DIVIDENDS BILL

HC Deb 27 July 1978 vol 954 cc1802-937

Order for Second Reading read.

3.42 p.m.

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

I beg to move, That the Bill be now read a Second time.

There is only one substantive clause in this Bill—the clause which extends section 10 of the Counter-Inflation Act 1973 for one year to 31st July 1979.

The 1973 Act which included this section 10 was commended to the House at that time by a number of right hon. and hon. Gentlemen opposite, particularly by the present shadow Chancellor, the right hon. and learned Member for Surrey, East (Sir G. Howe). He said at the time: The policy is essential. There can be no doubt about the position. For the sake of greater price stability, a more dynamic economy and a more contented society the country needs the Bill, and I commend it to the House."—[Official Report, 29th January 1973; Vol. 849, c. 1074.] I now commend section 10 of that Bill to the House.

Of course, it will be recalled that that Bill was preceded by the 1972 Act which brought about a five-month freeze on pay, prices and dividends. Many Opposition Back Benchers at that time were very unhappy about the Bill and other Bills of that kind. Indeed, the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) told the House: If the 90 days is used for other purposes, such as drafting statutory Bills, I find it very difficult to support the Government."—[Official Report, 8th November 1972; Vol. 845, c. 1043.] I have to tell the House that he supported the Government on that Bill and indeed on the statutory Bill which came later.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

I did not.

Mr. Barnett

Is the hon. Member denying it?

Mr. Ridley

Yes.

Mr. Barnett

Perhaps the hon. Member should look up Hansard. Perhaps there was an error in Hansard. His name appears in the Division lists.

Mr. J. Enoch Powell (Down, South)

I did not support it.

Mr. Barnett

No, the right hon. Gentleman is always pure in all these matters.

Mr. Ridley

I think I should clear this up now. The Chief Secretary may have forgotten—his memory is not always good—that I moved an amendment to that Bill which was carried, with his support, to restrict its life to three years. The Chief Secretary supported my amendment, for which I shall always be grateful.

Mr. Barnett

I am not sure whether the hon. Member is saying that I misled the House in saying that he voted for those Bills. He did vote for them—the Counter-Inflation Bill and the freeze Bill. Section 10 of the Counter-Inflation Act is the one that we are now proposing should be extended for a year. I see that the hon. Member is not denying that he supported those Bills.

Of course, other hon. Members opposite were less articulate at that time. They said very little about dividend control. In fact, most of them never said a word. They just voted. The right hon. and learned Member for Surrey, East said at the time: The whole nation knows that we cannot afford to delay such an application of the short-term standstill which is contained in this Bill, and which is essential to the health of the nation."—[Official Report, 8th November 1972; Vol. 845, c. 1140.] That is true. We do need to extend section 10. If it was vital in 1972–73, I shall explain now why it is even more vital in 1978.

We are in a position where there is a danger of slipping back into a vicious circle of higher earnings chasing higher prices being chased by higher earnings and so on. Indeed, dividends and their control remain an essential part of that package. That is precisely what the right hon. and learned Member for Surrey, East told the House on 18th September 1973.

Some of the problems of the 1973 economic crisis still beset us and still beset the industrial world. No single country can succeed in solving that on its own. But what we can do is win the battle against inflation. That is within our command. We all agree on the objective—I do not think the Opposition would oppose it—that we want not only to maintain a rate of price inflation of 7 per cent. but to bring it down even more. Most of us agree that moderation in pay settlements plays an essential part in achieving that objective.

It is now suggested, for example, that a man on £50 a week, all earned, should be asked to be reasonable and responsible in collective bargaining and accept a pay increase broadly within the sort of level about which we have spoken in order to achieve a price inflation target on which we all agree. At the same time somebody, for example, on £500 a week, all investment income, is faced with no limits and no sanctions, even though it is known that some companies stand ready to increase dividends by as much as 300 per cent.

The Opposition, including the hon. Member for Blaby (Mr. Lawson), who is ever ready to tell us the Opposition's views on these matters, are prepared, so we understand, to allow dividends to be uncontrolled, have no limits and be left entirely to voluntary restraint. They seem to think that all we should do is to tell these people, "Please be decent about it and try to restrain your dividend increases in the interests of getting moderation in pay settlements".

Mr. Peter Hordern (Horsham and Crawley)

Will the Chief Secretary tell us how many people earn £500 a week investment income? Also will he tell us what additional net income would be received by such a person if there was no restraint on dividends, at that rate of income tax?

Mr. Barnett

Even if there was only one person, it would be worth while. But the hon. Member is more sensible than that. We are asking the country to accept an objective of price inflation which we all want to see achieved and, within that objective, moderation in pay settlements. When we are asking the people of this country to be moderate and restrain their pay settlements, provocative increases in dividends do not help, to say the least—

Mr. Hordern

One man?

Mr. Barnett

There is more than one man getting dividend increases. Hon. Members know that. These sedentary interventions from a grinning posture do not help the debate. I shall come to the questions of the distribution of incomes and dividend income.

Mr. Nigel Lawson (Blaby)

Before the Chief Secretary moves on, will he answer the question put by my hon. Friend the Member for Horsham and Crawley (Mr. Hordern)? If there is a man with £500 per week income and dividends are, say, doubled, how much extra would that man get after tax'? Will the Chief Secretary also put the matter in perspective and say by how much dividends have risen compared with, say, earnings while this Government have been in office?

Mr. Barnett

The hon. Gentleman always intervenes before I come to my main point. I want to deal with the specific question of the distribution of incomes, including dividends. The Leader of the Opposition misled the House on Tuesday on this whole question of the distribution of dividend incomes and personal incomes. We have heard many heartbreaking stories about the consequences of a 10 per cent. limit on dividends. I am quite happy to carry on amidst all the noise emanating from the Conservative Benches. I realise that they are very protective of the Leader of the Opposition and I understand why.

There are serious problems. I do not dispute that the 10 per cent. limit on dividends will have an effect on certain forms of incomes, particularly, as the right hon. Lady said, on pension fund income and small incomes generally. However, the right hon. Lady, in what she told us would be an intellectual analysis of the various problems we face, read in a highly selective way from the Diamond Commission report. In relation to those getting benefit from dividend incomes, she told us: For many, the main source of income comes from dividends from investments. A little later she said: Furthermore, half of all recipients of dividends and interest had total incomes of less than £2,000 a year."—[Official Report, 25th July 1978; Vol. 945, c. 1399.] The clear implication of that was that those on £2,000 a year were receiving largely, if not entirely, dividend income. I looked up the Diamond Commission report. Paragraph 118 says: At the bottom end over a million taxpayers with incomes of less than £2,000 —she was right about that, but she omitted to read on to where the report says that these people received an average of £227 in this form It was not all those poor people receiving incomes from pension funds or pensioners getting £2,000 a year in dividend income. The figure was £227 a year and not all of that was dividend income. It was dividends and taxed interest. That is what we are talking about.

Mr. Michael Latham (Melton)

Will the Chief Secretary give way?

Mr. Barnett

No. There is a further omission.

Mr. Latham

On a point of order, Mr. Speaker. The Chief Secretary castigated me a moment ago for intervening from a sedentary position. Yet when I stand to try to intervene, he will not give way.

Mr. Barnett

I give way to serious interventions.

Mr. Speaker

Order. The Chief Secretary should be heard in more reasonable silence. The House has had a high temperature for the whole afternoon. I hope that we can lower it a little, at least until I leave the Chair.

Mr. Barnett

I shall do my best to lower the temperature. I move on to an important factor concerning high incomes. The hon. Member for Blaby asked me about this and I am grateful for his question because it exposes clearly how the Leader of the Opposition selectively and in a distorted way chose her quotations.

Mr. Lawson

My right hon. Friend did not.

Mr. Barnett

The hon. Gentleman must have written the speech for the right hon. Lady. I would not claim much credit if I had written that speech.

Mr. Lawson

I have read the Diamond Commission report.

Mr. Barnett

Let me refer to the same paragraph of the report as that from which the right hon. Lady selectively quoted when she tried to prove that dividend control has an important impact on low incomes. She omitted to read from paragraph 118 which says: At the top end of the income distribution some 11,000 taxpayers with total statutory incomes of £20,000 or more a year received a pre-tax average of £11,884 in the form of dividends".

Mr. Lawson

That is pre-tax income.

Mr. Barnett

Of course. The hon. Gentleman may want to reduce the tax level on such incomes, but that is not what we are talking about. We are discussing dividend control. It is astonishing that the Leader of the Opposition should choose to select quotations from the Diamond Commission report to try to prove that dividend control largely affects those with small incomes but omits to mention that there are many thousands of people who will benefit considerably—and much more than those with modest incomes.

I give way to the hon. Member for Eastbourne (Mr. Gow), who always makes interesting interventions.

Mr. Ian Gow (Eastbourne)

The Chief Secretary read out pre-tax figures. Will he now give us the post-tax figures

Mr. Lawson

They are in the Diamond 'Commission report.

Mr. Barnett

I am not sure what that has to do with dividends. It is remarkable that the one area of personal incomes that the Opposition make the greatest fuss about is dividend income. Even more interesting is that when the dividends control legislation that we are seeking to 'extend for a further year was introduced, not one of the Conservative Members who are now making such a fuss got up and said a word. Where were they then on 'behalf of those paying high taxes on investment income?

Mr. Ridley

Will the Chief Secretary give way?

Mr. Barnett

We know where the hon. Member for Cirencester and Tewkesbury 1Mr. Ridley) was. He was in the Division Lobby voting for the legislation.

Mr. Ridley

In view of the right hon. 'hon. Gentleman's recently disclosed support for dividend control, will he tell us why, when my hon. Friend the Member for Oswestry (Mr. Biffen) and I moved amendments to the Counter-Inflation Bill to limit its duration to two years, he and all his colleagues supported us with great fervour in opposing dividend control? What has happened to change his mind since then? Will he understand that the vagaries of which side of the House hon. Members occupy apply to him much more than to any of my hon. Friends?

Mr. Barnett

I will tell the hon. Gentleman what has changed. That section 10 was in the context of a whole Bill and against a background of what the Conservative Government had been doing on income distribution against the interests of the lower-income groups of this country. That is why I voted as I did. The hon. Gentleman cannot wriggle out of the fact that he and all his right hon. and hon. Friends never spoke a word during the passage of those Bills about dividend control. Only now are they concerned about dividend control. I find it a remarkable transformation, but I hope to see it continued for many more years.

Indeed, it was said by the right hon. Lady, and others who criticised this Dividends Bill, that this will have a terrible consequence for a majority of those who are pensioners and who receive dividend income. I see the hon. Member for Horsham and Crawley (Mr. Hordern) nodding. But I have pointed out that what the right hon. Lady omitted to quote was that out of the 1 million people with £2,000-a-year income and below who would be affected by dividend control, only £227 related to them. Even then, that did not wholly relate to dividend income. It related to dividend income and interest.

The fact is that those pensioners and, indeed, the higher-paid income groups in the country, will all benefit from having a lower rate of price inflation. That is the way to benefit them all. Of course, it is true—and I do not deny it—that a large proportion of dividend income goes into pension funds and life assurance. The latest figures we have show that at the end of December 1975, 32.7 per cent. did so, and it is probably higher now. I would not dispute that at all. But it is still a fact—against this is in the Diamond report, which the hon. Member for Blaby seems to have written, even though he did not write his right hon. Friend's speech—that half of all dividend payments go directly to individual shareholders. That is also a fact which we did not have from the right hon. Lady.

Mr. Ron Thomas (Bristol, North-West)

Will my right hon. Friend give way?

Mr. Barnett

Just for a change, yes.

Mr. Thomas

Is my right hon. Friend aware that the right hon. and !earned Member for Surrey, East (Sir G. Howe) made the statement on the radio on Sunday that the overwhelming amount of dividends accrue to pension receivers? The real situation is that only about one-third actually goes to pension receivers.

Mr. Barnett

Nothing ever surprises me about statements made by the right hon. and learned Gentleman. I am very pleased to note that my hon. Friend listens to them so carefully, takes note of them and notes the factual errors in them. As I have pointed out, nevertheless—

Mr. Ian Lloyd (Havant and Waterloo)

rose—

Mr. Barnett

With respect, Mr. Speaker, I shall be quite happy to keep giving way and to go on until we have a vote. I know that you want to speak occasionally and interrupt me. But I think that I should try to make a little progress.

Mr. Speaker

I can tell the right hon. Gentleman and the House that I have a long list of hon. Members who wish to speak. Too many interruptions will mean that at least one hon. Member will be cut out.

Mr. Barnett

Of course, one accepts that a large number of pensioners obtain benefit from pensions funds and life assurance. It would be very foolish to deny that. I hope that Conservative Members will equally accept that many thousands with much larger investment income also benefit both from pension funds and from dividend income generally.

Mr. Ian Lloyd

rose—

Mr. Barnett

The hon. Gentleman knows that I am perhaps one of the most willing Ministers in this House to give way, mainly because I know the kind of interventions that I am likely to get. Therefore, I am perfectly happy to give way. But in the interests of all those other hon. Members who wish to speak. I think that I should try to make a little progress.

What I like about Conservative Members is the selective way in which they read from reports—[HON. MEMBERS: "Oh."]. I read the lot. I cannot understand it. I not only read what the Leader of the Opposition said, but I also read what she omitted. One cannot do more than that. How much better than that can one be? If the right hon Lady would not omit so much I should not even need to read that. But she reads selectively from these reports to try to prove a point, which is a bad point. I hope that I have demonstrated to the House—at least I know I have to my hon. Friends—that it was a bad point.

Mr. John Evans (Newton)

She should sack her speech-writer.

Mr. Barnett

I think that she probably will be sacking her speech-writer. That is probably why the hon. Member for Blaby is looking so sick.

The second heartbreak story which we constantly get is that the continuation of dividend control creates considerable problems for raising capital. Let me say at once that on the margin there will be some increase in the cost of raising capital. I would not dispute that. Nevertheless, there have been sharp increases in the market over a number of years despite dividend control. The evidence about the serious difficulties of raising capital from dividend control is, to say the least, far from clear. In the last three years-1975, 1976, 1977—£3,165 million was raised in cash, despite dividend control. That is between 6 per cent. and 8 per cent. of the total market value of United Kingdom industrial, commercial and financial companies.

Nevertheless, it is true that many factors influence the value of shares and the ability of companies to raise capital, including the general state of the economy, the level of inflationary expectations, the level of company profits and so on, as I am sure all Conservative Members will agree. At least I hope they will agree, because that is undoubtedly true.

Mr. Richard Wainwright (Colne Valley)

With regard to the interesting figure which the right hon. Gentleman has just given to the House—that of £3,165 million raised by industry in recent years —will he tell us how much of that has been raised in fixed-interest issues?

Mr. Barnett

If the hon. Gentleman puts down a question I shall be happy to deal with it. He knows as well as I do that the problems of raising capital on the markets are manifold. There is not just one simple reason. Large sums of capital have been raised over the years despite dividend control, whereas at other times, when dividend controls have not been in existence, it has not been possible so easily to raise money on the markets.

When I referred to the different reasons why it was difficult to raise money on the markets, I was in fact quoting from a predecessor of mine. During our debates in Committee on the Counter-Inflation Bill the right hon. Member for Wanstead and Woodford (Mr. Jenkin) said: Share values are affected by many different factors, including the general state of the economy, the level of inflationary expectations … and so on."—[Official Report, Standing Committee H, 15th February 1973; c. 801.] That is Why I assume Conservative Members agree. It would be a nonsense to say that this is entirely due to dividend control. But it is a fact that on the margin dividend control has some consequence. On the other hand, rather more than on the margin, the problem of raising capital on the markets is connected with the level of inflationary expectations. If we had totally unrestrained dividend limits and totally unrestrained prices and pay, as Conservative Members seem to imply, I wonder what that would do in respect of raising capital on the markets.

Mr. Peter Bottomley (Woolwich, West)

Will the right hon. Gentleman allow me?

Mr. Barnett

I would rather not allow the hon. Member. I would rather carry on a bit, if he does not mind. I shall give way to the hon. Member later, perhaps in about an hour or so when I have made a bit of progress. I am working my way through this one-clause Bill.

As I said, dividend restraint is a factor, but capital markets will be hit much harder by many other factors as well. To those who complain that dividend controls, and the way in which they have worked since 1974, have had the effect of limiting the raising of capital on the markets, I am bound to say that they simply do not understand how this works. The fact is that there is no company which could show that it was raising substantial amounts of new money from the markets and which had been refused Treasury consent to increase its dividend, not one.

Mr. Lawson

The right hon. Gentleman does not understand.

Mr. Barnett

What I like about the hon. Member for Blaby is his deep humility on these matters. There is only one hon. Member in this House who ever understands anything, and that is the hon. Gentleman. At least I am grateful to know that he did not write his Leader's speech on Tuesday, so he does not need too much humility about that.

Mr. Lawson

What the Chief Secretary does not understand, among many other things, is that the effect of dividend control is to depress the whole level of equity shares. Therefore, every company going to the market has to pay more for new capital. At the margin there are companies that will be unable to do that.

Mr. Barnett

That is precisely what I said. I find that remarkable. What I like about the hon. Gentleman is that he is so busy teaching me and others that he does not hear what I said. I specifically said "on the margin there will be some increased cost". I am not disputing that. I said that. That is precisely what I said. It may be that the hon. Gentleman will read my remarks tomorrow. He may learn something from reading my speeches. I would never suggest that to anybody else. I hope that the hon. Gentleman, who is always so ready to teach us all, and me in particular, so many things, will in future read what I say before he intervenes. That may mean that he will not intervene at all in future.

Mr. John Cronin (Loughborough)

It might be convenient if my right hon. Friend points out to the hon. Member for Blaby (Mr. Lawson) that new issues represent only 6.5 per cent. of the total capital market, so the effect is small.

Mr. Barnett

As my hon. Friend appreciates and as the House will appreciate, the greatest amount of capital for new investment in industry is provided from ploughed-back profits and not from new issues or rights issues. My hon. Friend knows that as he is well informed on these matters.

Another problem about which we have heard a great deal is the introduction of the new rules that add a further exception with the extension of section 10. These are the rules that exist under the 1973 Act. I appreciate that initially there were some problems for those concerned. However, I believe that Monday's statement will have clarified the new area where consent will be given.

I remind the House that it is not possible in advance to specify precise rules applicable to all instances. It is part of our intention to encourage companies to apply to the Treasury on matters where it is felt that the rules are not entirely clear-cut. That was the situation when the 1973 Act was first introduced by the previous Conservative Government. That is exactly what is said in Cmnd 5444 of October 1973. I believe that that is generally understood by those who are involved.

Companies that are persistently successful, with a rate of growth above 10 per cent., and continue in that way next year, will be able to increase their dividends in line with profits. The new provision was introduced primarily to relieve pressure on those companies.

I recognise that some companies will be disappointed about the way in which the provision will work. Obviously there will be some companies that wanted to increase their dividends that now will not be able to do so. I hope that it will be clear that under a policy of dividend control, as introduced in the 1973 measure, we cannot make exceptions in individual cases. However, I make it clear that the policy will be considered again in the light of the experience of its working.

I ask Opposition Members not to rush so arbitrarily into expressing disappointment on behalf of the company sector. I ask them to remember the disappointment that is caused to so many people when we ask them to make much greater sacrifices in restraining their incomes.

Mr. Lawson

Rubbish.

Mr. Barnett

What I like about the hon. Gentleman is that his knowledge of everything, including rubbish, is better than anyone else's.

There are some genuine complaints that are moderately stated—we can never expect that from the hon. Member for Blaby—but the complaints that we get from the Opposition, who have found their voices on the extension of the 1973 Act, are grossly exaggerated.

If dividend control has a distorting effect, inflation distorts even more. It distorts all forms of income and not only dividend income. I accept that it has an enormous effect on dividend income but it has an equally great effect elsewhere. That is why it is crucial that we continue with an even-handed policy on all forms of income.

On Tuesday the right hon. Lady the Leader of the Opposition talked about sanctions that we deployed in relation to incomes policy. She said that that was an "arbitrary law". The social effects of a high rate of inflation are very much more arbitrary than anything that has been imposed by the Government in the area of incomes policy. It is proposed by the Opposition to leave dividends totally free while seeking to ensure that incomes do not grow beyond a certain level.

Mr. Nick Budgen (Wolverhampton, South-West)

No.

Mr. Barnett

That may not be the hon. Gentleman's policy, but the Opposition are in favour of restricting incomes. He is a member of the Conservative Party for the moment, unlike his predecessor, the right hon. Member for Down, South (Mr. Powell), who at least did the honest thing. It is the Opposition's policy to leave dividends totally free while seeking to ensure that incomes do not grow beyond a certain level.

To avoid the worst distortions of inflation, we need an overall policy for all forms of income, including dividend income.

Mr. Peter Bottomley

Will the right hon. Gentleman give way now?

Mr. Barnett

No, not now. I said "later". I shall continue speaking for a long time yet. No one can doubt that I give way on a tremendous number of occasions in the House. I am always courteous—perhaps too courteous.

The right hon. and learned Member for Surrey, East agrees that the total growth of incomes should not be more than about 5 per cent., although he does not now say that he is in favour of free collective bargaining. He says that there is no such thing as free collective bargaining. He is now talking about realistic and responsible collective bargaining. On television recently he told the country that bargaining should be within what the Government have told the nation it can afford. He agrees with the idea of the Government telling the nation broadly what it can afford. He is not carrying his hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) with him on that score. He is telling us that that is what should be done while he is in opposition. He will not tell us how he will achieve it.

The right hon. and learned Gentleman explained on television on Friday night that if by any mischance—he did not put it in quite that way—he became a member of the Government if there were a General Election in October he would not scrap the 5 per cent. policy. Apparently he would continue it. That is what he said. His chance of doing that in the face of the Opposition—[HON. MEMBERS: "Oh."] I hope that no one is disputing what I have said. I have the right hon. and learned Gentleman's words before me. It would be so embarrassing to have to refer to them.

Mr. Tom Litterick (Birmingham, Selly Oak)

What did he say?

Mr. Barnett

I shall read part of the transcript. I quote from a verbatim transcript of BBC2 TV "Westminster Report" that is dated 21st July 1978 and timed 7 p.m. The interviewer, a Mr. Noel Lewis, said: This 5 per cent. policy should hold until an October election but what would the Conservatives do if they win? Anyone who thinks the pay policy would change dramatically overnight will be surprised by this answer from Sir Geoffrey to the question—would the Conservatives accept today's policy? The transcript continues: SIR GEOFFREY: We come into office starting from the fact that that has been enunciated and will have been in operation for some time. I think it would be foolish for us to arrive and tear up everything and give the impression that our arrival involves a free-for-all, as the Government are always saying it does. A free-for-all is not what we are advocating. Is that enough?

It seems that the Conservatives will try to carry on our policy. However, on Tuesday the right hon. Lady the Leader of the Opposition, in her desperate desire to be loved, told us how she will maintain the policy of her right hon. and learned Friend. It seems that she would give a great deal more money to the low-paid and everyone else.

The right hon. Lady scrapped her right hon. and learned Friend's policy in advance. She wants large increases for the low-paid, large increases for the higher paid and in between she wants increases to improve differentials. To encourage a new free-for-all, she will allow total freedom on dividends. I hope that when the hon. Member for Horn-castle (Mr. Tapsell) addresses the House he will tell us how that miracle is to be achieved. I look forward to his reply with great interest. If he does not tell us, perhaps his hon. Friend the Member for Blaby, who is always ready to tell everybody everything, will tell us. No one could really believe that it was possible to achieve that kind of miracle. I am sure that even the hon. Member for Blaby does not believe that it is possible. The Opposition know that that kind of policy does not have a hope in hell of being achieved.

If we allowed dividends to go totally free, there would be high inflation with high confrontation. It must inevitably happen from the result of scrapping just one element in the policy. How can we go to the rest of the country and say "We want you to be moderate, reasonable and responsible in your collective bargaining, but we shall not bother with dividends"?

The fact is that what the right hon. and learned Member for Surrey, East and his right hon. Friend the Leader of the Opposition are proposing would lead this country on a road to disaster. We need an even-handed and fair policy. The Bill is an essential part of it, and I recommend it to the House.

4.21 p.m.

Mr. Peter Tapsell (Horncastle)

Before turning to the important general principles raised by the Bill—they certainly are very important, although that would not have been readily apparent to the House from the somewhat perfunctory terms in which the Chief Secretary introduced it—I want briefly to comment on the proposed method of controlling dividends which, as the Chief Secretary pointed out, is set out not in the Bill but in a press release issued by the Treasury on Monday.

Even if the principle of continued dividend control were to be accepted—I hope that the House will reject it—there are strong grounds for criticism of the method proposed, which favours the less successful company and penalises the dynamic growth company.

Criticism on this point which has been widespread throughout the informed financial and business press, centres particularly on two features of the proposals: first, the intention to use end-1972 as the base date for dividend cover calculations and, secondly, the refusal to allow undistributed profits and transfers from reserves between end-1972 and now to be taken into account for the future. That will produce arbitrary effects if it is operated in that way, and the Chief Secretary was very vague about how it would be operated. It would also penalise the more efficient companies.

For example, company A, which has quietly jogged along not increasing its dividend cover in the period 1972 to 1976, but which has had a sudden increase in its dividend cover in the last year from once-covered to two-and-a-half-times-covered, could, under the proposed rules, increase its dividend by 150 per cent.

By contrast, company B, which may have made steady progress between 1972 and 1976 so that the dividend which was once-covered in 1973 was, because of the policy of dividend restraint, five-times-covered by last year, may have seen its dividend cover level out over the last 12 months. In those circumstances, company B will not be allowed to increase its dividend by more than 10 per cent. by contrast with company A which can increase its dividend by 150 per cent.

Those may be slightly extreme and over-academic examples, but they clearly show the essentially arbitrary and unfair effects which are bound to flow from the refusal to allow any credit to be taken for previous growth in the dividend control scheme proposed by the Government.

The White Paper, Command 7293— "Winning the Battle Against Inflation" —in paragraph 30 states that the proposed new provisions will enable companies to increase their dividends … I hope that the Chief Secretary and the Financial Secretary will be good enough to listen, because I am putting a serious point on which there is a great deal of concern in industry. I hope that when the Financial Secretary replies to the debate, we shall get a serious reply to this point and to others that I hope to make.

The White Paper states that these provisions will enable companies to increase their dividends in line with profits or in line with the statutory limit, whichever is the higher". But the procedures set out in the Treasury press notice of 24th July will not in practice permit that to happen, as I showed by my example of the treatment of company B.

There are many companies whose dividend cover is lower today than it was in the earlier years of control. They may have received special permission from the Treasury, for instance, to raise their dividends in support of a rights issue or other capital raising operations, or they may have experienced a temporary deterioration in their trading position, but, like many companies, if not most, wish to pursue a long-term dividend policy. Whatever the reason, the operation of the proposed rules about dividend cover will put them at a disadvantage.

The White Paper's declared aim to allow dividends to increase … in line with profits could more fairly and efficiently be achieved if the dividend cover rule were based on the level of cover in the latest completed accounting period rather than on the highest level since 1972.

I hope that the Financial Secretary, when he replies to the debate, will give sympathetic consideration to that suggestion and will explain, if he is unable to accept it, why he does not think that the proposal that I have put forward makes better sense than the proposal in the Treasury press notice.

I turn now to the wider issues of general principle raised by a Bill which, I emphasise, makes the wholly unprecedented proposal for the statutory control of dividends at a time when there is only voluntary restraint in other spheres.

The Chief Secretary made no serious attempt to justify continued dividend controls on any grounds, and certainly not on the fact that in themselves they make financial or economic sense. The excuses that he advanced for the Bill were fundamentally political and, one might almost say, psychological in kind. It has become the political convention in this country in recent years to bracket together the words "wages" and "dividends" as though like were being compared with like. The whole thrust of the Chief Secretary's speech was to that effect.

In fact, dividends paid to individuals account for less than 2 per cent. of personal income. Therefore, any attempt to equate income from dividends with income from wages and salaries is very wide of the mark. The disproportion between wages and dividends is so great that even the increase in employment incomes in 1977 under phase three was more than twice the total amount of dividends paid out in that year.

Therefore, any argument for continued dividend control must rest on political or psychological considerations, not on any considerations of demand management or of equation of the amounts involved in dividend payments with the amounts earned in the form of wages and salaries. The argument, repeated by the Chief Secretary today, is that it will be difficult politically to apply restraint to the very large sums paid in wages without also applying restraint to the relatively much smaller sums paid out in dividends.

