CHARGE OF INCOME TAX FOR 1977–78

HC Deb 09 May 1977 vol 931 cc1018-67

Mr. David Howell

I beg to move Amendment No. 15, in page 11, line 12, leave out '35 per cent.' and insert '33 per cent.'.

The First Deputy Chairman (Sir Meyer Galpern)

With this amendment we may take Amendment No. 24A, in page 11, line 25, at end insert— (2) Each individual shall be entitled to an allowance of 15/35 of the total income tax payable by that individual up to a maximum allowance of 15/35 of £416.

Mr. Howell

We have now come to the main clause, which is concerned with rates of income tax. Earlier this evening some of us were privileged to hear an excellent speech by the hon. Member for Birmingham, Ladywood (Mr. Walden), in which he argued—I paraphrase—that the House would do better to concentrate on the great issues of the level of income tax, which he argued—with my full approval—was excessive, and the level of value added tax, rather than on minor matters. Therefore, I think that if he were present he would be pleased that we are now coming to this major issue.

8.45 p.m.

It is a quirk of our procedure that we come to this immensely important issue of the level of the standard rate of income tax just at the time when many hon. Members are heading towards a well-deserved dinner. Apparently, we shall be discussing it, at least for the next few minutes, in a not very crowded House, whereas the debate on the petrol duty was well attended. That is perhaps inevitable, because at one time it looked as though the Lib-Lab pact would be undermined, together with the possibility of getting the Government to back down. However, the pact was saved in the nick of time by the usual deal over the week-end, so that the matter was settled as it could have been settled in the House in the first place. But that does not apply to the issue of income tax, on which the various parties will no doubt make their positions clear.

We have three main reasons for the amendment. First, we want to know what the position of the Government now is on the question of reflation and the Budget judgment. We have, in the last hour or so, accepted a Government amendment that will have the effect of reducing revenues in the current year by £140 million. Although that figure may be small by today's astronomical Budget arithmetic, it still affects the public sector borrowing requirement and therefore the overall assessment made at the time of the Budget.

Secondly, we want to know what the position is on the proposed conditional tax cuts announced by the Chancellor in his Budget Statement. He told the House: I have explained why it would not be prudent to commit myself absolutely to this decision —the decision to make certain tax reductions, of which the reduction from 35 per cent. to 33 per cent. in the standard rate of income tax was one— until a satisfactory agreement on a new pay policy has been reached, as I expect to happen well before the Finance Bill leaves the House."—[Official Report, 29th March 1977; Vol. 929, c. 283.] That was the Chancellor's clear position in his Budget Statement, when, in his own words, he was guided by prudence in stating that he would not commit himself to this position until a satisfactory pay agreement had been reached. There were no conditional "ifs" and "buts", but a clear statement of his position. That was rather over a month ago. What is the status of that undertaking now? Is the proposed cut from 35 per cent. to 33 per cent., as presented to the Committee in this amendment, still tied to the achievement of a satisfactory pay deal—leaving aside, for the moment, what the definition of "satisfactory" is meant to be? Or is the tax cut no longer tied to a pay deal? Is it a condition, or is it not? I shall elaborate on that in a moment.

The third reason for the amendment is that we wish to register our strong feelings about this whole approach, which is being tried for the second year running, by which the Government put forward provisional proposals concerning the taxes that all the citizens of this country will pay and then explain to the House that the matter will be settled not by Parliament, not even by discussion with all outside representative bodies—if it is possible to establish full representation by outside bodies—but by discussions with the TUC, and it is argued that in the end Parliament will be dealing with it because it will be brought back to Parliament for approval. We do not like that procedure.

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

The hon. Gentleman is contradicting himself. He said that this would not be settled by Parliament, and he then said that it would be. How else can this 2p reduction be made, except by a vote of the House? I do not understand the hon. Gentleman.

Mr. Howell

I think that the Minister does understand, and that he is playing games. What he is arguing now, though he cannot be serious in putting this forward, is that because, ultimately, this has to come back to the House for approval, perhaps in this Finance Bill, we do not know, perhaps in another Finance Bill, it has to be passed by this House. But the reality is quite different. This happened last year, and apparently the proposal again this year, although we do not know and want to find out, is that the matter should be settled by agreement between the Government and the General Council of the TUC, which is only one outside body—I agree an important one—representing only one section of the many millions of working people who in the end would be paying, and perhaps will be paying, the new tax rate.

We believe that these arrangements should be debated and settled in Parliament. We believe, too, that it is humiliating for a free Parliament to have these matters, as it were, taken from our hands for a time and discussed and traded on elsewhere, quite apart from the fact that this time round TUC leaders have turned the whole offer down flat anyway.

Mr. John Lee (Birmingham, Handsworth)

Does the hon. Gentleman feel the same sense of humiliation when our financial affairs are canvassed by either the IMF or our Common Market masters?

Mr. Howell

When certain propositions are put forward because, apparently, the matter is not within the power of this Parliament but is in the hands of the IMF as to how we behave, I do feel a certain sense of humiliation, but I do not share what I suspect is the hon. Gentleman's view about humiliation when dealing with the Common Market. I say that for the simple reason that we, as a democracy, decided, both in this House and by a referendum supporting that decision, to be an equal member of the EEC. We play our full part in that, though I, personally, would like to see us play a still stronger part. I hope that that answers the hon. Gentleman's question.

I now come in more detail to the three issues behind the amendment, and I shall deal first with the reflation question. The Budget assessment was absolutely specific, and when the economic progress report of April, prepared by the Information Division of the Treasury, came out after the Budget, it stated categorically that there is scope for a carefully controlled fiscal stimulus to the economy of £1½ million. Although the report says "million", it means "billion". What is the assessment now? Where do we stand on that carefully controlled fiscal stimulus? Is it still the belief of the Government that that is right? Or are they looking for something more, and will they be able to use their withdrawal of the petrol tax to reinforce that something more?

The whole newspaper-reading world will have read about the Summit weekend that has just passed—an event that seemed to some of us to be rich in irony. One of the undertakings—it was practically at the top of the list—given by the leaders of the various nations was that an attack would be made on unemployment, which they and we consider to be of intolerable size throughout the whole of Europe. The statesmen gathered at the Summit agreed to take appropriate measures to overcome it, although at one Press conference President Carter said, with an excellent touch of realism, that making decisions is no guarantee that they will be consummated. Nevertheless, the undertaking has been given that appropriate measures will be taken to attack unemployment.

How will Britain be attacking it? We on the Opposition Benches have a first, an almost instinctive, answer. It is that we must conquer inflation. We believe that inflation, as somebody once argued about certain motor cars, is unsafe at any speed. We believe that inflation is a destroyer of jobs and is an engine of unemployment, and we put the conquering of inflation as the first necessary step in the generation of new confidence, investment and jobs.

What is the Government's answer? Is it, as we gather from various leaks in the newspapers, more reflation, of which the proposed cut in income tax from 35 per cent. to 33 per cent. is to form part? Is this greater reflation to begin from the base rate of about 13 per cent. current inflation?

Mr. Denzil Davies

The hon. Gentleman is moving an amendment that seeks to reduce the basic rate of income tax from 35 per cent. to 33 per cent., which would amount to about £1,000 million of reflation. He is in favour of this now, presumably.

Mr. Howell

I hope that the hon. Gentleman has been listening. I have explained our three purposes in moving the amendment. One of them certainly is to establish our dislike of having conditional income tax deals. Another, as I was very careful to point out, is to find out what is happening about reflation. We have heard not merely that this cut in the basic rate from 35 per cent. to 33 per cent. is being considered but that further cuts are being considered.

Over the weekend there has been a great discussion about all the reflation that the United Kingdom is proposing to consider to overcome unemployment. Other countries whose Heads of State attended the Summit meeting may be able to do more. Indeed, they are already doing far more and achieving higher rates of growth, but in most cases that is precisely because they have not sought to reflate prematurely and have controlled their public deficits and public expenditure.

Against that background, we need a restatement of the Government's position to allay fears that the Government may now be contemplating, from a level of inflation of between 13 per cent. and 15 per cent., more reflation of a kind that would greatly add to inflation.

On top of that, and very germane to the question of the cut in income tax from 35 per cent. to 33 per cent. and the overall Budget assessment, there is the matter of the extra £½ billion of public expenditure cuts that were mentioned in the public expenditure White Paper and in the Chancellor's December statement, and which are apparently due for 1978–79. Therefore, if there is to be proper planning, which there was not last time, particularly for local authorities, these need to be worked upon and announced early in the autumn.

Are those still on? Or are the £ ½, billion of public expenditure cuts off, in the light of further inflation? We want to know. It is not satisfactory for either the Committee or the wider public to be left in doubt about the Government's current position.

I turn, secondly, to the timing of the proposed conditional deal. The Chancellor of the Exchequer said on 29th March that it would be before the Finance Bill leaves the House and that it would be impossible to make any commitment until a satisfactory arrangement had been reached. When will that be? The IMF letter to Dr. Witteveen in December last year talked about reaching an agreement in the early spring, before the budget. What has happened to that undertaking? Like other undertakings in the IMF letter, it has melted away with the warm spring weather melting the winter snow.

9.0 p.m.

We now have a new proposal and a new suggestion that was first aired authoritatively on the front page of The Sunday Times this weekend. That article stated that Income tax is likely to be cut in August whether or not the Trades Union Congress has formally ratified a new round of wage restraint. This became clear yesterday when it was learned that Denis Healey, the Chancellor, hopes to lower the standard rate of income tax from 35 to 33 per cent at least in return for a satisfactory pay deal being agreed or being substantially in prospect. The story appears to have been written with great authority. It went on: Some pump-priming by Healey in the next few months is regarded as imperative by Labour MPs if they are to regain electoral ground lost to the Tories. If this tax cut is no longer conditional it is essential that the Minister who will reply to tonight's debate should say so. It is not right for us to be left in further doubt about the matter. If the Chancellor has now abandoned his specific assertion of 29th March, and it is no longer conditional, we must know. That is one of the perfectly reasonable bases upon which we move the amendment. The Minister of State is fair, and I am sure that he will recognise that that is so and will give us a clear answer on where we stand.

Another reason why we wish to remove this amendment is that we do not like the nature of such a deal. We do not like the approach. Of course we believe—this has been said from this Dispatch Box—that pay restraint is vital to curb unemployment and procure responsible bargaining. I am sure that the Minister of State will accept that. However, we say that that should be obtained through an open understanding and not through any deal. We say that the kind of deal that was done, supposedly in the interests of work people, under the social contract, has been immensely damaging. By the Chancellor's own admission, last year it involved taking risks with the public sector borrowing requirement, and that led to one of the most disastrous years in British economic history, certainly since the 1930s if not of all time. That is no deal for the British nation. It benefits no one, and leads to more inflation, not less.

