FINANCE BILL

HC Deb 28 April 1977 vol 930 cc1622-49

Question again proposed, That the Bill be now read a Second time.

Mr. Ridley

After that little break, I should like to turn to the Chancellor. I wish that he were with us, but I understand why he is not. I think it is true to say that the Chancellor has had to be retreaded, retrained. He has had to be retrained in so many things that he is scarcely recognisable as the Chancellor who three years ago came in with all those idiotic economic ideas. He has had to be changed in his attitude to public spending. He has had to be retrained in his attitude to taxation. He has had to be trained in his attitude to economic management.

First of all, on the question of spending, after the Chancellor's orgy of public extravagance when he first came in it is right to pay tribute to him for the way in which he has got cash limits going, he has got public spending under control and has begun to reverse the immense damage that he did in the early part of his Chancellorship. However, it is also fair to refer to the total inadequacy of Parliament's control process over public spending. It is, going through the events of this year, something about which all of us, as Members of the House, should be a little worried.

We got the public expenditure White Paper in two parts. By the time the second part was published, there was a fortnight only before the matter was debated in the House. The General Sub-Committee managed to make a cursory report on the document, and the debate took place on the day after the report was published. The debate took place on the Adjournment, and whether or not hon. Members voted to adjourn or not to adjourn the expenditure goes through. Compared with any of the processes in any legislatures in any other country in the world, this process is an absolute disgrace. The sum of £63 billion went through the House without any opportunity of checking it in total or in detail. It must follow, now that we have allowed that expenditure to form the basis of the Government's spending plans, that all the necessary taxes that have to be raised, the Budget judgment and all the rest of the Budget apparatus follow almost inevitably from that.

The key determinant of the level of taxation in this country is simply and utterly out of the control of the House, particularly in the way that the Government managed their White Paper and public expenditure plans this year.

Mr. George Cunningham

It always is out of control.

Mr. Ridley

I agree that it always is, but this year was particularly disgraceful because of the shortage of time and the way the Vote was handled. This Parliament may well come to be known as the Adjournment Parliament.

The petrol issue, on which much has been said in the debate, arises partly out of this process. On this subject I have sympathy with the hon. Member for Cornwall, North (Mr. Pardoe). Having determined, with his new-found power, to reverse the petrol tax, he found that he could not do so far technical reasons, first because the petrol tax was already in force and secondly because, if he did so, he would deny the revenue which he agreed was needed. He was forced to go back to the strategy of returning to the matter in Committee.

I was not so much in sympathy with the hon. Member for Cornwall, North on all other aspects of this matter. Now that he is a responsible Shadow Minister—and this point also applies to the Chief Secretary—he should not go poaching on other people's ground. Energy policy is the responsibility of the Secretary of State for Energy and the right hon. Member for Orkney and Shetland (Mr. Grimond). I do not believe for one moment that the hon. Member for Cornwall, North consulted either of them before embarking on his rather ill-informed energy policy.

I remember that in the Finance Bill Committee two years ago the hon. Member for Cornwall, North made two consecutive speeches, one proving that there was great elasticity of demand in petrol pricing and the other proving that there was not. I am sure that the hon. Gentleman remembers the occasion. My view is that there is no elasticity of demand in petrol pricing. I do not believe that the 5½p will reduce the take of crude oil from overseas. It might knock ½ per cent. off petrol consumption, but that does not affect the take of crude oil because petrol accounts for only 14 per cent. of the barrel. What will be the reduction in petrol and oil supplies if the tax goes through?

Much play was made of President Carter's initiative during hon. Members' comments on energy policy. I was in Washington when the initiative was announced, and the general view there was that it was crazy to work on the demand side for oil and oil products and at the same time do nothing to encourage production.

We have done the same thing here. Here we have the Inland Revenue actually going to North Sea divers and trying to classify them as employed instead of self-employed and so milk them of taxes. If we want to balance our energy books and to increase supplies of energy products, that is not the way to do it, because if the North Sea divers leave the Continental Shelf we shall have less oil.

The best answer is to reduce demand as well as trying to increase supplies. If it is our intention to reduce demand for oil of all sorts, why was aviation fuel left out of the clause? Why is public transport left out? Why is business travel in motor cars to be left out through the VAT exemption? All these arguments may or may not be sound, but they must be thrashed out.

The hon. Member for Cornwall, North spoke as though he were going to get this tax knocked out of the Bill by himself, but he has to persuade 285 Conservatives to feel that they should lend him their support in what he seeks to do. It is not just a question of his persuading himself.

Mr. Pardoe

If the hon. Gentleman had been listening to my speech he would have heard me, with unaccustomed modesty, make that very point. I said that this tax would not be removed from the Bill unless all the Opposition parties and, hopefully, some Labour Members were in favour of doing so. I said that the problem was to get everyone here on the day.

Mr. Ridley

I am glad that the hon. Gentleman is learning the responsible ways of sharing the load of government.

