ALTERATION OF PERSONAL RELIEFS

HC Deb 25 July 1977 vol 936 cc57-159

4.38 p.m.

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

I beg to move Amendment No. 97, in page 14, line 8, leave out '£,270' and insert '£1,295'.

Mr. Speaker

With this we shall take Government Amendments Nos. 98, 99 and 100, and the following amendments:

No. 122, in page 14, leave out lines 19 to 23.

No. 118, in page 14, line 22, leave out from 'than' to end of line 23 and insert: '£1,085, £735, £1,555 and £1,010, respectively'.

No. 123, in page 14, leave out lines 30 to 33.

No. 119, in page 14, line 33, leave out '£420' and insert '£350'.

No. 125, in page 14, line 33, leave out '£420' and insert: 'the level provided for in this subsection'.

Mr. Barnett

This group of amendments seeks to increase the main personal allowances. The cost is similar to the cost of the amendments that were carried in Standing Committee—nearly £500 million.

The difference is that on this occasion we have tilted the allowances in favour of married men rather than single men. We have also added an increase in the additional personal allowances which I hope will be acceptable to the House. This is in line with our acceptance of the Finer Committee recommendations that the additional personal allowance should make the single person's allowance in the case of a single parent family the same as that of a married man. The effect is to tilt the allowances in favour of the married person.

After the Budget, the way that the allowances worked resulted in the married person's allowance being about 52 per cent. higher than the single person's allowance. After the amendments made in Committee, it would have been 48 per cent. higher than the single person's allowance. Now it is 53 per cent. higher. Under the DHSS rules it is 60 per cent. higher than the single person's allowance.

Justification of any particular level is difficult, but the research carried out by DHSS economists indicates on the expenditure requirements of familes on dfferent bases of composition that there is a need to have the married person's allowance 60 per cent. higher than the single person's allowance. I do not suggest that this is worked out on any scientific basis.

It is difficult to specify what the differentiation should be between the single and the married person's allowance or the single and the married person's social security benefits. But in a year such as this, when child tax allowances of necessity could not be increased whilst we were phasing them out, it is sensible at least to maintain the ratio of married to single person allowance rather than to decrease the percentage.

I hope that the amendment will be acceptable to the House. It is on that basis that I commend it. Together with increases in allowances in the Budget, it will take approximately 1,210,000 people out of tax who would otherwise have been in tax.

I turn now to the indexation amendments, which we have an opportunity of discussing in this group. Raising the tax threshold is a major objective of the Government, but it is not and cannot be the only objective in tax policy. With the limited resources available, at whatever level we want to have the borrowing requirement we have difficult choices to make. We must decide whether to raise the tax threshold or to reduce the basic rate, whether to have a reduced rate band, whether to use the available resources for increased benefits, or one thing or another. The raising of the threshold should have a high priority, but I do not agree that we should automatically accept that personal tax allowances must of necessity be raised regardless of what else is happening.

The indexation amendments that were carried in Committee give both the Government and the House a choice. They indicate what would be required by increasing personal allowances in line with the Retail Price Index whilst at the same time leaving the House free to decide whether there should be such an increase in personal allowances. But we have amendments before us that would seek to remove that opportunity and leave the indexation of personal allowances automatic. Because the choice remains, and given that it is our intention to raise the tax threshold as much as we can, we did not seek to ask the House to delete the amendments that were carried in Committee.

Most advocates of indexation accept that one cannot stop at income tax alone. I know that that is the view of the bon. Member for Blaby (Mr. Lawson). Indeed, he has never suggested otherwise. The hon. Gentleman would want to index rather more than income tax. But it is not clear where the advocates of indexation would stop or why.

Mrs. Audrey Wise (Coventry, South-West)

rose—

Mr. Barnett

I am coming to my hon. Friend's view. The hon. Member for Blaby wants to index to help people at the lower end of the tax threshold—those with the lowest possible levels of income. But he recognises, as does my hon. Friend the Member for Coventry, South-West (Mrs. Wise), that we cannot do that in a broad-based tax system. We cannot increase the tax threshold and help only those at the bottom end of the tax scale. That is why the increase in personal tax allowances and the raising of the threshold are so costly in terms of lost revenue.

Mrs. Wise

Does my right hon. Friend accept that the raising of the tax threshold nevertheless comes nearest to concentrating help on those at the lower end and that that is the way to minimise the spillover into the higher bands?

Mr. Barnett

I shall be coming to my hon. Friend's arguments. They are serious and I want to deal with them. I agree that we want to raise the tax threshold as much as we can, but it is not possible to take so narrow and simple a view of how to use the limited resources available. I want to deal precisely with that kind of problem.

I share my hon. Friend's objective in wanting to help those who are paying tax at about 40 per cent., including national insurance contributions, on incomes below the supplementary benefit level. I know that is my hon. Friend's objective, but that is not the simple objective of the full indexers. We must discuss that matter. My hon. Friends the Members for Coventry, South-West and Birmingham, Perry Barr (Mr. Rooker) want a very narrow relief, but they have in fact widened the debate much further than that. I am sure that in so doing they have been delighted to get some of the support that they have had from other sources. Therefore, I want to deal with indexation generally—how far we should take it and where we should stop.

Most of those who are in favour of indexation would certainly agree on the need to index specific duties—indirect taxes which are not ad valorem. I know and understand that that is the view of the hon. Member for Blaby. I hope that I may be forgiven for saying that I find it a trifle strange that those who are in favour of indexation and increasing personal tax allowances up to the full Retail Price Index could not bring themselves to support the increases in, for example, petrol and oil duties. I cannot help but suggest that seems a trifle odd.

I also find it difficult to understand why it is clobbering the motorist to increase petrol duty, as was suggested in the Budget, but it is not clobbering the motorist to do it by indexation. Apparently that is all right. Somehow that does not matter. It will not be considered an anti-motorist proposition. It will not bother the rural motorist as long as it is indexed. I make that as an aside. I do not wish to embarrass anybody—certainly not those who vote with me some of the time. I hope that no one will take offence at that brief aside.

We should not underestimate the difficulties inherent in the problem of indexing specific duties. There are substantial administrative and other problems, which I hope we shall have an opportunity of discussing on another occasion. But it is not only specific duties that we should need to index if we were to move along this path. We should need to index the vehicle excise duty. Would the advocates of indexation advocate indexing capital transfer tax and capital gains tax? I am not sure whether the doyen of indexers, Mr. Samuel Brittan, taught the hon. Member for Blaby, or whether it was the other way round. Knowing both gentlemen, I am not too sure that either one of them is easily taught. The journalist to whom I am referring at least recognised that the indexing of capital gains tax involved some complication. That is recognised by those who have sought to carry amendments to the Finance Bill from time to time.

We are looking ac it and I hope that we shall be able to do something in that direction in the future. However, does one stop there or does one go on to the indexation of loans to the Government and private mortgages? Is that the suggestion of those who are in favour of full indexation?

It seems to me that the consequences have not been thought through fully by those who are full indexers. I recognise that it is possible to have indexation of the tax system without following it through to other areas. We already have indexation in a number of areas. That form of indexation is generally accepted, but not always and not by everybody. For example, we index social security benefits. That is generally acceptable. We index public service pensions. That is not quite so generally acceptable but it was carried through by the Conservatives when in office and has not been opposed by them in opposition. I therefore presume that it is generally acceptable.

Public expenditure was previously fully indexed. It was done in value terms and indexed in line with whatever was required. It is now partially indexed in the sense that we impose a cash limit which makes an assumption about inflation. If inflation exceeds the assumption the recipient cannot rely upon receiving more. We have indexation of corporation tax through the use of stock relief and 100 per cent. capital allowances.

We have no indexation of wages. We did once and it was not a happy omen for full indexation. I assume that even the most ardent indexers would not suggest that in a period of free collective bargining it would be possible to have indexation of wages. We cannot have full indexation at least until we wish to return to a more formalised incomes policy. I doubt whether anyone is arguing for full indexation including the indexation of wages, with the possible exception of the hon. Member for Cornwall, North (Mr. Pardoe), who might be because he is in favour of a form of statutory incomes policy.

If it is accepted that one cannot index everything, my hon. Friends must understand that if one indexes only part of the whole system, something has to go. The part that is un-indexed would have to go.

Of course the hon. Member for Blaby takes a rather broader view of indexation than do my hon. Friends. He and others in the Opposition seek to have indexation as a means of squeezing public expenditure. That is their policy. They do not apologise for it but it is not my hon. Friend's policy.

I must stress to my hon. Friends that that is the consequence. They must understand that. It is the consequence of believing that first and foremost, regardless of what happens in the economy, there must be a rise in the threshold. If there is insufficient growth in the economy to achieve that, for example, if there is negative growth, something else must go, and that something else would inevitably be public expenditure.

My hon. Friends say rightly that they want to raise the threshold so that people on supplementary benefit levels do not pay tax at all. That would not be much consolation for men and women who are relieved of paying tax at the lowest end of the income scale, who would then find that, because of the alternative cuts in transfer payments, they are net worse off. I believe that that is what would happen if the Opposition were the Government.

I know that my hon. Friends have the best motives and I agree with their basic idea. However, what they seek to do would put a weapon in the hands of the Opposition. If it had not been for the fact that the hon. Member for Blaby was not able to carry his right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) with him and had to insert an amendment which left the matter open, we should have had automatic indexation. My hon. Friends must accept that. What they would have done would not necessarily have achieved the objectives which they and I want. In certain circumstances they could have the reverse effect.

What is now suggested is that we should have partial indexation with the choice not to have it. That is what is in the Bill as it stands. We have partial indexation of part of the income tax personal allowances which the House can choose not to have by order.

We all accept that there cannot be full indexation. We have to ask whether partial indexation is helpful or otherwise in the fight against inflation.

Mr. J. Enoch Powell (Down, South): No.

5.0 p.m.

Mr. Barnett

The right hon. Member for Down, South (Mr. Powell) always takes a simple view about these matters. I am not suggesting that he is a simple man. I do not believe that the position is quite so clear. I suggest that in the case of partial indexation the answer is not proven. That doyen of indexers, Sam Brittan, unlike Milton Friedman, said that international data did not prove the case either way. That is why I am a semi-agnostic on this issue.

I have thought about it. In some instances I can see that indexation of some areas would not have any adverse consequences on inflation. Indexation of other areas—wages, for example—could be positively harmful, as shown by our own experience and that of many other countries. Equally, if we indexed all direct taxation, all indirect taxation and public expenditure, I am not sure that it could be argued that that would not be inflationary. I think that it would be. Indeed, one of the reasons why we have had the level of inflation was that public expenditure was not subject to cash limits.

My view is that the more one looks at indexation generally, the greater is the case against dogmatism. The hon. Member for Blaby has been outspoken and persuasive, at least of his own Front Bench, on this question. If one accepts that one cannot index everything, and we have partial indexation subject to not having it at all by order, we get what the right hon. Gentleman has called "truth in taxation".

I hope that the House will accept that neither full indexation, nor partial indexation, nor anything else can provide an automatic protection of living standards. I do not suggest that those who have advocated either partial or whole indexation have suggested that it would do so. I know that they have not. But the impression inevitably left in the headlines has been that indexation somehow would at least maintain the real net take-home pay.

It might do so in line with inflation, as set out in the Bill as it stands, but that is not the same thing. It depends on what one has to do in order to offset it. if we cut transfer payments, for example, the net result might well not be to index real net take-home pay as it affects a particular family. I agree that the case for automatic indexation is massively overstated. One of the problems which led to these amendments in Committee is the confusion about the need to reverse the trend of recent years from direct to indirect taxation and the need for indexation. It is that which led my hon. Friends in Committee to support the idea of indexation. I understand that they felt the need to do so because in recent years we have not raised the tax threshold and have thus left low-paid workers paying income tax.

Mrs. Wise

My right hon. Friend is correct, but that is different from his earlier statement. We have not supported the indexation of these thresholds because we object to a transfer from direct to indirect taxation. We object to a transfer from company taxation to individual taxation and from the better-off to the worse-off individuals.

Mr. Barnett

My hon. Friend cannot have it all ways. She cannot index direct taxation without helping the highest paid as well as the lowest paid—she knows that that is the case. I do not object, because I think that the trend in recent years of a switch to direct taxation has squeezed differentials to a degree that is generally unacceptable. But what my hon. Friend seeks to do is pretend that she was helping only those at the lowest end of the direct tax scale and no one else.

Mrs. Wise

It is not true.

Mr. Barnett

If my hon. Friend pretends that she can do so, she is doing people a disservice.

Mr. J. W. Rooker (Birmingham, Perry Barr)

Surely my right hon. Friend is trying to have it both ways by seeking to say that the only way in which the higher paid get help is through the spin-off effect of raising thresholds. The effect of raising the thresholds in the Budget was that the higher paid took it all. That is what we objected to. The higher paid, through the Budget, were to benefit by more than the rate of inflation of last year. That is why we were forced into the position in which we found ourselves in Committee, supporting the people at the lower end of the scale.

Mr. Barnett

My hon. Friend cannot have it as easy as that. The cost of raising the thresholds at that end would have given only a tiny figure to those at the lower end of the scale. The Opposition amendments, which my hon. Friend helped to carry in Committee, cost £500 million. The reliefs we gave in the Budget were nothing like that figure. On top of that, the extra tax put on the higher-paid in the last three years has been very substantial. To try to pretend that one can reduce direct taxation only for one section of direct taxpayers is to be misleading.

Mr. Rooker

On 7th April my right hon. Friend was asked how much of the tax cuts of £2.2 billion proposed in the Budget would go to people earning over the average wage of £80 and how much would go to those earning under it. The answer was that those earning the average wage or under would receive a total of £796 million while those above it would receive in total £1,454 million. Thus, those earning more than the average wage were getting twice as much in total as those earning under the average wage. There was, therefore, more than enough money to spare for the changes that my hon. Friend the Member for Coventry, South-West (Mrs. Wise) and I sought to bring about.

Barnett

My hon. Friend has made my case for me. What he did in Committee—I am not criticising him, because I. too, want to raise thresholds—was to give 30p per week to the average working married man and nearly three times as much to a man with an investment income on the highest rate and to the higher paid. I do not blame my hon. Friend for it. It is inevitable in a direct taxation system. One cannot avoid it. My hon. Friend is right to quote back at me my Answer of 7th April. That is what happens when one raises thresholds and higher rate bands.

Mrs. Wise

But is it not true that an alteration in the tax thresholds helps the low paid more than a reduction in the standard rate? Is it not true that the £1 billion we have spent since the Finance Bill Committee started has gone more to the low paid, in contrast with what would have happened under the Chancellor's original proposal for a reduction of 2p in the standard rate?

Mr. Barnett

My hon. Friend is right, out she has confused her questions. She asks me whether it is not the case that the lower paid get more under the proposals she supports. The answer is that they do not—the higher paid get more.

Mrs. Wise

No.

Mr. Barnett

My hon. Friend must not confuse her own questions and also try to confuse my answers. She knows that I am easily confused in these matters.

I am making a simple point. I agree with my hon. Friends about the need to raise the thresholds. All I am seeking to explain is that if one wants to raise tax thresholds and cut direct taxation, which she and I want to do, one must recognise the consequences. I am surprised that my hon. Friends have taken exception to what I have said, because what I have said cannot be disputed. I always try to state the position clearly, and I hope that I have done so today.

I am not trying to misinterpret my hon. Friend's views, because I know them. The trouble is that they have taken a narrow view of what can be done with indexation, and because of that they were nearly taken for a ride by the hon. Member for Blaby. It was the right hon. and learned Member for Surrey, East who would not let that happen. He is not in favour of indexation, so he compelled his hon. Friend to put in the provision that this cannot be done by order.

I must say to the right hon. and learned Member for Surrey, East that all this talk about honesty in taxation is, to say the least, a trifle misleading. The indexers may not intend this, but the implication is that if there is automatic indexation, there is truth in taxation. One can have untruths in a variety of ways. One meets them frequently in public life. I, for my part, have always tried to be honest with the House whenever I can—which is all the time, I hasten to add.

The really dishonest redistributor by stealth is inflation. That is the real curse. One indexes personal tax allowances and then provides that one does not have to do it by order. There is no difficulty in that. Everybody knows it. There are no secrets in these matters.

One has to be careful. Automatic indexation solves nothing. Unless the amendments are carried, the position will be left open. The position will be—if, as I hope, the House does not accept the indexation amendments—broadly as set out in the Bill as printed. There are one or two technical amendments which I hope the House will carry, but the net result of the indexation amendments will be that there will be an automatic indexation of personal tax allowances, but the House will have the opportunity of not doing that by order.

I can see the right hon. and learned Gentleman looking at me a little oddly. I hope that that is not because I am looking odd but because the Bill is a little obscure as to precisely how it will work, As I read it, in next year's Finance Bill —or by order at some time—the House will have an opporunity to decide what the personal tax allowance should be. We shall not be left in a situation in which personal tax allowances rise willy-nilly.

Mr. Powell

The right hon. Gentleman, who reads so easily the mind of the right hon. and learned Member for Surrey, East (Sir G. Howe), has not in this case succeeded in reading mine. The right hon. Gentleman is not accurate in saying that it is the House that will have the choice, because no one, except someone sitting on the Government Front Bench, will have an opporunity to propose a motion that will increase taxation. What the right hon. Gentleman is saying is that the Government, if they dare, will have that opportunity. That is different from saying that the House will have the choice, and therein, I admit, there is some distinction between this and the case of proportional representation.

Mr. Barnett

The hon. Gentleman is right, but the House will ultimately have the right to do it.

Mr. Powell

No.

Mr. Barnett

Of course it will. With respect, the Government—as we have seen in the recent Finance Bill Committee—can propose, but the House disposes. This is something with which the Government will have to live. I hope that we shall continue to have independent Back-Bench Members. I hope, too, that those on our side of the House will always agree with me. I am putting forward such obviously sensible proposals that I am surprised they do not agree with them. Although the right hon. Gentleman is strictly accurate and it will have to be the Government who put down the motion, it will not be the Government who will decide whether it is carried. That will be decided by the House. That is how the Bill stands at present.

5.15 p.m.

I recommend that the House accepts the clause as it stands for two reasons. First, it will give the House and the Government the opportunity to decide at a later stage what should be done. Secondly, it is our intention to raise the tax thresholds as far and as fast as we can.

Sir Geoffrey Howe (Surrey, East)

Although the House might scarcely have thought it after listening to his speech, the right hon. Gentleman has been explaining why the Government have agreed to accept the amendment made to their Finance Bill in Committee upstairs. The right hon. Gentleman appeared to have considerable difficulty in convincing his hon. Friends below the Gangway that he was right to do what they told him to do.

I am not sure to whom the right hon. Gentleman was addressing his remarks when he referred to "some of those who sometimes vote with me". I am not sure whether he was referring to his hon. Friends below the Gangway or to his hon. Friends on the Liberal Benches. One can understand the growing uncertainty of the Chief Secretary about the fate of the Liberal votes on which he depends, because of the increasingly frequent noises that emerge from Rochdale about the pact that exists. Indeed, I am beginning to wonder whether at the beginning of public business each day in the House Mr. Speaker should not call out the words "Lib-Lab pact" to evoke a cry from the Liberal Bench "Tomorrow, Sir" so that we can consider this anxious matter from day to day.

Behind all the words that the Chief Secretary has uttered one can detect an important issue and an important debate. I make no apology for repeating what we are talking about, which is the case for truth in taxation, because although the Chief Secretary made an attempt to explain to the Committee upstairs just how every citizen of the country understood very clearly what the Government had done to the tax burden by not raising the tax threshold, at a time of inflation I doubt whether that is the case, and I consider it worth recapitulating exactly what has happened.

Between the last Conservative Budget in April 1973 and this year's Budget, the total increase in the burden of income tax imposed on the people of this country amounts to £6,600 million. Of that sum, £2,500 million has been imposed by this House at the invitation of the Government, with its eyes open, by a direct and explicit increase in the tax rate from 30p to 35p. The balance of £4,100 million is higher taxation that has been imposed by stealth, without explicit resolution of the House of Commons, and it is that about which we are talking in these debates today. Of that figure of £4,100 million, £600 million has been extracted from those paying tax under the higher rate bands, and £3.500 million has been extracted in higher taxation through the failure to raise personal allowances in line with inflation.

This Budget, which the Chancellor presented as a tremendous tax-cutting Budget, cuts taxes by £2,200 million, and when the House finishes with it today will cut off the same figure as the Government were proposing to cut when the Chancellor started with it, but he has had to reshuffle the pack to some extent. A sum of £500 million is due to the reduction of 1p in the standard rate, and £1,700 million of the tax cuts introduced by this Budget are due to improvements in personal allowances.

The Chancellor of the Exchequer originally improved personal allowances by £1¼ billion. In Committee, to the diminishing enthusiasm of his colleagues, the right hon. Gentleman was required to do so to the tune of a further £450 million. Personal allowances have been improved by £1,700 million in this Budget, but the reduction in the amount of taxation imposed without explicit consent of the House amounts to less than half of that which the Government have taken away by stealth and by their failure to raise allowances in line with inflation.

That is why truth in taxation is important. By failing to keep personal allowances in line with the dreadful ravages inflicted by inflation, the Government have extended the range of disincentives and deepened the poverty trap. Social benefits have risen with full indexation while personal tax thresholds have not. Therefore more people are moving into the band where their earnings in work hardly exceed their earnings out of work.

By failing to raise the higher-rate tax bands, the Government have destroyed post-tax differentials dramatically. The hon. Member for Birmingham, Perry Barr (Mr. Rooker) said that the Budget did more for those on the higher rates, but it gives only a fraction of what would be necessary to restore these people to their 1973 position. In order to return to the equivalent thresholds for upper tax bands, the top rate, instead of being reached at £21,000 a year as at present, would not be reached until £39,000. That is a measure of the damage done by the failure to raise higher-rate tax bands in line with inflation.

As the right hon. Member for Down, South (Mr. Powell) pointed out, the real thief is inflation. It is the promoter of this increased burden of taxation and we are angry because, due to the Treasury's failure to change the tax system in line with inflation, the Treasury itself becomes the main body to profit from the inflation that it has failed to check. The House should feel quite entitled to impose the indexation obligation on the Government.

The unauthorised, unintended and unknown increase in taxation facilitates an increase in the burden of public expenditure without a requirement upon the Government to come before the House. When the Chief Secretary warned his hon. Friends below the Gangway to think twice before supporting the Liberal amendment, he was telling them to beware of removing the engine for the promotion of higher public spending which they and the Government have enjoyed. That is another reason to support the Bill as amended and to provide for truth in taxation.