That is why we have repeatedly said that we should seek to secure proper pay restraint within overall monetary and budgetary restraint by an open understanding and not by a deal. We were even less impressed by the arguments that were used by the Chancellor in his Budget when he put forward the case for a deal. If I remember correctly, he argued that when all was said and done, if the trade unions would accept his conditional tax cuts in exchange for wage restraint that would be worth an additional 9 per cent.—with a further gross pay rise of over 4 per cent. it would make nearly 9 per cent. in all. That, he explained, would be the benefit that would flow from accepting this conditional tax cut.

I am not sure that that argument is intellectually respectable. No one can predict what the Chancellor so blithely predicted, namely, that if a pay increase were accepted in the form of tax cuts rather than wage increases it would have the effect of cutting 2½ per cent. off the index of retail prices by the end of 1978. How can he tell? That is the kind of prediction that is made nonsense of by events and it adds to no one's confidence in Treasury figures when it is trotted out in that way. It does not inspire much confidence.

There is an assumption in what the Chancellor said that higher wage claims would, if the additional tax cuts deal were not accepted, result in higher real wages plus a bit of inflation.

In his Budget speech the right hon. Gentleman referred to tax reductions and said: Moreover, this sort of increase in take-home pay would not add to wage costs and so to prices. So he would get further benefit from a lower rate of inflation. And this in turn will keep interest rates lower and the value of sterling higher than they would otherwise have been. He went on: In fact, it is difficult to exaggerate the advantages of a satisfactory pay agreement which makes it possible for me to proceed with the full income tax package of £2¼ billion."—[Official Report, 29th March 1977; Vol. 929, c. 284.] There is an assumption there that if he does not get the conditional deal—which seems to be crumbling, anyway—higher wages will lead to higher real wages—which is questionable—and to a bit of inflation. Neither of these results is certain. If monetary policies are pointing in the other direction and other forces are at work, it is possible that higher wage claims will not lead to higher real wages, but rather to more unemployment. That is the sort of message that the Prime Minister was putting forward with great vigour and clarity a week or two ago, and I agreed with him at that time.

That whole section of the Chancellor's Budget speech was a very shaky piece of argument. I am surprised that there is anyone left in the Treasury to draft such tendentious stuff, though not so surprised that there are still Ministers willing to put it forward.

These, then, are the reasons why we do not like conditional deals. They are strengthened by the fact that the conditional status of the deal seems to be in extreme doubt, leaving the Committee and the House up in the air about the Government's economic policy. We do not know whether it is a conditional deal, whether there is to be some reflation, or whether the Government are discussing with the TUC a July Budget or an August package. A July Budget is the usual form. There is also an extra £500 million of public expenditure cuts to be introduced before the end of the year unless they have also been abandoned, despite the fact that it is in the public expenditure White Paper.

We are entitled to more clarity on all these things. I hope that the Minister will not use the narrow argument—that would not do him justice—that because we are putting forward this proposal in the amendment we must be in favour of it in all circumstances. We are in favour, if it is the right thing to do, of having it in the Bill now. We are against setting up a conditional trade-off with wage restraint. That is not the proper way to approach the matter of pay policy or a deal or the horrendous problems lying ahead on the pay restraint front. A totally different approach is needed.

The deal approach implicit in the social contract has run its course, and those who were the architects of the social contract have run their course. A new arrangement and understanding and a fresh approach are needed. The sooner the country has a fresh Government to carry through that approach, the better it will be for the national interest.

Those are our reasons for putting forward the amendment. I hope that the Minister will give some explanations on the points that have been raised.

Mr. William Clark (Croydon, South)

I agree with my hon. Friend the Member for Guildford (Mr. Howell) that if taxation is to be reduced from 35 to 33 per cent. it should be done in Parliament. It should not be conditional. However, I do not go all the way with my hon. Friend, who seemed to place a certain amount of reliance on statements made by the Chancellor of the Exchequer. Everything the right hon. Gentleman has said in the past has always been proved wrong. I do not put much credence on the right hon. Gentleman's statements.

It is humiliating that the Chancellor in seeking to run the economy has not taken the bull by the horns and said "We must reduce taxation from 35 to 33 per cent." The Chancellor should not leave the matter to some other body, such as the TUC, for ratification.

One Labour Member asked whether the Opposition thought that the IMF episode was a humiliating one. If somebody is broke and has to go to his bank manager to borrow money, naturally the banker tells the person concerned what he has to do. One of the ironies of the present Labour Government, and indeed of previous ones, is that in the first two years of a Labour Government we see them trying to apply their economic remedies, and then we have IMF intervention. That is a trap into which all Labour Governments fall.

The doubt about whether the figure will be set at 35 or 33 per cent. is causing a certain amount of administrative problems. For example, we do not know what will be the burden of ACT. Perhaps the Minister will tell the Committee. Then there is the subject of covenants for charities. Many administrative details are involved in the decision whether to opt for a figure of 33 or 35 per cent. Of course, one can juggle the allowances so as to affect ACT covenants and all the rest of it, and all that can be handled by legislation, but I believe that the Government are building up for themselves and for the Inland Revenue burdensome administrative problems because nobody yet knows what the rate will be.

There are some sections of the community whose members should not be paying tax at all. I am not speaking of those who are in receipt of social security benefits, because they are untaxed. This gives rise to considerable anger among others who are working and who are heavily taxed. I have in mind the section of the community who give voluntary service for an honorarium or bounty, and they surely should not be subject to tax. In many parts of the country men who serve in lifeboat crews receive 70p an hour. That sum, for which they risk their very lives, is subject to tax. It is niggardly of the Government not to make that payment tax-free.

I tabled an amendment, which was not selected, to exclude from taxation all honoraria or bounties up to a figure of £200. I do not wish to pursue that amendment, but it is a matter which the Minister may well have in mind. Many people are doing sterling work for the community whether they work in the life boat service or in the fire service. The fire services in rural areas are voluntary. Let me turn to sea rescue—

The First Deputy Chairman

Order. The hon. Gentleman a few moments ago gave the impression that he intended only to touch on his amendment. Amendment No. 16 was not selected because it was considered to be outside the scope of the Bill. Therefore, I cannot allow the hon. Gentleman to pursue the subject matter of that amendment.

9.15 p.m.

Mr. Clark

I am grateful, Sir Myer. May I then put the argument that, irrespective of what happens regarding the 33 per cent. or the 35 per cent. rate of taxation, the 33 per cent. rate should certainly be applied to those who receive an honorarium or a bounty. In view of what you say, Sir Myer, I shall not argue that they should be exempt from taxation. However, since the present general rate of tax is 35 per cent., I argue that those who do voluntary service—lifeboat men, fishermen, special constables, members of the Territorial Army—should be subject to tax only at 33 per cent. from 6th April this year.

Mr. Nick Budgen (Wolverhampton, South-West)

Or a lower amount.

Mr. Clark

Or a lower amount. I am grateful to my hon. Friend, but I shall not argue for a lower amount because that would be out of order.

I hope that the Minister now understands the point. Our taxation system is thoroughly niggardly, and especially so under this Government. I shall not pursue the point, but I draw attention to what happens to Service men. They are subject to tax at 35 per cent., and they have had an increase in pay, but in many cases Service men in Ulster are now receiving only about 50p a week extra because the Government have taken back their increase under the social contract through extra rent charges and food charges.

I am sure, Sir Myer, that you do not wish me to go on to the other amendment which was not selected.

The First Deputy Chairman

No, I do not, but I was beginning to think that the hon. Gentleman was going on to include those who skilfully seek to get round the rulings of the Chair and was about to suggest that they also should be exempted from the payment of tax. The hon. Gentleman will see from the heading to Clause 15 that it does not deal with categories of people. The clause begins by providing, as he well knows, that the rate of tax shall be charged irrespective of what the individual taxpayer does. I hope, therefore, that he will bring that argument now to a close. I have allowed him to go some way on the question of exemption for those who give voluntary service, and I hope that he will say no more on that matter.

Mr. Clark

I accept your ruling, Sir Myer, and I should not for a moment wish to give the impression that I was trying to circumvent your ruling. All I say is that those who give voluntary service and receive an honorarium or bounty for so doing should be charged only 33 per cent. If the Government cannot accept a reduction to 33 per cent. for all taxpayers, let them at least accept 33 per cent. for voluntary workers such as firemen, lifeboatmen and the rest.

The First Deputy Chairman

Order. Exemptions cannot be given under Clause 15. It would require a new clause. Otherwise, I think that I might be a candidate for exemption, too.

Mr. Clark

I am glad to hear that I should have your support, Sir Myer. I end by pointing out that the whole of this clause should be examined under the Trade Descriptions Act. The heading to Part III is Income Tax, Corporation Tax and Capital Gains Tax". The term "capital gains tax" is a misnomer. It is an inflation gains tax.

However, having said that, I return to Amendment No. 15, which should be supported for the various reasons which my hon. Friend the Member for Guildford advanced. It is essential for the House of Commons to come to a decision. Whether we are to have 33 per cent. or 35 per cent. income tax, it is wrong for any Chancellor to keep the British taxpayer in suspense, not knowing whether his taxation will come down by two points or not.

Mr. Atkinson

The hon. Member for Guildford (Mr. Howell) made the broad point that the level of taxation generally is far too high, and one inferred from his remarks that it got worse the higher a person's income rose. But that cannot be sustained against the background of economic fact which is relevant to this debate. Up to the levels of income referred to earlier, that is, up to £22,000 a year, there is no one paying more than 50 per cent. in total taxation on such income. I do not consider that to be punitive, where a person has a tax-free income of £11,000. I think it is a very generous income indeed, even though it may be from a total of £22,000. There are very few taxpayers in this country—the Treasury Ministers will confirm this —who pay anything like that amount of tax. They get so many exemptions from an income of £22,000 a year that the total percentage of tax paid is a good deal less than suggested. Even though on paper some of these figures of taxation look rather punitive, when we find out what people actually pay on an income of £22,000 a year it is clear that the amount of tax does not add up to more than half of the total figure at worst. In those cases where a good accountant is employed, it is very much less than that. That is the sitution.

Mr. Peter Hordern (Horsham and Crawley)

The hon. Gentleman is quite right to look at the answers to Parliamentary Questions on this matter. In this country, somebody with a gross salary of £20,000 a year would get a net income of rather less than £10,000. In no European country does anybody at that level get a net income of less than £6,000 above the figure that would be received in the United Kingdom. This applies also to the United States and Japan. At every level of tax we consider, whether it is on a salary of £10,000, £5,000 or £2,500, there is not a single country in the world in which people are not substantially better off than people here.

Mr. Atkinson

That is on the assumption that the people in this country on such incomes are claiming no more than minimum allowances. We have a far more generous arrangement than in other countries, whereby people can claim for all kinds of things which are not permissible on the Continent.

Mr. Hordern

Such as what?

Mr. Atkinson

All sorts of things. The most convoluted insurance contracts of one sort and another qualify for tax relief and so on. It is possible to purchase property via insurance, and there are insurance offsets of one sort and another available. This can be done with a good accountant. There are professionals on the Opposition Benches, and I should very much appreciate being their student if they could teach me some of the ways in which they are able to advise clients on reducing the level of taxation. This is done very successfully in many cases. The Treasury, in giving its final figures, is able to show that the level of payment of tax in aggregate is not as high as the figures suggested by Opposition Members.

