sure that the deal would be fixed up. We were assured that as soon as the deal was fixed up, the pound would be secure again. In fact, the value of the pound on the eve of the Budget was 186·70 cents. Today it is still only 183·25. In other words, it is 3½ cents less than on the eve of the Budget.
  That shows that, far from putting the pound back to its value before the Budget, the pay deal has had no effect.

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  In fact the pound hardly moved when the pay deal was fixed. It is clear that the pay deal has not impressed foreign opinion. It has not impressed the holders of sterling one little bit. That is explicable. We know that it is the borrowing requirement that is causing the weakness in the pound, plus the Government's vast over-spending.
  Let me explain to the Financial Secretary why we do not welcome the deal—perhaps I should say why some of us do not welcome it, for I must not speak for more than myself. It is not very difficult to give an explanation. I remember being told by the trade union movement and by Labour Members year after year that wage claims did not cause inflation. We were told that wage claims were not causing inflation. I agreed with that. It seemed perfectly reasonable that it was not wage claims that caused inflation but the tremendous over-spending of high borrowing requirements which various Governments run.
  That was the position, but few people believed it. I believed it and so did the trade unions. I still believe it. It cannot be right to welcome a deal which places the whole onus for controlling inflation upon bottling up wage claims, which we are told are not the cause of inflation. There is a basic non sequitur in that argument.
  I believe that wages are determined by free collective bargaining, that they should be determined by free collective bargaining and that probably they always will be.
  We now have an extraordinary admission from the Prime Minister, which was made in the speech to which my hon. Friend the Member for Blaby (Mr. Lawson) referred at Question Time. The right hon. Gentleman said at Blackpool:
  "Indeed, he has said"—
  that is the Chancellor—
  "that those who particularly need help, especially the families with children, will be better off with his proposal than they would be in the scramble that would result from free collective bargaining with higher pay limits, and continuing inflation."
  Is that really the Government's position? Do they say that if we had free collective bargaining, wages, or earnings, would be lower than under the pay deal?
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  If that is so, surely there is a great deal of advantage, from the point of view of economic management, in not having the pay deal at all.
  We are told that we must reduce our wages and reduce our standard of living by 1 per cent. or 2 per cent. The Prime Minister says that there are two ways of doing so—namely, by means of the pay deal or by free collective bargaining. He then says, apparently, that free collective bargaining would be the most effective approach, and he rejects it. That seems to be the most extraordinary way of going about these matters.
  I now turn to the constitutional point. The supposition that the trade unions have taken over the determination of taxation is not, to me, entirely convincing. I see the force behind that argument, but Parliament will either accept or reject the amendment. To that extent the House of Commons can be said to retain its sovereignty.
  It would be intolerable for the Government to reject the amendment, which my right hon. and learned Friend the Member for Surrey, East has moved, on the ground that they have not yet decided whether to make tax concessions. This is the moment to have a determination of what the tax allowances shall be and whether the higher rate shall start at £4,500 or £5,000. This is the opportunity. This is the moment to determine the matter.
  The Government have already told us that they have concluded the deal and agreed tax reliefs. For them to say today that they will resist the amendments seems to be a constitutional monstrosity of the worst sort.
  I have heard rumours that the Government will vote against these amendments, and that a few weeks later they will include them in the Bill on Report. If that is their intention, it is a stupid one. I do not see why they want to adopt such a course. Perhaps there is still some bargaining taking place—indeed, perhaps there is still something to bargain away. If the Government intend to take such a course, surely we should know what remains to be bargained. So far as I understand the situation, the package has been signed, sealed and delivered. Therefore, why cannot the Government accept these amendments

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  since some of them follow the concessions which the Chancellor said he intends to make?
  8.30 p.m.
  There has been some talk about constitutional impropriety in these deals. David Wood in The Times yesterday suggested that there was a shift away from Parliament and that this place was becoming more and more irrelevant even in the determination of taxation. Certainly looking at the Labour Benches—and I must confess even at the Opposition Benches—we see some evidence to support that view. Undoubtedly, we feel that there is little that can be done in this House even if the case for action is overwhelming. The Government appear not to listen to what we say, but come here merely to stonewall. In the background it is the TUC which fixes up things in Downing Street with the Chancellor of the Exchequer without too much bother.
  It can be said the TUC appears to give great obeisance to the Government, but one must ask whether that obeisance will lead the TUC. Surely it is asking a great deal of ordinary working people that they should be asked to suscribe to the trade unions and for those unions then to tell their members "You cannot have anything more in wages beyond the 4 per cent." The great argument in favour of the closed shop was that a trade unionist paid his subscription because his union would obtain for him more money and better benefits. Now the trade unions will obtain for their members so much less money and certainly fewer benefits because this deal has been agreed with the Government. Prima facie this is an odd deal. Trade union members are expected to pay their subscriptions to their trade unions to secure less than they bargained for. They have been sold down the river.
  I warn the Government that the present deal comprises the most effective way in which to destroy the British trade unions that could ever have been thought up. The Conservative industrial legislation of ill repute can be likened to a pea-shooter compared with the howitzer brought into play by the present Government against the trade unions.
  The British working people are not fools and will understand this situation.
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  They will ask "Why should we subscribe to a trade union that has ceased to be a poacher and has now become a gamekeeper?" Unofficial strikes will break out on a greater scale when workers try to secure what they feel to be their correct differentials, or extra pay for extra work, in what they believe to be the market value for their labour.
  The local elections have emphasised the deep and growing resentment of ordinary working people—the "OWPs" as they have come to be called in this House—against the Government and their close alliance with the trade unions. The fear on the factory floor is no longer against the bosses, the Tories, the shareholders. The fears are now directed at what is being done on the workers' behalf by the shop stewards. They are the people who are now resented, because they are the new estate of the realm.
  If a constitutional issue means anything, it does not mean that we in this Parliament should fail in our duty to vote out anything with which we disagree. We could have voted out masses of things if only we had the strength of our consciences. We have always been too "chicken" to vote when we should have voted. We believe that we dare not use our votes against our own party when it is in Government, and that is our own fault.
  It is the constitutional impropriety, and indeed the growing menace of the closed shop union that is being extended by the present Government into every corner of industrial life. The average working man now knows that not only his wages but his tax reliefs depend on sucking up to the trade unions. These are the reasons that the Financial Secretary must bear in mind when considering why some of my colleagues do not entirely welcome what he has done.
  First, Government action in this sphere is irrelevant, because it does not seek to deal with the cause of inflation. Secondly, it seems to embrace elements of constitutional impropriety. Thirdly, it tends to limit the ability of the average working man to improve his lot. Fourthly, it embraces another dreadful prospect. Are we really saying that people in this country shall not earn more than an extra £4 a week, whatever they do, however much harder they try? Are we to have this

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  equality of misery year after year? Is this what Socialism really means?
  My norm would not be an extra 4½ per cent. It would be that nobody shall have more than 450 per cent. more—provided he earns it, works for it and deserves it. Yet we have this blanket of sheer misery which is thrust on the working people of this country, laying down that £4 a week extra is all they can have at a time when prices will probably be rising at a rate much faster than 4½ per cent.
  No wonder the Financial Secretary and the Chancellor of the Exchequer want to persuade the Conservative Party to support them in this venture. Maybe their backs are not broad enough to carry this message of failure and gloom to the people. It would be very nice for them to be able to say "The Tories have supported us." That is why the Financial Secretary jumped to his feet and asked my hon. Friend twice, plaintively and pleadingly, to welcome his lousy deal. Does he now realise that he must carry the responsibility for what he personally has supported?
  We have a duty to explain to ordinary working people that there may be a chink of hope and that there is a way out from under the blanket of gloom thrown upon them by the Bill.
  Mr. Norman Lamont: I should like to concentrate my remarks on the point made by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) about the effects of the Government's proposals on differentials, and to concentrate on the amendments dealing with this and with the plight of many people who fall into the category of middle management. My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) might call them the MMs.
  I suppose that it would be wrong to complain that the Government have not in their proposals adjusted all the tax bands right the way up to compensate for inflation. Obviously that would be an unrealistic expectation to have at this moment when we have painfully to try to deal with inflation. But at the very least it is extremely disappointing, in the light of all the things the Chancellor of the Exchequer said in the period leading up to the Budget about how he recognised
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  the problems facing middle management, that he has delivered a very small brown mouse indeed in his Budget in regard to what he can offer the middle and higher income groups.
  Many people in middle management in this country have not had the £6 a week increase in the last year. Many of them have experienced the freeze on their salaries above £8,500. Many of them have been hit very hard by the combination of inflation and the high tax rates.
  The man who in 1974–75 was earning £10,000, is unlikely in 1975–76 to have earned £12,500, and is even less likely in the current year to earn £13,000. Those are the figures he would need in gross income expressed in real terms. Even if he had managed to get that sort of pay increase, his real post-tax income, which in 1974–75 would have been £6,226, would in real post-tax terms have fallen to £5,616 in 1975–76, and to £5,400 over the current tax year. That is the sort of adjustment that many people in middle management have had to make, and they have found it very difficult.
  It ought to be said quite bluntly that the same principle applies to top management—the people whose pay is so seldom mentioned but whose case ought to be mentioned, because they, too, have been extremely hard hit by the combination of unchanging tax bands and inflation. The rate at which the top band of tax, the 83 per cent., began to bite ought to have been raised to £24,000 to compensate for inflation if it were to be roughly the equivalent of what it was last year. It would have had to be raised to £34,000 to be equivalent in purchasing power to what this House intended in 1973. Those are examples of how the combination of unchanging tax bands and inflation have hit management in this country extremely hard.
  This was borne out recently by a survey, commissioned by the British Institute of Management, among 27,000 executives in over 400 companies. It was found that the living standards of executives covered by the survey had fallen by over 13 per cent. in the last year—a very considerable drop. We contrast that with the Prime Minister coming to this House and telling us with great

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  frankness that the ordinary working people of this country have to face a drop in living standards of about 1 or 2 per cent. This group of middle managers have already experienced in one year a drop of over 13 per cent. We can imagine the kind of reaction, let alone revolution, which would have been provoked if that kind of adjustment had been imposed on the population in general.
  From January 1975 to January 1976 the salaries of managers covered in the survey increased by 11 per cent. compared with an increase in all average earnings in the country of over 20 per cent. during the period. But those managers having got that 11 per cent. increase, tax reduced it to a 6 per cent. increase, and on top of that, inflation reduced it to a negative increase—a decrease—of 13 per cent. The survey, for which one is very indebted to the British Institute of Management, illustrates the scale of sacrifice that has been imposed on a very small but vital sector of our economy. This kind of burden imposed on a relatively small group of people, although they are not small in numbers, has extremely damaging longterm effects on our economy. We cannot hope to have increased prosperity and the kind of growth rates to which the Government aspire unless we can persuade managers to stay in this country, and the evidence is that middle managers are not staying here.
  When we put Questions to Ministers on this subject they say that this is not borne out by official statistics, which is a great condemnation of official statistics, because we should know more about people leaving the country, in terms of occupation. It is something of a scandal that one has to go to the United States of America and to look at its immigration figures to find out the kind of people who are leaving this country. United States immigration figures tell us that compared with other countries in Europe this country is losing a much higher proportion of professional, managerial and higher skilled work people. That is the result of the kind of tax rates this Government have been imposing on middle management.
  Another consequence of imposing these high tax rates on the middle management group is that the mobility of
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  management is discouraged. It is not possible to get the right people into the right jobs because differentials become obscured in post-tax terms. That applies particularly to trying to get people out of the public sector, for example, into private industry. Some people believe that one of the problems that has been a feature of our economy is that we have been unable to get the best brains from the universities into industry and that people have tended to go into the professions and the Civil Service. If we are to maintain these high tax rates, we again blur the differentials and the post-tax awards and make it less attractive for people to move into the private sector.
  That distinction between the public and private sectors becomes even less clear because in many ways in the present situation the public sector has been given certain advantages. Not only is there security of employment and an index-linked pension, about which much has been said, but even now, under the Government's pay proposals, we have the undertaking that incremental scale payments for those in the Civil Service and in the public sector are to be exempted from the pay policy proposals. Here again we have yet another factor that puts the advantage on the public sector and makes it more difficult to move people of talent, ability and imagination into the private sector—which is exactly what we need to do.
  8.45 p.m.
  Labour Members—if there were any present, apart from the Minister—would be the first to cry out "But you are putting forward a case for the rich, for the better off". However, in many cases one is talking about professional managers, about people who have no capital but whom it is vital to try to encourage. Labour Members, if they were present, would go on to say "But you are advocating inequality, and one of the things that we believe passionately is that Britain has a very unequal society with a very unequal distribution of income". However, I wonder whether that is borne out by the facts.
  I was very sceptical when the Government set up the Diamond Commission to inquire into the distribution of income. If ever there were a boomerang that backfired and hit the Government firmly

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  on the nose, it is the Diamond Commission, which has shown that in terms of post-tax income Britain has a very egalitarian society. It has highlighted the plight of middle management and professional people in Britain who enjoy a much lower standard of living than their counterparts in many of our competitor countries.
  It is a bit of a scandal that the Government set up the Diamond Commission and pay Lord Diamond a large salary to conduct his inquiries, and he churns out reports that produce an unanswerable case for ending dividend control and say that the British manager and middle income groups have been squeezed, yet the Government do nothing whatever about it. The only sentence of the Diamond Report that the Government have ever cited in the House is that which they quoted, rather out of context, about fringe benefits and motor cars.
  If the Government want to justify the vast expenditure of money on the Diamond Commission, if we are to have more and more of these reports churned out—reports which churn out facts that are very palatable to the Opposition—I wish that the Government would pay a little more attention to them and not merely cling their myths in disregarding the facts that have been put to them.
  Then Labour Members—if they were present—would also say that the concessions that have been given in the Budget, in per head terms, have been worth rather more to the higher income groups. They would say that the raising of allowances is worth more to the higher income groups that it is to the average earning groups, and they would ask why I was going on about the plight of the higher paid. However, unless one wants to argue for a completely egalitarian society, surely one accepts that there are differentials, different incomes and different living standards. If one merely adopts the approach that whenever allowances are increased they are somehow worth more to the higher income groups, in terms of a global sum, and if one is to say that all tax cuts should give the same amount to all groups, we shall erode differentials completely and put the squeeze more and more, and tighter, on the skilled and middle management groups.
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  That is why I and some other Opposition Members have argued that we ought at least to look at the case for indexing the different bands within our taxation system. We have arguments about what the distribution of income should be, and it is a fair divide between the two main political parties. We can have different views about what the distribution of income for different responsibilities ought to be. However, once a Government are in power and once they have adjusted tax rates and taken a view about what a managing director ought to have, in post-tax terms, compared with a manual worker, surely, having made up their mind on the fair distribution of income, they ought to be prepared to maintain that in real terms for several years. They ought to be prepared to index the bands at which the rates of taxation cannot bite.
  We are, by the taxes which the Government are imposing on management, building up long-term problems for the United Kingdom economy. We are encouraging more and more skilled managers to leave this country. I do not know whether the Minister was in private practice in accountancy, as I know his colleague the Chief Secretary was, but if the Chief Secretary were in private practice today he would be making a bomb out of advising people how they could leave the country, emigrate, sell their businesses and go elsewhere, because it is not worth starting a business, building it up and then having to pay taxes of the kind that have been increasingly imposed by this Government.
  Mr. Clement Freud: But would the hon. Gentleman not admit that the right hon. Gentleman would be paying a lot of tax on the bomb he would make?
  Mr. Lamont: I do not think that that would apply to him, but I shall not cast any reflections on what people in private practice would be doing.
  The case that the Government have been putting forward is that they are able to get the co-operation of the trade unions, that by the sort of policies they have espoused, the dock labour Bill, the nationalisation of shipbuilding, the nationalisation of aircraft, they are able to get the co-operation of the trade unions. I suppose that the tax rates

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  that are embodied in this Finance Bill are part of that package, but those tax rates, like many other aspects of Government policy, are far too high a price to pay for that co-operation.
  Mr. Nick Budgen: I had not expected to have the pleasure of intervening in this debate, but I was stung into words, if one can be stung into words, by a single remark made by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). Of course, I entirely agree with him about the essential tyranny of having one's tax rates and wages decided by closed-shop, bolstered-up trade unions, by leaders who are representative of only 1 million people—the 1 million people who vote in trade union elections and who are thus representative only in the most vague terms of a mere section of our community, a mere 10 million out of 55 million. And of course my hon. Friend is right in saying that such action is no more than the allocation of wages and the distribution of taxes according to the most narrowly decided political motives.
  But the one phrase which struck into my heart was that in which he said that he would not mind if they increased their wages by 450 per cent. provided they deserved it. That, I would suggest, was the fatal defect in his argument. He was right to say—and I see the Treasury Minister nodding in agreement, but I suspect that I am going to diverge from agreement with him pretty fast— "Provided they earn it"; that is one thing, and I would agree with that; but not "Provided they deserve it", because the word "deserve" imports into the argument all those ideas about fairness, about the allocation of wages, which came with the old relativity boards and the old idea that some bureaucrat in some extraordinary way could pluck out of the air some idea by which he, the bureaucrat, could fairly allocate wages according to some pre-ordained idea of what was fair, for the essence of the free market argument is that it is unfair.
  The essence of the free market idea is that it is chaotic, unknown and unknowable and that it draws no moral distinctions between one man and another. It does not say to the pop star or to Mr. Lester Piggot "You are earning £100,000
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  a year. Therefore, you must be better than the clergyman." It does not say to the clergyman "You are earning only £1,000 a year. Therefore, you must in some way be morally inferior to a pop star who on five or six days a week may be taking drugs." It simply says to everyone "You are caught up in the market system. You are caught up in an odd system in which you are paid according to a mixture of luck and the odd preferences of your fellow citizens."
  We have to grin and bear it. Not many of us can affect it. We do not believe that any alternative, whether it be allocation of wages by Mr. Len Murray or even by some bureaucrat in the Relativities Board, is any fairer. We are all caught up in it. It is what we call the free market.
  If we accept it in the spirit of part amusement, part analysis and part humility, we have a far less divided society than if we have to pressurise people and try to force on the Relativities Board some idea that we are morally better than someone else, or pray to Len Murray "Dear Len, we promise never to criticise you again in public; we will not say a word against the strong arm methods of some of your members, kangaroo courts, and other nasty things which happen in your movement; we will say that everything in the trade unions is great and good."
  We will have none of this rubbish. We will have a free market for things decided according not to what people deserve, but to what they can earn according to the strange whims of millions of different decisions of ordinary people.
  That will lead to a far less envious society in which people are prepared to accept with a greater sense of humility, of gaiety, of amusement and of charm the oddities of life than will this idea, which may be based on what is fair or deserving, but which ends up by being some bureaucrat ordering us to take some kind of view of ourselves based on his evaluation of our worth in contemporary society.
  Mr. MacGregor: The last amendment concentrated on below average income earners and, indeed, average income earners who face particular problems because of the effects of taxation. I make no apology for concentrating now on

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  another group—middle and higher management—who are equally suffering enormously from the ravages of inflation and the effects of taxation. I shall follow the broad theme of my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont).
  I should like to begin by quoting from a recent article written by a professor of managerial economics at the University of Bradford. I choose a professor deliberately, because presumably for Labour Members he is more acceptable than a business man; I choose managerial economics, because it must be assumed that he has some literacy in that subject; and I choose Bradford, because a provinicial university, if I may be forgiven, is presumably more acceptable than the Oxbridge universities.
  The article begins:
  "In 1965 I stood with the untarnished gaze in my eye, and my head of department was earning £4,000. The average professorial salary is now £8,968. The trend in the professorial salary from 1965 to 1975 is thus sharply upward—but I cannot congratulate myself".
  He goes on to an analysis of why he cannot congratulate himself. A number of points will, of course, be familiar to those of us who have studied these matters but his arguments are put across graphically.
  He goes on to show the effect of taxation cum inflation:
  "In 1965 the Professor had a salary of £4,000 from which he had purchasing power of £2,997. In 1975 the Professor has a salary of £8,968, from which he has a purchasing power of £2,442, measured in 1965 prices."
  In other words, he has seen a sizeable drop in his income.
  9.0 p.m.
  He then says:
  "To give a professor the same purchasing power now that he had then would demand a salary of £12,584 compared with the £8,968 he is actually paid."
  The point is clear, that he has fallen behind in real terms.
  He then goes on to make the point that a second method of comparing his position would be to look at his differential compared with a new assistant lecturer:
  "In 1965 a Professor was paid 3·81 times the new assistant lecturer. Now he is paid 3·13 times the starting salary. This is a reduction of 18 per cent."
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  He finishes—perhaps this is the most graphic way of putting the point over—with the following comment, leaving out the intermediate analysis:
  "The final piece of analysis in positive economics should make anyone with a 16year-old child think hard about the motivation behind the child's choice of career. Take two boys both aged 16. One leaves school and takes a manual job; the other stays on at school and takes "O" and "A" levels, then goes as an undergraduate on a full grant, then takes a postgraduate degree on a full grant, takes up an offer of a lectureship, becomes in time a senior lecturer, reader and professor."
  He calculates, on the assumption that the net income that both receive is put into a building society which pays interest at 7 per cent. that the professor does not catch up with the manual worker until the age of 47 and that if the interest rate rose to 9 per cent. the professor would never catch up.
  That is one bleat from one middle income group person who finds that the high hopes with which he sets out in 1965 have been greatly destroyed by the combination of inflation and taxation and who is now bitterly resentful about the lack of differential between him and the people who have never acquired any skills but have obtained fairly high earnings.
  I will move from that particular case to the general. My hon. Friend quoted the Third Report of the Royal Commission on the Distribution of Income and Wealth, the Diamond Commission. I very much agree that the evidence from the three Reports of the Royal Commission strongly supports many of the arguments which have been put on this side of the House for a very long time. I hope the Government will at some time take note of these reports and act upon them. The Report on the Distribution of Income and Wealth demonstrates that, while the median earnings of all men have risen faster in the last five years than the retail price increase, so that they have obtained real increases in incomes, salaries have fallen at constant prices in the six years to July 1975 by 17 per cent. at the £10,000 a year level. In other words, the top manager on whom we are so dependent, on the £10,000 a year level has suffered a decline in his income of 17 per cent. over those six years. At the £20,000 a year level the drop was even greater—25 per cent.