As an increasing number of people begin to understand what is happening and see the extent to which taxation has been taken without the authority of their elected representatives, they ask why, if the Treasury is cheating in this way and taking tax for which it has no authority, they should not follow the same tax morality. This also has an effect on the negotiation of pay agreements. If people know that improvements in pay will lead to uncovenanted extractions of their money, it is much more difficult to expect them to conduct their pay bargaining on a responsible basis. They are bound to consider their net pay when we have the tax rates to which we have become accustomed.

This is not the only area in which the failure to take account of inflation in the tax system has led to injustice. Can the Chief Secretary give the figures that the Minister of State was unable to give when we discussed the indexation of capital gains tax? I understand that the yield of capital gains tax is about £330 million. In our two previous debates in which it was suggested that we should provide for indexation, we were not told the Government's estimate of the cost of doing so. The hon. Member for Cornwall, North (Mr. Pardoe) told us last month that if indexation of capital gains tax were accepted, it would cost about £250 million of the total yield of £330 million. If that is true, it is an important illustration of how the failure to take account of inflation on the tax system is having undesirable effects.

We support the Bill as amended. It became acceptable only because of the amendment carried in Committee. The amendment was moved by my hon. Friend the Member for Blaby (Mr. Lawson) and it is right that the House should pay tribute to the energy and tenacity with which he has pursued his demand night after night, year after year, on tax after tax.

Mr. Joel Barnett

The hon. Gentleman has been here for only three years.

Sir G. Howe

It is a formidable achievement in that time.

If the Liberal amendment were carried, the whole change would become unacceptable. The Liberals have a curious approach to this subject as to so many others. The hon. Member for Cornwall, North voted for the amendment in Committee, but now, with that luxurious capacity for changing his mind, it seems that he will vote to delete it.

In his rather long lecture about indexation, the Chief Secretary was going far beyond and beside the point. This is not an amendment dealing with across-the-board indexation. It does not mean an acceptance of the case for indexation on an automatic, universal basis. There is some force in the Chief Secretary's argument that a move in this direction could be seen as an acceptance of inflation and a weakening of our determination to secure its conquest. In a rather curious series of mixed metaphors, the right hon. Gentleman described the case as not proven and himself as an agnostic. That later became semi-agnostic and we were left with a picture of someone rather like a lapsed Scottish juryman. The Bill is acceptable because it embodies the minimum changes necessary to prevent the thief inflation operating on this part of the tax system as a means of taxation by stealth.

There is the power to vary the effect of the clause by the introduction of a Treasury order. With the consent of the House, the Treasury may impose additional taxation by varying the otherwise automatic effect of the clause. The right hon. Member for Down, South said that this was a curious and undesirable situation, but I suggest that it is no more curious and undesirable than the situation that has developed within the tax system. For example, Back Benchers cannot increase VAT as a means of paying for lower direct taxation. It is for the Government and the Treasury Bench to make proposals of that kind, and it will be likewise clear that, if the automatic change operates, it will be for the Treasury to make proposals to take away, at least openly, that part of the money which has been saved by the Bill now before the House. In other words, the Treasury will be able to act to claw back the consequences of the amendment, but it must do so—as in every other case where it imposes taxes—openly, plainly, above board and explicitly. That, surely, is a major improvement.

5.30 p.m.

There are, of course, other areas in relation to which the same kind of argument can be advanced. It is right to say that some indirect taxes, such as VAT, are already designed in such a way as to collect higher yield as inflation takes place, and there are quite different and difficult problems if the same principle comes to be applied to specific duties.

There are many other fields in which the same kind of argument can be discussed, from dog licences to many curious taxes about which the Chief Secretary knows more than I do. Probably the most important area in which the same principle should be applied is that of the thresholds for higher rates of taxes. It must surely be wrong, when this House of Commons has voted this year to fix at £6,000 the point at which higher rates of tax start, that unless special action is taken by the Government, always reluctant, to raise that year by year, tax can be increased on the higher rate taxpayers without any conscious decision at all by this House of Commons.

The principle which Labour Members below the Gangway have rightly asserted to prevent the imposition of taxes by stealth on standard rate taxpayers, unless the Treasury consciously seeks to get approval from the House of Commons, and to secure the upward movement of tax thresholds for standard rate taxpayers, is one that must surely be applied to other tax bands and other tax thresholds throughout the tax system.

Mrs. Wise

It should be made quite clear that the objective of those of us below the Gangway is to protect the lowest paid, and only the lowest paid.

Sir G. Howe

That has been the objective, but the principle which hon. Members below the Gangway have asserted is one to which we can all subscribe. It is a principle which says that the lowest paid taxpayers should not be required to pay taxes which this House of Commons has not imposed upon them and should not be required to pay taxes imposed by stealth. If the Treasury or any Government wish to impose higher taxes on the present tax threshold for the lower-rate taxpayers, the Government should come before this House of Commons and say what they are doing plainly and openly and impose that tax explicitly.

If that is a sound principle for lower-rate taxpayers, I see no reason why it is not an equally sound principle for taxpayers at every level in the income band. If this move towards truth in taxation is right and proper, as it is, for the lower paid, about whom the hon. Member for Coventry, South-West (Mrs. Wise) is concerned, it must be equally valid and equally important for those paying higher rates of tax.

It is on that basis, and not as part of some great monument to be erected in honour of the Chief Secretary or any of those associated with these amendments, to be labelled "indexation", but simply as a fundamental move towards truth in taxation, that we are delighted to accept the Bill in the form in which it has returned to the House, amended in Standing Committee.

Mrs. Barbara Castle (Blackburn)

We have heard a great deal today about truth in taxation. I want to make a plea for a little more truth about a strange new hybrid in our social policy, part tax relief and part social benefit. I refer, of course, to child benefit.

We welcome the fact that the Government have accepted an amendment which will increase the personal allowances, and I particularly welcome the adjustment that the Government have made, or are making, in their own amendment to tilt those increases in favour of the married couple as against the single person. But this House must face the position in which we now find ourselves over child benefit as a result of the compromise to phase it in over two years. What that means is that this House has inhibited itself from increasing the child tax allowances. They are to be phased out over two years and child benefit is to be phased in.

Where do we stand, therefore, on the whole issue of family support? The children have received nothing in this Budget, and nothing in the amendments that we are being asked to accept this afternoon. The child tax allowance section of child benefit has been frozen and is not covered by the successful agitation of my hon. Friends. The benefit side of it is not indexed and is not even governed by any rules or intentions to keep it in line with what would have happened if this House had been free to increase the child tax allowances.

I congratulate my hon. Friends on their victory in the Standing Committee for increased personal allowances, but I point out to them that that involves, as has been said, a cost of nearly £500 million. What that means is that with this addition to the increases in personal allowances in the Budget first introduced by the Chancellor, this House is in the process of agreeing to make available a total of £1,390 million a year in increased personal allowances for childless couples and the single wage earner.

But what are we going to do for the children of families? As I have already said, there will be nothing at all this year for them. In April 1978 we shall be devoting to the children of this country another £300 million. We all welcome the Government's announcement about increasing child benefit next April to £2.30 a week for all children, including the first, but the very small amount involved for children compared with the new increased level of provision for tax allowances is something that no civilised society ought to tolerate.

Mr. Rooker

In order that we may get the record clear, will my right hon. Friend appreciate that the increase in the personal allowances attained in the Standing Committee came from and out of the £1 billion set aside for the 2 per cent. reduction? It is not in addition to that. We have only changed the emphasis, and we have now arrived at a position in which there will be smaller personal allowances than we tried to get and a penny off the basic rate. There is no argument, as I see it, about the child benefits. We were not able to do anything in Committee on that. I hope, therefore, that my right hon. Friend will not admonish us too much.

Mrs. Castle

There must be something about me that makes people feel that am always admonishing when I am merely arguing. Perhaps it was the long months of dealing with the Chief Secretary when I was in the Cabinet that permanently soured my normal kindliness.

My hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) is right in saying that the increased cost has been covered by the reduction in the rate of tax. I accept his priority in choosing to put something on personal allowances rather than reducing the rate of tax, but that does not alter the comparison in the figures of what we are to spend on personal allowances for the single person and the childless couple, compared with next April's increase in child benefits. I am not suggesting for a moment that my hon. Friend the Member for Perry Barr wanted to do this at the expense of child benefit. I am merely trying to point out the present provisions of the Bill.

Mr. Kenneth Clarke (Rushcliffe)

Since the right hon. Lady has made her case so overwhelmingly that if one index-links the various tax allowances for the sake of families with children, one must also index-link child benefits, does she recall that as Secretary of State she resisted the index-linking of child benefits two years ago? As she was then responsible for resisting what she now sees as logical and essential in a civilised society, does she now see any case for resisting the index-linking of child benefits by her right hon. Friends on the Government Front Bench, now that tax allowances are to be indexed?

Mrs. Castle

If the hon. Gentleman had been able to contain his party political spite a little longer he would have found that I was coming exactly to that point.

We are now in an entirely different situation. Contained in an amendment to the Bill, which we are being asked to accept with the Government's blessing, is the first-time proposal partially to index personal allowances. I accept that this is not automatic indexation, but the whole purpose of putting it into the Finance Bill was to create a bias at every Budget time in favour of increasing the personal allowances. There would be no point in asking for this change otherwise. It is intended to make it more difficult for the Government not to index-link personal allowances. The change is as follows: under the child benefit proposals one cannot include an indexation of child tax allowances, therefore the case becomes overwhelmingly strong to index child benefits. I urge on my right hon. Friends the need for caution—

Mr. Nick Budgen (Wolverhampton, South-West)

rose —

Mrs. Castle

I shall not give way until I have been allowed to deploy my arguments for a little longer. Caution is necessary on the proposal for indexation of one section of our social provision. The case for including child benefits in automatic uprating now becomes unanswerable.

Mr. Budgen

rose—

Mrs. Castle

The hon. Gentleman is trying to make me incoherent, and that is not difficult, so I shall continue my argument for a little longer.

The right hon. and learned Member for Surrey, East (Sir G. Howe) today made his usual play about taxation by stealth as a result of inflation and refusal to adjust personal allowances. Right hon. and hon. Gentlemen opposite are always obsessed about taxation by stealth. We should all be arguing that one can have other examples of theft by stealth, such as failure to index social benefits. One could have an inverse form of taxation by stealth in exactly the same way. One of the great achievements of the present Labour Government was to index the major social benefits under the legislation that I carried through the House, which provides that pensioners, widows and others are automatically protected against inflation year by year.

5.45 p.m.

I was, of course, in favour of including child benefits in that automatic up-rating, but I was not able to persuade my right hon. Friends at that time. I am now saying that the case has become unanswerable. It is intolerable that we should not even include child benefits in the automatic annual uprating of other social service benefits. I say to my right hon. Friends that even that is not enough at this stage because over the years the level of our family support has been falling behind. The right hon. and learned Member for Surrey, East gives us moralistic lectures but, good heavens, inflation was allowed to devalue family support under Conservative Governments. I pay tribute to the present Government that at least the increase in child benefits to take effect next April will take the joint figure of family support under child benefit and tax allowances above the figure to which the Conservatives allowed it to fall in 1973.

I welcome that as an important step. But in the light of what we are deciding this afternoon and in the light of this bias in favour of automatically indexing personal allowances, that increase is not enough. Next April, under the concession that has been given by my right hon. Friend, the combined level of child tax allowances and child benefits for two children under 11 at current prices becomes £5.90 per week compared with £4.89 this April. That is an increase of just over £1 at current prices. However, by the time the increase takes effect prices will have gone up again. Even if we are lucky, prices will have gone up by 10 per cent., if the Government achieve their objective. If we take a rate of inflation of only 9½ per cent. between now and then, the real value of the 1978 figure will drop to £5.44, a real increase of only 55p per week for a family with two children. Under the proposals before us today, a single man will be 72p a week better off and under the proposals in the Bill there will be a built-in bias in favour of safeguarding that increase next April against the inflation that has taken place. We shall therefore have widened the disparity between our treatement of children and the treatment of those who have no family responsibilities.

What happens if the rate of inflation turns out to be more than 9½ per cent.? Will my right hon. Friend then say that it is only right that we should adjust the child benefit level to take account of that fact, or will the children once again be defeated by stealth?

I put it to the House advisedly that we fact a serious danger here. Child benefit straddles two concepts, the concept of tax allowance and the concept of social benefit. and it is not being properly treated in either respect. We ought to take this matter seriously—it will go on beyond this year, into next year as well—until we have brought the level of our family support up to date through a much bigger increase in child benefit.

The right hon. and learned Member for Surrey, East lectured us about the way the Government's failure to increase personal allowances in his words "extends the range of disincentives." When will the House of Commons get clearly into its mind that the biggest disincentive to work in our society lies in the fact that those with large families or on low wages—the two very often go together—are the ones who can find themselves better off on the dole simply because, if they are on the dole, they receive £4.50 a week for every child, whereas at present they get £1 for the first child and £1.50 for the second, and even under my right hon. Friend's increase next year they will get only £2.30?

From all points of view, I am convinced that this matter ought to be one of the most urgent priorities in our fiscal and social policy. I agree with my right hon. Friend that there are dangers in indexing just one little part of our provision in the total attack on poverty. I understand my hon. Friend's purposes and I share them, but my right hon. Friend is right when he says that if we index only partially something has to give. We are not indexing either side of child benefit, neither the tax side nor the social benefit side, and I beg the House to make this its consuming interest and its major demand in the coming months.

Mr. Powell

The right hon. Lady the Member for Blackburn (Mrs. Castle) has made a devastating indictment of the consequences of partial indexation. She has exposed the truth that if one is seeking what might be called justice, or at any rate a common level of adjustment to the consequences of inflation, it must be indexation everywhere or indexation nowhere, for in so far as the indexation is imperfect, a burden is shifted, and probably shifted far less visibly than was any shift which took place as a result of a clause of this kind not appearing in any previous Finance Bill.

The fact that these provisions, namely, Clause 22(2) and (3), appear in the present Bill makes this one of the gloomiest days for many a long year for Her Majesty's Treasury. That might be treated with levity, but mistakenly so, for there is no Department of State more intimately concerned with the welfare of the public interest as a whole, and within that whole not least the weakest members of society, than is Her Majesty's Treasury.

This provision is intended as far as possible to bind the hands and to bias the judgment—I take the word from the right hon. Lady; she used it correctly— of future Governments and future Chancellors of the Exchequer, and it will do so in a manner likely to contribute to the maintenance of a state of inflation, for with this subsection yet another barrier or dyke against inflation is being deliberately demolished and washed away.

The Chief Secretary—it was over this that he and I had a brief exchange—sought to suggest that, since there was the second part of subsections (2) and (3), the House could in any future year decide whether it wanted to continue to adjust some—not all—of the personal tax allowances to the actual experience of inflation. Of course, the opposite is the case.

On the Finance Bill, it is on proposals to reduce taxation, on amendments which would have the effect of reducing the burden, that it is open to any hon. Member or any section of the House to test the opinion of the House as to the desirability of an alteration in the Bill. In future, however, if the allowances are not to rise pari passu with the retail price index, it will be necessary for the Chancellor of the day to execute a remarkable operation. He will have to succeed in carrying with him both the Prime Minister and his party on the most improbable proposal that he could put before them, namely, that as a matter of policy in their Budget that year they should deliberately reduce personal allowances all round.

One has only to translate that into terms of static money to realise what a rare bird would be the Chancellor of the Exchequer who would deliberately build into his Budget a proposal for a general reduction in personal allowances. To succeed, he would have to have the further rarity of a charm of manner even greater than that of the Chief Secretary in order to carry with him his chief, his colleagues and his party.

Mr. Nigel Lawson (Blaby)

I do not wish to contest the right hon. Gentleman's assessment of the character of the present Administration, but will he answer this question? He said that we must think in real terms, and I shall do so. Is he saying that it is far preferable for these real cuts in allowances and these real increases in taxation to be introduced by stealth, with no parliamentary approval as such, simply by the mechanism of inflation? If he is saying that, is the right hon. Gentleman therefore arguing—he is always logical—that the higher the rate of inflation the better, since that give the Chancellor of the Exchequer even,greater scope to reduce the real value of the allowances by stealth?

Mr. Powell

The hon. Gentleman's fervid imagination just ran away with him at the end of that question, for until he reached the end I was minded to meet it with an affirmative. The cause of inflation is the persistent and perpetual unwillingness of Governments to meet increases in expenditure with increases in revenue or in real borrowing. That is the cause of inflation. By making the profound change—it will not remain isolated—which is being written into this Bill we are increasing the propensity of Governments to allow expenditure to outstrip revenue.

The Chief Secretary was therefore right when—turning my argument through 90 degrees, but it is still the same point—he said to his hon. Friends below the Gangway that they were in danger of putting more pressure upon the total of public expenditure. That, indeed, is the effect. [HON. MEMBERS: "What is wrong with that?"] What is wrong with that is that if we are the enemies of inflation, the greatest of all injustices, the greatest untruth in at least financial public life, we ought to seek to make it as easy as possible for Governments to match expenditure with revenue or real borrowing—and, since we are talking here about revenue, I may drop the other half of the argument

6.0 p.m.

No House of Commons has been under any delusion about the ratchet effect of inflation on the yield of taxation; but it has been a palliative and a defence against inflation—it has been an arm of those who have been combating inflation—that without overt action, without positive action, without a positive decision by Government, there was a buoyancy of revenue which rose to meet the exorbitant demands of the total of public expenditure. Now that weapon is not merely being taken away; it is being turned against the Government. They are deprived of this de vice which we all knew perfectly well existed.

In any case, it has been open to any section of the House at any stage to move amendments—to test the opinion of the House upon them—for adjusting this or that allowance to the level of the value of money. We have known perfectly well what we have been doing, and we have been doing, at any rate partially, our duty by increasing the yield of revenue so as partly to keep pace with the increasing demand of total public expenditure or, more accurately, the increase until very recently in the size of the PSBR. This will now make it more difficult for Governments in future to control the uncovered part of the PSBR. Almost every hon. Member knows that that is what we are doing.

Therefore, it is not merely a bad day for those whose immediate responsibility is financial in the narrow sense. It is a bad day for all those who suffer from the continuance of inflation. Here we are writing into, of all forms of legislation, a tax Bill a reference to the retail price index and seeking automatically to adjust our tax law to the retail price index. We should be ashamed of ourselves. I am prepared to say that if tellers were likely to be available to support an amendment to delete subsections (2) and (3) I should be happy to go into the Lobby to help to do it. Those who will come after us will rue the day when this amendment was carried against the Government in Committee. They will rue the day when that amendment was carried against a Government who did not have the voting power to take it out of the Bill, as it should have been taken out, on Report. It is one of the requirements of sound public finance—which, in turn, is one of the requirements of public happiness and wellbeing—that Governments, as long as they remain Governments, should be able to maintain the structure of their Budget intact and carry through their tax decisions. This is an example of failure; and we should mark the fact.

Mrs. Wise

The House is discussing this matter as though this were the first encroachment of indexation on our national life, there has been only occasional mention in passing of the fact that this is not the first instance of indexation. We already have indexed pensions. I do not remember my right hon. and hon. Friends on the Front Bench castigating those of us who favour indexed-linked pensions with gloomy thoughts of the possible consequences of indexation. As far as I know, they supported index-linked pensions because the object of such linking is simply to protect the pensioner. We do not want the standard of living of pensioners to be eroded. It is always open to the Government to increase pensions by more than the increase in the retail price index, but not by less. No one said that that indexation would be the end of civilisation, and yet the introduction of the principle into this Bill is being treated as though that would happen.

I agree with the plea of my right hon. Friend the Member for Blackburn (Mrs. Castle) to index-link child benefits. It was one of my great regrets, in an experience in Standing Committee which was otherwise very happy, that it was not possible to find a way in the Finance Bill of improving the financial position of children. That was not our fault. As my right hon. Friend the Member for Blackburn said, the reason was that child benefits and child tax allowances are in an uneasy conjunction. In neither instance are the children getting fair treatment. A solution to the problem is to index-link the child benefits, but not simply by accepting them at their present level or at their level next April. We must achieve a satisfactory level for child benefits and index-link that.

The objective of my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) and myself in supporting proposals to index-link the personal allowances is simple. My right hon. Friend the Chief Secretary accused us of taking a very simple view. Indeed, we did. We looked for the method by which the most could be done for those with the least. My right hon. Friend may mock, but increasing personal tax allowances is the only method open to us of helping those with the least.

My right hon. Friend says that we are helping those at the top end of the scale as well. But he knows very well, because he said so, that increasing the personal allowances is the method which comes nearest to fairness. In Committee he told us why the Chancellor of the Exchequer preferred a reduction in the standard rate. He said: I ask my hon. Friend to appreciate what the consequences would have been had we done it all on the threshold. For each £100 increase in personal tax allowances, with the basic rate of 35p one gives £35 to a man whether he is earning £30, £80, £90 or £100 a week."—[Official Report, Standing Committee D,14th June 1977; c. 482.] That is exactly why my hon. Friend and myself want to put the tax concessions in the form of improving the personal allowances, because it gives the same to people whether they earn £30 or £140, whereas the preferred method of the Chief Secretary and the Chancellor is to reduce the standard rate, which gives more to people earning more right up the scale and discriminates in favour of single people as against families.

I have used the example of the reduction of 2p, giving 19p a week to the man with two children and an income of £40 and £2.19 to the man with two children and an income of £140. This is why we did not like the idea that £1 billion should be used to reduce the standard rate. We said that it should all be used to increase the thresholds. We would also have tossed in the £275 million which went exclusively to those earning more than £140 a week, in many cases substantially more.

My right hon. Friend the Member for Blackburn should bear in mind that figure of £275 million which went exclusively to those on the higher rate bands. Is not a rather similar amount being used to increase child benefits next year and would it not have been a lot better had that £275 million in addition gone on child benefits rather than to those earning £140 a week? Of course it would. My right hon. Friend the Chief Secretary was well aware in Committee of the effect of what we were doing.

Mr. Tony Newton (Braintree)

While the hon. Lady is obviously right to make comparisons between changes in the basic rate of tax and changes in personal allowances, she has not fairly and squarely pointed out to her hon. Friends and to the House that personal allowances also relate to the higher tax rates. Every £1 on personal allowances gives 34p to those who are relatively less well off and 83p to those paying the highest rate of tax on earned income. The hon. Lady must recognise that.

Mrs. Wise

Of course. If the hon. Gentleman had waited a moment I was coming to that. The fact is that every method of giving a tax concession under our present tax system gives more to the better off. The point about raising thresholds is that the discrimination is less than that of any other method.