Sir John Hall

I can give an example from my own experience. Comparing the salaries paid to executives by a company in this country and by another company in France, where they are doing the same job and getting £15,000 or its equivalent in each case, the man in this country would, after tax and all allowances receive a little under £8,000. The man in France, after tax and all allowances, would get about £11,500. The figure of £8,000 is after taking into account all the allowances available to a British taxpayer in this country. It is a fundamental difference. I have never been able to explain it satisfactorily to my own executives if I have wanted to switch them from one country to another.

Mr. Atkinson

It may be that there is a Christian millenium waiting in some of these overseas countries, where people can enhance their incomes in this way. That may well be the case, but I am not impressed with criteria of that kind. Who says that it is moral that these people should have an income of that sort? I certainly do not. I am not arguing that we ought to try to equate our position with what is happening on the Continent. Total taxation is no higher in this country than it is on the Continent, although I agree that there is a difference between direct and indirect taxation.

My argument is that we have not reached the point of excessive taxation among these upper income groups. I think that there is excessive taxation down the scale, and certainly right at the bottom of the scale taxation is punitive. There has been reference already to the take-home pay in Cornwall and elsewhere. Even people on fixed incomes and pensioners are paying taxation. It is outrageous that people are being soaked dry—[Interruption.] Well, soaked in this way. At least I am original. When I mix my metaphors, I do so in an original way. The point is that people are being soaked in a punitive way, certainly at the lower levels.

I turn now to the argument about the reduction in taxation being conditional. I am referring to the 2 per cent. reduction and the agreement which is to trigger off this taxation relief.

It is curious that the hon. Member for Guildford, in moving the amendment, should refer to reflationary arguments. I support the amendment. However, the effect of the amendment would be to increase the borrowing requirement. If revenue is reduced as a result of a reduction in income tax, the borrowing requirement must increase unless something is done about spending.

If the hon. Gentleman wanted to continue his argument about further expenditure cuts, he could argue arithmetically that the borrowing requirement would not be increased by a reduction in taxation, but he went the other way. The hon. Gentleman asked whether the Treasury intended to honour its pledges about expenditure cuts. That is another argument with which I agree. But I do not think that in that respect the borrowing requirement is important. I do not accept the monetarist concept that there must be an absolute reduction in borrowing and that the money supply is related to the rate of inflation. It is not, and there is no evidence to suggest that it is. The IMF—the Institute of Milton Friedman—has never come up with any evidence to suggest that there is a correlation here. There is no substantiation for the Opposition's argument about the borrowing requirement and relating it to their amendment. The immediate effect of releasing £1,000 million into the economy is, of course, reflationary, but at the same time it increases the borrowing requirement.

A point was made about the relationship with the trade unions and the tax reduction being conditional. There is a moral argument here with which I agree. It is wrong to say that the nation's taxation should await the outcome of an agreement with a certain section. But that has always been the case. Even Lord Barber, as he now is, related taxation to prices. He used to say "If there is stability in the index, it makes it permissible for me to reduce taxation by a certain amount." In other words, he was referring to demand levels and economic management and using taxation or fiscal methods for managing the economy and saying "Yes, there is a relationship between prices and the amount of tax that can be released." He was making it conditional. Conservative Governments have always made it conditional. If they have used fiscal methods for the management of the economy, they have always said "The rate of inflation determines the amount of taxation that the Chancellor is able to concede to the nation. He raises or lowers the level of taxation according to the state of the economy and the level of demand." That is what the amendment is about.

It is not new for the Chancellor to argue that his additional relief of 2 per cent. is conditional upon an agreement being made. But even that is contradictory. Ultimately the Chancellor will defeat his reflationary intention in management terms by not conceding the 2 per cent., because he concedes that it is, in itself, retroactive and goes back to the beginning of the financial year. He has agreed to inject about £1,000 million into the economy, assuming that the voluntary agreement between the TUC and its constituent unions, does not set too high targets in the negotiations over phase 3.

9.30 p.m.

The weakness of that is that the trade unionists have criticised the situation in the past because they say that non-union workers have possibly done better than they have and have thus contributed to price rises. This has been self-defeating for the trade unions because they have stood by the agreement.

Hon. Members on the Opposition Benches have claimed that the TUC does not represent the whole nation. Of course it does not, but that argument goes both ways. The TUC represents between 10 million and 11 million of the total work force. Trade unionists ask themselves why they should be bound by a wage agreement to which they have stuck rigidly, when an equal number of people are finding a hole in the netting and getting increased earnings far in excess of those the trade unionists can get because of the restrictions imposed upon them.

One of the difficulties in negotiating phase 3 will be re-establishing confidence that the agreement will mean something to these people. That is the dilemma facing us.

The contradictory aspect is when the Chancellor says that if wages go too high he cannot possibly afford to give away taxation. He is saying, in effect, that if the rate of reflation is higher than that agreed by wage bargaining, he will not assist that reflation by giving another 2 per cent. on top of it. That is a contradictory and self-defeating argument in the final analysis, because that is the situation at which he wants to arrive. The Chancellor should say now that, in the process of reflating the economy, the workers can have taxation cuts but the Government hope that there will be some sense in the wage bargains that they strike in phase 3. That is the sensible way of going about this.

I should like to see the Chancellor putting another point of view to the TUC, to the General Council and the NEDC negotiators—the NEDC Five, as it is not six any longer because the AEUW has contracted out. He should say that if there are to be any conditions at all these should have the objective of reducing the amount of overtime. Workers should be told that they can have a reduced working week and the Government will try to make sure that they do not lose out on average earnings as a result of the reduction in hours.

In the final analysis that is the only way in which we can be job creative. It is the only way in which the Treasury can use tax relief and use it constructively in terms of job creation. The Government must talk about conditions of that sort so that the reduction in the working week does not add directly to prices and push up the rate of inflation.

If as a result of reducing the working week and being truly job creative, unit costs go phenomenally high, it would mean that the extra amount on the price index would defeat all the ideas of job creation and the hopes of finding an additional 10 per cent. of jobs in manufacturing industry.

If we talked about the conditions and timing of the 2 per cent. relief in that way, we should achieve two things. We could have freely bargained wages against a price ceiling agreed by a tripartite arrangement among the trade unions, the employers and the Government, and we should be able to use taxation to reduce the working week and allow job creativity. That is not as complicated as it might seem. No matter what has been said at the Summit conference this week or agreed among world leaders, no Western nation will start to get to grips with the dreadful unemployment problem unless people can reduce their working week and we use modern technology to employ people and to raise general standards and the level of demand. Taxation should be used for that kind of demand management. We should have a general comprehensive approach and use these methods retrospectively.

I agree that if any message should go to the Chancellor from these debates it is to start talking freely to the unions, using neither stick nor carrot, in an attempt to approach reflation sensibly. If we can convince people of that by injecting this £1,000 million, plus another £500 million—the promised £1,500 million—into the economy as the basis of reflation, that will stimulate confidence and the kind of climate within which it may be possible to come to the sort of realistic arrangement that I have described.

But the Government should not wait for the last possible moment. They know that they cannot in the end tell the unions that there will be no tax relief, simply because living standards have declined so fast and so far that the only way that we can salvage anything politically is to start talking about the 2 per cent. now. Let the Government concede that readily. The Chancellor should now say that he calculates that it can be done before long. The concession will be retrospective anyway. Let us get on with it and tell the TUC that the Government are determined to do something not only about unemployment but about the biggest problem of all—the rate of inflation.

Mr. Pardoe

I did not agree with everything said by the hon. Member for Tottenham (Mr. Atkinson), but I did agree with his comments about the effect of the tax system on the lower income groups. Your predecessor in the Chair, Sir Myer, said that we might discuss also Amendment. No. 24A. That amendment was on the Order Paper earlier this week, but because of the printing problems it has erroneously been omitted.

The amendment would simply introduce a low rate band of tax at 20 per cent. for the first £416 of taxable income. The reason for the sum of £416 is that it is divisible by 52. We should start talking about our tax allowance and tax bands in weekly terms. It is much easier for most wage earners to understand that the first £8 of their income is taxed at 20 per cent., the next slice at 35 per cent., and so on.

At this stage, I am not arguing the question of conditionality. I am not joining the hon. Member for Guildford (Mr. Howell) on this point. What I am trying to ask is whether we should not think in terms of a lower rate band as an alternative to a reduction in the standard rate of income tax whenever that takes place. The cost of these two things is approximately the same. That is why I asked for these two amendments to be bracketed together, because it seemed to me that it would give the Committee a chance to discuss—if we have just under £1,000 million at this stage of the game to play with—whether it would not be better to do it this way rather than by reducing the standard rate of tax.

What effect will this have? Perhaps more important, upon whom will it have that effect? Obviously, one of the arguments put forward for the reduction in the standard rate is that it will help middle management. There is no doubt in my mind that middle management needs help. The incentives for middle management are very few. This case has been accepted by the Chancellor, and obviously by the Government. That is a good thing. By introducing a lower rate band of 20 per cent., one would not, of course, improve the lot of middle management as much as by reducing the standard rate of tax. That is fairly obvious. But, on the other hand, middle management are not the only people in our economic scale who are affected by disincentives.

What I said in the last debate about incomes in Cornwall, and what the hon. Member for Tottenham has said in his speech, indicates that the disincentives at the lower end of the income scale are now so great as to be utterly scandalous. It is not a question of people having 50 per cent., or 60 per cent. or 70 per cent. of their extra pounds earned. They are losing more than 100 per cent. on their extra pounds earned. A very large number of my constituents are in what we therefore call the poverty trap. They know that if they declare every other pound extra that they earn they will not get that pound, because they will lose a substantial amount both in terms of taxation and lost benefits.

Of course, one answer would be to raise thresholds. The danger about raising thresholds this year is that it is hideously expensive to do. We know that minor changes in the thresholds that have been made in this Budget—and they are minor changes—will cost £1,000 million. To increase these thresholds any more would cost a great deal of money indeed. For that reason, if for no other, the 20 per cent. rate band is a good possible alternative.

But there are other arguments. Thirty-five pence in the pound is a ridiculous rate at which to come into income tax. When we add social security tax, the national insurance contribution, it means that one is paying 41 per cent., or something of that sort. There is no country in the Western world—I do not know whether there is a country anywhere else in the world, but I would not think so—that introduces its citizens to income tax at this high rate. It would be better to have a lower rate for that reason alone.

The arguments for dispensing with the lower rate at the time of the Budgets in the late 1960s, when Mr. Roy Jenkins was Chancellor of the Exchequer, were largely administrative arguments of the Inland Revenue. It took the view that the lower rate band was expensive to collect. It may be expensive to collect by the techniques that we use for collecting income tax. That may be one good reason for changing the way that we collect income tax and for going in for a more sensible system. I would advocate that on all sorts of grounds. But I believe for all these reasons that the lower rate band has very much to be said for it.

9.45 p.m.