I do not disregard that argument or seek to brush it lightly on one side, because it clearly deserves serious and searching examination, not least because it has had sufficient force to carry weight with successive Governments in recent years. However, I believe that the argument for continued dividend restraint is now outdated, for reasons that I shall seek to explain.

By way of preface, I suggest that one of the factors that has most contributed to our poor economic performance as a country has been our slowness to adapt our economic and political thinking and business practices to a rapidly changing social and industrial scene. Attitudes to dividends and to all forms of so-called unearned income are a case in point.

The debate on dividends is all too often conducted as if the television series "Upstairs, Downstairs" were a realistic depiction of life in contemporary Britain. The concept of dividend restraint had its political birth in the last war. But its progenitor was the business profiteering that went on in some quarters during the 1914–18 war which deeply shocked the inter-war generation and which Winston Churchill's wartime Government were rightly determined to avoid. But that Government eschewed statutory control.

For the first time in peace Sir Stafford Cripps introduced a policy of voluntary dividend restraint in 1948. Share ownership was then still overwhelmingly in private hands. By 1966, when statutory dividend control was first introduced, the figure for private share ownership was already down under 70 per cent. By 1973, the year of the Conservative Counter-Inflation Act, it was down to 50 per cent. Today only about one-third of shares are privately owned. That trend, which has stretched over the whole of the post-war period, is continuing with ever greater momentum. There is no foreseeable likelihood that the trend will be reversed. I regret that.

At present two-thirds of the shares are owned by the institutions, of which the pension funds and the life insurance companies are the most important. That fundamental transformation in share ownership over a period of 30 years is an economic fact of life. It must be grasped and reflected accurately in political rhetoric and Government policy.

That is the more so because, as many of my hon. Friends said during interruptions to the Chief Secretary's speech, with a 98 per cent. top-rate personal taxation on savings income, plus capital gains tax, if one is seeking to restrict the amount of income from dividends to the rich one does not do that effectively by dividend restraint or control. It should be done, as this Government and previous Governments have done it, through the progressive tax system. It is a mistake to confuse those two methods.

I shall now take a close look at the precise nature of the institutions and individuals which benefit from rising dividends and rising share values and which suffer a disadvantage when they are artifically restrained. The share of dividends going to superannuation funds, life insurance companies and private, nonprofit-making bodies has risen to between 40 per cent. and 45 per cent.

About 11 million workers are members of occupational pension schemes, which are already paying pensions to nearly 2+ million retired workers. A total of 14 million households in the country pay life assurance premiums to protect themselves and their families against the hazards of life and death. A total of 17 out of 20 families in the United Kingdom have some part of their savings invested indirectly in company securities.

For those buying their own homes, usually on a mortgage, their rights obtained by indirect shareholding are usually their second largest capital asset after the house that they are buying. For those millions of subscribers to the institutions that I have described who live in rented houses their indirect stock market holdings are their biggest personal assets.

For the Chief Secretary to imply that only a relatively tiny group of our fellow countrymen are affected by the movement of share prices and the level of dividends is wholly misleading and untrue. The economic and social facts are as I have described them.

All this is far removed from the situation depicted by the Chancellor of the Exchequer on Friday when he said: a large number of very wealthy people derive immense income from dividends. If such people are to get increases of 100 per cent., 200 per cent. or 300 per cent. it will be very difficult for ordinary working people to observe the moderation in pay which is required." —[Official Report, 21st July 1978; Vol. 954, c. 1027.] As my hon. Friend the Member for Horsham and Crawley (Mr. Hordern) said during the Chief Secretary's speech when he repeated that argument, it is absolute nonsense. With income tax going up to 83 per cent. and with an investment income surcharge of a further 15 per cent. and so a top rate of tax on so-called unearned income up to 98 per cent., the idea that there are large numbers of very rich people deriving enormous benefits from increases in dividend income only has to be stated to be shown to be absolute and unmitigated rubbish.

Let us leave aside deliberate and somewhat childish misrepresentation of the that we have heard from the Chancellor and the Chief Secretary. Part of the difference between the two sides of the House on this issue comes from discussing these matters in too abstract a form and in generalities. When that is done even the words "institution" and "pension fund" can conjure up for some hon. Members below the Gangway a rather grand and lordly image of chandeliers, deep pile carpets and City lunch cigar smoke drifting across the port. But the reality is very different.

This book "Pension Funds and their Advisers, 1978" lists alphabetically all the pension funds in the country. It runs to 300 pages of small print. Under the letter "B" for example one finds British Gas Corporation, British Leyland, British Petroleum, British Railways Superannuation Fund, British Steel Corporation Staff and Manual Grades Superannuation Services, British Waterways Board Pension Fund, and so on.

Under the letter "N" one finds National Bus Company, National Dock Labour Board Pension Scheme, National Freight Corporation, National Ports Council Pension Scheme, National Coal Board Staff Superannuation Scheme, and Mineworkers Pension Scheme and the Coal Industry Ancillary Workers Pension Scheme. Hon. Members below the Gangway need not fear that these are the salons of a Lady Londonderry.

I want to know why it is essential in the national interest, as suggested by the Chief Secretary and by the Government in introducing the Bill, to tell the workers in these and many other industries that in order to persuade them not to ask for more than a 5 per cent. increase in wages next year they are to be offered the inducement of a reduced pension when they retire. In a nutshell, that is the Government's case.

When Admiral Byng was shot on his own quarterdeck on the orders of the British Government, Voltaire ventured the opinion that it was done to encourage the others. This legislation appears to be inspired by similarly lofty considerations.

Why, to pose the same question in another form, should workers in nationalised industries and private enterprise firms, observing the index-linked inflation-proof pensions of million of Government employees, feel encouraged to moderate their wage demands by the news that their pension funds are to have the income upon which they depend artificially reduced? That is the intended consequence of this Bill.

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

Has it occurred to my hon. Friend that because of the dividend control policy these pension funds are now buying antique pictures and furniture instead of putting their money back into industry?

Mr. Tapsell

Yes. I shall shortly come to that very point.

It is insulting to the millions of trade unionists and their wives for Ministers to treat them as though they are too ignorant to understand the truth of the situation and as though they need to be given a worthless bribe to persuade them to exercise wage restraint.

I mentioned the National Coal Board mineworkers' pension fund. It is one of the biggest and best-managed pension funds in the country. It has 48,000 staff pensioners and 243,000 mineworker pensioners. Its staff contributors number 62.000 and its mineworker contributors 250,000. That is a total of 600,000 people from the coal mining industry past and present. In April 1977 the book value of the United Kingdom equities owned by the fund was £500 million.

The Bill is intended to have two effects. The first is to reduce the income accruing to the miners' fund. The second is to reduce the capital value of its existing investments on behalf of miners. Why is that seen to be particularly good Socialism? The miners, however, with their customary shrewdness, have seen the Government coming. They have already taken the precaution of investing £280 million in property where there are no such controls as are proposed in this Bill for shares.

No doubt—and here I take up the point of my hon. Friend the Member for Folkestone and Hythe (Mr. Costain)— they, like their friends and fellow workers in the British Rail pension fund, are shopping around for some twelfth century candlesticks going cheap at about £55,000, or even, for a mere £65,000, for a Louis XV commode. So again I ask the Chief Secretary why is it such good Socialism to bring forward a Bill which, as one of its many odd effects, diverts the flow of capital away from the provision of new jobs in industry and towards speculation in property and chamber pots?

The Treasury evidence to the Wilson committee put that exact point, only rather more delicately, when it talked of dividend control distorting the equity market and increasing the cost of the provision of new capital, which the Chief Secretary openly admitted would result from the Bill. That Treasury evidence is contained in volume 1 of the evidence on the financing of industry and trade.

We must examine the true circumstances of the overwhelming majority of private individuals who between them own about one-third of the equity shares of publicly quoted companies, because the Chief Secretary sought quite disgracefully to distort the remarks of my right hon. Friend the Leader of the Opposition and the facts of the case. The actual situation bears so little resemblance to the "idle rich" described by the Chancellor as his justification for the Bill that one wonders where the right hon. Gentleman has spent most of the intervening years since he came down from Balliol.

To get the facts one does not have to look at any crystal ball because one can read the book—or rather the books which are the reports of the Royal Commission on the Distribution of Income and Wealth which was chaired by a previous Labour Chief Secretary, now Lord Diamond. In its second report, paragraph 118, from which the Chief Secretary quoted, it makes the position completely clear. When he was seeking to discredit what my right hon. Friend the Leader of the Opposition said on Tuesday he was careful only to quote part of paragraph 118 to suggest that the dividend system did not benefit the poorer people and that any form of dividend restraint would not adversely affect them. However, if he had turned to paragraph 119 he would see there quite clearly stated: Under a system of progressive taxation any general increase in dividend payments would accrue in greater measure, relative to total dividend receipts, to shareholders in the lower income ranges than to those in the higher, where at the extreme an increment of investment income bears tax at 98 per cent. The Chief Secretary made very heavy weather of that point, but the answer to his argument was in this next paragraph of the document.

The Diamond Commission also told us that there are over 2 million individual shareholders in this country. It told us quite a lot about those 2 million of our fellow countrymen and women. I will pick just four facts from the mass of statistics and tables that are available. They were for 1972–73, but there is no reason to suppose that the pattern has changed, although the figures should presumably be inflation tinged. Two out of every five of those shareholders are single women or widows. Nobody has ever suggested that we are talking about people whose sole income arises from dividends, which is what the Chief Secretary was trying to suggest in putting up that Aunt Sally. Of course, they have retirement pensions if they are pensioners, and they often have occupational pensions, too.

One-third of the shares in this country are privately held by just over 2 million individuals, and three out of every five of those individuals are of pensionable age. In 1972–73 a quarter of them had a total statutory income from all sources of less than £20 a week. Half of them had a total statutory income of less than £40 a week. All that is perfectly clearly set out in the Diamond Commission report, and I cannot understand why the Chief Secretary devoted about one-third of his speech to trying to disprove it.

Against this background of undoubted statistical fact it is carrying ignorance and prejudice to the lengths of cruelty to continue to mouth the tired old slogans of the Left about shareholders and dividends. For the greater part we are not talking of the hereditary rich or even the comfortable professional classes. For the most part we are talking about the poor, because the Diamond Commission figures show that a very significant proportion of private shareholders are to be found among the poorer sections of our community.

I hope that the Labour Party will try to hoist that message on board, because I accept that most Labour Members are quite sincere in their wish to help the poorer sections of this community. It is about time that they recognised that many of the poorer sections of the community are shareholders.

Mr. Cronin

Is the hon. Member seriously suggesting that relaxing dividends control will help the poor people of Britain?

Mr. Tapsell

That is precisely what I am suggesting. If the hon. Gentleman has not been able to understand that the proposal is to reduce the flow of income to the pension funds, with 11 million future beneficiaries, and to the 2 million individuals about whom I have just been talking, and if he cannot understand that this is depressing their standard of living and that the whole effect of the Bill is to make life more difficult for the poorer sections of the community, he has not begun to understand the issues at stake. In that, he is very characteristic of his party and the Cabinet that he supports.

Why should the Government want to depress the modest incomes of these shareholders still further or to reduce the capital value of their life savings? Yet that is precisely the object and will be the effect of the Bill if it becomes law.

The problem—if it is a problem—of the relatively few rich individual shareholders, as I have already said twice, is more than adequately taken care of by rates of income tax rising to 83 per cent., plus an additional investment income surcharge of 15 per cent. These produce a top-rate tax on investment income of 98 per cent., which is by far the highest in the whole civilised world, among the countries of which, incidentally, only Canada practises dividend control at all, which it will be giving up in October.

This Bill has nothing to do with the rich, because the tax system takes care of that matter. The truth is that the Bill, far from being an attack on the rich, is in reality an attack on the poor. It will adversely affect the pensions of those who are already retired. It will adversely affect the future pensions of the millions who will retire, the 11 million members of occupational pension schemes already, who are looking to that occupational pension as a major contribution to their security in old age.

Moreover, as the Diamond Commission points out, and as I have already quoted from it, dividend restraint, in its tax aspects, bears most heavily, inevitably, on those with the smallest incomes. The shareholders in the lower-income ranges are those who get the most proportional benefit from dividend increases because they get virtually all the dividend, very little of it going in tax. Therefore, on top of all its other bad consequences, this Bill, in its fiscal effects, is actually regressive, as well.

It is not as if the shareholder—large or small, rich or poor—has been on to a particularly good thing by investing in equity shares, or as if excessive profitability is or has been one of the conspicuous characteristics of British industry. Indeed, why anyone invests capital in British industry at all for an income return of about 5 per cent., when 12 per cent. can be got free of capital gains tax by lending money to the present spendthrift Government, has long been a mystery to me. I certainly hold no equity share in any publicly quoted company in this country for that reason.

Nor has income from shares even begun to keep up with income from wages over the years. Since 1963, while income from employment has risen in real terms by over 40 per cent., income from dividends has declined by almost the same amount in real terms. That is part of the reason why individual shareholders are among the poorer people in this country. It is part of the reason why there has been so little new investment in British industry by comparison with that of our overseas competitors. It is part of the reason why British industrial exports are not more competitive in international markets. It is also part of the reason why British hourly wage rates are now the lowest in any EEC country and why we have 1½ million unemployed men and women in this country.

The inadequate profitability of British industry and the inadequate distribution of those profits that are made back into the capital market through the payment of realistic dividends has made a most significant contribution to the impoverishment of Britain. This Bill will perpetuate that situation. I urge the House not to give it a Second Reading.

4.55 p.m.

Mr. John Cronin (Loughborough)

The hon. Member for Horncastle (Mr. Tapsell) has made a most extraordinary speech. He painted a rather touching picture of how the Bill will grind the faces of the poor. I cannot help but wonder whether his speech was written by the same person as wrote the very unfortunate speech made by the right hon. Lady the Leader of the Opposition on Tuesday. Usually the hon. Member makes intelligent and helpful contributions to our debates, but I am sure that he has been affected in some curious psychological way by the total disaster for the Opposition on Tuesday. His speech was certainly not nearly as bad as that of the right hon. Lady, but it was an incredible attempt to achieve the same standard.

I support the Bill. However, I say without question that dividend control has certain serious disadvantages. I think that this is accepted on both sides of the House. First, dividend control reduces incentives for managers in indstry who hold quantities of stock in the firms in which they work. Obviously, it must have an unfortunate effect from that point of view.

Dividend control is in no way redistributive of incomes—or hardly at all. As has been rightly pointed out by the hon. Member for Horncastle, only about one-third of shareholders are individual shareholders. The rest of shareholders are pension funds, insurance companies, investment trusts and unit trust, public sector holdings, industrial companies' holdings, and charities and overseas holders. Therefore, restriction of dividends does not achieve any great redistributive effect.

It would be unwise for anyone to assume that to restrict dividends is necessarily something that is particularly Socialist. I do not think that it is particularly Socialist. It does not have that effect. It is very important that people should be educated about dividends and should not think that dividends are something that increase the riches of wealthy people. That is manifestly not so, except in rare instances.

Another objection to dividend control is that it genuinely makes it more difficult to raise capital. I am glad that I carry the hon. Member for St. Albans (Mr. Goodhew) with me on that point.

Mr. Victor Goodhew (St. Albans)

I was amused by the fact that what the hon. Member has done is to repeat some of the arguments made by my hon. Friend the Member for Horncastle (Mr. Tapsell), in a speech which the hon. Member has just said was a bad speech. The hon. Member is in danger of leading us to believe that he is making a bad speech.

Mr. Cronin

I am merely pointing out matters which are common knowledge among those who have any dealings in financial affairs. If we are to have good, intelligent and useful debates in this place and, heaven knows, the standard has deteriorated badly this week—we must look at matters from all points of view. I am putting a point of view which may coincide with what the hon. Member for Horncastle was saying, but one must put the other points of view, and I shall do that if the hon. Member for St. Albans will bear with me for a few moments.

The Treasury gave evidence to the Wilson committee that dividend control had an unfortunate effect on getting new capital. However, it is important to realise that this effect is very small and marginal. From the way in which the hon. Member for Horncastle was speaking, one would think that dividend control was some really serious interference with the whole capital market.

In a rather strident article today, even the Financial Times admits that only 6.5 per cent. of total corporate capital investment is represented by new issues. Therefore, at worst, dividend control affects only 6.5 per cent. of corporate investment. It is therefore absurd to suggest that dividend control has a terrible effect on the capital market.

Another objection is that dividend control widens the gap between indexed pensions, particularly in the public sector, and non-indexed private pensions. One accepts that too. There are, therefore, serious objections—

Mr. Kenneth Lewis (Rutland and Stamford)

That is what my hon. Friend was saying.

Mr. Cronin

Of course, but there are some good effects of dividend control as well. Most successful companies have reached their strong financial position by not distributing their profits. GEC, for example, is now sitting on about £400 million in cash.

Mr. Lewis

Does the hon. Gentleman realise that the Government are losing through dividend control? Most of the large companies today are simply not paying corporation tax. The Government have encouraged them not to pay it. They are getting rid of their money in all sorts of other ways. One way in which the Government can arrange to get money out of those companies is through a dividend tax, under which, if dividends were increased, the Government would get more money. Dividend control means that the Treasury is losing money.

Mr. Cronin

This is a somewhat convoluted argument.

Mr. Lewis

It is true.

Mr. Cronin

I should have thought that companies gained chiefly from stock appreciation relief. That is where they save on corporation tax, and that was intended by the Government to get the economy moving. That has already been achieved at a rate of increase of about 4 per cent. a year, and better will come. The hon. Gentleman will find that life will be much better next year from that point of view.

We should seriously consider the objections to suddenly lifting this control. First, it would distort the economy. Dividends would become, as they are now to some extent, a status symbol. Some companies would feel obliged as a matter of status to raise them immediately. Therefore, they would retain less of their earnings and they would invest less, absolutely contrary to what we all want.

The money that goes into dividends obviously will not go into investment or into productive use. That is a serious objection. It is improbable in the immediate future, but if we had a Government who suddenly withdrew all dividend controls they would be acting like a bull in a china shop and causing chaos in the capital and commercial market.

The main reasons for maintaining dividend controls are psychological and political—which the hon. Member for Horncastle dismissed as unimportant. That shows the ham-fisted, confrontation-minded attitude of the Conservative Party. That is why the Conservatives are clearly unfit to take over the economic management of the country. Those considerations do not count for them. I suppose that the same motive influenced the right hon. Member for Sidcup (Mr. Heath) when he took on the miners—that psychological conditions were not important.

Mr. Tapsell

I did not say that psychological and political matters were of no importance at all. I said that the Chief Secretary had not attempted to justify the measure on economic and financial grounds.

Mr. Cronin

Perhaps I did not hear the hon. Member clearly, but I cannot recollect his devoting any part of his speech to those reasons for the Bill. Yet they are the main reasons. The unions have been asked to show restraint—

Mr. Kenneth Lewis

Not statutorily.

Mr. Cronin

No, but they have been asked to show considerable restraint over the coming year. There is no escaping the fact that many unionists think that dividends increase the wealth of the rich. We realise that that is largely erroneous. The top echelons do not think it, but a substantial number of unionists think that dividends are somehow undesirable. That is the impression that I get from people in my constituency. One must accept that. That is what politics and psychology are all about—coping with what people think and not with what they ought to think.

Many unionists understand about dividends, and the vast majority want to be helpful over the economy, but a small minority do not. I am talking about militants who cause widespread industrial disruption, such as those who operate in British Leyland. If the Government suddenly dropped all dividend control, they would be putting a card into the hands of every militant who tried to disrupt the production of his company. He could say "They expect you to restrain your wages, but they will not restrain dividends." These considerations are the main reason for continuing control.

There is a good case for liberalising dividend controls, and the Bill is an effective step in that direction. It is a gradual step forward, but it will give an incentive for faster growth. From 1st August, all companies will be able to increase dividends in line with profits. In effect, the Bill is a productivity deal for shareholders, giving preferential treatment to companies which grow and increase their profits.

The Chief Secretary gave us no detailed figures of the financial effects of the Bill, and possibly such figures are difficult to obtain at this early stage. However, a firm of stockbrokers called Phillips and Drew publishes frequent economic reports which most people will agree are quite helpful. Phillips and Drew worked rather hard last Friday night and produced a report on the effects of the Bill on 120 leading companies representing 80 per cent. of the equity market.

According to the Phillips and Drew economists—or their computers or whoever worked it out—70 per cent. of the companies would be restricted from increasing their dividends by more than 10 per cent., but 40 per cent. would not be able to do so anyway because they did not have enough profit to do it. Further, the report said that 30 per cent. of this great selection of companies would be able to increase their dividends by as much as 20 per cent. That is a big advance on the 10 per cent. which we have had so far. Moreover, it was said in the same report that dividend growth for the whole market would be an increase of 15 per cent. over the coming year.

That report may be erroneous—the figures may not be accurate—but it presents the only figures from an expert source which we have available at present, and all of them suggest that the Bill will therefore produce a real liberalising of dividend control, a real increase of incentives and an encouragement for companies to become more efficient and increase their profits.

I suggest to the House, therefore, that, even with a General Election imminent. we should try to forget the somewhat political doctrinaire approaches to this matter and appreciate that the Bill is a step in the right direction. It is a liberalising of dividend control and will be of great advantage to the country's economy.

5.11 p.m.

Mr. Reginald Maudling (Chipping Barnet)

In current circumstances there is no argument either of logic or of economics for continuing the statutory control of dividends. No one has put one forward—least of all the Chief Secretary in his speech today, if one can call it a speech. If I may say so, I thought that it was a piece of buffoonery masquerading as a speech, and when such a performance comes from a man of such charm and intelligence as the Chief Secretary it shows conclusively that he has the worst possible case to put. The whole case is political. It is no less serious for that reason—we in this place understand the importance of political factors—hut let us be clear what the case is.

The Government say that wage restraint is impossible without continued statutory control of dividends. The arguments in each case are wholly different. Dividends vary with the performance of companies. They may sometimes go down. I do not think that wages ever do. The fundamental case for wage restraint rests on the use of the monopoly power of labour to force up wages by blackmailing the consumer. No such monopoly power exists in the hands of capital, or, if at any instance it does arise, existing legislation is adequate to deal with it. Profits are subject to the competitive pressure of market forces. Wages in many cases are not. There is no logical economic connection between the two. That must be absolutely clear. I do not see how it can be gainsaid.

Other points have been made already and, no doubt, they will be referred to again. The amounts involved in the distribution of dividends are small. The net addition to true purchasing power, which is the factor which accounts for inflation, from an increase in dividends is negligible. Dividends are the product of output, not a cost of output—wholly different from wages. The movement of capital into the most effective and promising industries can only be impeded by control over dividend distribution. As for those who receive these dividend increases, that aspect of the matter has already been adequately covered by my hon. Friend the Member for Horncastle (Mr. Tapsell).

I have studied with interest what the Prime Minister said on Tuesday. Indeed, I have studied a lot of what he said, and I shall come back to it. He said: I do not believe that the argument is conclusive that insurance policy holders or pension fund beneficiaries will be adversely affected by this measure. It may not be conclusive, but is it not important? What do the Government think? Is it important or not? No clear picture was given by the Chief Secretary. Indeed, he was rather dismissive about that. How important do the Government consider this argument to be? Certainly we on this side of the House regard it as very important.

The Prime Minister continued, with reference to pension funds: What affects them even more than dividend control is the erosion of the value of their savings by inflation, and they have as much to gain as any group by the success of the anti-inflation policies. That is absolutely true, but it is a complete non sequitur. It makes sense only if one accepts the assumption that dividend control on a statutory basis is essential to fight inflation. It is not.

As I understand it, the Government's case is that this measure of statutory dividend control is essential to the maintenance of voluntary wage restraint. They have put no other argument. As my hon. Friend the Member for Horncastle rightly said, that is a case worth listening to, but we should like to hear it. One cannot listen to something which is never expounded. I now put three explicit questions to the Financial Secretary, and I shall be most obliged if he will answer them.

First, why is it necessary, in order to achieve voluntary wage restraint, to have statutory control of dividends? That is a simple enough question. Second, if the Government believe that they can achieve a voluntary wage restraint, what reason have they to believe that they cannot get a voluntary dividend restraint? Again, that is a simple and straightforward question. Third—perhaps hypothetical but equally definite—if the Government fail to get a voluntary wage restraint, will they then abandon the control of dividends? If the House is to make a judgment on the merits of the Bill, one is entitled to ask for answers to those three brief but, I hope, clear questions.

I come back to the speech of the Prime Minister, who had a lot to say about the economy on Tuesday. Addressing the Opposition, he said: If they genuinely want to see moderation in pay settlements in 1978, they should vote for the Dividends Bill … To do otherwise, against the background of their own history, will destroy any claim they have to be taken seriously on this subject. That is utter nonsense. I think that, having held office, I am entitled to a view on this matter. I believe that my right hon. and hon. Friends know that I have always supported the idea of an incomes policy, preferably voluntary but statutory if necessary. I have had a certain amount of trouble as a result from time to time. But, despite that continuing belief in the need for an incomes policy, I shall certainly vote against the Bill tonight.

What else did the Prime Minister say? He added: In our view, it would be quite wrong, when we are asking working people"— I pause there for a moment. I dislike that phrase "working people". Wage earners are not the only working people in this country. There are salary earners, professional people and many others who work very hard for their incomes. I dislike the phrase. It is pejorative and should not be used. However, this is what the Prime Minister said: it would be quite wrong, when we are asking working people to exercise moderation on pay in the year ahead, to fail to do everything in our power to see that moderation is exercised with dividend payments."—[Official Report, 25th July 1978; Vol. 954, c. 1386.] The Prime Minister makes that the argument for using the power of the Government by statute to control dividends. But will he use the power of the Government by statute to control wages if the TUC will not fall into line? That is the logic of it. It must be even-handed, in the Chief Secretary's phrase today. It must be the same for both sources of income. Either we have voluntary policies voluntarily agreed and accepted or we have statutory powers. For the Government to pretend that in order to get acceptance of a voluntary policy from the trade unions they must have statutory control over dividends seems to me unworthy of serious consideration.

The Prime Minister is an interesting study at the moment. His favourite role, apparently, is as a latter-day Stanley Baldwin, though he sometimes departs from it. One man in his time plays many parts. But, brooding on his speech the other day, I could not help remembering the Earl of Rochester's epitaph on King Charles II: Here lies a great and mighty king Whose promise none relies on; He never said a foolish thing, Nor ever did a wise one. I have also been looking through the pages of Dryden, as many others, no doubt, have done. The Prime Minister quoted Ddryden and, no doubt, occasionally he reads him.

The Prime Minister's policy on dividends is the same as on the economy generally. It is one of total bluff, of pretending that the Government have brought down the rate of inflation from the rate which they inherited. What they have done is to make a dent on the position which they created by the unbridled inflation which they unloosed when they became the Government. I do not think that people will be taken in, but the Prime Minister and his colleagues will try very hard to take them in.

Therefore, I was amused to find in Dryden these words: When I consider life, 'tis all a cheat; Yet, fool'd with hope, men favour the deceit; Trust on, and think to-morrow will repay: To-morrow's falser than the former day; Lies worse, and, while it says, we shall be blest With some new joys, cuts off what we possest. I cannot give a better description of the Prime Minister's economic and election policies.

5.21 p.m.

Mr. John Evans (Newton)

It is fitting that in what is undoubtedly the last full week of this Parliament before an October General Election we should spend so much time debating the economy and economic affairs.

On Monday we spent a great deal of time discussing unemployment and the tragic consequences of having so much unemployment in our society at present. On Tuesday we discussed, as we are discussing today, incomes policy. We spent most of our time on Tuesday discussing wage restraint—restraint on earned incomes. Today we are discussing restraint on dividend earnings. It is important to get the matter into context. A great deal has been said about the psychological aspect of today's debate.

I criticise some aspects of the White Paper "Winning the Battle Against Inflation", particularly its rather dogmatic approach to 5 per cent. as the maximum allowable to any group of workers, but I am convinced of the necessity to retain a limitation on dividends. Paragraph 9 of the White Paper reads: the country should aim at a long-term approach in which collective bargaining is based each year on a broad agreement between Government, unions and employers about the maximum level of earnings which is compatible with keeping inflation under control in the following 12 months. The policy aspect that we are discussing is as important as that which affects the wage earners. The trade unions should have a right to discuss with the employers not only the question of wages but the question of dividend income.