My hon. Friend the Member for Ludlow raised one interesting point. It was that quite soon the biggest imports into this country will be not of oil, since we shall get our own oil from the North Sea, but of wood pulp and forestry products. Their value will soon overtake the net value of the imports of oil. Does that mean that the Government propose to put a tax on newsprint? It would clearly be logical for them to do so. Consider the enormous thickness of some of the tabloid dailies. It would do less damage to our standard of living if they were thinned down than if the petrol tax were increased. That might be a way in which the Chancellor could raise the revenue. No doubt the hon. Member for Cornwall, North will support us on that.

I turn now to taxation. Many Labour Members feel that since the proportion of gross national product paid in tax is al- most the same as that of our European rivals, we are not a heavily taxed nation. That is an accurate analysis. I have the figures. In the United Kingdom we pay 36..8 per cent. of GNP in taxes. The figure for France is 36.9 per cent. and for Germany 37.6 per cent. But one must look at the size of the GNP. For the United Kingdom it is $216 billion, for France it is $348 billion and for Germany it is $451 billion. The populations of all three countries are nearly the same. If the tax is taken away, there is left in the private sector $137 billion in Britain, $220 billion in France and $280 billion in Germany. Therefore, the average German is left with twice as much money after tax as the average Briton.

Mr. Joel Barnett

They start off higher.

Mr. Ridley

The Chief Secretary has made my point. They start off higher, so they can afford to pay for a level of public services which is now beyond the British taxpayer. That is exactly what has happened under the Chancellor's stewardship. He has allowed public spending to go to levels which are beyond the capacity of our ailing economy to sustain. This has resulted in the feeling of over-taxation in every section of the community, a feeling which has been referred to time and again in speeches today by my right hon. and hon. Friends.

I am not ashamed to refer to the marginal top rates of tax because they more than anything else illustrate the bias of the Labour Party. In the United Kingdom those top rates are, earned, 87 per cent., and, unearned, 98 per cent. The comparable figures for France are 54 per cent. and 60 per cent., and for Germany 56 per cent. in both cases.

That is what is under attack at Walsall, Workington and Stechford, and probably at Grimsby and Ashfield as well. It is summed up in the polite new jargon word "differentials". Even hon. Members below the Gangway are asking questions about differentials as though this is a permissible Socialist form of inequality and difference. If one says "He has twice as much money as I have", that is all wrong, but if one says "There is a differential of two between us" that is within the terminology of the modern Labour Party. It is extraordinary that the Chancellor in his Budget should say that it was his intention to relieve not only the bottom end of the scale of income tax payers but the top end as well. Clause 15 is the legislative evidence that at long last the Labour Party is realising that differentials matter.

The compression has been enormous due to incomes policy on the one hand and inflation and tax on the other. I shall not quote again the example of the man in The Times who was quoted by my hon. Friend the Minister for Guildford earlier today. Apparently this man's net pay has fallen from about £9,882 in 1974 to £6,300 at the beginning of 1977. I have actually worked out the figure for this gentleman in The Times in relation to the Budget that we are now considering. In fact, his income has decreased by another £100 as a result of the period between January and now, including the Budget.

I warn the Labour Party that a sea change is taking place. The general uniformity of wages and the general attempt to compress salaries and destroy differentials, which has been at the heart and mind of the Labour Party for so many years, is now becoming almost the most unpopular piece of baggage that it carries. It will have profound effects, not only on the party's electoral chances, in which I am not particularly interested, but more importantly on stage 3.

The problem is that the world is becoming more mobile, and people who are well paid will not stay here to be squeezed and over-taxed. They will go away, as they have been doing, unless they are better treated. The £8,500 limit in the incomes policy has helped to influence them. Indeed, it is fantastic that in the past month a million days were lost in factories because of the operation of stage 2. Stage 3 will be about differentials and about getting richer.

The Chief Secretary said that there was no more cake. In a way he is right, but there should be a connection between the size of the cake and the pay policy itself. I believe it is because we have had this restrictive pay policy that the cake is not growing; in fact, it is shrinking. In the last four years the average real take home pay for the average man at 1976 prices has gone down by £4.04 a week. In some sense that fall has been caused by our incomes policy.

I do not believe that it was inevitable, as the hon. Member for Cornwall, North has claimed. I agree with my right hon. Friend the Member for Worcestershire, South (Mr. Spicer) that there has been a connection between the sort of restrictive attitude induced by the incomes policy together with the destruction of incentive and the fact that our real wealth has decreased. Other nations have had the same problems. France and Germany have had the same problems as we have had, and they do not have any oil, but without an incomes policy they have increased their standard of living and their national production. The connection is between the disincentive effect of the incomes policy and the shrinkage of national production.

Therefore, we must be careful of a wage explosion. Here I come to the speech of my right hon. Friend the Member for Chipping Barnet (Mr. Maudling). Is he certain that there will be a wage explosion or that stage 3 will stop it? There is no certainty that explosions are stopped by statutory incomes policy, as my right hon. Friend and I surely remember from two or three years ago. There may well be an explosion, in which case perhaps it is irrelevant whether there is a stage 3. There may well not be an explosion, in which case perhaps again such a policy is irrelevant.

We must also ask "Why only the British? Why are only the British liable to suffer this wage explosion? Are we so volatile, so militant and so unusually violent—we, the mildest of races—that this risk should be so grievous?".

Mr. Stephen Ross (Isle of Wight)

Does the hon. Gentleman agree that three years ago the Japanese had a wage explosion of about 34 per cent., and they have suffered for it ever since?

