CHARGE OF INCOME TAX FOR 1978–79

HC Deb 10 May 1978 vol 949 cc1188-362

The Chairman

I think it would be for the convenience of the Committee if I made a short statement regarding the proceedings which will take place this day.

If Amendment No. 7 is agreed to, Amendment No. 23 cannot be called. I shall, however, call Amendment No. 20, which is consequential to Amendment No. 7, at the appropriate stage later in the proceedings.

If Amendment No. 7 is negatived, I shall allow an immediate separate Division on Amendment No. 23, and, if that is agreed to, I shall call its consequential, Amendment No. 24, at the appropriate stage.

3.45 p.m.

Sir Geoffrey Howe (Surrey, East)

I beg to move Amendment No. 7, in page 10, line 17, leave out '£7,000' and insert '£8,000'.

The Chairman

With this it will be convenient to take the following amendments:

No. 23, in page 10, line 17, leave out '£7,000' and insert '£6,000'.

No. 20, in page 10, line 29, leave out lines 29 to 38 and insert—

'Part of excess over £8,000			Higher Rate
The first £2,000	…	…	40 per cent.
The next £4,000	…	…	50 per cent.
The next £7,000	…	…	60 per cent.
The remainder	…	…	70 per cent.'.

No. 21, in page 10, leave out lines 29 to 38 and insert—

'Part of excess over £8,000			Higher Rate
The first £2,000	…	…	40 per cent.
The next £3,000	…	…	50 per cent.
The next £4,500	…	…	60 per cent.
The remainder	…	…	70 per cent.'.

No. 24, in page 10, leave out lines 29 to 38 and insert—

'Part of excess over £6,000			Higher Rate
The first £1,000	…	…	40 per cent.
The next £1,000	…	…	45 per cent.
The next £1,000	…	…	50 per cent.
The next £1,000	…	…	55 per cent.
The next £2,000	…	…	60 per cent.
The next £2,000	…	…	65 percent.
The next £2,000	…	…	70 per cent.
The next £5,000	…	…	75 per cent.
The remainder	…	…	83 per cent.'.

No. 29, in page 10, leave out lines 30 to 38 and insert—

'The first £3,000	…	…	40 per cent.
The next £4,000	…	…	50 per cent.
The next £7,000	…	…	60 per cent.
The remainder	…	…	70 per cent.'

No. 25, in page 10, line 33, leave out from beginning to end of line 38 and insert—

'the next £1,000	…	…	55 per cent.
the next £1,000	…	…	60 per cent.
the next £2,000	…	…	65 percent.
the next £2,000	…	…	70 per cent.
the next £5,000	…	…	75 per cent.
the remainder	…	…	83 per cent.'.

No. 22, in page 10, leave out lines 36 to 38 and insert—

'the remainder

…

…

70 per cent.'.

Sir G. Howe

The Committee will appreciate that, so far as we are concerned, there are really two amendments which march together in this debate. Amendment No. 7 seeks to raise the starting point from the 40 per cent. rate of income tax from £7,000 to £8,000 of taxable income, that is, from £140 a week to £160 a week.

Labour Members below the Gangway have moved, rather remarkably, by way of alternative to that, to lower the figure from £7,000 to £6,000, to a figure of £120 a week. We are astonished at that, but no doubt they will press their case as they think best.

Linked with our Amendment No. 7 is Amendment No. 20, which seeks to reduce the number of and to widen the higher rate tax bands, and to bring the top rate of tax on earned income down from 83p to 70p. The Committee will see that it replaces the nine existing higher rate bands, which reach a figure of 83 per cent. at £23,000 a year in the Bill, with four bands which reach the top figure of 70 per cent. at £21,000 a year.

The third amendment which forms part of our group, Amendment No. 29, is relevant only if the first one, to raise the starting point from £7,000 to £8,000 a year, is not carried as Amendment No. 29 accepts that the £7,000-a-year figure remains the starting point but still seeks to widen the higher bands and bring down the top rate.

The first matter on which I think there is now fairly close agreement on each side of the Committee is the cost of these two amendments, Nos. 7 and 20, in the current year, if carried. To raise the threshold from £7,000 a year to £8,000 a year for the higher rate would cost—as I think my hon. Friend the Member for Blaby (Mr. Lawson) was told yesterday—about £40 million in the first year. To widen the higher bands and reduce the top rate to 70 per cent. would cost £155 million in the current year. Taken together, the two amendments would amount to a cost of less than £200 million in the first year, and the first one, on which we shall vote first, would cost £40 million in the first year.

To put it in perspective, that figure is less than one-third of a penny in every pound of total public spending which will take place this year. It is one-twentieth of the planned increase in public spending this year, or less than one-third of the proceeds of a single rate of value added tax of 10 per cent. The cost of these amendments, therefore, could be covered within those very modest figures and could be amply covered, more than three times over, if the Government were prepared to accept our repeated recommendation for a single rate of value added tax at 10 per cent.

Mr. Ron Thomas (Bristol, North-West)

I thank the right hon. and learned Gentleman for giving way. Will he please tell the House what the Opposition proposal will mean in terms of a tax handout for someone on an income of £25,000 a year?

Sir G. Howe

I shall deal with that in a moment. The hon. Gentleman talks about a tax handout, but the reality is that if all our amendments are carried in full, the gentleman of whom he speaks, on £25,000 a year, will still be bearing a higher tax burden than he was after the Budget in March 1974.

Our figures do not go so far as to lighten the tax load back to the level to which the Chancellor of the Exchequer increased it in his first Budget in March 1974. Our figures do not lighten the real tax load to take it back to the point when the hon. Gentleman's right hon. Friend was riding high, in his howls of anguish and pip-squeaking mood. If these amendments are passed, the real burden on the gentleman about whom the hon. Gentleman is talking will still be more than it was in March 1974, as a proportion of total income. Labour Members are sophisticated enough to know that by talking about pounds as though they were still worth the same figure today as they were when the Labour Government started in office, they talk in meaningless terms. The real burden of tax, if these amendments are carried, will still be greater than it was when the Labour Government first started on their disastrous course.

Mr. John Pardoe (Cornwall, North)

May I ask the right hon. and learned Gentleman to check the figure of £40 million which he estimated will be the cost of Amendment No. 7? Both of our parties are in agreement with regard to this amendment, but I think that he has made a mis-estimate. If he looks at page 10 of the Bill, he will see that after £7,000 of taxable income the table says:

"The first £1,000

…

…

40 per cent."

As the Bill is written, the effect of passing this amendment—which both he and I want passed—will work right the way up through the scale. The cost will not be £40 million. I think that we had better be absolutely clear about what we are doing. My best estimate is that it will cost around £105 million this year and probably £150 million in a full year.

Sir G. Howe

The answer that was given to my hon. Friend the Member for Blaby dealt with each of these points step by step. This amendment, as it stands, operates only to raise—[Interruption.]

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

It would be as well to clarify this point. If the right hon. and learned Gentleman looks at Clause 11, he will see that if one raises the threshold to £8,000, automatically one raises the threshold of each of the other bands. The net result of passing Amendment No. 7 as it stands would be a full-year cost of £150 million and a cost in 1978–79 of £105 million.

Mr. Robert Kilroy-Silk (Ormskirk)

The right hon. and learned Gentleman still does not understand it.

Sir G. Howe

The Chief Secretary must notice that another amendment is to be made. The mere passing of this amendment would leave the table, as it stands at the moment, with £7,000 still in it. But in all events the Committee is in no doubt about what is happening.

Mr. Joel Barnett

With respect, I think it is important that the Committee should know whether it is voting for £105 million or £40 million with regard to Amendment No. 7. The right hon. and learned Gentleman says that if we raise £7,000 to £8,000, it does not affect anything else. However, he must know that the first £1,000 in the table would then come after £8,000 rather than £7,000, and so on up the table. As I say, the net cost for 1978–79 is £105 million and £150 million for a full year.

Sir G. Howe

That is right. But we must remember that we are talking about two amendments. The first chunk raises £7,000 to £8,000 and, as a result, raises each step by £1,000. The second part seeks to raise the limits of the higher rate bands and to drop the top one. The total cost of both those amendments taken together is less than £200 million. The Chief Secretary is distributing the cost in a different way, and I can follow the way in which it is analysed.

Mr. Kilroy-Silk

If the right hon. and learned Gentleman cannot answer those difficult questions, can he answer a very simple one? It may well be that I would want to support him in the Lobby. Therefore, can he tell me the answer to the question posed by my hon. Friend the Member for Bristol, North-West (Mr. Thomas)? How much is he asking me to help to give, as a tax handout, to a gentleman earning £25,000 a year? [HON. MEMBERS: "How much do you earn?"] My income is the same as that of every other Member of Parliament.

Sir G. Howe

I am not asking the hon. Gentleman to give anything. I am asking the Committee to authorise the Government to take less. Even when the Government are taking less, they will still be taking more in real terms than when they first started. That is the reality.

Mr. Ron Thomas

Is the right hon. and learned Gentleman ashamed of the figures?

Sir G. Howe

Not in the least. I shall deal with them in detail in a moment. The Chief Secretary has been advancing figures for the cost, but one important point underlies the whole matter. If the Committee agrees to pass these amendments so as to lighten significantly the burden of taxation on higher income earners, there can be no doubt in anyone's mind that as a result the yield of income tax as a whole would increase substantially because of the greater willingness to work, to increase incomes and, frankly, because of the reduced tendency towards tax avoidance.

Certain Labour Members below the Gangway may laugh, but they should bear in mind countries which they may not have studied recently. For example, Ireland has reduced its top rate, very sensibly, from 80p to 60p in the pound in stages over the last three years. It has also recently had the good sense to abolish the wealth tax before it had hardly started. The experience of Ireland has been that within those years money is coming back into the country, investment is expanding and jobs are increasing, because it is seen to be a country which receives investment and encourages enterprise instead of one such as this country under the present Government.

I take an even more remarkable example. Between 1973–74 and last year India had the good sense to cast off the relics of what I suspect was a Kaldoresque tax regime and drop its top rate from 97.75 per cent. to 66 per cent.—the same order of change as we are now commending. In India the yield from income tax, particularly higher tax incomes, increased substantially as a result. It is the experience, and common sense suggests it, that if the top-rate tax burden is significantly reduced, people will take more risks, invest more, work harder and will be less concerned to take themselves to their tax consultants. As a result, the tax collector will actually gather more.

Quite apart from that, the administrative costs of the system would be significantly reduced because there are fewer bands. Merely raising the starting point from £7,000 to £8,000 would probably release several hundred thousand taxpayers from the higher rate bands altogether. That would be one way of saving the huge increase in Inland Revenue staff which has taken place under this Government.

The Committee may remember the astonishing and, as it turns out, inaccurate claim made by the Chief Secretary when winding up the debate on 8th May. He told the Committee, to everyone's surprise, that the number of people employed by Inland Revenue and Customs and Excise had risen by 15,000 under the last Conservative Government and by only 13,000 under this Government. I have taken the precaution of checking the figures since then and the actual figures are as follows. On 31st March 1974, the total employed by Customs and Excise and Inland Revenue was 94,800. On the same date in 1970 the total was 86,500. There was an increase during the four years March 1970 to March 1974 of 8,300 in round figures. Almost all of that, just over 7,000, was in Customs and Excise following the introduction of VAT. From 31st March 1974 onwards, starting with 94,800 in March 1974, we had reached a total of 114,000 in the two services combined by the end of 1977. The increase under this Government from the end of March 1974 to the end of last year has been 20,000. The introduction of the reduced rate band as a result of this Budget will add another 1,000.

I hope that the Chief Secretary will confirm these figures. They are absolutely correct, and they put wholly into the right perspective the wrong figures which he gave. There was a total of 8,300 under the previous Conservative Government and a total of more than 20,000 under the present Government.

4.0 p.m.

Mr. Cranley Onslow (Woking)

The Chief Secretary is sitting on the Treasury Bench like a glove puppet nodding and bobbing. Would it not be much better to tell us whether he agrees with my right hon. and learned Friend's figures? If so, is he prepared to withdraw his stupid statement?

Mr. Joel Barnett

The hon. Member for Woking (Mr. Onslow) is an expert on stupid matters. I am bound to tell him that I am not inclined to accept figures that are thrown at me from the Opposition Front Bench. However, I am prepared to consider them, and I shall do so.

Sir G. Howe

A Treasury Minister speaking from the Dispatch Box does so with a certain authority. The House of Commons is accustomed to be able to take as accurate figures that are given from the Government Front Bench by a Treasury Minister. The right hon. Gentleman asserted a set of figures on Monday night. I have produced figures that I understand to be correct from parliamentary Answers. I am astonished that the right hon. Gentleman is unable to accept or refute those figures, he having produced another set of figures.

Mr. Onslow

The House of Commons has either been told the truth or it has been told lies. Which is it? Will the Chief Secretary tell us?

Sir G. Howe

The Committee will have to draw—

The Chairman

Let us not mention the word "lies." It is unparliamentary.

Mr. Onslow

Go on, tell us.

Sir G. Howe

I am content. I am grateful to my hon. Friend the Member for Woking (Mr. Onslow) for his encouragement and help. I am content to leave the matter as it stands. It is something that follows from the casual, reckless and negligent way in which the right hon. Gentleman treated the House on Monday. However, certain other matters follow.

On the basis of his figures the right hon. Gentleman sought to suggest that the saving achieved by reducing the army of tax gatherers would be quite modest. I think he said that it would amount to about £49 million. The average salary of those employed in the service of the Inland Revenue, based on the most recent report of the service, is £4,000 a year. If we add to that sum the cost of the service's overheads and administration, the average per head employed is £5,650 a year. The 20,000 extra troops recruited to the tax collectors' army by the Government are costing the taxpayer £110 million. As it happens, that is almost exactly the cost of the amendment as calculated by the Chief Secretary.

Mr. Onslow

Now refute that.

Sir G. Howe

If we were to get rid of the huge accretion of tax collectors, we should be well on the way to paying for the totality of the cost of the amendments.

Let us examine the case for the amendments. We know in advance the way in which Ministers will respond to our case. They will reveal one of the two faces of the Labour Party. No doubt they will reveal its most unattractive face. There is a curious feature about the way in which the Labour Party addresses itself to this issue. On some occasions and on some platforms the Prime Minister, the Chancellor of the Exchequer and even the Chief Secretary say "Of course, we want to encourage risk taking. We recognise the importance of incentives. We recognise that the income tax burden is too high and must be reduced." However, as soon as any party comes before the House and proposes the most modest change to correct any imbalance in the smallest direction, Ministers leap to the Dispatch Box and argue exactly the opposite case.

During Prime Minister's Questions on Tuesday, the Prime Minister—having made many speeches at dinners and conferences of managers and industrialists throughout the country to the effect that the tax burden must be lightened—took the opportunity afforded by his first appearance at the Dispatch Box following the passage of our amendments on Monday to refer to the amendments that are to be passed. He said that they will increase materially the difference between the poor and the rich."—[Official Report, 9th May 1973; Vol. 949, c. 973.] Of course they will. How do we set about reducing the direct tax burden and moving one inch in the direction of improving incentives without increasing the difference between the poor and the rich? Indeed, the Budget increases the difference between the poor and the rich. It makes larger reductions for those at the top income levels than at the bottom levels. It is sheer hypocrisy for the Government and the Labour Party to continue trying to present their two arguments in the same way. The Labour Party talks with two voices and presents itself with a most unattractive face when it addresses itself to these matters.

The reality is that in submitting these amendments we are concerned in the generality with special skills, special responsibility, managers, those with enterprise, key figures in activities of all sorts, skilled workers and enterprises that need to grow and those who can lead and command resources that will create the jobs for the employment of the British people. To have singled out those categories for the imposition of tax rates that are higher than anywhere else in the free world at lower levels of income than anywhere else in the free world is sheer lunacy. To persist in defending those tax rates, as the Government now do, is to demoralise those who are subject to the higher rates of income tax, to destroy their morale and to drive out those who are at the very heart of our economy.

Moreover, the tax rates as they now bite have never been justified before the House of Commons. The burden that they now represent has been imposed by stealth by four years of record inflation, which has carried taxpayers into higher and higher tax rates. Inflation has served to increase the burden without the House of Commons doing anything about it.

The Chief Secretary may have had the opportunity of listening to the interview that was given by the Chancellor of the Duchy of Lancaster to his old friend Brian Walden, who was the Member of Parliament representing Birmingham, All Saints.

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

Birmingham, Ladywood. Wrong again.

Sir G. Howe

Yes, Ladywood. The interview was given on "Weekend World" on St. George's Day. The former Member for Birmingham, Ladywood is a man of greater insight into these matters than the hon. Member for Birmingham. Perry Barr (Mr. Rooker). The Chancellor of the Duchy said: The rate of tax on salaried talent is very high in this country … The putting of this right is a massive problem that will take a little time, and I believe this to be a No. 1 priority in the Chancellor's mind for future action—that's my own view: it ought to be. The Chancellor of the Duchy went on to describe exactly how the tax came to be imposed. He said: I must say that when it was put on —that is the 83 per cent.— it was put on at a more realistic level than now applies. It was actually inflation that really made the tax so burdensome. And I don't think any Government ever responds quickly enough to the deforming of their tax structure by inflation. And we may be open to criticism for not responding fast enough to that. The Chief Secretary knows perfectly well that the Chancellor of the Duchy is there acknowledging that tax rates are too high and that they have been made too high by the progress of inflation, which has dragged more and more people into destructive tax levels. In the past four years we have experienced a savage and continuing reduction of post-tax differentials. Everyone has experienced large cuts in his standard of living in the past five years. The average wage earner with a wife and two children has, on the latest figures, experienced a cut in his standard of living of just over 4 per cent. in the past four years. The man on twice the average wage has seen his standard of living cut by 7.4 per cent. The man on three times the average wage has seen his standard of living cut by 13.9 per cent. Senior managers and chief executives have seen their standard of living cut by 20 per cent. or even 30 per cent.

That has been happening to those upon whom the Government rely for giving leadership in industry and commerce. It is absurd to expect them to be applying themselves to their work, engaging in risk-taking and gaining further qualifications with just the same single-minded energy and enthuiasm when they have been necessarily obsessed with struggling to maintain the standard of living in the face of rapidly rising tax burdens.

I turn to the argument raised by the hon. Member for Bristol, North-West (Mr. Thomas). The 83 per cent. rate of income tax was introduced by the Government in March 1974 at a starting point of £20,000. If we take account of inflation since that date, the starting point for the 83 per cent. rate, if it is to survive at all, should now be £37,400. The Government are proposing in the Bill an increase to £23,000. That is equivalent to £12,300 in 1974. Therefore, the relaxation of £2,000, the raising of the threshold, the beneficent act contained in the Bill, results in the imposition of the top rate of tax at about £8,000 lower in real terms than when the Chancellor first introduced it.

The amendments have the following effect. The higher rate threshold in March 1974, as the Committee will remember, was reduced by the Chancellor of the Exchequer in the first flush of Socialist enthusiasm. The higher rate threshold was lowered to £4,500. The starting point for the higher rate threshold today should be £8,400. We are merely proposing that it should be increased to £8,000.

The 68 per cent. rate, which was enforced in March 1974, started at £12,000. The starting point for that rate, which is the equivalent of the 70 per cent. rate that is in the amendment, should today be £22,500. We propose that it should start at £21,000.

Therefore, for those bands we are proposing changes that take taxpayers into higher rates of tax at lower real levels of income than when they were first introduced by the Chancellor in 1974.

I am sure that we shall hear again today about the man on £50,000 a year to whom the Chief Secretary referred at the end of the Second Reading debate. In the jargon of the style of Socialism that the right hon. Gentleman was using, he said that our proposals would give back to that man several thousand pounds. Even a man on £50,000 a year, after these amendments are carried, will still be paying a larger proportion of his income in real terms in tax than he was in 1974.

I am astonished—but it is a deliberate decision—at the moderation of our proposals. Even if these amendments are carried, a married man on £20,000 a year will still be paying two-fifths of his income in tax, a married man on £30,000 a year will be paying more than half of his income in tax, and a man on £25,000 a year will be paying tax at a marginal rate of 70p in the pound.

Let us compare that with all the countries with which we have to compete. In Ireland—the highest of those in the OECD—a married man on £25,000 a year pays a marginal rate of 60p. In France, he pays a marginal rate of 36p in the pound. The average of the countries with which we have to compete is 48½ per cent. tax on a man earning £25,000 a year compared with the 70 per cent. which we propose, even if the amendments are carried.

I again invite the Committee to listen to the words of the Chancellor of the Duchy of Lancaster in the interview to which I referred earlier. He said: I don't deny that there has to be a move to make our tax rates, especially on earnings, comparable with what our rivals or our friendly partners on the Continent have in the way of tax rates. Of course that has to be done. Otherwise, as I said candidly, the consequences will be damaging to our economy. Has the Chancellor of the Duchy been expressing that view in the Cabinet? Is it a view with which the Chief Secretary has some sympathy? Does he not recognise that this is the damage being done by the taxes which the Government continue to maintain?

Let us consider the practical effect of the extent to which the Government now have to juggle, fiddle and wriggle with their own tax system to provide licensed loopholes for people whom they regard as being unduly penalised.

The Bill contains special provisions to deal with North Sea divers, because they are close enough to competitors in other countries to realise how savagely they are being taxed. Good luck to them. The Government are making a loophole—an escape hatch—for those people.

Those who, under this Bill and under last year's Finance Act, are getting relief on overseas earnings are also being given a special licensed loophole from the absurd tax system which prevails in this country.

Let us consider the damage that is being done by the outflow of talent from this country as a result of these crucifyingly high rates of tax.

Mr. Ron Thomas

Tom Jones and Humperdinck.

Sir G. Howe

Indeed. The hon. Gentleman quotes Torn Jones and Humperdinck. But let him harken to the roll call of people whose names are well known who have left this country because of high marginal tax rates: Tom Jones, David Bowie, James Hunt, Jackie Stewart, Sean Connery, Richard Burton, Marty Feldman, Len Deighton, Joe Bugner, the Rolling Stones, Englebert Humperdinek—[HON. MEMBERS "Roy Jenkins."]—All right, Roy Jenkins—Tony Jacklin, Virginia Wade, Wolf Mankowitz, Peter Sellers, David Niven, James Mason and Michael Caine. Labour Members below the Gangway may laugh, but these people form the seed bed of the expansion of our own film and entertainment business.

Mr. Kilroy-Silk

Labour Members laugh, rightly, at the pious indignation that the right hon. and learned Gentleman displays for the kind of people about whom he is now talking. But many thousands of my constituents would give their right arms just to have the privilege of paying tax. Does he not consider them to be more worthy of his indignation than the non-patriots about whom he is now talking?

Sir G. Howe

I do not know whether the hon. Gentleman ever reads the observations of Mr. Alan Sapper, the general secretary of the Association of Cinematograph, Television and Allied Technicians. If so, he may have noted the powerful memorandum that that trade union leader—not a subscribing member of the Conservative Party; on the contrary—sent to the Treasury two years ago in terms saying that the penal rates of taxation applying to those in the film industry were virtually destroying the British film industry. That is the reality. I just happened to choose names which were well known. For every one of these names, of whom we have all heard, there are 10,000 others with different skills—managers, engineers, doctors, physicians—who leave this country and take with them the life blood of our prosperity.

I do not know what Labour Members find when they talk to people in leading companies in this country. I doubt whether they ever do. They are not concerned with those who provide the employment for their constituents. But they will find—I am sure that the Chief Secretary will have found this—that every major company is complaining of the departure or the impending departure of two or three key executives as a result of our penal rates of taxation.

One example, with which the Committee may be familiar, was in evidence given to the Diamond Commission by ICI two years ago. ICI brought back on to membership of its main board in this country someone with long experience as a senior executive of one of its subsidiaries abroad. The reward for that man's arrival at the pinnacle of his industrial career was to have his post-tax take-home pay reduced by 50 per cent. That was the consequence of our tax system. It is total lunacy.

4.15 p.m.

Dr. Jeremy Bray (Motherwell and Wishaw)

Has the right hon. and learned Gentleman ever asked the key companies the question that I have asked a number of them—whether, in the event of tax cuts of the kind that the Opposition are proposing, they would increase the salaries of their senior executives as much as those of their ordinary manual workers? The answer that I get is "No". Has the right hon. and learned Gentleman considered the after-tax position of the people about whom he is so worried?

Sir G. Howe

I was coming to that point. One of the reasons why companies sometimes find themselves having to pay high pre-tax salaries is the huge bite made by the tax collector in those salaries. I give one example which is quite impressive and which I believe to be reliable. When British Leyland was undergoing its recent and understandable reorganisation, one of the people whom it was desired to bring back to Britain with senior management experience in North America had to consider what salary he would get post-tax in Britain if he came back. His post-tax salary in North America was £30,000 a year. For the sake of returning to the job, he was prepared to come back to Britain on a post-tax salary of £20,000 a year, but, because of our tax system, it was not possible to deliver him a post-tax salary of £20,000 a year unless he was paid £95,894 gross. That is the point that the hon. Gentleman makes.

Dr. Bray

No.

Sir G. Howe

It is a point which seems to follow the point that he made.

Dr. Bray

With respect, the right hon. and learned Gentleman ignores the demand for senior executives. If he looks at the wage negotiations going on in Holland, he will find that companies are under pressure to set a ratio of 1:5 between the average and the maximum rate of pay in this country. There is a great change in supply and demand in terms of the greater availability of senior executives.

Sir G. Howe

I do not understand the point that the hon. Gentleman is endeavouring to make. We have been told by Treasury Ministers in successive debates that the differentials in this country are now lower than virtually in any other country in the world. I recall the Minister of State telling us two years ago that the post-tax differentials here were now lower than they were in China.

The reality is that companies in this country are finding it extremely difficult to bring back people with overseas experience. Once they send a man abroad to get overseas experience, it is almost impossible to get him back. Indeed, it is extremely difficult to persuade people to move within this country. A recent survey showed that one in three senior managers was refusing to move even for pre-tax increases of £5,000 a year because post-tax, after having taken on the responsibility and made the move, it was hardly worth while.

The argument against the amendment—we shall hear it from the Dispatch Box shortly—will be that the man on £30,000 a year will be given, to use the jargon beloved of the hon. Member for Perry Barr, about £2,193 per annum. The reality is that he will still be paying more in taxes in real terms and having a substantially lower income after the amendments are passed than he would have been paying in 1974. This is an inevitaable feature. This is the oddity in the position of the Labour Party.

Mr. Rooker

I am grateful to the right hon. and learned Gentleman for giving that figure. It is most useful. Will he give us the other figure, which is equally important—namely, the pay rise that the person on £30,000 will need to give him that net take-home increase?

Sir G. Howe

Under the present tax regime—

Mr. Rooker

It is £12,000 a year.

Sir G. Howe

Under the present tax regime, it is no doubt a very large one. The hon. Member for Perry Barr and his hon. Friends must understand that if one makes a change in the basic rate of income tax of one penny, or any amount, to reduce the burden of income tax, as a matter of arithmetic those who are ridden with envy and egalitarianism such as some hon. Members are bound to be able to say that a man on £200,000 a year who gets a penny off every pound is £2,000 a year better off.

Which is the true face and voice of the Labour Party? Is it that which says "This change will increase materially the difference between the rich and the poor"? If it is the face and voice of hon. Members below the Gangway who want to bring the top rate down to £6,000, then we are heading for disaster. Then we are heading for a society of drab, indifferent equality in which all motivation and incentive is destroyed.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

Is my right hon. and learned Friend aware that if he could design a tax system when he becomes Chancellor which has the effect of persuading Engelbert Humperdinck to come back here and the hon. Member for Ormskirk (Mr. Kilroy-Silk) to emigrate he would have my full support? It would be a good swap.

Sir G. Howe

I am grateful to my hon. Friend. It is an idea that has a great deal more to commend it than the ideas of Government Members. I do not shrink from it. Dozens of names are recognisable. They are the names of those who create the talent in our film and entertainment industry. For every one of those there are tens of thousands of other people whose departure destroys the wealth of this country, and who have left as a direct result of the Government's tax policies.

The voice of the Labour Party that one likes to hear is that of the Chancellor of the Duchy of Lancaster. Talking to his former hon. Friend the Member for Birmingham, Ladywood the Chancellor of the Duchy said My own view is that a correction is now overdue, and I think that we will see one … I must be frank and say that many of these taxes owe more to a judgment of an egalitarian kind than to an economic kind. Mr. Walden then said You say you think that a correction is overdue, and I take that to mean that you think that the higher rate of tax should be cut, and cut substantially. The Chancellor of the Duchy replied: As soon as it is possible to achieve that … The 83 per cent. rate … is too high and has to come down as soon as we can possibly bring it down. Mr. Walden said: It's the Labour Party that put the 83 per cent. rate on, wasn't it? It wasn't God. It didn't get there by fate. You put it on, didn't you? The Chancellor of the Duchy replied: Yes, that is true. Mr. Walden said: "Yes, well?" and the Chancellor of the Duchy went on: Well, I must say that when it was put on, it was put on at a more realistic level than now applies. Which is the true voice of the Labour Party? Is it that of the Chancellor of the Duchy speaking like this on television hoping to catch some votes that way, or that of the egalitarians who will speak from the Dispatch Box today? If the Government are prepared always to rely on the combination of cowardice and envy of their hon. Friends below the Gangway—and they certainly do not represent the voice of the people—and if the Government always use this arithmetic to abuse sensible tax policies, common sense will never prevail. When is the time to which the Chancellor of the Duchy is looking forward? The time should be now. I invite my hon. Friends to support the amendment.

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

We have heard an extraordinary speech from the right hon. and learned Member for Surrey, East (Sir G. Howe). He made some strange assertions and suggested that being taxed as self-employed was a licensed loophole. That is a strange remark to come from the Opposition Front Bench.

One could describe these amendments, after what the right hon. and learned Gentleman has said, as the "bring back Hump" amendments. Most of his speech was concerned with the need to bring back to our shores various pop stars, artistes and sportsmen who have been driven away by tax policies.

The Committee and the country will be grateful to the Tory Party for one thing in relation to these amendments and the amendment which was carried on Monday. At least they give us an indication of how the Tory Party, if it ever came to power, would frame its Budget. The amendments are a clear indication of the Tory Party's priorities. Amendments Nos. 7 and 20 and the amendment which was carried on Monday represent the Tory Party's mini Budget. They give us an insight into the thinking of those on the Opposition Front Bench about how they would operate if they came to Government. One must look at the amendments in that context.

Mr. Nigel Lawson (Blaby)

When the Minister looks at this in context, will he also look into the substantial increases in the personal allowances which we forced through last year and take those into account?

Mr. Davies

I appreciate that the hon. Member feels that he has salved his conscience by causing the personal allowances to be increased last year. Now, he feels that he has done his little bit and he is prepared to press these amendments.

We must look at the amendments and ask whether the present Tory leadership is less financially imprudent than its predecessors in Government. We must ask whether the amendments show that it has any sense of justice and fairness in framing a tax system. To both those questions, the answer must be "No". After Monday's debate and today's debate, if these amendments are carried, one must conclude that the present Tory leadership is financially imprudent on such matters as the public sector borrowing requirement and that it has learned nothing. One must conclude that it has an abysmal sense of justice and equity.

Mr. Ridley

Does the Minister conclude that the tax rates in the March 1974 Budget were most unfair because the tax rates which we are proposing are more egalitarian than the rates in the 1974 Budget for which the Minister voted?

Mr. Davies

Today's amendments show an abysmal sense of justice and fairness in relation to the tax system. I hope that I shall be able to prove that.

The right hon. and learned Member moved Amendment No. 7 and bracketed Amendment No. 20 with it because the two go together. There has been argument and debate about costs. On our figures, Amendments Nos. 7 and 20—I do not think that there is any dispute—would cost £190 million this year and about £380 million in a full year. If we take the 1p reduction in the standard rate, for which the Committee voted on Monday, the consequential effect on advance corporation tax and today's two amendments, together with the proposed amendments on investment income surcharge, the total cost for this year would be £573 million. We tend to ignore the full-year cost although that is the real cost. The cost of that clutch of amendments in a full year would be £785 million.

Today we are debating whether we should benefit certain people in a full year to the tune of £380 million. The right hon. and learned Gentleman does not like the phrase "give back", he prefers the word "benefit". The two amendments would cost more than the amendment which was carried on Monday. The Tory Party is suggesting amendments that would benefit a small number of people and would cost more than the amendment which was carried on Monday.

4.30 p.m.

We have still not heard from the right hon. and learned Gentleman how he proposes to finance this sum of money—apart from his foray into suggesting that the Inland Revenue staff should be reduced by 20,000 to save £110 million. He brought a little list to the Dispatch Box on Monday, but it was demolished by my right hon. Friend the Chief Secretary. Now he has returned to say that he finds the £110 million figure quite unrealistic in terms of the Inland Revenue, but he has not submitted any other list. He has not come back and said that my right hon. Friend the Chief Secretary was wrong. He has made no proposal for finding the money.

That gives us a clue to the fact that the Opposition are not concerned about that aspect. They just do not care. Their main objective in proposing these amendments is to inflict as much damage as possible upon the economy, especially the financial economy of the country, in the hope that the opprobrium for that will fall upon the Government. That is the only conclusion that one can reach over the Opposition's failure to advance any programme to finance these costs.

The Opposition adopt that attitude confident in the knowledge that those elements in the City which so piously preach financial rectitude will be quite happy to discard that principle when they see that the fat benefits that will come to them if these amendments are carried.

Sir G. Howe

Before the Minister of State ceases his own pious preaching, will he confirm two simple facts? First, will he confirm that the cost of this amendment this year would be no more than one-twentieth of the total increase in public spending this year—£200 million being one-twentieth of £4,000 million? Second, will he confirm that the cost of the amendment would be less than one-third of the yield of going to a single rate of VAT at 10 per cent. this year? Provided we are clear about that, the Minister's preaching is put into perspective.

Mr. Davies

The right hon. and learned Gentleman should not put forward proposals that are based on complicated fractions. The figures are quite clear. The total cost in a full year is £380 million, and the cost of Monday's amendment was about the same, producing a full-year figure of over £700 million.

The right hon. and learned Gentleman got himself into some difficulty when he tried to explain to the Committee the cost of Amendment No. 7. It is important to make this point because, as you have indicated, Mr. Murton, there may be separate Divisions on Amendment No. 7 and Amendment No. 20. Amendment No. 7—the right hon. and learned Gentleman grasped this in the end although it took him some time, until he was assisted very ably by the hon. Member for Cornwall, North (Mr. Pardoe)—would cost £105 million this year and £150 million in a full year. The reason for that is that Amendment No. 7 is not confined to raising the basic rate threshold from £7,000 to £8,000. That £1,000 is transmitted right up the scale. It might be possible to construct an amendment merely to affect the threshold, but that would have some effect on the tax profile higher up.

Mr. Rooker

If that is the case, and I certainly accept that it is, why did not the Treasury make that clear in the answer it gave to the hon. Member for Blaby (Mr. Lawson) on Monday? That answer has not only allowed the Opposition to fall into their own trap in making the point across the Dispatch Box but will create the impression outside the House that the apparent cost of the proposal would be only £40 million when it is two and a half times the amount that was given in answer to the Question.

Mr. Davies

I had better look at the answer to which my hon. Friend refers, but it is quite clear to everyone outside the House that the cost would be £105 million this year and £150 million in a full year.

Amendment No. 7, in effect, means that a married man earning £8,000 will get no benefit. In order to get only minimal benefit from it, a man must have gross earnings of £10,000. A person with a mortgage who is earning £10,000 would just come within the tax charge on the higher rate.

A lot has been said about the need to help the so-called middle manager. I do not know who the middle manager is or how he is defined. There are certainly not many middle managers in Wales, although there may be some in England, who earn £10,000 a year. I stress, therefore, that Amendment No. 7 would not help anyone earning much under £10,000 a year.

Mr. Pardoe

We had better get clear just what we mean by "middle managers". The tax correspondent of the Financial Times on 12th April referred to middle managers as being those in the area around £10,000 to £12,000 total income. The Minister of State will find that the average pay at ICI is £6,000. There are thousands of people working for ICI with incomes well above £10,000. Why is he defining middle management as being in a lower income bracket?

Mr. Davies

I suspect that middle management varies from company to company. A middle manager in a company such as ICI probably earns more than a middle manager in a smaller company. I do not regard the term "middle manager" as particularly helpful. However, it is used just the same as the term "skilled tradesman" and various other descriptions of categories of people are used.

Mr. Ron Thomas

I do not know where the hon. Member for Cornwall, North (Mr. Pardoe) gets his figures. May I suggest that he examines the new earnings survey which was published last year—the latest available—where he will see that only 13 per cent. of top managers earn more than £200 a week? Hardly any managers in the column headed "Managerial (excluding general management)" earn that figure.

Mr. Davies

We shall not resolve this point. We would do better to talk in terms of income. Persons with gross earnings of £10,000 a year will get hardly any benefit from Amendment No. 7, especially if one takes a mortgage into account. Without the mortgage, the benefit is still very small.

The full cost of the two amendments would be £380 million in a full year, but we ought to consider different income levels—

Mr. J. Enoch Powell (Down, South)

The Minister of State has made it clear to the Committee that if Amendment No. 7 were carried by itself its first-year cost would be £105 million. He may be about to state this figure, but I wonder whether he will do it now. What would be the further additional cost if, on top of that, Amendment No. 20 were carried?

Mr. Davies

The further additional cost in this year would be the difference between £105 million and £190 million, which is £85 million. The cost in a full year of Amendment No. 7 is £150 million, and the full-year cost of both amendments is about £380 million. The difference is because within the Amendment No. 7 area there are more PAYE cases. In the higher levels we have Schedule D and dividend income, which comes in the following year. That is why the full-year cost is greater.

Opposition Members are not interested in a person earning £50 a week, but such a married man with two children would receive nothing from the amendments. He is not meant to get anything from the amendments. The great victory on Monday which the Opposition managed to obtain meant that he will receive an extra 2p a week. The married man earning £80 a week—whether that is the average wage, I do not know—receives nothing at all from the amendments. He is not meant to get anything. The famous victory on Monday gives him 33p a week, so, as a result of the Tory mini Budget, he receives 33p a week extra.

A salary of £10,000 a year is a large sum and it brings in many, if not all, middle managers. A person earning this figure would benefit under the two amendments by £1.60 a week. That is not a large sum for a person who is in a responsible position in industry. One has to be earning £15,000 a year before one receives the real benefit from these amendments. It is those earning between £15,000 and £50,000 a year about whom the Tory Party is so concerned.

Sir G. Howe

Does not the Minister recognise that it is precisely these people about whom the Chancellor of the Duchy is concerned? If the Minister was direct enough to accept the case put by the Chancellor of the Duchy of Lancaster, he would be supporting the amendment, as he ought to be.

Mr. Davies

If these amendments are passed, a person on £15,000 a year will receive some £500 a year—about £10 a week. A person earning £25,000 a year will receive some £1,500 a year—about £30 a week. The man earning £50,000 a year this coming year benefits by—I shall not use the words "given back"—almost £5,000 a year. The skilled middle manager in industry earning up to £15,000 a year is not helped by the amendments. They help only the people earning more than £15,000. All these figures are in addition to the benefits received as a result of the Budget.

Mr. Ridley

Will the Minister of State say why, in quoting figures up to £15,000 a year, he gave the benefit as a weekly amount but when he went over £15,000 a year he gave the benefit in an annual amount? Is not that typically deceitful?

4.45 p.m.

Mr. Davies

I am not very good at dividing. I thought that it might be clearer to the Committee and to the country if I gave the figures in annual terms. I am sorry that the hon. Gentleman does not like the figures. Only a Tory Party could propose a fiscal change which gives nothing to a man struggling on £50 a week and gives £5,000—25 per cent. in excess of the average national wage—to a man earning £50,000 a year. I am surprised that the Liberals are prepared to go into the Lobby with that sort of amendment. It shows the abysmal sense of justice and fairness of the Conservative Party. It is disgraceful.

It is not as if the higher income people had not received something under the Budget. A person earning £15,000 a year benefits from the Government's Budget by £393. A person earning £25,000 a year will benefit by £663. Whatever that man is producing—whether it is goods, bits of paper or nothing at all—£663 is not sufficient according to the Tory Party. Under the amendments he must be provided with a further £1,500, presumably to make him work harder, take greater risks and benefit the economy.

Mr. Malcolm Rifkind (Edinburgh, Pentlands)

If the Government think that the Budget was so satisfactory in this respect, can the Minister indicate why, 12 days after the Budget Statement, the Chancellor of the Duchy of Lancaster said: A correction is now overdue and I think we will see one"?

Mr. Davies

The hon. Gentleman has not been listening. I am saying that when any Budget or any amendment is framed, every political party with a sense of responsibility should try to achieve fairness and balance between different groups in the community. In the Budget we have tried to do so by providing a large benefit of £600 for a man earning £25,000 a year. The question for the Committee to decide is whether the benefit should be almost tripled in that case and others.