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  The point of the Royal Commission is that most of this decline took place in the last two years before the year which has just ended—in other words, up to the end of July 1975. Of course, because of the freeze on salaries, the drop in this income group has been even greater.
  The Royal Commission then goes on to point out that this is a very small group, earning just over 1 per cent. of the total after-tax incomes of all employment incomes. So one of the arguments that the Chief Secretary used several times in our last debate, that it would be expensive to deal with those people, does not apply to this income group. The cost to the Exchequer is relatively slight.
  I believe that the minority report at the end of the Royal Commission Report got the matter right when it said:
  "An improvement in the standard of living of the lower paid cannot be achieved by a further redistribution of earnings from the higher salary earners. It can only come from the creation of more income, resulting from new capital investment and greater productivity. But one of the very real dangers that we are facing is that, by hitting so hard the groups on whom we are so dependent for correct managerial decisions, we are making the possibilities of that new capital investment and greater productivity even more difficult to achieve."
  The minority report went on;
  "This rapid drop in the real value of managerial salaries, if not checked, would have a serious effect on the willingness of top managers to undertake the arduous and exacting duties which their positions require."
  I believe that, that too, is something which we should seriously consider.
  I should like to take one more piece of evidence to demonstrate the tremendous drop in the real incomes of these groups before I turn to the consequences. Recently, in an oral Question, I pointed out that the starting rate for higher rates of tax, and at that time surtax, was raised in 1961–62 from £2,000 to £5,000. I asked what the level should be now to produce the same net income for that £5,000-a-year group, taking inflation into account—in other words, what should now be the starting point for higher rate tax, which under the Chancellor's conditional proposals will now be the same £5,000, to give the same net income. The Chancellor's answer was a staggering £15,725, which demonstrates the extent
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  to which tax levels have so far failed to adjust to inflation.
  One can put the point another way. I make no apology for taking higher income groups in. this case as my examples, because I believe that they have had such a raw deal and there are so few advocates of their position in this House. We have already concentrated on other groups. For a person earning £10,000 in 1961–62, the gross income equivalent today, simply taking inflation into account, would be £29,000. But the gross income to give the same net of tax income as in 1961–62 would be £70,000. That is a difference of £40,000, which also demonstrates the eroding effects of taxation.
  Bringing the matter much more up to date, only six years ago, in 1970–71, a £6,000-a-year man—the man in whom the Chancellor promised in his party conference speeches before he became Chancellor to make the pips squeak—would now need a gross income of nearly £17,000 to give him the same living standards. Very few have been able to achieve that. The higher up the income scale one goes, the very much worse it becomes because of the highly progressive effects of taxation, which has not been indexed.
  Those figures show that the managerial groups—especially the higher managerial groups—have had a very raw deal in recent years. They have also suffered from the removal of other tax reliefs. In the 1974 Finance Act, tax relief on mortgage interest payments was limited to mortgages up to £25,000. That may seem a great deal of money to most people—it is to me—but for some of the to4p managers in industry, commerce and elsewhere, it is a perfectly reasonable figure for them to aspire to and perhaps to go beyond, to maintain the same living standards as their counterparts overseas.
  Because of the effect of that particular new removal of tax relief which they had in the past, which itself has not been raised since 1974 and which I hope we shall debate later, many of the flats and houses in the South-East of England, which managers could previously afford, are now being bought by executives and other employees of overseas companies who do not suffer the same taxation as British managers. That knocks the stuffing out of them.
  In a little subsection, slipped into the Finance Bill when it was published and

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  which was not referred to by the Chancellor of the Exchequer in his Budget speech, the limit on tax relief on life assurance policies is put at a level which, again, severely effects anyone earning over £9,000 a year—and it is retrospective.
  The combination of heavily increasing taxes, coupled with all the niggling little measures which put managers at a disadvantage, is making people feel that there is not much purpose in going on with what they are doing. It makes it more difficult for them to compete with their overseas compeitors and makes them concentrate increasingly on their own worries, which is not helping productivity or the economy.
  I turn to the consequences. I still spend much of my time talking to managers and directors in industry, not just in London and the South-East, but throughout the country. I have learned that whereas three years ago managers and directors were not very worried about the impact of the matters about which I have been talking, there is now one common theme running through most of the discussions that I have had—the drop in standards of living. They feel that with every Budget things will get worse.
  I believe that there will be an increase in permanent emigration, not just of managers in industry but among others such as doctors. The Norfolk and Norwich hospital is beginning to lose consultants to posts overseas and is finding it difficult to replace them. Junior hospital doctors see what is happening to doctors and are beginning to think likewise. People who have gone abroad for experience are not coming back. The Third Report by the Royal Commission on the Distribution of Income and Wealth refers to comparable differences in after-tax income of managers in similar grades employed by foreign competitors the striking fact is that after-tax income in each case has become lower over the last six years.
  I have heard of a case in a major multinational company where someone coming back from a post in Brussels doubled his gross salary and halved his net income. He was prepared to come back because he no longer had big
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  family responsibilities and was returning to a most attractive promotion.
  In the Midlands, Glasgow and elsewhere there are firms which send people abroad to Canadian or Australian subsidiaries with a view to bringing them back for major promotion. But many have refused to come back because they can see the effect on living standards in the United Kingdom. Many senior managers will not be prepared to move to other parts of the United Kingdom because of the situation. I have heard of someone in a nationalised industry who was offered a move upwards in another part of the country but, after calculating the overall effect on his net income and the disruption for his family, refused to go.
  Differentials are causing resentment on the shop floor and among managers and others. Many managers will begin to think of giving up extra responsibilities and worries which promotion in their own firms will involve. Many are beginning to see some of the advantages of a quiet life if they are not to have some material benefit for taking on extra responsibilities, with all the sacrifices in family life that are involved.
  9.15 p.m.
  There is also the point brought out in the article with which I began this speech, that the rewards for extra qualifications are being diminished and the incentives to strive are being blunted. What I find disturbing is that many more executives will spend more time on tax-avoidance measures, possibly time in which they should be concentrating on improving the performance of their companies. They will do that because it is the only way in which they can try to maintain their living standards. The battle of tax avoidance between the professional advisers assisting the managers and the Inland Revenue is becoming rather silly. It is going to extremes and not achieving much for anyone. It would not happen if only we got the direct tax rates right.
  I am very worried about the consequences of inflation and the Government's determination to squeeze these groups until, as the Chancellor put it, the pips squeak. Of course, I am not advocating that the position at any one time in the past—1961–62 and 1970, the examples I

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  quoted—should be absolute. There will always be shifts and changes, but the present shift against these groups has gone too far. All the evidence, as well as all the representations, supports that statement. We are in danger of destroying the will and interest of middle management and senior executives to a most disturbing degree. They are thoroughly browned off. If we do not deal with the problem we shall lose our best people.
  I am also worried that we shall make it impossible for anyone without capital to accumulate any in this country. When we talk about the distribution of wealth, that should be one of our objectives.
  In reply to the previous debate, the Chief Secretary said that it was not possible to make massive reductions in taxation at present. We all understand why. It is indeed a comment in itself on the gross mismanagement of public expenditure and the borrowing requirement in the past two years. In that period the problems have become much more acute.
  We propose dealing with some of the problems by raising the higher tax thresholds at least beyond the puny measures proposed in the Budget, though many of the people in the groups concerned would feel that that is not enough. I realise that our proposals will not be found acceptable by Labour Members, but they would be comparatively cheap. They would involve a tiny proportion of the total yield from income tax, but the economic effects would be great in comparison.
  Dr. Bray: I apologise for not being able to hear the earlier part of the speech of the hon. Member for Norfolk, South (Mr. MacGregor), who, I am sure, gave a good impression of the style of argument from the Opposition Benches.
  If the hon. Gentleman reflects on the circumstances in which the undoubted squeeze on higher incomes has arisen over the past three years, he will realise that there has been no alternative to what has happened. With rates of inflation of 20 per cent. or 30 per cent., the highest-paid executives would have to have colossal increases in income before tax, probably accompanied by major tax concessions, to preserve their real standard of living. At a time when the Chancellor would be trying to seel a £6 limit, a 10
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  per cent. increase, to the ordinary working man, it would be politically impossible
  The Conservatives found it impossible to govern the country when they faced the miners strike in 1974. Do they really think that it would be possible to govern the country at a time when a swingeing incomes policy was being imposed, necessarily with the agreement of the trade unions, and make the kind of tax concessions and wage increases for which the hon. Gentleman is asking? I can think of nothing more irresponsible from a governing party.
  Mr. Norman Lamont: The sort of tax increases the hon. Member is discussing for higher paid people certainly would not be expensive in terms of Exchequer costs. The Chancellor should accept that all income groups are going to get adjustments, in different bands, of the same magnitude.
  Dr. Bray: If the hon. Member for Kingston-upon-Thames (Mr. Lamont) works out what this would have meant in raising the limits from one rate of tax to another, the kind of increases in the bands and raising of the bands required, he will see that the result would have been quite fantastic. To put this across to the country and obtain some sort of public consent from the 99 per cent. of the working population which is not affected is a way of making the country quite ungovernable.
  Mr. MacGregor: One great advantage of indexation is that it brings out the real effect of taxation and is a way of getting the whole point across. The effect of this process in the past three years on certain groups, whose case has gone unheard, is very severe and must be dealt with soon.
  Dr. Bray: I accept that there has been a second downturn in the real disposable income of higher paid executives. I accept it has been substantial—depending on the particular case, 10 per cent. or more. Part of the problem is that many executives have been committed to tax avoidance measures up to the hilt already—by the use of life assurance policies and very heavy mortgages and I could give some examples from among my former colleagues in ICI—and when they find that their day-to-day living costs have

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  increased, they feel very squeezed, as indeed they are relative to what they were before.
  Mr. A. G. F. Hall-Davis: The hon. Member said that he could give specific examples. We want to hear them.
  Dr. Bray: If a man has taken out £25,000-plus mortgage and the interest rates go up and mortgage relief is restricted, arrangements are made for him to take out a self-employed person's pension policy on a certain proportion of his income. It is arranged in a consultancy form and he wishes to maintain the tax reliefs that these give him. As a consequence that can have a drastic effect on his disposable income.
  Mr. Gow: How is it that someone who is an employed executive of ICI, which the hon. Member mentioned, can possibly take out a self-employed person's pension policy?
  Dr. Bray: It is possible, as hon. Members opposite know, from their own tax position for them to treat a particular part of their income as employment income and a part as self-employment income. I make no point about ICI because employees are, by and large, excluded from such tax arrangements, but there is nothing to prevent people from arranging to have a proportion of their income treated as self-employment income. Members of Parliament getting money from journalism, for example, can have a proportion of that money paid for policies or self-employment policies on which they get tax relief. This can be arranged also for consultants in industry. The effect of being up to the limit of what one can afford, committed to tax avoidance measures means that when the cost of living increases one feels disproportionately squeezed on that part which is left. Given this, what should we do about it?
  On this side of the Committee we say that this is the redistribution of income which is precisely what we are aiming at. Because we have achieved something of our objective, are we to be browbeaten by pressures from hon. Members opposite? We must look at the reality, and say that this reality is what we are aiming at. If concessions are made by
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  the Treasury Minister in the light of Opposition representations, I would support the strongest objections, which would be made from within the Labour Party.
  Mr. George Younger: If I understand the hon. Member correctly, he says that he is aiming at reducing differentials between top management and those beneath it to nothing or to some small amount. How far down the scale does that go? Does he want the differentials removed in every case?
  Dr. Bray: I would reduce differentials to the level which the market would bear. When companies ceased to get people to fill the top jobs—I do not attach importance to the odd cases which Conservative Members dredge up from the Sunday Press—the position would certainly need to be looked at. But it is not difficult to fill top executive jobs today. Hon. Members may ask about German, French and Swiss manufacturers. There is very little mobility of senior executives from this country to other countries. There is no market for them. One has only to ask the head hunters. They will confirm that there is no market for them in the United States or Europe. It is not only the language difficulty within Europe, it is the whole background of experience, connection and acceptability in the local market.
  One needs a more sensible argument than the general market behaviour, which is always more difficult to argue. One should look instead at the pattern of reactions within the organisations. There one will find no breakdown of management structure or difficulty in the personnel policies of the company.
  Mr. Norman Lamont: Does the hon. Member agree that one problem referred to quite often in this House, and which many people in industry will confirm, is the fairly widespread experience that companies in this country find it increasingly difficult to persuade their executives overseas to come back to this country and to accept a job here because the change in salary combined with the change in tax rates mean a massive drop in living standards?
  Dr. Bray: If they have difficulties in that respect, do they have difficulties in filling the post from this country? What

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  is all this we hear about executive unemployment, about blockages and about the difficulty of expanding the career opportunities of the highly-educated proportion of the population? Why do the Conservatives advocate cuts in the education system? Is it because we are producing too many highly-trained people? There is no shortage of people seeking top management jobs, and there will be no conceivable shortage at any time in the future with any differentials that one can foresee.
  If one takes the possibility of getting the man who, by his experience, training and contribution in his existing job is best to move on to the next level of responsibility, the challenge for him is the job to be done. That is the overwhelming factor, not the salary. If it is the salary alone which attracts him the personnel department within that firm will be the first to shoot him down. That being so, one must ask how well these personnel policies within organisations are based upon a different pattern of differentials in the executive structure. My conclusion would be that the onion-shaped concept of executive remuneration is utterly wrong. That concept involves wide-spreading middle levels with a steep peak at the highest point and straggling roots around the bottom.
  The onion-shaped remuneration structure is out because it does not reflect the job to be done in industry today. A much more effective distribution is the beehive shape where a lot of people for a time and for a particular job move into a position of responsibility which they are glad to take but which does not necessarily fit them to remain at that level of responsibility indefinitely. They must expect to move across or even out of the way for other people to come in and do the job for which they are fitted. The people in the lead then move into associated positions with them.
  It is very difficult to sort out a pattern of organisation. Let hon. Members ask an employee of Shell to spell out the management structure of that company. He will have the greatest difficulty in doing so because there is a much more cellular structure, a working group and temporary job structure which is found to be the necessary operating rôle.
  I would be very sorry if the Government responded to an obsolete concept
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  of remuneration structure in industry and made the tax changes sought by the Opposition. We would be reversing a major social change which has taken place in the past three years and which I hope will go much further in the next five to 10 years.
  9.30 p.m.
  Mr. Cecil Parkinson: I have seldom listened to such a learned load of rubbish as we have just heard from the hon. Member for Motherwell and. Wishaw (Dr. Bray) with all his talk of beehives, onions and cellular structures. The House has done his former company a service by taking him out of its service.
  I should like to see the hon. Member go to the headquarters of his old company and talk the sort of rubbish he talked tonight, telling people that they should not mind that they are not to get any more money because they will be taking part in a great moral crusade to ensure that their living standards fall. Let him tell them that they are avoiding taxes if they have a mortgage or a life assurance policy. What rubbish! Only somebody with a learned background could dress up this sort of stuff with the concepts of beehives and onions. The hon. Member should stick to the soil in future and start living in the real world.
  Dr. Bray Dr. Bray rose—
  Mr. Parkinson: The hon. Member gave way several times and I am willing to give way to him now, though I do not want to take too long, not least because I am a Whip and if debates go on too long, Whips tend to take the blame.
  Dr. Bray: I thank the hon. Member for giving way. I enjoy keeping in touch with my former colleagues. I was personnel director of a medium-sized company and I argued in that job for the sort of policies I outlined in my speech. I found them not ineffective.
  Mr. Parkinson: If we are going to bandy about experiences, I run companies which would go broke if I attempted to impose the sort of management concepts put forward by the hon. Member. My companies are not going broke. They will all pay large amounts into the hon. Member's Treasury, which

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  will no doubt waste the money as it will waste a lot of other money this year.
  This debate about the more highly paid has been used as an instrument to discuss the pay deal between the Government and the TUC. The wages of middle and upper management are a very important part of that deal. One of the matters about which men in middle management feel particularly depressed is the fact that they have not been consulted by the Government or the trade unions in the formulation of the deal which has been hatched up between the Government and the TUC.
  We are told that the reason the TUC should have the right to settle the incomes of the rest of the nation is that its members are great patriots who have led the country in making sacrifices over the past two years. Apparently they therefore have the right to decide the country's future. We have had to listen to daily lectures about the sort of Britain the Government and the TUC have decided we are to have. Listening to the Chancellor's Budget speech, I began to wonder whether he was about to elevate Jack Jones to the House of Lords or canonise him. We were meant to regard this great man as a representative of all that is British and best and as the man who led his troops in sacrifices which no one had the right to expect. That was why this man was to have a major say in our future.
  Let us examine the great sacrifices which this patriot has led his men into making in the past two years. In that period wages have increased by over 50 per cent. The £6 pay limit was far more than the private sector could afford. It was far more than our economic situation justified. It was inflationary. There was no element of sacrifice in it. The social contract was a smoke-screen under the cover of which huge wage increases were obtained. The trade unions cannot point to any great sacrifices made by their members over the past two years and claim that entitles them to various preferential considerations.
  Let us consider the payment which the community has had to make for the much-vaunted co-operation of the TUC. My hon. Friend the Member for King-
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  ston-upon-Thams (Mr. Lamont) has mentioned examples such as nationalization, huge Government overspending, trade union protection by measures of privilege, measures which have made the employment of people a very expensive operation, and the various surcharges which the Government have imposed on employers.
  My hon. Friend mentioned higher taxes. He pointed to the freeze in upper management and middle management incomes. The idea that the selfless body of men from the TUC has made huge sacrifices of its own free will is not borne out by the facts, yet it is on the basis of those supposed facts that we are being urged to accept that the TUC and the Government must be left to cook up a deal. It seems that we are being asked to accept that the democratic process will be served although the House will be dished up with the final deal with little opportunity, if any, for us to comment on it or revise it. We shall have to take it, but it is suggested that democracy will have been proved to have worked because the House will swallow the medicine which the Government and the TUC have cooked up for it.
  I suggest that the TUC and its members have obtained most of what they wanted both in incomes and in the shift towards the sort of society which will be created by its members, the sort of society which will be welcomed by the TUC and many Labour Members. I admire the honesty of the hon. Member for Motherwell and Wishaw. He says quite clearly that he wants to see an irreversible shift. His right hon. Friend the Chancellor says so when talking to the TUC, but he tries to smooth it over when, in the House, in his Budget speech, he expresses his concern for the middle income groups and others.
  I suggest that the group which has been most consulted has made few sacrifices. It is the group which is receiving the privileges. My hon. Friends and I speak on behalf of the group which has suffered and has made sacrifices over the past two years. It is the group which has taken the full sting of inflation. It has accepted a wage freeze. In the next stage it will accept what is virtually a wage freeze. The £4 limit represents an extremely small increase when we consider that it will be the first increase that the

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  group we represent has had for more than two years.
  The pensioners, the elderly, and those on fixed incomes have made the sacrifices. But have they been consulted by the Government? Were they consulted before the Government decided on the package that was to be imposed on the country? No, they were not. It seems that the view is taken that they do not deserve to be consulted. Those who have made the sacrifices put up with what is handed to them while those who have obtained most of what they wanted will be entitled to have the last word about the sort of sacrifices that the rest of us will continue to make.
  My hon. Friends and I have taken the opportunity to speak for a group who are not very large, who are not heard very often and for whom there is little political mileage in speaking for as they represent a tiny group. However, they are an important group. The former Prime Minister in his last speech before he resigned said that the Government had two basic objectives, one of which was to control inflation and the other to rebuild Britain's industrial base. Those were his two great objectives. If it is the Government's ambitions to recreate and restore the build-up of Britain's industrial base, they surely must take note of these amendments. The decisions taken now will prove whether Britain's industrial base is acceptable. Any further erosion of differentials will go a long way to undermine the Government's main strategy. Even the Government admit that the present puny rate of progress is unsatisfactory.
  We urge the Government not to neglect the interest of this very important group. We are not pleading for a sectional interest but are urging on the Government a move which will help in our primary objective of creating a wealthier, more prosperous and more just Britain.
  Mr. Wakeham: I wish to discuss these amendments not so much from the point of view of managers and their remuneration as from the point of view of managers as they face the problems of pay policy as it affects their companies.
  Some weeks ago I took part in a debate on personal taxation, and I mentioned the effects of high direct personal
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  taxation on effort and the inflationary effect of high salaries. The Minister of State, Treasury, took me to task in a charming way, and indeed I listened carefully to his remarks, but I regret that I still take much the same view as I took on that occasion.
  I see no reason why the remuneration of managers and management, and the remuneration of those who are not trade unionists, should be affected by the arrangements which may or may not come to fruition as a result of the deal between the Government and the TUC. This House will not do its duty unless we assert the supremacy of the House of Commons. In no way can we accept the right of a powerful income group to deal solely with these questions. However clever the deal may be—and if it sticks I shall give the Government some credit for it—we must not forget that the achievement will be at a substantial price indeed. That is the price of the £12,000 million borrowing requirement.
  I wish to discuss the effect of the lessening of differentials in terms of net income in relation to the problems of management—not so much on the question of pay but as it affects the management of businesses. It must be said that one cause of inflation in industrial costs relates to the very high salaries which are paid. Those salaries are brought about by excessive direct taxation. It makes little sense in many cases for an industrial company to pay £100 in salary costs to give the manager an increase in take-home pay of £17. That seems to me, on the margins, to be an expensive way of dealing with the problem.
  I have quoted in earlier discussions the case of the person who takes on a substantially increased responsibility. If a company wished to pay that person an increase of £4,000, that would involve the company in cost terms with a total sum of between £15,000 and £30,000 a year. That is the cost of employing such a man in a job that requires increased responsibilities. That makes it very difficult for many companies to find and pay for the right management which they need in these circumstances.
  9.45 p.m.
  High taxation, coupled with pay restraint in middle management, is producing highly artificial reasons for people