Mr. Ridley

Yes, they did, but they have also had a production explosion, and a production explosion is very handy for paying for a wage explosion.

This brings me to the real point, to the common ground between my right hon. Friend and myself. I hope, and between us and many Labour Members, though perhaps not all of them. This is that there may have to be all sorts of difficult transitional phases. But, as my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) said, we have a form of automatic cash limit in the private sector, and the Government have introduced it in the public sector. All we have to do is to seek to prevent leakages in and out of these cash-limited blocks and surely we shall then begin to get some form of contained kitty in which the kitty bargaining can be controlled.

That is really all that is meant by controlling the money supply, because the money supply is no more than the aggregate of all these cash-limited blocks. I do not believe that it is possible to have a wage explosion unless it is fuelled by money from an extraneous source. Indeed, this may be the key to getting the rate of inflation down too. If I may coin a phrase, the cost of living is eternal vigilance.

Stages 1 and 2 have not worked to control inflation. Our inflation rate is twice that of France over the past three years and four times that of Germany. Unemployment has gone up. We must find new answers to these problems. The Government's economic management record is appalling.

I find it the final insult that we should be told that if only we persist with the Labour Party's policies we shall eventually reach "the golden decade"—the Prime Minister's own words. Does the right hon. Gentleman mean the decade in which the only people who can afford to live will be those who bought gold? It is clear that nothing but disaster has resulted from the policies pursued by the Government hitherto. If we are to have to retrain the Chancellor of the Exchequer to the necessary extent, it might be better if we had a brand new one instead of a worn-out retread.

10.24 p.m.

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

My first task is to offer my congratulations to the hon. Member for Birmingham, Stechford (Mr. MacKay). It is always a difficult task when the hon. Member concerned replaces a Member from one's own party. In this case my task is made much the lighter because of the non-controversial way in which the hon. Gentleman spoke, the excellent words that he had to say about his predecessor, Mr. Roy Jenkins, and the genuine regard that he obviously had for him. I think that the hon. Gentleman endeared himself to the whole House in the way in which he spoke.

The hon. Gentleman spoke, too, about the problems of his great city, of which he was naturally proud. I think that an echo of that pride went round the House, particularly when the hon. Gentleman spoke about small-scale industry and its contribution not only to his city but to the country as a whole.

That point was taken up in the speech of the hon. Member for Basingstoke (Mr. Mitchell), who dealt with much the same matters and who talked about the problems of the small business. This is not a suitable time to go into that further, because I have much to say and a great many of the points that the hon. Member made—as he will understand—will be more suitably discussed in Committee because more time will be available there.

There is one thing, however, that I wish to say and that is to assure the hon. Member for Stechford—from whom I hope to hear more on this subject in due course—that the problems of small companies have been alleviated by stock relief as well as by the reduction in corporation tax from 52 per cent. to 42 per cent. of profits in the range of £40,000 to £65,000. I cannot agree that we have done nothing for these companies, and our whole approach to small businesses is now beginning to be understood by the people concerned. Our appreciation of the valuable work they do is certainly strong and occupies an important place in my thinking and that of the Government.

Mr. Churchill (Stretford)

Does the right hon. Gentleman accept that the concessions to which he has referred for small business corporation tax relief amount to less than the increase in inflation since 1974?

Mr. Sheldon

Yes, but the hon. Member must understand also that this cannot be looked at alone. Important assistance is given through stock relief, under which a manufacturing company of the kind to which the hon. Member for Stechford referred obtains enormous advantages through capital allowances and stock relief and will be paying little, if any, corporation tax at all. That, together with the further relief in the Finance Bill, has been widely welcomed.

I wish to refer briefly to what was said by my right hon. Friend the Member for Blackburn (Mrs. Castle), who asked about child benefit and about what might be done in the autumn. First, I should point out a fact of which, no doubt, she is well aware. A problem of child benefit is that the allowance for children cannot be included in the Budget judgment in the same way as was possible hitherto when there were child tax allowances. An important element of the Budget judgment is excluded from consideration because we have moved from a tax allowance decided in budgetary terms to assistance in benefit terms, which is therefore reviewed not at Budget time but at the time of the social security benefit uprating later in the year.

My right hon. Friend also asked when the details of this year's review will be announced. The review of the rates of national insurance benefits has been carried out and details of the proposed new rates will be announced in due course. I cannot tell her any more than that, and for further information she should seek to approach my right hon. Friend the Secretary of State for Social Services.

A great deal of time in this debate has been taken up in argument about the levels of direct and indirect taxes and how they should be adjusted one against the other. Everyone has agreed and accepted that income tax and direct taxes have been increasing considerably and that the main indirect taxes—such as value added tax, Customs and Excise duty and vehicle excise duty—have been declining steadily. We know full well why this is so. In an inflationary situation, one need do nothing yet the revenue from direct taxes will increase, while for indirect taxes one must come to the House to ask for the increases. This is a difficult task for any Government, and we have seen the problem particularly in relation to the petrol duty.