We feel that, in terms of the financial situation and the need to have a fair Budget for all groups, the Government's Budget is fair to those people and provides them with an incentive and with the necessary rewards. The case made on behalf of the Conservative Party—we did not hear much of it in the opening speceh of the right hon. and learned Member for Surrey, East because he was concerned in the main with pop stars—is that the money should go to the risk takers. The argument was that the risk takers should receive this extra benefit to help industry. I am using the neutral word "benefit". An extra £1,500 in a person's pocket is a benefit. I suggest that much of this money may not go to the risk takers in industry or to the manufacturing side which is doing rather badly.

Let me give a few figures, while expressing certain caveats in regard to them. About 40 per cent. of the benefit of the amendments is likely to be received in respect of unearned income. I know that many people have a mix of income and that it is difficult always to determine which benefit goes to which income, but, with that caveat, it is fair to say that about 40 per cent. of the benefit will be in respect of unearned income.

It is also fair to say that much of the benefit will go to Schedule D. This is why the full-year cost exceeds the first-year cost by so much. There is nothing wrong in benefiting people on Schedule D, but the amendments would mean that much of the benefit would go to professional partnerships of lawyers, accountants and stockbrokers who have not incorporated themselves, professional groups in other areas and sole traders. They may be worthy people, but that sector of our economy, certainly the banking and financial sector, is thriving. A substantial amount of the benefit would go to those areas. Not much would find its way into manufacturing industry.

Only 42 per cent. of the total income from higher taxes is PAYE income. That does not mean that there is not a percentage of Schedule E income on top of that, but less than 50 per cent. of the benefit under the amendments would go to manufacturing industry. Indeed, it would be far less than 50 per cent. because salary levels in banking and the financial side of the economy are higher than in manufacturing industry.

These amendments are the sort one would expect from the Tory Party. I am surprised that the Liberal Party is supporting them. They demonstrate again that the Tory Party cannot claim to be a national party concerned with justice and fairness between all groups in our society. On the evidence of these amendments, the Tory Party is merely a pressure group for the well-off.

The amendments would do nothing for manufacturing industry or for the areas of the country which have suffered high unemployment and social deprivation. I ask the Committee to reject them.

Mr. Marcus Kimball (Gainsborough)

The personal allowances at the bottom end of one's income have been indexed, Surely, in justice and fairness we should accept that the thresholds at which taxes start should also be related to the fall in the value of money. I am sorry that I did not hear my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) take this robust view about the value of the thresholds.

I do not think that Labour Members will ever appreciate the disproportionate and growing burden of taxation carried by those who earn or look after their savings to get the best result from their investments.

We can see how unnecessarily vindictive the Chancellor has become towards people who pay higher rates of tax. Let us consider his reactions to Monday's vote. He said that the cost of the amendment that we passed would have to be borne by the better-off, through a higher national insurance contribution for employers, higher company taxation or higher stamp duty. The important point about Monday's vote was that it showed the political will to cut taxes. I hope that we shall show that again today.

We are not here to argue about exact economic judgments. If we started to look at such judgments, we would not be given a very good example from the Chancellor of the Exchequer. No one really believes that his budgeting up to 5th April 1979 is so right that £340 million will put it wrong. The Chancellor does not know what the level of wave settlements, overtime and earnings or special responsibility payments to executives will be. His 1977–78 forecast was out by £1,350 million. I doubt that he will do very much better this year.

Let us consider the position of the better-off. My right hon. and learned Friend the Member for Surrey, East spoke about an 83 per cent. rate of tax on earned income and a 98 per cent. rate, for some people, on unearned income—compared with a European average of about 60 per cent. For most people, it is the higher rates of tax and not the top rates which matter. These higher rates range from 40 per cent. at £8,000 to 83 per cent. at just over £20,000 of earned income.

The Minister of State mentioned the marginal relief granted in the Budget. It is only marginal because there has been no change in these thresholds since the 1973 Budget, and in that time the value of our money has halved. If the value of one's money has halved one ought to have succeeded in doubling one's income, and if one has doubled one's income and earning capacity since 1973 one will be paying far higher taxes than ever before. That is why living standards have fallen. For most people, they have fallen by 30 per cent. under this Government.

The amendment does not go nearly far enough. The equitable and fair thing to do would be to double all tax thresholds. The same arguments as apply to personal allowances at the bottom end of one's income apply to the tax thresholds the whole way through. The 40 per cent. rate should start at £10,000—the amendment merely seeks to make the starting point £8,000—and the top rate should not apply until someone had succeeded in earning £40,000.

The cost of cutting the top rate of tax on earned and unearned income to 60 per cent. would be £250 million in a full year. That is well within the Chancellor's miscalculation of £1,350 million of the yield from income tax last year. The cost of doubling all the thresholds, which I should like to see, would be £500 million. This would be a fair and proper thing to do. Like my right hon. and learned Friend who moved the amendment, I am convinced that much of this tax relief would be saved because the additional incentive provided would more than pay for the cost.

Mr. Ron Thomas

I have not heard in my time in the House, which, admittedly, has been relatively short, a clearer example of blatant class interest than that which has been expressed by the Tory Party today. I am amazed that the Liberal Party can contemplate going into the Lobby to support the Tories on these amendments.

The Liberals should look back at some of the radicals in their party, such as Lloyd George, and consider their views on trying to bring about a fairer distribution of wealth and income. If the Liberals support these amendments, they will be voting for a distribution of income that will be regarded as intolerable by many of the people whom they claim to represent. That is a pure piece of blatant class interest.

5.0 p.m.

When the hon. Member for Gainsborough (Mr. Kimball) referred to the question of inflation and the impact that it has had on certain levels of income, he fell into a trap that he could have avoided with a little careful thought. Had he looked at the General Index of Retail Prices and the way in which it is weighted, he would have seen that it applies to what is described as "the average family". If one is earning below the average family income the rate of inflation has been higher. If one is earning above it, the rate of inflation has been much lower.

This is one of the objections that could be made to the right hon. and learned Member for Surrey, East (Sir G. Howe), who gave figures for what tax thresholds should be today to keep the higher levels of income in line with those prevailing in 1974. But if one looks at the retail price index one sees how much people spend on food, for example. It is ludicrous to suggest that someone earning £50,000 a year needs to spend 10 times more on food than someone earning £5,000 a year. I suppose that is possible, but I would find it very difficult to believe.

Therefore, the level of inflation has gone up more for pensioners and the lower paid, because of the large amounts that they have to spend on food, electricity and other items, than for those on £10,000, £15,000, £20,000 and £25,000 a year. Therefore, the argument that those bands of income should keep pace with inflation just does not hold water.

The blatant class interest of the Tories can be seen by the fact that the 1p cut in income tax that was passed last Monday will mean an extra £370 million in a full year, and that these proposals in the amendment will mean another £380 million in a full year. Also the higher income surcharge relaxation will mean another £30 million. Therefore, we are talking about £780 million or £800 million worth of tax handouts, essentially to the wealthy members of our society.

What does this mean in terms of hospitals and schools? What does it mean in terms of some of the demands that the Opposition were putting yesterday for increases in public expenditure?

If we take an individual on £25,000 a year, the Government's tax handouts will give him an extra £753.90 in a full year. This amount will come from the Government's own proposals, and assumes that that individual is married and his income is all earned. Under the proposals in the amendment, that individual will receive another £1,500 a year, making a total handout of £2,200 for a start.

Mr. Kilroy-Silk

Will my hon. Friend take account of the fact that whereas the Opposition amendment today would give £5,000 a year to the man on £50,000 a year, I have in my hand the pay receipt of a person from the industrial Civil Service, who is among those lobbying the House today? This man has had 20 years' service, yet his take-home pay is only £43 a week. This emphasises the point that my hon. Friend made, that the Conservative Party is a class party, concerned only with the wealthy and not with the kind of people who need the help of this House.

Mr. Thomas

I agree entirely. My hon. Friend the Member for Ormskirk (Mr. Kilroy-Silk) has put into clear perspective the difference between the Conservatives and us. The Tories come to this most exclusive club in Europe to represent the wealthy sections of our society, and they care little for those who are lobbying this House this afternoon and who earn only £40 or £50 a week.

As I was saying, people on £25,000 a year will have benefited by some £753 from the Government's proposals and another £1,500 if this amendment is passed. There is also a very good chance that they can manipulate their capital gains. Because of the relaxation of capital gains tax, it would not be very difficult for them to get another £1,200 a year out of that. Because this is retrospective over last year as well, we are talking about a total handout of the order of £3,600 for a person on £25,000 a year, if he can take full advantage of the capital gains relaxation. More than half the manual workers in this country receive less than that every year in their pay packets.

In terms of handouts, the amendment that we are discussing affects those earning £10,000 a year plus, at the very least. This cannot be emphasised enough. It is very easy to talk glibly about the £6,000, £7,000 and £8,000 bands, but it should be emphasised that these are the sums after all the allowances have been deducted. People who earn between £10,000 and £20,000 a year are able to make sure that their allowances are pretty high, whether they are for mortgages, insurance or anything else.

According to the Department of Employment new earnings survey for 1977—I know that certain wages and salaries have gone up since then—only 0.1 per cent. of those in manual occupations earned this kind of money. Only 1.8 per cent. of those in non-manual occupations earned this kind of money. The hon. Member for Cornwall, North (Mr. Pardoe) told us how many people in ICI were getting more than £200 a week. I have an ICI plant at Severnside, and I think that my workers would be very surprised to hear that. Perhaps the hon. Member for Cornwall, North should have a word with the Department of Employment and tell it that its survey is completely wrong. There are very few people in the £200-a-week plus bracket, yet that is the bracket that the Tories want to help.

Mr. Rooker

Will my hon. Friend reflect upon the fact that the information from the companies that is used to produce the survey figures is not transmitted to Government Departments by workers earning £50 a week? It is transmitted by those at the top end of the scale whose intention it may be to deceive the population about the extent of the high rates of pay.

Mr. Thomas

My hon. Friend, who has often quoted those figures, may be right.

Mr. Pardoe

indicated dissent.

Mr. Thomas

The hon. Gentleman shakes his head. Someone is wrong. Either the Department of Employment new earnings survey is wrong, or some Opposition Members have been misinformed. The survey, which I have here and which anyone can borrow from the Library, shows that this range of income includes some judges, barristers, solicitors, one or two accountants and, not surprisingly, tax consultants. But there are only between 0.1 per cent. and 0.5 per cent. of engineers, foremen, and all these other people that we are told are holding back because they are so highly taxed.

This list is a salutary lesson. It shows if we did not already know it, who it is that the Tory Party particularly wants to help. The right hon. and learned Member for Surrey, East told us that the only way to regenerate British industry is to call back Tom Jones and others and tell them that all is forgiven.

There is no evidence that under the last Tory Government their tax hand, outs led to these so-called innovative entrepreneurs rushing forward to regenerate British industry. With their handouts, they engaged in property, land and commodity speculation and invested overseas.

Mr. David Steel (Roxburgh, Selkirk and Peebles)

Since the hon. Member has mentioned a pop singer, may I ask him to take it on board that there is considerable evidence that this country has lost a great deal of revenue in the recording field, not only from the individuals who are earning vast sums and who go overseas—

Mr. Arthur Lewis (Newham, North-West)

We know all this.

Mr. Steel

I am asking the hon. Member for Bristol, North-West (Mr. Thomas).

Mr. Lewis

He has heard it.

Mr. Steel

He did not seem to have heard it.

Mr. Lewis

He did, though.

Mr. Steel

The hon. Member does not appear to have understood that the revenue lost is not only from the individuals but from the associated exports of records, which at the moment we are importing. That is the consequence of this policy.

Mr. Thomas

I do not think that there is any evidence to support that. All the pop singers in the world will say that if the tax were lower they would come back, but providing there is one country left where the tax is lower, that is where they will be.

I am surprised that the hon. Member for Cornwall, North is taken in by people like Tom Jones and Engelbert Humperdinck, who say to him "If only the tax was a bit lower, I would come back to live in Britain."

Mr. Alan Clark (Plymouth, Sutton)

Does the hon. Member agree that this country has not yet fallen so low that it has to degrade itself by arguing questions of fiscal and economic policy on the basis of the question whether the revenue from the record industry is likely to increase or decrease?

Mr. Thomas

I entirely agree, but I suggest that the hon. Gentleman directs his question to his own Front Bench. For 20 minutes, the right hon. and learned Member for Surrey, East gaves us a list of examples of the people we were losing—these great innovators and entrepreneurs who would regenerate British industry with their pop record sales and so on if only this Labour Government did not tax them so heavily that they had to rush off to the United States or the Cayman Islands.

Mr. Arthur Lewis

Is my hon. Friend aware that one person mentioned by the right hon. and learned Gentleman has boasted that he has never paid tax anywhere, because he always arranges to stay one or two days within the limit before moving on to the next tax haven? If someone has enough money, he can do that.

5.15 p.m.

Mr. Thomas

I should like now to say something about the amendments in my name and those of my hon. Friends. We believe that even the Government proposals go too far in giving tax handouts to the more wealthy members of our society. I do not accept the argument that those on higher incomes have been affected by inflation in the same way as those on average earnings and below. I see no justification for our Government raising the threshold from £6,000 to £7,000 and making other adjustments at the higher levels.

I have already said that someone on £25,000 a year will get £750 from this Budget in any case, plus another £1,200 if he manipulates his capital gains, which will not be difficult for him. Last year, in reply to a Question by my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker), we learned that last year the tax handout to someone earning £25,000 was about £800. That is about £1,500 over a couple of years, plus the £1,200 on capital gains.

If we intend to push up these tax bands by £1,000 every year to meet inflation, we shall still have the kind of distribution of after-tax income that we began with. That will be contrary to the Labour Party's manifesto, which talked of a "fundamental" shift in the balance of wealth and power. There has certainly been no shift in terms of power, and we can see no signs of a shift in terms of wealth. It seems that we are to have no wealth tax.

I am indebted to my hon. Friend the Member for Perry Barr for his Questions on this subject. The answer to another revealed that in April 1977 64.6 per cent. of the total tax relief was given to those earning more than £4,000. In July 1977, the proportion was down to 61.5 per cent. It is true that in this Budget the balance has shifted back a little in favour of those earning less than £4,500, but still 57 per cent. of the total tax handouts have gone to those earning more than £4,500, which is the average wage.

I am not as happy with the Budget as many of my hon. Friends are. Our manifesto was based on a "fundamental and irreversible shift" in the balance of wealth and power. That must include redistribution by way of taxation and a wealth tax, but there has been nothing like that approach in any Budget. Although some of my hon. Friends feel that shift has been slightly in favour of our arguments this time, and that they can support it, I urge as many of them as possible to oppose any more tax handouts in this Budget to the wealthy. We should keep the rate at which the higher level of tax is paid at £6,000 of taxable income, that is, after all allowances have been taken into account, instead of giving another £750, as the Government propose, to those on £25,000 a year and more.

Mr. Pardoe

The hon. Member for Bristol, North-West (Mr. Thomas) can always be relied upon, at the drop of a hat, to give us a caricature of our archetypal Left-wing speech on taxation. We always know what we shall get from him, and we have certainly had it this afternoon.

However, although one can discount that kind of argument for some Government Back Benchers, one cannot discount the ludicrous and totally hypocritical arguments advanced by the Minister of State. He knows that he does not believe a word that he uttered today about high rates of taxation. He knows that the Chancellor of the Exchequer does not agree with him, the Chancellor of the Duchy of Lancaster does not agree with him, the Chief Secretary does not agree with him, and the majority of his hon. Friends do not agree with him.

In any case, if the Minister is really saying that it is a monstrous piece of class legislation to increase from £7,000 to £8,000 the threshold at which higher rates of taxation come in, why was it not equally monstrous to increase the threshold from £6,000 to £7,000? Surely that put money into the pockets of these disgraceful rich people that the Labour Party is so intent on clobbering.

The Minister had to make that speech, because he had to bind up the wounds of his party and try, somehow, to get the TUC behind the Government. But we know that the Government believe that the top rates of tax are too high. It is not just the Chancellor of the Duchy of Lancaster who believes it. The Chancellor of the Exchequer believes it, too.

When the Chancellor of the Exchequer went to Glasgow at the beginning of this year, why did he say We must lead the market instead of following it. This task, as always, will be primarily the task of alert and energetic entrepreneurs"? Why does he believe that those alert and energetic entrepreneurs will be able to do the job? Why are they not undertaking it? Is it not something to do with our taxation system? The tax system stops such people from taking action. [HON MEMBERS: "Incentives."] I shall come to the question of incentives shortly.

If the hon. Member for Bristol, North-West believes that high tax is no disincentive, why not tax people at 100 per cent. on 100 per cent. of their income? Does he feel that that would be no disincentive to effort? And if we come down to 98 per cent. on 98 per cent. of income, is not that also a disincentive? Where does one reach the point where taxation is no disincentive at all?

Mr. Ron Thomas

Is the hon. Gentleman suggesting that the people on £10,000 per year plus are writing half a memorandum, attending half a meeting, or travelling half way to Europe and then turning back? What, precisely, are they doing?

Mr. Pardoe

There are a whole range of occupations in our economy where, at the margin, people can be deterred from doing more in various ways. That applies not only to industry; a classic example is that of a professor who has to decide whether to contribute an article to a learned journal.

Mr. Thomas

Come off it.

Mr. Pardoe

I said that I would give the hon. Gentleman a range of examples.

Hon. Members

Rubbish.

The Chairman

Order. It is quite impossible for the Chair to hear what the hon. Gentleman is saying.

Mr. Pardoe

I said that I would give a range of examples. The hon. Member asked for examples and he will get them, whether he likes them or not. I would have thought that he was the last person to despise the contribution of academics who give the public the benefit of their thinking.

Let us take the case of an academic who must make a decision whether to spend the weekend writing up the results of his research or spend the time decorating his house. He knows that if he writes up the results of that research he will get another £500, or whatever it may be, but he may have to pay 70p in the pound on it, whereas if he pays somebody to decorate his house he will have to pay for it out of taxed income. Clearly, he will decide to paint his house rather than do a job from which society would gain far more benefit.

Mr. Powell

I assure the hon. Gentleman that his first example is totally unrealistic and does not correspond to any motivation of which I have ever been aware in the academic profession.

Mr. Pardoe

That absolutely proves my point. Until, rather late in life, the right hon. Gentleman became interested in economics, he was in the classical faculty. It may well be that classical professors do not automatically think of the economic facts of life, but I assure the right hon. Gentleman that many of us know of specific cases, admittedly in the sciences or economics departments—where that kind of calculation is carried out. It is nonsensical to suggest that that does not happen.

Let me give another example. Let us take the position of an export executive who is on a bonus scheme, as many of them are. He knows that if he takes an aircraft to the uttermost ends of the earth over the weekend he may sign a contract to make some exports. He must decide whether, at 70 per cent. taxation or whatever the figure may be, the money that will be left to him as a result of the additional bonus for that export order is worth giving up four or five days with the family and the kids. Is it not better to pick up the phone and tell his secretary "Do not book the plane, but book a table for two for my wife and me at the golf club at the weekend"? Labour Members do not understand the work-creating process at this level of industry. They have never created a penny of wealth in the whole of their lives, and never will. The only thing they do is to draw wealth from the rest of us.

Mr. John Mendelson (Penistone)

Perhaps I may try to help the hon. Gentleman. I do not know whether he was a Member of this House at the time when my right hon. Friend the Member for Huyton (Sir H. Wilson) once stopped a Budget debate in its tracks—a debate that was not properly continued—when the then Chancellor, Mr. Selwyn Lloyd as he then was, introduced a proposal to cut the rate on the highest income groups. The same argument was then used, namely, that the proposal would immediately put new energy into the veins of stockbrokers. My right hon. Friend said "Of course, one will now see a revolutionary change. The whole of the stockbroker belt in Surrey, instead of coming to the City on the 8.14, will in future come in on the 7.12." The hon. Gentleman gave an example about a professor writing an article because he would receive another £200. That was said by a Liberal spokesman who prides himself on speaking for the middle income group. Is that being put forward as a serious argument in this debate? We know the trickster who is proposing a Budget for those who are financed—

The Chairman

Order. The hon. Member for Penistone (Mr. Mendelson), with his long experience, knows that the expression that he has just used is not a parliamentary one, and I ask him to withdraw it.

Mr. Mendelson

With respect, Mr. Murton, the term "trickster" is not an unparliamentary expression and it characterises—

The Chairman

Order. I must contradict the hon. Gentleman. If I say that it is an unparliamentary expression, it is an unparliamentary expression. I hope that the hon. Gentleman, with his customary courtesy, will take my point and withdraw that expression.

Mr. Mendelson

With respect, Mr. Murton, we had an example only last week of an hon. Member who was persuaded to withdraw, although he had used an expression that was perfectly parliamentary. My right hon. Friend the Member for Fulham (Mr. Stewart) later pointed out that the hon. Member concerned was well within his rights. I am well within my rights. This is a financiers' proposal made by tricksters who want to mislead the electorate.

The Chairman

Order. Let me get the matter quite clear. Was the hon. Gentleman referring to another hon. Member of this House, or was he using the expression as a generic term?

Mr. Mendelson

I was using it as a collective term for those who would benefit by these proposals.

The Chairman

In that case, I accept what the hon. Gentleman says, but if, while I am in the Chair, that expression is used about another hon. Member specifically, it will have to be withdrawn.

Mr. Alexander W. Lyon (York)

If the cap fits.

Sir G. Howe

On a point of order, Mr. Murton. The language and style of the hon. Member for Penistone (Mr. Mendelson) hardly deserve serious attention, but it is quite clearly within my recollection that the first time he used the expression that you ruled as unparliamentary he pointed to me and spoke of the trickster who moved the amendment before the House. Since you have ruled, Mr. Murton, that that is an un- parliamentary expression, I think that you are entitled to ask him to withdraw it.

The Chairman

Does the hon. Gentleman still maintain that that remark was not made in respect of an hon. Member?

Mr. Mendelson

Certainly not. It was not.

Mr. Powell

Further to that point of order, Mr. Murton. May I respectfully inquire of you whether your ruling in this case is covered by precedent? I think that you will accept that that which is parliamentary or unparliamentary is determined by precedent and that the precedent is binding on the Chair. I ask the question not in order to challenge your ruling but for the clarification of the ruling which you are giving to the House.

The Chairman

I can reassure the right hon. Gentleman that the list given in "Erskine May" is not exhaustive. On the other hand, any comment made about another hon. Member, within the terms in which it is made, is for the Chair to decide on. The question of precedent in that case does not arise.

Mr. Mendelson

I object to our being restricted in characterising proposals. The right hon. and learned Member for Surrey, East (Sir G. Howe) was not even the first to interrupt me. If I want to refer to the right hon. and learned Gentleman, he knows that I will do it without fear or favour. I have done so in the past. I was characterising a class of people who will benefit by these proposals.

5.30 p.m.

Mr. Pardoe

I hope that you will not add up these minutes and hold them against me, Mr. Murton.

Perhaps we can now get away from this kind of verbiage and shouting across the Chamber. It seems to me extraordinary that the Minister of State should make the kind of speech that he has made when, if we look at the figures that the Government have already proposed, we can see that, for instance, someone with £7,000 taxable income will receive, as a result of the Government's proposals, an extra £128 a year; somebody at £10,000 will receive an extra £278 a year; somebody at £17,500 an extra £528; and somebody at over £23,000 an extra £668.

The Government must surely believe that that money will do some good. Why else have they given it away—to use the term that they would use? Why have they made these concessions? If they do not believe that it has any effect on incentives and the economy, why did they not increase the top rate of tax from 83 per cent. to 100 per cent.?

Mr. Denzil Davies

I think that the hon. Gentleman misunderstood my argument. I never said that it was not necessary to relieve the burden of tax on this group. I pointed out the figures that he has mentioned. My point was that the proposals in the amendment, which, unhappily, the Liberal Party seems keen on supporting, went far beyond the bounds of equity and justice, taking all priorities into account.

Mr. Pardoe

So it is simply a question of degree between us. What the Government have done in giving £668 a year to those top people is perfectly fair and sensible and is an incentive, but what the Opposition propose to do is disgraceful and unfair and class-ridden, and all the rest of the verbiage that we have had from the Labour Party. It is absolute nonsense. The right hon. Gentleman knows it.

What really sticks in my throat about this is that the right hon. Gentleman made the kind of speech that he did when his boss, the Chancellor of the Exchequer, wanders round the dining clubs of the City telling every stockbroker or merchant banker who will listen about the terrible top rates of tax that those people are affected by and rehearsing all the arguments that the right hon. and learned Member for Surrey, East (Sir G. Howe) used this afternoon and I have been using up to now. The Chancellor agrees with every word of the amendments. So does the right hon. Gentleman, and so do many of those behind him. The Government do, except for half a dozen people in the Cabinet. The right hon. Gentleman knows it perfectly well, and it is nonsensical to deny it.

We are dealing with a group of amendments about those—we make no apology for this—in the upper income groups. It is true, and I accept immediately, that it is a small number of people, however one defines it.

Mr. John Mendelson

Rentiers, financiers.

Mr. Pardoe

However one defines middle managers, however one defines the upper income earners, this group is a minority of people. Those people paying over the standard rate this year will number around 850,000. Those are really the people whom we are considering. They are a minority, but is the Labour Party really advancing the view that minorities do not matter—that one does not have to consider minorities at all? Surely that is not the view of the Labour Party.

We are dealing with a minority, and we recognise immediately that there is no vast number of votes in the matter. Nobody is putting forward the amendment because he thinks that there is a huge body of votes in it for him. Certainly, that is not the view of the Liberal Party. What we believe is that the tax system as a whole needs to be reformed from top to bottom, and this is a part of the reform that we have advocated.

The Minister of State said that he was surprised that we were following the Conservatives into the Lobby. It is not a question of that. He knows perfectly well that we announced the amendments long before they did. I am not making a point about that, as to who was first. The fact is that we had the same amendments down on the original Notice Paper. Therefore, the right hon. Gentleman need not be surprised that we are following the Conservatives into the Lobby on this matter. Presumably we are both doing what we believe is right, for our own reasons.

Why do the people with whom we are here concerned matter? Why does it make good political sense to reduce the top rates of tax? I say "political sense", because I believe that it does make good political sense. I shall take the second question first.

It seems to be believed by some of the Labour Members who are here this afternoon, that Britain is an envious nation, that there are votes to be obtained in envy and whipping up envy about top paid people. The fact is that out "in the sticks" people are not that envious about top paid people. I represent a very low income area. I do not find council tenants tearing their hair out over the fact that somebody can afford to live in a better style of house or own a better car than they do. This kind of envy does not exist.

A survey on the Budget was fairly recently carried out by MORI. I am sure that Labour Members will have read it, because it says some rather nice things about the Budget. People were asked whether they agreed or disagreed with the following view: Higher paid people pay so much income tax that there is no incentive for them to work harder. Seventy-three per cent. of the British people agreed. That does not indicate an envious people. It does not indicate to me that they are weighed down with a feeling that the so-and-sos jolly well ought to pay that rate of tax. It indicates to me that they are somewhat sympathetic to the idea that the top rates of tax are too high.

Mr. John Mendelson

They are earning £80 a week, not £50,000 a year.

Mr. Pardoe

People earning £80 a week are not paying the top rates of tax, as the hon. Gentleman will no doubt know.

Even in the D/E social class, 68 per cent. agreed with that statement. Even 70 per cent. of trade unionists agreed with it. Even, incredibly, 65 per cent. of Labour Party supporters agreed with it.

Why do we have these high rates of tax? Why have they been imposed? We have the highest rates of tax for central Government of any industrial country in the world. If we compare this country with the other major countries we find that in France, for instance, the rate is 60 per cent. over £13,000, but the French split income between family units, so one can multiply the £13,000 by the number of people in the family and have a much higher threshold than that at which we have our top rate. In Germany, the top rate is 56 per cent. over £32,000, and for married couples it is over £65,000. In the United States, it is 50 per cent. over £51,000.

I am aware that those are so-called federal or central Government rates. In Sweden, for example, local income tax is very high. But the rates are very high in this country upon such people's dwellings. Although they do not entirely compensate for the local income tax, a comparison of total tax rates, local and national, between this country and the rest of the world shows that we are well above the great majority of our major industrial competitors.

I shall not quote the facts, but if Labour Members want them they can at least have the reference. Employment Conditions Abroad Limited published "International Comparisons of Direct Personal Taxation" last month. It gives a whole series of facts and figures, which Labour Members might do well to read. I do not suppose that they will be convinced. They are beyond being convinced, but they might at least enter into the argument.

Presumably the top rates of tax have been brought in partly because of envy, partly because of the class war, but mainly because we must raise so much revenue from income tax for the Government's purposes that we have had to tax people at the very low level very highly.

Mr. Mendelson

The hon. Gentleman wants to shift the burden to the poor. That is new Liberal policy.

Mr. Pardoe

There is no question of shifting it to the poor, as the hon. Gentleman must know.

The answer of Labour politicians to the question "Why do you tax the poor so highly?" is "Because we tax the rich even higher." That is the main political reason for these high rates of tax. The right hon. and learned Member for Surrey, East, in his speech this afternoon, did not appear to recognise sufficiently that there is a very considerable political and social problem involved in reducing these top rates of tax. It is interesting that the Conservative amendment is for a 70 per cent. top rate, but the last Conservative Government was only able to get it down to 75 per cent., which is well above the international going rate. They found it extremely difficult to do this, and I do not quite know why they think that it is so easy to do it today. This is where I part company from the right hon. and learned Gentleman, who does not seem to recognise sufficiently the political and social consequences involved.

As Labour Members have indicated, some people will get very high after-tax increases in income as a result of what is proposed; nevertheless the right hon. and learned Gentleman and I believe that it must be done. How should it be done? I think it should be done by a clear statement of where we want to be in taxation over a period of years. We need to convince people at every level of income that our proposals for the reform of taxation will be good for them. It is not good enough simply to say to people at the low levels of income "We have to do this for the people at the top for economic reasons." Clearly, we have to raise the tax threshold over three years substantially above the supplementary benefit level, so that we can make income tax a tax for middle income groups and upper income groups, which is what it ought to be. It ought never to have been a tax on the incomes of the lower paid.

Then we need to introduce a credit income tax which will give real security and a genuine equality to the tax system. We need to reduce the basic rate of tax and ought to be aiming at something between 20 per cent. and 25 per cent. over three years. We also need to reduce the top rates, as we are seeking to do today.

I believe that it is absolutely crazy—President Carter said the same thing a few months ago—to tax people on their earned income at more than half. Everyone is entitled to keep half of what he earns. If we want to tax people in other ways, well and good. Let us have a graduated expenditure tax. Let us have a general expenditure tax à la Meade Committee at the top rates, or something of that sort. Without doing those things, I do not believe that a Conservative Government or any other sort of Government will be able to make the necessary changes, because the political consequences will be too great.

The right hon. and learned Gentleman castigated the Government for their supposed belief in a wealth tax. My problem is that the Government do not believe in a wealth tax. I wish they did. The whole point of a wealth tax is that it would provide the political and social quid pro quo for dealing with the problem of incomes. We have possibly gone too far in trying to equalise incomes, and we should introduce a reform of our capital taxation in order to redistribute wealth, rather than to redistribute income.

I accept to a certain extent the point made earlier that there can be an argu- ment both ways as to the effect on high income earners of high levels of taxation. Alexander Hamilton once noted, in a Treasury paper, that native Americans appeared to be less zealous than newly arrived immigrants, and argued for a tax upon his countrymen to get them to work harder, but I do not think that such an argument would stand up today.

5.45 p.m.

My belief is that the present levels of income tax are a substantial disincentive to effort, to wealth creation, and to the enterprise that the Government say they wish to introduce and encourage.

The right hon. and learned Gentleman was absolutely right to labour the point about the "taxiles"—the tax exiles. It is not just the pop industry, as he knows and appreciates; it is an increasing array of business men and professional men. They are able, partly through the mobility of labour in the Common Market, to go abroad.

We have in Britain probably some of the highest tax incentives for industry or corporations to come here of any industrial country in the world, but we have so many disincentives to the people who manage that industry that they are staying away for personal reasons and our own top managers are leaving. It is happening all the time.

The one reason that Labour Members do not accept this point—and even some Opposition Members, including the right hon. Member for Down, South (Mr. Powell)—is that most of us in politics gain our satisfaction from the job we do rather than from the wealth or money we make. But outside this House, the people who have the job of running industry and taking the responsibility for it, have to get their satisfaction from making money, from the financial rewards of the job [HON. MEMBERS: "Oh."] If Labour Members think that there is anything wrong with making money, that is very strange. I understood them to want economic growth as much as anyone in this House, and if we are going for that we have to have people who will take the responsibility for running the big enterprises, whether nationalised, as they would like them to be, or private enterprises as we would have them on the Opposition side. The rewards ought to be considerable, at the present top levels of income tax they are simply not sufficient. That is why we are losing people. There is, indeed, a substantial disincentive to wealth creation.

I believe that Amendment No. 7, which is really aiming at the middle managers, is the most important amendment of the group. Nevertheless, I still think that for this country to labour under a top rate of tax of 83 per cent.—even though we know that it is hedged around with a range of allowances—is wrong. It is absolutely crazy to have that rate quoted against us in the markets of the world, particularly when we remember that those top rates of tax bring in so little money to the Exchequer.

The time has come to make the change, and we had better make it tonight.

Mr. Kilroy-Silk

I knew that the hon. Member for Cornwall, North (Mr. Pardoe) was arrogant, but I did not know that he went as far as claiming the title of "saint". He said, in effect, that only Members of this House are motivated by other factors than money. He said that people outside this House had to have the incentive of money in order to do their job properly. There are, I assure the hon. Gentleman, many people in industry and in other occupations who get as much job satisfaction as he does, and as much as I am lucky to get. They get it from making a company work effectively and successfully, from exports, and from helping other people. They are not motivated solely and singly—as all Opposition Members seem to be—by the pursuit of money and the pursuit of profit. Perhaps there are occasional honourable exceptions, such as some of the Welsh nationalists.

The hon. Gentleman—who now speaks as part of the apparent Lib-Tory pact—also talked about envy and class warfare. There is no envy on the Labour Benches. What we are talking about is justice and fairness. I am rather surprised that the hon. Gentleman should suggest that it is just and fair or in any way equitable to give—as he is suggesting the House should tonight—an extra £5,000 a year tax relief to a man who is already earning £50,000 a year, while at the same time another man who comes to this House as part of a deputation has a take-home pay of £43 a week.

If the amendments moved by the Conservative Party—and supported by the Liberals—are successful, there will be a tax handout to those at the top end of the scale that will be more than the constituent to whom I have just referred earns in two years. That, I believe, is totally improper and unjust. We are talking about justice, not envy.

As for class warfare, it has been amply demonstrated by the Opposition because every element of their amendments to the Budget has been aimed at benefiting the better-off. It happened with the penny off on Monday night, when the greatest benefit of that tax handout went to those earning £170 or more a week. If the amendment is successful tonight, the handouts now anticipated are as follows. A man earning £15,000 a year will be given £500. A man on £25,000 a year will get an extra £1,500 and a man on £50,000 a year will get an extra £5,000. That is over and above the tax benefits which they have already received in the Budget measures announced by the Chancellor.

We have not heard a word from the Conservative Opposition about the disadvantaged, the disabled, the deprived or the unemployed. All we have heard is talk about the higher taxpayers and the need to reduce tax levels in that regard. The Conservative Opposition have clearly demonstrated that they are indeed the party of a very select, secretive and sectional class interest. If we are talking about class warfare, the class warfare has clearly been coming from the Opposition side of the Committee.

Mr. John Stokes (Halesowen and Stourbridge)

If the Conservative Party is only a party of a tiny minority, how is it that it has won so many local elections and has been winning the by-elections?

Mr. Kilroy-Silk

That has not been the case in my area. But I did not say that the hon. Gentleman's party was a minority party. I said that it represented a minority sectional interest. That has always been the case. Certainly any objective member of the public who has attended the Finance Bill Committee will see there, in all its naked glory, the Tory Party as the class party of the sectional interests which happen to be the wealthiest and most privileged interests in society. When we look at the Conservative amendments we see that they are all in favour of those who earn more than £10,000 a year. The major benefits go to people on £50,000 a year. Why did not the Conservative Party table amendments that would benefit the low-paid? Why are there no amendments to help that section of the community?

What I find really extraordinary is that an alleged Shadow Chancellor of the Exchequer should make as the centre-piece of his argument a plea for the hoi polloi, odd-bod pop stars and all the rest, such as the Bugners and the Hunts. The right hon. and learned Member for Surrey. East (Sir G. Howe) produced a whole list of names of people who had allegedly left this country because they were having to pay too much tax. As his hon. Friend the Member for Plymouth, Sutton (Mr. Clark) pointed out, it seems to be an extraordinary principle that we should be framing our tax system and our Budget system simply in order to seduce certain individuals who show so little love for their own country that they are prepared to betray it for a higher amount of money which they can get elsewhere.

The Conservative Opposition are acting like pop stars' groupies. That is perhaps another new dimension to the Conservative Party. To talk about changes in our taxation system and in the Budget measures simply in order to help a variety of pop stars, racing drivers, sportsmen, actors and actresses, seems to me to demean the whole principle of the Budget and to demean the many thousands of people in this country who are unemployed. Many thousands in my own constituency, in Kirkby and Ormskirk, would regard it as a privilege to have the right and ability to pay tax, yet the right hon. and learned Gentleman makes a most pious speech in defence of those who are already earning hundreds of thousands of pounds, who already have far more, in terms of material possessions that one could wish for—houses, cars and other consumer durables—but who are complaining because they cannot be a little richer than they already are.

There are 1½ million people in this country who do not have the privilege of paying tax and who would give their right hands to be able to have a job and to contribute towards the running of this country. But the tax cuts are designed not to help any of the more unfortunate members of the community, such as the unemployed; they are designed to help the better off They will not help to create employment. They certainly will not help the very poor or the low-paid. They will not help the pensioners or the disabled. They certainly will not help to revive industry or employment prospects in my constituency. They will not even help to stimulate jobs, because we know that one-third of the money that is actually handed back in the form of tax cuts goes on imports.

Tonight the Conservative Opposition are doing exactly what they proposed to do with North Sea oil revenues. They want to hard the whole thing over in a great tax bonanza, a great popular gesture, the effect of which could be to benefit most of our major international competitors. We all know that about one-third of all the money that goes in tax cuts goes to the sucking in of imports.

What we should really be talking about is the devoting of far more of our resources to increased public expenditure, which would directly create more jobs. If Conservative Members are really concerned about employment, that is the way they can deal with it, certainly in areas such as my own, on Merseyside. We could use very effectively the £780 million that the Conservative Party wishes to hand over to the wealthier members of our community.

Only one and a half years ago we had the Chancellor of the Exchequer telling the House that as a condition of getting a loan from the IMF we would have to cut essential social services and public expenditure by £1,000 million. He said that we would have to make major sacrifices, and that the quantity and quality of our welfare and social services would have to decline. Yet the Conservative Party tonight is virtually handing three-quarters of that amount not to the population at large, not to the low-paid, the poor or those on low incomes, but to those who are already wealthy, many of them inordinately wealthy—wealthy beyond the dreams of most ordinary people on average earnings and incomes. That is an extraordinary situation.

We could easily swallow up a good portion of that £780 million on improving the public services in Kirkby. We could use it to improve housing and the environment, which would help to improve the community itself. It would also have a direct relationship to the creation of jobs in the largely depressed construction industry.

Mr. Rooker

Does my hon. Friend accept that one of the reasons why the hon. Member for Cornwall, North (Mr. Pardoe) was able to quote from what I consider to be a rigged public opinion survey was that his constituents and my constituents do not believe, and cannot comprehend, the levels of earnings required to pay such high rates of tax in the first place?

Mr. Kilroy-Silk

My hon. Friend is quite right. When they answered the questions put to them in that survey those people were, in fact saying "Yes, we do believe that the man on £50, £60 or £80 a week is over-taxed". I am sure they never imagined that a Liberal spokesman would defend people who were earning £50,000 a year and would seek to give them an extra £5,000 a year. That sort of salary is beyond their dreams. Ordinary people really do not believe that these things exist. That is the kind of attitude which we expect from the Conservative Party. It is not the kind of attitude we expect from the Liberal Party. Perhaps the hon. Member for Rochdale (Mr. Smith) will tell us that not all Liberals are like the hon. Member for Cornwall, North. It was noticeable that no other Liberal Member was in the Chamber to support the hon. Gentleman tonight in his valiant and, perhaps, ultimately successful attempt to form this new seductive alliance between the Conservatives and the Liberals.

The hon. Member for Cornwall, North, like those in the Conservative Party, is not content with giving tax cuts and major handouts to the better-off members of our community. The hon. Gentleman, like the Tories, is not content with ignoring the plight of the disadvantaged, although he and others may well put their hands on their hearts and complain about their position when they visit other constituencies. It is on those occasions that they are concerned about the plight of the unemployed or the disadvantaged members of our community, those who are often talked about in the Chamber by the hon. Member for Rochdale.