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  moving and changing jobs in order to get round the pay restraint policies of the Government. That may be not quite as serious for people in the very top bracket of salaried earners. Maybe they can get over these problems with the odd additional directorship, or something of that sort, but that is not the position for middle and senior management, who bear the great brunt of running our country's affairs. To them it comes very hard indeed.
  The pay restraint policy is having some very serious affects upon salary structures in many companies. Many companies find when they have a vacancy in their management structure and look at what they have to pay in the open market for a replacement for someone who has left, that the going rate for the job is such that their whole salary structure could be very seriously prejudiced by taking on a person at the going rate. That is producing a number of problems which will have to be faced sooner or later. We cannot go on in this way much longer.
  I can quote several examples of companies which have failed to take on the person they would like because to take him on at the present going rate would produce a problem among their existing staff, who have loyally stayed on during the pay restraint policy when, if they had only looked at the situation carefully, they could have found themselves other jobs in other companies at vastly increased salaries. This is a serious economic disadvantage of the present policy which has to be faced fairly soon.
  Mr. Nigel Lawson: We have been talking a great deal about the salaries of middle management, but we are not concerned here only with middle management. We are concerned also with those in other fields, in the professions, in the universities and in the arts—those who are perhaps the brightest and the best in our society, who contribute most, who are being crucified by the Government's tax system. [Interruption.] Hon. Members opposite may jeer at this, but I warn them that they ought to be concerned about their own electoral futures.
  In this respect I refer them to what is happening in Sweden. In The Times yesterday there was a headline:
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  "Ingmar Bergman tax ordeal swings Swedes against Government".
  The report states that the Swedish Social Democrats have had the biggest drop in support in the 44 years in which they have been in office. In this country the Government have not been in office for 44 years: it just seems like it. The report states:
  "Political sources believe that the dramatic self-exile of Mr. Ingmar Bergman, the film director, who had been harassed"—
  we shall come to our own harassment later in the Bill—
  "by tax and police officials, has been a crucial factor in the growth of anti-government feeling."
  The report points out that this feeling has been added to by the persecution of the children's author, Mrs. Astrid Lindgren, who
  "received a tax demand for 102 per cent. of her 1975 income."
  The hon. Member for Motherwell and Wishaw (Dr. Bray), who was a member of the Select Committee on the Wealth Tax, as I was, was very keen on proposals that the tax should go far above 100 per cent. This is the thinking of many Labour Members.
  Dr. Bray indicated assent.
  Mr. Lawson: I am grateful to the hon. Member for nodding in confirmation. I warn right hon. and hon. Members opposite of the electoral consequences of what they are doing, as instanced by what is happening in Sweden. This accelerated egalitarianism is proving extremely unpopular, even in Sweden.
  Why are the Government doing this? It cannot be purely for reasons of malevolence. We were told of the reason earlier by the hon. Member for Motherwell and Wishaw. He said that this was essential for an incomes policy and that the only way we could get such a policy was by hounding all the talented people out of this country.
  Mr. Gwilym Roberts: Would the hon. Gentleman not accept that what the Opposition are saying tonight seems to show they have learned nothing in the last two years and that if they were prepared to give tax concessions of many hundreds of pounds a week to people in the middle and upper management groups that would be quite unacceptable, not only to the Trades Union

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  Congress but to the great mass of working people in this country?
  Mr. Lawson: I shall come to that point in a moment, but I am glad that the hon. Gentleman has mentioned the arguments put forward by my hon. and right hon. Friends, for it gives me an opportunity to say how excellent and how totally conclusive they were. Because the hour is getting relatively late and we have a great deal of further business to do, I do not want to repeat the arguments put so well by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) and others of my hon. Friends who have spoken in this excellent debate.
  The hon. Member for Cannock (Mr. Roberts) was saying, like the hon. Member for Motherwell and Wishaw, that this persecution of middle management and others in that income bracket was essential to "sell" an incomes policy. If that is so, that of itself is a reason for not having an incomes policy; but I believe it is nonsense because the only meaningful kind of incomes policy is the persuasion of trade union members to moderate their wage demands, and the only way that Governments can persuade trade unions to do that is by persuading them that it is in their interests to do so, because they are sensible people and do what they conceive to be best in their interests and in the best interests of their members.
  They will see that it is not in the interests of their members if they see, as the Chancellor has told them on many occasions, that if wage demands are immoderate, the result is that members are thrown out of their jobs and there is high unemployment. Unions will want to avoid that, but they are not going to be satisfied with whatever the Chancellor says just for the satisfaction of seeing middle management and the Ingmar Bergmans of this country fleeing to lusher parts of the Common Market.
  Mr. Eric S. Heffer: Would not the hon. Gentleman accept that if the workers are to accept a fall in their standard of living, as they will as the result of this pay deal, all sections of society should also make a sacrifice? How can we ask the worker at shop floor level to make a sacrifice without the hon. Gentleman's friends in the City and else-
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  where also making a contribution as a sacrifice to the country's needs?
  Mr. Lawson: The hon. Gentleman has only just come into the Chamber. Had he been here earlier he would have heard my hon. Friends quote a long series of official figures given in Written Answers to Questions, showing that the fall in the living standards among these people has been far heavier than among ordinary members of the union which the hon. Member for Liverpool, Walton (Mr. Heffer) adorns. There is no question of trying to suggest that people in the £4,000 to £8,000 bracket, about whom the Chancellor of the Exchequer professes to have great concern while all he does is clobber them still further, are not making a sacrifice. Perhaps we can have a concordat across the Chamber and agree that the real fall in living standards at that level should be the same as the fall in living standards at other levels. If that is agreed, this would certainly be a much better régime for these people than anything that has happened in the past few years and anything promised by the Chancellor in the Budget.
  Dr. Bray: Will the hon. Gentleman give way?
  Mr. Lawson: Perhaps for the last time.
  Dr. Bray: The hon. Gentleman has grasped part of the argument but not the problem of what are the consequences of a very high rate of inflation. With a very high rate of inflation, the tax concessions to the very wealthy would have to be disproportionately huge in order to maintain the same relative standard of living as that of the lower paid. It is those huge tax concessions which it is politically impossible for a Government of any party to make in present circumstances.
  Mr. Lawson: As my hon. Friends have made quite clear, if it becomes the custom and practice for the tax bands, thresholds and so on to be indexed and for that to be the base from which the Chancellor of the day, in each Budget, makes his discretionary changes, this could be fully explained and understood. Indeed, it might also be further held—I agree with this if it is what the hon. Gentleman is saying—that perhaps we could get into the habit of using the concept of take-home pay for middle

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  management instead of the curious notion that remuneration for the worker—I use the word "worker" in the sense on which it is used by Labour Members—is take-home pay but for middle management it is always gross salary. Perhaps we can rid ourselves of that notion.
  However, we are forced to return to the incomes policy—the "deal"—partly because the amendment is an essential part of the deal—in a sense, this is the Government's amendment, which, out of courtesy, we are putting forward tonight—but also because the Financial Secretary was showing some anxiety a little earlier to learn what our reaction to the deal was. I shall give him some reaction to it.
  First, I should like to quote a reaction from The Times of yesterday, which was, in turn, quoting Mr. Joseph Gormley of the National Union of Mineworkers. Mr. Joseph Gormley said:
  "What is the difference"—
  a rhetorical question as I took it to be—
  "between a statutory policy and one imposed by the weight of votes in the TUC?".
  That is a very good point, because the deal that we are being asked to applaud has all the defects, all the hallmarks and all the drawbacks of a statutory policy, and all the arguments that right hon. and hon. Members have used in the past—and the very recent past, as I shall show shortly—against a statutory policy apply fully and totally to this policy.
  Let me give some chapter and verse to that statement. On 18th March 1974, when the present Government had just come into office and we had our debate on the Queen's Speech, in the first speech that the present Leader of the House, the right hon. Member for Ebbw Vale (Mr. Foot) made as a Minister, then Secretary of State for Employment, he said,
  "The inflexibilities of statutory control always lead to anomalies, grievances and inefficiencies, which people naturally want to remedy immediately statutory controls are removed."
  He went on to say,
  "the earlier we can discard the in-built rigidities of statutory control the better.—[Official Report, 18th March 1974; Vol. 870, c. 695–6.]
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  It is perfectly true that this policy is only semi-statutory. It has the backing the Remuneration, Charges and Grants Act, and in certain elements it is not fully statutory. But its rigidity is total. It is every bit as rigid and inflexible as any statutory policy could be. Indeed, it leads essentially and inevitably, as the present Leader of the House said on that occasion, to anomalies, grievances and inefficiencies. We are now being asked to applaud something that two years ago was consigned to the scrap heap by right hon. and hon. Members of the Labour Party. If we are somehow reluctant to applaud enthusiastically, it may be simply because we are a bit more consistent and have rather longer memories than right hon. and hon. Gentlemen opposite, and indeed some of those in the Press Gallery, too.
  I shall quote exclusively from the right hon. Gentleman the present Leader of the House because his credentials in this matter are undisputed. Again on 5th November 1974, answering Questions, he said:
  "One of the purposes of the social contract has been to restore free collective bargaining."
  Where is free collective bargaining now? All the Prime Minister was prepared to say in Prime Minister's Questions earlier today was that he would not go so far as to say that it would never be restored.
  Then again, on the same day, 5th November, in the debate on the state of the nation, the right hon. Gentleman the present Leader of the House said:
  "Therefore, we sought to remove the statutory control system, although we faced special difficulties in doing so. I am entitled to underline those difficulties. The first difficulty was one that is inherent in any statutory system—the most dangerous moment in dealing with any statutory system is when one comes to remove controls. That is the moment of greatest difficulty. It is also one of the primary arguments against the statutory system."—[Official Report, 5th November 1974; Vol. 880, c. 860–908.]
  But precisely the same problem will face this Government when they try to get out of the existing rigid controls. The problem comes from the rigidity and the inflexibility; it does not derive from whether there happens to be a Pay Board or not. Indeed, the Pay Board system is considerably more flexible, because, as the right hon. Member for Ebbw Vale

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  pointed out on another occasion, there were written into that certain "consents" by which the Government were able to override the rigidities, whereas we have not been told that there are any such exceptions under the present pay policy.
  Finally, I should like to draw the attention of the Committee to a speech that the present Leader of the House made on the social contract on 23rd January 1975. It is a fairly lengthy quotation but it is very germane and I hope I may put it on the record in this context. The right hon. Gentleman said:
  "One of the virtues of the guidelines"—
  that is, the guidelines then ruling—
  "is that they are not inflexibly fixed. With fixed guidelines which were absolutely precise, so precise that one could publish statistics week by week or month by month on exactly what had occurred … one would not be able to achieve settlements in many cases and one would not be able to use the flexibility of the system to bring common sense back into our bargaining system.
  "… One of the great vices of the statutory system is that it is difficult to get out of it."
  And the right hon. Gentleman went on to say:
  "If the Government said, 'Let us see whether this settlement comes within or without the guidelines', it would reintroduce some of the disadvantages of the statutory system."—[Official Report, 23rd January 1975; Vol. 884, c. 1808–9.]
  This is precisely what the Government have done, and they are now asking us to applaud something which they have
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  condemned time and time again for its very inflexibility.
  There are going to be tremendous strains, which are going to break the whole thing down. The price which is being paid for this policy, and it is a very high price, will be a price paid for nothing. The policy will break down completely, and to a very large extent because of the gross unfairness to those on the higher salaries, the very hardworking people about whom we have been talking in this debate tonight.
  Many of my hon. Friends and I view this agreement—this scrap of paper—with considerable suspicion and a jaundiced eye, because we have been through this course before. It may be unpopular to point out some of these things to hon. Gentlemen opposite. No doubt when Mr. Neville Chamberlain came back from Munich in 1938, waved a scrap of paper, and said "Peace in our time" anybody who said "This scrap of paper may not bring peace in our time" would have been unpopular. He would have been like the unlucky individual in an H. M. Bateman cartoon who was always out of step.
  But those who criticised and questioned that scrap of paper in 1938 were right, and those who do the same now and who are not easily forgetful of the past will be right in their assessment of this Government's pay policy today.
  Mr. Heffer: I want to detain the House for only five minutes or so.
  The hon. Member for Blaby (Mr. Lawson) has missed the point in the sense that he said that we have been here before. To some extent, I agree with that. But this is not a statutory incomes policy in the sense of the legislation that we had under the 1966–70 Labour Government and later under the 1971–74 Tory Government. We have a blend, as it were, of a voluntary policy with something on the statute book known as the Counter-Inflation Act which could be strengthened and used at a convenient moment. Therefore, this is not precisely the same situation as we had in the past.
  Mr. Lawson: Will the hon. Gentleman give way?
  Mr. Heffer: No. The hon. Gentleman must allow me to continue. We now have a wage restraint policy policed by the trade union movement. This is a voluntary agreement.
  Mr. Budgen: Policed?
  Mr. Heffer: I mean policed by the trade unions which have accepted the voluntary agreement. In that sense they are policing their own members.
  Mr. Lawson: Does the hon. Gentleman agree that this new policy, call it what he will, is every bit as rigid and inflexible as the policies which preceded it on a fully statutory basis and that, as a result, the consequences which the right hon. Member for Ebbw Vale (Mr. Foot) said would flow from rigidity and inflexibility will flow from this one?
  Mr. Heffer: I accept that in the sense that, as I understand it, the agreement is even more rigid than the £6 agreement. To that extent, the Government are sitting on a volcano. Sooner or later the pressures for differentials and, I trust, equal pay and other matters—I am not sure whether equal pay is in or not—
  Mr. Budgen Mr. Budgen rose—
  Mr. Heffer: I will not give way. I must be allowed to keep going for a few minutes. Therefore, sooner or later pressures will be built up and there will be problems for the Government at a later
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  stage. There is no doubt that this is a rigid, although voluntarily agreed, policy.
  Mr. Budgen: I am grateful to the hon. Gentleman for giving way. I should like to take up his point about policing. If he believes that it is right for trade unionists to be policed by their leaders, does he think that, in the interests of what I suppose he would call fairness, the trade unions ought also to police other members of society who are not members of unions?
  Mr. Heffer: Obviously I should not have given way. There are times when it is important to give way to Members who have sensible and important points to make and other times when it is important not to give way to Members who wish to make totally irrelevant points. That was an example of giving way to a Member who made a totally irrelevant point.
  The point I am making is that this agreement is undoubtedly more rigid than the £6 agreement and, in a sense, more rigid even than some of the statutory incomes policies. My complaint is primarily against trade union leaders. It is not a complaint that a voluntary agreement has been reached, because I think it is right, if we are not to have a statutory incomes policy, that we should have, or attempt to get, a voluntary policy. When we are genuinely fighting inflation, a voluntary incomes agreement is surely part of that fight against inflation. Surely this is an acceptable point to those of us who are intelligent on this matter. I have never agreed with my colleagues, even in my own ranks as it were, who did not agree with any type of incomes policy. I have always accepted that a voluntary incomes policy—as long as it was in fact voluntary—was acceptable.
  My complaint is that the TUC has given too much away. If we are to have this sort of agreement, then we have to get something back in return, and "something back" means equality of sacrifice. The Prime Minister last week, or the week before, made the point that we ought to be working towards an egalitarian society with equality of sacrifice.
  I would only say that right hon. Members opposite are making no contribution

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  towards the sacrifice to fight inflation. What they are saying is that it is all right for workers on the shop floor to agree to have their wages restrained but that it is not all right for people in the higher brackets to do so. I do not accept that. If my people on the shop floor are to suffer sacrifice then, in the interests of this country, of fighting inflation and of progressing towards an egalitarian society, the friends of Conservative Members in the City, in business and in higher management, have all to share their burden of sacrifice. Ordinary working people should not be the only ones who will suffer sacrifice in relation to this problem.
  That is my complaint to the TUC. I feel that the TUC could have got much more. The bargaining should have been much tougher than it has been. I would say to the TUC at the conference coming up next month, "We will accept the voluntary pay agreement but in return we want a wealth tax and we want it at the earliest possible moment. We want a definite move where the National Enterprise Board is given greater teeth and powers to extend its influence over investment in industry." Of course, hon. Members opposite do not accept the argument because they never want to give anything away. Their patriotism means nothing. Hon. Members opposite have no real understanding of patriotism of any kind. The sacrifices, and the patriotism, have to come from my side of the House.
  Mr. Nicholas Winterton: The hon. Gentleman is talking like a Communist. His supporters have no divine prerogative of patriotism.
  The Deputy Chairman (Mr. Bryant Godman Irvine): Order. Unless we hear what the hon. Member for Liverpool, Walton (Mr. Heffer) has to say, we can make no progress.
  10.15 p.m.
  Mr. Heffer: The hon. Member for Macclesfield (Mr. Winterton) makes the normal case. If one argues against his hon. Friends and those whom he represents and the richer element of society, one is a Communist. That is the only type of thinking that one can expect from the hon. Member for Macclesfield, unfortunately. He has never got beyond
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  that type of primitive thinking. The hon. Gentleman had better understand that if our people are prepared to make—[HON. MEMBERS: "Who are 'your' people?"] I am talking about working people, organised in the trade union movement. If they are prepared to accept a wages policy, as they have done, in return they expect the Government to ensure that the social contract is carried out in full as a Socialist contract so as to bring about a just and egalitarian society.
  Mr. Gow: It is one of the least attractive characteristics of the Labour Left that they always claim the sole entitlement to speak on behalf of those whom they describe as "their" people. That kind of arrogance, that only the Tribune Group is entitled to speak for the working people of Britain, is absolute rubbish.
  It is important for the hon. Member for Liverpool, Walton (Mr. Heffer) to understand that the only concession which the Chancellor told the House on Wednesday of last week that the TUC had won as part of the so-called deal was the indefinite postponement of the raising of the school meals charge. He told my right hon. and learned Friend the Member for Surrey, East (Mr. G. Howe) that there had been no secret deals with the TUC. But that was not true. The Chancellor was not telling the truth to the House—[HON. MEMBERS "Oh"] I repeat—the Chancellor was not telling the truth to the House, and I will give my reason for sayin0g so.
  Of course there was a deal with the TUC, and part of it appears in Clause 21 of this Bill. It was one of the conditions of the so-called deal with the TUC that we should continue to have a penal rate of tax on middle management. It was one of the conditions that there should be no increase in VAT. We are considering whether we should continue this unjust and discriminatory rate of tax on precisely that group of people on whom our future wealth and prosperity depend.
  It is all very well for the extreme Left of the Labour Party to preach universal brotherhood, but they speak not the language of brotherhood but the language of hatred. It is time that they dropped the language of divisiveness. That is why we should divide on this amendment and

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  reject the policies of the hon. Member for Walton.
  Mr. Robert Sheldon: Most of us on this side would go the whole way with my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) at a time of difficult economic circumstances in his call for equality of sacrifice in both income and wealth. Perhaps my hon. Friend does not quite understand how far we have gone along the road on incomes. When my right hon. Friend the Chancellor of the Exchequer, brought forward his conditional proposals for increasing the thresholds for certain levels of taxation he had that in mind.
  It might be helpful to the Committee if I give some figures to illustrate this in a way which has not been generally understood, even by those who are well informed on these matters. The critical criterion for deciding how far we are moving towards an egalitarian society is the ratio of net incomes between the man at the top and the man on average earnings. That is a test which is applied in many countries today. If one takes the figure of the average male industrial earnings, which was £70·10 a week at the latest available date, and adds family allowances to arrive at the total income, in the case of a married man with two children under 11, one finds that after tax—and it is after tax that we should take into account because that is what matters to living standards—the post-Budget figure, after the conditional tax changes, is £2,991.
  My next figure is open to argument about what one should choose as a top salary. My estimate, which should achieve agreement in Committee, would be £30,000. That is a sum earned by persons at the top, or near the top, in many factories and industrial organisations. If one takes a man with the same family earning £30,000 a year and applies the same conditional tax package to him, his after-tax earnings amount to £11,599.
  Mr. Heffer: He is not starving.
  Mr. Sheldon: My hon. Friend has made a fair and justifiable comment. That man is not starving. But my point relates to the ratio between the man on average earnings and the man on a top salary. That ratio is 1:3·88. Other countries including China and Poland,
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  which at one time had the narrowest differentials in the world, have greater differentials between a man on average earnings and the man at the top. I am not suggesting that that is necessarily an argument for saying that the Chancellor of the Exchequer has done right over the past few years, but I say that we must look at the problem as it affects certain levels of management where, perhaps unbeknown to us, the differentials may have narrowed too much. I stress that the differentials about which I am speaking are those applying after the conditional tax package.
  I have no information about and I claim no understanding of what would be the ideal ratio between the man on average earnings and the man at the top, but nor am I certain that we should have the narrowest ratio in the world. [HON. MEMBERS: "Hear, hear."] I am not sure what the ratio should be. I do not welcome cheers from the Opposition. We are discussing fundamentals.
  I remember returning from a distant place in the company of my hon. Friend the Member for Salford, East (Mr. Allaun). We were discussing the ideal ratio. I said that I had heard of ratios of 1:7, which sounded reasonable to me—indeed, they sounded revolutionary then. He said that he would like something narrower, perhaps 1:6 or 2:5. We now have a ratio of 1:3·388. In so far as this fits in with the economic desires of so many of my hon. Friends, they should be aware of how far we have come along that road.
  Sir John Hall: I find myself in considerable agreement with what the hon. Gentleman is now saying. But he is using the average industrial wage and £30,000, which is by no means the average, at the top of the scale. That figure would be rather lower, so the ratio is even closer than he is suggesting.
  Mr. Sheldon: I have given the estimates and the basis of them. It is up to hon. Members to decide whether they are reasonable.
  The hon. Members for Kingston-upon-Thames (Mr. Lamont) and Norfolk, South (Mr. MacGregor) pointed out the mobility problems of middle managers, their drop in living standards, and their need for levels of pay commensurate with

