CHARGE OF INCOME TAX FOR 1976–77

HC Deb 11 May 1976 vol 911 cc300-407

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 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 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 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 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 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.

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 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 (St. Ives)

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.

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 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 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. 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 (Down, South)

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, 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 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 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.

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, 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 I do not intend to force the issue to a vote.

Amendment negatived.

Sir Geoffrey Howe (Surrey, East)

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.

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 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 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 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 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 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. 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 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. 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? 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 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. 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 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 (Kingston-upon-Thames)

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 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 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 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 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.

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 (Isle of Ely)

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 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 (Wolverhampton, South-West)

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 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 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. 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.

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 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 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 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 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 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 increased, they feel very squeezed, as indeed they are relative to what they were before.

Mr. A. G. F. Hall-Davis (Morecambe and Lonsdale)

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 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 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 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 (Hertfordshire, South)

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 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 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- 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 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 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 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 (Blaby)

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: 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 (Cannock)

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

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 (Liverpool, Walton)

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- 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 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.] 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 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 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. Budgenrose—

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 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 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 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 (Eastbourne)

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 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, 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 (Wycombe)

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 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.

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. Howerose—

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.

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 (Oswestry)

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 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 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 (Lowestoft)

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- 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.

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'.

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 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 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 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 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 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 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 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 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 (Wallasey)

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 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 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 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 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 (Exeter)

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 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 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.

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. Lawsonrose—

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 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 (Keighley)

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. Goodhewrose—

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 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.

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 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, 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 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.