It is important to stress the psychology of the matter. I have sat through many debates on economic affairs since I became a Member of the House in February 1974. I made my maiden speech in the Budget debate in 1974, and whenever possible I have taken part in economic debates. When I have not been able to speak, I have sat through them. On Tuesday I sat through most of the debate on incomes policy without catching the eye of the Chair.

I am convinced of Conservative Members' complete lack of understanding of ordinary people's psychology. I have listened to many of their speeches. It was interesting to listen to them today, particularly their interventions in the speech of my right hon. Friend the Chief Secretary, when they made it perfectly clear that they were prepared to fight to the death for the rights of those who receive income from dividends.

The hon. Member for Horncastle (Mr. Tapsell) said that millions of workers were involved in a variety of ways in pension schemes and so on. Very few workers bother themselves about the policies operated by their pension schemes. Similarly, the millions of ordinary people who contribute to the funds of the various insurance companies have little con- cern about how the money is invested. Their money is there simply to make provision for them in the event of death or serious injury.

I believe that the trade unions in particular and ordinary people in general should have more concern about what happens to the money they give to the insurance companies. The trade union movement has been very lax in not concerning themselves with how pension fund money is invested. I am as appalled as anyone is at British Rail's investing hundreds of thousands of pounds in candlesticks. It is time the trade union movement loked at the immense funds available in the pension funds and examined where the money is invested.

Mr. Hugh Dykes (Harrow, East)

The hon. Gentleman referred to the importance of psychology and the need for Conservative Members to understand the feelings and sentiments of wage earners, including trade unionists. But have they not been much more concerned this year with the arguments about returning to free collective bargaining, to the exclusion of everything else? That is logical and understandable, but does not the hon. Gentleman agree that it is striking that at successive union conferences—and, so far as one can tell, in private discussions —very few trade unionists or trade union leaders have referred to the need to control dividends, and have not been worried about this matter?

Mr. Evans

I am sure that the hon. Gentleman will accept that, while we have had many resolutions from union conferences about the need to return to free collective bargaining, there is a general understanding in the country that if we can have a fair and equitable incomes policy that is acceptable. The problem the Government have to overcome is that of persuading all those who regard themselves as special cases that they are not quite so special.

If anyone is asked "Do you agree with an incomes policy if it is fair?", he will reply "Yes", provided it does not apply to him, because he is a special case.

My point is that if Conservative Members think that the Government could get any agreement on income restraint with the trade union movement or people represented by it, and at the same time allow dividend restraints to be removed, they do not understand the psychology of those who earn their living by hourly paid work. This is a factor which influences people who work in the factories and shipyards. They make it clear that they know that their industries are profitable. I have heard many workers in my constituency say that if a firm has enjoyed enormous profits and would be free to pay a substantial dividend, they have a right to participate in those dividends through higher wages. That would clash with the whole concept of incomes policy.

When I hear the old stories about the widows who would seemingly benefit from the abolition of dividend restraint, I recall that there are many thousands of widows in my constituency. It is the largest electorate in Great Britain. The vast majority of the widows whom I represent have to rely on the State pension. If we want to assist those in that category, we can do it simply by increasing that pension.

The important thing that comes across in all these debates is the divisive attitude and approach of the Tory Party. In the closing words of his outstanding speech on Tuesday, my right hon. Friend the Prime Minister said: The Tory Party once aspired to lead one nation and to speak for one nation."—[Official Report, 25th July, 1978; Vol. 954, c. 1393.] I have never quite believed that. I do not think that anyone with my background would ever believe it, but the Tory Party of yesteryear, with people such as Mr. Macleod, Mr. Macmillan and Mr. Butler, was different from the Tory Party of today. In every area today, divisive policies are put forward by the Tory Party. In education, the National Health Service, incomes policy and pension policy—right across the board—it seeks to divide our society.

We shall have to make sure that we get that message across to the people in the forthcoming election. It is always difficult to learn precisely what the Tories' policies are. The Leader of the Opposition made a dismal speech on Tuesday, in which she said certain things that she would not do. She and her Front Bench spokesmen rarely say what they would do in office, apart from—we now understand—abolishing dividend control.

It always depends on which voice is enunciating which policy—whether it be that of the right hon. Member for Leeds, North-East (Sir K. Joseph), who appears to have some of the weirdest ideas about controlling the economy, or the right hon. and learned Member for Surrey, East (Sir G. Howe), who seems to have a different set of ideas, or the Leader of the Opposition herself. As my right hon. Friend the Prime Minister pointed out on Tuesday, a whole variety of different policies flows from a variety of different Tory speakers.

Broadly speaking, however, it appears that on the question of incomes the Tory Party wants to divide the nation into various groupings. First, there are those who benefit from dividends. It would appear that they would all get the benefit of complete lack of restraint.

Mr. Hugh Fraser (Stafford and Stone)

Come off it.

Mr. Evans

The right hon. Gentleman says "Come off it", but we have heard him before. We know what will happen if his policies are put into effect in our society. It will be a society of considerable strife.

The group of workers who would benefit from Tory Party policy would be those employed in the profitable sectors of the economy. They would have no restraint; they would be able to enjoy whatever they could screw out of their employers. The second group of workers would be those employed in the not-so-profitable sectors of private industry. It appears that there would be no further lame ducks, and that if there were excessive wage demands those firms would be allowed to go into bankruptcy, irrespective of social cost. We heard all about that in 1970 before certain events took place on the Upper Clyde, after which Tory policy was scrapped and lame ducks resuscitated.

Then there is the favoured group of workers in the public sector—the police and the armed forces. They seem to be highly favoured by the Tory Party, and would get a substantial increase all in one, whereas the Government are phasing in the increase. But the Conservative Front Bench demands that it all be paid immediately, again whatever the effect on incomes policy.

Then there is the section of the public sector whose workers have political muscle—that presumably includes the miners and the power workers. According to the document that was leaked recently, those workers would be able to wring almost anything out of a Tory Government because of political muscle. But results would flow from that. For example, the closure of pits would be accelerated and further unemployment created.

The weakest group would be the vast majority of people in the public sector, because they would be subject to rigid cash limits. How that would create the sort of society which the Labour Government are trying to create is beyond me. We would simply have division in every concern of our national life. One group of workers would be put against another.

There is no question but that, on the whole issue of incomes policy, whether it be income from earnings or income from dividends, the only just way in which we as a society can proceed is on the basis of fairness and equity. In this context, it is essential that those who earn their living—whether they do so by skill of hand or by brain—must feel that equity is being established across all sections of the community. If we accept that, we cannot say that dividends will he allowed to rise to whatever levels they can produce—although it has been made clear that many companies would be in difficulty if they were asked to pay dividends. In such a situation, there would be considerable strife in our society.

I have no doubt that all these issues that we are debating during this last week of Parliament will form a fundamental part of the next General Election. It is clear that Conservative policy is one of division, of strife and of setting one section of the community against another.

I accept that there are some aspects of the Government's policies which one can criticise. They have made a great mistake in concentrating on a figure of 5 per cent. I hope that that will not do us serious damage, and that further discussions can be held with the trade union movement on the issue, because I recall that one of the things that did the Labour Party damage in the 1970 General Election campaign was the small sections of "In Place of Strife" which were regarded by the trade union movement and others who normally support the Labour Party as being unacceptable.

I hope that the Government will think again about the figure of 5 per cent. because there are certain aspects of the White Paper which are worthy of fuller consideration by the people. For example, there is the reference to the necessity to work out a longer term economic strategy. The White Paper refers to setting a pattern for a number of years. I do not think that anyone can disagree with that, and it is essential for our society that we should work on a longer term basis rather than simply on annual settlements, because plainly that creates uncertainty.

I feel, too, that the statement that we can allow increases for low-paid workers up to a level of £44.50 is of crucial importance because it is the first time, as I understand it, that a Government have accepted the principle of a national minimum wage. I do not know whether the Government actually intended to do it, but they have established it and it is an important step forward. I hope that those representing the lower paid workers will recognise that. While the £44.50 is a derisory figure, it can be lifted; it is the establishment of the principle itself that is important.

No doubt, for the rest of the debate, the Opposition will talk about so-called iniquities in the Bill and question statutory control of dividends and voluntary agreements for wages. But, as they themselves have pointed out, there are far more people on earned income than on unearned income. It is in this context that we must have the Bill. There would be little chance of the people who in the main are represented by the unions accepting a situation where there was no equity.

Mr. Kenneth Lewis

Can the hon. Gentleman confirm that if the Bill goes through the unions will accept wage control?

Mr. Evans

I will say that if the Bill does not go through it will make it even more difficult for the unions to accept wage control. I have already criticised the proposed level of 5 per cent., and I hope that the Government will give it further consideration. I believe that if the Government had sought to persuade the trade union movement to adopt a figure nearer the current rate of inflation it would have had far more chance and been far more acceptable.

At the weekend, many people whom I saw in my constituency talked about the Government's proposals, asking "Why cannot we be protected by an increase to match the current level of inflation?" Certainly that would be the more equitable settlement.

Psychology comes into the whole question. Hon. Members opposite may say that it is the economic argument that is important, but in this case I suggest that psychology comes before the economic argument, and I suggest to the Government that, in the context of persuading people to accept policies which I think the vast majority do accept as being fair across the board, although there are individual problems, a figure based on the current rate of inflation would have been far more acceptable to the ordinary people.

I shall conclude shortly because I know that many hon. Members opposite want to attack the Government—I appreciate and understand that—but I should put on record that, whatever the criticisms may be of this Government over the past four and a half years, they are being made by the Opposition because the Government are trying to be fair to all sections of the community.

We can criticise certain aspects, but generally speaking the Government have tried to be fair in all aspects of policy and to all sections of the community. They have made this clear in their approach to education, to pensions and to taxation. In all aspects of their policy we have sought equity and fairness. We have tried to bring about conciliation and co-operation.

Conservative Members, on the other hand, seem to have learned nothing from their experiences. What they are aiming for in the future is confrontation, further division, and further strife throughout industry and throughout our country.

Very shortly, the people of this country will have to decide, and I for one am confident that they will look at the records of the two parties and ensure that a Labour Government are returned to this House with a working majority.

5.40 p.m.

Mr. Richard Wainwright (Colne Valley)

The hon. Member for Newton (Mr. Evans), in spite of much that I disagreed with in his speech, did a great service to the House by drawing our attention, and I hope particularly the attention of the Financial Secretary, to the extraordinary disparity in the Government's White Paper about the battle against inflation between the fairly extensive treatment of the possible future of pay control, and the incredibly shoddy, curt and dismissive paragraph 30 about dividend control that we are debating this afternoon.

Since the whole of the Government's alleged case this afternoon is that all their great apparatus on pay must be balanced by an equivalent apparatus—if that is conceivable—on dividends, the Financial Secretary really owes it to all of us in all parties to explain, when he replies, why there is no Government talk whatever, no official speculation, about the future development of dividend control. If he says that this is positively the last appearance of this worn-out old pantomime dame, that will be a matter for rejoicing, but the White Paper leaves the matter in an entirely cloudy state, and this must be cleared up.

The right hon. Member for Chipping Barnet (Mr. Maudling)—in a speech, not surprisingly, as liberal as it was elegant—asked the Financial Secretary three very pointed questions. It may save the time of the House and of other hon. Members who wish to speak, if, without trying to paraphrase the right hon. Gentleman's remarks—that would in any case be redundant—I simply tell the Financial Secretary that the right hon. Gentleman's questions are questions to which the Liberal Members also expect clear answers from him tonight.

The Bill, naturally, bears the name of the Chancellor of the Exchequer. I am sure that I cannot be the only hon. Member to have told the Chancellor that I expected him to be here this afternoon in support of this Bill. But what has happened? It is the contrast with last Tuesday which makes his absence so extraordinary this afternoon. He knew that, in accordance with a written agreement, notice had been given to him that on Tuesday he would have reliable and unanimous Liberal support. He had already been told that the Liberal Members, on this vital question of pay control, were faced, on the one hand, with a Government pay policy which exists, but which is in tatters, and, on the other, with the Conservative segment of the House, which on pay policy is absolutely starkers. We told the Chancellor that on Tuesday we had to prefer the tatters and that he could count on our support.

Knowing that the wicket had been rolled and re-rolled so that not even a Headingley groundsman could produce an easier pitch, down comes the Chancellor on Tuesday and, sponsored, as usual, by the fortune tellers' union, he peers into his rose-tinted crystal ball, tells us once again his view of the future course of inflation, and then breezes out. Then, when he gets outside this House, he is knocked absolutely flat by the old carthorse of the TUC.

The Chancellor of the Exchequer knows that he will not have our support today, but he is apparently, according to the press, counting on some rather invisible allies—totally invisible, in fact—from the SNP. Indeed, I doubt whether they will all be here when the Division comes, but that is to be seen. Today the Chancellor abdicates, and leaves this very contentious Bill, which is in a very dicey position, to the Financial Secretary—we are hoping to hear from him tonight in answer to our questions—and to the Chief Secretary, who in my view, occupies the position which nature intended for the right hon. Lady who at present leads the Conservative segment of the Opposition.

We heard this afternoon from the Chief Secretary a typical Manifesto group speech. There was a great deal of waffle from a mentality which applauds the mixed economy in theory and pretends to be in support of all democratic good causes but which in fact weakly surrenders to every move which tends to erode the very dynamics of the mixed economy.

The Bill was described earlier this week, absolutely correctly, by my right hon. Friend the Leader of the Liberal Party as a piece of window dressing. That is a view that many people in this House endorse. From my own knowledge of the Colne Valley woollen trade, I will adopt a rather different simile. I think that the people there would describe it as low quality flannel. I can imagine some of them in Marsden, Slaithwaite and Golcai fingering this trouser length of Government shoddy. I think they would say "It's so poorly woven that their arse'll show through." Indeed, there is a danger, now that a patch of fairly tough cloth is gradually falling away from the Government's garments, that they may go down in history as the bare-bottomed Government.

We heard an extraordinary speech from the hon. Member for Loughborough (Mr. Cronin) about the allegedly sensitive feelings of trade unionists who believe that the rich prance about this country, arrogantly flaunting their wealth and paying no taxes, as if we were still living in the time of Henry VIII. In the light of that speech, I ask why the Government, who have unrivalled knowledge of the trade union movement from top to bottom—perhaps rather more at the top than at the bottom—should insult honest, shrewd, trade unionists, whom we all know in our constituencies, by supposing that they are deceived by this flimsy and loophole-filled Bill.

I can assure the Government that in 20 minutes spent in the works canteen or in the club at night, three or four shrewd and respected trade unionists will be able to destroy any deceit that the Government may hope to perpetrate. They all know about the high rates of taxation on investment income which are being very clearly put to us today. They all know of the enormous number of loopholes in this ramshackle apparatus of so-called dividend control, which is a misuse of the word control. They know about the innumerable ways in which dividend control can be avoided, perfectly legally. The popular press has quoted the many hundreds of exemptions which have been officially granted. The specialist press has made no secret of the fairly easy, although rather expensive, ways in which dividend control is avoided.

We know about the rights issues, which mean that those companies which are owned largely by wealthy people, or by wealthy institutions which have money ready to subscribe, have been able to drive a coach and horses through the control. Then there is what I believe is known as the Marchwiel Ltd device, which amounts to rejigging the whole structure of the company so that dividend control cannot be made to apply, even by the Treasury.

Then there are those companies, well known, which have called their overseas interests in aid. I have in mind companies such as Inchcape, Ocean Wilson, and Nigerian Electricity which have recently escaped dividend control.

There has also been a remarkable achievement, to any accountant—I suppose that it is a possible epitaph for the Chief Secretary—in that there has been an extraordinary revival of what was previously the moribund preference share. An obvious way to get round dividend control is to issue preference shares carrying a high rate of fixed dividend. The preference share—which until a year or two ago was more dead than Lazarus ever was—has now revived at the instigation of the Labour Government.

These matters are well known and it is going a little far for the Government to suggest with a straight face that they are seriously controlling dividends. I must refer to the one novel feature of today's Bill, which is described as a concession to enable some companies with increasing profits to increase their dividends more than the general norm. There is one sentence in the Treasury explanation which gives cause for comment. In dealing with the new rules for dividend cover the Treasury document says: Where there have been changes in accounting policies the cover for each of the relevant years will be computed on a consistent basis. This means going as far back as the accounting year 1972 and trying to recompute each year's accounts for the whole period, making allowances for all of the changes in accounting policies over those six years. Since accounting is an art and not a textbook procedure, the Government must realise that this is a labour from which many companies will shrink on the grounds of the professional costs involved. In view of the changes in accounting procedures over those six years—for example, stock valuation, the treatment of deferred tax, the formula for computing cover for dividends, the treatment of extraordinary items and the changes in depreciation policy—it is too much for the Treasury to produce this glib formula saying that all of these years will be re-computed to arrive at a consistent basis.

Of course, that can be done—just as the Round Pond in Kensington Gardens could be emptied by teaspoons—but it is not a task to which any person of serious intent will address himself. We all know that, except for a handful of companies which have accountants stuffed into every room in their offices, the remainder will do some crude horse trading with the Treasury and it will all depend on who lasts longest in the struggle. Bearing in mind that our personal tax rates are known for their severity, it seems unnecessary to be imposing this arbitrary type of control.

I cannot resume my seat without referrine to the Government's record as a payer of money to the rentier. Have they respected these modest limits? Do they, like Marks and Spencer, survive on a yield to the investor of 3.9 per cent. per annum or, like ICI, on a yield of about 6 per cent. per annum? We all know that they do not. They have to pay about 12 per cent. or 13 per cent. as a matter of course for their current Government stock issues. But in certain cases the Government are perpetrating a spectacular atrocity on behalf of the rich that goes far beyond anything that any dividend-paying company can do.

On the current issue of National Savings certificates the Government can apparently raise money only by offering them tax free. As hon. Members will know, perhaps to their benefit, the current gross rate of interest per annum to anyone paying the higher rates of income tax on investment income is 75 per cent. or more. That is allowed by the Government to rich holders of their securities. If the Government are to use the argument that trade unionists tremble and become all of an angry quiver when they hear of some company paying a high dividend, what will trade unionists say when they are told that the Labour Government, the descendants of Keir Hardie, are offering people 75 per cent. per annum on Government securities? The only possible excuse for such a usurious rate must be that the Government do not believe in their own forecasts of inflation.

The Government have attempted to pull the wool over the eyes of the House by suggestirg that the choice is between this Bill and a total free-for-all. I make it clear, on behalf of my right hon. and hon. Friend h, that we told the Government weeks ago that we would certainly support a dividend control policy based on Government appeals for restraint and, if necessary, on certain carefully chosen sanctions against absolutely spectacular and grossly extravagant dividends.

The Bill is not the only choice which the Government could have made. We believe that they have chosen wrongly. It is, as most hon. Members will know, a bad habit of overblown Ministers to hector the Opposition parties with terrible warnings of catastrophes which are bound to occur if the House dares to flout the wishes of the Government. In the course of, on the whole, very friendly exchanges with members of the Government during the past 15 months, we on the Liberal Bench have had some experience of this threatening nonsense.

We were told, for instance, last summer that if we dared to insist on the 5½p coming off petrol the result would be that that amount would go on beer. It was thought that we would tremble at the prospect of being held responsible for an increase in the tax on beer. The 5½p came off petrol and nothing happened to beer. This year we were told that the 2½ per cent. increase in the employers' surcharge for National Insurance was holy writ and if we attempted, sacrilegiously, to disturb it, the Chancellor would lift the tax on tobacco, beer or VAT to embarrassing heights. We got the employers' surcharge down to 1½ per cent. in this House, and nothing has happened to other taxes. No one believes that anything can happen in the autumn, with an election coming up.

The Government are perpetrating a deceit in asking us to pass this Bill. The answer to threats which we may hear to the effect that the Bill is absolutely essential is that which was given so poetically by G. K. Chesterton in answer to another arrogant Minister in this House— "Chuck it."

5.57 p.m.

Mr. Tom Litterick (Birmingham, Selly Oak)

I hope that the Financial Secretary will forgive me if I say that I do not take this Bill any more seriously than he did. It was clear from his speech that he regarded it as a joke, or at least that he regarded the occasion as something of a joke. I do not blame him because the Bill is singularly unconvincing, as hon. Members on both sides of the House have suggested. The country knows that the mechanisms for the control of dividends have as many holes as a colander. Further, and much more importantly, there is the knowledge that this Bill is brought forward mainly for cosmetic reasons, mainly to demonstrate that the Government have an even-handed approach to incomes policy, indeed that they have an incomes policy as opposed to a wages policy.

Many of us on the Labour Benches have argued over the past two or three years that the Government have never seriously had anything more than a wage restriction policy. We have always argued against that. If one is to operate an incomes policy at all, it is necessary to convince people that that policy has built-in equity, and that at least an attempt is being made to ensure that Vagrant injustices are not being inflicted. People are prepared to recognise that occasionally mistakes would be made and special cases might be considered. The history of wages policy suggests that the British people are prepared from time to time to recognise special treatment for special cases.

I doubt whether this Bill will do anything at all to convince toolmakers of British Leyland, for example, that they should wait yet another year for the settlement of their justifiable and longstanding grievance. They have waited a long time already and their patience has run out. We are now told that, as far as they are concerned, 5 per cent. will be the limit.

The Chancellor of the Exchequer will say that there is flexibility built into the White Paper, but we know from experience what this means, as do the two dozen building workers—craftsmen all of them—working for Cadbury-Schweppes in my constituency who also have waited for more than two years for their wage grievance to be settled. We all know that the X per cent. defined in a wages policy —be it 5 per cent. or 10 per cent.—will be interpreted in such a way by their employers that their grievances cannot be resolved. The employers will fall back on the 5 per cent. or 10 per cent. guideline, and tell the workers that that is all that the Government will let them have. That is precisely what has happened to the two dozen building craftsmen in my constituency, and to the British Leyland toolmakers. For two years or more the respective companies have been able to invoke the existing wages policy in order to resist the justifiable claims of these people for rectification of anomalies in their complex wage systems.

I do not think that the knowledge that companies will be restricted in paying out more than 10 per cent. more than last year will impress the British Leyland toolmakers or the Cadbury-Schweppes building workers. The fact that company dividends are allowed to climb along with profits is more likely to cause offence than anything else. It has been proved over and over again in this country that it is virtually impossible to operate a wages policy, or even an incomes policy, with a rigid formula that can be explained rationally.

It is vital that those who operate such a policy are able to prove by example that there is fairness in it. That is the heart of the matter. It is not whether 5 per cent. or 10 per cent. is enough or too much. It is whether the formula used is regarded as being reasonable in the circumstances.

It has been said by my hon. Friend the Member for Newton (Mr. Evans) that in present circumstances it is a mistake to quote 5 per cent. That is true. It would have been more sensible to relate the percentage to the expected rate of inflation in the coming 12 months.

Will this Bill in any way increase or diminish the level of investment? Naturally hon. Members opposite have to go through the motions of believing that it will have a devastating effect on the level of investment. I do not believe that it will have either a positive or a negative effect. The history of this type of policy suggests that there is little or no connection between any form of dividend restraint or its absence and the level of real investment.

Hon. Members opposite made far too much play of the effect dividend restraint would have on the controllers of new investment funds. We all know that the quantity of real new investment actually financed through the conventional financial institutions of this country is only a small proportion of the total new investment in any one year. We all know that that proportion has been declining very steadily for a long time.

In those economies where raising new investment capital through stock exchanges is the major means of financing, the preference for that kind of capital raising has declined sharply. The new real investment is done by large organisations financing their own investment programmes from their own internal resources. That is why the British economy suffers so badly. Britain is the centre for a large number of very large companies which operate internationally and make their allocative decisions on an international basis. For many years they have decided on balance to invest overseas their available funds, created by British workers, rather than investing them in this country.

These companies will not be influenced by this tiddly little Bill. They might be influenced by the fact that British workers' wages are being held down indefinitely, because these people are interested in getting cheap factors of production. As long as the Government play the game of holding wages down, they are playing the game for these companies.

But the Government have not made British labour—virtually the cheapest in Europe—cheap enough for them, since they are still exporting the lion's share of the capital surplus created in this country by British workers. That makes inevitable the continued decline of the British economy as a manufacturing economy.

For example, in my own city of Birmingham the Lucas organisation, which is a very large multinational conglomerate, has pursued an investment policy for some years which ensures that the productive operations of Lucas Industries Ltd. in the United Kingdom, and the number of jobs involved, will decline year in, year out and the number of enterprises owned and controlled by Lucas, and the number of jobs owned and controlled by Lucas outside the British Isles, increases year by year. But the basic powerhouse which has created that capital surplus has been and remains largely Britain itself. The British people are being made to pay. I doubt very much whether the people who control the Lucas capital surpluses will be influenced either positively or negatively by this Bill. I have every certainty that the workers of Birmingham will have to suffer, not because of this Bill, but because what is contained in the White Paper is totally inadequate to meet the case.

One of the purposes of a Socialist Government is to ensure that the social surplus is used to society's advantage and that social values are brought to bear on the surplus created by the productive activity of people. This cannot be done if use of the social surplus is to remain in the hands of private corporate enterprises. There will be no difference at all between the end results of the individual decisions of private corporate enterprises and those decisions left in the hands of a myriad of individuals who are collecting all the profits made by industry in dividends and then in turn making their individual investment decisions. The outcome of that always has been economic chaos.

It does not matter whether it is the Eagle Star insurance company or Mrs. Bloggs down the road who decides whether to put the investment funds they control into this or that, the logic used is the same. They are in pursuit of a combination of continued income and capital growth. Eagle Star behaves with no more economic sophistication and certainly no more social responsibility than does Mrs. Bloggs. They are, in the aggregate, as Keynes described them a long time ago, an "ignorant rabble". He meant that in a specific sense. He pointed out that one cannot assume that the sum total of the individual investment decisions of individual investors will amount to social, or even economic, wisdom. It does not and there is no evidence in history to suggest that it ever did.

We have a duty as a Labour Party—and this Government have the same duty as any other Labour Government—to bring to bear some sort of social priority on the allocation of the capital surplus that is created by Britain's working men and women. I suggest that this has not been done. To be sure, some redistribution takes place through the taxation system and certain social benefits are paid out, but there is great doubt as to whether that redistribution makes any difference since the better off and the better educated seem to be that much more skilful at taking advantage of the benefits that are created by this attempt by social democratic Governments to mobilise part, at least, of the social surplus for social benefits. The general outcome of the whole welfare trend over the past 30 or 40 years is rather doubtful in the sense that it has not been redistributive at all.

The real difficulty is that, notwithstanding the shift in share ownership to institutional ownership, companies are not managed with any more social responsibility today than they were 50 years ago. They may be better in handling their public relations and may be able to pay people to invent sophisticated advertising of a prestige type in newspapers, but that is all. They are no more socially responsible than they were in the previous generation.

It is not the aggregate amount of dividend income which matters in any economic sense because the actual aggregate amount of dividends paid out is of no great weight in the total sum of consumer spending in the economy in any year. What matters is how people see dividend income in relation to the movement of their own earned incomes. Whether they are toolmakers at British Leyland or local authority labourers, people see their own income in relation to other people's income, including other people's unearned income.

Announcements about companies paying X per cent. or Y per cent. or giving bonus issues, which are printed in the popular press, get through to people and confirm them in the notion that as much as everything changes, everything remains pretty much the same. There has been little in the past four years to encourage people in the belief that there is any likelihood of a positive change occurring in the future because those who work for wages are always told that they must restrain themselves and make the sacrifices. They do not walk around with their eyes shut and they are not deaf or daft. They can see what goes on around them in society and they know that, once again, they are being put off and put off. They must wait and wait in the housing queue, wait and wait in the hospital queue. They remember that it was always thus and it is still that way—except that it is getting worse. The housing queues and the queues for hospital beds are longer than they were before.

These are the ordinary signs by which people judge whether society is getting better or getting worse. People are scandalised to know that someone got an increase in a property income of 10 per cent., 20 per cent. or 30 per cent., just as they are scandalised to hear about the vast increases in top people's incomes which are announced from time to time. They are scandalised because it offends their sense of justice.

Mr. Alan Lee Williams (Hornchurch)

Why is my hon. Friend ignoring the massive effects of the redistribution of income arising from tax?

Mr. Litterick

The average citizen asks where it goes, because, in his opinion, it does not come his way. I thought that I had made the point when I said that what seems to happen—and there are official documents to prove this fact—is that the better educated and more affluent class have proved themselves, not unexpectedly, to be far more efficient and competent at exploiting social services created by the taxation system to which my hon. Friend referred than are the working class. This is a familiar observation in British society. It is well established. There is no doubt about which social class benefits most from, for example, the British education system and so on, and that is what the taxation that my hon. Friend was talking about pays for.