6.0 p.m.

The Tories, not content with giving tax reliefs to the wealthier and better-off members of our community, want to go further in their prosecution of the class war. They want to impose even further disadvantages on the low-paid, the pensioners and the disabled by changing the burden of taxation, shifting it away from income tax and placing it on indirect taxation. They are not content with giving more money to the rich; they want to ensure that the pensioners, the unemployed and many of those who do not even reach the tax bracket will find a larger proportion of their income going in tax because of increases in value added tax.

I hope that my right hon Friend the Minister of State, will resist the strong pressures being put upon him and the Government by the Opposition, by some of my hon. Friends and by the media to change the emphasis from income tax to indirect taxation. He knows, as I know, that those who are hurt hardest by increases in indirect taxation are those who are most vulnerable and who can least afford to pay.

It is not surprising that Tory Members should propose a switch in taxation from income tax to indirect taxation. However, I find it surprising that the hon. Member for Cornwall, North, who generally sees himself as a robust radical, should suddenly turn out to be a champion of the class war which has generally been prosecuted, not very effectively as it happens, by the Conservative Party.

I ask my right hon. Friend to resist any imposition of further indirect taxation, which would hit those whom I and many of my hon. Friends represent. These are the people who never come anywhere near £50,000 a year, who may never even dream of that sort of money. Many of them are in the single-parent family category. There are many thousands who are unemployed. These are the people who would feel deeply the effect of increases in value added tax. It would hurt them far more severely than those who are being talked about by the Opposition, because any such increases would represent a larger proportion of their income.

I make a far more confident and robust defence of the present levels of taxation. Like many of my hon. Friends, I accept that the income tax level at the margin should be changed, bearing in mind the incomes of many of our constituents. Many of those whom we regard as having low incomes come into the tax net. We regard that as indefensible. However, that should not lead us to decry the general level of taxation and to assert that it should be reduced.

If we take that approach, we forget many of the features that make this country what it is and make it a desirable, compassionate, tolerant and humane society. I refer to the various undertakings that are being built and financed from taxation. For example, there are the National Health Service, the education service, the police, law and order—of course, we hear a great deal about the police and law and order from Opposition Members—and many of the other activities and parts of life that are financed from taxation. These factors are extremely important to those whom I represent. They are important to the whole quality, ethos and tenor of the society in which we live.

It is extremely important that we do not give in to the clamour to reduce taxation to a level that would have a deleterious effect upon the level, quality and quantity of the social welfare services that we provide. We see the hypocrisy that is exhibited every day of the week by some Opposition hon. Members, including the hon. Member for Horn-castle (Mr. Tapsell), who on 21st February said that he was in favour of increased public expenditure. When talking about public expenditure, many Opposition Members are prepared to say that they want generally to reduce it so that taxation may be reduced. That is popular and it sounds possible.

Every individual knows what we mean when we talk about reducing income tax. He will feel that in his pocket. However, he does not know what we mean when we talk about reducing public expenditure. It is only when the result hits him that he becomes concerned about public expenditure. He becomes concerned when he has to wait in a long hospital queue, when he has to spend two or three hours in a casualty department, when the police do not come round when he reports a crime or an act of vandalism, when the fire brigade does not turn up in time, when the hospital is not built or becomes inadequate and when the schools are overcrowded. When those situation arise, he suddenly realises what public expenditure is all about. The individual citizen realises that, and so does every Conservative Member.

Although Conservative Members say that generally they want to cut public expenditure, they are prepared to say in the House—they do it day after day, and they did it during Question Time today when putting Questions to my right hon. Friend the Secretary of State for the Environment—"Please may we have more public expenditure? Please will you build a hospital in my constituency?" It is always in the individual Member's constituency and nowhere else. They say "Please will you build the road? Please spend more on law and order. Please spend more on defence."

That is the sort of hypocrisy that we expect and get from Conservative Members. It is not the sort of hypocrisy that we have ever had or anticipated from Liberal Members.

Mr. Stan Thorne (Preston, South)

My hon. Friend is too generous.

Mr. Kilroy-Silk

I know that my hon. Friend's experience is different from mine. I know that he fights the Liberals hard in Liverpool.

Mr. Thorne

I do not represent a Liverpool constituency.

Mr. Kilroy-Silk

I know that my hon. Friend lives in Liverpool.

I did not think that I would come across such hypocrisy from a Liberal Member.

Mr. Pardoe

The hon. Gentleman must not accuse me of trying to finance the cuts by making cuts in public spending. I do not believe that the cuts should be financed by cuts in public spending. I have said on many occasions in the House that they should be brought about by increasing taxes on spending. More than two-thirds of the hon. Gentleman's constituents would prefer to pay tax as they spend than pay tax as they earn. Why does he not ask them for a start?

Mr. Kilroy-Silk

The hon. Gentleman says that two-thirds of my constituents would prefer to pay lower taxes. I do not know where he gets that information. Let me make it clear that 58 per cent. of the council house tenants in my constituency are on social security. They are not paying tax. They will not benefit from any tax cuts. They will not benefit from the tax cuts that the Opposition parties wish to be made tonight. Of the schoolchildren in my constituency, 80 per cent. receive free school meals, while the national average is about 18 per cent.

Do not let the hon. Gentleman tell me what my constituents think. Do not tell me about my constituents. I know what they think. I know what they want. What they do not want is to see the Tory Opposition, helped by the Liberal Party, give money away to those who already have too much. They do not want to hear a Liberal spokesman saying that he will support the Tories to introduce measures to tax the poor. That is what the hon. Gentleman is proposing by arguing that there should be an increase in value added tax. My constituents would not gain from such an increase. They will not benefit by cuts of 1p or whatever in the rate of income tax, but they would be hurt severely by the increase in value added tax that is proposed by the hon. Gentleman.

I ask my right hon. Friend to resist the proposals of the Opposition parties and the implicit attack on our social services by the Tories. They would give £800 million to the rich, but they would be asking my constituents to pay for that by introducing increases in council house rents, increases in the price of school meals to affect the few, admittedly, who have to pay and by increases in a whole range of other social services.

The Tory Party is showing its clear, true colours as a party that represents a select, sectional interest of the wealthy. It is propagating the class war in a way that it has never done so openly in the House. I ask my right hon. Friend to resist the amendment.

Mr. Ian Stewart (Hitchin)

If the hon. Member for Ormskirk (Mr. Kilroy-Silk) is typical of the people from the area that he represents, it is not surprising that they have frightened off every employer in sight. I have rarely heard such a ridiculous load of balderdash intended as a contribution to a debate in Committee or on the Floor of the House. I think that it would help the Committee if we were to try to discuss this matter rationally. It is a great pity that the Minister of State allowed himself to be carried away by the sentiments of Labour Members below the Gangway.

Mr. John Mendelson

My right hon. Friend made an excellent speech. We have not heard a speech such as that in years.

Mr. Stewart

Therefore, he was forced, against his better nature, which I know well, to make a belligerent and irrelevant speech, which is what he does only when he does not believe in the argument that he is putting forward.

Why are these amendments being resisted by the Government?

Mr. Mendelson

Why?

Mr. Stewart

I should have thought that it was clear after the rubbish to which we have had to listen about every subject except the amendments. Why have the Government—

Mr. Mendelson

Why?

Mr. Stewart

—gone against their better judgment that moves in this direction should now be made? Of course it is a matter of the class war, but it is an absolutely bogus class war whipped up by the bovver boys of the Red Brigade below the Gangway.

We have heard a great deal this evening, as we often do in such debates, about fairness and justice, rich and poor. But we are talking not about wealth but about earnings.

Mr. Mendelson

We are talking only about money.

Mr. Stewart

Labour Members, who think that they know all about these things—

Mr. Mendelson

Hear, hear.

Mr. Stewart

—are determined to misunderstand the point of what we are discussing tonight. It is largely because of this ridiculous and unthinking attitude that the Committee is treated on these occasions to displays of disreputable behaviour.

We hear a lot about handouts and favours to the rich and so on, but is it a favour to somebody to take away less than 83 per cent. of £1 which he earns? Is it a handout to impose a rate of tax lower than what amounts to confiscation? Labour Members are entitled to their own opinions. However, I suggest that they are in a minority, not only in their own party and in, the Committee but in the country at large. Fortunately, most people do not believe in confiscatory rates of personal taxation. I was glad to hear the hon. Member for Cornwall, North (Mr. Pardoe), in a reasonable way, explain that the Liberal Party had a similar view to that which, I suspect, is widely held throughout the country.

What happens if every year we use the argument that we have heard from the Labour Benches today? If differentials are always squeezed in the same direction, they will eventually disappear. If it is never right to restore the real levels of after-tax earnings at the higher rates and it is always the top priority to increase relatively the spending power at the other end of the scale, inevitably differentials will be squeezed. They will be squeezed not only by the tax system but by incomes policies which include flat-rate elements which, combined with the effect of inflation, cause the problems which we now have about differentials which are recognised by the Prime Minister, the Government and many Labour Members. But what do they do about it? They do very little. The population has suffered a decline in living standards over the last five years.

Mr. Mendelson

On a point of order, Mr. Murton. I ask for your guidance. Is it not wasting the time of the Committee to talk about wage differentials and to pray in aid the Prime Minister when we are talking about handouts of £5,000 a year to rentiers and financiers? This is a waste of the time of the Committee.

The Chairman

Order. That is not a point of order. The hon. Gentleman must be allowed to develop his argument in his own way.

Mr. Stewart

Thank you, Mr. Murton. The average reduction in real earnings at the bottom end of the scale has been calculated over the last five years, after tax and with adjustments for national insurance, social security and child benefit, to be about 3 per cent. At three times average earnings it is about 14 per cent. At the levels affected by the amendments, in some cases it is 25 per cent. or 30 per cent.

That may be acceptable to Labour Members. It may be what they wish. It is a strong form of egalitarianism served up under the guise of inflation. If they want that kind of society, that is fair enough, but I do not believe that the Government should pretend that they are worried about the situation and then resist the amendments.

Amendment No. 22, in my name, would cost very little. It would merely adjust the top rate of tax from 83 per cent. to 70 per cent. That would still leave this country as one of the highest-taxed countries in Europe and the industrial world. I should have thought that, if Treasury Ministers were seriously concerned about the disincentive effects of our high marginal rates of taxation, they would willingly accept the amendment without a Division. But I do not expect that they will. Unfortunately, the belated recognition by some Members of the Cabinet—most notably the Chancellor of the Duchy of Lancaster—that this situation is now overdue for correction has not prevailed in the Cabinet. That is a matter for disgrace.

6.15 p.m.

If a country sets out to use its tax system to penalise the able, the skilled, the hardworking and the successful, inevitably it will end up unskilled, mediocre, idle and unsuccessful. Unfortunately, that bears a marked resemblance to what is beginning to happen in Britain today.

No one is suggesting that altering the higher rates would bring about an immediate regeneration of British industry and commercial life. But I think that all who look at this matter objectively agree that, if we leave the rates where they are, we shall certainly bring about a further slide in the opposite direction. I echo the words of the Chancellor of the Duchy of Lancaster that this situation is overdue for correction.

Mr. William Hamilton (Fife, Central)

I take a middle-of-the-way view on these matters. I hope that my hon. Friends in the Tribune Group will not be surprised when I say that I disagree with their views. I also disagree with the views of the Tory Opposition.

I think that the Government's view on the Budget was just about the right balance, given the present economic situation. But there can be no doubt in the minds of most moderate Members—I count myself as one of them—that there is something radically wrong with our tax system from the top to the bottom. It will not be undone overnight. The steps that have been taken in successive Budgets by my right hon. Friend seem to us, and I think to the country as a whole, to be eminently fair, but, they do not solve the problem.

When I consider the speech made by the right hon. and learned Member for Surrey, East (Sir G. Howe) and couple it with the repeated remarks of the Leader of the Opposition, I conclude that they are not the best of advocates for suggesting a reform of the tax system because, rightly or wrongly, the Tory Party always gives the impression that it is concerned more with the people at the top than with the people at the bottom. Indeed, Conservative spokesman have said so in as many words. When they say, as they have said repeatedly, that these tax concessions can be paid for by slashing unspecified items of public expenditure—unspecified today, too—there can be no doubt that such cuts will affect most severely the poor and, indeed, the middle classes, because it is they who benefit most from the social services, whether in education, the National Health Service or whatever.

In February, the Leader of the Opposition said that the Conservative Party was determined to axe tax, presumably to release energy. We have heard all these expressions before. Indeed, I have heard many similar debates over a number of years. It is said that these tax concessions at the top end of the scale will release energy, inspire initiative, stop the brain drain and all the rest of it. I say from my own experience that the people who find the tax system a greater disincentive than most are not top managers and professional people but the skilled workers at the bench and the semi-skilled workers who say that it is not worth working two hours' overtime because they are taxed on it. These are the people who need more incentive than people at the top. They are doing extremely boring and repetitive jobs. It is not worth while having two more hours of that when the Chancellor takes a big slice of it.

On the other hand, the professional man has a good deal of job satisfaction. For example, I am speaking with a heavy cold. I have no financial incentive to come here. I happen to like coming here because I like the job. We are all like that, otherwise we should not be here. The same applies to many professional people—even nurses. Nobody could say that the nurse in a hospital is induced by extra pay. She is motivated by other considerations.

This is where we make repeated mistakes, and particularly the Tory Party. Tories give the impression that only cash motivates people in their activities. I do not say that it is irrelevant, but it is only one factor. Usually it is not the most important factor, but when it is it applies at the lower income scale rather than at the top in the professional classes. Tories use these arguments simply because they believe that there is a certain amount of political mileage to be had from them.

The most absurd statements were made by the right hon. and learned Member for Surrey, East. He gave a long list, not of the brain drain from this country but of others. He listed James Hunt, Richard Burton, the Rolling Stones, Humperdinck and Tony Jacklin. He said that they were the seed bed of the entertainment industry. By God! If the argument is reduced to that level, I am not surprised at what the people said they thought of the Shadow Chancellor in a recent poll in The Sunday Times.

Hon. Members will recall that opinion poll in that respectable newspaper The Sunday Times last Sunday. The people were asked about the capability and honesty of the leaders of the parties and whether they were in touch with the people. They were asked whether they were even recognised by the general public. The results were interesting.

For capability, the people put the Prime Minister top of the pops. A total of 76 per cent. thought that he was extremely capable. Only 59 per cent. thought that the Leader of the Opposition was capable. The Chancellor of the Exchequer, trailing a little behind the Prime Minister as one might expect, was thought to be capable by 74 per cent. Where did the right hon. and learned Member for Surrey, East come? He came bottom of the league with 26 per cent.

Some 65 per cent. of the total thought that the Prime Minister was honest. That is very good for a top politician. The Chancellor of the Exchequer polled 60 per cent. and the Leader of the Opposition less than 50 per cent. A total of 49 per cent. thought that she was honest. That is a disgraceful figure. The Shadow Chancellor polled 22 per cent. My hon. Friend the Member for Penistone (Mr. Mendelson) said earlier that he was a trickster. That is too cruel a word to use. About one in five thought that he was honest. It is not for me to say whether they are right. That is what they think. Sixty-two per cent. thought that the Prime Minister was in touch with ordinary people. Fifty-seven per cent. thought that the Chancellor was in touch with them, less than 50 per cent. thought that the Leader of the Opposition was, and 15 per cent. thought that the Shadow Chancellor was in touch. He is obviously completely out of touch. He might as well go and join Humperdinck. He would never be missed. A total of 86 per cent. recognised the Chancellor and 77 per cent. recognised the Leader of the Opposition.

Mr. Tim Renton (Mid-Sussex)

On a point of order, Mr. Murton. I hope that before the hon. Member finishes he will tell us where he came in this list. Is this relevant to the debate? Many hon. Members wish to speak. What have the hon. Member's remarks to do with this debate?

The Chairman

The hon. Member for Fife, Central (Mr. Hamilton) is making comments on the first speech that was made on these amendments. He must be allowed to develop his argument in his own way.

Mr. Hamilton

If you were not retiring at the next General Election, Mr. Murton, I should vote for you again. You are right. I was giving the public estimate of the honesty, capacity, weight and General recognition of the Shadow Chancellor, who is trying to kid people that he would do a better job than the present Chancellor.

I return to the more serious argument about the alleged lack of incentives engendered by the present tax system. I recall the speech that the Financial Secretary made on 21st February in a debate initiated by the Opposition on the general problem of taxation. The same arguments were being adduced then as we are hearing today. On that occasion my right hon. Friend recounted what happened when the then Chancellor, Mr. Selwyn Lloyd, reduced surtax on earned income by raising the starting point from £2,000 a year for a single person to £5,000. That was an enormous step and was the type of concession that is proposed by the Tories today.

What was the result? Were there tremendous bursts of initiative and enterprise? Was there a flood of Humperdincks and the rest back to this country? I do not know who the equivalent of Humperdinck was at that time, but were such people flooding back as a result? Not a bit. We have had successive crises since then. It made not a ha'p'orth of difference except to those at the top of the salary scales who got the handouts. The exercise was repeated in 1971 by the Tory Government. More cherries were handed out to the wealthy. The top rate for earned income was cut from 88¾ per cent. to 75 per cent. The result of that was a worsening of the economic situation absolutely and relatively compared with our competitors.

The point was further underlined in an article in The Three Banks Review of December 1977 by Sir Henry Phelps Brown, who had been professor of the economics of labour at London University. He said: In its 'Programme for Action 77', the Confederation of British Industry held that 'lack of incentive has held back productivity in manufacturing industry', and advocated the cutting of taxes, especially income taxes, to restore incentives. That is the crux of today's argument. The article continued: Those who see in the incidence of taxation a factor of sufficient strength in itself to account for much of the variations in the pace of the economy, apart from all the other circumstances of the time, should look back to the fifteen years before the First World War. Throughout those years the highest rate of income tax in this country was under 7 per cent. and from 1909 most taxable earned income paid less than 4 per cent. Yet this was not a time of vigorous enterprise responding to incentive, or of high investment in British industry: those fifteen years were a time of stagnation, with no advance in productivity, no rise in real wages. The reasons for this lay in "other circumstances of the time": the example may serve to indicate how minor a role taxation may play, among other forces, in the shaping of economic performance. 6.30 p.m.

He went on to suggest certain other factors which might explain our unduly poor performance, not only since 1974 but even since before the war. Those explanations involve sociological factors such as the class structure which a lot of people think has disappeared in this country but which is still very much in evidence. One has only to look at the entrants to university to see how little change has taken place there. That fact permeates through to industry, the Civil Service, the political institutions and other places.

The writer of the article referred to what he called "the adversary system"—that is to say, the "we" and "they" syndrome in industrial relations which the Leader of the Opposition seems determined to exacerbate. In every speech she makes, she indicates that she will have a confrontation with the trade union movement. Whatever one might think of organised labour in this country, one must accept that no Government, irrespective of party, can pursue any meaningful policy unless they co-operate with organised labour.

The article goes on to say what we know to be true: that over the years we have had a pathetic output per employee-hour in almost every industry compared with our competitors the United States, Japan, Germany and France. The main constraint here is the massive resistance to change which begins in this place. It is almost impossible to change this place. I have been trying for God knows how many years, but with remarkably little success. The same situation applies in every other institution, whether it is the trade unions, the Civil Service or top management. We have failed all along the line in initiating the changes that are necessary if we are to survive as a competitive industrial nation.

We have simply failed to change our structure to take account of the rapidly changing patterns of international world trade, upon which we so heavily depend. We have failed to change our educational system, the structure of the Civil Service and the political system. Let me use the expression used by the writer of the article when he referred to the "antique inflexibility" of our trade union institutions and the inefficiency of too much of our industrial management. Hardly a word has been said about that.

Some of the people we have been discussing who earn these massive salaries are being paid far above their worth. There is still a lot of nepotism in top management, and well the Conservatives know it. Some of those concerned are sitting on the Conservative Benches. We see them every day. We can judge them, and it makes me frightened for the future of our industrial economy when I hear top managers uttering such gibberish as we hear from the Conservative Benches day after day.

Let us not pretend that the solution to all these problems lies simply or even mainly in restructuring the fiscal system. Those factors that I have mentioned are of far more fundamental importance than the amendments we are discussing. The Opposition are not concerned much to discuss in any great depth the maladies within our structure. They prefer the superficial vote-catching exercises such as the one in which they are engaged today.

Let me recall what was said by the hon. Member for Horncastle (Mr. Tap-sell) in the debate on taxation on 21st February. He implied—column 1326—that the key to a dynamic economy and to international respect was a system of low rates of direct taxation. So the alleged lack of international respect from which we suffer is, according to the hon. Gentleman, due to our unfair and unjust tax system. He urged that conversely high rates of taxation existed in countries in decline. That is an absurd proposition. He said that the countries with high rates of taxation were in decline, with welfare benefits and living standards that were relatively low. I can refer the hon. Member to Sweden and Norway as good examples of where the reverse is true. They have high taxation rates and very high-quality welfare services—better than in this country.

The latest figures I have show that in 1974 the total tax take in this country was smaller as a proportion of the GNP than in Denmark, Norway, Sweden, Canada and Austria. It is therefore idle to pretend that we are the highest taxed industrial nation.

According to Ecconomic Trends of November 1976, the total raised by national and local taxes, excluding capital taxes, but including social security contributions, because they are severe imposts on lower-paid workers generally, was less as a percentage of GNP at factor cost in the United Kingdom than in Denmark, Norway, Holland, Sweden, France and Canada. Excluding social security contributions, the tax take was higher in Denmark, Norway, Holland and Canada than in the United Kingdom.

There is an undeniable case for having a fundamental and radical look at the total tax structure. That is what the Government are engaged in doing, legitimately. Conservative Members have said that the Chancellor of the Duchy of Lancaster, the Chancellor of the Exchequer, the Prime Minister and others recognise that top management must have a fairer deal than they have had up to now. I recognise that fact. My doubting friends should read the report of the Select Committee on Nationalised Industries a few years ago when it was discussing the top pay of management in nationalised industries. On that Committee were a number of so-called Lefties, and they said that we would not get the best kind of management—presumably we want nationalised industry to have the best kind of management—unless and until we faced the fact that we must pay the rate for the job.

It is idle to pretend that nationalised industries pay salaries that will attract the best kind of management brains. From my experience in my constituency, I have found that the tax system is hitting the lower-paid people far harder than it is hitting those on higher wages. That is not a reason for not dealing with both groups of people. We should not deal with one and exclude the other. In the Budget, concessions have been given to the highly-paid, but the majority of the concessions, quite properly, have been given to the lower-paid people.

There are other serious injustices with the income tax situation. I refer to a glaring injustice which will not meet with the approval of the Opposition. There is a landowner in this country who receives a very large income from his estate. According to the accounts that I have with me, that landowner in 1977 received £290,605 as income from that estate. Conservative Members might say that an enormous part of that sum would be taken in tax. Not a penny of tax was taken from that landowner, because he happens to be the Duke of Cornwall, the Prince of Wales. There is no reason why anybody in this country should be allowed to escape the payment of tax.

Mr. E. Fernyhough (Jarrow)

The Leader of the Conservative Party said in a law and order speech last weekend that no exception should be made to any of the laws of this country. That reinforces what my hon. Friend the Member for Fife, Central (Mr. Hamilton) has said. He has the Leader of the Conservative Party on his side.

Mr. Hamilton

I have tried for years to find out why this income is not taxed, not even at the lower rates. I can never get at satisfactory answer. We can find out the taxable income required to give a net income of £200,000-odd a year. As unearned income of more than £20,000 a year, a sum of that nature would be taxed at 98 per cent. To receive £290,000 net, he would need to have a gross income of at least £20 million. How Opposition Members can even pretend that we are moving towards a fair tax system while allowing this kind of scandal. I do not know. I am being listened to almost with incredulity. I do not think that hon. Members opposite believe the facts that I am putting forward. I have seen the accounts of the Duke of Cornwall in the Library, and I invite hon. Members to see them. The accounts show that payments made on account of His Royal Highness were £129,208 in 1976 and £209,605 in 1977. That is an approximate increase over one year of 150 per cent. There is no consideration of norms or phase 1 or phase 2. Nothing of that kind is involved. If the Government took this matter in hand, though the sums are relatively small, the psychological effect would be out of all proportion.

6.45 p.m.

I see that the hon. Member for Halesowen and Stourbridge (Mr. Stokes) is getting restive. I am not doing my job if he is not. The problem to which I have referred applies also to the relatives of the Duke of Cornwall. Unless the Government tackle the problem, we cannot take them too seriously on other matters.

Mr. Dennis Skinner (Bolsover)

There is a strike taking place in one of the Temples near the Law Courts. People are squabbling about the payment of £300 a day. There is a fee of £10,000 involving two gentlemen. One gentleman is a present Tory Member of Parliament, the hon. and learned Member for Thanet, West (Mr. Rees-Davies) and the other is the ex-Tory Member for Ipswich. As a result of all the squabbling over the £300 a day—and they are the people who will benefit from changes in taxation proposed in the amendments—there is a strike in the chambers.

Mr. Hamilton

I hope that the strike continues and that the chambers close. My hon. Friend is underlining what I am saving. These debates are concerned with who gets what out of the tax system. The impression given by the Tory Party—an impression that it intends to create—is that it is looking after the people at the top. We are creating the impression which we intend to create that our job here is to look after the people at the bottom of the income range. All of us, whether the Opposition or the Government, have ultimately to think of the national economy. I hope that my speech has been relatively balanced and moderate.

I recognise the problems in the economy. I do not expect that they can be even largely solved by tinkering with the tax system, which the amendments are essentially doing and treating unfairly the great majority of the people represented by the Labour Party.

Mr. Douglas Crawford (Perth and East Perthshire)

I hope that the Committee will forgive me if I do not take up the latter points made by the hon. Member for Fife, Central (Mr. Hamilton). This is not the place to discuss such matters.

The debate is not just about the widening of the tax bands but is about tax at the higher rates. It is not only about Amendment No. 7 but is about Amendments Nos. 20 and 21. I understand that the cost of Amendment No. 7 in United Kingdom terms would be £150 million a year and the cost of Amendments Nos. 20 and 21 would be £235 million.

In order to put at rest The Times, which, as usual got it wrong this morning, this Bench will be voting for Amendment No. 7 and against Amendments Nos. 20 and 21. We are in favour of raising the threshold of tax for middle management but against dropping the top rate of tax for those who are rather richer. Our decision to support Amendment No. 7 was not particularly easy. It was based not on party political dogma but on pragmatism. Unfortunately, that word has been debased by one right hon. Member.

The Minister of State said that middle managers in Wales were not in the tax bracket which would be affected by raising the threshold from £7,000 to £8,000. I should like to read into the record a letter that I have received from Mr. Michael Moran, the chairman of a company called Microwave & Electronic Systems Limited and a member of the CBI executive committee in Scotland. He said: As far as MESL is concerned, our continued growth … is, and will continue to be, limited by the national shortage of a pool of talented managers, the engineering disciplines and skilled manpower who are prepared to enter manufacturing industry. He went on to say: The multiplier effect, on mopping up semiskilled and unskilled unemployed labour, caused by the existence of such a pool of skilled labour cannot be overstated. The hon. Member for Cornwall, North (Mr. Pardoe) quoted some figures. Mr. Moran continued: As an example to demonstrate that current taxation is a disincentive to accepting increased responsibility we can quote the salary band of MESL Divisional Managers in 1973 as £4,000 to £4,300. Today the band is £9,500 to £10,500 which just keeps ahead of the 213 per cent. inflation experienced over the same period i.e. 1973 to 1978. In 1973 the manager did not come near the 40 per cent. taxable income band which started at £5,000 … Today, 1978, the same manager after deducting, say, £2,500 in allowances enters the proposed 40 per cent. tax band which starts at £7,000 … To inflation index the £5,000 tax band in 1973 to 1978 would raise it to £10,550. That is one of the reasons why my party is supporting Amendment No. 7. If anything, we in Scotland have suffered even more from the emigration of our skilled people than have other parts of the United Kingdom.

Mr. Joseph Dean (Leeds, West)

The hon. Gentleman quoted from the letter instances of skilled engineers, but it is difficult to believe that the writer of the letter was being serious when the employers in recent negotiations with the engineering union on behalf of skilled engineers made an original offer of a 2 per cent. wage rise, not the 10 per cent. that other workers received. Why do they not come off it and be genuine?

Mr. Crawford

I was simply quoting from a letter. The point is that in Scotland in particular, if we are to create the sort of industry that we need and to regain our competitive industrial edge and retain and attract skilled managers, we must have a tax system which gives them more incentive.

I am not talking about the land speculators, the multi-millionaires, the tertiary bankers and those who would benefit from Amendments Nos. 20 and 21. I am talking about middle management—the production engineers, the marketing managers, the research managers and all those who can bring back springs of inventiveness to industry in our country. Without these people, industry in Scotland and, no doubt, other parts of the United Kingdom will continue to suffer.

For every skilled job created or retained, several unskilled jobs are provided. Conversely, for every skilled job lost or not created, several unskilled jobs go by the board. The Government have partly recognised this but, in the view of my party, they have not recognised it enough. Hence our support for Amendment No. 7.

Mr. Ron Thomas

The hon. Member has now switched from the example of managers to talk about skilled workers in general. May we be clear? If he is supporting the amendment, he is thinking about people on £10,000-plus a year. According to the latest survey of the Department of Employment, there are no skilled workers to speak of in that bracket. There may be one or two managers. Will the hon. Gentleman make clear that, following the Budget proposals, all he is arguing about is a top band of £1,000 of taxable income that will be taxed at 40 per cent. rather than at 33 per cent. or 34 per cent? He is talking about a quite small sum of money.

Mr. Crawford

I am talking about giving incentives to the people in industry who will create jobs for unskilled and semi-skilled people. That is where my party stands. If we give incentives to people on £7,000 to £8,000, which is, de facto, £9,000 to £11,000, they will create the jobs that we badly need in Scotland.

I hold no brief for the CBI, but the chairman of the CBI's smaller firms working group in Scotland, Mr. Ron Lander, has said: I believe that coupled with SNP proposals to reduce the basic rate of income tax by 2p, … a raising of the proposed £7,000 limit to £8,000 … will be … a move in the right direction. We in Scotland, more than any other part of the United Kingdom, have to rely on inventiveness for the prosperity of our economy. We have to rely on high-value, low-volume products. This means inventiveness. It means the ability to translate invention into commercial reality. It means the ability to translate commercial reality into acceptable products, and it means the ability to sell acceptable products throughout the world.

The raising of the basic tax band from £7,000 to £8,000 means, given the allowances for wives and children, building society mortgages and so on, a de facto widening of the band from about £9,000 to £10,000, but above that level we feel that the imposition of higher rates of tax is not inequitable.

If we are talking about differentials and the need to maintain them, I see nothing to suggest that a man earning, say, £30,000 is three times as good, three times as productive or capable of producing three times as many jobs as a successful middle manager earning £10,000. That is why we shall not be supporting Amendments Nos. 20 and 21.

In all this, the SNP is taking a firmly pragmatic line. Without middle management and people in the earnings bracket of £9,000 to £11,000, industry in Scotland and elsewhere in the United Kingdom will suffer. Obviously the Government have recognised this, but it is essential to maintain the competitive nature of industry and stimulate the springs of industrial inventiveness. We believe that tax incentives for middle management should be enhanced, but there is no way in which we can support a reduction of the tax rates at the top end.

Mr. John Mendelson

My hon. Friend the Member for Bristol, North-West (Mr. Thomas) interrupted the hon. Member for Perth and East Perthshire (Mr. Crawford) to suggest rather politely that he was talking about something with which the amendments do not deal. We did not get a very clear reply to that intervention.

I counsel my hon. Friend not to be surprised that Opposition Members are talking about matters other than the burden of the amendments. With the exception of one Tory landowner who spoke earlier, they are far too ashamed to discuss the amendments. They are making high-toned speeches about wage differentials, about engineers, about skilled craftsmen—about everything but the burden and substance of the amendments and the group of people who will benefit from the vast sums that will be handed out to a tiny section of the population if the amendments are carried. Of course they are talking about other things. It is the normal classical tradition of financial hypocrisy.

I shall not mince my words, because I believe in returning to an earlier tradition of hard hitting talk in Budget debates. That is better than maintaining the artificial high tone that some Opposition Members have introduced to cover their tracks.

7.0 p.m.

What we are discussing today is very much the business of the electorate, and it is something that every right hon. and hon. Member will have to defend. The Minister of State made an outstanding speech in reply to the opening remarks. I say that deliberately against some of the snide attacks that have come from the Conservative Benches, particularly in the immature speech of the hon. Member for Hitchin (Mr. Stewart), who accused my right hon. Friend of having shown prejudice. My right hon. Friend's speech, in defence of the policy that the Government feel is justified, was full of facts and information. That is just what the Opposition do not like, but what they do not like they will have to defend in the country.

It will also have to be defended by the new spokesman on economic policy, the hon. Member for Cornwall, North (Mr. Pardoe), who makes so many high-toned speeches these days. In his speech this afternoon he introduced the figure of a mythical professor and used him as a prime example to show why the Liberals will support the amendments which among other things will hand out £5,000 to men and women earning £50,000 a year.

We were told, in the excellent speech of the Minister of State that more than 40 per cent. of the money being handed back will concern unearned income and will have nothing to do with earned income.

Returning to the example of the rarefied figure of the professor, the hon. Member for Cornwall, North said that this man would make a basic strategic decision. He gave the impression that he would spend a sleepless night before he decided whether he should give an additional lecture. Heavens above!—no wonder British universities are not making as rapid progress as they should. Membership of the Royal Society is large. In the past 25 years we have had 17 Nobel prizewinners in natural and medical sciences alone in this country. But, of course, we would have had 34 if only the money had been handed back to them in earlier Budgets so that more professors could give more lectures, step up their research, become members of the Royal Society, and win Nobel Prizes for the United Kingdom. That is the picture that the hon. Member painted.

I warn the Financial Secretary—I hope that he will pass this warning on to the Chancellor—that this same hon. Member for Cornwall, North, who has given this childish view, sets himself up as the Government's chief adviser on financial and economic affairs. One cannot pick up a newspaper in Yorkshire, let alone Cornwall, without seeing an announcement that the hon. Member has visited the Chancellor once again behind closed doors.

Once I was not particularly perturbed by these visits. I know that the Chancellor receives many visitors. He has even seen me occasionally, with a deputation of my hon. Friends. I do not think that on those occasions we changed his mind, and therefore I was not particularly worried about the frequent visits of the hon. Member for Cornwall, North. However, when I heard the speech today about a profession of which I know something, I felt really alarmed. I warn my right hon. Friend to cut down the number of visits made by the hon. Member. Of all the unnecessary and useless activities of recent years, this is the most useless.

The hon. Member for Perth and East Perthshire did not talk about the burden of the amendments, Of course he did not. He was ashamed to do so. He talked about skilled men and engineers. He was pulled up, quite rightly, by my hon. Friend the Member for Leeds, West (Mr. Dean), who has had a lifetime of experience in engineering, unsurpassed by any other hon. Member. The hon. Member for Perth and East Perthshire will have to attend meetings in Perth, not far from the Salutation Hotel, and defend the handing over of £5,000 to financiers and rentiers who are earning £50,000 a year. That is what he will have to defend.

Mr. Joseph Dean

Does my hon. Friend agree that if the hon. Member for Perth and East Perthshire (Mr. Crawford) is sincere, he should have the courage to make such an announcement during the forthcoming by-election campaign in Hamilton?

Mr. Mendelson

Certainly, he will have to address engineers and others in Scotland, because in that country there are many skilled engineers.

Mr. Crawford

I was not talking about people in the £50,000-a-year income bracket. I was talking about people in the £8,000 to £11,000 bracket—the people who are the creators of jobs in this country. That is why I said that we would vote for Amendment No. 7 but against Amendment No. 20.

Mr. Mendelson

The hon. Member has given a much more specific outline in his intervention than he did in his original speech. He talked a lot about skilled engineers. I represent an engineering area. Working engineers earning between £10,000 and £11,000 a year are hard to find in Yorkshire, or anywhere else. I do not believe that the level is much different in Scotland. These are not the people about whom we are talking.

The only Member who approached the problem honestly was the Tory landowner, the hon. Member for Gainsborough (Mr. Kimball), who criticised his own Front Bench. His main attack was not against the Chancellor; it was against his own Front Bench, because they were not proposing that enough money should be handed out to the richest sections of the population.

What we are seeing tonight must be made clear in the country, and the sooner the better as far as I am concerned. It would be a very good thing if we could start tomorrow afternoon when everything was still fresh in the memory of the electorate. We are discussing the real policy of the Tory Party. This has nothing to do with economic efficiency and strategy. It has nothing to do with the good of the country; it has to do with nothing but giving large sums of public money to those who have too much already. That is traditionally Conservative policy.

Before we get on to the high-toned subjects of economic and financial strategy, we must nail the real attitude of the Tory Opposition. It has nothing whatever to do with any particular economic situation. It does not matter which year it is. These are proposals that the Tories put forward before 1910 and after 1920 by the hard-faced men who had done well out of the war and were always intent on looking after the tiny minority who have too much already.

Mr. Maurice Macmillan (Farnham)

I though that we were debating a reduction in the tax level. The hon. Member refers to "handing out large sums of public money". We are debating the retention of more of the money that people have earned, sometimes overseas.

Mr. Mendelson

I am grateful to the right hon. Gentleman. He could not have given me a better feed. I deliberately used the term "handing out public money" because I was comparing it with the total pool of money raised in taxation. In the mining areas in my constituency are elderly ladies, old-age pensioners, who, if they earn for additional hard work more than a certain limited disregard, immediately pay tax. They will have to make up some of the money handed back to those earning £50,000 a year. If that is not a handout, nothing ever will be.

So, before we get to high-flown subjects like economic strategy, we must establish what we are really about. There is no relevance to our economic situation in the proposals made in the amendments. The Tories judge that the time is ripe to put them forward with the chance of carrying them so as to reward their political and financial paymasters. They would not have that chance but for the Liberal Party and, in some cases, the smaller parties aiding and abetting them.

The whole political strategy of the Cabinet is coming to grief here. All the concessions that we have been asked to make, all the long hours that we have spent passing legislation to please this group or that, are coming to nothing. When the test comes, they all join the other side. Because of this politcal constellation the Tory Party has judged it right to bring forward these selfish amendments.

There is an argument about economic strategy, however, which can be applied to our tax system. I agree with my hon. Friend the Member for Fife, Central (Mr. Hamilton) that the system needs root-and-branch reform, but this proposal has nothing to do with that. It is intended to hand out money to small sections of the population. Other considerations apply to root-and-branch reform.

We can see the extreme childishness of the hon. Member for Cornwall, North, who poses as economic spokesman for his party. He has argued that these incentives will mean a decisive change in our economic position. What nonsense. Half way through his argument, the hon. Member proved conclusively that he knows nothing about employers and industry. He drew himself up to his full height and said arrogantly—I choose my words carefully—"I am inspired by interest in my job and by job satisfaction." The implication of that statement is that all the employers in my constituency and elsewhere have no interest in their jobs and are inspired by no concern for their industry's prosperity and Britain's future.

The hon. Member, apparently, is the only man who has job satisfaction and works for more than monetary considerations. Everybody in industry is completely below that level. They have to be fed with financial gain if they are to be inspired at all.

What nonsense. I do not claim extensive knowledge of our employers and our industrial management, though there are hon. Members who do, but even with the limited knowledge that I have acquired in the years during which I have represented an industrial area I know that it is a travesty of the truth to talk in that way about the people who are responsible for running many of our industries.

Those people have their weaknesses, but the majority are at least as concerned with the future, the running of their industries, the technology involved, building up their businesses or—if they belong to a publicly-owned industry—their responsibility to the nation and their industry as they are with their immediate monetary income. To say anything else is complete nonsense. To build a taxation system on such a travesty of the truth is bound to lead to disaster.

7.15 p.m.

But away from all this nonsense—[HON. MEMBERS: "Hear, hear."] Tory Members are right to cheer, because they have been sitting through the same nonsense, for the same year, that I have. Tonight they will benefit from the support of the Liberal Party. They cannot shrug it off.

The arguments of the right hon. and learned Member for Surrey, East (Sir G. Howe) were no better than those of the hon. Member for Cornwall, North. He has put forward the same argument on radio and television; it is a recurrent theme of his. He talked of the decline of Britain's culture as a result of taxation. I thought that we would hear about the decline of the novel. I thought, listening to the right hon. and learned Gentleman, that everyone was leaving Stratford, no new play was opening in London, no poetry was being published. I thought that the ballet had closed down and the opera had come to an end.

Not one of those sections of our cultural life was taken in view by the right hon. and learned Gentleman. He was referring to an entirely different tradition. He was talking about Elton John. He had in mind none of these other flowers of our cultural life. What concerned him was that all the pop stars were leaving the country. Some hon. Members would no doubt wish that that were true, but it is not. However, those are the people that the right hon. and learned Gentleman has in mind.