If, later in the year or next year, we find that we have some more money to play with, that it is possible to make reductions because the forecasts of the public sector borrowing requirement were not accurate, which is very possible, and that there is more money to give away, the lower rate band should be given a very high priority—I think the top priority—for the reasons that I have already adduced.

Even at this stage I am, on balance, in favour of the reduced rate band rather than the 2p off the standard rate of income tax. Some hon. Members may say that that is a constituency point, because I represent a very low income area. Indeed, I do. They do not come any lower than North Cornwall in terms of income per head. Earnings in the whole of Cornwall, according to the abstract of regional statistics, are just about the lowest of all the 63 sub-regions in the United Kingdom.

It is almost impossible for me to find a constituent for whom it is worth while going to work at all. I venture to say that there is not a single person in North Cornwall, including the Member of Parliament, who should be working for 12 months in the year from the point of view of tax advantage. But, then, 14 weeks off work would be very advantageous to everyone financially. In respect of about 85 per cent. of my constituents, one would have to say that they would be better off if they were out of work 52 weeks of the year. This is exceedingly depressing and debilitating, and it makes life almost impossible for the Member of Parliament having to give advice about whether people should go to work. One can never be put in the position of saying to a constituent "Do not go to work." So one does all the calculations on a Saturday morning across the desk and leaves one's constituent to make the decision, aware that one has argued him into the feeling that it is not worth going to work at all. Frankly, I do not think that this should be allowed to continue. I believe that the lower rate band would be a step in the right direction here.

I move on briefly to the arguments of the hon. Member for Guildford. I disagree with his main argument that this 2p reduction should not be conditional. After all, everything that a Chancellor of the Exchequer does in a Budget is or should be conditional upon the state of the economy, and pay is one of the most important economic indicators in the economy. The level of a pay settlement has to be taken into account in deciding how much fiscal stimulation can be made and how much demand should be injected into the economy.

Mr. John MacGregor (Norfolk, South)

If the hon. Gentleman takes that view and there is no stage three pay settlement until September, does he believe that this reduction from 35p to 33p should be scrapped?

Mr. Pardoe

I shall be coming to that in a moment.

There is a necessary link between taxation and a pay settlement. The level of a pay settlement is an important item in the Chancellor's decision about the appropriate level of demand and, therefore, of his Budget judgment.

If the Government are responsible for managing the economy—and most of us who live in the post-Keynesian age believe that, anyway—[Interruption.] I am not, but hon. Members will have heard the right hon. and learned Member for Surrey, East (Sir G. Howe) say that taxation was now fixed like a game of Russian roulette, and he said that I had my finger on the trigger. It is a splendid quote. It will go all over my election literature. I hope that the right hon. and learned Gentleman does not excise it from the record. That will be a splendid quote, especially when the taxes start to come down. It will he even better then.

If the Government are responsible for the management of the economy, they cannot fail to take a view about the level of pay settlements. Even if one says that that is a bit vague overall, nevertheless in the public sector it is essential because the level of the public sector borrowing requirement depends to a large extent on how much the Chancellor pays public servants, which is now such an enormous part of the total of public spending. Clearly any Government will have to take a view on that.

It is very unfortunate that the pay settlement year does not happen to be the same as the beginning of the tax year. Otherwise, the Chancellor could accomplish his negotiations with the TUC and the public sector unions before the Budget. He would know what was in store in terms of pay increases and would be able to take that into account in deciding his Budget judgment. At present he has to make his Budget judgment several months in advance of the pay settlement year. It might be very advantageous if we could move towards synchronisation of the two.

I come now to the point raised by the hon. Member for Norfolk, South (Mr. MacGregor). The Liberal Party has advocated for many years the concept of a tax on inflation. The idea is that if a company undertook to abide by certain pay limits it would not have to pay the tax on inflation. If it were unable to abide by this pay limit it would have to pay the tax, but if it subsequently honoured the agreement during that year the tax would be repaid.

That leads me to say that the Government could approach this conditionality in two ways. They could reduce the tax now by 2p. They could have said so in the Budget. The conditional part would be that unless a pay policy of X per cent. was achieved, or even a vague "satisfactory pay policy", the Government would claw it back.

I think that both of these ways are unsatisfactory, but for a different reason than that advanaced by the hon. Member for Guildford. The reason came out in the speech of the hon. Member for Tottenham, who says that the trouble with pay policy is that if one is a good boy, behaves well and keeps to the policy, as many unions have, one suffers, because many people do not keep to it.

That has always been the argument that we have put forward for having a tax on inflation, a selective tax which would not fall on the just and unjust alike but only on the unjust. Such a tax would be a penalty on a company or bargaining unit which did not stick to whatever the pay policy was. Here I am not arguing for a pay policy which is a fixed norm across the economy. We have to move to far more sophisticated ideas than that. Value-added methods of measurement might well be the best way forward.

Therefore, because I believe in a tax on inflation—and I am convinced that sooner or later, if we are to get inflation under control, we shall have to introduce one—I accept the conditionality. But I am very open on the question whether we should lower the tax first and claw it back or whether we should do it in the way that the Government have proposed. What I do not believe is that, with the negotiations as they are now, the Government should simply hold up their hands and say to the trade unions "We surrender. You can have anything you like. You can do any kind of deal you like, and it will not make any difference to taxation." Clearly, the level of pay increases that is agreed in the pay settlement is enormously important to how much money the Government feel they can put back into the economy. There I part company with the hon. Member for Tottenham and the Conservative Party, who seem to be in an unholy alliance, a new sort of Tribune-Tory pact. They say that this tax should be reduced willy-nilly, whether we achieve a satisfactory pay settlement or not. I believe that we should wait and see.

I know that some Conservatives will ask me "What about what your leader said about a constitutional outrage?" At that time, my right hon. Friend the Member for Roxburgh, Selkirk and Peebles (Mr. Steel) was not my leader. The official statement from the Liberal Party at the time was wholeheartedly in favour of the conditionality in the Budget last year. The instant comment was made by me on television while the Budget speech was being made. My then leader, my right hon. Friend the Member for Devon, North (Mr. Thorpe), put out an official statement welcoming it on behalf of the Parliamentary Liberal Party. I must say that I do not believe that this conditionality is a constitutional outrage, and I have some reason to believe that my right hon. Friend the Member for Roxburgh, Selkirk and Peebles does not think so now, either. [Interruption.] All of us are open to persuasion. Men of reason have open minds. I can only say that persuasions have been taking place.

Mr. Atkinson

If the hon. Gentleman honestly believes that men of open mind are open to persuasion, why not allow agreement to be reached on the basis of trust between the trade unions, the Government and employers? Why not allow that process to take place, rather than make it conditional? The Government know that they will never be able to apply conditionality anyway. It is just not politically possible for the Government to say that they will not make this reduction after all. That is not on.

Mr. Ridley

Quite right.

Mr. Pardoe

The hon. Member for Tottenham is not right.

Mr. Ridley

Yes, he is.

Mr. Pardoe

What is politically impossible for Britain is to surrender to the forces of inflation. The Government have to secure a satisfactory pay policy and they need trust to do so. These are not just economic arguments; they are the political facts of life. Some people in this Committee are not going to run out on inflation. These are the political facts, and we might as well be clear about them.

If I had to fight an election on any issue I would rather fight it on the threat of inflation, and warn the British people of it, than any other issue at this stage. I would be happy to fight an election now on that issue. But I have to make a choice as to which party is most likely to control inflation, and, in making that choice, anyone in my position has to look at the record of the 60 per cent. increase in money supply in the years 1971–73, and the record of the present Government, who, in the last six months anyway, have managed to get public spending and the money supply under better control than ever before. The hon. Member for Guildford went back to the 1930s in trying to describe last year's record as the worst ever, but nothing has been worse than 1971–73. The then Conservative Government were the worst that the country has ever had, in terms of economic management, since the turn of the century.

Mr. William Clark

If the hon. Gentleman is right in saying that the economic performance in 1971–73 was infinitely worse, why is it that inflation is running at double the rate it was then?

Mr. Pardoe

There is no problem about that. The hon. Gentleman wants it spelt out. He needs only to consult Milton Friedman. He and his hon. Friends believe in Milton Friedman. We know what he says will happen to the rate of inflation when one increases the money supply by 60 per cent., but one has to wait for it to happen. When the rate of inflation comes along it causes a fall in the value of the pound, and when a fall occurs in the value of the pound the result is an increase in the domestic rate of inflation and enormous pay packets.

Had there been a pay policy in 1974 that was able to hold the floodgates against the tide of the money supply, we might not have got into our present situation. But there are not many Conservatives who believe that we should have had a tough statutory policy in 1974, and such a policy was the only thing that could have helped.

Mr. Ian Stewart (Hitchin)

Is the hon. Gentleman seriously maintaining that the fall in the value of sterling in 1976 was the result of economic policies between 1971 and 1973?

Mr. Pardoe

I am not arguing. I am not a monetarist. I am simply using the argument of Milton Friedman, which the right hon. Member for Leeds, North-East (Sir K. Joseph) and the Leader of the Conservative Party now adopt. There is no doubt in the monetary argument that that was precisely the effect of the 60 per cent. increase in the money supply in two years. Nothing like it has been seen since Henry VIII shaved bits off the coinage. It caused the rate of inflation in 1974–75, and the rate of inflation in 1974–75 caused the pound to fall in 1976. Those are simple facts—Milton Friedman, QED. The institute of Milton Friedman must come to my rescue occasionally!

In making their judgment on whether there can be a tax reduction of this sort the Government have to consider the public sector borrowing requirement, and here I part company from the hon. Member for Tottenham. It is a movable feast. It is very difficult to assess. The Government got it £2,500 million wrong in December, and they may have got it £2,500 million wrong now, because in an article in the Financial Times on the day after the Budget speech Anthony Harris pointed out that many City forecasters were already considering that the Government had got it wrong and that the PSBR would be substantially lower than the Treasury was forecasting. He went on to say that there appeared to be a good chance that the PSBR would again fall short of the forecast though not by the spectacular margin seen in 1976–77.

There is probably a good deal more money in the pipeline that the Government could use to reduce taxation, even at this stage. My guess—it cannot be more than a guess at this stage—is that come July we shall know a good deal more about the PSBR and the shape of it, and that there will be even as much as another £1,000 million that will enable the Government both to take 2p off the standard rate and to introduce the lower rate band.

I hope that the Government will consider the argument for the lower band. I hope, too, that hon. Members on both sides of the Committee will begin to recognise that although we have to consider the problem of disincentives for middle management, the disincentives at the lower end of the scale are such that the introduction of the lower rate band might be a preferable alternative.

Mr. Hordern

The hon. Member for Cornwall, North (Mr. Pardoe) had some interesting things to say about monetary policy, to which, apparently, he is not addicted, and about wage restraint, to which he is addicted. It seemed to me that in his analysis of the years from 1971 the hon. Gentleman restricted his comments to the years between 1971 and 1973, as though nothing had happened thereafter.