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  their responsibilities. I thought to myself that there was something in the argument as long as it was not taken too far.
  My right hon. Friend the Chancellor has accepted that there are a number of people in middle management who have had their living standards considerably depressed. He has very much in mind the need to improve their position, particularly the position of those earning between £4,000 and £8,000 a year. They are accorded a certain increase in net income as a result of the measures in the Budget.
  The right hon. and learned Member for Surrey, East (Sir G. Howe) asked where we stood. That is clear. It is not quite the same position as in the amendment, as he seemed to think. Our position is set out in the Financial Statement and Budget Report presented at the time of the Budget, where the bands of taxable income are shown. That gives the information that up to the level of £8,500 a year there will be reliefs, which do not apply to incomes over that.
  Mr. Lawson: Linked with this amendment there are Amendments Nos. 78 and 33. The three amendments together precisely carry out the Chancellor's conditional reliefs.
  Mr. Sheldon: I am interested to hear what the hon. Gentleman has said. I shall come to that matter in a few minutes. I think that he will find that some of his amendments are a little defective.
  The right hon. and learned Gentleman used the opportunity of this debate to explain his views on the pay policy agreed with the TUC. I thought that we should have a rather clearer explanation of where he stands. I fully understand the natural reluctance of right hon. Members speaking for the Opposition to use the words that do not have the support of hon. Members with various views on the Benches behind them.
  I took down the right hon. and learned Gentlemen's statement. He said that the advantage of a pay policy is that it lowers expectations. He added that some people might be prepared to welcome it on that basis. I was unable to elicit from him in two questions whether he welcomed it on that basis. He just said that some might.
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  The right hon. and learned Gentleman pointed out the dangers of euphoria, as if there had been any euphoria on these Benches about the prospects of the pay policy—
  Sir G. Howe Sir G. Howe rose—
  Mr. Sheldon: I have not completed the sentence. The euphoria that the right hon. and learned Gentleman had in mind was over the the prospect that the policy would be the basis of pay policy in the indefinite future. I do not see that myself. What I see is the enormous benefit of the pay policy which we have been able to achieve with the TUC, and of the realisation and understanding of the close link between levels of pay and inflation. There is an understanding of the link between the two which, I believe, will result in the kind of responsible attitude to this agreement which they have had in other countries and which we have had in the past.
  10.30 p.m.
  Sir G. Howe: The point which worries us most is the euphoria manifested in the way in which the Chancellor is proclaiming that we are home and dry and on the verge of an economic miracle. These are the characteristic reactions to the exhiliration of emerging from a closed-circuit bargaining process of this kind, and it is extremely dangerous if they are regarded as more than a modest element in putting the economy right.
  Mr. Sheldon: No one denies that there are other things which have to be done. But nor should the right hon. and learned Gentleman the Member for Surrey, East (Sir G. Howe) deny a welcome for the agreement which has so far been achieved. Some of his hon. Friends have admitted that, but more of them have denied it.
  He points to the problems of re-entry. There are problems which have to be solved at the end of any successful incomes policy. All I can say at this stage of formulating such a policy is that the policy is there and has resulted in a lowering of inflation. Of course there is compression of differentials, and there are, of course, dangers of a consequent rise in inflation when the policy comes to an end. At this stage we have achieved agreement—an educative process for the second year running. This is no mean achievement.

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  The problems of middle management were dealt with at length by the hon. Member for Kingston-upon-Thames. Middle management had to expect problems, and I quote from a leading article in the Sunday Times on 9th May 1976 which asked what there was for middle management in the Government's policy. The article asked those people earning more than £8,500 a year to give another year for Britain. It said:
  "The reason is that, just as they (apart from those living on fixed incomes) have been the greatest sufferers from inflation, so they are the greatest beneficiaries from slowing it down."
  It went on to say that the middle management man's only hope, however reluctantly embraced, was to support a policy which got such figures down to more tolerable levels and kept them there.
  It added:
  "At least then, after another year of hard slog, there is some chance that 'rises' for both managers and workers, may start to mean something other than a vertiginous fall.
  The Healey-TUC package, in short, is worthy of the support of us all."
  I think that is wholly right, and those people who have suffered these difficulties will, in their own best interests, support this policy in the way it has been fully accepted up to now.
  Mr. John Biffen: May one assume from the analysis of the sacrifice that middle management are now making that it is in the mind of the Treasury Bench that when we move to the next phase the differentials will be widened to the advantage of middle management?
  Mr. Sheldon: I do not think that anyone can foresee the next phase of the incomes policy. But we have achieved an understanding of the causes and effects of inflation. That is a mighty achievement such as the Conservatives never secured.
  Mr. Ridley: The right hon. Gentleman said that he thought that we had been too hard on middle management, that he believed that there was a strong case for increasing differentials. What will he do about that? Will it be dealt with through the tax system, or by some new arrangement in the incomes policy? Surely if the Financial Secretary admits that something is wrong, he is prepared to say what he will do to put it right.
  Mr. Sheldon: I thought that I made it quite clear. The solution here is our conditional package which was put to the TUC as part of the further arrangement. Under that arrangement the threshold for all the bands of tax up to and including 60 per cent. will be increased by £500. That is the way to assist middle management.
  Amendment No. 10 is obscure in its effect. It proposes to increase the length of the basic rate band from £4,500 to £5,000 so that the higher rates begin at a point £500 higher than at present. But the amendment does not propose any alteration in the scale of the higher rates contained in the table at the end of Clause 21, the table which prescribes the rate applying above a taxable income of £4,500. The effect of the amendment is uncertain. The amendment that we shall be introducing on Report, as announced by my right hon. Friend the Chancellor, will be somewhat more certain in its effect. I understand that the hon. Member for Blaby (Mr. Lawson) is anxious to be mischievous by producing an amendment of the kind he had thought would be brought before the House on Report. On this occasion, as on so many others, he has got it wrong. The amendment which we shall be introducing is different, and the hon. Gentleman will profit by seeing the difference between the two in due course.
  Mr. Lawson: I am sorry that the Financial Secretary should have spent so much time talking complete and utter rubbish. Did he not even listen when he was being told earlier that Amendment No. 10 is being grouped with Amendments Nos. 78 and 33, and that these three together implement the Chancellor's conditional proposals? If he believes that not to be so, will he tell us why?
  Mr. Sheldon: I understand that, having put down his amendment, the hon. Gentleman discovered its inadequacies and subsequently tried to rectify them. When my right hon. Friend the Chancellor tables his amendment the hon. Gentleman will see the discrepancies between the two. The important point, however, is that when my right hon. Friend moves the amendment—if the conditional package is finally agreed to—the House will have the opportunity to

  373
  debate it and it will be open to amendment. There will be no dragooning of the House in any way. The procedure will be similar to that by which the House always discusses such subjects, and I hope that that will meet with the approval of the House.
  Sir G. Howe: We look forward with excited expectation to the Report Stage at which the Government introduce their amendments, if there is to be no dragooning of the House and Members of the Government Party are to be allowed to vote with total freedom on these important matters.
  It was a curious note on which to end his speech and particularly strange that the Minister should have rested his defence against these amendments on a technical objection to the clear point raised by my hon. Friend the Member for Blaby (Mr. Nigel Lawson) who has set out on the Order Paper a set of amendments which would implement the conditional deal which the Chancellor has made with the TUC. It is disreputable for the Minister to rely on what is no more than a convenient alibi. He acknowledged that the point on which he is relying is not important. He was seeking to conceal the way in which the powers of this House over taxation matters have been taken away by the manner in which this deal has been arrived at.
  In this debate we have been talking about one aspect of the price paid for the deal. For a moment or two, when the Minister was answering the hon. Member for Liverpool, Walton (Mr. Heffer), reality began to break through and he was asserting, to legitimate applause from this side of the Committee, the extent to which middle management and skilled workers will go on being caned as part of the price for this deal.
  When the Minister asks whether we welcome this deal, we are entitled to ask, what is the price which now emerges as being paid for it? First, as we have heard, VAT cannot be arranged to a single sensible level because it would upset the deal. Second, the point on the Treasury band where income tax bites, even on people well below average earnings, cannot be raised. Third, public expenditure cannot be cut. Fourth, skilled workers, management and salesmen have to continue to face squeeze and sacrifice
  374
  and differentials have to go on being closed. All are part of the price which we now find is being paid for this deal.
  Mr. Joel Barnett: The right hon. and learned Member for Surrey East (Sir G. Howe) seems to find it difficult to say whether he welcomes the deal, but his right hon. Friend the Member for Lowestoft (Mr. Prior) said to me and to television viewers on Thursday night, unequivocally, that he welcomed the deal. Would the right hon. and learned Member for Surrey, East be inclined to tell us the same?
  Sir G. Howe: The position has been dealt with time and time again in this House. Of course there is some merit in the fact that the Government have recognised that they could not for ever remain on the lunatic escalator called the social contract. There is some merit in the fact that a Government who presided over pay increases of 30 per cent. and 35 per cent. have been driven by events to recognise that there are some realities within which the economy has to live. We welcome their belated recognition of the economic facts of life, but that is no reason to welcome it as though the answer to all problems is this pay deal. The Chief Secretary will laugh on the other side of his face when he contemplates the re-entry and exit about which he spoke.
  Mr. James Prior: May I get the record straight? While I welcome any deal with the trade union movement, the right hon. Gentleman the Chief Secretary will know only too well that I pointed out forcibly what this would do to middle management, to prices and for Parliament. There are many reservations, and he was there to admit that I was right.
  10.45 p.m.
  Sir G. Howe: I am grateful to receive that help from my right hon. Friend, speaking from such an unaccustomed place. It underlines the point I am making. This deal involves continued restraint on prices, dividends and the rewards of capital as well as continued constraints on investment. All this adds up to a continuing threat to the employment of ordinary working people. In the end, as we see in the clause which we are debating, it means higher taxation for working people and everybody else, lower real incomes, less economic inde-

  375
  pendence for our people and a serious attack on the pockets of working people.
  Hon. Members opposite may scoff and laugh, but my hon. Friend the Member for Blaby was right. The people of this country will not indefinitely put up with this onslaught upon their standard of living and freedom generated and forced down their throats by ageing doctrinaire, prejudiced, Socialist trade union leaders. The hon. Member for Keighley (Mr. Cryer) may laugh, but if he thinks that people wish to be led by the nose along the road he would have us take, he is making a grave mistake. Our people have no wish to be led to the other side of the Iron Curtain in their political and

  Division No. 129]

  AYES

  [10.47 p.m.

  Amery, Rt Hon Julian

  Gower, Sir Raymond (Barry)

  Montgomery, Fergus

  Arnold, Tom

  Gray, Hamish

  Morrison, Charles (Devizes)

  Atkins, Rt Hon H. (Spelthorne)

  Grist, Ian

  Morrison, Hon Peter (Chester)

  Awdry, Daniel

  Grylls, Michael

  Mudd, David

  Bain, Mrs Margaret

  Hall, Sir John

  Neave, Airey

  Baker, Kenneth

  Hall-Davis, A. G. F.

  Neubert, Michael

  Beith, A. J.

  Hampson, Dr. Keith

  Newton, Tony

  Bell, Ronald

  Hannam, John

  Nott, John

  Bennett, Sir Frederic (Torbay)

  Hastings, Stephen

  Oppenheim, Mrs Sally

  Bennett, Dr Reginald (Fareham)

  Henderson, Douglas

  Page, Rt Hon R. Graham (Crosby)

  Berry, Hon Anthony

  Holland, Philip

  Paisley, Rev Ian

  Biffen, John

  Hooson, Emyln

  Pardoe, John

  Biggs-Davison, John

  Hordern, Peter

  Parkinson, Cecil

  Boscawen, Hon Robert

  Howe, Rt Hon Sir Geoffrey

  Penhaligon, David

  Bottomley, Peter

  Howell, David (Guildford)

  Percival, Ian

  Boyson, Dr Rhodes (Brent)

  Howells, Geraint (Cardigan)

  Powell, Rt Hon J. Enoch

  Brittan, Leon

  Hunt, David (Wirral)

  Prior, Rt Hon James

  Brown, Sir Edward (Bath)

  Irving, Charles (Cheltenham)

  Pym, Rt Hon Francis

  Buchanan-Smith, Alick

  Johnson Smith, G. (E Grinstead)

  Raison, Timothy

  Buck, Antony

  Johnston, Russell (Inverness)

  Rathbone, Tim

  Budgen, Nick

  Jopling, Michael

  Rees, Peter (Dover & Deal)

  Butler, Adam (Bosworth)

  Kershaw, Anthony

  Reid, George

  Carson, John

  Kilfedder, James

  Renton, Tim (Mid-Sussex)

  Channon, Paul

  King, Evelyn (South Dorset)

  Ridley, Hon Nicholas

  Chalker, Mrs Lynda

  King, Tom (Bridgwater)

  Ridsdale, Julian

  Clark, Alan (Plymouth, Sutton)

  Kitson, Sir Timothy

  Rifkind, Malcolm

  Clark, William (Croydon S)

  Knight, Mrs Jill

  Rippon, Rt Hon Geoffrey

  Clarke, Kenneth (Rushcliffe)

  Lamont, Norman

  Roberts, Michael (Cardiff NW)

  Cockcroft, John

  Lane, David

  Roberts, Wyn (Conway)

  Cope, John

  Lawrence, Ivan

  Ross, Stephen (Isle of Wight)

  Corrie, John

  Lawson, Nigel

  Ross, William (Londonderry)

  Costain, A. P.

  Le Marchant, Spencer

  Rossi, Hugh (Hornsey)

  Crawford, Douglas

  Lester, Jim (Beeston)

  Sainsbury, Tim

  Crouch, David

  Lewis, Kenneth (Rutland)

  St. John-Stevas, Norman

  Crowder, F. P.

  Lloyd, Ian

  Shelton, William (Streatham)

  Dodsworth, Geoffrey

  Luce, Richard

  Shepherd, Colin

  Drayson, Burnaby

  McAdden, Sir Stephen

  Silvester, Fred

  Dunlop, John

  McCrindle Robert

  Sims, Roger

  Durant, Tony

  McCusker, H.

  Sinclair, Sir George

  Elliott, Sir William

  Macfarlane, Neil

  Skeet, T. H. H.

  Eyre, Reginald

  MacGregor, John

  Smith, Cyril (Rochdale)

  Fairgrieve, Russell

  Macmillan. Rt Hon M. (Farnham)

  Spicer, Michael (S Worcester)

  Finsberg, Geoffrey

  McNair-Wilson, M. (Newbury)

  Sproat, Iain

  Fisher, Sir Nigel

  Marshall. Michael (Arundel)

  Stanbrook, Ivor

  Fookes, Miss Janet

  Marten, Neil

  Stanley, John

  Forman, Nigel

  Mates, Michael

  Steel, David (Roxburgh)

  Fox, Marcus

  Mawby, Ray

  Stewart, Donald (Western Isles)

  Fry, Peter

  Maxwell-Hyslop, Robin

  Stewart, Ian (Hitchin)

  Gilmour, Rt Hon Ian (Chesham)

  Meyer, Sir Anthony

  Stokes, John

  Gilmour, Sir John (East Fife)

  Miller, Hal (Bromsgrove)

  Stradling Thomas, J.

  Glyn, Dr Alan

  Mills, Peter

  Tapsell, Peter

  Godber, Rt Hon Joseph

  Miscampbell, Norman

  Taylor, R. (Croydon NW)

  Goodhart, Philip

  Mitchell, David (Basingstoke)

  Taylor, Teddy (Cathcart)

  Goodhew, Victor

  Molyneaux, James

  Thatcher, Rt Hon Margaret

  Gow, Ian (Eastbourne)

  Monro, Hector

  Thomas, Rt Hon P. (Hendon S)

  economic life or even to be led into the cotton wool-lined obscurity of a Scandinavian Socialist State.
  The price being paid for this deal will turn out to be a price in terms of the jobs and interests of British working people. The price is being paid not to meet the needs of the workers but in continued fulfilment of the archaic political doctrines which the Government have allowed to dominate them through their subservience to a handful of TUC bosses.
  Question put, That the amendment be made:—
  The House divided: Ayes 181, Noes 196.

  377

  Thompson, George

  Watt, Hamish

  Wood, Rt Hon Richard

  Vaughan, Dr Gerard

  Weatherill, Bernard

  Young, Sir G. (Ealing, Acton)

  Viggers, Peter

  Well, John

  Wainwright, Richard (Colne V)

  Welsh, Andrew

  TELLERS FOR THE AYES

  Wakeham, John

  Wiggin, Jerry

  Mr. W. Benyon and

  Walder, David (Clitheroe)

  Wilson, Gordon (Dundee E)

  Mr. Carol Mather

  Wall, Patrick

  Winterton, Nicholas

  NOES

  Anderson, Donald

  Grocott, Bruce

  Pendry, Tom

  Archer, Peter

  Hardy, Peter

  Phipps, Dr Colin

  Armstrong, Ernest

  Harrison, Walter (Wakefield)

  Price, William (Rugby)

  Atkins, Ronald (Preston N)

  Hart, Rt Hon Judith

  Richardson, Miss Jo

  Atkinson, Norman

  Hatton, Frank

  Roberts, Albert (Normanton)

  Barnett, Rt Hon Joel (Heywood)

  Healey, Rt Hon Denis

  Roberts, Gwilym (Cannock)

  Bates, Alf

  Heffer, Eric S.

  Robertson, John (Paisley)

  Bean, R. E.

  Hooley, Frank

  Roderick, Caerwyn

  Bennett, Andrew (Stockport N)

  Harem, John

  Rodgers, George (Chorley)

  Bidwell, Sydney

  Huckfield, Les

  Rodgers, William (Stockton)

  Blenkinsop, Arthur

  Hughes, Rt Hon C. (Anglesey)

  Rooker, J. W.

  Boardman, H.

  Hughes, Robert (Aberdeen N)

  Roper, John

  Bottomley, Rt Hon Arthur

  Hughes, Roy (Newport)

  Rose, Paul B.

  Bray, Dr Jeremy

  Hunter, Adam

  Ross, Rt Hon W. (Kilmarnock)

  Brown, Hugh D. (Proven)

  Irvine, Rt Hon Sir A. (Edge Hill)

  Sandelson, Neville

  Brown, Robert C. (Newcastle W)

  Irving, Rt Hon S. (Dartford)

  Selby, Harry

  Buchan, Norman

  Jackson, Colin (Brighouse)

  Shaw, Arnold (Ilford South)

  Callaghan, Jim (Middleton & P)

  Jackson, Miss Margaret (Lincoln)

  Sheldon, Robert (Ashton-u-Lyne)

  Campbell, Ian

  Jay, Rt Hon Douglas

  Shore, Rt Hon Peter

  Canavan, Dennis

  Jenkins, Hugh (Putney)

  Silkin, Rt Hon John (Deptford)

  Cant, R. B.

  Johnson, James (Hull West)

  Silkin, Rt. Hon S. C. (Dulwich)

  Carmichael, Neil

  Jones, Barry (East Flint)

  Sillars, James

  Cartwright, John

  Jones, Dan (Burnley)

  Silverman, Julius

  Cocks, Michael (Bristol S)

  Judd, Frank

  Skinner, Dennis

  Coleman, Donald

  Kaufman, Gerald

  Smith, John (N Lanarkshire)

  Colquhoun, Ms Maureen

  Kelley, Richard

  Snape, Peter

  Conlan, Bernard

  Kilroy-Silk, Robert

  Spearing, Nigel

  Cook, Robin F. (Edin C)

  Lambie, David

  Spriggs, Leslie

  Corbett, Robin

  Lamborn, Harry

  Stallard, A. W.

  Cox, Thomas (Tooting)

  Lamond, James

  Stoddart, David

  Craigen, J. M. (Maryhill)

  Latham, Arthur (Paddington)

  Stott, Roger

  Crawshaw, Richard

  Lewis, Ron (Carlisle)

  Strang, Gavin

  Cryer, Bob

  Litterick, Tom

  Summerskill, Hon Dr Shirley

  Cunningham, Dr J. (Whiteh)

  Lyons, Edward (Bradtord W)

  Taylor, Mrs Ann (Bolton W)

  Davidson, Arthur

  Mabon, Dr J. Dickson

  Thomas, Dafydd (Merioneth)

  Davies, Bryan (Enfield N)

  McCartney, Hugh

  Thomas, Ron (Bristol NW)

  Davies, Denzil (Llanelli)

  McElhone, Frank

  Tinn, James

  Davies, Ifor (Gower)

  Macfarquhar, Roderick

  Torney, Tom

  Davis, Clinton (Hackney C)

  Mackenzie, Gregor

  Urwin, T. W.

  Deakins, Eric

  Mackintosh, John P.

  Varley, Rt Hon Eric G.

  Dean, Joseph (Leeds West)

  McMillan, Tom (Glasgow C)

  Wainwright, Edwin (Dearne V)

  Dempsey, James

  McNamara, Kevin

  Walker, Harold (Doncaster)

  Doig, Peter

  Madden, Max

  Walker, Terry (Kingswood)

  Dormand, J. D.

  Magee, Bryan

  Ward, Michael

  Duffy, A. E. P.