I am not being unfair to the right hon. and learned Gentleman, because this is not the first time that he has used that argument. One might have thought that his speech today was a natural lapse, but not at all: these are the horizons of the right hon. and learned Gentleman. He regards it as the main indictment of our taxation system that some of these people should announce—as they often arrogantly do—that they have to live in Switzerland or the Canary Islands or somewhere else.

Anyone who wants to build a taxation system on the attitudes of our pop stars is far from giving serious consideration to economic strategy. The kind of contribution that they make to our manufacturing industry is very limited, even as cheer leaders. No serious argument is being proposed today, because the purpose of the amendments is shoddy. One cannot build a serious case on a shoddy foundation.

So the Chancellor has nothing to be afraid of. Perhaps he will ward off the assault and the amendments will be defeated, but I can say honestly, speaking entirely for myself, that although I hope that we shall defeat them—because they are inequitable, unjustified and immoral—if by chance they are carried, I shall not fear going out tomorrow into the highways and byways to tell the people what has been done today. I shall tell them how a small group of financiers and rentiers, people who are already earning too much, will have been benefited by the Tory Opposition and their allies at the expense of the people at large. Let the country judge.

Mr. Tim Renton

The hon. Member for Penistone (Mr. Mendelson) never lets himself down. He drips egalitarian class hatred with all the pleasure and ease with which the rest of us mix milk with our breakfast cereal. He talks of us distributing vast sums to a few extremely selfish people and about how a small group of financiers will benefit tonight. The clichés drip off his tongue. When I listen to him, I realise why Britain is in such a mess, why our industrial production is still lower than it was during the three-day working week and why so many intelligent young men and women are leaving these shores to work elsewhere.

The hon. Member talked of wealthy members of our society as though they should be ashamed to be wealthy. In his Britain, there should be no Sieffs, no Leverhulmes, no Kleinworts—with all the wealth that those families made certainly, but with all that they then gave to charity and all the employment that they created.

I wish to tell the Committee of a visit I made to a company in Norwich yesterday morning. I am a director of that company. Already the hon. Gentleman can start to be worried about that. I must tell him that I am a non-executive director. That company, which supplies products to the building industry, was started by one man 12 years ago. He started with only 10 employees in a building on Norwich airport, and he paid his rent to the Norwich local authority. He now employs between 700 and 800 people. He is one of the most successful business people in Norwich. He is planning and hoping to build a new factory in Norwich, which is not an area of high employment or an area of industrial growth. With 700 or 800 people directly working for him, I estimate that there are now between 2,500 and 3,000 people, including wives and children, who are directly dependent on that man for jobs and livelihood. It is the imagination and hard work of that man which have created that company. He still owns 75 per cent. of it, and it is his life.

I went round the factory with that gentleman yesterday and he spoke of the new plant he hopes to build. He is, thank goodness, doing extremely well at the moment, but he said to me "What is the point of my going on?" That man earns—let the hon. Member for Penistone note this, because I have no shame in telling him—£30,000 a year before tax. He pays 83 per cent. on a large part of his earned income and 98 per cent. on his savings. Therefore, he has every reason to say to me "What is the point of my going on creating more jobs"—which is what he has done in Norwich—" and helping to build up employment in an area where there is not much employment when that amount of money is being taken from me in tax?"

Mr. Alexander W. Lyon

rose—

Mr. Renton

I am sorry, but I cannot give way to the hon. Gentleman. Many other hon. Members wish to take part in this debate, and I shall not be long.

The last thing that man wants to do is emigrate. His heart is in this country, he loves it and he loves his business.

I was remined, knowing that we were to debate this amendment, of the words of the Chancellor of the Exchequer who not long ago said that small companies were the seed bed for new techniques and new ideas. The hon. Member for Penistone, the hon. Member for Bristol, North-West (Mr. Thomas), the hon. Member for Ormskirk (Mr. Kilroy-Silk) and all the other Left-wing revolutionaries who have spoken this afternoon should remember that in those seed beds somebody has to sow the seed.

Who is it to be? There has to be an entrepreneur to do it. There has to be one man who gives his all in time and effort to get the company going. Those people need motivation. They are not there just for the beer. They are proud of what they are creating, but as part of that pride they need to see that they are getting more earned income than others and that they are building up possessions for themselves, because without that motivation they will not do it. They will not grow and they will not start the new companies.

That is the prospect that lies ahead of the man whose factory I visited yesterday. His view is "What is the purpose of my going on? I might just as well sell up and let a large company take on my business. I shall obtain a good deal of capital, because I have built up the business in the last 12 years, and then I shall go away. I shall emigrate or go to the Channel Islands, where the tax rate is 15 per cent. and where I shall coast along for the remaining 15 years of my life." He does not want to take that step, but why on earth should he not take it when he is taxed at a rate of 83 per cent? That man, who is a job creator, must have his incentive too.

When such people were mentioned this afternoon, Labour Members muttered "Traitor" when there was talk of their emigrating. They are not traitors. They do not have to be sado-masochists and stay here to enjoy paying 83 per cent. in tax to a Labour Chancellor of the Exchequer when they can sell up, live in the Channel Islands and pay tax of only 15 per cent. It is human nature that such people require motivation.

Mr. Powell

What do they do in the Channel Islands?

Mr. Renton

I agree with the right hon. Gentleman. I have been to the Channel Islands once and I regard it as an extremely boring place. Most of the people about whom I am speaking would very much rather stay here, but to stay here they must be given incentive. That is the motive behind our amendment.

Mr. John Mendelson

It makes one cry.

Mr. Renton

It should make the hon. Gentleman cry. He shows a total ignorance of the situation if he does not realise the reasons why so many people are leaving Great Britain.

The hon. Member for Fife, Central (Mr. Hamilton), in a speech that was in part reasonable—a "curate's egg" of a speech—said that income was not the only motivation. Of course the hon. Gentleman is right. But no doubt he will have seen a recent ICI report stating that the productivity of ICI labour in British plants was only half that of ICI labour in its foreign plants. It went on to talk of the demoralisation of its own top management. "Demoralisation" is a strong word but it is a good catch-all phrase. That demoralisation stems from two things. One is the sorrow of top management when they see the militants' love of interrupting production at the smallest excuse. Most top managements want to see their plants working well and output targets being beaten. They are horrified when all their men walk out of the plant, stirred up by militants, for some trivial reason.

The second reason for demoralisation is the very high level of tax on top managements' earned income. If a man is paying tax at 83p or 80p in the £, there comes a moment when a man must say to himself "Why go on, why flog myself to death? Why work on Sundays when I might as well relax, play golf and take life a little bit easier?" Because the necessary incentive is lacking, our industrial production has fallen and the stimulus to get going again does not exist.

The Minister of State, in an appalling speech, sounded like a young Scrooge with a Welsh voice, and it was very unpleasant to hear him. He looked with horror on the fact that our amendments would help those on unearned incomes as well. I wish to remind him that in Canada, where there is not a Conservative Government but a Liberal Government, if one's sole income is from dividends—unearned income—one can receive $32,000 of dividend income without paying any individual income tax whatever. That is about £17,000 of dividend income which does not attract any individual income tax. The reason is that the authorities in Canada realise the necessity of investing in industry and appreciate that individuals will do that only if they are encouraged to do so by tax relief.

The Minister of State said earlier that only a Tory Party can propose these changes. How right he is. It is for precisely that reason that only the Tories will get small businesses going. Only we will restore incentives to those who, through their ingenuity and hard work, have the capacity to create new employment while creating some wealth for themselves.

7.30 p.m.

Mrs. Audrey Wise (Coventry, South-West)

We on the Labour Benches have been told over and over again by Opposition Members that what we are about is the politics of envy and a taxation system based on envy. If we are exchanging this sort of pleasantry, our answer is very simple. What the Opposition are about is the politics of greed.

When the right hon. and learned Member for Surrey, East (Sir G. Howe) talked about wanting to widen the gap between the rich and the poor, I wished that what he said could be put on placards all over the country. I hope that the debate is being broadcast. It would be great if that went out to the country as a message from the Conservative Party: "Widen the gap between the rich and the poor."

We heard nothing about social justice or anything like that. We heard only about sheer greed. "To him who hath shall be given". That is the Tory creed. I suggest all Conservative Members say that over and over again and let the nation hear it. We could not do the job of exposing them half as well.

The Conservatives' priorities were very well illustrated by my right hon. Friend the Minister of State, Treasury, who pointed out that to a married man with children and an income of £50 a week the Conservatives on Monday, with their great generosity, gave an additional 2p a week.

Where I come from, there is a habit of saying of a woman "She's a good manager." It means that she can make the money go a long way. It is quite a compliment to a working-class woman to be called a good manager. Such women have had lots of practice. That has now become known to the Opposition. They realise that among working-class women there are these paragons who are such good managers that given 2p a week they will make it go a long way.

The hon. Member for Croydon, South (Mr. Clark) showed us the other side of the coin on Monday. He said: We must remember that it is the £7,000-a-year man or the £8,000-a-year woman who will receive the £50 extra reduction, and they will find it infinitesimal."—[Official Report. 8th May 1978; Vol. 949, c. 863.] If one has £7,000 or £8,000 taxable income—not even gross income—£50 is infinitesimal, but one must be grateful for 2p a week if all one has is £50 a week. That is the Conservative creed, that is their yardstick, that is the arithmetic that they understand very well. I am very grateful to Opposition Members for spelling it out so clearly so that the population can understand it.

I should have thought that if it was not very important to have £50 extra, the sensible thing to do was to give that extra £50 to those who would notice it, to those who need it. It is astonishing to me that Conservative Members have the brass face to get up in the House of Commons, which has some representatives of the workers, and expose themselves in this way.

The Opposition have an excuse that they put forward. They say that the matter is all about the wealth producers, the people who will not work to the best of their ability unless they are not just given cream and candy but are stuffed with it, as geese are stuffed with food to make pâtéde foie gras. That is what has to happen to such people, using money instead as the only thing that will cause them to give of ther best, never mind the country or their own self-respect. They apparently do not understand arguments such as self-respect and doing one's best. They simply have to be stuffed with money.

I believe that wealth production is done in a rather different way. The people who are at the heart of the economy in the society that I look at are different people. I believe that it is ordinary workers who produce the country's wealth.

Even if we accepted the Opposition's description of the mainspring of the economy, even if we accepted that after all it is the manager who is the vital person, the Opposition are not basing their claims on facts. I recommend them to study the "New Earnings Survey" 1977, which is a very interesting document. One finds in it such gems as the fact that 86.3 per cent. of managers engaged in general management earned less than £10,000 a year. It is only the people who earn more than £10,000 a year who will benefit from tonight's exercise, so 86.3 per cent. of managers will not benefit from these proposals.

If we look at the category Managerial excluding general management", we find that 99 per cent. will not benefit. If we look at those under the heading Professional and related in science, engineering, technology and similar fields we find that 98.8 per cent. will not benefit because they earn less than £10,000 a year.

Who will benefit? It will be a very tiny minority. I would fear for the state of this country if I thought that all our fates depended on that tiny minority. But, of course, this is not true. If the hospital porters, the miners or such people stop work, we all know about it straight away. Matters of life and death hang on it. The whole running of the country hangs on it. But I suggest that we do not suffer very much from the loss of the people on the right hon. and learned Gentleman's list.

It is a very tiny minority in Britain as a whole, but I remind the right hon. Member for Down, South (Mr. Powell) that it is an even smaller minority in Northern Ireland. I pointed out on Second Reading, but I hone that I shall be forgiven for mentioning it again because it is a significant fact and not too well known, that in the whole of Northern Ireland there are only 4,500 incomes—declared incomes, at any rate—of over £10,000 a year. That is even taking husband and wife jointly.

Therefore, I think we can take it pretty well for granted that the right hon. Gentleman will not be supporting these amendments in the Lobby. I think we can take it that he will be endeavouring to do his duty for the majority in Northern Ireland and not that tiny minority. If he and his colleagues choose to go into the Lobby in support of the amendments, I hope that he has some good answers to give to everyone in Northern Ireland who is not among the 4,500. I hope that he will be asked some questions.

This is the most shameful group of amendments from the Opposition that one could possibly imagine. I want to refer briefly to the other side of the picture. The group also contains amendments which go in the opposite direction. The more I have heard from the Opposition, the more I have felt that we were correct to table amendments pointing out that my right hon. Friend the Chancellor of the Exchequer has already been too generous to those in the high brackets.

I believe that it has been a mistake to give way to any degree to the cries from the Opposition for relief for those on enormous incomes. We see what happens. It is a classic case of "Give them an inch and they want a mile." By this we feed their assertions that it is only by tax relief at the top end that there can be any justice—which is the opposite of the truth.

I believe that it is quite wrong to give any tax concessions to those on high incomes without first having achieved a level of public spending which will ensure a decent National Health Service, and without having achieved also a taxation system which means that nobody on levels of income around the supplementary benefit mark will pay tax. As long as we have anybody on such low incomes paying tax, and as long as we have anybody getting money from the State with one hand through family income supplement and handing it back with the other through tax, it is nonsense to make any concession whatever at the top end of the scale.

That is why I shall support my hon. Friend the Member for Bristol, North-West (Mr. Thomas) if he presses his amendment to a Division. That is why I should like the opportunity of pressing my own amendment to a Division, if necessary. My amendment is a good deal more modest and moderate than that of my hon. Friend. He wants to keep things as they are. If that does not succeed, I am even prepared, at a pinch, reluctantly to concede something, but not at levels of income such as £15,000, £20,000 and £23,000. This is quite wrong.

I hope that we shall defeat the attempts of the Opposition tonight. If we do not, I think that they will come to rue their victory, because they will have handed us the very best arguments ever to show them in their true colours.

Mr. Stokes

After four hours of debate I shall not speak at length—unlike some hon. Members this afternoon. I do not know whether I have learnt a great deal from listening to the debate, but I have certainly learnt a lot about the Labour Party and how it still seems to be dominated by the ghost of the class war, which most nations forgot years and years ago.

Members on the Government side seem to have been almost wholly concerned with Socialism and egalitarianism and not with the state of the nation. Anyone would think that we were speaking at a time of great prosperity, when the only problem facing the nation was to hand out the wealth, but, alas, that is not our situation.

Labour Members have ignored our low productivity, which is as low now as in 1974, our low earnings and our falling standard of living. We now have a standard of living that is half that of our old enemy, Germany. I cannot see, therefore, how either the speeches of Labour Members or their amendments to increase taxes can in any way help to restore the economy of this once great nation.

I have not time to comment on all the speeches I have heard, but I will say this to the hon. Member for Fife, Central (Mr. Hamilton). He gave us a list of the popularity stakes, but I noticed that he omitted both His Royal Highness the Prince of Wales and himself. If a comparison were to be made of the worth to the nation of those two people, I think I know where most of the votes would go. Certainly the Prince gives us value for money and is worth every penny.

For months before the Budget, the Prime Minister, the Chancellor of the Exchequer and other members of the Government were constantly speaking of the need to lessen the tax burden on middle management. The Minister of State—an admirable young man of great gifts whom I personally like—seemed somewhat diffident about industry and who the middle managers were. I hope that when he ceases to be a Minister he will perhaps have time in which to learn much more about industry, which alone creates wealth in this country.

Mr. Rooker

The hon. Gentleman is an expert.

Mr. Stokes

I am not an expert. I have only had 30 years in industry and commerce and in personnel work dealing largely with executives and managerial staff.

7.45 p.m.

The taxable salary band of £7,000 to £8,000, of course, includes thousands of people whom we call middle managers, and in many ways they have suffered more than any other category of person. They do not, on the whole, take very much from the State. Usually they do not live in council houses. They do not draw benefits from the State. They often try to educate their children privately. They certainly amass savings and they are, as we all know, a vital prop in the State.

Incomes policies over recent years have borne down hardly upon those people and held their salaries back. They do not protest—in other countries they would be marching on the streets—yet they have great responsibility. I am thinking particularly of the scores and scores of works and factories in my constituency where so much depends on the works managers and the production managers, who are playing an absolutely vital part in our economy today.

Mr. Rooker

Will the hon. Gentleman give way?

Mr. Stokes

No. The hon. Gentleman's constituency is near to mine and he knows that I am talking of what really matters.

If production is to be lifted off the ground, where it has lain for four years, those responsible for managing production and handling the work force must have more reward. We have heard today that many are forced to go and work abroad. Many more whom I know personally would like to do so if family and other circumstances permitted. These middle managers are grossly overtaxed and underpaid in comparison with their opposite numbers in Europe.

I say that the Government, in spite of paying lip service to reducing the tax burdens on those in middle management, care nothing for them and know nothing whatever about them or their responsibilities or the important part they play in our vital life. We know why that is. This category of people simply does not have enough votes in the aggregate to appeal to the Government. It is a minority. Somebody said that there may be 850,000 such people. The injustice of their case must be put right, not only for the sake of the people concerned but for the future well-being of the nation.

Including even the war years, I have never known national morale—morale in factories, morale in business and morale everywhere—to be lower than it is today. We have to ask ourselves why our old allies and ex-enemies in Europe have made such a better go of it than we have. I know that the answer is not to be found in fiscal incentives alone. Of course, we need a better lead, more inspiration and greater patriotism, but we must also have more financial incentives if we are to reduce unemployment, which is such a concern of Labour Members, and if once again we are to start to get this country on the way to its former greatness.

Mr. Alexander W. Lyon

With his usual intelligence and insight, the hon. Member for Halesowen and Stourbridge (Mr. Stokes) pointed to the heart of the discussion that we are having today in saying that we are in a situation in which there is very little growth.

If the wealth of the nation were being expanded rapidly and we were talking about the way in which we would share that expanded wealth, I could understand the intensity of the fever that has gene- rated the call for this kind of amendment. But we are not, The parties that are associated with the proposal to pass these amendments accept that the Government have given away, in £2.5 billion, as much as they could conceivably have done in order to generate new wealth and to stimulate growth. Indeed, the City rather thought that the Government had given away too much, and it was concerned about the increase in the borrowing requirement that might be generated by what had already been done.

The parties that are subscribers to the amendment accept that if we are to give away another £380 million of taxpayers' money it will have to be found somewhere else. It will not come out of new wealth. It will be a redistribution of the tax burden between one taxpayer and another, or it will be a reduction in the standard of services provided by public expenditure.

We on the Labour Benches continually say that the House of Commons—and the Tory Party most of all—really has to learn that the standard of living that many of our people enjoy is heavily dependent on public expenditure. If we cut public expenditure we also cut their standard of living. I say "their", but I really ought to say "our", because there is no one in this country who is not to some extent dependent upon public expenditure.

If, therefore, the Tory Party is suggesting that this £380 million should be paid for by a reduction in public expenditure, it will be at the cost of someone else's standard of living. Because the standard of living is disproportionately dependent upon public expenditure at the lower end of the scale, the likelihood is that this will come from the poorer members of our society. The Liberals say that they will not have that. We have heard the great radical from Cornwall, North (Mr. Pardoe). If the Liberals will not have that, it means placing the burden, through an increase in VAT, on all those who purchase goods on which VAT is charged. That means that the people for whom VAT is a signficant section of their expenditure—again, this is the poorer end of the population—will have to pay more.

The hon. Member for Cornwall, North goes on radio and television protesting that he wants to allow people to choose what they spend and to decide whether they will drink themselves to death or smoke themselves to death. He thinks that it would be better if they did less. But if they did less they would frustrate the whole object of the hon. Gentleman's tax strategy. What he is saying is that the tax must come from VAT. Therefore, if we reduce consumption of those items on which VAT is charged, we reduce the tax yield. No Chancellor of the Exchequer ever increases VAT or, indeed, specific taxes to a rate at which consumption falls by more than he would gain by an increase in taxation. That is the very essence of Treasury strategy. Therefore, raising VAT or specific taxes will not reduce the price of luxuries. It is precisely because the increase goes on that part of VAT where the items must be bought that we produce a tax yield to pay for the £380 million which in this case will be given to higher income earners.

What we are talking about is not giving something to one section of the population that will not cost anything to any other section of the community. We are only redistributing the burden, having accepted that we have already given away as much as we can this year. That is what the argument is about.

In those circumstances I urge Conservative Members to reconsider their suggestions that we are engaged in class warfare, or that we are generating envy by questioning whether they are making the right judgment tonight. Far from it. It is they who have precipitated this change in priority. In doing so they have shown where their priority lies.

On a number of occasions my hon. Friends have pointed out that this group of amendments will affect 0.8 per cent. of the working population—no more than 200,000. It will cost about £380 million. Therefore, the average for each taxpayer who would benefit from this group of amendments is about £1,500. But the people at the ton end of the scale would get substantially more. By what they did on Monday, the Tories can at least claim that the average worker gets £7.50 a year. One group will get £7.50 a year, yet another will get an average of £1,500.

It does not need any class warrior brought up on Karl Marx to ask in the factory "For whom are these amendments designed?" It does not require us to stir up any degree of class envy. We need only the average reader of The Sun to be able to understand the difference between £1,500 and £7.50. I can understand that Conservative Members, particularly people like the hon. Member for Halesowen and Stourbridge, might, in a period of expanding wealth, feel that one of the sections of the community that ought to get more of its take-home pay comprises people in the highest level of management. But we are not in that situation; we are in a situation in which we have nothing more to give, but what is being asked is that there should be a redistribution.

In a situation like that it is no wonder that the kind of attitudes generated in the 1930s should be generated again. It is not we who are making the argument; Conservative Members are doing so. What are we talking about? We are talking about taxable income at £7,000 a year, which means gross earnings of at least £10,000 a year. In those terms we are talking about only 0.8 per cent. of the total population. In the non-manual sector we are talking about less than 2 per cent. of the total population. Conservative Members have talked about middle management, but we are not even in the range of middle management, as I understand it. We are not talking about people on less than £10,000 a year—and, by and large, middle management earns less than £10,000 a year. I am told that unless we make this concession we cannot have the kind of incentive that will generate growth, because these people are the risk takers, the men of initiative, and the people who create wealth.

First of all I ask myself whether it is right that most people actually reduce the amount of work that they put into their jobs because they pay a higher rate of tax. The hon. Member for Mid-Sussex (Mr. Renton) gave a heart-rending account of a man who started a business 12 years ago and who was asking only yesterday "How can I go on?" In those 12 years that man has built up the business from nothing and is now getting £30,000 a year. In all those 12 years he has never paid anything less than 75 per cent. at the margin and has never paid much less than 90 per cent. in terms of tax on unearned income. Yet he has gone on building up that firm. He has gone on working the way he has, not because of the rate of money he was getting out of it but because of the job satisfaction that he was getting out of it. Of course, he grouses about the rate of tax. Of course we hear that constantly, but the fact is that very few people make a decision about the input that they put into the jobs they are doing simply on the basis of tax.

It may be that they do not go for another kind of job. It may be that they do not take on an extra directorship. It may be that they do not take on extra commitments. But that is a quite different matter from saying that they do not put into the job they are doing the kind of incentive and effort that will create new wealth for this country.

The truth is, if we look back over the last 15 years, that when we talk about increasing wealth we are talking about increased investment in industry. Year in year out—no matter what the tax liability, the incentives to investment or the stake given to those who have wealth to put their money into industry—the fact is that investment in industry in Britain has remained at about 4 per cent. or 5 per cent. of GNP. It has been no greater and no less throughout the whole period.

Investment in industry goes up and down with the rates of growth. It is in no way related to levels of taxation or to levels of incentive for investment. Therefore, it is simply untrue to say that unless we give back this kind of money we shall reduce our capacity to grow. We may be losing the odd pop star, but we are not losing the real incentives for work in the areas where it matters.

Even though we need those who have special skills, special ideas and initiative, I question whether the real wealth comes from those qualities alone. For example, it is suggested that British Leyland needs another director, who will be paid a substantial sum to put it on its feet. That suggestion questions the whole basis of a massive organisation of that sort, which depends upon the skill of all its workers.

The truth is that we require initiative from every level of worker. That initiative is called forth not by tax cuts but by a sense of the virtue of working for the sort of society in which we are now living. The tax that we pay and our gross level of earnings are part of that society. Even more important is our quality of life.

8.0 p.m.

The hon. Member for Mid-Sussex gave the game away when he said that he would not live in Jersey. He would no do so, even though the rates of tax prevailing in Jersey are substantially lower than they are here. Why does he choose not to live in Jersey? It is because the society that he would get in Jersey is not the sort that is attractive to him. If he lived in Jersey, the quality of life would not be the sort that he wants. That is why we live in this society, and part of our society is the public services that we have created by means of the Welfare State since the war.

It may be that in America and some other countries the rates of tax are lower than in Britain, but public services have to be paid for out of taxation. If we want good public services, we want the higher taxation that pays for them. Such services give the quality of life that we should be enjoying, and that should provide an incentive for us to work harder.

If the amendments were tabled at a time when the rate of growth was regularly 3 per cent., 4 per cent. or 5 per cent., it might be appropriate to reconsider the levels of tax at a higher level of earnings. However, to bring the amendments before the Committee now, when we would be taking the money not out of new wealth but from other pockets of those who are poorer than those who would be affected by the amendments,is a disgrace. It is a disgrace that the Opposition parties should be ganging together to obtain concessions for a limited number of their friends.

Mr. Rooker

I intervene only briefly. I apologise to the Committee for being absent for the latter part of the debate. However, I listened to most of the early speeches and to some of the later ones.

This is a black day for the House of Commons. It is a black day for the Liberal Party. It is a black day in the sense that we have spent the whole of the day so far discussing the inadequate returns of those who by common consent are earning in excess of £200 a week. In reality, only those earning in excess of £300 a week will gain anything substantial or meaningful from the amendments, if they are accepted. That is the part of the working population that we are talking about.

The arguments put forward by the official Opposition are disgraceful. Indeed, the hon. Member for Plymouth, Sutton (Mr. Clark), who had not heard the speech of his right hon. and learned Friend the Member for Surrey, East (Sir G. Howe), said that matters had come to a sorry pass when the House of Commons spends a day discussing the financial affairs of the nation and its financial management and we have to start relating those topics to the recording industry and pop stars.

The hon. Gentleman was responding to an intervention made by the Liberal spokesman, the hon. Member for Cornwall, North (Mr. Pardoe). He had not heard the speech made earlier by the right hon. and learned Member for Surrey, East, who devoted a good quarter of an hour of his speech to a eulogy of those non-patriots who have taken off from these shores. There was no mention of those who have stayed here. The right hon. and learned Gentleman had a short list and he could not name one person on it who would come back if the tax rates were reduced. Indeed, he had the good sense to disappear for the latter part of the day.

The debate has shown more than anything else—in this respect I am grateful for it—that the tax system is a social security system for the rich. It is as much a social security system for them, in the sense that it is a handout from the State, as the real social security system is to those who are disadvantaged, such as the deprived, the disabled, the unemployed and the sick. It is as much a benefit to the one section as it is to the other. However, the scale of benefit for the rich is substantially greater. There are fewer at the top end, and the spoils over which we are fighting are for them much greater.

This is the sort of debate to which the broadcasting authorities could have devoted a full period of VHF to enable the public to listen to the speeches. I refer not to the speeches of my hon. Friends and myself but to those of Conservative Members. Not much of an argument need be advanced in opposing the amendment. The argument has come out of the mouths of the Liberal Party and the Tory Party. I missed the contribution from the Scottish National Party, and we have not yet heard from the Ulster Unionists. The Tories and the Liberals are condemned out of their own mouths.

It has not been explained how the amendments are to be paid for. In the first few minutes of his speech, the right hon. and learned Member for Surrey, East showed that he had his sums wrong. It seems that the Tories had been basing their argument on the answer given on Monday to the hon. Member for Blaby (Mr. Lawson). However, they could not grub up enough specific areas where they could say "The money could be raised in this area." We heard the hoary old arguments about jacking up prices and cutting public expenditure. The threats implicit in cutting public expenditure have been admirably set out by my hon. Friend the Member for York (Mr. Lyon). The examples that we have had have not been specific enough in the sense that the public can take on board the realities. We have heard examples of those on £50,000 a year, which is £1,000 a week. As I have said, it is difficult for my constituents to envisage anybody earning, as opposed to making £1,000 a week. It is beyond their comprehension. As such, arguments about high tax rates do not seem to be meaningful to them.

It has been said that only those earning £10,000 a year will benefit from the Amendments. That is not strictly true. The borderline is about £9,500 a year, or £190 a week. Those with earnings at that level will start to benefit. Their benefit from the amendments would be about £70 a year, which, coupled with the amendment which was passed on Monday, would give them £133 a year. That will be the benefit to the person on £190 a week. Of course, that is chicken-feed to anyone earning that much money. However, we are at only the margin of the effect of the amendments.

It is important to make clear—I am sorry that my right hon. Friends on the Government Front Bench have not aired the point so far—the increase in earnings that would be required to have the same effect as the tax cuts that the amendments propose. The increase equivalent to the tax deductions for the person on £9,500 a year, who will be getting an extra £133 a year in his pocket as a result of tax deductions, would be about £200 to £210 in gross pay. That is the equivalent of a rise of about £4 a week. The person on £190 a week has already had from the Government an extra £186 per year put into his pocket, which is roughly equivalent to a pay rise of about £250 a year, about £5 a week.

If the amendments are carried in their entirety, the person on £9,500 will have had from the Budget or Finance Bill the equivalent of a pay rise of £9 a week. My constituents will consider that to be an enormous increase. In addition, he will receive an increase of 10 per cent. on his salary. Those figures will sound enormous to my constituents, but we are still at only the margins of the amendments. It is necessary to move up the scale to see the real effect of the amendments and the benefit that will be enjoyed by those for whom the Tory Party is speaking.

I do not want to start calling people names. However, I think that my hon. Friend the Member for Penistone (Mr. Mendelson) was correct in his analysis of the motives and the underlying trend of the speech of the right hon. and learned Member for Surrey, East. If there is anything to prove that the Tory Party has been bought by the rich, it is the amendments. Tory Members have not been bought by their constituents. The Tories have said that there are no votes in the amendments; the overwhelming majority of people will not be affected by them. That has been agreed by those on both sides of the Chamber. However, it is clear that there are those on the Opposition Benches who have been bought. I say that in its widest sense. I make no accusations about the CBI offering things and others saying that there are a few parliamentary agencies or directorships spare and that if they got together they could screw the Government and get some benefits. The benefits will go to a select bunch of people.

I take one example. I do not take the example of the man on £50,000 a year. There are very few people on £50,000 a year. Nevertheless, an increase in take-home pay of £100 a week is a fair example for my right hon. Friend to take. I take the man on the higher rate band—the man on £23,000 a year, on which he starts to pay 83 per cent. That does not take account of his personal allowance of £1,300 or his mortgage or insurance relief. His actual earnings could be £30,000, to give him £23,000 of taxable income. Those in that position know that that is conceivable.

The Finance Bill, which I support, goes some way to give tax relief to such an individual. The person on £23,000 will pay income tax of £12,730. That is my calculation. I may be a bit out, but, give or take £100 here or there, it will not make much difference to that kind of person.

At the end of the day, if the amendments are passed, that individual, according to my calculation, will pay only £11,040. His increase is rather more than was suggested by my hon. Friend the Member for Bristol, North-West (Mr. Thomas). His increase will be £1,690. That is approximately £1,700 a year or £34 a week extra in his pocket.

What kind of salary increase would a person earning that level of money and getting this massive tax handout from the Tories have to obtain to receive the same net increase in take-home pay? It is quite simple. He will get £1,700 if he is at the margin paying 83 per cent. at the top rate. Clearly, the £1,700 is the residual 17 per cent. Therefore, the 83 per cent. which has gone in tax is £8,300. In other words, he needs an increase of £10,000 a year and his taxable income is only £23,000. At the outside, his gross salary would be £30,000, given all the other tax reliefs and handouts at that end of the social security system. On £30,000 a year he is getting the equivalent of a salary increase of £10,000–33 per cent. That is somewhat more than the 10 per cent. Government guideline. What is more, it is inconceivable to explain it to my contituents.

I wanted to intervene in the speech by the hon. Member for Cornwall, North but he would not let me do so. I wanted to ask a question when he referred to the public opinion survey. When people answer the question by saying "Yes, the better-paid pay too much tax", they are not talking about people earning £30,000 or £50,000 a year. They find it difficult to understand that someone can, do a job that is so important that he should get that amount in the first place. This is quite genuine. I have tried to explain the situation to constituents when they have come to me with their problems. Widows often find that they are heavily taxed on their earnings. I have to explain that widows' pensions are added to earnings and that that is why they seem to be paying a lot of tax.

I have tried putting the other side of the coin. I have pointed out that some people get a lot more money and still pay only the same percentage on their earnings—perhaps 80 per cent.—but that it is done in a slightly different way. In other words, those at the lower end can pay as a percentage more than those at the top.

People caught in the poverty trap, as the Meade Report explains, could pay 106 per cent. For every £1 increase in salary, they are 6p a week worse off in their net income. We never hear that from the Opposition. They belly-ache day in, day out in this Chamber, on radio and television about the man who is paying 83 per cent. or, when they want to use the extreme, 98 per cent. They never say—and the interviewers, including Jimmy Young, never ask them—what a person has to earn to pay that amount of tax. They never offer the fact that he has to earn nearly £500 a week before he pays 83 per cent. in the pound. The Opposition never put that point across to the public. What is more, neither do my right hon. and hon. Friends on the Treasury Bench. It always has to come from Labour Back Benchers. It is important that it comes often and that, when it comes, it comes at length.

8.15 p.m.

All those dinner-jacketed twits presently walking about this place who want an early Division will have to wait, because more hon. Members want to make speeches. I am glad that the hon. Member for Sutton has returned. I referred to him earlier in nice, not disparaging terms. I hope that he will make a speech before the debate is concluded, because he made some important points in his intervention following the speech by the spokesman for the Liberal Party. I thought that they were important and courageous points for a Tory Member to make.

We have heard from the Tories today that we have to get the higher rate tax bands moved in line with inflation to keep things where they are. In the 1977 Budget, which did not meet with the wholesale approval of Labour Members, the percentage change in the threshold at the higher-rate bands was somewhat greater than at the lower-rate bands. My right hon. Friend has changed that situation this year. I again put on record the fact that my right hon. and hon. Friends have listened to the Labour movement and to Labour Members of Parliament.

It is worth putting on record that last year, for those with a taxable income of, say, £10,000 and paying 60 per cent. tax, the threshold was raised by 18 per cent. For those in the next band—£10,000 to £12,000 taxable income, paying 65 per cent.—the threshold was raised by 20 per cent. At the margin, £6,500 to £7,500 the threshold was raised 23 per cent. That was more than the inflation level of 1977 and more in percentage terms than the increase in personal allowances for the lower-paid. We have that again this year, although not to the same extent. But still the Tories belly-ache about it.

I sought to intervene in the speech by the hon. Member for Halesowen and Stourbridge (Mr. Stokes), who has left the Chamber, but he politely refused to give way. I wanted to ask him how many production and works managers in the West Midlands—the two examples that he gave—are earning more than £10,000. It is accepted that that is the minimum from which we start. At that level it is chicken-feed. It will not make an iota of difference, because they do not get paid overtime, whether they put in more or less effort. I asked how many. There are not many.

One of the problems in manufacturing industry is that those at the sharp end of management, those running factories, working and creating wealth, are more lowly paid than the salesmen, the accountants, the lawyers and so on. I admit an interest as a former production engineer and, indeed, a former production manager. When moving, creating or setting up new factories, it never crossed my mind that I was being screwed. I thought that I was making a social contribution through income tax to the social wage of the disadvantaged. I deeply resent that the Tories, aided by the Liberals and others, wish to ensure that the social wage for the disadvantaged is actually paid by the disadvantaged. That is the effect of the amendments.

The money has to come from somewhere. We cannot afford £300 million one day and £300 million the next over and above the Chancellor's figures. I make that point again because it needs to be put on record. Last year the change was within what the Chancellor said he had available. My hon. Friends and I were not seeking to increase the total amount given away in tax reliefs. But these amendments—both Monday's and today's—are to increase those amounts. There is £750 million involved.

The average general hospital costs, I think, about £40 million. We could have quite a large hospital for £40 million. It is easy to see how many hospitals we could get for nearly £800 million. We need more public expenditure. At Social Services Question Time, my hon. Friend the Member for Ormskirk (Mr. Kilroy-Silk) was arguing for more public expenditure on behalf of his constituents, and other hon. Members do the same. I understand that the same case was made to Ministers at the Department of the Environment today.

I think that this is a black day, and I am sorry that the House of Commons has spent so long on these amendments. But our debate will give my hon. Friends and myself some very useful and effective propaganda when the next General Election comes—when the call comes, as the Prime Minister put it yesterday. It will be wonderful propaganda. The Opposition have condemned themselves out of their own mouths. They have condemned themselves as being opposed to the vast majority of working people in this country.

The Opposition make their specious claim to be in favour of skilled craftsmen, but skilled craftsmen will not benefit one iota from their amendments today, just they will not benefit one iota from Monday's changes, as I pointed out then. Monday's changes give maximum benefit at £170 a week and there are not many skilled craftsmen on £170 a week, even with overtime. Today's changes start at about £190, but they begin to be really effective at about £300 a week.

Thus, we can see the sort of people who will benefit. They must have very large pockets, because they have the whole of the Tory Party in their pockets. They must have purchased every man-jack of the Tory Party, lock stock and barrel, so that the Opposition would have the effrontery and nerve to put forward these amendments, knowing full well that, with the Liberals, they might be carried.

This is financial irresponsibility of the most stupid kind that we have seen in the past four years, or, rather, in the past six years, in fact, as the Chancellor said yesterday, since probably nothing can surpass the financial irresponsibility of the Tory Party in the years 1972–74. But they are coming very close to that tonight, and it is up to all hon. Members who wish to show themselves as honourable Members to vote against these amendments. There will be no honourable Members in the Aye Lobby tonight. It is up to those who wish to retain that title to ensure that the amendments are defeated.

Mr. Fernyhough

With 99.9 per cent. of what my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) had to say I entirely agree. It was very much in keeping with what I said over 30 years ago in my non-controversial maiden speech.

We on the Government side have been accused of being nothing but rabid Socialists. We are called egalitarians, and all sorts of other descriptions have been applied to us. What did I come here for? On what basis have I constantly appealed to the people who sent me here, except on the basis of Socialism, of more egalitarianism? I spell it out to the Opposition.

I have repeatedly tried to explain to people that the conflict in any democratic society is the eternal conflict between the ever-increasing demand for personal consumption and the ever-increasing demand for collective consumption. There is this dichotomy. People want more in their pockets, but at the same time, as is demonstrated at Question Time after Question Time when hon. Members raise matters on behalf of their constituents, they want more public expenditure as well.

It is necessary, therefore, that those of us who believe in a high rate of public expenditure should point out that the collective demands which our people make can be met only by sacrifices in personal appetites.

I ask hon. Members to imagine what would happen if there were a referendum tonight on the question whether the Committee should pass these amendments or should vote for spending the money on reducing the 600,000-long waiting list for hospital beds about which, a fortnight ago last Monday, right hon. Members on the Opposition Front Bench were shedding crocodile tears. I have no doubt what the answer of the British people would be, for they are a fair-minded and compassionate people. At bottom, they hate greed and selfishness.

What has been put to us this evening, on the other hand, is an appeal to greed and selfishness. The people who would benefit from these amendments are not people on the breadline. They are not the homeless. They are not people who are going without anything that really matters. They have already got plenty. They are not waiting for hospital beds. They are not waiting for council houses.

I do not envy such people. I was brought up to believe that if one's wants in life are small one is a rich man, and I have been a rich man all my life because of that. Anyone can see my income tax figures. I have them here. I always carry them. I take them out in the pubs and say "Here are my figures. Let me see yours." That is the best argument.

I am not, therefore, envious of those people, but I am angry with them, or, rather, angry with those who support them. At Question Time or on Supply Days the Government are attacked for not doing enough in this direction or that, and in every case such demands would require more public expenditure. Those who make those attacks, however, then come to this Committee and table amendments that would deny the Chancellor £380 million. I know how right hon. and hon. Members on the Opposition Benches feel. I feel deeply about schools, about homes, and about hospitals, so I do not want the Chancellor to be denied this revenue, since I want more spending in those directions.

I wonder what the Tory reaction would be if the Chancellor said "All right—I shall make this concession, but I shall take it off the defence budget." He must either reduce his public expenditure or increase his public borrowing. I hope, therefore, that if he has to decrease public expenditure by £380 million, whoever is to wind up for the Opposition will make clear where the saving of £380 million is to come from—unless, of course, the argument is that the Chancellor should again exceed his borrowing limit and go more into debt.

We are living in what I would call a convulsive time throughout Europe. I believe that we are the most peaceable nation in the whole of Europe. I am one of those who preach day in and day out, to the lads who think that there is some swift way of changing our society, that over the years, because of our national temperament and regard for debate, we have fashioned an instrument by which we can change our society through the ballot box rather than on the barricades, by counting heads rather than by breaking them.