We must understand what is happening to the direct tax system as a result of the difficulty of obtaining these indirect tax increases. It reduces the possibility of introducing the reduced rate bands that so many of my hon. Friends and myself wish to see in the income tax structure and the possibility of changing the higher rates in a way that many hon. Members opposite might wish. It means that we have to collect through direct taxation sums to replace what we are unable to raise in indirect taxation.

Some problems, including levels of thresholds and the poverty trap, are a direct consequence of the relationship between the direct tax system, the yield of which increases automatically, and the indirect tax system, which the House has not yet learnt to adjust similarly in the prevailing circumstances. The discipline present in the House of the responsibilities of taxation as against the greater joys of spending used to lead to a correct adjustment between the two, but it has not done so in these changing circumstances.

Of course, Governments have acquired the discipline necessary to increase taxes to meet the requirements of expenditure. Now that a number of these decisions fall more to the House, the absence of such discipline will result in greater distortions of the sort that we are beginning to see. For example, we must remember that, in real terms, petrol duty is very much lower than it was throughout the 1960s and even earlier. It has gone down and down and down. We have to ask whether that is the right way in which petrol duty should have moved.

I understand the problems of rural areas. Petrol is more important there than in most other areas, but we must also understand that the amount of petrol used in rural areas is much less than the amount used in other areas—and Clause 4 applies generally. We have this great problem of the smaller users when we have to set the level of petrol duty for much larger users.

In addition, the hon. Member for Guildford (Mr. Howell) talked about his hostility to the whole of Clause 4, which covers heating oil and heavy oils in general. He was enunciating a policy of cheap energy. We do not have to agree with everything said recently by President Carter on this subject, but there are dangers in moving towards a policy of cheap energy at a time when energy is becoming scarce in most countries and is extremely expensive to discover and when the problems associated with it are increasing all the time.

Those of us who hoped that the discovery of oil in the North Sea would considerably increase investment would be very upset if these resources, which came to us rather fortuitously, were used not for investment to create jobs and the industrial climate that we require but for cheap energy to assist the sort of consumption in which we have already gone too far.

We do not have to look into the future to see the dangers. We can see what has happened with North Sea gas, which is worth £2.2 billion a year. That has been absorbed into consumption. The great danger is that oil, which is a more important commodity but of a not dissimilar order of magnitude, might be going the same way. The policy of cheap energy is just the right way to ensure that that piece of good fortune is used not to help to create the investment that I believe is essential but to increase the level of consumption that will be absorbed into the general pattern of expenditure, so that a few years from now that piece of good fortune will hardly be discernible.

The hon. Member for Guildford asked about Clause 13, which is concerned with the consequential arrangements upon the adoption of the Sixth Directive. The harmonisation of value added tax was an obligation incurred when we joined the European Community. Agreement has been reached subject to a reservation of the Danish Government. We are now awaiting the lifting of that reservation. That has entailed a minor change in the Ways and Means Resolution as the directive is not at this moment a decision of the Community.

The directive lays down in detail the essential elements of a common system of value added tax. I emphasise that we remain free to operate value added tax in a way that suits our own industrial, commercial and social structures. We sought to achieve that result in the discussions in Brussels and Luxembourg and I believe that we have succeeded. We have ensured that our zero-rating that applies to about 30 per cent. of consumer expenditure will be maintained. We have avoided, too, any new administrative complexities. I made it clear in response to a Written Question from my hon. Friend the Member for Southampton, Itchen (Mr. Mitchell) that all the changes in Clause 13 are directly consequential upon the Sixth Directive, apart from three changes in technical matters that lead to no alteration in administrative practice.

Mr. Nigel Spearing (Newham, South)

I am following closely what my right hon. Friend is saying. He has referred to the Sixth Directive of the European Council. Is he indicating that he is not intending to deal with the matter in the next item of business but is incorporating the substance in his winding-up speech? Would it not be more appropriate to deal with the matter when we come to the next item of business?

Mr. Sheldon

I was not seeking to exclude the next item of business. I was trying to give some account of the Sixth Directive and the reason for the incorporation of the Clause 13 in the Bill. Clause 13 does not affect everyday matters of concern in the working of value added tax for the vast majority of traders. I think that we have been successful in dealing with the matter.

A number of questions have been raised about conditionality—

Mr. David Howell

Is the right hon. Gentleman saying that my query about imput and output taxes does not arise and that my interpretation does not lead to the conclusion that I suggested? Secondly, will he confirm that we are free as a country to raise the threshold for registration for VAT when and as we wish?

Mr. Sheldon

We are able to raise the threshold for registration for VAT in conformity with the rate of inflation from 1973. That means that we could, if we wished, raise it to £9,600 or therabouts.

I should not like to be precise in reply to the hon. Gentleman's second question. I refer him to the Written Answer, given to my hon. Friend for Itchen in yesterday's Hansard, which deals with three proposals which are the only ones not directly consequential upon the Sixth Directive. These are all minor changes affecting technical matters and involving no alteration in current administrative practice.

I come to the issue of conditionality. A number of questions have been put to me. One of the problems of the Budget in current years is that one of the most important elements is lacking, namely, the estimate of what will be achieved in a pay deal. It used to be much easier when we were talking about inflation levels of 3 per cent. or 4 per cent. and corresponding levels of earnings and when we were discussing an extension of production of maybe 2 per cent. or 3 per cent. a year. Any minor errors would have been fairly insignificant or, at least, containable.