I should have thought that the hon. Gentleman could recall that one other thing that happened in 1974 was that the Government reduced the rate of VAT from 10 per cent. to 8 per cent. I cannot remember what the Liberals were doing about it then, but I do not seem to recollect that they objected to that. The consequence was the largest public sector borrowing requirement of all time, far outstripping as a proportion of the gross national product that of any country in the industrialised world. I should have thought that the hon. Member for Cornwall, North would have something to say about that so as to bring his account of what has passed up to date.

The hon. Gentleman mentioned that the Liberal Party had its—I think he said he had his—finger on the trigger. I do not know what his right hon. Friend the Member for Roxburgh, Selkirk and Peebles (Mr. Steel) would say about that. The hon. Gentleman never makes a speech without criticising his leader. That is as it may be. We must accept that the hon. Gentleman has his finger on the Liberals' economic gun. However, I fear that he has not looked at the end of the gun. The end is blocked. When he presses the trigger, there will be a most unfortunate explosion and the gun will blow up in his face, which is what always happens with Liberal policies.

I was much more taken with the remarks of the hon. Member for Tottenham (Mr. Atkinson). His policy was that there should be a price freeze, free collective bargaining, and that the reduction in tax should take place. I can see wages rising quickly under that policy. The hon. Gentleman is treasurer of the Labour Party and I can see some interesting results occurring if that policy is ever carried through in the conduct of the Labour Party's finances—if there is ever a price freeze and wages are to be freely negotiated and allowed to rise. I have never so far been so tempted, but in such an event I should for the first time be tempted to sign on as a member of the Transport House party, if that is what the hon. Gentleman would do.

Mr. Atkinson

I insist that the hon. Gentleman gets it right. My argument was that by agreement we could put a ceiling on the amount by which prices should increase year on year. Whatever that figure was to be—whether it was 6 per cent. or 7 per cent. as the allowable inflation—the trade unions could negotiate wage agreements within that ceiling which had been fixed by agreement. That is the way to bring about the redistributive effect of which I have spoken many times. It is not freezing prices but fixing a ceiling quite freely and negotiating wages within that ceiling. It is the ceiling that would become the inhibitor.

Mr. Hordern

I am grateful to the hon. Gentleman for explaining it. I stand corrected by his remarks and I shall look them up tomorrow in Hansard to ensure that I have the explanation right.

I wish to refer to the great deal which the Chancellor announced in his Budget Statement. It was a conditional deal. He said: Given the size of the fiscal stimulus I consider justified and the net revenue resulting from the tax changes I have just described, I shall he able to make reductions in income tax amounting to some £2¼ billion in a full year—assuming we reach a pay agreement for the year from August 1977 which is consistent with our inflation objectives. Before that, as my hon. Friend the Member for Guildford (Mr. Howell) said, in his Letter of Intent to the International Monetary Fund the Chancellor has said that he hoped to be able to present a pay agreement in March which would carry the report of the IMF. March has passed. May has come. I dare say that August will pass without any sign of a pay agreement.

As the hon. Member for Tottenham said, the deal is not conditional at all. Everybody knows now that it is politically impossible to keep the basic rate of tax at 35 per cent. It will be 33 per cent., as the hon. Gentleman rightly said, and for very blunt reasons, political reasons, as the hon. Gentleman said.

For my part, I would not disagree with the proposition that neither for political nor for economic reasons is it sensible to keep the basic rate at 35 per cent. What I am interested in is the Government view about the rate of inflation. This is tied up so closely, as the Government argue, with the level of wage rates during the next few months. Nobody knows what it will be.

The whole substance of the Budget is based on increases in allowances—at great cost to the Treasury—which will take place on the basis of a pay agreement. In his Budget Statement the Chancellor went so far as to say: As a result of these increases in personal allowances, 845,000 people who would otherwise have been paying income tax next year will not now do so. I can only say, on my very rough calculations, that if anything like the original phase 1 £4 a week pay deal comes into being, all those 845,000 people will be paying tax again by the end of next year. Therefore, what is the point in referring, as this Chancellor always does, to this stage army, which flits across the fiscal stage from one year to another only to be paying tax again at the end of the year? The hon. Member for Cornwall, North is right to say that the difficulty is in whether it is better to increase allowances or to reduce the rate of tax. That is a pertinent question.

For the Chancellor everything appears to depend on the pay policy. I do not think that we have yet recognised how badly the economy has suffered during the past three years. For example, because of inflation the higher rate of tax now starts at £6,000 but, according to the rate of inflation, it should have been increased to more than £9,000.

It was interesting to hear what the Chancellor had to say about pay policy and what it would mean. He said: Therefore, as I have explained, there would be a triple benefit for prices, worth 2½per cent. off the retail price index by the end of 1978."—[Official Report, 29th March 1977; Vol. 929, c. 279–84. That will apparently arrive simply because of the reduction in income tax from 35 to 33 per cent. That is a remarkable calculation and I should be interested if the Minister of State would explain how that conclusion was reached.

That is absolutely typical of the kind of calculations that we have had on every occasion from this Government. The more carefully detailed the calculations have been, the more Budgets we have had from the Government, because the more wildly wrong the calculations appear to be.

The extraordinary statement that a reduction on direct taxation worth two points would mean a 2½ per cent. reduction in the RPI makes on wonder why direct taxes have not been reduced much more. If a reduction from 35 to 33 per cent in income tax can reduce the RPI by 2½ per cent., why not reduce income tax to 25 per cent., because that would reduce the RPI by 7½ per cent?

One can look at the other side of the equation. What would be the effect of an increase in VAT by a certain amount? According to the Government's argument, a reduction in direct taxes would have a bigger effect on the RPI than a reduction in indirect taxes such as VAT. I do not have any faith in a link between the level of pay increases and the effect of a reduction in direct taxation on the level of the RPI. Such a link cannot be proved.

There is not a single other country that attempts to see such a close correlation between an apparent reduction in direct taxation and a reduction in RPI for that reason. We are unique in the way that we handle our finances in this country and we are unique in the character of the advice that we receive yearly from the Treasury and, I regret to say, from the Bank of England as well.

After three years of this Government we have reached a mad state. The correct threshold level for higher taxation rates should be £9,000 not £6,000. The hon. Member for Tottenham mentioned an income of £20,000 a year. Looking at the levels of direct taxation and at what is left after tax, one finds that a person with that income would be £6,000 a year better off in the United States, France, or Japan. That is so at every level. Even a person earning £2,500 a year—well below the average wage—receives less here than would be the case in those countries, where such a person would be £200 a year better off after tax. That is so at every level of earnings. It is true of the lower paid and it also applies to the threshold at which one starts to pay tax.

My hon. Friend the Member for Norfolk, South (Mr. MacGregor) has done a continuing service to the House by explaining the comparative positions of those living in cities and of married couples on low wages and of the unemployed. I rely on answers to my hon. Friend's Questions for my figures. A married couple earning £40 a week would be better off out of work than at work. So, too, would a married couple with one child and on the same income, and a married couple with two children and a family income of £30 a week would also be better off out of work than in work.

10.15 p.m.

Mr. Dennis Canavan (West Stirlingshire)

That is because employers are so mean that they do not pay men and women enough wages. Will the hon. Gentleman now cry out for more powers to be given to wages councils to improve the income of low-wage earners?

Mr. Hordern

I do not think that the hon. Gentleman can have been listening to my remarks. Perhaps I should follow his example and speak more loudly. I was referring to the effects of taxation and the level at which people start to pay tax. On the earnings to which I referred people are better off out of work than at work.

The fault lies with the tax system and not with the employers.

Mr. Canavan

The fault lies with low wages.

Mr. Hordern

If wages were increased, the situation would be even worse.

A constituent has written to me: My employee who assists as general factotum in my constituency practice earns £39.50 per week. Eight weeks ago he was given custody of his son by his first marriage, making his family up to 3 children. He takes home £34.06 a week and lives 10 miles from here. On Thursday he received his new income tax coding which has shown that he is to pay more tax. Evidently the new child allowance to which he is entitled has in effect reduced his income. I cannot justify a higher wage, nor could I afford to pay it…. On the dole he will get £29.50 and with other benefits and no petrol expenses to get to work, he will be better off. On Monday 9th May, he will be signing on for the dole…. I would tuggest you send a copy of this letter to Healey, Wedgwood Benn, Foot and Jones and ask for comments. I am sorry that none of them is here, but the Government Chief Whip is here and I hope that he will pass on the comments. The letter is a practical example of the effect of a high tax threshold on low earnings.

Mr. Canavan

It is low wages that are to blame.

Mr. Hordern

The hon. Member for West Stirlingshire (Mr. Canavan) reinforces my argument. His Government are responsible for high taxation on low earnings.

Mr. Pardoe

Would the hon. Gentleman care to hazard a guess about the total income of the veterinary practice and the salary of the partner who wrote to him. Knowing rural vets' earnings, I should think that his salary was high enough to enable him to make a substantial increase in the earnings of his employee without feeling the pinch.

Mr. Hordern

I hope that the hon. Gentleman's remarks will be published in the veterinarians' magazine and that copies will be sent especially to North Cornwall. If that is how he feels about an important rural service, the fact should be more widely known. However, I do not wish to be distracted from my conclusion.

The Parliamentary Secretary to the Treasury (Mr. Michael Cocks)

The hon. Member for Cornwall, North (Mr. Pardoe) was too near the bone.

Mr. Hordern

The Chief Whip is in good form tonight and enjoying himself. If he has something to say about my constituency, I shall gladly give way.

I do not wish to detain the Committee for very much longer and I wish to conclude by saying that the Government have reached the end of the road. They know that they cannot increase direct taxation any further. The hon. Member for Tottenham knows that, as do all his Labour colleagues. It will no longer do to have direct taxation or to increase penal taxation or fiscal drag.

What will happen in face of inflation, which this Government have not got under control, is that people will no longer pay higher rates of direct taxation and therefore the Government will have to obtain that revenue elsewhere by increases in indirect taxation. Every time borrowings to help the pound are not properly covered and every time Government expenditure increases, the public will have to pay for it by indirect taxation. I do not think that the people of this country will put up with this any longer. They have had enough, and they long for a chance to put an end to this Government so that other people can show what they can do.

Mr. Ian Stewart

Amendment No. 15 deals with one of the most important aspects of the Bill, and I very much hope that the Committee will pass it. I believe that we should take a decision on the 35 per cent. or 33 per cent. now rather than leave it to some indefinite date in the future.

This matter turns on a number of separate questions, as my hon. Friend the Member for Guildford (Mr. Howell) and others have said. We must make up our minds what weight we place on each of those questions. The first relates to conditionality and the whole purpose of the phase 3 wage negotiations. The second relates to the level of personal taxation and the arithmetic of Government revenues. Thirdly, there is the economic situation and the degree to which the Budget judgment is affected.