I wish that we had a better tax system. I wish that my right hon. Friends on the Front Bench would re-cast the whole tax system so that we did not have to grapple with the problem of giving more than we intend to the best off. We on the Back Benches cannot re-cast the whole tax system, much as my hon. Friend the Member for Perry Barr and I would like to do so.

We cannot, for instance, move from a system of personal allowances applicable right through the scale to a system of a simple exemption. But so long as my right hon. Friends do not see fit to make our tax system more rational so that we can help the low paid without helping those at the top of the scale, they have no right in all honesty to criticise us for doing our best to utilise a very imperfect tax system.

In Standing Committee on 14th June, in addition to telling us that we were giving as much to the man on £30 a week as to the man on £80, £90, or £100, my right hon. Friend told us that a decrease of 2p in the basic rate of tax would do more for the man on £100, £90 or £80 than it would for a man with a lower wage. That is true. The drawback, from the point of view of the majority of the population, is that 71.9 per cent. of adult men earn less than £80 a week. In seeking to do more for those earning less than £80 a week than for those earning more we were actually seeking to help the majority. That is a perfectly sensible objective.

On the other hand, despite the valuable improvements that we have forced into the Bill, we still have a Budget that does most for the best off. Since my right hon. Friends on the Front Bench seem to think that there are great armies of people on higher tax rates, I would tell them that 94.5 per cent. of all adult men earn less than £120 a week.

During the Committee stage on the Floor of the House the Minister of State again tried to make us weep bitter tears about the plight of those on the higher rate bands, but my hon. Friends below the Gangway managed to remain pretty dry eyed about their plight. We are told that by index linking the personal allowances and the personal allowances only we are opening a terrible door to tremendous activity by the Conservatives if ever they get back to power. That is a bit rich coming from the Treasury. I do not think that in the public mind the Treasury is identified as the supporter and defender of public expenditure.

6.15 p.m.

Should we not be a little more rational about the matter? Are my right hon. Friends trying to tell us that if a Tory Government are returned to power, they would not in any case squeeze public expenditure? Are they trying to tell us that the Tories would not in any case aim to give more tax concessions to the best off than to the poorest? Do my right hon. Friends not see that by index linking the personal allowances, which at least help the poorest as well as the better off, we are actually trying to tie the hands of that Conservative Government? That is why Conservative Government proponents would not swallow our original amendment. That is why they have weakened our original amendment. That is why there is now a provision in the Finance Bill to let a future Conservative Government off the hook.

My right hon. Friend the Chief Secretary might think that is funny, but—

Mr. Joel Barnett

My hon. Friend is being a little less than fair to what I have said. What she fails to understand is that, as the right hon. Member for Down, South (Mr. Powell) pointed out, the Government of the day do not need to use the order that she has put in. They would be able to index personal allowances and cut public expenditure in order to do it. My hon. Friend would then not have mach of a case against them when they did.

Mrs. Wise

When a Budget comes from any Government consisting only of tax concessions for the lowest paid and when public expenditure is cut only by an exactly equivalent amount, I think that we shall have reached a stage when cows are jumping over the moon. We shall be in cloud-cuckoo-land. It will not happen that way. My hon. Friends know that perfectly well.

Conservative Members intend to cut public expenditure in any case. It was not part of their original intention that the poorest paid should in any way be even partial beneficiaries of that process.

If my right hon. Friends adopted the views on economic strategy that are often expressed from below the Gangway, the prospect of a Conservative Government would be greatly diminished.

The suggestion is that there is something beneficial in allowing the tax position of the low paid to be eroded so that we can maintain public expenditure. That leads to the situation in which the biggest cry from Conservative Members is that those on social benefits are actually better off in some measure than low-paid workers. That leads to the situation where we are expected to swallow the fact that the low-paid are actually paying taxes on incomes that are less than supplementary benefit, unemployment benefit, and far less than family income supplement. We are expected to believe that this is a stable situation.

Cannot my right hon. Friends realise that it is from that fact that Conservative Members derive their impetus for demanding the taxation of unemployment benefit? Is not that why in Standing Committee the Financial Secretary made it very plain that the Government were considering all ways and means of taxing unemployment benefit? Is not that bound to come, unless we reach a situation where people do not pay tax on incomes equivalent to unemployment benefit or supplementary benefit?

The tax situation has to move one way or another. My hon. Friends and I want it to move in the direction where people with incomes less than supplementary benefit level do not pay tax. That is a simple objective. However, we have to go a complicated and imperfect way round it because of the tax system, and for no other reason.

My right hon. Friend accused us of appearing to believe that it was possible to maintain real take-home pay by means of tax cuts, index linking, or some such method. I point out to him that it is the Chancellor of the Exchequer himself who first gave the impression that the levels of tax were the key to the maintenance of take-home pay by seeking to trade off with the unions tax cuts against an agreement to wage restraint. It is the Treasury which introduced the tax question into the wages question and not me and my hon. Friends below the Gangway.

There is a very interesting way of looking at this matter. If we consider the original proposals of the Chancellor of the Exchequer, which no longer stand, which have been improved by our actions but which nevertheless show clearly the way that my right hon. Friend's mind works, we see that for someone with an income of £2,000 a year my right hon. Friend's original full proposals would have been equivalent to a gross wage increase of £2.36 a week but that for someone with an annual salary of £10,000 my right hon. Friend's original proposals would have been equivalent to a gross wage increase of £20.89 a week. There we can see plainly the difference in treatment being meted out to those on the lower levels as opposed to those on the higher levels.

Just in case my right hon. Friend thinks that we have overlooked the fact that these gross pay equivalents are also taxable, let me point out to him that it is an indisputable fact that in real money terms the advantage is far more in favour of the higher income groups, and that the actual money increase which would have been achieved by someone with an annual income of £25,000 is equivalent to almost the whole of the personal allowance of a single person.

It ill behoves my right hon. and hon. Friends on the Treasury Bench to argue that we are helping the high paid and somehow deceiving the low paid. What we have done helps the low paid, and we have had to seek the nearest way that can be achieved within this tax system to help the poorest paid at least as much as those on higher incomes.

If the Chancellor of the Exchequer wants to introduce in next year's Finance Bill a cut-off point for personal allowances, for instance, Government supporters sitting below the Gangway will be in the forefront of his supporters. Until he does that, the argument advanced by my right hon. Friend the Chief Secretary is not an honest one. He accused us of squeezing differentials. He argued against us that we were trying to help the poor as much as the better off. But now he turns that argument on its head.

The idea that allowing personal allowances to be eroded to the great detriment of those on average and lower earnings is in some way a barrier against inflation is utter rubbish. If this Government can reduce inflation by wage restraint or in any other way, I dare say that they will do it. In that case the index linking will be merely words on paper. It will never operate. It will operate only after Governments have faired to prevent inflation.

My right hon. Friend should cease trying to suggest that we are opening the door to Tory policies. He should cease trying to suggest that we are seeking to help the high paid at the expense of the low paid. He knows that both those claims are plainly untrue.

I suggest that if my right hon. and hon. Friends on the Treasury Bench are seriously concerned about improving the position of the poor, when we come to next year's Finance Bill they will conscript my hon. Friend the Member for Perry Barr and ire on to the Standing Committee so that we can assist them further in helping the lower paid.

Mr. Lawson

There seems to be a slight difference between the hon. Member for Coventry, South-West (Mrs. Wise) and the Chief Secretary in interpreting what we have done in these indexation amendments. As one who played some part in assisting the passage of these amendments I must say that the interpretation of the Chief Secretary is nearer the correct one. I shall return in a moment to one or two minor points of disagreement that I have with the Chief Secretary.

I want first, however, to turn to the arguments advanced with his customary force and even greater vehemence than usual by the right hon. Member for Down, South (Mr. Powell). He stressed—and I agree with him—the very great importance of what we are doing today. It is of the first importance. Without doubt it is the most important legislative achievement of this Session. That may not be saying much. We remember how this was to be the great devolution Session. It has not been that. I suggest that perhaps it has been the indexation Session. I shall come later to what I mean by that word, because it is perhaps not the same as what other hon. Members mean by it.

The right hon. Member for Down, South also said that this was not only a very important day but a very black day. On the contrary, I feel it to be a very good day and a very good day's work. I say that partly because, of course, I have been pressing this case ever since I entered the House a little more than three years ago, and I apologise to my right hon. and hon. Friends and to some extent to right hon. and hon. Gentlemen opposite if I have become something of an indexation bore in the process. However, no one gets anywhere in this House unless he is persistent, and I have been just as bored in going on and on with my argument as right hon. and hon. Gentlemen on both sides of the House. The difference is that I am the only hon. Member who has had to listen to the whole of every one of my own speeches. With that, perhaps I may be excused.

Anyhow, we have now achieved this. What is it that we have achieved? The right hon. Member for Down, South says that we have put a bias into the judgment of the Chancellor of the Exchequer. On the contrary, we have removed a bias.

I speak in broad terms, because I know that we have not got this form of indexation applying totally to the tax system. Of course, it should be applied to the specific duties, to the personal allowances as it is now, to the higher rate thresholds, to the higher tax bands and to capital taxation. But we have made a start.

Up until now, the bias has been the other way about, as the Chief Secretary discovered to his cost when he tried to increase the petrol duty. Thus, if a Chancellor wanted merely to maintain, let alone to increase, the revenue from main indirect taxes on hydrocarbon oils, tobacco and alcohol and the vehicle excise duty, there was the most tremendous outcry. On the other hand, if he wished to raise direct tax—income tax— by stealth, it was the easiest way.

That was the bias. We have removed that bias, or have gone some way towards doing so, for the specific duties are not yet indexed. I hope that they will be, so that a Chancellor will have to decide between direct and indirect taxation on its merits and freed from the bias which has applied hitherto. That alone is an important gain.

6.30 p.m.

The right hon. Member for Down, South had a further objection. He said that there was a barrier against inflation that was being wiped away. I totally disagree with him, and so did the Chief Secretary. The Chief Secretary and the right hon. Gentleman had two completely different views on the amendment that was introduced in Standing Committee when I was delighted to have the support of the hon. Members for Birmingham, Perry Barr (Mr. Rooker) and Coventry, South-West. But the right lion. Member for Down, South argued that somehow there were great forces leading inexorably to higher public expenditure that no Government could possibly check and that all we could do was to finance that expenditure. The implication was that the easier it was to finance it, the better, even if that process were achieved by stealth.

The Chief Secretary, on the other hand, took a different view. He took the view that was set out in the recent OECD report, namely, that the tremendous buoyancy due to inflation leads to ever higher revenue from income tax, which tends to lead Governments to feel that they can spend more than they should, because money is coming in all the time, and this tends to weaken the link between expenditure and taxation. The report said that it is necessary to maintain this if people are to understand the consequences of increases in public expenditure.

Mr. Powell

I should find that a much more convincing picture of the world in which we live if over those years there had been no borrowing requirement. But we have lived through years in which the net barrowing requirement has increased by leaps and bounds and where it has been that additional expenditure which has been financed. That is why that explanation is not convincing.

Lawson

I find the right hon. Gentleman's gloom and pessimism saddening because I always looked on him, and still do, as first and foremost a parliamentarian and a believer in parliamentary democracy and our present system of government. He is saying that we have reached a point at which no Government will have the courage to say to the people and to Parliament "No, there is a limit beyond which public expenditure cannot be financed without increases in taxation or borrowing, which nobody wants, and therefore it must be stopped." Equally, he is saying that no Government or Cabinet could posssibly agree to increase taxation openly to a level that is necessary to finance, in a non-inflationary manner, public expenditure programmes to which they have committed themselves.

I do not share that gloom and pessimism and, if I did, I doubt whether I could feel that our parliamentary system of government could be justified. I doubt whether I could feel that it could possibly cope with the problems of inflation and the other problems that we face. I found it sad to hear such a distinguished parliamentarian putting forward such a pessimistic and almost cynical analysis of how an economy must be managed under our system.

I turn to the arguments of the Chief Secretary. He made my position very clear and I also wish to make my position clear. I have never maintained that the purpose of this form of indexation was to encourage inflation—heaven forbid—or that it was the answer to inflation. It is neither. It is a different argument, altogether, but the Chief Secretary put up something of a straw man when he said that automatic indexation would be unacceptable. He said it was my amendment giving the Chancellor the power to bring an order before the House to reduce the amount by which the allowances go up that made it acceptable, because it was no longer automatic.

Let me deal first with the point about the indexation or otherwise of public expenditure and benefits, because the two are closely linked. What the right hon. Member for Blackburn (Mrs. Castle) did was worse than even the most automatic indexation. She took two indices—one relating to prices and the other to earnings. She said that each year the benefits must go up by whichever of the two indices rose the more. In other words, in the years when earnings rise faster than prices one indexes in that respect, and in the years when prices rise faster than earnings one indexes according to that situation. That is a curious form of indexation.

However, there is a further difference. In talking of benefits that are indexed one envisages that they will be maintained in real terms all the time

On the question of the indexation of personal allowances for taxation, and if it is extended, as I believe it should be, in respect of higher-rate thresholds and all the higher bands, and even if they are adjusted all the time, that does not say anything about the total yield of income tax. There is nothing to stop the Chancellor from coming to the House and saying, "I have decided to raise the yield of income tax and the basic rate will now be 35, 40 or 50 per cent." I would not support a basic rate of 50 per cent., but the Chancellor could take that course if he wanted to do so and thus he is in no way restricted as to tie total yield of income tax. He could say that the top rate instead of being 83 per cent. would be 93 per cent., just as we want to see it down to 60 per cent. We wish to see these matters out in the open.

There is a further reason for saying that the idea of automatic indexation is a straw man. Let me make clear why I moved the amendment to the amendment originally proposed by the hon. Member for Coventry, South-West. There were two reasons. The first was that in the form in which it was proposed I felt that there was no possibility of its being carried in Committee and certainly no chance of its reaching the statute book. I was concerned to see a measure of indexation on the statute book. Therefore, I proposed my amendment—and I am glad that, for once, it has had the effect I desired.

There was, however, another reason and that relates to the straw man. When there is an annual Finance Act one cannot commit a Government for future years in a rigid way because that would be impossible. Let us examine the narrow point where one has indexation of the threshold, of personal allowances. That determines who pays tax and who does not. It is possible to conceive of there being two parties in this exercise. The first party says that nobody below average earnings need pay any income tax at all. The other party says, on the contrary, that, just as everybody in employment pays the employee's national insurance contribution, so everybody in employment should pay tax.

Is it to be maintained that the provisions of this Finance Bill can prevent such an argument being said that somehow it is to be fixed immutably as to how many people shall pay tax and how many shall not? Such a suggestion is a nonsense. It would be possible in any future Finance Bill for the Government to say "Notwithstanding subsection (2) of Section 22 of the Finance Act 1977, allowances this year will be so and so."

It will be open to them to say, if they want to be a little more devious about it, that there shall be an extra £50 of deemed income on top of taxable income. The Treasury likes the word "deeming". It has many "deeming" clauses. A deemed £50 more would have the effect of cutting £50 off the allowance. The Government could do that.

What is the common element here? It is that whatever the Treasury had done it would have been explicit. There would have been no more taxation by stealth, no more lowering of the allowances by stealth. It would have been out in the open.

It was important to make it clear that what we were doing was to say "Of course the Chancellor must have complete freedom of action, but it must be open, overt." That is why I put down an amendment to make it clear that it was overt, that the Chancellor could say "Here is an order, which I want the House to approve, which will mean that the allowances go up by very much less than the rise in the cost of living. In fact, they will be reduced in real terms." Therefore, what we are getting at is truth in taxation. It is not some automaticity, which is a straw man. That is impossible under our system.

I thought that the Chief Secretary's speech today marked a great advance in the Treasury's understanding of these matters. It was certainly a great improvement on the pathetic arguments which were put forward against indexation in previous debates. If we had had speeches by Treasury Ministers as balanced and sensible as the Chief Secretary's today, we might have had more fruitful debates for several years past on indexation.

Finally, the Chief Secretary asked "Where does the hon. Member wish it to stop?" I am concerned about indexation of the tax system. As I have explained, this does not hamstring the Chancellor in any way except to remove a bias which is there at present. It alters the political context and it will therefore have real consequences. But it alters the political context in a wholly helpful way.

I am not in favour of the indexation of wages and I never have been. I believe in free collective bargaining. What free collective bargaining means is that if a particular employer wishes freely to negotiate with the trade union representing employees in his plant that their contract shall be indexed, that is fine. That is their business. They are free to do it, or not to do it, as the case may be. But what we are talking about is the payment of tax. It is not open to any individual to choose, or to bargain about, whether he will pay his tax. That is where we must have honesty and truth. We have taken an important step towards that tonight.

Mr. John Pardoe (Cornwall, North)

I agree with almost every word that the hon. Member for Blaby (Mr. Lawson) said. I have often had cause to support him in debates in the House and in Committee on the issue of indexation.

I want to refer specifically to Amendments Nos. 122 and 123, and to ask for a separate vote on Amendment No. 122.

I shall immediately answer the question which was put to me by the right hon. and learned Member for Surrey, East (Sir G. Howe) about how I found it possible to support in Committee the addition of the words in the amendment and why I now wish to remove them. My reasons for supporting them in Committee were almost identical to the reasons given by the hon. Member for Blaby. Both he and the right hon. and learned Gentleman sometimes accuse me of doing things because of what they call the Lib-Lab pact. I accuse the hon. Member for Blaby of doing things because of a sort of Blaby-Surrey pact on this occasion. There is no doubt that the hon. Gentleman would have preferred the amendment to stand as it was originally. I should prefer the amendment to stand as it was originally, too.

Mr. Lawson

I should not like it to stand as it was originally, because it would be very badly misinterpreted. It has already been widely misinterpreted in the Press. It is important that we make clear precisely what we are doing. Making it explicit in this way is an improvement.

6.45 p.m.

Mr. Pardoe

I part company with the hon. Member on that. I do not agree. I think that the main reason for what happened in Committee was that it was essential to vote for the amendment that the hon. Gentleman moved in order to make the main amendment acceptable to his own Front Bench. I voted for it because I knew that without it the principle of indexation could not have been carried in Committee.

I would rather have half a loaf than no bread. We have half a loaf. I should now like to try to make it a whole loaf. That is what the vote on Amendment No. 122 is about. It will put it back into that virginal state in which it would hate been had the hon. Members for Birmingham, Perry Barr (Mr. Rooker) and Coventry, South-West (Mrs. Wise) had their own way. I should undoubtedly have supported them on that, as I did in the initial stages.

It seems to be agreed among economic schools on all sides that there is a very close connection between inflation and taxation. Milton Friedman has called inflation taxation without representation, and Keynes called it taxation by currency depreciation. One might almost say that it was the tax that dared not speak its name.

Why is inflation bad? I am not quite sure that the right hon. Member for Down, South (Mr. Powell) will agree with me, but it seems to me that inflation in its effect on the purchasing power of money does not cause a loss of wealth to the community as a whole, but does cause a redistribution of wealth within the community as a whole.

That is the reason for the need for indexation. It is to prevent the distortions and redistributions which take place as a result of inflation. The right hon. Gentleman may well say—I am sure he does—"Ah, but inflation is a temporary phenomenon which we—Parliament, Governments and so on—some day will defeat." Some day, some time, perhaps; but it is a long time coming. I agree with Milton Friedman, though I do not agree with him on everything, that indexation makes inflation easier to conquer. What I find strange about the right hon. Gentleman's approach is that he believes in Milton Friedman almost completely, he accepts the monetarist argument, but when Milton Friedman says "My recipe for inflation will be exceedingly painful, so painful that no one will wish to apply it unless we have indexation" the right hon. Gentleman then parts company with him and says "I will not have indexation." In that case, I do not believe that the monetary cure can be made to work, because no politicians will ever be able to impose it. That is the argument for the link between monetarism and what Friedman calls monetary correction.

I come now specifically to Amendment No. 122, and to ask the Chief Secretary one or two questions about the start of subsection (2). Let us talk on those lines. Let us suppose that they alone were in the Bill with the following subsection omitted, my amendment having been carried. If the retail price index were to rise in the calendar year 1977 by 15 per cent.—I am not assuming that it will, but it is easier to calculate—unless something is done in the 1978 Budget the personal allowance for a married man in 1978–79 will be not £1,295, as it will be in 1977–78, but £1,295 plus 15 per cent., making a total of £1,489. Will that be from 5th April if nothing is done? Indeed, it will. Next year's Finance Bill can presumably change this.

The hon. Member for Blaby said it was perfectly open to the Chancellor to get more revenue from tax by raising the rates and changing the threshold at the top. But he could change the thresholds at the bottom. Were he to do so, would he come to the House with an amendment next year which said "Leave out £1,295" or would it say "Leave out £1,489"? In other words what would the Government have to amend?

If we are trying to produce a monetary correction, the amendment in next year's Finance Bill—supposing that there is an inflation rate of 15 per cent.—should amend £1,489. If it only amends £1,295 then we shall not have indexed the tax system at all. We shall still be fiddling around with funny money or phoney money as the case may be. If the Government want it to be less than £1,489 would they be able to amend it in this way? I think they would. I think that the amendment could read "Insert £1,320" or whatever.

Would this take place from 5th April or from the date at which the Bill became law? Do we need an order as contained in the amendment of the hon. Member for Blaby, merely in order to enable the Government to change the amount downwards from 5th April? If that is the only reason why we need the order, then it is not a very strong argument.

I do not think that there is a need for these additional lines at all. They give back to the Treasury a very small part of what has been taken away, if anything at all. I think that what we have done in Committee and what we are doing here today constitutes an important blow for parliamentary control over taxation and over the Executive.

We are only doing it because the right hon. and learned Member for Surrey, East is slightly afraid that if he went to the Treasury—by some incredible mistake—to manage our affairs he would be adversely constrained in what he wants to do. If that is the case he must want to reduce the allowances, and I am sure he does not. Parliament has had the temerity to take back part of the control of the tax system, and it would be sensible for it to stick to its guns and not include these additional lines in the Bill.

The effect of inflation on the tax system is basically this: by pretending inflation does not exist Governments can increase tax without parliamentary approval; by allowing inflation to erode taxation Governments allow poorer people to be gathered into the tax net, and middle income earners to be put into the supertax bracket. This makes it easier for Governments to raise revenue from lower-level taxpayers. This is altogether easier than raising tax from expenditure. That is why Governments have continued to switch the burden of tax from expenditure. If the Government want to raise tax on expenditure they have come to the House with a specific proposal and say they want to increase the duties on petrol, whisky or tobacco. Yet they can get tax from incomes simply by the process of inflation.