  Marks, Kenneth

  Watkinson, John

  Dunnett, Jack

  Marshall, Dr Edmund (Goole)

  Weetch, Ken

  Eadie, Alex

  Marshall, Jim (Leicester S)

  Weitzman, David

  Edge, Geoff

  Maynard, Miss Joan

  White, Frank R. (Bury)

  Edwards, Robert (Wolv SE)

  Milian, Bruce

  White, James (Pollok)

  Ellis, John (Brigg & Scun)

  Miller, Dr M. S. (E Kilbride)

  Whitehead, Phillip

  Evans, Fred (Caerphilly)

  Miller, Mrs Millie (Ilford N)

  Whitlock, William

  Evans, Gwynfor (Carmarthen)

  Molloy, William

  Wigley, Dafydd

  Ewing, Harry (Stirling)

  Moonman, Eric

  Willey, Rt Hon Frederick

  Faulds, Andrew

  Morris, Alfred (Wythenshawe)

  Williams, Alan (Swansea W)

  Fernyhough, Rt Hon E.

  Murray, Rt Hon Ronald King

  Williams, Sir Thomas

  Flannery, Martin

  Newens, Stanley

  Wilson, Alexander (Hamilton)

  Fletcher, Ted (Darlington)

  Noble, Mike

  Wilson, William (Coventry SE)

  Forrester, John

  Oakes, Gordon

  Wise, Mrs Audrey

  Fraser, John (Lambeth, N'w'd)

  Ogden. Eric

  Woodall, Alec

  Freeson, Reginald

  O'Halloran, Michael

  Woof, Robert

  Garrett, W. E. (Wallsend)

  Orbach, Maurice

  Wrigglesworth, Ian

  George, Bruce

  Orme, Rt Hon Stanley

  Young, David (Bolton E)

  Gilbert, Dr John

  Padley, Walter

  Ginsburg, David

  Palmer, Arthur

  TELLERS FOR THE NOES:

  Gourley, Harry

  Park, George

  Mr. James Hamilton and

  Graham, Ted

  Pavitt, Laurie

  Mr. Joseph Harper

  Grant, John (Islington C)

  Pearl, Rt Hon Fred

  Question accordingly negatived
  11.0 p.m.
  Sir John Hall: I beg to move Amendment No. 12, in page 13, line 29, leave out from 'exceeds' to end of line 36 and insert:
  '£2,000 at the additional rate of 15 per cent.'.
  The Deputy Chairman (Sir Myer Galpern): With this we are to take the following amendments:
  No. 13, in page 13, line 29, leave out from 'exceeds' to end of line 31 and insert:
  '£2,000 at the additional rate of 15 per cent.'.
  No. 14, in page 13, line 29, leave out '£1,000' and insert `£2,000'.
  No. 15, in page 13, line 29, leave out '£1,000' and insert `£1,200'.
  No. 16, in page 13, line 29, leave out '£1,000' and insert '£1,500'.
  No. 17, in page 13, line 29, leave out '£1,000 ' and insert '£2,614'.
  No. 18, in page 13, line 30, leave out '£1,000' and insert '£1,200'.
  No. 19, in page 13, leave out lines 32 to 36 and insert:
  'Provided that no additional rate of tax shall be payable by an individual whose total income is less than two thirds of average industrial earnings and who shows that at any time within that year his age or that of his wife living with him is 60 years or more, or who is incompacitated by reason of infirmity from maintaining himself'.
  No. 20, in page 13, line 34, after 'more', insert:
  'or in the case of a woman that her age was 60 years or more'.
  No. 21, in page 13, line 34, after 'more', insert:
  'or that she is a widow'.
  No. 79, in page 13, line 34, after 'more', insert:
  'or that he was a registered disabled person'.
  No. 80, in page 13, line 34, after 'more', insert:
  'or that she is a single woman with a dependant'.
  No. 81, in page 13, line 34, after 'more', insert:
  'and that neither he nor his wife was in receipt of a pension subject to the provisions of the Pensions (Increase) Act 1971'.
  No. 85, in page 13, line 34, after 'more', insert:
  'or that he was in receipt of a contributory or non-contributory invalidity pension'.
  No. 22, in page 13, line 36, leave out '£500' and insert '£750'.
  380
  No. 23, in page 13, line 36, leave out '£500' and insert '£600'.
  Sir John Hall: Although these amendments mention various figures and deal with different types of situation and different people, they all have one aim in common, and that is to reduce the burden which has been placed upon a number of people who find themselves unduly penalised by the surcharge on investment income.
  Last May I had the privilege of moving a similar group of amendments to a Finance Bill, though not so many amendments. I then drew the attention of the Committee to the origin of this tax, because we are sometimes inclined to forget how these things have arisen. It will be remembered that the previous Conservative Administration introduced the much overdue unification of the tax system and at the same time produced a surcharge in investment income starting at £2,000. There was a great deal of debate then whether that figure was too low. Nevertheless, it passed through. In passing, I may say that if £2,000 were right then, it should be a much higher figure now.
  One of the first things that the Labour Government did in their first Budget was to try to reduce that figure to £1,000 or £1,500, depending on the age of the taxpayer. Fortunately, in their first attempt they were defeated—on an amendment, if I recall rightly, moved by the hon. Member for Cornwall, North (Mr. Pardoe), strongly supported by the Conservative Opposition as well.
  Not put out by that, the Government threatened to reintroduce this in a future Bill, which they did. They have retained it ever since. There can be no question of this being retained for reasons of justice or equity. It is merely that the Government were so upset at being defeated, on an entirely democratic vote, the first time they attempted to reduce the amount.
  I want to deal with some of the effects of this measure which were probably not anticipated when the surcharge was first introduced. I have in my hand a copy of a letter written to the Chancellor of the Exchequer by one of my constituents. I should like to read the relevant paragraphs. He starts off realistically by saying:
  "Dear Mr. Healey,
  I realise you may not answer this, but I do beseech you to read it

  381
  May I put before you for serious consideration, and, I hope, relief the case of those unfortunates like myself who were compulsorily retired early before the recent tax surcharge on investment income.
  Many of us drew the maximum cash benefit from our pension funds in order to protect our wives and families if we died first, and suffered a considerable reduction in pension as a result;—only to find that we are taxed very highly on money which certainly comes in the "Earned" category being part of our original Pension Fund."
  There are many pensions funds which include the right to take certain sums as cash benefits. Those who have pension funds which do not include cover for widows often take a cash sum to provide such cover should they die first. In consequence, they take a reduced pension, as my constituent points out, and now find that, having invested that cash sum to produce a supplementary income to supplement their reduced pension, they are being taxed on that amount. If they had left it without covering for their wives' future, they would have paid the normal tax rate and would not have been subject to any surcharge.
  I should like to illustrate another case which I am sure hon. Members on both sides of the Committee could duplicate in their constituencies. I have in my constituency a spinster who, after many years of looking after her aged parents, found that when they died all that they could leave her was a large house. She was then aged 50. As she had not been trained for a job, she could not find employment. She sold the house, invested the proceeds, and got an income of about £2,500 a year. On that amount—well below average industrial earnings—she has to pay an additional £175 surcharge.
  I wonder what would happen if the ordinary working man and member of a trade union were told "Although you are earning well below average industrial earnings and find life difficult we are going to charge you an extra £175". I hesitate to think what his reaction and reply would be.
  The only way in which a small businness man can achieve security for the future is by building up his business, selling it for a reasonable sum, and investing the proceeds to give him the equivalent of a pension for the rest of his life after retirement. Many small business men who have done just that
  382
  have, in the last two or three years, found themselves subject to this additional impost.
  Other countries are much more generous than we are to those who live on what is laughingly called unearned income. I take, for example, a married couple under 65 years of age whose entire income is derived from investment. Looking at the table kindly provided by Her Majesty's Government in Hansard of 7th April we find that, taking all EEC countries, plus three major industrial countries outside the EEC—the United States, Canada and Japan—the threshold at which tax starts for people with unearned income is much higher in all except four of those countries and the initial percentage rate is much lower in other countries than here.
  For example, we start with an income tax threshold of £955 for persons with unearned income. The initial rate is 35 per cent. and the maximum rate is 90 per cent., but I am not dealing with those who are fortunate, or unfortunate, enough to pay the maximum. I am dealing with those living on small incomes and who start with an initial rate of 35 per cent. No country amongst the 13 listed here imposes anything like that percentage, taking into account local taxes as well. That means that many people in this country, who have no sources of income other than investment income and are unable, for various reasons, to add to their income, are paying additional tax on incomes which are well below the average industrial wage. That is unjust and inequitable and should be stopped.
  I have raised this matter on previous occasions. I have at times had sympathetic utterances from the Treasury Bench, but no action. It is about time that the Government disabused themselves of the idea that people living on unearned income are wealthy men and women who spend their time in the South of France drinking champagne and eating caviar. The truth is that thousands of people in this country are living on small incomes and eking out a miserable existence. If such an existence were being lived by the average trade unionist, hon. Gentlemen opposite would be up on their feet shouting their heads off.
  It is time we stopped this. I hope that the Treasury, this time, will take some note of this matter and at least accept the

  383
  most modest of the amendments suggested, which does no more than restore the value of the miserable allowance already given to the figure it should be if we took account of inflation. I hope that we can expect a sympathetic response from the Minister suggesting that the Government have been moved by the arguments advanced on both sides of the House and that on Report they will move an amendment which will give some justice to this class of taxpayer—justice which is long overdue.
  Mr. Pardoe: I want to support the speech of the hon. Member for Wycombe (Sir J. Hall) in favour of the amendment. With it are bracketed Amendments Nos. 13 and 19 in the names of my right hon. and hon. Friends and myself. Amendment No. 13 is the same as Amendment No. 12. We obviously put it down on the same day.
  I do not wish to amplify the arguments which have already been deployed, but rather to recap on a previous period. During that Utopian period when democracy was restored to our parliamentary institutions, when the Liberal Party held the balance of power—the quicker it happens again the better—what good sense was produced. We managed to defeat the Treasury Bench and to increase the threshold for investment income to 2,000. It is a pity we cannot do that again tonight but I feel that we shall not win.
  What, in fact, is investment income? First of all, there is the income of those people who save through a pension fund. That, of course, is not taxed as investment income. One is allowed substantial tax deductions on the contributions one makes to a pension fund, and one gets a negative tax concession because one is not taxed at the full rate, or the income surcharge rate, on the income from that fund.
  This is, of course, a massive discrimination in favour of collectivist saving, what Ilich called the institution-alisation of society. If we all saved our money through some crummy institution called a pension fund we shall be able to collect the rest of the numerous benefits and incentives for doing so. We can save through a life insurance policy, but we get rather fewer concessions on the premiums and, of course, the income
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  which results is then taxed as a full investment income. There is a disadvantage there.
  Then we come to the private enterprise of the individual who saves his money in his own way, and invests it in his own way, whether in the Government's geriatric bonds or however it is done. Any income which is derived from money saved in that way is taxed at the full rate. We get no concessions on the premiums, or on the investment contributions, and we are taxed at the full investment income rate on any income we get out of it. There is no reason at all for the Government to disturb those modes of investment.
  What would be the total cost? The Treasury has not been able to catch up with us as yet, but have nearly done so on this occasion. In a Written Question on 10th May, I asked the Chancellor
  "—if he will estimate for 1976–77 the loss in revenue which would occur if investment income surcharge were not charged where the total income of the taxpayer from all sources is less than average industrial earnings."— [Official Report, 10th May 1976; Vol. 911, c. 35.]
  I was told that the cost of that limited proposal would be £12 million. So the cost of the proposals in Amendments Nos. 12 and 13 is very limited.
  But if the Chief Secretary is not prepared to accept that proposal, let him look at Amendment No. 19, which is much more limited, a very minor amendment indeed.
  Sir John Hall: Too minor.
  11.15 p.m.
  Mr. Pardoe: It cannot be too minor for the Treasury Bench. They have very minor minds in these matters.
  Amendment No. 19 says:
  'Provided that no additional rate of tax shall be payable by an individual whose total income is less than two thirds of average industrial earnings and who shows that at any time within that year his age or that of his wife living with him is 60 years or more, or who is incompacitated by reason of infirmity from maintaining himself'.
  Those last two phrases are familiar to hon. Members. I suggest that it would be cheap at the price. I do not know exactly what the price is. We have not had an estimate yet—although the Chief Secretary probably has it in his brief—but I suggest that it is peanuts. It would make

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  a substantial contribution to people above the age of 60 who are living solely on investment income but whose incomes are below two-thirds of average industrial earnings, which is not a fortune.
  I hope that the Chief Secretary will be swayed, first, by the arguments in favour of Amendments Nos. 12 and 13. But if he is not prepared to accept them, he will find it harder to shoot down Amendment No. 19. I look forward to hearing him try.
  Mr. Newton: I support my hon. Friend the Member for Wycombe (Sir J. Hall). I agree with what he and the hon. Member for Cornwall, North (Mr. Pardoe) said, that it is nonsense nowadays to see the argument about investment income as if it were an attempt by us to defend some caricature capitalists—vastly wealthy people with great vested interests who are somehow grinding the faces of the poor. My hon. Friend's example of the widow who invested the proceeds from the sale of one house to produce investment income was very telling.
  What is often not appreciated by Labour Members is that almost anyone in Southern England, probably the Midlands and possibly, to a lesser extent, the North, who owns a house clear of mortgage, is worth between £10,000 and £15,000 almost automatically. If such people choose or are forced to sell their house, live in rented accommodation and invest the capital to produce investment income, the proceeds will render them liable to the investment income surcharge.
  By definition, we are talking not about wealthy people but about people in modest houses in large areas of the country. That brings home the absurdity of the present low threshold of £1,000 a year. I support the proposal that the threshold should be raised to the level at which it was originally fixed, of £2,000. But I do not expect the Chief Secretary to be very forthcoming on that, so I shall not waste my breath on something I do not expect to achieve with this Government. We should need a change of Administration before there was a more genuinely reasonable approach on these issues.
  I am more hopeful of achieving a concession on the more modest, special-case amendments. Amendment No. 22 would
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  raise that extra concession for retired people from £500 to £750. When elderly people living on fixed incomes have been clobbered harder than any other section of the community—particularly if they live in rural areas and have to cope with rising transport costs—the least we can do is to give them a bit more of their savings income at the concessionary rate of investment income surcharge.
  But even the amendment would not compensate for price rises since the £500 figure was fixed. With the Government's concentration on the TUC and the problems of the employed who are often earning good money, I find it mean that the Budget paid so little attention to those for whom hon. Members on the Government side claim to have such tender care. I hope that the Government will examine this matter between now and Report.
  Amendment No. 20 would extend to women over 60 the same investment income surcharge concession applying to people over 65. It is a scandal that, at a time when the retirement age for women is 60 and 65 for men, a single, widowed or divorced woman aged between 60 and 65 should not enjoy the same benefits as retired people generally. Women trying to live on their savings income often find life difficult. Whatever the argument about national insurance contributions and the differences in retirement age, it cannot be right to leave single, divorced and widowed women between 60 and 65 in this disadvantageous situation under the tax system. It could hardly cost much to put the matter right. I would like to see my party commit itself to putting this right as quickly as possible, if we are not able to wring this modest concession from the Government.
  The second category to some extent overlaps the category about which I have just spoken. I refer to Amendment No. 21 which would extend the same concession enjoyed by those over 65 to all widows. The case against this is perhaps more arguable, because it would include young widows who might be well qualified and able to earn a living. The situation of widows is one of the most glaring and unfair anomalies in our tax system.
  On Second Reading I was glad to hear the hon. Member for Gravesend (Mr. Ovenden) make a powerful plea for an

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  improvement in the tax situation for widows. Although his proposals were different from mine, he made the same plea on behalf of this group of people. I hope that when we come to later amendments his vote will be where his voice was last week.
  Only a fortnight ago the hon. Member for Luton, East (Mr. Clemitson) presented a petition bearing 4,000 signatures on behalf of the widows of Luton. I have no doubt that as many signatures could be collected in almost every town and city of comparable size. The sense of unfairness felt by that group is now so great that it is the duty of our political system to respond to it. The amendment to grant them a modest concession on investment income, on which many of them will be living, is a small gesture in the direction towards which we should be moving.
  My Amendment No. 85 is directed to the needs of disabled people who cannot obtain employment. We have debated the matter before in relation to the investment income surcharge, usually in the form of an amendment suggesting that all registered disabled should be entitled to the same concessions as people over 65. I have always recognised, although I have been prepared to press that case, that as long as the definition had to be the registered disabled—a rather loose categorisation covering all sorts and conditions of disabled—it probably was not a very satisfactory form of extending help to the disabled, even though the case in principle was strong.
  The amendment was provided to some of us by the Disablement Income Group. With the new system of non-contributory invalidity pensions there is to all intents and purposes a practical working definition of the unemployed disabled—those in receipt of a contributory or noncontributory invalidity pension. That is the definition I have used in the amendment, which I believe leaves us in a much more satisfactory position. It may not be perfect—I see the Minister of State, Department of Health and Social Security, looking somewhat sceptical—but it takes us much nearer a definition of a group of disabled with special problems because they are not employed—most cannot be
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  employed because of their disability—and to whom we could now extend the benefit of a concession on the investment income surcharge.
  Disabled people who cannot work are in much the same situation as fit people over 65 who receive the concession, and many are in a worse situation. They constitute a group which has the general sympathy of both sides of the Chamber. Here is a practical way in which we can help, one which I think will command wide support and would not cost large sums. It would produce a real social benefit for a group which will get little or nothing out of any deal with the TUC or many of the other grand issues we may discuss.
  Even if the Chief Secretary does not feel able to accept the amendments dealing specifically with single women between the ages of 60 and 65, widows generally and the disabled, I hope that he will understand the force of a case which I believe will be advanced from both sides of the Committee. I hope that he will at least say that he will seriously consider these matters before the Bill returns to the House on Report.
  Mrs. Lynda Chalker: I rise to support all that my hon. Friend the Member for Braintree (Mr. Newton) has said and to take up a further point about investment income surcharge dealt with in Amendment No. 80.
  Theer is a small but growing number of divorced and separated women with dependants about whom little is usually heard in debates on the Finance Bill. They receive maintenance, which is defined as investment income in the hands of the recipients. I hope that the Treasury will turn its mind to the problem, which is increasingly worrying for these women.
  The husband has tax relief on his maintenance payments, but when they come into the hands of the wife she is treated—for quite modest amounts, particularly if she has a large family—as someone who should pay investment income surcharge.
  11.30 p.m.
  Once a woman is living apart from her husband, she has not only the burden of the household and the children, but an increasing number of financial problems. This subject was first raised by my right

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  hon. and learned Friend the Member for Surrey, East (Sir G. Howe) when he was the Member for Bebington in 1965. He suggested that women living apart from heir husbands should be allowed to treat the maintenance that they received from their husbands as though it was earned income. The Government made no reply. The problem has since been posed several times in questions and debates, but still women who are separated or divorced and totally dependent on maintenance have to treat that maintenance as though it is unearned income. Amendment No. 80 goes a little way to solving this problem, and I strongly support it.
  The Government should consider some of the problems that arise for women in this situation because of the falling value of the pound. Ten years ago, £2,000 may have seemed a large amount of maintenance, but today for a woman with a household and three or four children to look after it is merely peanuts. It is high time that hon. Members appreciated the pressure of women struggling to keep their families together. It results simply from our refusal to make a minor change in our tax laws. The change would not cost the Government any of the vast sums with which we have been threatened when we have suggested changes in the taxation allowances, particularly for the investment income surcharge.
  As long ago as 1960 the right hon. Lady the Member for Blackburn (Mrs. Castle) said that it was an outrage that women who had to face the break-up of family life and home should have their ordinary housekeeping income treated as investment income. She was perfectly right. It has taken 16 years for this issue to be considered on the Finance Bill Committee stage, but I hope that it will take the Government not 16 months to put it right, and if they do not do so on Report, I shall attempt to do so.
  Mr. Victor Goodhew (St. Albans): I intervene shortly in this debate not only because I agree with what has been said, but because I hope that the Chief Secretary will explain why the Socialists believe that there is something inherently evil in what they choose to call investment income as opposed to what they choose to call earned income. So much investment income is merely the result of people working and paying tax on their
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  earnings and then saving something which they invest and from which they later draw an income. It is ridiculous to say that that is unearned income and that it should attract an investment income surcharge.
  I do not understand how the Government can say in these days that people who save should be penalised. Nowadays we hear a great deal from Labour Members about the lack of investment and we are always being told that there is not enough investment in industry. It is simply because we tax investment income very highly compared with how we tax earned income. If people are prepared to save during their working lives, having paid tax on their incomes, and they are then expected to invest and to pay a surcharge on the income that they receive from the investment, it is little wonder that there is insufficient investment.
  I hope that the Chief Secretary will consider getting rid of the difference between earned and unearned income. There may be a few cases where there is vast inherited wealth bringing great benefit, but this will not be so for much longer under this Government. It is high time the Government decided that there should be tax on income, and left it at that, without putting a surcharge on those who have earned their money, paid their tax on it, saved and invested it in order to try to provide income for themselves at a later age.
  Mr. Lawson: I shall detain the House only a short time on this important series of amendments moved so ably by my hon. Friend the Member for Wycombe (Sir J. Hall). I was particularly pleased to listen to the eloquent case made by my hon. Friend the Member for Wallasey (Mrs. Chalker) in favour of my Amendment No. 80.
  I suspect we shall be told by the Chief Secretary in winding up the debate that these questions are not matters for the Treasury and the tax system but are for the Department of Health and Social Security. May we be spared that answer this time? It is one which is trotted out every time in the Treasury brief. Yet tax legislation is littered with all sorts of specific allowances of one sort or another for widows with children, and so on—and rightly so. If he cuts that part of the answer out of his brief, the