The difficulty now is that the earnings variation forms the largest part of the Budget judgment and the figures we are talking about as the range of estimates of pay are so large that a complete Budget judgment cannot be made without the kind of information that tends to come later in the year. Those who seek to remedy this difficulty by means of the money supply should have listened to the right hon. Member for Chipping Barnet (Mr. Maudling). There are some rather untypical Tories who are addicted to dogma and to the inevitability of arguments. We have frequently been criticised for our devotion to certain forms of doctrine, but up to now this has not been a typical Tory attitude.

The quote of the day came from the right hon. Member for Chipping Barnet, who said that anyone who believed that wage increases did not necessarily lead to price increases must be a professor. I add to that "either a professor or possibly a member of the Opposition Front Bench." To those who look at these problems sensibly, the connection between those two factors is clear.

The hon. Member for Guildford sought to find an alternative policy and suggested the holding down of cash limits and a return to collective, responsible, free bargaining.

Mr. Ridley

Hear, hear.

Mr. Sheldon

The hon. Member should be careful, because we on the Government Front Bench see considerable divisions on the Opposition Front Bench on these matters. Those who argue, like the hon. Member for Guildford, that stage 3 will be impossible, undesirable and unnecessary will have to take account of the differences of view expressed by such people as the right hon. Member for Lowestoft (Mr. Prior) and others who know that a formula for pay policy negotiations will not be produced by the arguments used by the Leader of the Opposition about negotiation on the factory floor. That is not the way to get any understanding, let alone to conduct dealings with the trade unions.

Mr. David Howell

I do not wish to prolong the argument, but the Financial Secretary must not misquote. I said—he will see it in Hansard—that a stage 3 arrangement of the kind practised in stages 1 and 2, a deal which led to the disastrous consequences we now see, would not be desirable, possible or necessary in the next wage round. He must recognise that, as does the Prime Minister.

Mr. Sheldon

It is hardly worth the hon. Member's rising to make the point that the kind of deal which no one contemplates making in stage 3 is a bad thing. No one is contemplating making phase 3 a copy of phase 1 or phase 2. It was hardly worth rising for that.

The right hon. Member for Lowestoft wants a phase 3 and is presumably prepared to pay the price for a phase 3. The right hon. Member for Leeds, North-East (Sir K. Joseph), like the hon. Member for Cirencester and Tewkesbury (Mr. Ridley), does not want a phase 3 and is not therefore prepared to pay the price.

This is not a philosophical discussion of the price we ought to pay. The price to be paid is a matter of the most direct and important political consequence for the future of this country, and when the right hon. and learned Member for Surrey, East (Sir G. Howe) talks about the necessity of harrowing out the areas where the Opposition agree and those where they do not agree he is talking not about some minor consequential matter about which they will finally come to a conclusion but about one which is central to the government of this country.

Opting out of questions central to the government of this country is no way in which the Opposition can hope for or deserve the kind of support they seek. The fact that they have been unsuccessful in acquiring that support is evidenced by the fact that they have lost their closest political allies, the City of London, where people showed what they thought about their absence of policy in this key area by the way in which the Financial Times index dived as soon as there was a pos- sibility of a Conservative Government. This is not a matter of congratulation for us but should be a matter of desperate thinking for the Opposition.

I am conscious that I have not answered all the points—

Mr. Peter Rees

rose

Mr. Sheldon

This is a smaller Bill than in recent years but it is no less welcome for that. I ask the House to give it a Second Reading.

Mr. Deputy Speaker (Mr. Oscar Murton)

The Question is—

Mr. George Cunningham (Islington, South and Finsbury)

On a point of order, Mr. Deputy Speaker. Do I understand that you are putting the Question? I wish to speak in the debate.

Mr. Deputy Speaker

Mr. George Cunningham.

10.48 p.m.

Mr. George Cunningham

I am not apologising for rising after the winding-up speeches, because a considerable number of hon. Members wish to wait for those speeches out of courtesy and to hear replies to their questions. To them I simply say "Goodnight", but there are some points on Second Reading which I wish to raise.

The Finance Bill is about revenue, not about expenditure, but the amount of revenue which has to be collected, subject only to the borrowing of the difference, is the amount which we have decided to spend.

What is urgent, and has been for a long time, is to have a review of the methods by which we control public expenditure and the methods which have resulted from the Plowden system introduced in the early' sixties. We should not need to raise anything like so much revenue if we were to go into the forests and woods of public expenditure, not to find waste which is the result of political decisions because I think that there is not much, if any, of that kind to be found, but to find the enormous number of small items of waste which are in the books only because no one has gone into those woods and forests and found them out.

I shall give one small example. At the moment, presumably one can say that the borrowing requirement of the Treasury is £500,000 larger that it needs to be —for what that is worth—because we have the practice of providing to members of the Diplomatic Service interest-free loans to buy cars. That is a practice which dates certainly from 20 years ago, so far as I know, and probably from a great deal earlier. But is there any case for our permitting members of the Diplomatic Service to raise money not from banks, which would be delighted to lend it to them, but from the Government, which means that it counts as public expenditure, and to borrow that money completely interest-free?