During the last General Election campaign, I met a man who asked me bluntly and in less than parliamentary language why he should vote for me. Like every other candidate everywhere else who is confronted with such a question. I explained to him what my party's manifesto was all about. The man pointed to the room that he was standing in—I spoke about this man during my maiden speech—and I have to say that it stank. We would not keep animals in it. Indeed, the average RSPCA inspector would make sure that we did not. It was a hovel, owned by the local council. This man was in full-time work. He said to me "Look around you. I work for a living and this is what it gets me. Why should I vote for you or anyone else? What good will it do?"

His family has been rehoused, but I know that it has been replaced more than 100 per cent. Not only has his place been taken by another family, but there are more people in such circumstances than there were four or five years ago. There are more poverty-stricken people now than there were four or five years ago.

If I meet a man in similar circumstances during the next campaign, I may speak with less confidence about the Labour Party's programme and intentions because I have lived through a period of attempting to persuade people that the Labour Party has certain intentions and discovering that when we get to power something quite different happens. I may have to spend a great deal of energy explaining to people that the Labour Party is not the same thing as the Labour Government—and the difference is of great importance.

Certainly, the number of poor people in this country will not be reduced by this Bill, no more than the number of poor people will be reduced by making, for example, Mr. Angus Ogilvy richer and more privileged than he already is. We have been asked to vote for certain things this week, and some of us have had great reluctance in doing so. Some of my hon. Friends have refused to do so. The Bill is part of a battery of questions that has been aimed at us by the Government, and could be subsumed under the general heading "Winning the Battle Against Inflation".

In going into the Lobby, especially on Tuesday night, I remembered that Galileo was asked a long time ago to believe that the earth was the stationary centre of the universe. He had proved conclusively to himself that it was not the centre of the universe. He knew that but he was being asked to believe otherwise by the Church. Galileo, being a practical and wise man who had the example of Giordano Bruno before him, agreed that the earth was the stationary centre of the universe. History records that when he made that agreement he said "Nevertheless, it moves".

So it is with many of us. We understand the tactical imperatives of this place and the humiliations that the House inflicts. We understand that certain courses of action would have repercussions that we do not wish to visit on our colleagues outside the House. Like Galileo, we have to go through the motion of agreeing with our right hon. Friends while saying "Nevertheless, we know that the truth is otherwise".

6.21 p.m.

Mr. Hugh Fraser (Stafford and Stone)

I do not want to follow the hon. Member for Birmingham, Selly Oak (Mr. Litterick) too far into the depths of truth that he has revealed. I agree with the spokesman for the Liberal Party, the hon. Member for Colne Valley (Mr. Wainwright), that it is a misfortune that the Chancellor of the Exchequer is not present. It is an even greater misfortune that the Prime Minister is not present.

It is essentially a cosmetic Bill that the Prime Minister is forcing through the House against the advice of the hon. Member for Selly Oak and, I believe, against all sound financial advice coming from the Treasury and elsewhere.

I do not want to run over the immensely tedious ground covered by the Chief Secretary to the Treasury when, at enormous length, he introduced the Bill. However, it is historically fair to say that the nearest equivalent to the introduction of such a measure was that introduced by President Nixon when he tried to introduce voluntary dividend restraint in the United States in 1974. It is a Nixonish type of Bill with every conceivable loophole. Now that there is a revival of Nixon's fame, doubtless that assiduous propagandist of the Prime Minister, our ambassador in Washington, the right hon. Gentleman's son-in-law, will be able to say that in the Prime Minister we have a man of positively Nixonian stature.

For the Government to bring forward the Bill is rather a shaming enterprise for comparatively intelligent men. They must know that the main problem facing Britain is without doubt that of job creation through more investment. The Bill is not wholly unimportant. It is important in the sense that were it to be continued it would mean eventually the total erosion of the private sector. The hon. Member for Selly Oak shakes his head, but that is the position.

As the hon. Member for Colne Valley observed, the place to make investment now is the only casino that exists in Britain. It is the casino set up by the gilt-edged market. It is from that sector that the tax-free money is coming. That is where the racket is. That is the racket of a Government raising money at absurd rates of interest.

On Tuesday the Prime Minister was boasting of, as he claimed, the Government's great achievements and how easy it was to meet his funding operations. Let him tell the people how it is done. If they had funds, they would be all right. The cosmetic approach shown by the Prime Minister and the introduction of this absurd Bill reveal a scandalous attitude. The Bill is absurd and dangerous.

The hon. Member for Selly Oak shook his head when I said that the Bill, if continued, would be the destruction of the private sector in the long run. That is exactly what it means. The funds for new investment can come only from the private sector, if we are to keep the private sector going. I hope that when the Opposition are returned to form the next Government they will move in an entirely different direction from the course which has been followed over the past 10 years. Far from accepting the idea of dividend limitation, we should move in entirely the opposite direction and provide that retained profits, unless they are spent on research and development, should suffer a higher rate of tax than distributed profits. That is what the Germans have done. That is one of the reasons for the Germans' success in reinvestment.

Do not tell me, as did the learned doctor the hon. Member for Loughborough (Mr. Cronin), that it is all cosmetic and that the unions do not understand. The unions understand a darned sight better than many in the House. That is why the unions are buying Picassos and not investing in British industry. They do so because they know that the rate of return is much better in the art market or in the gilt-edged market. That is the problem that faces Britain, and the Bill makes no effort to meet it.

Mr. Cronin

rose —

Mr. Fraser

No. The hon. Gentleman can correct me later if he wishes to do so. Everyone has spoken at enormous length this afternoon, and I propose to draw my remarks to a fairly early conclusion.

We want to make a complete swing in direction. I hope that my colleagues on the Opposition Front Bench will pay attention to that view. We should take an entirely different approach and encourage investment. That means encouraging dividends.

I am amazed by the attitude that the Treasury has adopted. In the evidence that it gave to the Wilson committee, it said that dividend limitation inevitably meant a distortion of the capital market. Indeed, that is bound to happen. That is bound to have a serious and dangerous effect upon the economy and the provision of new jobs. To build up the large, fat companies that sit on masses of cash and spend it on acquiring other firms is to build up too great a strength at the centre. When a Conservative Government are returned to power, they will be resolved to get big government and big inefficient industry off the backs of the people. Unless we have a change in the approach of the Government to dividends, we are bound to continue incurring the displeasure of the people and putting them into the sort of state that is complained of by Labour Members.

On Tuesday the Prime Minister made a boasting speech on the economy. He boasted of his great successes. He turned on my right hon. Friend the Leader of the Opposition and quoted against her, doubtless after great midnight oil-burning by his staff, a passage from Absalom and Achitophel. It depends where the cap fits best. I can find many more phrases in that great poem that apply more to the Prime Minister than to my right hon. Friend.

It is not only a matter of Resolved to ruin or to rule the State". It is a matter even more aptly described by Dryden when he described the bogus patriot, the Stanley Baldwin of the day, making the honest appeal to the workers about the equality of sacrifice and not being worried by anything but "steady as she goes."

In conclusion, I quote the following two lines from Dryden: Then, seized with fear, yet still affecting fame, Usurped a patriot's all-atoning name. That sums up the Prime Minister.

6.30 p.m.

Mr. Peter Brooke (City of London and Westminster, South)

The last time that I spoke in close juxtaposition to my right hon. Friend the Member for Stafford and Stone (Mr. Fraser) was 21 years ago in the Oxford Union, when he did me the honour of coming down to support me I am as happy and glad to follow him today as I was grateful to him on that occasion.

I do not know, Mr. Deputy Speaker, whether you have ever read a novel called "The Gap in the Curtain" by John Buchan, lately a Member of this House and subsequently a noble Lord in another place. In the early stages of that book, a group of people have the chance of seeing a copy of The Times for exactly a year later. On the basis of what they read, they shape their lives during the subsequent year.

A year ago when I was sitting in this House, I did not have the slightest idea of what I would be doing today. One reason why I am able to say that is that, on this very day a year ago, the Minister of State, Department of Prices and Consumer Protection, speaking in the debate on counter-inflation, said: It is for that reason that, from the end of the year beginning on 1st August 1977, there will be no further dividend control. My right hon. Friend the Member for Bournemouth, West (Sir J. Eden), who pays sufficient attention to a gift horse that he has a good look at its teeth, asked the Minister to confirm what he said. The Minister said: Perhaps I phrased the point badly. I thought I said that there would be no further dividend restraint at the end of the year beginning 1st August 1977. In other words, not after 1st August 1978."—[Official Report, 27th July 1977; Vol. 936, c. 807–8.] On the basis of what is before us today, frankly he could have fooled me. I am sure that there is some rationalisation in the small print that explains that contradiction. However, it is a subject to which I should like to return later.

I came to this House by way of a business school. Business schools spend time on how companies do their financing. I have therefore made some inquiries about how much academic work has been done on dividend policy in terms of company financing. The House will be glad to hear that the articles which have been written are so highly mathematical that I am not sure that I understand them, and I certainly have no intention of reproducing them today.

There has been study on two major subjects. The first relates to how far dividend policy affects the behaviour of the stock market and of individual prices. There is a discrepancy in the views of the academics on the one hand and the practitioners in the financial markets on the other. The academics are of the view that, at the end of the day, it does not make much difference, whereas the practitioners are certain that it does. The Government might claim that as an argument on their behalf today, not least on the ground that there are more academics on their Benches than there are practitioners in the financial markets.

But, when we come to the totally different subject of the forecast of capital investment at present, the academics tell us that there is no reason why there should be greater investment in the current year, whereas the practitioners say that there will be.

It was on the basis of that that the Prime Minister, in his speech in the House on Tuesday, said: in 1978 investment will again show a substantial increase."—[Official Report, 25th July 1978; Vol. 954, c. 1380.] The other subject on which academics have carried out research is whether companies which have relied on retained earnings for their financing have done better or worse than other companies. Such American studies as have been done in this area have come to the conclusion that companies have used their retained earnings less effectively. The research which has been done in this country has come to an opposite and different conclusion are not necessarily contradictory, because different data were being studied. The outcome is that the academics, at least, say that dividend policy does not have a significant macro economic effect even though it may have a considerable micro economic effect on the behaviour of individual companies.

I have gone into this academic background to a degree in order to demonstrate that There is no blind prejudice by the Opposition on the subject that we are discussing. However, it is clear that on the question of dividend restraint—the subject of the Bill—the academics would not go even to the extent of making a study. They take it for granted that dividend restraint will produce distortion in the market. As my right hon. Friend the Member for Stafford and Stone reminded us, the Treasury conceded that point in evidence to the Wilson committee.

I want to develop this point about distortion. My constituency includes not only the City of London but, in terms of the electorate, the much larger area of Westminster, South. In total, about 100 out of "The Times 1,000" largest companies in the country have their headquarters in my constituency. I should like to consider the subject under discussion from the point of view of the finance directors of those 100 companies.

Basically, a finance director is concerned about the cost of his capital. In the same way as the borough treasurer of a local authority will calculate an average rate of interest on all the funds that he has taken in, so a finance director operates techniques for establishing the overall cost of his capital. It is more difficult for a finance director because he has to balance equity financing and fixed-interest financing, whereas the borough treasurer has a simpler problem.

Each piece of financing done by the finance director produces a different cost, which in turn affects his average. He knows perfectly well that the next piece of financing may have to be of a different kind. It may have to be fixed interest whereas the current one is equity, because that is the way that his balance sheet is structured. That calculation will also affect the cost of capital. The cost of that capital is important in terms of the investment decisions that he is prepared to sanction on behalf of the company.

I have quoted before in the House that, in consequence of the uncertainty that succeeded the recession in world trade after the oil difficulties, the net after-tax return that large American companies now seek has gone up from 11 per cent. to 13 per cent. In these circumstances, we should seek to provide the maximum degree of certainty for such finance directors.

By comparison, when we go back to what the Minister of State said a year ago, the Government are creating the maximum degree of uncertainty, because no finance director will know from one year to the next how to conduct his dividend policy and, therefore, what the cost of capital will be.

In consequence of this uncertainty, companies are reduced to doing in a given year not what they should do but what they think might turn out to have been prudent in a year's time. In other words, a company which cannot afford to put up its dividend in the current year will find itself putting it up in case there are future legislative restraints in a year's time, and the company chairman would look a Charlie if he had not taken advantage of the opportunity that was available to him this year.

When, on the other hand, the Chief Secretary cites a company which could put up dividends by 300 per cent., what benefit does he think will flow from that company as a result of retaining those resources in cash instead? If the company cannot invest those resources, it would be eminently desirable for the money to be released for others to invest instead.

It is worth spending time on the semantics of the word "investment". In the debate on this day last year, the Minister of State, Department of Prices and Consumer Protection said: The hon. Member for Hertfordshire, South (Mr. Parkinson) said that the purchase of shares adds to investment. The purchase of shares does not add to investment. It enables money from one source to be put into the hands of somebody else who is selling the shares. The only real investment is subscribing for new capital issued on the market."—[Official Report, 27th July 1977; Vol. 936, c. 806.] I am as distrustful of references to "real investment" as I am of references to the "real economy". The fact remains that the purchase of existing shares which is done out of savings affects the price-earnings ratio of a company, which in turn affects its capacity to raise new capital.

Another aspect of the debate a year ago is the inability of several hon. Members below the Gangway on the Government side to distinguish between a scrip issue and a rights issue. I do not hold that inability against anybody, but that level of unfamiliarity betrays hon. Members in a debate of this kind into making remarks of the same glorious irrelevance as the remark of the White Knight to Alice that the cleverest thing that he had done was to invent a pudding during the meat course.

The irony of dividend control being supported by hon. Members below the Gangway is that a rich man has no interest whatsoever in dividends which are taxed at 98 per cent. if the alternative is capital gains arising out of those retained earnings which are taxed at 30 per cent. For that reason, the Government of 1964–66 introduced the close companies legislation in order to force companies to pay dividends—other times, other ways. What is consistent is the Labour Party's capacity to get it wrong whatever the circumstances.

The Chief Secretary drew attention to the fact that £3,165 million has been raised by companies in the market in recent years. The hon. Member for Loughborough (Mr. Cronin) made a great virtue of saying that this represented only 6½ per cent. of new fixed corporate investment. He was relying on an article in the Financial Times. I am not sure whether he had hoisted in the converse —namely, that the balance of 93½ per cent. is coming from retained earnings simply because companies cannot pay it out in dividends. His hon. Friend the Member for Birmingham, Selly Oak (Mr. Litterick) unconsciously also made that point.

The Chief Secretary would not allow interventions from my hon. Friends on the subject of the £3,165 million. But most of that money has gone to major companies. Second-line and smaller companies have not been able to raise capital so easily. Few new companies have come to the market. Ironically, it is those medium and small companies upon which we rely to be led out of the present era of unemployment.

The hon. Member for Loughborough based his argument on a handful of militants. At least he acknowledge that statutory dividend restraint is far from proved to induce wage restraint of itself. The handful of militants themselves do not justify distorting the working of the capital market upon which the re-equipment of British industry depends. If that handful of militants does justify it, we shall cease to be a free society.

6.43 p.m.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

My hon. Friend the Member for City of London and Westminster, South (Mr. Brooke) has done a service by explaining the damage which dividend control, particularly if it is carried on for a long time, can do to the workings of our economy and industry. Others of my hon. Friends have convincingly made the same point.

I shall take for granted the damage that can be done and accept what my hon. Friends have said. It is a little ironic that the Chief Secretary should refer to the debates on this subject on the Counter-Inflation Bill Committee in 1973. The only two contributors from the Labour Party, which was in Opposition at that time, were the hon. Members for Salford, East (Mr. Allaun) and the hon. Member for Dudley, West (Dr. Phipps), who have graced our finance debates on many occasions.

The hon. Member for Dudley, West attacked dividend control—he was more nearly right than usual—on the basis that retained dividends are simply part of the profit which is not paid out. He said that to encourage retention is to encourage the hoarding of capital resources and that we should seek to encourage distribution. He said that if one is to control this form of income at all, one should seek to control not dividends but profits per share.

I have never advocated the controlling of wages, prices, dividends or any form of income by this means. The damage that we have done through these policies is inestimably greater than the contribution that it might have made to social harmony or the conquering of inflation. The sum of all these policies has greatly reduced our productive capacity and, therefore, our standard of living. The longer it continues, the worse the damage that will be done.

I complain about the way in which these powers are to be administered. All that the Bill does is to give the Treasury power to make regulations. I presume that there will be more regulations; they were foreshadowed by the Chief Secretary. Government by Treasury regulation on a matter as important as wages or dividends leads, as we have seen, to Ministers being able to decide who gets what.

We know that by agreeing to put a factory in the Prime Minister's constituency the Ford Motor Company was excused having to implement wages control for its employees. Other companies which offend in some way are clamped down upon. Dividend control works the same way. How one can best get round it is what matters.

A year ago the Prime Minister used a new phrase twice. It was: we are not living in a deferential society."— [Official Report, 20th July 1977; Vol. 935, c. 1620.] If he had said that we were not living in a "differential society", it would have been different. The truth is that we are living in a deferential society. We have to defer to Ministers. We have to allow them to decide everything. The partiality of the Labour Party in office has been one of the most disgusting sights of the last four years.

Instead of having hundreds of thousands of independent bosses each deciding what wage can be paid according to the circumstances of each company, we have substituted deference to a politically slanted, politically oriented, partial and thoroughly unattractive group of Ministers. That is one of the worst features.

Gibbon said: The principles of a free constitution are irrecoverably lost when the legislative power is nominated by the Executive. That is exactly what has happened in relation to prices and incomes policy.

The Prime Minister has used his position of patronage to stuff the public sector and the public service with those whom he thinks can be relied upon. The result is a type of Mafia with the Prime Minister at the head of it, like the godfather, deciding who can do what, who can do which and who can do the other. This massive edifice of personal concealed power, carried out beyond the confines of the House, is the reverse of participation and democracy and all the jingo words which members of the Labour Party still use to disguise the extent to which they have taken over executive as well as legislative power and taken it out of the House of Commons.

When one examines the subject of dividend control against that background, the position is even more shocking. What is the motive for saying that there has to be dividend control against a background of wage control? It is—we heard this from the Chief Secretary and the hon. Member for Birmingham, Selly Oak (Mr. Litterick)—that the workers in the factories, as they trudge home exhausted with the evening paper in their hands, read that there has been some increase of profit or dividend somewhere and they turn to sour and bitter resentment at the scandalous way in which others are succeeding while they are failing.

That argument has been used by the Labour Party to justify not only the highest personal taxes in the world but the squeezing of differentials, not by law but by the use of ministerial diktat in the way I have described, so that there is now probably no more egalitarian country than ours. It has been done by injecting jealousy and envy into the minds of the people. I had always thought that envy was one of the seven deadly sins, one of the qualities one should not seek to display. For the Labour Party, however, to have devoted its time to increasing envy and making people dislike factors which they should be prepared to accept seems to have been one of the most disgraceful services that it could have done to the country.

Mr. Budgen

My hon. Friend referred to the man going home from work reading his evening newspaper. Surely, if we did not have the nonsense of wage control he would tell himself, on being told that a local firm was making large profits, that he must go and get a job there because it would pay him more.

Mr. Ridley

Indeed, that is true.

I want to pursue this point further in what will be a short speech. The Government always quote gross annual incomes or gross dividends for the so-called rich whereas they always talk about net after-tax hourly earnings for the so-called poor. The Financial Secretary did so the other night when I had occasion to take him to task. That is highly partial. One would never think that this country had net after tax differentials less than any other country, including the Communist States. No matter how hard the better off and the higher earners are squeezed, the same old parrot cries come from people such as the hon. Members for Loughborough (Mr. Cronin) and for Selly Oak, who, even if every citizen received the same net spendable income, would make the same old speech because they either do not realise what has happened or they are not prepared to change their thinking on the topic.

There is a danger here, because we can control only that which happens in this country. We are part of Europe and part of the world—two facts that the Labour Party is not happy to live with. More and more our citizens see the French, Germans, Americans and Japanese who come here, or they travel to their countries, and they are beginning to realise the extreme disparity of wealth between the better-off Continentals and themselves.

So the fact that there are such small differentials in this country is making the envy gap between this country and our foreign competitors seem even worse than before. What will the Labour Party say to the workers in the factories when they see a German shop manager or colliery manager earning 10 or 15 times the take-home pay of his British counterpart? How will the Labour Party explain that away? Why does envy stop at Calais? Why can one envy and wish to bring down and use one's spite against people as far as the Channel but across the Channel find that the doctrine of envy no longer applies?

The sheer intellectual dishonesty of what the Labour Party has done and is doing in making out things that are not true about relative incomes is enshrined in the Bill. My hon. Friend the Member for Horncastle (Mr. Tapsell) proved quite rightly that most dividends go to the least well off. Of course, the people who have high dividend incomes would prefer not to have increased dividends but to have higher retentions. So, in spite of all the facts, the Labour Party is blindly and resolutely determined not to do away with the piece of nasty prejudice which it has invented and built up over the years in case it should be a political weapon the less for them to use.

I come finally to the genesis of the Bill. We were told last year that there was to be a return to free collective bargaining. The Prime Minister said Nevertheless, the desire to return to that freedom has been strongly expressed and cannot be gainsaid. So be it. We start from there."—[Official Report, 20th July 1977; Vol. 935, c. 1608.] But, instead of having free collective bargaining in wages and dividend distribution, the Prime Minister failed to turn that piece of rhetoric into reality. We had once more a rigid imposition of controls, none of them authorised by Parliament. None of them was passed by the Parliament which voted on 20th July not for wage control but for free collective bargaining. Nevertheless, we ended up with wage control.

This time we must give a general endorsement to incomes and dividend control policies which are not specified or clear and which leave the Government free to do whatever they like. The reason is that last year the TUC wanted free collective bargaining. After a while, the Government managed to persuade it to accept the 10 per cent. limit. This year there has been the same argy-bargy between the Government and the trade union leaders about what should be done. The TUC leads the Government by the nose. It is the TUC, not this House, that determines the policy and whether there is to be free collective bargaining.

I close by plagiarising a little nursery rhyme. It goes like this: Murray had a little lamb Whose promises were hollow 'Cause everywhere that Murray went The lamb was bound to follow.

6.58 p.m.

Mr. Maurice Orbach (Stockport, South)

I have spoken seldom in the House in the last few months because I do not propose to stand at the next General Election. I have been attending a retirement party which was given downstairs, and I came here to listen to the end of this debate. I have listened most carefully to the two lectures delivered by the hon. Members for Cirencester and Tewkesbury (Mr. Ridley) and for the City of London and Westminster, South (Mr. Brooke).

I am convinced now that I made the greatest mistake of my life when I took the advice of my wife and purchased shares on the Stock Exchange. If I had left the damned things alone, I would have been worth much more than I am today. I could have bought gold, platinum or silver. If only I had left the Stock Exchange alone and others had followed my example, it might have gone smash by now.

I listened to the lectures to the Labour Party with some dismay. The type of Member now in this House is different from the people who were here when I came in 1945. In those days we considered the issues. Even as late as 1972, Members were considering the serious issues that confronted us from time to time. Now it has become a party job in which we fight each other. On many occasions Members now make from the Opposition Benches above the Gangway the speeches they would have delivered from the Back Benches below the Gangway had they been in Government.

I want to give some examples. I hope that I shall be forgiven for quoting. It is a bad habit in the House now that we are allowed to have copious notes. It never happened in the old days. One had to speak freely, and one was sometimes caught out of line. However, I shall quote from some remarks of the hon. Member for Cheadle (Mr. Normanton) and others. I have advised the hon. Members concerned that I would be speaking on this issue. They were talking about the freeze which was put on by the Conservative Government in 1972, not only on prices, wages and rents but also on dividends.

The hon. Member for Cheadle said: If one or two parties are hell-bent on going it alone there is no alternative. I see it as a last resort. It's really the only measure open to the Government in the short term. I quote next the gentleman who was then the Member for Stockport, North, Mr. Idris Owen. He said: I supported the Government in their voluntary policy and I support them now. It is a pity such a policy has had to be enforced. I would have preferred to have relied on the good sense of the British people". Apparently the British people did not have any good sense then.

Mr. Heath has been too patient, he should have done this 12 months ago. I quote next the hon. Member for Macclesfield (Mr. Winterton). He said: I both regretted and welcomed it. The Government have been prepared to push aside the party principle and dogma. They have been forced to take this action … It might create problems in industrial investment but the Government had no alternative. Then, to cap it all, we had a statement in the local press from the Stockport and district chamber of commerce, whose president said: It is regrettable that we have to have more Government controls, but I think most people in this country are quite aware that we have got to get inflation under control whether by voluntary means or Government measures. This answers every one of the questions put today by Opposition Members. They were prepared to forget all their principles at a time when they thought it expedient to do so. I have not taken the time to look up any nursery rhyme. I suggest that the hon. Member for Circencester and Tewkesbury reads the work of some of the economic experts who are around, all of whom misguide us as much as possible.

If the Bill is passed, the Government will be in a position to say to the trade unions "We are limiting the amount of dividends which shall be paid to shareholders. We trust that you will limit the amount you are to be paid in the next year and, by so doing, help to reduce inflation."

I have not kept the House for very long. I hope that this is not the last speech that I shall make.

Mr. Nicholas Fairbairn (Kinross and West Perthshire)

I am interested in the hon. Member's remark about the great bargaining point that the trade unions will have. Let us suppose that they say "We are limiting the amount of income of an old, retired nurse whose dividends bring her in £1,500, so will you be good enough to limit the income of a skilled engineering worker who has an income of £12,000."

Mr. Orbach

Really! Neither here nor anywhere else am I in the habit of answering hypothetical questions. That suggestion is a lot of rubbish. I have an income of over £1,500 a year in dividends, but I do not depend upon that because it is cut away by the taxes that are levied on it. The hon. and learned Gentleman is perfectly well aware of that. The poor nurse whom he mentions could never receive £1,500 in dividends unless she had invested about £30,000. I think I am correct in saying that. In the circumstances. the hon. and learned Gentleman is talking a lot of nonsense. This is not the first occasion on which he has done that sort of thing, and it will not be the last.

7.5 p.m.

Mr. Peter Hordern (Horsham and Crawley)

There is no economic justification for this Bill, as many of my hon. Friends have said. Indeed, there is no academic justification for it either, as my hon. Friend the Member for City of London and Westminster, South (Mr. Brooke) pointed out.

I suppose that, in the Government's mind, at least, there is some political justification for the Bill. The Short Title is wholly wrong. It ought not to be called the Dividends Bill; it ought to be called the Dissemination of Envy Bill, because that is what it is about. I believe that it is an insult to the intelligence of those millions of trade unionists who know very well that the Bill will have no effect whatever in improving the situation concerning wage demands. Many of them, especially the trade union leaders, know very plainly of the damage that ate Bill will do to industry.

However, I do not think that the main purpose of the Bill—so far as there is any purpose on the economic side—to extend dividend control as some means of getting a better bargain with the trade unions about pay control will succeed. I thought that I should refresh my memory about the Government's programme on controlling inflation and about what they said a year ago. They said then: On the best forecasts now available of all the factors which may contribute to inflation, the prospect for prices in 1978 and after will depend critically on the rate of increase in the nation's wage bill. They went on to say: If the rate of increase in earnings is as high as 15 per cent., we should not get inflation down to 10 per cent. at all and it would be rising steadily through the second half of next year and into 1979. I welcomed this White Paper for one reason, which is that instead of the opacity that one generally encounters in White Papers here was, at last, a very clear prediction about the close connection that existed between the level of earnings and the level of prices. The Chancellor of the Exchequer carried it through in a speech last year on 15th July. It is a very precise correlation. If earnings rise by 15 per cent., we shall not get inflation down to 10 per cent.

Therefore, I thought that I should check what had happened from July last year to July this year. I find that earnings have risen by precisely 15 per cent. in that time, but that prices have risen not by 10 per cent., and rising, but by 7.7 per cent. This is a rather important factor because the whole purpose of the Bill relies on the idea that it is important to get wage control in order to get price control. Here is this very precise link shown to be wholly wrong.

I shall certainly not go to any length this evening in pointing to what I believe to be the real reasons for inflation. I merely say that during the last year the Government have been responsible for increasing the supply of money in the banks and particularly in the building societies by some 20 per cent. Of course, they will not acknowledge that. When inflation rises very fast—as it inevitably will if consumers start spending fast, which the Government wish them to do—the Government will put the blame on the wage earner. They will not blame themselves. They certainly take no responsibility for that.