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  right hon. Gentleman will save considerable time.
  The Chief Secretary probably will say—and we do not want this either—that he does not accept our starting point. Our starting point is the unified system of tax of 1973–74. The Chief Secretary thinks we should go back to 1972–73, and make our comparisons with that time. If he uses that argument, will he make one important point? Will he please, when comparing a person on a certain income in 1972–73 with a person now, make allowances for the intervening inflation? Will he not say that a person then on £2,000 or £5,000, or whatever figure, would have earned the same amount or would have the same investment income now? Let us have it expressed in real terms, otherwise it is devoid of any sense, or meaning.
  Will the Chief Secretary tell us the certain amount of benefit which the amendment, if carried, would give to those with investment income of over £3,000 a year. We are not concerned here with the amount of relief which would go through, we are concerned with the numbers of taxpayers assisted by the relief. We want to know how many who would be assisted by the amendments, are below £3,000 a year, and how many are above. Let him enlighten the House on these matters, instead of treating it to the normal stuff we hear on occasions such as this.
  We are talking about people with what are, by no means, large sums of money, people with investment incomes of £1,000 or above, which means invested capital of £7,000 or above. While many people do not have that much, £7,000 is still not an enormous amount of capital, particularly for people who have been saving throughout their lives.
  More and more people today wonder why they bother to save at all. Why should they save when they will be taxed at the start at 45 per cent. or at 35 per cent. plus 10 per cent surcharge rate? People ask me at my surgeries what point there is in saving, and it is very difficult to give them an answer or convince them that they should save. They see others who have not saved seemingly better off for having spent all their money. That is immoral and as bad for the political
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  and social health of the country as it is for its economic health.
  One of the reasons for the high yield on gilt-edged stock is that in a sense some of it is not real income but compensation for the diminuation in the value of the capital by inflation. But there is no relief in the tax arrangements to take account of that compensation. The investment income surcharge applies to the full amount.
  I shall deal, finally, with Amendment No. 81 which is different from all the others on the Order Paper. In it I have tried to assist the Chief Secretary. So far from costing anything, my proposal will lead to extra revenue from the Exchequer. It will be important for the Chief Secretary to say how much.
  The concessionary rate of investment income surcharge given to the elderly is proposed to be withheld from those pensioners who are receiving a pension subject to the Pensions (Increase) Act 1971. That means those who are in the public service who have inflation-proof pensions which could be worth huge capital sums—perhaps running into five or six figures. That is something which no one in the private sector can possibly expect to achieve. It will seem strange if the Chief Secretary tells us that it is Socialist doctrine that those receiving huge inflation-proof pensions should get concessionary rates but that the widow should not.
  Mr. John Hannam: I wish to express my support for Amendment No. 85. As a member of the All-Party Disablement Group I attended a delegation on 2nd March at the Treasury. The Financial Secretary received the delegation courteously and listened to the proposals and comments related to the investment surcharge and to other matters affecting disablement. At the time every indication was given, even to the old hands who had been to the "No Room" at the Treasury on previous occasions, that sympathy was to be extended in the Budget to disabled people who are excluded from the concession which is offered to pensioners.
  It is hard to understand why fit and able pensioners are allowed this investment surcharge exemption when disabled people who are unable to work or who have been prematurely retired through injury, are denied it. I could quote many

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  cases of families who have tried to save a certain amount from earned income over the years in order to provide for a disabled child when it grows up so that it may live off the investment income and enjoy independence. Such people, however, subject to this penal surcharge.
  11.45 p.m.
  Perhaps I may quote a case given by a Labour Member in the Budget debate on 6th April. The hon. Member for Ince (Mr. McGuire) said:
  "I think that most hon. Members know that many years ago my son unfortunately lost both legs in a road accident. He did not get any compensation, because negligence could not be proved against the bus company concerned. All he got was the benefit of a collection which was made by the men at the pit at which I worked. That sum was put away for him until he became of age. That money has been bringing in £120 a year in interest. I was also trying to add to this when I worked in the pits and also when I came here as a Member of Parliament.
  I was astonished to receive a letter from the tax man saying that I owed money on my boy's investment. I was outraged that if my boy had been awarded that sum by a court, it would not have been taxable."—[Official Report, 6th April 1976, Vol. 909, cols., 298–9.]
  This is a situation affecting disabled people. For that reason compensation for injuries has received relief from surcharge but money collected by other means and saved by hard-working parents is subject to this infamous surcharge. The Government cannot condone this and should accept the amendment proposed so forcibly by my hon. Friend the Member for Braintree (Mr. Newton).
  Mr. Joel Barnett: We are debating a large number of amendments. I shall be brief, but I say to the hon. Member for St. Albans (Mr. Goodhew), who made the substantial point that we should not have a surcharge on investment income at all, that that is not what we are debating or what his Government sought to do when they introduced, quite correctly in my view, the unified tax system. They sought to have a £2,000 limit but never to introduce complete exemption for investment income from any kind of surcharge.
  My speech should be very brief, especially if I took the advice of the hon. Member for Blaby (Mr. Lawson), but, as ever, I shall try to avoid doing that. The cost of the main Amendment, in the name of the hon. Member for
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  Wycombe (Sir J. Hall), would be about £40 million. In the large number of amendments there is a wide variety of costs, some of them negligible. As ever, the hon. Member for Blaby is the most ambitious in these matters and his Amendment, No. 17, which seeks to inflation proof the system, would cost £90 million.
  Mr. Lawson: My amendment? Would the right hon. Gentleman not put the record straight? There are a number of others in my name, one of them for saving money.
  Mr. Barnett: I shall come to that as well, but Amendment No. 17 is in the hon. Member's name and would cost about £90 million. I should not want to mislead the Committee.
  Let me make it clear from the outset that the Government recognise that those with investment income are at all levels and include disabled and widows and so on who are not normally wealthy. I say that in view of what was said by the hon. Member for Wycombe and the hon. Member for Braintree (Mr. Newton). I took down the words of the hon. Member for Wycombe, who said that we were not dealing with those with very large incomes. But, in fact, we are also dealing—indeed, substantially dealing—with people with very large incomes, because, while it is true that we would be giving extra relief—and I will later answer the hon. Member for St. Albans about the difference between investment and earned income—to those with investment income between £1,000 and £3,000, we would also be helping substantially those with a very substantial investment income.
  Sir John Hall: Even accepting that to be true, would it be so dire, remembering that those with substantial incomes are paying the highest marginal rates in any country—95 per cent.?
  Mr. Barnett: Yes, it would. At a time when we are asking the ordinary working people to take cuts in living standards, it seems an acceptable argument for me to advance. If it is not acceptable to hon. Members opposite, I am sorry. It is an argument which I ask my hon. Friends to accept. Nevertheless, I shall be referring to the special cases movingly described by a number of hon. Members.

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  The hon. Member for Blaby mentioned Amendment No. 81 in which he seeks to add to the revenue through his obsession with the inflation-proofed pensions of civil servants, granted under an Act passed by a Conservative Government in 1971. I do not know why he seeks to single out a hard-working section of the community, the vast majority of whom do a good day's work for a not very generous day's pay. It is unreasonable for him to suggest that they alone should not get the investment income relief, and I am glad that the hon. Member's Front Bench does not support him.
  The hon. Member for Cornwall, North (Mr. Pardoe)—I nearly said the hon. Member for the Liberal Party, but that may yet not be the case—must have lost many pension fund votes when he referred to the funds as "crummy" institutions. I hope, for his sake, that none of the delegates to the Liberal Party assembly in the autumn contributes to or runs these institutions The cost of the hon. Member's Amendment No. 19 is impossible to estimate. He seeks to exclude from the surcharge two groups of people—persons aged over 60 or whose wives are aged over 60 who receive less than two-thirds of the average industrial wage and persons incapacitated by infirmity from maintaining themselves. I shall be dealing later with the points which the hon. Member made about maintenance and disability. Amendment No. 19 is based on a misunderstanding of the reasons for charging investment income surcharge. The hon. Member for Blaby asked me not to say this but I hope he will forgive me if I do. I cannot find it in my brief, but I shall try to remember what I said last year. The point is that there is a difference between investment income and earned income. We are talking not just about widows, spinsters and the disabled, but about all those with investment income of more than £1,000 a year or, for pensioners, £1,500 a year. We are not talking about widows, full stop, or pensioners, full stop. If we can understand that, we shall be putting the discussion on a rational basis.
  Mr. David Mitchell: Can the hon Gentleman tell us how he hopes to get investment without encouraging investors?
  Mr. Barnett: I do not see what that has to do with the point I am making, but if the hon. Member wishes, I shall deal with it later.
  Mr. Lawson Mr. Lawson rose—
  Mr. Barnett: The hon. Member for Blaby is trying too hard to beat his Front Bench. It is too easy. He should not try so hard. I keep telling him that.
  Mr. Lawson: I am most grateful for the Chief Secretary's generosity in giving way. If he goes back into history to discover how investment income surcharge came into being and how there came to be different rates of tax for earned and unearned income, he will discover that it was considered then that unearned income was less precarious than earned income. Is the Chief Secretary saying now, generations later, that, at a time of high inflation, when the Welfare State helps those who are earning, that people with investment income are not in a more precarious position?
  Mr. Barnett: There are three major reasons that lead me to say that investment income is different from earned income. The first reason is that despite all the difficulties about investment income—I accept that depending on the way in which investment takes place it can be a precarious form of income—it is more certain an income than is enjoyed by the man who has to work every day of his life to earn a living. That is one good reason.
  The second reason is that investment income is less dependent on an individual's efforts than the living that is earned by someone working every day of his life. The capital element frequently comes from the savings made during a lifetime, but investment income on capital is more certain than if a man is disabled and has no investment income or capital, or if a man is working and is entirely dependent on his own efforts. That is another major reason.
  The third reason is the not unimportant matter that investment income reflects the availability of the underlying capital. For a great many ordinary working people that capital is not available. Many Opposition hon. Members have made the point that during the course of a lifetime—this

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  was the reason for increasing the surcharge threshold for the over 65s—the hard-working will have saved their money. It is said that they should not be penalised by a surcharge on investment income.
  As I have said before, there is a major misunderstanding on the part of many Opposition hon. Members as to how much the average worker will be able to save out of his average net wages during the course of a lifetime. Let us be clear that the relief that is available now from the surcharge at £1,500 means a house plus savings, in the case of many who have retired and saved carefully, or between £12,000 to £15,000.
  I am sure that many of my hon. Friends will know that the vast majority of ordinary working people would think that they had done reasonably well out of the modest earnings that most of them have if they had saved that sort of amount and bought a house by the time they retired at 65. We are talking of ordinary people, the many millions of ordinary workers who have had to take cuts in living standards, men and women who cannot save this sort of sum. These are the people who are being asked in the amendments to give special relief to those who have saved harder, to those who have spent less and saved a bit more. Admittedly many of these are decent people, but it is said that we should help them when, with respect, we should have our priorities right in current circumstances.
  Mr. Hannam: Does the right hon. Gentleman accept that the parent of a disabled child receiving the constant attendance allowance would need to put the allowance aside for only 10 years to achieve the very level which would bring it within the surcharge?
  Mr. Barnett: I shall come in a moment to the issue that the hon. Gentleman has raised.
  Mr. Goodhew: I take up the right hon. Gentleman's point about earned and unearned income. It is ridiculous for him to talk as if the ordinary working man cannot make savings in his lifetime which will bring him a good income if he invests it. Let us consider how much is spent every year on cigarettes, bingo and other forms of gambling. Let the right hon. Gentleman consider how much money is gambled instead of invested.
  Mr. Bob Cryer: Sit down.
  Mr. Goodhew: Do not tell me to sit down. I beg your pardon, Sir Myer, I was not addressing you but the hon. Member for Keighley (Mr. Cryer), who was talking to me from a seated position.
  Is it not more in the interests of the country, if we want investment in industry, that people should save their money and invest it than spend it on cigarettes, bingo and other forms of gambling? What is wrong about investment income? What is immoral about income from savings?
  12 midnight
  Mr. Barnett: There is nothing immoral in savings, or in smoking or bingo either. Many of my constituents are involved in these things, as are many of us, and I would not consider them immoral. I have never said that they are.
  Mr. Goodhew Mr. Goodhew rose—
  Mr. Barnett: I can debate the matter with the hon. Gentleman on some other occasion. Perhaps at this time of the morning, if the hon. Gentleman will belt up for a minute, I can tell him where he is wrong. I am not saying that all investment income is bad or wrong. I am saying that it would be wrong, in terms of priorities, to spend possibly up to £90 million in giving relief in this area when ordinary working people are having to take cuts in their living standards. That is all I am saying.
  Mr. Newton: I do not want to indulge in a frivolous exchange, but may I put to the Chief Secretary the point that many people put to me with regard to sacrifices? They come to me complaining—I think quite rightly—about these problems. They say "I forwent consumption in order to build up this capital. I made my sacrifices, when I could have spent money and enjoyed a good standard of living, in order to build up for the future. Now I find that the capital is taken into account, so that I do not get supplementary benefit and I pay extra tax." I find that unanswerable.
  Mr. Barnett: The hon. Gentleman, who is usually very courteous in these matters, has not listened to a word I said. If he had saved in that way I would say that he had done a first-class job and

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  would be happy to compliment him. What I am not prepared to do is to recommend to the Committee that we should increase the investment income relief from investment income surcharge from £1,000 to £2,000, which is what the main amendment is asking me to do. That is all I am saying. I am not making any enormous claims.
  Concerning the incapacitated and the physically handicapped, the hon. Gentleman and the hon. Lady both made a passionate plea. They are wrong, first of all, in saying that we have done nothing in this area. The increases in personal allowances will help them as well as anybody else, and equally the widow with children. One hon. Gentleman recognised that the main problem is the single parent family, the widow with children, rather than the young widow with no children. That kind of person is helped substantially by what we have done in recent Budgets to ensure that the personal tax allowance for that widow will be the same as for a married man. That is the area in which the relief needs to be given, and not necessarily on what the hon. Gentleman, the hon. Lady and others were seeking to do. In my view what they seek to do is not the best way in which to help that kind of person. We have done a great deal in the way of increasing the widow's pension and personal allowance, and that is the best way to help.
  There were a number of other amendments moved—
  Mrs. Chalker: Would the right hon. Gentleman not accept that there is an essential difference between the widow with children who is on a pension and the separated or divorced woman receiving maintenance which is judged as investment income? In the one case she is not liable for earned income relief. In the other case the same situation does not apply. Will he look into this matter again?
  Mr. Barnett: We have indeed looked at it and given additional relief for the woman on maintenance income, and £1,000 has been added to the £1,000 relief applying already, so there is £2,000 of investment income relief already for that woman. Perhaps the hon. Lady had not appreciated that, but it is so.
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  Amendment No. 21, in the name of the hon. Member for Braintree, would extend to all widows the higher investment income surcharge relief of £1,500 applicable to elderly people, and that would cost only £1½ million. I think that the hon. Gentleman called in aid my hon. Friend the Member for Gravesend (Mr. Ovenden), who is not in the Chamber at present. But my hon. Friend was speaking about widows generally—not widows who happen to have investment income in excess of £1,000 a year. I doubt whether it would be reasonable to call him in aid in that respect.
  The fact is that while one could make this concession comparatively cheaply, in that way we would be differentiating between categories of people. While we all know that there are many widows—and one has a great deal of sympathy for all widows, particularly those left to bring up young children—there are also many spinsters and others, for whom we could feel equally sorry, who have spent their lives looking after elderly parents and then been left on their own. To start differentiating in this way would be wrong. The way to deal with the matter is on the basis of income. That is the best way, and that is why a progressive tax system, by the way in which it deals with it, by taxing the income itself, is the best way.
  Mr. Newton: I should like to make it absolutely clear that I was not suggesting that the hon. Member for Gravesend (Mr. Ovenden) supported my proposal. I said that he had made a number of points about widows. I would not want anyone to feel that I was trying to give the impression that he supported the amendment.
  Mr. Barnett: I am obliged to the hon. Gentleman.
  The other amendment in the name of the hon. Gentleman Amendment No. 20 would not be very costly either. It would reduce the qualifying age for the investment income surcharge special threshold of £1,500 for the elderly to 60 instead of 65. This would cost £1 million. The reason why I cannot, I am afraid, recommend that arises from the same argument about discrimination. I should have thought that it would be quite wrong to start discriminating in this way through the tax system to seek to help particular

  401
  groups of taxpayers. The best way to deal with the matter is to deal with it on income.
  I hope that my hon. Friends will not support this series of amendments, much as many of them may want to try to help those with small investment incomes. The fact is that, given the problem of priorities that we face, the problem of the fact that we are having to ask ordinary working people to bear substantial burdens, it is asking too much that we should be asked to increase the tax relief for those with investment income.
  Mr. David Howell: We do not expect much from Labour Governments to help with income from savings and capital. We got even less than we expected, for the obvious reason that the Labour Party—the Chief Secretary, apparently, by his outlook, and certainly his hon. Friends below the Gangway—is against capital. Labour Members are against savings and capital ownership. They disapprove of the growth of ownership in the hands of working people. They hold that view, and they have thrust it down the throats of the working people of Britain, to the infinite disadvantage of British workers and people who have saved during their lives to secure a bit of savings income. That is why, as compared with their continental counterparts, thanks to the guidance of people such as the Chief Secretary and Labour Members below the Gangway, there are less savings and fewer assets and there is less economic independence in the hands of British working people than in the hands of their continental counterparts.
  I found the catechism from the Chief Secretary about the way in which working people were unable to accumulate savings and capital—as though he did not approve of them accumulating savings—humiliating and unsavoury.
  Why are ordinary working people not in a position to accumulate savings? They try to save, even in present circumstances. Why do they not save more? Because the Government passionately believe that capital is a hostile element which should be penalised at every stage. That is the thinking behind what the Chief Secretary said.
  The penalties which we pay for this deep prejudice in the Labour mind are very high. First, there is the belief,
  402
  repeated by the Chief Secretary seven times—I counted them during his speech—that, if the amendment were passed, he, the Labour Party, or whoever dispenses the good gifts from Whitehall, would in a sense be giving cash and resources to a certain group of people in our society—those living on investment income.
  The right hon. Gentleman said that if it were a question of priorities and sacrifices, those people should make sacrifices, too. What does he think they have been doing for the last three years? What does he think has happened to the capital element that they saved up? What does he think has happened to the income which they are drawing as they struggle to carry on against higher income tax and with no compensation for inflation? Those people have made enormous sacrifices already.
  As some of the amendments indicate, the £2,000 ought long since to have been raised, to keep it where it should be in real terms, to £2,600 or more. All the other figures ought long since to have been raised to keep them vaguely where they should be to preserve the real value of the income they were producing two or three years back. The sacrifices in this area, as with middle management which we debated earlier, have been out of all proportion to the small percentage fall in the standard of living of the average taxpayer and wage earner.
  We heard from my hon. Friends the Members for Braintree (Mr. Newton) and Wallasey (Mrs. Chalker) about some of the sacrifices which have been made. The Chief Secretary said that there had been a concession on maintenance income. Let us look at that concession. The divorced or separated woman with a family who receives maintenance income of £40 a week—about two-thirds of the average wage—pays tax at 50 per cent. That is the concession which has so bravely been given by the Government. It is disgraceful—scandalous—that that burden should be imposed on the divorced or separated woman who is struggling to bring up a family. That is done to satisfy the prejudices and dogma of Labour Members below the Gangway. The word "investment" chokes in their throats. This situation should choke in their throats. The Chief Secretary should reclassify maintenance income, if nothing else, as earned income rather than investment income and

  403
  thereby change this disgraceful and pathetic situation.
  Many of these people are on £40 a week—two-thirds of the average wage—and yet the Chief Secretary, the hon. Member for Liverpool, Walton (Mr. Heffer) and other hon. Gentlemen opposite lecture us about making sacrifices. These people have made their sacrifices. We do not accept that there is some additional sacrific to be made by those who have already taken an enormous cut in their often humble and miserable living standards in order to satisfy the feelings of hon. Gentlemen opposite. We believe that great sacrifices have been made by tens of thousands of people with modest investment incomes.
  If the Chief Secretary cannot accept that or if he believes that those who have

  Division No. 130.]

  AYES

  [12.15 p.m.

  Amery, Rt Hon Julian

  Hall, Sir John

  Neave, Airey

  Arnold, Tom

  Hall-Davis, A. G. F.

  Neubert, Michael

  Atkins, Rt Hon H. (Spelthorne)

  Hampson, Dr. Keith

  Newton, Tony

  Awdry, Daniel

  Hannam, John

  Nott, John

  Baker, Kenneth

  Harrison, Col Sir Harwood (Eye)

  Page, Rt Hon R. Graham (Crosby)

  Beith, A. J.

  Holland, Philip

  Paisley, Rev Ian

  Bennett, Dr Reginald (Fareham)

  Hooson, Emyln

  Pardoe, John

  Benyon, W.