That is why we have distortion in the tax system and have had it for many years. When the Government talk of cutting tax that is a farce. Virtually no Government have ever cut income tax at all. In an article in the Financial Times on 14th July Samuel Brittan showed that in 1967–68 there were 20,010,000 taxpayers. Although Governments have consistently said that they are reducing the numbers in 1970–71 there were 20,040,000 taxpayers, despite the large number who had been theoretically removed from the tax net. The number of taxpayers dipped a little in the early years of Lord Barber, but by 1973–74 there were 19,810,000 taxpayers—very nearly as many as in 1970–71, in spite of an enormous amount of propaganda put out in that period claiming that millions of people had been removed from the tax net. Of course, that did not happen. Tax cutting of this kind never happens.

If one looks at the Government's actual receipts one sees that in 1970 total income tax amounted to £7,410 million. In 1973 it was £9,109 million and by 1974 it was £12,113 million. Yet the Government told us throughout that period that they were cutting taxes. They may have cut the tax rates, but they did not cut the actual revenue or the numbers of people caught in the tax net. They were simply failing to adjust for inflation, and that is the situation that we are trying to right.

I believe that we must index the whole tax system. We cannot stop with personal taxation. We must index duties as well. I moved an amendment in Committee to make duties ad valorem. That is one way of doing it, but the actual monetary correction of duties is probably a better way of dealing with this matter. I moved an amendment at the beginning of our Committee discussions on the Floor of the House to index capital gains tax. We must go the whole hog and index the whole tax system. The Government must come to the House with a package and ask us to vote for the whole of it. However, this is not a debate on general indexation and I do not wish to tread those paths.

Nevertheless, it is interesting, when thinking of general indexation, to note that we are coming to a point where economists such as Marshall, Friedman and Keynes all agree, because all have argued at one time or another for indexation of a large part of the economy. It makes no sense at all to continue indexing some incomes and not others. It is really crazy to continue indexing pensions and not earnings. It is even crazier to index some pensions and not others. We know that private pensions funds are finding it incredibly difficult to keep up with the rate of inflation, and the majority are falling way behind. Are the Government going to step in and sell them indexed bonds? That is what should happen. We must move towards the principle of general indexation. Today we are moving a step in that direction and I wholeheartedly welcome it.

7.0 p.m.

Mr. Rooker

This has been an interesting debate. I thought at one time that it would not take place, because there were no means of raising on Report the issue of partial indexation. My hon. Friend the Member for Coventry, South-West (Mrs. Wise) and I were not going to seek to raise the issue, as the Government, in a generous mood, had given way and had accepted what the Committee had done. I thank the Government for accepting the principle of the amendments made in Committee. They have accepted the principle 100 per cent.

Of course, we do not believe that the Government have gone far enough. We have now gone past the stage of members of the Cabinet heaping personal abuse upon my hon. Friend the Member for Coventry, South-West and me and we are getting down to discussing the issue. I except my right hon. Friend the Chief Secretary, who alone had an honourable record during that weekend. We are now debating this issue on the Floor of the House.

I do not think that my right hon. Friend was fair in the way that he deliberately tried to distort—I should describe it as black propaganda—the effects of the changes in the Bill and what they mean. He sought to do what the Treasury has sought to do since 14th June by the use of planted parliamentary questions.

I want to make it abundantly clear that, after Third Reading tonight, higher income earners will get a smaller overall reduction in tax than they would have had if the Bill had not been amended. We accept that there is a spill-over effect into the higher rate bands. I know that Opposition Members are getting agitated. A reduction of 2 per cent. on the basic rate does not affect someone in the higher tax bands in the same way as the spillover caused by raising the tax threshold.

For a person to qualify for the higher rate tax, he must earn £5,000, or £6,000 above the personal allowance as it is now, on which he will pay 35 per cent. The Government were planning a 2 per cent. reduction on that basic rate. Therefore, anyone earning all that money and paying all that tax would pay a minimum of £2.40 a week less in tax. That is for the man earning £6,000 a year above the personal allowance. Such a man would have got much less if we could have raised the tax threshold to a higher level and not had the 2 per cent. reduction off the basic rate. At the end of the day it cannot be denied that such a person is now slightly worse off than he would have been had there been no change.

A single person with an income of £10,000 per anum would have gained a tax reduction, as the Budget originally proposed, of £471—over £9 a week. As the Bill leaves the House today with these new amendments, such a person will receive a total tax reduction of £433.75. It is a massive increase in his personal take-home pay because of the massive tax handout that he has received, but it is slightly less than was originally proposed.

A married couple with two children—the average family—with an earned income of £10,000, as originally proposed in the Budget, would have had £385 less tax to pay. It is now £360. Therefore, that family is slightly worse off. But the married couple with two children with an earned income of £3,000 per annum, according to the original Budget proposal, would have gained only £40, whereas now that family will have a tax reduction of £50. I will stand judged on those examples alone.

This is the only way in which Back Benchers can try to shift the burden away from the lower paid. This is the only weapon that we have. It is untruthful of the Treasury to try to distort what we have done in the way that it has sought to do today. It needs to be repeated, and it will be for the rest of the year so that we get it right in next year's Budget.

The amendments propose to raise the personal tax allowance for a married couple up to £1,295, but it is still nowhere near good enough. I make no apology for saying that this is a supreme party political argument. The fact is that every November when we index pensions, unemployment pay, sickness benefit and supplementary allowances, the newspapers are full of speeches by Tory Members who claim that that is the week that it does not pay to work. They quote examples. They point out that, because of the increase in benefits to be paid in that week, the lower paid are paying tax on earnings which are less than they could get in benefits. They use that argument as a weapon to undermine the Welfare State. They do it every year, and it is on record. We are seeking to remove that weapon from the Opposition, because continual attacks on the Welfare State are not good and will undermine the Labour Party outside the House.

I know that the Treasury has another answer—to tax unemployment and sickness benefit. Indeed, it is actively considering that possibility. It has been considering it for two years. It knows how many civil servants will be required to operate it. The calculations have been made. We want to stop this proposal in its tracks. The only way is to raise the tax threshold at least to supplementary benefit levels.

Today we are to pass an amendment to raise the tax allowances for a married couple to £1,295 from the abysmal Budget figure of £1,225. According to a Written Answer on 15th July, that figure, if it were to take account of supplementary benefit rates, for a couple with no children and no special allowances, but with average rent and rates, which are automatically paid to supplementary benefit claimants, would need to be £1,475. Therefore, we shall have the same problem in November when the other rates are indexed to inflation.

Again, Tories will be saying "This is the week that it does not pay the low paid to work". The low paid will draw the obvious conclusion, and that is what we want to avoid. They can do the sums. People with larger than average families will see it as their prime function to defend their families. But when they see the two calculations they will realise that they are not defending their families by working, or, if they are working, by fighting redundancy. They will go quietly. That is the conclusion that they will draw. That will not be good for the economy or for the Labour Government and the Labour Party. That is why these allowances are nowhere near high enough.

It is only because, after a tough fight, the Government have accepted the principle of the amendments made in Committee that we have decided not to seek to amend these amendements. We have on our side the great majority of the working population who earn less than average wages. The TUC knows the score. We had a Royal Commission 20 years ago that laid down a cardinal principle, accepted since 1918 when income tax started in its present form, that no one should be taxed on an income that was less than required for subsistence. We define that level today as the poverty datum or supplementary benefit level. That is the minimum subsistence level that we say no one should fall below. We are going against logic and morality in seeking to tax people whose earnings are less than the supplementary benefit level.

I know that some Front Bench Members do not believe that there are any lowpaid workers. They think that everyone is getting £60 or £70 a week, which is above the supplementary benefit level, and that when the Treasury takes a tax slice out of it, they are still all right. That is not the argument. First, many people are earning less than the supplementary benefit level. The New Earnings Survey, inaccurate though it may be at certain levels, proves that every year.

One of my constituents, a married man with two children, is earning only £30 a week. He is worse off working than he would be claiming supplementary benefits. We are trying to shift the balance. We have achieved a little towards shifting that balance—far enough not to cause the Front Bench any more trouble—and that is why we have decided not to try to change the Government's figures.

We shall not take from the Front Bench lectures such as that which we received from the Chief Secretary today on the spill-over effect. We shall not accept lectures about our argument being simple and unimportant. It is important. That is why we were forced into the position of trying for the indexing amendments. We were forced into that position. We did not wish to do it, because we are not indexers. We were forced because the Treasury has, for the last three years, allowed the tax thresholds to drop so low and brought so many people into tax when they earn below the supplementary benefit level.

We do not accept that we must index the rest of the tax system. The Treasury has done that this year for the high-paid taxpayers. There would have been no need to put down amendments to index the higher bands. The unfortunate thing is that most people outside the House do not know the situation. The Government raised the personal allowance for the lower end by only 9 and 13 per cent. when inflation is estimated to be 17 per cent. At the same time they raised the first higher rate band of tax by 20 per cent., the second by 27 per cent. and the third by 23 per cent., and so on. Those figures are well above the inflation levels, Indexation at those levels is not required this year.

Commentators have said that this is only the beginning and that we shall soon start to index the tax relief limit of £25,000 on mortgages for instance. We are completely opposed to that, particularly while the high rate taxpayers can obtain tax relief on mortgage interest payments at their highest margin of tax. Why should most of us receive only 35 per cent. relief on a mortgage when the better off receive up to 85 per cent. off their mortgage interest rates? Why should I help them when most people receive only 35 per cent.? Why should we not adopt the same system as that which applies to insurance and under which everyone receives the same relief?

The Treasury has responded to inflation by raising extra revenue from those on average earnings. We have sought to shift the balance so that the Government can raise extra tax from the higher paid. We oppose any move in the opposite direction. I accept that the extra income from the higher paid will not cover everything that we need because there are fewer higher paid than there are low paid.

That is no excuse for always giving them the extra relief.

The high earners had it too good in the Budget. I make no apology for what I am about to say. Parliamentary Questions since the:Budget and Committee when hon. Members have sought to get their arguments across to a wider public have shown the truth about some of the tax changes. I shall not accept lectures from the Front Bench, particularly from members of this Government.

A high-paid manager who is single and earning £16,000 a year was, under the Budget, to receive a tax reduction of £732 a year, or over £14 a week. If that person was married with two children he was to receive only £604 reduction in income tax. For the Treasury to say that recent changes are a shift in the balance towards the family when the Budget so discriminated against the family, even at this high level of earnings, is a total distortion of the truth. The figures that came out in the Finance Bill Committee were more by accident than anything else. It is a nonsense for the Chancellor of the Exchequer to say that the Government are doing more for the family by shifting the balance by a few quid a year when, in their original Budget there is so much bias against the family that even someone earning £16,000 a year was to receive £14 a week from this Government. A member of the Cabinet receives a salary of £16,000, of course.

7.15 p.m.

I am not willing to accept lectures from members of a Labour Cabinet who have rigged the Budget in favour of middle managers and who get a hell of a spin-off themselves. It is reprehensible for the Chief Secretary to attack what we have tried to do, as he did today. It comes ill from a man who will receive so much himself. I was not going to make that comment until I heard my right hon. Friend's speech earlier today. Nevertheless, I feel that the point had to be made if only because my right hon. Friend sought to attack what we had done.

Indexation has been operated in other countries for a number of years. I believe that it has operated in Holland and Canada for three years. There is no evidence that it has distorted the rate of inflation. The Treasury should use the public relations and propaganda that it have used to cast smears on myself and my hon. Friends to sell to the trade unions the benefits of increasing tax thresholds. That would have an effect on pay claims. Such high claims would not be needed to take account of taxation, and that battle would be worth winning.

If the Government accepted Amendment No. 122 they would be able to say to the trade unions that they would not need to claim high wage rises because there would be automatic indexation. The unions would not need to claim rises to take account of tax. The Ford workers, for instance, would not need to make a 15 per cent. claim because there would he a reduction in taxation. That is a point that the Treasury should take on board.

Another point of controversy has been whether the Ways and Means Resolution is affected by the amendments. We have been told that, because of the passage of these two amendments to Clause 22, the Ways and Means Resolution required at the time of the Budget has been messed up. I want a categorical assurance from the Government that there are no problems concerning the Resolution and that some of the stories fed to the Press about it are utter nonsense. I have had it confirmed by the Clerk's Department that the amendments carried in Committee already take care of the Ways and Means Resolution procedure, but I want it said from the Front Bench.

If the amendments passed in Standing Committee had not been in order, they would not have been selected. Therefore, by definition they were in order. For example, I put down an amendment to tax the salary of the President of the European Commission, but it was ruled out of order. But these two amendments to Clause 22 were selected and they were passed. I want the red herrings that the Treasury has been putting out on this issue finally to be shot and laid away.

I have a completely open mind about whether the Treasury should bring forward indexation of customs and excise duties. There is merit in the idea. It concerns the same argument as over the petrol duty increase. I would have sympathy with it, but it needs looking at carefully, because customs and excise duties are regressive taxes for the low paid.

But there is another important aspect that needs to be taken into account. I understand that all our excise duties rates over the next years will have to be halved because we shall be harmonising them with the rest of the Community, whose duties are by and large less than ours. This will mean a substantial increase in value added tax. I see hon. Members shaking their heads, but I am assured that that is so. If it not the case, the Treasury will have a better argument for bringing forward some indexation of customs and excise duties. I would not be totally opposed to the idea, but it needs examination. I have an open mind about it.

Finally, I want to place on record that my hon. Friend the Member for Coventry, South-West and I would like to be members of the Standing Committee taking the Finance Bill upstairs next year. The fact that we have already been told that it will happen only over the dead bodies of Treasury Ministers is a matter which in the next Session I may consider raising as a breach of privilege at a suitable opportunity, because it goes against the authority and the rules of the Committee of Selection.

Mr. Budgen

I am sure that the House, listening to the anger of the hon. Member for Birmingham, Perry Barr (Mr. Rooker), will appreciate how stunned he feels himself to be for the way in which he and the hon. Member for Coventry, South-West (Mrs. Wise) have been—and I can put it no other way—conned by my hon. Friend the Member for Blaby (Mr. Lawson) and have adopted a measure of general indexation without realising—[HON. MEMBERS: "Oh."] They had every reason to be conned. It is a complicated matter, and maybe they did not appreciate what was happening. I do not believe that my hon. Friend intended to con them, but the result was that they were conned.

I hope that if tonight is a bad night for inflation, we recognise it as a good night for my hon. Friend. He has been a most consistent advocate of indexation. I recollect that the first time he advocated it was in 1974, in the period between the two elections. I remember that I made one of perhaps my first five or six speeches in this House on the subject.

During that period I used to return to Wolverhampton nervously with my copies of Hansard in my hand, hand them over to my bemused supporters, and always receive the same replies, "Enoch thought differently", or "Enoch expressed it better." When I raised the argument about indexation with my hon. Friend for the first time, I thought to myself "This must surely not be an issue about which Enoch has any view and I can express my own view for the first time without any adverse comparison." So when I express my view on indexation, while it may be much the same view as that of the right hon. Member for Down, South (Mr. Powell), I hope that it will not be thought that that is as a result of any servile and detailed agreement that I have with him on all matters.

The Chief Secretary to the Treasury dealt with the first and most important question about indexation, which is whether indexation will have a good, bad, or neutral effect in relation to inflation. I do not wish in any way to advance further the arguments put to my hon. Friend the Member for Blaby, but what I hope that the Conservative Party will not do is adopt indexation by stealth. I was rather rude perhaps, not to my hon. Friend, but to the hon. Members for Perry Barr and Coventry, South-West when I said that they had been conned by my hon. Friend. They ought not to have been conned. There was no intention on his part to con them. But the fact of the matter is that the Conservative Party might adopt indexation by stealth, because we do not know exactly how far my hon. Friend wants us to go along this line. Once one starts on the road to indexation, there is an inexorable logic to take one further along the journey. One cannot simply say that one is in favour of it where it is to one's own advantage but that one is opposed to it where it has disadvantages. In logic, one has to have the lot or none at all.

I have no doubt that in the last war both the British and the German High Commands had publicity departments which spoke of the need for "truth in war", and one feels a little sceptical when one hears about "truth in taxation". It is very easy to say "As far as taxation is concerned, we believe in truth, we believe in indexation". I make no snide comment, but my hon. Friend does not seem to have been quite so keen about truth in taxation in respect of the petrol duty or of the car licensing payment as he has been about it in other elements of the tax system.

Mr. Lawson

I have time and again consistently stated—and this has been accepted by the Chief Secretary today—that I am in favour of the same form of indexation being applied to specific duties. I have made no secret of it. If my hon. Friend will read the speech I made in the Budget debate, he will see that I dealt in specific terms with the petrol duty. If my hon. Friend will read the speeches of our right hon. and learned Friend the Member for Surrey, East (Sir G. Howe), he will see that for some time he has been making powerful speeches pointing out the evils of an unindexed tax system. There is no point in saying that I am conning people. They have reached their own views.

7.30 p.m.

Mr. Budgen

If my hon. Friend says that I misunderstood his position, I apologise. He is in favour of the total indexation of the total tax system, whether that gives an advantage or a disadvantage to the taxpayer. Must we not go a little further? If we are in favour of indexation in the tax system, how do we resist the argument so cogently put by the right hon. Member for Blackburn (Mrs. Castle)? Do we forget, for instance, that the last Tory Administration indexed public sector pensions? Do we forget, for instance, that the last Tory Administration introduced a measure of wage indexation in phase 3 of their control of wages and incomes?

It seems to me that once we start indexing the whole of the tax system it is difficut to resist the logic of those who argue that, on the other side, we must index all payments made by the State. We reach the stage, I suggest, which I believe is the stage that the hon. Member for Cornwall, North (Mr. Pardoe) wants, where the whole of the public sector is indexed. But where does that take the Tory Party.

I accept that it is theoretically possible to index the whole of the public sector. Indeed, it might be possible to index the transactions that are entered into by large corporations. However, as I understand the present position of the Tory Party, we want to throw away our corporatist past. We want to give proper encouragement, not by any undue preference, to small businesses and individuals to compete in a free market, without any disadvantages against them.

If somebody borrows some money from his grandmother to buy a house, how can that transaction be indexed? How can somebody who is setting up a little shop in the West Midlands with two or three chaps working on a lathe promise them that he will give them indexed pensions? How can any of the small employers, or any of the small transactions that are entered into in the private sector, be subject to indexation? I suggest that if we have indexation in the great and growing body of the public sector, but we cannot have indexation in the private sector—

Mr. Percy Grieve (Solihull)

My hon. Friend is surely missing the point. Is not the point that indexation of taxation be. comes necessary precisely because one cannot index all wages, salaries, earnings and everything else? The indexation of taxation is a recogniton of the fact that taxation based on old values is totally false.

Mr. Budgen

That is the argument that is put forward by my hon. Friend the Member for Blaby. He believes that once the tax system has been indexed it will be possible to fight off demands for further indexation. I deny that. I note how other Administrations have given way to indexation in areas other than taxation, and I believe that once the tax system is totally indexed we shall find that indexation in public sector pensions will be confirmed. We shall find, for instance, that the present system—which I commend—of cash limits will be revoked and that we shall be back to funny money.

Mr. Lawson

Nonsense.

Mr. Budgen

My hon. Friend says "Nonsense". I hope that he is right, but there is a grave risk that once half the public sector has been indexed, the other half has to be indexed, too. If we give the public sector that enormous advantage, the difficulty is that whole sections of the private sector cannot compete against it. For instance, in borrowing money the State already has enormous advantages. No other borrower can say to those who lend to it "We will give you tax relief on gilts". If, for the sake of argument, the State—or a large corporation—can say to those who lend to it "We will index the capital, and we will also index the interest payments" what chance have those small businesses and self-employed men on whose behalf we on these Benches often speak of competing for resources and for labour against it?

Much though I admire my hon. Friends strength of character, his eloquence and his force in persuading so many of his colleagues of the need for indexation, the danger is that we, the Tory Party, may end up by accepting the proposition that indexation is appropriate throughout the public sector. We shall then find that it is impracticable for whole sections of the private sector, particularly the small business and the chap on his own whom we want to encourage as being independent of the State. We have to recognise that we must either be in favour of the wholly impracticable dream of total indexation or be against it.

Mr. Douglas Crawford (Perth and East Perthshire)

The hon. Member for Birmingham, Perry Barr (Mr. Rooker) knows that he and I do not agree on many things, and I do not agree with much of what he said tonight, but I commend his courage in doing what he did, and I deprecate what his Front Bench did to him for his action in Committee. Independent minds like his ought to be commended.

I did not have the doubtful privilege of being a member of the Standing Committee that considered parts of the Finance Bill. Perhaps my Whip did not want to discipline me by trying to get me on to that Committee. The hon. Member for Coventry, South-West (Mrs. Wise) used the right words when she said that if anybody wanted her to be on the Committee next year she would have to be conscripted.

I listened carefully to the Chief Secretary, to the right hon. and learned Member for Surrey, East (Sir G. Howe) and to others talking about this group of amendments and transferring the subject to a major debate on indexation. These amendments refer to Clause 22 and discuss personal reliefs for married people, single people, wife's earned income, age allowance, and additional relief for widows and others in respect of children. The amendments are not about blanket indexation, but about indexation for personal reliefs, and I agreed with the point made by the right hon. Member for Blackburn (Mrs. Castle) about child benefit. I am sorry that the right hon. Lady did not put down a suitable amendment.

The whole point of Clause 22 is not to talk about blanket indexation but to protect the classes covered in the clause. If lines 19 to 23 and 30 to 33 were to remain in the Bill they would make a mockery of the form of indexation referred to in the clause. When the Chief Secretary said that we cannot have blanket indexation, he did not carry me with him, nor did the right hon. Member for Down, South (Mr. Powell) carry me with him when he said that blanket indexation would open the floodgates. I have to tell him that inflation is a fact of Western life.

Mr. Powell

It is not a fact of life.

Mr. Crawford

I suggest, in all humility, that it is.

Mr. Powell

I shall prove in one sentence that inflation cannot be a permanent feature of Western life. Inflation is dynamic. It is a change in the value of money from one period to another. It is inflation only if the deterioration is continued. The deterioration cannot continue indefinitely.

Mr. Crawford

I could discuss the reasons for inflation with the right hon. Gentleman all night. He said that it was dynamic. I think that life and politics are dynamic. Even if the right hon. Gentleman and the Chief Secretary are correct in principle that we cannot have indexation, the Liberal Party amendments, Nos. 122 and 123, refer only to the classes of people in Clause 22. It is almost a case of de minimis.