8.30 p.m.

It is important that men such as I are listened to by other elements in the country. I tell right hon. and hon. Members on the Opposition Benches that those who want to change our society can do it only by counting heads, not by breaking heads. They can do it only through the ballot box, not through the barricades. If they lose faith in fellows such as I, if they no longer listen to our message, then, however unfair they think this Budget is, Heaven help them if those who are likely to succeed me take over.

Even at this last minute I ask those who are responsible for the amendments to reconsider their position. They should realise that when we have to explain to the men in the fields, factories and mines that we want them to be responsible and to understand something of the difficulties that the Government face, they will say "Did the Tory Party do that when they were seeking £380 million for those who are already well off?" Unless they can give an answer to that they are unworthy of being Members of the House of Commons.

Mr. Stanley Newens (Harlow)

I did not intend to intervene in the debate, but I have been sitting here for a considerable time. I listened carefully and I felt that having waited for the vote I could not allow the opportunity to speak to pass by.

This afternoon I attended a lobby of a number of industrial civil servants in the House of Commons. They came here to present their case to hon. Members. I regret that no Opposition Members were present. If I am doing anybody an injustice I hasten to withdraw, but when I went to the lobby all the hon. Members present were from this side of the Committee.

Mr. Peter Rees (Dover and Deal)

For the record, I at least went to see a delegation from my constituency. I am sure that many of my hon. Friends did the same.

Mr. Newens

I am prepared to accept that many Opposition Members received representations. Some of them may have met deputations from the industrial civil servants. What I say is a fact. When I was there a considerable number of my hon. Friends were present but not one Opposition Member was there. I do not wish to cast aspersions on any hon. Member who may have received a deputation earlier.

My point is that those who lobbied us today sometimes take home as little as £32 a week. In those circumstances I feel deeply ashamed that we should have spent most of the day discussing how we can redistribute money to the tiniest and most affluent minority in the nation.

Make no mistake, the object of the Opposition is to transfer wealth from the type of people who came to the House of Commons today to lobby us, and many others in similar circumstances, to those who are earning more than £200 or £300 a week.

Not only Conservative Members have taken this stand. Members of the Liberal Party are also involved, although they claim to speak for more egalitarianism in our society. If the moneys that will be deducted from the revenue by this amendment had to be raised from other sources, they could be raised only from those whom the Liberal Party says it wishes to help. If the money had to be raised through VAT or the other direct tax bands it would be paid predominantly by those on the lower levels of income.

The proposal might have some merit if those who support it could argue that it was justified because it would induce people to work harder. The Opposition have referred to business men who, they say, feel that there is no point in going on because of the level of tax. Those business men will certainly not work any harder if the amendment is made tonight. If they worked harder it would be a condemnation of the whole basis of their motivation.

I have sufficient faith in human beings to believe that they are not solely motivated by greed and the hope of gain. I believe that many of them are motivated by other objectives. I am surprised that the Liberal Party seems to believe that the only possible incentive is hope of gain, which means greed. I can see the hon. Member for Rochdale (Mr. Smith) nodding his head in agreement with that statement. I disagree with him profoundly on this. As my hon. Friend the Member for Fife, Central (Mr. Hamilton) said earlier, we come to work in this place not because we are motivated solely by the desire to gain but because we get job satisfaction.

I believe that for the most part, our people, including many of the business men cited by the Opposition as examples to support their case, are motivated by job satisfaction and by the desire to do a good job and to do something for their country, as well as hoping to gain.

In those circumstances the amendment is a disgrace. We should be spending our time considering how we can redistribute income to help people such as the industrial civil servants and those who are disabled and unable to work and enjoy a better standard of living. Like many of my hon. Friends, I hope that the electorate will see the report of this debate and realise where the clear division runs in this House between thoses of us who are Socialists and proud of it and those who support a different system, including the Liberals. I believe that it will be clear that the Opposition side stands for greed and for rewarding those who have the most. I believe that most of the people in this country, if the issue is put clearly to them, will see that the Labour Party stands far more for their interests than the Opposition could ever hope to do.

Mr. Peter Tapsell (Horncastle)

Although it was not obvious from most of the speeches that we have heard from the Government Benches today, there is now a wide understanding in this country that we are burdened with the heaviest weight of direct taxation in the civilised world and that this has been a significant factor in our lamentable economic performance in recent years, our very high level of unemployment, and our poor social services, by comparison with those in most of the other countries in Western Europe.

The powerful national recognition of these facts was significantly expressed on Monday evening when the Committee, by a decision unprecedented in our fiscal and parliamentary history, voted to reduce the basic rate of income tax. By so doing and by long-established parliamentary convention, it unmistakably declared its lack of confidence in the Chancellor's Budget judgment and in the Government's whole fiscal policy of excessively high direct taxation.

Most people outside the House appreciate that our income tax structure, bad at every level, is, as the hon. Member for Fife, Central (Mr. Hamilton) said, at its very worst at the bottom and at the top. Many of us in past debates have drawn attention to the poverty trap and the harsh tax treatment of the lower paid. Tonight, in speaking to these amendments, we are concentrating attention on the more highly paid. Labour Members who would have us believe that there is no broad-based national understanding of the significance of the problem of the over-taxed highly paid are wrong. The British people have a far greater political wisdom and economic good sense than some Labour right hon. and hon. Members seem to comprehend.

This was confirmed again recently by the public opinion poll on taxation quoted by the hon. Member for Cornwall, North (Mr. Pardoe). That was a public opinion poll conducted by MORI, published in the Business News section of The Sunday Times on 16th April. A total of 73 per cent. of those polled—an exceptionally high figure to hold a definite opinion on any subject—agreed with the statement: Higher paid people pay so much income tax that there is no incentive for them to work harder. Only 23 per cent. positively disagreed with that proposition.

Since, by definition, only a minority of people are among the higher paid, the damaging effect on national prosperity of excessive tax disincentives at the top is clearly understood by the great majority of people in this country. This is also a view held privately by many Government Members and publicly expressed recently before a mass audience on the "Weekend World" television programme on 23rd April by a senior member of the Cabinet, the Chancellor of the Duchy of Lancaster, who is, after all, the special economic and financial adviser to the Prime Minister and therefore speaks on all these matters with special authority. The Chancellor of the Duchy said: The 83 per cent. … rate is too high and has to come down as soon as we can possibly bring it down. The right hon. Gentleman is absolutely right. He went on, wisely, to place the matter in its international context. Despite this Chancellor of the Exchequer, we are still a great trading nation. The standard of living of all the people in the country depends to a great extent on our international competitiveness. On this television programme, watched by millions the other day, the Chancellor of the Duchy said: I don't deny that there has to be a move to make our tax rates, especially on earnings, comparable with what our rivals, or our friendly partners, on the Continent have in the way of tax rates. Of course, this has to be done. Otherwise, as I said candidly, the consequences will be damaging to our economy. Listening to almost all the speeches from the Government side today, it is extraordinary that that statement should have been made by a member of the Cabinet who has not been repudiated by the Prime Minister or his party. It suggests that members of the Labour Party talk with very different voices.

8.45 p.m.

The amendments are entirely in keeping with the sensible views expressed by the Chancellor of the Duchy of Lancaster. He rightly drew the nation's attention to the fact that our top rate of direct taxation on earned income, at 83 per cent., is far higher than that of our friendly rivals on the Continent. In France, the top rate is 54 per cent. In Germany it is 56 per cent. If we stay within the OECD group of countries, but move further afield, we find that the top rate in the United States is 55 per cent. and that while the top rate in Japan is 67 per cent., that rate applies only to incomes over the equivalent of £200,000 a year. Here, our top rate of 83 per cent. starts at £23,000 a year.

If our amendment to reduce the top rate of tax on earned income in this country from 83 per cent. to 70 per cent., is carried tonight, as I hope it will be, Britain will still have a top tax rate which is significantly higher than that of Germany, France, the United States, or Japan. What is true of the top rates of tax in each of those countries—our direct industrial competitors in the markets of the world—is also true of their intermediate higher rate bands.

Our tax bands start at lower levels and rise more rapidly and more steeply to greater heights than those anywhere else in the civilised world. That may sound like a mediaeval curse, but it is a plain statement of Socialist fact.

Not surprisingly, our 83 per cent. rate has commanded the most international attention because of its obviously sensational economic stupidity, but the greatest damage to our economy is done by the middle ranges of the higher tax bands. Our amendments on the threshold, rates and bands, taken together, would cost £190 million this year—just one-twentieth of the increased rate of public expenditure upon which the Government are embarked this year and against which we voted in the debate on the public expenditure White Paper.

The situation is a great deal worse than is revealed simply by international comparisons confined to top tax rates, because all our higher rate bands come into effect at so much lower levels than those in competitor countries. Even after the modest improvements proposed in the Budget, the 83 per cent. top rate of tax will become payable after the first £23,000 of taxable income which, in practice, probably often means a gross income of about £25,000.

In France, the very much lower top rate of 54 per cent. does not become payable until a gross income of £53,000 a year is reached. In Germany, top rates are reached only on incomes over £65,000 a year. In Belgium, the figure is £66,000 a year, and in Italy £374,000 a year. In each case, those top rates are also much lower than ours.

When we consider that our competitor countries have lower rates of direct tax at every level of income and higher starting levels at every stage and higher overall salary scales, the daunting extent of the handicap under which success labours in Britain stands fully revealed.

There is a further consideration: not the X factor associated with Service pay, but what might be called the D factor—D for disincentive, or even despair. The disincentive effect of taxation lies far more in high marginal rates of taxation—the proportion lost of the next additional pound one earns—than in the actual amount of tax levied overall.

That is my answer to the interesting points made by the hon. Member for Fife, Central. That is why the disincentive effect of high taxation in the United Kingdom is greater than in the other countries that the hon. Member mentioned. To be fair, there are some countries where the overall burden of tax is not significantly different from ours, if one includes employers' social security contributions in the figures and expresses the result as a proportion of gross domestic product. That is a fair point, but it is the psychology of taxation which deserves greater attention than it has received tonight.

A comparison of the British and German tax structures is very interesting in this context. Whereas the overall burden of taxation—if one includes employers' social security contributions—is not dissimilar, as a percentage of GDP, the Germans' marginal rates of direct taxation are very much lower.

A married couple on £25,000 a year of earned income pay a marginal income tax rate of 70 per cent. in Britain, while in Germany they pay only 47½ per cent. In France, the marginal rate is only 36 per cent.—almost exactly half the British marginal rate. That is the direction in which we should be steering our tax system, and we should start doing so tonight.

Recently I was talking to the chairman of a successful group of companies. He has built up these companies himself and they now provide employment for 6,250 people in this country. The group has an exceptionally fine export record and has established seven subsidiary companies abroad, not exporting jobs but helping to secure and expand those in the United Kingdom.

The chairman told me that the young Englishman who manages his subsidiary company in France, employing only 100 people, receives a gross salary which is two-thirds of that received by him as group chairman. After paying tax that young Englishman receives 50 per cent. more net pay than does his chairman in Britain. That means that the chairman is working for his family for four months of the year and for the Inland Revenue for the other eight months.

By contrast, the young Englishman working in France works for the French Inland Revenue for two and a half months and for himself and his family for nine and a half months. It is not surprising that that young man recently refused a post of higher responsibility which would have required him to return to Britain.

That sort of situation is familiar to any fairly successful business man in this country. It is a cautionary tale for the ruination of Britain, and our amendments would help to make this a little less prevalent.

Consider next the comparative positions of two senior airline captains—one with British Airways and one with Air France. Both are flying Boeing 747s—the jumbo jets—which are the bread and butter aircraft of the two national airlines. These are not the kind of people who have ben described by hon. Members on the Government Benches below the Gangway. They are chosen on merit and experience, and no one would suggest that inherited wealth or family connections have anything to do with their appointments. International competition with one another is great, as is their responsibility. In fact they have, on occasions, even had responsibility for the lives of hon. Members below the Gangway. They fly the same aircraft over similar routes for about the same number of hours.

What is their respective treatment by their two countries, by which we can measure that international comparability of tax treatment towards which the Chancellor of the Duchy of Lancaster tells us we must aim? The French pilot gets £45,000 a year, of which 17 per cent. is taken in tax. The British pilot gets £17,500, of which 31 per cent. is taken in tax. In most other occupations, the rate of tax would be higher, but he has certain tax-free overseas allowances. If the British pilot were paid as much as the French pilot, his marginal rate of tax would be 70 per cent., and 60 per cent. of his earnings would be taken from him.

When that personal situation is projected—as it has to be because it exists—over every aspect of competitive international activity, it is astonishing that our share of world trade has not fallen even further and faster than it has. Little wonder that the Cambridge Group of economists is predicting 5 million unemployed for this country if present policies are not changed, or that 73 per cent. of the electorate readily agree that higher-paid people pay too much income tax.

The Chancellor of the Duchy also said that the deforming of the tax structure by inflation was something to which the Government had been far too slow to respond and that the Labour Party was open to critcism on those grounds. That is undoubtedly true. Our amendments would by no means make good the ravages of inflation over the past five years, but they are a start.

The starting point for the higher rates in 1973–74 was £5,000. If that was appropriate then, the starting rate for the first higher rate band now should be more than £10,000. But our amendment suggests only £8,000, so we are a long way from getting back to the level of Conservative tax rates.

Even if Labour Members want nothing to do with Tory tax rates and accept that they can never hope to get back to Tory tax levels, even if we take the first Budget of this Chancellor, when he was still in his "howls of anguish" policy mood, in the March 1974 Budget when he reduced the starting rate of the first higher band to £4,500, today's equivalent, after a rise in the RPI of 87 per cent., would be £8,400. Again, we suggest only £8,000.

It is difficult to understand the stream of speeches for hour after hour by Labour Members saying that our amendments are absolutely intolerable when they are not even as generous as the proposals introduced by their own party when they came to power in 1974 and lowered the tax bands.

In a letter dated 3rd May, the British Institute of Management said that the real value of the earnings of senior executives on £15,000 a year had fallen since 1973 by 33 per cent. This amendment will be only a modest start towards recovering some of that lost ground.

In every case, it is clear that our present tax system is impoverishing not just the individuals in the higher salary brackets but the whole community, which could and would benefit from their wealth-creating activities if only they could be unshackled.

My right hon and learned Friend the Member for Surrey, East (Sir G. Howe) made plain our position on the public sector borrowing requirement, and I shall not at this hour repeat what he said. If our amendment is carried, we shall look to the Government to make compensatory reductions in their own overblown proposed public expenditure of £67,000 million this year, by comparison with the cost of £190 million of our amendments.

There could be no better value for money in bringing back prosperity to the British people than a shift of priorities away from bureaucrats in favour of business men. I urge my right hon. and hon. Friends to vote for the amendments.

9.0 p.m.

Mr. Denzil Davies

I have already had one opportunity to address the Committee, and because I feel that most hon. Members wish to see this matter decided rapidly one way or the other, I shall be brief.

I wish to deal with one or two points raised in this excellent debate. I do not think that my remarks will reconcile the conflicting arguments. I wish to refer to what was said by the hon. Member for Halesowen and Stourbridge (Mr. Stokes). He chastised me for not knowing what a middle manager was. I think I can be excused for not knowing, because it is not a precise term. The hon. Gentleman, with his great experience of these matters, said that a middle manager usually earns between £7,000 and £8,000 taxable income. If we take into account allowances, that puts the middle manager up to a figure of between £9,500 and £10,000 a year. The point that I was trying to make was that Amendments Nos. 7 and 20 do very little for the middle manager, even within the definition laid down by the hon. Gentleman, who understands these things.

The Committee should be clear that we are not voting tonight to benefit the middle manager, who is a person with great responsibility, who has to run a factory, and who may well feel that in the last few years he has been hard pressed on income. I emphasise that these amendments do little or nothing for the middle manager. Opposition Members appear to disagree, but a man with gross earnings of £10,000 will receive little or no benefit from these proposals. That will happen because of the allowances in question, quite apart from mortgage interest. That is an incontrovertible fact.

These amendments will start to benefit people earning salaries of £15,000 upwards. The total cost of the amendments in a full year will be £385 million. The question we must decide is how that figure of £385 million is to be found. I do not know where it is to be found. The Tory Party wants to cut public expenditure, but will not tell us where.

Mr. John Moore (Croydon, Central)

Earlier in the debate my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) emphasised a specific point in regard to members of the Inland Revenue. We have now had a debate lasting five hours and two minutes. Has the Minister of State been given the information that will allow him to apologise on behalf of his right hon. Friend the Chief Secretary for the mistake that he made on Monday night?

Mr. Davies

My right hon. Friend will deal with these figures next Tuesday in Committee. [HON. MEMBERS: "Oh."] If my right hon. Friend was wrong he will no doubt, with his customary graciousness, apologise to the Committee. On the other hand, if the right hon. and learned Gentleman was wrong, he also, with his customary graciousness, will apologise.

I repeat that the two amendments will cost £385 million in a full year. The Tory Opposition want to cut public expenditure but do not know where to cut it, except by sacking 20,000 Inland Revenue staff. That was the only suggestion they could make. There was very little concern about the public sector borrowing requirement, financial rectitude, M3, or any of the other matters on which they have preached to us from time to time.

The Liberal Party wants to find the money by increasing VAT. In other words, the majority of the population will have to pay more in price increases to provide £385 million to those earning £15,000 a year and more. I regard that as unfair and unjust. I am surprised that a party such as the Liberal Party should seek to ally itself with the Tories on such a proposition.

If a sum of £385 million were available, it would be our desire to use that money to benefit those in the tax system who suffer most. I suggest that there are some people who suffer more from the

tax system than those who earn £15,000 or £25,000 a year.

If this extra money were available, it should go to those in the poverty trap, those on low pay, those who have suffered most as a result of inflation over the past few years. That is the choice of priorities that we make. The Tory Opposition clearly prefer to help their rich friends, and will try to do so with the amendment. I ask the Committee to reject it.

Question put, That the amendment be made:—

The Committee divided: Ayes 288, Noes 286.

Division No. 202]	AYES	[9.5 p.m.
Adley Robert	Drayson, Burnaby	Howe, Rt Hon Sir Geoffrey
Aitken, Jonathan	du Cann, Rt Hon Edward	Howell, David (Guildford)
Alison, Michael	Dunlop, John	Howells, Geraint (Cardigan)
Amery, Rt Hon Julian	Durant, Tony	Hunt, David (Wirral)
Arnold, Tom	Dykes, Hugh	Hunt, John (Ravensbourne)
Atkins, Rt Hon H. (Spelthorne)	Eden, Rt Hon Sir John	Hurd, Douglas
Awdry, Daniel	Edwards, Nicholas (Pembroke)	Hutchison, Michael Clark
Bain, Mrs Margaret	Elliott, Sir William	Irving, Charles (Cheltenham)
Baker, Kenneth	Emery, Peter	James, David
Banks, Robert	Eyre, Reginald	Jenkin, Rt Hon P. (Wanst'd & W'df'd)
Beith, A. J.	Fairbairn, Nicholas	Jessel, Toby
Bendall, Vivian (Ilford North)	Farr, John	Johnson Smith, G. (E Grinstead)
Bennett, Sir Frederic (Torbay)	Fell, Anthony	Johnston, Russell (Inverness)
Bennett, Dr Reginald (Fareham)	Finsberg, Geoffrey	Jones, Arthur (Daventry)
Benyon, W.	Fisher, Sir Nigel	Jopling, Michael
Berry, Hon Anthony	Fookes, Miss Janet	Joseph, Rt Hon Sir Keith
Biffen, John	Forman, Nigel	Kaberry, Sir Donald
Biggs-Davidson, John	Fowler, Norman (Sutton C'f'd)	Kershaw, Anthony
Blaker, Peter	Fox, Marcus	Kimball, Marcus
Body, Richard	Fraser, Rt Hon H. (Stafford & St)	King, Evelyn (South Dorset)
Boscawen, Hon Robert	Freud, Clement	King, Tom (Bridgwater)
Bottomley, Peter	Fry, Peter	Kitson, Sir Timothy
Bowden, A. (Brighton, Kemptown)	Galbraith, Hon T. G. D.	Knight, Mrs Jill
Boyson, Dr Rhodes (Brent)	Gardiner, George (Reigate)	Knox, David
Bradford, Rev Robert	Gardiner, Edwards (S Fylde)	Lamont, Norman
Braine, Sir Bernard	Gilmour, Rt Hon Ian (Chesham)	Langford-Holt, Sir John
Brittan, Leon	Gilmour, Sir John (East Fife)	Latham, Michael (Melton)
Brocklebank-Fowler, C.	Glyn, Dr Alan	Lawrence, Ivan
Brooke, Peter	Godber, Rt Hon Joseph	Lawson, Nigel
Brotherton, Michael	Goodhart, Philip	Lester, Jim (Beeston)
Bryan, Sir Paul	Goodlad, Alastair	Lewis, Kenneth (Rutland)
Buchanan-Smith, Alick	Gorst, John	Loveridge, John
Buck, Antony	Gow, Ian (Eastbourne)	Luce, Richard
Budgen, Nick	Gower, Sir Raymond (Barry)	McAdden, Sir Stephen
Bulmer, Esmond	Grant, Anthony (Harrow C)	MacCormick, Iain
Burden, F. A.	Gray, Hamish	McCrindle, Robert
Butler, Adam (Bosworth)	Griffiths, Eldon	McCusker, H.
Carlisle, Mark	Grimond, Rt Hon J.	Macfarlane, Neil
Carson, John	Grist, Ian	MacGregor, John
Chalker, Mrs Lynda	Grylls, Michael	MacKay, Andrew (Stechford)
Channon, Paul	Hall-Davis, A. G. F.	Macmillan, Rt Hon M. (Farnham)
Churchill, W. S.	Hamilton, Archibald (Epsom & Ewell)	McNair-Wilson, M. (Newbury)
Clark, Alan (Plymouth, Sutton)	Hamilton, Michael (Salisbury)	McNair-Wilson, P. (New Forest)
Clark, William (Croydon S)	Hampson, Dr Keith	Madel, David
Clarke, Kenneth (Rushcliffe)	Hannam, John	Marshall, Michael (Arundel)
Clegg, Walter	Harrison, Col Sir Harwood (Eye)	Marten, Neil
Cockcroft, John	Harvie Anderson, Rt Hon Miss	Mates, Michael
Cooke, Robert (Bristol W)	Haselhurst, Alan	Mather, Carol
Cope, John	Hastings, Stephen	Maude, Angus
Cormack, Patrick	Hayers, Rt Hon Sir Michael	Maudling, Rt Hon Reginald
Costain, A. P.	Hawkins, Paul	Mawby, Ray
Craig, Rt Hon W. (Belfast E)	Hayhoe, Barney	Maxwell-Hyslop, Robin
Crawford, Douglas	Henderson, Douglas	Mayhew, Patrick
Critchley, Julian	Heseltine, Michael	Meyer, Sir Anthony
Crouch, David	Hicks, Robert	Miller, Hal (Bromsgrove)
Crowder F. P.	Higgins, Terence L.	Mills, Peter
Davies, Rt Hon J. (Knutsford)	Hodgson, Robin	Miscampbell, Norman
Dean, Paul (N Somerset)	Holland, Philip	Mitchell, David (Basingstoke)
Dodsworth, Geoffrey	Hooson, Emlyn	Moate, Roger
Douglas-Hamilton, Lord James	Hordern, Peter	Molyneaux, James
Monro, Hector	Rhodes, James R.	Stradling Thomas, J.
Montgomery, Fergus	Ridley, Hon Nicholas	Tapsell, Peter
Moore, John (Croydon C)	Ridsdale, Julian	Taylor, R. (Croydon NW)
More, Jasper (Ludlow)	Rifkind, Malcolm	Tebbit, Norman
Morgan-Giles, Rear-Admiral	Rippon, Rt Hon Geoffrey	Temple-Morris, Peter
Morris, Michael (Northampton S)	Roberts, Wyn (Conway)	Thatcher, Rt Hon Margaret
Morrison, Charles (Devizes)	Rodgers, Sir John (Sevenoaks)	Thomas, Rt Hon P. (Hendon S)
Morrison, Hon Peter (Chester)	Ross, Stephen (Isle of Wight)	Thompson, George
Mudd, David	Ross, William (Londonderry)	Thorpe, Rt Hon Jeremy (N Devon)
Neave, Airey	Rossi, Hugh (Hornsey)	Townsend, Cyril D.
Neubert, Michael	Royle, Sir Anthony	Trotter, Neville
Newton, Tony	Sainsbury, Tim	van Straubenzee, W. R.
Nott, John	St. John-Stevas, Norman	Vaughan, Dr Gerald
Onslow, Cranley	Scott, Nicholas	Viggers, Peter
Oppenheim, Mrs Sally	Shaw, Giles (Pudsey)	Wainwright, Richard (Colne V)
Page, John (Harrow West)	Shelton, William (Streatham)	Wakeham, John
Page, Rt Hon R. Graham (Crosby)	Shepherd, Colin	Walder, David (Clitheroe)
Page, Richard (Workington)	Shersby, Michael	Walker, Rt Hon P. (Worcester)
Paisley, Rev Ian	Silvester, Fred	Wall, Patrick
Pardoe, John	Sims, Roger	Walters, Dennis
Parkinson, Cecil	Sinclair, Sir George	Warren, Kenneth
Pattie, Geoffrey	Skeet, T. H. H.	Watt, Hamish
Penhaligon, David	Smith, Cyril (Rochdale)	Weatherill, Bernard
Percival, Ian	Smith, Dudley (Warwick)	Wells, John
Peyton, Rt Hon John	Smith, Timothy John (Ashfield)	Welsh, Andrew
Pink, R. Bonner	Speed, Keith	Whitelaw, Rt Hon William
Powell, Rt Hon J. Enoch	Spence, John	Whitney, Raymond (Wycombe)
Prentice, Rt Hon Reg	Spicer, Michael (S Worcester)	Wiggin, Jerry
Price, David (Eastleigh)	Sproat, Iain	Wilson, Gordon (Dundee E)
Prior, Rt Hon James	Stainton, Keith	Winterton, Nicholas
Pym, Rt Hon Francis	Stanbrook, Ivor	Wood, Rt Hon Richard
Raison, Timothy	Stanley, John	Young, Sir G. (Ealing, Acton)
Rathbone, Tim	Steel, Rt Hon David	Younger, Hon George
Rees, Peter (Dover & Deal)	Steen, Anthony (Wavertree)
Rees-Davies, W. R.	Stewart, Rt Hon Donald	TELLERS FOR THE AYES:
Reid, George	Stewart, Ian (Hitchin)	Mr. Spencer Le Marchant and
Renton, Rt Hon Sir D. (Hunts)	Stokes, John	Mr. Michael Roberts.
Renton, Tim (Mid-Sussex)
NOES
Abse, Leo	Colquhoun, Ms Maureen	Ford, Ben
Allaun, Frank	Concannon, J. D.	Forrester, John
Anderson, Donald	Conlan, Bernard	Fowler, Gerald (The Wrekin)
Archer, Rt Hon Peter	Cook, Robin F. (Edin C)	Fraser, John (Lambeth, N'w'd)
Armstrong, Ernest	Corbett, Robin	Freeson, Rt Hon Reginald
Ashley, Jack	Cowans, Harry	Garrett, John (Norwich S)
Ashton, Joe	Cox, Thomas (Tooting)	Garrett, W. E. (Wallsend)
Atkins, Ronald (Preston N)	Craigen, Jim (Maryhill)	George, Bruce
Atkinson, Norman	Crawshaw, Richard	Gilbert, Dr John
Bagier, Gordon A. T.	Crowther, Stan (Rotherham)	Ginsburg, David
Barnett, Guy (Greenwich)	Cryer, Bob	Golding, John
Barnett, Rt Hon Joel (Heywood)	Cunningham, Dr J. (Whiteh)	Gould, Bryan
Bates, Alf	Davidson, Arthur	Gourlay, Harry
Bean, R. E.	Davies, Bryan (Enfield N)	Graham, Ted
Benn, Rt Hon Anthony Wedgwood	Davies, Denzil (Llanelli)	Grant, George (Morpeth)
Bennett, Andrew (Stockport N)	Davies, Ifor (Gower)	Grant, John (Islington C)
Bidwell, Sydney	Davis, Clinton (Hackney C)	Grocott, Bruce
Bishop, Rt Hon Edward	Deakins, Eric	Hamilton, W. W. (Central Fife)
Blenkinsop, Arthur	Dean, Joseph (Leeds West)	Hardy, Peter
Boardman, H.	Dell, Rt Hon Edmund	Harrison, Rt Hon Walter
Booth, Rt Hon Albert	Dempsey, James	Hart, Rt Hon Judith
Boothroyd, Miss Betty	Dewar, Donald	Hattersley, Rt Hon Roy
Bottomley, Rt Hon Arthur	Doig, Peter	Hayman, Mrs Helene
Boyden, James (Bish Auck)	Dormand, J. D.	Healey, Rt Hon Denis
Bradley, Tom	Douglas-Mann, Bruce	Heffer, Eric S.
Bray, Dr Jeremy	Duffy, A. E. P.	Hooley, Frank
Broughton, Sir Alfred	Dunn, James A.	Horam, John
Brown, Hugh D. Provan)	Dunnett, Jack	Howell, Rt Hon Denis (B'ham, Sm H)
Brown, Robert C. (Newcastle W)	Eadie, Alx	Hoyle, Doug (Nelson)
Buchan, Norman	Edge, Geoff	Huckfield, Les
Buchanan, Richard	Ellis, John (Brigg & Scun)	Hughes, Rt Hon C. (Anglesey)
Callaghan, Rt Hon J. (Cardiff SE)	English, Michael	Hughes, Robert (Aberdeen N)
Callaghan, Jim (Middleton & P)	Ennals, Rt Hon David	Hughes, Roy (Newport)
Campbell, Ian	Evans, Fred (Caerphilly)	Hunter, Adam
Canavan, Dennis	Evans, Gwynfor (Carmarthen)	Irvine, Rt Hon Sir A. (Edge Hill)
Cant, R. B.	Evans, Ioan (Aberdare)	Irving, Rt Hon S. (Dartford)
Carmichael, Neil	Evans, John (Newton)	Jackson, Colin (Brighouse)
Carter, Ray	Ewing, Harry (Stirling)	Jackson, Miss Margaret (Lincoln)
Carter-Jones, Lewis	Faulds, Andrew	Janner, Greville
Cartwright, John	Fernyhough, Rt Hon E.	Jay, Rt Hon Douglas
Castle, Rt Hon Barbara	Fitt, Gerard (Belfast W)	Jeger, Mrs Lena
Clemitson, Ivor	Flannery, Martin	Jenkins, Hugh (Putney)
Cocks, Rt Hon Michael (Bristol S)	Fletcher, L. R. (Ilkeston)	John, Brynmor
Cohen, Stanley	Fletcher, Ted (Darlington)	Johnson, James (Hull West)
Coleman, Donald	Foot, Rt Hon Michael	Jones, Alec (Rhondda)

Jones, Barry (East Flint)	Morris, Rt Hon J. (Aberavon)	Stallard, A. W.
Jones, Dan (Burnley)	Moyle, Roland	Stewart, Rt Hon M. (Fulham)
Judd, Frank	Mulley, Rt Hon Frederick	Stoddart, David
Kaufman, Gerald	Murray, Rt Hon Ronald King	Stott, Roger
Kelley, Richard	Newens, Stanley	Strauss, Rt Hon G. R.
Kerr, Russell	Noble, Mike	Summerskill, Hon Dr Shirley
Kilroy-Silk, Robert	Oakes, Gordon	Swain, Thomas
Kinnock, Neil	Ogden, Eric	Taylor, Mrs Ann (Bolton W)
Lambie, David	O'Halloran, Michael	Thomas, Dafydd (Merioneth)
Lamborn, Harry	Orbach, Maurice	Thomas, Jeffrey (Abertillery)
Lamond, James	Orme, Rt Hon Stanley	Thomas, Mike (Newcastle E)
Latham, Arthur (Paddington)	Ovenden, John	Thomas, Ron (Bristol NW)
Lee, John	Owen, Rt Hon Dr David	Thorne, Stan (Preston S)
Lestor, Miss Joan (Eton & Slough)	Padley, Walter	Tierney, Sydney
Lever, Rt Hon Harold	Park, George	Tilley, John (Lambeth, Central)
Lewis, Arthur (Newham N)	Parker, John	Tinn, James
Lewis, Ron (Carlisle)	Pavitt, Laurie	Tomlinson, John
Litterick, Tom	Pendry, Tom	Tomney, Frank
Lomas, Kenneth	Perry, Ernest	Torney, Tom
Loyden, Eddie	Phipps, Dr Colin	Tuck, Raphael
Luard, Evan	Price, C. (Lewisham W)	Urwin, T. W.
Lyon, Alexander (York)	Price, William (Rugby)	Varley, Rt Hon Eric G.
Lyons, Edward (Bradford W)	Radice, Giles	Wainwright, Edwin (Dearne V)
Mabon, Rt Hon Dr J. Dickson	Rees, Rt Hon Merlyn (Leeds S)	Walker, Harold (Doncaster)
McCartney, Hugh	Richardson, Miss Jo	Walker, Terry (Kingswood)
McDonald, Dr Oonagh	Roberts, Albert (Normanton)	Ward, Michael
McElhone, Frank	Roberts, Gwilym (Cannock)	Watkins, David
McGuire, Michael (Ince)	Robinson, Geoffrey	Watkinson, John
MacKenzie, Rt Hon Gregor	Roderick, Caerwyn	Weetch, Ken
Mackintosh, John P.	Rodbers, George (Chorley)	Weitzman, David
Maclennan, Robert	Rodgers, Rt Hon William (Stockton)	Wellbeloved, James
McMillan, Tom (Glasgow C)	Rooker, J. W.	White, Frank R. (Bury)
McNamara, Kevin	Roper, John	White, James (Pollock)
Madden, Max	Rose, Paul B.	Whitehead, Philip
Magee, Bryan	Ross, Rt Hon W. (Kilmarnock)	Whitlock, William
Mahon, Simon	Rowlands, Ted	Wigley, Dafydd
Mallalieu, J. P. W.	Ryman, John	Willey, Rt Hon Frederick
Marks, Kenneth	Sandelson, Neville	Williams, Rt Hon Alan (Swansea W)
Marshall, Dr Edmund (Goole)	Sedgemore, Brian	Williams, Alan Lee (Hornch'ch)
Marshall, Jim (Leicester S)	Selby, Harry	Williams, Rt Hon Shirley (Hertford)
Mason, Rt Hon Roy	Sever, John	Wilson, Rt Hon Sir Harold (Huyton)
Meacher, Michael	Shaw, Arnold (Ilford South)	Wilson, William (Coventry SE)
Mellish, Rt Hon Robert	Sheldon, Rt Hon Robert	Wise, Mrs Audrey
Mendelson, John	Shore, Rt Hon Peter	Woodall, Alec
Mikardo, Ian	Short, Mrs Renée (Wolv NE)	Woof, Robert
Millan, Rt Hon Bruce	Sillars, James	Wrigglesworth, Ian
Miller, Dr M. S. (E Kilbride)	Silverman, Julius	Young, David (Bolton E)
Mitchell, Austin	Skinner, Dennis
Molloy, William	Smith, John (N Lanarkshire)	TELLERS FOR THE NOES:
Moonman, Eric	Snape, Peter	Mr. James Hamilton and
Morris, Alfred (Wythenshawe)	Spearing, Nigel	Mr. Joseph Harper.
Morris, Charles R. (Openshaw)	Spriggs, Leslie

Question accordingly agreed to.

Mr. Peter Rees

I beg to move Amendment No. 9, in page 10, line 20, leave out from 'exceeds' to 'of' in line 22 and insert '£2,000 at the additional rates of 10 per cent. for the first £500'.

The Temporary Chairman (Mrs. Joyce Butler)

With this we may take the following amendments: No. 10, in page 10, line 21, leave out '£1,700' and insert '£2,000'.

No. 11, in page 10, line 21, leave out from 'cent.' to end of line 22.

No. 12, in page 10, line 22, leave out '£550' and insert '£500'.

No. 18, in page 10, line 26, leave out from second 'the' to end of line 27 and insert 'reference to £2,000 of a reference to £3,000'.

Mr. Rees

This is a modest amendment. After the traumas of the last five hours and the debate on Monday, that is perhaps as well. It will give the Government a chance to collect themselves, to reconsider their position and to view for the first time in their career a little more dispassionately than they have been used to doing in the past the whole question of investment income.

When I consider the amendment, to echo the words of Lord Clive in rather different circumstances, I am astounded at my own moderation. It is perhaps important to give the Government a chance to calm themselves and to consider again this whole question.

The amendment is designed to raise the threshold for investment income surcharge for those under the age of 65 from £1,700 to £2,000 and for those of 65 and over from £2,500 to £3,000. As I said, I hope that it will enable us to debate calmly and dispassionately the weight of tax which we feel should be imposed on investment income.

I know that the whole question of investment income, at least in public if not in private, touches a raw nerve in the Labour Party. Investment income conjures up for Labour Members, particularly those below the Gangway, vast plutocratic wealth which deserves to be taxed into the ground. But we know that, in private at least, the Government Front Bench take a slightly different view. We wish to probe the sincerity of their approach to the role of private capital in a mixed economy.

Even if one felt that investment income as properly defined was deserving of the particularly harsh imposts which have been heaped upon it since 1974, it must almost be a matter of common ground that the definition is extremely haphazard. Indeed, the anomalies have been pointed out from an early stage. Mr. Gladstone in 1853, as you will recall, Mrs. Butler, in an epic debate—I am not suggesting that you personally were presiding over our debates in those days, but I know of the close attention that you pay to all debates on financial and fiscal matters—attempted to draw a distinction between what he called lazy income and hard-won income. At the end of the day he admitted that it was impossible to draw a very clear line. In a, memorable debate, Mr. Gladstone—I know that the hon. Member for Cornwall, North (Mr. Pardoe) will be treading in Mr. Gladstone's footsteps tonight because of the support he will be giving to the amendment—recognised that there was no clear, decisive, practical distinction between the two categories of income.

Perhaps the debate has not moved on a great deal since then. The anomalies are too glaring to admit of this sharp distinction. I am sure that the Financial Secretary, if and when he catches your eye, Mrs. Butler—or it may be the Chief Secretary—will attempt to deal with this matter. We always welcome the Chief Secretary's interventions, particularly because in his professional capacity he has such a keen and expert knowledge of the distinctions between the various categories of incomes. I have no doubt that we shall have a notable and sympathetic contribution to the debate. It will give him a chance to re-establish his self-esteem after the disasters which have struck him and his team just recently and on Monday.

9.30 p.m.

But we bear the right hon. Gentleman no ill will. I do not know whether his heart is in the right place, but his head is in the right place provided that he is given the chance to exercise it. We know also, however, that he can be a little intimidated by his right hon. and hon. Friends below the Gangway. There have been moments when I have detected even that bold spirit quail before the glances of his hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) or those of his hon. Friend the Member for Coventry, South-West (Mrs. Wise). There is only one of them in the Chamber at the moment, so perhaps we can encourage the right hon. Gentleman to flights of unaccustomed valour.

I wish to focus the Committee's attention on some of the categories of income which by no stretch of the imagination can be called, in Mr. Gladstone's phrase, lazy income. First, I take the case of the shopkeeper and the farmer, people who by any standards work hard all their lives but whose efforts may not produce very large incomes, so that they cannot take advantage of the retirement annuity provisions. When they come to take an easier role in life and sell their shops or farms, they realise a small amount of capital and invest it.

Is the income from those investments to be treated more harshly than, for example, the income of a civil servant—I pick a category at random—who has an inflation-proof pension which, under the rather bizarre rules by which the Inland Revenue operates, is regarded as earned income?

Next, I take the case of people who have had to save for their retirement. The Committee will recall that prior to 1956 it was not possible for the self-employed or even for those who were not in pensionable employment to make provision out of gross income for their retirement annuities. There must be many people today who are subsisting on savings income who could not make that provision. Are they to be singled out for harsher treatment? I am sure that the Chief Secretary, with his compassion—if he can for a moment break off his conversation with the Financial Secretary—will agree, and when he speaks later he will, no doubt, endorse what I say. Perhaps, even if he is not able to go all the way with us on these amendments, he will be prepared to commit the Government to look a little more closely at the definition of earned and investment income.

Next, let us take the case of a person who has bought his own house but who, through the demands of his employment, has to move to another part of the country. He retains his house and lets it. Is the income from his house to be regarded, in Mr. Gladstone's phrase, as lazy income?