However, the situation is now very serious. Not only has money supply increased by 20 per cent. in the last year, but the level of deposits in the building societies rose last year from £2.2 billion to £4.4 billion. All that money is available if the investors and those who have deposits decide to draw it out and to spend—and, goodness knows, the Government are encouraging them to spend now, because that is how they hope that industry will achieve increased production. If that happens, there is no way in which inflation can be controlled next year.

Already the timber has been laid. Already the match has been lit. It is simply a question whether and when the conflagration will take place. So all this so-called economic justification is mere persiflage. The Bill has nothing to do with controlling inflation, and I suspect that the Treasury knows it.

The only reason for its existence is that the Labour Party must have a windmill to tilt at. They like these expressions, particularly in General Elections, about "bloated capitalists" growing richer all the time on their dividends. There are no bloated capitalists about now; there are only filleted capitalists. They are the only ones who survive. It is surprising that the Bill could seriously have been introduced in the knowledge that taxation, especially on those who receive high dividends, rises to as much as 98 per cent.

I was interested to note that, in reply to my intervention, the Chief Secretary appeared not to know the number of people who had £500 a week investment income. I wish that I knew the answer, but the Financial Secretary will have the time during the next couple of hours to get the information. I therefore ask him this. How many people have investment incomes of over £500 a week? I expect a clear answer on that point.

I asked the Chief Secretary another question which he was unable to answer. If investment income rose by 50 per cent. for those people on the highest tax, what would be the net increase in income? Those are two straightforward questions relating to an example cited by the Chief Secretary. I look forward to a reply from the Financial Secretary.

The idea that investors are mostly bloated capitalists is all part of Labour mythology. About 60 per cent. of individual shareholders are pensioners. They are not what one would call rich people at all. In addition, there are 11½ million people who benefit from occupational pension schemes and about 2 million who receive pensions under those schemes. There is a further 14 million who subscribe to life assurance policies. The investments and contributions that those people have made towards their policies will now be cut short by this Government's restriction of the dividends which those policies would otherwise have been able to expect.

Since 1972, the retail price index has more than doubled, while dividends have risen by 40 per cent. or about 8 per cent. per year. Ever since we have had dividend control, since 1972, we have found that dividends have been restricted and consequently policy holders and pensioners have found the expected increase in their dividends and benefits restricted.

That is bad enough, but it has a ludicrous effect on the Government's own funds. I am talking now not about the Government's gilt-edged securities but about the nationalised industries' and local authorities' pension funds. Both are funded—that is to say, they are invested in the Stock Exchange—and depend almost entirely on returns from property and equities. But the difference between those funds and ordinary company schemes is that they are index linked. That means that the Government—the taxpayer —have to make up the difference. Dividend restriction means that less revenue is going into nationalised industries' funds and local authorities' funds and the taxpayer has to make up the difference. What possible sense can that make? It is ludicrous.

The figures are substantial. As taxpayers, we have been advancing about £100 million a year to one pension fund alone—that of British Rail—over the last two or three years. According to the public expenditure forecast, we are expected to provide that one fund with a further £81 million each year from now until 1981. So far as income falls short, as it is bound to do because dividends will be restricted, I suppose that that public expenditure item will have to be increased.

Perhaps the Minister could tell us the precise estimate now of the increase in taxes or the increase in payments which the taxpayer will have to make in order to make up the index-linked pension funds.

The pension funds of the nationalised industries are a great deal wiser than many Labour Members think. They know that there is every prospect that dividends will be restricted and that it is the taxpayer who will make up the difference anyway. They are therefore not worried about the yield on their investments. That is why they invest large sums in things like silver gilt candlesticks. The British Rail pension fund alone spends more money on works of art than the British Museum, which it outbid for those candlesticks, the Victoria and Albert Museum or the Tate Gallery. Yet it is we the taxpayers who are subsidising such pension funds. That is the extraordinary present position.

There is a problem ahead for the Government over these funds which they have not recognised. The local authorities now control funds of £4,000 million. The nationalised industry pension funds control £9,000 million. I see from the Government Actuary's report which came out two weeks ago that if there is a negative rate of return of 2 per cent.—that is to say, for example, if inflation next year is 12 per cent. and the return on those funds is 10 per cent.—it will be necessary for contributions to rise to 50 per cent. of salaries over a period.

The taxpayer makes substantial contributions towards those pension funds. This is a subject which merits closer examination—it is certainly worth more time than I can give it tonight. But it is clear that the Bill will make these subsidies even higher than they would have been.

The Bill is not only irrelevant and unnecessary but actually damaging. It will cost the taxpayer more than he will gain from it. It is all of a piece with the Government's actions. I wonder how many of my hon. Friends were sickened by the sight of the Prime Minister and the Chancellor of the Exchequer claiming credit last week for the present state of the economy. When one thinks of those two old crocks, who have been broken and run over by every passing bus for the last two years and stand on their feet at all only with the aid of crutches lent by the IMF, one finds it fantastic that they should claim any credit for the performance of the economy.

A short while ago, the Chancellor was scurrying about, returning in panic from a flight at Heathrow when he was supposed to be going to Japan, because the foreign exchange market was falling. The Prime Minister was sending desperate messages across the Atlantic to President Ford saying that unless he bailed him out and gave him some money the economy would collapse and the end of democracy in Britain was near.

What rubbish this is. These two old crocks are pretending that they have managed to shore up the economy of this country. The economy has been badly served both by the Prime Minister when he was Chancellor and by the present Chancellor. It is time that those two right hon. Gentlemen went. I trust that we shall have the opportunity to remove them in October.

Mr. Kenneth Lewis

On a point of order, Mr. Deputy Speaker. May I ask whether you could find out whether the Labour Party has already gone on its holidays or whether it is boycotting the debate? We have with us one Minister and one Government Whip, and that has been the position for the past half-hour. The hon. Member for Wrexham (Mr. Ellis) need not try to draw attention to his presence. He is not in the House. There is no one on the Government Benches save the two to whom I have referred.

Mr. Deputy Speaker (Mr. Oscar Murton)

The hon. Gentleman has been in the House long enough to know that that is certainly not a matter for the Chair.

7.11 p.m.

Mr. John Moore (Croydon, Central)

I know that you will not mind, Mr. Deputy Speaker, if I pursue the small point which my hon. Friend the Member for Rutland and Stamford (Mr. Lewis) has touched on. Although we now see one or two hon. Members beginning to filter in on the Government Benches, it is not without note that this Bill, which the Government seem to regard as crucial to their whole programme, has had very little attention on their side. Attention was drawn earlier to the fact that the Prime Minister and the Chancellor of the Exchequer, who have said that this is a crucial part of their overall strategy, have not seen fit to grace us with their presence throughout the debate.

The Bill is, of course, a cosmetic piece of legislation, and to that extent the outside world will notice the degree to which the Government and their supporters do not even bother to attend to patch on the powder of their own cosmetic preparation.

I take, first, a point made earlier by the hon. Member for Birmingham, Selly Oak (Mr. Litterick). I hope that the attention of his electors and other electors will be drawn to what he said when he expressed the natural dilemma which he felt, as a member of the Labour Party, after four and a half years of Socialism. He found it difficult to work out how he would face his electorate and ask them to vote again for the Labour Party, and he sought rather tortuously to describe some of the essential difference between the Labour Party and a Labour Government. He need not worry, because after the next General Election, although there will, I suppose, be a Labour Party, there will certainly be no Labour Government.

However, the hon. Gentleman's dilemma is one which worries many of us a good deal. There is a dilemma in a modern democratic State in that, when we deliberate on economic matters, our modern means of mass communication through radio, television and the national newspapers allow the whole of our electorate to know immediately what is being discussed and to assume, in a sense, that the immediacy of communication means that something decided today has in fact happened.

On the other hand, all those who are responsibly involved in economic matters know that there is a time lag between decisions taken and their effect within the economy. Whether it be a two-year time lag in monetary matters or a six-month time lag for the impact of devaluation of the pound on the retail price index is not relevant to this point. The point is that, effectively, there are clear delays in economic matters and no effective delay in modern communication.

Therefore, in a modern democracy it behoves those who seek positions of responsible leadership, whichever party they seek to represent, to understand and lead on the basis of the truth as opposed to an attempt to proliferate such ideas as we have heard today from the Government side.

I was shatttered to hear what was said from the Government side today. The hon. Member for Colne Valley (Mr. Wainwright), speaking for the Liberal Party, was right to draw attention to the essence of what the Government say— "We all know that this is not relevant, we know that it does not have any effect, but people think that it does and therefore we must pander to that belief."

The stench of total hypocrisy permeates this entire proposal. Instead of leadership, we have the Government seeking to base their policies on myths and envy. In the most elitist and arrogant fashion, they assume that the people are so supine, innocent, or ignorant that they will not be able to look beneath the surface. Worse still, their own supposed closest colleagues, the leaders of the trade unions, they assume to have no ability responsibly to communicate to their members the reality of the Bill as opposed to the cosmetic surface.

I make no apology, therefore, for seeking to concentrate, in the limited time available to me, on the facts, since the facts as opposed to the illusions and the series of party-political broadcasts we have heard from the Government Benches are what is relevant.

Again and again, we must study the facts behind the Bill. I shall direct attention to its effects in two specific areas. I take, first, its effect on the market place in money, and, second, I shall come to its effect on those who are the ultimate recipients of dividends.

As for the market place, it has been said many times already, and it is worth repeating, that dividend controls distort the whole market in money raising. We see that not just in the Diamond report but, as we have heard, in the evidence of the Treasury itself to the Wilson committee. What does this mean? It is not some esoteric statement. It is not something unconnected with the real world.

The market in money—the money market of which we talk in terms of the Stock Exchange and other methods of raising money—produces investment and ultimately jobs. That is a fact of the real world, the world in which Labour Members should be a little more interested.

Let us examine for a moment the effective distortion which takes place through the ways in which these controls have an effect on the market. That distortion takes six basic routes, six basic distortions which can clearly be ascribed to dividend controls of this character. First, it re-emphasises the role of existing large companies versus smaller growing companies. Although this would not be all that bad, even though I should dislike it, if we were talking about a successful economy with a whole range of successful small, medium and large companies, the truth is that we see here the ossification of the present structure, which is a failed structure within a failed economy. We need radical change, not ossification in the kind of failure we now have.

Mr. Budgen

Does my hon. Friend agree that even in a comparatively successful economy the important thing is that capital should go to the firms which are comparatively successful and come away from those which are comparative failures? It is that comparison which is important, and it really has no bearing on the question whether the economy is a failure or a success.

Mr. Moore

With respect, I am coming to that in one of my six points. I have mentioned, first, the emphasis on large as opposed to small and the degree to which the current structure of the economy is thereby ossified.

The second distortion that occurs is to encourage cash hoarding. It encourages cash hoarding by companies which one supposes have already carried out their basic research and development and commitments of funds to replacement. Therefore, with this cash hoarding we see horrifyingly poor marginal use of money—the sort of things which I imagine that the Labour Party in Government as opposed to Opposition would be concerned to see. For example, there is the degree to which companies then have to seek to speculate in other companies through the Stock Exchange itself. I ignore for a moment their contribution to the Government's funding programme through the acquisition of gilts.

Third—this has not, I think, been touched on except by my right hon. Friend the Member for Chipping Barnet (Mr. Maudling) in a notable contribution to our debate—economic stagnation is encouraged because money is not put back into circulation. Consumption is therefore restrained and ultimately, again, we see jobs lost. I imagine that that is the sort of thing which Labour Members would not wish to see.

Fourth, the restraint itself just does not work in the case of large companies. They drive a coach and horses through the whole pattern of regulations. But the key point here is that enormous effort, attention and energy are diverted to that non-productive avoidance as opposed to the productive economy.

Fifth—this is the point which my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) would wish me to make—it protects and conceals the inefficient company, inefficient in its use of scarce resources which are vital to our country. Moreover, by masking the differences in performance, it prevents the market from reflecting the differences of success and failure.

Finally, the distortion adds to the attraction of the uncontrolled section of the market place, the Government gilts section itself; and it adds to their yield differential. It helps to make the market place for money in the United Kingdom a market place for financing Government debt instead of one which creates productive investment. I should have thought that none of all this would have been attractive to hon. Members on the Government side.

I come now to the effect of the controls on people as opposed to the market place in money. Here, the myths which are propagated are even worse. I was shocked and shattered by the speech of the Chief Secretary. He did not begin to do what I imagine he would normally try to do—that is, argue the case in detail. He simply perpetuated the myths. The essential fallacy which seems to lie behind the Government's argument is that rich people get dividends, poor people get wages, and therefore controls help the poor. There is a complete failure to examine the reality and the details.

Some of the details have been covered already, but it will not harm the House to have them rehearsed again. The facts are clear. First, 97 per cent. of all personal income is earned outside dividends. To put it another way, gross dividends produce only 3 per cent. of all personal income. That puts the matter into perspective: 3 per cent. of all personal income.

That tiny 3 per cent. of the whole income earned within our economy is very widely spread, despite the attempt to camouflage that fact. It is important to put on record the document to which reference keeps being made. It is the CSO's Economic Trends, no. 287 of September 1977, a document from the Government's statistical service. The reference is to be found in appendix I at page 100, table 1. The article was based on a study by Miss M. J. Erritt and Mr. J. C. D. Alexander, of the Department of Industry. It appeared under the column heading "Distribution by Category of Beneficial Holder."

That is where the facts were adduced that at present holdings by persons within that tiny 3 per cent. who received dividend income only 37.5 per cent. Those widely spread beyond insurance companies and pension funds to investment trusts, unit trusts and the public sector consisted of 50.6 per cent.

Thirdly, let us look more closely at those individuals. As the Chief Secretary must know very well, there has been more recent information, from the Diamond Royal Commission on wealth. The Inland Revenue survey of personal incomes looked at the figures for 1975–76. They are to be found in an Inland Revenue pamphlet that is in the Library. In 1975–76, of the 37½ per cent. who personally received benefits from dividends, 48½ per cent. were families in receipt of less than £4,000 a year, or below the average industrial wage. We must put these figures into perspective.

Fourthly, as regards the tax system and the way in which it and these controls have a direct effect, I remind the House that the proposed system of controls helps the very rich. I shall repeat that: the controls effectively help the very rich. I shall illustrate that, because we seem to be going on and on in the world of make-believe. Let us look at this mythical capitalist beast which Labour Members seem constantly to want to get their hands on.

I will give a specific illustration of a purely arithmetical kind. My hon. Friend the Member for Horsham and Crawley (Mr. Hordern) asked the Chief Secretary about the after-tax income of the character already earning £500 a week in dividends who have, say, a 300 per cent. increase in a company's dividend payout. Needless to say, despite all the Treasury advisers being in the Box, there was no attempt to give an answer.

The mythical capitalist beast, about whom Labour Members want constantly to talk, is already very rich and already paying 98 per cent. tax on unearned income. Company Y decides to increase its dividend by 50 per cent. Let us be modest in this example. It is already paying him, say, £10,000 a year in dividend income. He is now to be paid an extra £5,000, but what does he receive? The answer is £100. That is his in-pocket annual increase in real earnings.

Mr. Fairbairn

rose—

Mr. Moore

Perhaps I may finish this point. It is important that I state the other side of the picture, as opposed to what will happen under the Government's measure.

In the absence of controls that are supposed to hurt the mythical capitalist beast, the very rich man receives £100 on the dividend paid out. Suppose that instead the company, with controls, cannot increase the dividend by 50 per cent. but retails it all. The man in question receives no increase in dividend and theoretically his £5,000 is added to the asset base of the company. I accept that this is a purely arithmetical example. But let us suppose that it is added to the asset base and he sells the shares and takes a long-term capital gain, paying the maximum long-term capital gains tax of 30 per cent. On the £5,000 net asset base he receives £3,500,35 times the amount, as a result of being encouraged to pursue the capital gain rather than the income earnings of £100.

Therefore, what are we talking about? The facts show that the system which the Government seek to continue assists only the very rich. We must draw the factual conclusion that the impact of the controls on people is that if they hurt anyone they hurt the poorer people and reward the rich. They make no measurable impact on a person's real income. Therefore, the Bill is unproductive in the counter-inflation battle. That seems to be the crucial point that the Government do not even begin to want to discuss.

Why on earth are we having the measure now? I said at the beginning of my speech that I thought it crucial, in a world in which economic events have a time delay whereas our debates are given an immediacy by the media, that those in positions of power have a special responsibility to lead. There is clearly no validity in the measure, so why on earth are the Government seeking to feed the myths? Why are they arguing again on the basis of the envy concepts that dominate relationships within our society and make them deteriorate?

There is only one inescapable explanation for that kind of irresponsibility. It is done for short-term, shallow political advantage. It stinks of hypocrisy. It should make all those on the Labour Benches who regard themselves as social democrats finally despair of this Government and make all democrats outside the House excited at the chance that soon they will have the opportunity to vote in a Conservative Administration.

7.36 p.m.

Mr. Timothy Raison (Aylesbury)

My hon. Friend the Member for Croydon, Central (Mr. Moore) has done a most vigorous demolition job. I shall not try to compete with him. It has been a feature of our debate today that speaker after speaker among my hon. Friends has torn this ludicrous legislation to shreds.

I would summarise some of the points that have been made as follows. First, the Bill attacks the whole notion of investment in equities. For a Government who spend their time exhorting people to invest in industry to subscribe to a policy which can be directed only to reducing the incentive to invest in industry passes all comprehension.

As my hon. Friend the Member for Horsham and Crawley (Mr. Hordern) pointed out so graphically, it is a deplorable fact that nowadays nobody bothers to think about investing in equities. People start thinking about buying works of art, perhaps investing in gilts and so on. Many of them simply turn to the roulette table, because Socialism has done such appalling damage to investment in our own industry, which it allegedly wants to revive. It makes a farce of the so-called industrial strategy that the Government are constantly prating about if they damage the essence of any kind of industrial revival in this way.

It has frequently been pointed out that the effect of the Bill will be to harm those whose savings come through dividends, and to harm them in a way which in some cases will undoubtedly be callous. It has also been pointed out that these measures do not hit the rich, because with rates of taxation as they are not many of the rich bother to invest in equities. They look for other ways of making money more easily. There is no point in investing in equities in the present climate.

The policy produces distortion and waste. It is almost by definition a faulty economic mechanism. It is a way of taking out any kind of rational judgment by those seeking to place their money to good effect. Moreover—perhaps this is the truth of the matter—the Bill is a pure piece of political eyewash, or, rather, a combination of eyewash and envy. I wonder whether in some ways that is not a rather charitable interpretation of what is happening.

The hon. Member for Bristol, North-West (Mr. Thomas) may support me when I say that if we look back at what has been going on in the post-war years the Bill may also be seen to be part of a serious attempt to destroy the essence of the market economy by making sure, over time, that it is not worth while to invest. I believe that if we destroy the market economy we shall go a long way to destroying the liberties of our citizens as a whole.

It is very alarming that there should have been such a drop in the return on investment in the post-war years. Whether it is the Government's desire to accelerate that drop by the Bill, I do not pretend to know. The truth probably is that some Labour Members are motivated by that kind of desire. Others, like the Minister of State, do not want to do that but feel that they must offer a sop to the unions to try to keep the successor to the social contract going.

There is an important point to be made and understood about the long-term trends in return on capital invested.

There is, I think, one partial point to be made in favour of the Bill. That is that at least it is a statutory measure brought before Parliament in an honest way. This is in contrast to the way in which the Government have brought their incomes policy before Parliament over the last few years.

As the House knows, a day or two ago we had a debate about incomes policy. I was rather appalled to read, on the front page of The Times this morning, an article by the political editor in which he said that the House had approved the incomes policy White Paper, but that is by no means true. What was said in the motion that we debated on the economy was That this House welcomes the substantial progress already made in combating inflation as described in the White Paper (Winning the Battle against Inflation) and recognises that a further sustained national effort is required to keep inflation under control as a basis for a healthy and productive, expanding economy capable of providing full employment and rising living standards for the British people. That is all claptrap, as we know, but the one thing that that motion did not say was that this House approved of the incomes policy White Paper. That is a deplorable thing, because the incomes policy White Paper has remarks in it, referring to particular claims, such as that there must be clearance through the Department of Employment and so on. In other words, the White Paper is using the language of a man datory requirement on the part of the Government. It is saying that people must do something, yet not only has it no statutory basis to it, but it has not in any way been approved by the House of Commons. I think that that is a deplorable fact, and it continues a very sorry record.

I should like, if I may, to go back over the last few years in order to see what has happened. In 1975, to be fair to the Government, they brought to the House a motion That this House approves the White Paper on the Attack on Inflation". There were many unsatisfactory features about their approach—including of course, the way in which they simply took a statement from the TUC, stuck it in the White Paper as an annex and converted it into the law of the land—but, nevertheless, in this particular instance they at least brought the White Paper before the House for approval.

But what happened in 1976? There was a little bit of a breach, because the motion then put before the House said that This House takes note of the White Paper entitled 'The Attack on Inflation '". There was no question of the House approving the White Paper. It was simply invited to take note of it.

Then in 1977 we had a variant. We did not even have the words "takes note". We had a debate on the Adjournment. Now, in 1978, we have the motion which I have just read out.

I think that it is utterly deplorable that the Government should not have the guts to stand up and present these White Papers at least for the approval of the House. We all know the reason for it. It is quite simply that the Tribune group and the Left of the party do not agree with the policies put forward and, therefore, would not support the Government. I imagine that the hon. Member for Bristol, North-West, who is present in the Chamber, would confirm what I am now saying if he were prepared to be honest.

It really is an abuse of parliamentary procedure that the Government should expect the country to have to do things —I repeat that they have used the word "must"—which have not been approved by Parliament and have not been the subject of legislation. That is lamentable.

The picture, therefore, that we have today, as my right hon. Friend the Member for Chipping Barnet (Mr. Maudling) pointed out in his very good speech, is one of statutory control of dividends but no statutory control of incomes. That is not very fair, nor is it even-handed. But I do not think that it is just a matter of things being fair and even-handed. There is a deeper objection to what the Government are doing today in economic terms, and it is this. The Bill, like the White Paper, does absolutely nothing to improve productivity. It does absolutely nothing to improve the output per man or woman employed in industry.

Anybody who thinks for one minute about our economy knows that throughout the post-war period our greatest weakness has lain in exactly this realm of productivity. Indeed, it is true of the Bill that not merely does it do nothing to improve productivity, it actually achieves the opposite.

I think it is fair to point out in the debate that the record of productivity in this country under the present Government is truly appalling. I am glad to see the Minister of State on the Treasury Bench, because I want to refer to a parliamentary answer that he gave earlier this year when my hon. Friend the Member for Blaby (Mr. Lawson) asked one of the many pertinent Questions which he has posed to Treasury Ministers over these last few months.

My hon. Friend asked the Chancellor of the Exchequer what was the percentage increase in national productivity, defined as output per person employed over the economy as a whole between 1973 and 1977, and for each of the five four-year periods: 1969 to 1973, 1965 to 1969, 1961 to 1965, 1957 to 1961 and 1953 to 1957". The answer given by the Minister of State was: Between 1973 and 1977, gross domestic product—based on output data—fell by around ½ per cent. Although comprehensive employment data are not yet available for 1977 as a whole, it is estimated that output per person employed will have changed little over this period."—[Official Report, 7th March 1978; Vol. 945, c. 621–2.] In other words, the Minister of State was saying that between 1973 and 1977 productivity was absolutely flat. But he then gave the figures for the five previous four-year periods, which showed that the change in output per person employed between 1953 and 1957 was up by 7.1 per cent., between 1957 and 1961 it was up by 9.3 per cent., between 1961 and 1965 it was up by 10.7 per cent., between 1965 and 1969 it was up by 11.8 per cent. and between 1969 and 1973 it was up by 11.5 per cent.

Throughout the post-war period, therefore, under both Conservative and Labour Governments, there had been a steady improvement in productivity, but under this Government there has been absolutely no improvement at all in productivity. I believe that that is the most disastrous of all the very many disastrous ingredients of this period that we have had to endure.

The figure is confirmed by the Department of Employment Gazette for June, in which it is said that the output per person employed in production industries, using 1970 as the base line, was 114.8 in 1973 and 114.4 in 1977, showing that there had actually been a very small drop in productivity over that period, in contrast to the very steady rate of improvement indicated in the Minister of State's answer dealing with the earlier period.

Mr. Tom Ellis (Wrexham)

As one of the hon. Gentleman's hon. Friends emphasised earlier the need not to display hypocrisy, I wonder whether the hon. Gentleman will agree that there has been a very substantial change in the world economy since 1973 as compared with the earlier period to which he was referring.

Mr. Raison

I am talking not about production—although, goodness knows, production has been lousy enough—but about productivity, about output per person employed, and I am afraid that that has not been affected by the factor mentioned by the hon. Gentleman. It is affected by a climate which has been created by the Government which is totally unconducive to any kind of improvement in productivity.

We all know that there are all sorts of reasons for it. I do not doubt that there are deep-seated cultural reasons why we are not as productive as our competitors, and so on. There are, however, some things which are within the power of the Government. There are some things which Governments can and should do about the problem. Essentially there must be incentives, whether through the taxation system, or through social security, and those incentives must include encouragement to invest.

As I have said before, and as all my hon. Friends have said in the debate, the whole purpose of the Bill and the whole effect of it—if it has any effect—will be to discourage people from investing in productive industry. The Bill seems to me to be a suitable tombstone for this old, blind, despised and dying Government, who, as the debate has all too evidently shown, are now in their very last days.

7.50 p.m.

Mr. Kenneth Lewis (Rutland and Stamford)

There is one form of dividend restraint to which this Bill does not apply. If a person puts his money in to Little-woods or Vernons Pools and wins, those dividends are not taxed. Further, there is no restriction on what can be paid to the lucky winners. That is the kind of casino society which the Labour Party has created.

If a person has money invested in a successful industry which is capable of producing profits, the dividends are restricted. Now, of course, I believe that if we are asking for pay restraint we have a right to ask for dividend restraint. I make no complaint that the Government, having asked for the former, should also seek the latter. If I were on the Government Front Bench I would do the same. I hope, however, that I would be a little more successful in obtaining restraint on pay in return for restraint imposed on dividends. The dividend restraint so far has been much stronger than any pay restraint.

My complaint is that the Government are legislating on dividends when they have not legislated on pay and have no intention of doing so. They may say that they have to legislate on dividends or the restraint will not stick. I do not accept that. I believe that they are legislating to please their trade union bosses, especially the Left wingers. I believe that they are legislating to try to convince the country that they are on the side of those who earn in industry as opposed to the capitalist investor who takes profits from it.

Another reason why this Bill has been brought before the House is that there is to be a General Election. Labour Members have not been speaking in this debate because they want more Opposition Members to speak so that they can go to the country and say "The Tories are in favour of giving away more in dividends but we are not." The Government could have brought this Bill in weeks ago. They had plenty of time. They knew that 31st July was not far away.

I understand that the Bill contains a variant on the old system. The door has been left open a little so that companies can increase dividends slightly. I have no doubt that the Government are thus hoping that new investment will still take place. They hope to be able to say that, although they have imposed dividend restraint, there is still a right given to some companies to increase dividends where justified. We heard earlier about the psychology of paying dividends. The truth is that the country is short of investment. Labour Members know this. Increased investment comes from the financial institutions and the pension funds when they know that they will get, not a return on their money, but an increase in the return. All of those institutions know that in the past few years there has been little increase in the return on their money.

Let me tell the few Labour Members present that some years ago, when unit trusts were popular, I bought a block of trade union unit trust shares. I understand that a lot of other foolish people did the same, including the leaders of some trade unions—the TGWU, the NUR and others. No wonder the NUR has gone into pictures and candlesticks. If it looks at its investment in the trade union unit trust fund, it will see that the shares are worth no more than they were 10 years ago. There had to be a job for someone. Lord Hirshfield headed up the fund. I complained about this poor performance some time ago and he was very cross with me. I complain again. Some unit trusts have done well. Most of those which invested in companies abroad have done well. Those which have depended upon investment in companies in this country have done less well.

Many years ago there was a campaign to get people to put money into unit trusts. The ordinary people of this country put large amounts of their savings into these trusts so as to get income from dividends. They did well at the beginning. The managers have done reasonably well all the way through because they receive their management fees. But the ordinary people with unit trust fund shares would have done better to have put their money in War Loan. At least they would have increased the size of their investment by now.