I do not wish to spend long on the first, because it has been widely discussed, but I cannot agree with the hon. Member for Cornwall, North (Mr. Pardoe) that, because pay settlements are so important to the Government's economic strategy, Chancellors of the Exchequer should not take decisions on income tax until they know what will happen to pay settlements six or nine months later. Given the timetable of the financial year, I cannot see that it is realistic to lay down as a rule that Chancellors in their financial statements and Budgets in the spring should abdicate responsibility in terms of a decision about the rate of personal income tax on the grounds that some of the factors in the economy, which may be important in the economic strategy, are not at that stage known to them. There are plenty of other ways of dealing with the problem.

Earlier in the debate the Chief Secretary said that it would be left to a later stage to decide to what extent it might be necessary to offset reductions of Govern- ment revenue by the petrol tax remission. Of course, there are other means of regulation which can be dealt with later.

All along the Government's statements have sought to loosen the connection between the 33 per cent. income tax rate and a satisfactory pay settlement under phase 3. I believe that that connection has now been loosened so much that it is no longer realistic. On that ground I believe that a case is made for dealing with this subject here and now and for coming to a decision as to what the base rate of income tax should be for the coming year. We should not leave the decision until half way through the year, when a sudden injection of money will be far more destabilising than if we were to settle the matter now so that we know where we stand.

The second question, relating to the level of personal taxation, is equally important. It is agreed in all parts of the Committee that, whatever method is chosen—whether by a lower band, as the Liberal Party would prefer, or by a reduction in standard rate—a starting rate of taxation of 40.75 per cent., which is the aggregate of national insurance charge and a 35 per cent. tax rate, is far too high. That is a fundamental factor which all of us face in our constituencies every week. We hear about constituents on modest incomes who are entering tax brackets in which over two-fifths of their income is taxed when those earnings are well below average industrial earnings. Therefore, on the question of the level of personal taxation the case is made and made emphatically.

The other side of that argument is whether the Government need the revenue, the extra £1,000 million this year which they would obtain by keeping the standard rate at 35 per cent. The arguments here are extremely doubtful. Purely in terms of balancing their Budget, with the information which we have today about our country's economic condition, I do not believe that there is a case for arguing that we must retain the 35 per cent rate.

I come, therefore, to the third and, in my view, overwhelming and decisive consideration, namely, the position of the economy and the Government's fundamental economic strategy. Here, I believe, the Government have been somewhat overtaken by events. What they set out to do, with a belated sense of rectitude, was to bring the money supply under control in the latter part of 1976 and during the present year. However, because of the dramatic fall in the exchange rate last year, inflation during the first half of 1977 is running much faster than anyone in this Committee either hoped or, I imagine, even expected.

The effect of those two factors together is to exert a strong contractional effect on economic activity in the country which is beginning to be felt now and which will be strongly evident later in the year. After all, if one sets a firm limit on the availability of money and the price of everything is higher than one expected it to be, there is less economic activity in real terms which can be financed by the same amount of money. This is going back to a pretty crude and basic monetarist argument, but there is nevertheless a strong body of opinion—I share this view—that if one submits an economy to the most rigid disciplines of monetary control, with a corset on bank lending and an exchange rate policy, as it was a few months ago, designed to achieve substantial sales of public sector debt outside the banking system, and at the same time one experiences a higher than expected level of inflation, one will produce a strongly contractional economic condition. Therefore, on that ground alone, there is a strong case for the reduction of income tax from 35 per cent. to 33 per cent. being made now, regardless of any of the other questions about conditionality and the levels of personal taxation.

It seems to me that the Government's economic policy is now in danger of going badly wrong. My feeling is that the future level of prices is likely to be affected over the next six to nine months far more by the performance of world commodity prices and by the level of the exchange rate than it is by pay settlements taking place in the last half or last quarter of this year.

The Government have to look also at the purely technical consequences of having a higher than expected rate of inflation and yet not making the consequent reductions in income tax. If personal earnings are higher than they were expected to be, the Government's tax take also will be higher than it was expected to be. This will mean that the Government's deficit will be lower than it was expected to be, and they will have to pay less interest on that lower borrowing. Thus the cumulative effect will be to reduce the level of economic activity even more sharply than it otherwise would have been.

I do not accept that the level of personal taxation is a crucial part of the pay settlement. I accept that it may have some psychological influence on the way in which trade union leaders react in wage bargaining later this year, but I do not think that it is crucial. I believe that the economic and financial factors, for the reasons which I have given, quite strongly outweigh the rather vague and now weakening aspects of the phase 3 argument.

10.30 p.m.

We have moved a long way in the six weeks since this attitude was taken by the Chancellor in his Budget. The Committee would be right to pass the amendment. I believe that it is right not only in relation to the personal taxation of millions of people who feel that they are heavily overtaxed on moderate or even immoderately low earnings, but because, if the Government are not prepared to make a Budget judgment at this stage of the year, the consequences when they do so later this year will be very serious. They will have to react more violently. They would avoid many of these consequences in future if they were to stand up and take the responsibility on their own shoulders instead of for ever passing the buck, which is the posture that they have unfortunately adopted during the past two years.

Mr. Denzil Davies

Two amendments, No. 15, in the name of the hon. Member for Guildford (Mr. Howell), and No. 24A, in the name of the hon. Member for Cornwall, North (Mr. Pardoe), are being discussed together. I shall deal first with No. 15.

The hon. Member for Guildford did not make it clear whether he wanted a Second Reading debate on general economic issues and the pay agreement in particular or to press the amendment to a Division. It is still not clear whether the official Opposition want to divide the Committee on this amendment. If so, I shall have to address my mind to the effect of the amendment on the economy. [Interruption.] I gather that they now wish to press the amendment to a Division. In- deed, from the tenor of the speeches made by Back-Bench Opposition Members, it was clear that they did.

The issue on the amendment is whether the Committee should now decide on an extra £950 million of reflation, because that would be the effect of a reduction in the basic rate of tax from 35 per cent to 33 per cent. or whether, as my right hon. Friend the Chancellor of the Exchequer said in his Budget Statement, we should wait prudently until Report when we can decide this matter in the light of pay negotiations and a satisfactory pay agreement with the Trades Union Congress. That is the issue which it seems is to be decided by this amendment. I believe that the Conservative Opposition are behaving as imprudently now as they did when they were in office.

Mr. Hordern rose—

Mr. Davies

I shall give way to the hon. Gentleman later.

The Opposition have never paid much attention to these matters. They are now calling for a fairly substantial reflation without any knowledge of what will happen to pay in 1977–78. That is an imprudent thing to do, but it is characteristic of the Opposition, who still have not learned from the excesses of their attempt to control the economy when they were in office.

Mr. Hordern

since the hon. Gentleman is waiting prudently until August, or whenever it may be, to make up his mind, what level of pay increase will then be satisfactory to the Government for this cut to be made in the basic rate of taxation?

Mr. Davies

The hon. Gentleman knows that these matters have been debated before. The Government's position is clear. Indeed, it is clear from the TUC Economic Committee's report. If we wish to behave as prudent people responsible for the management of the economy, we cannot decide this matter oblivious to and without reference to any pay agreement at all. The Chancellor must take that into account. On Report it will be possible to debate this matter fully in the light of negotiations with the TUC.

The hon. Member for Guildford said that the House of Commons did not decide these matters. Of course it does. The House will have an opportunity to debate this matter again on Report. It will then be in a better position to decide whether to reduce the basic rate of tax from 35 per cent. to 33 per cent. and to allow this further reflation of £950 million.

Sir John Hall (Wycombe)

Is the Minister actually saying that if there is no stage 3, or if the settlement arrived at is regarded as unsatisfactory by the Chancellor or the House, the Chancellor really intends not to give the reduction of 2p?

Mr. Davies

The Chancellor made the position quite clear in his Budget Statement, and it has been repeated here tonight. My hon. Friend feels that it would be quite imprudent to determine these matters until we have seen the course of the negotiations and the outlook for a pay agreement is more settled and clear. That is where the Government stand.

We know the record of the Conservatives, and we do not intend to control the economy in the way in which they did. The hon. Member for Cornwall, North made the point rather well. He taught Conservatives a monetarist lesson and explained the situation clearly to them. It is clear from a Written Answer given recently to the hon. Member for Blaby (Mr. Lawson) that the increase in money supply in 1971, 1972 and 1973 contributed to the rates of inflation that we suffered in 1974 and 1975. The British people today have had to accept the sacrifice of a pay policy because of the increase in the money supply under the Conservatives.

I turn to the amendment put forward by the Liberal Party, to which the hon. Member for Cornwall, North spoke. He quite rightly said that this was an amendment to secure reduced rate relief. I am bound to tell him that the amendment as drafted would cost a lot more than £950 million. The intention behind the amendment would cost £1,250 million.

He asked why people should start paying tax at the basic rate and he called for a reduced rate band. I wish that we could introduce a reduced rate band, increased personal allowances, and reduce the basic rate. We might get a better profile in the income tax system if we could. But, unfortunately, that costs a lot of money. The choice must be made. The hon. Member for Cornwall, North would prefer a reduced rate band to a basic rate reduction from 35 to 33 per cent. That is a point of view and there are good arguments for it. There are also good arguments the other way, especially when it is necessary to link income tax reductions—as the Chancellor has—with obtaining a pay agreement.

Not only persons below average income are affected by a pay agreement. It also affects those on average incomes and those with higher than average incomes. In the context of securing a pay agreement it was thought to be fairer this year to reduce the basic rate than to have a reduced rate band, because this would spread the benefit more widely among all those who pay tax at the basic rate.

If in future it proves possible, and the money is available, I would hope that we would introduce a reduced rate band in order to gave a fairer system of income tax.

Mrs. Audrey Wise (Coventry, South-West)

Could my hon. Friend tell us the attitude of the TUC to a reduced rate band?

Mr. Davies

The TUC put forward proposals for a reduced rate band, and we have had long discussions with the TUC about the difficulties of the reduced rate band and the basic rate. The TUC recognised the Chancellor's difficulties in choosing between a reduction in the basic rate and a reduced rate band. We could not do both. We had to make a choice and we decided that, in the context of the pay agreement, it was fairer this year to reduce the basic rate, assuming that we can get a satisfactory pay agreement. That is the better and more prudent way of managing the economy. It seems more sensible and responsible. I ask the Committee, in the light of that and of the fact that it will be possible to debate these matters again and to vote upon them on Report, to reject the amendment—

Mr. William Clark

The hon. Gentleman keeps saying that we can have another debate on these matters. If the 35 per cent. rate remains in the Bill and there is no pay deal, am I not right in saying that we cannot have a further debate on this reduction on Report?

Mr. Davies

The hon. Gentleman is not right: it is perfectly possible to have such a debate on Report. Perhaps the hon. Gentleman would agree not to vote tonight so as to ensure that a full debate is obtained on Report, bearing in mind what happens in the pay negotiations. That is the most sensible and prudent course. I ask the Committee to reject Amendment No. 15 if the Opposition have the temerity to press it.

Mr. David Howell

I should like to put some final points to the Committee, now that we have noted the gap in the Minister of State's speech. He has left the Committee in an intolerable position. First, he has not had the courtesy to answer any of the questions raised at the start.

Mr. Joel Barnett

The hon. Member may be in an intolerable position.