Why are the Government so afraid of new ideas? We know that they are afraid of Scottish self-government and proportional representation, but why are they afraid of tax indexation? I suggest to them and to the Conservative Party that they should be a little more venturesome and not be afraid of Amendments Nos. 122 and 123. I assume that the hon. Members for Perry Barr and Coventry, South-West will be in favour of them.

May I repeat the question by the hon. Member for Perry Barr to the Treasury Bench? May we have an assurance that the Ways and Means Resolution will not preclude his amendments from going forward? Can the Government tell us what would be the cost of accepting Amendments Nos. 122 and 123? The hon. Member for Cornwall, North (Mr. Pardoe) suggested:hat the rate of inflation during the next year will be about 15 per cent. I think that he is being optimistic, but can the Minister who is to reply tell us how much Amendments Nos. 122 and 123 would cost if the annual inflation rate were 15 per cent.? The cost would need to be very high to persuade the SNP not to support the Liberals in their amendments.

Dr. Oonagh McDonald (Thurrock)

You will be pleased to hear, Mr. Deputy Speaker, that I do not intend to detain the House for long. I welcome the changes in personal allowances forced by my hon. Friends in Committee. The reasons for the changes have been emphasised and I merely wish to go over them briefly.

The proposed scheme is the best way of helping the low-paid and the majority of ordinary workers. The figure of £80 a week as the average wage for a man has been bandied about recently, but it gives a misleading impression. Wages range from £23 a week for men covered by the Wages Council legislation to the wages of the oil refinery craftsmen in my constituency who are regarded as highly paid and who earn through basic pay and additional payments a gross of £74 to £76 a week. People try to get jobs in the refineries because they are regarded as better paid.

Raising the personal allowances is the best way available to us within the present tax system of assisting these workers. That is why my hon. Friends voted for the amendment even though they realised that, unavoidably, assistance was also being given to higher wage and salary earners.

Over a long period, the partial indexation in Clause 22 would improve the position of the low-paid, but it could have a distorting effect in the immediate future because it could shift the effective burden of taxation from single people to families first, because the child allowances are being reduced and gradually phased out, and secondly, because indexation as expressed in the Bill will be in line with the rise in the Index of Retail Prices and this is inadequately weighted for the effects of inflation on the expenditure of low-income families. Most of their income goes on rent, heating, lighting and food and only secondarily on clothing and last of all on an occasional luxury. The index does not adequately indicate the effects of inflation on these families.

The partial indexation of personal allowances is not enough. It will not help low-paid families sufficiently. In her eloquent plea for an increase in child benefit, my right hon. Friend the Member for Blackburn (Mrs. Castle) made exactly the right point when she said that we should certainly increase the personal allowances but that we should also make sure that we gave additional support to families through a substantial increase in child benefit. This is vital if we are to support families and relieve the burden of taxation on single people.

7.45 p.m.

Clause 22 forces a Chancellor of the Exchequer who does not intend to raise personal allowances in this way to explain the reason for his decision to the House. That may not be a bad thing. It forces the Chancellor to ask himself every year "To index or not to index?" It is to be hoped that Chancellors will take almost as much time to answer that question as Hamlet took to answer a similar question.

Perhaps it was in the Chief Secretary's mind to accept the amendments for another purpose. He said that he was unhappy about the proposed system of indexing personal allowances because it would produce greater benefits for the higher paid. Perhaps it is just as well that the Chancellor and the Chief Secretary should be faced with the question "To index or not to index?" Perhaps we may take seriously their unhappiness about the proposals in Clause 22. Perhaps the Chief Secretary proposes to bring forward next year much more radical plans for changes in the tax system that would enable us to benefit the low-paid ordinary worker without, at the same time, stuffing the pockets of the rich that are already full of money. Perhaps the Chief Secretary will take a much more radical look at the whole system of income tax. It is time that this was done.

The burden of taxation falls disproportionately in the low-paid. It is unfairly distributed throughout the system so that the higher paid bear a proportionally lighter burden than those on low incomes. There are also other injustices. It still discriminates against married women and underprivileged groups. It is time that the whole thing was looked at critically, and I recommend the Chief Secretary to get down to work on the income tax system in this way.

We share certain objectives. We want to see a wealth tax and the burden of taxation on the lower paid eased. We want support to be directed effectively to families. We do not want those in work to be worse off than those who are unfortunately out of work and who have to resort to supplementary benefits or social security. But it is difficult to realise these objectives within the present income tax system. It needs careful examination in order for us to realize these ideals. It needs a much more radical change than the indexation of personal allowances, the slight raising of tax thresholds and an increase in child benefits.

I have spelt out the changes that we want. Since the Chief Secretary has expressed doubts about whether indexation of personal allowances would work, I hope that he and the Chancellor of the Exchequer will come here next year and say that they will not be indexing personal allowances because they have found a much better way of dealing with the problem of fairly distributing the burden of taxation in the community.

While they are looking at the income tax system, perhaps they should take a wider look at the total revenue and the way in which that is raised. At the moment the individual taxpayer is carrying the can for public expenditure. Indeed, one might almost say that the individual taxpayer pays for his own unemployment benefit or for his own social security, should he have the misfortune to fall ill for a long period of time or have the misfortune to lose his job.

Those who are coming off lightly under the present system of raising revenue are the companies. Many large companies are paying no corporation tax at all, and they are not investing at all, therefore, there is no excuse for their failure to pay corporation tax. The contribution to total revenue of those who pay corporation tax is 8 per cent. This has been a declining contribution, aided, regretfully, by Labour and Conservative Governments over the past 20 years, because that is the period during which their contribution has declined. That is where the additional revenue ought to come from.

Mr. Rooker

Will my hon. Friend make it clear that the reason that large corporations are not contributing their fair share of corporation tax is not that the companies are not making profits? The reason is the deferred payment of tax. Under that system, companies can claim an increase in profit of 50 per cent. or 60 per cent., as in the case of Guest, Keen Nettlefold, and end up paying next to nothing in corporation tax. It is not, as one Conservative Member suggested, that they are not making profits.

Dr. McDonald

I thank my hon. Friend for that intervention. That is indeed the case. There are many individual taxpayers who wish they could share the privilege of deferring taxation, but that is solely the privilege of companies, and they are making an inadequate contribution to total revenue.

I accept the reservation that the Chief Secretary expressed in his opening speech, but I hope that during the coming months he will get together with the Chancellor of the Exchequer, take a long, cold look at the old system of taxation and of the raising of total revenue, and let us have a fairer deal for the ordinary taxpayer and for the person on a low income. Let us have a fairer deal for them in line with the objectives that we share on the Government side of the House.

Mr. Graham Page (Crosby)

The debate has concentrated mainly on the amendments to subsections (2) and (3) of Clause 22, the indexation provisions. If subsections (2) and (3) could do what they purport to do, it would be a very substantial constitutional change—the creation of a permanent, automatic indexation as a continuous process of our law.

They cannot, of course, do what they purport to do, because any Parliament can alter an Act at any time it chooses. But if they really did what they seek to do, as the Bill stands, there would be that great change. It would be even greater if both subsections were removed. There may be to some extent a pious hope that these subsections will bind a future Parliament in relation to the revenue that it shall or shall not raise in a certain sphere. Indeed, the opening words of subsection (2) say In the year 1978–19 and subsequent years something shall happen automatically: in other words, personal reliefs shall be increased by a certain amount.

As my hon. Friend the Member for Blaby (Mr. Lawson) said, Parliament could at any time repeal or modify that provision, but—and this is my point—until that provision is repealed or modified, it will have a significant effect on the procedure of financial legislation in this House. If I read the provision correctly, it will in future be an increase in taxation if one tries, to put a halt to this process.

Let us suppose that when we are debating the next Finance Bill a Member of the Opposition Front Bench or a Back Bencher wished to increase the marriage allowance but to leave the single allowance as it is. That would be contrary to this Bill. Indeed, as I read it, it would be an increase in taxation to leave a personal relief as it is and not to increase it in accordance with this Bill. That can be proposed only by a Treasury Minister, and it would not be possible for a Back Bench Member or even a Front Bench Member of the Opposition to propose it.

I am fearful that personal reliefs are moving into the legislative sphere, or the subordinate legislative sphere of the old regulator, and that in future we shall have personal reliefs regulated by Treasury order. The hon. Member for Cornwall, North (Mr. Pardoe) said that subsections (2) and (3) as we have them give a greater parliamentary control. I am not sure that they do. I think that as they stand—

Mr. Pardoe

As they stand, they do not.

Mr. Page

Perhaps the hon. Gentleman's amendment to remove the provisos would restore parliamentary control.

My right hon. Friend the Member for Down, South (Mr. Powell) thought that these provisions would worry the Treasury if the Treasury were losing something by them. The Treasury may be celebrating the fact that personal reliefs shall in future be settled by Treasury order.

I think that this is a very dangerous principle. I want only to issue a warning that we ought carefully to watch to see that we do not get by Treasury order further taxation of matters which have always been before the House in the Finance Bill and have been capable of proposal for amendment from the Back Benches.

Mr. Douglas Jay (Battersea, North)

On this theme of truth in taxation I am glad that the hon. Member for Cornwall, North (Mr. Pardoe) reminded the House that the Conservative Government of 1970–74 constantly told us that they had made cuts in income tax of so many thousand million pounds and that we found at the end of that Government's life that the income tax was yielding many thousands of millions of pounds more than it had at the beginning. It was worth having the debate in order to have that pointed out to us.

I have constantly urged in recent years that the threshold for income tax should be raised because there were too many taxpayers at the bottom of the scale who were paying and who ought not to be paying at all. But it does not follow from that that the right way to do it is to plunge on to what I regard as the slippery slope of indexation. I do not think that the debate ought to end without some warning to the House about what it is doing and some invitation to hon. Members to consider whether they have really thought out where we are going.

It is easy to use the phrase "truth in taxation" and, in a case such as this, to advocate applying that to income tax. But truth in taxation does not end with income tax. If we are to have truth in taxation, there are many other things to which truth will have to be applied. If it applies to income tax, logically, if not socially, a case can be made for applying it to capital gains tax—and if to capital gains tax, why not to capital transfer tax?

8.0 p.m.

I notice that the hon. Member for Cornwall, North has already settled on this course and is advocating the application of indexation to almost the whole of taxation. The trouble is that partial indexation is extremely hard to defend and total indexation is unworkable, as has already been said. If one applies it to taxation, why should one not apply it to Government expenditure as well? It has been applied to public service pensions and in effect it is applied to retirement pensions. Of course that is unavoidable on the grounds of social justice, but it could be argued that we do not have to stop there.

Only one hon. Member has so far mentioned the National Debt. If we are proceeding down the road towards indexation, why should not debt interest be indexed? Why should not capital sums be indexed? If Government bonds are indexed, why not municipal bonds, and if municipal bonds, why not industrial bonds? Hon. Members should consider where all this is leading us.

Mr. Budgen

Does the right hon. Gentleman agree that if that were done, it would pose intolerable burdens for small people, who could not compete by offering these indexed benefits?

Mr. Jay

Certainly. That is likely to be one of the effects, but the other effect, which the hon. Gentleman did not mention, is the intolerable effect on the Budget. The indexation on the tax side would tend to reduce the revenue while the indexation on the expenditure side would tend to increase expenditure. The National Debt is one example.

The whole effect of proceeding further and further down this road would be to drive the Budget further and further into deficit. It is no good hon. Members shaking their heads at that. Clearly, in all those cases it would do so. We have already reduced income tax by a considerable sum. I invite all those hon. Members—including the right hon. Member for Down, South (Mr. Powell), who perhaps agrees with some of what I am saying—who believe that Government deficits are the main cause of inflation to proceed to the inevitable conclusion that indexation of this kind would become the recipe for inflation. It would increase Government debt and make it more difficult to borrow.

The next step would be that some people would argue—I am not arguing it here—with a good deal of plausibility that we should have truth in this matter, although I would contest whether indexation is the same as truth in economic matters. However, that is a separate argument. If we are to have truth in taxation and truth in Government expenditure, we must have truth in wages and salaries as well.

We had a dose of truth in wages and salaries in 1974 as a result of the previous Government's agreement for a wage threshold. That in itself would certainly be a recipe for cost inflation. It seems inevitable that if one proceeds at all far on this road, both through Budgets and through the effects on cost inflation, one will make it more difficult for this House or Governments in future to resist the inflationary process.

The curious thing about all this is that this argument does not seem to have been produced from any rational, impartial examination of the whole of our economic problems. It has simply been the desire of certain people to pay less tax. Very many people want to pay less tax. I remember that when Hugh Dalton was Chancellor of the Exchequer and everyone used to grumble about PAYE he said "It is not PAYE that people do not like; it is P-a-y-i-n-g". I am inclined to think that this argument about indexation of income tax is not on a much higher level of argument than that.

I believe that the Government have probably gone too far already in giving way to this principle, and I hope that they do not proceed any further. I think that they will find it difficult to hold the line, having given way thus far. I warn the House that if we proceed any further in this direction, we shall make the work of future Budgets and the counter-inflation policy ever more difficult in the future.

Mr. Kenneth Clarke

I congratulate my hon. Friend the Member for Blaby (Mr. Lawson) on the success of his extremely persistent campaign to get a measure of indexation into tax allowances. I think that there was a measure of inevitability about our move towards indexation in the tax system in this Parliament because, as the right hon. Member for Battersea, North (Mr. Jay) said, this is something of a slippery slope once one begins to bring indexation into public finances.

I think that this is a road down which we are bound to slide a good deal further. It is a road down which we are bound to slide because of the outrageous levels of inflation in the past few years and the levels of public expenditure that the present Government have maintained and felt obliged to finance in part from taxation, but, above all, because in recent years we have introduced a level of indexation into the payment of national insurance benefits. It was becoming a scandalous anomaly that there was a contrast between the payment of index-linked tax-free social security benefit and non-index-linked tax threshold for people on low incomes paying high standard rates of tax.

On this occasion I agree with the hon. Member for Birmingham, Perry Barr (Mr. Rooker), although I do not agree with the way in which he suggested that Conservatives are making political use of it. It has become a scandal that there are growing numbers of low-paid men with large families whom it does not pay to go to work. One of the principal causes has been that tax thresholds have not been keeping in lire with inflation and therefore the contrast between their position and the position of those on national insurance benefits has steadily worsened. Once one has index linking of benefits at the present level of inflation and the non-index-linking of tax thresholds, it was only a matter of time before the situation got intolerable.

We have passed the time—some years ago—when those on family income supplement had to pay taxes on an income that was being supplemented by another part of the social security system. We have now reached the stage where people are paying tax on national insurance benefit levels of income. It was inevitable that as the years went by the anomalies would grow worse. It would have made the poverty trap a lasting disgrace.

It was inevitable that we should move into a system of index linking in our tax system, so long as we already had this partial indexation of social security benefit built into the system.

I now wish to touch on one or two new anomalies that now arise once we move into index-linking the tax system. The most sensible debate that we can now have is that in which my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) and the right hon. Member for Battersea, North have just engaged.

The question now is whether we can realistically stop at this stage carrying index linking still further. If some people think that we can, are they happy with the line that we are now drawing? Should we now look at the most glaring anomalies that we have created by moving the boundary line further into the tax system? I agree with my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) that the case for index-linking higher earnings brackets now begins to seem irresistible. I wish to touch on the case for giving some index linking to taxpayers and others with families. The worst anomaly created by the Bill lies yet again where injustice has lain in the past with the taxpayer with a family. I am sure that my hon. Friend the Member for Blaby and the hon. Members for Perry Barr and Coventry, South-West (Mrs. Wise) regard this anomaly as accidental.

Obviously, if hon. Members had succeeded in carrying a "Blaby" amendment two years ago, it would have included child tax allowances in the allowances which they now wish to index link, and the only reason that they have not included child tax allowances now is that we are in the middle of the change-over to the child benefit system. The only child tax allowances left in this Bill are what one might call vestigial or interim arrangements for certain special categories of taxpayer.

What hon. Members have done, therefore, is to index-link tax allowances but not touch child benefit. The right hon. Lady the Member for Blackburn (Mrs. Castle), speaking a little earlier, eloquently and passionately advocated the case for now going straight away to index-linking child benefit as the least a civilised society could do to ensure that we did not go back to the long-standing situation in which we steadily discriminated against taxpayers with families in every change we made in successive Budgets.

I was startled, however, to hear the right hon. Lady make the case so well, because only two years ago, on 7th July 1975, she, as Secretary of State, was responsible for persuading the House to reject amendments which I then moved on behalf of the Opposition to index-link child benefit. She won sufficient supporters, including the hon. Members for Perry Barr and for Coventry, South-West, and all three of them then voted against index-linking child benefits. I have here the relevant copies of Hansard, with the cruel quotations which I could use but which I shall not, for the sake of brevity, showing how the right hon. Lady set forth the Treasury case on index-linking child benefit with skill and finesse.

Mr. Budgen

If my hon. Friend is saying that he is in favour of index-linking child benefit, what distincion would he draw between child benefit and other benefits given by the State? Does it not follow inevitably that he must be in favour of index-linking all manner of payments by the State?

Mr. Clarke

A large number of payments are index linked already that is the point. The long-term benefits are now index linked, with the approval of both sides of the House, to prices or to incomes, whichever be the greater, and the short-term benefits are linked to incomes only. One reason for arguing the case two years ago was that child benefit seemed to be on the wrong side of the boundary even then.

I am confining myself to this one point, and I am saying that if we leave the boundaries of index linking as they will be set in this Bill, the outcome will be intolerable in the case of child benefit and family support. Everyone will have his case for index-linking some further part of the taxation system and so on, but it seems to me that the family situation is the most pressing.

It will be argued—I hope that it will be—that the Government still have complete flexibility to index-link by uprating child benefit or any other form of family support through the tax system, as they wish. But every time one index-links by statute some part of the benefit system or the tax system, one imposes a rigidity on that part of the system, taking away flexibility for the Government in that part of the system, so that inevitably, if they are short of resources or of revenue, they have to move in on the others. Thus, the Government will be left with a strong inbuilt bias towards index-linking personal tax allowances, and for any Chancellor of any party in a difficult year for resources or for revenue, that, it seems to me, will be bad news in respect of child benefit and taxpayers with families, unless —perhaps my hon. Friend the Member for Blaby will give us his views on this on some occasion—it is the intention of the index linkers, as it should be, to go on to index-link child benefit.

Mr. Jay

Does that not confirm the point that I made, that his course will lead to increases in expenditure and reductions in taxation at the same time?

Mr. Clarke

Perhaps the point at which I most clearly agree with the hon. Member for Cornwall, North (Mr. Pardoe), my hon. Friend the Member for Wolverhampton, South-West and the right hon. Gentleman is that I am saying that one cannot stop here, and I have a feeling that—some approving and some disapproving—we shall carry on to index link further in our taxation system.

The only point which I emphasise now is that if we should slip further down this slope, we should pretty quickly slip down in the direction of family support and child benefit, because the anomaly created there is, I believe, a complete accident from the point of view of all who have supported the index linking of tax allowances in this Finance Bill.

Mr. David Howell (Guildford)

We have had a giant of a debate which has swept over almost every issue of public finance. Although, no doubt, we were supposed to confine ourselves to the specific amendments before us, all sorts of major issues have been raised.

The right hon. Member for Down, South (Mr. Powell) said that this was a sad day for the Treasury. If I believed that in passing unchallenged now the amendments which were put into the Bill in Standing Committee we were committing ourselves to automatic indexation in the sense that the term is sometimes used in certain quarters outside the House, I should agree that it would be a sad day. But that is not what we are doing, and I think that a great deal of the debate has failed to follow the distinction that my hon. Friend the Member for Blaby (Mr. Lawson) made between the discretionary provision now in the Bill and the full-blown automatic indexation which some hon. Members on both sides seemed to imply had now arrived with the Bill in its present form. I do not believe that it has arrived.

The right hon. Members for Down South went on from there to argue that what had now been done in Clause 22 made it more difficult for Governments to raise taxes, and he therefore saw before us the nightmare of a wider gap between what Governments would be ready to raise in taxation and what they would spend in public expenditure, with all the hideous implications for inflationary finance which might flow therefrom.

8.15 p.m.

I put the matter the other way round. I believe that easy taxing leads to easy expenditure. Of course, that is not the only cause of expenditure. The very existence of a Budget deficit, particularly an unfinanced Budget deficit, is evidence that expenditure races ahead of taxation available. But if taxation is difficult to raise, that is a lead weight which slows the expenditure machine.

I agree with those who have observed that in a society such as ours the pressures on Governments of whatever persuasion to spend are endless and continuous, and there will be many politicians who in the end will be reluctant to resist them. But I say to those who query the provisions now in the Bill, which I support, that we should create other pressures. Let us put the pressure of the deterrent of more difficult taxation on to the tail of the dog. Then, at least, we shall have some instruments or influences working our way. Indeed, where we have the vast majority paying income tax, those influences will be very great, and I think that that is a development which will help. It will not cure the disease, but it will help to create a healthier atmosphere within the committees and counsels of the Government where the discussion on how public expenditure should be financed takes place.

On balance, therefore—I make no more claim for it than that—I believe that what is here proposed will help to create some pressures the other way, the way against inflationary finance, the way against an easy rise in taxation leading on to easy expansion of expenditure. In that respect, I agree with what the Chief Secretary presented as his view on this matter. He it was who argued at the beginning of the debate, to the dismay of his hon. Friends below the Gangway, that this provision could make it more difficult for public expenditure plans to go romping forward. That I greatly welcome, and I fully agree with the right hon. Gentleman, although, since he is in enough trouble already with his hon. Friends below the Gangway, I promise him that that is the last time on which I shall burden him with further agreement.

I turn from that aspect of the matter, which I argue should be seen in its proper context as the lesser part of our debate, to the other amendments which are important in themselves and which propose increases in personal reliefs for a great many people. These were proposals which received the backing of my hon. Friends and myself in Standing Committee, some of them on amendments moved by my hon. Friends and some on amendments by hon. Members opposite. I should briefly explain why we took that course and why we continue to support them now, although there has been a slight juggling about the arrangement, against which we have no very strong feeling.

First, let me make clear that reflation is no part of our case. We did not in Standing Committee nor do we today pursue the proposed tax reliefs as part of some device to jump over the ceilings imposed by the International Monetary Fund, to push through the domestic credit expansion ceilings or to enter into any reflation plans, which would be inflation plans, of the kind about which the Prime Minister spoke a few weeks ago. We do not accept that proposition. We argued in Standing Committee that these personal reliefs could be financed by increasing value added tax to 10 per cent. That was our position, and it remains our position.