Precisely the same thing is happening with pension funds. The Government now have a new pension scheme. After a good deal of argument, they have encouraged the private sector to provide second pensions, competing with the second pensions provided by the State. Yet the Government are telling us that they want dividend restraint. The best way to top up the pensions of those who have gone into the private sector as against the State sector for the second pension would be an increase in dividends rather than a restriction.

The Government are encouraging the National Enterprise Board to invest in private industry. A Tory Government would not do that. But the Treasury has said that it is right that the NEB should do it. The Government are saying that public money should go into these companies through the NEB, but we should not expect an increased return out of profits. Why should anyone, even the NEB, invest if he cannot get a share in the increased profits?

The last Finance Bill contained a provision dealing with employees' shareholdings in industry. The hon. Member for Rochdale (Mr. Smith) and his party encouraged this. They had better recognise, along with the profit-sharing employees, that if there is to be this profit sharing in industry there will be a poor return if the objectives of this Bill apply to such employees and such shares. In that event they may expect to get just the same dividend five or six years on because no more than a marginal increase will be allowed because of dividend restraint.

There was today an interesting story in the financial columns of the newspapers concerning the Thomson Organisation, which has grown tremendously in this country. It has put money in The Times, enabling it to survive. The organisation owns The Sunday Times and a large tranche of North Sea oil. It employs a great many people. The group has now decided on a share reorganisation. I do not fully understand it, but I do know that it is being carried through because the company says that it cannot get maximum profits in this country and keep them, or invest in this country and receive an adequate return. Consequently, it is proposing to expand in Canada and the United States. It is not closing down what it has here but most expansion will be elsewhere. No matter which party is in power there must be an expansion of industry to reduce unemployment.

We want this expansion of industry to increase the vitality and productivity of our country. We can get it in all sorts of ways and one way is from our great companies. Yet here is a great company which is so dissatisfied that it has decided that any expansion that takes place will take place in either Canada or the United States.

One of the reasons for this decision is this kind of stupid Bill. The Bill is a product of the last throes of a dying Administration. The Government would do best to forget it. One thing is certain: if they are returned after the next General Election, there will be very little profit and very few dividends for the British people.

8.1 p.m.

Mr. Ron Thomas (Bristol, North-West)

I apologise to some hon. Members opposite because I have not been able to sit through this debate for reasons over which I have no control.

From the speeches that I have heard I suggest that Conservative Members are full of all kinds of contradictions. The hon. Member for Rutland and Stamford (Mr. Lewis) has just been telling us about a large company which has decided not to invest in the United Kingdom and one of the reasons is this piece of legislation. Yet one of his hon. Friends made the point that this Bill will encourage large companies to hold on to their money. One thing that the Bill will do, up to a point, is to make more money available to large companies for capital investment. Whether they will use it for such investment I cannot say, but they will be defended from the the demands of their shareholders. They will not have to pay out the profits they have earned and they will have that money to use as they wish. Whether they take the next step and invest it in productive industry is another matter.

The second contradiction that has come across all the time is that providing companies are allowed complete freedom to pay out their profits at whatever level of dividends they feel is correct, we shall get a regeneration of British industry. Do the Tories remember nothing of the 1970 to 1974 period? The Tory Government at that time gave British industry, British shareholders and British capitalism everything that they wanted. We had the Barber cuts, the Industrial Relations Act and the "dash for freedom", yet investment in British manufacturing industry continued to decline. The money went into speculation in land and property, in currencies and commodities and anything else one cares to name, other than real productive manufacturing industry.

Mr. Budgen

Since the Minister of State, Treasury is here, will the hon. Member for Bristol, North-West (Mr. Thomas) tell us whether he has heard the Minister's excellent "turn" on the 1970–74 period? If he has not heard it on the five or six occasions that the Minister has used it, I suggest that he stays and listens because he may hear it tonight. But it is not right for the hon. Member to say that British industry got everything it wanted during the 1970–74 period.

Mr. Thomas

I do not have to hear the Minister of State. My judgment is formed from looking at the history of the period. Piece after piece of legislation was given after being demanded by British capitalism. It wanted to clobber the trade unions and control the trade union negotiators allegedly to get the regeneration of British industry. So we had the Industrial Relations Act. This sort of thing happened time and again, and even the then Prime Minister had to lecture certain leading lights on the unacceptable face of British capitalism, because, despite all the help and handouts, they were still refusing to use the money to revitalise British industry.

That is the source of our productivity problems today. One does not increase productivity in days, weeks or even months. The lack of productivity in British industry is due in part to the rapid decline in capital investment under the last Tory Government. We are now reaping the fruits of that period. There are other reasons for the decline as well, for which I have criticised my own Front Bench, such as the cutbacks in demand which lead to higher unit costs. The Tories have supported all the cuts in public expenditure and they keep urging more. Such action reduces productivity.

It has been said that there has been a debate over a long period on whether firms that are making profits should distribute those profits via the market mechanism, and whether this will bring about the regeneration of British industry in the most effective way. Some people say that every bit of a firm's profit should be given back in dividends and that the market should sort out where that possible investment capital should go. One Conservative Member made clear that he believed there should be a higher level of consumption. The argument has gone on for decades about whether we have an effective mechanism for directing these dividends into productive manufacturing industry.

My judgment is that we have no mechanism. It failed miserably a long time ago. That is why the majority of firms provide the capital investment they need out of their own retained funds. They are not worried about the shadow boxing or the tears from the Opposition. They need funds, and they realise that growth within the firm is far more important than satisfying the whims of shareholders.

It is the free market economy that the Tories applaud. Some hon. Members have said that those enterprises that are more profitable should command available funds, even if when it comes to it that means bingo palaces, betting shops and brothels rather than British manufacturing industry. I do not think that some hon. Members would care a damn if the money continued going into bingo palaces, betting shops and brothels and the decline of manufacturing industry continued.

Mr. Budgen

If, for the sake of argument, bingo palaces, betting shops and brothels are more profitable, this is an unhappy reflection of the preferences of the British people.

Mr. Thomas

We on these Benches take a rather different view. We do not accept that the allocation of resources should be decided by the market mechanism. We believe in planning and priorities. We believe it is essential to regenerate British manufacturing industry. We do not want to see the British nation unemployed and the few who are employed working in bingo palaces, betting shops and brothels or in some other trivial industry. There are some Tories who think that we should be a nation of tourists and let manufacturing industry go altogether.

I make my own position clear. I am not at all impressed with this proposed legislation. Nor am I impressed with the shadow boxing and crocodile tears from the Conservative Benches. When workers forgo a wage claim or are prevented from having the full amount of a legitimate wage claim that they have negotiated or could negotiate, that money is gone for ever. The fact that shareholders may be denied dividends today means nothing because those dividends will be paid in future. Moodies' cards in the Library show company after company saying that dividends will be paid as soon as Government regulations allow.

Alternatively, that money is converted into capital gains or the companies use free scrip issues and so on. One of the people who support the Conservative Party and the financial establishments that Conservative Members have been referring to explained on "The Money Programme" recently that a host of firms have found ways of getting round dividend control by free scrip issues, one free share for every five shares held, and by every conceivable gimmick.

We are talking about a charade and a cosmetic. It may be that certain Conservative Members feel that they must shed their crocodile tears because of the interests they represent. I should like to see a firm say to workers that they deserve a 25 per cent. rise—and many workers do deserve such an increase—and that, because the company is allowed to give them only 5 per cent., the remaining 20 per cent. will be held and paid out when the Government permit. That is what companies will do for shareholders under this legislation.

All this comes at a time when we have just relaxed capital gains tax and allowed people to have up to £5,000 a year capital gains free of tax and up to £10,000 a year at a lower level of the tax. If we stop companies paying out their dividends, share prices should go up—I cannot imagine that they will go down if companies are sitting on these vast sums—so shareholders will make capital gains and will pay a lower level of tax on them. All in all, they will do very nicely out of it.

I do not believe that the trade unions will be taken in, but hon. Members may be surprised to know that I shall be voting for the Bill, even though I want to see real and effective controls on profits. I want to know what the Government are doing about the latest profit figures. For example, the profits of motor distributors are up by 34.6 per cent. and distillers' profits have increased by 31 per cent.

Mr. Kenneth Lewis

What about the gas boards?

Mr. Thomas

I was one of the hon. Members who were not in favour of the Government accepting the IMF's instruction that publicly owned industries should move rapidly to making profits. They had to increase their prices in order to reduce their borrowing requirements and every Conservative Member backed the Government in that move. Some of my hon. Friends were opposed to it.

Mr. Kenneth Lewis

Is the hon. Gentleman really saying that the country would be in a marvellous state if every private and public industry in the country made a loss and we ran on losses?

Mr. Thomas

I said no such thing. I said that a number of my hon. Friends protested at what was, in effect, an IMF instruction that publicly owned industries should reduce their borrowing requirements and increase prices in order to meet more of the cost of their borrowings. Those industries put up their prices and in some cases overstepped the mark. One consolation is that there is always a good chance that a publicly owned industry will be made to pay back excess profits, but when the chairman of a certain political party heads a company that robs a nationalised industry it is a different story.

Mr. Deputy Speaker

Order. The hon. Gentleman has not named any particular personfi mut he is moving on very dangerous ground.

Mr. Thomas

It may be that I am on rather dangerous ground in supporting the Bill because I am opposed to incomes policies, pay policies and the rest. We have had goodness knows how many such policies since the last war with three wise men, guiding lights, the Prices and Incomes Board and so on. We talk about free collective bargaining, but I wonder whether that has ever existed since the war.

I do not believe that it is the job of a Labour Government to prevent trade union negotiators looking after, sustaining and improving the salaries and conditions of the people they represent. The Bill is purely a cosmetic which will mean that when workers are unable to get what they legitimately negotiate, part of their possible wage increase will be gone for ever, but that the dividends that are held back from shareholders will be converted to capital gains, will be given back through free scrip issues or kept in the accounts to be paid later.

There is no mechanism in a capitalist society that can transfer a possible wage increase out of profits that is given up by one group of workers to low-paid workers in another group. If incomes policies tell us anything, it is that low-paid workers come out worst of all.

8.18 p.m.

Mr. Hugh Dykes (Harrow, East)

I add my voice to those of hon. Members who have registered robust protests at this absurd legislation. The Goverment know that it is absurd and, at least in that respect, I agree wholeheartedly with what was said by the hon. Member for Bristol, North-West (Mr. Thomas). I also agree with the hon. Gentleman's espousal of the virtues of the free market mechanism—free collective bargaining and free dividends, though he was more hesitant about the latter. Presumably he wants similar conditions to be applied to bargaining and to dividends. He objected violently to the interference by the Government in all the instruments for measuring various sorts of rewards.

I share that view with an important reservation. Recent political history in this country and the feelings of probably a majority of hon. Members—I say that with some hesitation because it would be arrogant even to try to count heads—indicate that the virtuous reality of free collective bargaining, in the light of the raging inflation that we have experienced in recent years, must inevitably be diminished by some sort of Government surveillance or monitoring—I do not like to use the word "control"—or some Government involvement in these processes.

Mr. Budgen

No.

Mr. Dykes

If my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) will remain calm for a moment, I shall explain why this is necessary. Most hon. Members on this side of the House, and perhaps even my hon. Friend, agree with what was said by my right hon. Friend the Member for Chipping Barnett (Mr. Maudling), that, as a result of the existence of monopoly union power, which has not benefited trade union members, even though some of them unwisely thought that it would, the prinples of free collective bargaining are not maintained and we get inflationary wage increases beyond the capacity of production and the marginal product of labour.

However, as my right hon. Friend said, that does not apply to dividends, which are a different instrument for measurement. I am the first to concede to some of those below the Gangway opposite and to, for example, the hon. Member for Newton (Mr. Evans), that it is all very well for people to say that, in today's political climate, it is hard luck on the millions of wage earners, but dividends just happen to be different, and that we are sorry but we must apply freer conditions to dividends than to wages. That would be unrealistic. I do not think that any of my hon. Friends would suggest such a thing.

However, we are entitled violently to object in the strongest condemnatory terms that my hon. Friend the Member for Aylesbury (Mr. Raison) used so successfully when an exhausted Government produce a tailend piece of legislation that has no proper rationality at the end of an exhausting Session. There is no real enthusiasm for the Bill in the Cabinet. It is based on a series of mythical arguments that have no foundation in objective fact and reality.

It is extraordinary to look back over several months to the time when the newspapers first contained speculative articles and comments about what would happen when dividend controls ended on 31st July. The legislation that was introduced last year and the amendments that were made to the Price Commission Act 1977 gave us warning that on 31st July the controls would lapse. It was clear to any close observers of the political scene, be they journalists, politicians or interested members of the public, that a majority of the Government, and probably the whole Cabinet, in so far as its members thought about the issue, did not want a continuation of the controls.

Until the middle of last week, when this absurd Bill was promulgated by an increasingly ridiculous and incompetent Government, the same position applied. There was no pressure in successive union conferences for continuing controls. No comments were made publicly by trade union leaders or members of unions at any level—locally, regionally or nationally—that the controls were vital and should continue. If Labour Members were to say "Of course not, because the Government were beginning their pay talks and everything depended on the talks", if the continuance of the controls had been such a burning requirement for the average trade unionist surely one or two utterances would have been made. In fact, nothing was said.

When the official conversations took place last week and the week before between the TUC and the Government, in so far as we can legitimately judge—of course, by definition no one would be privy to private and confidential discussions—there was no insistence by TUC spokesmen that dividend controls should continue. Until the eleventh hour when meetings took place with the CBI—I can only guess what was said at the meetings—I am sure that nothing was said about continuing the controls.

I should be fascinated to know what if anything was said about the controls. It is a pity that the Minister of State is in conversation with his right hon. Friend the Financial Secretary and is not listening to my words of wisdom. If he would listen for only a moment, I should ask him to tell the House whether in conversation with the CBI—I do not wish him to breach confidentialities—reference to the subject was made by the CBI or whether there was any conversation on it.

If the Government had said to the CBI—here, inevitably, I speculate—that the policy previously seen in Britain of dividend control by exhortation, the practical effects of the combination of raging inflation on companies' returns and the natural and perpetual desire of company directors to increase or retain their retentions and not to pay out as much in dividends as some Labour Members suggest would continue, the old policy of voluntary restraint on dividends would have been enough. That would have satisfied anybody officially representing the CBI.

Mr. Budgen

No.

Mr. Dykes

My hon. Friend may shout "No". He has different views. Some of my hon. Friends wish to have a totally free regime, but that is now impractical in the context of modern British politics and the need to win the battle against an excessive rate of inflation.

Ministers on the Treasury Bench know that the old policy of voluntary restraint would have been enough. They know that the Bill is not necessary. They know that it is wholly cosmetic and erects yet again a tedious, irritating apparatus of discretionary bureaucratic interference as a result of the Treasury guidance note that is couched in the usual absurd language of the Treasury. It is seeking to intervene to erect new criteria.

Apparently the maintenance of dividend cover is to be the new criterion. That will apply for at least a year if the Government continue in office. That structure is not necessary. If the Bill is not given a Second Reading—I hope that the House will take that course—there would probably be no net effect on dividends in future, except that there is at least a risk that some companies would be adversely controlled by the onerous effects of legislation from increasing their dividends as a result of past retentions. I concede the argument of some Labour hon. Members on past accumulations. It should be acknowledged generally that that is an important difference. However, that in no way compares with the overwhelming need to have a rational system of wage restraint.

There is a heavy involvement by ordinary working men and women in the large pension funds and institutions where collective investment increasingly takes place. The old individual investor is much less of a feature in the general investment scene. The members of the pension funds and insurance policy holders, in so far as they are given the opportunity to work out the precise effect of these ludicrous controls proposed in the Bill, will be dismayed to ascertain that there might be, as Opposition Members have said, adverse effects if such controls are to continue for a long time. I hope that that will not eventuate when the House votes on whether to give the Bill a Second Reading.

It is time that the Government were more honest with the House and refrained from making spurious explanations that are wholly unconvincing about the need to introduce Bills of this sort without any proper justification. The resentment of the House will be shown tonight. I appeal to the Scottish National Party seriously to consider its attitude to an unjustified and thinly based Bill.

8.26 p.m.

Mr. Ernest G. Perry (Battersea, South)

I have listened carefully to what has been said while I have been in the Chamber. The Bill is merely a continuation of a measure enacted by the Conservative Government in 1973. All that we are doing is continuing that legislation. It was enacted by the Conservative Government because of the inherent dangers that they saw in our economic system.

The right hon. Member for Chipping Barnet (Mr. Maudling) and the hon. Member for Worthing (Mr. Higgins) were both Ministers with responsibility for that legislation. They were members of the Government that introduced the 1973 legislation. I give them credit for what they did at that time. They appreciated the dangers. They knew that corrective action was necessary after the Barber Budget and the release of millions of pounds that they hoped would go into industrial development but went instead into property development. They tried to correct not the mistakes but the tendencies of that time. I give them credit for the 1973 measure. I give credit to the right hon. Gentleman and the hon Gentleman for having the foresight to understand what was happening. With fellow Members of the Cabinet, they were responsible for introducing the original legislation. Today we are continuing it.

I believe that the need for dividend control has gone—[HON. MEMBERS: "Oh."] Let me finish. If I thought that dividend control would lead to the consumer, the shareholder and the worker getting a more equitable share, I would vote against the Government tonight. But, as we have a pay policy, I believe that it is essential at the same time to have some restriction on the wholesale distribution of dividends. Therefore, it is essential that the Bill be carried.

Mr. Terence Higgins (Worthing)

The hon. Gentleman must surely accept that, although it may be justifiable to introduce such a measure as this on a temporary basis, the trouble is that the longer it goes on the worse the distortions become. The hon. Gentleman said that it would be more equitable if it were kept on. During the enormous wages explosion under this Government between 1974 and 1975, which had a terrible effect on many people relying on dividends, a control of dividends remained. Taking the whole period, the overall effect has been totally unfair on retired people who rely on dividends.

Mr. Perry

I could not agree more with what the hon. Gentleman has said. But if we give way on one issue, we open the floodgates on another. If this country is to survive industrially and economically in competition with countries such as Japan, we must exercise strict supervision over what is going on.

I make no bones about commending the legislation that was passed in 1973 by the Conservative Government. The continuation of it today is necessary. I shall be frank. We still have not solved the economic difficulties in which we find ourselves. Let us not kid ourselves. It does not matter whether the Opposition come to power in the next Parliament. Of course, that is very unlikely. But the mere fact of a change of Government will not solve our problems. We shall still be faced with them.

In my opinion, if we are to exercise restraint in the amount that we take out of production in wages, we must do the same with dividends. If the Opposition were in Government, they would not be able to solve these problems by voting against the Bill. I think that the Bill is necessary if this country is to get on an even keel. If we want some kind of income control, it has to be at the expense not only of those working at the bench, in the office and elsewhere, but of those who draw dividends.

I appreciate the difficulties of firms with large pension schemes. I realise that they want to improve the pensions that they pay to their past employees. I speak from self-interest, because I am one of those people. I also realise that, if we cast aside all forms of restraint, we shall suffer in the long run.

I appeal to all hon. Members to realise that we cannot have a free-for-all for everybody for wages or for dividends. I ask the Opposition to realise that and to support the Government tonight.

8.33 p.m.

Mr. Nick Budgen (Wolverhampton, South-West)

Not for the first time, I find myself in substantial agreement with the hon. Member for Bristol, North-West (Mr. Thomas), for he made no bones about how he felt. He regards the Bill as a nonsense. He might concede that it is a necessary nonsense, but he knows it to be a nonsense, and a nonsense that conflicts with his deeply felt principles. The hon. Gentleman is a free marketeer. He does not believe in any restrictions upon wages. He understands that, by saying that he does not believe in any restrictions upon wages, it would be completely illogical to say that there should be any restrictions upon dividends.

I do not say that this is a necessary nonsense. I say that this is an unfair, wholly unnecessary nonsense and that the sooner we vote the Bill down the better.

I do not go along with the hon. Member for Bristol, North-West in believing that the Government have any sincere belief in the Bill. If they had any sincere belief in it, they would have introduced it earlier. If the Chief Secretary had any sincere belief in the Bill, he would have introduced it in a slightly more serious manner. He would not have introduced it with that levity, that sense of embarrassment which all of us noted in his manner, because he realised perfectly well that the Bill is economic non- sense and is being introduced merely as a political sop.

But it is worse than that, because some compliments, even at this stage before a General Election, can be handed to the present Administration, for it can be said, and said honestly, that after the end of 1976 they got a tight control of the money supply. It is true, as my hon. Friend the Member for Horsham and Crawley (Mr. Hordern) said, that for about six months up to 8th June of this year the money supply again got out of control. For a period, however—and a significant period—the present Administration got a firm grip on the money supply, and that is what has brought down the rate of inflation. The Chief Secretary knows that to be so.

The irony is that members of the present Administration do not merely go to the country now saying "We are the people who can co-operate with the TUC. Vote for us because a vote for the Tories would be a vote for conflict and a vote for class struggle." They go better than that. They do not merely say that they have the co-operation of organised labour. The really dishonest thing is that they have in their back pocket this alternative philosophy in which they do not believe, because when the rate of inflation goes up they can then blame organised labour for it, whereas they are, and know themselves to be, a monetarist Government, believing most of all in control of the money supply and knowing perfectly well that when the rate of inflation goes up next year it will be the fault not of organised labour but of themselves.

My position in this debate is a clear and easy one. I am opposed to statutory or voluntary controls of wages. I am also opposed to statutory or voluntary controls of dividends or prices. Here, I think, I ought to deal with the good point which was made by my hon. Friend the Member for Aylesbury (Mr. Raison). There is one thing that can be said for the Bill, and that is that it is a Bill. At least one can see that when rights are being taken away from those who own shares the Government are bringing forward legislation, albeit very late, albeit that it is being rushed through the House, albeit that it contains some fairly despicable discretionary elements. But at least it is a Bill. It is at least a nod in the direction of the rule of law and parliamentary government, which is much to be preferred to the blackmail and the hypocrisy of so-called voluntary restraint.

Our plea from this side of the House is, as always, a national one. We do not want dividends to be controlled, not because we want to support, as the hon. Member for Bristol, North-West was saying, the brothel owner, the bookie or the man who runs a gaming saloon—

Mr. Fairbairn

A bingo hall.

Mr. Budgen

I am sorry—a bingo hall, as my hon. and learned Friend says. It is not for that that we oppose the Bill. It is because we believe that control of dividends leads to unemployment.

I turn to the question of the people in my constituency and the West Midlands who are unemployed. The unemployed are mostly school leavers, people who are black—and female. The Sex Discrimination Act has had an unfortunate effect upon female employment. Those people have little hope of being employed by the former big employers in the West Midlands—such as GKN, Dunlop and Goodyear. Goodyear has recently laid people off. When one talks to any of the big employers, one finds out clearly that in the next 10 years they offer little hope of a substantial amount more employment.

Those companies say that if people are to find employment they must look to the smaller businesses. They are clear about that. If there were job opportunities, dividend control would not have an adverse effect upon big companies. That is because, contrary to what is said against the Tory Party, many managers and enterpreneurs are quite keen on dividend control. If they have a fat company with big profits, dividend control enables those profits to be ploughed back into the company without the disagreeable business of having to compete for that money in the market place.

Trading conditions are such that big companies do not expect to be able to offer jobs, particularly to the weakest members of society, in the next decade. Where will my young constituents, my young black and female constituents, find jobs? Where will those who are termed "poor achievers" at school find jobs? They will find jobs in the small and medium-sized companies.

One of the best and most revealing remarks in the debate was made by the hon. Member for Stockport, South (Mr. Orbach). In what, unhappily, might be his last speech in this Chamber, he said that his wife had encouraged him to invest in shares. He said that he wished he had not accepted his wife's encouragement and invested. How right he was.

Why did the hon. Member's wife encourage him to invest in shares? She did so because she remembered the days when she was affected by advice from other people and when investing in shares was a good thing in the sense that one received a fair return. The reality of the hon. Member's position is that he should have done what the Chancellor of the Exchequer has done. I do not make a snide joks about the Chancellor of the Exchequer's house, which, I think, he bought for £70,000.

Mr. Ernest G. Perry

But the hon. Member is making a snide remark.

Mr. Budgen

No, I am not. It was a rational decision in the present tax climate and in the present climate of dividend control. It was a decision taken by an intelligent man.

Mr. Perry

The hon. Member should be ashamed of himself.

Mr. Budgen

I should not be ashamed of myself.

The Chancellor does not often live in that large and splendid house. He has a grown-up family. He has a comfortable residence in London. No doubt he has a residence in his constituency, which is not in Sussex. He buys a house because he knows that he will get tax relief upon the borrowings against the house. He knows that the capital gain that he will make from the house will be tax-free

On the other hand, if he had a tiny cottage in Sussex and £50,000 available for investment in a small business in my constituency, he would have to pay capital gains tax on the shares if he sold them, and he knows that there is dividend control on the return from the shares. As an intelligent man who understands the system in which we all operate, he realises that it is more sensible to buy the big house in Sussex. That is the sort of rational decision that many people are now making. If the hon. Member for Stockport, South had taken a similar decision, he would undoubtedly have earned more money than by accepting his wife's advice to invest in shares.

We want to encourage people with spare capital to put it into small firms. It is only by doing that in their self-interest that we shall provide work for constituents such as mine. When the small firm competes for capital, it is at a disadvantage. It has been said rightly that the big firms are not caught by dividend control. They can make arrangements such as those which enabled GEC to avoid the effect of dividend control and make a cash distribution to its shareholders. That, however, is an expensive manoeuvre. It demands the advice of merchant bankers and company lawyers, and it demands careful negotiation with the Treasury. A small firm in Wolverhampton, which might be employing 20 or 30 people, does not have the necessary money or expertise available to it to do that.

Much has been made of the large investments by pension funds. Two-thirds of equities are now held by such funds. However, investment by those funds is in no real sense voluntary saving or voluntary investment. The pension funds, in effect, take the money from wage earners. The wage earner has to make that sort of contribution—

Mr. Perry

He does not have to. He is willing to do so.

Mr. Budgen

In so far as he is—

Mr. Perry

To assert that the money is taken away compulsorily from wage and salary earners is grossly unfair. Most of the people who work for firms of that nature, as I did at one time, are only too willing to have part of their wages taken to make provision for their old age. The pension system in this country is purely voluntary and is endorsed by millions of people.

Mr. Budgen

I am glad that that is so, and if my remark offends the hon. Gentleman I shall try to rephrase it. But for the tax advantages, I suspect that those persons would not make those contributions—

Mr. Perry

That is not true.

Mr. Budgen

I suspect, therefore, that they could be described as involuntary investment. If they were voluntary investment, those persons would be making savings themselves out of their pay packets and selecting their own investments.

The small company therefore relies upon private investors, because the big pension fund cannot take an interest in a small company employing, say, 20 to 50 people. It relies on the second cousin once removed of the managing director saying "I will lob a couple of thousand in." That is the way in which we shall provide work. We must ensure that investment is made as a preliminary to providing work for those who are unemployed in places such as my constituency.

The alternative to that is that the small employer has to go either to the Government or to the banks. Everyone knows that borrowing money from the banks is expensive and that the cost is subject to the vast variations in interest rates that we have seen in recent years. Borrowing money from the Government—which the hon. Member for Battersea, South (Mr. Perry) might regard as the best alternative—leads only to an increase in Government expenditure, an increase in the public sector borrowing requirement and, in many instances, thereby not to proper borrowing but to an increase in inflation.

Worse than that, though, it increases the power of the State. Worse than that, it increases the patronage society and the quango society under which we are now labouring so grievously.

8.50 p.m.

Mr. Nicholas Fairbairn (Kinross and West Perthshire)

It has been apparent to me for some time that the language of politics has become abominably squinted. The Labour Party still tries to pretend that it stands for the weak and the poor, and that the Opposition stand for the rich and the privileged. On the one side, hard-working men, many of them unemployed, get their pittance in a wage packet. On this side, dukes and marquesses get their dividends.

What interests me about this debate and about all the speeches I have heard is the complete unconcern of the Labour Party for the poor. It is not whether a person is poor or rich that Labour Members mind about. What they mind about is the way in which a person gets his money. If a person is a school teacher, a nurse, a matron or a garage mechanic, and that person pays tax on the money earned and is sufficiently thrifty and frugal to save some of it and to make an income out of it, and pay tax on that income again, that is wrong, because "dividend" is a class word.

The fact that one's whole dividend is £300 a year matters not. However, if one makes £12,000 a year, first by earning it in Rosyth dockyard by day and then moonlighting in the evening and one happens to be able to call oneself a working man, one is a person who is earning properly. The saver is the bad man, because the word "dividend" is attached to that, and that is a class word, which is wrong.