Mr. Howell

The Chief Secretary may be in intolerable straits as well in his present mood.

The Minister of State has left the Committee with no idea whether the so-called "carefully controlled fiscal stimulus" announced in the Budget, together with the conditional addition in the light of a satisfactory pay deal, was right or is valid still, or whether it has been revised upwards or downwards, or whether the prudence which was supposed to attach to the conditions is still the prudence to which the Government adhere.

If that is the position still, if things have not changed, if all the leaks in the papers about reflation have no basis, it is our view that the reduction of income tax from 35 per cent. to 33 per cent., at the standard rate should be in the Finance Bill now and that the Committee is entitled to know what is going to be in the Bill. Indeed, we should like to see far more substantial cuts in taxation, provided that they are accompanied by substantial cuts in public expenditure, but we certainly believe that this 2 per cent. cut, if it is still prudent and within the scope of the sort of things said on 29th March, should be in the Finance Bill. If it is not correct, if there has been a revision of view, the Government should say so—the Minister of State should have said something about it—and the proposal could have been dropped.

Our fear—I think that it is the fear also of many people outside this Committee and outside this country—is that something quite different has happened, that, after the talking about conditionality on 29th March, all that has conveniently been forgotten, this conditional tax cut has been consolidated into the Treasury's judgment on these affairs, and the Government are now discussing something different with the TUC. All the leaks and rumours seem to confirm that they are discussing the next round of reflation, the July package, the autumn Budget, with which we are so familiar. Indeed, with this Government, we have to adopt the slogan of the old Windmill Theatre—"We never closed"—because we have hardly finished one Finance Bill before we have to start another.

We believe—we do not know; the Committee has been given no evidence that the Government are now considering another round of reflation over and above the fixed tax cut announced in the Budget and the provisional cut from 35 to 33 per cent.

Mr. Lawson

There has been some more today.

Mr. Howell

As my hon. Friend reminds us, there has been a further bit of reflation today—the £130 million, which, as the Chief Secretary has told us, must go on the public sector borrowing requirement.

It might be said that reflation is a good thing. Are we not urging all the other world leaders—have we not just spent a Summit Conference urging them—to tackle unemployment? Have not the Prime Minister and the Chancellor been running around the world demanding that other countries, particularly the surplus countries, should expand? Indeed, many of them have already pushed ahead with quite high growth rates and are behaving in a way which, we all hope, will contribute to the recovery from the world recession and an overall reduction in the enormous and totally unacceptable numbers of unemployed.

10.45 p.m.

The difference is that Germany, if it is to reflate, will do so from a basis of 4 per cent. inflation. The United States will be adopting its next move, if it can be safely and prudently managed, from a basis of 7 per cent. inflation. What seems to be in the Government's mind is something quite different. They are planning to go back to the bottleneck, to another take-off, from a rate of 15 per cent. inflation.

What will be the effect of that? It will not mean more jobs. It will not increase confidence or create higher investment, for which Labour Members below the Gangway hope in their innocent belief that there should be more public expenditure and more reflation. What will come from more reflation is more inflation, and from more inflation will come fewer jobs, more difficulties ahead, more uncertainty and less confidence. That is our fear. It is a fear that we believe those who have a genuine interest for working people share as well as those who want to see a return to stability in this country.

The Prime Minister this afternoon was talking about his stabilisation policies to which the Government are going to stick. We could have heard confirmation of that from the Minister of State. We have heard nothing at all. We have just heard vague excuses and ambiguity about what is to happen next. We do not know whether we shall see these tax cuts in the Finance Bill at all. All the signs are that we shall not see them in the Finance Bill.

As with so many of his undertakings and predictions, I suspect that the undertaking of the Chancellor of 29th March will have to be abrogated, changed, withdrawn, adjusted, modified, or whatever the convenient word to the circumstances is.

A new difficulty of overall uncertainty will be created, which will mean fewer jobs not more, more people on the dole queues and not fewer, less investment and not more. We think that is bad for our country.

By their management of these affairs and by their total failure to answer our questions in Committee, the Government have contributed to these difficulties. Only one certainty seems to exist in the present Committee stage of this Finance Bill, and that is the certainty that the Liberal Party, whatever its beliefs and principles, will go on clinging to the sinking hulk of the Labour Government. That is one certainty that we can all recognise, and we all know why that is so.

Those hon. Members who earlier heard the hon. Member for Cornwall, North (Mr. Pardoe), with his almost comical selective memory about the economy in the last few years, will recognise that what he said confirms my prediction. The one certainty is that they will cling on as the whole ship goes down.

But for the rest of us there is no such certainty. The taxpayer does not know where he stands in this Finance Bill, because the Minister of State has been unable to help him. The Committee does not know, because the Minister has been unable to help it. Parliament does not know what kind of Bill it is supposed to be dealing with or whether the condition still stands, because the Minister of State has been unable to help it. The country does not know whether the Budget judgement remains valid and whether the Chancellor is still pursuing prudent policies, or whether he is away over the hills on some new reflationary kick which will lead to more inflation,

even though it may temporarily buy back a few of the dwindling votes of this Government.

We believe this approach is damaging to confidence. It does not help working people. It does not make it any easier to handle the next phase of pay restraint. What is needed is a clear and open understanding and not a hole in the corner deal based on dubious conditions which have now been placed in question. I believe it right that we should show our objection to this approach and I would advise my hon. Friends to vote for the amendment against the Government tonight. I believe it is right because it will show to the country that the Government are once again damaging confidence, damaging the workers, and damaging our nation.

Question put, That the amendment be made:—

The Committee divided: Ayes 252, Noes 272.