  Howe, Rt Hon Sir Geoffrey

  Parkinson, Cecil

  Berry, Hon Anthony

  Howell, David (Guildford)

  Penhaligon, David

  Biffen, John

  Howells, Geraint (Cardigan)

  Percival, Ian

  Biggs-Davison, John

  Hunt, David (Wirral)

  Powell, Rt Hon J. Enoch

  Boscawen, Hon Robert

  Irving, Charles (Cheltenham)

  Pym, Rt Hon Francis

  Bottomley, Peter

  Johnson Smith, G. (E Grinstead)

  Raison, Timothy

  Boyson, Dr Rhodes (Brent)

  Johnston, Russell (Inverness)

  Rathbone, Tim

  Brown, Sir Edward (Bath)

  Jopling, Michael

  Rees, Peter (Dover & Deal)

  Bryan, Sir Paul

  Kershaw, Anthony

  Renton, Tim (Mid-Sussex)

  Buck, Antony

  Kilfedder, James

  Ridley, Hon Nicholas

  Budgen, Nick

  King, Evelyn (South Dorset)

  Ridsdale, Julian

  Butler, Adam (Bosworth)

  King, Tom (Bridgwater)

  Rifkind, Malcolm

  Carson, John

  Kitson, Sir Timothy

  Rippon, Rt Hon Geoffrey

  Chalker, Mrs Lynda

  Knight, Mrs Jill

  Roberts, Michael (Cardiff NW)

  Channon, Paul

  Lamont, Norman

  Roberts, Wyn (Conway)

  Clark, Alan (Plymouth, Sutton)

  Lane, David

  Ross, Stephen (Isle of Wight)

  Clark, William (Croydon S)

  Lawrence, Ivan

  Ross, William (Londonderry)

  Cockcroft, John

  Lawson, Nigel

  Rossi, Hugh (Hornsey)

  Cope, John

  Le Merchant, Spencer

  Sainsbury, Tim

  Corrie, John

  Lester, Jim (Beeston)

  St. John-Stevas, Norman

  Costain, A. P.

  Lewis, Kenneth (Rutland)

  Shelton, William (Streatham)

  Crouch, David

  Luce, Richard

  Shepherd, Colin

  Dodsworth, Geoffrey

  McCrindle, Robert

  Sims, Roger

  Drayson, Burnaby

  McCusker, H.

  Sinclair, Sir George

  Dunlop, John

  Macfarlane, Neil

  Skeet, T. H. H.

  Durant, Tony

  MacGregor, John

  Smith, Cyril (Rochdale)

  Elliott, Sir William

  Macmillan, Rt Hon M. (Farnham)

  Spicer, Michael (S Worcester)

  Eyre, Reginald

  McNair-Wilson, M. (Newbury)

  Sproat, Iain

  Finsberg, Geoffrey

  Marshall, Michael (Arundel)

  Stanbrook, Ivor

  Fisher, Sir Nigel

  Marten, Neil

  Stanley, John

  Fookes, Miss Janet

  Mates, Michael

  Steel, David (Roxburgh)

  Forman, Nigel

  Mawby, Ray

  Stewart, Ian (Hitchin)

  Fox, Marcus

  Maxwell-Hyslop, Robin

  Stokes, John

  Fry, Peter

  Meyer, Sir Anthony

  Stradling Thomas, J.

  Gilmour, Sir John (East File)

  Miller, Hal (Bromsgrove)

  Tapsell, Peter

  Glyn, Dr Alan

  Mills, Peter

  Taylor, Teddy (Cathcart)

  Godber, Rt Hon Joseph

  Miscampbell, Norman

  Thatcher, Rt Hon Margaret

  Goodhart, Philip

  Mitchell, David (Basingstoke)

  Thomas, Rt Hon P. (Hendon S)

  Goodhew, Victor

  Molyneaux, James

  Vaughan, Dr Gerard

  Gow, Ian (Eastbourne)

  Monro, Hector

  Viggers, Peter

  Gower, Sir Raymond(Barry)

  Montgomery, Fergus

  Wainwright, Richard (Colne V)

  Gray, Hamish

  Morrison, Charles (Devizes)

  Wakeham, John

  Grist, Ian

  Morrison, Hon Peter (Chester)

  Welder, David (Clitheroe)

  Grylls, Michael

  Mudd, David

  Walker. Rt Hon P. (Worcester)

  by no means made the same sacrifices—this is the theme of the arguments of hon. Gentlemen—should in some way come first in the queue, all I can say is that the time is coming for everyone, evcept that narrow little clique in the Labour Party which still lives in the past, for a new scale of values in which the rewards of capital and saving are properly recognised.
  This modest amendment, which hardly begins to put the situation back to where it should be, let alone to build a proper capital and earning democracy, should be accepted. The Chief Secretary is on the wrong track, as both he and his hon. Friends will find before very long.
  Question put, That the amendment be made:—
  The Committee divided: Ayes 161, Noes 192.

  Wall, Patrick

  Winterton, Nicholas

  Weatherill, Bernard

  Wood, Rt Hon Richard

  TELLERS FOR IHE AYES

  Wells, John

  Young, Sir G. (Ealing, Acton)

  Mr. Carol Mather and

  Wiggin, Jerry

  Younger, Hon George

  Mr. Fred Silvester

  NOES

  Archer, Peter

  Ginsburg, David

  Price, William (Rugby)

  Armstrong, Ernest

  Graham, Ted

  Reid, George

  Atkins, Ronald (Preston N)

  Grant, John (Islington C)

  Richardson, Miss Jo

  Atkinson, Norman

  Grocott, Bruce

  Roberts, Albert (Normanton)

  Bain, Mrs Margaret

  Hamilton, James (Bothwell)

  Roberts, Gwilym (Cannock)

  Barnett, Rt Hon Joel (Heywood)

  Hardy, Peter

  Robertson, John (Paisley)

  Bates, Alf

  Harrison, Walter (Wakefield)

  Roderick, Caerwyn

  Bean, R. E.

  Hart, Rt Hon Judith

  Rodgers, George (Chorley)

  Bennett, Andrew (Stockport N)

  Henderson, Douglas

  Rodgers, William (Stockton)

  Bidwell, Sydney

  Hooley, Frank

  Rooker, J. W.

  Blenkinsop, Arthur

  Horam, John

  Roper, John

  Boardman, H.

  Huckfield, Les

  Rose, Paul B.

  Bottomley, Rt Hon Arthur

  Hughes, Rt Hon C. (Anglesey)

  Ross, Rt Hon W. (Kilmarnock)

  Bray, Dr Jeremy

  Hughes, Robert (Aberdeen N)

  Sandelson, Neville

  Brown, Hugh D. (Provan)

  Hughes, Roy (Newport)

  Selby, Harry

  Brown, Robert C. (Newcastle W)

  Hunter, Adam

  Shaw, Arnold (Ilford South)

  Buchan, Norman

  Irvine, Rt Hon Sir A. (Edge Hill)

  Sheldon, Robert (Ashton-u-Lyne)

  Buchanan, Richard

  Irving, Rt Hon S. (Dartford)

  Shore, Rt Hon Peter

  Callaghan, Jim (Middleton & P)

  Jackson, Colin (Brighouse)

  Silkin, Rt Hon John (Deptford)

  Campbell, Ian

  Jackson, Miss Margaret (Lincoln)

  Silkin, Rt. Hon S. C. (Dulwich)

  Canavan, Dennis

  Jenkins, Hugh (Putney)

  Sillars, James

  Cant, R. B.

  Johnson, James (Hull West)

  Silverman, Julius

  Carmichael, Neil

  Jones, Barry (East Flint)

  Skinner, Dennis

  Cartwright, John

  Judd, Frank

  Smith, John (N Lanarkshire)

  Cocks, Michael (Bristol S)

  Kaufman, Gerald

  Snape, Peter

  Coleman, Donald

  Kelley, Richard

  Spearing, Nigel

  Colquhoun, Ms Maureen

  Kilroy-Silk, Robert

  Spriggs, Leslie

  Conlan, Bernard

  Lambie, David

  Stallard, A. W.

  Cook, Robin F. (Edin C)

  Lamborn, Harry

  Stewart, Donald (Western Isles)

  Corbett, Robin

  Lamond, James

  Stott, Roger

  Cox, Thomas (Tooting)

  Latham, Arthur (Paddington)

  Strang, Gavin

  Craigen, J. M. (Maryhill)

  Lewis, Ron (Carlisle)

  Summerskill, Hon Dr Shirley

  Crawford, Douglas

  Lyons, Edward (Bradford W)

  Taylor, Mrs Ann (Bolton W)

  Crawshaw, Richard

  Mabon, Dr J. Dickson

  Thomas, Dafydd (Merloneth)

  Cryer, Bob

  McCartney, Hugh

  Thomas, Ron (Bristol NW)

  Cunningham, Dr J. (Whiteh)

  McElhone, Frank

  Thompson, George

  Davidson, Arthur

  Macfarquhar, Roderick

  Tinn, James

  Davies, Bryan (Enfield N)

  Mackenzie, Gregor

  Torney, Tom

  Davies, Denzil (LlanelN)

  Mackintosh, John P.

  Urwin, T. W.

  Davies, Ifor (Gower)

  McMillan, Tom (Glasgow C)

  Varley, Rt Hon Eric G.

  Davis, Clinton (Hackney C)

  McNamara, Kevin

  Wainwright, Edwin (Dearne V)

  Deakins, Eric

  Madden, Max

  Walker, Harold (Doncaster)

  Dean, Joseph (Leeds West)

  Magee, Bryan

  Walker, Terry (Kingswood)

  Dempsey, James

  Marks, Kenneth

  Ward, Michael

  Doig, Peter

  Marshall, Dr Edmund (Goole)

  Watkinson, John

  Dormand, J. D.

  Maynard, Miss Joan

  Watt, Hamish

  Duffy, A. E. P.

  Millan, Bruce

  Weetch, Ken

  Dunnett, Jack

  Miller, Dr M. S. (E Kilbride)

  Welsh, Andrew

  Eadie, Alex

  Miller, Mrs Millie (Ilford N)

  White, Frank R. (Bury)

  Edge, Geoff

  Molloy, William

  White, James (Pollok)

  Ellis, John (Brigg & Scun)

  Moonman, Eric

  Whitehead, Phillip

  Evans, Fred (Caerphilly)

  Morris, Alfred (Wythenshawe)

  Whitlock, William

  Evans, Gwynfor (Carmarthen)

  Murray, Rt Hon Ronald King

  Wigley, Dafydd

  Ewing, Harry (Stirling)

  Newens, Stanley

  Williams, Sir Thomas

  Faulds, Andrew

  Noble, Mike

  Wilson, Alexander (Hamilton)

  Fernyhough, Rt Hon E.

  Oakes, Gordon

  Wilson, Gordon (Dundee E)

  Flannery, Martin

  Ogden Eric

  Wilson, William (Coventry SE)

  Fletcher, Ted (Darlington)

  O'Halloran, Michael

  Wise, Mrs Audrey

  Ford, Ben

  Orbach, Maurice

  Woodall, Alec

  Forrester, John

  Orme, Rt Hon Stanley

  Woof, Robert

  Fraser, John (Lambeth, N'w'd)

  Padley, Walter

  Wrigglesworth, Ian

  Freeson, Reginald

  Palmer, Arthur

  Young, David (Bolton E)

  Garrett, W. E. (Wallsend)

  Pavitt, Laurie

  TELLERS FOR THE NOES:

  George, Bruce

  Pendry, Tom

  Mr. Joseph Harper and

  Gilbert, Dr John

  Phipps. Dr Colin

  Mr. David Stoddart.

  Clause 21 ordered to stand part of the Bill.

Clause 24

  CORPORATION TAX: OTHER RATES AND FRACTIONS
  Mr. David Mitchell: I beg to move Amendment No. 39, in page 14, line 24, leave out "42 per cent." and insert
  "shall be three quarters of the standard rate of corporation tax as Parliament may from time to time determine".
  The Deputy Chairman: With this Amendment we may discuss the following amendments;
  No. 38, in page 14, line 24, leave out "42" and insert "35".
  No. 40, in page 14, line 24, leave out "42", and insert "25".
  No. 41, in page 14, line 30, leave out "£30,000" and insert "£35,000".
  No. 42, in page 14, line 30, leave out "£30,000" and insert "£50,000".
  No. 43, in page 14, line 30, leave out "£30,000" and insert "£100,000".
  No. 44, in page 14, line 31, leave out "£50,000" and insert "£80,000".
  No. 45, in page 14, line 31, at end insert—
  "Provided always that if by 5th April 1977 the official Retail Prices Index shall have risen by more than 5 per cent. since 6th April 1976 then the Treasury shall by order substitute for the said sums of "£30,000" and "£50,000" such higher sums as shall increase the said sums of "£30,000", and £50,000" by a percentage equal to the percentage rise of the official Retail Price Index between the last date on which it was announced before 6th April 1976 and the last date it shall be announced before 5th April 1977."
  Mr. Mitchell: The purpose of Amendment No. 39 is to reduce the rate of corporation tax paid by small businesses to three-quarters of the standard rate. Taking the standard rate as 52 per cent. as it is today, that would mean that the small business rate would be 39 per cent.—a reduction of 42 per cent. from the current level.
  To understand the reasons behind the amendment it is necessary to consider the peculiar, separate and different financial position of a small business. It has to rely on the retention of profits and bank borrowings to meet the three categories of expenses to make up for
  408
  the inroads of inflation, the give the company that degree of financial security which safeguards employment, and to finance expansion. I hope that the Treasury will accept the argument for this reduction.
  Inflation is not allowed against tax, even with the present generous stock relief and investment allowances. Extra working capital is needed for financing debtors, improving commercial buildings and financing exports. That is important because the Government are seeking a switch to a higher proportion of export trade. When exporting, a business has to give longer credit terms than for internal trade, and there is no allowance for repaying bank borrowings to do that.
  Money to finance job security is required to improve the financial strength of the company. That is one of the major financial needs throughout industry. Companies have been through a difficult period. Many had geared themselves for higher production levels, borrowed substantial sums of money, and then found a collapse in demand as trade receded, and they were left with substantial borrowings which had to be serviced. Therefore, they have been short of money.
  There is a crying need to build up the financial strength of industry if jobs are to be made secure. Large companies do that through the Stock Exchange. In the last 12 months £1,270 million has been raised by large companies through rights issues on the Stock Exchange. But what happens to the small business which has the same need? Where does the small business get the money? It cannot go to the Stock Exchange for it, so it must get it by ploughing back its profits.
  12.30 a.m.
  Therefore, there is a need to see that the tax levied on those profits which are ploughed back is considerably lower than it is today. In Germany, one of our competitors, the rate of corporation tax on ploughed-back profits is 22 per cent. My hon. Friends and I have been very moderate. We have suggested that the Government should reduce the rate to 39 per cent., three-quarters of the standard rate. I hope that the suggestion will be accepted.
  My third reason is that the Government hope for and expect an expansion of trade during the coming year. Small

  409
  businesses get their money from ploughing back and borrowing. The extent to which they can borrow from the bank is limited by the proprietor's equity stake in the business. Unless there is a bigger equity base in the business, one cannot borrow more—the banks will not lend. Therefore, to enable companies to be in a position to finance their expansion we must build up their equity base. That means leaving more money in the business, taking out less in corporation tax.
  I turn to the case for the definition of a small business for the purposes of small business relief being enlarged. Now I am talking about Amendment No. 42 and the other later amendments. The question before the Committee is how to define a small business. Does one define it with profits ending at £30,000, as the Government propose, or with profits ending at £50,000 or £100,000, as my hon. Friends and I have suggested in alternative amendments?
  The sum of £30,000 pre-tax profits is not nearly enough, because the peculiar position of smaller unquoted companies is that they can obtain their working capital only through retentions. The company which is just over the level for small business corporation tax relief is paying 50 per cent.
  I shall not embarrass the Chief Secretary by quoting at length from his speeches during the passage of the 1972 Finance Act. A Select Committee had been looking into whether we should change to the imputation system or retain what the right hon. Gentleman is pleased to call the classic system of corporation tax. The Select Committee found that the Inland Revenue accepted that companies which had to rely on retained profits for expansion would be adversely affected by that change. The right hon. Gentleman went out of his way, speaking from the Opposition Benches, to say that the rate of corporation tax paid by those companies was being increased by 25 per cent. That is one way of describing it. It certainly was an increase from 40 per cent. to 50 per cent. He opposed it, I believe rightly.
  Tonight the Chief Secretary has the opportunity to carry his opposition to the increased taxation on ploughed-back profits of small businesses to the point at which he can put right the wrong that
  410
  he believed was committed in 1972. Accordingly, I invite him to support our amendment taking the definition up to £50,000 or the logical one taking it up to £100,000, as one cannot hope to obtain a Stock Exchange quotation even at that figure.
  The best way to achieve the aim of expanding small businesses is to reduce the level of corporation tax levied on them and the size of company to which that benefit applies. Therefore, I ask the right hon. Gentleman to accept the amendments.
  Mr. Younger: I wish to add two comments which I hope will persuade the Chief Secretary to look on these amendments favourably. I hope that he will not think this year that this is a normal routine exercise to probe the intentions of the Government towards small businesses. This year something more has to be done for small businesses if the Government are to achieve their objective of an expansion in the economy and particularly an increase in our exports.
  As I am sure the Chief Secretary will know, it is a fact of our economy that we forget at our peril that a large proportion of the economic success or failure or the country depends not on the big names or huge companies about which we hear a lot in the news, but on a multitude of small businesses. They are of all sorts and sizes and they are in all parts of the country and they make all sorts of things and are involved in all sorts of activities. It is on their success and prosperity that much of the Government's aims will depend.
  I emphasise what has been said about what an essential part in their success is played by their being able to have the maximum retention for expanding or financing operations. The difficulties that small companies have in financing operations are great at any time, but particularly at this time, as I am sure the Chief Secretary will agree, when inflation is at a totally unprecedented level and when it is almost impossible for small companies to keep their heads above water, let alone cope with new problems.
  It is my experience that all small companies—certainly all the business men to whom I have spoken over the past four or five months have said this in the clearest possible terms and with a great

  411
  deal of detail—are anxious about what will happen when the economy begins its up-turn. Their anxiety is about how they will be able to find the resources to cope with expansion. They are not crying "Wolf". They genuinely want to be able to feel that they will be able to respond to the expansion in the economy, and at the moment they are genuinely unable to put their fingers on the means to do so.
  I am not referring to companies in great difficulties, companies that are badly managed or in other difficulties that would be a problem at any time. I am speaking of the small companies that are highly successful, that have been able to do good business even in difficult times, small companies that are well managed. I hope that the Chief Secretary will regard this as a serious attempt to advise the Government how things stand and to say that if they make no alteration, the contribution by small businesses to the expansion that we all want will be inadequate or, worse, may not occur at all.
  I should like to mention the small scale on which small businesses operate. It is easy for us, thinking as we do of matters at a national level, to concentrate our attention on the large companies in our constituencies, those employing the majority of our constituents and requiring a great deal of attention. We tend to forget the small scale upon which small businesses have to operate. It is not so much that the difficulties of modern business, the administration of the tax system, and the returns which have to be made by all businesses, are in any way different for small businesses, but large or medium-sized businesses have much larger resources in personnel, equipment, and machinery with which to deal with these things.
  Small businesses inevitably rely on a small number of people operating in a limited time to try to keep up the standards required of them. In this regard it is absolutely critical that we should do our best to help them by allowing them to retain as much of their profits as possible.
  It would be an imaginative concept for the Government to allow a three-quarter rate of corporation tax for small businesses. I accept that this would be,
  412
  perhaps, just a temporary measure. I would not necessarily expect it to be brought in for all time. But at this time, unless the Government do something more, small businesses are not going to be able to respond—however willing they may be—to what the Government want them to do, and that would be a tragedy for them and for the Government, too.
  Mr. Pardoe: I want to refer specifically to Amendments Nos. 42, 44 and 45. Amendment No. 42 has already been mentioned by the hon. Member for Basingstoke (Mr. Mitchell), my right hon. and hon. Friends and I put down this amendment. I agree with everything the hon. Member said about raising the threshold for small company relief. Basically, Clause 24 amends Section 95 of the Finance Act 1972, which provides for the mitigation of corporation tax liability on small companies.
  Originally the mitigation was for companies with profits under £15,000. This figure was raised to £25,000 in 1974—and two years is a pretty long gap; the rate of inflation being what it is, we need it raised every year—and now we have an increase to £30,000. This is a pathetically small increase in face of inflation.
  There is no doubt that small companies need to plough back profits in order to grow, and we should not think of hitting those companies which achieve profits of over £30,000. I think that we should raise the limit to £50,000 because there should be serious consideration of the facts of British industrial performance. Perhaps the limit should be raised much more, or perhaps the whole of corporation tax should be abandoned for a band of companies at the lower level.
  What would be the cost? We are talking about 95 per cent. of the companies in this country, which are not paying corporation tax, or paying the small company rate, or getting the marginal relief. Only about 5 per cent. pay the full amount. The total revenue involved in small company relief is around £250 million—that is what the Treasury estimates this year.
  If we bring in marginal relief, the total cost will be about £400 million. Is there any other section of the whole tax structure where, with expenditure of between £250 million and £400 million we could