If one takes away the last syllable of the word and calls it "divi", then it becomes a good thing—because one gets "divis" at the Co-op. But is a bad thing if one gets a dividend from a company. That is the trivial nature of this proposed legislation.

There are very few things that one can do with money. I suppose that if one is a masochist, one can eat it, or one can tear it up or throw it away. If one is a psychopathic guilt fanatic, one can give it away and reclaim one's soul. But most people, even Socialists, can do only three things with money: they can spend it; they can spend it on things that they eat, on things that they burn, on things that they swallow or on things that they keep; or they can invest it: they can have a bit over and they can invest it.

The motivation of all human beings, even Socialists, even those who are inspired by the magnificence of Webb, Lenin and all those other philanthropists, is that they actually like to use money well in their own interests, or, if it suits their souls, in the interests of other people. Therefore, what is so bad about actually investing money and getting a little back from that?

No doubt the Labour Party likes to imagine that those who live in Kinross and West Perthshire are all very rich people. In fact, they are all very poor people. For very many of them, the only income they have on retirement is what they have saved—as the district nurse, or the post mistress. They are the people who have done the awful thing. They have actually been evil enough to indulge in the practice of getting their incomes, twice taxed, by dividend.

It is that awful thing which inspires the Government's philosophy and I find it offensive. They say "We shall be nasty to 23 million wage earners by telling them that they will get only 5 per cent.—in fact we know that they will get 15 per cent.—so to show that that is fair we shall be thoroughly nasty to many much poorer people whom we can put in the cage of those who get dividends." That is a mean political philosophy.

If this godforsaken Bill gets a Second Reading, it will be because of the Scottish National Party, so I am glad to see the attention that its Members are paying to this debate. What is the greatest complaint that that party, and its newsletter, The Scotsman, sub-edited by Lenin, have been making over the last few weeks? The complaint is that people who do not have the tartan royalty and respectability of being Scottish voters are actually buying land in Scotland. The Holy Land is being in some way defiled because a Dutchman or an Arab or a pension fund buys land. Why do they buy land? Because there is no point in investing in industries on the Clyde. If the SNP wants Scotland to be bought by Dutchmen and by English—as they would put it—railway pension funds, they will, by supporting this Bill tonight, make absolutely sure that that is what happens.

The matter is simple. This Bill is a piece of political nastiness. I find it offensive. It is a way of saying, "We are going to be nasty to wage earners and if you are going to hit one person it is only fair to hit someone else he dislikes, or is supposed to dislike." The fact that the first person may be well off is irrelevant: it is dividends that are wrong.

I got into a taxi this week with one of these awful capitalist beasts. He gave the taxi driver a lop piece and said, "There is a fiver for you cabby." The taxi driver said, "That is a 10p piece, sir," The other man said, "But I had to earn £5 to give you that 10p piece." He was an evil dividend earner, paying 98 per cent. And what was his trade? He himself was an ordinary working taxi driver.

8.58 p.m.

Mr. Nigel Lawson (Blaby)

As my hon. Friend the Member for Aylesbury (Mr. Raison) said, the Bill has been torn to shreds already by the speeches of my hon. Friends, not least that of my hon. and learned Friend the Member for Kinross and West Perthshire (Mr. Fairbaim), and it has enjoyed precious little support from the Labour Benches.

I am sorry that the Chief Secretary is not in the Chamber at the moment. Seldom can any major Bill—this is a major Bill, despite its brevity, because of what it represents—have been so inadequately and irresponsibly introduced as this one was by the right hon. Gentleman.

The right hon. Gentleman began by quoting, somewhat selectively, from the debates in 1972 and 1973, when the last Conservative Government introduced statutory controls on prices, pay and dividends. I was not a Member of the House at that time, but I think that many Labour Members will concede that I have consistently and publicly, and for the most practical of reasons, opposed the regimentation of pay, prices and dividends, certainly since 1961 and including 1961. That is a great deal more than can he said for the Chief Secretary, who voted for statutory controls in 1966 and against them in 1972 and now wants statutory controls on dividends coupled with a wholly different regime for wages. So let us have no more charges of inconsistency from that source.

My right hon. Friend the Member for Chipping Barnet (Mr. Maudling) was right to ask the Financial Secretary his three questions about this statutory discrimination against dividend income, and I trust that he will receive answers when the Financial Secretary replies.

First, we should ask ourselves, as a number of my hon. Friends have rightly done, how it is that the Bill is suddenly thrust upon us right at the end of the Session—indeed, the last Session of this Parliament—with all stages being taken in a single day and night. What sudden crisis has emerged to require this unusual treatment? It is not as though there has been an IRA bombing attack which made necessary the passage of some antiterrorist legislation. It is not as though the Prime Minister had suddenly taken it upon himself once again to remove the legal rights of United Kingdom passport holders. It has been known for a year that statutory dividend control would lapse at the end of this month unless new legislation were introduced.

There has been no shortage of parliamentary time to take such a Bill through in the normal way. I asked the admirable staff of our Library to let me know the full amount of Government legislation in the month of June, the obvious month in which to take such a Bill. There were the Second Readings of just two Bills: the Employment (Continental Shelf) Bill, which chiefly extended the Sex Discrimination Act to United Kingdom employees working on the Frigg gas field, and the Parliamentary Pensions Bill, which, of course, we all understand to be of particular interest to Labour Members contemplating the forthcoming General Election. That was all, save for a few remaining stages—I must mention that in order to be fair to the Leader of the House, who is here with us. We had the remaining stages of the Nuclear Safeguards and Electricity (Finance) Bill, the Co-operative Development Agency Bill, the Homes Insulation Bill, the Iron and Steel (Amendment) Bill, the House of Commons (Administration) Bill and the Community Service by Offenders (Scotland) Bill.

That was the massive total of Government legislation during June. The truth is that the Treasury had no intention whatever of renewing control. Indeed, what the Chief Secretary said today was the most arrant hypocrisy and humbug. He did not believe a word of it himself, as his hon. Friend the Member for Birmingham, Selly Oak (Mr. Litterick) has already pointed out.

The Treasury gave evidence—the Chief Secretary is a Treasury Minister for the time being—to the Wilson committee in June 1977 and said: There can be little doubt that dividend control has tended to distort the equity market, making it less attractive particularly to private investors, and has thus to some extent increased the cost of raising new capital. The imminent end of statutory dividend control was ushered in more than a year ago with the passage of the celebrated amendment—I am glad to see her here—to the Price Commission Bill moved by the hon. Lady the Member for Thurrock (Dr. McDonald), who was rewarded—or, perhaps I should say, punished—for her success by being appointed PPS to the Chief Secretary shortly thereafter.

On that occasion, when the amendment was moved in Committee, the Secretary of State for Prices and Consumer Protection said: If my hon. Friend's amendment is carried, not only will the pay sanctions, so-called, not apply after the summer of next year"— that is, this year— but nor will our powers to make a Price Code or to control dividends. I am prepared for that to happen, because I believe that it will produce a certain consistency with what the Bill seeks to achieve."—[Official Report, Standing Committee B, 24th May 1977; c. 559.] Subsequently, on Report, his Minister of State said, precisely one year ago today: from the end of the year beginning on 1st August 1977, there will be no further dividend control."—[Official Report, 27th July 1977; Vol. 936, c. 807.] That was a categorical assurance. The Lord President, who is present now, said as recently as 22nd June: With regard to dividend control … we do not believe that it will be necessary to have fresh legislation on the matter." —[Official Report, 22nd June 1978; Vol. 952, c. 712.]

Mr. Norman Tebbit (Chingford)

What has changed?

Mr. Lawson

That was the position until as recently as a month ago. There was no question during all that time of statutory dividend control being necessary in the battle against inflation—quite the contrary—so, as my hon. Friend asks very pertinently, as ever, what has changed?

I shall tell my hon. Friend. The Top Salaries Review Body report turned up at the end of last month recommending substantial increases in the pay of nationalised industry chairmen and various others. The Cabinet accepted it, though not without an acrimonious row, not merely in the Parliamentary Labour Party but within the Cabinet, led by the Leader of the House, who even went so far as to threaten his resignation. The Prime Minister was obliged to throw him a sop to keep him quiet. That sop was the renewal, despite all the Treasury objections, of dividend control.

The right hon. Gentleman was happy to accept that bone that he was thrown, with all the Hampstead intellectual's malign combination of contempt for the working class and guilt at not being a member of it. That is why the House is suddenly being asked to rush the Bill through tonight. Everything the Chief Secretary said about its being a necessary part of the battle against inflation is so much claptrap and balderdash. What is more, he knows it perfectly well. After all, he argued against it in Cabinet himself.

I accused the Leader of the House of a basic contempt for the working class. I did so for a reason. Of course, trade unionists are far too intelligent to believe that there is any benefit whatever for them in statutory dividend control. No trade unionist cares two hoots about it and, to do them justice, no trade union leaders—who are not always representative of their members, but are on this occasion—have been campaigning for it up and down the country, as my hon. Friend the Member for Harrow, East (Mr. Dykes) pointed out.

The Chief Secretary refused to answer a question I put to him when he opened the debate as to precisely how much dividends have gone up compared with wages over the relevant period. I shall tell him the answer as he did give it. Since 1972, when control of dividends was first imposed, despite the dismal record of the present Government, wages have risen slightly more than prices, but dividends have fallen over that period by as much as 25 per cent. in real terms. That does not take into account the very sharp fall that there has also been in the real capital value of equities. So much for the pressing need advanced by the Chief Secretary to prevent dividends rising faster than wages.

The Chief Secretary also said that the Bill was necessary to ensure that those receiving dividends bore their fair share of the sacrifice—that was his word—made by wage earners as a result of the Government's pay policy. I somewhat startled him at that point by suggesting that he was talking rubbish.

The right hon. Gentleman should have a word with his right hon. Friend the Chancellor of the Exchequer, because the Chancellor said in the economic debate only the day before yesterday: The most important thing"— not just one thing, but the most important— is that these difficult years of pay policy have not involved a sacrifice for the men and women who get the pay."—[Official Report, 25th July 1978; Vol. 954, c. 1502.] Perhaps the Chancellor and the Chief Secretary should get together some time and sort out this little problem.

Who suffers from dividend limitation? It is not the rich, because with present rates of tax, they choose not to have dividend income. It does not pay them to have it. It is ordinary people who suffer. My hon. Friend the Member for Horncastle (Mr. Tapsell) quoted very tellingly from the second volume of the Diamond report, the report of the Royal Commission on the distribution of income and wealth, the findings of which have never been challenged in the three years that have elapsed since its publication, despite the ill-informed taunts of some Labour Members when he was quoting from it.

It is worth reminding the House of what the Diamond Commission found. It found that nearly half of all recipients of dividends and taxed interest had total statutory incomes of less than £2,000 in that fiscal year, 1972–73, and that the majority of dividend and interest recipients—that is, individual recipients, who are roughly one-third of the total—were pensioners or, as the report calls them, aged persons. The report went on: Pensioners indeed formed a substantial proportion of dividend and taxed interest recipients at all income levels. Then we come to the institutions, in particular the pension funds and the insurance companies, which alone hold well over one-third of equity shares. The Diamond Commission found that more than half of all employed people benefit from contractual savings through pension funds and/or life assurance, and of those currently drawing occupational pensions about four-fifths of occupational pensioner taxpayers had total taxable incomes in 1972–73 below £2,000.

Indeed, Lord Diamond and his colleagues even discovered—and I quote this for the benefit particularly of the hon. Member for Loughborough (Mr. Cronin)—that up to 200,000 retirement pensioner tax units —I cannot help the language— in receipt of income from dividends and taxed interest might have had total incomes which were roughly comparable with those of retirement pensioners with supplementary benefit. That was another finding of the report.

Of course, the question of who really does receive dividends was conceded by the Chancellor of the Exchequer himself in one of our earlier July debates—they seem to have become something of an annual ritual. He said: relaxation in dividend control will also help many retired people and assist the life insurance and pension funds which look after the savings of millions of people of modest means".— [Official Report, 22nd July 1974; Vol. 877, c. 1053.] Let us be quite clear as to who is being attacked by this Bill. It is the elderly and ordinary people, many of them with below-average incomes. But it is not merely the retired workers who are being clobbered—and this is the only argument produced in the debate in support of the Bill—in order to persuade other workers not yet retired to moderate their wage claims. As my hon. Friend the Member for Rutland and Stamford (Mr. Lewis) pointed out, the Bill is also penalising workers who decide to take advantage of the employee share schemes that the Government introduced in this year's Finance Bill, which has only just completed its very long passage through Parliament.

What could be more ludicrous, what could be more bizarre or ridiculous, than introducing in the Finance Bill a measure designed to benefit workers by persuading them to take up shares in the company for which they work and then introducing this Bill in order to reduce the value of their shares? But that is what it will do, and it can do nothing else.

The continuation of dividend control does still more damage than that. My hon. Friend the Member for Croydon, Central (Mr. Moore), in an excellent speech, and many others of my hon. Friends have indisputably pointed this fact out.

I have already quoted, and I do not wish to quote again, the Treasury's evidence to the Wilson committee. The Chief Secretary likes to boast about how much equity capital has been raised by industry during the period that dividend control has existed. But it is worth putting these figures into perspective. In particular, it is worth looking at what has happened during the four years that the Government have been in office.

During that period, about £4 billion of new equity capital has been raised by industry. That may seem on its own quite a lot, but at the same time very nearly £20 billion of gilt edged has been sold to finance the Government borrowing requirement. The capitalist system really cannot survive if it is being crowded out by the Government in this way, with the Government borrowing at rates of interest which industry cannot possibly match. Nor, indeed, can the system work if the successful companies are unable, by raising their dividends, to attract on favourable terms the capital they need for expansion, and of which the less successful cannot make good use.

Mr. Cronin

The hon. Gentleman is making a very interesting speech, but he ought to bear in mind what the Financial Times said in its leading article this morning—namely, that new issues are no more than 6.5 per cent. of the total capital requirements of British industry.

Mr. Lawson

The Financial Times in its leader today demolished the Bill utterly and totally, and I am surprised that the hon. Member for Loughborough should try to draw comfort from the words to which he referred. He makes a mistake which is characteristic of nearly all supporters of the Labour Party, and that is to look at things in the aggregate.

It is not with industry as a whole but with individual companies that we are concerned. This legislation may not bear very hard on some companies but it does on others, and it bears hardest on those which have the greatest need for new capital and the greatest potentiality for expansion. That is the problem. They are the ones that need new capital.

Mr. Percy Grieve (Solihull)

Might not the Government with advantage take a leaf out of the book of the French Government, who are giving deliberate, active, fiscal encouragement to Investment in industry by giving tax rebates to those with modest incomes who invest in ordinary shares in industrial companies?

Mr. Lawson

I agree with my hon. and learned Friend that there are many interesting things that the French Government are now doing on the economic front, in particular in worker participation and in getting rid of a range of controls which have hamstrung the French economy for a very long time. This experiment that Monsieur Barre is conducting in France is something from which I hope Labour Members will learn a great deal, although that may be too much to expect. But at any rate, as I was arguing, that is the effect that this system of dividend limitation has on the go-ahead, enterprising companies. It makes it impossible for the capitalist system, the free enterprise system, to work as this control is prolonged further and further.

Indeed, the prolongation is more than the Bill makes out, because the Chief Secretary has put the nation on notice that, although the Bill may be technically of only one year's duration, as long as there is a Labour Government there will always be statutory dividend control. If the Chief Secretary wishes to deny that, I offer him the opportunity to do so now. I note that he does not. If he wishes to deny it, I shall gladly give way to the Chief Secretary. He is very shy and very quiet all of a sudden. He has turned very silent. The country will draw its own conclusion from that, and business men who believe that they can have incomes policies without prices policies and dividends policies as well will be sadder and wiser men this evening.

Of course the Prime Minister, we all understand, desperately wants just now to cobble together a deal with the trade union bosses—not, of course, because it has any relevance whatever to the fight against inflation or, indeed, to economic policy at all, but simply because he believes that something that can be presented as a deal is an electoral plus in itself. Unfortunately for him, the TUC met yesterday and made it absolutely clear that it will not play ball with the 5 per cent. norm. There is no deal over that figure.

According to today's papers, a rather chastened Prime Minister hastily explained that the Government certainly did not regard the 5 per cent. as an objective. He is reported as having said that the objective was not 5 per cent. but keeping inflation to single figures. That is certainly an objective which would be universally shared. The argument is about whether the Government's policies will achieve that. Not only will they not do so, but the Prime Minister does not even have the satisfaction of the endorsement by the TUC of those policies.

Despite the promise of more nationalisation through the NEB, despite the promise of the introduction of a wealth tax more severe in real terms than that proposed in 1974, despite the promise of the abolition of the House of Lords, which Labour Members seem to think is so popular—although, I believe, quite the reverse—and indeed despite this Bill, the Government have not been able to sell this policy to the TUC and get the deal which they sought purely for electoral purposes.

This debate has shown the Labour Party at its divisive worst. It has shown its unprincipled exploitation of envy and it has demonstrated its persistent attempts to rekindle the class war.

Mr. R. B. Cant (Stoke-on-Trent, Central)

I hesitate to halt the hon. Gentleman in full flow, but is not the real truth about this problem that the Bill is necessary because we have now reached a moment of time—this is clear from all the private investors' circulars this week—when we are entering the second leg of a major bull market on the Stock Exchange which will take the FT index to 800? [Laughter.] I am merely quoting one of the most influential investors' letters of yesterday. In these circumstances, it would be quite right for the Chancellor to introduce a measure of restraint on this casino down the road without causing anyone any social injustice.

Mr. Lawson

The hon.. Gentleman is far too intelligent to believe that. I should be interested to know how much of his own personal savings he invested in the stock market this morning as a result of reading that circular.

The questions we have to put to the Government are these. Do they really want a mixed economy? Evidently not, on the basis of the Bill. Do they want a better understanding of the facts of economic life? Evidently not, on the basis of the Bill. For companies, this is a Bill which penalises all, but particularly the most successful, on which our future prosperity so greatly depends. Among individuals, the Bill penalises in particular the poor and the elderly. I ask the House to reject it.

9.24 p.m.

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

We heard, in the earlier part of the debate, a number of literary quotations from among others, the right hon. Member for Chipping Barnet (Mr. Maudling) and the hon. Member for Cirencester and Tewkesbury (Mr. Ridley). I am tempted to present my offering—

Mr. Speaker

Order. I should tell the House that when the time comes for a Division, if the House wishes to divide, I shall go by the clock opposite, as we did before we had the digital clocks.

Mr. Sheldon

I was mentioning the literary quotations we have heard and saying that I was tempted to present my own offering. However, because I am a Benthamite, I believe that I can give greater pleasure to more people when I read our great literature than when I declaim it. On this occasion I will opt out.

We have had in this long debate a number of contributions that have dealt with prices and incomes policies as well as the advantages and disadvantages of dividend controls. We have had dividend controls in one form or another for a long time.

At the beginning of the last war dividend controls were considered by the Chamberlain Government. A Bill was debated in Parliament but it was withdrawn in favour of an excess profits tax, introduced by a coalition Government in June 1940. The reason for such a tax was that at a time when living standards were declining sharply, a policy of equity and fairness was absolutely necessary. It would have been quite wrong for some people to do well at a time of difficulty for all.

Between 1947 and 1951 there were further voluntary dividend controls and in 1961, under a Conservative Government, there was a voluntary pause on dividends for 12 to 18 months. There were three further periods of dividend restraint during the term of office of the 1964–70 Labour Government. From November 1972 to March 1973 there was a five-month freeze on dividends followed by 16 months of limitations. This was followed by the current limitations introduced by the present Government.

All those Governments, Conservative and Labour, introduced dividend control, not because of its direct economic advantages, but because of the outrage there would have been if certain people had been seen to be getting disproportionate increases in income at a time when the living standards of others were not rising so much.

Those hon. Members who feel that dividend restraint is something new should look back over a period of nearly 40 years when this has been a constant part of our approach and the approach of all Governments to prices and incomes policies generally. In 1976 the right hon. Member for Sidcup (Mr. Heath) referred to the need for discussions with the trade union leaders on economic policy. He had realised—and perhaps the Opposition are now begining to realize—that these matters must be discussed with all those interested. The consultations that take place between the Government and the trade unions show the impossibility of asking for restraint for some while allowing concessions to others.

Mr. Kenneth Lewis

Is not the point of the whole debate simply that there was nothing to prevent the Government from getting a voluntary deal on dividends just as they supposedly believe they have for pay? They would have received co-operation from the City. The Wilson committee has great influence in the City which they could have sought to use. They would have had cooperation from the CBI as well. This would have been a better approach than putting statutory controls on one side and not the other.

Mr. Sheldon

This is a suitable time to refer to the questions that were asked by the right hon. Member for Chipping Barnet. He asked three questions, one of which was why there should be a volun- tary policy for dividends. The right hon. Member knows the history of this better than almost anybody. Between 1972 and 1974 the policy was statutory for both pay and dividends. That policy failed lamentably because one cannot have a statutory policy for incomes and we as a Government have never sought to introduce such a policy. Our record has shown that it is possible for Governments, acting in co-operation with the interested parties, to obtain a voluntary agreement on pay which is far preferable to anything attempted before. With dividends, we need a policy that will be accepted. That is the test—a policy that is accepted.

Mr. Tebbit

By whom?

Mr. Sheldon

By the people of this country and by those who are engaged in industry on both sides.

The second question of the right hon. Member for Chipping Barnet was the same as that just asked by the hon. Member for Rutland and Stamford (Mr. Lewis), namely, why there is not voluntary control of dividends. The answer is simple. I would dearly wish to have voluntary control if I could be sure that it would work. I strongly believe, on all these matters, that if we can get agreement among those who look to the wider consequences of their undertakings, that is the best way to proceed. I regret that, as was pointed out by the hon. Member for Harrow, East (Mr. Dykes). who seemed to understand some of the problems, had we gone for a voluntary agreement on dividends, a number of companies were preparing to make large dividend increases and that sort of attitude would have made the pay policy with which we are determined to proceed very difficult.

Mr. Peter Rost (Derbyshire, South-East)

The Minister continues to base his argument on the fallacious assumption that dividends are, for the most part, distributed to individuals and spent. The facts show that the majority of dividends are retained by a large number of the institutional funds and are ploughed back for new investment. Why does not the Minister stop distorting the situation and present the truth, which is that, in many cases, dividends are not adding to people's distributable income?

Mr. Sheldon

I shall be dealing later with the economic implications of dividend control. I am at present outlining why it was not possible to establish voluntary control over dividends. I indicated to the House my personal preference for that, if it had been possible. I am, however, forced to accept that such voluntary control would not have been effective.

The third question of the right hon. Member for Chipping Barnet was whether, if the voluntary pay agreement failed, dividend controls would be abandoned. In a sense, he answered himself because he said that it was a hypothetical question. My answer must be that I do not believe that the voluntary pay agreement will fail. We have been able to succeed with previous policies, and I believe that we shall be able to succeed for a fourth time.

Mr. Maudling

I am most grateful to the Financial Secretary for discussing and commenting on my questions, but it would be more helpful if he would try to answer them. In particular, will he give his reasons for saying that it would not be possible to have a voluntary agreement on dividends?

Mr. Sheldon

I thought that I had gone into that matter fully and I did so because of the respect that I and the House have for the right hon. Gentleman. We know of a number of companies that would have produced very large dividend payments—200 per cent. increases or more—which would have made it difficult for us to proceed with the pay policy on which we have embarked.

Mr. Maudling

Did the Government make any attempt whatsoever to get a voluntary agreement?

Mr. Sheldon

Our understanding is that such an agreement would be violated—perhaps by only a few, but they would have made it difficult for us to achieve the incomes policy on which we are embarked.

Mr. Richard Wainwright

The right hon. Gentleman knows that Liberals, too, asked for answers to the questions put by the right hon. Member for Chipping Barnet (Mr. Maudling). I ask the right hon. Gentleman to consider whether he has been entirely frank with the House when he speaks of his doubts about a voluntary dividend policy. To what extent did he entertain the use of some sanctions against spectacularly gross dividend increases as he is prepared to have, and which we have supported, on pay increases? Let the right hon. Gentleman be frank. He has had our support on sanctions.

Mr. Sheldon

That is an interesting observation. I always thought that hon. Members in the Opposition parties were against such sanctions. I much prefer to see these matters put in legislative form so that we may debate them in the House as we have the advantage of debating the Bill now.

Mr. John Evans

Does my right hon. Friend think that firms such as Grunwick would be prepared to abide by voluntary policies? If such firms would not agree to abide by voluntary policies, Opposition Members would encourage them all the way.

Mr. Sheldon

My hon. Friend indicates some of the obvious problems that would have faced us had we proceeded along that course.

Mr. Lawson

rose—

Mr. Sheldon

I think that I had better proceed.

Mr. Lawson

It seems that the right hon. Gentleman does not have much to say. Does he believe that what matters is the average increase in pay or each individual settlement? By the same token, does he feel that what matters is the average increase in dividends or each individual dividend?

Mr. Sheldon

The hon. Gentleman will have seen the White Paper. He will know that arrangements are set out for increases in pay and increases in dividends. He will be aware of the level of earnings increases over the past year that we have achieved in comparison with that which we set out to achieve.

The hon. Member for Horsham and Crawley (Mr. Hordern) sought to show that the level of earnings at the end of the pay round was substantially more than at the beginning. He was quoting the old earnings index. I had better clarify the position. There have been a number of misconceptions about the two indices.

The index of average earnings shows that the present round of pay policy has worked better than most people were prophesying this time last year. The new series index for May showed an increase of 12.5 per cent. over a year previously, suggesting a figure of between 13 per cent. and 14 per cent. for July. Quite a bit of the 3 per cent. or 4 per cent. excess, possibly 1½ per cent., will be accounted for by payments under self-financing productivity deals, which by definition will not feed through into prices.

The difference between the new series index, which I have just mentioned, and the older series mentioned by the hon. Member for Horsham and Crawley is worth pointing out. The older series index was introduced from January 1963 and covers about 11 million employees in the production industries, part of transport and communication, and some miscellaneous services. Because of this limited coverage, it is not a very good indicator of what is happening in the economy as a whole.

The new series, on the other hand, covers in total about 21 million employees, virtually the entire economy. It was introduced from January 1976, and so our experience is too short to make a reliable assessment of the pattern of seasonal variations and so it is not seasonally adjusted. But this does not affect the reliability of the year-on-year increases it shows, which are a fair reflection of movements in the economy generally. Therefore, we should look at the new series to see whether the Government's pay policy is working, since it is based on the economy as a whole. By referring to the old index, the hon. Gentleman was clearly failing to take account of the rather more reliable figures that we now have available.

Mr. Hordern

Of course, I should think that the old, not the new, index was being used in last year's White Paper. In any case, whether it was old or new, the White Paper last year stated that, if earnings were anything approaching 15 per cent., there was no possibility whatever of keeping prices below 10 per cent.; they would be above 10 per cent. and would go on increasing. As that has not happened, is it not apparent that the link between earnings and prices that the Government and the Treasury have for so many years tried to establish has been wholly fallacious?

Mr. Sheldon

The level of earnings is determined not by the index but by the reality. In so far as we have this new index, it is a better measure of what has happened, and what has happened has been rather better than the hon. Gentleman indicated.

A number of hon. Members have said—

Mr. Dykes

Will the right hon. Gentleman give way?

Mr. Sheldon

I think that I must make progress.

Some hon. Members have said that shares and dividends are more widely held by unit trusts and the institutions, pension funds and so on than by individuals. That is, of course, true, because, as a proportion of the whole, pension funds, insurance companies, unit trusts and other institutions have increased their holdings of shares over the past years. But it would be misleading if it were assumed that individuals did not also have very considerable holdings of shares and received dividends in respect of them.

The latest information that we have is for December 1975. We see that more than 37 per cent. of all shareholdings are shareholdings by the beneficial owners. That amounts to £17 billion—not a small sum. The figures show that more than £1 billion worth of shares was owned by people having individual shareholdings each of more than £100,000. Over £1 billion worth of shares was owned by people who had shareholdings in excess of £100,000. Opposition Members may laugh. But that is one factor that none of them brought out—that there are still substantial holdings of shares by individuals. It would clearly be a matter of some resentment if dividends were markedly increased so that those with large shareholdings were allowed to increase their incomes substantially at a time when there was restraint on the pay which others obtained by working.