The fact that these anomalies occur has been practically conceded by the Government, first in the provision introduced in this year's Finance Bill to treat maintenance payments exclusively as earned income. There is an anomaly which has been corrected, against—I draw the Committee's attention to this—the statements in Labour's 1976 manifesto which described maintenance payments as a rather virulent form of tax avoidance. I am happy to see that the Chief Secretary has escaped from the thrall of Transport House and has taken a rather more generous view of maintenance payments. I am sure that the Gingerbread group and others outside who follow our debates will give him full credit for that. I am now asking him to extend his horizons a little and see whether he can accord the same kind of treatment to other forms of income.

Next, what about annuities to retired partners of professional firms? A small measures of relief has been conceded in past Finance Acts for income of this kind. When we go into Standing Committee we shall press the Chief Secretary to look at this matter further. He may have to declare a personal interest, but we shall respect him all the more for that. It will demonstrate that he has a warm personal and enduring interest in these problems.

Even if the definition of earned and investment income could be accurately and comprehensively drawn, what case is there for singling out investment income—to spare the susceptibilities of Labour Members, let me call it savings income from now on—for the special treatment which it now receives?

When Mr. McKenna was defending the decision of the Liberal Administration in 1907 to introduce the earned income relief, he rested his case on the argument that income from employment was of a precarious nature. Since then, times have changed and a little has been done to make employment less precarious. We have had the Employment Protection Act and redundancy payments. I do not mean to say that income from employment is necessarily of the same quality or on the same basis as savings income which is perhaps derived from capital. But the contrast is not as stark as it was in 1907. Some would say that the balance has tilted the other way.

Mr. Ridley

Hear, hear.

Mr. Rees

My hon. Friend will no doubt enlarge on that later. One could make an eloquent case. The fluctuations of the Stock Exchange and the ravages of inflation have meant that the return on many fixed income stocks has been a negative return after tax. This is a matter to which the Chief Secretary must address himself if he is to do justice to the debate.

I turn to the question of dividend control and the rentier class. That is a highly emotive phrase which I use to galvanise and evoke a spark of interest from the Chief Secretary, who seems to be singularly detached from our debate. I hope that he will deal with this matter, however ineffectively. Perhaps he will be a little more forthcoming on the question of dividend control. At Chancellor of the Exchequer's Question Time recently we had occasion to press the Minister of State, but there was no firm indication of the Government's plans. This is a factor which has militated against savings income.

I wonder whether the Government will put up a substantial opposition to these amendments. After the traumas of the last five hours, they may collapse. Perhaps the walls of Jericho are lying in ruins. Perhaps the trumpet blasts of my hon. Friends have demolished them. Perhaps we shall find that from now on it is plain sailing and that it will now be not a Cornish Budget but possibly a Conservative Budget.

Much work has to be done, and we shall carry this on not only in the Chamber but in Committee upstairs. We shall see with keen interest what happens. I know that the Patronage Secretary's representative has a difficult task. He has done his best to weed out his team, and, I have no doubt, with a certain amount of disloyal support. We shall comment on that performance later. It appears that he has effectively cleared the Chamber after the last debate, Mrs. Butler—I apologise: I should have said Mr. Godman Irvine. My eyes were so riveted on the Treasury Front Bench that I momentarily failed to observe that you were adding grace and distinction to our debate.

I suspect that the case that we shall have to meet from the Treasury Bench is encapsulated in a quotation from Mr. Brian Walden, whose contributions to our debates I for one miss. But he is doing a useful job in interviewing the Chancellor of the Duchy of Lancaster. May there be many more such cross-examinations, because they provide us with an insight into at least part of the Cabinet's thinking.

The phrase which Mr. Brian Walden used to quote was attributable to Mr. Joseph Chamberlain. It was "What ransom should property pay for the security that it enjoys?" That is a telling phrase. I do not know whether Mr. Chamberlain would have repeated it these days. The proposition is readily answered. First, I doubt whether property or private capital could be said to enjoy much security, certainly not under an Administration where the Treasury is in the hard, rapacious hands of the Chancellor of the Exchequer.

The Chancellor of the Exchequer (Mr. Denis Healey)

rose—

Mr. Rees

I am flattered that the Chancellor cowers under my lash. If he must, he must leave the Chamber. I have the great privilege of sharing the Chancellor's kisses with the hon. Member for Coventry, South-West. I should prefer the Chancellor's fiscal concessions to his kisses. But perhaps I am not in a position to choose. We have to wring the concessions out of him by hard verbal argument and by votes. It is not the Chancellor's good will that lies behind such concessions as we have extracted so far.

The question I put to the Committee is "Does capital in the United Kingdom pay its fair share of taxes?" One has only to study the question to see that it answers itself.

Mr. Robert Hughes (Aberdeen, North)

The answer is "No".

Mr. Rees

Perhaps the hon. Member for Aberdeen, North (Mr. Hughes) has not been paying close enough attention to our debates. Perhaps he does not study the Finance Acts. Has he considered the rates of stamp duty here, which are higher than in any other country in the EEC? Take capital transfer tax. Can he mention any other of our competitor countries in the EEC with tax on the transmission of capital at anything like the same rates? Can he mention a country in the EEC that imposes a charge on capital gains at the same swingeing rates as here?

One of the Chief Secretary's most revealing asides in our debates on the Budget was when he revealed that, of a forecast yield of £390 million from capital gains tax, £340 million of £350 million would derive from inflationary gain. In other words, the real gain of the tax yield is only £40 million or £50 million. That gives one a measure of the impost on capital. If I may, therefore, echo what Mr. Joseph Chamberlain said 70 or 80 years ago, yes, the ransom that capital pays in the United Kingdom is far beyond the ransom exacted by any other civilised Western European Government. One has only to study the statistics to see that capital taxes in the United Kingdom are far higher than those levied by any of our European competitors.

The consequences are inevitable. There is a slow but steady seepage of private capital, and that is why the Labour Party in its ineffable wisdom has sent two of its most distinguished Back Benchers to spy out the land in the Channel Islands. What comfort they have brought back, I do not know. Perhaps the Chief Secretary will tell us that something is to be incorporated in the next manifesto. It may be that the Government will revoke the constitution of the Channel Islands and that the Duchy of Normandy is to be once more incorporated totally and irrevocably under the British Crown for all purposes. I do not know. It will be interesting to follow out this theme. If my fancy takes me too far, perhaps the Chief Secretary will correct me. Perhaps he will say that the Channel Islands and the Isle of Man are to enjoy inviolate their present fiscal systems.

At the end of the day, notwithstanding the exchange control system which has been so laboriously and painstakingly erected, it will not be possible to confine private capital within this country if we are to endure taxation such as we now have. The fundamental question that the country will ask is whether the Government are serious about a role for private capital in our mixed economy. There have been glib statements about an investment strike. Labour Members may wish to develop that theme. Perhaps that is something upon which the Wilson Committee will produce words of consummate wisdom. If there has been an investment strike—and I do not know that I necessarily go along with that proposition—it is not hard to find one of the reasons for it. If in an era of inflation a person is receiving a negative return on his capital, he will find rather curious forms of investment to preserve such wealth as is left to him.

I assume that the Government are serious and that they are not as frivolous as their Back Benchers, particularly in the last five hours, would have had us believe. I believe that the Government see a modest role for private capital, and the earnest of that is the provision for share incentive schemes encapsulated in the Bill. I and some of my right hon. and hon. Friends feel that these provisions need fairly dramatic improvement. But it is the first indication we have had that the Government believe that capital should be diffused among the country's taxpayers.

If that is the Government's aim and object, all sorts of questions arise for our consideration. I ask the Chief Secretary whether the dividends paid to employees who participate in share incentive schemes are to be treated as earned or investment income. It is an interesting question. We shall be glad to have the Chief Secretary's views on the matter. If his view is that in the hands of an employee dividends will be treated as earned income, what happens in the case of a retired employee? Will he, on retirement, when he has greater need of that income than ever before, be subject to the investment income surcharge?

9.45 p.m.

I sense that the Government must be a little uneasy about this position, and rightly so. Although one might not guess it from the expression on the Chief Secretary's face, the Government are proposing an increase in the threshold for the 10 per cent. band both for those under and for those over the age of 65. All we are doing, in a modest way, is suggesting that possibly those thresholds could be raised a little higher. If the Chief Secretary wants an argument that might impress even his hon. Friends below the Gangway, it is the ravages of inflation since my noble Friend Lord Barber set the threshold in 1973–74 at £2,000. Merely to index that would probably increase it to £4,400.

If the Chief Secretary attempts to dazzle us with the cost of that, and we doubt some of the figures that have been produced particularly on his costings and his enumeration of the employees of the Inland Revenue, we have the advantage of the letter written by the Financial Secretary in April which tells us how modest the cost will be. The Chief Secretary will no doubt tell us about the bachelors with £50,000 of investment income. That has been a mythological figure trotted out in our debates since the late Hugh Gaitskell addressed the Committee on these matters.

Leaving aside those rare creatures—they become rarer under a Labour Administration—I ask the Committee to consider the case of a married couple over the age of 65 whose entire income consists of the old-age pension and savings income of £2,500 per annum—in other words, a gross income of just over £4,000, or £80 a week. That is slightly under the average industrial wage. Even with the benefit of the Government's proposals, that couple will be paying a marginal rate of tax of 33 per cent. basic rate and 10 per cent investment income surcharge, amounting to 43 per cent.

Let us assume that that couple have invested their modest capital wisely and have increased their savings income by £500 to £4,600—a weekly income of £92 a week. By no stretch of the imagination in the present circumstances is that the income even of someone in middle management. They will be paying a marginal rate of 48 per cent. As the Chief Secretary can readily calculate, to produce an income of £2,500 to £3,000 a year would need capital of only £30,000. All we are asking of the Chief Secretary is a little imagination and generosity.

The amendments tabled by myself and my right hon. and hon. Friends are designed to raise the threshold from £2,000 to £2,500 for people under the age of 65 and to £3,000 for those over the age of 65. As to cost, we are deeply conscious of our responsibilities. We have been consistently reminded of them by the Treasury Front Bench. The Financial Secretary has told my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) that our proposals would cost £5 million this year and £30 million in a full year. Will the Chief Secretary really try to tell us that it is beyond the wit of him and his colleagues to find £5 million this year or that their control of Government expenditure is so lax that they cannot even find cuts of £5 million out of a Budget of about £60 billion? I do not think that that argument will run.

It is a question of nerve and generosity—nerve so that the Chief Secretary can face the accusing eyes of his hon. Friends and of Mr. Jones and Mr. Scanlon, though they no longer preside in such an omnipotent way over the affairs of the Labour Party, and generosity to recognise a real case and that many of those who would benefit from the amendments are in retirement. It may even be that if the Chief Secretary searches in his constituency he will find some people who would benefit from the amendments.

In coaxing the Treasury team along this line which should not be a difficult line for them to follow, I urge them to recall the entrepreneur under the railway arch who proved so dear to their right hon. Friend the Chancellor of the Duchy of Lancaster on the last day of the Budget debate. We owe a great deal to the contributions of the right hon. Gentleman, because it is clear that his heart is in the right place and that often his head is in the right place. It is unfortunate that he seems to be a lone voice in the Cabinet. His vote is too often in the wrong place, but we all know of the compelling fascina- tion of Patronage Secretaries and, alas, the Chancellor of the Duchy is not immune from that.

We ask the Chief Secretary to accept the amendments on the basis that they would afford a measure of ease to the entrepreneur under the railway arch in his old age, a measure of security to his widow and perhaps a stimulus to his children to follow in his footsteps. On that modest, circumscribed basis, I commend the amendments.

Mr. Joel Barnett

It might be helpful if I said a word or two now about the speech of the hon. and learned Member for Dover and Deal (Mr. Rees). In view of the hour, I hope that the Committee will forgive me if, rather than following the hon. and learned Gentleman into the speeches of Gladstone and Chamberlain, or travelling to the Isle of Man and the Channel Islands, I seek to deal with the amendments.

The costs of the Conservative amendments, which are partially supported by the Liberals, are broadly in the area that the hon. and learned Gentleman suggested. He complained about the figures that we have given to the Committee, but on the last group of amendments his right hon. and learned Friend thought that the amendment that he was moving would cost £45 million and found that it would actually cost £150 million. Yet he still pressed it to a vote. I am surprised that the hon. and learned Gentleman should complain about the figures that we have provided.

In Amendment No. 11, the Liberal Party, as ever, seeks to do rather more, namely, to abolish the 15 per cent. rate altogether. That would cost £120 million, compared to the fairly modest cost of the Conservatives' amendments.

I agree that small investment income should be helped, though there is some disagreement in the Committee on the definition of "small" in these matters. I accept that small investment income should be exempt from the investment income surcharge. We have helped those with small investment incomes in the amendments that we proposed in the Budget, which are now part of the Finance Bill.

There are 600,000 people liable to investment income surcharge; 91 per cent. of those with investment income pay no surcharge. Only 2 per cent. will be liable at the 10 per cent. rate and 7 per cent. at the 15 per cent. rate. By any definition, we have exempted the vast majority of those with investment incomes, and certainly all those with small investment income.

I am surprised that the hon. and learned Member for Dover and Deal should have made so much of this. A person over 65 can have £30,000 of capital, allowing the equivalent of building society gross rate, without being liable to investment income surcharge. Those under 65 can have capital of £20,000, taking the same building society interest rate. I know that these sums are nothing to Opposition Members, who think that they are still far too low, but to the vast majority of ordinary people in this country these are still very large sums of money. We have exempted these incomes from the surcharge and, in addition, we have done what no previous Conservative Government ever did—we have wholly exempted maintenance income from the surcharge.

Mr. Anthony Nelson (Chichester)

Perhaps the Chief Secretary could help me. When he talks about the multiple of this investment income and totals it into a gross capital value, does he take into account the fact that many people receive investment income by way of life interest on capital on which they have no chance of getting their hands? To talk of capital values in such cases is totally meaningless. All these people will have for the whole of their lives is income from the capital amount which will not belong to them.

Mr. Barnett

I do not dispute that. I have not covered every conceivable form of investment income. All I am saying is that for the vast majority of people there will be exemptions from investment income surcharge. This will apply to a capital sum of £30,000 for those over 65 and £20,000 for those under. I do not dispute the hon. Member's point about life interests and trusts of this kind, but they are not quite as common as he thinks. I suppose that I have some people in my constituency with life interests in trusts, but they would not be all that many.

The question raised by the hon. and learned Member for Dover and Deal was whether there should be a distinction be- tween investment income and earned income. The previous Conservative Chancellor, Lord Barber, said there should be such a distinction. He said: it will still be necessary to retain the distinction between earned and investment income."—[Official Report, 31st March 1971; Vol. 814, c. 1387.] The hon. and learned Member for Dover and Deal says that there should be no distinction at all. Apparently the Conservative Opposition agree with him, because a week ago they voted to abolish the investment income surcharge on a Ten-Minute Bill. They have changed their view. Apparently they do not agree with Lord Barber. There is no great virtue in consistency and I do not complain about their change of view, but let us remember that it was a Conservative Government that introduced the investment income surcharge, with the unification of the tax system.

10.0 p.m.

Mr. Peter Rees

Does the right hon. Gentleman feel that the investment income surcharge could ride very easily with a wealth tax? Does he see a case for both?

Mr. Barnett

I shall deal with that question now, although I do not like my remarks being taken out of order. Of course, if there were a wealth tax it would depend where the threshold was fixed and whether and to what extent there was in investment income surcharge. However, I concede that with a wealth tax with the kind of threshold envisaged by the hon. Member for Cornwall, North (Mr. Pardoe), it would not be reasonable also to have a surcharge. But we are not talking about that, because we do not have a wealth tax.

The hon. and learned Member for Dover and Deal says that there should be no distinction between earned and what he called savings incomes. Not all investment income is necessarily savings income, of course. Some is inherited income—some is even income stolen in years past. The simple definition of savings is an exaggeration and an oversimplification. But we know what we mean. We are talking about the difference between income earned in a job or a business and income received from rent or investment.

The Opposition apparently now believe that there should be no distinction. What has happened since 1972, when the then Conservative Government introduced the distinction, to change the principle? I know the arguments about where the line should be drawn, but what has changed the principle? The hon. and learned Gentleman did not tell us anything that has changed.

Last year, the hon. Member for Cornwall, North, while saying that he did not necessarily accept the arguments for the distinction, gave many reasons for it. He said: When we introduced our system, we did so on the basis that the investment income conferred on the beneficiary some advantage over and above the advantage conferred upon him by income from work. He went on to say that in distinguishing between these two sorts of income an investment income confers a benefit because it is more permanent than income from work. A job could cease, or a man could become sick, or his working life could end. Income from investment would continue through all those circumstances."—[Official Report, 10th May 1977; Vol. 931, c. 1205.] In fairness, the hon. Gentleman said that he no longer accepted those arguments, but he did not say why.

In the same debate, the hon. and learned Member for Dover and Deal, as he has done today, but not to the same degree, listed a series of anomalies within the system. But they all existed when Lord Barber introduced the distinction. What has changed?

Mr. Alan Clark

One thing that has changed is that we have suffered inflation rates unprecedented this century.

Mr. Barnett

With respect, that is a question of where the line should be drawn; it does not answer the question whether there should be a distinction. The answer could be simple—that the Conservatives are now in opposition.

There is a distinction not just in this country or under the previous Conservative Government. There is a distinction in many other countries, whether by means of a wealth tax or by giving extra relief to earned income, as we used to do before the Conservatives introduced the unified tax system. There was such a distinction in this country, and the Conservatives who introduced it favoured its maintenance. The very foundation of the unified tax system envisaged that some investment income should attract surcharge.

What has happened to change that distinction? We are entitled to be given the answer by the Opposition. They voted en bloc on a Ten-Minute Bill to abolish the surcharge. Tonight they are attempting to be a little more responsible. In view of their irresponsibility in the last two votes in Committee, it is somewhat surprising that they are now seeking to be more responsible. Obviously they agree in principle with the abolition of the surcharge. When it does not matter, on a Ten-Minute Bill, that is all right, but when it matters, such as in this debate, they are not prepared to advocate it.

Certainly the hon. and learned Member for Dover and Deal this evening did not advocate abolition. I do not understand why he did not advocate it. Perhaps he still has some lingering sympathy with what was said by Lord Barber on 21st March 1972. The noble Lord then said that One of the foundations of the unified tax system is that only the larger investment incomes should attract the surcharge."—[Official Report, 21st March 1972; Vol. 833. c. 1386.] I concede that he had in mind a higher figure, but he maintained a distinction that is now no longer accepted by the Opposition.

I believe that the exemption of 91 per cent. of those with investment income goes a long way to meet the question where the line should be drawn. The other argument that the hon. and learned Gentleman did not deploy today relates to the disincentive to savings.

Mr. Terence Higgins (Worthing)

Since the right hon. Gentleman appears to be prepared to consider where the line should be drawn, will he say where the line he is drawing compares in real terms with the line that was drawn by Lord Barber when we first introduced this concept?

Mr. Barnett

I am happy to concede that it is drawn lower. I accept that the point at which I consider the line should be drawn is different from the Opposition's view. But what the Opposition have not argued is whether there should be a distinction at all. I have said that we have exempted from investment income surcharge the vast majority of people on small incomes. I concede that I would draw the line at a lower investment figure and a lower capital figure than would the Opposition. [HON. MEMBERS: "Why?"] Because I consider that we have done enough in terms of equity so far.

The hon. and learned Gentleman also mentioned what is known as the investment strike. The argument is that because of the level of taxation on investment income, people will not save. In other words, there is a disincentive to save. No doubt the hon. and learned Gentleman did not make that point because he has probably seen the figures; he mentioned the matter in passing. I am glad that he did not make that point, and I shall make the position clear in case other Members wish to deal with it. In 1973 the personal savings ratio under the Conservative Government was 11.6 per cent.; in 1977 it was 14.6 per cent. One can do almost anything with figures, and I have probably done a fair bit in my time. But one thing that one cannot do with those figures is to prove that there is an investment strike or a disincentive to save because of the point at which the line has been drawn on the investment income surcharge.

I believe that where we have drawn the line now ensures that 91 per cent. of people with investment income will not pay the surcharge, and that is a not unreasonable line. To answer the hon. Gentleman, I accept that people with investment incomes have made some sacrifices over recent years because of the levels of inflation. I do not deny that at all. But many people with earned incomes have also made sacrifices—people with very low levels of earned income.

We in the House of Commons must draw up our priorities on levels of income and how and where we help particular levels. Having helped so large a proportion of those with investment income, I cannot believe that the Committee would now want, in a full year, to forgo approximately another £30 million, on the Opposition amendment, or certainly the £120 million of the understandably more extravagant amendment of the hon. Member for Cornwall, North. I therefore ask the Committee to reject both amendments.

Mr. Paul Dean (Somerset, North)

The Chief Secretary has made a very disappointing response to the powerful case made by my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) in moving this modest amendment. The right ron. Gentleman did not address himself at all to the anomalies and unfairnesses that exist in the present arrangement. He relied almost wholly on the negative argument that the investment income surcharge exists and, therefore, should continue to exist.

I want briefly to put to the Chief Secretary one or two points which strongly suggest to me that the present position is very inequitable as between various people, particularly those who are retired.

I think one can fairly say that, whereas in earlier debates on the Bill we talked about the poverty trap and the disincentive effect for those on middle incomes of the tax they are paying on their incomes, we are now talking about the savings trap, which catches people when they are most vulnerable. It catches them when they are retired and have lost their earning capacity. Many of them are on fixed incomes which are being eroded year by year by inflation. They are finding that the thrift and the saving in which they engaged, in many cases over a long working life, are turned into tax penalties as a result of the present arrangements.

The taxation on savings is riddled with anomalies, and the investment income surcharge as at present applied makes those anomalies a great deal worse. I do not want to go into them in great detail at this hour of the night. I hope to catch the eye of the Chair shortly to move another amendment which has been selected.

However, I want to give two examples. The worst example of unfairness is to be found among pensioners. Nearly half of those who pay the investment income surcharge are pensioners. There is a marked difference between the tax treatment of the retired person with a private occupational or public service pension and the retired person with savings income subject to investment income surcharge.

At one extreme there is what might be described as the first-class pensioner, with an occupational pension at the maximum allowed by the Inland Revenue and with inflation-proofing. This pension is charged for tax purposes as earned income. At the other extreme there is what I describe as the second-class pensioner, with no occupational pension of any kind, through no fault of his own. He has to make do on his private savings, and he is charged on those savings as so-called unearned income. He is charged at a higher rate on an income which is less secure and which is not inflation-proofed. This is grossly unfair.

10.15 p.m.

Both the occupational pensioner and the person who has his savings in a private investment have in many cases saved all their working lives. In the case of the individual who does not have an occupational pension, it may very well be that the company which employed him did not have a pension scheme. It could be that he was working abroad and was ineligible as a result. It could equally be that he was self-employed or running a family business, and that all his resources during his working life were ploughed back to ensure the success of that business.

It is people of this sort who are suffering, through no fault of their own, as a consequence of their not having occupational pensions. The Chief Secretary in his speech totally failed to address himself to the discrimination which occurs year by year between one type of pensioner, with an occupational pension and all the security which comes from that, and the other type of individual who, through no fault of his own, does not have this type of provision. The result of that is tax at a far higher rate, and in many cases at a lower level of income.

Investment income surcharge bites at a very modest level of income. It should be recognised that 160,000 of those who are liable for the investment income surcharge have incomes below £4,000 a year. Many of these people must be pensioners, with incomes below the average wage, but in all too many cases they find that they are paying a very high rate of tax, which can very quickly reach a marginal rate of 49 per cent.

I shall quote one typical example. I have a constituent who retired some years ago after a working life of 48 years. He has an income, from pension and from investment, of £4,100 a year. He reckons that last year he and his wife paid in tax over £4 a week more than a married man earning the same amount would pay. I simply do not believe that distortions of this kind in the tax system can any longer be defended. It is for these reasons that I shall support my hon. and learned Friend in the Division Lobby.

Mr. Pardoe

I want to take up some of the points made on these amendments by the Chief Secretary. He said that the Liberals were partially supporting the Opposition amendments. In fact we are wholly supporting the Opposition amendments, because they are very nearly identical to those that we tabled. In addition we are, as the right hon. Gentleman pointed out, supporting an amendment which seeks to reduce the top rate of investment income surcharge from 15 per cent. to 10 per cent.

I agree immediately that in the Budget the Government have made moves in the right direction on investment income surcharge and that those moves are very welcome, but I do not believe that they go far enough and I shall try to spell out my reasons for that view. We support Amendments Nos. 9 and 10, and we shall be seeking to persuade the Government also to reduce the rate of investment income surcharge.

It is absolutely right, as the hon. and learned Member for Dover and Deal (Mr. Rees) said, that investment income surcharge should come in at a higher threshold. Even if we went back to the 1973–74 figure of £2,000, it would now be very much higher than the figure which the Government have proposed in the Bill. It is especially true that this threshold should be quite substantially higher than the Chancellor's boost in the Budget for the retired. It is the retired who draw the major part of investment income.

The Chief Secretary has quoted my previous speech in regard to the theory of investment income surcharge, and there is no need for me to repeat it because the arguments are fairly simple. The hon. and learned Member for Dover and Deal indicated that it came about in 1907 as a result of a need to give earned income relief, but it was renewed only fairly recently by a Conservative Government when they brought in the unified system of taxation in the early 1970s.

The Chief Secretary, not unnaturally and perfectly legitimately, asked the Conservative Opposition what has changed since then. The hon. and learned Member for Dover and Deal is much more positive, and has been for some time, against investment income surcharge than we hear from other spokesmen on the Conservative Front Bench. What has changed? I suspect that part of what has changed is that the hon. and learned Gentleman served his apprenticeship, as I did, on the Select Committee on wealth tax. On that occasion we listened to the arguments that were advanced ad nauseam and we had to go through the matter in incredible detail. The hon. and learned Gentleman was probably convinced, as I was, that the arguments today for the distinction between one form of income from investment and another form of income from earnings are far less than they were in 1907, for a variety of reasons.

Although the Chief Secretary has not yet got an answer from the Conservative Party as to what has changed, I shall try to spell out some of the arguments. I think that things have changed very substantially. First, why was investment income surcharge introduced? As indicated, it was introduced because it was thought that there was a clear distinction between income from work and income from investment, largely because it was thought that income from investment was more permanent and secure. For example, if one went sick one lost one's earnings from one's work. In 1907, if one became incapacitated for some other reason—industrial injury and so on—that was virtually a catastrophe because one lost almost every part of one's income from earnings. Similarly, income from investment went on after retirement. There again, it was more secure because it went on beyond the work period of one's life.

Does this still apply? My answer is that it does not really apply to anything like the extent as it once did. It is impossible to say that income from investments on the Stock Exchange today is more secure than, say, the income of a permanent secretary to the Treasury. I take that example at random. It is perfectly true to say that income from investments on the Stock Exchange is more secure than a salary of a Member of Parliament. In general, however, it would be difficult to argue that income from employment is now as insecure as it was in 1907. Certainly, with inflation and all that has happened since, income from investments is not as secure as it was in 1907.

The difference has been blurred very substantially, although I accept that it certainly existed until quite recent times. In any case, it seems to me that the introduction of the investment income surcharge by the Conservative Party and the original introduction of the differential by a Liberal Government in 1907 were fundamentally misconceived. It was fundamentally conceived because it was an attempt to distinguish one form of wealth and another. I think that that is the fundamental mistake which was made in 1907. In other words, we tried to say that we could tax the income from wealth but that we would not tax wealth in any way that did not produce an income.

That distorted the system in favour of the holding of wealth which did not produce income. I suppose that we may have still felt in 1907 that we were so far ahead of the rest of the field in international competitive terms that we could afford to have the loss of wealth lying around idle and not being used to its most productive effect.

I know that this is a difficult subject for many Labour Members. I understand their reasons, and many of their prejudices in this issue I have shared in former periods. It is difficult for some of the so-called Left of politics to understand how anyone can make an argument against investment income surcharge.

I give one illustration of why it is clearly crazy to have it now. It is clearly crazy as between the wealth that a person might have invested in industry and the wealth that he might have decided to put in to the purchase of a Rolls-Royce motor car. If he decided to buy a Rolls-Royce motor car for £20,000 and sold shares in industry worth £20,000 to do so, presumably he would forgo an 8 per cent. return on £20,000, amounting to about £1,600 a year. However, if a person is paying investment income surcharge at the top rate of 98 per cent.—that is quite possible at that level of wealth—the actual return is 2p in the pound. From a return on the investment of £1,600 there is a net return of only £32. The net cost of transferring £20,000 of investment in industry to consumption in a Rolls-Royce is only £32 a year. That illustrates how crazy investment income surcharge is in present circumstances.

The real distinction is not between one form of income and another but between wealth and income. That is why it is far preferable to abolish the surcharge and to get on with reforming capital taxation. That is not the view of someone who does not care about investment in British industry. Interestingly enough, in the most definitive study of small businesses by Graham Bannock, entitled "The Smaller Business in Britain and Germany", produced under the auspices of the Anglo-German Foundation, it is stated: Capital Transfer tax and the proposed wealth tax are causing great concern among small business owners. Our research, however, suggests that concern over the effects of capital taxes upon the small business sector as a whole may be exaggerated. The problem in the United Kingdom appears to be one of low birth and growth rates in the small business sector, not of high death rates. It continues: If it is true, as it appears to be, that there is more public concern over the qualities of wealth and opportunity, including opportunities to participate in the control of the work situation, than of income, then economic and social interests might well both be served by a shift from the taxation of income to that of consumption and wealth. I agree entirely with that view. I think that it would fit in with the Government's industrial strategy.

We have the factor that the present investment income surcharge is out of date. In my view, arguments that once applied in its favour no longer apply and we can well look forward to its abolition. That is what the House of Commons should do in its regard for the totality of tax reforms.

We also have the distorting effect of the investment income surcharge between one form of investment and another. The right hon. Member for Down, South (Mr. Powell) said in the debate on Second Reading that income tax is a splendid tax in so far as any tax is splendid—I enter that caveat immediately—because it has a less distorting effect than other taxes. However, it seems that it has a distorting effect in many ways, especially between one form of investment and another.

We have the fact that investment income, if one invests privately in industry, in a small business, on the Stock Exchange or wherever, is taxed at extremely high rates, whereas if the money is invested in a pension fund through institutional means the surcharge is escaped and there is a host of other tax advantages built into the whole pension fund system. For that reason, far too much of the high savings ratio—the right hon. Gentleman perfectly fairly quoted that—is going into Government stock and far too little is going into the growth sector of industry. That means the generation and birth rate of small businesses. That is the answer to the Chief Secretary.

10.30 p.m.

It is not that we have too few savings. The savings ratio is high. I do not go along with the idea that there is an investment strike. But a distortion is built into the investment income surcharge against investment in industry. I believe that industrial strategy requires that we move towards the abolition—not just changing the thresholds—of the investment income surcharge over three years.

The Chief Secretary will say that it is very expensive and that the Liberals are going to give away another £100 million. But he knows that he has been virtually guaranteed, in so far as it is within the power of anyone in the Committee to guarantee anything, the votes of the Liberal Party for the introduction of a wealth tax. The Liberal Party has not stopped the Government from introducing a wealth tax. I have begged the right hon. Gentleman on bended knee to introduce a wealth tax—[HON. MEMBERS: "Oh."]—as a substitute for the investment income surcharge and the top rates of income tax above 50 per cent. If the Government had introduced a wealth tax as a quid pro quo for those two things—the abolition of investment income surcharge and of all rates of income tax above 50 per cent. on earned income—we would have a much more sensible income tax system than we have today.

Unfortunately, the right hon. Gentleman will now hope to get a majority to introduce some ghastly abortion of a wealth tax dreamt up by the Labour Party executive committee. It will be a horror. It will be imposed on top of all other forms of income tax and so on. It will destroy all the entrepreneurial flair which still exists in British industry. I beg the right hon. Gentleman again to consider that this is the right way to proceed. Even now it is not too late to introduce a wealth tax. There is time between now and July or October or whenever it is. It would be a far better thing to do. The Chief Secretary should not come at me about the amendment costing the Government another £100 million. We shall replace every penny of this investment income surcharge revenue with a wealth tax, and we shall be better off for it.

Mr. Higgins

I am glad to have the opportunity of supporting the amendment moved by my hon. and learned Friend the Member for Dover and Deal (Mr. Rees). It would have the effect of raising the figure at which investment income surcharge becomes effective from £1,700 to £2,000 for those under 65 and from £2,500 to £3,000 for those over 65.

I am particularly anxious to support the amendment because it is a matter of great concern to my constituents, especially those over 65. The only point that worried me in my hon. and learned Friend's remarks was his reference to Mr. Hugh Scanlon. I discovered earlier today, somewhat to my surprise, that in Worthing town hall Mr. Scanlon and his members were having a discussion in one room while I and members of the Worthing Conservative Association were having a discussion in another room. It was perhaps a shame that some of my members did not have the opportunity of speaking to Mr. Scanlon and his colleagues and stressing how much those who are retired and living on fixed incomes have suffered from inflation and the taxation policies of the Government. I do not believe that if they had had such an opportunity they would have found so unsympathetic a response as we have had from the Chief Secretary this evening.

The right hon. Gentleman's argument was so weak that he concentrated largely on the principle of whether there should be an investment income surcharge. I should be happy to debate that matter with him at great length if he cared to persuade the Leader of the House to provide time to do so. But that is not what we are debating this evening. The fact that the Chief Secretary, with his customary skill, found it necessary to produce a red herring of that kind showed how weak his argument was.

Looking at the recent history of the matter, one sees that the fact is that one of the Government's first actions was to lower the rate at which investment income surcharge became payable, particularly for pensioners, thereby making it a much harsher tax and far less favourable to those living on investment income than the proposals that were put forward, as the Chief Secretary said, by the present Lord Barber in his 1972 Budget. When I intervened, the Chief Secretary suggested that what is now proposed by the Government is as equitable as they can make it.

The truth is that even what is proposed in the Finance Bill is significantly harsher than the harsh measures that the Chancellor himself introduced in his first Budget when he came into office. In real terms, he would have to raise the limit, as my hon. and learned Friend suggested, to about £4,400, and still that would put these people back only to the position they were in in 1972.

The question has been asked: what has changed since then? Of course, those living on fixed incomes and those paying investment income surcharge have experienced an appalling rate of inflation, which has probably affected their real incomes more than it has affected the incomes of any other group in the country. The problem for them is that, although the national insurance pension may be raised perhaps faster than the rate of inflation, their overall income, including the investment income which they derive from their savings, has declined.

There are very few ways in which any Government can help people in this group. It is a difficult thing to do. But one of the few ways in which it can be done is the way in which the previous Conservative Government did it, that is, by making a concession—that is not really the right word—by making an allowance which will give some relief to pensioners, in particular, on their investment income. Even if the figure were raised to £4,400, it would still be inadequate to prevent the fall in their real incomes, but it would do something to help them.

But the Chief Secretary is not even prepared to go that far. He is prepared only to make a very moderate concession, which is quite inadequate to compensate for the ravages which have been wrought on those on fixed incomes by the present Government. In this case "ravages" is the right word, because the effect has been traumatic. People who retired perhaps 10, 15 or 20 years ago, believing that their savings would keep them in a reasonable standard of life for the rest of their time, have been appallingly penalised by this Government. I therefore support these amendments.

The Chief Secretary made no attempt whatever to justify the harshness of what he is proposing and the inadequacy of the change that he is putting before the Committee. He specified the figures in terms of £5 million in a part year and £30 million, I understand, in a full year. But to suppose that those figures would have the slightest significance in terms of economic management, in terms of what the effect would be, for example, on Table 5 in the Red Book, is utter rubbish. It is pure prejudice which leads the right hon. Gentleman and his hon. Friends to refuse to give an adequate allowance, or some small allowance, to compensate for some of the effects of inflation.

I hope that we shall carry this amendment as we carried the earlier one. It is beyond my comprehension that anyone who has said that he is in opposition to the present Government would not support it. But, taking all the measures which have been carried by the Committee so far, I hope we shall not merely say that it is up to the Government to suggest what should be done to offset the changes. It is for the House of Commons, having carried the amendments, to choose among the various courses open to us. Certainly, it would be wrong to seek to do so by increasing employers' national insurance contributions.

My firm view is that the right course is to raise the standard rate of value added tax to 10 per cent. If we do that, no charge of irresponsibility can be levelled against us by the Government in these debates.

I wish to approach the matter now from the precise record of what the Chief Secretary said in the Budget debate. It is extraordinary to discover that, weeks later, the right hon. Gentleman's speech has still not been printed in the Official Report. The right hon. Gentleman suggested that we on this side were in some sense suffering from schizophrenia. I suggested that the Government themselves were very much suffering from schizophrenia, because what they were doing was cutting taxes at the same time as they were putting up interest rates.

The Chief Secretary was inclined to pooh-pooh that idea. Since then, however, the Government have had a further massive increase in interest rates. The reality is that they are seeking to finance their tax cuts by borrowing and they have had to put up interest rates. It is high time that we had a clearer estimate from the Government—in the light of the amendments which have been carried—of how much of the borrowing requirement they expect to borrow from the non-bank public.

The passing of these amendments would do something to encourage savings and to suggest to people that in the longer term savings will yield a return which at least does something to compensate for postponement of consumption. In that context, it is important to define saving in that way. It is a postponement of consumption.

The amendment should be carried because it would go a little way to compensate for the effect which Government measures have had on those on fixed incomes. It would do something to help those who have saved and who must go on saving if our economy is to be put on a sound footing. I support the amendment, which I hope will be pressed to a Division.

Mr. Powell

The hon. Member for Cornwall, North (Mr. Pardoe) referred, as others have done, to my almost celebrated laudation of income tax as a tax—laudation which was based, among other things, upon the contention that it is inherently more neutral than most other forms of tax. I did not, of course, mean that income tax as at present levied in all its aspects is neutral, and certainly the Committee has before it one of the distortions in the levying of income tax which, if ever it was justified, has in my opinion ceased to be justified.

The Chief Secretary was unreasonable in making it the chief basis of his reply to the hon. and learned Member for Dover and Deal (Mr. Rees) that the Opposition showed a strong disposition to resile from the position taken up in the revision of income tax in 1972 and to move towards the view that the distinction between earned and unearned income for purposes of tax was no longer justified.

I believe that there are cycles through which some form of taxation enjoys first an irrational popularity and then afterwards, and only gradually, we come to perceive that the supposed arguments are unsound. If that process is of a gradual and hesitating character, and if it is going in the right direction, it can be supported. My right hon. and hon. Friends will certainly support the amendment before the Committee on that ground. But it would be much easier, logically, to argue for the entire abolition of the distinction between the two forms of income than for alteration in the thresholds or modalities with which that distinction is made.

The reasons which were given at the inception of the distinction—admittedly in the reverse way by a preference for earned income in 1907—and which were examined by the Royal Commission on the Taxation of Profits and Income some 40 years or more later were probably never seriously meant. My guess is that the Chancellor of the Exchequer in 1907 wanted to make a remission of income tax in what he judged in the political circumstances of the time to be the most popular form and that he thought up a rationale to fit what he was in in any case intending to do. If the rationale would bear examination in the circumstances of 1907, it certainly does not bear examination in the circumstances of 1978.

10.45 p.m.

The basic argument advanced is that there are hidden costs and uncertainties attached to earned income which do not attach to unearned or investment income. I doubt whether that was ever valid. The argument originally was that a person dependent upon earned income had nevertheless to take measures to protect himself against loss of that income through sickness, unemployment, retirement and other eventualities. But presumably, if he was to charge his income in order to protect himself against those eventualities, he must have done so by savings. He must have done so with the intention of living upon the yield of his savings. Therefore, it was inherently contradictory to make an allowance for earned income and then tax the produce of the savings which were supposed to be one of the grounds for making that allowance in favour of earned income.

I would not have thought that it was seriously considered to be possible in the circumstances of the late 1970s to pretend that less uncertainty attaches today to the sources of investment income than to the sources of earned income, as earned income is now classified and defined, including, of course, many forms of pension, which are much more secure than income derived from investments. It is simply not true that an investment can be left to produce an assured income year after year. Quite apart from inflation, investments have to be looked after and turned over and changed in relation to the economic changes. A considerable responsibility attaches to those who have the duty of maintaining a given income from investment. Therefore work, responsibility and uncertainty attach to the income derived from investment, quite apart from inflation.

The fact of inflation, however, on the scale we have known it, which would have seemed unimaginable and crazy before the First World War, has made nonsense of the claim that investment income has some peculiar degree of security. Inflation has hit different forms of investment arbitrarily and differentially, and it has removed any foundation which could exist for treating investment income as such as superior to other forms of income in its security.

Therefore, I believe that we are moving—I would sense, with the acquiescence of both sides of the Committee—towards abolishing what has now become an obsolete distinction between two forms of income. As a move in that direction, my right hon. and learned Friends and I welcome the amendment.

Mr. Giles Shaw (Pudsey)

I wish particularly to support the amendment concerned with the elderly retired. A Mr. A. V. Duncan is running a campaign in my constituency. He has written to practically all those on the Treasury Bench and most members of those on my own Front Bench in support of the campaign for the elderly retired. His point is that when we talk about income surcharge on the retired we are talking of a group so many of whom are in the 80-plus age group. Mr. Duncan is in his eightieth year.