The Financial Secretary knows that I asked him to look at this matter and to compare the terms upon which we are prepared to lend such money to members of the Diplomatic Service to buy cars with the terms upon which we are prepared to lend money to other public servants—namely, midwives—to buy cars. When a midwife borrows public funds to buy a car, we charge her 13½ per cent. or 13 per cent. When a member of the Diplomatic Service borrows money to buy a car, we charge him zero per cent. Yet a member of the Diplomatic Service is usually able to buy his car when he is to go abroad—those are the only circumstances in which he is lent the money free of interest—at a considerable discount off the normal price.

This is a small item but it is one of thousands which could be found if the Treasury would set up a public expenditure pruning operation, with a small staff—I stress small "staff—who would work alongside and as part of the normal Treasury team for public expenditure control.

In company with others, I am disappointed that the tax thresholds in this Finance Bill have not been raised more. The main task of bringing up the thresholds, if only so that they do not get in the way of social security payments, still rests with us. We have increases in the single and married allowances this year which are only just comparable with what happened last year. Therefore, any increase in the thresholds more than enough to take account of inflation is a task which remains either for an autumn Budget or for a Budget next year.

In his winding-up speech, the Financial Secretary replied to my right hon. Friend the Member for Blackburn (Mrs. Castle) on points which she raised about child benefit. I must say that I am beginning to be disturbed about whether our decisions with regard to child benefit and taxation were correct. Clearly we shall have a problem in the future, because, as the Financial Secretary said, in the past we have been able in the Budget to increase the child tax allowances and bring the change into effect pretty rapidly, between the Budget in March or April and July when the tax reliefs actually find their way into people's pockets.

My understanding is that any decision about the level of child benefit payable as from next April would have to be taken, for administrative reasons, somewhere around August, because the Department of Health and Social Security claims that it is not possible to get the books prepared and so on if we do not take the decision around August.

Child benefit has now become the principal means—and in a couple of years will be the only means—by which we provide financial support for the family in proportion to the number of children in the family. Therefore, particularly in the next year or two, we shall want to use as much of the spare money as there is for family-related reliefs and cash payments. But the Treasury will not know in August how much money there is likely to be available next April.

Therefore, there is a problem, and, so far as I can see, it can be solved only by the DHSS reducing the interval between the date when we need to know the rate at which child benefit is to be paid and the date upon which it actually becomes payable.

Another problem in relation to child benefit emerges from the Bill. The Government have decided—unwisely, I think, though they seem to feel committed by the decision which they took last year—that child tax allowances for children resident overseas should be at the same level this year which we have now entered as they were last year but that in April 1978 the tax allowance in respect of children resident overseas ought to come down to the same level as child tax allowances for children resident in this country. That is a crazy arrangement because it means that we are making no reduction this year and we shall have to make a double ration of reduction in April 1978.

As the Financial Secretary knows, I am completely in favour of phasing out these child tax allowances even though they will not be replaced by child benefit in respect of these children. But they ought to be phased out by a gradual process, and the sensible thing to do is to amend the Finance Bill so that child tax allowance payable for a child resident overseas in the year which we have now entered is not the same as that for last year but becomes a midway stage between what applied last year and what we expect to apply next year.

I hope, too, that hon. Members who serve on the Finance Bill Committee—I doubt whether I shall have that privilege—will take a very serious look at the taxation of short-term social security benefits. We have been over this ground before and I do not want to rehearse the arguments. I have put forward a proposal which seemed to me to give the Treasury most of the revenue that would derive from taxing short-term benefits, avoid most of the costs and get rid of most of the anomalies under the present arrangement.

The Treasury believes that there are anomalies and new administrative costs in my proposal. I hope, however, that the Financial Secretary will accept that there are huge anomalies in the present arrangement and that there are enormous administrative costs in paying the rebates which result from the present situation. Therefore, there ought to be a serious look at some means by which we can stop the anomaly whereby a person receiving £20 unemployment benefit pays no tax upon it, even though he has a great deal of other income—if that is the case—whereas a person earning £20 pays tax upon it.

Mr. Newton

I hope that the hon. Gentleman will also emphasise, or perhaps he will allow me to do so, the amount of revenue involved. I do not know whether the hon. Gentleman has seen the answer that I received from the Financial Secretary only today, which points out that revenue last year from taxing sickness and unemployment benefit would have amounted to £340 million. We are talking about a very sizeable sum of money.

Mr. Cunningham

We are indeed. I was not aware of that answer, but I was aware of the order of magnitude of the amount involved. In fact, it is considerably larger than the sum mentioned by the hon. Gentleman because it would not make sense to introduce either the taxation of short-term benefits or my compromise proposal without also applying it to supplementary benefit. Otherwise, when a person ceased to be entitled to unemployment pay he would get different tax treatment then when he actually received unemployment pay.

The Treasury claims, though with not much certainty, that this would add only about £60 million. Therefore, the total amount is probably between £400 million and £500 million. We are talking about £½ billion. It is worth a few anomalies for £½ billion. We could get a heap of civil servants for £½ billion.