Mr. Tapsell

The Financial Secretary has just pointed out that one-seventeenth of 37 per cent. of shareholdings in this country are held by rich people who, when income tax and investment income surcharge are combined, pay up to 98 per cent. on the proceeds. What point does he think he is making?

Mr. Sheldon

The point is that £100,000 in shares is a considerable sum to have and that £1 billion worth is held by those with such shareholdings. These are considerable sums of money. We are discussing the role of dividends as part of a policy on pay and prices.

Mr. Ron Thomas

Will my right hon. Friend give way?

Mr. Sheldon

I really think that I had better make progress.

We cannot have such a policy without control of dividends.

Mr. Ron Thomas

Does my right hon. Friend agree that if workers are unable to have the full extent of a legitimate pay claim, it has gone for ever? But the Bill simply puts on one side for the time being the dividends which would otherwise go to these rich individuals and will come back to them in capital gains, free scrip issues or deferred dividend payments.

Mr. Sheldon

My hon. Friend is largely right. Most of this money will go back into other forms of investment that will benefit companies.

Mr. Lawson

Will the right hon. Gentleman give way?

Mr. Sheldon

The hon. Gentleman must be about the most prominent interrupter in the whole of our debates. I have taken an interest in him since I heard his maiden speech, because he interrupted the hon. Member who was congratulating him upon it.

Mr. Lawson

Contrary to convention, the hon. Member was not congratulating me, and that was why I intervened. Can the Financial Secretary explain the morality of the proposition that he is putting forward? He is saying that because 2 per cent. of total shares are owned by rich people, against whom he wishes to wage a vendetta, he feels it right to penalise the other 98 per cent. How does he feel that that can be justified?

Mr. Sheldon

It has never been part of my attitude to political life to wage vendettas against anybody. The hon. Gentleman must realise that when one is trying to achieve a consensus—which is very difficult to achieve—certain things have to be done to ensure that the sacrifices are borne generally. There are some Tory Members who do not believe in a pay and prices policy. If they hold that view—and we have heard today that a number do—they also hold the view that dividends should form no part of any Government policy. But there are those who say "You can have a pay and prices policy"—although their voices are rather uncertain—"but it ought not to include dividends".

I do not believe that trade unions will accept controls on pay without at the same time pressing most strongly for constraints on dividends. We have seen this throughout the history of Government intervention in prices and incomes, which has extended now over a period of more than 30 years.

What we have seen over the past few months is a slow, reluctant and uncertain shuffle in the direction of a pay and prices policy by the Opposition as they have approached the chopping block of a General Election. It is that, and that only, that has forced them to concentrate on the realities of their position and the demand of the people of this country that when incomes are restrained we ought to make sure that there is an equitable distribution of whatever increase is permitted. That sort of fairness is the very basis of the policy that we have set out in the White Paper.

Mr. Higgins

rose—

Mr. Sheldon

I shall not give way. I have quite a lot to say. The question that we now have to consider is whether, in the light of their uncertain pronouncements, the Opposition generally believe in a pay and prices policy. The Tory Government, in 1972 to 1974, believed in a pay and prices policy, and the right hon. Member for Sidcup is clearly unrepentant about his activities on this front during that period. In fact, the right hon. Gentleman went further and even continued his enthusiasm for a pay and prices policy after he left office. He said: I am unable to visualise a situation in which there was an incomes policy, either voluntary or statutory, but in which there was not a prices policy at the same time. A little later he said: I fully and unequivocally support the agreement which the Government have reached with the trade unions. I believe that it is in the national interest that this agreement should have been reached. I do not believe we should hedge about it … I believe that this pay policy arrangement will stick. The last one did and perhaps therefore it will make the future task easier by disarming the sceptics who have always believed that such a move was possible. He hoped that the present Opposition leaders will be prepared to enter into discussions with trade union leaders, because that is part of our life in a democracy."—[Official Report, 7th July 1976; Vol. 914, c. 1409–16.] This criticism of the Tory leadership was a criticism of the takeover of the Tory Party by the monetarists. But under the pressure of an approaching General Election the ideological purity of the monetarists, represented by the hon. Member for Blaby (Mr. Lawson), is now being questioned.

The mouthpiece of this policy has for long been The Times, with its articles on the beauty of gold and the perfection of the theoretical relationship between inflation and monetary growth. For a long time The Times has felt that the Government have received, accepted and swallowed almost all the monetary policies which it advised.

In The Times last Saturday I read: In the Government's view, therefore, the incomes policy is the sine qua non of winning the battle against inflation. Mrs. Thatcher has clearly indicated that she does not share this economic analysis and that a Government led by her would follow different policies. The country is faced with an unusually clear choice of alternatives as far as central economic policy is concerned … The real course of the economy is determined by the monetary policy which the Government chooses to pursue … It is wrong to carry forward the attack against inflation with prices and incomes policies as a prime weapon.

Mr. Lawson

Hear, hear.

Mr. Sheldon

It is interesting to hear the cheers of the hon. Member for Blaby. We have to ask—and incredibly, after all these years, the question has not been answered—has The Times got it right?

The Leader of the Opposition does not believe that an incomes policy is essential to win the battle against inflation. The Sunday Telegraph last Sunday, in an article by Patrick Hutber, whom I do not normally quote, said: It would be wrong to deny that there is quite a lot of common ground … between Government and Opposition. The Sunday Telegraph leader of the same dated stated: one might reasonably conclude that there is now a consensus between the two parties about the inevitability of some kind of Government-inspired wage limitation at least for the foreseeable future, the only remaining immediate argument being about details and implementation. Two of the strongest media supporters of the Opposition's economic policy show fundamental differences in their interpretation of that policy. If these two great organs of press opinion are unable to agree what the Opposition are saying on this central and critical issue of economic policy, of whether the Opposition believe in a prices and incomes policy, the country will conclude that it is better to have a Government who speak with a clear voice on these matters.

Mr. Higgins

Apart from the quotations, the main point in the Minister's argument is that he is seeking equity between dividend recipients such as pensioners and wage earners. Is it not true that throughout the period of Labour government there has been dividend control from the time when we had the wage explosion in 1974 and 1975? The same was true in the last year when dividends were restrained and wages went up faster than the Government said that they should.

Mr. Sheldon

The hon. Member for Worthing (Mr. Higgins) has not taken into account the crucial economic fact that, when one asks people to restrain themselves, that restraint must be spread over an area where comparisons are possible. The shifting of the ground in the Tory Party on economic policy was seen clearly in Tuesday's debate when the Leader of the Opposition was unable to approve the White Paper in any way, whereas the Shadow Chancellor of the Exchequer said: It is important for the House to under-stand that the White Paper establishes a fair degree of common ground that the parties ought to recognise when discussing these matters."—[Official Report, 25th July 1978; Vol. 954, c. 1490.] Twice on later occasions in the same speech he referred again to what he called the "elements of common ground".

The question which must be asked is, what is this common ground. Does the right hon. and learned Gentleman believe in a pay and prices policy, or are we seeing a policy change on the Conservative Benches? We heard from the hon. Member for Blaby tonight, but on a previous occasion he wanted to bring in an Act to limit the amount of monetary growth. Does he speak for the Opposition? We did not hear a great deal about that common ground from the Leader of the Opposition. She did not mention it, and we heard nothing about it last year or the year before. The great danger to which the Opposition are responding is their sense that the coming election will catch them with the wrong policies at the wrong time.

If there is agreement that pay and price restraint needs to continue, an essential consequence of that is that dividend restaint should continue, too. That is not because of the economic advantages of dividend limitation. It is rather that the economic advantages of the pay and prices policy depend on dividend restraint.

These, then, are the reasons why, when in Government, both parties introduced controls. They did so for very good reasons—equity and fairness, and because it was necessary to convince people that their sacrifices would not be exploited by others.

I accept that dividend restraint cannot be continued indefinitely because of some of its distorting effects.—[HON. MEMBERS: "Ah."]—But we are seeking to achieve the fourth stage of our pay and prices policy and it is only right for us to continue with the dividend aspect of it. I believe that the time will come when we shall be able to find an agreed path leading to stable and responsible pay negotiations, and at that stage we can move towards freeing dividends from restraint. The right time for that, however, will be when inflation is firmly under control.

The hon. Member for Horncastle (Mr. Tapsell) asked whether the main reasons for the Bill were political and psychological, not economic. Dividend control was first discussed in 1940, but the Bill

was jettisoned in favour of an excess profits tax. The interesting point is that no one argued for it on economic grounds then. A 100 per cent. excess profits tax was charged because it was felt wrong to make excess profits. One could not have a united country when some people in it had special advantage while others did not. If the hon. Member calls that a political or psychological reason, I call it a common sense reason.

If one is seeking to unite the country and secure the agreement of the people, one must take into account the problems that arise in introducing and maintaining a policy which is seen to be eminently fair—

Mr. Tapsell

rose—

Mr. Sheldon

I cannot give way.

This dividend policy is an essential part of a total policy, as all Governments have realised over the years. That is why we have brought forward the Bill, and that is why we ask the House to approve it.

9.59 p.m.

Mr. Norman Tebbitt (Chingford)

That was a most entertaining speech. The only problem was that the Financial Secretary ran out of newspaper cuttings. If only he had had a full copy of The Times, he would have been able to do much better, but in fact he did not—

Mr. Walter Harrison (Treasurer of Her Majesty's Household)

rose in his place and claimed to move, That the Question be now put.

Question put, That the Question be now put:—

The House proceeded to a Division—Mr. COLEMAN and Mr. JAMES HAMILTON were appointed Tellers for the Ayes but no Member being willing to act as Teller for the Noes, Mr. SPEAKER declared that the Ayes had it.

Question put accordingly, That the Bill be now read a Second time—

The House divided: Ayes 309, Noes 294.

Division No. 317]	AYES	[10.00 p.m.
Abse, Leo	Ashton, Joe	Barnett, Rt Hon Joel (Heywood)
Allaun, Frank	Atkins, Ronald (Preston N)	Bates, Alf
Anderson, Donald	Atkinson, Norman (H'gey, Tott'ham)	Bean, R. E.
Archer, Fit Hon Peter	Bagier, Gordon A. T.	Benn, Rt Hon Anthony Wedgwood
Armstrong, Ernest	Bain, Mrs Margaret	Bennett, Andrew (Stockport N)
Ashley, Jack	Barnett, Guy (Greenwich)	Bidwell, Sydney
Bishop, Rt Hon Edward	Garrett, W. E. (Wallsend)	Mellish, Rt Hon Robert
Blenkinsop, Arthur	George, Bruce	Mikardo, Ian
Boardman, H.	Gilbert, Rt Hon Dr John	Millan, Rt Hon Bruce
Booth, Rt Hon Albert	Ginsburg, David	Miller, Dr M. S. (E Kilbride)
Boothroyd, Miss Betty	Golding, John	Mitchell, Austin (Grimsby)
Bottomley, Rt Hon Arthur	Gould, Bryan	Mitchell, R. C. (Soton, Itchen)
Boyden, James (Bish Auck)	Gourlay, Harry	Molloy, William
Bradley, Tom	Graham, Ted	Moonman, Eric
Bray, Dr Jeremy	Grant, George (Morpeth)	Morris, Alfred (Wythenshawe)
Broughton, Sir Alfred	Grant, John (Islington C)	Morris, Rt Hon Charles R.
Brown, Robert C. (Newcastle W)	Grocott, Bruce	Morris, Rt Hon J. (Aberavon)
Brown, Ronald (Hackney S)	Hamilton, W. W. (Central Fife)	Morton, George
Buchan, Norman	Hardy, Peter	Moyle, Rt Hon Roland
Buchanan, Richard	Harrison, Rt Hon Walter	Mulley, Rt Hon Frederick
Butler, Mrs Joyce (Wood Green)	Hart, Rt Hon Judith	Murray, Rt Hon Ronald King
Callaghan, Rt Hon J. (Cardiff SE)	Hattersley, Rt Hon Roy	Newens, Stanley
Callaghan, Jim (Middleton & P)	Hayman, Mrs Helene	Noble, Mike
Campbell, Ian	Healey, Rt Hon Denis	Oakes, Gordon
Canavan, Dennis	Heffer, Eric S.	Ogden, Eric
Cant, R. B.	Henderson, Douglas	O'Halioran, Michael
Carmichael, Neil	Hooley, Frank	Orbach, Maurice
Carter, Ray	Horam, John	Orme, Rt Hon Stanley
Carter-Jones, Lewis	Howell, Rt Hon Denis (B'ham, Sm H)	Ovenden, John
Cartwright, John	Hoyle, Doug (Nelson)	Padley, Walter
Castle, Rt Hon Barbara	Huckfield, Les	Palmer, Arthur
Clemitson, Ivor	Hughes, Rt Hon C. (Anglesey)	Park, George
Cocks, Rt Hon Michael (Bristol S)	Hughes, Mark (Durham)	Parker, John
Cohen, Stanley	Hughes, Robert (Aberdeen N)	Parry, Robert
Coiquhoun, Ms Maureen	Hughes, Roy (Newport)	Pavitt, Laurie
Concannon, Rt Hon John	Hunter, Adam	Pendry, Tom
Conlan, Bernard	Irvine, Rt Hon Sir A. (Edge Hill)	Perry, Ernest
Cook, Robin F. (Edin C)	Irving, Rt Hon S. (Dartford)	Phipps, Dr Colin
Corbett, Robin	Jackson, Colin (Brighouse)	Prescott, John
Cowans, Harry	Jackson, Miss Margaret (Lincoln)	Price, C. (Lewisham W)
Craigen, Jim (Maryhill)	Janner, Greville	Price, William (Rugby)
Crawshaw, Richard	Jay, Rt Hon Douglas	Radice, Giles
Cronin, John	Jeger, Mrs Lena	Rees, Rt Hon Merlyn (Leeds S)
Crowther, Stan (Rotherham)	Jenkins, Hugh (Putney)	Reid, George
Cryer, Bob	John, Brynmor	Richardson, Miss Jo
Cunningham, G. (Islington S)	Johnson, James (Hull West)	Roberts, Albert (Normanton)
Cunningham, Dr J. (Whiteh)	Johnson, Walter (Derby S)	Roberts, Gwilym (Cannock)
Dalyell, Tam	Jones, Alec (Rhondda)	Robertson, George (Hamilton)
Davidson, Arthur	Jones, Barry (East Flint)	Robinson, Geoffrey
Davies, Bryan (Enfield N)	Jones, Dan (Burnley)	Roderick, Caerwyn
Davies, Rt Hon Denzil	Judd, Frank	Rodgers, George (Chorley)
Davies, Ifor (Gower)	Kaufman, Rt Hon Gerald	Rodgers, Rt Hon William (Stockton)
Davis, Clinton (Hackney C)	Kelley, Richard	Rooker, J. W.
Deakins, Eric	Kerr, Russell	Roper, John
Dean, Joseph (Leeds West)	Kilroy-Silk, Robert	Ross, Rt Hon W. (Kilmarnock)
de Freitas, Rt Hon Sir Geoffrey	Kinnock, Neil	Rowlands, Ted
Dell, Rt Hon Edmund	Lambie, David	Ryman, John
Dempsey, James	Lamborn, Harry	Sandelson, Neville
Dewar, Donald	Lamond, James	Sedgemore, Brian
Doig, Peter	Latham, Arthur (Paddington)	Selby, Harry
Dormand, J. D.	Leadbitter, Ted	Sever, John
Douglas-Mann, Bruce	Lee, John	Shaw, Arnold (Ilford South)
Duffy, A. E. P.	Lestor, Miss Joan (Eton & Slough)	Sheldon, Rt Hon Robert
Dunn, James A.	Lever, Rt Hon Harold	Shore, Rt Hon Peter
Dunnett, Jack	Lewis, Arthur (Newham N)	Short, Mrs Renée (Wolv NE)
Dunwoody, Mrs Gwyneth	Lewis, Ron (Carlisle)	Silkln, Rt Hon John (Deptford)
Eadie, Alex	Litterick, Tom	Silkln, Rt Hon S. C. (Dulwich)
Edge, Geoff	Lomas, Kenneth	Sillars, James
Edwards, Robert (Wolv SE)	Loyden, Eddie	Silverman, Julius
Ellis, John (Brigg & Scun)	Luard, Evan	Skinner, Dennis
Ellis, Tom (Wrexham)	Lyon, Alexander (York)	Smith, Rt Hon John (N Lanarkshire)
English, Michael	Lyons, Edward (Bradford W)	Snape, Peter
Ennals, Rt Hon David	Mabon, Rt Hon Dr J. Dickson	Spearing, Nigel
Evans, Fred (Caerphilly)	McCartney, Hugh	Spriggs, Leslie
Evans, Gwynfor (Carmarthen)	McDonald, Dr Oonagh	Stallard, A. W.
Evans, Ioan (Aberdare)	McElhone, Frank	Stewart, Rt Hon M. (Fulham)
Evans, John (Newton)	MacFarquhar, Roderick	Stoddart, David
Ewing, Harry (Stirling)	McGuire, Michael (Ince)	Stott, Roger
Faulds, Andrew	McKay, Ailen (Penistone)	Strang, Gavin
Fernyhough, Rt Hon E.	MacKenzie, Rt Hon Gregor	Strauss, Rt Hon G. R.
Fitch, Alan (Wigan)	Maclennan, Robert	Summerskill, Hon Dr Shirley
Fitt, Gerard (Belfast W)	McMillan, Tom (Glasgow C)	Swain, Thomas
Flannery, Martin	Madden, Max	Taylor, Mrs Ann (Bolton W)
Fletcher, L. R. (Ilkeston)	Magee, Bryan	Thomas, Jeffrey (Abertillery)
Fletcher, Ted (Darlington)	Maguire, Frank (Fermanagh)	Thomas, Mike (Newcastle E)
Foot, Rt Hon Michael	Mallalieu, J. P. W.	Thomas, Ron (Bristol NW)
Ford, Ben	Marks, Kenneth	Thompson, George
Forrester, John	Marshall, Dr Edmund (Goole)	Thorne, Stan (Preston South)
Fowler, Gerald (The Wrekin)	Marshall, Jim (Leicester S)	Tierney, Sydney
Fraser, John (Lambeth, N'w'd)	Mason, Rt Hon Roy	Tilley, John
Freeson, Rt Hon Reginald	Maynard, Miss Joan	Tinn, James
Garrett, John (Norwich S)	Meacher, Michael	Tomlinson, John

Tomney, Frank	Wellbeloved, James	Wilson, Gordon (Dundee E)
Torney, Tom	Welsh, Andrew	Wilson, Rt Hon Sir Harold (Huyton)
Tuck, Raphael	White, Frank R. (Bury)	Wilson, William (Coventry SE)
Urwin, T. W.	White, James (Pollok)	Wise, Mrs Audrey
Varley, Rt Hon Eric G.	Whitehead, Phillip	Woodall, Alec
Wainwright, Edwin (Dearne V)	Whitlock, William	Woof, Robert
Walker, Harold (Doncaster)	Wigley, Dafydd	Wrigglesworth, Ian
Walker, Terry (Kingswood)	Willey, Rt Hon Frederick	Young, David (Bolton E)
Ward, Michael	Williams, Rt Hon Alan (Swansea W)
Watkins, David	Williams, Alan Lee (Hornch'ch)	TELLERS FOR THE AYES.
Watkinson, John	Williams, Rt Hon Shirley (Hertford)	Mr. Donald Coleman and
Weetch, Ken	Williams, Sir Thomas (Warrington)	Mr. James Hamilton
Weitzman, David
NOES
Adley, Robert	Eyre, Reginald	Jopling, Michael
Aitken, Jonathan	Fairbairn, Nicholas	Joseph, Rt Hon Sir Keith
Alison, Michael	Fairgrieve, Russell	Kaberry, Sir Donald
Amery, Rt Hon Julian	Farr, John	Kellett-Bowman, Mrs Elaine
Arnold, Tom	Fell, Anthony	Kershaw, Anthony
Atkins, Rt Hon H. (Spelthorne)	Finsberg, Geoffrey	Kilfedder, James
Atkinson, David (B'mouth, East)	Fisher, Sir Nigel	Kimball, Marcus
Awdry, Daniel	Fletcher, Alex (Edinburgh N)	King, Evelyn (South Dorset)
Baker, Kenneth	Fletcher-Cooke, Charles	King, Tom (Bridgwater)
Banks, Robert	Fookes, Miss Janet	Kitson, Sir Timothy
Beith, A. J.	Forman, Nigel	Knight, Mrs Jill
Bell, Ronald	Fowler, Norman (Sutton C'f'd)	Knox, David
Bendall, Vivian	Fox, Marcus	Lamont, Norman
Bennett, Sir Frederic (Torbay)	Fraser, Rt Hon H. (Stafford & St)	Langford-Holt, Sir John
Bennett, Dr Reginald (Fareham)	Freud, Clement	Latham, Michael (Melton)
Benyon, W.	Fry, Peter	Lawrence, Ivan
Berry, Hon Anthony	Galbraith, Hon T. G. D.	Lawson, Nigel
Biffen, John	Gardiner, George (Reigate)	Lester, Jim (Beeston)
Biggs-Davison, John	Gardner, Edward (S Fylde)	Lewis, Kenneth (Rutland)
Blaker, Peter	Gilmour, Rt Hon Sir Ian (Chesham)	Lloyd, Ian
Body, Richard	Gilmour, Sir John (East Fife)	Loveridge, John
Boscawen, Hon Robert	Glyn, Dr Alan	Luce, Richard
Bottomiey, Peter	Godber, Rt Hon Joseph	McCrindle, Robert
Bowden, A. (Brighton, Kemptown)	Goodhart, Philip	Macfarlane, Neil
Boyson, Dr Rhodes (Brent)	Goodhew, Victor	MacGregor, John
Bradford, Rev Robert	Goodlad, Alastair	MacKay, Andrew (Stechford)
Braine, Sir Bernard	Gorst, John	Macmillan, Rt Hon M. (Farnham)
Britlan, Leon	Gow, Ian (Eastbourne)	McNair-Wilson, M. (Newbury)
Brocklebank-Fowler, C.	Gower, Sir Raymond (Barry)	McNair-Wilson, P. (New Forest)
Brooke, Hon Peter	Grant, Anthony (Harrow C)	Madel, David
Brotherton, Michael	Gray, Hamish	Marshall, Michael (Arundel)
Brown, Sir Edward (Bath)	Grieve, Percy	Marten, Neil
Bryan, Sir Paul	Griffiths, Eldon	Mates, Michael
Buchanan-Smith, Alick	Grimond, Rt Hon J.	Mather, Carol
Buck, Antony	Grist, Ian	Maude, Angus
Budgen, Nick	Grylls, Michael	Maudling, Rt Hon Reginald
Bulmer, Esmond	Hall-Davis, A. G. F.	Mawby, Ray
Butler, Adam (Bosworth)	Hamilton, Archibald (Epsom & Ewell)	Maxwell-Hyslop, Robin
Carlisle, Mark	Hamilton, Michael (Salisbury)	Mayhew, Patrick
Carson, John	Hampson, Dr Keith	Meyer, Sir Anthony
Chalker, Mrs Lydna	Hannam, John	Miller, Hal (Bromsgrove)
Channon, Paul	Harrison, Col Sir Harwood (Eye)	Mills, Peter
Churchill, W. S.	Harvie Anderson, Rt Hon Miss	Miscampbell, Norman
Clark, Alan (Plymouth, Sutton)	Haselhurst, Alan	Mitchell, David (Basingstoke)
Clark, William (Croydon S)	Hastings, Stephen	Moate, Roger
Clarke, Kenneth (Rushcliffe)	Havers, Rt Hon Sir Michael	Monro, Hector
Clegg, Walter	Hawkins, Paul	Montgomery, Fergus
Cockcroft, John	Hayhoe, Barney	Moore, John (Croydon C)
Cooke, Robert (Bristol W)	Heath, Rt Hon Edward	More, Jasper (Ludlow)
Cope, John	Heseltine, Michael	Morgan, Geraint
Cormack, Patrick	Hicks, Robert	Morgan-Giles, Rear-Admiral
Corrie, John	Higgins, Terence L.	Morris, Michael (Northampton S)
Costaln, A. P.	Hodgson, Robin	Morrison, Charles (Devizes)
Craig, Rt Hon W. (Belfast E)	Holland, Philip	Neave, Airey
Critchley, Julian	Hooson, Emlyn	Nelson, Anthony
Crouch, David	Hordern, Peter	Neubert, Michael
Crowder, F. P.	Howe, Rt Hon Sir Geoffrey	Newton, Tony
Davies, Rt Hon J. (Knutsford)	Howell, David (Gulldford)	Normanton, Tom
Dean, Paul (N Somerset)	Howell, Ralph (North Norfolk)	Nott, John
Dodsworth, Geoffrey	Hunt, David (Wirral)	Onslow, Cranley
Douglas-Hamilton, Lord James	Hunt, John (Ravensbourne)	Oppenheim, Mrs Sally
Drayson, Burnaby	Hurd, Douglas	Osborn, John
du Cann, at Hon Edward	Hutchison, Michael Clark	Page, John (Harrow West)
Durant, Tony	Irving, Charles (Cheltenham)	Page, Rt Hon R. Graham (Crosby)
Dykes, Hugh	James, David	Page, Richard (Workington)
Eden, Rt Hon Sir John	Jenkln, Rt Hon P. (Wanst'd&W'df'd)	Paisley, Rev Ian
Edwards, Nicholas (Pembroke)	Johnson Smith, G. (E Grinstead)	Pardoe, John
Elliott, Sir William	Johnston, Russell (Inverness)	Parkinson, Cecil
Emery, Peter	Jones, Arthur (Daventry)	Pattie, Geoffrey

Penhaligon, David	Scott-Hopkins, James	Temple-Morris, Peter
Percival, Ian	Shaw, Giles (Pudsey)	Thatcher, Rt Hon Margaret
Peyton, Rt Hon John	Shaw, Michael (Scarborough)	Thomas, Rt Hon P. (Hendon S)
Pink, R. Bonner	Shelton, William (Streatham)	Thorpe, Rt Hon Jeremy (N Devon)
Powell, Rt Hon J. Enoch	Shepherd, Colin	Townsend, Cyril D.
Prentice, Rt Hon Reg	Shersby, Michael	Trotter, Neville
Price, David (Eastleigh)	Silvester, Fred	van Straubenzee, W. R.
Prior, Rt Hon James	Sims, Roger	Vaughan, Dr Gerard
Pym, Rt Hon Francis	Sinciair, Sir George	Viggers, Peter
Raison, Timothy	Skeet, T. H. H.	Wainwright, Richard (Colne V)
Rathbone, Tim	Smith, Cyril (Rochdale)	Wakeham, John
Rees, Peter (Dover & Deal)	Smith, Dudley (Warwick)	Walder, David (Clitheroe)
Rees-Davies, W. R.	Smith, Timothy John (Ashfield)	Walker, Rt Hon P. (Worcester)
Renton, Rt Hon Sir D. (Hunts)	Speed, Keith	Walker-Smith, Rt Hon Sir Derek
Renton, Tim (Mid-Sussex)	Spence, John	Wall, Patrick
Rhodes James, R.	Spicer, Jim (W Dorset)	Walters, Dennis
Rhys Williams, Sir Brandon	Spicer, Michael (S Worcester)	Warren, Kenneth
Ridley, Hon Nicholas	Sproat, Iain	Weatherill, Bernard
Ridsdale, Julian	Stainton, Keith	Wells, John
Rifklnd, Malcolm	Stanbrook, Ivor	Whitelaw, Rt Hon William
Rippon, Rt Hon Geoffrey	Stanley, John	Whitney, Raymond
Roberts, Wyn (Conway)	Steel, Rt Hon David	Wiggin, Jerry
Rodgers, Sir John (Sevenoaka)	Steen, Anthony (Wavertree)	Winterton, Nicholas
Ross, Stephen (Isle of Wight)	Stewart, Ian (Hitchln)	Wood, Rt Hon Richard
Ross, William (Londonderry)	Stokes, John	Young, Sir G. (Ealing, Acton)
Rossi, Hugh (Hornsey)	Stradling Thomas, J.	Younger, Hon George
Rost, Peter (SE Derbyshire)	Tapsell, Peter
Royle, Sir Anthony	Taylor, R. (Croydon NW)	TELLERS FOR THE NOES:
Sainsbury, Tim	Taylor, Teddy (Cathcart)	Mr. Spencer Le Marchant and
St. John-Stevas, Norman	Tebblt, Norman	Mr. Michael Roberts.
Scott, Nicholas

Question accordingly agreed to.

Bill read a Second time.

Bill committed to a Committee of the whole House—[Mr. Snape.]