I know that the hon. Member for Birmingham, Perry Barr (Mr. Rooker) argued with clarity and integrity that he wanted the reliefs to be financed by a smaller reduction in the standard rate of income tax. Therefore, he is happy that the Government have chosen his course —to reduce the standard rate to 34 per cent. instead of 33 per cent. Our position is different, and I have no hesitation in saying so. We should have liked the cut in the standard rate to be to 33 per cent. with the difference being financed by VAT. That arrangement could have been pursued without any offence to or any impropriety in relation to the public sector borrowing requirement. That is the second point that I make about our view on the proposed increases in the personal reliefs.

My third point was touched on by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe). We are against conditionality. We are glad that it has gone down the drain. We never thought much of it. We were reinforced in our view by a number of leading members of the trade union movement. We do not go for the conditionality device by which tax levels are bargained outside Parliament with other groups. However, it can be correctly argued that in the present circumstance of the move back to responsible collective bargaining—perhaps it is irresponsible. but I hope that it is responsible—it helps if the personal allowances can be adjusted, as is nearly happening this year, in line with inflation so that there is no real increase in taxation. To put it the other way, if it is felt that there will be constant erosion of take-home pay and take-home salary by unseen and unauthorised tax increases, that must influence the pay determination outlook.

Therefore, whether or not it can be said that this was planned with marvellous percipience, the position into which the Government have been driven and which, with these amendments to increase personal reliefs, they accept, is one small step in the direction of making the climate less worse for responsible collective bargaining. The climate, in my view, is frightening because we have just wandered straight from a total freeze on collective bargaining into a new situation without any understanding of the responsibilities involved. I know that not all hon. Members agree with that, but at least it helps to reduce the enormous uncertainties which might lie ahead if we were to have complete pay anarchy.

Therefore, in that sense, the amendments are welcome, because people worry about the income tax levied on their wages. They realise more and more that they are paying for public expenditure. This was the theme of the hon. Members for Coventry, South-West (Mrs. Wise) and Perry Barr—that their party had made a mistake by allowing a situation to develop in which income tax fell on such low wages that we could argue that it was a bad thing and, indeed, seek to gain electoral advantage from it. That was the argument of the hon. Member for Coventry South-West. She was right. People realise that they are paying for public expenditure. The old story about it all being free carries less validity as they look at their wage slips.

The Prime Minister may not understand that point. Only the other day he said that for a man with four children earning £75 a week school meals would cost nothing. He may believe that, but the vast majority of work people, even if they do not pay precisely for school meals, know better than the Prime Minister. The Prime Minister's attitude, as long as it is held by leaders of the Government, spells doom for the public finances of this country. However, most people know better than the Prime Minister and realise that it is absurd to claim that for millions of people who are having tax deducted from their wages, public services and benefits for which they do not immediately and on order have to pay cost nothing. In that respect, the amendments make sense and therefore we support them.

We support the proposed increase in personal allowances. We welcome any move which helps to minimise the poverty trap and which raises the thresholds and begins to raise them above supplementary benefit level. Here we are on common ground with some hon. Members opposite. We should like to combine this proposal with a lower basic rate, but we think it essential that through this means primarily—it is not the only means—we should begin to lift the level at which people pay tax back to the more reasonable levels which prevailed before the past three years of inflation and Labour Government.

I come to the argument about indexation and truth in taxation. I make no apology for leaving it to last because I do not see this as being the main issue. I do not see it as a great leap forward to an era of indexation. I do not see it, as the hon. Member for Cornwall, North (Mr. Pardoe) sees it, as something which we cannot stop as we go forward into his wonderful world of accommodation in which indexation fulfils all the aspirations of Liberal policy. I do not wish to belittle what has been done. There has been a creditable advance and hon. Members on both sides have played a part in it. But it is a small step towards better government in an overtaxed nation and not a major departure of policy, as some hon. Members seemed to indicate, and as the Chief Secretary seemed to indicate. He decided to make a major speech and to take us on a tour of the indexation battlefield. That was curious because it gave greater importance and greater indexation significance to what is proposed than is proposed in Clause 22.

We shall need to watch the situation carefully and to review it next year. My right hon. Friend the Member for Crosby (Mr. Page) rightly drew attention to potential difficulties. It would be foolish not to consider carefully next year how the situation has developed. What is proposed is a small step. I echo the congratulations offered to my hon. Friend the Member for Blaby on his persistence. I do not know whether I should couple that with the names of the hon. Members for Perry Barr and Coventry, South-west. In view of the debate, I suspect not.

Mrs. Wise

Definitely not, especially as the hon. Member for Blaby (Mr. Lawson) weakened our original amendment. We have no cause to be grateful to him.

Mr. Howell

I was right to think that the coupling might not be popular in every quarter.

What is proposed will help towards achieving a more explicit understanding by the people of the tax that they pay. That is healthy. It is an advance in our democracy. It will enable us to adopt a better, healthier and more open approach to public finance. That is why Clause 22, as amended in Standing Committee—in other words, as accepted by the Government—has our support and why I recommend my hon. Friends to support it.

The Minister of State, Treasury (Mr. Denzil Davies)

I shall deal first with the main amendments that we have been debating—Nos. 97, 98, 99 and 100—which deal with personal allowances. The debate has ranged over those amendments and the principle of indexation.

We have had a number of speeches with regard to personal allowances, two in particular from my hon. Friends the Members for Coventry, South-West (Mrs. Wise) and Birmingham, Perry Barr (Mr. Rooker), who again put forward the point that they expressed in Committee and which the Government are now accepting, subject to changing the tilt slightly, by having increased personal allowances and a smaller reduction in the basic rate of tax.

I am sorry that my hon. Friend the Member for Perry Barr imputed personal motives by my right hon. Friend the Chief Secretary as to why taxation has been reduced. He seemed to indicate that this was of benefit to Cabinet Ministers earning £16,000 a year. It was quite unnecessary for my hon. Friend to introduce that personal motive.

Mr. Rooker

rose—

Mr. Davies

I shall give way in a moment. It was quite unnecessary for my hon. Friend to introduce that personal note. Feelings are high on this subject. My hon. Friend is justified if he feels like criticising the Treasury, but my right hon. Friend the Chief Secretary is also justified in criticising the point of view put forward by my hon. Friend. At one stage my hon. Friend indulged in a personal attack upon my right hon. Friend. It was quite unnecessary for him to say what he said with regard to the level of taxation in respect of my right hon. Friend's salary.

8.30 p.m.

I turn to the points raised in the debate. I say again that the level of personal allowances is a matter of personal judgment. The question whether in any given Budget one raises the thresholds, reduces the basic rate of tax or, indeed seeks to introduce a reduced rate band is, unfortunately, a matter of judgment unless one has enough money to do all three.

It would have been a great help if all three could have been done. But that would have cost £5 billion. It is not possible to do that. It is a matter of judgment as to how the smaller sum available is to be apportioned between the different methods of reducing tax. There are perfectly good arguments on both sides. My hon. Friends have put forward their arguments and these have now been accepted, subject to the change in the tilt.

This is not the first time that we have had a debate in this House on indexation. The same arguments have been reiterated in this debate. I would congratulate the hon. Member for Blaby (Mr. Lawson) who seems to have persuaded his own Front Bench that this is a very small, innocuous measure which has no repercussions at all for the rest of the tax system. It is a great achievement for the hon. Gentleman to have persuaded his Front Bench of that fact. Not only that, he also managed to persuade some of my hon. Friends that there are no repercussions here for higher rate thresholds, capital gains tax or public expenditure. Whatever our views on indexation, we should congratulate the hon. Member for Blaby on that great achievement.

Mr. Lawson

As I understand the position, the Government have been persuaded, too.

Mr. Davies

Perhaps the Government are in a position where they cannot do much else than be persuaded. But I assure the hon. Gentleman that he has not persuaded me about the principle of indexation. I agreed almost entirely with my right hon. Friend the Member for Battersea, North (Mr. Jay) who put the case clearly about the dangers of indexation.

I do not believe, as the hon. Member for Guildford (Mr. Howell) said, that this is a small step. I agree with the hon. Member for Rushcliffe (Mr. Clarke). I think that the financial columns in the newspapers have rejoiced—there have been some letters in the Financial Times —at this small step. The hon. Gentleman is not rejoicing because this is a small step but because this House in its wisdom has felt it right and necessary to start indexing the tax system. That is not a small step. It is a major step and it will have major consequences.

Pressures on other areas of the tax system will obviously increase. It is my personal view that that pressure may prove irresistible as time goes on. We have seen it in this debate. The feeling now is that indexation is a good thing. Other groups may want a slice of the action and a bit of the benefit. Some hon. Gentlemen may wish to index child benefits—there may be a very good case for giving extra assistance to those in receipt of child benefit—with this extra assistance clothed in the cloak of indexation. Another group may want to increase the higher rate thresholds and say "Let us do it by indexation. This is a good thing." So each group which wants a little extra for itself will seek to get it by importing the principle of indexation. Once we have accepted that indexation is right for one allowance, I cannot see in logic how we can argue against applying it to other groups who may also feel as disadvantaged by inflation as the groups who have benefited from indexation.

The difficulty with indexation, as the hon. Member for Rushcliffe said, is that it means giving resources to one group and taking them away from some other group. In times of high inflation, if we seek to protect one group after another from the evil effects of inflation by indexation, there will be another group at the end of the line who will not be able to get that protection because the resources will not be there to protect them.

It is my personal belief—and this is a matter of judgment—that this so-called small step is a major step in that it will lead to irresistible pressures for indexing other areas of the tax system, and perhaps the case might not be thought so worthy by my hon. Friends below the Gangway as that for indexing personal allowances.

The other effect which indexation could have is that of bringing pressure on public expenditure. This again was one of the reasons why the hon. Member for Blaby was in favour of it. He does not deny that. He makes it clear that, once indexation enters income tax, the pressure on public expenditure is bound to increase. Over the last few years, the increases in public expenditure have been financed to a considerable extent by inflationary increases in taxation. There is no use denying that. It is a fact. We argue that it is right that it should happen that way. At a time when there was a massive world recession, we could not have cut public expenditure. Therefore, we financed a large part of it through these increases in taxation.

The Opposition wish to see public expenditure under pressure, and they believe that by indexing the tax system it can be put under pressure. This will be a consequence. There will be pressure on public expenditure as a result of this indexation of the personal allowances.

The right hon. Member for Down, South (Mr. Powell) seemed to suggest that it would work the other way and that the pressure on public expenditure would not result in a cut in public expenditure, which is what some people want, but rather, would mean an increase in the public sector borrowing requirement, with the effect that that would have on inflation, interest rates and so forth. I do not know what the ultimate effect will be, but it can be said with confidence that there will be pressure on public expenditure one way or the other.

Mr. John Nott (St. Ives)

It depends to whom one is talking.

Mr. Davies

I do not know which way but, one way or the other, it does not seem to me that the effects or consequences of it are very desirable. If it results in cuts in public expenditure, Government supporters will oppose it. If it means increasing the public sector borrowing requirement, that does not seem to me very desirable, either. So, either way, the consequences of indexation are not entirely beneficial.

As we have said before, indexation is a panacea. It is an attempt to mitigate the evils of inflation for a particular group who, because certain hon. Members are very eloquent and manage to have their amendments accepted, happen to benefit a particular pressure group. That is bad for our system of taxation. We have heard talk of truth in taxation, which is a slogan. I also believe in fairness in taxation between different groups. Unless one indexes the whole system—

Mr. Lawson

Why not?

Mr. Davies

The hon. Gentleman asks why not. The pressure will be irresistible. The cry goes up now, and no doubt it will go up again and again from one Finance Bill to another, "Why not?". It will be very difficult to resist that cry.

Mr. Pardoe

A good thing, too.

Mr. Davies

The hon. Member for Cornwall, North (Mr. Pardoe) thinks that it will be good if it does. He wishes to index interest rates, contracts, leases and everything else. At the end of the day, if everyone is indexed, we arc back to square one, and no one benefits. The only attraction of indexation is that some groups get it and others do not.

Mr. Budgen

The great attraction of indexation as the hon. Member for Cornwall, North (Mr. Pardoe) suggests, is that it will benefit those who have the knowledge, skill and bureaucracy to introduce indexation, and will totally crush those who are so stupid as to be unable to understand what indexation is all about.

Mr. Davies

Those who have not the knowledge to get in on the act will be left behind. That is what I have been trying to say. However, the House is in a mood to accept this as the easy way out. I am afraid that the mood will continue for some time. In the end there will be an inevitable reaction, but it will not come about for a number of years.

I turn to Amendment No. 122, which is in the name of the Liberal Party and which seeks to go further and to remove the order-making power. I agree with the right hon. Gentleman for Crosby (Mr. Page) that there is a danger—and I am surprised that the Conservatives have not seen that danger—in seeking to introduce order-making powers into fiscal legislation. I would have thought that more members of the Conservative Party, and certainly the hon. Member for Blaby, would see the danger of introducing a power of that nature. However, the hon. Member gets carried away with the benefits that indexation will bring to certain groups to which he would like to see consideration given.

Mr. Lawson

The Minister is making a mistake in talking of introducing order-making powers into fiscal legislation he not aware that his own Government's Finance Bill, in its original form, further extended such order-making powers? I am referring to the so-called regulator power that is capable by order of increasing taxation by £1½ billion in a full year. Therefore, there is no question of introducing order-making powers. It has already been done.

Mr. Davies

Perhaps I should have said "introduced into the income tax system". I was saying that the right hon. Member for Crosby saw great dangers in introducing order-making powers into fiscal legislation, especially in the case of income tax, and that I was surprised that the Tory Party did not consider this matter to be important.

Amendment No. 122 seeks to remove the order-making power, but that amendment still contains the objection that it clearly is in favour of the kind of indexation that the Liberal Party wants—a system which relates not only to personal allowances but to the rest of the tax system. I hope that the House will accept Amendment No. 97 and the consequential amendments but will reject Amendments No. 122 and 123 which go even further than the original amendment conferring order-making powers.

Amendment agreed to.

Amendments made: No. 98, in page 14, line 11, leave out '£860' and insert '£845'.

No. 99, in page 14, line 13, leave out '"£1,760" and "£1,105"' and insert "£1,765" and "£1,120"' [Mr. Denzil Davies.]

Mr. Denzil Davies

I beg to move Amendment No. 92, in page 14, line 14, at end insert: 'and after the paragraphs in that subsection there shall be inserted the words "and for the purposes of this subsection a person who would have been of the age of sixty-five or upwards within the year of assesment if he had not died in the course of it shall be treated as having been of that age within that year."'. This amendment arises as a result of New Clause 139 which was tabled in Committee by the hon. Member for Braintree (Mr. Newton). It provides that the age allowance will be available if the taxpayer or his wife—I think that the amendment will mainly apply to the wife —is 65 in the year in question. It relates to a situation in which the taxpayer has died not in the tax year but before his or her 65th birthday. In other words, at the beginning of the tax year if the taxpayer reaches the age of 65 in that year the Inland Revenue through the coding system will give him or her the age allowance. If that person died without attaining the age of 65, there is a danger in a small number of cases that there will be a clawback from the estate and this might affect a widow of a taxpayer. I commend the amendment to the House.

Mr. Newton

I wish to speak briefly on this amendment. I am indebted on this amendment to a Mr. Newnes, who is a constituent of my hon. and learned Friend the Member for Colchester (Mr. Buck). Mr. Newnes for the second year running has come up with a good point on the Finance Bill.

When I moved the provision in Committee the Chief Secretary was sceptical. However, I am glad to say that, having examined the matter, he accepted that there was a real possibility that a widow could be affected and would face an additional tax burden just because her husband had failed to reach the age of 65—although the tax system had already given him a tax allowance on the basis that he had reached the age of 65. I very much welcome the right hon. Gentleman's acceptance of that possibility.

At the risk of looking a gift horse in the mouth, I would simply make one small additional point. In the letter which he very courteously wrote to me between Committee and Report stages, the Chief Secretary indicated that he saw no reason to carry the logic of this through from the age allowance, which is what we are talking about, to the additional threshold for investment income surcharge, which is in the same state under the law as it stands, because no question of clawback would arise, as the surcharge is normally collected in arrears, unlike the arrangements for dealing with the age allowance itself.

8.45 p.m.

That may be literally true, but it seems to me that there is also the possibility of some injustice to taxpayers who may arrange their affairs on the basis that they will receive the benefit of the additional age investment income surcharge relief on the assumption that the husband or the wife will reach the age of 65 and may then find that those arrangements on which they had been planning during the year will be upset by the fact that one or other of the spouses never reaches the age of 65 and that their tax liability in that sense rises.

I do not think that it is a particularly good case. It is not an unanswerable case on either side of the argument. But in terms of generosity to a small number of people and avoidance of a little additional hardship for some widows it would be reasonable to ask the Chief Secretary also to look at the self-same case in relation to the investment income surcharge before next year. I do not want to press the point beyond that this evening.

I simply conclude by recording my gratitude to the Chief Secretary for what he has conceded since the Committee stage and for what the Minister has said tonight.

Mr. George Cunningham (Islington, South and Finsbury)

I wish to register a slight protest, not about the substance of this change but about the manner in which it has been achieved. We are saying—I entirely support the proposal which the hon. Member for Braintree (Mr. Newton) put forward in Committee—that it is sufficient to reach the age of 64 at the beginning of the year. That is the effect of the change, but it is not the manner in which it is achieved.

What we are saying is that a person must be 65 by the end of the year, but that if he or she dies before reaching that age, but would have reached it in the year if he or she had not died, we shall deem him or her to have reached that age. Of all the backward to forward ways of drafting something, that is the limit. Only a few pages further on, under the Taxes Acts, where we are dealing with children's allowances, we do it sensibly by defining the qualifying age in terms of the age achieved at the beginning of the year in question.

The Taxes Acts are difficult for people to follow at the best of times, but to have this different means of defining ages for children as against people entitled to the old age allowance is perverse. Although I do not ask my hon. Friend the Minister to respond, the point should be noted so that we can have simpler drafting in future.

Amendment agreed to.

Mr. Pardoe

I beg to move Amendment No. 90, in page 14, line 14 at end insert: '(d) in subsection (1B) for "£3,250" there shall be substituted "£3,500".'

Mr. Deputy Speaker (Sir Myer Galpern)

With this we are to take Amendment (a) to the proposed amendment, leave out '£3,500' and insert '£3,700'. and Government Amendment No. 106.

Mr. Pardoe

Here we are concerned with the age allowance. In the Finance (No. 2) Act 1975, the old relief for persons over 65 with small incomes, which was provided by Section 7 of the Income and Corporation Taxes Act 1970, was replaced by a new age allowance. Most of us felt that that was a considerable step forward. The allowance was made available to married couples of whom one spouse was over 65 at any time in the year of assessment, and to single persons over that age where the total income of the claimant did not exceed a certain amount. In 1975 that amount was fixed at £3,000. It was raised by £250 to £3,250 last year.

This year the Government propose no further increase, and various amendments were moved in Standing Committee. One was to raise the amount to £3,750, another to £4,000, but none was put to the vote. It is clearly right that the ceiling should be raised.

Mr. Newton

I am virtually certain that the hon. Member for Cornwall, North (Mr. Pardoe) is misleading himself by not realising that the vote came later in the evening and not at the time when the matter was discussed in Committee. There was a vote later on, and he voted in favour of raising the amount to £3,750.

Mr. Pardoe

The hon. Member for Braintree (Mr. Newton) may be right. It is conceivable that I have misled myself in the labyrinth of these amendments. It is rather like Amendment No. 122, on which we are still waiting to vote.

It seems to me that in any case there should he an increase in the amount this year, and reaching £3,500 would seem to be a very modest increase. Perhaps it is one that the Government feel able to accept and afford.

I do not see the point of the Conservative Party's tabling a further amendment to increase the figure to £3,700. I should have thought that this was a piece of childish spite intended not to help people in this age group but to make life more difficult for the Liberal Party. I do not particularly mind that. In fact I have news for Conservatives: I do not intend to vote for their amendment.

Mr. Newton

The performance of the hon. Member for Cornwall, North (Mr. Pardoe) amazes me. My breath is taken away by the sheer audacity that he displays in calling Amendment (a) an amendment of petty spite.

It has been made abundantly clear in the last three minutes that the hon. Member did not know what happened in Committee. He did not even know what votes he cast. It is sheer gall for him to accuse us of petty spite when he has put down an amendment to bring in a limit that is lower than the one for which he voted in Committee. I can give him a reference for that vote. It is in the Official Report of Standing Committee D, 24th June 1977, columns 541–542. That shows that he voted for a figure of £3,750.

The concern he has expressed tonight for those in receipt of the age allowance who would benefit by these proposals would be a great deal more convincing but for what he said and the fact that he voted for a significantly higher figure in Committee.

Mr. Pardoe

It is not just a question of not having found a reference in Hansard. I have a full brief from Conservative Central Office. Therefore, I know exactly what went on in Committee. If it is wrong to press an amendment at Report stage for an amount that is lower than that which I supported in Committee, why is the hon. Member today supporting an amendment that is several hundred pounds lower than the £4,000 that the Conservative Front Bench pressed in Committee? Surely that amount is what the Opposition want.

Mr. Newton

The hon. Member for Cornwall, North (Mr. Pardoe) is compounding his errors and ignorance with every word that he utters. The amendment in Committee for £4,000 was in my name, not in the name of the official Opposition. The official Opposition amendment was for £3,750. We put down a slightly varied figure for Report because the £3,750 was defeated in Standing Committee, largely because of the absence of the Plaid Cymru Member. Had he been there, it would have been a tie. At least, I assume that it would have been a tie. There is no Plaid Cymru Member here to say whether that party is in favour of helping retired people.

Had we put down a similar amendment to the one that had been defeated with the same figure, there would have been some risk, to put it no higher, that it would not be selected. Therefore, we put down the nearest round figure to that for which we fought, for which the hon. Member for Cornwall, North voted and presumably accepted the argument for. I hope that if the hon. Gentleman is to intervene in my speech again, he will have a better factual basis on which to do it.

We are confronted with the reality of the Lib-Lab pact. In this instance it is being pursued at the expense of middle-income retired people. Practically all Liberal Party Members are here in an almost unprecedented way. I have never seen so many Liberal Members here.

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

Perhaps they have a conscience.

Mr. Newton

My hon. Friend may be right. Whether it is conscience I do not know. But, with such a full attendance on the Liberal Bench and if Liberal Members were prepared to stick to their guns and to vote now for what they voted for in Standing Committee we would have a real chance of carrying it.

Mr. Pardoe

We should have lost.

Mr. Newton

The hon. Member for Cornwall, North said "We should have lost." At least Liberal Members would have been able to look themselves in the face if they had stuck to one thing for more than a month instead of changing their tune so dramatically between voting upstairs and the debate tonight.