While I appreciate and understand the points that the Treasury has made against my proposals, I do not think they can be the last word. We shall have to return to this, because the alternative to some compromise proposal such as the one I have advanced in the article in The Guardian is that we should tax Social Security benefits in a straightforward way. That would probably mean about £50 million a year being spent on administration, which is not the way I should like to do it. I hope that the Treasury will look again at that compromise proposal.

It was suggested by one hon. Member that our tax laws were unnecessarily long and complex. It would help to make them less so if we were to have a Committee of the House—which, naturally, all other legislatures in the world have, because they carry out their business so much better than we do—charged with the responsibility, not only when the Finance Bill is before us but throughout the year, of keeping an eye on tax matters. There ought to be a taxation Committee of the House. That would help not only with regard to the language and so on of tax law but on the principles, because there could be an enormous agreement across the Floor of the House, not on the main political points but on the techniques of taxation.

There could probably be agreement that the tax allowances that we shall always want to have for married men or for dependent relatives ought to be in the form of reductions in the tax that is payable rather than in the form of reductions in the the income that is taxable. That would be a simpler system and, what is more important, a more readily comprehensible system than the one that we have now.

There would probably also be a fair amount of agreement across the Floor of the House on the relationship that there ought to be between the single man's allowance and the married man's allowance, if we want to have the married man's allowance at all. If there were a Committee such as I suggest, it would want to look into the notion of the hon. Member for Kensington (Sir B. Rhys Williams), who always throws up interesting notions on this kind of thing, of a householder allowance in place of a married man's allowance. We cannot consider these things on the Finance Bill because we are always too busy considering the items that the Government have chosen to include in the Bill.

There is one specific matter that I want to urge on the Treasury with regard to the mobility allowance. A married woman who receives the mobility allowance is not permitted to count that as earned income, so the married woman's earned income allowance does not allow her to have that mobility allowance tax-free. There is an explicit provision in the legislation that that mobility allowance is not to count against that income.

I see no justification for that. It is a clear case of doing it only because it has been the practice for social security payments in general not to be allowed to count against a married woman's earned income allowance. Surely we need to make an exception in the case of the mobility allowance. It is not fair to provide that allowance to a married woman—it might be the only income that she has—and then deduct tax at 35 per cent. on the whole of it and not allow her to have the normal personal allowance that we would allow if that mobility allowance was earnings.

I come next to the question to which the House will have to address itself in the long term, and that is tax relief on mortgages. This is an emotive subject. I never understand why it is so emotive, because the Labour Party has done the principal thing to assist owner-occupation by means of legislation, and that is to introduce the option mortgage scheme.

That scheme is now of little use, because anybody who can afford to buy a house must be paying tax and, therefore, does not need to use the scheme. There ought to be no dispute across the Chamber about the desirability of people owning their own homes and about the desirability of providing assistance, particularly at the early stages, for them to go into home ownership, but something that only the British House of Commons would do is to provide a subsidy to people who are paying tax at well above the basic rate. We provide a subsidy that can amount to 7 per cent. or 8 per cent. off the interest rate that they pay, at a cost to the revenue of, I think, £110 million. Why should we say to someone who is paying tax at the rate of 60 per cent. that if he borrows at 15 per cent. we shall pay 60 per cent. of the interest that he has to pay? If that proposal had never existed and someone proposed it in the House, from whatever party, he would be laughed out of court. We have only got it because we have inherited it. Right back in 1900 it was treated as income and, therefore, as an allowance.

With the £110 million which we would save if we restricted tax relief on house loans to the standard rate, we should be able to provide additional assistance for young, first-time borrowers who are not quite able to do it. Once they get into the house market they will be all right and be able to stay in. Yet we use £110 million to provide this grossly excessive subsidy to those who are extremely well off instead of using the money to help others who really need assistance.

It is generally accepted—although it was not generally accepted five years ago—that a subsidy is a subsidy whether one hands a person a bit of money or whether one reduces the tax that is taken from him where it is related to a specific action. If the tax rate is reduced from 35 per cent. to 33 per cent., that is not a subsidy. It is a subsidy, however, if relief is given on insurance policies. If that is not so, words do not mean anything at all.

Mr. Julian Amery (Brighton, Pavilion)

I am sure that the hon. Member has done his sums, but on the £110 million about which he has spoken is he satisfied that the beneficiaries of the existing scheme do not contribute that much in taxation and rates to subsidise council house rents?

Mr. Cunningham

That is a very interesting point. It is the kind of thing that could be looked at in a Committee of the House where one could discuss these things with less of the heat that is usually engendered in the Chamber.

Subsidies to council house tenants are subsidies because they reduce the cost which otherwise they would have to pay. That is my view, but it is not the view of the rest of the world. The thing that is called a subsidy to the owner-occupier is not a subsidy, but for the reason given by the right hon. Member for Brighton, Pavilion (Mr. Amery). It is not a subsidy for this reason. The only effect of it in most regions where there is a housing shortage is to give an additional push to the house price inflation spiral. It does not allow the so-called beneficiaries to afford a better and bigger house than they would otherwise afford because they can buy only houses that are there. But it does allow them to offer more for a house because the monthly payments are less in relation to the amount they have borrowed because of the tax relief.