These persons had no alternative but to save and invest for their retirement. The group is decreasing in number. It can hardly come outside the competence of the Government, given that the Chief Secretary has spoken of equity in this matter. I ask him to remember the 80-plus age group when he replies to the debate.

Mr. Peter Rees

We have had a short but important debate. In the course of it, particularly from the Opposition side, there has been a careful examination of some of the fundamental questions which are posed by our tax system.

I found myself in some sympathy with the approach of the right hon. Member for Down, South (Mr. Powell), who said that, logically, we are being driven away from an investment income surcharge and from the distinction between earned and unearned income. The difficulty is that it is hard to detect much logic in our existing system of direct taxation. That is why we have put down amendments which are not of quite so fundamental a nature. How far we can take them on another occasion remains to be seen.

The hon. Member for Cornwall, North (Mr. Pardoe) has looked beyond Mr. Asquith, who bears responsibility for the introduction of earned income relief, to Mr. Gladstone, whose views in 1853 deserve reading and rereading. I commend them in particular to the Chief Secretary, who might be disposed to follow his example, particularly in the care of the candle ends of public expenditure.

The Chief Secretary flinched from all the serious points put to him from this side of the Committee and asked a little plaintively—and uncharacteristically, because he is normally more buoyant in his arguments, but perhaps he was sobered by the happenings of today and Monday—what had changed since Lord Barber introduced the investment income surcharge. A number of my hon. Friends have pointed out that it was only a reversal of the earned income relief and that it was not, perhaps, such a novel concept.

Alas, a great variety of things have changed since 1973–74. Even after the glorious events of Monday, we are dealing with a basic rate of 33 per cent. We are not dealing with the same higher rates as those introduced by the noble Lord. We have had to endure the introduction of capital transfer tax and the Chief Secretary and his right hon. Friends have presided over unprecedented inflation. This has entirely transformed the fiscal scene.

My hon. Friends the Members for Pudsey (Mr. Shaw), Worthing (Mr. Higgins) and Somerset, North (Mr. Dean) have drawn attention to categories of taxpayer who are suffering acutely from the tax regime in general and the rates of investment income surcharge in particular.

The Chief Secretary did not condescend to deal with any of the anomalies, because they defeat even his oratorical ingenuity. The substance of his argument was that he and right hon. Friends had been sufficiently generous and that a cost of £30 million was more than he could support.

A cost of £30 million when the yield of income tax—at least, before Monday—is likely to be £19 billion this year does not strike me as a convincing, profound

or cogent argument. The Chief Secretary has shown himself, uncharacteristically perhaps, to be niggardly and ungenerous.

The philosophy underlying the tax system as the right hon. Gentleman and his right hon. Friends, though perhaps not his hon. Friends below the Gangway, see it is that it is all right, as the Chancellor of the Duchy of Lancaster reminded us, for those with £10 million because they can afford to dispense with their income. The rest of us are of no concern to the Treasury Front Bench.

Mr. Dennis Canavan (West Stirlingshire)

Hear, hear.

Mr. Rees

The hon. Member for West Stirlingshire (Mr. Canavan) remained silent during this debate, but I have no doubt that there will be other occasions when we can hear his special contributions. He has confirmed our suspicions.

Those are sentiments with which we can have no truck. We find the Government to be cold and repellent. I invite my right hon. and hon. Friends to support the amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 275, Noes 289.

Division No. 203]	AYES	[10.54 p.m.
Adley Robert	Carson, John	Fookes, Miss Janet
Aitken, Jonathan	Chalker, Mrs Lynda	Forman, Nigel
Alison, Michael	Channon, Paul	Fowler, Norman (Sutton C'f'd)
Arnold, Tom	Churchill, W. S.	Fox, Marcus
Atkins, Rt Hon H. (Spelthorne)	Clark, Alan (Plymouth, Sutton)	Fraser, Rt Hon H. (Stafford & St)
Atkinson, David (Bournemouth, East)	Clark, William (Croydon S)	Freud, Clement
Awdry, Daniel	Clarke, Kenneth (Rushcliffe)	Fry, Peter
Baker, Kenneth	Clegg, Walter	Galbraith, Hon T.G. D.
Banks, Robert	Cockcroft, John	Gardiner, George (Reigate)
Beith, A. J.	Cooke, Robert (Bristol W)	Gardner, Edward (S Fylde)
Bell, Ronald	Cope, John	Gilmour, Rt Hon Ian (Chesham)
Bendall, Vivian (Ilford North)	Cormack, Patrick	Gilmour, Sir John (East Fife)
Bennett, Sir Frederic (Torbay)	Costain, A. P.	Glyn, Dr Alan
Benyon, W.	Craig, Rt Hon W. (Belfast E)	Godber, Rt Hon Joseph
Berry, Hon Anthony	Critchley, Julian	Goodhart, Philip
Biffen, John	Crouch, David	Goodlad, Alastair
Biggs-Davidson, John	Crowder F. P.	Gorst, John
Blaker, Peter	Davies, Rt Hon J. (Knutsford)	Gower, Sir Raymond (Barry)
Body, Richard	Dean, Paul (N Somerset)	Grant, Anthony (Harrow C)
Boscawen, Hon Robert	Dodsworth, Geoffrey	Gray, Hamish
Bottomley, Peter	Douglas-Hamilton, Lord James	Griffiths, Eldon
Bowden, A. (Brighton, Kemptown)	Drayson, Burnaby	Grist, Ian
Boyson, Dr Rhodes (Brent)	du Cann, Rt Hon Edward	Grylls, Michael
Bradford, Rev Robert	Dunlop, John	Hall-Davis, A. G. F.
Braine, Sir Bernard	Durant, Tony	Hamilton, Archibald (Epsom & Ewell)
Brittan, Leon	Dykes, Hugh	Hamilton, Michael (Salisbury)
Brocklebank-Fowler, C.	Eden, Rt Hon Sir John	Hampson, Dr Keith
Brooke, Peter	Edwards, Nicholas (Pembroke)	Hannam, John
Brotherton, Michael	Elliott, Sir William	Harrison, Col Sir Harwood (Eye)
Bryan, Sir Paul	Emery, Peter	Harvie Anderson, Rt Hon Miss
Buchanan-Smith, Alick	Eyre, Reginald	Haselhurst, Alan
Buck, Antony	Fairbairn, Nicholas	Hastings, Stephen
Budgen, Nick	Farr, John	Hayers, Rt Hon Sir Michael
Bulmer, Esmond	Fell, Anthony	Hawkins, Paul
Burden, F. A.	Finsberg, Geoffrey	Hayhoe, Barney
Butler, Adam (Bosworth)	Fisher, Sir Nigel	Heseltine, Michael
Hicks, Robert	Mayhew, Patrick	St. John-Stevas, Norman
Higgins, Terence L.	Meyer, Sir Anthony	Scott, Nicholas
Hodgson, Robin	Miller, Hal (Bromsgrove)	Shaw, Giles (Pudsey)
Holland, Philip	Mills, Peter	Shelton, William (Streatham)
Hooson, Emlyn	Miscampbell, Norman	Shepherd, Colin
Hordern, Peter	Mitchell, David (Basingstoke)	Shersby, Michael
Howe, Rt Hon Sir Geoffrey	Moate, Roger	Silvester, Fred
Howell, David (Guildford)	Molyneaux, James	Sims, Roger
Howells, Geraint (Cardigan)	Monro, Hector	Sinclair, Sir George
Hunt, David (Wirral)	Montgomery, Fergus	Skeet, T. H. H.
Hunt, John (Ravensbourne)	Moore, John (Croydon C)	Smith, Cyril (Rochdale)
Hurd, Douglas	More, Jasper (Ludlow)	Smith, Dudley (Warwick)
Hutchison, Michael Clark	Morgan, Geraint	Smith, Timothy John (Ashfield)
Irving, Charles (Cheltenham)	Morris, Michael (Northampton S)	Speed, Keith
James, David	Morrison, Charles (Devizes)	Spence, John
Jenkin, Rt Hon P. (Wanst'd & W'df'd)	Morrison, Hon Peter (Chester)	Spicer, Michael (S Worcester)
Jessel, Toby	Mudd, David	Sproat, Iain
Johnson Smith, G. (E Grinstead)	Neave, Airey	Stainton, Keith
Johnston, Russell (Inverness)	Neubert, Michael	Stanbrook, Ivor
Jones, Arthur (Daventry)	Newton, Tony	Stanley, John
Jopling, Michael	Nott, John	Steel, Rt Hon David
Joseph, Rt Hon Sir Keith	Onslow, Cranley	Steen, Anthony (Wavertree)
Kaberry, Sir Donald	Oppenheim, Mrs Sally	Stewart, Ian (Hitchin)
Kershaw, Anthony	Page, John (Harrow West)	Stokes, John
Kimball, Marcus	Page, Rt Hon R. Graham (Crosby)	Stradling Thomas, J.
King, Evelyn (South Dorset)	Page, Richard (Workington)	Tapsell, Peter
King, Tom (Bridgwater)	Paisley, Rev Ian	Taylor, R. (Croydon NW)
Kitson, Sir Timothy	Pardoe, John	Tebbit, Norman
Knight, Mrs Jill	Parkinson, Cecil	Temple-Morris, Peter
Knox, David	Pattie, Geoffrey	Thatcher, Rt Hon Margaret
Lamont, Norman	Penhaligon, David	Thomas, Rt Hon P. (Hendon S)
Langford-Holt, Sir John	Percival, Ian	Thorpe, Rt Hon Jeremy (N Devon)
Latham, Michael (Melton)	Peyton, Rt Hon John	Townsend, Cyril D.
Lawrence, Ivan	Pink, R. Bonner	Trotter, Neville
Lawson, Nigel	Powell, Rt Hon J. Enoch	van Straubenzee, W. R.
Lester, Jim (Beeston)	Prentice, Rt Hon Reg	Vaughan, Dr Gerald
Lewis, Kenneth (Rutland)	Price, David (Eastleigh)	Viggers, Peter
Loveridge, John	Prior, Rt Hon James	Wainwright, Richard (Colne V)
Luce, Richard	Pym, Rt Hon Francis	Wakeham, John
McAdden, Sir Stephen	Raison, Timothy	Walder, David (Clitheroe)
McCrindle, Robert	Rathbone, Tim	Walker, Rt Hon P. (Worcester)
McCusker, H.	Rees, Peter (Dover & Deal)	Wall, Patrick
Macfarlane, Neil	Rees-Davies, W. R.	Walters, Dennis
MacGregor, John	Renton, Rt Hon Sir D. (Hunts)	Warren, Kenneth
MacKay, Andrew (Stechford)	Renton, Tim (Mid-Sussex)	Weatherill, Bernard
Macmillan, Rt Hon M. (Farnham)	Rhodes, James R.	Wells, John
McNair-Wilson, M. (Newbury)	Ridley, Hon Nicholas	Whitelaw, Rt Hon William
McNair-Wilson, P. (New Forest)	Ridsdale, Julian	Whitney, Raymond (Wycombe)
Madel, David	Rifkind, Malcolm	Wiggin, Jerry
Marshall, Michael (Arundel)	Rippon, Rt Hon Geoffrey	Winterton, Nicholas
Marten, Neil	Roberts, Wyn (Conway)	Wood, Rt Hon Richard
Mates, Michael	Rodgers, Sir John (Sevenoaks)	Young, Sir G. (Ealing, Acton)
Mather, Carol	Ross, Stephen (Isle of Wight)	Younger, Hon George
Maude, Angus	Ross, William (Londonderry)
Maudling, Rt Hon Reginald	Rossi, Hugh (Hornsey)	TELLERS FOR THE AYES:
Mawby, Ray	Royle, Sir Anthony	Mr. Spencer Le Marchant and
Maxwell-Hyslop, Robin	Sainsbury, Tim	Mr. Michael Roberts.
NOES
Abse, Leo	Brown, Hugh D. (Provan)	Crawshaw, Richard
Allaun, Frank	Brown, Robert C. (Newcastle W)	Crowther, Stan (Rotherham)
Anderson, Donald	Buchan, Norman	Cryel, Bob
Archer, Rt Hon Peter	Buchanan, Richard	Cunningham, Dr J. (Whiteh)
Armstrong, Ernest	Callaghan, Rt Hon J. (Cardiff SE)	Davidson, Arthur
Ashley, Jack	Callaghan, Jim (Middleton & P)	Davies, Bryan (Enfield N)
Ashton, Joe	Campbell, Ian	Davies, Rt Hon Denzil
Atkins, Ronald (Preston N)	Canavan, Dennis	Davies, Ifor (Gower)
Atkinson, Norman	Cant, R. B.	Davis, Clinton (Hackney C)
Bain, Mrs Margaret	Carmichael, Neil	Deakins, Eric
Barnett, Guy (Greenwich)	Carter, Ray	Dean, Joseph (Leeds West)
Barnett, Rt Hon Joel (Heywood)	Carter-Jones, Lewis	Dell, Rt Hon Edmund
Bates, Alf	Cartwright, John	Dempsey, James
Bean, R. E.	Castle, Rt Hon Barbara	Dewar, Donald
Benn, Rt Hon Anthony Wedgwood	Clemitson, Ivor	Doig, Peter
Bennett, Andrew (Stockport N)	Cocks, Rt Hon Michael (Bristol S)	Dormand, J. D.
Bidwell, Sydney	Cohen, Stanley	Douglas-Mann, Bruce
Bishop, Rt Hon Edward	Coleman, Donald	Duffy, A. E. P.
Blenkinsop, Arthur	Colquhoun, Ms Maureen	Dunn, James A.
Boardman, H.	Concannon, Rt Hon John	Dunnett, Jack
Booth, Rt Hon Albert	Conlan, Bernard	Eadie, Alex
Boothroyd, Miss Betty	Cook, Robin F. (Edin C)	Edge, Geoff
Bottomley, Rt Hon Arthur	Corbett, Robin	Ellis, John (Brigg & Scun)
Boyden, James (Bish Auck)	Cox, Thomas (Tooting)	English, Michael
Bradley, Tom	Craigen, Jim (Maryhill)	Ennals, Rt Hon David
Bray, Dr Jeremy	Crawford, Douglas	Evans, Fred (Caerphilly)

Evans, Gwynfor (Carmarthen)	Lomas, Kenneth	Sandelson, Neville
Evans, Ioan (Aberdare)	Loyden, Eddie	Sedgemore, Brian
Evans, John (Newton)	Luard, Evan	Selby, Harry
Ewing, Harry (Stirling)	Lyon, Alexander (York)	Sever, John
Faulds, Andrew	Lyons, Edward (Bradford W)	Shaw, Arnold (Ilford South)
Fernyhough, Rt Hon E.	McCartney, Hugh	Sheldon, Rt Hon Robert
Fitt, Gerard (Belfast W)	MacCormick, Iain	Shore, Rt Hon Peter
Flannery, Martin	McDonald, Dr Oonagh	Short, Mrs Renée (Wolv NE)
Fletcher, Ted (Darlington)	McElhone, Frank	Silkin, Rt Hon S. C. (Dulwich)
Foot, Rt Hon Michael	McGuire, Michael (Ince)	Sillars, James
Ford, Ben	MacKenzie, Rt Hon Gregor	Silverman, Julius
Forrester, John	Maclennan, Robert	Skinner, Dennis
Fowler, Gerald (The wrekin)	McMillan, Tom (Glasgow C)	Smith, John (N Lanarkshire)
Fraser, John (Lambeth, N'w'd)	McNamara, Kevin	Snape, Peter
Freeson, Rt Hon Reginald	Madden, Max	Spearing, Nigel
Garrett, John (Norwich S)	Magee, Bryan	Spriggs, Leslie
Garrett, W. E. (Wallsend)	Mahon, Simon	Stallard, A. W.
George, Bruce	Mallalieu, J. P. W.	Stewart, Rt Hon Donald
Gilbert, Rt Hon Dr John	Marks, Kenneth	Stewart, Rt Hon M. (Fulham)
Ginsburg, David	Marshall, Dr Edmund (Goole)	Stoddart, David
Goldlng, John	Marshall, Jim (Leicester S)	Stott, Roger
Gould, Bryan	Mason, Rt Hon Roy	Strauss, Rt Hon G. R.
Gourlay, Harry	Meacher, Michael	Summerskill, Hon Dr Shirley
Graham, Ted	Mellish, Rt Hon Robert	Swain, Thomas
Grant, John (Islington C)	Mendelson, John	Taylor, Mrs Ann (Bolton W)
Grocott, Bruce	Mikardo, Ian	Thomas, Dafydd (Merioneth)
Hamilton, W. W. (Central Fife)	Millan, Rt Hon Bruce	Thomas, Jeffrey (Abertillery)
Hardy, Peter	Miller, Dr M. S. (E Kilbride)	Thomas, Mike (Newcastle E)
Harrison, Rt Hon Walter	Mitchell, Austin	Thomas, Ron (Bristol NW)
Hart, Rt Hon Judith	Molloy, William	Thompson, George
Hattersley, Rt Hon Roy	Moonman, Eric	Thorne, Stan (Preston S)
Hayman, Mrs Helene	Morris, Alfred (Wythenshawe)	Tierney, Sydney
Healey, Rt Hon Denis	Morris, Rt Hon Charles R.	Tilley, John (Lambeth, Central)
Heffer, Eric S.	Morris, Rt Hon J. (Aberavon)	Tinn, James
Henderson, Douglas	Moyle, Roland	Tomlinson, John
Hooley, Frank	Mulley, Rt Hon Frederick	Tomney, Frank
Horam, John	Murray, Rt Hon Ronald King	Torney, Tom
Howell, Rt Hon Denis (B'ham, Sm H)	Newens, Stanley	Tuck, Raphael
Hoyle, Doug (Nelson)	Noble, Mike	Urwin, T. W.
Huckfield, Les	Oakes, Gordon	Varley, Rt Hon Eric G.
Hughes, Rt Hon C. (Anglesey)	Ogden, Eric	Wainwright, Edwin (Dearne V)
Hughes, Robert (Aberdeen N)	O'Halloran, Michael	Walker, Harold (Doncaster)
Hughes, Roy (Newport)	Orbach, Maurice	Walker, Terry (Kingswood)
Hunter, Adam	Orme, Rt Hon Stanley	Ward, Michael
Irvine, Rt Hon Sir A. (Edge Hill)	Ovenden, John	Watkins, David
Irving, Rt Hon S. (Dartford)	Owen, Rt Hon Dr David	Watkinson, John
Jackson, Colin (Brighouse)	Padley, Walter	Watt, Hamish
Jackson, Miss Margaret (Lincoln)	Park, George	Weitzman, David
Janner, Greville	Parker, John	Wellbeloved, James
Jay, Rt Hon Douglas	Parry, Robert	Welsh, Andrew
Jeger, Mrs Lena	Pavitt, Laurie	White, Frank R. (Bury)
Jenkins, Hugh (Putney)	Pendry, Tom	White, James (Pollok)
John, Brynmor	Perry, Ernest	Whitehead, Philip
Johnson, James (Hull West)	Phipps, Dr Colin	Whitlock, William
Jones, Alec (Rhondda)	Price, C. (Lewisham W)	Wigley, Dafydd
Jones, Barry (East Flint)	Price, William (Rugby)	Willey, Rt Hon Frederick
Jones, Dan (Burnley)	Radice, Giles	Williams, Rt Hon Alan (Swansea W)
Judd, Frank	Rees, Rt Hon Merlyn (Leeds S)	Williams, Alan Lee (Hornch'ch)
Kaufman, Gerald	Reid, George	Williams, Rt Hon Shirley (Hertford)
Kerr, Russell	Richardson, Miss Jo	Wilson, Gordon (Dundee E)
Kilroy-Silk, Robert	Roberts, Albert (Normanton)	Wilson, Rt Hon Sir Harold (Huyton)
Kinnock, Neil	Roberts, Gwilym (Cannock)	Wilson, William (Coventry SE)
Lambie, David	Robinson, Geoffrey	Wise, Mrs Audrey
Lamborn, Harry	Roderick, Caerwyn	Woodall, Alec
Lamond, James	Rodgers, George (Chorley)	Woof, Robert
Latham, Arthur (Paddington)	Rodgers, Rt Hon William (Stockton)	Wrigglesworth, Ian
Lee, John	Rooker, J. W.	Young, David (Bolton E)
Lestor, Miss Joan (Eton & Slough)	Roper, John
Lever, Rt Hon Harold	Rose, Paul B.	TELLERS FOR THE NOES:
Lewis, Arthur (Newham N)	Ross, Rt Hon W. (Kilmarnock)	Mr. Joseph Harper and
Lewis, Ron (Carlisle)	Rowlands, Ted	Mr. James Hamilton.
Litterick, Tom	Ryman, John

Question accordingly negatived.

Mr. Pardoe

I beg to move Amendment No. 13, in page 10, line 23, after 'who', insert 'either'.

The First Deputy Chairman (Sir Myer Galpern)

With this amendment we are to take Amendment No. 16, in page 10, line 25, after 'more', insert 'or who proves that at any time in the year of assessment—

1. (a) that he has living with him a child of his with respect to whom the conditions set out in section 10(2) of the Taxes Act 1970 have been fulfilled, or
2. (b) has custody of and maintains at his own expense a child (other than a child of his) provided that the said conditions have been fulfilled, and
1341
3. (c) is a person coming within the definition set out in subsection (1) of section 14 of the Taxes Act 1970'.

Mr. Pardoe

Everyone in the Committee accepts that there is a difference in the threshold at which we pay investment income surcharge according to whether we are over or under retirement age. The Bill provides that those under retirement age start paying the surcharge above an investment income of £1,700 while those over retirement age start paying it at an investment income of £2,500.

The whole point of the amendment is that there are other groups in society, apart from those over retirement age, who are equally entitled to this kind of distinction. The amendment refers to single-parent families, who have many of the same sort of disadvantages as the retired. [Interruption.]

The First Deputy Chairman

Order. There is far too much conversation going on in the Chamber. I am having great difficulty in hearing the hon. Gentleman.

Mr. Pardoe

Single-parent families might well be said to have disadvantages over and above those suffered by people over retirement age. In particular, such parents cannot necessarily work full-time and, therefore, may have to rely to a greater extent on income from savings. They may incur additional expenses in having a child looked after while they are working. Normally the husband would have the assistance of a wife, and vice versa, in looking after a child or children.

The amendment simply seeks to apply the retirement threshold for investment income to single-parent families. I hope that the Government will be prepared to accept the argument for that.

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

The amendment provides that those with a higher tax threshold because they are over 65 will find that the same provisions apply to those eligible for the additional personal

allowance. The amendment is designed to assist single-parent families. But it is a rather surprising amendment that seeks to produce, in an investment income surcharge that has certain specially advantageous rates only for the elderly, an extension to those who qualify for the additional personal allowance.

The Government have implemented the Finer Report, which produced the proper way to handle these problems. That means giving the additional personal allowance, and this year we have increased it to £550 a year. This is clearly a much better way of helping those with single-parent responsibilities.

If we were to accept the amendment, it would mean that we would help the minority of single parents who have investment income. Those with investment income based on a capital of about £20,000 at present have relief from the surcharge. Those with a capital of less than £20,000 pay no investment income surcharge. I find it an odd provision to assist those single-parent families with rather more than £20,000. These are considerable sums of capital, and considerable sums of unearned income arise from them.

If the amendment were accepted, it would do nothing for single parents who rely on their earnings to support their children and nothing for those who, because of their family responsibility, have to rely on their pensions. The proper way to help such people is through the additional personal allowance, giving them special reliefs for taxation on earned income; and for those who are not able to earn their living, because of their responsibilities, to give further assistance by way of pensions. This is how the Government have proceeded to provide help, and this is how I believe help should continue to be provided.

Question put, That the amendment be made:—

The Committee divided: Ayes 101, Noes 277.

Division No. 204]	AYES	[11.15 p.m.
Adley Robert	Bell, Ronald	Clark, William (Croydon S)
Aitken, Jonathan	Bottomley, Peter	Clarke, Kenneth (Rushcliffe)
Amery, Rt Hon Julian	Braine, Sir Bernard	Cormack, Patrick
Arnold, Tom	Brotherton, Michael	Crawford, Douglas
Awdry, Daniel	Burden, F. A.	Dodsworth, Geoffrey
Bain, Mrs Margaret	Canavan, Dennis	du Cann, Rt Hon Edward
Banks, Robert	Channon, Paul	Dunlop, John
Beith, A. J.	Clark, Alan (Plymouth, Sutton)	Durant, Tony
Eden, Rt Hon Sir John	Lawrence, Ivan	Scott, Nicholas
Evans, Gwynfor (Carmarthen)	Lewis, Kenneth (Rutland)	Shaw, Giles (Pudsey)
Fell, Anthony	Loveridge, John	Shelton, William (Streatham)
Fookes, Miss Janet	MacCormick, Iain	Shersby, Michael
Fox, Marcus	McCrindle, Robert	Sims, Roger
Fraser, Rt Hon H. (Stafford & St)	Macfarlane, Neil	Skeet, T. H. H.
Freud, Clement	McNair-Wilson, M. (Newbury)	Smith, Dudley (Warwick)
Galbraith, Hon T.G. D.	Maudling, Rt Hon Reginald	Speed, Keith
Glyn, Dr Alan	Maxwell-Hyslop, Robin	Steel, Rt Hon David
Goodhart, Philip	Miller, Hal (Bromsgrove)	Steen, Anthony (Wavertree)
Goodlad, Alastair	Miscampbell, Norman	Stewart, Rt Hon Donald
Gower, Sir Raymond (Barry)	Mitchell, David (Basingstoke)	Thomas, Dafydd (Merioneth)
Gray, Hamish	Morris, Michael (Northampton S)	Thompson, George
Harvie Anderson, Rt Hon Miss	Morrison, Charles (Devizes)	Thorpe, Rt Hon Jeremy (N Devon)
Haselhurst, Alan	Mudd, David	Townsend, Cyril D.
Henderson, Douglas	Onslow, Cranley	Wainwright, Richard (Colne V)
Hodgson, Robin	Page, John (Harrow West)	Walters, Dennis
Holland, Philip	Penhaligon, David	Warren, Kenneth
Hooson, Emlyn	Price, David (Eastleigh)	Watt, Hamish
Howells, Geraint (Cardigan)	Reid, George	Welsh, Andrew
Hunt, John (Ravensbourne)	Renton, Rt Hon Sir D. (Hunts)	Wigley, Dafydd
Irving, Charles (Cheltenham)	Renton, Tim (Mid-Sussex)	Wilson, Gordon (Dundee E)
James, David	Roberts, Wyn (Conway)	Winterton, Nicholas
Johnston, Russell (Inverness)	Ross, Stephen (Isle of Wight)
Jones, Arthur (Daventry)	Rossi, Hugh (Hornsey)	TELLERS FOR THE AYES:
Kimball, Marcus	Royle, Sir Anthony	Mr. John Pardoe and
King, Evelyn (South Dorset)	St. John-Stevas, Norman	Mr. Cyril Smith.
NOES
Abse, Leo	Davies, Denzil (Llanelli)	Horam, John
Allaun, Frank	Davies, Ifor (Gower)	Howell, Rt Hon Denis (B'ham, Sm H)
Anderson, Donald	Davis, Clinton (Hackney C)	Hoyle, Doug (Nelson)
Archer, Rt Hon Peter	Deakins, Eric	Huckfield, Les
Armstrong, Ernest	Dean, Joseph (Leeds West)	Hughes, Rt Hon C. (Anglesey)
Ashley, Jack	Dell, Rt Hon Edmund	Hughes, Robert (Aberdeen N)
Ashton, Joe	Dempsey, James	Hughes, Roy (Newport)
Atkins, Ronald (Preston N)	Dewar, Donald	Hunter, Adam
Atkinson, Norman	Doig, Peter	Irving, Rt Hon S. (Dartford)
Bagier, Gordon A. T.	Dormand, J. D.	Jackson, Colin (Brighouse)
Barnett, Guy (Greenwich)	Douglas-Mann, Bruce	Jackson, Miss Margaret (Lincoln)
Barnett, Rt Hon Joel (Heywood)	Duffy, A. E. P.	Janner, Greville
Bates, Alf	Dunn, James A.	Jay, Rt Hon Douglas
Bean, R. E.	Dunnett, Jack	Jeger, Mrs Lena
Benn, Rt Hon Anthony Wedgwood	Eadie, Alx	Jenkins, Hugh (Putney)
Bennett, Andrew (Stockport N)	Edge, Geoff	John, Brynmor
Bidwell, Sydney	Ellis, John (Brigg & Scun)	Johnson, James (Hull West)
Bishop, Rt Hon Edward	English, Michael	Jones, Alec (Rhondda)
Blenkinsop, Arthur	Ennals, Rt Hon David	Jones, Barry (East Flint)
Boardman, H.	Evans, Fred (Caerphilly)	Jones, Dan (Burnley)
Booth, Rt Hon Albert	Evans, Ioan (Aberdare)	Judd, Frank
Boothroyd, Miss Betty	Evans, John (Newton)	Kaufman, Gerald
Bottomley, Rt Hon Arthur	Ewing, Harry (Stirling)	Kerr, Russell
Boyden, James (Bish Auck)	Faulds, Andrew	Kilroy-Silk, Robert
Bradley, Tom	Fernyhough, Rt Hon E.	Kinnock, Neil
Bray, Dr Jeremy	Fitt, Gerard (Belfast W)	Lambie, David
Brown, Hugh D. Provan)	Flannery, Martin	Lamborn, Harry
Brown, Robert C. (Newcastle W)	Fletcher, Ted (Darlington)	Lamond, James
Buchan, Norman	Foot, Rt Hon Michael	Latham, Arthur (Paddington)
Buchanan, Richard	Ford, Ben	Lee, John
Callaghan, Rt Hon J. (Cardiff SE)	Forrester, John	Lestor, Miss Joan (Eton & Slough)
Callaghan, Jim (Middleton & P)	Fowler, Gerald (The Wrekin)	Lever, Rt Hon Harold
Campbell, Ian	Fraser, John (Lambeth, N'w'd)	Lewis, Arthur (Newham N)
Cant, R. B.	Freeson, Rt Hon Reginald	Lewis, Ron (Carlisle)
Carmichael, Neil	Garrett, John (Norwich S)	Litterick, Tom
Carter, Ray	Garrett, W. E. (Wallsend)	Lomas, Kenneth
Carter-Jones, Lewis	George, Bruce	Loyden, Eddie
Cartwright, John	Gilbert, Dr John	Luard, Evan
Castle, Rt Hon Barbara	Ginsburg, David	Lyon, Alexander (York)
Clemitson, Ivor	Golding, John	Lyons, Edward (Bradford W)
Cocks, Rt Hon Michael (Bristol S)	Gould, Bryan	Mabon, Rt Hon Dr J. Dickson
Cohen, Stanley	Gourlay, Harry	McCartney, Hugh
Coleman, Donald	Grant, George (Morpeth)	McDonald, Dr Oonagh
Colquhoun, Ms Maureen	Grant, John (Islington C)	McElhone, Frank
Concannon, J. D.	Grocott, Bruce	McGuire, Michael (Ince)
Conlan, Bernard	Hamilton, James (Bothwell)	MacKenzie, Rt Hon Gregor
Cook, Robin F. (Edin C)	Hamilton, W. W. (Central Fife)	Maclennan, Robert
Corbett, Robin	Hardy, Peter	McMillan, Tom (Glasgow C)
Cowans, Harry	Harper, Joseph	McNamara, Kevin
Craigen, Jim (Maryhill)	Harrison, Rt Hon Walter	Madden, Max
Crawshaw, Richard	Hart, Rt Hon Judith	Magee, Bryan
Crowther, Stan (Rotherham)	Hattersley, Rt Hon Roy	Mahon, Simon
Cryer, Bob	Hayman, Mrs Helene	Mallalieu, J. P. W.
Cunningham, Dr J. (Whiteh)	Healey, Rt Hon Denis	Marks, Kenneth
Davidson, Arthur	Heffer, Eric S.	Marshall, Dr Edmund (Goole)
Davies, Bryan (Enfield N)	Hooley, Frank	Marshall, Jim (Leicester S)

Mason, Rt Hon Roy	Roberts, Albert (Normanton)	Thorne, Stan (Preston S)
Meacher, Michael	Roberts, Gwilym (Cannock)	Tierney, Sydney
Mellish, Rt Hon Robert	Robinson, Geoffrey	Tilley, John (Lambeth, Central)
Mendelson, John	Roderick, Caerwyn	Tinn, James
Mikardo, Ian	Rodbers, George (Chorley)	Tomlinson, John
Millan, Rt Hon Bruce	Rodgers, Rt Hon William (Stockton)	Tomney, Frank
Miller, Dr M. S. (E Kilbride)	Rooker, J. W.	Torney, Tom
Mitchell, Austin	Roper, John	Tuck, Raphael
Molloy, William	Ross, Rt Hon W. (Kilmarnock)	Urwin, T. W.
Moonman, Eric	Rowlands, Ted	Varley, Rt Hon Eric G.
Morris, Alfred (Wythenshawe)	Ryman, John	Wainwright, Edwin (Dearne V)
Morris, Charles R. (Openshaw)	Sandelson, Neville	Walker, Harold (Doncaster)
Morris, Rt Hon J. (Aberavon)	Sedgemore, Brian	Walker, Terry (Kingswood)
Moyle, Roland	Selby, Harry	Ward, Michael
Mulley, Rt Hon Frederick	Sever, John	Watkins, David
Murray, Rt Hon Ronald King	Shaw, Arnold (Ilford South)	Watkinson, John
Newens, Stanley	Sheldon, Rt Hon Robert	Weitzman, David
Noble, Mike	Shore, Rt Hon Peter	Wellbeloved, James
Oakes, Gordon	Short, Mrs Renée (Wolv NE)	White, Frank R. (Bury)
Ogden, Eric	Silkin, Rt Hon S. C. (Dulwich)	White, James (Pollock)
O'Halloran, Michael	Sillars, James	Whitehead, Philip
Orbach, Maurice	Silverman, Julius	Whitlock, William
Orme, Rt Hon Stanley	Skinner, Dennis	Willey, Rt Hon Frederick
Ovenden, John	Smith, John (N Lanarkshire)	Willams, Rt Hon Alan (Swansea W)
Owen, Rt Hon Dr David	Snape, Peter	Williams, Alan Lee (Hornch'ch)
Padley, Walter	Spearing, Nigel	Williams, Rt Hon Shirley (Hertford)
Park, George	Spriggs, Leslie	Wilson, Rt Hon Sir Harold (Huyton)
Parker, John	Stallard, A. W.	Wilson, William (Coventry SE)
Parry, Robert	Stewart, Rt Hon M. (Fulham)	Wise, Mrs Audrey
Pavitt, Laurie	Stoddart, David	Woodall, Alec
Pendry, Tom	Stott, Roger	Woof, Robert
Perry, Ernest	Strauss, Rt Hon G. R.	Wrigglesworth, Ian
Phipps, Dr Colin	Summerskill, Hon Dr Shirley	Young, David (Bolton E)
Price, C. (Lewisham W)	Swain, Thomas
Price, William (Rugby)	Taylor, Mrs Ann (Bolton W)	TELLERS FOR THE NOES:
Radice, Giles	Thomas, Jeffrey (Abertillery)	Mr. Ted Graham and
Rees, Rt Hon Merlyn (Leeds S)	Thomas, Mike (Newcastle E)	Mr. Thomas Cox.
Richardson, Miss Jo	Thomas, Ron (Bristol NW)

Question accordingly negatived.

Mr. Paul Dean

I beg to move Amendment No. 14, in page 10, line 25, leave out "sixty-five" and insert "sixty".

The First Deputy Chairman

With this we may take the following amendments: No. 15, in page 10, line 25, after "more", insert or in the case of a single woman that her age was sixty years or more". No. 17, in page 10, line 25, leave out from "shall" to end of line 27 and insert "not apply".

Mr. Dean

At this hour of the night I do not have time to do full justice to the importance of the amendment. Therefore, I intend to be extremely brief.

The intention of the amendment is to soften the effect of the savings trap on those who are forced to retire between the ages of 60 years and 65 years. These are the people who are the in-betweens. They are retired, they do not get a national insurance pension, and they are not treated as retired by the tax system. They get no age allowance for income tax, and they have the investment income surcharge levied on them at the higher rate applying to those over the age of 65 years. The proposal in the amendment is that the lower rate of the surcharge should apply from 60 years instead of 65 years. I realise that it is not an ideal amendment, and it is designed primarily as a peg on which to hang an argument on behalf of this section of the community.

There are two main propositions that I put briefly to the Government. The first is that there is a great disincentive to saving as well as earning with the present arrangements. It used to be possible to talk about the rewards of thrift and the security built up for retirement by saving during working life. There was the concept of the family nest egg salted away. All too often today thrift and saving mean not rewards but tax penalties. In too many families the lesson of experience is that it is a mug's game to save. It is often considered far better to blue the lot, spend up to the hilt and rely on the State. What will become of family responsibility and the moral fibre of Britain if we allow that to continue?

My second main proposition is that those who are the hardest hit are often the in-betweens, those who are forced to retire early before the State retirement age. In some cases this is a welcome relief from work, and it can assist the promotion ladder in the firms concerned and ease the problems of unemployment. But in all too many cases it is a great shock to the people concerned. It means that their purpose in life can disappear, and that they can feel rejected and unwanted. This is a growing problem. Each year there will be a larger number of people who are in this position. At present, the tax system does not recognise it, and it must do so.

11.30 p.m.

On the pension side there are many arrangements working towards flexible retirement ages. I welcome these. The miners' early retirement scheme is one example in the public sector, and there are many others that could be quoted. But there is a rigidity in the taxation system. It is not responding to the greater flexibility that is now being introduced into pension arrangements. The financial effect on people who retire before the age of 65 can be very severe. They usually suffer a drop in income; they probably have a scaled-down pension because they retire early; they get no national insurance pension until they are 65; they have little or no prospects of earning; in many cases they have financial commitments which are geared to retirement at the age of 65 and which it is not possible to alter; they get no age allowance for income tax purposes; and they are subject to the higher rate of surcharge on their investment income.

I want to quote very briefly a typical example of a constituent of mine. He was forced to retire at the age of 60 after 38 years' service. He has no hope of another job. On his early retirement he received a lump sum from his pension scheme and also a severance payment. As a result of investing these lump sums he is now being clobbered by the investment income surcharge. In other words, he has lost his job; he has lost his earning capacity; he has a lower income, at a higher tax rate. He cannot even invest his lump sums and his severance payments in the retirement issue of national savings certificates. Here is the savings trap with a vengeance.

I suggest that if flexible retirement is to work effectively the tax system must respond in a way in which it is not doing now, and that if a person is genuinely retired the tax system should treat him as such. What I am in effect suggesting is that there should be a retirement allowance for income tax purposes rather than the existing age allowance operating from the age of 65. I am also suggesting that the lower rate of investment income surcharge should operate from the date of genuine retirement.

I realise that there are difficulties in this proposal. Above all, there is the question how one defines bona fide retirement. It is for that reason that I suggest a compromise in this amendment, and if the Government are not prepared to consider reducing the age limit to 60 at least they should seriously consider reducing it to the age of 64, because they are advocating that, if possible, people should retire one year early.

This amendment, then, is a modest step to try to deal with a problem which will affect a growing number of people over the years, in view of the present high level of unemployment and the tendency towards earlier and more flexible retirement.

Mr. Robert Sheldon

Under the Bill there is a higher threshold of £2,500 for investment income surcharge for those taxpayers and their wives who are over 65 years of age compared with the level of £1,700 for those under that age. The amendment seeks to reduce the qualifying age for investment income surcharge.

The reason for the higher threshold for investment income surcharge is that, as one gets older, one's taxable capacity is diminished due to the disabilities of various kinds that come with age. That is recognised in both the investment income surcharge and the age allowance. The question is: what account should be taken of the disabilities of the elderly?

The age criterion has been selected for the higher investment income surcharge thresholds. It is not a question of retirement. The thresholds are determined by reference to taxpayers' ages. But now and more likely in future there is and will be a wide range of different ages for retirement. If we were to award the higher thresholds at the age of retirement, we could find ourselves facing arguments in favour of extending the higher thresholds to those under 65 years of age.

I accept that the ages of 65 and 60 are not sacrosanct, but a decision has to be made about what ages should be chosen. These are the ages that have been selected, for different reasons, for retirement, but they are not related to the disabilities of people as they get older and have increasing problems in coping with the normal operation of running their homes.

Nowadays we have the young and the old retired. An interesting feature of our community today is that the retirement age spans a considerable number of people with different levels of ability to conduct their affairs. The only sensible way to make the decisions as to where the cut-off should come for tax purpose is on the age of the person, not on his retirement.