The Opposition amendment gives the hon. Member for Cornwall, North and his right hon. and hon. Friends the chance to redeem themselves. Some Opposition Members think that the hon. Member for Cornwall, North is already beyond redemption. I would not go that far. However, he appears to have been working very hard at it and he has gone a bit further tonight.

The hon. Gentleman put the argument briefly, but I should say that it is a strong argument, for £3,500. Every word that he uttered in support of his amendment for £3,500 would apply just as strongly and with every bit of force to the figure of £3,700 or £3,750.

The hon. Gentleman said that the figure for 1975–76 was £3,000 and for 1976–77 £3,250. The amendment would put the figure at £3,500. The total of the increase over the past two years on the ceiling where people start to lose the benefit of the age allowance is only 15 per cent. I shall not weary the House with a series of figures. However, 15 per cent. is significantly less than anything else with which we can compare it. It is far less than the rise in prices, earnings and pensions.

This conspicuous failure to come anywhere near indexing this figure has meant that the middle-income pensioner has in no way been protected against inflation in the way that Ministers are fond of proclaiming that the retired have been protected. I accept that we are talking of people who are not just on State pensions. But middle-income pensioners have found that their tax bills in relation to income have been rising steadily because of the failure to adjust this ceiling in line with other parts of the tax system, the level of pensions and the rate of inflation.

Anyone in the bracket just above £3,000 or £3,250, whichever year we take, will find that, even if he had no other increase in his income, the increase in the State pension will push him into the area where he suffers a high marginal rate of tax and starts to lose the benefit of the age allowance.

9.0 p.m.

We are not talking about those who are well off or who are massively above the average industrial earnings level. If the ceiling disappeared altogether, 680,000 people would benefit. About 80 per cent. of those are basic rate taxpayers. We are not talking of hundreds of thousands of wealthy retired people, but about a large number whose incomes do not even take them out of the basic tax rate. Those are the people who have found their tax burden rising steadily because the ceiling has not been adjusted.

I do not wish to take any more of the time of the House. The case for £3,700 is unanswerable. If the Liberals voted as they did in Committee, they would be voting with us and not accusing us of petty spite in trying to help this group.

9.0 p.m.

Mr. Denzil Davies

The Liberal amendment seeks to increase the age allowance limit to an income level of £3,500 at a cost of £10 million. The amendment supported by the hon. Member for Braintree (Mr. Newton) seeks to increase the exemption limit to £3,700 at a cost of £15 million—£5 million above the cost of the Liberal proposal.

In these cases it is difficult to know where to draw the line. In Committee the Conservatives clearly did not know where to draw that line. They put forward an amendment to increase the limit to £3,330. I do not remember what was the magic of that figure. There was also an amendment to increase the figure to £3,750. Now we have a third shot at £3,700.

Mr. Newton

Before the Minister builds too much out of that, my recollection is that the figure of £3,330 was a printing error.

Mr. Davies

I am grateful for that information. I was not seeking to build anything out of it. There seems to be some confusion among the Conservatives. In view of that and as they do not feel as strongly as members of the Liberal Party, I recommend the House to accept the Liberal amendment. If the matter is put to a vote, I recommend the House to reject Amendment (a), which seeks to increase the limit to £3,700.

Mr. David Howell

This has been an unedifying little debate. We have seen an example of the Liberal Party kicking and scratching as it goes down. I understand that Liberal Members are here fresh from a discussion about the Lib-Lab pact. It would help us, in this new era of stability, if we knew whether the pact will last till tomorrow morning.

In Committee the Liberal spokesman supported the call to increase the limit to £3,750. Now a deal has been done and the Liberals support the Lib-Lab amendment. The House will now express a view which is not the view that could have been expressed if the Liberals had remained true to their original opinion.

I realise that it is asking too much that their view should be the same as it was last week and will be next week. On this occasion we shall have to pursue a different course. we shall have to assert the case, as we think that the ceiling

should be £3,700, which we believe to be a right and fair figure. I therefore urge my right hon. and hon. Friends to support Amendment (a), which would raise the ceiling figure to £3,700.

Amendment proposed to the proposed amendment: (a), leave out '£3,500' and insert '£3,700 '.—[Mr. Newton.]

Question put, That the amendment to the proposed amendment be made:—

The House divided: Ayes 247, Noes 287,

Division No. 208]	AYES	[9.05 p.m.
Adley, Robert	Fell, Anthony	Lawson, Nigel
Aitken, Jonathan	Finsberg, Geoffrey	Le Marchant, Spencer
Alison, Michael	Fisher, Sir Nigel	Lester, Jim (Beeston)
Arnold, Tom	Fletcher, Alex (Edinburgh N)	Lewis, Kenneth (Rutland)
Atkins, Rt Hon H. (Spelthorne)	Fletcher-Cooke, Charles	Lloyd, Ian
Awdry, Daniel	Fookes, Miss Janet	Loveridge, John
Bain, Mrs Margaret	Forman, Nigel	Luce, Richard
Banks, Robert	Fowler, Norman (Sutton C'f'd)	McAdden, Sir Stephen
Bell, Ronald	Fox, Marcus	McCrindle, Robert
Bennett, Sir Frederic (Torbay)	Fraser, Rt Hon H. (Stafford & St)	Macfarlane, Neil
Bennett, Dr Reginald (Fareham)	Fry, Peter	MacGregor, John
Benyon, W.	Gardiner, George (Reigate)	McNair-Wilson, M. (Newbury)
Berry, Hon Anthony	Gardner, Edward (S Fylde)	McNair-Wilson, P. (New Forest)
Biffen, John	Gilmour, Rt Hon Sir Ian (Chesham)	Madel, David
Biggs-Davison, John	Gilmour, Sir John (East Fife)	Marshall, Michael (Arundel)
Blaker, Peter	Glyn, Dr Alan	Marten, Neil
Body, Richard	Goodhart, Philip	Mates, Michael
Boscawen, Hon Robert	Goodhew, Victor	Mather, Carol
Bottomley, Peter	Goodlad, Alastair	Maude, Angus
Bowden, A. (Brighton, Kemptown)	Gorst, John	Mawby, Ray
Braine, Sir Bernard	Gow, Ian (Eastbourne)	Maxwell-Hyslop, Robin
Brocklebank-Fowler, C.	Gower, Sir Raymond (Barry)	Mayhew, Patrick
Brooke, Peter	Grant, Anthony (Harrow C)	Meyer, Sir Anthony
Brotherton, Michael	Gray, Hamish	Miller, Hal (Bromsgrove)
Brown, Sir Edward (Bath)	Grieve, Percy	Mills, Peter
Bryan, Sir Paul	Griffiths, Eldon	Miscampbell, Norman
Buchanan-Smith, Alick	Grist, Ian	Mitchell, David (Basingstoke)
Buck, Antony	Hamilton, Michael (Salisbury)	Moate, Roger
Budgen, Nick	Hampson, Dr Keith	Monro, Hector
Bulmer, Esmond	Hannam, John	Montgomery, Fergus
Butler, Adam (Bosworth)	Harrison, Col Sir Harwood (Eye)	Moore, John (Croydon C)
Carlisle, Mark	Harvie Anderson, Rt Hon Miss	Morgan, Geraint
Chalker, Mrs Lynda	Haselhurst, Alan	Morgan-Giles, Rear-Admiral
Channon, Paul	Hastings, Stephen	Morris, Michael (Northampton S)
Clark, Alan (Plymouth, Sutton)	Havers, Rt Hon Sir Michael	Morrison, Charles (Devizes)
Clarke, Kenneth (Rushcliffe)	Hawkins, Paul	Mudd, David
Clegg, Walter	Henderson, Douglas	Neave, Airey
Cockcroft, John	Heseltine, Michael	Nelson, Anthony
Cooke, Robert (Bristol W)	Hicks, Robert	Neubert, Michael
Cope, John	Higgins, Terence L.	Newton, Tony
Cormack, Patrick	Holland, Philip	Normanton, Tom
Corrie, John	Howe, Rt Hon Sir Geoffrey	Nott, John
Costain, A. P.	Howell, David (Guildford)	Onslow, Cranley
Crawford, Douglas	Hunt, David (Wirral)	Oppenheim, Mrs Sally
Crouch, David	Hunt, John (Bromley)	Osborn, John
Crowder, F. P.	Hurd, Douglas	Page, John (Harrow West)
Dean, Paul (N Somerset)	Hutchison, Michael Clark	Page, Rt Hon R. Graham (Crosby)
Dodsworth, Geoffrey	Irving, Charles (Cheltenham)	Page, Richard (Workington)
Drayson, Burnaby	James, David	Parkinson, Cecil
du Cann, Rt Hon Edward	Jenkin, Rt Hon P. (Wanst'd&W'df'd)	Pattie, Geoffrey
Dunlop, John	Jessel, Toby	Price, David (Eastleigh)
Durant, Tony	Johnson Smith, G. (E Grinstead)	Pym, Rt Hon Francis
Dykes, Hugh	Jones, Arthur (Daventry)	Raison, Timothy
Eden, Rt Hon Sir John	Joseph, Rt Hon Sir Keith	Rathbone, Tim
Edwards, Nicholas (Pembroke)	Kaberry, Sir Donald	Rawlinson, Rt Hon Sir Peter
Elliott, Sir William	Kellett-Bowman, Mrs Elaine	Rees, Peter (Dover & Deal)
Emery, Peter	Kershaw, Anthony	Reid, George
Evans, Gwynfor (Carmarthen)	King, Evelyn (South Dorset)	Renton, Rt Hon Sir D. (Hunts)
Ewing, Mrs Winifred (Moray)	Kitson, Sir Timothy	Renton, Tim (Mid-Sussex)
Eyre, Reginald	Knight, Mrs Jill	Rhodes James, R.
Fairbairn, Nicholas	Knox, David	Rhys Williams, Sir Brandon
Fairgrieve, Russell	Lamont, Norman	Ridsdale, Julian
Farr, John	Latham, Michael (Melton)	Rifkind, Malcolm
Roberts, Michael (Cardiff NW)	Spicer, Michael (S Worcester)	Wakeham, John
Roberts, Wyn (Conway)	Sproat, lain	Walder, David (Clitheroe)
Rodgers, Sir John (Sevenoaks)	Stainton, Keith	Walker-Smith, Rt Hon Sir Derek
Rossi, Hugh (Hornsey)	Stanbrook, Ivor	Wall, Patrick
Rost, Peter (SE Derbyshire)	Steen, Anthony (Wavertree)	Warren, Kenneth
Royle, Sir Anthony	Stewart, Rt Hon Donald	Watt, Hamish
Sainsbury, Tim	Stewart, Ian (Hitchin)	Weatherill, Bernard
St. John-Stevas, Norman	Stokes, John	Wells, John
Scott, Nicholas	Stradling Thomas, J.	Welsh, Andrew
Shaw, Giles (Pudsey)	Taylor, R. (Croydon NW)	Whitelaw, Rt Hon William
Shaw, Michael (Scarborough)	Taylor, Teddy Cathcart)	Wiggin, Jerry
Shelton, William (Streatham)	Tebbit, Norman	Wigley, Dafydd
Shepherd, Colin	Temple-Morris, Peter	Wilson, Gordon (Dundee E)
Shersby, Michael	Thatcher, Rt Hon Margaret	Wood, Rt Hon Richard
Silvester, Fred	Thomas, Dafydd (Merioneth)	Young, Sir G. (Ealing, Acton)
Sims, Roger	Thomas, Rt Hon P. (Hendon S)	Younger, Hon George
Sinclair, Sir George	Thompson, George
Smith, Timothy John (Ashfield)	Townsend, Cyril D.	TELLERS FOR THE AYES
Speed, Keith	Trotter, Neville	Mr. Peter Morrison and
Spence, John	van Straubenzee, W. R.	Lord James Douglas-Hamilton
Spicer, Jim (W Dorset)	Viggers, Peter
NOES
Abse, Leo	Davies, Ifor (Gower)	Hughes, Robert (Aberdeen N)
Allaun, Frank	Davis, Clinton (Hackney C)	Hughes, Roy (Newport)
Anderson, Donald	Deakins, Eric	Hunter, Adam
Archer, Rt Hon Peter	Dean, Joseph (Leeds West)	Jackson, Colin (Brighouse)
Armstrong, Ernest	Dempsey, James	Jackson, Miss Margaret (Lincoln)
Ashley, Jack	Doig, Peter	Janner, Greville
Ashton, Joe	Dormand, J. D.	Jay, Rt Hon Douglas
Atkins, Ronald (Preston N)	Dunnett, Jack	Jeger, Mrs Lena
Atkinson, Norman	Dunwoody, Mrs Gwyneth	Jenkins, Hugh (Putney)
Bagier, Gordon A. T.	Eadie, Alex	John, Brynmor
Barnett, Guy (Greenwich)	Edge, Geoff	Johnson, James (Hull West)
Barnett, Rt Hon Joel (Heywood)	Edwards, Robert (Wolv SE)	Johnson, Walter (Derby S)
Bates, Alf	Ellis, John (Brigg & Scun)	Jones, Barry (East Flint)
Bean, R. E.	Ellis, Tom (Wrexham)	Jones, Dan (Burnley)
Beith, A. J.	English, Michael	Kaufman, Gerald
Benn, Rt Hon Anthony Wedgwood	Ennals, David	Kelley, Richard
Bennett, Andrew (Stockport N)	Evans, Fred (Caerphilly)	Kerr, Russell
Bidwell, Sydney	Evans, loan (Aberdare)	Kilroy-Silk, Robert
Bishop, Rt Hon Edward	Evans, John (Newton)	Kinnock, Neil
Blenkinsop, Arthur	Ewing, Harry (Stirling)	Lambie, David
Boardman, H.	Faulds, Andrew	Lamborn, Harry
Booth, Rt Hon Albert	Fitch, Alan (Wigan)	Lamond, James
Boothroyd, Miss Betty	Flannery, Martin	Latham, Arthur (Paddington)
Bottomley, Rt Hon Arthur	Fletcher, Ted (Darlington)	Leadbitter, Ted
Boyden, James (Bish Auck)	Foot, Rt Hon Michael	Lee, John
Bradley, Tom	Ford, Ben	Lestor, Miss Joan (Eton & Slough)
Bray, Dr Jeremy	Forrester, John	Lewis, Ron (Carlisle)
Brown, Hugh D. (Provan)	Fowler, Gerald (The Wrekin)	Litterick, Tom
Brown, Robert C. (Newcastle W)	Fraser, John (Lambeth, N'w'd)	Lomas, Kenneth
Brown, Ronald (Hackney S)	Freeson, Reginald	Loyden, Eddie
Buchan, Norman	Freud, Clement	Luard, Evan
Buchanan, Richard	Garrett, John (Norwich S)	Lyon, Alexander (York)
Callaghan, Rt Hon J. (Cardiff SE)	George, Bruce	Lyons, Edward (Bradford W)
Callaghan, Jim (Middleton & P)	Gilbert, Dr John	Mabon, Rt Hon Dr J. Dickson
Campbell, Ian	Ginsburg, David	McCartney, Hugh
Canavan, Dennis	Golding, John	McDonald, Dr Oonagh
Cant, R. B.	Gould, Bryan	McElhone, Frank
Carmichael, Neil	Gourlay, Harry	MacFarquhar, Roderick
Carter-Jones, Lewis	Graham, Ted	McGuire, Michael (Ince)
Cartwright, John	Grant, George (Morpeth)	MacKenzie, Rt Hon Gregor
Castle, Rt Hon Barbara	Grant, John (Islington C)	Maclennan, Robert
Clemitson, Ivor	Grimond, Rt Hon J.	McMillan, Tom (Glasgow C)
Cocks, Rt Hon Michael	Grocott, Bruce	McNamara, Kevin
Cohen, Stanley	Hamilton, James (Bothwell)	Madden, Max
Coleman, Donald	Hamilton, W. W. (Central Fife)	Magee, Bryan
Concannon, J. D.	Hardy, Peter	Maguire, Frank (Fermanagh)
Conlan, Bernard	Harrison, Rt Hon Walter	Mahon, Simon
Cook, Robin F. (Edin C)	Hart, Rt Hon Judith	Mallalieu, J. P. W,
Corbett, Robin	Hattersley, Rt Hon Roy	Marks, Kenneth
Cowans, Harry	Hatton, Frank	Marshall, Dr Edmund (Goole)
Cox, Thomas (Tooting)	Hayman, Mrs Helene	Marshall, Jim (Leicester S)
Craigen, Jim (Maryhill)	Healey, Rt Hon Denis	Maynard, Miss Joan
Crawshaw, Richard	Heffer, Eric S.	Meacher, Michael
Cronin, John	Hooley, Frank	Mellish, Rt Hon Robert
Crowther, Stan (Rotherham)	Hooson, Emlyn	Mendelson, John
Cryer, Bob	Horam, John	Mikardo, Ian
Cunningham, G. (Islington S)	Howell, Rt Hon Denis (B'ham, Sm H)	Millan, Rt Hon Bruce
Cunningham, Dr J. (Whiteh)	Howells, Geraint (Cardigan)	Miller, Dr M. S. (E Kilbride)
Davidson, Arthur	Hoyle, Doug (Nelson)	Miller, Mrs Millie (Ilford N)
Davies, Bryan (Enfield N)	Huckfield, Les	Mitchell, Austin Vernon (Grimsby)
Davies, Denzil (Lianelli)	Hughes, Rt Hon C. (Anglesey)	Mitchell, R. C. (Soton, Itchen)

Molloy, William	Roper, John	Tomney, Frank
Moonman, Eric	Rose, Paul B.	Torney, Tom
Morris, Alfred (Wythenshawe)	Ross, Stephen (Isle of Wight)	Tuck, Raphael
Morris, Charles R. (Openshaw)	Ross, Rt Hon W. (Kilmarnock)	Urwin, T. W.
Morris, Rt Hon J. (Aberavon)	Ryman, John	Varley, Rt Hon Eric G.
Moyle, Roland	Sandelson, Neville	Wainwright, Edwin (Dearne V)
Newens, Stanley	Sedgemore, Brian	Wainwright, Richard (Colne V)
Noble, Mike	Selby, Harry	Walker, Harold (Doncaster)
Oakes, Gordon	Shaw, Arnold (Ilford South)	Walker, Terry (Kingswood)
Ogden, Eric	Sheldon, Rt Hon Robert	Ward, Michael
O'Halloran, Michael	Shore, Rt Hon Peter	Watkins, David
Orbach, Maurice	Silkin, Rt Hon John (Deptford)	Watkinson, John
Orme, Rt Hon Stanley	Silverman, Julius	Weetch, Ken
Ovenden, John	Skinner, Dennis	Weitzman, David
Padley, Walter	Small, William	Wellbeloved, James
Palmer, Arthur	Smith, Cyril (Rochdale)	White, Frank R. (Bury)
Pardoe, John	Smith, John (N Lanarkshire)	White, James (Pollok)
Park, George	Snape, Peter	Whitehead, Phillip
Parker, John	Spearing, Nigel	Whitlock, William
Parry, Robert	Spriggs, Leslie	Willey, Rt Hon Frederick
Pavitt, Laurie	Stallard, A. W.	Williams, Rt Hon Alan (Swansea W)
Pendry, Tom	Steel, Rt Hon David	Williams, Alan Lee (Hornch'ch)
Penhaligon, David	Stewart, Rt Hon M. (Fulham)	Williams, Sir Thomas (Warrington)
Perry, Ernest	Stoddart, David	Wilson, Alexander (Hamilton)
Phipps, Dr Colin	Stott, Roger	Wilson, Rt Hon Sir Harold (Huyton)
Prescott, John	Strang, Gavin	Wilson, William (Coventry SE)
Price, C. (Lewisham W)	Strauss, Rt Hon G. R.	Wise, Mrs Audrey
Rees, Rt Hon Merlyn (Leeds S)	Summerskill, Hon Dr Shirley	Woodall, Alec
Richardson, Miss Joe	Swain, Thomas	Woof, Robert
Roberts, Albert (Normanton)	Taylor, Mrs Ann (Bolton W)	Wrigglesworth, Ian
Roberts, Gwilym (Cannock)	Thomas, Jeffrey (Abertillery)	Young, David (Bolton E)
Robinson, Geoffrey	Thomas, Ron (Bristol NW)
Roderick, Caerwyn	Thorne, Stan (Preston South)	TELLERS FOR THE NOES:
Rodgers, George (Chorley)	Tierney, Sydney	Mr. Joseph Harper and
Rodgers, Rt Hon William (Stockton)	Tomlinson, John	Mr. James Tinn.
Rooker, J. W.

Question accordingly negatived.

Amendment No. 90 agreed to.

Amendment made: No. 16, in page 14, line 14, at end insert— '(d) in subsection (2)(b) (Category A retirement pension eligible for wife's earned income relief) after the word "pension" there shall be inserted the words "or mobility allowance".'— [Mr. George Cunningham.]

Amendment proposed: No. 122, in page 14, leave out lines 19 to 23.—[Mr. Pardoe.]

Question put, That the amendment be made: —

The House divided: Ayes, 24, Noes 268.