If there is an excess of houses in an area, that situation will not be affected. Then the effect will be to allow a person to take a bigger and better house. But in how many parts of the country is there an excess of houses? That is worth a thought. By spending £1.1 billion, in the sence of forgoing tax, all we are doing is to give an additional push to the house inflation spiral that would not otherwise exist.

There is no way by which we can reduce and legitimately abolish house loan tax relief except gradually. By "gradually" I mean over 40 or 50 years. If we did anything not only suddenly but quickly we would bust the market and bankrupt God knows how many people. It would be right for Governments across the Floor of the House to agree to move towards the phasing out of that relief, knowing that they would not be doing anything hard to the owner-occupier but were helping them as a body by withdrawing that little bit of extra push to the inflation spiral.

Owner-occupiers do not stay in one house all their lives. They move from one house to another. The greater the inflation of house prices, therefore the harder it is for them, because although they pick up more in cash from the house they have sold they have to borrow more for the house they are buying. Therefore, it is in the owner-occupier's interest that there should be a lesser degree of house price inflation rather than a higher degree.

I say only that this is worth a thought. If we were to address our minds to that question on this basis, we might do more good for owner-occupiers, as well as for the Revenue, than the normal bricks that we chuck back and forth across the Chamber.

I would not normally come in at the end of a debate in this manner, and I think it is known, although I have addressed myself to the Finance Bill, why I do so. I do so because of a particular item of expenditure in relation to the hospital service touching upon a hospital in my constituency. While it would not be in order to go into that in detail—I have done so previously, so there is no need to do so tonight—it is worth mentioning as an example of how one does not control public expenditure.

What is wrong with the system now is that the Treasury says to each big Government Department "You have got A, you have got B, and you have got C." In effect, the Treasury also says "We do not much care to know what you spend your total on." "That is your worry", the Treasury says to chief Ministers.

That is the Plowden system. It is a crazy system because it takes away from the central institutions of the Government the exercise of decisions with regard to priorities between the sub-programmes and the sub-sub-programmes and the major projects. The habit of escaping from the responsibility of taking decisions by allocating blocks of money to different decision-takers and then saying "Now you take the decisions within that block" applies within the hospital service. We say to each region of the hospital service "You have got so much", then the region says to its areas "You have got so much", and then the area says to its districts "You have got so much."

What happens in the end when such practices are adopted is that a hospital such as St. Mark's Hospital, in my constituency, which has a national role and an international reputation is told "You have got to close one ward"—it is highly relevant for cancer treatment—because there is another ward also in our district that takes drug addicts and alcoholics from Piccadilly, and it is a choice between the drug addicts of Piccadilly or the cancer ward.

That is where we end up if we refuse to exercise from the top a discretion down not to that degree of detail but to a far greater degree of detail than the Treasury now exercises.

Mr. Frank Hooley (Sheffield, Heeley)

I am rather frightened by this thesis. Is my hon. Friend really saying that we want the Treasury to be interfering at every end and turn in matters as widely ranging as energy policy, fuel policy, gas, electricity and nuclear power, as well as St. Mark's Hospital in his constituency? I find that a ghastly proposition.

Mr. Cunningham

No, I would not want the central institutions—I say "central institutions"—

Mr. Hooley

It was the Treasury, I understood.

Mr. Cunningham

With respect, I shall come to that shortly. I do not want the central institutions to be taking decisions about hospital wards. That would not make any sense. However, this habit of deciding that the only way to control public expenditure is to allocate slices of it to different decision-takers is a repetitive habit. Those decision-takers do the same with their underlings, their underlings do the same with their underlings and we end up with the St. Mark's situation, in which something is being denied not because it has not got a higher priority then something else in expenditure but because it has not got a higher priority, it is thought, than the other items within that little district. That is where we end up.

I do not, however, want the Treasury to be exercising this discretion—I am getting away from hospital wards now—between sub-programmes within the Department of Health and Social Services and sub-programmes within the Department of the Environment on housing, but I want the Cabinet to be doing so. I want the Cabinet to be weighing expenditure on home loss payments against sub-programmes within the Department of Health and Social Security. There is no magic frontier that bounds social security or housing policy. We should not go down to too much detail, but at the moment we have gone to the other extreme. We have separated Government expenditure into a small number of blocks, and that is the denial of the exercise of discretion.

It is high time that we threw the Plowden Report out of the widow and got back to some degree of exercise which distinguished between major sub-programmes of central institutions. That means having unit equipped to put up cases to the Cabinet or the appropriate Cabinet committee. We have gone too far away from that practice since Plowden.

Question put and agreed to.

Bill accordingly read a Second time.

Ordered, That the following provisions, namely—

1. (a)Clauses 4, 15 and 21, and
2. (b)any new Clause first appearing on the Order Paper not later than Tuesday 3rd May and relating to value added tax, subcontractors in the construction industry, benefits from employment (motor cars) or capital gains tax,

be committed to a Committee of the whole House: That the remainder of the Bill be committed to a Standing Committee: That, when the provisions of the Bill considered respectively by the Committee of the whole House and by the Standing Committee have been reported to the House, the Bill be proceeded with as if the Bill had been reported as a whole to the House from the Standing Committee.—[Mr. Coleman.]

Committee tomorrow.