Unfortunately, our tax system cannot be refined to cope with individual problems in the way that the social security system can be operated. We believe that 65 years of age—obviously this will change with time as circumstances generally change—is the right age to give assistance in this way to the elderly. We believe that what we have done for the elderly this year, both in the age allowance and in the improvements in the investment income surcharge, as well as in

the pension payments that we make available, is the right way to proceed. I believe that this is the way that we should continue to act. I urge the Committee to reject the amendment.

Mr. Paul Dean

In view of the lateness of the hour and the fact that there is a lot of business still to be proceeded with, I shall content myself by saying that I am very disappointed with the Government's response to this matter. I intend to return to the subject at the earliest possible moment. But now I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment No. 20 proposed, in page 10, line 29, leave out lines 29 to 38 and insert—

'Part of excess over £8,000			Higher Rate
The first £2,000	…	…	40 per cent.
The next £4,000	…	…	50 per cent.
The next £7,000	…	…	60 per cent.
The remainder	…	…	70 per cent.'.

—[Sir G. Howe.]

Question put, That the amendment be made:—

The Committee divided: Ayes 278, Noes 284.

Division No. 205]	AYES	[11.39 p.m.
Adley Robert	Churchill, W. S.	Galbraith, Hon T. G. D.
Aitken, Jonathan	Clark, Alan (Plymouth, Sutton)	Gardiner, George (Reigate)
Alison, Michael	Clark, William (Croydon S)	Gardiner, Edwards (S Fylde)
Arnold, Tom	Clarke, Kenneth (Rushcliffe)	Gilmour, Rt Hon Ian (Chesham)
Atkins, Rt Hon H. (Spelthorne)	Clegg, Walter	Gilmour, Sir John (East Fife)
Atkinson, David (Bournemouth, East)	Cockcroft, John	Glyn, Dr Alan
Awdry, Daniel	Cooke, Robert (Bristol W)	Godber, Rt Hon Joseph
Baker, Kenneth	Cope, John	Goodhart, Philip
Banks, Robert	Cormack, Patrick	Goodlad, Alastair
Beith, A. J.	Costain, A. P.	Gorst, John
Bell, Ronald	Craig, Rt Hon W. (Belfast E)	Gow, Ian (Eastbourne)
Bendall, Vivian (Ilford North)	Critchley, Julian	Gower, Sir Raymond (Barry)
Bennett, Sir Frederic (Torbay)	Crouch, David	Grant, Anthony (Harrow C)
Benyon, W.	Crowder F. P.	Gray, Hamish
Berry, Hon Anthony	Davies, Rt Hon J. (Knutsford)	Griffiths, Eldon
Biffen, John	Dean, Paul (N Somerset)	Grimond, Rt Hon J.
Biggs-Davidson, John	Dodsworth, Geoffrey	Grist, Ian
Blaker, Peter	Douglas-Hamilton, Lord James	Grylls, Michael
Body, Richard	Drayson, Burnaby	Hall-Davis, A. G. F.
Boscawen, Hon Robert	du Cann, Rt Hon Edward	Hamilton, Archibald (Epsom & Ewell)
Bottomley, Peter	Dunlop, John	Hamilton, Michael (Salisbury)
Bowden, A. (Brighton, Kemptown)	Durant, Tony	Hampson, Dr Keith
Boyson, Dr Rhodes (Brent)	Dykes, Hugh	Hannam, John
Bradford, Rev Robert	Eden, Rt Hon Sir John	Harrison, Col Sir Harwood (Eye)
Braine, Sir Bernard	Edwards, Nicholas (Pembroke)	Harvie Anderson, Rt Hon Miss
Brittan, Leon	Elliott, Sir William	Haselhurst, Alan
Brocklebank-Fowler, C.	Emery, Peter	Hastings, Stephen
Brooke, Peter	Eyre, Reginald	Havers, Rt Hon Sir Michael
Brotherton, Michael	Fairbairn, Nicholas	Hawkins, Paul
Bryan, Sir Paul	Farr, John	Hayhoe, Barney
Buchanan-Smith, Alick	Fell, Anthony	Heseltine, Michael
Buck, Antony	Finsberg, Geoffrey	Hicks, Robert
Budgen, Nick	Fisher, Sir Nigel	Higgins, Terence L.
Bulmer, Esmond	Fookes, Miss Janet	Hodgson, Robin
Burden, F. A.	Forman, Nigel	Holland, Philip
Butler, Adam (Bosworth)	Fowler, Norman (Sutton C'f'd)	Hooson, Emlyn
Carlisle, Mark	Fox, Marcus	Hordern, Peter
Carson, John	Fraser, Rt Hon H. (Stafford & St)	Howe, Rt Hon Sir Geoffrey
Chalker, Mrs Lynda	Freud, Clement	Howell, David (Guildford)
Channon, Paul	Fry, Peter	Howells, Geraint (Cardigan)
Hunt, David (Wirral)	Moate, Roger	Shelton, William (Streatham)
Hunt, John (Ravensbourne)	Molyneaux, James	Shepherd, Colin
Hurd, Douglas	Monro, Hector	Shersby, Michael
Hutchison, Michael Clark	Montgomery, Fergus	Silvester, Fred
Irving, Charles (Cheltenham)	Moore, John (Croydon C)	Sims, Roger
James, David	More, Jasper (Ludlow)	Sinclair, Sir George
Jenkin, Rt Hon P. (Wanst'd & W'df'd)	Morgan, Geraint	Skeet, T. H. H.
Jessel, Toby	Morris, Michael (Northampton S)	Smith, Cyril (Rochdale)
Johnson Smith, G. (E Grinstead)	Morrison, Charles (Devizes)	Smith, Dudley (Warwick)
Johnston, Russell (Inverness)	Morrison, Hon Peter (Chester)	Smith, Timothy John (Ashfield)
Jones, Arthur (Daventry)	Mudd, David	Speed, Keith
Jopling, Michael	Neave, Airey	Spence, John
Joseph, Rt Hon Sir Keith	Neubert, Michael	Spicer, Michael (S Worcester)
Kaberry, Sir Donald	Newton, Tony	Sproat, Iain
Kershaw, Anthony	Nott, John	Stainton, Keith
Kimball, Marcus	Onslow Cranley	Stanbrook, Ivor
King, Evelyn (South Dorset)	Oppenheim, Mrs Sally	Stanley, John
King, Tom (Bridgwater)	Page, John (Harrow West)	Steel, Rt Hon David
Kitson, Sir Timothy	Page, Rt Hon R. Graham (Crosby)	Steen, Anthony (Wavertree)
Knight, Mrs Jill	Page, Richard (Workington)	Stewart, Ian (Hitchin)
Knox, David	Paisley, Rev Ian	Stokes, John
Lamont, Norman	Pardoe, John	Stradling Thomas, J.
Langford-Holt, Sir John	Parkinson, Cecil	Tapsell, Peter
Latham, Michael (Melton)	Pattie, Geoffrey	Taylor, R. (Croydon NW)
Lawrence, Ivan	Penhaligon, David	Tebbit, Norman
Lawson, Nigel	Percival, Ian	Temple-Morris, Peter
Lester, Jim (Beeston)	Peyton, Rt Hon John	Thatcher, Rt Hon Margaret
Lewis, Kenneth (Rutland)	Pink, R. Bonner	Thomas, Rt Hon P. (Hendon S)
Loveridge, John	Powell, Rt Hon J. Enoch	Thorpe, Rt Hon Jeremy (N Devon)
Luce, Richard	Prentice, Rt Hon Reg	Townsend, Cyril D.
McAdden, Sir Stephen	Price, David (Eastleigh)	Trotter, Neville
McCrindle, Robert	Prior, Rt Hon James	van Straubenzee, W. R.
McCusker, H.	Pym, Rt Hon Francis	Vaughan, Dr Gerald
Macfarlane, Neil	Raison, Timothy	Viggers, Peter
MacGregor, John	Rathbone, Tim	Wainwright, Richard (Colne V)
MacKay, Andrew (Stechford)	Rees, Peter (Dover & Deal)	Wakeham, John
Macmillan, Rt Hon M. (Farnham)	Rees-Davies, W. R.	Walder, David (Clitheroe)
McNair-Wilson, M. (Newbury)	Renton, Rt Hon Sir D. (Hunts)	Walker, Rt Hon P. (Worcester)
McNair-Wilson, p. (New Forest)	Renton, Tim (Mid-Sussex)	Wall, Patrick
Madel, David	Rhodes, James R.	Walters, Dennis
Marshall, Michael (Arundel)	Ridley, Hon Nicholas	Warren, Kenneth
Marten, Neil	Ridsdale, Julian	Weatherill, Bernard
Mates, Michael	Rifkind, Malcolm	Wells, John
Mather, Carol	Rippon, Rt Hon Geoffrey	Whitelaw, Rt Hon William
Maude, Angus	Roberts, Wyn (Conway)	Whitney, Raymond (Wycombe)
Maudling, Rt Hon Reginald	Rodgers, Sir John (Sevenoaks)	Wiggin, Jerry
Mawby, Ray	Ross, Stephen (Isle of Wight)	Winterton, Nicholas
Maxwell-Hyslop, Robin	Ross, William (Londonderry)	Wood, Rt Hon Richard
Mayhew, Patrick	Rossi, Hugh (Hornsey)	Young, Sir G. (Ealing, Acton)
Meyer, Sir Anthony	Royle, Sir Anthony	Younger, Hon George
Miller, Hal (Bromsgrove)	Sainsbury, Tim
Mills, Peter	St. John-Stevas, Norman	TELLERS FOR THE AYES:
Miscampbell, Norman	Scott, Nicholas	Mr. Spencer Le Marchant and
Mitchell, David (Basingstoke)	Shaw, Giles (Pudsey)	Mr. Michael Roberts.
NOES
Abse, Leo	Buchanan, Richard	Davies, Bryan (Enfield N)
Allaun, Frank	Callaghan, Rt Hon J. (Cardiff SE)	Davies, Rt Hon Denzil
Anderson, Donald	Callaghan, Jim (Middleton & P)	Davies, Ifor (Gower)
Archer, Rt Hon Peter	Campbell, Ian	Davis, Clinton (Hackney C)
Armstrong, Ernest	Canavan, Dennis	Deakins, Eric
Ashley, Jack	Cant, R. B.	Dean, Joseph (Leeds West)
Ashton, Joe	Carmichael, Neil	Dell, Rt Hon Edmund
Atkinson, Norman	Carter, Ray	Dempsey, James
Bagier, Gordon A. T.	Carter-Jones, Lewis	Dewar, Donald
Bain, Mrs Margaret	Cartwright, John	Doig, Peter
Barnett, Guy (Greenwich)	Castle, Rt Hon Barbara	Dormand, J. D.
Barnett, Rt Hon Joel (Heywood)	Clemitson, Ivor	Douglas-Mann, Bruce
Bates, Alf	Cocks, Rt Hon Michael (Bristol S)	Duffy, A. E. P.
Bean, R. E.	Cohen, Stanley	Dunn, James A.
Benn, Rt Hon Anthony Wedgwood	Coleman, Donald	Dunnett, Jack
Bennett, Andrew (Stockport N)	Colquhoun, Ms Maureen	Eadie, Alx
Bidwell, Sydney	Concannon, Rt Hon John	Edge, Geoff
Bishop, Rt Hon Edward	Conlan, Bernard	Ellis, John (Brigg & Scun)
Blenkinsop, Arthur	Cook, Robin F. (Edin C)	English, Michael
Boardman, H.	Corbett, Robin	Ennals, Rt Hon David
Booth, Rt Hon Albert	Cowans, Harry	Evans, Gwynfor (Carmarthen)
Boothroyd, Miss Betty	Cox, Thomas (Tooting)	Evans, Ioan (Aberdare)
Bottomley, Rt Hon Arthur	Craigen, Jim (Maryhill)	Evans, John (Newton)
Boyden, James (Bish Auck)	Crawford, Douglas	Faulds, Andrew
Bradley, Tom	Crawshaw, Richard	Fernyhough, Rt Hon E.
Bray, Dr Jeremy	Crowther, Stan (Rotherham)	Flannery, Martin
Brown, Hugh D. Provan)	Cryer, Bob	Fletcher, Ted (Darlington)
Brown, Robert C. (Newcastle W)	Cunningham, Dr J. (Whiteh)	Foot, Rt Hon Michael
Buchan, Norman	Davidson, Arthur	Ford, Ben

Forrester, John	MacCormick, Iain	Sever, John
Fowler, Gerald (The Wrekin)	McDonald, Dr Oonagh	Shaw, Arnold (Ilford South)
Fraser, John (Lambeth, N'w'd)	McElhone, Frank	Sheldon, Rt Hon Robert
Freeson, Rt Hon Reginald	McGuire, Michael (Ince)	Shore, Rt Hon Peter
Garrett, John (Norwich S)	MacKenzie, Rt Hon Gregor	Short, Mrs Renée (Wolv NE)
Garrett, W. E. (Wallsend)	Maclennan, Robert	Silkin, Rt Hon S. C. (Dulwich)
George, Bruce	McMillan, Tom (Glasgow C)	Silverman, Julius
Gilbert, Rt Hon Dr John	McNamara, Kevin	Skinner, Dennis
Ginsburg, David	Madden, Max	Smith, John (N Lanarkshire)
Golding, John	Magee, Bryan	Snape, Peter
Gould, Bryan	Mahon, Simon	Spearing, Nigel
Gourlay, Harry	Mallalieu, J. P. W.	Spriggs, Leslie
Graham, Ted	Marks, Kenneth	Stallard, A. W.
Grant, George (Morpeth)	Marshall, Dr Edmund (Goole)	Stewart, Rt Hon Donald
Grant, John (Islington C)	Marshall, Jim (Leicester S)	Stewart, Rt Hon M. (Fulham)
Grocott, Bruce	Mason, Rt Hon Roy	Stoddart, David
Hamilton, W. W. (Central Fife)	Meacher, Michael	Stott, Roger
Hardy, Peter	Mellish, Rt Hon Robert	Strauss, Rt Hon G. R.
Harrison, Rt Hon Walter	Mendelson, John	Summerskill, Hon Dr Shirley
Hart, Rt Hon Judith	Mikardo, Ian	Swain, Thomas
Hattersley, Rt Hon Roy	Millan, Rt Hon Bruce	Taylor, Mrs Ann (Bolton W)
Hayman, Mrs Helene	Miller, Dr M. S. (E Kilbride)	Thomas, Dafydd (Merioneth)
Healey, Rt Hon Denis	Mitchell, Austin	Thomas, Jeffrey (Abertillery)
Heffer, Eric S.	Molloy, William	Thomas, Mike (Newcastle E)
Henderson, Douglas	Moonman, Eric	Thomas, Ron (Bristol NW)
Hooley, Frank	Morris, Alfred (Wythenshawe)	Thompson, George
Horam, John	Morris, Rt Hon Charles R.	Thorne, Stan (Preston S)
Howell, Rt Hon Denis (B'ham, Sm H)	Morris, Rt Hon J. (Aberavon)	Tierney, Sydney
Hoyle, Doug (Nelson)	Moyle, Roland	Tilley, John (Lambeth, Central)
Huckfield, Les	Mulley, Rt Hon Frederick	Tinn, James
Hughes, Rt Hon C. (Anglesey)	Murray, Rt Hon Ronald King	Tomlinson, John
Hughes, Robert (Aberdeen N)	Newens, Stanley	Tomney, Frank
Hughes, Roy (Newport)	Noble, Mike	Torney, Tom
Hunter, Adam	Oakes, Gordon	Tuck, Raphael
Irving, Rt Hon S. (Dartford)	Ogden, Eric	Urwin, T. W.
Jackson, Colin (Brighouse)	O'Halloran, Michael	Varley, Rt Hon Eric G.
Jackson, Miss Margaret (Lincoln)	Orbach, Maurice	Wainwright, Edwin (Dearne V)
Janner, Greville	Orme, Rt Hon Stanley	Walker, Harold (Doncaster)
Jay, Rt Hon Douglas	Ovenden, John	Walker, Terry (Kingswood)
Jeger, Mrs Lena	Owen, Rt Hon Dr David	Ward, Michael
Jenkins, Hugh (Putney)	Park, George	Watkins, David
John, Brynmor	Parker, John	Watkinson, John
Johnson, James (Hull West)	Parry, Robert	Watt, Hamish
Jones, Alec (Rhondda)	Pavitt, Laurie	Weitzman, David
Jones, Barry (East Flint)	Pendry, Tom	Wellbeloved, James
Judd, Frank	Perry, Ernest	Welsh, Andrew
Kaufman, Gerald	Phipps, Dr Colin	White, Frank R. (Bury)
Kerr, Russell	Price, C. (Lewisham W)	White, James (Pollock)
Kilroy-Silk, Robert	Price, William (Rugby)	Whitehead, Philip
Kinnock, Neil	Radice, Giles	Whitlock, William
Lambie, David	Rees, Rt Hon Merlyn (Leeds S)	Wigley, Dafydd
Lamborn, Harry	Reid, George	Willey, Rt Hon Frederick
Lamond, James	Richardson, Miss Jo	Willams, Rt Hon Alan (Swansea W)
Latham, Arthur (Paddington)	Roberts, Albert (Normanton)	Williams, Alan Lee (Hornch'ch)
Lee, John	Roberts, Gwilym (Cannock)	Williams, Rt Hon Shirley (Hertford)
Lestor, Miss Joan (Eton & Slough)	Robinson, Geoffrey	Wilson, Gordon (Dundee E)
Lever, Rt Hon Harold	Roderick, Caerwyn	Wilson, Rt Hon Sir Harold (Huyton)
Lewis, Arthur (Newham N)	Rodgers, George (Chorley)	Wilson, William (Coventry SE)
Lewis, Ron (Carlisle)	Rodgers, Rt Hon William (Stockton)	Wise, Mrs Audrey
Litterick, Tom	Rooker, J. W.	Woodall, Alec
Lomas, Kenneth	Roper, John	Woof, Robert
Loyden, Eddie	Ross, Rt Hon W. (Kilmarnock)	Wrigglesworth, Ian
Luard, Evan	Rowlands, Ted	Young, David (Bolton E)
Lyon, Alexander (York)	Ryman, John
Lyons, Edward (Bradford W)	Sandelson, Neville	TELLERS FOR THE NOES:
Mabon, Rt Hon Dr J. Dickson	Sedgemore, Brian	Mr. Joseph Harper and
McCartney, Hugh	Selby, Harry	Mr. James Hamilton.

Question accordingly negatived.

Sir G. Howe

On a point of order, Sir Meyer. The Committee will recollect that we voted earlier on Amendment No. 7, the first of the group of amendments dealing with the starting point of the higher rate bands of income tax. In that vote, the Committee decided to replace the figure of £7,000 by £8,000. We have just voted on Amendment No. 20, which was designed to replace the table setting out those rates and starting at £8,000. We have not been able to carry that amendment. [HON. MEMBERS: "Resign."] We are not the Government yet, though it will not be long before we are.

It follows that we ought to have an opportunity of carrying an amendment that I think should be consequential—if, indeed, it is necessary at all—to change the title of the table from Part of excess over £7,000 so that it reads: Part of excess over £8,000". It is not entirely clear whether an amendment is necessary for that purpose or not. I think that it follows from Amendment No. 7 which was carried. In order to set that matter beyond doubt, if it is necessary to do so, I have here a manuscript amendment, in Clause 11, page 10, line 29, leave out '£7,000' and insert '£8,000'.

The effect of the amendment is simply to carry into the second part of the clause the principle in favour of which the Committee has voted. If it is necessary, and so that we may vote on it now, I table it at once.

Mr. Joel Barnett

Further to that point of order, Sir Myer. It is remarkable that the right hon. and learned Gentleman should be asking the Committee to vote on an amendment which none of us has seen. He is not sure that it is necessary or that the drafting is right. He is not sure that it is needed. In those circumstances, I should have thought it would be much better to report Progress and see the manuscript amendment in print in good time for when we come back to the Committee on Tuesday.

I beg to move, That the Chairman do report Progress and ask leave to sit again.

12 midnight.

Sir G. Howe

In any normal Parliament, and in a situation where we were not faced with a Government struggling to hang on to power by any means open to them, this amendment would have been consequential and therefore accepted without hesitation or demur by the Chancellor. On that basis it should be accepted and voted upon, if necessary. It follows as a consequence of the vote that took place earlier when the Committee decided the principle.

Mr. Joel Barnett

The right hon. and learned Gentleman has created a shambles. It is absurd that the Committee should be expected to vote on an amendment that it has not even seen.

The First Deputy Chairman

The Chair has a very distinctive duty in the situation that has arisen. The manuscript amendment is consequential on a decision already reached by the Committee. In these circumstances it is the duty of the Chair to select the manuscript amendment. Similarly, I am prepared to accept the motion to report Progress.

Mr. Lawson

rose—

Hon. Members

Sit down, sit down.

The First Deputy Chairman

Order. I am sure that not all hon. Members are Liverpool supporters. The motion is debatable—I have no option.

Mr. Lawson

I am grateful for your ruling, Sir Myer. It is a disgrace that the motion should have been put in the first place. The Chancellor and his hon. Friends knew perfectly well that our amendment was consequential on the decision already taken by the Committee.

The Minister of State, Treasury, opposing the amendment, gave as the cost of the amendment an amount which related to the consequential amendment as well. However, later the Chancellor of the Exchequer thought that cheating was the only way out of the corner in which he found himself. He thought that he had to be a trickster and in this way he is trying to wriggle out of the jam in which he finds himself—[Interruption.]

The First Deputy Chairman

Order. There is far too much noise, and during the course of the noise some unparliamentary language was used. I must call upon the hon. Member for Blaby (Mr. Lawson) to withdraw the words "cheat" and "trickster".

Mr. Lawson

If I may quote the hon. Member for—

Hon. Members

Withdraw.

The First Deputy Chairman

I must ask the hon. Member for Blaby to withdraw the terms.

Mr. Lawson

I was quoting the hon. Member for Penistone (Mr. Mendelson), who used the term "trickster" earlier in the day.

Hon. Members

Withdraw.

The First Deputy Chairman

Order. Let us end the proceedings on a peaceful note. I have acted strictly according to the duties of the Chair. A manuscript amendment has been presented and I have selected it. Similarly, the motion to report Progress is equally in order. The hon. Member for Blaby has used certain unparliamentary terms and I must call upon him to withdraw them.

Hon. Members

Withdraw.

Mr Lawson

May I ask you, Sir Myer, why the hon. Member for Penistone was able to use these terms much earlier in the debate but I am not permitted to do so?

The First Deputy Chairman

I was not in the Chair when that incident occurred, but I know the arguments which arose as to whether it was applied to an hon. Member or to a group of people. The hon. Member for Penistone (Mr. Mendelson) insisted that it was not applied to an hon. Member, and in that respect it was not withdrawn and was not unparliamentary. The hon. Member for Blaby (Mr. Lawson) has made a definite accusation against a member of the Government Front Bench. I must ask him to withdraw it, and I hope that he will do so.

Mr. Lawson

I will withdraw, in the same terms as the hon. Member for Penistone used: it was applied not to an individual Member but to a group.

The First Deputy Chairman

I appeal to the hon. Gentleman to withdraw the accusation that he hurled at the Chancellor, of being a cheat and a trickster, and I hope he will do so.

Mr. Lawson

As I said, I will withdraw it in the same way as the hon. Member for Penistone withdrew, and say that it was not applied to any individual Member.

It would be disgraceful for the Committee to report Progress now. This debate must be brought to a conclusion. It has been agreed that it should go to a conclusion and that is what should be done.

Question put, That the Chairman do report Progress and ask leave to sit again:—

The Committee divided: Ayes 273, Noes 280.

Division No. 206]	AYES	[12.06 a.m.
Abse, Leo	Colquhoun, Ms Maureen	Forrester, John
Allaun, Frank	Concannon, Rt Hon John	Fowler, Gerald (The Wrekin)
Anderson, Donald	Conlan, Bernard	Fraser, John (Lambeth, N'w'd)
Archer, Rt Hon Peter	Cook, Robin F. (Edin C)	Freeson, Rt Hon Reginald
Armstrong, Ernest	Corbett, Robin	Garrett, John (Norwich S)
Ashley, Jack	Cowans, Harry	Garrett, W. E. (Wallsend)
Ashton, Joe	Cox, Thomas (Tooting)	George, Bruce
Atkinson, Norman	Craigen, Jim (Maryhill)	Gilbert, Rt Hon Dr John
Bagier, Gordon A. T.	Crawshaw, Richard	Ginsburg, David
Barnett, Guy (Greenwich)	Crowther, Stan (Rotherham)	Golding, John
Barnett, Rt Hon Joel (Heywood)	Cryer, Bob	Gould, Bryan
Bates, Alf	Cunningham, Dr J. (Whiteh)	Gourlay, Harry
Bean, R. E.	Davidson, Arthur	Graham, Ted
Benn, Rt Hon Anthony Wedgwood	Davies, Bryan (Enfield N)	Grant, George (Morpeth)
Bennett, Andrew (Stockport N)	Davies, Rt Hon Denzil	Grant, John (Islington C)
Bidwell, Sydney	Davies, Ifor (Gower)	Grocott, Bruce
Bishop, Rt Hon Edward	Davis, Clinton (Hackney C)	Hamilton, W. W. (Central Fife)
Blenkinsop, Arthur	Deakins, Eric	Hardy, Peter
Boardman, H.	Dean, Joseph (Leeds West)	Harper, Joseph
Booth, Rt Hon Albert	Dell, Rt Hon Edmund	Harrison, Rt Hon Walter
Boothroyd, Miss Betty	Dempsey, James	Hart, Rt Hon Judith
Bottomley, Rt Hon Arthur	Dewar, Donald	Hattersley, Rt Hon Roy
Boyden, James (Bish Auck)	Doig, Peter	Hayman, Mrs Helene
Bradley, Tom	Dormand, J. D.	Healey, Rt Hon Denis
Bray, Dr Jeremy	Douglas-Mann, Bruce	Heffer, Eric S.
Brown, Hugh D. Provan)	Duffy, A. E. P.	Hooley, Frank
Brown, Robert C. (Newcastle W)	Dunn, James A.	Horam, John
Buchan, Norman	Dunnett, Jack	Howell, Rt Hon Denis (B'ham, Sm H)
Buchanan, Richard	Eadie, Alex	Hoyle, Doug (Nelson)
Callaghan, Rt Hon J. (Cardiff SE)	Edge, Geoff	Huckfield, Les
Callaghan, Jim (Middleton & P)	Ellis, John (Brigg & Scun)	Hughes, Rt Hon C. (Anglesey)
Campbell, Ian	English, Michael	Hughes, Robert (Aberdeen N)
Canavan, Dennis	Ennals, Rt Hon David	Hughes, Roy (Newport)
Cant, R. B.	Evans, Gwynfor (Carmarthen)	Hunter, Adam
Carmichael, Neil	Evans, Ioan (Aberdare)	Irving, Rt Hon S. (Dartford)
Carter, Ray	Evans, John (Newton)	Jackson, Colin (Brighouse)
Carter-Jones, Lewis	Ewing, Harry (Stirling)	Jackson, Miss Margaret (Lincoln)
Cartwright, John	Faulds, Andrew	Janner, Greville
Castle, Rt Hon Barbara	Fernyhough, Rt Hon E.	Jay, Rt Hon Douglas
Clemitson, Ivor	Flannery, Martin	Jeger, Mrs Lena
Cocks, Rt Hon Michael (Bristol S)	Fletcher, Ted (Darlington)	Jenkins, Hugh (Putney)
Cohen, Stanley	Foot, Rt Hon Michael	John, Brynmor
Coleman, Donald	Ford, Ben	Johnson, James (Hull West)
Jones, Alec (Rhondda)	Moyle, Roland	Stewart, Rt Hon M. (Fulham)
Jones, Barry (East Flint)	Mulley, Rt Hon Frederick	Stoddart, David
Judd, Frank	Murray, Rt Hon Ronald King	Stott, Roger
Kaufman, Gerald	Newens, Stanley	Strauss, Rt Hon G. R.
Kerr, Russell	Noble, Mike	Summerskill, Hon Dr Shirley
Kilroy-Silk, Robert	Oakes, Gordon	Swain, Thomas
Kinnock, Neil	Ogden, Eric	Taylor, Mrs Ann (Bolton W)
Lambie, David	O'Halloran, Michael	Thomas, Dafydd (Merioneth)
Lamborn, Harry	Orbach, Maurice	Thomas, Jeffrey (Abertillery)
Lamond, James	Orme, Rt Hon Stanley	Thomas, Mike (Newcastle E)
Latham, Arthur (Paddington)	Ovenden, John	Thomas, Ron (Bristol NW)
Lee, John	Owen, Rt Hon Dr David	Thorne, Stan (Preston S)
Lestor, Miss Joan (Eton & Slough)	Park, George	Tierney, Sydney
Lever, Rt Hon Harold	Parker, John	Tilley, John (Lambeth, Central)
Lewis, Ron (Carlisle)	Parry, Robert	Tinn, James
Litterick, Tom	Pavitt, Laurie	Tomlinson, John
Lomas, Kenneth	Pendry, Tom	Tomney, Frank
Loyden, Eddie	Perry, Ernest	Torney, Tom
Luard, Evan	Phipps, Dr Colin	Tuck, Raphael
Lyon, Alexander (York)	Price, C. (Lewisham W)	Urwin, T. W.
Lyons, Edward (Bradford W)	Price, William (Rugby)	Varley, Rt Hon Eric G.
Mabon, Rt Kon Dr J. Dickson	Radice, Giles	Wainwright, Edwin (Dearne V)
McCartney, Hugh	Rees, Rt Hon Merlyn (Leeds S)	Walker, Harold (Doncaster)
McDonald, Dr Oonagh	Richardson, Miss Jo	Walker, Terry (Kingswood)
McElhone, Frank	Roberts, Albert (Normanton)	Ward, Michael
McGuire, Michael (Ince)	Roberts, Gwilym (Cannock)	Watkins, David
MacKenzie, Rt Hon Gregor	Robinson, Geoffrey	Watkinson, John
Maclennan, Robert	Roderick, Caerwyn	Weitzman, David
McMillan, Tom (Glasgow C)	Rodgers, George (Chorley)	Wellbeloved, James
McNamara, Kevin	Rodgers, Rt Hon William (Stockton)	White, Frank R. (Bury)
Madden, Max	Rooker, J. W.	White, James (Pollock)
Magee, Bryan	Roper, John	Whitehead, Philip
Mahon, Simon	Ross, Rt Hon w. (Kilmarnock)	Whitlock, William
Mallalieu, J. P. W.	Rowlands, Ted	Wigley, Dafydd
Marks, Kenneth	Ryman, John	Willey, Rt Hon Frederick
Marshall, Dr Edmund (Goole)	Sandelson, Neville	Willams, Rt Hon Alan (Swansea W)
Marshall, Jim (Leicester S)	Sedgemore, Brian	Williams, Alan Lee (Hornch'ch)
Mason, Rt Hon Roy	Selby, Harry	Williams, Rt Hon Shirley (Hertford)
Meacher, Michael	Sever, John	Wilson, Rt Hon Sir Harold (Huyton)
Mellish, Rt Hon Robert	Shaw, Arnold (Ilford South)	Wilson, William (Coventry SE)
Mendelson, John	Sheldon, Rt Hon Robert	Wise, Mrs Audrey
Mikardo, Ian	Shore, Rt Hon Peter	Woodall, Alec
Millan, Rt Hon Bruce	Short, Mrs Renée (Wolv NE)	Woof, Robert
Miller, Dr M. S. (E Kilbride)	Silkin, Rt Hon S. C. (Dulwich)	Wrigglesworth, Ian
Mitchell, Austin	Silverman, Julius	Young, David (Bolton E)
Molloy, William	Skinner, Dennis
Moonman, Eric	Smith, John (N Lanarkshire)	TELLERS FOR THE AYES:
Morris, Alfred (Wythenshawe)	Spearing, Nigel	Mr. Peter Snape and
Morris, Rt Hon Charles R.	Spriggs, Leslie	Mr. James Hamilton.
Morris, Rt Hon J. (Aberavon)	Stallard, A. W.
NOES
Adley Robert	Bulmer, Esmond	Eyre, Reginald
Aitken, Jonathan	Burden, F. A.	Fairbairn, Nicholas
Alison, Michael	Butler, Adam (Bosworth)	Farr, John
Arnold, Tom	Carlisle, Mark	Fell, Anthony
Atkins, Rt Hon H. (Spelthorne)	Chalker, Mrs Lynda	Finsberg, Geoffrey
Atkinson, David (Bournemouth, East)	Channon, Paul	Fisher, sir Nigel
Awdry, Daniel	Churchill, W. S.	Fookes, Miss Janet
Bain, Mrs Margaret	Clark, Alan (Plymouth, Sutton)	Forman, Nigel
Baker, Kenneth	Clark, William (Croydon S)	Fowler, Norman (Sutton C'f'd)
Banks, Robert	Clarke, Kenneth (Rushcliffe)	Fox, Marcus
Beith, A. J.	Clegg, Walter	Fraser, Rt Hon H. (Stafford & St)
Bell, Ronald	Cockcroft, John	Freud, Clement
Bendall, Vivian (Ilford North)	Cooke, Robert (Bristol W)	Fry, Peter
Bennett, Sir Frederic (Torbay)	Cope, John	Galbraith, Hon T. G. D.
Benyon, W.	Cormack, Patrick	Gardiner, George (Reigate)
Berry, Hon Anthony	Costain, A. P.	Gardiner, Edwards (S Fylde)
Biffen, John	Crawford, Douglas	Gilmour, Rt Hon Ian (Chesham)
Biggs-Davidson, John	Critchley, Julian	Gilmour, Sir John (East Fife)
Blaker, Peter	Crouch, David	Glyn, Dr Alan
Body, Richard	Crowder F. P.	Godber, Rt Hon Joseph
Boscawen, Hon Robert	Davies, Rt Hon J. (Knutsford)	Goodhart, Philip
Bottomley, Peter	Dean, Paul (N Somerset)	Goodlad, Alastair
Bowden, A. (Brighton, Kemptown)	Dodsworth, Geoffrey	Gorst, John
Boyson, Dr Rhodes (Brent)	Douglas-Hamilton, Lord James	Gow, Ian (Eastbourne)
Braine, Sir Bernard	Drayson, Burnaby	Gower, Sir Raymond (Barry)
Brittan, Leon	du Cann, Rt Hon Edward	Grant, Anthony (Harrow C)
Brocklebank-Fowler, C.	Dunlop, John	Gray, Hamish
Brooke, Peter	Durant, Tony	Griffiths, Eldon
Brotherton, Michael	Dykes, Hugh	Grimond, Rt Hon J.
Bryan, Sir Paul	Eden, Rt Hon Sir John	Grist, Ian
Buchanan-Smith, Alick	Edwards, Nicholas (Pembroke)	Grylls, Michael
Buck, Antony	Elliott, Sir William	Hall-Davis, A. G. F.
Budgen, Nick	Emery, Peter	Hamilton, Archibald (Epsom & Ewell)

Hamilton, Michael (Salisbury)	Marten, Neil	St. John-Stevas, Norman
Hampson, Dr Keith	Mates, Michael	Scott, Nicholas
Hannam, John	Mather, Carol	Shaw, Giles (Pudsey)
Harrison, Col Sir Harwood (Eye)	Maude, Angus	Shelton, William (Streatham)
Harvie Anderson, Rt Hon Miss	Maudling, Rt Hon Reginald	Shepherd, Colin
Haselhurst, Alan	Mawby, Ray	Shersby, Michael
Hastings, Stephen	Maxwell-Hyslop, Robin	Silvester, Fred
Hayers, Rt Hon Sir Michael	Mayhew, Patrick	Sims, Roger
Hawkins, Paul	Meyer, Sir Anthony	Sinclair, Sir George
Hayhoe, Barney	Miller, Hal (Bromsgrove)	Skeet, T. H. H.
Henderson, Douglas	Mills, Peter	Smith, Cyril (Rochdale)
Heseltine, Michael	Miscampbell, Norman	Smith, Dudley (Warwick)
Hicks, Robert	Mitchell, David (Basingstoke)	Smith, Timothy John (Ashfield)
Higgins, Terence L.	Moate, Roger	Speed, Keith
Hodgson, Robin	Monro, Hector	Spence, John
Holland, Philip	Montgomery, Fergus	Spicer, Michael (S Worcester)
Hooson, Emlyn	Moore, John (Croydon C)	Sproat, Iain
Hordern, Peter	More, Jasper (Ludlow)	Stainton, Keith
Howe, Rt Hon Sir Geoffrey	Morgan, Geraint	Stanbrook, Ivor
Howell, David (Guildford)	Morris, Michael (Northampton S)	Stanley, John
Howells, Geraint (Cardigan)	Morrison, Charles (Devizes)	Steel, Rt Hon David
Hunt, David (Wirral)	Morrison, Hon Peter (Chester)	Steen, Anthony (Wavertree)
Hunt, John (Ravensbourne)	Mudd, David	Stewart, Rt Hon Donald
Hurd, Douglas	Neave, Airey	Stewart, Ian (Hitchin)
Hutchison, Michael Clark	Neubert, Michael	Stokes, John
Irving, Charles (Cheltenham)	Newton, Tony	Stradling Thomas, J.
James, David	Nott, John	Tapsell, Peter
Jenkin, Rt Hon P. (Wanst'd & W'df'd)	Onslow, Cranley	Taylor, R. (Croydon NW)
Jessel, Toby	Oppenheim, Mrs Sally	Tebbit, Norman
Johnson Smith, G. (E Grinstead)	Page, John (Harrow West)	Temple-Morris, Peter
Johnston, Russell (Inverness)	Page, Rt Hon R. Graham (Crosby)	Thatcher, Rt Hon Margaret
Jones, Arthur (Daventry)	Page, Richard (Workington)	Thomas, Rt Hon P. (Hendon S)
Jopling, Michael	Paisley, Rev Ian	Thompson, George
Joseph, Rt Hon Sir Keith	Pardoe, John	Thorpe, Rt Hon Jeremy (N Devon)
Kaberry, Sir Donald	Parkinson, Cecil	Townsend, Cyril D.
Kershaw, Anthony	Pattie, Geoffrey	Trotter, Neville
Kimball, Marcus	Penhaligon, David	van Straubenzee, W. R.
King, Evelyn (South Dorset)	Percival, Ian	Vaughan, Dr Gerard
King, Tom (Bridgwater)	Peyton, Rt Hon John	Viggers, Peter
Kitson, Sir Timothy	Pink, R. Bonner	Wainwright, Richard (Colne V)
Knight, Mrs Jill	Prentice, Rt Hon Reg	Wakeham, John
Knox, David	Price, David (Eastleigh)	Walder, David (Clitheroe)
Lamont, Norman	Prior, Rt Hon James	Walker, Rt Hon P. (Worcester)
Langford-Holt, Sir John	Pym, Rt Hon Francis	Wall, Patrick
Latham, Michael (Melton)	Raison, Timothy	Walters, Dennis
Lawrence, Ivan	Rathbone, Tim	Warren, Kenneth
Lawson, Nigel	Rees, Peter (Dover & Deal)	Watt, Hamish
Lester, Jim (Beeston)	Rees-Davies, W. R.	Weatherill, Bernard
Lewis, Kenneth (Rutland)	Reld George	Wells, John
Loveridge, John	Renton, Rt Hon Sir D. (Hunts)	Welsh, Andrew
Luce, Richard	Renton, Tim (Mid-Sussex)	Whitelaw, Rt Hon William
McAdden, Sir Stephen	Rhodes, James R.	Whitney, Raymond (Wycombe)
MacCormick, Iain	Ridley, Hon Nicholas	Wiggin, Jerry
McCrindle, Robert	Ridsdale, Julian	Wilson, Gordon (Dundee E)
Macfarlane, Neil	Rifkind, Malcolm	Winterton, Nicholas
MacGregor, John	Rippon, Rt Hon Geoffrey	Wood, Rt Hon Richard
MacKay, Andrew (Stechford)	Roberts, Wyn (Conway)	Young, Sir G. (Ealing, Acton)
Macmillan, Rt Hon M. (Farnham)	Rodgers, Sir John (Sevenoaks)	Younger, Hon George
McNair-Wilson, M. (Newbury)	Ross, Stephen (Isle of Wight)
McNair-Wilson, P. (New Forest)	Rossi, Hugh (Hornsey)	TELLERS FOR THE NOES:
Madel, David	Royle, Sir Anthony	Mr. Spencer Le Marchant and
Marshall, Michael (Arundel)	Sainsbury, Tim	Mr. Michael Roberts.

Question accordingly negatived.

Sir G. Howe

I beg to move, in accordance with the wish of the Committee, the consequential amendment, in page 10, line 29, to leave out '£7,000' and insert '£8,000'.

Amendment agreed to.

Clause 11, as amended, ordered to stand part of the Bill.

To report Progress and ask leave to sit again.—[Mr. Frank R. White.]

Committee report Progress; to sit again this day.