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  make a more direct and instant impact on the industrial performance and growth rate of the British economy and exports? I hope that the response from the Chief Secretary will be that the Treasury is beginning to think along those lines and that we shall see proposals to that effect.
  12.45 a.m.
  Amendment No. 45 is an indexation amendment. It is late—or perhaps at this stage I should say early—in the day to deploy the full argument for indexation. In any case I do not have the support or presence of the hon. Member for Blaby (Mr. Lawson), and how could anyone talk about indexation without the hon. Member being here? That would be like Hamlet without the prince.
  Whatever protestations we hear from the Chief Secretary about how every year he and his officials carefully look over all these amounts and assess them against the Retail Price Index, upgrading and updating the figures, we know only too well that Governments never do that every year. We see that the allowances have been left to fester, and it is time that Parliament insisted that Governments gave it the real figures.
  If after indexation they wanted to propose a reduction in the threshold at some future date, that would be the subject of a different debate. It would, however, be wise to write an indexation provision in to the whole subject of mitigation for small companies from corporation tax, and that is what Amendment No. 45 seeks to do.
  Mr. Nott: The Committee owes a considerable debt of gratitude to my hon. Friend the Member for Basingstoke (Mr. Mitchell) for the relentless way in which he pursues the cause of the small company. Perhaps I should declare an interest in that I am a shareholder and the chairman of a small company which benefits from the lower rate of corporation tax. I should be delighted if the threshold could be raised and also if the suggestions by the hon Member for Cornwall, North (Mr. Pardoe) could be accepted by the Government.
  As was fully recognised in the report of the Select Committee, the small company is in a different situation from the larger company. I am well aware of the arguments that we had in the 1972 de-
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  bates in Committee, and I have read what the right hon. Member for Heywood and Royton (Mr. Barnett) said and what my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) said in reply from the Government Front Bench. The arguments are much the same now as they were then. The impact of the imputation system remains as it was on the small company. There have been changes in tax which have benefited small manufacturing companies, but the general position of the company sector has deteriorated, although the Chancellor has done something recently to repair the damage he did in the first year of the Labour Government.
  Small companies are not afflicted just by the level of corporation tax. They are hit by the whole range and panoply of bureaucratic regulations and Acts of the past year or so. These have placed an intolerable burden of additional work on small companies. There is the Employment Protection Act and the Health and Safety at Work Act.
  The other day at the company which my friends and I recently established in Bedford the whole process of manufacturing was interrupted by an inspector. He saw a machine which had just been installed. He was strung around with cameras and he took photographs of the machine from every angle. We were quite happy to do whatever he wanted and he was most charming and pleasant about it. But he must have been there for about three or four hours. He held up production and took photographs. The whole thing could have been dealt with in minutes. It is these niggling things which happen in factories throughout the country which upset businessmen.
  My hon. Friend the Member for Basingstoke has made an important point. He is saying that the principle established with the Select Committee and incorporated in the 1972 Act for a lower rate for small companies should be extended. Certainly he made his points fairly and I am sure that the Chief Secretary will wish to answer.
  Mr. Joel Barnett: As I think those who have attended the debates on small companies over the years will know and as the hon. Member for Basingstoke (Mr. Mitchell) knows, I do not have to

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  be persuaded about the value of small companies. I acted for large numbers of small and medium-sized companies and I have and do again declare an interest in that I have share in small companies. I am well aware of the value of this type of company.
  I much appreciate what the hon. Member for St. Ives (Mr Nott) said about niggling things which upset small manufacturing companies. I am told of examples by friends of mine and if the hon. Member cares to approach the responsible Minister—it sounds like the Department of Employment—and mention the point, I am sure—I hope—that somebody will be interested to see that it does not happen again.
  Mr. Nott: The only principle which motivates me as an individual in business is to keep the furthest possible distance from Government and anything to do with it.
  Mr. Barnett: The hon. Member is not quite fair. If there are circumstances in which there are difficulties for small companies, most Ministers would be happy to look into them to see whether they can help. I am sure that will have been the hon. Gentleman's experience in Government.
  Perhaps I may mention the costs involved. Amendment No. 39—to insert three-quarters of the standard rate of corporation tax—would cost about £30 million and No. 38 would cost about £70 million.
  Mr. David Mitchell: When the matter was discussed on Second Reading, the Minister indicated—column 885 of Hansard—that the vast majority of companies did not pay corporation tax. How does he find so large a cost for our moderate amendment?
  Mr. Barnett: Because the vast majority of companies do not pay corporation tax, and I shall be coming to that. That applies even more today, because the vast majority of companies are small companies, many of which do not pay corporation tax at all and their very small profits are distributed to the directors, reasonably and properly, and they plough back the profits. It is argued that that is what happens in most small companies.
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  I do not dispute that, and I am glad that the hon. Member noted what I said about imputation and the classical system. I do not claim ownership of the definition of the difference between the system we had, the classical system, and imputation.
  Small companies in the main obtain their financial requirements from ploughed-back profits. Most companies, including public companies, get most of their investment from ploughed-back profits. This applies especially to small companies because they do not have the facilities to go to the market or to raise money by debentures or fixed interest loans; nor can they raise the same amounts from the banks by ovedraft as can large concerns. I am well aware of their problems.
  The main reason we have done nothing about switching to the classical system is that although the shareholders and directors of small companies might prefer it, they would prefer even more strongly to have no change and to have stability in the tax system as it affects them. Hon. Members who have spoken in the debate have underestimated how much has already been done for trading companies. The hon. Member for St. Ives said we had done something to help manufacturing companies, but he was less than generous. It is help for trading as well as manufacturing companies, and it is more than "something".
  It is generally recognised in industry, the City and elsewhere that the stock relief and the 100 per cent. first year capital allowance can mitigate the worst effects of the imputation system for small manufacturing and trading companies. I recognise that it does nothing for small financial, investment, or property companies, but we are seeking to help small trading companies and, with these generous allowances, the vast majority of small companies—even if they previously paid corporation tax—will pay no corporation tax if they are increasing investment in stocks and capital.
  Mr. John Cope: Is the Chief Secretary aware that a large part of what he claims to be the benefit of stock relief only undoes the damage of inflation, which has pushed up the tax bills of companies because, with

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  the vast increase in inflation, their stock has increased in value?
  Mr. Barnett: I do not agree with the hon. Member. The kind of stock relief we have chosen does not deal only with the inflation element. If a small company is expanding and building up its volume of stocks, it will certainly not pay corporation tax. A rapidly expanding small trading company will be helped to an even greater extent. I know of a company which has had a colossal growth in the past two or three years and which, despite a substantial growth in profits, has paid hardly any corporation tax.
  Mr. Cope: I accept what the Chief Secretary says about individual companies, The effect varies from company to company, according to what they are doing, but the general effect in the company sector is as I have described it.
  Mr. Barnett: I do not accept that.
  A reduction in the rate of corporation tax is a wholly non-selective way of helping those we wish to help. It would help all small companies. I am not saying that investment or financial companies are bad, but we want to help particularly the small trading and manufacturing companies.
  Because of the imputation system and the way corporation tax has worked in the past, there are not that many individuals seeking to go into small financial, investment or even property companies and there are substantial tax disadvantages in so doing. These are not the sort of companies we are most seeking to help. My view is that if we want to give selective help to trading and manufacturing companies, the way to do it is as we have done it—namely, through stock relief and 100 per cent. capital allowances.
  I say in passing that Amendment No. 40, in the name of the hon. Member for Basingstoke, which seeks to reduce the 42 per cent. to 25 per cent., would cost £165 million. I assume that he does not want to press the amendment. Indeed, he has not spoken to it.
  Mr. David Mitchell: When the right hon. Gentleman indicates the high cost of the amendment he destroys his argument that only a small amount of corporation tax is paid.
  1.0 a.m.
  Mr. Barnett: There are still companies that pay it. I have not suggested that companies no longer pay corporation tax. However, the relief has been substantial for trading and manufacturing companies. It is generally recognised as being substantial. They are the companies that will have been paying either none or much less than would otherwise be the case.
  The next group of amendments that has been referred to by the hon. Member for Cornwall, North (Mr. Pardoe) and others relate to limits. I think that the hon. Gentleman described the increase we have made as pathetically small. I agree that it is not a massive increase, but it will cover over 95 per cent. of companies. It surely is not reasonable to say that it is a pathetically small increase.
  If we went as far as has been suggested, if we did away with corporation tax altogether or reduced the tax for small companies to negligible proportions, on the lines of some amendments, it would be necessary to bear in mind that many small businesses are not limited companies. Many of them trade as partnerships, for example, and many of them are highly successful. If we were giving substantial relief in reducing the effective rate of tax for small companies, we should have to think in terms of giving additional relief to small traders and small partnerships. It is not unreasonable that we should take account of that factor.
  I hope that the Committee will feel that I have answered most of the points that have been raised. I hope that the hon. Member for Cornwall, North will net expect me once again to deal with indexation, especially in the absence of the hon. Member for Blaby (Mr. Lawson), who has been very upset about my replies on the subject. I hope that the Committee will feel that we have done a great deal in terms of corporation tax relief for small companies. Of course, we shall never be wholly satisfied, and we shall keep the whole matter under constant review.
  Mr. David Mitchell: Will the right hon. Gentleman take up a matter which he has totally ignored so far—namely, the need for small companies to build up their financial strength and repay bank borrowings so as to put themselves

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  in a position that will enable them to borrow again from the banks to finance expansion? That is an important factor. If a large company has taken action in that direction through a rights issue, it will be necessary for small companies to plough back. If they are not offered financial incentives, as the right hon. Gentleman has described them, to take such action, they will not be able to expand.
  Mr. Barnett: The definition that the hon. Gentleman has used gives the answer. He referred to small companies ploughing back profits. When a company enters into additional investment in new stock, for example, it will not pay corporation tax.
  I entirely accept that that company will still have financing problems. Of course it will. But, equally, it is fair to say that bank managers are particularly good with the board of a small company making substantial profits, ploughing them back and not taking very much out. In those circumstances the assets are there as a secure base on which to borrow to a greater extent than the company with no growth record and no assets on which to borrow.
  The answer is implicit in the point the hon. Gentleman made. The kind of company we both seek to help is the one that has ploughed back its profits, and I doubt that a further reduction in corporation tax would particularly help that kind of company.
  Amendment negatived.
  Clause 24 ordered to stand part of the Bill.
  To report progress and ask leave to sit again.—[Mr. Coleman.]
  Committee report progress; to sit again tomorrow.

  NUCLEAR FALL-OUT (SHELTERS)
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Coleman.]
  1.7 a.m.
  Mr. Robert Banks: The object of the debate is to draw attention to the complete lack of information and guidance available to the general public for preparing shelters, and to call on the Government to adopt a policy for protection from nuclear fall-out. The last time a leaflet was available to the general public was in 1963, when its publication was discontinued on the grounds of its cost of some £7,000, and following criticism from the Expenditure Committee.
  No guidelines have been issued by the Government either to the general public or to local authorities to specify the construction technique for providing an area within a new building which offers protection from nuclear fall-out. We live in a nuclear age. The sad chances are that, probably in my lifetime, and certainly in my children's lifetime, we shall all be subjected to exposure from nuclear fall-out. There is no satisfactory therapy available for anyone exposed to a lethal dose of radiation. The only chance of survival is adequate shelter protection, preferably underground.
  The effects of gamma radiation within two miles of an exploded 5 megaton bomb would wipe out 50 per cent. of those unprotected in its vicinity. I hesitate to imagine such a disaster in London and Leeds and what it would do. Protection against radiation is dependent on the thickness of materials making one's protection.
  The fall-out of radioactive nuclear dust, from which we also need vital protection, could travel several hundred miles down wind of the explosion, and is determined by the wind strength and its direction. There are no areas of high or low risk in this country, therefore. While we may not come under nuclear attack in this country, the effects of fallout from a nuclear explosion in, say, Scandinavia, the European mainland or at sea, could have devastating results for us if we do not have adequate shelters for people to go to in our cities, towns and villages.

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  The Home Secretary was asked in February how many shelters against nuclear attack had been built in the last five years. He replied that none had been built at any time.
  Government policy has been to rely on sufficient time being available to mount an intensive mass information campaign only when the international situation merits it. This is, as I understand it, an estimated 72 hours before the explosion. How one makes such a critical estimation is unbelievable. A campaign opening with leaflets being showered over the country, films on television and advice on the radio telling people what sort of shelter to build and to lay in food and water supplies for at least two weeks, and possibly more, would not only lead to utter chaos but itself have profound political repercussions.
  This could indeed escalate a deteriorating situation and thereby reduce the time scale before attack. Can one imagine the queues of people waiting to obtain sandbags and dealing with the problem of getting in food when everyone was trying to do the same thing?
  So for those who prefer to plan well in advance what advice can the Minister offer? What leaflets are available? The report in the Sunday Times of 29th January this year revealed that after 12 years the Central Office of Information was putting finishing touches to a Press campaign to be used in a nuclear emergency. The article expressed concern that the Government's instructions on building shelters and storing food, in a leaflet called "Protect and Survive", would echo the style of the ill-starred previous publication, withdrawn from general publication in 1963.
  I was sent a copy of the new leaflet which was hastily recalled by the Central Office of Information. Will the Minister therefore explain what is going on? Is the new leaflet, "Protect and Survive", about to be released? How many copies exist? Where are they? Does the Minister seriously feel that the advice offered in the leaflet is the best that her Department can produce?
  Why is there all this secrecy? The leaflet, as the newspaper article illustrated, shows pictures of a young man building an inner refuge using his dining
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  room table, around which is heaped furniture, sandbags and cushions, inside which, presumably, he and his family must remain for at least two weeks—ha!—with their supply of water and provisions, without venturing into the rest of the room.
  What the Government must now do without delay is to formulate a sensible policy to provide for shelters and offer sensible advice to the householder for preparing part of his house as an emergency shelter. By that I mean using recommended reinforcements to walls and ceilings in a central space on the ground floor if no cellar exists. The provision of materials for sealing off the space, perhaps under the stairs and part of the hall, should be advised to be kept available.
  The preparedness which is being demonstrated in other countries is in stark contrast to the sandbag and last-minute policy of the Government. Only on Sunday the Foreign Secretary was being shown around the newly constructed labyrinth of bomb shelters under Shanghai. These are tunnels and shelters built under 9 ft. of concrete.
  In Switzerland every new building has a nuclear basement. Every household is required to build and stock its own shelter. There are village shelters and community shelters, and I understand that it is estimated that by the end of this century the entire Swiss population can be sheltered.
  In Sweden certain schools, hospitals and hotels have an obligation to provide shelters. As a rule, flats, offices and business buildings have to be equipped with shelters. When building permits are issued, they carry regulations concerning shelters. Large community shelters can be used as gymnasiums or shooting ranges, or for some other activity.
  In this country local authorities should now be directed to review what shelter facilities exist and could be speedily adapted in a crisis, and what steps they could take now in preparation. I refer, for instance, to the installation of steel doors at the entrances to underground car parks and to the strengthening of basement ceilings in blocks of flats, schools, hospitals and offices. The easy provision of water in large containers plumbed to the system for quick and

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  easy filling is another example of foresight. Such information should be available to architects and builders at the Building Centre in London.
  All this means survival. I believe that only by instigating a policy for proper shelter arrangements and encouraging house owners and communities to make proper preparations can we achieve survival in the event of nuclear fall-out. Safety and survival against nuclear fallout is early and long-sighted preparation.
  I hope that the Minister will now formulate a policy for protection and ensure that full information and guidance are available for people to act on. The Home Department should now provide a list of approved designs for shelters, recommendations for strengthening existing garden shelters left over from the last war and still serviceable, illustrations of indoor shelters inside different types of houses, and the modifications necessary. Those modifications should show the reinforcement to be undertaken now, which should not spoil the appearance of the area, and the final stage of making the refuge on the first alert.
  Underground shelters, for which people are prepared to pay, give the greatest protection. The Home Department should encourage the provision of underground shelters, particularly when new houses are being built on estates. I should like to see regulations making such provision obligatory where no facilities exist within a prescribed area. Large council house estates, particularly those with large tower blocks of flats, are examples where shelters should be established in basements, where they can be adapted, or alternatives found.
  We have been seriously slow not to have made provision for shelters in new buildings. I hope that from today a realistic approach will be established to the age we live in and the dangers that exist for us all.
  1.17 a.m.
  The Under-Secretary of State for the Home Department (Dr. Shirley Summer-skill): I am grateful to the hon. Member for Harrogate (Mr. Banks) for initiating this debate on the need for protection against nuclear fall-out. It is a topic on which there is much misunderstanding. However, I hope that,
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  although this is a short debate, I can dispel some of the misconceptions.
  I propose to concentrate on one or two aspects. First, it is the Government's view that the need for special protective measures against the effects of radioactive fall-out for the inhabitants of the United Kingdom is likely to arise only in the context of an imminent major war.
  Secondly, that need arises irrespective whether this country is a member of NATO. It arises whether or not we have on our soil nuclear weapons of our own or belonging to our Allies. Even neutral non-aligned countries feel obliged to make arrangements for their people, as the hon. Gentleman said. As long as nuclear weapons exist, there is a risk of their being used, with the danger, not just of many deaths from the immediate effects of blast and heat, but of the subsequent casualties from residual gamma radiation. It is this last danger with which this debate is concerned.
  The Government do not minimise or conceal these dangers in any way: indeed, quite the contrary. They have published a booklet, which was revised in 1974 and is obtainable direct from the Stationery Office or through booksellers, called "Nuclear Weapons". This describes, with the minimum of technical or scientific jargon, the effects of nuclear explosions and the ways in which these effects would be minimised.
  The Government, like their predecessors, accept the need for public protection against fall-out. The argument this evening, as I see it, is mainly about the method and the timing. So perhaps the House will bear with me if I say a little about the existing arrangements, which conveniently fall into three groups.
  Because people cannot detect radio-active fall-out by any of the normal senses, the Government maintain a stockpile of special radiac instruments to register its presence and to monitor its rapid decay. These instruments would be issued in a crisis, before hostilities began, to local authorities, the police and other public bodies responsible for essential war-time services. Authorities have been told how many instruments of the different types they would receive from the Government stores, and how they would be collected. County councils in England and Wales, for example, are responsible

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  for subsequent distribution and allocation to local services in the county and for the organisation of local training in the use of these instruments.
  Equally important in the detection and monitoring process, is the United Kingdom Warning and Monitoring Organisation. The organisation is maintained at a high degree of operational readiness. It is staffed by a few civil servants, some considerable assistance from the police, local volunteers recruited by the police and, of course, the Royal Observer Corps.
  I shall spend time describing how this organisation operates. There is in the Library a copy of a recruiting publication called "UKWMO" which sets it all out. The organisation remains a vital part of our civil defence preparations and the Government intend to ensure that its essential functions can be discharged efficiently and at short notice.
  This, then, is the first group of measures; the detection and monitoring of fall-out. The second group concerns what people can and should do to protect themselves and their families; what might be termed the mass-information. It was this aspect which the hon. Member clearly had in mind when he asked a Question to which my right hon. Friend replied on 22nd March.
  For a number of reasons, over the past three decades, public protection in the United Kingdom has been based on people taking cover mainly in their own homes or exceptionally at their place of work. Therefore, the Government have prepared new material to inform the public about the simple measures, which they should take to improve their homes during a crisis. The information would be issued mainly on television with a minimum of text. These pictures would be backed up by radio broadcasts and by announcements in the papers.
  Additionally, material now exists for the printing of a booklet, again with a high visual content, to act as a check-list for the householder, for the action which the TV broadcasts would be advising him to take. This printed material would not be suitable for general issue at the present time, because it is related directly to the TV campaign, which would be started in crisis. Perhaps I should stress that the TV, radio and Press elements could be launched within 24 hours of the Government's decision to do so.
  Mr. Banks: Would the hon. Lady say at what point, before the point of explosion, she would estimate this warning would be given and the leaflets made available?
  Dr. Summerskill: Obviously, as soon as it possibly can be given: at the earliest possible moment. As I said, the television, radio and Press campaign could be launched within 24 hours of the Government deciding to do so.
  Finally, there is a third group of arrangements which create a system of local war-time government. Based on the date supplied by the monitoring system, and against a much greater public understanding of the dangers and the importance of their own protective measures, war-time controllers at the level of the district and London borough councils in England and Wales, would be advising the public when, and for how long each day, it would be safe to emerge from the cover of their homes, without incurring further risk of radiological injury or death. In preparing plans for these arrangements, county councils and the GLC are encouraged, through their emergency planning officers, to assist district and London borough councils in this detailed work. The Government have given local authorities the necessary guidance on the scientific criteria applicable to the radiological risks. Special studies are held for local government and other public officials on this and related civil defence problems at the Home Defence College near York.
  So much for the existing arrangements, and how and when we see the public being involved in their own protection. Perhaps I can now mention some arrangements which we do not have in this country and say why we do not have them. First and foremost, successive Governments have taken the view that, whatever the technical obstacles, which are considerable in many parts of the country, this country could not afford to provide a network of public underground shelters which would give considerable protection against the effects of a nuclear explosion.
  I am aware that countries like Norway, Sweden and Switzerland have extensive public shelter systems. In Sweden, for instance, I am told that there is separate shelter space designed for over 5 million

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  people out of a population of 8 million. The hon. Member may have seen a recent article in a Sunday paper about civil defence shelters in Switzerland. This sort of thing is not possible in the United Kingdom mainly on the grounds of cost and the numbers involved, but also because of the shortage of suitable sites sufficiently close to the major centres of population. I repeat that successive Governments have taken the view that these are substantial obstacles.
  Another solution adopted in some countries is to make laws compelling anyone who erects a factory, office or a house—or perhaps only certain types of building—to provide reinforced accommodation in a basement suitable under fall-out conditions for all the occupants. Such a solution has not been adopted in this country and, of course, it adds significantly to the cost of most buildings, even those where a basement may be a normal feature, as in the case of large office buildings. However, basements these days are rarely to be found in cur domestic architecture, so the financial repercussions on the housing sector would be particularly heavy.
  In some countries, the cost of providing these shelters falls on the developer or builder, who presumably passes it on to the occupier. In others, there is a Government grant for all or part of the extra cost, so that the taxpayer pays, whether there are shelters in the area or not.
  The Government agree with their predecessors that nothing should be done at
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  present for civil defence purposes which would add directly or indirectly to the cost of housing in the public or the private sector. However, I undertake to consider, in consultation with my right hon. Friends, whether the Government, in respect of housing authorities or more generally, might circulate advice on the incorporation in new buildings of suitable low-cost facilities affording fall-out protection.
  Another device is to ensure that all existing buildings are surveyed for their suitability. The Netherlands Government carried out such a survey a few years ago, so that existing accommodation with the best protective qualities can be identified and improved for local public use. The cost of such a survey is considerable and even greater amounts would be required permanently to improve the exits, to control the ventilation and to instal emergency sanitation and supplies of drinking water. It is not that we are unaware of the additional measures which could be taken. So far no Government have been able to find the resources to finance these measures and this Government are no exception.
  I hope that what I have said tonight will convince the hon. Member that the Government are ever mindful of their responsibilities for the welfare of the people in this country, if the worst should happen and the nuclear deterrent should fail to deter.
  Question put and agreed to.
  Adjourned accordingly at half-past One o'clock.