Division No. 209]	AYES	[9.22 p.m.
Bain, Mrs Margaret	Penhaligon, David	Wainwright, Richard (Colne V)
Beith, A. J.	Reid, George	Watt, Hamish
Crawford, Douglas	Ross, Stephen (Isle of Wight)	Welsh, Andrew
Evans, Gwynfor (Carmarthen)	Smith, Cyril (Rochdale)	Wigley, Dafydd
Ewing, Mrs Winifred (Moray)	Steel, Rt Hon David	Wilson, Gordon (Dundee E)
Grimond, Rt Hon J.	Stewart, Rt Hon Donald
Henderson, Douglas	Thomas, Dafydd (Merioneth)	TELLERS FOR THE AYES:
Hooson, Emlyn	Thompson, George	Mr Clement Freud and
Howells, Geraint (Cardigan)	Thorne. Stan (Preston South)	Mr John Pardoe
Loyden, Eddie
NOES
Abse, Leo	Boardman, H.	Castle, Rt Hon Barbara
Allaun, Frank	Booth, Rt Hon Albert	Clemitson, Ivor
Anderson, Donald	Boothroyd, Miss Betty	Cocks, Rt Hon Michael (Bristol S)
Archer, Rt Hon Peter	Bottomley, Rt Hon Arthur	Cohen, Stanley
Armstrong, Ernest	Boyden, James (Bish Auck)	Coleman, Donald
Ashley, Jack	Bradley, Tom	Concannon, J. D.
Ashton, Joe	Bray, Dr Jeremy	Conlan, Bernard
Atkins, Ronald (Preston N)	Brown, Hugh D. (Provan)	Cook, Robin F. (Edin C)
Atkinson, Norman	Brown, Robert C. (Newcastle W)	Corbett, Robin
Bagier, Gordon A. T.	Brown, Ronald (Hackney S)	Cowans, Harry
Barnett, Guy (Greenwich)	Buchan, Norman	Cox, Thomas (Tooting)
Barnett, Rt Hon Joel (Heywood)	Buchanan Richard	Craigen, Jim (Maryhill)
Bates, Alf	Callaghan, Rt Hon J. (Cardiff SE)	Crawshaw, Richard
Bean, R. E.	Callaghan, Jim (Middleton & P)	Cronin, John
Benn, Rt Hon Anthony Wedgwood	Canavan, Dennis	Crowther, Stan (Rotherham)
Bennett, Andrew (Stockport N)	Cant, R. B.	Cryer, Bob
Bidwell, Sydney	Carmichael, Nell	Cunningham, G. (Islington S)
Bishop, Rt Hon Edward	Carter-Jones, Lewis	Cunningham, Dr J. (Whiteh)
Blenkinsop, Arthur	Cartwright, John	Davidson, Arthur
Davies, Bryan (Enfield N)	Kaufman, Gerald	Roberts, Albert (Normanton)
Davies, Denzil (Llanelli)	Kelly, Richard	Roberts, Gwilym (Cannock)
Davies, Ifor (Gower)	Kerr, Russell	Robinson, Geoffrey
Davis, Clinton (Hackney C)	Kilroy-Silk, Robert	Roderick, Caerwyn
Deakins, Eric	Kinnock, Neil	Rodgers, George (Chorley)
Dean, Joseph (Leeds West)	Lambie, David	Rodgers, Rt Hon William (Stockton)
Dempsey, James	Lamborn, Harry	Rocker, J. W
Doig, Peter	Lamond, James	Roper, John
Dormand, J. D.	Latham, Arthur (Paddington)	Rose, Paul B
Dunnett, Jack	Leadbitter, Ted	Ross, Rt Hon W (Kilmarnock)
Dunwoody, Mrs Gwyneth	Lee, John	Ryman, John
Eadie, Alex	Lestor, Miss Joan (Eton & Slough)	Sandelson, Neville
Edge, Geoff	Lewis, Ron (Carlisle)	Sedgemore, Brian
Edwards, Robert (Wolv SE)	Litterick, Tom	Selby, Harry
Ellis, John (Brigg & Scun)	Lomas, Kenneth	Shaw, Arnold (Ilford South)
Ellis, Tom (Wrexham)	Luard, Evan	Sheldon, Rt Hon Robert
English, Michael	Lyon, Alexander (York)	Shore, Rt Hon Peter
Ennals, David	Lyons, Edward (Bradford W)	Silkin, Rt Hon John (Deptford)
Evans, Fred (Caerphilly)	McCartney, Hugh	Silverman, Julius
Evans, Ioan (Aberdare)	McDonald, Dr Oonagh	Skinner, Dennis
Evans, John (Newton)	McElhone, Frank	Small, William
Ewing, Harry (Stirling)	MacFarquhar, Roderick	Smith, John (N Lanarkshire)
Faulds, Andrew	McGuire, Michael (Ince)	Snape, Peter
Fitch, Alan (Wigan)	MacKenzie, Rt Hon Gregor	Spearing, Nigel
Flannery, Martin	Maclennan, Robert	Spriggs, Leslie
Fletcher, Ted (Darlington)	McMillan, Tom (Glasgow C)	Stallard, A. W.
Foot, Rt Hon Michael	McNamara, Kevin	Stewart, Rt Hon M. (Fulham)
Ford, Ben	Madden, Max	Stoddart, David
Forrester, John	Magee, Bryan	Stott, Roger
Fowler, Gerald (The Wrekin)	Maguire, Frank (Fermanagh)	Strang, Gavin
Fraser, John (Lambeth, N'w'd)	Mahon, Simon	Strauss, Rt Hon G. P.
Freeson, Reginald	Mallalieu, J. P. W	Summerskill, Hon Dr Shirley
Garrett, John (Norwich S)	Marks, Kenneth	Swain, Thomas
George, Bruce	Marshall, Dr Edmund (Goole)	Taylor, Mrs Ann (Bolton W)
Gilbert, Dr John	Marshall, Jim (Leicester S)	Thomas, Jeffrey (Abertillery)
Ginsburg, David	Maynard, Miss Joan	Thomas, Ron (Bristol NW)
Golding, John	Meacher, Michael	Tierney, Sydney
Gould, Bryan	Mellish, Rt Hon Robert	Tinn, James
Gourlay, Harry	Mendelson, John	Tomlinson, John
Graham, Ted	Mikardo, Ian	Torney, Tom
Grant, George (Morpeth)	Millan, Rt Hon Bruce	Tuck, Raphael
Grant, John (Islington C)	Miller, Dr M. S. (E Kilbride)	Urwin, T. W.
Grocott, Bruce	Miller, Mrs Millie (Ilford N)	Varley, Rt Hon Eric G.
Hamilton, W. W. (Central File)	Mitchell, Austin Vernon (Grimsby)	Wainwright, Edwin (Dearne V)
Hardy, Peter	Mitchell, R. C. (Soton, Itchen)	Walker, Harold (Doncaster)
Harrison, Rt Hon Walter	Molloy, William	Walker, Terry (Kingswood)
Hart, Rt Hon Judith	Moonman, Eric	Ward, Michael
Hattersley, Rt Hon Roy	Morris, Alfred (Wythenshawe)	Watkins, David
Hatton, Frank	Morris, Charles R. (Openshaw)	Watkinson, John
Hayman, Mrs Helene	Morris, Rt Hon J. (Aberavon)	Weetch, Ken
Healey, Rt Hon Denis	Moyle, Roland	Weitzman, David
Heffer, Eric S.	Newens, Stanley	Wellbeloved, James
Hooley, Frank	Noble, Mike	While, Frank R. (Bury)
Horam, John	Oakes, Gordon	Whitehead, Phillip
Howell, Rt Hon Denis (B'ham, Sm H)	Ogden, Eric	Whitlock, William
Hoyle, Doug (Nelson)	O'Halloran, Michael	Willey, Rt Hon Frederick
Huckfield, Les	Orbach, Maurice	Williams, Rt Hon Alan (Swansea W)
Hughes, Rt Hon C. (Anglesey)	Orme, Rt Hon Stanley	Williams, Alan Lee (Hornch'ch)
Hughes, Robert (Aberdeen N)	Ovenden, John	Williams, Sir Thomas (Warrington)
Hughes, Roy (Newport)	Padley, Walter	Wilson, Alexander (Hamilton)
Hunter, Adam	Palmer, Arthur	Wilson, Rt Hon Sir Harold (Huyton)
Jackson, Colin (Brighouse)	Park, George	Wilson, William (Coventry SE)
Jackson, Miss Margaret (Lincoln)	Parker, John	Wise, Mrs Audrey
Janner, Greville	Parry, Robert	Woodall, Alec
Jay, Rt Hon Douglas	Pavitt, Laurie	Woof, Robert
Jeger, Mrs Lena	Pendry, Tom	Wrigglesworth, Ian
Jenkins, Hugh (Putney)	Perry, Ernest	Young, David (Bolton E)
John, Brynmor	Phipps, Dr Colin
Johnson, James (Hull West)	Prescott, John	TELLERS FOR THE NOES:
Johnson, Walter (Derby S)	Price, C. (Lewisham W)	Mr James Hamilton and
Jones, Barry (East Flint)	Rees, Rt Hon Merlyn (Leeds S)	Mr Joseph Harper
Jones, Dan (Burnley)	Richardson, Miss Jo

Question accordingly negatived.

Amendment made: No. 100, in page 14, line 26, leave out '£420' and insert '£450'.—[Mr. Denzil Davies.]

9.30 p.m.

Mr. Jack Ashley (Stoke-on-Trent, South)

I beg to move Amendment No. 94. in page 14, line 33, at end add— (4) In section 18 of the Taxes Act (Relief for blind persons)—

1. (a) for any reference to £180 there shall be substituted a reference to £420; and
2. (b) for any reference to £360 there shall be substituted a reference to £840'.

I can be brief because this is not in itself a major amendment, the purpose being to increase the tax allowance for blind persons. The whole problem for blind people was discussed fairly recently, and a couple of notable speeches were made on that occasion by the hon. Member for Walsall, North (Mr. Hodgson) and my hon. Friend the Member for Coatbridge and Airdrie (Mr. Dempsey). The House was then treated to a very clear exposition of the serious difficulties facing blind people.

I am glad that the Chancellor is present for this short debate because, although its scope is narrow, I wish to say something to him about the problems of the disabled generally, although the peg on which I shall hang my remarks will be the tax allowance for the blind.

There are about 120,000 registered blind people in the United Kingdom, but if we exclude the minority who have special benefits through blindness as a result of industrial injury or military service, there are only two available benefits, the supplementary benefit addition and the tax allowance, but no fewer than 50,000 of these blind people have no benefits to offset the extra costs of blindness.

Because of the rules of the House, I cannot discuss those 50,000 blind people who have no allowance or the 40,000 on supplementary benefit, yet theirs are the most deserving case. I can discuss only the 30,000 blind people who receive a tax allowance. But I make no bones about it—my main objective here is to create a bridgehead, insert the thin end of the wedge—whatever apposite metaphor one may choose—to secure a comprehensive disability income.

The Chancellor of the Exchequer, who shows great good will to disabled people, should reconsider his basic views. I know that he is anxious to help in any way he can. Disabled people are not getting the allowance that they should get and the only way in which we can resolve the problem is by introducing a comprehensive disability allowance.

At a recent symposium, a senior Cabinet Minister said that the cost of a comprehensive disability allowance would be no less than £2,000 million. I believe that he was insulting the intelligence of the people listening to him because he was implying that the industrial injuries scheme should be applied to all disabled people, and there are 3 million of them, but no responsible Minister would suggest that. We would suggest the phased introduction of such a comprehensive scheme, beginning slowly with the most gravely disabled.

I notice that you, Mr. Speaker, are beginning to prick up your ears. I was saying in passing that the amendment is an example of the need for a comprehensive disability allowance. I know that the Chancellor of the Exchequer, who is well disposed towards disabled people, will do what he can to secure a phased introduction of a comprehensive disability allowance and dissuade his Cabinet colleagues from using such outrageous figures as £2,000 million to frighten off people such as myself who are ardent advocates of a disability allowance.

The Chancellor will agree that the tax allowance for blind people is a very important allowance. It has been so described by my hon. Friend the Member for Manchester, Wythenshawe (Mr. Morris), who is the Minister responsible for the disabled. The blind person's tax allowance provides exemption from tax at the marginal rate of £180 a year, or twice this sum if both spouses are blind. My hon. Friend the Member for Wythenshawe said in a recent debate that this allowance plays a significant and useful part in meeting the extra expenses resulting from blindness".—[Official Report, 5th July 1977; Vol. 934, c. 1197.]. I agree with that analysis. But the crux of the matter is that the tax allowance for registered blind people of £180 is worth only 43 per cent. of its value when it was introduced in 1962. The aim of the amendment is to restore its value. It is a simple objective and one of equity.

I realise that these people are not the poorest of the blind or the poorest of the poor. That is the only reason that I do not propose to press the amendment to a Division. My hon. Friends have already pressed the Government enough on this matter and I do not wish my not pressing this amendment to a Division to be taken as implying criticism of my hon. Friends who have called Divisions on it recently. I agree with their moves.

The basic reason for the special allowance for blind people is to meet the expenses of their disability. All disabled people have outrageous expenses to meet. I could speak for at least an hour about some of the hidden expenses to which they are subject, but I do not propose to do so. Blind people are particularly prone to expenses such as travel costs, wear on clothes, help in the home and secretarial help. I hope that these few words will be listened to by the Treasury and that when the time comes—I hope shortly—it will do all that it can to help not only blind people but all disabled people whose needs are becoming progressively urgent. I hope that the Chancellor will respond when he can.

Mr. John Hannam (Exeter)

I briefly add my support to the amendment moved by the hon. Member for Stoke-on-Trent, South (Mr. Ashley). As he pointed out, the general objective in all of the work which hon. Members on all sides of the House, and the various organisations representing the disabled, have been aiming for is to try to secure a general disability allowance. The step-by-step approach which we have been pursuing successively over the years has been slowly but surely closing the gap between the allowances which exist and the amount which the Treasury would finally consider presentable in order to bring the whole thing together and create one general disability allowance.

The amendment seeks to fall in line with the general new system of inflation-linked tax allowances which, as all the newspapers are pointing out, heralds a completely new approach to tax allowances. It seeks to extend this principle to those blind people and, I hope, eventually to other disabled groups as well.

I hope that the Minister will pay due regard to the need to bring blind people who face all these extra expenses referred to by the hon. Member for Stoke-on-Trent, South such as special clothes, special equipment and the various extra charges which any blind person faces in pursuing his normal life.

This original allowance now represents about 42 per cent. of its value. I believe that it is the wish of all hon. Members of this House, and all those connected with disabled people, to see that disabled recipients of any allowances at least maintain the net value of the amount that they receive. I hope that we shall give as much support as we can to this amendment in view of the general new approach to tax allowances which has now been introduced into our affairs.

Mr. Rooker

I shall be extremely brief, briefer than the hon. Member for Exeter (Mr. Hannam). I support the amendment. I should like the Minister, when replying, to tell us what the cost of accepting the amendment would be. It cannot be very substantial compared with the total take from income tax.

The fact that this allowance has been allowed to deteriorate in value so much shows how wrong the tax system is. One day a Government can come along and grant a tax allowance, or raise it, in response to a particular pressure group or issue of the day, and for years later that Government do nothing about it.

We have now reached the point where this allowance is worth only 42 per cent. or 43 per cent. of what it was originally. If there is a case for a disabled person's tax allowance, and clearly there is, there is just as much a case for making sure that an allowance maintains its value.

I am sure that my hon. Friend the Minister would receive the support of the House by accepting the amendment. My hon. Friend the Member for Stoke on Trent, South (Mr. Ashley) said that he would not press the amendment to a Division. There are other ways in which we can get the Government to accept changes which are electorally popular. That is very important. This particular amendment would be electorally popular. That needs to be borne in mind. In addition, there is clearly all-party support in the House for it. I hope that the Government will accept it.

9.45 p.m.

Mr. Patrick Jenkin (Wanstead and Woodford)

I shall be very brief, if only because I do not frequently appear in Finance Bill debates. The point that I should like to make is rather different from that of the hon. Member for Birmingham, Perry Barr (Mr. Rooker). He said "If there is a case for a blind allowance—and there obviously is one". However, if there is a case for a tax allowance for the blind, why is it available only to people who have incomes high enough to pay tax? One could not have a clearer example of the sort of case where the allowance should be a tax credit. If it were a tax credit, the cash value of the allowance would be available even to those whose incomes were so low as to take them below the tax threshold.

It would seem to me, therefore, although I have every sympathy with the case made by the hon. Member for Stoke-on-Trent, South (Mr. Ashley), that, if there is an allowance, it should preserve its value through the years, the fact is that a tax allowance is not a good way of granting a welfare payment. If one turned it into a tax credit—and it is the long-term aim of the Conservative Party to do so as we are able to phase in a tax credit scheme—one could make sure that not only those with incomes above the tax threshold would benefit but that the credit would be available to those with incomes below the tax threshold. That would seem to be a very much better way of doing it.

The question is, therefore, whether it helps the transition to a tax credit if the tax allowance is raised very substantially. The answer is, in the early stages, "No." The lower the level of the tax allowance in real terms, the less is the cost of switching to a tax credit.

It is not necessarily to the disadvantage of the blind on very small incomes that this credit will have remained low in real terms, because it means that it would be very much easier and therefore sooner that we would be able to introduce a tax credit in place of the tax allowance.

If one were to try to explain to a novitiate the advantages of a tax credit scheme, one could do worse than take the example of a blind tax allowance and explain what would happen if it were converted into a tax credit.

This is not the least of the reasons why my party remains totally committed to the phased introduction of a tax credit system. Both from the point of view of simplicity and from the point of view of social justice, it would have advantages over a system which by its very nature can confer benefits only on those with incomes high enough to pay tax.

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

My hon. Friend the Member for Stoke-on-Trent, South (Mr. Ashley) took the opportunity of the blind allowance to discuss general matters concerning a disability pension.

I know that the all-party group on disablement has been pressing for some time for a general disability pension graded according to the level of disability, and the totally blind would be assessed at 100 per cent. disability for this purpose. That is a very respectable long-term aim, and those who have been busy putting forward this view have been arguing on the basis of the facts as they see them and of the kinds of disability of which blindness is one.

When the blind allowance first came into operation, it was seen not as one aspect of disability but as a special kind of problem for those who obtained the greatest degree of sympathy and who could readily be distinguished from other members of the community. Many hon. Members have been busy seeking to persuade the country as a whole that we should treat disability as the important matter it is. My hon. Friend the Member for Stoke-on-Trent, South knows that we cannot debate disability pensions in great detail in this discussion, but he seeks to take this opportunity to raise the wider issue. My hon. Friend did so with considerable restraint and moderation, and I should like to compliment him on the way in which he dealt with the matter.

We well appreciate that out of the 100,000 registered blind only 21,000 claim the blind allowance. Therefore, there are a large number of people in that category who know nothing whatever about the blind allowance, whereas the pension is a different matter. A major problem in discussing benefits and tax allowances lies in the fact that we are providing assistance for the better-off sections of the community. They may not be well off, but they are better off. Those in the category who pay tax at a higher rate benefit most. That runs counter to the general aims of my hon. Friend and others who want to assist those in greatest need.

The problem is that we give most to those who have the most rather than to those who have the greatest need. This is the problem involving the use of tax allowances for social security purposes. If one wants to give money for social purposes, one needs to do so by means of benefits—in other words, by payments directly made to those people. A tax allowance is not the best way to go about the matter, but it is a bridgehead and means that at least the subject can be aired.

If we are not careful we shall end up with two social security systems. One system will be operated by the DHSS and will pinpoint those places where help is most required. The other will be a rougher, poorer and inadequate method via the tax system and will produce money for those with the greatest means. It is the consensus that that is not the way to handle these matters.

The right hon. Member for Wanstead and Woodford (Mr. Jenkin) spoke of the need for a tax credit system. I note the importance of his comments, because there has been some doubt where the Conservative Party stands on such a system. It was calculated some years ago that such a scheme in current terms would cost £5 billion and at the end of all this it has been said that it would eliminate only four of the 44 means-tested benefits. I know that the right hon. Gentleman and his colleagues have been busy on these matters and in due course the scheme will probably see the light of day, but I hope that they realise the problems involved.

Mr. Patrick Jenkin

When the Minister mentions the number of means-tested benefits does he not appreciate that that factor is likely to be far less important than the question of the number of people one can leave out of such benefits? If that is one of the principal aims of a tax credit scheme, we can look forward, even on a simple and modest figure, to the time when we can lift many hundreds of thousands of people, and possibly eventually millions of people out of dependence on means-tested benefits. Even if we did not get rid of a single one of the so-called 44 benefits, which is an artificial list, does the hon. Gentleman not agree that the fact that far fewer people would be subject to means-tested benefits would have great social advantages?

Mr. Sheldon

It is those very means-tested benefits that are responsible for so many people being in the poverty trap. As a person achieves a slight increase in pay, he begins one by one to forgo the 44 means-tested benefits. That is how people get into the poverty trap. If all that one achieves is the elimination of four of these tests, obviously it is much less attractive than if one were to make an onslaught on a larger number.

At any rate, we have not got the system before us. We have only heard it announced. It is still in the programme of the right hon. Gentleman's party, and we look forward to its emergence in due course.

Mr. Robert Boscawen (Wells)

I admit that I have not taken part in one of these debates before, but I am interested to know how the Minister can speak like that when only last week he increased the numbers on means-tested benefits by 500,000.

Mr. Sheldon

I understand this problem, but the right hon. Gentleman is offering a solution which, according to his own words will not deal with one of the major aspects of means-tested benefits, their effect on the poverty trap.

All that I refer to is the expenditure of £5 billion. One can do an awful lot in the social security area with £5 billion, yet the amendment does not deal with some of these major issues. Anyhow, we are speaking without anything like the scheme in front of us, and it may need considerable scrutiny before we can be satisfied that it is even worth the early consideration which will eventually have to be given to it.

My hon. Friend the Member for Stoke-on-Trent, South has put forward the need to index the blind allowance. I accept his amendment was largely a means of asserting the claims that he made for payment in other directions. In April 1975 the figure was increased to £180, and if it was indexed from then it would be £250. But I understand, too, that one can take indexing from a different level. I believe that if we were to move in this direction, we should be spending substantial sums and would be putting that money not where the greatest need is, as my hon. Friend would have it, but putting it where it cannot so readily be justified.

My hon. Friend has rightly raised this issue. I admire him for, and congratulate him on, his ingenuity in raising it, but, for the reasons which I have given, I cannot accept the amendment.

Mr. James Dempsey (Coatbridge and Airdrie)

When my right hon. Friend talked about £250, he used the words "could not be justified." Will he relate that to the relief given to mortgage payments? In reply to a recent Question I was advised that on average a person spending thousands of pounds on a house received relief of £39 per £1,000. Therefore. if the mortgage is £10,000 the person concerned, whose wife is probably also working receives £390, whereas we are told that for a blind person to receive £250, the present equivalent of the sum fixed three years ago, could not be justified. Will not my right hon. Friend agree that it is not consistent for a Labour Minister to argue along these lines?

Sir Raymond Gower (Barry)

rose—

Mr. Speaker

Order. We cannot have two interruptions without becoming disorderly. The hon. Gentleman may enter the debate after the Minister's answer to his hon. Friend the Member for Coat-bridge and Airdrie (Mr. Dempsey).

Mr. Sheldon

I though that my hon. Friend the Member for Coatbridge and Airdrie (Mr. Dempsey) was making a speech. If he is just intervening in my speech—I thought I had sat down—I shall be glad to assist him if I can. The point I was making was not that blind people need every assistance that can be given within the amounts of money available but that there are better methods of making those moneys available to those in greatest need in the way I thought I had indicated.

Mr. Speaker

Before I call the hon. Member for Barry (Sir R. Gower), may I say that I allowed the Opposition spokesman to touch upon tax credits without going too deeply into the subject. I feel obliged then to allow the Minister to answer. However, I must point out to hon. Members that we are debating blind persons rather than tax credits.

It being Ten o'clock, the debate stood adjourned.