Division No. 126]	AYES	[10.50 p.m.
Adley, Robert	Davies, Rt Hon J. (Knutsford)	Hampson, Dr Keith
Aitken, Jonathan	Dean, Paul (N Somerset)	Hannam, John
Alison, Michael	Dodsworth, Geoffrey	Harrison, Col Sir Harwood (Eye)
Amery, Rt Hon Julian	Douglas-Hamilton, Lord James	Harvie Anderson, Rt Hon Miss
Arnold, Tom	Drayson, Burnaby	Hastings, Stephen
Atkins, Rt Hon H. (Spelthorne)	du Cann, Rt Hon Edward	Havers, Sir Michael
Awdry, Daniel	Durant, Tony	Hawkins, Paul
Bain, Mrs Margaret	Dykes, Hugh	Hayhoe, Barney
Baker, Kenneth	Eden, Rt Hon Sir John	Henderson, Douglas
Bell, Ronald	Edwards, Nicholas (Pembroke)	Hicks, Robert
Benyon, W.	Elliott, Sir William	Higgins, Terence L.
Berry, Hon Anthony	Emery, Peter	Hodgson, Robin
Biffen, John	Evans, Gwynfor (Carmarthen)	Holland, Philip
Biggs-Davison, John	Eyre, Reginald	Hordern, Peter
Blaker, Peter	Fairbairn, Nicholas	Howe, Rt Hon Sir Geoffrey
Body, Richard	Fairgrieve, Russell	Howell, David (Guildford)
Boscawen, Hon Robert	Fell, Anthony	Hunt, David (Wirral)
Bottomley, Peter	Finsberg, Geoffrey	Hunt, John (Bromley)
Bowden, A. (Brighton, Kemptown)	Fisher, Sir Nigel	Hurd, Douglas
Boyson, Dr Rhodes (Brent)	Fletcher, Alex (Edinburgh N)	Hutchison, Michael Clark
Braine, Sir Bernard	Fookes, Miss Jane.	Irving, Charles (Cheltenham)
Brittan, Leon	Forman, Nigel	James, David
Brocklebank-Fowler, C.	Fowler, Norman (Sutton C'f'd)	Jenkin, Rt Hon P. (Wanst'd & W'df'd)
Brooke, Peter	Fox, Marcus	Johnson Smith, G. (E Grinstead)
Brotherton, Michael	Fraser, Rt Hon H. (Stafford & St)	Jones, Arthur (Daventry)
Bryan, Sir Paul	Fry, Peter	Jopling, Michael
Buchanan-Smith, Alick	Galbraith, Hon T. G. D.	Joseph, Rt Hon Sir Keith
Buck, Antony	Gardiner, George (Reigate)	Kaberry, Sir Donald
Budgen, Nick	Gardner, Edward (S Fylde)	Kershaw, Anthony
Bulmer, Esmond	Gilmour, Rt Hon Sir Ian (Chesham)	Kimball, Marcus
Burden, F. A.	Gilmour, Sir John (East Fife)	King, Evelyn (South Dorset)
Butler, Adam (Bosworth)	Glyn, Dr Alan	King, Tom (Bridgwater)
Carlisle, Mark	Godber, Rt Hon Joseph	Kitson, Sir Timothy
Chalker, Mrs Lynda	Goodhart, Philip	Knight, Mrs Jill
Churchill, W. S.	Goodhew, Victor	Knox, David
Clark, Alan (Plymouth, Sutton)	Goodlad, Alastair	Lamont, Norman
Clark, William (Croydon S)	Gorst, John	Latham, Michael (Melton)
Clarke, Kenneth (Rushcliffe)	Gow, Ian (Eastbourne)	Lawrence, Ivan
Clegg, Walter	Gower, Sir Raymond (Barry)	Lawson, Nigel
Cockcroft, John	Gray, Hamish	Le Marchant, Spencer
Cope, John	Griffiths, Eldon	Lester, Jim (Beeston)
Cormack, Patrick	Grist, Ian	Lewis, Kenneth (Rutland)
Costain, A. P.	Grylls, Michael	Lloyd, Ian
Crawford, Douglas	Hall, Sir John	Loveridge, John
Crouch, David	Hall-Davis, A. G. F.	Luce, Richard
Crowder, F. P.	Hamilton, Michael (Salisbury)	MacCormick, Iain
McCrindle, Robert	Page, Rt Hon R. Graham (Crosby)	Sproat, Iain
Macfarlane, Neil	Page, Richard (Workington)	Stainton, Keith
MacGregor, John	Parkinson, Cecil	Stanbrook, Ivor
Mackay, Andrew James	Pattie, Geoffrey	Stanley, John
Macmillan, Rt Hon M. (Farnham)	Percival, Ian	Steen, Anthony (Wavertree)
McNair-Wilson, M. (Newbury)	Peyton, Rt Hon John	Stewart, Rt Hon Donald
McNair-Wilson, P. (New Forest)	Powell, Rt Hon J. Enoch	Stewart, Ian (Hitchin)
Madel, David	Price, David (Eastleigh)	Stokes, John
Marshall, Michael (Arundel)	Prior, Rt Hon James	Stradling Thomas, J
Marten, Neil	Pym, Rt Hon Francis	Tapsell, Peter
Mates, Michael	Rathbone, Tim	Taylor, R. (Croydon NW)
Mather, Carol	Rawlinson, Rt Hon Sir Peter	Taylor, Teddy (Cathcart)
Maude, Angus	Rees, Peter (Dover & Deal)	Tebbit, Norman
Maudling, Rt Hon Reginald	Rees-Davies, W. R.	Temple-Morris, Peter
Mawby, Ray	Renton, Rt Hon Sir D. (Hunts)	Thatcher, Rt Hon Margaret
Maxwell Hyslop, Robin	Renton, Tim (Mid-Sussex)	Thomas, Rt Hon P. (Hendon S)
Mayhew, Patrick	Rhodes James, R.	Thompson, George
Meyer, Sir Anthony	Ridley, Hon Nicholas	Townsend, Cyril D.
Miller, Hal (Bromsgrove)	Ridsdale, Julian	Trotter, Neville
Mills, Peter	Rifkind, Malcolm	van Straubenzee, W. R.
Miscampbell, Norman	Roberts, Michael (Cardiff NW)	Vaughan, Dr Gerard
Mitchell, David (Basingstoke)	Roberts, Wyn (Conway)	Viggers, Peter
Moate, Roger	Rossi, Hugh (Hornsey)	Wakeham, John
Molyneaux, James	Rost, Peter (SE Derbyshire)	Walder, David (Clitheroe)
Monro, Hector	Royle, Sir Anthony	Wall, Patrick
Montgomery, Fergus	Sainsbury, Tim	Walters, Dennis
Moore, John (Croydon C)	St. John-Stevas, Norman	Watt, Hamish
More, Jasper (Ludlow)	Shaw, Giles (Pudsey)	Weatherill, Bernard
Morgan, Geraint	Shelton, William (Streatham)	Wells, John
Morgan-Giles, Rear-Admiral	Shepherd, Colin	Whitelaw, Rt Hon William
Morris, Michael (Northampton S)	Shersby, Michael	Wiggin, Jerry
Morrison, Charles (Devizes)	Silvester, Fred	Wilson, Gordon (Dundee E)
Mudd, David	Sims, Roger	Winterton, Nicholas
Neave, Airey	Skeet, T. H. H.	Wood, Rt Hon Richard
Nelson, Anthony	Smith, Dudley (Warwick)	Younger, Hon George
Neubert, Michael	Smith, Timothy John (Ashfield)
Newton, Tony	Speed, Keith	TELLERS FOR THE AYES:
Nott, John	Spence, John	Sir George Young and
Onslow, Cranley	Spicer, Michael (S Worcester)	Mr. Peter Morrison.
Oppenheim, Mrs Sally
NOES
Abse, Leo	Cook, Robin F. (Edin C)	Gilbert, Dr John
Allaun, Frank	Cowans, Harry	Ginsburg, David
Archer, Peter	Cox, Thomas (Tooting)	Golding, John
Armstrong, Ernest	Crawshaw, Richard	Gould, Bryan
Ashley, Jack	Crowther, Stan (Rotherham)	Gourlay, Harry
Ashton, Joe	Cryer, Bob	Graham, Ted
Atkins, Ronald (Preston N)	Cunningham, G. (Islington S)	Grant, George (Morpeth)
Atkinson, Norman	Cunningham, Dr J. (Whiteh)	Grant, John (Islington C)
Barnett, Guy (Greenwich)	Davidson, Arthur	Grocott, Bruce
Barnett, Rt Hon Joel (Heywood)	Davies, Bryan (Enfield N)	Hamilton, James (Bothwell)
Bales, Alf	Davies, Denzil (Llanelli)	Harrison, Waller (Wakefield)
Bean, R. E.	Davies, Ifor (Gower)	Hart, Rt Hon Judith
Beith, A. J.	Davis, Clinton (Hackney C)	Hattersley, Rt Hon Roy
Benn, Rt Hon Anthony Wedgwood	Deakins, Eric	Hatton, Frank
Bennett, Andrew (Stockport N)	Dean, Joseph (Leeds West)	Hayman, Mrs Helene
Bidwell, Sydney	Dell, Rt Hon Edmund	Healey, Rt Hon Denis
Bishop, E. S.	Dempsey, James	Heffer, Eric S.
Blenkinsop, Arthur	Doig, Peter	Hooley, Frank
Boardman, H.	Douglas-Mann, Bruce	Hooson, Emlyn
Booth, Rt Hon Albert	Duffy, A. E. P.	Horam, John
Boothroyd, Miss Betty	Dunnett, Jack	Howell, Rt Hon Denis (B'ham, Sm H)
Bottomley, Rt Hon Arthur	Eadie, Alex	Howells, Geraint (Cardigan)
Bradley, Tom	Edge, Geoff	Hoyle, Doug (Nelson)
Brown, Hugh D. (Provan)	Ellis, John (Brigg & Scun)	Huckfield, Les
Brown, Robert C. (Newcastle W)	English, Michael	Hughes, Rt Hon C. (Anglesey)
Buchan, Norman	Ennals, David	Hughes, Robert (Aberdeen N)
Buchanan, Richard	Evans, Fred (Caerphilly)	Hughes, Roy (Newport)
Callaghan, Rt Hon J. (Cardiff SE)	Evans, Ioan (Aberdare)	Hunter, Adam
Callaghan, Jim (Middleton & P)	Ewing, Harry (Stirling)	Irvine, Rt Hon Sir A. (Edge Hill)
Campbell, Ian	Faulds, Andrew	Irving, Rt Hon S. (Dartford)
Canavan, Dennis	Fitch, Alan (Wigan)	Jackson, Colin (Brighouse)
Cant, R. B.	Fitt, Gerard (Belfast W)	Jackson, Miss Margaret (Lincoln)
Carmichael, Neil	Flannery, Martin	Janner, Greville
Carter, Ray	Fletcher, Ted (Darlington)	Jay, Rt Hon Douglas
Carter-Jones, Lewis	Foot, Rt Hon Michael	Jeger, Mrs Lena
Cartwright, John	Ford, Ben	Jenkins, Hugh (Putney)
Castle, Rt Hon Barbara	Fowler, Gerald (The Wrekin)	John, Brynmor
Clemitson, Ivor	Fraser, John (Lambeth, N'w'd)	Johnson, James (Hull West)
Cocks, Rt Hon Michael	Freeson, Reginald	Johnson, Walter (Derby S)
Cohen, Stanley	Freud, Clement	Johnston, Russell (Inverness)
Coleman, Donald	Garrett, John (Norwich S)	Jones, Alec (Rhondda)
Colquhoun, Ms Maureen	Garrett, W. E. (Wallsend)	Jones, Barry (East Flint)
Conian, Bernard	George, Bruce	Jones, Dan (Burnley)

Judd, Frank	Noble, Mike	Stallard, A. W.
Kaufman, Gerald	Oakes, Gordon	Stewart, Rt Hon M. (Fulham)
Kelley, Richard	Ogden, Eric	Stoddart, David
Kerr, Russell	O'Halloran, Michael	Stott, Roger
Kilroy-Silk, Robert	Orbach, Maurice	Strang, Gavin
Kinnock, Neil	Orme, Rt Hon Stanley	Strauss, Rt Hon G. R.
Lambie, David	Ovenden, John	Summerskill, Hon Dr Shirley
Lamborn, Harry	Owen, Rt Hon Dr David	Swain, Thomas
Lamond, James	Padley, Walter	Taylor, Mrs Ann (Bolton W)
Latham, Arthur (Paddington)	Palmer, Arthur	Thomas, Jeffrey (Aberillery)
Leadbitter, Ted	Pardoe, John	Thomas, Mike (Newcastle E)
Lee, John	Park, George	Thomas, Ron (Bristol NW)
Lestor, Miss Joan (Eton and Slough)	Parry, Robert	Thorne, Stan (Preston South)
Lever, Rt Hon Harold	Pavitt, Laurie	Thorpe, Rt Hon Jeremy (N Devon)
Lewis, Ron (Carlisle)	Pendry, Tom	Tierney, Sydney
Lomas, Kenneth	Penhaligon, David	Tinn, James
Loyden, Eddie	Perry, Ernest	Tomlinson, John
Luard, Evan	Prentice, Rt Hon Reg	Torney, Tom
Lyon, Alexander (York)	Price, William (Rugby)	Tuck, Raphael
Lyons, Edward (Bradford W)	Radice, Giles	Varley, Rt Hon Eric G.
McCartney, Hugh	Rees, Rt Hon Merlyn (Leeds S)	Wainwright, Edwin (Dearne V)
McDonald, Dr Oonagh	Richardson, Miss Jo	Walden, Brian (B'ham, L'dyw'd)
McElhone, Frank	Roberts, Albert (Normanton)	Walker, Harold (Doncaster)
MacFarquhar, Roderick	Roberts, Gwilym (Cannock)	Walker, Terry (Kingswood)
MacKenzie, Gregor	Robinson, Geoffrey	Ward, Michael
McMillan, Tom (Glasgow C)	Roderick, Caerwyn	Watkins, David
Madden, Max	Rodgers, George (Chorley)	Weetch, Ken
Magee, Bryan	Rodgers, Rt Hon William (Stockton)	Weitzman, David
Mahon, Simon	Rooker, J. W.	Wellbeloved, James
Mallalieu, J. P. W.	Rose, Paul B.	White, James (Pollok)
Marks, Kenneth	Ross, Stephen (Isle of Wight)	Whitlock, William
Marshall, Dr Edmund (Goole)	Ross, Rt Hon W. (Kilmarnock)	Willey, Rt Hon Frederick
Marshall, Jim (Leicester S)	Rowlands, Ted	Williams, Rt Hon Alan (Swansea W)
Maynard, Miss Joan	Ryman, John	Williams, Alan Lee (Hornch'ch)
Meacher, Michael	Sandelson, Neville	Williams, Rt Hon Shirley (Hertford)
Mellish, Rt Hon Robert	Sedgemore, Brian	Williams, Sir Thomas (Warrington)
Mikardo, Ian	Selby, Harry	Wilson, Alexander (Hamilton)
Millan, Rt Hon Bruce	Shaw, Arnold (Ilford South)	Wilson, Rt Hon Sir Harold (Huyton)
Miller, Dr M. S. (E Kilbride)	Sheldon, Rt Hon Robert	Wilson, William (Coventry SE)
Miller, Mrs Millie (Ilford N)	Shore, Rt Hon Peter	Wise, Mrs Audrey
Mitchell, Austin Vernon (Grimsby)	Short, Mrs Renée (Wolv NE)	Woodall, Alec
Molloy, William	Silkin, Rt Hon S. C. (Dulwich)	Woof, Robert
Moonman, Eric	Silverman, Julius	Wrigglesworth, Ian
Morris, Alfred (Wythenshawe)	Skinner, Dennis	Young, David (Bolton E)
Morris, Charles R. (Openshaw)	Small, William
Morris, Rt Hon J. (Aberavon)	Smith, John (N Lanarkshire)	TELLERS FOR THE NOES:
Moyle, Roland	Snape, Peter	Mr. Joseph Harper and
Murray, Rt Hon Ronald King	Spearing, Nigel	Mr. Frank R. White.
Newens, Stanley	Spriggs, Leslie

Question accordingly negatived.

To report Progress and ask leave to sit again.—[Mr. Stoddart.]

Committee report Progress; to sit again tomorrow.